Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Baroness Featherstone and Baroness Vere of Norbiton

Report stage (Hansard): House of Lords
Wednesday 27th June 2018 Lords Chamber

[Baroness Featherstone (LD)]

My Lords, I support the amendment, to which I have added my name. The first basis on which I do so is that, like the noble Baroness, Lady Neville-Rolfe, I regard the cap as an unfortunate necessity. The ambition and the emphasis must be to end the cap as soon as possible. Therefore we need to focus minds on the creation of that effective marketplace.

[Baroness Vere of Norbiton (Con)]

My Lords, the amendments in this group tabled by my noble friend Lady Neville-Rolfe would ensure that the price cap comes to an end in 2020 with no provision to extend it. The Bill allows a temporary and targeted price cap on poor value, standard variable and default tariffs. Fixed tariffs that are not default tariffs will not be affected by the cap as these are where the most competitive rates can be found. The price cap is only necessary to protect consumers on poor value tariffs until the conditions for effective competition are in place.

The Bill has a sunset clause at 2023 and the cap would fall at the end of 2020 if, at that point, the conditions for effective competition are in place; I think that my noble friend wanted a response on that issue. The Bill is constructed in this way because the Government do not want an open-ended intervention, which would not be good for competition and, therefore, consumers.

At this point, I want to address the communication received by many noble Lords about the way the Bill is drafted, potentially preventing the cap from being removed, as the cap itself may have an impact on competition. That point was not lost on the Government when the Bill was drafted, which is why the judgment on removing the price cap, as set out in Clause 7(5), depends on whether,

“the Secretary of State considers that conditions are in place for effective competition for domestic supply contracts”.

In its recent consultation, Ofgem stated:

“We interpret ‘conditions for effective competition’ as meaning that the right market framework is in place for competition to be effective for currently disengaged consumers once the cap is removed”.


In assessing whether the conditions for competition are in place, Ofgem said that it would expect to analyse both the demand side and the supply side of the market, consider whether the market structure will promote good outcomes for disengaged consumers and consider whether there are remaining barriers to engagement. It refers to market conditions, not current market outcomes, for example on the rate of switching.

Coming back to the amendment, it is clear that the Government want the cap to be in place for as short a time as necessary. Ofgem will report on the conditions for effective competition and make a recommendation. Ofgem’s recent consultation points towards a number of factors that might indicate that the conditions for effective competition are in place. On the supply side, these include more innovative business models and the rollout of smart meters. On the demand side, they include making it easier for customers to share their data securely with third parties—meaning that they do not have to look up and enter lots of data on websites when they want to switch—and promoting engagement to help customers identify the best deal. These measures will need time to be established but it is right that we ensure protections are in place until the conditions for effective competition are in place. That is why the Bill enables the price cap to be extended, one year at a time, up to the end of 2023 at the latest.

I am grateful to my noble friend for her amendments. I can confirm that, all being well, the price cap will fall away in 2020—but as we have noted, if all is not well, it will not. With that, I hope that my noble friend is assured and will withdraw her amendment.

Domestic Gas and Electricity (Tariff Cap) Bill

Debate between Baroness Featherstone and Baroness Vere of Norbiton

Committee: 1st sitting (Hansard): House of Lords
Monday 11th June 2018 Grand Committee

[Baroness Vere of Norbiton]

I thank the noble Lord for his questions. I would like to come back to the second question in due course because I did not quite follow the tension he identified between different types of consumers and whether they would be caught by the exemption and so on. I think there is an opportunity for us to meet again after this to discuss the green tariff exemption specifically.

On the first issue, the consultation, it is the Government’s intention to put an exemption in place for appropriate green tariffs, but the issue, as was brought out in previous discussions on the Bill, is that sometimes what is green is not green and the whole area can actually be very grey. We must not get ourselves into a situation where the real green tariffs are losing out. I am happy to have conversations in future.

[Baroness Featherstone]

I listened carefully to what the Minister said. It is very complex. There is still the kernel of an issue here, so I will read Hansard and consider what the Minister said. At the moment, I am uneasy that we have not bottomed out the issue that needs to be defined in the Bill to give the Government and the opposition parties surety that we have not, by accident or by design, done something to ace out what we are trying to value in all this. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Grantchester]

I shall speak to Amendments 21 and 24, which are in my name. Under Clause 4, Ofgem must undertake various actions by way of notice of proposed modifications, including giving notice that it proposes to make modifications. Amendment 21 specifies that Ofgem must provide reasons in a narrative that explains why it is making modifications—ideally, an assessment of why modifications are being proposed.

