Agenda item

            The Committee considered the undernoted report in relation to a consultation exercise being undertaken by the Northern Ireland Authority for Utility Regulation:

 

“Relevant Background Information

 

Purpose

 

      To bring to the attention of Members, a consultation by the Northern Ireland Authority for Utility Regulation (the Utility Regulator) on its proposed Social Action Plan 2009 - 2014 and to present for approval a draft response to this consultation. 

 

Background

 

      The Utility Regulator is responsible for the regulation of gas, electricity and, more recently, water.  It has a statutory duty to protect utility customers and must have due regard for vulnerable customers.  It had previously produced a Social Action Plan in 2003 to help it to fulfil this obligation, but when it became responsible for water in 2007 the Utility Regulator felt that this unique cross-cutting remit provided a new opportunity to bring forward a co-ordinated strategy for the protection of vulnerable utility customers.  The Utility Regulator now wishes to consult on its new draft Social Action Plan.  The consultation document sets out its proposed future work and explains how it has interpreted its duty to protect utility customers and how it defined ‘vulnerable customers’.  However, as the Assembly has not yet made a decision on the introduction of water charges, the document focuses in the first instance on gas and electricity. 

 

Summary of the Consultation

 

Defining the Problem

 

      The legislation states that the Utility Regulator must have due regard for vulnerable customers, in particular those who are disabled or chronically sick, of pensionable age, on low income, or who live in rural areas.  However, the Utility Regulator is not limited to these groups and proposes to define a vulnerable utility customer as a household with one or more of the following characteristics:

 

·         Poor Health – household includes a chronically sick individual.

·         Disability – household includes an individual with a disability.

·         Ethnic Background – household does not include an adult with a sufficient grasp of English.

·         Financial Insecurity – household on a low income.

·         In addition, the utility Regulator identified two intensifiers i.e. factors which do not in themselves make utility customers vulnerable but when combined with the above characteristics, multiply vulnerability.  These are:

·         Age (elderly or under 16)  and Rurality

 

Protecting Vulnerable Customers – Special Services

 

      Standard gas and electricity licences contain special provisions for pensioners, chronically sick or disabled customers; the utility regulator is responsible for monitoring and ensuring compliance.  NI Water and NIE offer special priority reconnection and alternative supply services in the event of disruptions for people with specific medical needs, but there is currently no emergency critical care policies offered by the gas suppliers.  The Utility Regulator has requested feedback on what extent and for what type of condition emergency gas provision may be necessary.  In terms of special needs, the Utility Regulator has also highlighted the need for information to be provided in other languages (NIE is the only utility supplier that currently provides this service) and plans to investigate an appropriate way forward in this regard.

 

Protecting Vulnerable Customers – Financial Vulnerability

 

Fuel and Water Poverty

 

      Northern Ireland does not compare favourably with the rest of the UK in terms of fuel poverty rates (and water poverty rates if / when water charging takes effect).  The most recent estimates of fuel poverty in Northern Ireland are from 2006, when the rate was reported as 34% compared to 12%, 23% and 21% in England, Scotland and Wales respectively.  There is a commonly held view that the rate is now likely to be in excess of 40%, given the increase in energy prices experienced since 2006.   Research carried out by the Independent Water Review Panel indicated that potential water poverty rates in Northern Ireland (upon the introduction of these charges) would be in the region of 14-15%, or with the implementation of the proposed affordability tariff, around 10%.  This compares to a water poverty rate of 7.9% in England and Wales (in 2004/05).

 

      In the consultation document the Utility Regulator suggests that fuel poverty has three root causes: 

 

(i)      low income

(ii)     poor energy efficiency

(iii)    high energy prices.

 

      As the Utility Regulator has no power to affect the people’s incomes, it states that this issue will not feature in its future action plan.   However, it has committed to testing the feasibility of introducing social tariffs (as recommended by the NI Fuel Poverty Taskforce) and will issue a consultation on this in early 2009.

