Electricity and Gas (Internal Markets) Regulations 2011

Lord Berkeley Excerpts

Monday 17th October 2011 Grand Committee

[Lord Berkeley]

My Lords, I apologise to the Committee for not getting here at the start of these proceedings. It is a terrible thing to say, but I went to the wrong room and got lost.

My interest in this issue stems from talking to many ports and airports around the country. I recall having correspondence with Ministers a few years ago on one issue in particular. Ports and airports which already had a network might have tendered out the supply of electricity to get the best deal for their various tenants, but if one tenant decided to go to another supplier then, in order to comply with the directive and the Citiworks judgment, the port could not stop them. This may be fair enough but the port might then be saddled with the very high cost of upgrading its internal electricity network to grid standards. I know that Ministers at the time—I think it was before the election—understood the problem, but it has not gone away. It seems that there is something of a rush about getting this through, which I cannot believe is happening in any other member state. Can the noble Lord tell me whether any other member states are implementing these regulations at the same speed as we are?

The costs of doing this, whether capital cost or anything else, and the pricing methodology for assessing the charges, worry me and this needs further discussion. It is good that, at the seminar on 9 May, Ofgem announced a helpful concession to allow a higher capital cost figure to be taken into account in assessing the charges. However, these additional costs cannot be taken into account in the case of the input of the opt-out on existing bulk purchase contracts, where the local network provider has committed to a minimum threshold. This seems rather unfair. If a port has put in a network and negotiated a bulk electricity deal, then half its tenants decide to go somewhere else—which they can do—it is left holding the baby with quite a big loss. One port told me that if all this went ahead and it was forced to implement it, it could lose in the region of £10 million a year. That seems a very high figure. There is clearly no way to stop this and it is probably right that tenants should be able to choose to buy power where they want. However, the cost of such a change should be borne by the tenant who wants to make the change, rather than by the landlord losing out.

Ports and the port businesses are also being hit by the carbon reduction commitment, which, as we know, is a tax on energy used by businesses. CRC is currently payable in respect of all business electricity users on port estates, even when they are below the minimum usage threshold for paying it. This may encourage more tenants to opt for third-party suppliers, which also puts more pressure on the port. Could the Minister see whether these effects can be mitigated, either through further discussion with Ofgem or further meetings with airports and port operators, to try to redress some of the adverse effects that are perceived at the moment?

[Lord Whitty]

My Lords, I broadly support the second package and the transposition of it. However, it leaves a few loose ends, and I want to raise three points, one of which relates very much to what my noble friend Lord Berkeley just mentioned: inclusion in the need to provide access for consumers and businesses those who are licensed for local networks.

I am in a dilemma here—no doubt, so are the Government—in that if you are locked into a local network and there is no alternative supplier, choice does not apply. On the other hand, if you open it up to choice, as the noble Lord explained in relation to ports, the economics of the local network change. There is a real problem here. I ask whether that would apply, for example, to a relatively small CHP system on an industrial estate where all the other units on the estate had agreed to sign up and the economics had been worked out on that basis; or indeed a residential district heating system—I am very much in favour of both such developments of localised and decentralised energy. Opening that up to competition or to the secondary user's choice of supplier makes the economics much more difficult. That is a dilemma. Two principles clash here: one of encouraging decentralised energy and the other of consumer choice. Simply including them under the same obligation as the big network suppliers does not resolve that. I am no closer than the regulations—or, probably, the department—to supplying a solution, but it is not supplied by the regulations.

My second point relates to the reference to consumer protection and Consumer Focus. I declare my past allegiance as former chair of Consumer Focus and—although this applies more to my third point—as currently undertaking some work for the Consumer Council for Northern Ireland. The requirement for Consumer Focus in part 2 to provide a consumer checklist is an extension to what is provided in the Consumers, Estate Agents and Redress Act 2007. It is a more prescriptive requirement on Consumer Focus—the National Consumer Council, in legal terms—than exists under that Act. Even in its current form, one could say that it is an incursion on its independence. The organisation already supplies significant guidance and information available to consumers. However, on balance, I do not object to the current setup.

As the Minister will be aware, under the Public Bodies Bill it is intended to move the role of Consumer Focus on energy either to a third-sector organisation, Citizens Advice or—another proposition currently in play—to Which?, which is, for these purposes, a private sector non-profit-making organisation. Is not the requirement for it to do the job in a certain way an even greater imposition on an independent organisation than it is on a quango? Is the Minister clear that such a requirement would survive a transfer of those functions to organisations that have not been in this game before and that have their own charitable and, in the case of Which?, slightly different structure of obligations and priorities?

Clearly, it is a bit of a problem to get the current powers of what was Energywatch and then Consumer Focus into a completely non-governmental organisation in the first place, but the more prescriptive that that becomes the more difficult it is to ensure that the provision in these regulations survives such a transfer.

My final point relates to Northern Ireland, to which the noble Lord, Lord Dixon-Smith, already referred. He seems to think that this lets Northern Ireland and the separate system of regulation off the hook. I am sure that in Northern Ireland he would be relatively happy for that to be the case, but my understanding is that there is concern about this over there because Northern Ireland organisations are not party to the ACER set-up. There can be only one regulator there, and the energy market there is very different to ours. The gas side is on an all-Ireland basis or is pretty much moving towards that. The Irish regulator would be there but not the Northern Ireland regulator. There are different structures of competition and supply. The regulations are not necessarily appropriate to a very different sort of market with a different sort of fuel supply. I should like the situation on Northern Ireland to be clarified—if not today, then at some point in the near future—because there seems to be a bit of a lacuna in the set-up.

--- Later in debate ---

[Lord Marland]

Yes, they will get the ECO through the Green Deal. A whole amount of measures was issued at the energy summit today, with which I will be very happy to furnish the noble Baroness. As for the issue of PRS and Green Deal, I think that we have debated that quite extensively and I really do not want to go over the old ground. We share a significant problem and concern, and in the end I think that we were all singing off the same hymn sheet in that debate.

Lastly, on the question of whether Ofgem has the right resources, it is important that it has. It has a task to manage this enormous amount of legislation in front of us, and we will watch very carefully to ensure that it is up to the task. The noble Baroness was quite right to raise that issue now, because it is important that customers at all levels are protected. I believe that the legislation goes a long way to doing that. As I said earlier, it is legislation that we have inherited, but there is a lot of good stuff in it. Would we have done everything to the letter of the word? Perhaps not. Are you pleased with everything that we have done to the letter of the word? Perhaps not. But it is legislation, and good legislation with the consumer in mind, and I think that we would all applaud that.

[Lord Berkeley]

I am very grateful to the noble Lord for the answers that he gave me on ports, airports and the bulk tariffs. My question applies equally to some of the examples from my noble friend Lord Whitty on the bulk suppliers of power to tenants, as we could call them, who opt to go to another supplier. As a result, the bulk supplier may lose the level of discount that he would have got if he had been selling to the whole lot. My impression from the Minister’s answer was: “Well, tough on the bulk supplier”. It could be a not-for-profit organisation; it does not have to be a commercial port. Is my interpretation of that correct and, if so, is there anything that Ofgem could do to mitigate the effect with a little bit more discussion? I would be grateful for his response.

[Lord Marland]

I am concerned to give the right answer about not-for-profit organisations, so I shall write to the noble Lord on that rather than ask him to whisper more in my ear. I do not know the answer, and it is an important question.

I should clarify one point about the switch to Citizens Advice. The detail is being worked out and no decision has therefore been made, but that is the likely intention of the transfer. With that in mind, I commend the regulations to the Committee.