COMMITTEE FOR ENTERPRISE, TRADE & INVESTMENT

OFFICIAL REPORT

(Hansard)

Energy Issues

15 May 2008

Members present for all or part of the proceedings:
Mr Mark Durkan (Chairperson)
Mr Leslie Cree
Mr Simon Hamilton
Mr Alan McFarland
Mr Gerry McHugh
Mr Robin Newton
Mr David Simpson

Witnesses:
Mr Peter Dixon ) Phoenix Natural Gas
Sir Gerry Loughran )
Mr David Strahan )  

Ms Sinéad Dynan ) The Consumer Council
Ms Eleanor Gill )
Mr Richard Williams )

The Chairperson (Mr Durkan):
The first briefing today is from Phoenix Natural Gas. We have with us the chairman of the company, Sir Gerry Loughran, the chief executive, Mr Peter Dixon, and Mr David Strahan. Members have been provided with a written briefing, contained in their packs. This covers a press release from Phoenix Natural Gas and, indeed, a subsequent statement from the company.

For members’ information — and to prevent any misunderstanding or misapprehension — Save the Children has contacted the Clerk to advise that its earlier press release, which was brought to the attention of the Committee, was incorrect. That press release indicated that pay-as-you-go customers would be subject to a higher increase than other tariff users, and the charity has now provided a new statement on that matter. In members’ packs there is also a recent article about gas prices, with reference to Firmus Energy.

This section of the meeting will be recorded by Hansard. The witnesses should be aware of that, and I have cautioned Committee members too. We should be conscious of how we ask questions and, indeed, how we respond to answers.

Sir Gerry Loughran ( Phoenix Natural Gas):
Thank you, Chairman. The last time that you and I shared this room it was in slightly different circumstances.

The Chairperson:
It is a return to the scene of the crime.

Sir Gerry Loughran:
Indeed.

Phoenix Natural Gas is very grateful for the opportunity to attend the Committee meeting today. We hope to provide some useful evidence. We have provided a background paper, which covers most of the issues that we feel are important. However, it is for the Committee to decide what it would like to ask us, and we are willing to engage with the Committee on that basis. Before taking questions from members, we feel that it may be helpful to provide a short, opening statement covering four particular points. We hope that this will be of interest to the Committee.

The first point that we wish to cover is the background to the current energy-price problems. That is something that everyone is experiencing — not least your constituents. In doing so, we hope to explain the reasons why we believe that there is the current high-price environment.

Secondly, we would like to say something carbon footprint. That is a topic — we know — about which this Committee and the Assembly are very much concerned. In our discussion we will point to the potential contribution that natural gas can make in reducing our carbon footprint.

We want to talk about fuel poverty, which, in a high-price regime becomes even more of an issue. In order to deal with fuel poverty and carbon footprint issues, the outreach of the gas industry must be developed. We want to spend some time on that issue, too, if that is acceptable to the Committee. Our chief executive officer, Peter Dixon, will cover those four points in more detail.

Mr Peter Dixon ( Phoenix Natural Gas):
I will not refer to the information in member’ packs, because that is background information that will help shape some of the things that I want to go through now.

Much of the strategic work on the issues to which Gerry referred was covered by the regulator in his recent paper to the Committee. Global issues are driving energy price rises in oil, gas, coal and other main fuel types. All main fuel sources are impacted, so no one seems to be protected.

The issue is not solely one of supply and demand. Prices rises are not simply explained by gas being sold in China for £1 a therm, or the fact that gas and oil are required in China and India. There is a significant difference between the multiples of trading activity of gas and oil compared with the use of the fuel. That indicates that significant speculation is taking place in the trading of oil fuel. In the UK, six times more gas is being traded than is being consumed. That is different to Europe, where the difference is 0·6 and the multiple on oil is significantly higher than six.

That gives an insight into the issue of carbon footprint, which also affects energy prices. It is probably fair to say that there has never been as high a focus on carbon footprint as there has been in the past two or three years; you have only to listen to the media and the support that the Government give to the issue. However, the issue has lost direction slightly. Due to efficiency and the lower carbon footprint of gas, homes that convert their heating from oil to gas can reduce their carbon footprint by around half. Homeowners can take no greater step to reduce their carbon footprint than converting from oil to natural gas.

There are around 120,000 gas customers in the Phoenix licence area and the Firmus Energy area. Customers who have converted to gas have reduced by 100,000 tonnes the amount of CO2 that goes into the atmosphere every year. That is a significant amount; it is about the same as around 80,000 to 90,000 cars being off the road each year. If a local energy strategy can deliver 50% of homes and businesses in Northern Ireland to natural-gas use, the amount of CO2 that goes into the atmosphere would be reduced by 300,000 tonnes. That would get Northern Ireland significantly, if not most of the way, towards its share of its carbon reduction requirements to meet the Government’s target of 2·5 million tonnes by 2010. Renewable sources of energy will assist with reaching the target, but in themselves they will only go a fraction of the way. Gas plays a strategically important role; that will be covered when we talk about the development of gas.

In Great Britain, 85% of homes and businesses use natural gas, and gas is available to between 90% and 95% of Great Britain. That is a total reversal of the situation in Northern Ireland. Great Britain already has a low carbon footprint, and it has been trying to reduce it further by applying renewables. We are still dominated by oil, so gas must be used more widely in Northern Ireland, and then renewable sources of energy can be put on top that.

That brings me on to the issue of fuel poverty. I will echo some of the points that have been in the press recently and are fixed in the minds of Committee members. Income levels are a significant issue in fuel poverty, especially with pensioners and people on a fixed income. Prices in every walk of life today are moving outside of an inflationary increase, and that puts massive pressure on the best use of fixed incomes. The information that Phoenix Natural Gas receives from its customer base indicates that an average customer spends about £50 a month on gas, and the average bill is about £600 a year. Although that is high — higher than it has been — and it also reflects the recent price increase, it needs to be put in context. Phoenix’s prices have just increased by 28%, coal prices have increased by 25%, and 900 litres of oil is up by 82% on last year’s prices, which means that an oil fill is costing customers around £530. I imagine that most customers have between two and three fills a year.

However, the bigger issue on fuel poverty as regards oil — and oil dominates our domestic heating scene — is that the 20-litre oil drums that can be found on garage forecourts are selling oil for about £1 a litre, which is making a 900-litre fill of oil £900, and anyone who has driven past a forecourt recently will notice that those drums are normally sold within a day. That is a big issue and one that has not been addressed.

As we know, there is no good news on fuel. However, Phoenix’s retail price for gas is still around 23% cheaper than oil. Of course, that is a transitory figure, because the price of oil goes up and down each day and gas prices try to be pegged for a year, six months, or whatever the case may be. Those figures only look at the input price. The big issue on gas is the energy-efficiency improvement of around 40%.

I will finish by looking at the development of the gas market, which is of strategic importance, going forward. Phoenix has developed its licence area significantly, and it has accelerated its model here over the past 10 or 11 years. A lot of work has been done on accelerating gas. However, gas still accounts for only about 25% of the home-heating market in greater Belfast. Outside of greater Belfast, where there are other licence holders, gas accounts for less than 1%. Those are fractional parts of the whole.

Oil, coal, liquefied petroleum gas (LPG) and electric still dominate the energy scene and also dominate some of the fuel-poverty issues that have already been mentioned. Natural gas is available to circa 260,000 homes and businesses, which means that it is at the curtilage of the property in the greater Belfast area, which is around 80% of all properties. In the 10 towns outside Belfast that have been developed, its availability is more limited — mainly to industrial and commercial concerns.

It goes without saying, if you take together some of the issues that I have covered, that gas, as Gerry said, must be made more widely available, especially if we are to achieve parity with Great Britain and the Republic. Over 60% of the population in Northern Ireland does not have access to gas. It is important that Government support gas in the same way as renewables, and that is not the case at the moment. Gas is being developed privately, and there is no strategic plank or no word from Government to say that gas is the right step. If that were the case, it would help overcome the inertia issues that surround people having to pay to convert to natural gas, which is not an insignificant amount of money.

Last, but not least, the focus must be to expand growth and have less regulation. We have a highly regulated energy industry, and the cost of that regulation is significant in terms of what customers pay for that regulation. Focusing on expansion will help — despite the current unrest over energy prices.

Mr Newton:
A paper provided to the Committee by the Department of Enterprise, Trade and Investment (DETI) states:

“There have also been a number of other factors which are influencing wholesale gas prices. For example, UK wholesale prices are now subject to a greater degree of influence from global markets as a consequence of the increased reliance on Liquefied Natural Gas (LNG) imports. Over recent months, several significant cargoes of LNG destined for the UK have been diverted to other countries leading to upward pressure on wholesale prices.”

How can a cargo that is heading to the customer suddenly be diverted — presumably because the trader has been offered a better price elsewhere — causing upward pressure on gas prices in the UK?

Mr Dixon:
I will attempt to give a simple answer and to describe what is a complex trading activity. During the past three years, there has been significant investment to solve capacity problems in the UK to ensure that gas reaches the correct destinations at the correct time— that was driving up prices during the winter months. Capacity problems have been solved by building LNG terminals and new transmission lines.

Gas, like oil, is a tradable commodity, which is sold on the high seas for the highest price. If the national balancing point (NBP) price in the UK is 70p or 80p for a therm of gas but China or India are willing to pay — in this case, China — £1 or £1.10 a therm, the LNG will be diverted to the country that bids the highest. David Strahan is Phoenix Natural Gas’s gas-purchasing expert and he may have something to add.

Mr David Strahan ( Phoenix Natural Gas):
That covers it.

Sir Gerry Loughran:
The Department’s paper uses the word “diverted”. That is misleading, because gas is sold to the highest bidder and, strictly speaking, it is not diverted from depots in Western Europe. Gas from Canada may be sold to Japan — that is not a diversion. As Peter said, gas is traded six times before we burn it.

The Chairperson:
Who is doing the trading?

Sir Gerry Loughran:
People who identify opportunities to make a profit; every trade is based on the premise of profit-making.