 

Payment Methods, Debt and Debt Recovery

 

      The Utility Regulator states that in order to help avoid debt, it is important that customers are offered a wide variety of payment methods.  According to the document the main utility providers (NIE, Phoenix & Firmus) offer a range of payment options including: direct debit; cash payments at post offices, banks or paypoint outlets, and/or pre-payment meters.  In terms of recovering debt, each utility company operates different policies.  The Utility Regulator therefore plans to investigate the potential for encouraging all of the energy companies to operate to an agreed best practice standard.  Customers who get into debt are encouraged to contact their supplier to discuss options including the option of a pre-payment meter.  As the help lines offered by the energy companies are perceived to be premium rate numbers, it is also suggested that local or free phone numbers might improve uptake of advice and assistance.

 

Pre-Payment Meters

 

      In terms of avoiding debt, energy suppliers feel that the pre?payment (or pay as you use) option is ideal as there is currently no premium for pre-payment and it can help customers with budgeting and also encourage energy efficiency.  However, according to research by the Utility Regulator and the Consumer Council, many utility customers thought that pre-payment meters were charged at a higher rate and/or were only available to customers who had got into debt.  Northern Ireland pre-payment customers, unlikeother parts of GB, do not currently pay a more expensive tariff.  This decision was taken voluntarily by the utility providers, but in the event of further competition, new entrants would be free to offer payment structures of their choice.  In GB pre-payment customers were the last group to benefit from competition because the meters tended to be installed to recover debt and/or were expensive to service.   However, it is suggested that that this may not be an issue here due to the investment in newer technology and the level of take-up of key-pad meters.

 

      Nevertheless, the greatest discounts are available to those who pay by direct debit, a practice which is considered unfair as it penalises those who might not have a bank account and those living in rented accommodation as landlords tend to install pre-payment meters.  Many consumers felt that the maximum discount should be available to everyone who settles in full and on time regardless of payment method.

 

      The Utility Regulator has discussed with the energy companies the benefits of ‘smart’ metering, which has the potential to help all customers by giving better information on usage and related costs, and will undertake a cost benefit analysis to determine a smart metering implementation policy.

 

Self-Disconnection

 

      Self-disconnection happens when a pre-payment meter customer runs out of money (and emergency credit) and is cut-off from their electricity or gas supply.  This will never become an issue in relation to water as self- disconnection will not be possible.  Utility suppliers have a licence obligation not to disconnect vulnerable customers during the winter months, but this policy only applies to credit customers.  As suppliers cannot identify in real-time when a household has self-disconnected, in theory, vulnerable customers using a pre-payment option could be disconnected.  Research by the Consumer Council in 2006 indicated that most households that self-disconnect do so for reasons other than financial hardship such as temporary absence or forgetting to top-up.  However, the research also identified a small but significant number of customers who are vulnerable to self-disconnection because of their financial circumstances.  It is likely that the number affected by this problem has and will grow, given the credit crunch and increase in energy prices since the research was conducted.

 

The Social Action Plan and Forward Work Plan

 

      The Social Action Plan (SAP) has two main strands - the first focuses on the provision of special services for utility customers who may need additional assistance e.g pensioners, chronically sick or disabled customers; whilst the second focuses on financial vulnerability.   The SAP will be reviewed in 2012-13.  This will include a review of each utility supplier’s compliance with licence conditions and codes of practice and the voluntary initiatives undertaken to help vulnerable customers.

 

      The SAP includes a forward work plan, summarised at appendix 1, under the following themes:

 

·         Reducing Financial Vulnerability

·         Providing Special Services

·         Improving Energy Efficiency and Water Efficiency

·         Working with others

·         Raising Awareness

 

      One of the proposed key areas of work is in relation to market redesign and ‘growing the gas network’.  The gas industry in NI has grown steadily from a zero base ten years ago, but around 70% of NI homes still use heating oil as the primary source of fuel. The Utility Regulator believes there would be significant benefits to households switching to gas (unlike the oil industry the gas industry is regulated; it has lower carbon emissions and less fuel delivery vehicles; and new connections generate greater economies of scale).  The Utility Regulator is therefore working with DETI on options to accelerate gas roll-out.

