Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers

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1 Niki Sharp New Schemes Development Office of Gas and Electricity Markets 9 Millbank, London, SW1P 3GE Sent via eco.consultation@ofgem.gov.uk CC: DECC, HM Treasury, BIS 25 January 2013 Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers Dear Niki, I am writing in response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers. Energy UK welcomes this consultation as a continuation of previous engagement between Ofgem, industry and stakeholders on ECO administration. We recognise that Ofgem published the ECO administration Open Letters prior to this formal consultation which was extremely helpful and we hope that we can continue working together in the same spirit. We recognise the Ofgem ECO team s openness and collaborative spirit in preparing the ECO administrative processes and guidance consultation. We hope that Energy UK s contribution has been helpful and we look forward to continue working with Ofgem for the ongoing development and delivery of ECO as well as identifying key lessons to be learnt for future obligations. The ECO is a new type of obligation and an indispensable part of a wider energy efficiency and carbon reduction environment which includes the Green Deal and brokerage. As such we believe that the Ofgem guidance should be ECO guidance, effectively guidance targeted to all parties delivering aspects of the ECO, and not just supplier obligated (i.e. energy company) guidance. Should you require any further information in connection with this response please do not hesitate to contact us. Yours sincerely Sofia Gkiousou Policy and External Relations Manager Energy UK Charles House 5-11 Regent Street London SW1Y 4LR T Energy UK is the trading name of the Association of Electricity Producers Limited, a company limited by guarantee, registered in England & Wales, Company Registration No , registered office as above.

2 Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers Energy UK response 25 January 2012 Introduction Energy UK is the trade association for the energy industry. Energy UK has over 70 companies as members that together cover the broad range of energy providers and suppliers and include companies of all sizes working in all forms of gas and electricity supply and energy networks. Energy UK members generate more than 90% of UK electricity, provide light and heat to some 26 million homes and last year invested 10billion in the British economy. Energy UK believes in a stable and predictable regulatory and administrative regime that fosters innovation, market entry and growth, bringing benefits to consumers and helping provide the certainty that is needed to encourage investment and enhance the competitiveness of the UK economy. Energy UK supports guidance which will help obligated parties to deliver the obligation in a timely, efficient and cost-effective manner, to the benefit of consumers. Early certainty is pivotal to this, ideally using existing systems and processes where possible in order to avoid additional administrative burden and cost. These principles underpin Energy UK s response to Ofgem s consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers. This is a high-level industry view; Energy UK s members may hold different views on particular issues. We would be happy to discuss any of the points made in further detail with Ofgem or any other interested party if this is considered to be beneficial. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 1

3 Contents Introduction... 1 Key Points Certainty in guidance flexibility in timelines Ofgem timelines Implementing the guidance Brokerage concerns Certainty following submission Monthly notification Affordable Warmth Technical Monitoring and fraud prevention End of the obligation period ECO review... 5 Questions and answers... 6 CHAPTER ONE... 6 Question Question A. Guidance should also be aimed at brokerage participants... 7 B. Compliance checks... 7 C. One month notification... 7 D. PAS accreditation... 7 E. Accuracy in reporting... 7 F. Paying for measures through brokerage... 7 G. Savings calculation... 8 CHAPTER FOUR... 8 Question Question Question Paragraph CHAPTER FIVE...10 Question CHAPTER SIX...11 Question CHAPTER SEVEN...11 Question Question Question Question CHAPTER EIGHT...14 Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 2

4 Question Question Question Question Paragraph CHAPTER NINE...15 Monthly notification Question Question Paragraph Paragraph Paragraph Paragraph CHAPTER TEN...17 CHAPTER ELEVEN...17 Question Question CHAPTER THIRTEEN...18 Question Question Question Question Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 3

5 Key Points In addition to responding to the relevant questions we thought that it would be helpful to provide a summary of the key points we would like Ofgem to specifically consider. 1. Certainty in guidance flexibility in timelines ECO is a new and complex obligation that works in conjunction with Green Deal and brokerage, thus involving a wide array of contracted partners and stakeholders. This is a major step change in terms of guidance and scheme administration as well as delivery. Even though suppliers remain obligated, the legislative design of ECO requires rigorous processes to be set and knowledge to be acquired by other partners too. As such we would urge Ofgem to move beyond supplier guidance and create ECO guidance which will be specific, in a clear language and written with a wider array of interested parties in mind. New market participants, possibly outside the previous energy efficiency obligations market, will be interested in the ECO administration processes. Therefore we would urge Ofgem to exhibit flexibility with timelines at this early stage, working collaboratively with the supply chain, to ensure that all processes are rigorous and compliant. A perfect example of this would be the one month reporting rule which may require a level of flexibility for new participants. 2. Ofgem timelines Rigorous timelines are proposed by Ofgem on suppliers throughout the consultation document; this approach should also apply to Ofgem in order to give certainty to obligated parties and enable early design of delivery and associated contract rules and processes. We would be interested in understanding the timelines and processes for all areas of ECO administration, but particularly for: Considering a measure closed (like banking in CERT) Accepting an excess action Developing an ECO IT system Brokerage participants may have additional areas where specific timelines will make a positive impact to their planning and delivery processes. 3. Implementing the guidance Suppliers will need to have sufficient time to implement the changes that Ofgem will publish in the final guidance. The Open Letters have provided some certainty and activity has reportedly started. As such, it will not be possible to implement changes immediately. A minimum of eight weeks will be required unless a shorter timeframe is commonly agreed, especially considering the impact on the supply chain and the brokerage mechanism. 4. Brokerage concerns Energy UK believes that brokerage is a positive mechanism which has the potential to diversify ways into market and delivery partners activities. Suppliers are supportive of a robust brokerage mechanism which will give Green Deal Providers an alternative route for ECO funding and suppliers an alternative route for carbon. However, it is important to remember that ECO remains an obligation on specific energy suppliers and, as such, the brokerage framework should be aligned with the Ofgem guidance. We highlight a number of areas of concern in our consultation response, in answer to Question 2, and in various other answers as we believe that brokerage impacts and has significant implications on the whole of ECO. We would also recommend that Ofgem examines the brokerage contract and determine any improvements that might be required in order for it to be more in line with the ECO guidance. Overall Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 4

