. 136 AGENDA ITEM NoA? I AGENDA ITEM NO... TO: HOUSING COMMITTEE NORTH LANARKSHIRE COUNCIL REPORT SUBJECT: DEREGULATION OF GAS AND ELECTRICITY SUPPLY FROM: DIRECTOR OF HOUSING DATE: 12 November 1997 REF: RMIGMIEWIS 1.o 1.1 2.o 2.1 2.2 3.0 3.1 Introduction The purpose of this report is to provide Committee with information on the current situation and to highlight any implications to the Council which may arise due to the impending deregulation of the domestic markets in both gas and electricity. Background Deregulation for the fuel utilities means the same for both markets, that is, competition. At present the current suppliers of domestic fuel, Scottish Gas and Scottish Power, are monopolistic but this will cease when the domestic markets doors finally open to other licensed companies who can compete with them and provides an opportunity to supply fuel to anyone who requests it. Competition allows the individual to choose between different companies. Companies will compete on both price and service, allowing the individual to choose which supplier best suits their needs. Effective Dates of Derefulation Competition within the domestic markets is being introduced in phases throughout the country due to the large number of customers involved, with the commencement dates as follows:- a Gas - commencement date: 1 November 1997. This tranche covers all of Scotland as well as the north east of England. 0 Electricity - expected date: 1 April 1998. This market is not initially open to competition nationally but it is expected to be nationwide by September 1998. Two areas within Scotland have been selected by the Office of Electricity Regulation (OFFER) to initiate the process of domestic competition, one covers the north of Scotland and the other pertains to residents within several areas of North Lanarkshire, i.e., Motherwell, Airdrie and Coatbridge. -. 4.0 4.1 Current Situation in the Electricity Market At this point, no information is available from any of the major parties regarding the electricity deregulation as they have yet to finalise and publish details of their proposals relating to tariffs and services. From informed sources within the media and consumer councils, price reductions for electricity are expected to be within the 5-10% range, with market switching to rival electricity suppliers expected to be far lower than in the gas industry. Hcomte 14/hc/l2
137 Page 2 4.2 5.0 5.1 6.0 Therefore, with the situation in the electricity market still to be finalised it is not possible to cover any implications for the deregulation of the electricity market in detail at this time, the content of this report will therefore focus on gas competition. However, the issues raised will probably apply equally to the electricity deregulation as and when it is fully implemented. Orpanisation of the Domestic Gas Market ComDetition Changes were introduced into the gas market by the government in 1986 to facilitate the introduction of competition. The Gas Acts of 1986 and 1995 provide for the licensing of public gas transporters, shippers and suppliers and ensures that these companies comply with their licence obligations and that competition works effectively. The Role of The Companies in the Market Place 0 The transporter is the company which operates the pipeline network carrying gas around the country. BG Transco is currently the largest transporter and in the majority of cases will be the only transporter and ensures that the national gas pipeline system is operated safely. 0 The shipper is the company which arranges for the gas to be transported through the transporter s pipeline system to the supplier s customer. 0 The supplier is the company which sells gas to the customer with all the facilities for billing the customer. Suppliers work in conjunction with the shipper and in most cases is liable to be the same company. 0 The supplier is the company with which the customer deals. They have no direct contact with the shipper or the transporter concerning the supply of gas. However, Transco, in the role of emergency service provider, will continue to be responsible for dealing with gas escapes and in such instances they will be the first point of contact if a problem of this type arises. 7.0 7.1 ImDlications of Deremlation on the Structure of British Gas As a result of deregulation, the structure of British Gas has changed. The former British Gas Plc has become two separate companies, BG Plc. and Centrica Plc. Transco (part of BG Plc.) is a transporter and operates the national gas transmission network, runs a 24 hour gas emergency service and maintains pipelines and meters. Centrica Plc. operates three separate sections, British Gas Trading (BGT), British Gas Service and British Gas Energy Centres. BGT operates both as a shipper and a supplier and provides a range of retail services to the customer. In addition to BGT, eight other companies are licensed to sell gas to domestic customers within Scotland and are illustrated in Appendix 1. Transco cannot enter into contracts with customers to sell gas. All customers are now supplied under a contract with a gas supplier. Transco maintains a database of sites where meters are installed (known as supply points) which it identifies by a meter point reference number or M-number, usually found at the foot of the customer s gas bill. The database also holds information on the companies shipping and supplying gas to these sites.
