Energy and Climate Change Committee Report

Debate between Caroline Flint and Tim Yeo

Thursday 20th December 2012 Commons Chamber

[Mr Yeo]

I am grateful to the hon. Gentleman, who is a valued colleague on my Committee, for that intervention. I am looking forward to my visit to Glasgow in February. It is truly said that there is more fun to be had at a funeral in the west of Scotland than at a wedding in the east of Scotland.

My Committee is concerned about the effect on consumers, particularly those in fuel poverty. Price rises from energy companies this autumn mean that average annual energy bills have already risen by about 7%, and DECC’s own advisory group on fuel poverty has estimated that 300,000 more homes will be in fuel poverty by Christmas. Millions more may be affected unless radical action is taken. If consumers are to protect themselves against the rising cost of energy, they will need to act to reduce their bills. The success of the green deal and smart meter roll-out depends on public buy-in. Unfortunately, at present, public confidence is low.

Our report found evidence of a lack of consumer trust in energy suppliers, which may in part derive from a lack of transparency in energy company profits and prices. Some consumers blame energy company profits for the rise in prices. A poll undertaken by my Committee showed that one in two people believed that energy company profits contributed most to the 75% increase in the average household dual fuel bill between 2004 and 2010.

Greater transparency is needed in respect of energy company profits and energy prices, including across the whole portfolio of the vertically integrated companies. Our report makes recommendations for increasing transparency, but the issue warrants further investigation. Regaining confidence and trust will require both the Government and energy companies to demonstrate that consumers are getting a fair deal and, importantly, that vulnerable fuel-poor households are being reached and protected.

[Caroline Flint (Don Valley) (Lab)]

I welcome the report. Recommendation 13 refers to transparency in respect of profits and trading. Does the hon. Gentleman agree that it is worrying that when a previous report advised Ofgem of the need to look at the wholesale market and trading, and made a number of recommendations, Ofgem declined to take the opportunity to look into this area more closely? It is worrying that Ofgem does not see its role as looking at the source of the issue: where wholesale prices are made and when those trades are made.

[Mr Yeo]

It is true that Ofgem could have been a little more vigorous and robust in its response to the concerns raised about how profits are made in different parts of some of the vertically integrated businesses. This is a complex area, but more could be done to promote transparency without infringing the commercial rights that companies obviously want to protect for themselves.

We want the Government and energy companies to demonstrate that consumers are getting a fair deal and that vulnerable, fuel-poor households are protected. With fuel poverty projected to hit 3.9 million households and pressure on low-income consumers from rising energy prices, along with tariffs that penalise those who are struggling, there is clearly still a long way to go. My Committee is therefore today launching a further inquiry to investigate energy prices, profits and poverty. The inquiry will aim to answer one question: are energy companies offering consumers a fair deal? We are interested in what factors determine prices and what contribution they make to a typical bill; the extent to which the Government or regulator should intervene, if at all, to influence prices; whether Ofgem is protecting consumers and, if not, how it could improve; and whether other measures could ensure that consumers are paying fair prices. On profits, we wish to examine whether the public’s perception that prices are rising because of company profits is fair; why there is so much uncertainty about how much profit companies are making; how information about profits is communicated and whether this could be improved; and how better transparency and trust could be developed in the energy industry.

We will be looking at whether the Government are on track to eliminate fuel poverty by 2016; the findings of the Hills review and its impact on fuel poverty policy; the extent to which fuel poverty policies are reaching the right people and how this might change under the energy company obligation; measures for vulnerable consumers living in solid-wall and hard-to-treat properties; and the extent to which fuel-poor households engage in switching and energy efficiency schemes.