6 we believe that the guidance should be written with the partners working through brokerage in mind rather than just obligated parties. 5. Certainty following submission Under CERT suppliers were able to bank a project or a series of measures and know that the carbon has been saved; however, there is no equivalent mechanism under the ECO, nor have we seen any timelines for Ofgem to notify a supplier if a submitted measure has been accepted or not. There is effectively nothing to stop the administrator from notifying a supplier of any challenges to submitted measures on March 2015, or a long time after a brokerage contract has been paid, for example. This is an area of high risk for obligated parties and we ask Ofgem to publish specific processes and standard timelines by which they will aim to notify obligated parties that a measure has been accepted. This will allow suppliers to plan for future delivery plans, manage their commercial contracts and check on the quality of installations through brokerage. 6. Monthly notification We are disappointed that the monthly notification has been set in the legislation in a way that turns a rule that was intended as a high level check on progress into an onerous obligation which places measures and ECO delivery at risk. It should be stressed that any delays in the notification, for example due to the fact that a brokerage delivery partner has not been able to submit a measure in time, will put the carbon or cost saving of that measure at risk. This will increase the overall cost of ECO, to the ultimate detriment of consumers. 7. Affordable Warmth Affordable Warmth will be a challenging target as it requires finding consumers who fit specific criteria. The difficulties with finding consumers in very narrow categories were evident during the delivery of the CERT Super Priority Target, under which targeting costs increased disproportionately. The energy suppliers priority remains to help consumers in this category and thus would urge Ofgem to: Avoid the risky and bureaucratic rule of evidence retention. Support the development of a verification system with DWP. Allow for simpler administration system for boiler repairs, in order to quickly and efficiently help consumers in need. 8. Technical Monitoring and fraud prevention Suppliers have been using robust processes and have long experience in ensuring that measures are installed in a technically robust and safe way. However, our members have also noted in the past that technical monitoring, audit and fraud prevention are separate functions and hence documentation and checks have to be specific and suited to the function required for. We welcome the opportunity to work with Ofgem in designing technical monitoring for ECO and look forward to producing a robust process which provides a high level of assurance without additional burden. 9. End of the obligation period The end of CERT, and the fact that all activity stopped, impacted adversely on CERT for a number of months with significant speculation and impact on the supply chain. We also hear reports that this cliff edge effectively distorted the market in terms of costs and labour availability. We would like to avoid a repeat of this and we believe that an early indication of flexibility between ECO and ECO2 would be beneficial. We are very keen to work with DECC and Ofgem to identify solutions to how this could be better achieved. 10. ECO review Although Energy UK and its members support certainty and long term administrative rules, we accept that needs and technologies change. It is also a fact that as more experience with delivering an administration is gained, new ideas may emerge for better administration and delivery mechanisms. We would urge Ofgem to have a full review of ECO at the end of 2013, in order to inform ongoing delivery of the obligation as well as the development of ECO 2. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 5

7 Questions and answers CHAPTER ONE Question 1 Do you agree with our proposed date of effect of the final guidance? If not, please suggest a different approach and explain your reasons for this? No. Energy suppliers will require a minimum of eight weeks in order to implement any changes required in the final guidance document unless there is unanimous agreement from obligated parties on earlier implementation. This is to ensure that the current contracted work can continue and energy suppliers IT systems and processes can be redesigned, relevant contracts are amended or re-signed where necessary and that the relevant partners throughout the supply chain have enough time to implement any necessary changes. Suppliers also believe that the eight weeks to implement should commence from the date of survey for measures rather than the date of completion for measures. This is to ensure that a job can continue according to the rules followed at the time of the survey, so that customers will not be faced with any disruptions or last minute changes and that installers and suppliers will not have to revisit properties, change measures or repeat assessments, which would add cost to ECO. We do appreciate however that Ofgem would like the date of effect to be as early as possible. We propose that Ofgem hosts a workshop for suppliers prior to the publication of guidance, to go through the changes and agree on when each change can be implemented. In this way it may be that many changes can be implemented earlier, allowing for longer timelines where needed. Question 2 Whilst ECO brokerage is not currently mandated what, if any, areas of additional detail should be considered to avoid complications for the Brokerage mechanism? Suppliers are committed to the brokerage mechanism being successful as we feel that in principle it will have a positive effect on ECO delivery and ultimately on consumers. However, it is important that the brokerage framework should be aligned with the Ofgem guidance, in order to ensure that compliance issues do not arise, especially since the obligated parties might not have full visibility of processes when buying carbon or cost savings via the brokerage mechanism. We would like to invite Ofgem to undertake a full legal review of the brokerage contract to ensure that brokerage and ECO administration are aligned. It would be ideal if that exercise also analysed if the proposed guidance gives all the information necessary to participants in the brokerage mechanism to be compliant. The administration of this obligation is more complicated than that of others and ECO incorporates a wider array of stakeholders. We think that Ofgem should publish all changes and decisions about ECO administration on its website and avoid decisions communicated through s to a specific group. Whilst we recognise that the obligation remains with suppliers, with the blind brokerage mechanism there will be other parties interested to know Ofgem s updated thinking. Whilst previously this was managed by suppliers the change in policy approach means that this can no longer remain the case. Additionally it would be preferable if Ofgem had an easy route for ECO installers and other partners to get in touch, such as a dedicated member of staff and relevant addresses. Overall we believe that considerations of how brokerage participants will work and meet the guidance requirements should be a key priority. The ECO guidance should be updated to reflect a number of Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 6

