Energy Company Licence Revocation

Andrew Gwynne Excerpts

Wednesday 3rd September 2014 Commons Chamber

[Caroline Flint]

I will come to that in the next part of my speech, and I am sure that I shall be able to answer that question. That would be a matter for the regulator, given its present powers to revoke a licence. At present, it can revoke a licence only in certain conditions, and I do not believe that those conditions are sufficient to meet today’s challenge of making the market more consumer-focused and more competitive.

Crucially, at the moment companies can break the rules and get punished for it—in the form of either a fine or an order to change their behaviour in some way—and as long as they comply by paying the fine or following the order, the slate is effectively wiped clean. At no point can the regulator say, “Enough is enough; you’ve broken the rules too many times and now your licence will be revoked.”

[Andrew Gwynne (Denton and Reddish) (Lab)]

Is this not precisely where the Secretary of State is missing the point? My right hon. Friend will know that since 2001, 31 fines totalling around £90 million have been imposed, and that another 11 investigations are in the pipeline. Is this not precisely the reason that we need to give additional powers to the regulator—to stop this bad practice?

[Caroline Flint]

Absolutely. As I have said, the regulator cannot at any point say, “Enough is enough.” That is the key difference between what we are proposing and the status quo. Our proposal would deal with the problem that we have seen in the past, wherein companies are allowed to get away with repeatedly breaking the rules in slightly different ways, or breaking different rules, without fear of losing their licences.

Clearly, the intention behind this policy is to encourage companies to treat their customers better, and the best outcome would be if the power never needed to be used. But if the regulator did decide to use it, the provision would need to have a clear legal basis, almost certainly set down in legislation, in order for it to be exercised with confidence. Otherwise, the threat of legal challenge would probably prevent it from ever being used. That is why it is important that this new power should be clearly put into law, just as the existing power to fine a company up to 10% of its global turnover has a clear basis in law. This would undoubtedly represent a significant addition to the regulator’s powers, and there are important questions about how it would work and about its implications, which I want to address before I finish.

I want to make it clear from the outset that the regulator would remain operationally independent and free from any interference from Ministers. Any decision about whether to revoke a supplier’s licence would be made by the independent regulator alone, but, like all economic regulators in the UK, its functions and powers are defined in statute. What we are debating today, therefore, is not whether any particular company deserves to lose its licence, but whether the regulator should have the power to make that decision, if it thought it necessary. We think that it should have that power.

The process itself would also be very similar to the existing enforcement process, except that, at the end, the regulator would have the power to revoke a supplier’s licence. In practice, an investigation of an allegation of a breach of the rules would begin and the normal process would follow, with a period of information gathering, investigation and notification of the supplier concerned. If the regulator believed at the end of the process that there had been a breach of the rules that had been serious and deliberate and had harmed consumers, and if there had been repeated instances of such behaviour in the past, under our proposals it would have the power to revoke a supplier’s licence in the same way as it has the power to impose a financial penalty or make a consumer redress order. Within the existing enforcement framework there would be clear guidelines for energy companies and a system for appeals.

In the event that a supplier lost its licence, it would mean in practice that it was no longer able to operate as an energy supply company. Let me make it clear that at the moment, companies wishing to supply and generate energy or supply and distribute energy require separate licences for each activity. We have already proposed that vertically integrated energy companies would have legally to separate their generation business from their supply business, and that as a result any decision to revoke the licence would apply only to the licence in question and not to other licences the parent company had. There would be a notice period between the decision to revoke a licence and its coming into force that, by law, must be no less than 30 days. During that period, the company would have to arrange for a trade sale for another supplier to take on its customers.

Energy companies already market and compete to win new customers. Acquiring new customers in such a way would represent a valuable commercial opportunity and avoid the normal acquisition costs. Small suppliers might wish to expand, and if a significant number of customers were available, new entrants might enter the market. In the event that a trade sale is not arranged, the regulator has the power to appoint a supplier of last resort and the rules are in place to ensure that any consumers who are moved to another supplier are protected. Either way, the supply of energy would continue as normal.

This is what I mean by a tough new regulator overseeing a market that works for consumers, not just the companies in it.