Energy Bill

Baroness Worthington Excerpts

Tuesday 9th July 2013 Grand Committee

[Lord Greaves]

My Lords, I thank the noble Lord, Lord Judd, for tabling these amendments, which are important and relevant at this stage of the Bill and I was pleased to add my name to them. I approach this part of the Bill with memories of the discussions that we have had in various planning Bills in recent times, particularly the Planning Act 2008. This Bill is clearly mainly about the promotion and regulation of energy, whereas from the planning perspective it was about the relationship of the town and country planning system to energy production. It is right, particularly when we are talking about high-level policy statements, that we should come to how the two systems interact, and I am grateful to the noble Lord for introducing these amendments that allow us to do so.

The strategy and policy statement proposed in this part of the Bill is about the strategic priorities in UK energy policy, the intended policy outcomes and the roles and responsibilities of the people involved in implementing them. There has been a lot of discussion already on the Bill about environmental objectives, and the Bill is crucial, but the main debate is about the high-level environmental objectives of tackling climate change. Indeed, some noble Lords have suggested that the Government’s policy on this is unnecessary, wrong or over the top. The question that the noble Lord’s amendments raise is an important one: how far these high-level climate change environmental objectives should be at the expense of the local environment. This is a tension, it is a clash, and there is no point in running away from it. There will have to be balance and compromise, as there always has been, and it is right to discuss it now.

It is surely nonsense to sacrifice a considerable amount of local ecology and biodiversity in the interests of the global environment, but the further question that the noble Lord raised is how far we have to sacrifice the amenity aspects of the environment, as they might be called, which are far more subjective but, as I think the noble Lord said at the beginning of his speech, vital for people’s well-being—their spiritual health, I think he called it.

We are talking about landscape quality in particular and the value of that quality for scenery, recreation, ecosystems and biodiversity. We are talking specifically, though not entirely, about wild places—what might be called “wilderness”. The degree to which we have any wilderness in this country that compares with other parts of Europe or continents such as North America or Africa is arguable, but we still have places that, when you are there, certainly feel very wild indeed.

I remind the Committee of my registered interests in the British Mountaineering Council, the Friends of the Lake District, the Open Spaces Society and as a member of the John Muir Trust, to which the noble Lord referred.

These amendments raise important questions, including how far these issues of policy on what might be called the local environment—although “local” might encompass large areas—should be entrenched at the highest levels of policy-making, particularly in the strategy and policy statement, the SPS. The noble Lord went through his amendments in detail and I will not repeat what he said. However, I want specifically to refer to Amendment 49, which states that in addition to the statement and the report on the responses to consultation, which the Bill already states must be laid before Parliament, the Government must lay before Parliament,

“a statement setting out how the strategy and policy statement relates to other statements of government policy on energy, such as national policy statements and other strategic national policies including, for example, on transport and communications”.

I refer specifically to national policy statements under the Planning Act 2008, as amended by the Localism Act 2011. Six statements on energy have been approved by both Houses of Parliament. The first, EN-1, is the Overarching National Policy Statement for Energy. That alone is 115 pages long. The five further documents are on fossil fuel electricity generation, renewable energy infrastructure, gas supply infrastructure, including gas and oil pipelines, electricity networks infrastructure and a two-volume, hefty document on nuclear power. My question is: what is the relationship between these national policy statements and the new strategy and policy statement, which will all be agreed by Parliament?

The SPS is clearly intended to bring regulation of the gas and electricity market by Ofgem more closely into line with government energy policy. In November last year, we were provided by the Government with an excellent and extremely useful background note, the Energy Bill Provisions for Ofgem Strategy and Policy Statement. It states that,

“the SPS must contain: the strategic priorities and other main considerations of Government in formulating energy policy; policy outcomes to be achieved … a description of the respective roles and responsibilities of the Authority and the Government (and potentially others)”.