 

      The Utility Regulator met with a range of stakeholders when developing its SAP.  Some suggestions did not make it into the work plan because they were outside the scope of the Utility Regulator’s statutory remit.  These included suggestions relating to regulating the home heating oil industry; promoting micro?generation heat; bulk buying/ brokering and establishing a utilities trust fund.  Other issues raised by stakeholders at these meetings are being considered, either by the Utility Regulator or the NI Energy Task Force such as tackling fuel poverty in a holistic and co-ordinated manner, and identifying better mechanism for effectively identifying those most in need/ at risk, which is being examined by a subgroup of the Fuel Poverty Taskforce.

 

Equality

 

      The Utility Regulator has carried out initial equality screening and has determined that, as the plan is targeted at specific groups to improve equality of opportunity, only positive impacts were found and therefore it would not be subject to an Equality Impact Assessment.  However, respondents are asked to comment on this and this decision may be reassessed depending on the feedback received.

 

The full consultation document can be accessed at http://ofreg.nics.gov.uk/05%20January%202009.htm  

 

The deadline for response is 21st March 2009.  

 

Resource Implications

 

      N/A

 

Recommendations

 

      The Strategic Policy & Resources Committee is asked to note the content of the report and to approve the attached response to the consultation document and to approve its submission to the Utility Regulator.  

 

Abbreviations

 

      SAP – Social Action Plan;    EEL – Energy Efficiency Levy

 

DraftBelfastCity Council Response

 

The Northern Ireland Authority for Utility Regulation - Consultation: ‘Social Action Plan 2009 – 2014’

 

BelfastCity Council Response

 

      BelfastCity Council welcomes the opportunity to comment on the consultation issued by Northern Ireland Authority for Utility Regulation regarding its proposed Social Action Plan and forward work plan.  

 

      The Council is committed to working in partnership to improve the quality of life and well-being of all people living in Belfast.  Our key strategic themes include ‘Better care for people and communities’ and ‘Better care for the environment’.  The focus in the consultation document on fuel poverty and fuel and energy efficiency clearly reflect the priorities of the Council and we commend your efforts in this area. 

 

Consultation Questions:

 

Q1. Respondents are asked to comment on the impact of this paper with regard to equality of opportunity and Good Relations

 

        Whilst BelfastCity Council accepts that the Social Action Plan will have positive impacts for vulnerable customers, it is important that the proposed definition does not exclude or disadvantage particular S.75 groups.  Although poverty is a universal issue; research shows that certain groups may be at more risk, such as older people and single parent families.  The Utility Regulator should therefore be mindful of the potential effect and impact, particularly with regards financial vulnerability, that the proposed SAP may have on specific groups.

 

Q.2 Respondents are asked their views as to whether we have considered all the characteristics that may contribute to or intensify vulnerability

 

        A major feature of the current economic decline is the level of both public and private debt.  Whilst the Utility Regulator is obligated to have due regard to specific categories of vulnerable customers it is not clear that this encompasses people experiencing severe difficulties through substantial or prolonged personal debt. The consultation confirms that the Regulator is not limited in relation to the groups of vulnerable customers so it may still be appropriate for this category to be profiled for inclusion.

 

        Although dwelling age would not normally make utility customers vulnerable it could be identified as an “intensifier”.  Pre 1919 dwellings are almost exclusively of solid wall construction.  They tend to have higher thermal conductivity than modern cavity wall or timber frame dwellings and are more difficult and costly to insulate.

 

Q3.  Respondents are asked to what extent they believe critical care provision could be improved.  In particular respondents are asked to what extent similar emergency provisions in the event of a disruption to supply are required for gas (please detail specific improvements and in particular details of medical conditions or life saving medical equipment that require a constant supply of gas).