We all recognise that energy bills soared 20% between 2007 and 2013 and that the average household pays around £300 more today than it might otherwise do in a more competitive market. However, in the interests of transparency it is imperative that Ofgem outlines its reasons for setting the price cap at any given level for the benefit of suppliers and customers alike. That would help set parameters when undertaking later reviews and assist greater scrutiny.

Amendment 24 has been proposed following the debate last week in your Lordships’ House on the European Union Committee’s report Brexit: energy security. In its report the committee portrayed how the UK and the EU are already increasingly interconnected on energy. Already, high levels of gas are being piped from Norway and over 5% of electricity demand is being met from the EU, with estimates that this source of electricity supply is likely to increase to over 25%. At present the UK is a member of the internal energy market and the committee’s report underlines the risk should the UK not remain within the IEM. From evidence received, it is universally argued that the UK could be more vulnerable to supply shortages or challenges, making supply less efficient, with the result that retail prices to consumers could rise. Amendment 24 specifies that the consequences of Brexit must become part of the review of the market and the application of the cap.

In the Government’s response to the Select Committee, they failed to address this point while being pressed to undertake an assessment of the consequences of the UK leaving the IEM. How do the Government propose that Ofgem should assess the situation in its review? The effect should be recognised for the application of the cap and, hence, included in the Bill.

[Baroness Vere of Norbiton]

My Lords, I will speak to Amendments 20, 21 and 24, which relate to the reasons for this cap and the details of its implementation.

The noble Baroness, Lady Featherstone, proposes a review of the energy market, in particular setting out the reasons for the cap, whether it could have been avoided and how a price cap can be avoided in the future. The Bill follows on from an extensive two-year investigation undertaken by the Competition and Markets Authority. This reported that there was, in effect, a two-tier market, with good value tariffs for those who engage in switching suppliers but for those who do not, the market was uncompetitive and these consumers were being charged an unjustifiably high price for their basic energy needs.

The CMA also found that the significant market share of the largest energy companies and the use of the standard variable tariffs had led to a situation where customers, including some of the most vulnerable in society, are simply paying too much, They are also paying for the inefficiencies of the larger companies to the tune of around £1.4 billion a year. The noble Baroness, Lady Featherstone, mentioned E.ON and its 41%. I was not quite sure what she was referring to and whether that was a return on capital. A profit increase of 41% would depend on its starting and end points; it is not hugely relevant, depending on the leverage of the company. Potentially, we should look at its return on capital, which is far more instructive.

It was as a result of this very detailed, two-year report that the Government and Ofgem undertook to protect those on the poorest-value tariffs on a temporary basis until the conditions for effective competition are established. In addition, Ofgem is actively considering the future of the energy retail market. This work is looking at barriers to innovation and whether the current market model needs to be reformed. Another review at this stage would simply tell us what we already know and take resources away from the vital work being carried out to support the necessary reforms of the market.

On Amendment 21 proposed by the noble Lord, Lord Grantchester, I am sure he is aware that, as part of the licence modification process, Ofgem will be required to state that it proposes to make the modifications and their effect. Subject to the will of Parliament, it is clear that this action is going to take place; indeed, suppliers and other interested parties are actively involved in the consultation being conducted by Ofgem. The amendment is therefore not necessary.

The noble Lord’s Amendment 24 relates to those matters which Ofgem should consider during its review of the level of the cap, which must take place at least once every six months. It is incredibly important that Ofgem, as the industry regulator, be allowed to consider what it feels matters the most. He may be pleased to learn that Ofgem has published a consultation paper which sets out the matters it proposes to review when considering the level of the cap. That will of course include wholesale prices and many of the factors raised in the debate of last week, which he mentioned. Hence, the amendment is unnecessary at this stage.

I hope that the noble Baroness and noble Lord are content with my explanations and will be willing to withdraw or not move their amendments.

[Baroness Featherstone]

I thank the Minister for her response. I understand that the Bill puts in place an examination of the conditions for effective competition, as an answer for not having a cap, but I am trying to go a little deeper. I want to avert the idea that a cap can become a mechanism whenever the market is dysfunctional. It is not the answer and we therefore have to go deeper. On the basis that I will consider what the Minister has said, I am happy to withdraw my amendment.

