Energy Bill [HL]

Debate between Lord Lennie and Lord Hollick

Committee stage
Monday 16th January 2023 Grand Committee

[Lord Hollick (Lab)]

I rise to speak to Amendment 242A, which my noble friend has just introduced. In the course of our inquiry into the net zero transformation, the Industry and Regulators Committee, which I chair, took extensive evidence about Ofgem’s remit and whether it should be amended to include a specific requirement to have regard to meeting the UK’s net zero emissions target.

Ofgem’s primary statutory duty is to protect the interests of existing and future consumers in relation to gas and electricity. This objective is to protect those interests taken as a whole, including their interest in the reduction of greenhouse gases and in the security of the supply of gas and electricity. This duty guides Ofgem when it is making decisions and trade-offs in the regulatory framework between the three objectives of decarbonisation, affordability and security of supply.

Many of our witnesses told us that the net zero target should be included explicitly within Ofgem’s strategic duties, not least because Ofgem’s responsibility for setting the price and affordability of energy must take into account the substantial level of costs of the transition to net zero which will have to be borne by consumers.

If there is no explicit reference to net zero, there is a danger that the decisions will be very short-term in nature, focusing on short-term costs for consumers and not the long-term costs of failing to achieve net zero and invest in the infrastructure necessary to achieve that. The Climate Change Committee agreed. It argued:

“Giving Ofgem a net zero responsibility”


will help it to

“think … strategically about the changes that lie ahead so that we can minimise the cost to the consumer in the long run.”

Jonathan Brearley, the CEO of Ofgem,

“said that Ofgem is open-minded about whether it should be given a primary duty to achieve net zero, arguing that ‘I and the board have been very clear that we see net zero as fundamental to our existing duty’ … noting that there may be a benefit to clarifying that.”

The impact of net-zero costs on consumer bills is, ultimately, a decision for the Government, not for regulators. The Government promised a strategy and policy statement setting out priorities for delivering a net-zero energy system to ensure that the supplies are available at the lowest possible cost—that was promised in 2022. They also promised to publish a fairness and affordability proposal by the end of 2022. Neither of those documents has yet been cited, and it is indeed unclear whether the consultations are actually taking place. There will be an opportunity in our debate on Friday on the report from the Industry and Regulators Committee for the Minister to enlighten us on the progress of those two very important pieces of work on strategy and affordability.

Without those two statements from the Government, Ofgem will struggle to reflect net-zero costs in its energy pricing; but there is no doubt that those costs will have to be reflected, and Ofgem should have a clear and explicit duty to do that. That is why the Government should accept the amendment, to make it plain to all parties that Ofgem has a strategic duty to take into account the very considerable short and long-term costs of the transformation of our energy system and challenge the Government should their guidance impose unaffordable or unfair costs on consumers. Perhaps the Government might find such an independent intervention from the statutory regulator a little inconvenient. It would be ironic if the regulator most responsible for regulating the journey to net zero is one of the only regulators which does have a specific responsibility in its remit.

[Lord Lennie (Lab)]

My Lords, I thank all noble Lords who have spoken, particularly the noble Lord, Lord Teverson, my noble friend Lord Hollick and the noble Baroness, Lady Hayman. I also support what the noble Baroness, Lady McIntosh, said and what the noble Lord, Lord Ravensdale, asked.

I will comment on how reforming the remit of Ofgem using the Energy Bill would achieve what we are trying to achieve in the amendments in my name and those of the noble Baroness, Lady Hayman, and the noble Lord, Lord Teverson. Ofgem’s remit has not changed substantially since 2000. It does not prioritise electricity decarbonisation in line with the Government’s recent legislation or stated ambitions; it has only a consideration of greenhouse gas reduction. As a result, Ofgem has been unable to reform substantially its working practices and regulatory frameworks in response to the Climate Change Act 2008 and the UK’s subsequent net zero ambition.

The Government have an opportunity to address that with the Energy Bill, and, while they have recognised the need to reform substantially the working practices of Ofgem in the past, they have done so through the creation of a strategy and policy statement—an SPS—for Ofgem. That urgent statement will be welcome; we note that, largely due to its complexity, it has not been published since 2020, when it was first proposed. It was consulted about in 2021, but we are still waiting for the statement to see the light of day. It seems to us that, to help with the Government’s net zero ambition, giving Ofgem the mandate to advance policies in support of net zero would be extremely welcome.