Fairness in Retail Energy Markets? Evidence from the UK

A report by the Centre for Competition Policy Centre for Competition Policy University of East Anglia Norwich Research Park Norwich, Norfolk NR4 7TJ competitionpolicy.ac.uk

First published 2018

Edited by David Deller and Catherine Waddams Price with: Elizabeth Errington, Amelia Fletcher, Tom Hargreaves, Michael Harker, Noel Longhurst, David Reader and Glen Turner

The authors have asserted their right to be identified as authors of this work in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. Except where permitted by law no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form of by any means, electronic, mechanical, photocopying, recording or otherwise, without our due acknowledgement.

Design: Naked Marketing (nakedmarketing.co.uk) Fairness in Retail Energy Markets? Evidence from the UK

Edited by David Deller and Catherine Waddams Price with: Elizabeth Errington, Amelia Fletcher, Tom Hargreaves, Michael Harker, Noel Longhurst, David Reader and Glen Turner 4 Foreword Dermot Nolan, CEO, Ofgem

The concept of fairness is now commonly used with regard to energy. As UK energy prices have risen over the last 10 years, public concern over the impact of this has also risen. Politicians, regulators and companies emphasise that prices must be fair, that there must be fair competition between different technologies, or that they must receive a fair hearing. In Ofgem’s recent proposal for a cap on retail energy prices, we argued that the cap would ensure that customers would pay a fair price for their energy. Parliamentarians have been clear that they think it unfair that some consumers should pay significantly more than others for the essential service of energy purely because they are unable or unwilling to shop around for cheaper deals.

The idea of fairness is not confined to retail markets. Energy network companies have come under pressure because of perceived unfair returns – with the claim that companies are making high returns without providing sufficient benefits to consumers. In our work on charging for energy networks, we have made fairness one of the core principles against which we will judge different options, in particular to ensure that apparently efficient choices do not unintentionally harm the most vulnerable members of society. Wider societal concerns about fairness also make an appearance in energy – are companies paying their fair share of taxes, are energy consumers paying a fair share of the costs of decarbonising the economy?

However, while the term fairness is much used in debates, its precise meaning is often ambiguous. Indeed, this very ambiguity can make it useful as a debating tool, with both sides claiming that their position is the only one that best achieves fair outcomes (correctly conceived). It is in this context that the Centre for Competition Policy’s work on fairness in energy markets is particularly important and timely.

The authors do not aim to provide particular solutions to fairness questions, but rather to suggest a change in emphasis in, for instance, how we should think about fuel poverty. Nonetheless, there is clear read-across to some of the issues that government, politicians and regulators are trying to tackle. Ofgem thinks that our work on vulnerable consumers has made significant progress in defining and understanding vulnerability, and beginning to tackle the problems that consumers face. But there is clearly further to go, particularly in ensuring that vulnerable consumers are able to benefit from the exciting technological opportunities we see in a rapidly changing energy sector.

The authors also make useful points about the need for further evidence and research on these questions. Ofgem is trying to meet this challenge, for instance through our data services and research hub projects, which aim to increase the availability of data about energy market developments, and to enhance our understanding of how consumers actually interact with the energy system. But we cannot do so alone, and look forward to working further with government, companies and academia in building a shared understanding of fairness questions – with the hope that the concept of fairness may increasingly become a valuable guide to action, rather than a rhetorical weapon. Foreword to helpachievethis. community groups andotherlocal intermediaries whohavetheknowledgeandlevelsoftrust target householdsinneedof assistancemore effectively. Thissuggestsamuchgreater role for definitions offuelpoverty, andemphasisestheneedformore work‘ontheground’ tohelp (in recent years)higherenergyprices.Thereport’s analysisidentifiesproblems withstandard many householdsstrugglingtopaytheirbillsduelow incomes,poorhousingstandards and that weare alongwayfrom solving.Ratesoffuelpovertyremain disturbinglyhigh, withtoo Second, thereport conductssomethoughtfulanalysisoffuelpoverty –anenduringchallenge sharp contrasttotheoriginalvisionforprivatisationand liberalisationoftheenergysector. For studentsofpoliticaleconomy, noneofthisshouldbesurprising.But,onceagain,isin hassoughttoinfluencethe the lessformalwaysinwhichgovernment regulator’s priorities. has becomeincreasingly complexanddiverse.Thisalsogets behind thescenes,highlighting relationship andtheregulator betweengovernment –andshowsthatguidancetotheregulator markets. Two dimensionsstand out inparticular. First,thereport discussestheevolutionof The report provides detailedanalysistheUK’s pioneering experimentwithliberalisedenergy dated theintroduction ofcompetitionforhouseholdconsumersbyseveralyears. those onhigherincomeshavealsowidened.Furthermore, thesteepdeclinein1990spre- an increase inthesecondhalfof2000s.Disparitiesbetweenlowincomeconsumersand past. However, more recent trends haveincludedasteepdeclineinthe1990sfollowedby useful context.Thisshowsthathouseholdshavespentmore oftheirincomeonenergyinthe The dataonlongtermstrends intheshare ofhouseholdincomespentonenergyprovide key objectivesofenergypolicy. change. Thisessentialresearch strengthens UKERC’s abilitytoconsiderequityalongsideother (UKERC) research programme, andoneofseveralontheequityimplicationsenergysystem carbon, secure energysystem.Thisisakeyoutputfrom theUKEnergyResearch Centre makers andregulators whoneedtoprotect consumerswhilstdrivingthetransitiontoalow presents newdata,evidenceandanalysiswhichwill,wehope,beofsignificantvalueforpolicy This report istimely, placingthese recent debatesandpolicy interventionsincontext.It a result. argued thattheneedforregulation andotherformsofinterventionwouldinevitablydeclineas competition wastheprimarymechanismforensuringconsumersgotagooddeal.They electricity andgasmarketswere liberalisedinthe1990s.Formanysupportersofliberalisation, price capformostdomesticconsumers.Thisisalongwayfrom thevisionputforward when Competition andMarketsAuthority, areview ofthecostsenergyandimpositiona increasing politicalattention.Thishasledtomajorinquiryintotheretail energymarketbythe goals –particularlyreducing carbonemissions–householdenergybillshaveattracted haveemphasisedaffordabilitygovernments needstobeconsidered alongsideotherpolicy In recent yearstheaffordability ofenergyhascomebackontotheagenda.Whilstsuccessive Jim Watson, UKERCDirector Foreword

Fairness in Retail Energy Markets? Evidence from the UK 5

List ofAbbreviations APPENDIX 2 Methodological Appendix APPENDIX 1 Improving DataandMeasurement toOptimiseDecisionMaking CHAPTER 6 Survey DataandtheLivedExperience Fuel Poverty:CharacterisingaComplexProblem from CHAPTER 5 Engagement withEnergyPurchases hasManyFacets CHAPTER 4 Institutions andPolicymaking:ATale ofIncreasing Complexity CHAPTER 3 A Long-Term ofEnergyAffordability View anditsPoliticalSalience CHAPTER 2 Introduction: inRetailEnergyMarkets? Fairness CHAPTER 1 The UKEnergyResearch Centre The Centre forCompetitionPolicy Editors andContributors Contents 90 86 72 58 46 32 18 12 11 10 8

Fairness in Retail Energy Markets? Evidence from the UK 7 8 Editors and Contributors Network expertadvisorycommitteeandofOfgem’s [email protected] and from 2013hasbeenanon-executivedirector ofOfwat.SheisamembertheUKRegulators the UKandelsewhere. From 2001–2009shewasapart-timememberoftheCompetitionCommission, in thedistributionalimpactofregulatory reform, andconsumerchoiceinnewlyopenedmarkets,both regulation andtheintroduction ofcompetition,especiallyinenergymarkets.Sheisparticularlyinterested research interests are inthearea ofIndustrialOrganisation,andshehaspublishedwidelyonprivatisation, the UniversityofEastAngliaandwasfoundingdirector oftheCentre forCompetitionPolicy. Hermain Professor CatherineWaddams PriceisProfessor ofRegulationintheNorwichBusinessSchoolat [email protected] include industrialorganisation,regulated industries,andempiricalappliedmicroeconomics. He hasmainlyexplored thesethemesthrough theprismofUKenergymarket.Hiskeyinterests distributional issuesinliberalisedmarkets,and(iii)consideringtheinstitutionsof‘RegulatoryState’. comprises three core themes:(i)consumerbehaviourinregulated markets,(ii)affordability and Dr DavidDellerisaSeniorResearch AssociateattheCentre forCompetitionPolicy. Hisresearch [email protected] Economic AdvisoryGroup onCompetitionPolicyforDGCompetition, andofOxera’s EconomicCouncil. and LondonEconomics(1993-1999).Sheisamember oftheCouncilRoyalEconomicSociety, the teams. Before joiningtheOFT, AmeliawasaneconomicconsultantatFrontier Economics(1999-2001) Fair Trading (2001-2013),where shealsospenttimeleadingtheOFT’s MergersandCompetitionPolicy Panels atOfgemandtheCivilAviation Authority. Shewaspreviously ChiefEconomistattheOfficeof Conduct Authority, andPaymentSystemsRegulator, aswellamemberoftheEnforcement Decision markets. Sheisalsoanon-executivedirector attheCompetitionandMarketsAuthority, Financial focuses ontheimplicationsforcompetitionandconsumer policyofbehaviouraleconomicsandonline She haswrittenandpresented widelyoncompetitionandconsumerpolicy. Herongoingresearch Professor ofCompetitionPolicyintheNorwichBusinessSchoolatUniversityEastAnglia. Professor AmeliaFletcherisaDeputyDirector oftheCentre forCompetitionPolicyanda methodologies, regulatory institutionsandfuelpoverty. [email protected] market. Herinterests cover:energypolicyandregulation, discourseson‘affordability’, policyevaluation of knowledgeandrepresentations ofconsumersinfluencepolicyformationintheUK’s retail energy Communication StudiesattheUniversityofEastAnglia.Herresearch looksathowdifferent types Elizabeth ErringtonisaPhDResearcher intheSchoolofPolitics,Philosophy, Languageand Contributors Editors

UK retail energymarket.Heisnowworking as anInvestmentRiskAnalystatM&GInvestments. current debatesaround energyaffordability, fuelpovertyandconsumerengagementinthecontextof research focusedontheeconometricanalysisofconsumer surveystoexplore theevidencebehind Glen Turner wasaResearch AssociateattheCentre forCompetitionPolicybetween 2016-2018.His [email protected] and foreign investmentregimes around theworld-atopiconwhichhehaspublishedseveralarticles. One ofhisenduringresearch interests isexaminingtherole ofpublicinterest considerationsinmerger of topicsincompetitionpolicyandregulation, witharecent focusontheregulation ofenergymarkets. Tutor attheUEALawSchool.Hisrole atCCPseeshimconductspecialistlegalresearch onavariety Dr DavidReaderisaSeniorResearch AssociateattheCentre forCompetitionPolicyandanAssociate [email protected] alternative research currencies, hasfocusedonenergytransitions,alternative theTransition Towns movementand (ii) theorisingsocio-technicalsystemicchange,and(iii)sustainableurbaneconomies.Empirically, his with aparticularinterest inthree research topics:(i)therole ofcivilsocietyininnovationprocesses, at theUniversityofEastAnglia.Hisresearch focusesonthegeographiesofsustainabilityinnovation Dr NoelLonghurstisaLecturer inEnergyandClimateChangeattheSchoolofEnvironmental Science regulation, andtheinteractionofpublicserviceobligationscompetitionpolicy. [email protected] investigate therole oftheEUcourtsinadvancingliberalisationnetworkindustries,politicsmedia primarily inregulation, competitionlawandmedialaw. Heiscurrently pursuingresearch projects which Professor MichaelHarkerisaProfessor ofLawattheUEASchool.Hisresearch interests are directions. [email protected] everyday life,andtheeffects everydaylifetotryandsteeritinmore ofattemptstogovern sustainable between: thedynamicsandevolutionofsocialpractices,howtechnologiesare adoptedandusedin sustainability impactuponpeople’s everydayliveswithaparticularinterest intheinter-relationships Studies attheUniversityofEastAnglia.Hisresearch focusesonhowinnovationstopromote Dr Tom Hargreaves isaLecturer inEnvironmental ScienceandPolicyattheSchoolofEnvironmental

Fairness in Retail Energy Markets? Evidence from the UK 9 10 The Centre for Competition Policy

The Centre for Competition Policy (CCP) at the University of East Anglia (UEA) was established in 2000 to conduct interdisciplinary research into competition policy, including market regulation, which has real-world policy relevance without compromising academic rigour. The Centre is a collaborative venture between four UEA Schools of Study: Norwich Business School, UEA Law School, the School of Economics and the School of Politics, Philosophy, Language and Communication Studies.

From 2004 to 2014, CCP was awarded a ten-year core funding grant from the Economic and Social Research Council to establish it as a Research Centre of Excellence. It now supports its research from public sector membership, research contracts and grants, and income from teaching and training.

CCP’s research programme explores competition, regulatory and consumer policy, from the perspective of economics, law, business and political science. By applying each of these disciplines, both individually and together, the Centre informs evidence-based policy whilst maintaining its high academic standards.

Publications and Events

The Centre publishes widely on all areas of competition and regulation, and has experience in conducting analyses of many sectors of the economy, including topics such as cartels, mergers and market investigations, vulnerable consumers, digital and information industries, healthcare and the pharmaceutical industry, regulation and the regulatory state, the utilities (especially energy markets and water), the banking sector, the media and creative industries, and mobile telecommunications. The breadth of the Centre’s expertise is also demonstrated in its methodological diversity which includes economic modelling, econometric and statistical analysis, experiments, surveys, interviews, and legal, policy and document analysis. Members of the Centre have advised and informed a wide range of national and international public and private sector stakeholders.

The Centre produces a regular series of working papers and policy briefings, and our bi-annual Research Bulletin publishes articles reflecting its most recent research. It also hosts training courses, workshops and conferences throughout the year and runs a lively programme of regular weekly seminars. Current commentary on relevant issues and developing research areas can also be found on our blog, competitionpolicy.wordpress.com.

competitionpolicy.ac.uk @ccp_uea Funders Group convenedbyUKRI,andisadvisedanindependentAdvisoryBoard. UKERC isfundedbytheUKResearch andInnovation(UKRI)EnergyProgramme. UKERCreports toa UK policydevelopmentandthestrategiesofpublic,privatethird sectororganisations. energyresearchinternational communities.UKERC’s interdisciplinary, wholesystemsresearch informs systems. UKERCactsasafocalpointforUKenergyresearch andagatewaybetweentheUK The UKEnergyResearch Centre (UKERC)carriesoutworld-classresearch intosustainablefuture energy chapter totheunderlyingevidencebeingpublishedthrough research articles. papersandjournal presents thefindingsfrom theproject most relevant topolicymakers.References are provided ineach to opportunities;consumerresponse tothoseopportunities;andtheconsequentoutcomes.Thisreport 2016 and2018.Theproject tookamulti-disciplinaryapproach andfocusedonthree dimensions:access project was undertakenattheCentre forCompetitionPolicyattheUniversityofEastAnglia,between the‘Energy,Within economy&societalpreferences’ theme,the‘EquityandJusticeinEnergyMarkets’ The ‘EquityandJusticeinEnergyMarkets’Project programme focusesonsixresearch themes: change; thisincludesacore research programme andaflexibleResearch Fund.UKERC’s core research UKERC’s current research focuseson theincreasingly contestedanduncertainnature of energysystem Research The UKEnergyResearch Centre (UKERC) • • Decision-making • • • • Technology &policyassessment Energy, economy&societalpreferences Energy systemsatmultiplescales Resources &vectors Future energy systempathways 11 Fairness in Retail Energy Markets? Evidence from the UK 12 12 CHAPTER 1 Introduction: Fairness in Retail Energy Markets? Energy Markets? inRetail Fairness Introduction Chapter 1 a methodologicalappendix (Appendix1) Detail onthemethodologies usedtogenerateouroriginalevidenceisprovided in institutions, (iii)engagement, (iv)fuelpoverty, and(v) data The evidenceispresented underfivebroad themes:(i)long-termoutcomes,(ii) representativeness complements inacontinuousiterativecycletomaximise bothdetailand Ideally, qualitativeinterviewsandquantitativesurveysshouldbeusedas geography andpolicystudies Qualitative andquantitativeevidenceispresented from economics,law, human the UKEnergyResearch Centre’s research programme Justice inEnergyMarkets’,undertakenattheUniversityofEastAngliaaspart Our findingsare from alargemulti-disciplinary research programme, ‘Equityand observable problems ratherthantheofficialfuelpovertystatistics Greater weightshouldbeplacedonmeasuringandaddressing households’ official fuelpovertystatisticsidentify Our evidenceraisesvariousquestionsaboutthereal-world phenomenathat concrete policysolutions We suggestachangeinresearch andpolicyemphasis,ratherthanidentifying reflecting thispoliticalsalience Regulatory independenceanditsinterpretation hasevolvedovertime,potentially explanation forthecurrent politicalsalienceoftheUKretail energymarket Movements inhouseholds’energyexpenditure shares provide apossible fair orunfair haveinfluencedthe fairness retail energymarket,ratherthandeterminingwhatis We explore about evidencerelevant andhowconcerns todiscussionsoffairness Key Points 13 Fairness in in Retail Retail Energy Energy Markets? Markets? Evidence Evidence from from the UKthe UK 14 Concern about fairness in the retail energy market is clear from recent headlines about variations in the prices paid by different consumers and companies ‘ripping off’ those who do not search for better prices.1 This concern about companies in a market profiting at the expense of consumers, and some consumers achieving better deals than others, has replaced the original emphasis at privatisation, which focused on raising the energy sector’s efficiency to increase the total benefits it could deliver and the regulation of areas that remained true monopolies. Distributional concerns about the division of benefits have contributed to the government imposing a ‘wide’ price cap,2 which represents a significant moment in a policy path often characterised as the retreat of state intervention via privatisation and liberalisation. Such new directions make this a natural time to assess the retail energy market’s position. Evidence from our ‘Equity and Justice in Energy Markets’ project on fairness in the retail energy market complements the Competition and Markets Authority’s focus on competition issues in its 2014-2016 Energy Market Investigation.3 The traditional focus of economics on efficiency has never claimed that markets are effective tools for delivering equitable outcomes, and the traditional framework of ‘pure’ economic regulation is challenged by the present focus on fairness.

Evidence has been gathered from several perspectives and disciplines which together raise fundamental questions for the future governance of the market. First, the substantial increase in the share of household expenditure devoted to energy since 2003-04 helps to explain the political salience of the energy market. Can the market ever escape political intervention at a time of rising energy prices? Second, this political salience affects the independence of the market regulator, Ofgem; independence appears less absolute and clear-cut than was originally envisioned. Regulatory independence has evolved, with governments altering Ofgem’s statutory framework and exerting pressure through less formal channels. Third, we present evidence indicating that there are problems with implementing the main framing of fairness regarding energy in the UK, leading to the concept of ‘fuel poverty’. We suggest that the current approach to analysing fuel poverty, and associated policymaking, would benefit from a reboot. Focusing on directly observable real-world phenomena which underpin the complex problem of fuel poverty, for example, low and precarious incomes, cold homes and health issues, such an approach would encourage consideration of interventions beyond energy efficiency.

1 For example, see: ‘Energy companies ‘ripping off’ millions, ministers say’, Toby Helm and James Tapper, The Observer, Sunday 12 March 2017, available at: https://www.theguardian.com/money/2017/mar/12/millions-overpaying-energy-bills-admits-ministry- big-six (last accessed 08.08.18), or ‘GRIDDY GUTS: Fatcat energy bosses taking home up to £5.9 million causing bills of hard-up families to rise by £60’, Daniel Jones, The Sun, 27 November 2017, available at: https://www.thesun.co.uk/money/5005893/ energy-companies-bills-rising-profits-chief-pay/ (last accessed 08.08.2018) or ‘Energy firm E.ON ‘paid £6m to Age UK in return for the charity promoting expensive tariffs to pensioners”, Tim Lamden, The Daily Mail, 4 February 2016, available at: http://www. dailymail.co.uk/news/article-3431006/Energy-firm-E-paid-6m-Age-UK-return-charity-promoting-expensive-tariffs-pensioners.html (last accessed 08.08.18) 2 Domestic Gas and Electricity (Tariff Cap) Act, 2018 available at: http://www.legislation.gov.uk/ukpga/2018/21/contents/enacted/ data.htm (last accessed 07.08.18) 3 Competition and Markets Authority, ‘Energy market investigation: Final report’, 24 June 2016, available at: https://assets. publishing.service.gov.uk/media/5773de34e5274a0da3000113/final-report-energy-market-investigation.pdf (last accessed

Introduction: Fairness in Retail Energy Markets? CHAPTER 1 Introduction: 08.08.18) iterative process between thetwo(where alternating resources allow).Qualitativeinterviews canhighlight qualitative andquantitative approaches, wesuggestan idealapproach maybe to followacontinuous of detailabouthouseholds’ experiencesastheyperceive it.Ratherthan makingachoicebetween particular issuewithinapopulation ofinterest, whereas smallscalequalitativeinterviews reveal adepth For example,largescalequantitative surveysprovide theopportunityto assesstheprevalence ofa each other. Neither provides betterevidencethantheother, andtheyprovide complementary insights. A distinctivepartofthisreport isitspresentation ofbothqualitativeandquantitativeevidence alongside founded. Changingstatisticsortheirinterpretation mayrequire apolicymakingresponse. evidence-based policymaking:technical/statisticalissues canaltertheevidenceonwhichpolicyis While manyofourfindingsquestionexistingstatistics or knowledge,theirimplicationsare centralto required toresolve theseuncertainties. official fuelpovertystatisticsattempttocapture needtobeclarified.Newdatacollection be efforts may between domesticandnon-domesticenergysupplycontracts. Similarlythereal-world phenomenathat of theporous boundarybetweenhouseholds andmicrobusinesses orhowmicrobusinesses choose sometimes appeared inearlierpolicydiscussion.Forexample,there appearstobelittleunderstanding The newevidencepresented inthisreport provides context,detailandnuance tobroad pointsthathave such asfuelpoverty. retail energymarket,thoughwerecognise thatfactorsextendingfarbeyondthisarea affect issues remain anarea ofpoliticalsalienceunlessthecostenergyfallssubstantially. Ourfocusisonthe market’s politicaleconomyiscrucial,sincetheretail energymarketandaffordability seemlikelyto Weintheretail in part,bydistributionalconcerns. concludethatanalysisofconcerns energy directly relevant orwhichhasimplicationsforinterventionsmotivated,atleast toassessmentsoffairness independence. We donotdefinewhatconstitutesfairorunfair. Rather, wepresent evidencewhichis The research teamprovides notonlyanunusualbreadth ofdisciplinaryperspectives,butalsoacademic underlying academicpapersare referenced ineachchapter. each pieceoforiginalevidenceisprovided inamethodologicalappendixattheendofreport, andthe have provided, aswelltotheParliamentaryArchives andallourinterviewees.Themethodologybehind our partnersBroadland Energy andOfgemfortheaccessdatathey HousingAssociation,Cornwall individual UKhouseholdsfollowedovermultipleyears.Inassemblingthisevidence,weare gratefulto an energy-specificconsumersurvey;interviewswithsocialhousingtenants;andsurveydatafrom analysis ofstatutes,parliamentarydebatesandconsultationdocuments;cross-sectional datafrom a 45-yeartimeseriesofelectricitybills;35-yearenergyexpenditure shares; detailed to juxtaposeevidencewhichisrarely encountered together. Thisincludestwosetsofeliteinterviews; the round. Thereport’s fivemainchapterspresent findings from different disciplinesandmethodologies Our rangeofspecialismsprovides arare andretail opportunitytoconsiderfairness energymarketsin responsible fortheoverallpresentation here. drafted bytheresearchers whogeneratedtheevidence,whileeditors(DellerandWaddams Price)are (Tom Hargreaves andNoelLonghurst)apolicyanalyst(ElizabethErrington).Eachchapterhasbeen Catherine Waddams Price),legalscholars(MichaelHarkerandDavidReader),humangeographers researchers from arangeofdisciplines:economists(DavidDeller, AmeliaFletcher, GlenTurner and Preferences’ theme(seepage11).Theresearch isstrongly multi-disciplinary, drawingtogether part oftheUKEnergyResearch Centre’s programme, inparticular its‘Energy, EconomyandSocietal Research wasconductedattheCentre forCompetitionPolicyattheUniversityofEastAngliaas A largemulti-disciplinaryresearch programme