138 Page 3 The process of changing from one gas supplier to another involves the use of Transco as they have to be notified and sites registered with them. Therefore, all contracts ultimately go through Transco before transfer takes place. This transfer takes place between the customer s existing supplier, proposed new supplier and Transco, and normally takes 4-5 weeks to complete after the customer has intimated that they wish to change supplier. Whatever option the customer decides to take, safety is still the responsibility of Transco. All gas escapes should be reported immediately to them on Freephone 0800 11 1 999 and not to the existing or the new supplier. 8.0 8.1 8.2 Possible ImDlications for Customers (Main Chanyes) Customers choosing a new supplier will not incur any expense in so doing. A new supplier will simply supply the gas via existing pipelines. If customers are happy to receive their gas from their existing supplier they do not have to do anything, their existing supplier will continue to supply them with gas. If customers, after receiving the relevant information from the new players in the market, are considering a switch of supplier there are a number of points they must consider before changing. Points for Consideration (prior to switching suppliers.) (a) Paying for gas: (b) Contracts: (c) Incentives: (d) Routine Services How much does the gas cost each year? What payment options are available? Suppliers should offer a range of payment methods, including direct debit, weekly, fortnightly, monthly or quarterly instalments; cash, cheque, and also have pre-payment meters. Prices will vary depending upon how bills are paid (direct debit compared to cash, pre-payment meter methods.) How often will customer get bills or statements? Will customer have to pay a deposit before gas is received? What happens if customer cannot pay his bill or have existing debt? How long is the contract for? Is it a fixed term, rolling or deemed contract? (see Appendix 2.) Has customer read and understood the contract? What obligations does it place him under? What are the arrangements for ending the contract - is there a termination fee? What if customer signs a contract with a new supplier then changes his mind? What incentives is the supplier offering? Will the incentives have to be returned if there is a change to another supplier? How often will my meter be read? Will customer be expected to read the meter himself? How does customer make enquires and complaints? Does the supplier have guaranteed standards of service?
139 Page 4 (e) Special Services What arrangements does the supplier have in place in case of difficulty paying gas bills? What special help is available to pensioners, disabled and the chronically sick? What help is provided in as far as using gas equipment? What is the position regarding disconnections? If, after taking all of the above into consideration the customer is still unsure, the best advice is to do nothing, gas will still continue to be supplied by their existing company. On the other hand if the customer decides to switch, the most important aspect of the switch is for them to take a final meter reading themselves, retaining this information as they may be asked for it by their new supplier and more importantly will be able to use this final reading themselves to check their final bill fkom their existing supplier is correct. * There is also a 7 day cooling off period in which, if an uninvited salesperson calls to a property and the customer signs a contract, allowing for a change of mind whereby notification can be made to the supplier of the wish to cancel. 9.0 Refusal to Supplv 9.1 All companies who supply gas to the consumer are licensed by Ofgas and therefore must comply with their licence obligations, one of which is that they must supply gas to anyone connected to mains gas in their licence area who requests it.. Therefore, no company can refuse to supply gas. The only obstacle to changeover is that the current supplier can object on the grounds of a customer s existing debt. There are a number of ways this can happen:- (a) (b) (c) If the debt is less than 28 days the existing supplier can arrange payment of the debt to be made directly or for it to be passed to the new supplier who will arrange payment of the debt themselves. This in effect allows the customer to change. If the debt is more than 28 days the existing supplier can object to the transfer to a new supplier. However, they may choose not to object to the transfer and pursue the customer for the debt, or objection could be based on the amount of outstanding debt and the arrangements made for payment of this debt. If the customer has a pre-payment meter which is set to collect the current payment and some arrears, and the arrears are more than 28 days old, the same arrangements as above apply. In summary, the existing supplier can object to the transfer until an arrangement is made to deal with an outstanding debt. There is no duty to inform the new supplier of outstanding balances as it becomes a civil matter between the customer and the existing supplier.
140 10. Void Properties Page 5 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 11.0 11.1 At present all customers are supplied with gas under what is known as a deemed contract - that is, they have a contract in place without actually having signed anything and this applies equally in the case if a tenant moves into a property and starts using gas from the previous tenant s supplier without making arrangements and without signing a contract and could result in being charged at a higher price for their gas. This is known as a stand-by contract whereby charges can be higher than the normal standard contract. In order that change from one property to the next should flow as smoothly as possible, for both tenant and the Council, the following procedures should be adopted. The housing officer ascertains from the, outgoing tenant who the existing gas supplier is and, if possible, the M-number (meter point reference number) which is found at the bottom of the the gas bill. This will speed up any transfer if the new tenant decides to switch. The information is then filed and given to the new tenant upon acceptance of the void property. If this information cannot be ascertained at the time of interview or, in the case of an abandoned property, the Council can contact Ofgas, give the address of the property and in return Ofgas will provide the name of the current supplier