Mr Dixon:
Banks are a major trader; they speculate and buy gas in the hope that the price will increase, which, consequently keeps the price up at different times. That is how an asset such as gas is traded.

The Chairperson:
Is there any estimate of how significant a player the banks are in this?

Mr Dixon:
I am privy only to the same information that is available to Committee members. However, recent press coverage indicates that between 50% and 60% of trading is speculative trading in energy sources by banks. More knowledgeable people may have a better handle on that.

The Chairperson:
The ratio of commodity trading to consumption seems high. Given that regulation can be used on different aspects, is it absolutely powerless to oversee or intervene in such trading?

Sir Gerry Loughran:
They cannot intervene in the global marketplace. The market will determine that ratio. When people begin to believe that they cannot make a profit, that multiple will start to drop.

The Chairperson:
Nevertheless, said that that ratio was nothing like the ratio on the Continent. Therefore, if the market is global, compared to the rest of the world, that ratio stands out only in the context of the UK market.

Mr Dixon:
Of course, but the UK market is far more open to competition than any other market in Europe. Given that countries such as Italy, France and Germany are reluctant to open their markets to greater competition and transparency, last year, the issue of UK-based companies’ inability to operate in the European sphere was brought before the Commons’ Select Committee. The situation in those markets has probably not changed since then, and that is reflected in the European trading activity being so low at 0·6.

The Chairperson:
Given the notion that competition is meant to bear down on prices, members must now get their heads around the idea that competition at that level contributes to a trading pattern that appears to add to costs. However, I do not wish to hold up proceedings.

Mr Newton:
Concerning the word “diverted”, presumably, at some point, someone agreed a price before tankers set out for the UK.

Sir Gerry Loughran:
In all likelihood, no price would have been agreed, because commodity markets — and it is true, for example, for energy and food businesses — work in such a way that a price is not struck until a ship gets as close to a port as possible.

A Member:
That is the problem.

The Chairperson:

I am told that, soon, some people will be doing that with their votes. [Laughter.]

Mr McFarland:
Thank you for your briefing. It strikes me that, if everybody else in Europe guarantees security of supply and we do not, that is a major issue and we are being incredibly stupid about the direction in which the world energy market is going. If we cannot protect our security of supply, we are probably in deep trouble.

Phoenix Natural Gas marketed its gas to customers as being low cost and much cheaper than anything else. Since then, there have been two price increases of 20% and 15% and we have just had an increase of 25%. Since you began to supply people’s homes five or six years ago, in percentage terms, by how much has the cost of gas increased?

Furthermore, have there been any production — rather than speculation — cost increases, and, in percentage terms, how have they contributed to recent price increases?

I presume that we still get much of our gas from the North Sea and that it is not subject to world markets, or is our gas traded on world markets? Could we be selling our gas to China and importing gas from somewhere else?

Mr Cree:
That is exactly what happens.

Mr Newton:
There is no doubt about it

Mr McFarland:
Consequently, I suspect that what has been happening is largely down to speculators.

Mr Dixon:
Thank you for your questions, and I will try to answer them. Phoenix has found that convenience is the best basis on which to promote natural gas. I am trying to remember what the price was when we first announced it 11 years ago. Although I must check this figure, I think that it was about 45p or 47p a therm. When we announced the price, oil cost $9 a barrel, and gas was trading at a higher price than oil. In fact, for most of that time, gas has been trading at something between a 25% and 50% input premium on oil.

You are correct to say that the price of gas increased by 28% this year. Last year, the price went down by 15%, and the year before that it increased twice, mainly due to energy spikes. The more incisive question would be about the underpinning costs in the industry, which are falling all the time. If you look at the three industry costs — apart from wholesale gas costs — getting more gas customers pushes down the costs that we pass on to consumers, because we are a regulated business, and we can only pass on the charges that the regulator allows us to. Because the margins on supply are about 1·5%, the underpinning operational costs are geared to go downwards.

Moreover, the costs associated with consumers’ converting their heating to gas have continued to fall as the industry has grown. In fact, at present, conversion to natural gas is about 10% to 20% cheaper here than in Great Britain, because the market is very open here — there are many independent traders — and the gas company does not seek to profit from that activity.

Wholesale gas costs are the only factor that is beyond our control. All the other costs to do with the asset, and the return on the asset, have come down in line with the regulatory changes. The recent transfer of the transmission assets to risk to the consumers, through a mutualised model, also removes some of the cost of finance, because that finance is now underpinned by consumer risk, rather than by a private owner.

Overall, the price of gas has increased over the last 10 years; it now costs the average customer £600. In the scheme of things, it is still significantly cheaper than any other fuel. Gas is still being promoted, and it is still very successful, because it offers people something that they want for the future. It offers convenience and a hassle-free means of providing energy to their homes regardless of the price, which is transitory anyway.

Sir Gerry Loughran:
Gas is still 23% cheaper than oil.

Mr Dixon:
I will have to check up on that price I mentioned, by the way, but I think that it was about 47p.

The Chairperson:
The regulator gave evidence last week, and he talked the Committee through the history of the relationship between continental and UK gas prices. He explained that, for a long time, GB gas prices were pegged lower because of the reliance on North Sea gas. It was a deliberate policy to keep the price lower as a way of influencing people to convert to gas. When that reliance reduced and as competition kicked in, there was an inevitable price surge. It was like a canal lock; something had to give when it was opened. That is part of the background information that the regulator provided.

Mr McFarland:
I presume that North Sea gas is traded on a world market. Therefore, are tankers carrying North Sea gas to China while we receive gas from Alberta, for example?

Sir Gerry Loughran:
No. It is more likely that North Sea gas is being burned here, but it is being burned at international prices.

Mr McFarland:
Given that there is fuel poverty in our society, can we not ensure that we look after our own people? Administrations in Germany, France or Italy look after their own people and ensure that they are not strapped and that social cohesion is not breaking down. If we are paying a world-market price when we have an opportunity to keep our society settled, it seems as though we do not care what happens to our society, whereas other European countries look after their people.

It would be different there were no natural gas supply, but I understand that the Corrib field is being opened off the west of Ireland. Presumably, that means that an Irish gas field will come on stream. In the UK, our gas supply in the North Sea has some way to run yet. We, therefore, have a degree of choice as to what that is sold at domestically. Clearly, some of that gas could be earmarked for international sale so that we are not losing out completely. It seems slightly dodgy that every other country is protecting its home market and yet we are not.

Mr Dixon:
The simple answer is that all the energy companies in the United Kingdom are privately owned, and they operate in an open environment. Most of the energy companies in Europe are still state owned. In the Republic, Bord Gáis Éirann (BGÉ) is state owned. Gaz de France is also state owned. In those instances, the state makes the decisions about its strategic assets. In Great Britain, those commodities have been exported for 30 years. I am not sure where the control comes from when states deal with those resources, because those assets, commodities and businesses are no longer owned by the state.

The Chairperson:
Is that one of the significant factors that contributes to the trading to consumption ratio differences that you talked about earlier?

Mr Dixon:
That is obviously a factor that affects those issues. If you speak to BGÉ, it will talk to the Department before making a decision. If you speak to Gaz de France, it will speak to the state before giving an answer. The states make long-term strategic decisions based on the assets, commodities, activities and economics in which those businesses operate. Private companies operate in a shorter time frame, and operate to the benefit of their shareholders, consumers and staff.

The Chairperson:
They also operate for the benefit of speculating banks.

Mr McFarland:
Where does social conscience come into this matter? I wonder whether the Phoenix Natural Gas shareholders, after the fuel price revolution, will be concerned when the workers march on the gas depot with the intention of burning it. Perhaps I am being flippant, but it seems really strange that nobody cares. Recently in the Assembly, we had a debate about fuel poverty and energy conservation. It strikes me that it will become a major issue in the UK. Next winter — unless something dramatic happens and the Government provide loads of money to support all this — many people will be in serious difficulty because of heating and electricity costs.

That problem will not be experienced in Europe because people care. I suspect that America will look after its own markets. Potentially, we could experience all sorts of difficulties that nobody else will understand, because Phoenix Natural Gas — and any other privatised supplier — could claim that the shareholders are key to that. The question is whether the shareholders will understand why the company is showing no social conscience or does not care about whether people die in their homes.

Mr Dixon:
It is unfair to say that Phoenix Natural Gas, in particular, has no social conscience. For the record, a company’s regulatory licence, other than its good business ethics, gives it a social conscience. From the point of view of Phoenix Natural Gas — as the point was made in the context of Phoenix — it is the only company that has been accredited nationally for its corporate social responsibility. It is, therefore, a beacon for all other private energy companies to follow, and I would be encouraged if they did that.

This is a very serious and big issue. Everyone, regardless of whether they are the executive of a private company, a consumer, or a pensioner, is equally concerned about the matter. It is also a major concern for us, given that every year we need to connect between 9,000 and 11,000 customers, who must decide to switch voluntarily to natural gas. The issue is tied up ultimately in the DNA, if you like, of our business and its returns.

Sir Gerry Loughran:
Phoenix Natural Gas shareholders will receive nothing from the 28% price increase that we had to introduce a couple of weeks ago. That increase was caused entirely by the prices that we have to pay in the wholesale gas market. I accept your point — some people are making lots of money from speculation. However, it is difficult for any country to deal with the problem on its own.

Economies such as India, China and, especially Japan, which is an extremely wealthy country, determine energy prices. We referred to the fact that in the UK, six times more gas is being traded than is consumed. That figure is 11 or 12 times for barrels of oil, which is one reason that consumers have to pay £1·26 for them.

Mr Dixon:
One important point that may be of some comfort to the Committee is that Northern Ireland is different to the rest of the British Isles in that Phoenix Natural Gas prices come from our supply business. That supply business operates under a regulator’s price control that determines what we can charge and the costs of running our assets, such as the pipes in the ground. The price at which we sell natural gas to consumers, the margin that we recover, the cost of supplying the service, and gas costs for each year are all, in effect, set at a maximum price by the regulator. This is the first time that that has happened, and we are the only supply business in the British Isles to which such a system applies. The regulator conducts a significant due diligence process, reviewing every aspect of costs, and he sets a maximum price that can be charged, give or take 0·1%. We cannot set a price above that.