15 Fairness in Retail Energy Markets? Evidence from the UK 16 CHAPTER 1 Introduction: Fairness in Retail Energy Markets? in termsofswitching. Whilethecasefor recent energy pricecaprests partlyontheprevalence of This chapteralsopresents evidenceonthecomplexities ofassessingengagementwhenthisisframed of theirinsightstopolicymakers. with policymaking,alackof resources may hampertheirinvolvementthereby limitingthecommunication groups. However, interviewssuggestthat,whiletheseorganisations haveformalopportunitiestoengage consumer perspective,policymakersoftenrely onthird sectorbodies,somerepresenting disadvantaged with controlling theirenergyconsumption,eveniftheydonotswitch supplier. To gainanenhanced switching. Interviewswithhouseholdsatriskoffuelpoverty showconsiderableemotionalengagement competition. Engagementneedstobeconsidered intermswhichstretch beyondsearching and models ofbehaviourorpolicymakersframingconsumers’ idealbehaviourasthatwhichmaximises understanding thedetailofhowconsumersactuallyengage, ratherthanrelying solelyoneconomic Chapter 4presents evidenceonhowconsumersengage withenergy. Ithighlightstheimportanceof a cross-cutting conceptthatdoesnotfitneatly withinexistinginstitutionalsilos. design andimplementationoffuelpovertypolicy. Someofthiscomplexityresults from fuelpovertybeing objectives ispotentiallymademore challengingbythecomplexwebofinstitutionsthatinfluence politicians ratherthanunelectedregulators. Chapter 3thenhighlightshowthedeliveryoffuelpoverty regulatory communitythatdecisionsaboutsignificantdistributionalobjectivesshould rest withelected occurred more thanwasperhapsexpected.There wasconsensusamongthoseinterviewedfrom the exertinginfluenceoverOfgemthroughsame period,instancesofgovernment lessformalchannelshas grown substantially. Eliteinterviews withmembersoftheregulatory communityindicatethat,overthe afforded toindividualstatutorydutieshasbecomelessclearovertimeasthenumberof the strongest waytocommunicateobjectivesOfgemisthrough itsstatutoryduties.Theweight inpolicymaking institutions.Perhaps havebeenbalancedagainstcompetitionconcerns concerns Accepting anenduringpoliticalinterest inenergyaffordability, Chapter3reports onhowdistributional the mid-1970s. Fuel Payment,whichwere introduced intheearly-2000swhenenergywasatitsmostaffordable since partly basedonthetimingoftwokeyenergyaffordability policies,theFuelPovertyStrategyandWinter at least1970.Ourdoubtsaboutthefeasibilityofendingpoliticalinterventioninenergymarketare are intolerantofallenergypricedifferentials, sinceregional electricitypricedifferences haveexistedsince some commonperceptions needquestioning;forexample,itisarguablywrong tosuggestconsumers distributional issues,thesalienceofenergyaffordability shouldtherefore comeasnosurprise.However, is muchhigherforlowerincomegroups. Atatimeoflowincomegrowth andincreasing about concern terms between2003-04and2013.Moreover, sinceenergyisanecessity, theenergyexpenditure share 1980s, theyhaveincreased substantiallysincetheearly-2000s.Energyexpenditure doubledinnominal that whileenergyexpenditure share andincumbentelectricitybillsare currently atalevelsimilartothe Chapter 2presents contexttothecurrent prominence intheretail offairness energymarket,showing and (v)howdata/statisticscanbeimproved. faceted nature ofengagementwithenergy;(iv)thedetailedexperiencesthoseatriskfuelpoverty; energy market’s politicalsalience;(ii)howdistributionalobjectivesfeedintoinstitutions;(iii)themulti- Our findingsare presented underfive broad themes:(i)howlong-termoutcomescontextualisethe retail An overviewofthechapters survey questionsmayraisepuzzlesthatonlybeilluminatedbyin-depthinterviews. areas whoseprevalence ofconcern mightbeassessedbyasubsequentsurveywave,whilerestricted generally. Fuelpovertyratescalculatedusingthiscorrected ‘reported’ meter householdsandimpactsonaverageenergyexpenditure forlowincomehouseholdsmore Correcting forthisissuesubstantiallyincreases theestimatedaverageenergyexpenditure ofprepayment with prepayment metersintheLivingCostsandFoodSurvey(anditsprecursors) priorto2013. in Chapter6.Asignificant‘missingdata’issueisidentified affecting energyexpenditures forhouseholds Finally, thequalityofdataavailabletoaddress distributionalquestions related toenergyisdiscussed efficiency shouldbeexplored. primary policyobjectiveisaddressing theaffordability ofenergy, otherpolicyoptionsbeyondenergy that, formanyfuelpoorhouseholds,theissueappearstobearelatively dynamicphenomenon.Ifthe social housingtenantscanstillstruggletoafford energy. Initialfindingsfrom largescale paneldatashow between 1992and2014.Qualitativeinterviewsshowthat,eveninenergyefficientdwellings,individual energy expenditure share ispersistentlyhigherthanthatoftenantsinprivaterented accommodation social housinghavingthehighestaverageenergyefficiencyofanytenure, socialhousingtenants’median much oftheeffort toreduce fuelpovertyhasfocusedonenergyefficiency. However, wefindthat,despite affordability FuelPaymentandtheColdWeather are Payment), incomebased(forexample,theWinter in incomeenergyaffordability initiativestoimprove difficulties.Whilesomegovernment energy Chapter 5’s evidenceemphasisestheimportantrole ofpersistentlylowincomesandsuddenreductions main fuelpovertystatistics.Whilerecognising thedistinctionbetweenfuelpovertyandincomepoverty, using energyefficiencytoaddress fuelpoverty. We startbyoutliningthemeaningoffuelpovertyand (and muchofChapter6)raisequestionsaround theofficialfuelpovertystatisticsandemphasison regardingSince fuelpovertyisamajorframeforfairness energyconsumptionintheUK,Chapter5 intermediaries maybebeneficial. dislike ofintermediaries’marketingcommunications,suggestingthatfurtherdirect regulation ofenergy heavily involvedwithmicro andsmallbusinessesswitching,manymicro andsmallbusinessesreport a contracts whichautomaticallylimitthefrequency ofmarketengagement.Also,whileintermediariesare to reflect differences from thedomesticsetting.Manymicro andsmallbusinesseshavemulti-yearenergy questions alone.Moreover, thewayweunderstand engagementbymicro andsmallbusinessesneeds persistent non-switching,weidentifychallengesinidentifyingnon-switchingfrom survey 4 economic regulators wherever possible. there shouldbeapresumption infavourofsharinganonymisedrawdata from surveyscommissionedby through in-depthanalysisofpolicyrelevant statistics.ThisleadstoChapter6’s finalsuggestionthat Chapters 4-6highlightthecontributiontoevidence-based policymakingthatacademicscanmake lack ofoverlapanditsimplications. combining surveydatawithin-hometemperature dataseemsnecessarytoformconclusionsabout this energy expenditure andhouseholdsreporting aninabilitytoafford adequatewarmth.Furtherresearch is identified:averylimitedoverlapfoundbetweenhouseholds identifiedasfuelpoorusing reported Using adifferent dataset,amore fundamentalissuewithenergyexpenditure-based fuelpovertystatistics record fuelpovertyrelative tothosebasedonrequired energyexpenditure. contradicting previous claimsthatfuelpovertystatisticsbasedonreported energyexpenditure under- higher thanofficialfuelpovertyratesbasedon‘required’ (modelled)energyexpenditure insomeyears, ‘required’ energyexpenditure iscalculatedfrom behavioural assumptionsandanengineering modelofenergyconsumption. We use‘reported’ energyexpenditure torefer tosurveydatawhere householdsself-report their energyexpenditure. Incontrast, 4 energyexpenditure datawere 17 Fairness in Retail Energy Markets? Evidence from the UK 18

Chapter 2 A Long-Term View of Energy Affordability and its Political Salience 19

Key Points

Recent political and popular debates around energy affordability can be explained in the context of changing energy expenditure shares (ENEXShr)

Although they have recently risen, ENEXShr between 2009 and 2014 are similar to those observed in the 1980s

Nominal energy expenditures roughly doubled between 2003- 2004 and 2014 at a time when average energy consumption fell by a quarter

Households in the lowest income deciles have much higher ENEXShr than those in the top deciles, likely increasing the salience of energy to the former

Regional electricity price differences have existed since the 1970s and so are not a consequence of privatisation and liberalisation

The first Fuel Poverty Strategy (FPS) and Winter Fuel Payment (WFP) were introduced when ENEXShr were at historically low levels; government intervention to achieve greater fairness occurred at the same time as the energy market was being liberalised

WFP represented a shift in focus for energy affordability support from those on low incomes towards elderly people Fairness in Retail Energy Markets? Evidence from the UK Fairness in Retail Energy Markets? Evidence from 20 CHAPTER 2 A Long-Term View of Energy Affordability and its Political Salience 1 escaped politicalinterventionevenwhentheretail marketappeared tobeperformingwell. those onlowincomestowards olderhouseholds.Thesepoliciessuggestenergyaffordability never Moreover, WFPspendingrepresents amajorshiftinthebalanceofenergyaffordability assistancefrom ENEXShr were nearlong-termlows,i.e.whenenergywasparticularlyaffordable ina35-yearcontext. FuelPayment(WFP),were introducedFuel PovertyStrategy(FPS)andWinter (orgreatly increased) when Perhaps surprisingly, keypolicieslinkedtoenergyaffordability inparticularthegovernment’s andfairness, differences betweenactiveandinactivecustomersare not? following question:whywere thesepricedifferences apparently acceptable,whenmore recent price privatisation orliberalisationwithregional pricedifferences existingsinceatleast1970.Thisraisesthe retail energymarketandpolitics.Forexample,householdspaiddifferent pricesforelectricitylongbefore Furthermore thetimeserieshighlightandraiseadditionalquestionsaround theinterplaybetween explain increased questionsabouttheacceptabilityofmarketoutcomesasenergypriceshaverisen. a farhigherproportion ofexpenditure help toenergythanhighincomehouseholds.Thesepatterns dissatisfaction around energycosts.Second,sinceisanecessity, lowincomehouseholdsdevote sustained risessincelowlevelsintheearly-2000s,whichlikelytriggered increasing salienceand shouldnotcomeasasurprisefortworeasons.of fairness First,ENEXShrandelectricitybillsshow Although strictcausationisnotdemonstrated,thetimesseriessuggestinterventionongrounds to placethispolicyvolteface,anddevelopmentsinenergyaffordability supportpolicies,incontext. This chapterutiliseslong-runtimeseriesonenergyexpenditure shares (ENEXShr) extending beyondtheprotection ofconsumersinvulnerablesituations. political andmediadebatearound oftheretail thecompetitivenessand‘fairness’ energymarket, consumers are notnecessarilyvulnerableorpoor, thelegislationrepresents aculminationofsustained The newpricecappartiallyreverses theremoval ofgeneralretail pricecapsin2002.Whiledisengaged whichmighttraditionallybeexpectedtopro-market.government An energypricecapfor‘disengaged’consumersisbeingintroduced in2018byaConservative 1 Introduction the per-person expenditure islower. household expenditure afterthededuction of housingcostsandadjustmentto reflect thatinhouseholdswithmore members energy onallfuelsinthehome(fuel fortransportisexcluded).Equivalisedafterhousingcostshousehold expenditure istotal In thischapterENEXShrrefers tothepercentage ofequivalised‘afterhousingcosts’(AHC)householdexpenditure devotedto 1 andelectricitybills 2002-03 likelyrepresents asignificantimprovement inhouseholdwelfare. reduction inhouseholdwelfare. Equally, thereduction inENEXShrofaround athird between1992and 6 5 4 3 2 has declinedoverthepastdecade, early-2000s whenthemedianENEXShrwasonly6.7%. Sinceaveragehouseholdenergyconsumption in 1982and11.5%1977.However, medianENEXShrafter2009are considerablyhigherthaninthe the pastdependsonperiodconsidered. MedianENEXShrin2013was11.2%compared to12.3% occurring inthe1980s.Whetherenergyexpenditure (ENEX)isviewedasmore orlessaffordable thanin Figure 1alsodemonstratesthat,between2009and2014,ENEXShr were atsimilarlevelstothose Figure 1showstheevolutionofENEXShrbetween1977and2014. 2.1 TheLowENEXShrintheearly-2000sappearexceptional 2 EnergyExpenditure Shares andElectricityBillsintheLongRun households; and(ii)higherENEXShrimplyareduction inhouseholdwelfare. is presumed toaffect householdsintwobroad ways:(i)higherENEXShrmakeenergymore salientto have affected earlieranalysisbyothers,particularlyforlowincomeconsumers(seeChapter6).ENEXShr correction foraseriousmeasurement issueregarding prepayment meterexpenditures thatislikelyto purchase othergoods. income falls.Asagreater proportion ofresources are devotedtoenergy, fewerresources are availableto consumed fallsbyalowerproportion thantherelevant priceorincomechangewhenpricesrise energy’s role asanecessity, demonstratedbyitslowpriceandincomeresponsiveness, i.e.thequantity https://www.gov.uk/government/statistics/energy-consumption-in-the-uk (lastaccessed:07.08.18) Table 3.04,EnergyConsumption intheUK(ECUK)2016Data Tables, DepartmentforBusiness, EnergyandIndustrialStrategy, this examplefrom April1995toMarch 1996. Deller andWaddams Price(2018a).Where ayear is labelled1995-96etc.,theunderlyingsurveydatarelates tothefinancialyear, in See footnote1fordefinition. This isageneralisationratherthan somethingstrictlytrueforallhouseholdsincircumstances. Deller andWaddams Price(2018a).Detailsofourresearch papers’methodologies are provided inAppendix1. (Data: LivingCostsandFoodSurveyprecursors) Figure 1Indexofthemedianenergyexpenditure share Energy Expenditure Share Index (1992=100) (Base year:1992) 6 theincrease inENEXShrsincetheearly-2000semphasises likely Year 5 2 Thistimeseriesincorporatesa 3 Thesecondpointrests on 4 1977-2014 21 Fairness in Retail Energy Markets? Evidence from the UK 22 CHAPTER 2 A Long-Term View of Energy Affordability and its Political Salience cost ofenergyintheearly-2000s. adjusting forinflation.Thetimetrend issimilartothatinFigure 1,withFigure 2againemphasisingthelow between 1970and2016foranannualconsumptionof3,300kWhonastandard credit tariff, after Figure 2reports theelectricitybillschargedbyincumbentfirmineachsupply region 2.2 Regionalpricedifferences existedinthe1970s 2003-04. unavailable forthe relevant year-region combination. 8 7 market; althoughthepublic’s awareness oftheseregional pricedifferences isunclear. This potentiallychallengesthebeliefthatpublicare inherently aversetopricedifferences intheenergy 1970, showingthathouseholdspaiddifferent pricesforelectricitybefore privatisationandliberalisation. Figure 2alsohighlightssignificantvariationsinelectricitybills across regions, extendingbacktoatleast occurred priortotheFinancialCrisis. incomes, theincrease inENEXShrcoincideswithalargeincrease inENEXreal terms,muchofwhich While theperiodsince2007-08FinancialCrisishasbeencharacterisedasoneinvolvingstagnating Deller, Turner and Waddams Price(2018).Gapsintheelectricity billtimeseriesresult from situations where datawas would result inevenhigherincreases inreal ENEX. Deller andWaddams Price(2018)adjustforinflationusingtheRetail Index(RPI);usingtheConsumerPrice(CPI) (Data: UniversityofWarwick, Energy) Which?,energywatch,ConsumerFocusandCornwall 2016 pricesbyelectricitysupplyregion, 1970-2016 Figure 2Incumbentelectricitybillsfor3,300kWhofconsumptionin Incumbent Electricity Bill (£, 2016 Prices) 7 In2013,real medianENEXwas46%abovethatobservedin 8 active andinactiveconsumers?Plausiblecontributory factors include: 10 9 Why havetheseregional pricedifferences received lessattention annum more expensivethanEastern. SwebandManwebwereannum more expensivethanEastern. also,onaverage,more than£40per bills (closelyfollowedbyEastMidlands)andSwalecwasthemostexpensiveregion, being£46per shown particularvolatility. Averaging across theentire hadthelowestelectricity timeperiod,Eastern since 1990.Nosingleregion isalwaysthecheapestormostexpensive,andScottishregions have £162 andwaslowestin2013at£48.Therangehasbeenlowerrecent years,remaining below25% between asixthandquarterofthenationalaveragebill.Therangeinreal termspeakedin1979at range betweenthecheapestandmostexpensiveregions. Sincethemid-1980sthisrangehasbeen Figure 3provides furtherdetailontheregional differences betweenincumbent billsbyreporting the 2 Sinceeachconsumerislocatedinasingleregion, there maybelessawareness ofthedifferences; 1 Thepricedifferences are viewedas‘legitimate’there are regional differences insupplycosts; clauses restricted this practice.Here weonly compare thebillchargedbyeach incumbentinitshomeregion. ‘home’ region theywere charging higherpricesthanin‘away’ regions where they were an entrant;thenon-discrimination regional price differences describedhere. leading tothenon-discriminationclauseswasthatintheirincumbent Theconcern The issuesleadingtoOfgem’s impositionofregional non-discriminationclausesfrom 2009to2012were different from the Deller, Turner andWaddams Price(2018) (Data: UniversityofWarwick, Energy) Which?,energywatch,ConsumerFocusandCornwall terms, 1970-2016 incumbent electricitybills(3,300KWh)inabsoluteandpercentage Figure 3Therangebetweenthehighestandlowestregional Range (£, 2016 Prices) Year 10 thanthepricedifferences between 9 Range (% of National Average Annual Bill) 23 Fairness in Retail Energy Markets? Evidence from the UK 24 CHAPTER 2 A Long-Term View of Energy Affordability and its Political Salience 12 11 period ofremarkable stabilityinnominalENEXbetween1992and2003-04. energy pricesare continuallyrising.Theseincreases mayhavebeenparticularlynoticeableafterthe was doublethatin1992.Thetrend innominalENEXsince2003-04explainsconsumersentimentsthat ENEX between2009and2014isonlyaround 10%abovethe1992level,nominalmedianENEXin2013 the billstheyreceive, i.e.thevalueofENEXinnominalterms.Figure 4highlightsthat,whilereal median While theanalysisabovefocusesonENEXShrandelectricitybillsinreal terms,consumersmayfocuson 2.3 Aperfectstorm:risingnominalbillsandfallingconsumption privatisation/liberalisation has‘failed’. 5 Asregional pricedifferences predate privatisation,theydonotfitintonarrativesseekingtoshow to buildup; 4 Sincethemost‘expensive’regions varythrough time,consumerresentment maynothavetime within aregion haveexceededtheaverageregional pricedifferences observedabove; 3 Recently, thedifferences betweenstandard variableandfixedtermtariffs offered byeachsupplier Deller, Turner and Waddams Price(2018a) Adjusted usingthe RetailPriceIndex.

Median Energy Expenditure (1992=100) (Data: LivingCostsandFoodSurveyprecursors) Real Figure 4IndicesofMedianEnergyExpenditure inNominaland 11 Terms, 1992-2014 Year 12 energy pricesthanthoseinthehighestincomegroups. fluctuations across households.Thoseinlowerincomegroups are likelytobefarmore by concerned (6.6%). Suchalargedifference suggestssystematicvariationsinthesalienceofenergyandprice income decilewas15.9%,nearlytwo-and-a-halftimesthemedianENEXShroftop 16 15 14 13 ‘equivalised afterhousingcostsincome’ distribution. Figure 5 depictsENEXShrforhouseholdswithdifferent incomes,usingselecteddecilesofthe 3.1 Energy’s salienceislikelytovarydramaticallybyincome characteristic asanecessityforhouseholds. ENEXShr varydramaticallybetweenhouseholdswithdifferent incomelevels,reflecting energy’s 3 EnergyExpenditure Shares andtheIncomeDistribution average householdenergyconsumptionofaround aquarterinthesameperiod, dissatisfaction withrisingENEXsince2003-04hasprobably beencompoundedbythereduction in market, sincetheincrease inENEXbeginsshortlyafterliberalisationwascompleted2002.Consumer the timingofriseposesacommunicationchallengeforthosedefendingliberalisedretail energy While increasing ENEX/electricitybillsafter2003-04are likelytoberelated torisingglobalfuelprices, households are payingmore forlessenergy. Deller andWaddams Price (2018a) See footnote1for definition. See footnote1forabriefdescription ofequivalisation. See footnote6fordatadescription. after housingcostsincomedecile,1992-2014 Figure 5Medianenergyexpenditure shares Energy Expenditure Share (%) (Data: LivingCostsandFoodSurveyprecursors) Year 14 In2014themedianENEXShrofbottom 16 15

by equivalised 13 i.e.onaverage 25 Fairness in Retail Energy Markets? Evidence from the UK 26 Figure 5 also shows that when energy prices were low in the early-2000s, the ENEXShr of different income groups were closer together. In 2002-03, the difference in ENEXShr between the lowest (1st)17 and highest (10th) income deciles was 5.5 percentage points, while by 2014 the difference had widened to 9.3 percentage points. The increase in median ENEXShr for the lowest income decile between 2002-2003 and 2014 (6.0 percentage points) was likely to be experienced as a much more acute reduction in household welfare than the corresponding increase in ENEXShr for the top income decile (2.5 percentage points).

3.2 Energy is different from other regulated sectors

While Figure 5 does not directly explain why issues of distribution and fairness seem more prominent in energy than in other regulated sectors, comparison with expenditure shares for water, telecoms and transport in Figure 6 provides an important clue. Only the expenditure share of water has as steep a negative relationship with income as that of energy, but water forms a much smaller component of household expenditure.

Figure 6 Median expenditure share18 devoted to different regulated sectors by equivalised after housing costs income decile, 2014

(Data: Living Costs and Food Survey)19 Costs Expenditure Share (%) Share Costs Expenditure Median Equivalised After Housing

Equivalised After Housing Costs Income Decile (Lowest to Highest)

17 In Figure 5, the bottom income decile often has a median ENEXShr lower than the second income decile. At least for 2014, this result is due to equivalisation and the deduction of housing costs from income. 18 Share of equivalised after housing costs household expenditure. ENEX, unlike the other expenditure categories, is deseasonalised. Water expenditure includes both water and sewerage; water expenditures paid as part of rental payments or property service charges are not included. Telecoms expenditure covers fixed telephony, mobile telephony and broadband, but excludes pay-TV services. Transport expenditure covers both private and public transport but excludes vehicle purchase costs.