 

        Special licence provisions prohibit the disconnection of supply to elderly, disabled or chronically ill customers in the winter months.  These categories seem somewhat limiting considering the potential ill health effects on children and infants in particular.  Any disconnection of supply could have serious health implications.  Belfast City Council suggests that consideration should be given to ensuring that the licence provisions reflect and be consistent with Northern Ireland Water Special Provisions regarding a policy of no domestic disconnections. 

 

        The lack of clarity or information regarding critical care services reliant on gas supplies highlights a serious knowledge gap.  The Utility Regulator should investigate options for researching this issue and should not be reliant on responses to this consultation.

 

Q4.  Respondents are asked to comment on whether they believe all customers have sufficient access to different payment methods offered by the utility suppliers.  Respondents should list the barriers they perceive as preventing some vulnerable customers from accessing all payment methods

 

        The results of the NIE ‘For your Benefit’ programme pilot clearly demonstrates the extent to which vulnerable people are failing to maximise their income. Therefore, in seeking to protect financially vulnerable customers the Regulator should encourage suppliers to work with others to maximise the uptake of benefits.  For example, access to benefits (A2B), www.a2b.org.uk, is a not-for-profit organisation working to improve benefit uptake for older people.  It uses a free and anonymous on-line benefit calculator to check an individual’s entitlement.

 

        The Northern Ireland Energy Efficiency Level (EEL) should be extended to allow organisations, other than licensed electricity suppliers, to compete for levy funding.  (Belfast City Council has already included this point in its response to the EEL’s Strategic and Operational Review 2008). 

 

        The introduction of social tariffs should be a government priority in addressing fuel poverty.  The DSD Proposed Consultation document should therefore be available as early as possible to give the minister the opportunity to take this forward and, if possible, to implement the policy before next winter.  BelfastCity Council would however caution against the ‘rising block’ element due to the acknowledged potential adverse affects on vulnerable individuals. 

 

        Many older people do not have bank accounts and are more comfortable saving up and paying cash for goods and commodities. BelfastCity Council is currently piloting a Fuel Stamps savings scheme for domestic fuel oil targeted primarily at older people.  Essentially oil users can purchase £5 stamps from specified outlets and then build up credit which can be used as payment or part payment for oil.  These schemes have proved very popular in other district council areas and, whilst not necessarily directly transferable to the purchase of gas, electricity or water, this approach could be developed to fit with these utilities.  Older people should be provided with an option that clearly resonates with their more traditional approach to paying bills.

 

Q5. Respondents are asked to consider what measures, if any, need to be taken to ensure that pre-payment customers benefit equally from the introduction of retail competition in Northern Ireland

 

        Within the current economic climate it is probable that more people will wish to utilise the prepayment option.  Although it may have initially been seen primarily for debt recovery it would be inappropriate to view it exclusively in that light today.  Whilst new entrants to the gas and electricity sectors are free to introduce their own payment structures the Regulator still has a role to protect the interests of the consumer and to have regard to specific categories of customer including the elderly and people on low incomes.  It is not clear within the document, whether the Regulator could, if required, compel utility companies to ensure prepayment customers are not charged a premium.  Assurances would also be sought that customers, particularly prepayment customers, would be able to move freely to different payment methods.  

 

Q6. Respondents are asked to comment on the merits of a harmonized approach in relation to helping vulnerable customers to avoid debt & to manage their way out of debt

 

        BelfastCity Council would agree that the Utility Regulator should actively investigate the potential for encouraging utility companies to harmonise their approach to debt recovery. Other areas in terms of harmonisation that merit further consideration include:

 

·         Prepaid envelopes / Freepost - NIE provide freepost envelopes for their customers to pay their bills. Phoenix Gas does not.

·         Help Lines using 0845 numbers - 0845 numbers are perceived as being the same as local rate numbers.  However, whilst they are not premium rate numbers they are considerably more expensive than local rate numbers. They are very expensive to phone from mobile phones (are not included in free minutes) and are also very expensive to phone from call boxes.

