Company plans to provide poor with cheap electricity

More than a million low-income households could see their electricity bills cut by 10 per cent and their debts wiped out under an initiative being planned by a non-profit-making company.

People who are already having difficulties paying their bills will be offered low-cost electricity by the Energy Action Grants Agency, known as Eaga Ltd, which administers the Government's home energy efficiency scheme. Well-off households would not qualify.

John Clough, chief executive of Eaga, said the initial target would be the 64,000 customers who are on social security benefits and who have their bills paid direct by the Benefits Agency.

Mr Clough said the turn-over of people on direct payments was so great that he was looking to supply over one million customers with electricity at cost. This would mean heavily undercutting all the main electricity suppliers in Britain.

If the plan takes off, Eaga could expand and supply cut-price water and gas to millions more low-income households.

The scheme has been made possible under the Government's privatisation and competition legislation, which allows companies to buy and resell electricity.Under the plan, Eaga would buy electricity and sell it on at cost to the poor.

The chairwoman of Eaga, Andrea Cook, said:"Because we are a non-profit- making company, we don't have to pay dividends to shareholders, and we can cut our rates." Ms Cook is also the director of National Energy Action, a charity working with the Government to promote energy efficiency in homes.

Ms Cook says she is keen to combine the provision of non-profit electricity with greater fuel efficiency in low-income households. Eaga is considering offering a package of advice on energy efficiency, and grants to provide homes with lagging and insulation.

Beneficiaries of the scheme could also have their existing debts on fuel taken over by the company if they reduced their use of electricity through energy efficiency measures. "It is common in America," said Mr Clough. "So long as they play ball and use less fuel, we could wipe out that debt from the previous supplier for fuel."

Ms Cook said: "We are concerned about the high charges that people on direct payments are facing, and the impact of the competitive market. We are investigating the possibility of taking on a licence as a second tier supplier whereby it would provide lower cost electricity specifically to low income customers.

"We would sell low cost electricity to low income families because we want them to have the benefit of competition."

The disclosure by The Independent on 20 December that Peter Lilley, the Social Security Secretary, is poised to end the direct payment arrangements, acted as a spur for Eaga to become involved.

Lord Russell, the Liberal Democrat peer, has tabled questions for 14 January in the Lords about the Government's threat to cut that service to save costs. A leaked document said that Mr Lilley had agreed with the Benefits Agency to disengage from direct payments, and that the Agency should "not be in the business of social banking/debt management."

The move has angered social security officers who make the direct payments, and try to help poor people to get out of debt. It is feared that leaving people to sort out the payments for themselves will lead to more being cut off.