Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Lord Redesdale and Viscount Ridley

2nd reading (Hansard): House of Lords
Tuesday 22nd May 2018 Lords Chamber

[Lord Redesdale (LD)]

My Lords, I declare my interest as the CEO of the Energy Managers Association, which runs courses on procurement—I can tell noble Lords that it is an extremely complicated area in the non-domestic sector—and as the CEO of the Water Retail Company, a retailer in the new water market, next to which the energy market looks positively logical.

The Minister started by saying that there has been a failure in the marketplace and this should lead to major intervention. Here I must digress. I have just been talking to my son, who is doing his politics A-level at the moment, and some of the work that he has to do is to link political ideology to certain policies. I was trying to work out where this Bill fits. One could say that it fits with Corbynism. Obviously it was introduced originally by Ed Miliband, so it is a Labour policy going backwards, but I suppose that now it could be seen as a Mayism, if there is such a thing. However, this policy does not have an ideological base; it is really just a way of trying to garner public support. Saying that energy bills are high and we want to reduce them is a very easy way of bringing about public support. The speed with which this is being introduced could have something to do with the very valid points raised by my noble friend Lord Teverson, but it could also be that people are just trying to get the political benefit of doing this.

I am not against the reduction of the cost of energy and looking the problems of the marketplace. However, for years we have been talking about the energy sector becoming one of the most competitive marketplaces in Europe. If we have a competitive marketplace that is being pushed forward, there will be winners and losers. Indeed, the problem with the marketplace is that for companies to afford the deals to bring customers through the door, there have to be tariffs where they make more money in the marketplace.

The CMA report came out with a number of assertions about the amount of money being made by energy companies. I have to agree with the noble Viscount, Lord Ridley—perhaps for the first time ever in this Chamber—that there are certain problems with that assumption. I believe that the CMA report was highlighting a problem but I do not think the figures given could be taken as anything more than indicative. The reason I raise these points is not that I believe energy companies have a right to receive a certain amount of profit, but that I believe any cap being set is fraught with a number of difficult assumptions.

The cap will skew the marketplace. It is not as easy as saying, “We will set a cap”, because certain things going on at the moment mean that the cap may have to change quite quickly. As of half an hour ago, 48.1% of our energy came from gas. Twenty per cent of our gas comes from Qatar, and the recent problems with the treaty with Iran mean that there could be problems with the Strait of Hormuz. Even if nothing actually happens, the uncertainty could lead to a rise in fossil fuel prices which will have a major effect.

The noble Viscount, Lord Ridley, said—

[Viscount Ridley]

As we are agreeing so much today, does the noble Lord agree with what the Energy Minister said yesterday: these are reasons why we should get on with shale gas in this country?

[Lord Redesdale]

I am very tempted to go down that line. Of course, we could become energy independent if we were to use shale gas—for a whole seven years, and then it would be gone. I am not sure it is such a long-term solution.

There is a real issue about the cost of fuel, although wholesale costs will of course be a smaller amount compared to levies. However, we have to move to a low-carbon economy, away from our present one, although today, no power whatever was being generated by coal.

The Bill is flawed. It is being taken forward at great speed. Many people are saying that it is a popular Bill, because we all want to reduce the cost, especially to the most vulnerable, but I ask the Minister to look again at three things in the Bill which I know will be raised in amendments.

First, I ask him to reintroduce the CMA as the body that reviews any price cap. I do not suggest that this would hold up the process in any shape or form—a point raised by the noble Lord, Lord Hunt—but as the CMA is used as the backstop for most other Bills as good practice, leaving it out of this measure seems slightly perverse.

Secondly, I hope, following the Minister’s statement in another place that renewables tariffs may well be exempt from the price cap, that that provision will be introduced. I am thinking of shifting to a renewables tariff that would be higher than the price cap. I am prepared to pay more for a renewable source of energy. That is probably a point on which the noble Viscount and I disagree, but there is value in renewable energy. Although the Minister talked about ensuring that that was the case, I should like to see something in the Bill.

Thirdly, one problem often raised by energy companies, as well as the risk that they face from global politics, is regulatory risk. I find it interesting that the last substantive clause in the Bill says that this tariff rate might end in 2020, but it might go to 2021, 2022 or 2023, at which point it must stop. That is a difficult assertion to make, considering that companies buying large amounts of energy for the future have to make certain assumptions about where the price will be and what regulation they will face in future. On that point, I look forward to the next stage of the Bill.