The Chairperson:
You suggested earlier that you wanted the regulator to have less say. However, from what you have just said, it seems as though you are glad that the regulator has significant clout.

Mr Dixon:
Expansion of natural gas, not regulation, must be our main focus.

It costs £9 million to run the regulators office and about £7 million to run our distribution business. Those costs are borne by energy and water consumers and are, therefore, interrelated.

Mr McHugh:
You are welcome, gentlemen. This is a complex subject, but there are obvious lessons that can be learned so that the situation will be better in 10 or 20 years. Alan McFarland mentioned social conscience, and Peter answered his queries on that. However, the Thatcher Government sold social conscience on the free market. They privatised absolutely everything under the sun and opened the UK to greater competition than, say, France or Italy. People were happy to go along with that, and the Labour Government have been no different. People facing fuel poverty, who have bought those drums of oil, do not have any options. They are paying for circumstances that were not of their making.

Sixty per cent of people here do not have access to gas. Indeed, people in Fermanagh and the west are not even in line for the possibility of having access to gas. How far will Phoenix Natural Gas be able to expand in the North, especially given that our carbon footprint is now an important factor and given the price difference, which will probably remain?

The fact that we have no storage must also be a major contributory factor to the current situation, even in today’s massive fast trading market.

Mr Dixon:
Those are excellent questions that go to the heart of the matter. Natural gas will be made available to 320,000 to 330,000 out of 700,000 households and businesses in greater Belfast and Larne. That figure may be slightly higher, given that we have yet to tap into the new-build market. Therefore, the current licence area for Phoenix Natural Gas will facilitate around 50% of the population. Recently, Phoenix Natural Gas expanded to Comber, which was a small but significant expansion. It was expensive, costing tens of millions of pounds, but there is potential for only 4,500 new premises. However, one would hope that there will be further new development in the Comber area.

There is also potential for development in the Downpatrick economic corridor and at the development site at the Maze, which is about 50 yards beyond the area that is covered by our licence. Other areas such as Whitehead could also be developed, and a cursory look at the map will illustrate that. Therefore, there is potential to cover a further 50,000 to 60,000 homes and businesses. I cannot speak knowledgeably about other people’s licences, but 10 towns and cities are being developed by the other licence holder, Firmus Energy, which is a subsidiary of Bord Gáis. Therefore, that creates a potential for 137,000 homes and businesses to be served. I know that because Phoenix Natural Gas also bid for the licence for those areas.

I suspect that gas will be made available to between only 20,000 and 25,000 of those properties. In fact, that was the bone of contention on which Phoenix Natural Gas challenged the issue of the licence, as we believed that gas should be made available on the same basis as greater Belfast. Phoenix Natural Gas was under licence to deliver gas to 90% of the area, so we had to build it for people to come, and we had to make it available to 80% of the area. That was not a commercial decision; it was based on the social, economic and real requirements of the environment to which gas can be supplied. People who live in those areas will know better than me, but, as I understand it, gas was primarily made available to industrial and commercial customers. However, if it were more widely available, it could attract a further 100,000 customers.

I have been a gas man for 32 years, so I am biased, but I believe that gas must be brought to the Fermanagh area, as it would bring significant social, economic and environmental benefits. However, a subvention would be required to pipe gas there.

Phoenix Natural Gas has ploughed in around £300 million of private capital to make its business work. It has not needed a subvention, aside from a small amount that was needed for the transmission pipeline. In the main, we cover our own operating capital costs from the shareholders’ investment and from the money that we receive from customers’. However, given the absence of large developments and so forth in areas such as the west and the Downpatrick corridor, some subvention may be necessary to fill those gaps, but in the scheme of things, that would be very small. In fact, we would look favourably at bringing gas into the Downpatrick corridor if that gap could be filled transparently with DETI and the regulator.

We would pipe gas to Hillsborough tomorrow and to other areas, such as the Maze, if economic conditions allowed it. That is not a way of saying yes or no; it is a way of saying that we have piped gas to Comber for the reason that we believe we can make it work. We have a model from which we believe that we can grow our customer base quickly. We believe that the business has a good operating cost base and that Comber can be a success.

Mr Cree:
It is the first time that gas prices, and, indeed, other fuel prices, have increased so dramatically at the beginning of summer. That is an important point. I am concerned greatly by what I have heard this morning. Natural gas came ashore in around 1966, despite what the DETI paper that we received says. Apart from its excellent qualities as an ideal fuel, the stability of its price meant that it filled the market in GB.

As I understand, there is now no control on prices for any major supplier: the normal supplier/consumer relationship no longer exists. Traders now operate between suppliers and consumers. That is an unwelcome recent development. Correct me if I am wrong, but that means that you have no control over the price of your product. You have no supply contracts that can fix or regulate prices for your benefit.

Do you also have continuity-of-supply contracts, which work simply on the basis that if you pay the going rate, you will get your supply? That is not a healthy situation in which to try to develop a market. Although I understand your need to increase the number of consumers and build a critical mass, if, in fact, you have no control over the biggest factor in the equation — product supply — the regulator is sitting fiddling about, fine-tuning and, perhaps, obstructing market development.

In a minor way, however, it works. It is a bit like rearranging the deck chairs on the Titanic. I wonder whether that is the way that the market should be developed. What can be done to ensure that natural gas has a viable future? Should more time and resources be spent on renewable energies?

Mr Dixon:
Those are good points, the last of which I will deal with first. The focus on renewables is one of the biggest factors to increase the pressure on natural gas. Of course, natural gas is the bridge to sustainable energy. In fact, our company has supported the push for renewables significantly. However, so much focus on renewables has almost stopped customers in their tracks. They say that although they want to choose gas, they are curious about renewables. However, when an installer comes to their house, they are told that setting up a renewable-energy system will cost £25,000. They therefore find that the cost means that renewable energy is not a credible alternative. Therefore, Government’s significant mixed messages on renewables have not helped with some of the easier tasks, such as getting people to convert to gas at a cost that is relatively low compared with other fuels.

I recall that when Phoenix Natural Gas put out its first price, it was about 8p or 9p of the end price. Roughly 20% of the end price went to customers, and the other 80% was used to build pipes and run the business. Of course, the lion’s share — roughly 70p or 80p — of the current price at £1.30 is for gas, and a small fraction is used to recover assets. Even matters such as putting transmission assets into mutual vehicles in order to reduce finance charges makes a difference of about 0·1p to the price. Your analogy of rearranging the deck chairs on the Titanic was helpful. Any downward pressure on prices is helpful. The single biggest issue that can help to push gas prices down is the addition of more gas customers.

If the gas customer base is doubled, the operating costs of the business — which are relatively operationally geared — are spread across more customers. At the moment, that is the only way that pressure can be applied to reduce the price of gas for consumers.

If we knew what will happen to the commodity, we would speculate even further. It is difficult to understand in what direction the commodity price will go — that is outside our control. We can estimate only what we think we can buy it for in any given year against a certain strategy and in an uncertain market and then try to deliver the lowest price to consumers. Given that all our capital is in the ground, it is absolutely in our interest to connect as many consumers as possible.

In theory, one could argue that it is in the interests of Phoenix Natural Gas to sell gas at a high price because that makes the company more money. However, that is not the case. It is in the company’s interest to sell gas to consumers at the lowest cost possible because that accelerates the take-up of gas. Our income streams from supply and assets are subject to regulated returns against efficiencies and economies in the operation of business. Thus, there are no upsides — only downsides — to having high gas prices. Given that all the assets are in the ground, the only downward pressure that can be applied is on expanding the customer base as fast as possible.

Sir Gerry Loughran
Your final question asked whether we should focus on renewables rather than on gas. Our response is that we should focus on both. The difference between renewables and natural gas is that incentives are available to encourage a larger contribution from renewables, but no incentives are available to deal with areas into which it is not commercially viable to pipe gas. For example, it is not commercially viable to bring gas to Fermanagh, unless somebody is prepared to pay for the necessary infrastructure. If gas can be delivered to Fermanagh, the private sector can look after the rest, but it would not make any sense for a private-sector operator to try to bring gas to an area that is so far away from the main supply. The same issue has arisen in the Republic, which has a state-owned gas company. Most towns in the west of Ireland do not yet have a gas supply. We believe that some state intervention would be necessary if we were to offer gas to more people.

Mr Cree:
Based on current logic, it would be better to use woodchip as a source of energy in Fermanagh. That indigenous product could be grown there, and its price could be controlled to a certain extent.

Peter’s point about increasing what I refer to as the critical mass is fine. However, the price that consumers pay must not increase. Everything that is under your control may amount to only 10% of that end price. You are trying to play around with that 10% when the actual feedstock price is probably 70%. Your efforts are welcome, but their effects are minimal in the scheme of things, and, in the end, customers will pay through the nose for a product over which they have no control.

I want to ask quickly about supply contracts. Can we guarantee supply, and does it have to be at market price?

Mr Dixon:
Depending on what one reads, there will be lots of gas around for the next 80 to 100 years. Long-term supply contracts are not what they were years ago. Basically, lots of gas is available; it is bought on the open market, and the buyer pays the going rate. At the moment, that price is higher than it has been previously — it is higher this summer than it was last winter. We are in unchartered waters as regards energy prices. That said, the elephant in the room is that oil has been the major energy source in Northern Ireland for the past 20 or 30 years. Oil has always been traded on the open market, and 80% to 85% of properties here use oil. Although supply is a problem for gas, the problem with oil is 10 times greater because there is no regulation. There is no issue with oil; its price is now high all year round.

You said that this was the first time that the price has increased in the summer. We applied the price increase from April 2008 because getting people through the winter has a significant impact on their annual energy bill. Our consumers burn little gas between this time of year and September or October. Customers in Great Britain experienced the price increase — 15%, 20% or 25% — in January, and they had to pay that all through the winter months, which is when people burn two thirds of their gas. The cost to our consumers was held static through the winter. It has now gone up, and it will have to be reviewed in line with trading conditions as the year goes on. However, people in Northern Ireland are in a better position than those in Great Britain, which is welcome.