A Long-Term View of Energy Affordability and its Political Salience View of Energy Affordability CHAPTER 2 A Long-Term 19 Deller and Waddams Price (2018a) chapter wefocusonstateincomebenefits related toenergy. starting toimprove. PolicyactiontotackleFPthrough energyefficiencyisdiscussedinChapter5;this only begantogainsignificantpoliticaltractioninthemid-1990s,bywhichtimeenergyaffordability was While theconceptofFuelPoverty(FP)emergedatend1970s,Figure 7showstheconcept 4.1 ThefirstFuelPovertyStrategy(FPS)wasintroduced asENEXShrfell at itsmostaffordable sinceatleastthemid-1970s. affordability supportinitiativeswere introduced and/orincreased ingenerosity atatimewhenenergywas electedin1997.FiguresLabour government 7and8showthat,perhapscounter-intuitively, thesemajor FuelPayment(WFP),themostprominent supportmeasures,and theWinter were introduced bythe mapped againstanindexofmedianENEXShrinFigures 7and8.ThefirstFuelPovertyStrategy(FPS) haveintroducedGovernments avarietyofenergyaffordability supportpolicies,andtheirdevelopmentis 4 Affordability SupportPolicies 21 20 Deller andWaddams Price (2018a) See footnote1for definition.

Energy Expenditure Share Index (1992=100) (Data: LivingCostsandFoodSurveyprecursors, detailonFPpolicyfrom NEA,2016) an indexofthemedianenergyexpenditure share, Figure 7DevelopmentsintheEnglishFuelPovertyStrategyagainst Year 20 1992-2014 21 27 Fairness in Retail Energy Markets? Evidence from the UK 28 Introducing the first FPS when ENEX and ENEXShr were approaching long-term lows in 2001 posed considerable challenges for subsequently reducing the extent of FP, and the target to end FP by 2016 became increasingly unrealistic over the following decade. The coalition government, which took power in 2010, appears to have responded to this increasing challenge by reducing policy ambition. First, in 2012 England’s statistical definition of FP was changed to a relative metric, so it became neither meaningful nor practically possible to end FP in statistical terms.22 Second, in 2015 the English FP target was changed from ending FP in 2016 to simply ensuring that the dwellings of FP households meet a minimum energy efficiency standard by 2030. Both the original and new targets were qualified with the statement “as far as reasonably practicable”.

4.2 WFP represents a shift in the balance of support

Since 1986, the state welfare system has provided explicit energy affordability support through the Cold Weather Payments which provide additional income to households on means tested benefits when temperatures are particularly low. The addition of WFP in 1997-98 represented a significant shift, both in terms of the total spend on affordability support and the households receiving support. Rather than being based on low income, eligibility for WFP is linked to being over the state pension age, i.e. support is directed towards the elderly. While in 1997-98 the basic rate of WFP was modest, at £20 per year,23 by 2000-01 WFP had increased to £200 and in 2003-04 a higher rate of £300 was introduced for households including someone aged 80 or above. Figure 8 illustrates the large increases in WFP generosity which occurred when median ENEXShr were around long-term lows.

The generosity of WFP is notable when compared to the median ENEX of the age groups receiving support. While at its introduction WFP was a modest 3.6-4.2% of the relevant age groups’24 median ENEX, by 2000-01 this had increased to 34.6-42.1%. WFP’s generosity (relative to median ENEX) peaked in 2003-04 when the enhanced £300 rate represented 68.7% of median ENEX for households headed by someone aged 80+.

22 Section 1.1 of Chapter 5 provides an explanation of the official FP statistics. 23 The values of WFP here and in Figure 8 are given in nominal terms.

A Long-Term View of Energy Affordability and its Political Salience View of Energy Affordability CHAPTER 2 A Long-Term 24 The percentages refer to median ENEX where the household head is aged: (i) 65-70, (ii) 70-80, or (iii) 80+. 28 27 26 25 the third incomedecile. income deciles:in2014themedianENEXShrofformergroup was14.4%compared to14.0%for the medianENEXShrofhouseholdsheadedbysomeoneaged80+iscomparabletothatlowest Was suchsupportwarrantedbyelevatedmedianENEXShramongolderhouseholds?Figure 9shows households whohaveahigherlikelihoodofvoting. WFP’s particularlythedesire designwasaffected electoralconcerns, toappealolder bygovernments’ but ofworkingage,cannotbesupportedbyENEXShralone.Acynicalinterpretation mightbethat income deciles.Thecasefordirecting resources toyoungerpensionersrelative tothoseonlowincomes, appears broadly inlinewithhouseholdstheuppermiddleofincomedistribution,i.e.5thto7th Deller andWaddams Price (2018a). Deller andWaddams Price (2018a) legislation. government WHD standsforWarm HomeDiscount,adiscountonenergybillsdelivered bylargeenergycompanies,butrequired by See footnote1fordefinition.

Energy Expenditure Share Index (1992=100) et al,2013) (Data: LivingCostsandFoodSurveyprecursors, detailonWFPvaluesfrom Advani of themedianenergyexpenditure share, Figure 8DevelopmentsintheWinterFuelPaymentagainstanindex 27 28 However, themedianENEXShrofhouseholdsheadedbysomeoneaged65-70 Year 25 1992-2014 26 29 Fairness in Retail Energy Markets? Evidence from the UK 30 Figure 9 Median energy expenditure shares29 for selected household head ages and income30 deciles

(Data: Living Costs and Food Survey and precursors)31 Energy Expenditure Share (%) Share Energy Expenditure

Year

5 Conclusion

This chapter has placed current debates about the retail energy market’s performance, and its fairness, into a long-term context. Time series of ENEXShr and incumbent electricity bills highlight the relatively easy energy affordability of the early-2000s, which was arguably more unusual than the present position. The subsequent doubling in nominal median ENEX likely explains the popular focus on worsening energy affordability since 2003-04. Questions of fairness probably emerge with greater intensity in the energy market than some other sectors due to the pattern of ENEXShr by income, which reflects energy’s status as a necessity. Future policy choices depend on assessing how realistic it is for liberalised energy markets to avoid political intervention on the grounds of fairness, especially when earlier increases in state affordability support occurred at a time when energy was particularly affordable.

29 See footnote 1 for definition. 30 Equivalised and after the deduction of housing costs

A Long-Term View of Energy Affordability and its Political Salience View of Energy Affordability CHAPTER 2 A Long-Term 31 Deller and Waddams Price (2018a) National EnergyAction(NEA),2016.UKFuelPovertyMonitor2015-2016:Areview ofprogress across thenations,availableat: Deller, D.,G.Turner andC.Waddams Price,2018.APostcodeLottery:RegionalElectricityPriceVariations forInactiveConsumers, Deller, D.andC.Waddams Price,2018a.EnergyAffordability intheUK:Corrected EnergyExpenditure Shares 1992-2014,CCP Advani, A.,P. Johnson,A.LeicesterandG.Stoye,2013.HouseholdEnergyUseinBritain:ADistributionalAnalysis,IFSReport References http://fuelpovertyni.org/wp-content/uploads/FPM_2016_low_res.pdf (lastaccessed07.08.18) CCP Working Paper18-10,Centre forCompetitionPolicy, UniversityofEastAnglia,Norwich Working Paper18-8,Centre forCompetitionPolicy, UniversityofEastAnglia,Norwich R85, InstituteforFiscalStudies,London,availableat:https://www.ifs.org.uk/comms/r85.pdf (lastaccessed07.08.2018) 31 Fairness in Retail Energy Markets? Evidence from the UK 32

Chapter 3 Institutions and Policymaking: A Tale of Increasing Complexity 33

Key Points

The recent legislation for a wide price cap is significant as Ofgem successfully resisted government pressure to intervene in the absence of legislation, in contrast to earlier situations

The number and complexity of the statutory duties assigned to the energy regulator has increased considerably since the original privatisation statutes, with the increase accelerating after the Utilities Act 2000

Duties have moved beyond pure economic regulation to incorporate expanded social and environmental objectives

A greater number and complexity of duties raises the potential for conflicts between duties and creates ambiguities around how Ofgem should prioritise them

These ambiguities mean the need for government-regulator communication is increased, which may provide more room for government to pressure the regulator, undermining regulatory independence

There was a consensus among interviewees in the regulatory community that decisions with significant distributional implications should be the responsibility of government, and that the government’s policy priorities need to be clearer

An example of social concerns entering energy policy is Fuel Poverty. Policy around this cross-cutting concept involves a large number of policy actors

The detail of Fuel Poverty policy varies noticeably across the UK nations

Overall there is a clear trend of increasing complexity in policy and policy making Fairness in Retail Energy Markets? Evidence from the UK Fairness in Retail Energy Markets? Evidence from 34 1 Introduction

The imposition of a general price cap in the retail energy market1 marks a new level of government intervention and may be significant in changing the division of responsibility over the market between Ofgem and government.

While the government publicly called for the regulator to impose the price cap, Ofgem successfully resisted, arguing its statutory powers only allowed it to protect vulnerable consumers and that government legislation was required for a policy with potentially significant distributional implications. Previously, Ofgem had conceded to government pressure to introduce regional non-discrimination clauses and limit the number of tariffs in the market. Ofgem’s more robust approach followed the Competition and Market Authority’s (CMA) criticism of these earlier interventions and call for more open disclosure of policy discussions between Ofgem and government.2

This chapter explores how fairness and distributional concerns have become increasingly prominent in energy policymaking since the early-2000s. We consider: (i) regulators’ statutory duties; (ii) the dialogue between government and the regulator(s);3 and (iii) the policymaking space around Fuel Poverty (FP). In all three cases there is a trend towards increasing complexity over time.

First, the significant expansion of energy regulators’ statutory duties over time, especially following the Utilities Act 2000, is mapped. This shows movement away from a limited and clearly defined role for economic regulators at the time of privatisation and towards Ofgem being set increasingly complex social and environmental goals. The open question is whether a return to narrower regulation would be beneficial, or whether political realities mean the notion of a ‘pure’ economic regulator is unsustainable over the long-run.

This proliferation of duties creates two related issues. Different duties may conflict and require compromises, which in turn generate ambiguities around how the regulator trades-off or prioritises duties.

Second, elite interviews with the regulatory community highlight the need for a constructive dialogue between government and the regulator, particularly around the government communicating its policy priorities. Interviewees were clear that responsibility for decisions with significant distributional implications should rest with government. While the CMA recommended a more formal and transparent mechanism for government-regulator communications, it is unclear whether the necessary incentives exist to make such mechanisms work in practice.

Finally, we map the complex space surrounding FP policymaking. Some of this complexity is inevitable since FP touches not only the energy market, but also on incomes and the quality of housing. However, it seems reasonable to question whether it is optimal for the four UK nations to have different FP statistics and targets when all face relatively similar energy affordability challenges.

1 Domestic Gas and Electricity (Tariff Cap) Act 2018, available at: http://www.legislation.gov.uk/ukpga/2018/21/contents/ enacted/data.htm (last accessed 09.08.18) 2 Paragraphs 168-177 and paragraph 326, CMA (2016a)

Institutions and Policymaking: A Tale of Increasing Complexity of Increasing CHAPTER 3 Institutions and Policymaking: A Tale 3 Before Ofgem’s creation in 2000, there were separate electricity and gas regulators, Offer and Ofgas. the CMA’s EnergyMarketInvestigation that therole ofcompetitionwithinOfgem’s dutiesbeclarified, competitive effects andgreater weighttargetedtoconsumerprotection. DespitetheCMArecommending promote competitionundertheEnergyAct2010mayhaveledtoregulatory decisionsgivinglessweightto 10 9 8 7 6 5 4 are amatterforParliament, example, Ofgemhasrecently voicedtheviewthatinterventionsinvolving“significantdistributionaleffects” potential confusionaround theprecise extenttowhichOfgemcanintervenepursuespecificduties.For Ofgem’s largenumberofdutiesgives itwidediscretion ininterpreting itslegislativeremit, creating Our research 2.1 Thecontext:aproliferation ofduties should interpret individualdutiesandtrade-off thosethatconflict. regulatory remit thatthedutiesafford Ofgem,whichiscompoundedbyambiguitiesoverhowOfgem regarding thewidepricecapseemstobedue,inpartatleast,opposingviewsonprecise andOfgem include givingconsiderationtovulnerableconsumers.Thedisputebetweengovernment shows thatOfgemcurrently hasaprincipalobjectivetoprotect consumersandprimarydutiesthat observation ofthescope(ifany)thatOfgemhastodirectly pursue‘fair’marketoutcomes.Figure 1 the regulator’s generalstatutoryduties,i.e.thegoalsOfgemmustormayconsider. Thesedutiesallow canformallyinfluencethegeneraldirectionGovernment ofthe regulator’s decision-makingbyaltering 2 Ofgem’s StatutoryDutiesandFairness overcautious -approach todistributionalissues. judicial review from affected partiesprovides incentivesforregulators toadoptacautious-perhaps implement awidepricecap,andshouldexercise thesepowerstobenefitconsumers. chose toreject outrightinitsresponse totheCMA’s final report. increasingly complexordering) This proliferation ofdutiesposesanumberpotentialproblems. Theincreased varietyofduties(andtheir and future consumers,wherever appropriate bypromoting effective competition”. introduced aprincipalobjectiveforthenewly-formed regulator, Ofgem,to“protect theinterests ofexisting duties remained relatively consistentthrough theDirector Generalera(1986-1999),theUtilitiesAct2000 1986 GasAct,thenumberofdutieshasrisenfrom eighttotwenty-one.Whiletheprimaryandsecondary in thenumberofgeneraldutiesregarding gas.(Thepositionisbroadly similarforelectricity).Sincethe substantive changestotheduties’contentandpresentation. Figure 1shows asubstantialproliferation pieces ofamendinglegislationrelating tothegeneraldutieshavebeenenacted,eightofwhichmade parliament.uk/commons/2017-06-27/debates/17062745000027/EnergyPriceCap (last accessed09.08.18) See statementby Greg Clark MP;HouseofCommonsHansard 27June2017,vol626,col452, availableat:https://hansard. committee/energy-price-caps/oral/71540.pdf (lastaccessed09.08.18) http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/business-energy-and-industrial-strategy- and IndustrialStrategyCommittee, Oralevidence:Energypricecaps,HC470,Tuesday 17October2017, Q74,availableat: For example,seeoralevidencedelivered byOfgemChiefExecutiveDermot NolantotheBEISCommittee;Business,Energy Pg 3and7,BEIS(2018a) Paragraph 18.28,pg1226,CMA(2016b) Paragraph 18.23,pg1225,CMA(2016b) There are currently fourdefactotiersofprioritisation andelevendutiesare supplementary tootherduties. Harker andReader(2018b) 4 showsthat,sinceprivatisation(undertheGasAct1986andElectricity1989),twenty 9 while the government suggestedOfgembothpossessedthepowersto whilethegovernment 5 increases theriskofconflictsandtrade-offs betweenthem.Forexample, 6 concluded thattheperceived ‘downrating’ofOfgem’s dutyto 7 this is the only CMA remedy the government thisistheonlyCMAremedy thegovernment 8 10 The threat of 35 Fairness in Retail Energy Markets? Evidence from the UK 36 CHAPTER 3 Institutions and Policymaking: A Tale of Increasing Complexity

Figure 1 The evolution of the GB energy regulator’s general duties in respect of gas, 1986-2018

(Source: Collation of documentary evidence by Harker and Reader, 2018b)†

† Details of our research papers’ methodologies are provided in Appendix 1. the scopeofitsstatutoryremit. Regulatorsmustnotonlybe“willingandabletotakeactionprevent harm”, Before aregulator canconfidentlyinterpret howfaritcanpursue‘fair’outcomes, requires clarity regarding 2.2 Thebenefitsoflimitedandclearstatutoryduties may havebeenencouragedbythesuccessofprevious interventionsininfluencingOfgem’s actions. responsibility foritsactions.Thegovernment’s recent attempttopressure Ofgemregarding thepricecap as ashieldforpreventing interventioninmarkets,provided takes political government thegovernment should beabletosay‘no’andhavethisrespected. Equally, regulatory independencecannotbeused should prioritise.Whiletheregulator mutualrespect should‘listen’togovernment, suggeststheregulator to communicateexplicitlythetrade-offs betweenitsdifferent policygoals,andwhichgoalstheregulator involving interviewswithseniormembersoftheregulatory community, indicatesaneedforgovernment decisions; (b)reduce thedilutionofregulatory effectiveness; inherent intrading-off duties,thiscouldhelpto:(a)create greater consistencyandpredictability in ‘simplification’ ofOfgem’s duties.Beyond reducing conflicts betweendutiesandthevaluejudgements around theformulationofOfgem’s existingduties,there appearstobeabasisforwide-ranging 16 15 (2011). BIS 14 13 12 11 for energypolicy, itseemsappropriate foritandtheregulator tomaintainadialogue.Ourresearch, and itsinvolvementinregulation hasincreased. bearsultimateresponsibility Sincethegovernment Regulatory independencehasdiminishedinrecent energypolicyhasevolved yearsasgovernment 3 Ofgem’s Independence from Government a clearsteeronprioritisingtheirduties,and(iii)protected from decidingpoliticalissues. reviews emphasisingtheimportanceofregulators being:(i)assignedaclearstatutoryremit, (ii)issued Nevertheless, theproliferation ofdutieshasoccurred despiteParliamentaryCommitteesandgovernment without firstconsideringtheirimpactonthelegislativeframeworkasawhole. committoclarifyingregulators’government dutieswhere appropriate, andtoresist addingnewduties Department forBusiness,InnovationandSkills’‘PrinciplesEconomicRegulation’sawtheCoalition principles to determine whether government orregulator shouldactindealingwithaparticularproblem”.principles todeterminewhethergovernment the government’s recent proposal tointroduce ‘ConsumerForum’todevelop“the agovernment-regulator they mustbeconfidenthavealegitimatebasisforaction.Someoftheseissuesmay resolved by current challenges facingconsumersandthemarket. Harker andReader (2018a) objectives made it more difficulttopursueanyone of themsuccessfully. This wasaprevailing viewamongintervieweesfrom theregulatory community, whosuggestedtheproliferation ofregulatory (2011). Paragraph 3.13,pg25,Houseof Lords: SelectCommitteeonRegulators (2007);paragraph1.1,pg2,BERR(2008);andBIS Paragraph 180,pg63,BEIS(2018b) Paragraph 177,pg63,BEIS(2018b) 15 and(c)recast thedutiestoaddress the 14 GiventheCMA’s concerns 13 In2011,the 16 12

37 Fairness in Retail Energy Markets? Evidence from the UK 38 CHAPTER 3 Institutions and Policymaking: A Tale of Increasing Complexity 20 19 18 17 price reductions, andsothepolicywas“politicallyneutral”. observed that,intheearlydays,competition“floatedallboats”;evenconsumerswhodidnotswitchsaw caps inthedomesticretail market,withfullliberalisationcompletedin2002.Oneofourinterviewees electedin1997didnotdisruptthelong-standingpolicyofremovingThe NewLabourgovernment price intervention 3.2 Risingpricesandinactiveconsumers:Regulationintheshadowofgovernment social andenvironmental issues. consumer interest, anewmechanismtogivetheregulator whilegivingthegovernment guidanceon and individualregulators replaced byaboard. Furthermore, thisActgavegreater formalprioritytothe Utilities Act2000alsoaltered theregulatory institutions,withthegasandelectricityregulators merged, 2008 (albeitnowsubsumedintotheDepartmentforBusiness,EnergyandIndustrialStrategy, BEIS).The involvement, asevidencedbythecreation oftheDepartmentEnergyandClimateChange(DECC)in competition, thensecurityofsupplyandclimatechangepoliciesledtomore direct government sector. First,energypolicyhaschanged.Atprivatisationtheemphasiswasonefficiencydrivenby There are anumberofreasons whythisdiminutionofindependencemayhaveoccurred intheenergy criticised bytheCMAinitsEnergyMarketInvestigation. the numberoftariffs firmscouldoffer, the‘simplertariffs policy’.BoththisandtheNDCpolicywere consumers totheircheapesttariff. Thesepoliticalinterventionscouldnotbeignored, andOfgemlimited to callsfrom politicians,includingtheprimeminister, DavidCameron, torequire firmstoswitchinactive also stimulatedtariff proliferation, makingconsumers’search forabetterdealmore challenging.Thisled aimed toprotect non-switchers,itreduced incentivestoswitchanddampenedpricecompetition.It markets where theywere theincumbentandthoseregions where theywere entrants.Whilethemeasure which aimedtoreduce the‘unfair’pricedifferentials betweenthepricessupplierschargedinregional interventions followed.Firstwasthenon-discriminationclause(NDC,inforce between 2009and2012) differentials, withthere beingvocalpressure fortheregulator tointervene.Two controversial regulatory wasincreasingly aboutpriceincreasesBy thebeginningof2008,government concerned andprice between activeandnon-activeconsumersgainedprominence andcreated “apoliticalproblem”. weight, thanduringthemajorprivatisationexercises ofthe1980sand1990s”. Life (2016)lamented,“theimperativesofindependenceare nowlesswell-understood,andgiven around regulatory independenceisbeginningtobreak down;astheCommitteeonStandards inPublic politicians likelylackthetechnicalexpertisetomakeefficientpolicychoices.However, theconsensus are temptedtofavourshort-termelectoraladvantageoverlong-termpolicygoals,andrecognises that constitutional” principle. Independence wasacentraltenetofregulation inthe1980sand1990s,evenbeinglikenedtoa“quasi- 3.1 Regulatoryindependencehasdiminishedovertime For thecriticisms oftheNDCseeparagraphs8.65-8.69, pg359-361,CMA(2016b). retail energymarketfrom competitioninthewholesale (generation)marketwhichoccurred earlier. occurred before theretail energymarketwasopenedtocompetitionin1999.Itis importanttodistinguishcompetitioninthe Figures 1and2inChapterindicatemuchofthedeclineaverage energy expenditure shares andincumbentelectricitybills Paragraph 4.5,pg16,Committee onStandards inPublicLife(2016) pg 71,HouseofLords: SelectCommitteeonRegulators(2007). Ed Richards, formerOfcomCEO,duringevidencetotheHouseofLords SelectCommitteeon Regulators; seeparagraph6.44, 17 Independence isseenasameanstoinsulateregulation from politicianswho 20 19 Aspricesstartedtorise,pricedifferentials 18