 

Q7.      The Utility Regulator acknowledges the concerns of stakeholders around self-disconnections.  Respondents are asked to comment on what should be done to prevent vulnerable customers self-disconnecting for reasons of financial hardship

 

        Self disconnection due to financial circumstances could have very serious consequences, particularly for vulnerable individuals.  The special provisions required for licences for gas suppliers include retention of a list of vulnerable individuals.   However, BelfastCity Council suggests that this list should be extended to include vulnerable customers generally so that those on low income or who are in serious debt are not omitted.  This is particularly important when prices are rising dramatically or over a prolonged period, as consumers may have budgeted for a certain amount of usage from a certain level of prepayment, and then may find they do not have extra cash to pay for increased fuel costs which may led to self disconnection.

 

        Further detailed consideration and research into potential viable options for enabling utility companies to become aware of the self disconnection, or possibility for self disconnection, for vulnerable customers with special needs is required.

 

        It is also essential that consumers are not vulnerable to self disconnection when they have problems trying to get complaints resolved with the utility company.

 

Q8. Respondents are asked to comment on what measures should be undertaken to raise awareness, and which organisation(s) should take the lead on these measures.

 

        The joint research undertaken by the Consumer Council and the Utility Regulator provides a useful insight into the issues facing utility customers and of their general perceptions and awareness of the steps and services available to help with both fuel efficiency and fuel poverty.  The Utility Regulator recognises that there is scope to improve awareness and the uptake of services; and this is to be commended.  However, as highlighted in the Consumer Council report, it is important that whatever channels are used, that the information reaches those who are potentially vulnerable and arguably more in need of these services, such as people who live in rented accommodation or in low income households and who, according to the research are less likely to be aware of what is available.

 

        It appears that the central issue with respect to gas and electricity relates to fuel poverty.  The Department for Social Development (DSD) is responsible for facilitating efforts to address fuel poverty and in particular to raise awareness and promote the availability of services and schemes to help vulnerable people.  Whilst suppliers should also have a role, it is more difficult to see how they can be encouraged to target vulnerable people without a statutory obligation or financial stimulus.  Although local councils do not have a specific statutory duty or obligation to address fuel poverty; many are already seeking to assist people through, for example, the Fuel Stamps schemes.  Local councils are well placed to assume a lead role with regard to promotion and awareness raising, particularly given their established engagement mechanisms with local communities and the developing responsibilities with regard to community planning and the proposed additional power of well being.

 

        It is stated that ‘improving energy efficiency has been the primary focus of the fuel poverty strategy’ and that ‘the Utility Regulator encourages the utility providers to educate and inform their customers about energy efficiency’.  In order to do this effectively, customers must receive regular information regarding their usage and cost.  Quarterly meter readings and quarterly bills for all customers (whether prepayment, direct debit, etc) would help customers be better informed and encourage them to be more energy efficient.  It would also show them much sooner if they are overpaying or are falling into arrears and just how much their gas/ electricity is costing. 

 

         The Council’s Consumer Advice Centre provides free specialist advice to consumers and traders in Belfaston a range of consumer issues.  Increasingly, the Consumer Advice Centre has received a number of enquiries regarding utility companies, particularly in relation to payment methods.  One major issue that causes particular problems for Phoenix Gas consumers, who try to be financially aware and manage their budgets by paying by direct debit so their bills are spread over the year, is that Phoenix Gas does not read the meter for another 12 months or in some cases even longer. This means that they do not monitor if the Direct Debit payment is too much or too little; which can subsequently have a significant impact on consumers and particularly vulnerable customers.  For example:

 

(i)      Pensioners - one of whom was disabled found they had arrears of £547. Their direct debit payments had been £38 - £41 per month, but Phoenix Gas wanted to increase this to £103 per month. Their actual usage was about £56 per month.