However, the Bill, at Clause 126(1), repeals the existing provisions concerning social and environmental guidance to which Ofgem must have regard when carrying out regulatory functions. The Ofgem review found that this provision was ineffective and we are told that it will be superseded by the SPS. The November 2012 paper states:

“The Statement replaces the previous Social and Environmental Guidance”.

That is okay, as far as it goes. The priorities and outcomes to be included in the SPS, according to the paper on the Energy Bill’s provisions, are to be,

“security of supply, affordability and low carbon”.

No one is arguing with that. It is fairly obvious that they are the basic three. The paper continues:

“As part of this, the Government will need to consider the guidance in the Social and Environmental Guidance that will be repealed by this legislation”.

I do not understand what that means. It is pretty vacuous and confusing. At the very least, a clear statement of what the Government intend as regards social and environmental guidance in the SPS is required before we allow the Bill to leave this House.

On a slightly peripheral issue, I am interested in whether the SPS might be a material consideration in planning applications, alongside all the planning guidance that is issued: the National Planning Policy Framework and the national planning statements on energy. Is it intended that the SPS will have any purchase at all on any other part of policy-making or decision-making apart from the regulatory system through Ofgem? If the answer is no, I would have to take that with a pinch of salt. If documents exist, people will use them and over a period of time they may well come to be found by a planning inquiry, for example, to have some value.

Does it also have any importance as far as licensing procedures and decisions are concerned for the approval of, for example, oil and gas exploration? Will the SPS be of any importance at all in, for example, licences for fracking for shale gas or anything else? I am trying to get at whether it is a very narrow document that is only about regulation through Ofgem, or will the Government accept that it will almost certainly be used in other areas?

Finally, I want to comment briefly on the role of the Secretary of State. I have huge admiration for the present Secretary of State for Energy, who seems to be a man of great competence and energy—if I can use that word—and is somebody I might follow into the jungle. But, the powers to be given to the Secretary of State—whoever that is—under the new system seem rather large. He will be responsible for compiling the statement of policy and strategy. He is already responsible for compiling the planning policy statements. Okay, those come through Parliament but he is still responsible for them. He is responsible for determining applications for development consent for all but the smallest energy-related planning proposals. It seems that he is the legislator, prosecutor, judge and jury, and no doubt when proposals are agreed he will be there urging them on as, I assume, not quite a clerk of works—but who knows?—and chief cook and bottle-washer. That really seems, in planning terms at least, an astonishing concentration of decision-making within one department and one Secretary of State. The checks and balances of good planning, and of good investment decisions, may be there if it all goes okay. If it does not go okay, then there may be problems to come.

Local environmental considerations are already firmly embedded in the national policy statements in the planning system. We may or may not agree with the details but they are firmly embedded there. Surely producers will make decisions—short and longer- term ones—based on regulatory regimes that they are subject to, themselves based on the SPS. Surely these environmental considerations should be embedded in the SPS as well.

[Baroness Worthington]

My Lords, I thank my noble friend Lord Judd and the noble Lord, Lord Greaves, for tabling these amendments. In terms of their underlying principle and the issues that have been raised, I have a great deal of sympathy with them. I was involved in the campaign to secure the Countryside and Rights of Way Act. I am a strong believer in the need to preserve our biodiversity and natural environment and the amenity of our unique landscapes. Both noble Lords were very eloquent in defending those unique and priceless assets, as they have been described, and raised interesting questions. I look forward to hearing the response from the Minister.

The noble Lord, Lord Greaves, highlighted the fact that we have considerable amounts of information in the public domain which guide where energy projects are located. Those are the national policy statements on planning, which are, as the noble Lord mentioned, considerable in their breadth and depth.

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Moved by

[Baroness Worthington]

41A: After Clause 119, insert the following new Clause—
“Role of the Authority
(1) The Secretary of State must publish a report on the regulation of the entire energy sector by an independent authority.
(2) A report under this section must be laid before both Houses of Parliament no later than one year following enactment.”

