Energy Prices

Debate between Alan Whitehead and Alan Duncan

Wednesday 14th January 2015 Commons Chamber

[Dr Alan Whitehead (Southampton, Test) (Lab)]

Listening to the hon. Member for Dover (Charlie Elphicke) was a rather curious experience, given that more or less the entire policy of the Department of Energy and Climate Change under the current Government, particularly as it relates to such matters as contracts for difference and the levy control framework, is based on the assumption of inexorably rising energy prices. In fact, the policy is rather falling to bits, because the Department can no longer make that assumption. The Opposition’s proposal, on the other hand, is based on the reality of the regulator as we now find it, and the reality of what will continue to be a volatile energy market over the coming period.

I smile a little at some of the assumptions made by Members about what the regulator actually is. It has always been the case—or, at least, it has been the case during recent periods—that the regulator has done a great deal more than the right hon. Member for Rutland and Melton (Sir Alan Duncan) believes that it has. As he said, he believes that the regulator simply prevents collusion, but it performs a number of other functions, relating to, for instance, the close of market, cash-out and balancing, which are integral to the energy market as it stands. At present, however, the regulator is itself regulated asymmetrically when it comes to its ability to intervene in that volatile market. Our proposal, which is very simple, is to remove some of that asymmetricalness, if such a word exists—

[Sir Alan Duncan]

Asymmetry.

[Dr Whitehead]

I thank the right hon. Gentleman. We propose to remove some of that asymmetry. While we would not expect a regulator to have a knee-jerk reaction to every change in a volatile market, we would, in the event of a considerable drift between those changes and what energy companies are doing, expect the regulator to be able to do what the public would expect it to do: we would expect it to be able to intervene on behalf of the consumer and bring those arrangements into line. That seems to me to be a straightforward and laudable proposal, not only from the point of view of the consumer, but because it constitutes a recognition of the reality of markets.

The objections to the proposal that have been expressed also make me smile a little. We are told that hedging and purchasing strategies would not put up with it. On the basis of what I have heard from the Secretary of State this afternoon, I think that he has done for utility hedging roughly what Edward Scissorhands did for real hedging.

The operation of hedging in energy and utility markets is not the same as it is in a number of other areas. That hedging, those purchases and that trading must take account of factors such as securing the right amount of energy for the customer—not too much and not too little—at the time when the customer needs it, at the time of gate closure. If the outcome of that hedging turns out to be wrong, the regulator will fine those who are undertaking the process. On such occasions, hedgers will weigh the cost of the cash-out fine against the cost of getting the balance wrong. So a range of other factors are involved in that hedging, over and above the simple question of buying long and hoping that some money can be made out of it.

One of the strategies of the larger energy companies will, in fact, be to buy long—rather more than they can conceivably hope to provide for their customers—and shape the amount as gate closure approaches. If the markets are volatile, they will adopt strategies which get that right. The ability of the regulator to undertake those changes is compatible with the process leading up to gate closure, notwithstanding what has been suggested this afternoon.

Finally, I smiled a little at the haste with which the Secretary of State, in particular, talked of reducing energy prices, given that, as I said earlier, the recent capacity auctions have potentially raised prices by £11 per customer. I may have inadvertently said 11p in an intervention. The sum is in fact £11 per customer—I thank Tim Probert for that proper figure—and that gives the lie to the idea that this is all about price reduction. It is about disguising price increases in the context of regulation which should be in place to ensure that these things work properly in the future.