shadow ofthreatened intervention; government What laybehindtheseregulatory policychoices?Inbothcases,Ofgemwasformulatinginthe 24 23 22 21 The CMA(2016b) andtheregulator3.3 Thechallengesofexplicitcommunicationbetweengovernment protection. from beinga“hardcore pure economicregulator” tooneplacinganincreasing emphasisonconsumer promote competition.Anotherrespondent thoughtthat,inmore recent years,theregulator hadshifted regulators sawtheirrole insimpleterms:tostopmonopoliesfrom makingexcessiveprofits andto that marketforces, ratherthanthestate,were betterplacedtodetermineoutcomes.Likewisetheearly policy,the 1990s,asamatterofgovernment energyregulation wasunderpinnedbyadominantideology Several intervieweesnotedthatthemovetoboards coincidedwithachangeinregulatory philosophy. In up toministers. servants, whereas earlierregulators camefrom different backgrounds, andsowere more likelytostand ‘rock theboat’”.Anothersuggestedagrowing tendencyforseniorregulatory personneltobeex-civil tochoosepeoplewhoitthinkswillbecompliantasfarit’sfor thegovernment Whowon’t concerned. particular, wasthoughttohavedilutedindependence.Oneintervieweespeculatedthat:“itmakesiteasier had madetheregulator lessresistant pressure. togovernment Themovetoregulatory boards, in would ultimatelyresist pressure, government butanumberofrespondents thoughtinstitutionalchanges discreditsbecause beingoverruledbygovernment theregulator’s reputation. Somethoughttheregulator interviewees from theregulatory community. Oneintervieweethoughtaregulator mightbeinfluenced We explored howthethreat interventionmightinfluence ofgovernment regulatory policywithour powers toimplementthetwopoliciesifregulator failedtoact. interviewee believedtheregulator wouldnotbewillingtopubliclycriticisethegovernment. andregulatorthat communicationsbetweenthegovernment shouldnotbepublic.Furthermore, one another considered itlikelytoleadmore “behindthesceneshaggling”,andanothersuggested saw aneedforincreased transparency, onethoughtaformal process wouldmerely addcomplexity, CMA’s proposal didnotfindsupportamongourintervieweesfrom the regulatory community. Whilesome surfaced transparently” waslikelytolead“alackofrobustness inregulatory decision-making”.The with government. on thepartofOfgem”. development ofpolicybyDECCandOfgem“islikelytocreate theperception ofalackindependence Paragraphs 18.40-18.43, pg1230,CMA(2016b) para 18.35,pg1228, CMA(2016b) ukpga/2013/32/section/139/enacted (lastaccessed09.08.18). the Secretary ofStatetorestrict the number oftariffs suppliers couldoffer), availableat: http://www.legislation.gov.uk/ www.legislation.gov.uk/ukpga/2010/27/section/26 (lastaccessed09.08.18);andEnergy Act2013,section139(permitting Energy Act2010,sections26-29(permitting theSecretary of Statetorestrict pricediscrimination), availableat:http:// For examplesseeparagraph18.34, pg1228,CMA(2016b). 24

criticised thelackof“clearformalprocesses” forOfgemtodiscusspolicydesign Itstatedthatthelackofsuchprocesses “through which…disagreements canbe 23 21 inparticular, legislatedfor‘back-stop’ thegovernment 22 TheCMAobservedthattheparallel 39 Fairness in Retail Energy Markets? Evidence from the UK 40 CHAPTER 3 Institutions and Policymaking: A Tale of Increasing Complexity 25 respective roles ofOfgemandDECCinpursuingtheseobjectives. in thegovernment’s energypolicy, prescribe the“policyoutcomes”tobeachieved,andclarify Strategy andPolicyStatement(SPS),enablingtheSecretary ofStatetosetcertainstrategicpriorities Mechanisms tofacilitatesuchcommunicationdoexist.TheEnergyAct2013madeprovision forthe priorities andtrade-offs, but thenallowingtheregulator independenceinrelation todetaileddecisions”. needed toinvolve“mutualrespect”, providing with“government clarityabouthigh-levelstrategic communication betweenthetwoisimportant,especiallyincoordinating policy. However, therelationship influence How farcanandshouldthegovernment regulatory decisions?Manyintervieweesthought and probably contentious “draw theline”,suggestingthatwhatcountsasasignificant distributionalimpactisitselfambiguous significant redistributional effects were the rightlyforthegovernment, real questionwaswhere you trade-offs betweenefficiencyand redistribution. Indeed,one respondent notedthatwhiledecisionswith Another intervieweearguedtheregulator doesnothaveappropriate policytoolstodealwith that isdeeplyproblematic,becausethere’s noaccountability.” is thepoliticalprocessandballotbox.Andanindependent regulatorhavingtoputitsownviewson “I mean,it’s justamoralminefield…andtheonlyprocesswehavetoresolvethosesortsofthings do notwassomethingoneintervieweethoughtsimplybeyondtheregulator’s remit: betweenconsumers whoswitchandthose distributional consequences.Thequestionof‘fairness’ interviewees were consistentonhowresponsibility shouldbeassignedforpolicieswith‘significant’ Alongside theconsensusaround theneedforaclearer steeronthegovernment’s priorities,our 3.4 Dealingwithtrade-offs involvingdistributionalconcerns pushback from thoseinterests whichare given‘low’priority. issue if,forpoliticalreasons, prefers agovernment toavoidexplicitprioritisationduethepotential mechanism dependsonthewillingnessofbothpartiestouseitinwayintended.Thismaybean policymaking mayrequire acertaindegree oftension.Moreover theeffectiveness ofanycommunication government-regulator relationship maybepreferable forthosedirectly involved,buteffective The contrastbetweenthisevidenceandtheCMA’s viewraisesthechallengethatanagreeable despitebeingonthestatuebookforfiveyears. has notbeenissuedbygovernment, between objectives,especiallyaffordability anddecarbonisation.Atthetimeofwriting,anSPS Similarly, anotherintervieweethoughttheSEGfailedbecauseitdidnotacceptinherent trade-offs than articulatingpriorities,itwasa“very, wouldlike”. verylongshoppinglistofallthethingsgovernment in ameaningfulway. According tooneinterviewee,theoriginalSEGwasoflimitedvaluesince,rather pastandpresent,A numberofintervieweescriticisedgovernments, fornotusingthestatutoryguidance 2000, hadbeenunsuccessful,partlybecauseofthe“weaklegalstatusGuidance”. regulatory outcomes,includingtheSocialandEnvironmental Guidance(SEG)undertheUtilitiesAct further elaboratedbyDECC(2011).Itnotedthatprevious policywith attemptstoaligngovernment 09.08.18) Energy Act2013, section131,availableat:http://www.legislation.gov.uk/ukpga/2013/32/section/131/enacted (lastaccessed 25 The rationalebehindtheSPSwas

childcare costs,ahouseholdisleftwithincomebelow90%of the ‘UKMinimumIncomeStandard’. appear tobeplacedonthemechanismsused. In Wales, somepowerstoencouragetheenergyefficiencyofhomesare devolved,although restrictions are FPif:(a)theyare FPaccording tothe10%metric 32 31 30 (2012) Hills 29 28 27 (2019) Errington 26 temperature exceeded10%ofincome(themetric).In2012,followingtheHillsReview, administrations definedFPashouseholdswhere required spendingtoachieveaspecifiedin-home The statisticaldefinitionsofFPhavealsodivergedacross theUK’s nationsovertime.Initially, all across theUK,documentaryanalysisandinterviewswithpolicyactors all thecomplexityinFPspaceisunavoidable.Despitefacingcommonissuesandpoliticalpressures for alleviatingitisdiffuse, mayhamperprogress inthisarea. Nevertheless,itisworthconsideringwhether range ofpolicyvenues.Thattheverynature ofFPcutsacross existinginstitutionalsilos,soresponsibility concept withlinkstolowincomesandenergyefficiency, FPinvolvesalargerangeofactorsacross a access toenergyservicesFPincludes,butextendsbeyond,theretail energymarket.Asacross-cutting inUKenergypolicy.in particularheat,andisperhapsthedominantframingoffairness Byfocusingon 5 explainsfurther, householdswhoare FPconcerns unabletoafford energyserviceswithinthehome, policies hasbeentheresponsibility ofenergyretailers, underOfgemmonitoring,since2013.AsChapter and energyefficiency(theEnergyCompanyObligation,ECO)through generaltaxation,deliveryofthese FP targetsinGreat Britain.Ratherthanfundingenergybillreductions (theWarm HomeDiscount,WHD) former’s role inmonitoringthedeliveryofaffordability support policiesthatcanhelpmeetgovernments’ Another developmentpotentiallyfosteringacloserrelationship isthe betweenOfgemandgovernment 4 FuelPovertyPolicymaking Government gainedthepowerstodesignenergyefficiencyandFPschemesthroughGovernment theScotlandAct. However,Government. otherFPrelated policiesare whollyorpartially devolved.In2016theScottish generation andtransportationisbroadlyEnergy policyconcerning areserved powerlyingwiththeUK definitions, FPalleviationtargetsandpolicies. FP Policyvariationsacross theUKcanbecategorisedintofourgroups coveringlegalpowers,statistical 4.1 SignificantFPpolicyvariationsexistacross theUK represents achallengefororganisationssupportingthosewithenergyaffordability challenges. by variationsinFPpolicyacross theUKnations.Successfullynavigatingthiscomplexlandscape the poverty line. In June 2018, the Scottish government introducedthe povertyline.InJune2018,Scottishgovernment adefinition costs exceedthenationalmedianandtheirresidual income,afterthedeductionofenergycosts,isbelow switched totheLowIncome-HighCostmetric,where householdsare judgedFPiftheirrequired energy It isproduced bythe Centre forResearch inSocialPolicy atLoughborough University. This attemptsto define theincomedifferent householdtypes require to reach aminimumsociallyacceptable standard ofliving. temperature somerooms mustreach. Compared totheoriginal10%metric,newScottishdefinitiondeducts housingcostsfrom income andaltersthe Scottish Parliament(2018) legislation.gov.uk/ukpga/2006/32/pdfs/ukpga_20060032_en.pdf (lastaccessed09.08.18) or regulation”, ofWales seeGovernment Act2006,Chapter32,Schedule 7Subject11(pg122),availableat:http://www. The ‘Housing’subjectpermitsthe“[e]ncouragementofhomeenergy efficiencyandconservation,otherwisethanbyprohibition accessed 09.08.18) Scotland Act2016,Part5,Section58,availableat:http://www.legislation.gov.uk/ukpga/2016/11/section/58/enacted (last 28 31 and(b)afterthedeductionofenergycosts 26 indicatecomplexityisincreased 30 where households 29 England 32 27

41 Fairness in Retail Energy Markets? Evidence from the UK 42 CHAPTER 3 Institutions and Policymaking: A Tale of Increasing Complexity administrations tochoosedifferent FPapproaches andtailorpoliciestolocalsituations. actors intheFPspace;equallydifferences mayreflect afreedom forpoliticalactorsindifferent problematic? Thedifferent approaches mayduplicatepolicymaking effort andburden non-government Given thatFPistreated asanissueacross theUK,are thedifferences inpolicydetailhelpfulor Westminster government. households hasgrown, resources forFPalleviationare constrainedbytheausterityagendaof FP policyarena highlightedacommonchallengeacross administrations,thatwhilethenumberofFP all administrationshaveastatisticaldefinitionofFPandtarget.Third, many interviewees inthe elected representatives do exist.First,between2012and2017,FPremained acleartopicofdebateamongdemocratically While there are significantdifferences inFPpolicydetailbetweentheUK’s nations,commonthemes energy efficiencyschemesincetheendof Warm Front in2012. embedding intoabroad sustainabilitystrategy. HoweverinEngland there hasbeennotaxpayerfunded taxpayer contributions.InWales there spendingonenergyefficiency, isalsogovernment butwithgreater In Scotland,energyefficiencyhasbeenconnectedtonationalinfrastructure projects andincludes ECO andWHD.However, there are differences inthetaxpayerfundingofenergyefficiencyschemes. income benefits)are provided inallfourUKnations.Asnotedabove,Great Britainthere are also FuelPaymentandtheColdWeatherRegarding Payment(tax-funded FPalleviationpolicies,theWinter on thedefinitionfirst.AndIjustthinkthatthereisanabdicationofresponsibility.” not startnow. Becausecertainlyindiscussionswithministers theattitudeseemstobeaneeddowork bottom lineisthatweneedtodosomethingaboutfuelpovertyandnotusethisasafurtherreason “Ifsomeonewantstogointoadarkcornerandthinkaboutthis[fuelpovertydefinition]that’s fine.My consultations around therevised Scottishdefinition,oneinterviewee remarked: statistical definitions represented adistractionfrom improving households’welfare. Regarding the reduced policyambitionregarding FPalleviation.There thatfocussingonrevising wasalsoconcern 34 (2019) Errington 33 The changing FP definitions raised concerns among our The changingFPdefinitionsraisedconcerns Irelanddate) andinNorthern eradicating FPby2016neverhadastatutorybasis. a FPratebelow5%by2040.InWales astatutoryFPeradicationtargetexists(butwith2018delivery change inFPdefinition,2018abillbefore theScottishparliamentsoughtastatutorytargettoachieve achieved by2030,subjecttotheclause“asfarasreasonably practicable”.AccompanyingScotland’s English targetwasaltered to ensuringaminimumstandard ofenergyefficiencyforFPhouseholdsis has occurred inresponse tothisoriginaleradicationtargetbeingmissedbyalargemargin.In2015the FP Strategywasfortobeeradicated“asfarasreasonably practicable”by2016.Thedivergence A similartaleofsplinteringappliestothetargetsfortacklingFP. Theinitialtargetinthenationwide2001 14.08.18) parliament.uk/Commons/2017-03-14/debates/11A3AF4E-5277-4E2A-A567-98656DB78F5F/FuelPoverty (lastaccessed For example,seetheDebateonFuel Poverty, HouseofCommonsHansard, vol623column368,available at:https://hansard. 34 andthecommitteeswhoscrutinisetheirrespective Second, governments. 33 intervieweesintheFPpolicyarena about Documentary analysisandeliteinterviews 4.2 AcomplexrangeofactorsinfluenceFPpolicy have provided greater to‘pressure’ opportunitiesforthegovernment theregulator. complexities require increased and the regulator communication between the government and, moreover, approaches, despiteallbroadly agreeing Theambiguitiesofthenew onthesamebasicconcern. and implementationcarriesovertoFP, withawidesetofinstitutionalactorstakingvarietydifferent havebeengiventotheregulator.including distributionalconcerns, Thiscomplexityofpolicymaking More recently, theinstitutional spacehasgrown increasingly complexasabroader rangeofobjectives, the marketmaximisesefficiency, whiledistributionalobjectivesare lefttotaxesandincomebenefits. This periodcouldalsobecharacterisedbyaseparationofresponsibility reflecting textbookeconomics: regulator waschargedwithpure economicregulation hadlimitedinvolvement. andthegovernment privatisation andliberalisation:themarketthrough competitionwasgoingtodrivedownprices,the The institutionalspacearound theretail energymarketwasrelatively simpleintheearlydaysof 5 Conclusion 36 (2019) Errington 35 between them. are involvedinFPpolicyformulation.Figure 2suggestsapotentialmappingofpolicyvenuesandlinks presents extra,andpossiblyavoidable,demandsoncharities’limitedresources. administrations, andofaffordability supportpoliciesacross energysuppliers,butwithdifferences indetail, organisations’ resources, aschapter4reports. TheduplicationofFPstrategiesacross thedevolved groups haveimportantknowledgeforpolicydesignandimplementation,there are limitstothese arena. Whileintervieweesrecognised thatcharitiesdealingwithrelevant communitiesandexcluded Navigating thecomplexityinFigure 2wasseenasachallengebymanyintervieweesintheFPpolicy potentially usefulfortargetingFPpolicies. FP arena astheyidentify‘vulnerable’householdsthrough the‘PriorityServiceRegister’,dataseenas companies (regional monopolistsowningpipesandcables)are increasingly beingdrawntowards the policies, andthesmallestenergyretailers donothavetoprovide thematall.Additionally, thenetwork private firmsare responsible fordeliveringECOandWHDwitheachoffering different versionsofthese It isworthnotinghowsomeofthecomplexityFigure 2(beyonddevolution)comesabout.Forexample, and appointedcommitteesprovide scrutinyofFPpolicy. used indevelopinganddeliveringFPpolicy. space,electedrepresentatives Inthedemocratic governance We accepttheclassification oforganisationsinFigure 2can be challenged 36 Eachofthebroad spacesindicatedinFigure 2havepolicypractitionerswithexpertise 35 indicatealargenumberoforganisationsandinstitutions 43 Fairness in Retail Energy Markets? Evidence from the UK 44 CHAPTER 3 Institutions and Policymaking: A Tale of Increasing Complexity

Figure 2 Six spaces of Fuel Poverty policymaking in Great Britain

(Source: Errington, 2019) Scottish Parliament,2018.FuelPoverty (Target, Definition and Strategy)(Scotland)Bill–PolicyMemorandum,SP37-PM, House ofLords: SelectCommitteeonRegulators,2007.UKEconomicVolume I:Report,1stReportofSession2006- Hills, J.2012.Gettingthemeasure offuelpoverty:Finalreport oftheFuelPovertyReview. Centre fortheAnalysisofSocial Harker, M.andD.Reader, 2018b.Howdomarketregulators interpret statutoryduties?Thecaseofenergyregulation intheUK, Harker, M.andD.Reader, 2018a.W(h)itherindependentregulation: the‘repoliticisation’ ofBritishretail energymarkets,Centre for Erring Department forEnergyandClimateChange(DECC),2011.OfgemReview:FinalReport,URN11D/826,July2011,London, Department ofBusiness,InnovationandSkills(BIS),2011.PrinciplesforEconomicRegulation,April2011,London,availableat: responseDepartment forBusiness,Enterprise&RegulatoryReform(BERR),2008.Government toHouseofLords Select ConsumerMarkets:GreenDepartment forBusiness,EnergyandIndustrialStrategy(BEIS),2018b.Modernising Paper, ResponsetotheCMAEnergyMarket Department forBusiness,EnergyandIndustrialStrategy(BEIS),2018a.Government Competition andMarketsAuthority(CMA),2016b.EnergyMarketInvestigation–Finalreport, 24June2016,London,availableat: Competition andMarketsAuthority(CMA),2016a.Energymarketinvestigation:Summaryoffinal report, 24June2016,London, Committee onStandards inPublicLife,2016.StrikingtheBalance:UpholdingSevenPrinciplesofLifeRegulation, References SPBill37PMS052018.pdf (lastaccessed 09.08.18) available at:http://www.parliament.scot/Fuel%20Poverty%20(Target%20Definition%20and%20Strategy)%20(Scotland)%20Bill/ 09.08.18) 07, HLPaper189-I,availableat:https://publications.parliament.uk/pa/ld200607/ldselect/ldrgltrs/189/189i.pdf (lastaccessed accessed 09.08.18) government/uploads/system/uploads/attachment_data/file/48297/4662-getting-measure-fuel-pov-final-hills-rpt.pdf (last Exclusion, TheLondonSchoolofEconomicsandPoliticalScience,available at:https://assets.publishing.service.gov.uk/ Centre forCompetitionPolicy, UniversityofEastAnglia(mimeo) Competition Policy, UniversityofEastAnglia(underreview) of EastAnglia,CCPWorking Paper 19-2 ofgem-review-final-report.pdf (lastaccessed05.09.18) available at:https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/48134/2151- for-economic-regulation.pdf (lastaccessed09.08.18) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/31623/11-795-principles- documents/upload/govrespregulators.pdf (lastaccessed09.08.18) Committee onRegulatorsInquiry:UKEconomyRegulators,31January2008,London,availableat:https://www.parliament.uk/ documents/Modernising%20Modern%20Consumer%20Green%20Paper.pdf (lastaccessed09.08.18) Cm 9595,April2018,London,availableat:https://beisgovuk.citizenspace.com/ccp/consumer-green-paper/supporting_ uploads/attachment_data/file/683926/cma-energy-market-investigation-government-response.pdf (lastaccessed09.08.18) Investigation, February2018,London,availableat:https://assets.publishing.service.gov.uk/government/uploads/system/ accessed 09.08.18) https://assets.publishing.service.gov.uk/media/5773de34e5274a0da3000113/final-report-energy-market-investigation.pdf (last (last accessed09.08.18) available at:https://assets.publishing.service.gov.uk/media/576c23e4ed915d622c000087/Energy-final-report-summary.pdf system/uploads/attachment_data/file/554817/Striking_the_Balance__web__-_v3_220916.pdf (lastaccessed09.08.18) Sixteenth Report,Cm9327,September2016,availableat:https://assets.publishing.service.gov.uk/government/uploads/ t on, 2019.JustRegulation?Accesstopolicyformulationforaffordable energyinGB.Centre forCompetitionPolicy, University 45 Fairness in Retail Energy Markets? Evidence from the UK 46

Chapter 4 Engagement with Energy Purchases has Many Facets 47

Key Points

We extend analysis of ‘engagement’ with the energy market beyond consideration of search and switching rates

Policymakers need to be aware that engagement can take a variety of forms

Householders with affordability challenges may show considerable practical and emotional engagement with the management of energy consumption, even if they do not switch suppliers or tariffs

For those on very low incomes the control and predictability of expenditure is key: pre-payment meters may be preferred and switching may be viewed as too risky

Engagement with the policymaking process can be problematic. Resource restrictions may limit the ability of charities representing consumer and ‘vulnerable’ groups to engage

Identifying persistent non-switchers from basic survey questions may be problematic

Measures of engagement for micro and small businesses (MSBs) need to recognise multi-year contracts are prevalent; ‘optimal’ engagement by MSBs is likely to be different to that for households

The boundary between a household and some MSBs can be unclear. More evidence is needed on how this affects behaviour in both the domestic and non-domestic energy markets