8 key brokerage-related issues, such as the ones noted below, as well as any others that the potential brokerage participants mention to Ofgem. A. Guidance should also be aimed at brokerage participants The brokerage contract stipulates that a brokerage partner has to deliver in accordance with the Ofgem guidance. As such, to ensure a fair and level playing field as much as possible, the guidance will have to be detailed and specific, making no assumptions about any previous knowledge of obligations delivery and administration. This will ensure that all delivery partners have the same level and type of information. The alternative getting clarifications from each obligated party will create confusion and additional unpredictable work for Ofgem. Additionally, because suppliers can claim any payment back if a measure is not approved, following Ofgem guidance will mean avoidance of disputes. By publishing ECO guidance for all delivery partners, Ofgem will effectively help create a level playing field for activity and delivery, ultimately benefitting consumers. B. Compliance checks Even though suppliers remain the obligated parties they do not have the flexibility that they normally have with bilateral direct contracts when it comes to brokerage. For example, brokerage delivery partners are not obligated to accept prior process checks as some suppliers may want to do to ensure due diligence and compliance prior to delivery. As such, a supplier has to wait until after delivery of a measure through brokerage and then wait for an Ofgem determination, a determination that will be according to an unknown timetable. Specific guidance written for a wider audience would facilitate high quality delivery through brokerage and give more certainty to suppliers and brokerage participants. C. One month notification The one month notification rule is challenging and it will introduce delays to brokerage delivery and processes. Brokerage delivery partners will have to report to a supplier on time for the supplier in their turn to respond to Ofgem on time. Hence, we would encourage Ofgem to consider the one month rule and be flexible about its implementation especially where brokerage is concerned. In order to make timelines more flexible Ofgem might consent to consider a company being new to working within a regulated framework a good reason for an exemption from the one month notification rule. D. PAS accreditation We note that an installer does not have to be PAS accredited and that a supplier will have to exhibit the fact that installations have been done according to PAS, where PAS is available for the measure in question. Normally, under a bi-lateral contract, suppliers would have specific requirements, visits and checks in place to ensure that a delivery partner is working under PAS. However, these processes need to also take place for a brokerage partner. We would ask Ofgem to provide more specific detail on exhibiting compliance in the guidance and note that obligated parties may not have ways of checking the processes of a brokerage delivery partner. E. Accuracy in reporting Whereas suppliers will have a number of processes in place as well as relevant clauses in bilateral contracts to ensure accuracy in reporting, Ofgem will be aware that there may be occasions where inaccuracies may be present through a variety of non intentional reasons. This is an even higher risk under brokerage, where the processes of the brokerage delivery partner are beyond the control of the supplier. We would like to ask Ofgem to give details of levels of accuracy in the guidance, noting that absolute accuracy may be desirable but not easily or efficiently achievable, as well as provide flexibility for partners not accustomed to reporting and compliance processes. F. Paying for measures through brokerage We note that ECO has no banking process nor does Ofgem have clear published processes and timelines for notifying a supplier that a measure has been accepted and is compliant. This is especially a challenge when it comes to measures delivered through brokerage. Suppliers will have to pay a brokerage delivery partner upon completion, without any certainty that the measures are compliant. The key risk is that Ofgem notifies the supplier that a measure is not compliant at an unspecified time in the future, by which time the brokerage partner might not Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 7

