Energy Suppliers and Prices

Guy Opperman Excerpts

Tuesday 28th February 2012 Westminster Hall

[Caroline Lucas (Brighton, Pavilion) (Green)]

It is a great pleasure to serve under your chairship, Ms Osborne. As co-chair of the all-party group on fuel poverty and as Britain’s first Green MP, I am very happy to have secured this debate on a cause that is very dear to my heart: how do we help the poorest in our society and deliver social and environmental justice at the same time?

The balmy weather of recent days cannot mask the fact that our newspapers have been filled with chilling stories of yet more excessive profiteering by Britain’s big six energy companies, coupled with stories of big pay awards for the companies’ top executives. Last year, EDF’s UK profits were up by 8.5%, on the back of a 15% rise in bills; just last week, Centrica reported overall profits of £2.4 billion; and Scottish Power has reported profits of just under £1 billion.

I have been inundated, as I am sure many other hon. Members have been, with letters and e-mails from constituents complaining about their energy bills and expressing their fears that they will be unable to afford to stay warm. Although a few energy executives are wondering what to do with their gigantic profits, the stark reality for many Britons in the difficult economic circumstances that we are currently in is that they are wondering how they will pay for this winter’s gas and electricity bills. Indeed, it is estimated that more than 5.5 million households in the UK are now facing fuel poverty, leading to an estimated 3,000 premature winter deaths. Average annual household bills for gas and electricity increased from around £600 in 2004 to around £1,200 in 2011, and uSwitch has predicted that such bills could rise to a massive £3,202 by 2020.

Of course it is not just households that are finding energy bills difficult to pay. Small businesses with tight overheads are also feeling the pinch from the increasing cost of energy. More than 94% of businesses have seen an increase in energy costs, according to the Forum of Private Business.

The energy regulator has said that although fossil fuel price rises—the wholesale price of gas, and so forth—are clearly the driving factor pushing up energy bills, on top of those rises the big six are increasing their margins on our bills. Although some people might argue that those margins have now been reduced slightly, given the gigantic profits that have been reported, it is clear that energy companies could comfortably reduce their prices even further and still make a reasonable profit. At the weekend, the Institute for Public Policy Research, a think-tank, released a report that found that as many as 5.6 million people are probably being overcharged because of pricing policies by the big companies. The IPPR believes that such overcharging prevents new companies from gaining a foothold in the market.

Clearly, something is going wrong, and it is about time that we, as elected representatives, did more about it. That is why a number of organisations, such as Compass, which launched the new “End the big six energy fix” campaign a few weeks ago, Friends of the Earth and The Independent newspaper, alongside myself and many colleagues from all parties in the House, have been campaigning for fair energy prices, greater energy efficiency measures and a better deal for consumers.

We believe that it is time to tackle the predatory behaviour of the energy companies. By overcharging their customers, who include the most vulnerable people in society, those companies are driving people into fuel poverty. In addition, they are not fully meeting their social and environmental responsibilities and obligations, whether by investing in insulation and other energy efficiency measures or protecting the poorest and most vulnerable from the impacts of bill rises. That is why we are calling on the Government to stand up to the powerful vested interests of the big six energy companies and to act to end the energy rip-off.

I will set out three simple steps that could help to tackle this problem effectively. First, the Government could respond to the excessive profiteering of the big six energy suppliers by imposing a levy similar to the one imposed in the past on the North sea oil companies and the big banks. Such windfall taxation was used by the Conservative Government back in 1981 to claw back the excessive profits of the high street banks and in 1997 by the Labour Government in relation to the privatised utilities.

In 2012, nearly two decades after privatisation of the energy sector and despite the efforts of the regulator—Ofgem—to create a fully competitive market, the big six still control more than 99% of the retail market. Although we may not have a state-owned monopoly any longer, what we now have is an out-of-control private oligopoly that urgently needs to be reined in and better regulated.

While the energy sector remains an oligopoly, it is quite legitimate that the big six are made to pay a premium for their privileged market position. Indeed, a levy would be one way to address what is essentially a market failure. The revenues raised by such a levy should be ring-fenced to kick-start and support a mass programme of home insulation and energy efficiency measures, starting with the homes of the fuel-poor. That programme could be part of a genuine green new deal and it could help to create thousands of new skilled jobs in the process. There would be a win-win situation: the programme would help the Government to meet its commitment to eliminate fuel poverty by 2016; it would create many new jobs; and it would help to meet emission reduction targets. So a levy on energy companies is my first demand today.

My second demand is that, to prevent energy companies from passing the cost of any levy on to consumers and to make energy prices fairer, I want the Government to give the regulator more powers to cap prices and—crucially—to mandate Ofgem to actually use those powers. A number of options are available. The regulator already has the power to cap prices if it chooses to do so—it has threatened to use that power if the energy companies do not reduce prices—but it is simply no good to make empty threats. The regulator should have the confidence to intervene actively and to use its capping powers in the face of consistent overcharging by companies and persistent market failure.

[Guy Opperman (Hexham) (Con)]

May I give an example of such overcharging from the Heddon-on-the-Wall women’s institute, which is in my constituency of Hexham? The Heddon-on-the-Wall WI is being harangued by npower to pay more than £5,000 in back entitlements of power, dating from 2006. In other words, the company got the bill for the WI wrong, and demanding that money now will effectively put the local WI village hall out of business; it would have to go into administration. Npower has not answered my letter on this subject, which I will also raise with the Minister. Is this story not a good example of the sort of haranguing power of the big companies, which are overpowering individuals and small organisations?