[Baroness Worthington]

My Lords, this amendment speaks to the setting of the strategy and policy statement required by the Bill. Part 5 is an interesting aspect of the Bill because it moves away from purely electricity and considers all energy matters. It requires that a strategy and policy statement be maintained and formulated for Great Britain’s strategic priorities in relation to energy policy. I stress that because, as we all know, energy policy is far more than simply electricity or gas but encompasses all the primary energy used to supply energy to businesses and consumers for heat, electricity and transportation needs. This may seem academic but it is important to stress this because time and again Governments have been tempted to equate energy with electricity. They often extend that to include gas but it is rare for there to be a holistic view of all energy. The establishment of the Department of Energy and Climate Change created a structure in which I had hoped that a more holistic view of energy could be developed.

However, there are still departments of government with responsibility for energy that sit outside the DECC framework, most notably the Department for Transport, and it is not quite clear how the Department of Energy and Climate Change relates to other departments that have an impact on energy policy. That is true at a departmental level.

At the regulatory level—this part of the Bill also deals with the independent regulator Ofgem and its duties—there is clearly a gap. I am encouraged that the setting of a strategic policy statement will, I hope, create a much clearer framework of who is doing what and who has responsibility for what. We have a regulator for electricity and gas, but it is not an energy regulator. The powers do not extend to the many consumers who are off the gas grid network and rely on unregulated sources of energy. Periodically there are concerns, which often reach the media, about people who have been forced to purchase from other suppliers and be completely dependent on that fuel in the winter months. There is no price regulation there.

Colleagues in another place have raised concerns over how non-domestic consumers are represented by our regulator. We tend to equate the regulation as being on behalf of consumers but that is a broad definition and there is a subset of consumers, the small and medium-sized enterprises, which are facing considerable issues. I hope that Ofgem’s remit will cover them and that we hear more about how they can be protected.

I have tabled my amendment to force the Government to consider the gaps in current regulation. That will become increasingly important, not least because, as we move forward with a low-carbon agenda, the three major energy markets—electricity, heat and transport—are starting to merge and cross over. The noble Lord, Lord Flight, last week tabled an amendment on the interplay between biofuels being used in the heat market and transport markets. These issues are becoming increasingly apparent. It is not just that fuels can be diverted into different markets but a process of electrification of transport and heat is underway. I do not know what all the issues will be as we go down this path but we should certainly have a regulator capable of looking across all the energy markets.

Another aspect to this that we hope the SPS will address is the creeping lack of clarity about the relative roles of the department and the regulator. I give just two examples. At the moment, there is a tendency for Ofgem to be involved in policy. Perhaps the most notable example of that is Project Discovery, Ofgem’s foray into the murky world of security of supply, which takes it well beyond the role of a price and market regulator into a policy arena in which the department should operate. On the other hand, the department is starting to act like a price regulator, with the Prime Minister starting to make policy on tariffs. We are shortly to hear a lot more about those proposals but it is clear that there is an increasing crossover and complete lack of clarity here. I hope that this SPS will help to address that.

My next point relates to how the commodity markets are regulated. This is an important issue because, as we have seen in the press in a number of cases, where there is potential for market abuse there needs to be a clear regulatory framework. In the commodity fuel markets, there is a lack of clarity on the distinction between where the FCA is involved in regulating markets and where Ofgem’s role starts. This will become a very important issue, not least because we are now considering a Bill in which we are placing quite a high degree of emphasis on reference prices against which we will be comparing strike prices. I have raised this in the very helpful briefings we have had in the run-up to the Bill. I was referred to the implementation of REMIT, a Europe-wide move to prevent abuses in the wholesale energy market, but I am not fully reassured by that. I have a number of questions in relation to it. Has it been implemented in the UK? When will it be implemented? The deadline for the introduction of penalties for abuse was 29 June. Have we implemented the penalties? Are we compliant with that European requirement?

REMIT goes only so far. When we are looking at a system that is highly dependent on market-based prices, I am concerned about who is going to ensure that the data that go into that process are comprehensive, holistic and not subject to abuse. In the oil market, we have heard of abuses by oil companies and about rating agencies colluding to provide only a small part of the information, not the full picture. If that is possible, do we not need to look at statutory underpinning for this information? How can we develop robust reference prices if the information provided to rating agencies is done on a voluntary basis and has no statutory underpinning? What are we doing to ensure that we have full and complete transparency in the data that are provided to develop these reference prices?