9 be in operation anymore. This will increase the cost of the ECO overall and may result in adverse reputational impact on the scheme generally, especially if unsatisfactory installations have been made but cannot be rectified cost effectively. G. Savings calculation We note that the order in which measures have been installed is important and that Ofgem may require a number of different pieces of information in the future to exhibit how calculations have been done. Ofgem should be aware that through the brokerage mechanism a supplier may not have access to that information. We would like to stress that what information will be required should be made explicit to enable brokerage contracts to produce it. CHAPTER FOUR Question 3 We have stated that, where a supplier funds all or part of the installation of a measure, we will be satisfied that a supplier has promoted a measure. Do you think that this is a sufficient test for promotion, or should we include additional criteria? For example, where an extension is being built to a property, or an occupied property is being renovated, should we only award a score to measures that are installed and that exceed building regulations? Also, should we only award the portion of the carbon or cost saving that exceeds building regulations? Yes, we believe that funding all or part of the installation of a measure is sufficient to exhibit that a supplier has promoted a measure. This is in keeping with the principles of Green Deal where Green Deal Finance is available to part fund many measures, keeping down the overall cost of the programme to consumers. This principle also applies where another party such as a social housing provider, a Government Agency or devolved administration part funds a measure. ECO funding will be used to deliver measures that would not have happened under other schemes. In this case, as per the Green Deal, the Supplier should be able to claim the entire CO2 or fuel bill saving. The principle described is in accordance with the ECO Impact Assessment 1 which assumes part funding under ECO, in order to stimulate the Green Deal market, but full claiming of carbon, in order to keep ECO costs low for all consumers. However, we do support Ofgem s view that where two or more obligated parties work together they need to liaise with Ofgem in order to agree how the measures will be calculated and claimed. Ofgem might also like to stress this feature for brokerage partners and ask them explicitly to notify their supplier partner when additional measures in the same property are sold to another supplier. Suppliers also note that RdSAP is not able to identify changes that are beyond building regulations. If this is the case, it would not be possible to award the portion of the carbon or cost saving that exceeds building regulations. We therefore believe that full savings should be awarded in these instances. In terms of evidencing promotion, we believe it should be done by using readily available evidence, such as a contract with an installer. It should also be stressed that the cost determination should not include the cost of actual installation of the measure but it will also include aspects including liaison with that householder or propertyspecific targeting. This could be evidenced through relevant marketing materials or media codes or other contacts and agreements. Finally, we would like to stress that some activity may pre-date the actual signing of a contract since suppliers may have started work in good faith, while the contract is being finalised for signing. In those 1 For example see pp , tables 7 and 8 of Impact Assessment Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 8

10 cases we would expect Ofgem to show a degree of flexibility and we would welcome such a consideration in the guidance. Question 4 Do you think that the installation and technical standards required by us under ECO are sufficient? If not, which other standards would be more appropriate and why? Yes, the installation and technical standards required by Ofgem under ECO are sufficient. We would like to stress however that we consider PAS accreditation to be evidence of PAS compliance and we would urge Ofgem not to duplicate the checks and work done by the existing PAS framework. ECO is now a feature of a wider energy efficiency delivery environment and it will need to work well with existing tools and processes. We also noted above that normally, under a bilateral contract, suppliers would have specific rules, visits and checks in place to ensure that a delivery partner is working under PAS. However, these processes need to also take place for a brokerage partner. We would ask Ofgem to provide more specific detail on exhibiting compliance in the guidance and highlight that obligated parties may not have ways of checking the processes of a brokerage delivery partner. Some energy suppliers also strongly believe that Ofgem should be mandating that all installers should be PAS accredited to ensure a level playing field and avoid inconsistencies when working through brokerage. However, not all suppliers are in agreement. Question 5 Do you agree that we should only require suppliers to comply with the measure-specific annexes in PAS, or should we require suppliers to comply with PAS in its entirety? If the latter, please explain why. As mentioned in answer to Question 4, Energy UK believes strongly that a measure being installed by a PAS accredited installer should serve as evidence of PAS compliance. This is to avoid duplication of existing frameworks. However, if Ofgem insists on this point then we ask that Ofgem provides specific clarification on what documents suppliers need to check and hold as evidence of PAS compliance from contractors. Energy UK would also like to stress that the same principle of using existing tools and accreditations should hold for boiler repairs where a repair being completed by a Gas Safe engineer should be sufficient evidence of compliance. Paragraph 4.28 Suppliers must install 100 percent of a measure unless there is a good reason why they cannot. For example for loft insulation unless there is a good reason not to, the entire loft must be insulated, including the hatch. We disagree with this paragraph as we believe that it will impose a disproportionate burden of proof on suppliers, when either way they can only claim what they actually install. It is clear that suppliers and installers have a natural incentive to claim the maximum carbon possible and that any other approach would not be cost effective or in the best interest of their customers. We would also like to note that if Ofgem insists on good reasons then a list of examples should be published as well as how the good reasons can be evidenced, in order to assist suppliers and brokerage delivery partners with compliance. Finally, we would like to stress that installers and suppliers need to take consumer preferences into account when installing a measure, hence customer reference should be considered a good reason. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 9

