Energy Company Licence Revocation

Kerry McCarthy Excerpts

Wednesday 3rd September 2014 Commons Chamber

[Caroline Flint]

I absolutely agree. One of the problems with the lengths of these inquiries, and a reason why we need greater clarity—and, I would suggest, greater deterrent factors within the conditions under which these companies operate—is that time gets lost. By the time all the lawyers have got together and everything else—and by the time, perhaps, that the company is found guilty of the offence—we lose momentum in making the change that needs to happen.

The timing of the inquiries is important, but a culture change is also needed. We need to address whether the inquiries are hampered by the energy companies responding too quickly by setting their lawyers on to the matter and deterring effective action and preventing justice from being seen to be done.

It is in a spirit of constructiveness that we present our proposals today. We believe that they are eminently sensible, and we hope that the Government will offer the same constructive approach as we have offered on numerous occasions in the past. The best way of protecting consumers is not to provide a redress framework—much needed though that is—but to prevent companies from ripping people off in the first place. At the moment, too many energy companies operate at the margins of what the rules allow, because they know that they will often not be caught. Even if they are caught, the penalties do not present enough of a deterrent. Too often, energy companies seem to view the regulator’s fines as a cost of doing business, and not as a warning that they should get their act together.

Information provided to me in answer to a written parliamentary question shows that, since 2001, Ofgem has issued at least 31 fines totalling at least £90 million. On top of that are the informal cases that the regulator has dealt with, in which, even though no formal fine or notice was issued, action was taken and in some cases financial measures ensued. If we were to add on those cases, the total would be in excess of £100 million. For companies with annual global turnovers running into tens of billions, that is still some way from the maximum fine that the regulator could have imposed. Nevertheless, it is clearly not an insignificant amount.

[Kerry McCarthy (Bristol East) (Lab)]

Does my right hon. Friend agree that, no matter how large the fines might be, they are likely simply to be passed on to consumers through their bills and that they therefore do not act as a deterrent to the energy companies at all? In fact, fining companies penalises the customer, so we need to find an alternative to the fining regime.

[Caroline Flint]

I could not have put that better myself. There is no evidence that the shareholders or managers of the companies take a hit in terms of the benefits they receive; the cost of the fines is often absorbed back into the pot that the bill payers have to pay.

We have heard about the 31 investigations and about the fines that have been imposed. The Secretary of State might claim that this is a sign of success and evidence of a tough new regulatory environment, but that would be true only if there were evidence that companies had changed their ways and that the fines had deterred them from breaking the rules again. The evidence shows that they have not learned their lessons despite all the previous fines and penalties. Information that I have obtained under the Freedom of Information Act reveals that those firms are now facing another 15 probes into poor customer service, incorrect billing and other bad practice. No company has a God-given right to be in the market, to charge its customers and to make a profit just because it has always done so—least of all, those that inherited millions of customers from before the industry was privatised and opened to competition.

Today’s motion proposes a new power for the regulator to revoke energy companies’ licences when there have been repeated instances of the most serious and deliberate breaches of their licence conditions that harm the interests of consumers. Of course, any decision to revoke a licence would have to be subject to due process and to be consistent with the regulator’s overriding objective of protecting consumers and promoting a competitive, transparent and fair energy market.

This proposal would build on best practice from regulators overseas. In some parts of the United States, energy regulators already have the power to revoke an energy supplier’s licence. The Pennsylvania Public Utility Commission, for example, has the power to revoke a supplier’s licence if it breaks consumer protection law or transfers customers without their consent. That sends out the clearest possible message to energy companies that if they carry on mistreating their customers, their licence will be on the line. That strikes me as a pretty common-sense measure.

I hope that the Secretary of State will be able to support our motion today. I say that because when I announced this proposal in August, it was telling that the Government did not put anyone up to discuss it on television or on the radio, and that no Minister commented on the proposal. All we had were anonymous quotes from a Conservative spokesman and a Liberal Democrat source, and between them they could not muster a single good reason not to support the measure. All they seemed to suggest was that Ofgem already had this power, which is simply not true. I have discussed the issue of non-financial penalties with Ofgem and written to it about our proposal, and it has made it absolutely clear that this would be a new power. Indeed, the statement that it issued on the day of my announcement began

“Ofgem is always interested to work with government on any new powers or refinements to existing powers which would help to further protect consumers.”

As today’s motion notes, the regulator has limited powers to revoke licences in certain specific cases, but they are largely of an administrative nature—for example, if a company goes into administration, if it gets a licence but does not supply any gas or electricity in the following year, or if it does not pay a fine.