It will come as no surprise that our party is very critical of Ofgem. I have said that I do not think that the role of Ofgem is broad enough and have talked about the lack of clarity and the confusion about where the FCA’s role starts and where Ofgem’s role starts. The most worrying criticism of the regulator is that it is failing in its current remit. It is not acting to enforce fairness. Its process of reform started in 2008 and was evaluated in 2011. Of the 16 benchmarks set to compare progress against, 12 showed no improvement. That is simply not good enough. From 2008 to 2011 is a long period, and there was no improvement in 12 of those benchmarks. Ofgem is clearly failing in its stated purpose of enforcing fairness in the market.

Ofgem has failed to live up to expectations about transparency in the market. I know that this will come up in later parts of the Bill as we talk about access to markets and liquidity. In 2011, the accountants BDO issued a report, I think at the behest of the Government, looking at what could be done to improve transparency in the market. Eight recommendations were made. Of them, six were quietly dropped; only two were pursued, and they were varied from the original advice. This is a serious issue, and this is the part of the Bill where we talk about the authority and the role of regulation. We have very serious concerns about Ofgem’s remit and its ability to deliver on its current functions. Our policy would be to replace this regulator with a regulator fit for purpose to deliver proper regulation and to protect consumers now and in the future across the whole energy market.

[Lord Gardiner of Kimble]

My Lords, I am grateful to the noble Baroness for providing the opportunity for us to consider these matters further. My understanding is that Amendment 41A is intended to require the Government to publish a report on the case for introducing new regulatory arrangements for the wider energy sector as well as for gas and electricity within a year of the Bill coming into force.

It is true that matters such as the supply of heating oil or liquid petroleum gas do not fall within the energy regulator’s remit, but there are good reasons for this. A chief component of Ofgem’s remit is to regulate the monopoly companies that run the electricity and gas networks. No equivalent natural or structural monopolies for distribution or supply exist in other energy sectors, so the Government do not consider that there is currently a case for them to be regulated by Ofgem or a new energy regulator. We need to bear in mind that increased regulation would be likely to increase the costs for businesses operating in these sectors, which would probably be passed on to their customers. This of course would be a concern to domestic and non-domestic customers. I entirely agree with the noble Baroness; we must think of non-domestic customers and small and medium-sized businesses, which are so much part of the economic recovery.

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The noble Baroness particularly mentioned REMIT. We are working closely with Ofgem to ensure that the implementation of REMIT, which provides the regulator with further enforcement powers, takes place effectively and as soon as possible.

[Baroness Worthington]

Can the Minister just say whether or not we have met the deadline of 29 June?

[Lord Gardiner of Kimble]

My instructions are that I will need to write to the noble Baroness. I am sorry about that but I have my riding instructions, as the noble Baroness can imagine. The noble Baroness also asked about the regulation of business consumers. Ofgem is taking action on issues affecting business consumers as part of the retail market review—for example, rollover contracts.

For the reasons that I hope I have articulated, I do not believe that it would be in the public interest for us to be undertaking the sort of work that the noble Baroness has suggested. I am well aware of her party’s views on Ofgem and the desire for a different arrangement but that is not the policy of the current Government. For the moment, while I am most grateful for the opportunity provided by the noble Baroness to debate these matters further, I hope that she might feel able to withdraw her amendment at this time.

[Baroness Worthington]

My Lords, I thank the Minister for his answers and for his offer to write on the specific details in relation to REMIT and the setting of the reference prices, which I believe are central to the Bill and may come up in subsequent debates.