11 CHAPTER FIVE Question 6 Please provide your views on our definition of, and evidential requirements for, hard-to-treat cavities. In particular: - Cavities which are not suitable to insulate with standard insulation materials or techniques - Substantial remedial works - The requirement for a chartered surveyor s report for the insulation of natural stone cavity walls Ofgem s definition a of a hard-to-treat cavity wall needs to be a clearer interpretation of the definition described in the Order. Currently the Guidance uses the definition: a. A cavity wall in a building with three or more storeys, and the cavity wall is one of at least three consecutive storeys to have a cavity wall. To remove unnecessary complexity to the definition we suggest that Ofgem uses the definition in Article 2 of the Order: (a) a cavity wall (i) in a building with 3 or more storeys where each storey has cavity walls Additionally, three storeys above ground level are defined as excluding basement flats currently. Basement flats should be included if they have an external wall. For example there are many properties in London where there is a basement flat below ground level that is accessed by descending stairs into a small courtyard at the front of the flat. The external wall is the same width as the rest of the property above the basement flat. Therefore, the definition should be amended so that such properties are not excluded. Aside from the definition mentioned above we believe that the definitions and evidential requirements are robust. However, we would like to note the following: Par b ii The footnote stipulates that a template for the chartered surveyor report will be available on the Ofgem website. This will be extremely useful and we would urge Ofgem to publish as soon as possible. We would like to note that the use of a chartered surveyor is a significant expense. Additionally, it is currently unsure whether chartered surveyors have experience in this type of work or if the knowledge base is standardised enough to guarantee a uniform approach. Par b iii We would like clarity on the definition of exposure zone since all properties are located in exposure zones of differing degrees. Par c Apart from the examples mentioned, we believe that the following issues would require substantial remedial works: Removing overlapping mortar from internal joints ( snots ) Re-pointing external cracking (including raked joints, especially where dampness is evident) Re-fixing internal insulation boards (partial fill) Our members report that CIGA have developed a list of remedial activities that can be classed as substantial remedial work. We believe that Ofgem should work with CIGA to develop a comprehensive list clarifying what can be classed as remedial work, although this list should not be exhaustive, and were deemed suitable additional remedial measures may be added as identified. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 10

12 CHAPTER SIX Question 7 Please provide your views on our interpretation of the requirement for walls and lofts to be insulated before district heating connections can be installed. In most cases, if there are properties where loft and walls are available for insulation then obligated parties will do these either way as these are cost effective and will ultimately benefit the customer. However, there are cases where the cost may be prohibitive or the work not technically feasible. As such, we believe that this requirement should be included only where possible and/or where technically feasible, since each installation will be different depending on the local requirements. Suppliers should also have the opportunity to discuss with Ofgem this requirement in cases where the expense would outweigh the benefits of the installation to help keep costs low and help consumers by completing the project. CHAPTER SEVEN Question 8 What are your views on our approach to qualifying boilers set out in Appendix 2? In particular: our definition of a boiler, warranty requirements, and methodology to evidence the boiler being repaired or replaced. Evidence Requirements/Boiler Assessment Checklist We do not believe that the current format of the boiler assessment checklist is fit for purpose and ask that Ofgem revise this to minimise the time it takes to complete but to also reduce subjectivity and aid comparison. Including tick boxes to collect simple yes/no/checked/not checked answers and act as prompts would be advantageous over the current requirement for free text answers. We would also advocate a form that enables a decision on qualifying measures to be made as early as possible e.g. in first third of the form. In instances where a boiler does not qualify, the rest of the form therefore will not require completion. We are aware that there are forms used by the industry that are constructed in this way which could be referenced to help the development of this checklist. Energy suppliers would be happy to work with Ofgem to produce a more user friendly and useful checklist. We would also welcome Ofgem providing examples of completed/filled in forms for a range of scenarios, which could be used to provide consistent guidance across suppliers. Economic Repair Cost Comparison Tables We believe that the figures in the cost comparison tables for comparing the cost of repair against replacement that have recently been reduced, still appear high. We ask Ofgem to review these again and confirm if these include the cost of a 1 or 2 year warranty. Irrespective of the figures included in these tables, we ask that Ofgem clarifies that we should not be repairing inefficient boilers and as a general principle we should not be repairing boilers that are cheaper to replace. We also ask that the wording and reference in relation to cannot be economically repaired be changed to reflect this. We ask that Ofgem use these tables for guidance purposes only and accept cost comparisons from suppliers as evidence to justify a replacement over a repair. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 11

13 If the tables are to be retained we would ask for further simplification in that the current five categories of boiler condition are reduced to three, removing good and very good, as we believe the three remaining condition categories are sufficient. As noted earlier, we understand the industry recognises three types of boiler, combination boilers, system boilers and heat only or regular boilers, Ofgem should therefore consider adding this 3 rd table but in the simplified format noted above i.e. with only 3 boiler condition columns. Warranty Requirements We ask that Ofgem considers whether it is practical and cost effective for warranties to be offered on full systems for a repair on a component part. We believe this will unnecessarily push up the cost to suppliers to deliver repairs and may result in repairs not featuring as part of the measure mix under ECO. Currently, the liability for suppliers on warranties is virtually unlimited will unnecessarily push up the cost of delivery. This becomes even more complex in a brokerage situation, as warranties will be less visible and difficult to track. We ask that Ofgem reviews and changes the guidance relating to warranties to minimise or eliminate this problem. A sensible proposal would be to require any warranty to apply to the specific repair work that is done i.e. the part that is replaced and the work conducted in doing that is warranted for 12 months from the date of that repair. This is similar to the car service/repair industry. Energy UK members would propose the following criteria for recommending replacement of a boiler as not working efficiently: Gas rates are wrong and not achievable Appliance efficiency %'s are wrong and not achievable Flue Gas Analyser combustion levels out of tolerance and unachievable Manufacturer Instruction temperature rise not achievable (Hot Water & Heating Circuits) Boiler internal corrosion. (Waterways) Obsolete parts Burner Pressures out of tolerance Failing components Boiler external corrosion Fluing issues and corrosion Water flow rates not achievable Boiler and system sludge. Incorrect system configuration (e.g. single pipe system) Undersized gas supply (which will result in 1 below) Radiator leaking (turned off to contain leak so room is effectively unheated) Systems not installed as per MI's Cylinders that are leaking/show signs of leakage Systems prone to air locks (not installed correctly) - rads need continuous bleeding (affecting heat output of radiator). ID/AR Situations Multiple NCS issues We would also propose that the RdSAP baseline score for calculating the heating cost saving should be the same as for broken boilers (i.e. on peak electricity). In all cases suppliers should obtain a signed declaration from the customer to confirm one of the above conditions is applicable. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 12

