Energy Company Licence Revocation

Ian Lavery Excerpts

Wednesday 3rd September 2014 Commons Chamber

[Mr Davey]

The right hon. Lady should allow me to explain the current system, because I think she will find that a failure to comply with a final order can result, in extreme circumstances, in revocation. It is the process leading up to the issuing of the final order that she does not seem to understand, so let me deal with it.

Under the right hon. Lady’s proposals, the nuclear option has considerable—potentially large—negative consequences for competition. Just think how the customers would feel. Would the confusion and hassle of a forced move make them feel any better? Other companies would need to take on those customers, and that means changing tariffs, with consumers possibly paying more. All those issues would need to be worked through at a chaotic moment. It is quite right that the current rules limit the circumstances in which the nuclear option can be used, and the process that Ofgem would effectively have to go through before it can be invoked. Indeed, Parliament, under the previous Government, set the bar for the nuclear option quite high. The list of circumstances in which the power can be used includes a variety of things, from the failure of a company to comply with a final order from the regulator, to a company’s making false statements when applying for a licence, to a firm’s not paying a financial penalty.

The right hon. Lady is proposing to lower the bar for the nuclear option. Labour now wants to amend the existing power, so that the regulator can close down a company for—I quote from the motion—

“repeated instances of the most serious and deliberate breaches of their licence conditions”.

How does that differ from the existing situation? Well, at the moment Ofgem cannot explicitly close down a firm for persistent behaviour; that is true. It cannot go quickly or directly to the nuclear option, as the right hon. Lady wants. Ofgem would instead have to ratchet up its sanctions: first, higher fines, and regulatory orders requiring specific improvements in performance by specific dates—ever-tougher, and increasingly damaging for the firm.

[Ian Lavery (Wansbeck) (Lab)]

Is it not financially attractive to these energy companies to rip the customers off, as they have been, and take the rap on the fingers from Ofgem, pay the fines that Ofgem imposes on them, wipe the slate clean and start all over again?

[Mr Davey]

That may have been the case in the past, but increasingly it is not because the companies are losing customers, the fines are getting heavier and Ofgem is getting tougher. I wish it had been tougher in the past. Just look at the fines that have been levied and can be levied. We have seen fines of £3 million, £4 million, £10 million, £15 million. Indeed, under the coalition we have seen Ofgem fine more companies than ever before, and by higher amounts. In the nine years after Ofgem was established, it took enforcement action in just 10 cases. Since 2010, in four years, we have seen 27 cases, with fines totalling nearly £51 million. Moreover, because the current Government wanted to ensure that it was not just the Treasury that benefited from enforcement action against energy firms that misbehaved, there is now money for consumer redress as well—since 2010, nearly £60 million has already been paid out directly to consumers, the people who have suffered. Nothing like that happened under Labour. So under us, as the fines on a persistently poorly performing firm went up and up, so could consumer redress; so could the consumer compensation.

What is the maximum that could be levied? Well, if a firm continually failed to comply, the fines and redress could be increased up to 10% of a firm’s turnover, as the right hon. Lady said. For a huge energy company such as British Gas, that could equate to a whopping £1 billion —not a figure that any company, however large, can take lightly. That is what the law currently allows for, and these fines are being used, under this Government, far more than they were under the softies opposite.