Mr Cree:
That is an interesting argument.

Mr Dixon:
You are an energy expert, now.

Mr Hamilton:
I have a related, though somewhat different, question. We now have a single electricity market which, some say is a good thing, while others say that, even at this early stage, it is not as beneficial as was first hoped. Consequently, there is talk of a single gas market. What are your thoughts about that? How does it affect the issues that we are discussing this morning, and how might it affect your business?

Sir Gerry Loughran:
We are aware that the regulators, North and South, have agreed to examine the feasibility of a single gas market. Our view is that, if there are benefits for consumers, we would be in favour of it. However, it is early days, so I cannot say for certain whether such benefits will exist. One of the issues that the regulators will have to consider is that, given that the gas supplier in the South is a large state-owned company, our relatively small private-sector company cannot compete with it on a level playing field.

Mr Dixon:
My concern is that that large state-owned business has a huge platform from which to operate. If it is given with a bigger platform, how could Phoenix Natural Gas, which is small and independent, compete with it? I have heard that the large state-owned fuel company in the Republic employs as many as 40 lawyers. We employ no lawyers and fewer than 200 people altogether. Ours is a really small company. In the distribution business, our operating costs are of the order of £7 million, £8 million or £9 million, once rates and other overheads have been subtracted.

However, if the single gas market delivers benefits for consumers, that is fantastic. If it does not, we should be wary of becoming involved just because we can. This should not be a tick-box exercise: simply because there is a single electricity market, there is no reason to create a single gas market. However, if the project brings gas up from the Lough Corrib pipeline, and if it reduces the cost of the transmission of gas, it is a good thing. Transmission of gas is a significant issue for Northern Ireland. Gas customers here pay a lot more for it because they are charged for the transmission pipe, which spans the Irish Sea. Everyone in Great Britain pays a fraction of that cost. For example, people in Stranraer pay next to nothing for it: they might pay 0.01p, whereas, in Northern Ireland, transmission costs add 10% to the distribution charge.

Mr Hamilton:
Thank you; that is helpful.

The Chairperson:
Just to ask a supplementary question, are your observations of the single electricity market a factor in your thinking?

Mr Hamilton:
That was not my question, Chairman.

Sir Gerry Loughran:
No. We have no view on that. However, as customers of Viridian, we have noticed the increase in our bills. In fairness, however, our understanding is that factors that have nothing to do with the single electricity market affect electricity charges profoundly.

The Chairperson:
Therefore, no matter how many lawyers read that in the Hansard report, they need not worry.

Mr Simpson:
Thank you very much for your presentation. Given that most of the relevant questions have been asked, I have a couple of comments to make. In the global market, Phoenix Natural Gas is not one of the largest companies by any means. However, you have between 115,000 and 116,000 customers, while Firmus Energy has approximately 3,000 customers. What was your profit margin last year?

Mr Dixon:
The return from our distribution pipes was 7·5%, and the return on our supply business was 1·5%.

The Chairperson:
Are both returns agreed with the regulator?

Mr Dixon:
Yes. If our supply business over-recovers — perhaps because the cost of gas is lower than expected and it recovered, for example, by 3% — that 1·5% would come off charges this year. Therefore, the company’s profit figures that are recorded in newspapers or in the company accounts are slightly misleading because we can only make the returns that were set by the regulator.

Mr Simpson:
I wanted to know what your profit was last year.

Mr Dixon:
In what respect?

Mr Simpson:
In monetary terms. How many millions of pounds did Phoenix Natural Gas make last year?

Mr Dixon:
After paying interest and paying for the network, our profit was in single figures. The company reinvests between £13 million and £15 million of any profit that is made from the operating business. Indeed, we have been a major investor for the past 10 years.

Additionally, like any business that is trying to establish the best capital-operating structure, Phoenix Natural Gas pays significant interest on its debt. Therefore, no dividends were paid to shareholders last year, which was the case for the previous 10 years. Phoenix Natural Gas is a long-term recovery business, and shareholders receive returns over a 40-year period.

Mr Simpson:
I have listened carefully to what everyone has said, including to your presentation. However, I am greatly disturbed by the fact that the whole process seems to be about making money.

Both the Chairperson and I sit in another House across the water, and we hear many different comments from other MPs, finance houses and lobbyists. From the very beginning, we were led to believe that there was a scarcity of oil and gas. That, in fact, is nonsense: this is about making money.

The finance houses and banks that can no longer make any money on mortgages are instead turning to commodity-buying in oil or gas. Consumers are then picking up the tab. Indeed, they will continue to pick up that tab because it does not seem that Gordon Brown will cut back on the revenues that those companies make. That, in my view, is a sad reflection of the current situation.

I am in business myself, and other members of the Committee have been or are still in business. Therefore, we know that companies have to make a profit. However, that profit is being made at the expense of the consumer. I foresee a major difficulty, and I think that someone else mentioned it earlier. That will become apparent this winter when senior citizens and others try to pay their fuel bills while those companies continue to make large profit margins.

I have one final question. Does your company trade in gas?

Sir Gerry Loughran:
No; we buy the gas wholesale.

Mr Simpson:
Does that mean that on no occasion would you ever sell gas that has been imported into Northern Ireland to someone on the other side of the world at a higher price?

Sir Gerry Loughran:
No.

Mr Simpson:
Under no circumstances?

Sir Gerry Loughran:
No.

Mr Simpson:
Thank you.

The Chairperson:
Did you want to comment on anything else?

Sir Gerry Loughran:
No, but I understand your question about profits.

As Peter has explained, we do not make any profit. A regulated business of this kind is a different business model. The value of the company is in its assets, and the period over which we can recover the investment in the assets. Therefore, whenever you hear about the value of Phoenix, you will probably hear a high number even if you do not see a high level of profit, or any profit at all.

Mr McFarland:
You are clearly close to the world of energy. Traditionally, world Governments placed a high priority on energy price stability, particularly oil prices. During the Yom Kippur war, OPEC stepped in and increased oil production in order to stabilise prices. Why does no government seem to be attempting to stabilise prices now, especially as the situation is clearly getting out of hand worldwide? Was there an undocumented meeting at Kyoto, for example, at which it was decided that it would be helpful if the world’s population was encouraged to move towards renewables? In other words, has there been a quiet attempt to deal with climate change and global warming by increasing fuel prices to such an extent that the owners of 4x4s trade down to smaller cars, and move to renewables and windmills because oil and gas are so expensive? Is there an undocumented, unspoken theme? When such a situation arose in the past, there was normally an international conference, Governments stepped in, and the situation was stabilised. However, I get no sense that anyone is attempting to stabilise this situation.

Mr Hamilton:
That approach was agreed at the meeting at which they agreed to assassinate Kennedy. [Laughter.]

Mr McFarland:
There are normally meetings in the Middle East, with OPEC deciding to increase production. There was a suggestion that part of the difficulty was that there were refining difficulties in some areas, such as when Hurricane Katrina affected oil production in the Gulf of Mexico in 2005, which prevented the United States from increasing oil production. There have also been suggestions that unrest in other parts of the world is preventing people from converting to oil and natural gas. Why are those people who are normally concerned about such matters, sitting back and doing nothing?

The Chairperson:
The suggestion seems to be that there is a James Bond-type villain behind the Kyoto accord, trying to push through aversion therapy.

Sir Gerry Loughran:
Alan is correct in saying that there have been interventions by OPEC to increase the supply of oil. However, that was in circumstances in which there was an external factor impacting on energy supplies — for example a Middle East war or a natural disaster in the Gulf of Mexico. In those circumstances, one can see that there might be pressure on oil- and energy-producing countries to increase supplies. There is, however, no such problem at present, because there is plenty of oil and gas available, and plenty of reserves. The issue is trading in the available supplies, and to increase supplies would make no difference.

Mr Dixon:
VAT on natural gas is charged to consumers at the appropriate rate. VAT on a significantly higher figure equates to significantly more VAT than was being collected before. Government can change VAT policy to put downward pressures on prices.

Regarding the other issues, I suspect that my mum, who is 80, does not like the idea of her prices increasing by 30%, so helping people with efficiency does not do anything for people who are on fixed incomes.

Mr Newton:
I have a comparatively simple question. I picked up on two points that were made. Sir Gerry Loughran mentioned that if Fermanagh were to get gas, a subvention would be necessary. I am conscious that we are talking to the gas industry, not the oil industry. Peter said in his initial remarks that a significantly high rate of people wish to convert from oil, or another energy source, to gas. Much of the discussion has been brought about because of the issue of fuel poverty. Has consideration been given to how the pain of conversion might be made easier for people who wish to convert?

Mr Dixon:
That is at the nub of the issue. It will be difficult for people who are fuel-poor and who do not live in a public-sector house to find the money — around £2,500 — that is required to convert to natural gas. The warm homes scheme and other schemes were available to help people towards conversion. Those include schemes that were put together by Phoenix Natural Gas and Northern Ireland Electricity (NIE), which is a partner with Phoenix, rather than being a competitor.

The big issue is that each year, a handful of consumers use the warm homes scheme across Northern Ireland, not just in greater Belfast, where Phoenix is focused. Those consumers number in the hundreds, rather than in the thousands. That is because of the availability of finances to support the scheme and because of the way in which the scheme is managed. That must be reviewed; more can be done with more money. The cost of conversion under the warm homes scheme is almost twice what it costs for us to convert a customer through one of our independent installers. I find it difficult to understand why that should be.

Over the past 10 years, we have worked closely with the Housing Executive, which has been outstanding in its operations with us. Two or three years ago, it was converting between 3,000 and 4,000 homes a year, but it is only converting between 600 and 700 this year. That is because many of the properties have already been converted, but also because the funds that are available for conversion have been considerably run down. Resolution of the issues of funding and of management is within the gift of local politicians.