Renewables Obligation (Amendment) (Energy Intensive Industries) Order 2017

Debate between Baroness Featherstone and Baroness Vere of Norbiton

Thursday 30th November 2017 Lords Chamber

[Baroness Vere of Norbiton]

In which case my noble friend has my apologies. I am aware that the original compensation scheme was mentioned in the 2014 Budget but was then not introduced until January 2016. I hope that that was to make sure that the system was bullet-proof when it was introduced and not for any other reason.

My noble friend is completely right about businesses becoming more energy efficient. We expect all EIIs to bring down their costs through their own measures, and they are doing so—for example, through the joint industrial decarbonisation and energy efficiency action plans, which seven of the most energy-intensive sectors have already developed with the department.

The noble Baroness said that the policy will impact those who are worst off. I mentioned in introducing the order that we have taken huge steps to help those on the lowest incomes and the most vulnerable with the energy company obligation and the warm homes discount. I can only reiterate that we are doing these things.

[Baroness Featherstone]

I just want to correct the noble Baroness. I do not think I said “the worst-off”; I referred to those who did not deserve it.

[Baroness Vere of Norbiton]

I thank the noble Baroness and take on board that she said “those who did not deserve it”.

She also talked about the polluter pays principle. I do not think that the department would say that we are turning our back on that. We believe that all industries should be looking at energy-efficiency measures, particularly the EIIs. Many of them operate on very small margins. They are constantly looking at ways to increase their margins and energy efficiency is one of those ways.

I turn to the many points raised by the noble Lord, Lord Grantchester. If I cannot provide full clarity, I promise that I will write to him. He mentioned the long-term economic plan. Of course we still have one and it is made up of all the measures that we are putting in place. Most recently we had what I feel was a very successful announcement in the Budget. There is also the industrial strategy and there are many more things to come, so we will be building a Britain fit for the future.

Direct competitors are a very important issue and we looked at it in great detail. Direct competitors are companies that compete with the EIIs and, if they do not get this benefit, they will be at a disadvantage. When the state aid notification was put in in 2015—noble Lords will recall that there was much comment about the steel industry at that time—we split it into two sections, the first being for the EIIs which have 20% electricity intensity. With the second, we were hoping to build a group of people of average sector electricity intensity and EU nomenclature of manufacturing products. We need two different criteria to define these groups. We have not yet had approval for the second but we are not giving up. We are considering the options available to us for these direct competitors within the scope of state aid guidelines. Resolving this issue will need a fair amount of work and further discussions with the EU Commission.

The noble Lord, Lord Grantchester, mentioned how costly this would be for consumers of these additional direct competitors. We are not in a position to say this at this time because we do not know how many of those organisations would be included in this new group of people.

The noble Lord made a number of comments about the average cost and increases to bills. I have seen no figure greater than 0.7%. However, I should like to write in detail to the noble Lord. I believe there has been some mix-up in my mind, the noble Lord’s mind or the memorandum about whether a business is a small business or a small energy user. Obviously, a large business could use a small amount of energy.

I am afraid I shall have to write to the noble Lord on other issues around the levy control framework.

The RO exemption is a key component of our programme to reduce electricity costs for EIIs. It will help avoid putting these industries at a significant competitive disadvantage.

Fracking: Policing

Debate between Baroness Featherstone and Baroness Vere of Norbiton

Monday 9th October 2017 Lords Chamber

[Baroness Vere of Norbiton]

The noble Baroness raises a number of issues. Peaceful protest is a vital part of our democratic society. However, it is important that protesters protest within the law. The noble Baroness mentioned Lancashire. In the last few weeks, 26 people have been arrested in Yorkshire, two of whom have been released under caution and 22 have been charged, including for assaulting a police officer. That obviously relates back to costs: if people stayed within the law, perhaps the taxpayer would not have to pay for all these additional policing costs.

[Baroness Featherstone (LD)]

I suggest that the Government follow Scotland’s example and ban fracking, in which case there would be no policing costs in this regard. Does the Minister agree?

[Baroness Vere of Norbiton]

My Lords, I think it is a great shame that Scotland has taken the decision that it has. It has had a moratorium on fracking since 2015, and it appears that this is now permanent. However, we believe that hydraulic fracturing can be done safely in the UK, and that there are strong regulations in place to protect individuals. It is important because it will reduce our gas imports, create jobs and heat our homes.