Energy Markets (Competition)

Albert Owen Excerpts

Wednesday 26th March 2014 Westminster Hall

[Mark Lazarowicz]

Indeed, and the figures have been rising, as the hon. Gentleman knows.

As I said at the start of my remarks, the Opposition see energy prices not just as the first step to reduce pressure on customers but as part of a much more fundamental reset of the energy market. In summary, we propose to get the energy companies to separate the generation and supply sides of their businesses, and we want to see all energy companies trading for energy in an open market by selling into a pool. We want a simplified tariff structure and a new, tough energy watchdog with new powers to police the market, including the power and remit to force energy companies to cut their prices when there is evidence of overcharging. All those proposals would make the market more transparent, and no doubt my hon. Friend the Member for Sunderland Central (Julie Elliott), our Front-Bench spokesperson, will refer to those proposals in more detail.

The proposals in the Labour party’s consultative document are welcome, and I note with interest the response to the consultation published today by SSE, although I have had only a brief opportunity to look at it this morning. I suspect that the Minister will say that, yes, there are weaknesses but they are being addressed. He will no doubt point to increased competition and to the new entrants into the market. Indeed, there has been an increase in the role and market share of new entrants, but they still represent a fairly small proportion of the market as a whole.

There is a long way to go, and we all know that many customers are reluctant to switch for all sorts of reasons. They might be uncertain about how to go about switching, for example. Some of my constituents switched and found that, after an apparently attractive offer, within a few months they were paying even more than they did under their previous supplier. The tariff simplification introduced by the Government, which on paper seemed a good idea, has in practice led to a number of difficult consequences. Many of us know of cases in which people have ended up paying substantially more following the tariff changes because those changes are in some cases biased against people who use little energy, either by choice or by lack of income or resources.

A much more fundamental change is needed, which is recognised across the industry. I also recognise that the weakness in the market is not the only reason for higher prices. World supply and demand is a major factor, and taxes and support for energy efficiency and renewables have an impact. There is certainly a need for changes there as well. Like many Members, I am concerned that the changes the Government have introduced so far will mainly result in the watering down of energy efficiency measures, which are the single biggest way of enabling consumers to cut energy waste and cost.

[Albert Owen (Ynys Môn) (Lab)]

Another factor in the increase in prices and the high prices is distribution cost. In the distribution areas, there is no competition at all. That monopoly contributes somewhere between 19% and 24% of a bill. Does my hon. Friend agree that we should look for greater competition in that area?

[Mark Lazarowicz]

Absolutely. That is one of the areas where a fundamental investigation is needed, with fundamental questions asked and fundamental changes made. I recognise that businesses have to make a profit for their shareholders and future investments. They are big businesses, so the profits will have big numbers in them. Nevertheless, there are fundamental questions. Today, SSE has made an announcement that promises an energy price freeze until at least 2016 and it is preparing to separate legally the retail and wholesale sides of its business. Those changes are in line with the policies announced by the Labour party last year.

--- Later in debate ---

[Albert Owen (Ynys Môn) (Lab)]

It is always a pleasure to serve under your chairmanship, Sir Roger.

I speak today as a member of the Select Committee on Energy and Climate Change—we have already heard from another member, my hon. Friend the Member for Southampton, Test (Dr Whitehead). Over the past few years, the Committee has looked seriously at and conducted some in-depth inquiries into electricity market reform, profit, prices and poverty. We have been looking at the energy market in great depth, and I welcome its being raised on the political agenda, as that has focused attention on some of those big issues. For too long we were seen as not really addressing the big issues, but the subject has now become one, for a number of reasons. Prices have been hiked in recent years at a time when many households have seen their incomes frozen or cut. The cost of energy and the impact of energy prices have become a profound problem.

I want to talk about an area that has not yet been discussed this morning, but I will begin by talking about how we have got to this position, and why I and many others believe that the UK energy market is not working. There are historical reasons. In the 1980s and 1990s, there was an ideological privatisation of the energy market, and in the first instance monopolies were set up. British Gas became a vertically integrated monopoly in 1986, and liberalisation came in much later. Electricity monopolies were also set up. My hon. Friend the Member for Brent North (Barry Gardiner) was absolutely correct to say that privatisation created regional monopolies. Those monopolies still exist in transmission and distribution.

That is the issue that I shall concentrate on. The Energy and Climate Change Committee will hold an inquiry into the issue, because, as I said in an intervention earlier, it contributes to some 19% to 24% of the bills that all households and businesses in this country pay. There is a lack of competition within transmission and distribution. Companies pass on the costs of distribution and transmission to customers and we end up paying that bill. That is something we need to take seriously and look into.

At the moment, many of those companies are foreign-owned and have a profit motive, so their first priority is the shareholder. During the passage of the Energy Bill and the reform of the electricity market brought forward by the Government—whoever had been in government would have had to bring in such measures—there was discussion of the fact that National Grid is an American-owned monopoly that controls the high velocity distribution of electricity in this country, with its shareholders as its first priority. It will be the system operator of any new-build system in the future. We have a monopoly, then, that will have a big say in the development of new technologies and the different projects that go forward. There is a worrying lack of competition that impacts on prices.

The Minister is a generous person who tries to give an answer either on his feet in the debate or else in writing. Will he comment on the distribution and transmission systems in this country, in which there is no competition whatever at the moment? As I said, that contributes to the prices that businesses and other customers pay.

I want now to deal with the announcement made this morning by SSE. The hon. Member for Warrington South (David Mowat) spoke about the language used when we talk about the big six. I have been careful in my choice of language today, but I have not held back in any shape or form when the big six have been giving evidence to our Committee. They have been hiking prices considerably and are their own worst enemies, because of the lack of transparency within the system.

To be fair, the hon. Member for Angus (Mr Weir) was right: Ofgem has tried—a little late, to many people’s minds—to open up tariffs and make companies more transparent, so that we have a greater understanding of the market. But my right hon. Friend the Leader of the Opposition was absolutely right, and ahead of the game, when he suggested that we should have a price freeze—for two reasons.

First, as I said, energy price hikes have caused real hardship to families and businesses throughout the country. Secondly, the aim is to have a deliberate pause to look at the regulatory system itself, because it is not working as many who supported privatisation in the 1980s and 1990s thought it would, as it is not bringing down prices for businesses and domestic customers.

I would like the Minister and the Government to comment on distribution and transmission. When the Energy and Climate Change Committee has a thorough inquiry into that matter, I am certain that he and the Government will respond to our findings. The monopolies that exist in many areas are contributing to hardship throughout the business community and the United Kingdom. Transmission and distribution should be treated in the same way as retail and wholesale. I welcome SSE’s announcement today as a first step to common sense. We should have a freeze so that we can address those big issues.

--- Later in debate ---

[Michael Fallon]

That is something, as I have said, that we require independent investigation to establish on the basis of evidence. There are arguments in favour of vertical integration. I am not putting them forward today, but there are those who argue that vertical integration can lower the cost of capital and lead to more efficient risk management. These are issues on which the evidence needs to be properly weighed—with the greatest respect, neither by the hon. Gentleman nor by me, but by independent investigators who are detached from the political process. I am very disappointed to see that the regulator would be abolished if Labour ever came to power. The evidence needs to be weighed independently, and we need to have a proper judgment. The first competition assessment is being completed—

[Albert Owen]

Will the Minister give way?