The warm homes scheme is not only important to people who are on benefits, but to people who are near fuel poverty and are earning between £10,000 and £13,000 a year. Those people may not be able to afford to convert, and something must be done to help them. NIE has done a great job in channelling its levy money into conversions with Phoenix; that has been successful, but more must be done. That would not require a huge amount of money.

The Chairperson:
Unfortunately, time is pressing on. Given his experience, I was going to ask Sir Gerry if there are levers of intervention or measures of influence that Ministers, the Executive and the Assembly could use but are not using. Perhaps Peter has already touched on some of those, which may go beyond the remit of the Department of Enterprise, Trade and Investment.

Are there any constraints — such as possibly the Kyoto protocol, and so on — that stop Governments varying VAT on a fuel in those circumstances? Are they obliged to keep tax levels at current rates? Secondly, how does VAT affect conversions?

Mr Dixon:
Normal VAT is applied to those charges.

The Chairperson:
Perhaps Gerry could answer this question. Why is the European Commission so inert and disinterested in this issue? Given that the issue has Europe-wide consequences, why does the European Commission — an organisation that strives to benefit peoples’ lives — not intervene? Or, has there been intervention that we have not noticed?

Sir Gerry Loughran:
Commodity trading generates competition; that is the reality, no matter what our opinion of that may be. The European Commission’s overarching responsibility is to promote competition and, therefore, it would be difficult for it to intervene. The competition will, probably, resolve many of those problems. Although I cannot predict when, the time will come when the commodities can no longer be traded profitably. At that stage, prices will start to sink again. I am confident that that will happen, because the underlying supply-and-demand situation is perfectly healthy. We are optimistic about that, and, furthermore, have developed business plans on that basis.

Phoenix Natural Gas hopes to commence trading in the Republic of Ireland before the end of the year; the future is positive. We mentioned how the state can help people to tackle fuel poverty. Should people who live in outlying areas be denied the same infrastructure as people who live in the city? Again, that is a matter that the state — rather than Phoenix Natural Gas — should consider.

The Chairperson:
I am sure that the Committee will return to those, and other, matters. I thank you all for your attendance and assistance today.

The Committee will now hear a briefing from the Consumer Council, focusing particularly on the issue of rising energy prices. The briefing will be provided by Eleanor Gill, chief executive, Sinéad Dynan, acting head of energy, and Richard Williams. A covering letter from the Office of the First Minister and deputy First Minister (OFMDFM) has been provided to members, as well as a research briefing paper entitled ‘Policies to Minimise the Impact of Fuel Costs on Families with Low Incomes’. Members will already be aware of the task force that has been set up to examine the issue of fuel poverty, and, indeed, Eleanor is involved in that. Members may wish to ask some questions in that regard. We should be conscious of the junctions between this Committee and our Department, and some of the other Departments and Committees.

Ms Eleanor Gill (The Consumer Council):
If it is acceptable to the Committee, I will make some opening remarks and work through some of the main areas, and then I will be more than happy to take detailed questions.

The Chairperson:
I should remind members, and advise our witnesses, in case they are not aware, that this session will be recorded by Hansard.

Ms Gill:
I hope today that we will provide some information that may help in some of the decision-making. I thank the Committee for the opportunity to give evidence on behalf of the Consumer Council.

The Committee is aware — as DETI is our host Department— that we have a statutory remit to safeguard the interests of all consumers, particularly the vulnerable, but we have a specific duty in relation to energy consumers. As part of that specific duty we perform roles that may help in dealing with some of the current issues, which I will discuss in a minute. I would like, on your request, to make comments on the rising energy prices as evidenced at the moment, to look at the impact of those on households, and then to discuss some measures that could be taken, both in the short term and the long term, to mitigate some of those impacts. I am conscious that a lot of talking and a lot of decision-making may need to happen as a result of that.

I do not want to rehearse the drivers and factors behind the energy prices. They are well known, and are referred to often in newspapers and television programmes. Some of the consequences of those prices are also often described, and I will go into those in greater detail later. We consider global factors but also local factors such as the lack of competition within Northern Ireland, fuel mix, and Northern Ireland’s geography and peripherality, which are all issues that might come to bear.

There have been dramatic rises in the prices of different fuels over the last five years. Natural gas has had a price increase of 135%. Oil, which is used to heat 70% of homes in Northern Ireland, has risen in price by 219%, and, if the speculation is right about the imminent 15% rise in electricity that has been identified by the regulator — with more to come — the price of electricity will have risen by 35% in the last five years.

People in Northern Ireland pay 54% more for natural gas than those in Great Britain. We pay 7% more for our electricity and 25% more for coal. Oil is either slightly cheaper or about the same price, although that affects fewer people in Great Britain. The impact on consumers is really quite dramatic. This represents a relentless hit on the household bill. The situation at the moment is one of a perfect storm — not only are we being hit by energy prices, but other cost-of-living impacts are working together to create huge issues in households.

The other issue is that those who are affected are not just people who are on benefits or older people. This is beginning to affect Mr and Mrs Average. In particular, it is beginning to have a very big impact on working people who have low or fixed incomes. This state is sometimes referred to as “near benefit” or even “working poor”. Having done some research with this group, we believe that those people would not mind the use of the word “poor” in conjunction with the word “working”, because that is how they feel.

The Consumer Council has just finished a research paper with the financial inclusion centre in London. As soon as the council has passed the paper, it will be forwarded to the Committee. The paper looks at the impact of market changes on consumers in Northern Ireland. It is a very contemporary paper, and will add to this presentation.

The energy costs of a typical family of four, if using oil and electricity, have gone up by 54%. There is a rise of 25% if the same typical family rely on gas and electricity. In factoring in the impact of food, petrol and mortgage repayments, this typical family is spending £1,800 more this year than last year. That figure does not take into account any luxuries, and even a TV licence is considered a luxury in this study. This represents an increase which is 6∙5 times higher than the rise in income.

People are coming under tremendous pressure — particularly so in the Northern Ireland context. The situation has been referred to as the “credit crunch”. We are now looking at a situation that could be defined as a “consumer crunch”. All those issues are coming together and impacting, and all the signs indicate that this will not go away. Why is it a particular problem in Northern Ireland? First of all, our fuel-poverty figures presently stand at 34%. Unfortunately, I do not have the datasets which would enable me to explain to members how, for every percentage increase in energy, many more are at risk of being toppled into fuel poverty.

In Northern Ireland there are twice as many fuel poor than in GB, and three times as many as there are in England. Households here spend 40% more on energy than the rest of the UK. We have lower incomes and higher dependency, and we also have very poor levels of financial literacy and capability. Recent research done on a UK basis shows that nearly half of the people in Northern Ireland struggle to pay essential bills, and a fifth are using credit to pay those bills. This is an inbuilt problem. I can go over those points again if members have any questions.

The Consumer Council has looked at what the drivers may be, what the impact is and the fact that the situation may continue for quite a while. Our attention is now focused on the Committee’s request for us to examine what action might be taken, or what mitigating factors might be put in place. In order to frame the questions and to identify the options that need to be discussed, we would like to share these findings with the Committee.

We recognise that there is work already under way. There are three elements to consider when trying to tackle this problem. There is the cost of energy, and the issue of energy efficiency and the level of usage of energy in our homes; however, the third element is income. In a lot of fuel-poor homes, there is heating and insulation, but there is not enough money to allow people to turn on the heating. All three dimensions of this issue must be considered. The Consumer Council recognises and welcomes the establishment of a task force by the Minister for Social Development, which will be looking at those aspects and trying to identify what can be done on that level. We believe, as you said, Chair, that this issue goes right across all Government Departments and all the Committees.

Extraordinary times require extraordinary measures, and this problem demands an immediate response. We are six months before the winter. Speculation would lead us to believe that consumers not only face an increase in electricity prices in the short term, but that that will double in the winter, which is when people use more heat and electricity. In the short term, we must ensure that, in terms of regulation, we bear down on every local controllable cost. We must ensure that there is full scrutiny, openness and transparency around the regulation as those price increases come in.

There is some cynicism out there that says that because consumers expect higher prices whenever times are bad, companies jump in and push through all their costs. Therefore, there are issues around confidence and security.

We also need to consider the whole area of fuel poverty and schemes such as the warm homes scheme, which touch and impact upon many people. However, we must question whether those schemes are being targeted effectively and whether funds are being spent where they are needed. I am happy to talk more about that.

The main thing that we want to say today is that there is a money issue here. Because of the scale of the increase in energy costs, we believe that, in the same way that cold weather payments are triggered if there is a certain degree of coldness over seven consecutive days, there should be a mechanism put in place at national level to help people when these extraordinary price hikes are in the system. All households that are in fuel poverty will need help with their heating costs this winter. We want national Government to provide an extra special payment to those households.

We must also maximise incomes. A lot of work is being done to ensure that people claim what they are entitled to. Forty per cent of older people do not claim rate relief to which they are entitled. Many grants, such as the warm homes scheme, are not being taken up. People who receive rate rebates are entitled to help under that scheme.

There is £12 million sitting in lost accounts. The Consumer Council wants to ensure that people who have money sitting in those accounts claim it. There is £11 million in child trust funds that remains unclaimed, albeit that that money cannot be spent today, it is money that should be in someone’s pocket.

There are certain practices in some companies that should change. Firmus Energy, for example, charges its customers who pay cash £5 per quarter.

Mr Cree:
BT does the same.

Ms Gill:
Yes, that is a practice that is creeping in with BT and NTL. However, on the energy front, Firmus charges £5 per quarter. That may not seem like much to one company, but it is money that could be in customers’ pockets. Often you find that those are the people who pay promptly. We must ensure that everybody has every penny accounted for in their own pockets.

In the short term, we must bear down on local costs; ensure that the grant schemes get to the right people; and consider ways to negotiate at national level the trigger for a special payment to address the scale of the increases in energy costs and the peculiarity of the needs in Northern Ireland, especially in relation to fuel poverty.

