Domestic Gas and Electricity (Tariff Cap) Bill (First sitting)

Bill Grant Excerpts

Committee Debate: 1st sitting: House of Commons
Tuesday 13th March 2018 Public Bill Committees

[Stephen Kerr]

Neither of you had any concerns relating to that. You agreed with the Select Committee.

Hayden Wood: I would say that this goes back to the transparency point that I made earlier. I have an issue with a non-transparent process where the methodology, formula, and data input into that process are not published. That is an issue. I do not have information on the appeal issue.

Greg Jackson: The idea that you end up going to appeal in order to get the right to over-charge customers is going to be pretty grotesque. The reality is that they may try to do that, and you have to stop them. We have to prevent it becoming tied up in process. The prices are all still grotesquely high, whether they are set at £1,050, £1,075 or £1,030.

[Bill Grant (Ayr, Carrick and Cumnock) (Con)]

Q Juliet touched on smart meters earlier and the rather ambitious and expensive project that is endeavouring to secure 53 million installations by 2020. To what extent do you believe that smart meters can make the market work for consumers? This is to everyone. Could it lead to an early end to the cap, or could it make it redundant before 2023? It is not a freeze, it is a cap. There are opportunities three years prior to 2023 in which it could be eased or lifted. What is your view on that?

Greg Jackson: I think smart meters make this all the more important right now. If we do not clean up the energy market before we end up with everybody having a different price every half hour, it is going to be a wild west. We have the opportunity to clean up pricing now, and that is why it is particularly important that we deal with this topic of the difference between the highest and lowest tariffs. If it is hard for someone to know where they stand at the moment, then it will be even harder for them to know where they stand in the world of rampant time-of-use tariffs. Let us tidy up pricing now, and then smart meters really can be a path to success.

Hayden Wood: To add to that, we find the conflation of the price cap and the smart metering quite troubling. We do not see a relation between them. A person’s understanding of how much energy they use does not influence how often they might go into the market and look at price comparison sites and understand how much they are paying versus other suppliers. We are also not aware of any evidence suggesting that installing a smart meter would offset the £100 a year that a consumer would save under this price cap. The Government’s own data would suggest that the installation of a smart meter saves the consumer only £11 a year on their energy bill. They are actually separate things.

Juliet Davenport: My personal view is that they do come together when we get proper smart meters: SMETS2 in as opposed to SMETS1. The SMETS2 meters are going to make a significant difference to switchability. At the moment, if you take on a SMETS1 and you are not SMETS1-qualified you cannot switch them to smart metering. You would have a proper smart process in terms of switching. We are going to see some disruption in the market there with accessibility of data and third parties providing information in the house that can switch you instantly to another supplier if you are over-paying. That is the intelligence we are going to see with an increased amount of data. I am quite excited about smart meters and what they can do. They will facilitate households in saving much more than at the moment because we are going to see the smart house plug into that.

[The Chair]

I am sorry, I just wanted to bring in Alex Norris.

[Alex Norris (Nottingham North) (Lab/Co-op)]

My question has been answered.

[Bill Grant]

I welcome the embracing of the new technology and I know it is not perfect right now. You seem rather negative, Hayden.

Hayden Wood: On smart meters? Oh no, we are extremely positive about smart meters, but not—

[Bill Grant]

Thank you, we will leave it at that. It was my misinterpretation.

[James Heappey]

Q You have the Minister to your front and the regulator behind you. What does the end-state look like? Is this price cap to repair the current market, or to deliver something new. If new, what is it?

Greg Jackson: You now have a market of 70-odd companies, mainly vying it out in a 20% churning area. If we get this right, you will be able to let loose the competitive efforts of companies like ours and 68 or however many others to bring prices down for everyone. Getting it right involves the decency cap or the absolute cap and finding a way to tidy up the entirely unjustifiable hundreds of pounds of difference between the cheapest and most expensive tariffs from each supplier. At that point you can let loose our competitive efforts to bring prices down for everyone.

--- Later in debate ---

[Vicky Ford]

Q So, is 2023 the right date?

