Energy Company Charges

Bob Stewart Excerpts

Tuesday 4th February 2014 Commons Chamber

[Ms Ritchie]

I thank the hon. Gentleman for his intervention, and I fully agree with him, because I have seen that, not least in my own community in Northern Ireland.

Many people are likely to be pushed into financial difficulties by such charges and they often have the least flexibility when it comes to arranging their financial affairs. I support this motion on the simple principle that price structures and options should offer customer choice, not be determined by customer constraint.

It should also be pointed out that not every company operates in this way. In contrast to Power NI, there is Budget Energy in Northern Ireland. It does not penalise customers for non-direct debit payments. In fact, its cheapest tariff per unit is for prepayment meters. Other companies should be encouraged to consider similar pricing structures that do not penalise certain bands of customers. Again the issues of transparency and equity and fairness come into play.

[Bob Stewart (Beckenham) (Con)]

If someone pays their bill promptly, it is unfair that they should be penalised for not using a direct debit. Surely it should be put into law that people who pay their bills when they are asked to do so should not pay a penalty in that way.

[Ms Ritchie]

I agree with the hon. Gentleman; nobody should be penalised, and those who are least well-off are being penalised more than anyone else. Energy bills are at very high levels at the moment.

I am glad that the Prime Minister called last week for a probe into these excessive costs, and that the Department of Energy and Climate Change is to investigate the situation. There is clearly a role for Ofgem there, and I will encourage the utilities regulator in Northern Ireland to intervene with Power NI. Any such investigation needs to determine the real cost of the different payment options and the level that should be charged to ensure that one band of customers is not cross-subsidising another.

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[Sammy Wilson]

They do. The hon. Gentleman makes a very important point, and in most cases those people have the greatest ability to pay for electricity. In Northern Ireland, for example, those who cannot pay by direct debit or online will pay £55 more a year for their energy bill. That is about half the increase they pay as a result of the green subsidies consumers must pay to the energy companies.

[Bob Stewart]

It seems to me that, from the point of view of an energy company, if people can be put on to direct debit payments, all too often those who can afford it will not challenge their bill—they will just say that it is done and dusted. That is a big advantage for the energy companies.

[Sammy Wilson]

It is a huge incentive. The figure has already been quoted. People do not query their direct debits and as a result huge surpluses worth £2 billion across the United Kingdom have built up, meaning that people are in effect lending the energy companies money for nothing and those companies reap the interest. Meanwhile, those who cannot afford to or choose for whatever reason not to pay by direct debit must pay extra.

The companies’ defence is that they have additional costs in dealing with people who do not pay by direct debit. I approached Power NI about that and it identified two additional costs. First, if people pay by cheque, the company pays additional transaction costs. Secondly, if people pay by cheque, even if they pay on time—I did not understand this—the company says that that affects its cash flow. But as long as people pay promptly, whether by direct debit at the end of the month or by cheque at the end of the month, the company’s cash flow is not affected. I do not know what transaction costs the power companies are paying if they have to charge 6% to 8% more when a member of the public pays by cash or cheque. They are certainly not the kinds of transaction costs one would expect in those circumstances.

What action can be taken? First—a number of Members have mentioned this—the power companies must be more transparent. They cannot simply throw the matter aside and glibly say, “We charge people who do not pay by direct debit extra because we have increased costs.” Those costs must be quantified. As I have said, I do not accept that the costs are 6% to 8% higher just because someone chooses to pay at a post office or by sending the power company a cheque.

Secondly, I believe that there is a role for the regulator, whether Ofgem or, in Northern Ireland, the Utility Regulator. The regulator should be on the side of the consumer. In fact, that is one of its objectives and part of its remit. However, when I contacted the Utility Regulator about the cost disparity, I received a letter that might as well have been written by the power company. Indeed, the power company probably would have given a better explanation, rather than the few lines I received from the Utility Regulator. There was no challenge function, no querying of the differences in costs, and no seeking of additional information. It simply stated the differences, which I already knew, and the reasons for them, but there was no indication of whether that would be challenged.

I also believe that there is a role for the Government in this, whether through the Consumer Rights Bill, which is currently going through the House; by encouraging the regulator to act by digging more deeply into the reasons given by the power companies; or indeed, as has been suggested, by finding find ways of increasing competition, which of course would give consumers more options.

It is striking that some of the smaller companies, which are hungry for customers, do not face those additional costs. In fact, some of them do not impose additional charges at all. That is why I cannot believe that there are such huge cost differences for the larger power companies. Perhaps that is the good impact of competition. Why do some companies find that there are huge costs resulting from people paying in a particular way and other companies do not? Or is it that the smaller companies are hungry for customers and wish to compete? If that is the case, I think there is a lesson for the Government: the more competition we have in the power industry, the more chance we have of addressing these issues.

I thank the House for listening to my arguments and the hon. Member for Harlow for securing the debate. I trust that some good will eventually come from this to help those who are on the bottom rung when it comes to their ability to pay their power bills each month.

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[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Member for Harlow (Robert Halfon) on his crusading efforts on many issues in this House. He has talked about fuel costs in the past, and now he has turned to energy bills and tariffs. I commend him for his energetic investigation across the whole of the United Kingdom of Great Britain and Northern Ireland to ascertain the charges and costs that are involved.

This is a very pertinent issue. I am sure that many hon. Members’ constituents are facing the same difficulties as mine. In July, Northern Ireland’s biggest energy company, Power NI, increased its household electricity bills by 17.8%, which meant that the average household supplied by the company paid an extra £90 per year. There was a lot of disquiet across the whole of Northern Ireland about that increase. While it might be an inconvenience to many people, and to many others it might mean the sacrifice of a luxury to cover the difference, for some of the elderly in my constituency it will mean that they have to make the choice between a bit of heat or something to eat. This debate could have been entitled, “Heat or Eat?” For some of the people I represent, and some of those we all represent in this House, it is as specific and dire as that.

[Bob Stewart]

Why does the hon. Gentleman think that the charges in Northern Ireland, a part of the United Kingdom, seem to go up proportionately more than in the rest of the United Kingdom?

[Jim Shannon]

I wish I had the answer to that question, but I do not. My hon. Friend the Member for East Antrim (Sammy Wilson) and the hon. Member for South Down (Ms Ritchie) both said how much more expensive the charges are in Northern Ireland than anywhere else in the United Kingdom. As my hon. Friend outlined, the Utility Regulator in Northern Ireland does not seem to have the teeth that are needed to ensure that companies reduce their prices. We need to address these issues. I thank the hon. Gentleman for his intervention, but unfortunately I do not have the answer that we would very much wish to have.