In the longer term, there is a need to review our energy strategy, which the Committee has recognised. Storage is a problem; if there was somewhere to store the stuff for a day, perhaps it could be used differently. In relation to fuel mix, we must look at the level to which mutualisation has helped and the level to which it may create more opportunity in the open market. We must also look at the purchasing strategies of companies to ensure that they purchase wisely and well.

Winter-fuel payments are not being given to everyone who needs them. At today’s prices, £50 million per year is spent to grant everyone over 60 a winter-fuel payment of £200. However, we know that those payments are not being targeted at everyone who needs them. Northern Ireland’s fuel-poverty figures show that of those people who are fuel poor almost half are under 60, 28% work and 23% have children.

Therefore, the winter fuel payment is not helping those people.

The second thing that we know about the winter fuel payment is that since its introduction, the amount paid to each recipient has been £200, although a special payment was made this year.

Had that payment been linked to the cost of oil, at today’s prices it would amount to more than £600. It is way out of kilter, because £200 would not half fill an oil tank for the winter. We must take a particular look at that and also examine the robustness of future pricing regulations.

Longer term, we must also examine social tariffs. The Consumer Council recognises that everything has to be paid for and that long, hard thinking is needed to achieve balance. There are questions about what constitutes a social tariff, who should get it, what price might it be, and who can pay for it. We can talk to the Committee about some of the scenarios that we have considered for potential costs, and we can discuss some of the decisions that may have to be made on those matters.

The Consumer Council can help by fulfilling the role that it has been given through legislation. That role means that we must look independently and from the consumer point of view at the impact that policies, practices, prices and bills have on consumers. We must also examine the whole tariff-review process.

We also take an evidence-based approach. Indeed, we are commissioned to conduct research that provides a consumer-eye view. We have consumer panels that comprise those whom we consider to be real people with pulses, and they give their views on the bills and services that they receive.

The council relates consumers’ views to the ministerial support groups on which our representatives sit. In that way, we use our evidence-based approach to make the consumers’ views known to bodies such as the independent task force and the anti-poverty strategy group. Given that we are a cross-utility organisation, we transfer our knowledge from one utility provider to another.

In recognition that income is a problem, the Consumer Council has been identified on behalf of the Financial Services Authority (FSA) as the pilot partner across the UK for financial capability studies in Northern Ireland. We are trying to raise levels of financial literacy and capability, budget management and to maximise income to enable people to become cannier about their money and improve how they manage risks. Indeed, we have been talking to members about that issue.

In six months from now, lovely sunny days such as today will turn colder and hard spending choices will have to be made on fuel, heat, light, food and clothes. We are not overstating statistics or the real-time, real-life family scenarios that we have predicted. Indeed, I have heard many of you suggest that constituents have raised the same issues.

Political leadership is required to deal with the issues that are involved, but with the support of all partners, the Consumer Council can contribute to addressing everything that is involved. We must all work together and brace ourselves for more to come as we head towards what could be called a consumer crunch.

The Chairperson:
Thank you, Eleanor. Members have been given a hard copy of your presentation, and I am sure that they appreciate the cogency and urgency with which you delivered it.

Will you tell the Committee more about the role that the Consumer Council plays in the sort of price increases that the regulator told us about a few weeks ago? The Committee was keen to hear about those increases, particularly as the Phoenix Natural Gas price rise was in the headlines. Members were keen to know that the regulator was in a position to proof those sorts of price increases and able to say that utility operators were simply passing on global price rises, and that the rise was due to pure cost recovery rather than any profit padding. Can the Consumer Council proof those increases, or does it rely on what the regulator says?

Ms Gill:
That is an important and topical question. The regulator’s decisions on tariff review have the power to put money in people’s pockets, to let people keep the money that they have, or to take money from them. Therefore, it is important that tariff reviews are carried out robustly, rigorously, openly and transparently. We also require that approach to be consistent across every utility, so that the public can trust the process and be confident that it ensures that every penny is fought for and that the company gets only the pennies that it should.

Our role is statutory, meaning that we must be consulted on the tariff review. As members will know, the word “consultation” can mean anything from a mention to what we see as extensive and proper consultation. For example, the consultation on the gas-price increase was extensive, in that we were consulted early and often.

During such a consultation, we would meet the supplier — Phoenix Natural Gas — independently, and we would also meet the regulator and the Department. At different junctures, all parties would meet to assess progress.

The Chairperson:
Who is obliged to consult you? Is that the regulator’s responsibility?

Ms Gill:
It is the regulator’s responsibility, and it is also part of the provider’s licence and part of our statutory role with the Department. That illustrates that we all have a role to play in the process.

We are not trying to do the regulator’s job or to be economists. We are, rightly, seeking strong assurance and providing an independent assessment that the process is transparent —

The Chairperson:
There may be times when the regulator has an eye to developing the market and will consider what is in the company’s sustainable business interests as well as in the consumers’ interests.

Ms Gill:
Absolutely, and that is his role. I regard him as a sort of nightwatchman, in that the rest of us can sleep in the knowledge that someone is watching out for our interests, and we can get up in the morning and read his log and ask him what he discovered during the night.

Basically, during the consultation meetings we would have access to the information. We can examine it and see that the proper scrutiny was carried out. We wish to ensure that such reviews do not simply result in the company’s decision being stamped and passed through. We are looking for evidence that the matter has been analysed and scrutinised and that the proper challenges have been made, questions have been asked and alternative options have been examined in order that the regulator can arrive at a considered position.

During the consultation on the heavy 28% rise in the price of natural gas, Phoenix Natural Gas was not found wanting in opening its books to us and letting us see the evidence.

The Chairperson:
Does that mean that you were not stuck behind a pillar and forced to go along with what others wanted?

Ms Gill:
No, not at all. At the height of that alarming 28% increase, we stated publicly that we were assured that the process had been robust and rigorous, that there had been a bearing down and that everything had been open and transparent.

The Chairperson:
I wish to be careful about this. News diaries would have recorded that there was to have been a press announcement about an electricity price increase today. Was the Consumer Council in any way behind a pillar on that issue? Do you know what is going on? Am I right in saying that we will still get a price increase?

Ms Gill:
Yes.

The Chairperson:
Were you involved in that? There may be commercial sensitivities in that question.

Ms Gill:
I am conscious that this meeting is being recorded by Hansard, but I can say that we will exact the same consistency of scrutiny for electricity that we did for gas. At the end of this, or any, price review, we will be happy to give the Committee — in writing or in person — a statement of assurance that the review measures up against our criteria for judging what works well. We have seen a great example of a review working well, but, even before that, we exacted the sort of rigour to which I referred. When the process concludes, we will be more than happy to provide the Committee with a statement that we are as assured and confident about the electricity price review as we were with the gas review.

The Chairperson:
Consumers understand that global prices cause pressures, but they also want to know that companies that seek to pad out their price increases to make profit do not tailgate behind those pressures. People are being hit by price rises, and they are reading headlines about oil companies making massive profits. People think that such tailgating must happen in all cases and that all companies are hiking up their profits. Are you in a strong position to scrutinise that? What other information can you get either directly from companies or from the regulator?

Ms Gill:
The Consumer Council wants to be assured that the company in question shares the information. We will look for evidence of the regulator’s robustness in scrutinising that information, and, more importantly, we want the regulator to inform us of his opinion on the information rather than merely hear it from the company. We want to ensure that we are in a position to say that the price increase is not company induced and that the company provided the necessary information and allowed us a suitable time frame in which to make that judgement. We sometimes have the Donald Rumsfeld mindset — there are things that “we don’t know we don’t know.”

If we are not given appropriate time, we do not know whether we will be asking the right questions. This is not a question of whether the information is right or wrong; we simply have to go through the process. At times like this, it is very important that the consumer knows that, although the price hike is hard and high, it is fair, and that every penny has been accounted for. Consumers must be confident that that is the case.

That is where the role of the Consumer Council is so important. With regard to the gas-price increases, we were able to say that we were given adequate time to examine all the relevant information and that we recognised that the price hike was due to the reasons that were given. It is also important that we understand at an early stage the driving forces behind the increases and that we are able to work with them.

The Chairperson:
Can people be assured that the Consumer Council does not merely say that price increases sound right and seem fair for the company?

Ms Gill:
We have a statutory responsibility to consumers, and our reputation is at stake. Until we know that everything is proper and right, we will not be ready to give our assurance.

The Chairperson:
Can a price increase with which you are not happy be announced?

Ms Gill:
Yes.

The Chairperson:
We will, therefore, await the Consumer Council’s reaction to the announcement of a price increase. It would be wrong to assume that the Consumer Council is content with an announcement merely because it has been announced and agreed through the regulator.

Ms Gill:
That is correct. If you would like the Consumer Council to communicate to the Committee, I will recommend to the board that we should do so.

The Chairperson:
Would you have released a press release if a price increase had been announced today? Would you like to take the fifth on that?

Ms Gill:
It is hoped that when we put out a statement, we will be in a position to offer our assurance. The focus has to be on doing it right.

The Chairperson:
You want the position to be one in which consumers can be confident.

Ms Gill:
Yes. Consumers cannot be shielded. There have been times when companies have held prices. For instance, Phoenix Natural Gas kept its prices in line with inflation for three years. However, that was lifted suddenly, and, ever since, there have been double-digit increases. One must remember that the businesses concerned are regulated companies; they will recover the costs some day. From that experience, we learned that the consumer prefers to be aware of costs and pay them at the relevant time rather than to have a shock later. We are looking at the details of the costs and making sure that they are not more than they should be.

The Chairperson:
What would happen if a price increase had been announced today and we had asked you about it?

Ms Gill:
It has not been that way.

The Chairperson:
Would there have been difficulties?

Ms Gill:
I am more than happy to write to you about that.

The Chairperson:
It seems that there has been a change in news diaries.

Ms Gill:
They are all reporting facts.

The Chairperson:
The Phoenix Natural Gas price increase was current when the regulator appeared at the Committee, and I thought that the electricity price increases would be announced today — when you were here. That is why my line of questioning was going in that direction.

Ms Gill:
Are you content with the way in which I am answering your questions?

The Chairperson:
Yes. The Committee can construct many theories, and that was an obvious one.