It is rather amusing and ironic for the Minister to be praying in aid uncertainty as a reason for not moving forward on this; we have already had debates about the degree of certainty in the Bill, and this side of the Committee clearly believes that the Bill does not provide anything like enough certainty, which is exactly why we have the current hiatus in investment. I do not believe that sorting out proper regulation would cast a shadow over the markets; most people in the market accept that things need to be changed and fixed. If we have a regulator that has gone native, that is in no one’s interests—certainly not the consumer’s. I do not accept that argument.

On the question of extra cost, obviously all regulation has a trade-off between proper regulation and uncovering cost savings for consumers, against the additional burden of the reporting requirements on industry.

I urge the Government to look closely at the policy on transport fuels. One can dismiss it and say that there is no monopoly, but everyone who knows how that industry works knows that it is an oligopoly and that there is very little variance in pricing. There is also a severe problem of vertical integration in all these large energy companies, going up the chain to exploration and down to retail and the pump.

That is not to say that there is nothing to be looked at here. The opposite is the case. The issue has been overlooked for many decades and the time has come for the energy sector to be under the same degree of scrutiny in order to provide value for money for consumers. I do not buy the argument that this would lead to a net cost. You just have to look at the profits in some of these sectors to see that there is plenty of scope for prices to be brought down, with proper competition. That is what regulation should be about. I urge the Government not to be complacent and sweep this issue aside but to do some further work on it. I am happy to beg leave to withdraw the amendment.

Amendment 41A withdrawn.

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Moved by

[Baroness Worthington]

49A: Before Clause 125, insert the following new Clause—
“Annual Energy Statement
(1) The Secretary of State shall publish a statement annually (“the Annual Energy Statement”) setting out inter alia—
(a) progress made on the delivery of the strategic priorities and policy outcomes under the strategy and policy statement;(b) future actions for the delivery of the strategy and policy statement;(c) implementation of other provisions within this Act.(2) The Secretary of State must report to both Houses of Parliament on the contents of that statement.”

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[Baroness Worthington]

I have spoken on this theme before so what I say will come as no surprise. I consider this Bill to have wide enabling powers, with potentially dramatic consequences for the electricity market, but it is not matched with sufficient responsibilities on government to keep us informed of progress. This amendment would require that the reporting of the current annual energy statement, issued as part of a coalition agreement, become a legal requirement. If I am wrong and this Bill has some tough provisions for the Government to report on progress, I apologise and look forward to hearing that reassurance. However, in my reading of it, there are a lot of provisions to set strategy and forward plans, but little in the way of coming back to Parliament and reporting on progress.

The annual energy statement was a welcome document. It is not simply an electricity or gas report, but seeks to cover all energy including infrastructure and fuels, as we have just discussed. I do not see why the producing of such a statement should not be a requirement on government. It is not a lengthy document and I hope that it will not cost us too much argument. It is very important, we take this Bill forward with all the powers that it contains, that there is proper accountability to Parliament and the wider public. An annual energy statement, like the one that we have now had produced, is the bare minimum that we would expect to see in terms of reporting back on progress against the objectives set out in the Bill. I beg to move.

[Earl Cathcart]

My Lords, I want to say something about policy here. At Second Reading, I had three points. One was on the 4.5 million households in fuel poverty. The Minister has written to us today, saying that the Government will now amend this definition of fuel poverty; instead of having 4.5 million in fuel poverty, we have only 2.5 million, so that is all right then. The second thing was the price of fuel having doubled in the past seven or eight years and the prospects of it doubling again in the near future. The third thing was whether there was going to be a sufficient supply of power and what the Government’s current policy was to ensure that there would be.

Sorry, before I start, I was going to say this to the amendment of the noble Lord, Lord Judd, but I did not want to steal his thunder. I apologise to the noble Baroness, Lady Worthington, for coming in during her amendment.

The Government’s current policy is nuclear and wind, with imported gas as backup. However, why are we importing gas when we have our own shale gas, which we seem reluctant to exploit? Surely this is a gift horse that we must exploit. And why are we persisting with wind power when it is inadequate, intermittent and becoming increasingly expensive as we have to go more and more offshore into more expensive sites to build on them?