to that property after consultation with Transco. It should be noted that as a result of the Data Protection Act and current policy Transco will not supply this information directly to the council or to an individual. Prior to leaving the existing property, the tenant should notify their existing supplier, at least 48 hours in advance, that they are moving. Failure to give the supplier this notice may result in the tenant being held liable for any gas consumed for that property up to the following break-off points, based on whichever circumstances occur first. - Up to 28 days after the tenant has notified the supplier that they have ceased to occupy the property (i.e., a monthly payment cycle, which is the maximum payment cycle.) - A new tenant signing a contract with a supplier to supply gas to the property (if under the monthly payment cycle.) - The next meter reading by the existing gas supplier or another supplier after the tenant has vacated the property (if under the monthly payment cycle.) In all cases, the most important steps that the customer should take to safeguard themselves against inaccurate bills is to take a final gas reading on leaving their former house and a reading on entering the new property. In order to alleviate the potential problem of inaccurate bills which may arise for both the outgoing and incoming tenant, all council maintenance officers should take meter readings at the initial and final inspections of the void and file for future reference. Where the previous tenant has had a quantum pre-payment meter in use then arrangements will have to be made with the supplier by the new tenant to have the meter re-set and a new gas card issued if they wish to retain this type of meter or have a credit meter installed. Future Omortunities Within the Market Place includinv Possible Avenues for Best Deals for Council Tenants Legally there is no impediment to the Council becoming a supplier of gas, however, there is little chance of this becoming reality. A licence would require to be issued by Ofgas and for this to be granted the Council would require to meet certain criteria under licence conditions. It is therefore highly unlikely that it would succeed in its application. -
141 Page 6 11.2 One possible alternative is for the Council to act as a broker and negotiate with individual suppliers on behalf of council tenants to achieve the best price that is available in a competitive market. In order to negotiate from a strong bargaining position, the Council would have to know how many households would participate in the scheme. Administratively, this could mean changing tenancy agreements to ensure definite numbers for suppliers as well as collecting such information from the tenants. A basic requirement by suppliers is a signature from the sitting tenant agreeing to participate, meter-point number and a bill reference number. This in itself would be a cost to the Council, i.e., high administration costs in implementing and maintaining such a scheme coupled with the responsibility for tenant fuel arrears, with no tangible benefits in the short term to the Council. Brokerages of this type would mean less choice to the tenant even though best prices could be achieved and would run counter to the spirit of deregulation, as one of the main reasons for an open market is the opportunity it allows for the individual to choose between different gas companies. With the emerging market in its infancy, brokerages and, to a lesser extent, changing suppliers should perhaps be left until the market stabilises and an appraisal of all the known information can then be undertaken. In the meantime, cherry-picking by tariff will continue by suppliers on customers who pay up front by means of direct debit with an average of 23.5% difference compared to Scottish Gas standard credit tariff to switch, to the detriment of the poorer householder paying by the pre-payment meter method where the average savings are much less (3.0%) In North Lanarkshire as a whole, large numbers of Council tenants have pre-payment meters installed and until this discriminatory practise is stopped, by pressure on Ofgas, whole sectors of our community will continue to be placed in this disadvantaged situation. 12.0 BackEround Information 12.1 Available from the Housing Department. 13.0 Recommendation 13.1 Committee are asked to note the contents of the report. n L Gavin Whitefield Director of Housing
142 Appendix 1 DOMESTIC GAS SUPPLIERS Licensed Supplier Beacon Gas, PO Box 42 1, Wellesley Road, Croydon CR9 2YA Tel: 0500 223355 Fax: 0181 2532553 British Gas Trading, 17 London Road, Staines, Middlesex TW18 4AE Tel: 0645 668866 Fax: 01784 645404 Eastern Natural Gas, 249 Charterhatch Lane, Enfield EN1 4BW Tel: 0345 226226 Fax: 0181 362 2956 London Total Energy, Freepost 23 LON 8526, London W1E OAL Tel: 0500 645100 Fax: 0171 766 0361 Northern Electric, Carliol House, Market Street, Newcastle-upon-Tyne NE1 6NE Tel: 0345 199696 Fax: 0191 2102870 Norweb Gas, Talbot Road, Manchester M16 OHQ Tel: 0800 555815 Fax: 01282 844919 Scottish Power, Energy Supply Division, Cathcart House, Spean Street, Glasgow G44 4BE Tel: 0800 400 200 Fax: 0141 568 6927 Southern Electric Gas, Littlewick Green, Maidenhead, Berks SL6 3QB Tel: 0800 117116 Fax: 01705 624417 Calortex, Dorcan House, Eldene Drive, Dorcan, Swindon, WiItshire SN3 3SH Tel: 0800 443443 Fax: 01753 555703 Area of Supply * -.
143 Appendix 2 TYPES OF CONTRACT (Definition) Fixed Term Contracts A fixed term contract means that the price the gas supplier charges will be fixed for a specified period of time. If you decide to cancel the contract there may be a termination fee. When the contract ends you can choose either to sign another contract with your supplier - which may be at a higher price - or transfer to another supplier of your choice. Rolling Contract A rolling contract means that the contract will continue until you cancel it. The price can go up and down. If you decide to cancel you will not have to pay a termination fee. Deemed Contract In some cases the following may apply: 0 a contract will be considered to be in place if a gas supplier is providing you with gas without you signing a contract with a supplier. 0 the supplier does not have to charge the same price for gas supplied under a deemed contract as he charges under a signed contract, but the price has to be published. 0 deemed contract prices may be higher than the supplier s published prices for customers who have signed a contract.