MSBs dislike the quantity of communications received from intermediaries, suggesting direct regulation of intermediaries could have benefits Fairness in Retail Energy Markets? Evidence from the UK Fairness in Retail Energy Markets? Evidence from 48 CHAPTER 4 Engagement with Energy Purchases has Many Facets Authority (CMA). designed toboostengagementhavealsobeencriticised,especiallybytheCompetitionandMarkets judged toshow‘disappointing’levelsofmarketengagement. period theexpectationofactiveconsumerengagementhasbeenquestionedandsurveyshave consumers were expectedtoengagewithoffers andtofindswitchingstraightforward. Inthelatter including boostingconsumers’responses tooffers (theRetailMarketReview, 2012).Intheinitialperiod clauses intheperiod2009-2012),followedbymeasures tomakesearching andswitchingeasier, choice. Constraintswere ofoffers thenimposedtoenhancethefairness (e.g.non-discrimination purchasers. Theinitialaimwastocreate amarketwhere competingsuppliersincreased theavailable Energy policysinceprivatisationhasfocusedonreforming marketstoprovide thebestdealsforenergy 1 Introduction 2 1 CMA’s proposals toincrease MSBengagementandthatdirect regulation ofbrokers maybebeneficial. Further, MSBs’dislikeofbrokers’ andsuppliers’salesapproaches suggests complexitiesaround the explain thatassessingMSBengagementneedstoaccount formanyMSBshavingmulti-yearcontracts. between householdsandmanyMSBsappearscomplex andonewhere there islittleevidence.We then Third, micro andsmallbusinesses’(MSBs)engagementisconsidered. Atabasicleveltheboundary because ofresource constraints.Suchlimitationsrisktheviewsofcrucialgroups goingunheard. opportunity forengagement,notallorganisationsare equallyabletotakeadvantageoftheseopportunities by consumergroups and/orcharities.Whileconsultationprocedures givetheseorganisationsanequal those theyclaimtobeassisting.Oftensuffering energyaffordability challengeswillberepresented some citizensmaywanttoengagedirectly withpolicymaking,policymakersstillneedtoheartheviews of Second, engagementcanbeassessedintermsofparticipationthepolicymakingprocess. Whileonly nevertheless beemotionallyengagedwithenergyconsumptiondecisions. housing tenantshighlightsthathouseholdswhoappeartobedisengagedfrom the energymarketmay challenges ofidentifyingpersistentnon-switchersare discussed;whilequalitativeevidencefrom social First, domesticenergyconsumers’engagementisconsidered. Somepracticalandconceptual its traditionalmarketframing. switching rates,whilealsohighlightingthemethodologicalchallengesofreliably assessingengagementin absence ofregulation protection. We expandthediscussionof‘engagement’beyondsearch and deliver ‘good’outcomes,andtheriskthatunengagedconsumerswillbe‘exploited’byfirmsin tariffs. This reflects anacknowledgmentofthedifficultiesinherent in relyingonmarketengagementto ‘protect’ unengagedconsumersondefaulttariffs from pricesthatappearhighrelative tofixed-term The policydirection legislatingforawidepricecapto hasnowshiftedfurtherwiththegovernment Paragraphs 168-177, pg40-42,CMA(2016a) at: https://www.bbc.co.uk/news/magazine-14989860 For example,see‘Energyswitching: Whythecustomerinertia?’,Tom deCastella,BBCNews,21September2011,available 2 1 Simultaneously, thepolicyresponses We analyseddatafrom a2011Centre forCompetitionPolicysurvey would, intheory, benefitfrom awidepricecap. These challengesmayaffect researchers’ abilitytoassessindependentlythehouseholdtypeswho identify persistentnon-switchers,andthatrobust analysismayrely onaccesstosuppliers’databases. ‘unfair’ outcomes.Ourresearch suggeststhere are significantquestionsaround usingsurveydatato political debateare consumerswhopersistentlydonotswitchandpotentiallysuffer persistently 6 5 4 3 rate, andthefactorsassociatedwithswitchingatparticularpointsintime. papers andsurveysaddress consumers’short-termswitchingbehaviour, e.g.their12-monthswitching regarding theunengagedandwhethertheyare missingoutonthemarket’s benefits.Awiderangeof The converseofengagedconsumersare thosewhoare hasgrown unengaged.Overtimeconcern 2.1 Reliablyidentifyingthosewhohaveneverswitchedfrom surveydataischallenging 2 EngagementbyDomesticEnergyConsumers respondents (numbersinbold)provided apparently inconsistentanswers. However, Table 1showssubstantialinconsistenciesbetween thetwoapproaches. market opening.Thesurveyprovided twowaystoidentifysuchconsumers: associated withconsumerswhohadremained withtheirregion’s incumbentelectricitysuppliersince 2 Comparingthecurrent supplierreported byahouseholdwiththeincumbentsupplierintheirregion. 1 Aquestiondirectly askingwhetheraconsumerhadeverswitched Deller, Turner and Waddams Price(2018) The reported data controls forbasicissuese.g.changes inincumbents’brandnames. Deller, Turner andWaddams Price(2018). Detailsofourresearch papers’methodologiesare provided inAppendix1. Deller etal(2017)provide areview. reporting acurrent suppliermatchingtheregional incumbent Table 1Respondentsreporting theyhaveneverswitchedandthose (Data: 2011Centre forCompetitionPolicyconsumersurvey) APPROACH 1 Reports Never Reports Have Switched Switched Total supplier does Incumbent not match Current 1021 321 700 APPROACH 2 Incumbent matches 6 supplier Current 4 111 184 295 toidentifythecharacteristics 3 However, atthecentre of 5 Around athird of Total 1316 505 811 49 Fairness in Retail Energy Markets? Evidence from the UK 50 CHAPTER 4 Engagement with Energy Purchases has Many Facets 9 8 7 would, asillustratedbyBarbarainBox1. this control involvesconsiderablymore attention,timeandemotionthaninfrequently switchingsupplier households oftenprefer Pre-Payment Meters(PPMs)fortheexpenditure control theyoffer. Exercising particular, canbenefitfrom switching.Ourin-depth research withsocialhousingtenants market. suggests thoseonlowincomesandwitheducationalattainmentare lessengagedwiththeenergy Engagement isoftenframedintermsofparticipationtheretail energymarket.Someevidence 2.2 Lowincomehouseholdscanbehighlyengagedwithenergy, ifnottheenergymarket energy billsthroughout theperiodassessed;and(c)identifyanycomplicatingfactorsaround housemoves. which toassessnon-switching,e.g.3-5years;(b)askwhetherarespondent hasbeenresponsible for To identify‘persistent’non-switchingfrom surveys,questionsneedto:(a)identifyaspecificperiodover remaining withincumbentorreporting neverswitchingcouldrepresent. too young.Thelongerthetimesincemarketopeninggreater thevariationindisengagementthat percentage ofhouseholdswiththeincumbentwere notenergypurchasers in1998becausetheywere 1998) isunengagedgrows stronger. However, there isasecondissue:as timemovesforward agreater further awayfrom thefirstopportunitytoswitchin1998,signalthatahousehold(inmarketsince the incumbent,beyondobviouspointthathouseholdsmayprefer theincumbent.Aswemove There isafurtherconceptualpointabouttheextentofnon-engagementindicatedbyremaining with The lattertwoexplanationsare primarilyaproblem forApproach 2. supplier willnotbetheincumbent. House moves:forindividualsmovingtoahomewhere theprevious occupierhadswitched,thedefault Multiple switches:ahouseholdmayhaveswitchedawayfrom theincumbentbutthenswitchedback. covers more thanadecade. Imperfect recall: thisseemsanoticeablymore severe problem forApproach 1astherequired recall there are intuitiveexplanationsforthediscrepancies, including: matcheddatafrom suppliersitisdifficulttosaywhichapproachWithout ismore accurate.However, of energyconsumption/expenditure (alsoseeChapter5).Ourresearch confirmsearlierfindings that, whilethoseonlowincomesmaynotswitch,theyexhibithighengagementwiththemanagement Waddams etal(2001) Hargreaves andLonghurst (2018) Figure 2,pageA9.1-24,CMA(2016b) 7 Policydiscussionsoftenfocusonhowtoincrease engagement,sotheseconsumers,in 8 suggests 9 that building trustandovercoming stigmaasasignificantdifficulty. interviewees from askingforhelppriortotheirsituationsdeteriorating.Housingassociationstaff saw and friendstoborrow moneytopayforenergy. Third, stigma andembarrassmentprevented several they didnothavetocare forchildren orpets.Equally, someintervieweesdrew onrelations withfamily Second, ‘care relationships’ were significant:manyinterviewees reported theywoulduselessenergyif interviewees prefer PPMsforcontrol, thishasoftencomeatthepriceofhigherunitenergycosts. anxiety aboutenergyexpenditure, inparticularthefearoflarge,unexpectedbillsanddebt.Whilemany challenges andmayinhibitmarketparticipation.First,intervieweesexpressed constantworryand merely anoutcomeofFP. Incontrast,ourinterviewsrevealed howemotionscandeepenaffordability policy debatesand,where theyhavebeenidentifiedin research, havetypicallybeenunderstoodas with energywashighlyemotional.TheemotionalaspectsofFuelPoverty(FP)havebeenneglectedin For thoseontheverylowestincomeswhosignificantly restrict theirenergyconsumption,engagement energy affordability. least theirrepresentatives, are heard whenpolicymakersdesignregulations andpolicieswhich influence Beyond direct engagementwiththeenergymarket,there isthequestionofwhetherconsumers, orat 3 EngagementwiththePolicymakingProcess very gratefulofthesupportfrom thehousingassociation. tenancy supportstaff becominginvolved.Shenowhasapaymentplanforherdebtsandis compounding theworryandcontributingtoasenseofisolation.Herrent arrears ledto using noneupstairs.Shefeelsembarrassedtoaskforfinancialhelpfrom friends andfamily, £70 to£40perweek),shestillfindsithard touse.Shecontinuesrationherheating, While themainstorageheaterinherlivingroom hasbeenreplaced (reducing herbillfrom return homefromworkandIwon’thaveanyelectricagain.” know thatemergencyisgoingtogetmethroughprobablytomorrowandthenFridayI’ll like I’vegotintodayandIhadnoelectricsothentoputmyemergency ifIcanaffordtoputelectricon.It’s“Because itcostsmesomuch…I’mconstantlyworrying She isveryconsciousofherenergyusageandworriesaboutit: living withonechild.HermainheatingsysteminvolvesstorageheatersandsheusesaPPM. Barbara livesina1990ssemi-detachedhouse.Sheworksfulltimeandissingleparent Box 1Barbara–Emotionalengagementwithenergy 51 Fairness in Retail Energy Markets? Evidence from the UK 52 CHAPTER 4 Engagement with Energy Purchases has Many Facets Debates inparliament presents abarriertoparticipationforsomegroups whenFPpolicymovestowards implementation. 11 (2019) Errington 10 space fororganisationstonavigatewhensupportingvulnerable clients(seeChapter3). delivered byenergysuppliersgenerallyleadstoadiversityofprovision andasubstantiallymore complex The structure ofpoliciesmayalsorestrict charities’abilitytosupportintended recipients. Assistance should considerwaystomakeresponding toconsultationseasierforthird sectorbodies. limited resources, ratherthanlimitedinterest aboutaparticularproposal. orconcern Ideally, policymakers who are closetothoseexperiencingenergyaffordability challenges.Alimitedresponse mayindicate Policymakers needtounderstandthepotentiallylimited engagementwithexistingprocedures bygroups outcomes achievedbyhouseholds. of particulargroups, canleadtoinequalitiesinrecognition anddistributionalinjusticesregarding the Figure 1 illustrateshowinjusticeregarding accesstothepolicymakingprocess, bylimitingthevoice any policiesthataregoingtohaveeitherapositiveornegativeeffectonfuelpoverty.” “…we’ve hadtocutrightback…whenwearebetterresourcedthenwe’lldowhatcaninfluence views. Forexample,oneintervieweeexplained: organisations founditincreasingly difficulttoparticipateindebatesand represent theirconstituents’ As austeritymeasures reduced fundingforthethird andpublicsectorsovertheperiod2012-2017,these or apreference forparticulartypesofevidencecanpresent barrierstocertaingroups. often provide anequalopportunitytocontributeoraccessdecisionmakers,unequalresources for charitieswhoprovide crucialinsightintothelivesof‘vulnerable’individualsandFP. Whileprocedures However, there islittleacknowledgement ofthecostsengagingwithprocedural exercises, particularly which are, inprinciple,opentoall. and transparent processes, regular reporting againstcleartargetsandholdingconsultativeexercises networked andpolicymakersdorespect manytraditionalaspectsofprocedural justiceincluding:open when there are multiplerounds ofevidencegathering.TheactorswithintheFPpolicysystemare well- Moreover, notallorganisationscancontributeequallytotraditional(andstatutory)processes, especially became dominantindesigningFPpolicydelivery. affordable energy. Intervieweesfrom theFPpolicyarena feltengineeringandeconomicsexpertise bill reductions andtargetingthissupporttospecificgroups, insteadofdiscussingauniversalrightto todeliveringaspecificsetofenergy materials and/orconsumers’marketbehaviours.Thefocusturns policy designprocesses. Ratherthanfocusingonrights,thediscussioncentres ondwellings’building FP, butanabruptshiftoftenoccursbetweenthesepublicdiscussionsandtheoptionevaluation highlighting constituents’experiences.Theseissuesmotivateactionandreflect thepoliticalsalienceof Documentary analysisandinterviewswithvariousactors 3.1 UtilisingaccesstotheFPpolicymakingprocess canbechallenging 14.08.18) parliament.uk/Commons/2017-03-14/debates/11A3AF4E-5277-4E2A-A567-98656DB78F5F/FuelPoverty (lastaccessed For example,seetheDebateonFuel Poverty, HouseofCommonsHansard, vol623column368,available at:https://hansard. 11 anddevolvedassembliesrefer tocitizens’rightswarm,lighthomes,while 10 suggeststhetechnicalnature ofpolicydesign Existing surveysexcludemanymicrobusinesses becauseoftheirdesign.Ofgem’s MSBsurveys 4.1 Theboundarybetweenhouseholdsandmany MSBsisunclear Concepts around searching andswitchingneedadaptationtofitMSBs’ specificexperiences. to achievegooddealsinamarketwhichisnoticeablymore complexthanthatfordomesticconsumers. and relevant evidenceislimited.Thecore iswhetherMSBshavethesameabilityaslargerfirms concern The energymarketengagementofMSBshasreceived lessattentionthanthatofdomesticconsumers, 4 EngagementbyMicro andSmallBusinesses 12 MSBs’ engagementislargely missing: Sampling onlyMSBsonnon-domestic contractsmeansevidencearound twoquestionsregarding the 2.1mfirmswith49orfewer employeesin2014,fewerthanamillionusednon-domestic contract. the contractwithanenergysupplier. Suchexclusionsappearnon-trivial:BMG(2015)estimatesthatof the manysmallbusinessesrunfrom homesusingdomesticcontracts,andMSBswhere alandlord holds domestic contract.Thismeansthesamplesare unrepresentative ofthefullpopulationMSBs, omitting sampling tobusinesseswhichare bothdirectly responsible forpurchasing energyanduseanon- Deller andFletcher (2018)provide furtherdetail. (Source: Errington,2019;adaptedfrom ideasinSchlosberg,2007) of outcomes can leadtounequalrecognition andinjusticeregarding thedistribution Figure 1Diagramillustratinghowunequalaccesstopolicyprocesses 12 restrict 53 Fairness in Retail Energy Markets? Evidence from the UK 54 CHAPTER 4 Engagement with Energy Purchases has Many Facets (when itwasnomore than40%) 19 18 17 16 15 14 13 13% forresidential electricityandgasconsumers. The estimatedraw12-monthMSBswitchingratewas23.4%in2014,itselfnoticeablyhigherthanthe engagement. 4.2 Measures ofMSB whether afirmhaddeliberatelychosennon-domesticcontractoverdomesticand,ifso,why. gas. lower, at13%fornon-half-hourlymetered electricity, 15%forhalf-hourlymetered electricityand19% for caveats. First,aggregate switchingratesfor all non-domesticconsumers(notjustMSBs)are noticeably While thisevidencesuggeststheMSBswitchingrateis higher thanforhouseholds,there are twopotential more, engagementmeasure analternative isthe5-yearswitchingrate,whichwas59.8%in2014. switching rateof34.2%.Sinceonly2.5%MSBsin2014hadafixed-termcontractlasting5yearsor of firmsthatwere free toswitchinthe relevant 12months;suchacorrection yieldsa12-monthMSB contracts istoalterthebaseforcalculating12-monthswitchingratereflect thelikelyproportion domestic contracts. Asking (ii)isvaluableasOfgem’s householdsurveydoesnotrestrict samplingtohouseholdswith questions asking: These pointscouldbeaddressed withinOfgem’s householdconsumersurveybythree additional without substantialcosts, years. for understandingMSBs’engagement,since54%report havingafixed-termcontractlastingatleast2 households reporting aswitchofsupplierintheprevious 12months).Yet suchafocusisinappropriate In thedomesticmarketattentionisoftenfocusedon12-monthswitchingrate(thepercentage of (iii) (ii) Forconfirmationthatthehouseholdusesadomesticcontract; (i) WhetherahouseholdrunsanMSBfrom theirhome; (b) (a) WhatinfluencesanMSB’s choicebetweenadomesticandnon-domesticcontract? Table 16,pg46,TheResearch Perspective/Element Energy(2013). Based onswitching datafrom suppliers,paragraph 3.55, pg34,Ofgem(2015). The residential switchingratesare from pg10,IpsosMORI(2014). early exitfacingdomesticconsumers. To exita non-domestic contractrequires anMSBtopaythecontract’s fullvalue,afargreater amountthanthe‘penalties’for Deller andFletcher(2018) All reported MSBsurveyresults relate tothoseMSBsresponsible forpurchasing energyand onanon-domesticcontract. technical_report_0.pdf (lastaccessed10.08.18) September 2017,availableat:https://www.ofgem.gov.uk/system/files/docs/2017/09/consumer_engagement_survey_2017_ See section1.2,ConsumerEngagementintheEnergyMarket2017 –Technical Report,GfK UKSocialResearch, 21 18 Second,there isalargejumpinthe5-yearMSBswitchingrate forthesurveydatabetween2013 15 contract? If theanswerto(i)and(ii)isyes,hasrespondent everconsidered usinganon-domestic energy market? How doesoperatinganMSBfrom ahomeinfluencehousehold’s engagement withthedomestic Onlyalimitedproportion ofMSBsare therefore inapositiontoswitchany12monthperiod 13 Ofgem’s MSBsurveycouldaddress (a)byincludingadditionalquestionson 14 engagementmustrecognise multi-yearcontracts 16 andsothe‘raw’12-monthswitchingratewilllikelyunderestimate MSBs’true 19 and2014,whichcoincideswithasignificantsampling method change. 17 A‘backoftheenvelope’correction formulti-year other words, MSBswhousedbrokers toselecttheircurrent dealappeartovaluebrokers’ services. with abroker primarychoicemethod,heldamainlynegativeviewof brokers. butusedanalternative In deal hadabroadly positiveviewofenergybrokers, whileMSBswhoeitherhadnocontact orhadcontact Figure 3highlightsthatMSBswhousedabroker astheprimarymethodtoselecttheircurrent energy proposed changestofacilitatethis,inparticularthatadatabaseof‘disengaged’MSBs’contactdetails In 2016theCMAconcludedthatincreasing MSBengagementwasimportantforcompetitionand 4.3 ManyMSBsdislikebrokers’ salesbehaviour intermediaries. We present evidence Also, theCMAshiedawayfrom formallyrecommending theregulation ofenergybrokers andother be madeavailabletosuppliers,sotheycouldsendmarketingmaterialsprompt MSBswitching. 24 23 22 21 20 broadly neutralstancetowards theenergymarket’s performanceasawhole. contrasts withaclearpositiveskewinMSBs’satisfactiontheircurrent energysupplier, and brokers’ salesapproaches andtheiroverallviewofbrokers isskewedtowards thenegative.This Figure 2showsMSBs’surveyresponses are skewedtowards dissatisfactionwithenergysuppliers’ without inhibitingtheirabilitytofacilitatesearch andswitching. MSBs. Thequestioniswhetherbrokers’ potentiallyproblematic marketingbehaviourscanbeaddressed Brokers, ratherthanprice-comparisonwebsites,formakeypartoftheswitchingprocess formany Deller andFletcher (2018) responses of“Don’t Know”,“NotApplicable”andmissing data. The questionforMSBs’viewofbrokers hadresponse optionsrunningfrom “Very negative”to“Very positive”.N/Acovers Deller andFletcher(2018) Deller andFletcher(2018) MSBs canopt-outofthedatabase. (Data: 2014BMGResearch surveyforOfgem) brokers satisfaction withthesalesapproach ofbrokers, andtheiroverallviewof Figure 2MSBs’satisfactionwiththesalesapproach ofenergysuppliers, 23 21 potentiallyquestioningbothofthesedecisions. 24 22 anda 20

55 Fairness in Retail Energy Markets? Evidence from the UK 56 CHAPTER 4 Engagement with Energy Purchases has Many Facets 26 25 unsolicited contact.Unfortunately, thesurveydataanalyseddoesnotallowustomakethisdistinction. proactively contactedthebroker, ratherthanthattheirmarketengagementhadbeenstimulated by ifitcouldbeshownthatthoseMSBsusingabrokerfewer concerns astheirmainchoicemethodhad benefit of reduced nuisanceagainsttheriskof reduced switching.Restrictingcontactwould present behaviours whichMSBsdislike.However, anydecisiontolimitbroker contactwouldneedtoweighthe Our evidencealsosuggeststhatdirect regulation ofbrokers maybebeneficialindiscouraging a ‘trustedvoice’toidentifythecheapestdealsavailable toanMSB. the finaldatabaseplanshouldlimitquantityofcommunication,forexample,byusingalettersent marketing communicationsgeneratedfrom adisengagedcustomerdatabase.Ourresults suggestthat Such aversiontobroker contactdoesnotbodewellforapositiveMSBresponse toanincrease in broker approaches isassociated respondents, evenaftercontrolling forabroker beinganMSB’s mainchoicemethod,receiving more on asubsetofrespondents whoseresponses related totheirelectricitysupplier. Amongthissubsetof 12 monthspriortothesurvey. Asthemethodologicalappendix explains,furtheranalysiswasperformed 14.4% ofMSBsreported eitherreceiving atleast50phonecallsortoomanytoremember inthe However, brokers amajorissueforMSBsconcerning isthequantity ofunsolicitedsalescallsreceived. brokers. Deller andFletcher (2018) Result from ordered logitregressions. (Data: 2014BMGResearch surveyforOfgem) contact/use whenselectingtheircurrent deal Figure 3MSBs’overallviewofenergybrokers byextentofbroker 25 withareduced probability ofanMSBreporting apositiveviewof 26 Waddams, C.,M.Giulietti,D.Sharratt,A.FerrariandCooke,2001.Affording GasandElectricity:Self The Research Perspective/ElementEnergy, 2013.Quantitative Research intoNon-Domestic ConsumerEngagementin,and Schlosberg, D.,2007.DefiningEnvironmental Justice:Theories,MovementsandNature, Oxford UniversityPress, Oxford Ofgem, 2015.RetailEnergyMarketsin2015,9SeptemberLondon, availableat:https://www.ofgem.gov.uk/sites/default/ Hargreaves, T. andN.Longhurst,2018.Thelivedexperienceofenergyvulnerabilityamongsocialhousingtenants:emotional Errington, E.,2019.JustRegulation?Accesstopolicyformulationfor affordable energyinGB.CCPWorking Paper19-2 Deller, D.,G.Turner andC.Waddams Price,2018.APostcodeLottery:RegionalElectricityPriceVariations forInactiveConsumers, Deller, D.andA.Fletcher, 2018.Micro andSmallBusinesses’SatisfactionwiththeEnergyMarket:Policy Implications,Centre for Deller, D.,M.Giulietti,G.Loomes,C.Waddams Price,A.MonicheBermejo andJ.Y. Jeon,2017.SwitchingEnergySuppliers:It’s Competition andMarketsAuthority(CMA),2016b.Appendix9.1:CMAdomesticcustomersurveyresults, Energymarket Competition andMarketsAuthority(CMA),2016a.Energymarketinvestigation:Summaryoffinal report, 24June2016,London, BMG, 2015.Research Report:Micro andSmallBusinessEngagementinEnergyMarkets,areport forOfgem,March 2015, References form whichpolicymakersdesire. policymakers shouldnotethediffering levelsofresource different groups havetoprovide evidenceinthe address thereal-world issuesfacingparticulargroups. Similarly, whenassessingconsultationevidence, figures. Developingstatisticsandpolicyaround an‘ideal’formofconsumerengagementmayfailto consumers’ interactionswiththeenergypurchasing process before attemptingtointerpret aggregate and switching.Thesecaseshighlighttheimportanceofpolicymakersappreciating thedetailofdifferent may result from manybusinesseschoosingmulti-yearcontractswhichlimitthefrequency ofsearching involved withthemanagementofenergyconsumption.InMSBmarket,apparent disengagement have notengagedwiththeenergymarketare notnecessarilyunengaged,sincetheymaybehighly Understanding thefullbreadth ofengagementisimportantindesigningpolicy. Householderswho 5 Conclusion 9baae91c57cf (lastaccessed 10.08.18) documents/8158338/8264975/1.106645%21electricity+association+full+report+2001.pdf/28ebd098-787f-44ad-9f0d- Competition and Regulation, UniversityofEastAnglia, March 2001, available at:http://competitionpolicy.ac.uk/ to SocialAction,ReportbyCentre forManagementunderRegulation, UniversityofWarwick andCentre for Disconnection andRationingbyPrepayment andLowIncome Credit Consumersand Company Attitudes default/files/docs/2013/12/non-dom_quant_final_for_publication_18_12_13.pdf (lastaccessed10.08.18) Experience of,theEnergyMarket – FinalReport,forOfgem,December2013,availableat:https://www.ofgem.gov.uk/sites/ files/docs/2015/09/retail_energy_markets_in_2015_report_0.pdf (lastaccessed10.08.18) Working Paper18-7 subjective engagements,3S(Science,SocietyandSustainability)/Centre for Competition Policy, 3SWorking Paper18-32/CCP Centre forCompetitionPolicy, CCPWorking Paper18-10 Competition Policy, CCPWorking Paper18-9 10.08.18) documents/8158338/17199160/CCP+WP+17-5+complete.pdf/fdaaed88-56e5-44f9-98db-6cf161bfb0d4 (lastaccessed Not AllAbouttheMoney, Centre forCompetitionPolicy, CCPWorking Paper17-5,availableat:http://competitionpolicy.ac.uk/ appendix-9-1-cma-domestic-customer-survey-results-fr.pdf (lastaccessed10.08.18) investigation: Finalreport, London, available at:https://assets.publishing.service.gov.uk/media/576bcbbc40f0b652dd0000b0/ (last accessed10.08.18) available at:https://assets.publishing.service.gov.uk/media/576c23e4ed915d622c000087/Energy-final-report-summary.pdf available at:https://www.ofgem.gov.uk/ofgem-publications/94051/nondomquantfinalv4-pdf (lastaccessed10.08.18) 57 Fairness in Retail Energy Markets? Evidence from the UK 58