Mr Simpson:
Thank you for your presentation. In my constituency of Upper Bann, which takes in the Craigavon central area, social deprivation creates problems. In your presentation, you said that not everyone who needs help to deal with fuel poverty is getting it. That concerns me. Could you expand on that? Elected representatives help people to fill out forms, but what more can we do to make them aware of help that is available?

Ms Gill:
Sinéad and Richard may have more to say on that. However, the statistics reveal that there are huge and unprecedented levels of fuel poverty in Northern Ireland. We also know that variables identify places in which fuel poverty might be higher than in others. I have worked on fuel poverty since 2002-03, and I know that it exists in the Craigavon area. There is a lack of data that would allow us to zoom in on where the pockets of fuel poverty exist. Therefore, the low-hanging fruit are picked for assistance, which is as it should be, because as individuals, they can be helped.

It is easy to pick up on people who are on benefits, for example. However, there are people on low incomes who are often just above the threshold for receiving help. We have also discovered that in urban areas there is a real concentration of high levels of fuel poverty, and the impact that that has is also prevalent. Every single penny that is spent on fuel poverty, whether it comes from the Department, the fuel companies or the energy-efficiency levy — which is customers’ money — must be targeted in the same way in order to ensure that those people get the assistance that they require.

Detailed work was carried out in 2002-03 in the Armagh and Dungannon Health Action Zone to identify cold spots. Unfortunately, that work was not developed; I left it a long time ago. The Audit Office reviewed the warm homes scheme recently. That review has yet to be published, but I understand that it will address the indiscriminate methods that have been used to identify and help the fuel poor. Now that we know more about who those people are, we must target them in a concerted way.

The other problem is winter fuel payments, which are important for everyone who receives them. However, they are restricted to people who are over 60 years of age. What about all the people who are under 60 who need that assistance? What happens when the working poor — I use that term advisedly, and not in a denigrating way — decide that it is not worth their while to work? What happens when, instead of working to have a purpose, to help drive the economy and have a better quality of life and well-being, a person decides that being on benefits provides free meals and various other forms of help? Perversely, that creates a greater burden. We must make a decision: how much do we have; where is it all coming from; and do we all have to play the same tune? We must act on the matter in a concerted way. A great deal of good work is being done on the matter, but it is fragmented.

We also discovered that people who are not on benefits do not qualify for help. People in rural areas were experiencing severe problems, more so in Protestant communities than in Catholic communities. They were not able to access benefits. We examined that situation and discovered that that happened because of a culture of independence. People saw the benefits as a handout and were unwilling to ask, or did not believe that they were eligible for certain entitlements. We found that changing the language from “benefit” or “need” to “entitlement” had a very powerful effect. The Churches and the community had a role to play in telling people that they were doing their community no good by not claiming those benefits. We must accelerate the uptake of those benefits, particularly if water charges are to be introduced.

Mr Hamilton:
You mentioned social tariffs, which have been the subject of recent discussions. They are certainly not a panacea, but they are one way to tackle the problem. I do not know a great deal about them, but as you pointed out, someone has to pay for them. I understand the sense in trying to help people on low or fixed incomes to overcome the difficulties that are caused by rising electricity and gas prices. However, companies will not take that financial hit; unless they are subsidised, they will pass it on to consumers. You are correct that the problem is no longer exclusive to those on low incomes — very few people are unaffected. Therefore, it creates problems to pass the cost of assisting low-income households on to middle-income families, who are proportionately worse off in some respects. Is there a way to overcome that problem without resorting to a Government subsidy, which would create its own problems, not least in finding the money for it?

Ms Gill:
Social tariffs are not new; they exist elsewhere, and they come in different forms. Social tariffs try to target money at people who are particularly vulnerable and require help, and they are a way of recognising that those people are getting that extra help. There are many different ways to do that. For example, we looked at the development of the social tariff in Great Britain and found that agency suppliers decide what constitutes a social tariff and who is eligible for it. That is not the way to go, because we must get a handle on who is eligible and how the tariff is targeted. That is a decision for politicians rather than for the companies — the powers that are given to suppliers in Great Britain are unfair.

There are many different forms of social tariff. With the limited data that are available, we have tried to look at the spread of cost. For example, one could take 10% off the standard tariff rate for every fuel-poor household, which would cost around £10 million, or £13 a household a year. Those figures are very loose, so I issue a health warning with them.

Therefore, after deciding on a 10% discount, one would have to consider who will pay for it. There is a raft of options: central Government and the UK tax base; the taxpayers in Northern Ireland; or consumers of the utility in question. For example, we all pay for the energy-efficiency levy, but is it being used in the best way, and could it become part of the social tariff? Could an element of the suppliers’ profit be contributed under corporate social responsibility in a better way than it has been previously?

It has been said that the competitive nature of Northern Ireland should not be disturbed, and that if companies were required to contribute to funding a social tariff, they might avoid entering a competitive environment. When we examined the situation in Great Britain, we found that companies were contributing only 0·11% of their profits to such schemes, which is a tiny proportion. We must examine that. For example, we know that companies are incentivised under the energy-efficiency levy, but how much are they paid to administer that, how much is made from it and could that money be diverted elsewhere?

Therefore, we must think about what we want to do before having hard discussions to decide how to do it or whether it is too big a burden. We must have the serious discussions now. At least, we could limit the tariff to those who really need help and get the data to find out their identity.

Ms Sinéad Dynan (Consumer Council):
I agree. There is a range of options; Eleanor mentioned a 10% social tariff, and the refocusing of winter fuel payments to ensure that everyone who needs them gets them. It cannot be left to the companies as is the case in GB, because there is a broad variation in the way that companies apply social tariffs and decide who is eligible. Many of the companies have asked the Department for Business Enterprise and Regulatory Reform (BERR) for more direction on what their minimum contribution should be. We do not want to step back, but there must be more direction from Government, as the suppliers require some indication of their contribution.

Ms Gill:
These are hard discussions. I am not advocating that older people should have the winter fuel payment taken away; I am suggesting what could be discussed. Around £50 million is spent to give everyone who is over 60 years of age a payment of £200. We must ask whether everyone needs that £200, whether that is the best way of spending the money, whether others need that money more, or whether we want to retain that payment and add to it. Those are difficult discussions.

However, if the winter fuel payment were to be kept up to date with current prices, that £200 would now equate to more than £600. Should we also examine whether social tariffs should be linked more to people’s income, rather than to the tariff itself? For example, should we ensure that everybody does not pay over 10% of their income and that they are given an income guarantee on how much they spend?

The Consumer Council has tried, as a starter for 10, to assist by making suggestions, and it will work through those in whatever context and spaces are created, or it will help to create the spaces in which to have those discussions. However, in the pressing short term, we must ask what can be done for the people this year who will receive only £200; I do not know how many days £200 will last to give them the proper heat that they need. They are in real difficulty.

There must be a national response to the specifics of the Northern Ireland issue for this year. Should we say that everybody needs a £200 pick up coming into the winter?

Mr Richard Williams (Consumer Council):
The Consumer Council calculated that if the £200 winter fuel payment were used for heating oil, it would last for 72 days. Using fuel poverty as the figure gets to the nub of the problem. However, we must ask how we identify and bring those people out. The challenge will be in deciding which mechanism to use and whether different benefits could be utilised, such as tax credits, which take into account people who work.

The Chairperson:
There are several points that I want to consider, but rather than hold people up, I will come back to them.

Mr Cree:
I agree with what has been said, especially on the payment to older people, bearing in mind the figures for the fatalities that hypothermia causes.

What is the Consumer Council’s role in monitoring the price increases? Can you assure me that you do not simply follow a procedure and that the studies that you carry out examine the fundamental reasons for increases? In the old days, there used to be supply contracts, price clauses, etc, that guaranteed continuity of supply. It seems that nowadays more people operate between the consumer and the supplier and that those people are involved in trading on prices.

Have the prices that the Consumer Council has seen been due partly to the effects of energy trading on feedstock costs? If so, to what extent?

Ms Gill:
I will ask my colleagues to answer that question. However, I agree with you, in view of the fact that not only do we want to review a price now, but we want to anticipate the driving forces behind any cost increases before they occur. For example, we will try to ensure that there has been a proper independent and external audit of purchasing strategies, hedging strategies and the different elements that come to bear when considering a price review, particularly when fluctuations are seen not only in fuel prices, but also in currency exchange rates and in other financial matters. We want to ensure that those have all been audited properly. The Consumer Council does not have the necessary expertise to do that, but it is reasonable for it to ask and be assured that those matters are examined regularly with the interests of the consumer, as opposed to a speculator or investor, in mind. The Consumer Council performs that role and tries to identify those issues up front, but there is also a need for horizon scanning and anticipation.

Where business assumptions are made, we must be clear that sensitivity analysis is applied to them so that it is not just a matter of waiting for something to happen and then picking up the cost because it has to be recovered; rather, we must look at ensuring that we know what business plans mean and that they have sense as they are applied.

Sinéad was specifically involved in the gas increase and can confirm that full evidence was provided and that it was the supply side that came down.

Ms Dynan:
We worked with the regulator and the supply company; we were involved in looking at the price-control process and the tariff review. It was an open and transparent process conducted through various meetings, and we were satisfied that the price was reflective of wholesale gas costs.

Ms Gill:
As part of the review process, an external audit was done of the purchasing strategy of Phoenix Natural Gas. That is something that should be repeated.

The Chairperson:
Who procured that audit?

Ms Gill:
The company itself was, and it made the audit available to the regulator.

The Chairperson:
Did you have any insight into that?

Ms Gill:
We were aware of the audit and received assurances that it had been passed. That is something that we are now focusing on more, not only regarding the purchasing, but other types of hedging strategies too. Obviously there is risk involved; it is a matter of managing and quantifying that risk.

Mr Cree:
There is an awful lot more that needs to be done in this area. If in fact prices are traded six or 12 times, that gives great comfort to the suppliers in that they can say, “These are beefed-up costs; we can do nothing about that.” You are talking about massive amounts of money and yet we are fiddling about at the other end in fractions of pennies. The whole thing is becoming laughable.