14 Question 9 What do you consider to be the expected cost of providing a one-year and two-year warranty in respect of a repaired qualifying boiler? Energy suppliers would like to note that the cost of providing a one-year and two-year warranty will represent a disproportionate share of the cost of repair if warranties are not capped at a suitable level. Some members will be suggesting that the warranty level is capped at the financial level of the Economic Repair Cost Comparison Tables. As this table has been designed by Ofgem to determine the spending cap on the economic repair of boilers this would be a sensible level to set the financial cap of any boiler warranties. Question 10 Do you feel that our approach for evidencing AWG eligibility is appropriate? If not, can you suggest an alternative to this approach? No. We do not feel it is appropriate that installers and suppliers should be required to retain such sensitive information as benefit entitlement letters or tax credit award notices for a number of years. Additionally, we believe that consumers will object to any documentation being photographed or copied and retained. As discussed with Ofgem, DECC and DWP at the bespoke Ofgem Consultation event on this topic, we believe that suppliers should continue to work with Government to ensure that the evidence requirement would be dealt with through a check with DWP and HMRC records. AWG eligibility would still be verified in the home, with the customer and installer declaring that the household was eligible and documents had been sighted. Suppliers could then send a batch of data to DWP to be verified as whether or not someone in the household was on the right benefits, negating the need for costly and potentially dangerous retention of sensitive documents. Until a DWP verification solution is available, suppliers suggest that following the Warm Homes Discount existing process of querying 5% of the installations would be appropriate and demonstrate consistency between government policies. Finally, we would like to stress that the twelve months of eligibility should be linked to the assessment date and not the completion date, since suppliers will be checking the eligibility of customers during the assessment. Question 11 Do you feel that our approach for evidencing householder is appropriate? If not, can you suggest an alternative, or robust proxy, to this approach? No, we do not agree with Ofgem s suggested approach. The policy intent is to ensure that Affordable Warmth measures are not provided to those in Social Housing. This is difficult and administratively burdensome to evidence and we do not believe that householders will be likely to have their tenancy agreement, or copy of title or lease to hand when required. As discussed at the bespoke Ofgem consultation event on this subject, we believe it would be better to fulfil this requirement through a back office check on a statistically significant sample of installs, for example up to 5%. A land registry check could be performed on the property, and the name of the owner recorded. Where this is the name of an individual, it can be assumed that the measure is being promoted to a householder. If this is the name of a company, additional checks can be performed to evidence that the householder is living in private accommodation. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 13

15 We would be keen to facilitate a working group between suppliers and Ofgem in order to discuss this and agree on an appropriate checking and verification process. CHAPTER EIGHT Question 12 What are your views on our approach to how suppliers must utilise SAP, RdSAP and associated software? We are generally happy with Ofgem s approach. However, there is a concern that there are currently not enough sufficiently trained Green Deal Assessors. The ORB website currently lists 37 companies only 2 and ORB has informed us (on 18 January 2013) that about 230 individual advisors that are registered with certified assessor organisations. We would like Ofgem to allow for some flexibility in getting the Green Deal Assessment prepared and signed and there may be a need to allow for a GD Assessment to be completed following installation. Finally, we note that Ofgem suggests that only software that has been tested and approved by the BRE should be used. We would urge Ofgem therefore to publish and maintain a list of approved software packages on their website, for the assistance of suppliers and the supply chain in total, especially brokerage delivery partners. Question 13 Do you have any comments on our approach to scoring packages of measures? If suggesting alternatives, please provide evidence on how this will meet the requirement for suppliers to notify us of carbon/cost scores each month. We agree with Ofgem s approach of scoring packages of measures whereby a separate calculation is performed for each measure. We believe that installers and customers should be able to choose the order in which measures are installed, to better suit the customer s needs. We would like to confirm our understanding that it is not required to calculate savings in the order that is prescribed by SAP Appendix T, which is solely for displaying the order of energy savings per measure shown on an EPC. It should be noted that even though suppliers agree with the Ofgem process of evidencing the order of installation this might be challenging when a measure is delivered by a brokerage delivery partner. This is because there may be other measures in that property that have been sold to another supplier. We would urge Ofgem to make clear in the guidance what information will be required, to help delivery partners be compliant. Question 14 a) What are your views on whether suppliers should be able to infer some RdSAP inputs when scoring measures under the HHCRO? b) Do you have any suggestions on how this could be done, while ensuring that the savings determined for the measure are accurate and specific to the property in which they are installed? c) Would this enable the obligation to be delivered more efficiently and effectively? Please provide qualitative and quantitative evidence to support your position. 2 Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 14