Chapter 5 Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience 59

Key Points

Fuel poverty results from, and exerts influence on, a wide range of inter-related but distinct problems and cannot be sensibly addressed in isolation from these factors

The current focus of fuel poverty policy - improving the housing stock’s energy efficiency - does not address all these factors

By focusing on ‘required’ (modelled) energy expenditures, the two official fuel poverty statistics miss important behavioural factors

Fuel poverty rates appear higher in social housing when based on reported rather than required energy expenditures

The official Low Income-High Cost (LIHC) fuel poverty statistic may underestimate problems among some social housing tenants struggling to afford warmth

Survey data indicate that fuel poverty is more episodic than a basic measure of income poverty

Fuel poverty has proved a challenging concept to operationalise, so the meaning and appropriateness of official fuel poverty statistics remains contested

Focusing on multiple specific and directly observable issues affecting individual households, e.g. low income, precarious employment, cold homes, may present a better way forward Fairness in Retail Energy Markets? Evidence from the UK Fairness in Retail Energy Markets? Evidence from 60 CHAPTER 5 Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience However, oftenabroader definitionisusedcoveringtheaffordability ofallenergyservicesinthehome. household livingonalowerincomeinhomewhichcannotbekeptwarmatreasonable cost”. the market.FuelPoverty(FP) extends beyondtheretail energy market,whilenotnecessarilyaddressing within allissuesofconcern intheretail‘Fuel Poverty’isoftenusedasaframefordiscussingfairness energymarket.Suchaframing 1 Introduction 4 3 2 1 Figure 1illustratestheLIHCindicator. describes the‘FPgap’,whichismonetaryamount required totakeahouseholdoutofLIHCFP. a household’s positionrelative totheaverage.AlongsideheadlineLIHCFPrate,asecondindicator household occupants.TheLIHCindicatorisa‘relative’ metric,sincetheclassificationofFPdepends on income iscalculatedafterthedeductionofhousingcosts andisequivalisedtoadjustforthenumberof lies belowtheincomepovertythreshold, whichiscurrently 60%ofmedianincome.Inthis LIHCdefinition, required ENEXexceedsthenationalmedian;and(b) theirincome,afterthedeductionofrequired ENEX, Hills Review, was FPiftheirrequired energyexpenditures (ENEX)exceeded10%ofhousehold income.Followingthe In thefirstUKgovernment’s FPstrategythestatisticaldefinitionwas‘10%metric’:ahousehold in England. As background totheevidenceitself,wefirstoutlinetwoofficialFPstatisticsthathavebeenused retrofits. income shocks.Forthesehouseholdsthere may bemore effective interventionsthanenergyefficiency households. Second,weshowthatformanyhouseholdsFPisepisodic,oftenresulting from negative effectively, thoughwerecognise energyefficiency’s contributionto reducing FP’s severityinindividual tenants. Ourevidenceraisesquestionsabouttheabilityofenergyefficiencyinterventionstoaddress FP may omitsomehouseholdswhostruggletoafford energyservices,inparticularsomesocialhousing The current chapterfocusesontwomainissues.First,theofficialLowIncome-HighCost(LIHC)indicator FP statisticsare problematic, issuesofdeprivationstillwarrantfurtherinvestigationandpolicymeasures. desirable tofocusonthisdirectly ratherthanthemore nebuloustermofFP. We wishtostress that,while most effectively forexample, ishouseholdslivinginthecold,itseems atleastcost.Ifthemainconcern, with theextenttowhichsocietywishesalleviateitandinterventionscanresolve theissue of severalunderlyingproblems. Eachreal-world phenomenoncanthenbeassessedindividually, together Rather thanusingasinglestatistictorepresent FP, wesuggestthatFPshouldbeviewedasasymptom around existingFPindicators.Thisevidenceispresented inthischapterandChapter6. considerable debate.We provide additional,andoftenimproved, evidencehighlightingtheuncertainties Operationalising FPintomeaningfulstatisticalindicatorshasproved challengingandremains subjectto energy retailers. prices, paymentmethods,debtrecovery policies,andanyaffordability supportschemesdelivered by Both definitionsincorporateseverallinksbetweenthe retail energymarketandFP, includingenergy Hills (2012) Example, seeThomson andSnell(2013) (last accessed06.8.18) Paragraph 1(1),Warm HomesandEnergyConservationAct2000,availableat:http://www.legislation.gov.uk/ukpga/2000/31 We alsouse FPtodenote‘fuelpoor’. 4 theLIHCindicatorwasadoptedinEngland,whichclassifies ahouseholdasFPif:(a)their 1 isdefinedinthe Warm HomesandEnergyConservationAct2000as:“a 2

7 6 5 temperature Official FPstatisticsare basedon‘required’ ENEX,theestimatedENEXneededtomaintainaspecified evidence onbothoftheseissues. overlap withthe10%andLIHCindicatorswhenthese are basedonreported ENEX.Chapter6provides based indicators, The relationship betweenFPratesusingreported andrequired ENEXiscomplex.Moreover perception- analysis onhouseholds’reported ENEX. identify householdsthatare officiallyFP, andleadingmany researchers, asinthis study, tobaseFP requiresdwelling. Thisinturn acomprehensive dwellingsurvey, makingitdifficultforpractitionersto ‘objective’. Theperception-based indicatorsresult from households’agreement ordisagreement with statements includedinsurveys. We use‘perception-based’ to refer to indicators oftenlabelled‘subjective’, andENEX-basedtorefer toindicatorsothers havelabelled In England,therequired temperature is21°Cinaprimaryzoneand18°Csecondary zone. Pg7, BEIS(2018) (Source: DepartmentforBusiness,EnergyandIndustrialStrategy) Income-High Cost(LIHC)FPindicator Figure 1Classifyinghouseholdsaccording totheLow 6 basedonanengineeringmodelincorporatingthedetailedphysicalcharacteristicsofa 7 suchasaninabilitytoafford tokeepone’s homeadequatelywarm,showlimited 5 61 Fairness in Retail Energy Markets? Evidence from the UK 62 Since the official FP definitions are based on engineering models of dwellings, and assumptions about ‘optimal’ temperatures, any households preferring lower temperatures (than assumed in the modelling) may be wrongly classified as FP. For other FP households there are a range of factors, including housing choices, the condition of heating facilities and behavioural responses that contribute to complex and shifting issues extending beyond energy efficiency. Taking this more holistic approach provides a way forward for FP research and policymaking: rather than constructing a single FP statistic, the frequency of each real-world phenomena of concern could be assessed, and the relationships between these phenomenon and household characteristics could be explored. Such an approach reflects the complex reality of FP and should help policymakers to design and deliver effective interventions.

2 Fuel Poverty and Social Housing

Since 2015, the official FP target has been expressed in terms of an energy efficiency rating: as many FP homes as is reasonably practicable will have a minimum energy efficiency rating of C by 2030.8 This target focuses on, and can be achieved by, installing technology rather than by demonstrating a significant improvement in households’ welfare, despite the latter seeming a more appropriate focus.

2.1 Official FP statistics may understate affordability issues in social housing

Over the last two decades there has been a concerted drive to improve the energy efficiency of social housing through initiatives such as the Decent Homes Programme which was applied to 1.2 million properties.9 Social housing providers have also had access to energy efficiency programmes such as the Carbon Emissions Reduction Target (CERT) and the Energy Company Obligation (ECO). These ‘retrofit’ improvements are often presented as a win-win in terms of addressing both FP and decarbonisation targets10 which reinforces a policy narrative that improving energy efficiency is the most effective way to address FP.11

Reflecting the investment in energy efficiency, social housing has the highest energy efficiency (SAP ratings) of all tenures, as illustrated in Figure 2. Since official FP statistics use required ENEX, households with higher energy efficiency ratings are less likely to be identified as FP. The LIHC metric may further reduce the likelihood of tenants in energy efficient housing being identified as FP: if required ENEX is below the median, the LIHC metric will not identify the household as FP, however low a household’s income. If official FP statistics are used to guide energy affordability support policies, households in genuine difficulties may be excluded from help.

8 Pg12, HM Government (2015). The ‘Standard Assessment Procedure’ places properties’ energy performance on a scale of 1-100, with A-G categories within this scale. ‘A’ rated properties have higher energy efficiency than ‘G’ rated properties. Ratings are linked to modelled running costs based on standardised assumptions about occupancy and behaviour. 9 Paragraph 5, pg6, National Audit Office (2010) 10 See Swan et al (2017) and Abdel-Wahab et al (2011). In practice, a policy maximising FP reductions is likely to require interventions rather different to a policy seeking to maximise CO2 reductions.

Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience from CHAPTER 5 Fuel Poverty: Characterising a Complex Problem 11 See Middlemiss (2017) substantially abovetheofficial required ENEXFPrateforsocialhousing. into required ENEX.Figure 3showsthatour arisesfromA furtherconcern anyinaccuracieswiththemodelwhichconvertsenergyefficiencyfeatures be definitivelyevaluated. in themodelgeneratingofficialFPstatistics.Section 3.2inChapter6discusseshowthisissuecould suggests thereduction inENEXresulting from energyefficiencymeasures mayhavebeenover-estimated housing (butnotforowneroccupiers),andsocialhashigherSAPratingsinFigure 2,potentially 13 12 methodologies are provided inAppendix1. Deller andWaddams Price (2018b).Asimilarresult isfound whenusingthe10%metric.Details ofourresearch papers’ Figure 1.1,DCLG(2014) (Source: DepartmentforCommunitiesandLocalGovernment) Figure 2Average energyefficiency(SAP)ratingbytenure, 2001-2012

Average SAP Rating 13 centralestimateofLIHCFPusingreported ENEX is 12

That alargegapexistsforsocial 63 Fairness in Retail Energy Markets? Evidence from the UK 64

Figure 3 LIHC fuel poverty rates in England based on reported and required energy expenditures for social housing and owner occupiers, 2003-04 to 2014

(Data: Reported ENEX FP - Living Costs and Food Survey and precursors,14 Required ENEX FP – Department for Energy and Climate Change15) Fuel Poverty Rate (%)

Year

Regarding the role of low incomes, our analysis16 of Living Costs and Food Survey data involving reported ENEX shows social housing tenants consistently have the highest energy expenditure shares (ENEXShr) of all tenure types between 1992 and 2005 (Figure 4), despite the efforts to improve the energy efficiency of the social housing stock. Figure 5 shows that since 2000-01 social housing tenants’ median ENEX has been broadly in line with that of private renters. Together, Figures 4 and 5 indicate the higher ENEXShr of social housing is driven primarily by low income (total expenditure) rather than higher ENEX.

14 Deller and Waddams Price (2018b) 15 ‘Trends in Fuel Poverty, England, 2003 to 2014’, Department for Energy and Climate Change (DECC), https://www.gov.uk/ government/statistics/fuel-poverty-trends-2003-2014

Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience from CHAPTER 5 Fuel Poverty: Characterising a Complex Problem 16 Deller and Waddams Price (2018a) 19 18 17 Deller andWaddams Price (2018a).2014pricescalculated usingtheRetailPriceIndex(RPI). Deller andWaddams Price (2018a) Energy expenditure asaproportion oftotalhousehold expenditure afterthedeductionofhousingcostsandequivalisation. (Data: LivingCostsandFoodSurveyprecursors) Figure 5Medianenergyexpenditures byhouseholdtenure, 1992-2014 (Data: LivingCostsandFoodSurveyprecursors) Figure 4Medianenergyexpenditure shares Median Energy Expenditure (£, 2014 Prices) Energy Expenditure Share (%) 1992-2014 Year Year 18 19 17 byhouseholdtenure, 65 Fairness in Retail Energy Markets? Evidence from the UK 66 2.2 Some social housing tenants struggle to maintain warmth

Since some social housing tenants may be missed by official FP indicators, we20 conducted in-depth interviews with a selection of tenants to explore the issues involved. Broadland Housing Association (BHA) in the East of England has a strategy of helping tenants to avoid FP by improving their housing stock through replacing boilers, installing insulation, and commissioning highly energy efficient new build properties. BHA calculates that their properties have an average SAP rating of 71.1, although they report that 29.9% of their tenants experience ‘10% FP’.

In twelve out of fifteen interviewed households21 tenants took steps to keep their ENEX as low as possible, such as through spatial and temporal ‘rationing’ of energy use (e.g. heating only one room, often for very short periods), by wrapping themselves in duvets or visiting others to warm up. Susan (Box 1) is a tenant who combines high ENEX with routines of limiting energy consumption. Box 2 shows that interviewees who were not rationing their energy use often faced other difficult choices such as limiting food expenditure. Our findings22 suggest some tenants are spending less than they would like to on energy while still facing a high ENEXShr.

Box 1 Susan - Coping with inefficient heating

Susan is a single parent and part-time child-minder who lives with her school-age daughter in a ‘D’ SAP rated home that is not connected to the gas grid. She uses storage heaters and, after experiencing high bills (around £40 per week) and getting into debt, she contacted Broadland Housing who helped her with budgeting and undertook an energy audit. After the audit, and having seen some advice from Martin Lewis, the ‘Money Saving Expert’, she switched supplier allowing her to have her Pre-Payment Meter removed for free and to move onto lower-rate quarterly bills. She still takes several measures to reduce her energy consumption to avoid high bills, such as only cooking in large batches and taking advantage of her Economy 7 tariff by only using her washing machine and dishwasher after midnight. She is waiting for a smart meter to be installed so she can know exactly what she is using.

3 The Persistence (or not) of Fuel Poverty within Households

A topic receiving limited attention to date is the time households remain in FP. If FP is primarily a dynamic phenomenon, it raises questions about whether energy efficiency retrofits, which permanently alter dwellings, are the most appropriate FP intervention.

20 Hargreaves and Longhurst (2018) 21 Interviews focused on households likely to be at risk of FP.

Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience from CHAPTER 5 Fuel Poverty: Characterising a Complex Problem 22 Hargreaves and Longhurst (2018) 25 24 23 as acomparator. (BHPS) The dynamicsanddurationofFPcanalsobeexplored usingtheBritishHouseholdPanelSurvey and energysuppliers)are discretionary and,itwasreported, increasingly difficulttosecure. additional income,orthewritingoff ofdebt.Howeversuchformssupport(from grant-makingtrusts tenant supportteam,whichcanleadtoimprovements inthetenant’s situationthrough securing energy debt.Tenants inarrears withtheirhousingpaymentsoftentriggerinterventionfrom theBHA compounded byalossofhousingbenefit,leadingtorapidaccumulationdebt,includingsignificant shocks suchasbecomingunemployed.OneexampleisMichael(Box2),whoseunemploymentwas The qualitativedataillustratethedynamicandchangingnature ofFP, oftentriggered byfinancial 3.1 FPoftenappearstobeadynamicandchangingphenomenon the followingyear. Figure 6charts exitprobabilities FPindicators,withincomepoverty forfive alternative ‘exit probability’, i.e.theprobability thatahouseholdwhichisinFPoneyearwillnolongerbeby least halfofhouseholdswhoidentifiedasFPinoneyear nolongerdidsobythefollowingyear. noticeably higherthanforincomepoverty;andallthree perception-based FPindicatorsinallyearsat To beincludedinFigure 6,households onlyhadtobepresent intwoconsecutivesurvey waves(years). Defined ashouseholds where incomeisbelow60% ofthemedian. Deller, Turner andWaddams Price(2019). Figure 6andFigure 7usedatafrom Ireland. thewholeofUK,includingNorthern bank, butatthispointdoesnotcutbackonhisenergyconsumption. and somecredits from hissupplier. Hehashadsomeloans from afriendandusesfood with hissuppliertaking£5-6perweekinrepayments. Hereceives theWarm HomeDiscount increasing. Hegetshisgasbillquarterlyanddebthasbeenputontoelectricitykey, to andfrom school,whichrequires twobuses.Asaresult, hisdebtsandunpaidbillsare factory, butisnowfindingithard togetwork,partlybecauseheneedstakehischildren Broadland Housing£1,200inrent arrears. Heisatrainedbuilderandusedtoworkinlocal house. Herecently losthishousingbenefit,seeingitcutfrom £400tojust£2.Henowowes Michael isanunemployedsinglefather, wholiveswithhisfourchildren ina1970sterraced childcare Box 2Michael-Strugglingwithchangingbenefits,unemploymentand 23 whichtracksindividualhouseholdsthrough time. Variability inFPstatuscanbeindicated bythe 25 Both theperception-based andENEX-basedFPindicatorshaveexitprobabilities 24

67 Fairness in Retail Energy Markets? Evidence from the UK 68 Figure 6 Chance of households exiting fuel/income poverty between year t and year t+1, 2001-02 to 2007-08

(Data: British Household Panel Survey)26 Chance of exiting fuel/income poverty between years

Another way of illustrating the persistence of FP is through how often households27 were identified as FP by the alternative indicators. Figure 7 shows that, for the perception-based indicators, just over 60% of those reporting FP at least once did so only once, and that over 80% reported it in only one or two years. The LIHC metric shows more persistence, likely because of its relative nature.

Equally, the BHPS analysis should be interpreted with some caution. First, the BHPS statistics cover a period of lower average ENEX than today. Second, especially in Figure 7, the results may be influenced by attrition, i.e. the poorest and least stable households, who are likely to be at particular risk of persistent FP, may be more likely to drop out of the sample. Third, we do not know what support (if any) households received while FP. Evidence from the quantitative and qualitative research potentially reveals the different forms that FP may take: dynamic or chronic.

26 Deller, Turner and Waddams Price (2019). Figures 6 and 7 use unweighted data.

Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience from CHAPTER 5 Fuel Poverty: Characterising a Complex Problem 27 This measure was restricted to those households present in all eight waves (years) of the BHPS data we analysed. Our qualitativeanalysis 3.2 Somehouseholdsstruggletoafford warmthoverthelong-run 29 28 with highSAPratingsandaccesstomainsgas. efforts torestrict property energyconsumptionandmultiplewaysofcoping,despitelivinginamodern Employment SupportorJobSeekersAllowance(£3,010-£3,801peryear).Colin(Box3)usedongoing were particularlyapparent insinglepersonunemployedhouseholdswhere theprimaryincomewas incomes, thoughtechnicalfactorscanexacerbatethesituation.Long-runenergyaffordability challenges Hargreaves andLonghurst (2018) Deller, Turner and Waddams Price(2019)

% of households fuel poor at least once (Data: BritishHouseholdPanelSurvey) waves 2001-02to2008-09) (conditional onbeingfuelpooratleastonceandpresent inallsurvey Figure 7Numberofperiodshouseholdswere identifiedasfuelpoor Warm HomesDiscountand boostinghisemployabilityskills. him somesmallrebates inthepast.Broadland Housingare tryingtohelphimbyseekingthe switch provider andlimitedITskills,butalsofeelsloyaltohisprovider astheyhavegiven more expensive,allowshimtocontrol hisexpenditure. Hehaslittleknowledgeofhowto than usinghisgascooker. HepaysforenergyusingaPre-Payment Meterwhich,although using room lights,heatingwaterforjust30minuteseachdayand microwaving foodrather clothes, havingbathsorvisitingfriendstokeepwarm, relying onlightfrom theTVratherthan low income,hetakessignificantmeasures tolimithisenergyuse.Forexample, wearing extra Support Allowance.Helivesinanefficient,‘B’ratedhome, but,despitethis,tocopewithhis Colin isanunemployedsinglemanwithincomeof£73 perweekthrough Employment Box 3Colin-Rationingenergyuse 29 suggestslongerterm‘chronic’ casesofFPare oftendrivenbypersistentlow 28 Number ofwavesfuelpoor 69 Fairness in Retail Energy Markets? Evidence from the UK 70 Susan’s experience (Box 1, p66) shows the influence of technological issues. Also, Susan’s energy costs were increased by use of a pre-payment meter (PPM). These factors, combined with home working, led Susan to spend around £40 per week on energy, despite her attempts to limit consumption.

As well as distinguishing between dynamic and chronic FP, the qualitative data also suggest a distinction between controlled and uncontrolled situations. In many cases of persistent FP households have patterns of consumption and ways of coping that are relatively stable and manageable, albeit involving less energy usage than the household would ideally choose.

In contrast, uncontrolled cases, such as Michael (Box 2, p67), reflect situations where current ENEX is unaffordable, leading to a build-up of energy related debt, which often occurs as a household experiences a generally deteriorating financial situation. The burden of debt repayments eating into households’ disposable income is not reflected directly in FP statistics. Difficulties may be exacerbated by the method for recovering energy debt. Many struggling households have PPMs, where a proportion of any amount they ‘top-up’ goes to repaying their debt rather than purchasing new energy. These ‘forced’ debt repayments, while limiting the bad debt costs falling on other energy consumers, raise the effective price of energy within a home. A household’s willingness to top up a PPM may be further reduced by a lack of clarity around how much of their top-up is used to pay off debt. If users do not know how much will be taken for debt when they top-up, they may choose to spend their limited funds elsewhere.

4 Conclusion

FP alleviation is currently heavily focused on improving the energy efficiency of the housing stock. While such an approach may help with climate change commitments, we present evidence suggesting that other approaches need consideration to improve the welfare of those who struggle with energy affordability. Both quantitative and qualitative evidence suggests that low incomes are often fundamental to households’ energy affordability challenges and, while energy efficiency improvements should help, retrofits’ ability to offset the consequences of low incomes is likely limited. Social housing presents an example where households may still struggle, despite relatively high levels of energy efficiency. This supports a case for going ‘back to basics’ when assessing energy affordability challenges. A more effective approach than a single measure of FP, would be measuring the extent of directly observable real-world phenomena experienced by households that raise concern. The case for intervention to resolve each issue can then be evaluated. Ofgem’s30 more nuanced regulatory understanding of consumers in vulnerable situations is welcome support for this approach.