In your paper you talk about supply and demand, and the longer term. Can you explain why we are in this position at this time of year? It is the first time that we have had an increase as we enter the summer months, providing a platform for a winter increase. It is not enough to say that the wholesale price has gone up. What do you think the situation is going to be in the long term, or even for the rest of the year?

Ms Gill:
We are a little bit limited in our ability to answer because there are aspects peculiar to the pending increases, compared to this one. However, I am more than happy to come and talk about it at that time.

We want all the drivers that are causing this specified upfront; also, the weighting of those drivers and the reasons for them. Questions must be asked regarding the sensitivity analysis: has it been applied to the risks that are carried? We must ensure that those purchasing-strategies continue to be externally audited, because there are big decisions being made. You might bet on that winning horse, but, with the best will in the world, things could still go wrong.

We do not have the luxury of waiting for those things to go wrong, and therefore, what we are trying to do is upstream, through recognising and anticipating issues rather than just being told the sorry tale afterwards. It is like when you take your car to the garage and the mechanic says, with an intake of breath and a shake of the head, that it is looking bad. We do not want the “looking bad”; we want the anticipation and management of risk to be much more explicit, open and transparent.

Mr Cree:
We have been told about ships with cargoes of LNG being diverted en route because the price has changed.

Ms Gill:
That is right — it is speculation.

Mr Cree:
There is no comfort in that for the consumer.

Ms Gill:
We have recognised through this process that we cannot be shielded from the bigger things that are going on out there. Some of those things are controllable; some of them we can bear down on; some of them we can build in some sort of sensitivity to; but some are beyond our control. We are looking at the social, economic and environmental responses to try to mitigate the effect of those factors.

Mr Cree:
Will you be complaining about the trading on energy prices? Do you not think that issue should be raised as a major problem?

Ms Gill:
We have raised that issue, and we will continue to do so.

Mr Cree:
I have not seen that yet.

Ms Gill:
I will send you the papers.

Mr McHugh:
That was a very good presentation, Eleanor, with comprehensive answers. The situation has hit every economy locally without warning. Why, when there are weather warnings for people who are going mountaineering, was no one, including your organisation, prepared to predict those things a little earlier?

People have been building massive houses here for the last number of years —

A Member:
Especially in Fermanagh.

Mr McHugh:
Large houses have been built right across Ireland; so Fermanagh would not make a lot of difference. Anybody who has built a large house will pay the price now.

The point is that people do not receive much advice on those matters. The only ones who are upstream on this are the banks. They have shifted their interest from mortgages, which were the most profitable commodities, to oil and energy. The people who are in fuel poverty are the ones who will pay. Those same people are trying to get onto the bottom rung of the property ladder. They will pay a heavy price because they have no access to information. In many instances, those people also have a lack of education.

The areas of deprivation have been made to pay for 50 year, and that is still happening. Nothing has changed in that sense, even though we have supposedly moved on. It is, therefore, only organisations such as the Consumer Council that can help those people to see the dangers ahead. A few weeks ago, I listened to a radio programme that gave a list of what people could do to save money. The amounts that were mentioned were peanuts — not an amount that would help to pay a £500 bill.

What can the ordinary person do, given that the price of food has risen faster than the rate of inflation? Speculators pretend that mortgages and the price of food are appropriate, and that, in fact, the price of food should be much higher. We are told that we should be content with the current prices.

The only bodies that can intervene in those areas are Governments. Our Government are well past that point; they will not do that. What can the people at the lower end of the economic scale actually do? Can the Consumer Council advise people, before the winter, what they are entitled to claim? You mentioned that many people do not claim rate relief, or are not even aware that they are entitled to claim it. Perhaps those measures should be more automatic from Government level. If someone is entitled to a payment then he or she should receive that automatically, rather than having to claim it. Every year, millions of pounds of benefit-support money remain unclaimed. The increase in the price of food is one of the biggest difficulties that people face. The percentage increase per household is much higher than we are being led to believe.

Who is profiting from that increase in price? Do the producers receive that increase, or does it go elsewhere? I do not think that the producers have received any extra money, despite all the talk. The increase in food prices could be 50% or more for a household. The people at the lower end of the scale also buy small amounts of fuel, and they are the people who can ill afford to pay.

Ms Gill:
We recently undertook a piece of work that analysed how older people accessed food. Offers such as “three for the price of two” are useless for older people — they would rather have smaller portions. They cannot carry those items; they cannot get to the supermarkets; and they cannot eat that amount of food. It is, therefore, about changing the perception.

The Consumer Council is trying to change markets and practices. That can be seen from the work that was done on bank charges, which were hitting those types of people the most. People had only to go into the red unwittingly and suddenly it was one cost on top of another, with people being brought down into huge distress and debt.

We must make sure that the markets work fairly for consumers. We are aware that we cannot work on the markets without working on consumers. In conjunction with the Financial Services Authority (FSA), we conducted a financial literacy and capability study right across the UK. Northern Ireland is bottom of the financial capability league. That means that people here are not even good at talking about money. There is no concept of what it means to be financially literate.

In conjunction with the FSA, the Consumer Council is beginning to educate people about budgeting and responsible borrowing, starting in the classroom and going right through to the workplace and the community. People borrowed above their means when times were good, even though others warned of the impact that would have in the bad times. That is cold comfort now. We are trying to ensure that there is inbuilt education on financial literacy, and we need the Committee’s help. We will keep coming back to talk about that. You are right — it is about making sure that people make the most of every penny that they have and that they make their money work for them.

At the moment, for example, we are looking at how the rate of inflation is affecting the cost of baskets of foods. However, the items in such baskets often do not reflect the needs of some consumer groups that buy only what they need as opposed to luxuries. We have tried to put together baskets of food containing the essentials that such groups need, in order to get a better understanding of what the inflation rate is for those families, as opposed to the official figures for all families.

There is an awful to be done in that respect, but also in terms of representation politically by the Assembly. While it is true that people can become more energy efficient and start to get the pennies back, it is merely pennies that they are saving. We are looking at an extraordinary situation.

Mr McHugh:
Can anything be done about bank charges? Even people whose bills are small face enormous charges when they go into the red.

Ms Gill:
Something is being done: we have a case in court in London, at the very highest level.

Mr Simpson:
I was about to raise that point about bank charges. The Consumer Council must be congratulated on that campaign. We worked with the Consumer Council on the forms, and there was an unbelievable response in my constituency — literally hundreds of people got the forms and benefited as a result. That showed that the Consumer Council’s efforts were working — it was a fantastic achievement, and you must be congratulated on it.

Ms Gill:
Thank you. We must get the systems working for us, and people must also take responsibility and play their part. I know that it is strange thing for a representative of a consumer organisation to say, but the customer has a responsibility, too. We have tremendous rights, but we also have tremendous responsibilities.

The Chairperson:
In your presentation you set out the factors that are contributing to what you have called the consumer crunch and you talked of the perfect storm. However, the perfect storm passes. How confident can people be that the consumer crunch is going to pass, particularly in relation to energy prices? People understand that the recent price increases are not necessarily going to recede, and although we hope that we will not see those increases repeated in the future, will the increases that have happened stay locked in?

Ms Gill:
There is no end to that on the horizon. Speculation by companies and others — including regulators — that there may be another decrease was unhelpful and does not help consumers. Someone may make a decision based on that speculation to use a certain fuel or system, even though no one knows what is going to happen. We should be ensuring that we can tell them that they will feel it when prices go up, but they will also feel it to the same degree when prices come down, rather than trying to look into the future. If speculation is to be believed — and I have no reason to doubt it — there will be another increase in electricity bills that will hit every household. We do not know what is going to happen in relation to the cost of oil and all those different drivers, but, at this point in time, there is no relief in store.

The Chairperson:
Is VAT one area where the state could consider, given the rampant price rises, deploying an element of social tariff, either by reducing overall VAT, or targeting VAT exemptions or VAT rebates towards households on more marginal incomes? This Government have had a few windfall taxes in their time — in fact, they are actually getting a VAT windfall currently because, just as the oil companies’ profits are soaring because of the price rise, so too is the VAT revenue. Is it possible to target that windfall VAT revenue so that it can be the source fund for some other measures — for example, special fuel payments to non-pension marginal-income households?

Ms Gill:
That is why we referred to “national” Government.

Ms Dynan:
There is no definitive answer as yet. One idea that we have been bandying about is that additional money raised from the 5% VAT paid by consumers should be ring-fenced and redirected to alleviate such situations. That is an example of what we are considering to provide people with tangible and immediate help, particularly in the approach to winter.

Ms Gill:
We used the available data to produce a model of how much that would raise and how it could be used to alleviate the difficulties of each family. We are happy to share that analysis with the Committee, if it would be of use in fighting the good fight. There are indications of further increases in the autumn and winter. In view of the current situation, should those be implemented? A huge amount of taxpayers’ money went into rescuing a bank after the credit crunch, and a similar rescue is required now. The similarities between the two situations are relevant to the discussion.

The Chairperson:
Your analysis would be helpful. The other day, the Chancellor announced measures to give back tax. He presented the measures as contributing to the alleviation of increasing pressures as bills increase. To many of us, however, much more is required, and measures should be targeted at people whose household bills are suffocating them with worry.

Thank you very much. We will continue to follow developments in the light of the additional information with which you will furnish us. When we hear the news of an increase in the price of electricity, we look forward to hearing your view on that too.

Ms Gill:
Thank you.

The Chairperson:
On behalf of the Committee, I thank the Consumer Council for its vigilance and advocacy on behalf of consumers. Although people cannot take comfort from the price increases, I hope that they will take comfort from the fact that, on their behalf, someone is carrying out due diligence on the costs that end up being imposed on the consumer. I worry that when companies state their intention to raise prices, the regulator waves them through as though they were going through the Bridge End customs. I am glad that you at least frisk companies to check that their costs are genuine and that profit-padding does not tailgate on real cost pressures.

Ms Gill:
Thank you for your time.