On the question of nuclear, we have yet to do a deal with EDF, which is, worryingly, the only player at the table. Even if we do a deal, any plant will take 10 years to build. We are told that energy supplies for Britain will be tight in the year 2016—there are scare stories of rationing and the lights going out. One would think that the Government’s policy would want us to generate ample power until the replacement sources were in place to ensure that rationing did not have to take place. However, what are the Government doing? They are closing down and taxing our coal-fired power stations just when coal is relatively cheap, just when Germany is proposing to build 20 more coal-fired power stations—are the Germans going to tax those out of existence? No—and just when China and India are about to built 800 more coal-fired power stations.

This seems to be a policy of closing down power stations before you have anything nuclear in place or any contract at the table. It is just like being in a job that one hates and wanting to move to another job: you do not give notice to your existing job until you have secured the new one. However, that is exactly what we are doing in Britain; we have given notice to coal before we have any nuclear in place. I just do not see the logic of that, and I hope that the Minister can explain finally what the Government’s logic here is.

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[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, I am extremely grateful to the noble Baroness, Lady Worthington, and to all noble Lords who have contributed to this debate. Before I turn to the amendment, I should say to my noble friend Lord Cathcart that while his comments were not related directly to the amendment, I take note of his concerns and hope to respond at relevant junctures in the Bill. I am sure that the noble Earl will be satisfied that I have not sidetracked his concerns but will respond to them as the Bill progresses.

The Government agree that it is of great importance that Parliament is provided with updates on energy and climate change. This is particularly important, given the significant changes that we are making to replace closing infrastructure and to decarbonise the economy affordably. That is why we committed in the coalition agreement to giving an annual energy statement to Parliament to set strategic energy policy and guide investment. We have met this commitment every year since 2010 and we will be making this year’s statement to Parliament in the autumn.

I am not totally convinced that there is currently a great need to create more legislation for such an issue when we are already delivering on our commitment to update Parliament. In addition to this, DECC also reports to Parliament specifically on security with the Statutory Security of Supply Report. Furthermore, on Report in the other place, we introduced a statutory annual update on EMR. Finally, we also report on climate change via the government response to the Committee on Climate Change’s annual report, and on fuel poverty via the annual fuel poverty statistics. It is the annual energy statement that brings all these strands together.

I understand that the commitment made by this coalition Government is not guaranteed to be upheld by any future Government, and I therefore see some merit in ensuring that future Governments make a regular statement for Parliament and investors alike. It will therefore be wise for me to undertake to consider this further, ahead of Report. As part of this year’s annual energy statement we will of course be updating Parliament on the progress that we have made across the entire energy spectrum, including on the Green Deal, smart meters and climate change, as well as on the matters in the Bill. It will therefore include EMR and the strategy and policy statement, to which the noble Baroness has referred.

Ofgem will be required to report to Parliament annually on the extent to which it has contributed towards meeting the policy outcomes set out in the strategy and policy statement. The Bill requires this information to be included in the annual report and it is already a requirement that the report is laid before Parliament. This requirement already provides sufficient accountability and transparency in respect of the strategy and policy statement. I hope that the noble Baroness has found my reassurances and explanation useful and will withdraw her amendment.

[Baroness Worthington]

I thank the noble Baroness for her response. I am encouraged that that there are reporting requirements of which I was perhaps unaware, particularly the statutory requirement to update on the EMR. I should be grateful for further details on that. The statutory requirement on Ofgem to report does not do what the annual policy statement on energy strategy does because, as we have just discussed, Ofgem merely looks after a subset of the entire energy policy and it is just the department that is across all the issues. In the Annual Energy Statement, you will notice paragraphs on transport fuels, transport infrastructure, electrification, biofuels and the like, over which Ofgem has no oversight. I am encouraged that Ofgem will be reporting—that is great—but it does not do what the amendment does. However, I am happy to withdraw the amendment and look forward to hearing a little more about the EMR report. I am encouraged to hear that the noble Baroness is prepared to consider this amendment, or something like it. I beg leave to withdraw the amendment.

Amendment 49A withdrawn.