Fuel Poverty: Characterising a Complex Problem from Survey Data and the Lived Experience from CHAPTER 5 Fuel Poverty: Characterising a Complex Problem 30 Ofgem (2013) Thomson, H.andC.Snell,2013.Quantifying theprevalence offuelpovertyacross the European Union,Energy Swan, W., R.Fitton,L.Smith,C.Abbott,and2015.Theadoptionofsustainableretrofit inUKsocialhousing Ofgem, 2013.ConsumerVulnerability Strategy–Finaldecision,Ref102/13,4July2013,London.Available National AuditOffice,2010.TheDecentHomesProgramme: Summary, ReportbytheComptroller andAuditor Middlemiss, L.,2017.AcriticalanalysisofthenewpoliticsfuelpovertyinEngland,CriticalSocialPolicy, 37(3), Her Majesty’s 2015.‘Cuttingthecostofkeepingwarm:AfuelpovertystrategyforEngland’,March Government, Hills, J.,2012.Gettingthemeasure offuelpoverty:Finalreport oftheFuelPovertyReview, Centre fortheAnalysis Hargreaves, T. andN.Longhurst,2018.Thelivedexperienceofenergyvulnerabilityamongsocialhousingtenants: Deller, D.,G.Turner andC.Waddams Price,2019.Discrepancies betweenPerception- andExpenditure-based Deller, D.andC.Waddams Price,2018b.ComparingEnglishFuelPovertyRates:ReportedvsModelled Deller, D.andC.Waddams Price,2018a.EnergyAffordability intheUK:Corrected EnergyExpenditure Shares (DCLG),2014.EnglishHousingSurvey:ENERGY Department forCommunitiesandLocalGovernment Department forBusiness,EnergyandIndustrialStrategy(BEIS),2018.AnnualFuelPovertyStatisticsReport,2018 Abdel-Wahab, M.,D.Moore andS.MacDonald,2011.Exploringtheadoptionoflowcarbontechnologiesby References Policy, 52,pp.563-572 ofBuildingPathologyandAdaption,35(5),pp.456–469 Journal 2010 –2015,International accessed 06.08.18) at: https://www.ofgem.gov.uk/sites/default/files/docs/2013/07/consumer-vulnerability-strategy_0.pdf (last uploads/2010/01/0910212es.pdf (lastaccessed06.08.18) General, HCSession2009-2010,21January2010,London,available at:https://www.nao.org.uk/wp-content/ pp. 425-443 06.08.18) system/uploads/attachment_data/file/408644/cutting_the_cost_of_keeping_warm.pdf (lastaccessed 2015, URN15D/062,London,availableat:https://assets.publishing.service.gov.uk/government/uploads/ file/48297/4662-getting-measure-fuel-pov-final-hills-rpt.pdf (lastaccessed06.08.18) available at:https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ of SocialExclusion,CASEreport 72,March 2012,LondonSchool ofEconomicsandPoliticalScience, Competition Policy, Norwich emotional andsubjectiveengagements,3SWorking Paper18-32/CCPWorking Paper18-7,Centre for Anglia, Norwich CCPWorking Paper19-1,CentreFuel PovertyIndicatorsoverTime, forCompetitionPolicy, UniversityofEast Expenditure, CCPWorking Paper18-11,Centre forCompetitionPolicy, UniversityofEastAnglia,Norwich 1992-2014, CCPWorking Paper18-8,Centre forCompetitionPolicy, UniversityofEastAnglia,Norwich system/uploads/attachment_data/file/335756/EHS_Energy_efficiency_of_English_housing_2012.pdf EFFICIENCY OFENGLISHHOUSING2012,July2014,availableat:https://www.gov.uk/government/uploads/ Statistics_Report_2018.pdf (lastaccessed:06.08.18) publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/719106/Fuel_Poverty_ (2016 Data):England,StatisticalRelease:NationalStatistics,June2018,London,availableat:https://assets. pp. 318-323 ofLowCarbonTechnologies, Journal Scottish housingassociations,International 6, 71 Fairness in Retail Energy Markets? Evidence from the UK 72 72 CHAPTER 1 Introduction: Fairness in Retail Energy Markets? Decision Making to Optimise and Measurement Improving Data Chapter 6 publicly shared bydefault data from surveyscommissionedby economicregulators were Policymaking wouldbebetterinformedifanonymised raw definitive explanationsforthelackofoverlap In-home temperature measurements seemnecessarytoform perceptions ofunaffordable warmth energy expenditures (10%andLIHCmetrics)households’ There islimitedoverlapbetweenfuelpovertyindicatorsbasedon Housing Survey expenditures requires questions aboutthelatterinEnglish A definitivecomparisonof required and reported energy some years poverty ratesbasedonrequired (modelled)energyexpenditure in rates basedonreported energyexpenditures exceedofficialfuel After applyingacorrection, centralestimatesoffuelpoverty analysis whichhasusedLCFdata and itsprecursors isleftuncorrected. Thismayaffect previous measurement issueintheLivingCostsandFoodSurvey(LCF) meters are under-estimated byalargemarginifsignificant Average energyexpenditures ofhouseholdswithprepayment Key Points 73 Fairness in in Retail Retail Energy Energy Markets? Markets? Evidence Evidence from from the UKthe UK 74 1 Introduction

The data available to policymakers provide them with a picture of the world and identifies potential issues in the retail energy market. High quality data provide policymakers with a better understanding of the world, which should lead to more informed policies and better outcomes for consumers. The converse is also true: poor quality, or misunderstood, data risk policy errors and detrimental outcomes for consumers. Here some key data issues encountered during our research are explored. This chapter contains three sections focussed on: (i) household energy expenditures (ENEX), related to Chapter 2; (ii) alternative fuel poverty (FP1) indicators, related to Chapter 5; and (iii) the use of market monitoring surveys, which is particularly relevant to Chapter 4.

The most significant issue identified is that the main source for household ENEX, the Living Costs and Food Survey (LCF) and its precursors, contains a serious measurement issue from the early-1990s until 2013. Data appear to be missing for a significant proportion of households with prepayment meters (PPMs). Correcting for this issue substantially increases average ENEX among PPM households, a group disproportionately on low incomes. Estimates of some earlier studies (which used the uncorrected data) regarding the distribution of ENEX, energy consumption and emissions across households may be affected by this data issue.2

The FP rate based on reported3 ENEX, after applying our PPM correction, is compared with the official FP rate based on ‘required’ ENEX. Which type of ENEX yields the higher FP rate varies through time, so reported ENEX does not always result in lower FP rates than required ENEX. The methodology for calculating required ENEX suggests a more neutral label is modelled ENEX. Using a different dataset, we further show that only a small percentage of households identified as FP using ‘official’ ENEX indicators self-report an inability to afford adequate warmth. This raises fundamental questions about the phenomena identified by alternative FP indicators; explaining the lack of overlap likely requires survey data to be combined with data on in-home energy use, in this instance achieved temperatures and temperature preferences.

Our third set of insights result from analysing Ofgem’s micro and small business (MSB) surveys. UK economic regulators would maximise the insights from costly surveys by having a starting presumption of sharing anonymised survey data, so that external bodies can perform additional analysis and form independent conclusions. This would be particularly valuable if resource constraints limit further analysis by the regulator. If sharing is impossible, a detailed explanation should be made public.

2 Pre-Payment Meters, Missing Data and Energy Expenditures

There are three main methods to pay for electricity and gas in the UK: by Direct Debit, in arrears (Standard Credit) or by PPM. PPMs have traditionally been installed in rental properties and have increasingly been used to manage debt, so they are located disproportionately in low income households. Unlike direct debit and arrears, until 2013 PPM gas and electricity expenditures were recorded in the LCF using a two-week expenditure diary where households recorded expenditures as they occurred.

1 We also use FP to denote ‘fuel poor’. 2 For example, Druckman and Jackson (2008) and Buchs and Schnepf (2013). 3 Reported ENEX is the ENEX reported by households in surveys. Improving Data and Measurement to Optimise Decision Making Data and Measurement CHAPTER 6 Improving gas increased throughout the1990s In thePPMENEXdataproportion ofhouseholdsreporting zero expenditure onelectricityand/or 2.1 ManyPPMusers’ENEXdataappeartobemissing 6 5 4 accurate of‘true’averageENEX. two weeks.Inthisinterpretation mean(average)ENEXfrom theexpenditure diarywouldstillbebroadly expenditures isinfrequency ofpurchase, i.e.householdstopuptheirPPMless frequently thanonceevery Advani etal(2013)andBuchsSchnepfnote thatonepossiblereason forthezero zeros increased duringthe1990sisunclear. PPM customersreporting zero increased, themedianENEXofPPMcustomersfell.Whyfrequency of expenditure inthefirstdecadeof2000s(Figure 1).Figure 1alsoshowsthatastheproportion of did top-upduring thetwo-weekdiarywindow. Here thezeros wouldbeoffset bylargerpositiveENEXobservations coveringmore thantwoweeks forthosehouseholdsthat Deller andWaddams Price(2018a).Detailsofourresearch papers’methodologies are provided inAppendix1. See Figure A.3,pg89,Advanietal(2013)fortheratesof‘zero’ PPMexpenditures priorto1992.

% of observations reported as ‘zero’ (Data: LivingCostsandFoodSurveyprecursors) customers gas expenditure plottedagainstmedianENEXforelectricityPPM Figure 1Percentage ofPPMcustomerswithzero electricity/ 6 4 untilaround 50%ofgasPPMcustomerswere reporting zero gas Year 5 75 Fairness in Retail Energy Markets? Evidence from the UK 76 However, we believe,7 the zero observations are more appropriately treated as missing data. Consequently, apparent observations of zero ENEX for PPM households need to be replaced with an ENEX estimate if average ENEX and the ENEX distribution are to be accurate. Equally, we acknowledge, a small proportion of households’ top-ups may have lasted for longer weeks and some of the zeros in the two-week expenditure diaries are real.8 As a result, our ENEX, ENEXShr and FP figures in years prior to 2013 are technically upper bounds.

The decision to impute PPM ENEX is based on a range of evidence. Most importantly, the drop in the number of ‘zero’ observations in 2013 coincides with a change in the survey question for PPM customers. From 2013 households were asked the amount of their last top up and the period it would normally last. Figure 1 highlights how this change caused observations of zero ENEX to disappear and at the same time median ENEX for PPM households more than doubled. Since this dramatic increase in median ENEX only occurs for PPM households, we conclude the question change was responsible.

Other evidence also supports treating the zeros as missing; in particular: (i) two surveys9 report a clear majority of PPM households top up weekly, so infrequency of purchase seems an unlikely explanation; and (ii) PPM prices did not increase significantly between 2012 and 201310, so prices do not explain the sudden jump in PPM ENEX recorded by the LCF. Moreover, since the LCF sets expenditure to zero unless a respondent records positive expenditure, zeros can easily mask missing data.

2.2 Correcting for PPM users’ missing data

To correct for the zero expenditures, ordinary least squares regressions11 were performed based on data from the PPM households who reported positive expenditures for electricity(gas). These regressions produced a model that, when combined with the characteristics of PPM households reporting zero electricity(gas) expenditure, could estimate the annual electricity(gas) expenditure for each PPM household with missing data. The correction’s impact is shown in Figure 2. If the correction is not applied, average ENEX for PPM households and, therefore, low income households is substantially lower. Applying the correction means the time trend for PPM households’ ENEX becomes closer to that for the Direct Debit and Standard Credit payment methods.

7 Deller and Waddams Price (2018a) 8 For example, in summer months, due to limited heating requirements, a top up on a gas PPM might last more than two weeks. However, evidence presented in Deller and Waddams Price (2018a) suggests this is only true for a small proportion of the observations. 9 Waddams et al (2001) and Mummery and Reilly (2010). 10 Table 2.2.1 and Table 2.3.1, Statistical data set: Annual domestic energy bills, Department of Business, Energy and Industrial Strategy, available at: https://www.gov.uk/government/statistical-data-sets/annual-domestic-energy-price-statistics

Improving Data and Measurement to Optimise Decision Making Data and Measurement CHAPTER 6 Improving 11 Deller and Waddams Price (2018a) provide further methodological detail. 16 15 14 13 12 FP indicators. Both analysesconsidertwoexpenditure-based FPindicatorswhichhaveconstitutedtheofficialEnglish across theUK. ENEX used toproduce FPratesbasedonreported ENEXtocompare withofficialFPstatisticsusing‘required’ Our quantitativeanalysisofFPusestwodatasets.First,thecorrected LCFdataoutlinedaboveare FuelPovertyMetrics 3 Alternative specified temperature withinadwelling.MuchoftheFPliterature Official FPstatisticsare basedon‘required’ ENEX,i.e.theestimatedENEX required tomaintaina 3.1 ReportedENEXcangivehigherFPratesthan required ENEX Further detailontheseindicatorsisprovided insection1.1ofChapter5. median ENEXandhouseholdincome,afterthededuction ofENEX,liesbelow60%medianincome. income. TheLowIncome-HighCost(LIHC)indicatoridentifies ahouseholdasFPifENEXliesabove recording householders’perceptions ofin-homewarmthwithindicatorsbasedonreported ENEX For example,Liddell etal(2012)andThomson (2017). Although theofficial indicatorsare basedon required ENEX. Deller, Turner andWaddams Price(2019) Deller andWaddams Price(2018b) Deller andWaddams Price(2018a) (Data: LivingCostsandFoodSurveyprecursors) method (PPMcorrected anduncorrected) Figure 2Medianannualenergyexpenditure byelectricitypayment 13 Annual Energy Expenditure (£, 2014 Prices) inEngland.Second,theBritishHouseholdPanelSurvey(BHPS)isusedtocompare FPindicators 15 The10%indicatoridentifiesahouseholdasFPifENEX exceeds10%ofhousehold Year 12 16 assumesthatFPstatisticsusing 14 77 Fairness in Retail Energy Markets? Evidence from the UK 78 reported ENEX under-report FP because households facing affordability pressures limit their ENEX by ‘cutting back’ on their energy use, e.g. reducing heating, not using lights and batch cooking etc. (see boxes 1 and 3 in Chapter 5). However, using the corrected LCF data, Figure 3 shows that the central estimate of the FP rate based on reported ENEX is sometimes higher than that based on required ENEX. Some earlier analysis which concluded reported ENEX under-reported FP relative to required ENEX was likely affected by the PPM measurement issue which reduced apparent expenditure for many low income households.17 The estimated 10% FP rate based on reported ENEX exceeds the rate based on required ENEX when energy prices were low, but the reported ENEX FP rate is below the required ENEX FP rate when energy prices were higher. This changing relationship probably reflects a constant energy consumption being assumed under required ENEX, while reported ENEX reflects reductions in households’ energy consumption when prices increase.

Figure 3 also illustrates the relatively constant rate over twenty years of LIHC FP calculated from reported ENEX. This limited fluctuation illustrates that the headline LIHC FP rate is not particularly useful as an indicator of changing energy affordability pressures through time, i.e. it does not respond to energy price fluctuations. This lack of response is inherent in defining LIHC FP relative to the position of average households.

Figure 3 Estimates of English fuel poverty rates using reported and ‘required’ energy expenditures, 1995-96 to 2014

(Data: Reported ENEX FP – Living Cost and Food Survey and precursors18, Required ENEX FP – Department for Energy and Climate Change19) Fuel Poverty Rate

Year

17 In particular, Hirsch et al (2011) and DECC (2014). DECC (2015), using data from 2013 (i.e. unaffected by the measurement issue), shows little evidence of under-reporting (relative to required ENEX). 18 Deller and Waddams Price (2018b) 19 10% metric: Trends in Fuel Poverty, England, 2003-2011, 10% Definition, Department for Energy and Climate Change (DECC), https://www.gov.uk/government/statistics/trends-in-fuel-poverty-england-2003-to-2011 (last accessed 13.08.18); LIHC metric: Trends in Fuel Poverty, England, 2003 to 2014, Department for Energy and Climate Change (DECC), https://www.gov.uk/

Improving Data and Measurement to Optimise Decision Making Data and Measurement CHAPTER 6 Improving government/statistics/fuel-poverty-trends-2003-2014 (last accessed 13.08.18). noticeably abovetherequired ENEXFPrateforallyearsconsidered (seeFigure 3inChapter5). households. Apotentiallynotablefindingisthatthe reported ENEXFPrateforthoseinsocialhousingis for specificsubgroups ofhouseholdsvariesbythecharacteristics(e.g.age,tenure) usedtosegment Figure 3considerstheaggregate FPrate,therelationship betweenreported andrequired ENEXFPrates 3.2 TheEnglishHousingSurveyshouldrecord reported ENEX English HousingSurvey, encourage theadditionofappropriate questionstoelicitreported ENEXandenergyconsumptiontothe would bevaluabletoobtaindataenablingdefinitivecomparisons. To enablesuchcomparisons,we for individualhouseholds.Sincetheresults raise questionsabouttherequired ENEXmethodologyit 23 22 21 20 Indicator 2seemsmostcloselyalignedtotraditionalnotions ofFPmeasurement. The BHPSdataoffer three FP-relevant perception-based indicators: the conceptofFP. Inthissub-sectionall10%andLIHCFPfigures are basedon reported ENEX. indicators raisesfundamentalquestionsaboutwhattheidentifyandhowbesttooperationalise and LIHCFPindicatorsattheindividualhouseholdlevel.Theverylimitedoverlapbetweendifferent adequacy andenablesacomparisonbetweentheseperception-based FPindicatorsandthe10% terms ofhouseholds’real-world experiences.BHPSdatarecord self-reported assessmentsofheating The analysisinsections3.1and3.2presumes thatthe10%andLIHCmetricshaveclearmeaningsin 3.3 Perception-based andENEX-basedFPindicatorsshowlimitedoverlap figures are from different surveys, Nevertheless, alimitationoftheabovecomparisonsshouldbenoted:reported andrequired ENEX believe theterm‘modelledENEX’ismore transparent than‘required ENEX’. occupancy andenergyconsumptionthrough time;and(iii)thepriceofenergy. Forthesereasons we (i) thetemperature targeted,i.e.individuals’preferences are notconsidered; ofheating, (ii)thepattern map intoenergyconsumption,required ENEXinvolvesassumptions(ofvaryingimportance)regarding: of theENEXdistributionratherthanaverageENEX.Inadditiontomodellinghowbuildingcharacteristics FP statisticsmaybeparticularlyprone toinfluencebymodellingerrors astheyfocusontheuppertail are disaggregated couldbeconsistentwiththerandomerrors associatedwithanymodellingprocess. The more generalmixedrelationship betweenreported andrequired ENEXFPrateswhenhouseholds energy efficiencyinterventionstolimitENEX. this specific result couldindicatethemodelusedtocalculate required ENEXover-estimates theabilityof social housingdwellingshavethehighestaverageenergyefficiencyratings(seeFigure 2inChapter5), 3 Accommodationlacksadequateheatingfacilities. 2 Inabilitytoafford tokeephomeadequatelywarm; 1 Inabilitytokeephomeadequatelywarm; their homeadequately warm;thismayinfluenceFigures 4-7. Households were onlyasked whethertheycouldnotafford adequate warmthafteransweringthat theywere unabletokeep Moore (2012) haspreviously advocatedthis. The differences inFigure 3couldbeinfluencedbymethodologicaldifferences between thesurveys. result ofthe PPMcorrection leading toENEXprior2013being‘upperbounds’. Reported ENEXFPexceedsrequired ENEXFPin2013and2014aswellearlieryears,hencetherelationship isnotjustthe 22 thesurveyusedtoproduce theofficial required ENEXFPstatistics. 21 soithasnotbeenpossibletocompare reported andrequired ENEX 23 20 Since 79 Fairness in Retail Energy Markets? Evidence from the UK 80 Figure 4 reports the percentage of households identified by each FP indicator in the unweighted BHPS data.24 Figure 4 is not intended to provide accurate estimates of FP rates for the UK population as a whole, rather it illustrates what drives the lack of overlap between the different indicators shown in Figures 5-7. The higher rate of LIHC FP in Figure 4 compared with Figure 3 results from the BHPS over-sampling households in the devolved administrations, areas where households tend to have higher ENEXShr than in England.

Figure 4 Unweighted rates of alternative fuel poverty indicators in our analysed BHPS sample covering the whole of the UK, 2001-02 to 2008-09

(Source: British Household Panel Survey)25 % of households identified as ‘fuel poor’

Figure 4 shows striking differences in the proportion of analysed households identified as FP by each of the ENEX-based and perception-based indicators. Across the period, the highest proportion of households reporting an inability to afford adequate warmth is 2.0%, compared to a peak of 10.6% for 10% FP and 16.9% for LIHC FP. That so few households report an inability to afford adequate warmth raises questions about the phenomenon being identified by the 10% and LIHC metrics.

24 Figures 4-7 use an unbalanced panel, i.e. households were interviewed in multiple years, but may not have been interviewed in all years. The time trends in Figures 4, 6 and 7 may be influenced by attrition, i.e. households dropping out of the sample.

Improving Data and Measurement to Optimise Decision Making Data and Measurement CHAPTER 6 Improving 25 Deller, Turner and Waddams Price (2019) reporting aninability toafford to adequate warmthare notidentified asFPbythe10%orLIHCindicators. FP householdsare alsoidentifiedasENEXFP.With theexceptionof2001-02,atleast60%those FP householdsare identifiedasENEXFP, although,inallcases, still onlyaminorityofperception-based identified as10%orLIHCFP. Compared toFigure 6,anoticeablyhigher proportion ofperception-based Figure 7showsthepercentage ofhouseholdsreporting eachperception-based FPindicatorwhoare also self-identify assuffering inadequatewarmth. low: inallyears,over90%ofhouseholdsjudgedasFP according tothe10%andLIHCindicators do not of theperception-based indicators.Theextentofoverlapwith the ENEX-basedmetricsisremarkably indicators. Figure 6reports thepercentage ofhouseholdsidentifiedas10%or LIHCFPwho report each Figures 6and7provide furtherdetailontheoverlapbetweenENEX-based andperception-based their homeadequatelywarm,28.4%indicatedthatthiswasforreasons otherthanaffordability. heating facilitiesthoughttheywere abletokeepadequatelywarm.Also,ofthosereporting aninabilitytokeep only reported alackofadequateheatingfacilities;inotherwords, mosthouseholdsreporting inadequate 68.5% ofthosereporting eitheralackofadequateheatingfacilitiesoraninabilitytokeeptheirhomewarm how householdersperceive accesstoheat.Combiningdataacross 2001-02to2008-09,Figure 5shows of wording ontheprevalence ofFPsuggestedbyperception-based indicators.Thedifferences alsoillustrate The differences betweenthethree perception-based FPratesshouldalsobenoted,astheyshowtheeffect 26 Deller, Turner and Waddams Price(2019) (Source: BritishHouseholdPanelSurvey) combining datafrom 2001-02to2008-09 indicators considered inDeller, Turner andWaddams Price (2019), Figure 5AVenn diagramofthethree perception-based fuelpoverty 26 81 Fairness in Retail Energy Markets? Evidence from the UK 82 Figure 6 Percentage of 10%/LIHC fuel poor households reporting perception-based fuel poverty indicators,27 2001-02 to 2008-09

(Source: British Household Panel Survey)28 % of ENEX-based Fuel Poor Households

Figure 7 Percentage of perception-based fuel poor households identified as 10% / LIHC fuel poor,29 2001-02 to 2008-09

(Source: British Household Panel Survey)30 % of Perception-based Fuel Poor Households % of Perception-based

27 For example, the solid blue line represents the percentage of households in 10% FP that report that they cannot keep their home adequately warm. 28 Deller, Turner and Waddams Price (2019) 29 For example, the solid red line indicates the percentage of households reporting that they cannot afford adequate warmth who were identified as being in 10% FP.