16 This is a complex process and we would like to work with Ofgem to develop it further as the programme is being delivered. We believe there may be a simplified way to do this and suppliers would like the opportunity to examine this issue in a relevant workshop. Question 15 We intend to publish all appropriate methodologies immediately after approval on our website. What are your views on this proposal? Energy UK will not be responding to this question, please refer to our members responses. However, would like to stress that there should be and indicative transparent process and a timescale for Ofgem to approve any given methodology. This will allow suppliers to plan their contracts and delivery and give certainty to the supply chain. Paragraph 8.56 Furthermore, where inputs to an EPC have been used for an RdSAP calculation, and the EPC has been lodged, this will provide additional assurance that the scores have been calculated using accurate input data. Where the EPC has not been lodged, we may decide to increase the size of the sample of properties where we check the accuracy of the input data. Therefore we encourage suppliers to lodge EPCs where the inputs are used to calculate a carbon or cost saving score. Energy UK does not disagree with Ofgem s intention, however we would urge Ofgem to clarify what the difference in checking levels will be. For commercial planning reasons this difference should be quantified. CHAPTER NINE Monthly notification We recognise the importance and policy intent of reporting on a monthly basis, to track progress and identify issues; however, there are significant risks with this in depth approach. In addition, interpretation of any data sets should be carried out in a transparent manner to avoid misinterpretation. We believe that there is a high risk that measures installed will not be notified on time due to a variety of justifiable reasons and therefore will not be counted, even though the carbon is being saved. This administration requirement has the potential to significantly add to the cost of ECO to the detriment of consumers overall. Monthly notification is a significant risk when it comes to brokerage. Brokerage delivery partners will have to report to a supplier on time for the supplier in their turn to respond to Ofgem on time. Hence, we would encourage Ofgem to consider the one month rule and where appropriate be flexible about its implementation especially where brokerage is concerned. Energy suppliers believe that many companies in the supply chain will not have seen the data notification template yet, and it will take time to build into processes and systems. In order to make timelines more flexible Ofgem might consent to consider a company being new to working within a regulated framework a good reason for an exception from the one month notification rule though the intention would be as soon as practicably possible. In addition, Ofgem could offer a list of what must be reported within the one month rule and what additional information should be submitted beyond the one month. Finally, energy suppliers would like to ask Ofgem to provide a list of some examples of extenuating circumstances. This will help guide both suppliers and brokerage delivery partners. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 15

17 Question 16 Do you feel that our approach to determining the date on which the installation of a measure is complete is reasonable? Are there instances where you think an alternative approach should apply? If so what alternative do you propose? Yes, in general we agree with the approach proposed. Energy UK members would like to note that they consider the completion date to be the date when the customer signs-off the installation and declares that they are satisfied with the measures received. We would like to stress that where an installer is installing in multiple premises for a single client such as a Social Housing Provider, then the completion date for all the measures should be the date that the whole installation is handed over to the client. Suppliers would expect notification to be done in bulk for these projects. Question 17 Do you feel that our approach to what we consider as administrative oversight is reasonable? If not, please explain why. We agree that the examples cited in paragraph 9.29 seem reasonable as they cover areas which suppliers should have sufficient internal controls to handle and check. However, there are also issues for installations that are outside the control of the supplier such as where measures are delivered through third parties and/or through brokerage. These cases should not be considered administrative oversight and Ofgem should make relevant provisions for them. Paragraph 9.15 We are also requiring suppliers to notify other important information when submitting their monthly notification of a completed measure. We require suppliers to submit all of this further information by the notification deadline. Failure to do so will not render notification of that measure unsuccessful. It may, however, be treated as a failure to comply with a relevant requirement for which our enforcement powers are available. Some of this information is required in order for us to be able to determine whether a qualifying action can be credited towards a specific obligation. We do not agree with Ofgem taking enforcement action if all core information is provided on time as we believe that this goes over and above the legislation. We believe that Ofgem should make clear what are the critical pieces of information that should be reported according to the one month rule. Any other information which is additional should be submitted in a timely manner. However, it is unacceptable to require all information to be submitted within one month since this was clearly not the intent nor will it provide information which is urgently required. We would urge Ofgem to publish two lists in the guidance, one with the information required within one month and the other with the remaining information and when that would be expected. Paragraph 9.19 We will review each measure that is successfully notified to us and will inform suppliers of the savings attributed to that measure. Where necessary, we may require a supplier to clarify the information notified or provide further information with respect to a notification before we are able to attribute savings for the notified measure. We would like to stress that Ofgem should not change the score as this is not part of its role as administrator. Ofgem should however be confirming or rejecting within a specific timeline, explaining its misgivings about the calculation. Following that the supplier would be given a month to revise the calculation and re-submit. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 16

