Centrica Regulatory News (CNA)

OFGEM SECURES £11.1M FROM BRITISH GAS FOR FAILING TO MEET ENVIRONMENTAL OBLIGATIONS

· British Gas delivered 62.4% of its Community Energy Savings Programme (CESP) obligations by required deadline.

· Company also failed to reach obligations under the Carbon Emissions Reduction Target (CERT), delivering 99% of its overall obligation.

· Today's decision reflects the seriousness of the breach and British Gas' willingness to settle this case.

British Gas is to pay £11.1 million to benefit vulnerable customers after Ofgem's investigation found the company failed to meet its environmental obligations under the Community Energy Savings Programme (CESP) and Carbon Emissions Reduction Target (CERT) by the 2012 deadline.

Under CESP, energy suppliers and generators were required to deliver energy saving measures to households by the end of December 2012. British Gas failed to meet its targets on time, delivering 62.4% of its obligations. This led to around 6,750 households in low income areas experiencing delays in receiving energy saving measures which would have helped keep homes warm and lower bills during the winter of 2012/13.

The CERT scheme required certain gas and electricity suppliers to achieve targets for reducing carbon emissions within domestic properties. British Gas failed to meet its target on time, achieving 99% of its obligation. Until the shortfall was made up seven weeks later, households were unable to benefit from energy efficient measures which they ought to have received.

Ofgem found that British Gas' senior management did not take appropriate action to ensure it delivered energy efficiency measures on time. In particular, under CESP, British Gas did not do enough to respond to changes in market conditions or effectively manage its delivery when problems arose in 2012.

Following the missed deadlines, British Gas installed energy efficiency measures equivalent to the volume of its CERT and CESP shortfalls, which it completed in February and August 2013 respectively. Eventually it over-delivered by 2.3% for CERT and 1.5% for CESP, which saw around an additional 20,000 homes benefiting. The particularly late installation of CESP measures was one of the factors that was taken into account when setting the level of penalty.

The amount also reflects British Gas's settlement of the investigations, without which the payment would have been higher. It also ensures British Gas did not gain financially for not meeting its targets on time.

Sarah Harrison, Ofgem's senior partner with responsibility for enforcement said:"British Gas' failure to deliver two environmental obligations on time is unacceptable. Thousands of households had to wait for energy efficiency measures, like insulation, to be installed during the winter.

"The payment reflects British Gas' failure to meet its obligations on time but also recognises its commitment to put things right."

Notes to editors

1. British Gas investigation

You can find the penalty notices at

https://www.ofgem.gov.uk/investigations

Ofgem has secured a total of £11.1 million from British Gas in relation to the CESP and CERT investigations. It will pay £10.6 million for failing to deliver its obligations under CESP scheme on time. A £500,000 payment will also be made for failing to deliver its obligations under the CERT scheme. British Gas and Ofgem are currently talking about how best to ensure the money benefits vulnerable consumers. One option under consideration is via the British Gas Energy Trust (BGET). This would be subject to formal agreement with BGET's Board of Trustees.

In May 2013, Ofgem launched investigations into six energy companies who failed to deliver on time their obligations under CESP and opened a further investigation into British Gas which failed to deliver its obligations under the CERT scheme.

The obligation to meet the CESP target arose under Article 14(1) of the Electricity and Gas (Community Energy Saving Programme) Order 2009 (SI 2009/1905).

The obligations to meet the CERT target arose under Article 9(1) and 9(1A) of the Electricity and Gas (Carbon Emissions Reduction) Order 2008 (S.I. 2008/188).

2. About CESP and CERT

The Community Energy Saving Programme (CESP) was designed to lower carbon emissions through the delivery of energy saving measures, such as loft and cavity wall insulation free of charge, to households in low income areas. The government required generators as well as energy suppliers to deliver against individually set targets by the end of December 2012.

The Carbon Emissions Reduction Target (CERT) required energy suppliers to deliver measures to reduce carbon emissions in domestic properties. Suppliers could achieve this target through a range of measures such as installing insulation, distributing real time displays or switching a household's heating fuel (i.e. from oil to gas).

The CESP and CERT overall targets were set by the Department of Energy and Climate Change (DECC). Ofgem administered the two schemes while DECC was responsible for the policy. Ofgem's role included calculating the individual targets of qualifying energy companies, reporting to the Secretary of State and initiating enforcement action where appropriate.

The overall CESP target was 19.25 million lifetime tonnes of carbon dioxide (Mt CO2). By the end of the programme (31 December 2012) energy companies had achieved 16.31 Mt CO2 (84.7%) against the overall target. Suppliers met 92.4% and generators met 36.0% of their respective targets. Source: The final report of the Community Energy Saving Programme (CESP) 2009-2012.

The overall CERT target was 293 million lifetime tonnes of carbon dioxide (Mt CO2). By the end of the programme (31 December 2012) energy companies had achieved 296.9 Mt CO2 (101.3%) against the overall target. Source: The final report of the Carbon Emissions Reduction Targets (CERT) 2008-2012.

You can find more information on CESP and CERT here https://www.ofgem.gov.uk/environmental-programmes/energy-companies-obligation-eco/previous-energy-efficiency-schemes 

3. Background

Ofgem issued a press release and open letter on the 21 September 2012 that warned energy companies that they risked enforcement action if they failed to meet their CESP and CERT targets. We encouraged energy companies to continue to install energy efficient measures after 31 December 2012. These mitigation actions were not a substitute for compliance but ensured the original benefits envisaged under the CESP and CERT were realised. Without this approach, thousands of households in low income areas would have lost out. These mitigation actions were taken into account as part of our investigation.

For further press information contact:

Dafydd Wyn: 020 3263 9943Claudia Cimino 020 3263 2722Out of hours media contact number: 07766 511470