 

(ii)     Single parent new baby - had been paying by direct debit but because the meter had not been read for 17 months, she built up arrears of £447.  She had been paying £31 per month which was subsequently increased to £39 per month.  However, her actual usage was £54.   Phoenix Gas now wants her to pay £80 per month to clear her arrears.

        

(iii)    Pensioner – Phoenix Gas kept changing the amount of direct debit she paid monthly including reducing the monthly amount.  She now has arrears of £1000.

 

(iv)   Pensioner – paid by direct debit, Phoenix Gas did not read the meter but kept increasing the direct debit amount from £40 up to £90 and then to £124. Eventually after reading his meter his direct debit was reduced to £20 per month.

 

(v)    Consumer has a gas fire but doesn’t use much gas.  The direct debit payments increased from £5.99 per month to £11 and are now £13 per month.  He has paid over £90 in payments but has only used about £30 worth of gas.  However, Phoenix Gas won’t reduce the amount of payments.

 

        Phoenix Gas may offer quarterly meter reading as a special arrangement.  In contrast, NIE tries to read meters on a quarterly basis and send out quarterly bills to all customers.  This practice helps ensure that consumers are more aware of their energy usage and the likely costs and are thereby more able to budget accordingly.  The Regulator must ensure that utility companies who offer direct debit payment methods have proper and timely systems in place to accurately measure and estimate usage and cost. 

 

        Utility companies must also ensure that they take payments as arranged.  The Consumer Advice Centre has found that some utility customers have ended up in arrears or else incurred bank charges because the company had not taken the direct payment as planned or on the agreed date.  The Consumer Advice Centre has also found that problems can arise when a consumer is moving house and has overpaid, either on a meter or by direct debit, and subsequently encounters difficulties when trying to get a refund.

 

Q.9 Respondents are asked to comment on whether there are any other key issues that should be considered

 

        During the current recession, in particular, there is an imperative on government and regulators to consider options for reducing financial vulnerability.  Assisting those on low income to maximise their benefit entitlement is important, however, improved energy efficiency will have the dual impact of addressing fuel poverty whilst reducing carbon emissions.  Broadening access to the EEL should provide more opportunities for the introduction of energy efficiency measures.

 

        Pre-payment Meter Considerations

 

        Whilst the utility companies suggest that pre-payment meters help customers budget because as they can see how much they are spending, in practice it is often harder for consumers to see what they are actually getting for their money as the billing system is not open and transparent nor easily understood.  Based on the experience of many visitors to the Consumer Advice Centre, there is a lot of confusion over what consumers actually got for the amount of money they have spent.  It is also appears very easy for the company to alter what customers are getting for the money they actually pay.  In one case where the price had gone down the customer thought they were still being charged at the old rate.  In other cases, consumers found they were getting fewer units one week for their money than they had the week before although the price was not supposed to have changed.  In such circumstances it is only the very observant consumer who might notice when something is actually wrong.

 

        In addition, whilst prepayment may help with budgeting; this is not the same as being energy aware / energy efficient.  In addition, prepayment meters do not help customers budget when it gets very cold and they need extra heat but they do not have the money to pay for their higher usage.

 

        The Home Heating Oil Market and LPG Market

 

        There are still many customers in Northern Ireland using these types of energy but there is no regulation of these industries.  Whilst it is recognised that is not part of the Regulator’s statutory remit, consideration of how this might be encouraged voluntarily or achieved in practice should still nevertheless be considered.

 

Q10. Respondents are asked to comment on this future work plan

 

        The work plan addresses the principal areas for action; however, the current financial crisis has created an urgency that may not have initially informed the development of the plan. The aspiration to reduce financial vulnerability will be seriously compromised by collapsing markets, increasing unemployment and unplanned personal debt. This should place an imperative on the Regulator and partner organisations to accelerate delivery of this element of the plan in particular by, if necessary, reprioritising other elements.”

 

            The Committee adopted the recommendation.