Debate Excerpts: Albert Owen vs Alan Duncan

Energy Prices

Debate between Albert Owen and Alan Duncan

Wednesday 14th January 2015

(9 years, 9 months ago)

Commons Chamber

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Sir Alan Duncan (Rutland and Melton) (Con)

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Populist posturing is a sick and cheap form of politics, and the motion pretends that if only Labour were elected, there is a quick and easy way of reducing energy prices. The Opposition are promising something that will not be delivered and they know it, and they are promising something which simply cannot be delivered in the way they say.

The policy of the Opposition is the worst conceivable combination of ignorance and deceit, and it labels them as ill equipped to look after the economy. Their ignorance of markets and their Canute-like pretence that they can control prices in the way they propose is pitiful in its fantasy and it is irresponsible. The Labour party is saying that the tide can go out, but that it has the power to stop it coming in.

Energy markets are complicated and multifaceted. None of them enjoys the direct, simple, linear relationship described in the Labour party’s policy and motion. Any such correlation is not the way of the real world. I have been involved on and off in the energy markets, principally in oil, for 35 years. Oil, gas and coal in their pricing are interrelated. They tend to move similarly. The only sector that enjoys a modicum of economic independence and segregation is nuclear, to which one might add, to a lesser extent, wind. But the dominant marker for these major providers of the source of energy, and hence utility bills, is oil. It determines in broad terms the cost of energy for power generation, heating and transport.

I started in the business over 30 years ago, and we now have the free market in oil that we did not use to have. When that changed, the nature of pricing also changed. Our own North sea oil Brent became a marker crude for contract pricing, so instead of fixed prices—30 bucks for everybody, going from one company all the way through that company to the end—we got a free market. That market means that here we are in January, but Brent crude is priced for March and April, and if it is a barrel of oil it has to be shipped and refined, so it takes time—perhaps four months—for prices to work their way through from the wellhead to the pump.

Albert Owen

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My first job was as a galley boy on an oil tanker in the middle east, so I know a little bit about oil from a different perspective from the right hon. Gentleman’s. He says people are ignorant of the facts. Does he agree with the Prime Minister, who said that the best way to deal with the issue is to

“give the regulator the teeth to order that those reductions are made”?

Those were the words of the Prime Minister. Is he criticising us for repeating what the Prime Minister said? Does he agree with the leader of his party?

Sir Alan Duncan

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I totally agree with the Prime Minister. What we want is a competitive market—I agree with him—not the control of prices by a regulator, whom the right hon. Member for Don Valley (Caroline Flint) seems to want to be able to write every commercial contract throughout the industry.

Let me say to the right hon. Lady that in the case of gas, the stupidity of the motion is that there is no such thing as a straightforward wholesale price. When I put my question to her, she lamentably failed to answer it. There is no such thing as a straightforward wholesale price whose movement should be fully and simply reflected like that in retail prices. That is the fantasy and the ignorance of this proposal, because life is more complicated.

Let us take gas contracts. Some gas contracts have pricing formulae which do not simply follow the headline daily market price. They may be based on various averages or regional weightings. They may have locked themselves into a one-year or a six-month fixed price. They may face maximum and minimum parameters. Their costs may have been hedged to eliminate the risk of massive fluctuations and guard against another idiotic policy from the Labour party. This is a complicated business, within which suppliers and generators may be locked into various different pricing structures, so the idea that a regulator can suddenly say, “Oh, there’s the wholesale price, therefore there is the retail price,” is total lunacy and ignorance, of which the right hon. Lady should be ashamed.

Even if there were some sort of unshackled easy link to daily prices, the Opposition do not understand the distinction between price and volume. The price might fall in a so-called wholesale market, but if there is no business of any volume in the market, how can that price, as a tiny example of one day’s price, then be used as the determinant of retail prices under the right hon. Lady’s policy? This is folly of such total lunacy and ignorance that I am ashamed that anyone in this Chamber should want to stand up and pretend that it makes any logical, decent sense.

Labour Members started by proposing a freeze—it then became a cap, although they have got very muddled, but the leader of the Labour party called it a freeze—after which all the companies’ share prices fell and their pricing policies had to change to guard against this idiocy. Labour’s policy announcement hit share prices and utilities and was detrimental to the consumer, and its cost of living campaign is in shreds.

The clear point in this debate is that we have a regulator to oversee and police the dangers of collusion and uncompetitive conduct. That is where we should all agree, and that is where the influence of Government should lie. It is foolhardy for the right hon. Lady to pretend like King Canute, or rather Queen Canute, that she can stop the natural movement of prices. It is deceit and delusion of which Labour Members should consider themselves ashamed.

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Energy Prices

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