18 Paragraph 9.20 We ask that suppliers make one submission, monthly, in respect all of the measures that were installed in the previous month. This will reduce the probability of error in notification to us, in particular the likelihood of reporting the same measure to us twice. A single monthly application will also allow us to review the information more easily and thus notify suppliers of the outcome faster. We will work with Ofgem on this proposal and we understand why this might be helpful. However, due to the nature of the programme this might not be possible as it will depend on the contracts available and the delivery arrangements in place. Paragraph 9.23 We consider accurate reporting to be a very serious issue. It is the responsibility of each supplier to ensure that all notifications are accurate and to manage any third parties involved in delivery. Inaccuracies in the notification of a completed measure may result in the respective carbon or cost saving for that measure not being attributed towards a supplier s obligation. We also consider accurate reporting to be a very serious issue and within suppliers it is subject to very senior oversight. However, suppliers will have a number of processes in place as well as relevant clauses in bi-lateral contracts to ensure accuracy in reporting Ofgem will be aware that there may be occasions where inaccuracies may be present through unintentional reasons. This is an even higher risk under brokerage, where the processes of the brokerage delivery partner are beyond the control of the supplier. We would like to ask Ofgem to give details of levels of accuracy in the guidance as well as provide flexibility for partners not accustomed to the processes. CHAPTER TEN We would invite Ofgem to publish a timeline for responding on an application to transfer, in order to give certainty to suppliers and help them plan how to meet their ECO obligation in a timely and cost efficient manner. CHAPTER ELEVEN Question 18 Do you feel that this chapter adequately explains what can be considered as an excess action? Yes. Question 19 Do you agree that our process for making an application for excess actions is clear? Yes. However, we require a clear timeline of when Ofgem will decide on excess actions and when suppliers will be notified in order to give certainty to suppliers and help them plan how to meet their ECO obligation in a timely and cost efficient manner. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 17

19 CHAPTER THIRTEEN Question 20 What are your views on our approach to auditing? We agree with Ofgem s overall approach to auditing. It is important to ensure that measures are promoted to the right householders by all obligated parties, and are installed to a high standard, to ensure that customers benefit from energy bill reductions promised. More widely, since all energy customers are paying for ECO measures to be installed, it is important that cost savings and CO 2 savings are actually achieved. Throughout previous energy efficiency obligations, suppliers have ensured a high standard of measures installed through a programme of risk based auditing. It will be important to strike the right balance between providing assurance on the savings being claimed, against creating a level of unnecessary bureaucracy. However, Ofgem should recognise that ECO brokerage will introduce a new way of working, whereby suppliers may have to accept measures from brokerage delivery partners, with little or no information of their processes prior to accepting the contract. In those cases, Ofgem having a process similar to the CERT banking process becomes imperative, to ensure that installations are of high quality. It is important that the requirements for all supporting evidence required by Ofgem to be made available for audit is made clear from the start, and should not be asked for in a retrospective manner, as especially through brokerage it may not be possible to obtain information and/or documentation at a later date. This is especially important as it is not clear if the audits are desk based or technical audits and different engagement required for each. Finally, we would like to suggest that Ofgem publishes an auditing timetable for the duration of the obligation so that obligated parties can plan to ensure suitable personnel are available. Question 21 Do you agree with our approach to technical monitoring? If not, do you have any specific comments on how this could be made more efficient? We agree that technical monitoring is an important part of the overall auditing approach and suppliers know that it assist in providing additional internal assurances and checks on delivery partners. We are working with other Suppliers and with Ofgem to agree the appropriate technical monitoring questions and pro-forma that should be used on an ongoing basis. We would urge Ofgem to keep in mind that there are differences between audit and technical monitoring as well as questions to be answered using paperwork and using site visits. These characteristics will dictate the types of questions included. The guidance currently indicates that technical monitoring should be conducted by a third party who is independent of the supplier, installer or any other party involved in the installation of the measure. We have in recent times always used independent agents. However, with the potentially more complex and expensive monitoring which will be carried out under ECO, we question Ofgem preventing a supplier from using an internal resource to monitor works which we have paid for, branded/promoted and where we may also have a relationship with the customer. Energy suppliers agree with the approach to the rate of technical monitoring that has been outlined. To begin with, technical monitoring of 5% of measures should be carried out for the first three quarters of ECO. If the failure rate of a supplier is below 5%, then technical monitoring can be carried out at a lower rate of 1%. However, we would invite Ofgem to consider that minor failures may increase the failure rate disproportionately. As such we would like to work with Ofgem to determine whether the 5% could include mainly major failures. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 18

20 We also note that Ofgem have added an additional requirement to report on the number of properties where the agent could not gain access. Obligated parties need to understand why Ofgem requires this data and what its intended use is, to ensure that all suppliers report the same data in the same manner. Finally, we would like to stress as we did in other parts of this response that where things are covered by other bodies (e.g. Gas Safe or PAS 2030) they should not be covered by technical monitoring. It is imperative to not overcomplicate ECO delivery as that will add to the cost and might also create negative feelings for consumers, especially if the process is long and arduous. Question 22 Are there standards in addition to those contained in the building regulations, that we should require suppliers to technically monitor? Building regulations are legal requirements (for which Ofgem does not have locus to monitor) and should not be checked through technical monitoring. Again, we would like to stress that where things are covered by other bodies (e.g. Gas Safe or PAS 2030) they should not be covered by technical monitoring. It is imperative to not overcomplicate ECO delivery as that will add to the cost and might also create negative feelings for consumers, especially if the process is long and arduous. Question 23 Do you agree that our approach to fraud prevention is suitably robust (including the submission of prevention/detection proposals at the time of activity proposals)? Yes. Energy UK members will continue working with Ofgem Fraud Prevention and Audit team to ensure controls are effective. We would also like to stress however that ECO will be delivered by a wide variety of partners, some of which may be beyond suppliers direct contractual contract. We would therefore invite Ofgem to consider this when writing the final guidance, in order to assist the supply and delivery chain in its entirety to remain compliant. Energy UK response to the Ofgem consultation on Energy Companies Obligation (ECO) : Guidance for Suppliers 19