[Caroline Lucas]

I thank the hon. Gentleman very much for that intervention, because that example clearly demonstrates the kind of power that the energy companies can wield. The implications of the story that he has just told are absolutely outrageous, so I hope the Minister will take on board that kind of story. As the chief executive of Ofgem concluded in October 2011, and I hope the Minister agrees:

“We do not have a fully competitive market.”

That was the phrase that Ofgem’s chief executive used.

Another option would be for the Government—working in collaboration with Ofgem—to legislate for new price-capping powers, potentially based on a new mechanism. Any price capping could be linked to the wholesale price of energy, to make energy costs fairer. It would be a kind of energy price escalator.

Ofcom, the telecoms regulator, has made clear its intention to cap the cost of BT line rental charges, in response to BT’s over-dominance of the land-line rental market. Why not apply the same logic and principle to the energy market? Perhaps we could suggest that Ofgem pick up the phone and call Ofcom to ask for advice; after all, we are always told that “It’s good to talk.”

Thirdly, the Government should now launch an independent public inquiry into the big six energy companies. In much the same way that we have had an independent commission on banking, led by Sir John Vickers, and an ongoing investigation into the media, led by Lord Leveson, we urgently need a public inquiry into the energy industry, to get to the root causes of the problems. To be crystal-clear, I must point out that I am not calling for a Competition Commission inquiry. Instead, we need an independent public inquiry with a broader remit than just to consider prices and competition, because more fundamental issues are at work here.

Those fundamental issues include trust. It seems clear to me, from talking to the constituents whom I meet when I go around my constituency, that many people do not trust the energy companies. Therefore, it would be in the interests of the energy suppliers themselves to ensure that these issues are fully addressed and that all the facts, figures and arguments are discussed in the light of day.

--- Later in debate ---

[Caroline Lucas]

I absolutely agree with the hon. Lady. If I speak a bit faster, I will make that point shortly. We need more players in the marketplace. That is the way to drive down prices. It is also the way to ensure that we have individuals as co-generators of their own energy, rather than simply sitting back as consumers. I want to let the Minister know that, should he be minded to go down this route, he would have enormous support from the public.

A YouGov poll commissioned by Compass and Friends of the Earth found that 71% of voters support a levy on the profits on the big six; 77% support the money raised from such a levy being ring-fenced for home insulation and energy efficiency, particularly to remove people from fuel poverty; and an overwhelming 86% of voters support an independent public inquiry.

I am also encouraged that 70% of people support a move away from fossil fuel to renewables. That indicates strongly that we need to kick-start a national debate on energy that not only focuses on price and competition, but more fundamentally on the kind of energy industry that we want for the future, recognising that energy provision should be viewed not merely as a market commodity, but as a public service that we all rely on.

If we do not use less energy or successfully make the transition to renewable energy, bills will keep going up, because the cost of gas is projected to rise, even allowing for highly controversial shale gas extraction as well. We need to work hard to protect the vulnerable as much as possible from those price rises and ensure that the effects are not exacerbated by the greed of the energy companies. Instead, we need an energy industry that helps to deliver social and environmental progress, lifts people out of poverty and helps to bring about a good society.

On the point made by the hon. Member for Liverpool, Wavertree (Luciana Berger), I am interested in drawing on best practice from countries such as Germany, where community ownership of the grid has played a pivotal role in allowing renewables and energy efficiency, for example, to flourish—unlike here in Britain, where the grid is privately owned and controlled. Many citizens in Germany see themselves as owners and generators of their energy, not simply as consumers. That is the kind of shift that I want to encourage, so we need to challenge the unacceptable power exerted by some of our big energy companies.

Local authorities potentially have a major role to play here, too, in relation to both insulation and to local, decentralised energy supply. The more we make it easy for communities and councils to generate their own, the less we rely on the big six. The more we cut energy waste and get off gas, the better protected we are in relation to bills. Of course, we urgently need to tackle the complex domestic rates and charging system that has been the subject of so many debates and motions in the House and that serves time and again to disadvantage consumers, especially those who use the least energy.

[Guy Opperman]

The hon. Lady referred to the big six main energy companies. Does she agree and acknowledge that the problem is also off-grid in terms of liquefied petroleum gas and heating oil? Millions of consumers up and down the country are affected and their position is just as bad.

[Caroline Lucas]

I thank the hon. Gentleman for that intervention, because he is exactly right. Indeed, in many rural areas, people living in poverty are off-grid and therefore completely hostage to whatever the energy suppliers choose to charge. They do not have much option.

On the complex set of tariffs, we are sometimes urged to shift tariffs to another supplier or to shift within the same energy company if we do not like what we are getting. However, it is difficult to compare tariffs, like with like. It is so difficult to understand what kind of tariff we need to be on that it is not surprising that not many people take up that opportunity.

I will bring my remarks to a close, because I want to give the Minister time to respond. I will summarise three key points. First, will the Government start drawing up plans for a levy on energy companies in time for the forthcoming Budget in March? Secondly, will they instruct the regulator Ofgem to use existing powers to cap prices, or will the Government work with the regulator to introduce new powers in the forthcoming energy market reform Bill? If the Minister thinks that that might be too much to ask, my third demand is reasonable: will the Government commit to an independent public inquiry into the big six energy companies?

Irrespective of whether the Minister agrees with the analysis that I have presented this morning, we can all agree that this issue is the subject of much controversy in our constituencies. Many people feel that they are being ripped off by the big six. If that is the case, action should be taken. Let us look into it with an independent public inquiry. Let us learn the lessons so that, once and for all, we can move to a more sustainable and fair energy system without all the question marks that currently surround it.