Pete Moorey: Yes. I think it is the right date, but the critical thing is that Ofgem has the ability on a very regular basis to review how the price cap is working, to set out transparently the changes being made in the market, and to be able to recommend to the Government whether the cap should be removed earlier. I think that having that balance is right.

[Bill Grant]

Q We mentioned smart meters. Do you believe that the roll-out of the smart meters will engender or promote effective competition in the energy market, and, if so, will that contribute to the ending of the cap by 2023? Indeed, I think there is an opportunity in the previous three years to end the cap. What part do you think that process will play?

Finally, picking up on Pete’s reference the less well-off groups, or those who are less price-savvy—I think that was the term—do you think the meters will assist those people in understanding their expenditure? Do you really think it will have an impact?

Pete Moorey: I hope so, but I think there are significant challenges for the roll-out. The fact is that the roll-out does not appear to be going as well as it should. Our own research in the last few months revealed that energy suppliers would be having to install 24 meters per minute for us to hit the target by 2020. So we have to keep a close eye on the smart meter roll-out. I do hope that it leads to changes, and changes that benefit all consumers, but that will require not only groups like us but also yourselves to keep an incredibly close eye on the roll-out.

Peter Smith: National Energy Action runs something called the communities programme, alongside Smart Energy GB, which is the organisation that exists to engage smart meter roll-out. We are doing some valuable work on that, but we are concerned that the roll-out is significantly back-loaded now. That challenges the cost-benefit analysis that the Government originally estimated, which assumes cumulative benefits running all the way through successive years, up to 2020. Now we are in 2018—and 2020 is there; so there is a concern.

[Bill Grant]

Q Is it 53 million installations? I think that is the target by—

Peter Smith: It would be slightly less than that, but it depends whether you think you need to put in SMETS2 meters, once they are ready, and replace the SMETS1 meters. We recognise the value of smart meters, particularly for low-income and vulnerable households, given the fear of an unknown bill. Estimated bills are the biggest concern that these guys get, so we recognise that they can have sufficient benefits. The trouble is we are so back-loaded now, the care and attention and extra help that we thought was going to be possible with smart meter roll-out is now going to be compromised, as everybody, as you say, is just going for volume.

[Kerry McCarthy (Bristol East) (Lab)]

Q This question is for NEA; I think you have already covered quite a bit of this. Obviously your remit is to look at issues of fuel poverty. You have already spoken about the warm home discount scheme and the safeguarding tariff, and the need for more engagement to make more people aware of those. You have just mentioned that smart meters have a role to play in fuel poverty as well. Do you think this Bill will help to address fuel poverty? Do you think there is enough in it? Do you think it really gets to the heart of it, or is it just about consumers being overpriced at the top end of the market and people being perhaps neglected at the bottom?

Peter Smith: First things first: it was reflected in my comments to the Business, Energy and Industrial Strategy Committee as well that NEA believes we must also tackle the vicious overlap between the households with the lowest incomes living in the least efficient homes. That needs to continue to be a priority, and, sadly, we have seen a dramatic drop-off recently in home energy efficiency delivery rates. You could build that into one condition by which Ofgem could make an assessment about whether we are now pulling on that lever as hard as can, maybe as part of an ambitious energy efficiency infrastructure programme.

The second thing relates particularly to the Bill. As I have described, there is a risk that we are assuming that the same people are covered through the SVT-wide cap as benefit currently—or would do in a few months’ time, with the extension of data-sharing powers—in the safeguard tariff. There is a difference between the people that it covers, so not everybody that will be protected by the SVT-wide cap will be protected by the safeguard tariff currently; and the values are very different—or could potentially be very different—in terms of the value of the safeguard tariff currently in place. That is about £100.

Given the drivers on Ofgem to create headroom to encourage competition and so on, that headroom might be significantly reduced. Therefore the general value that the two relative caps present might be very different. So in simple terms we cannot assure ourselves that the provisions in the Bill are consistent with the value that the safeguard tariff is currently providing. Ofgem need to consider that issue in relation to clause 2. It should be written into the Bill.