Improving Data and Measurement to Optimise Decision Making Data and Measurement CHAPTER 6 Improving 30 Deller, Turner and Waddams Price (2019) Furthermore, regression results Smart thermostats in-home temperature recordings facetheirownmethodologicalchallenges. indicators beingmore appropriate thanothersrequire significantassumptions.Equally, we recognise that greatest welfare temperature improvements. information,recommendations Without aboutparticularFP illuminate: (i)therelationship betweendifferent FPindicators,and(ii)thepolicyinterventionsoffering the Information aboutin-hometemperatures and householders’temperature preferences wouldhelpto respondents toreport negativeexperiences,willalsoinfluenceperception-based FPindicators. a householdviewsgivensetofphysicalcircumstances positivelyornegatively, andthewillingnessof some olderindividualsviewlowertemperatures as‘adequate’?Psychologicalfactorsaffecting whether households? Alternatively, ifexpectationsofin-homewarmth haveincreased inrecent decades,perhaps reporting aninabilitytoafford adequatewarmthconsiderahighertemperature as‘adequate’thanother in-home temperatures thanthosereporting aninabilitytoafford adequatewarmth.Perhapsthose temperature preferences, inparticularwedonotknowwhetherENEXFPhouseholdsachievehigher A centralproblem isthatweknowneitherthetemperatures achievedbyhouseholdsnortheir this interpretation relies onseveralassumptions. restricting theirenergyconsumptionbelowa‘healthy’leveltoafford otheressentialproducts. However, goods, whilehouseholdsreporting aninabilitytoafford adequatewarmthcouldbeidentifyinghouseholds identifying householdswhoachieveadequateheatbutatthecostofreduced consumptionofother perception-based indicatorspickupdifferent aspectsofFP. TheENEX-basedindicatorscouldbe Since theFPresults aboveusereported ENEX,theresults mightsuggesttheENEX-basedand 3.4 Recording temperature preferences andin-hometemperatures seemskey warmth. just aslikelytobe10%FPand,insomespecifications,less report aninabilitytoafford adequate for alargerangeofotherfactors),householdwithheadaged75oroverismore likelytobeLIHCFP, FPindicators.Comparedalternative to ahouseholdheadedbysomeoneunder65(andaftercontrolling indicator. Inparticular, there are notabledifferences intheassociationsbetweenolderhouseholdsand 33 32 31 housing providers, households are seekingtoobtain.Moreover, somesmartthermostats are specifically targetedatsocial and couldprovide bothfrequent temperature recordings andinformationonthetemperatures which given temperature. unlikely toreceive oneandsmartthermostatsthemselvesare designedtolowerthecostofachievinga smart thermostatsdonotoffer apanaceaforresearch: somehouseholds(e.g.privaterenters) maybe For example,see Switchee,http://switchee.co/(last accessed13.08.18) These are different tosmartmeters. Deller, Turner andWaddams Price(2019) 33 32 whosetenantslikelyhaveahighriskofenergyaffordability challenges.However, maypresent anewopportunitytoobtaintemperature dataatalargescale, 31 indicatethatdifferent typesofhouseholdsare associatedwitheachFP 83 Fairness in Retail Energy Markets? Evidence from the UK 84 4 Maximising Insights from Data

This chapter has illustrated the benefits of revisiting data sets which have been collected for another purpose; secondary data analysis provides important insights into both potential data problems and the detail of fairness and affordability regarding energy consumption. A clear expectation of sharing survey data can influence research agendas and stimulate analysis providing further information to improve regulatory policy and delivery. One underused source of data has been the surveys regularly commissioned by Ofgem34 and other economic regulators, which each represent a significant investment of time and public money. Making these surveys routinely available would: (i) enable groups with different perspectives to contribute to analysis and knowledge; (ii) harness the time and skills of external groups to conduct in-depth analysis; (iii) increase the transparency of the evidence supporting regulation; and (iv) identify potential data collection improvements.

An example of this potential is shown by our research35 suggesting additional questions for Ofgem’s MSB survey in Chapter 4. Analysis of the MSB survey data could have yielded richer results if the energy supplier indicator had not been redacted, and more research to inform regulators’ policy making could be available if the need to seek special permission to access this type of data can be avoided. We note that Ofcom places the raw data from an equivalent survey covering the communications sector on its website with no apparent restrictions36 and we welcome Ofgem’s data services and supplier hub projects. To harness external contributions to regulatory knowledge, we suggest that economic regulators adopt a default presumption, similar to the requirements placed on researchers funded by the Economic and Social Research Council (ESRC), to share data, where possible, via the UK Data Archive. The following procedures would facilitate such a policy:

1 All survey datasets commissioned by economic regulators are publicly listed and a brief description provided (metadata); 2 Suitably anonymised raw data are shared whenever possible; 3 Where data cannot be shared, a detailed explanation of reasons for the inability to share is provided.

This procedure would provide transparency about the survey evidence commissioned by regulators, and the non-sharing of publicly funded data would be justified to external parties. While greater openness with data may increase challenge in some areas of regulation, we hope that such a challenge would exert a positive influence on the quality of regulation. An open data policy could also increase the transparency and legitimacy of the regulatory process.

5. Conclusion

This chapter has explored a range of data and measurement issues identified in our research regarding the available evidence on fairness in the retail energy market. While this chapter and Chapter 4 highlight the potential gains from additional data collection, all the quantitative evidence documented in this report is based on analysis of pre-existing datasets. Significant insights can be obtained from returning to old datasets and thinking creatively about whether they can answer questions not envisaged by their designers. This experience drives our conclusion that open data-sharing should enable more informed decision making.

34 For example, since 2012 Ofgem has commissioned at least five surveys covering MSB engagement. 35 Deller and Fletcher (2018). 36 ‘SME Consumer Experience Research 2016 Raw Data’ available at: https://www.ofcom.org.uk/research-and-data/multi-sector-

Improving Data and Measurement to Optimise Decision Making Data and Measurement CHAPTER 6 Improving research/general-communications/sme-research (last accessed 13.08.18) References Waddams, C.,M.Giulietti,D.Sharratt,A. FerrariandD.Cooke,2001.Affording GasandElectricity: SelfDisconnectionand Thomson, H.,S.Bouzarovski andC.Snell,2017.Rethinkingthemeasurement ofenergypovertyinEurope: Acriticalanalysisof Mummery, H.andReilly, 2010.Cuttingback,cuttingdown,off –Self-disconnectionamongprepayment meter Moore, R.,2012.Definitionsoffuelpoverty:Implicationsforpolicy, EnergyPolicy, 49, pp.19-26 Liddell, C.,C.Morris,S.J.P. McKenzieandG.Rae,2012.Measuringmonitoringfuel povertyintheUK:Nationalandregional Hirsch, D.,I.Preston, andV. White,2011.Understandingfuelexpenditure: Fuelpovertyandspending on fuel,Centre for Druckman, A.andT. Jackson,2008.HouseholdenergyconsumptionintheUK:Ahighlygeographicallyandsocio-economically Department ofEnergyandClimateChange(DECC),2015.AnnualFuelPovertyStatisticsReport2015,London,UnitedKingdom, Department ofEnergyandClimateChange(DECC),2014.AnnualFuelPovertyStatisticsReport2014,London,UnitedKingdom, Deller, D.,G.Turner andC.Waddams Price,2019.Discrepancies betweenPerception- andExpenditure-based FuelPoverty Deller, D.andC.Waddams Price,2018b.ComparingEnglishFuelPovertyRates: ReportedvsModelledExpenditure, CCPWorking Deller, D.andC.Waddams Price,2018a.EnergyAffordability intheUK:Corrected EnergyExpenditure Shares 1992-2014,CCP Deller, D.andA.Fletcher, 2018.Micro andSmallBusinesses’SatisfactionwiththeEnergyMarket:PolicyImplications,Centre for Buchs, M.andS.V. Schnepf,2013.Whoemitsmost?Associationsbetweensocio-economicfactorsandUKhouseholds’home Advani, A.,P. Johnson,A.LeicesterandG.Stoye,2013.HouseholdEnergyUseinBritain:ADistributionalAnalysis,IFSReport pdf/28ebd098-787f-44ad-9f0d-9baae91c57cf (lastaccessed13.08.18) at: http://competitionpolicy.ac.uk/documents/8158338/8264975/1.106645%21electricity+association+full+report+2001. Rationing byPrepayment andLowIncomeCredit ConsumersandCompanyAttitudestoSocialAction,March 2001,available indicators anddata,IndoorBuiltEnvironment, 26(7),pp.879-901 consumerfocus.org.uk/publications/cutting-back-cutting-down-cutting-off (lastaccessed13.08.18) users, ConsumerFocus,July2010,availableat:http://webarchive.nationalarchives.gov.uk/20130103083536/http://www. perspectives, EnergyPolicy, 49,pp.27-32 poverty/understanding-fuel-expenditure.pdf (lastaccessed13.08.18) Sustainable Energy, Bristol,UnitedKingdom,availableat:https://www.cse.org.uk/downloads/reports-and-publications/fuel- disaggregated model,EnergyPolicy, 36,pp.3177-3192 Report_2015.pdf (lastaccessed13.08.18) available at:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468011/Fuel_Poverty_ Final.pdf (lastaccessed13.08.18) available at:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/319280/Fuel_Poverty_Report_ CCPWorking Paper19-1,CentreIndicators overTime, forCompetitionPolicy, UniversityofEastAnglia,Norwich Paper 18-11,Centre forCompetitionPolicy, UniversityofEastAnglia,Norwich Working Paper18-8,Centre forCompetitionPolicy, UniversityofEastAnglia,Norwich Competition Policy, CCPWorking Paper18-9 energy, transport,indirect andtotalCO2emissions,EcologicalEconomics,90,pp.114-123 13.08.18) R85, InstituteforFiscalStudies,London,UnitedKingdom,availableat:https://www.ifs.org.uk/comms/r85.pdf (lastaccessed 85 Fairness in Retail Energy Markets? Evidence from the UK 86 Appendix 1 Methodological Appendix

The chapters in this report are based on a series of (single discipline) research projects within the UKERC project ‘Equity and Justice in Energy Markets’. Each project has generated at least one research paper which provides the underlying evidence. Here we summarise the methodologies used in the academic papers.

Deller, D. and C. Waddams Price, 2018a. Energy Affordability in the UK: Corrected Energy Expenditure Shares 1992-2014, Centre for Competition Policy, University of East Anglia, CCP Working Paper 18-8

This paper uses data from the Living Costs and Food Survey and its precursors, from 1992 to 2014, with additional observations in 1977, 1982 and 1987. The data cover the UK and involve a sample of 4,900-7,500 households per annum. A significant missing data issue is identified for households using pre-payment meters (PPM) from the early-1990s to 2012. This issue is addressed by: (i) running ordinary least square (OLS) regressions with electricity(gas) expenditure as the dependent variable on PPM households with non-missing data, and (ii) using the resulting models to estimate electricity(gas) expenditure for PPM households with missing data. Separate regressions are run for each fuel in each year. Additionally, energy expenditures (ENEX) for all payment methods are de-seasonalised with the seasonality factors produced by log-linear OLS regressions, where ENEX is the dependent variable and there is a wide range of explanatory variables including interview month. Separate de-seasonalisation regressions are run for each payment method and fuel in each year.

ENEX are defined as all expenditure by a household on fuel, light and power within the home; expenditures on transport fuels are excluded. Annual ENEX are converted to 2014 prices using the Retail Price Index (RPI). Energy expenditure shares are defined as ENEX divided by total household expenditure after housing costs are deducted, and total expenditure is equivalised for the number of household members using the modified OECD scale. The results are weighted to address potential sampling issues. Prior to 2001-02 when official weights are first provided, weights are calculated using census data identifying a household’s region/devolved administration together with a household head’s age and gender.

Deller, D. and C. Waddams Price, 2018b. Comparing English Fuel Poverty Rates: Reported vs Modelled Expenditure, Centre for Competition Policy, University of East Anglia, CCP Working Paper 18-11

This paper compares the official fuel poverty (FP) rates from the Department for Business, Energy and Industrial Strategy (BEIS), based on ‘required’ ENEX, with FP rates based on reported ENEX from the dataset in Deller and Waddams Price (2018a). The official FP rates are based on ENEX modelled using data from the English Housing Survey which includes a physical survey of dwellings. Both the 10% and Low Income-High Cost (LIHC) FP metrics are compared. The official statistics cover 10% FP from 2003-04 to 2011 and LIHC FP from 2003-04 to 2014. The headline rates of 10% and LIHC FP based on reported ENEX are calculated from 1995-96 to 2014, while reported ENEX FP rates disaggregated by household type are calculated for 2003-04 to 2014. Both the required ENEX and reported ENEX FP rates cover England only. When calculating reported ENEX FP rates, care is taken to follow the official APPENDIX 1 Methodological Appendix 3 2 1 in 2014and2015. This paperusesdatafrom Ofgem’s Micro andSmall Business(MSB)marketengagementsurveys Working Paper18-9 Market: PolicyImplications,Centre forCompetition Policy, UniversityofEastAnglia, CCP Deller, D.andA.Fletcher, 2018.Micro andSmallBusinesses’SatisfactionwiththeEnergy regarding whetherahouseholdremains withtheincumbent. identity oftherelevant region’s incumbentsupplier. Thetwoapproaches oftengive‘inconsistent’results a householdhadeverswitchedsupplier, and(ii)comparingahousehold’s current supplieragainstthe remained withtheincumbentelectricitysuppliersincemarketopening:(i)aquestionaskingwhether region forsomerespondents. Thedataprovide twopotentialwaystoidentifywhetherahouseholdhad subsample ofthedataisanalysedbecauseitwasnotpossibletoidentifyhouseholds’electricitysupply model. Fulldetailsofthesurveyare provided inFlores andWaddams Price(2018).Anunrepresentative CCP surveyare usedtoidentifycharacteristicsassociatedwiththistypeofinactiveconsumerviaalogit After identifyingtheelectricitybillsofconsumerswhohavestayedwithincumbent,datafrom a2011 provided Energy. byCornwall Warwick, from pricingsheetsproduced byWhich?,energywatchandConsumerFocusfrom data Index (RPI).Thetimeseriesisformedfrom analysisundertakeninprevious projects attheUniversityof the defaultpaymentmethod),inclusiveofVAT andare convertedto2016pricesusingtheRetailPrice Britain between1970and2016. the incumbentsupplierfor3,300kWhofelectricityperannumineachsupplyregion inGreat This paperisbasedontwodatasets.Themainfocusatimeseriesoftheelectricitybillchargedby Anglia, CCPWorking Paper18-10 Price Variations forInactiveConsumers, Centre forCompetitionPolicy, UniversityofEast Deller, D.,G.Turner andC.Waddams Price,2018.APostcodeLottery:RegionalElectricity median incomeandhousingcostsare calculatedseparatelyforeachyear. definitions 1,000 MSBsin2014. restricted toMSBsproviding responses relating totheirelectricitysupplier, yieldingasampleofjustover MSB hasswitchedinthelast5yearsandwhetherthey haveread theirenergycontract.Theanalysisis andelectricityexpenditure,e.g. numberofemployees,turnover and(b)engagement,e.g.whetherthe consists ofafive-pointlickertscale.Explanatoryvariables are splitintotwogroups: (a)firmdemographics supplier, (ii)energybrokers, and(iii)theeaseofcomparingpricesinmarket.Eachdependentvariable MSB characteristicsassociatedwithahigherlevelofsatisfaction withrespect to:(i)anMSB’s current intentionally oversampledfirmswith5ormore employees.Ordered logitmodelsare usedtoidentify responsible fortheirenergypurchases andpurchase energyusinganon-domesticcontract.Thesurvey check. ThesurveyscoverbusinessesinGreat Britainwith49orfeweremployeeswhoare directly The researchers were notgranted accesstoavariableidentifying anMSB’s energysupplier(s). Data for2014was notfound. See BEIS/BRE(2018) 1 of10%andLIHCFPascloselypossible.Whencalculatingreported ENEXLIHCFP, 3 Theanalysisfocusedonthe2014data,using2015surveyasarobustness 2 Theelectricitybillsare fortheStandard Credit paymentmethod(i.e. 87 Fairness in Retail Energy Markets? Evidence from the UK 88 Deller, D., G. Turner and C. Waddams Price, 2019. Discrepancies between Perception- and Expenditure-based Fuel Poverty Indicators over Time, Centre for Competition Policy, University of East Anglia, CCP Working Paper 19-1

This paper uses the British Household Panel Survey (BHPS) between 2001-02 and 2008-09 to form an unbalanced panel involving almost 56,000 observations from 10,500 households. These years are analysed because they include specific survey questions required for our research and to harness booster samples in the devolved administrations. The data cover the UK as a whole, but the booster samples result in over-sampling of the devolved administrations. All monetary amounts are converted to 2008 prices using the Consumer Price Index (CPI). Two FP indicators based on reported ENEX are considered: (i) the 10% metric and (ii) the LIHC metric; and three perception-based indicators are considered: (iii) an inability to maintain adequate warmth in the home, (iv) an inability to afford adequate warmth in the home, and (iv) living in a dwelling lacking adequate heating facilities. For LIHC FP the thresholds of median housing costs and median income are re-calculated in each year, applying weights so that the thresholds are representative of the UK as a whole. With the exception of using reported rather than required ENEX, our 10% and LIHC FP indicators are designed to follow the government’s official FP definitions as closely as possible. Extensive descriptive statistics are produced looking at the (lack) of overlap between the different FP indicators. Additional descriptive statistics (exit probabilities) provide an initial assessment of the persistence of each FP indicator through time, with the persistence of income poverty4 used as a benchmark. Last, logit regressions including a wide range of explanatory variables identify the characteristics of households associated with each FP indicator. The regression analysis focuses on indicators (i), (ii) and (iv).

Hargreaves, T. and N. Longhurst, 2018. The lived experience of energy vulnerability among social housing tenants: emotional and subjective engagements, 3S (Science, Society and Sustainability)/Centre for Competition Policy, University of East Anglia, 3S Working Paper 18- 32/CCP Working Paper 18-7

This paper explores the lived experience of social housing tenants at risk of FP. The research began with five telephone interviews with expert stakeholders (both academics and practitioners) working on FP to identify key issues and frame the research. This was followed by fifteen in-depth semi-structured interviews with tenants of Broadland Housing Association (BHA) in Norfolk between January and June 2017. These tenants were identified by BHA staff as likely to be at risk of FP, and were then selected to provide diversity regarding housing type, family structure and type of energy issues faced etc. Interview questions explored their everyday energy use, their properties’ energy efficiency, how they manage their energy bills, and their reflections on BHA interventions. The interviews were recorded and transcribed verbatim before being coded thematically using NVivo software.

Harker, M. and D. Reader, 2018a. W(h)ither independent regulation: the ‘repoliticisation’ of British retail energy markets, Centre for Competition Policy, University of East Anglia (under review)

This paper uses two principal methodologies. First, a historic analysis of changes in the regulation of residential energy pricing between 2008 and 2014. The changes to policy are contextualised by investigating contemporary political debate and media coverage. Key institutional developments are charted to analyse whether key reforms had a discernible effect on regulatory independence. Second, semi-structured elite interviews were performed with current and former senior members of the regulatory and policy community (thirteen in total), with each interviewee assigned a descriptive indicator to

APPENDIX 1 Methodological Appendix 4 Defined as a household with an income below 60% of the estimated UK median. Flores, M.andC.Waddams Price,2018,TheRoleofAttitudesandMarketing inConsumerBehaviourstheBritishRetail Department forBusiness,EnergyandIndustrialStrategy(BEIS)/BRE,2018.FuelPoverty–MethodologyHandbook,June2018, References were interviewed. themes from thedocumentsandinterviews.Intotalthirty-fourindividualsfrom twenty-fiveorganisations Coding includedusingaframingaround distributive,procedural andrecognition justiceandemerging with interviewingsothatfeedbackcouldsupporttheinclusionoffurtherdocumentsandinterviewees. software.coded andanalysedthematicallyusingNVivo Codingandanalysiswere conductedinparallel practitioners involvedwithFPpolicyformulationintheUK.Thedocumentsandinterviewtranscriptswere documentary corpusgeneratedaninitialsetofintervieweesforsemi-structured elite interviewswith responses; strategydocuments.This acommitteeinvestigationorinquiry;andnationalgovernment levelandstakeholder Each ofthecountrycasestudiesincludedaconsultationatnationalgovernment UK asawholeandonecasewasselectedforeachofEngland,Scotland,Wales Ireland. andNorthern of documentswere constructed.OnecaseinvolvedtheHouseofCommonsimpactingpolicyfor To analysetheprocedural andrecognition justiceimplications ofFPpolicyformulation,fivecasestudies Centre for CompetitionPolicy, UniversityofEastAnglia,CCPWorking Paper19-2 Errington, E.,2019.JustRegulation?Accesstopolicyformulationforaffordable energyinGB, Parliamentary reports anddatafrom oureliteinterviews. these amendments.ThisanalysisincludesusingQDAsoftware toexaminehistoricHansard debates, duties haschangedovertimethrough amendinglegislation,and(ii)identifythelikelymotivationsbehind Here, documentaryanalysisandlegalarchival methodsare employedto:(i)observehowthelistof This paperexplores theevolutionofenergyregulator’s general statutory dutiessinceprivatisation. (mimeo) case ofenergyregulation intheUK,Centre forCompetitionPolicy, UniversityofEastAnglia Harker, M.andD.Reader, 2018b.Howdomarketregulators interpret statutoryduties?The how toappropriately managetherelationship betweenregulators andgovernment. independence hasevolved;theinstitutionalfactorswhichmayhavecontributedtoanychanges;and contextualise theirresponses. Theinterviewsenableamore detailedexplorationofif,andhow, regulatory Electricity Market, The Energy Journal, 39(4),pp.153-179 Electricity Market,TheEnergyJournal, file/719133/Fuel_Poverty_Methodology_Handbook_2018.pdf London, availableat:https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/ 89 Fairness in Retail Energy Markets? Evidence from the UK 90 Appendix 2 List of Abbreviations

AHC After Housing Costs

BEIS Department for Business, Energy and Industrial Strategy

BHA Broadland Housing Association

BHPS British Household Panel Survey

CCP Centre for Competition Policy

CERT Carbon Emissions Reduction Target

CMA Competition and Markets Authority

CPI Consumer Price Index

DCLG Department for Communities and Local Government

DECC Department for Energy and Climate Change

ECO Energy Company Obligation

ENEX Energy Expenditure

ENEXShr Energy Expenditure Share

ESRC Economic and Social Research Council

FP Fuel Poverty or Fuel Poor

FPS Fuel Poverty Strategy

kWh Kilowatt-hour

LCF Living Costs and Food Survey

LIHC Low Income – High Cost

MSB Micro and Small Business

NDC Non-Discrimination Claus

OECD Organisation for Economic Co-operation and Development APPENDIX 2 List of Abbreviations WHD WFP UKRI UKERC UEA SPS SEG SAP RPI PPM OLS OFT Warm HomesDiscount FuelPayment Winter UK Research andInnovation UK EnergyResearch Centre University ofEastAnglia Strategy andPolicyStatement Social andEnvironmental Guidance Standard AssessmentProcedure (energyefficiencyratings) Retail PriceIndex Pre-Payment Meter Ordinary LeastSquare Office ofFair Trading 91 Fairness in Retail Energy Markets? Evidence from the UK Centre for Competition Policy

University of East Anglia, Norwich Research Park, Norwich, NR4 7TJ, UK

T +44 (0)1603 593715 E [email protected] W www.competitionpolicy.ac.uk

UK Energy Research Centre

11 Princes Gardens, London SW7 1NA, UK

T +44 (0)207 594 1574 W www.ukerc.ac.uk