Energy Bills Discount Scheme (Amendment) Regulations 2024

Lord Callanan Excerpts

Tuesday 12th March 2024 Grand Committee

Moved by

[Lord Callanan]

That the Grand Committee do consider the Energy Bills Discount Scheme (Amendment) Regulations 2024.

Relevant document: 15th Report from the Secondary Legislation Scrutiny Committee

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, these regulations were laid before the House on 7 February 2024. As we are all aware, Russia’s illegal invasion of Ukraine led to an exceptional rise in energy prices. At the time, the Government responded decisively to these unprecedented circumstances by delivering critical support to households and non-domestic energy consumers facing significant increases in their bills.

Through the energy price guarantee and energy bill support scheme, the Government have spent more than £35 billion supporting households. Non-domestic customers will receive about £8 billion through the energy bill relief scheme and the energy bills discount scheme, which I will refer to as the EBDS. The swift action to introduce this legislation protected consumers from these inflated prices, mitigating what would have been more severe effects of this economic pressure had the Government not intervened.

The EBDS provides a discount on energy bills for the 2023-24 financial year for energy customers on non-domestic tariffs. The EBDS provides a further, higher level of support where those on non-domestic tariffs have domestic end-consumers. This is to support customers on heat networks who were not supported by the energy price guarantee that was available to other domestic customers.

Heat network customers were not protected as heat networks normally purchase their energy through commercial contracts, which they then sell on to domestic customers. All eligible heat suppliers with domestic customers were required by the EBDS regulations to apply for this additional level of support and to pass this benefit on to their customers. They were required to do this within 90 days of the scheme being launched or within 90 days of becoming eligible. The support given by this scheme ensured that householders who might have otherwise been exposed to the full wholesale market price were instead protected. This support is estimated to be worth about £180 million in total or an average of £1,200 per customer supported.

I turn to the specific amendment to the EBDS regulations that we are discussing. Under current regulations, if a heat supplier has failed to apply to the scheme within the deadline set by the rules, it can still apply for support. Indeed, we have required heat suppliers still to apply for support in order to ensure that as many households as possible can benefit. However, the current regulations allow suppliers to apply for support even after the scheme ends at the end of this month. This means that a customer would not get their support in a timely manner, and it also means that the Government would be legally required to process and pay for the administration of applications potentially indefinitely, at a large administrative cost to the taxpayer.

Therefore, this amendment instead provides for an end date, after which no further applications can be made. The final date will be specified in rules that will be made and published if this instrument is approved by the House. The deadline we intend to set is 31 March 2024, which aligns with the end of the period of cover of the EBDS. We have publicised this 31 March end date widely across the relevant sector. There would be one exception to this 31 March deadline for heat suppliers that become eligible so close to the deadline that it would be unreasonable to expect them to apply. Those heat suppliers would have until 14 April to apply.

I come to the most important aspect of this scheme: the impact it has on households facing high bills. It is right to introduce this deadline for those customers too, so that they benefit from this scheme when they need it most, not at an undetermined point in the future. It is essential that as many people as possible benefit from this support, and my department has been conducting extensive engagement to encourage applications from all eligible heat suppliers.

We are also mindful of the number of vulnerable domestic customers who live on heat networks. We have taken action to try to ensure that these customers receive the support they need, for example, by working with applicants in the social housing sector to ensure that all those applications are approved.

To be clear, this deadline does not stop customers being able to seek redress where their network has failed to apply. The Energy Ombudsman in Great Britain and the Consumer Council for Northern Ireland can provide support with dispute resolution and require payments to be made to customers. If necessary, customers can also choose to pursue claims through the civil courts.

To conclude, this instrument amends the EBDS regulations so that the duty for heat suppliers to apply for support is a duty to apply in a timely way, ahead of a deadline. This is a responsible step to ensure that we support customers while limiting the administrative burden on the taxpayer as pressures from energy bills, thankfully, ease. I commend these regulations to the Committee, and I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I remind the Committee of my interests as a generator of small-scale hydroelectricity and as a recipient of feed-in tariff payments.

I do not have any specific comments on the SI, which simply fixes a wrinkle in the various energy support schemes, but I point out the concern raised by the Secondary Legislation Scrutiny Committee that up to 60,000 domestic customers may be missing out on the support available. The Minister has given some examples of what the Government are doing, but it seems that more could be done to ensure that domestic customers do not miss out on this money. How many heat networks are there and have we made attempts to contact all of them to push them into making applications?

I take this opportunity to ask the Minister more generally about progress in dealing with the underlying distortions that made the schemes necessary in the first place. As he said, the support schemes arose because of the substantial increases in energy prices following the Russian invasion of Ukraine. It was entirely understandable and right to support people and businesses under those circumstances, but those schemes did nothing to fix the underlying distortions in the electricity markets that are, in part, the cause of the high pricing.

The key feature is the fact that the price is driven by the marginal pricing of electricity and therefore by the price of gas. That means that the price of electricity from all sources, including renewables, where the generation cost fell during the same period, was driven by the increased gas cost. It meant that people on apparently 100% renewable tariffs saw their electricity prices more than double, even though the cost of renewables had fallen. Quite apart from raising the question of how legitimate those renewable-only tariffs are, this led to some generators earning supernormal profits at the expense of consumers. The support schemes meant that we saw the strange situation of some generators having their excess profits subsidised by the Government. The same was even more true of the gas producers.

I realise that it is more complex than that, as I am sure the Minister will say, especially with the expansion of contracts for difference, but it is generally recognised that electricity prices need to be decoupled from the marginal rate, and especially from gas prices, to remove the distortions and fluctuations that the current situation generates. I asked the Minister about this in an Oral Question on 6 September 2022. He referred then to

“the review of market arrangements, which is looking urgently at that exact situation”.—[Official Report, 6/9/22; col. 91.]

Yet I see that the Government have today launched yet another consultation covering, among other things, exactly the same issue. Launching another consultation does not feel like the urgency that he promised 18 months ago. Can he provide an update on progress and when we might finally see electricity pricing decoupled from the marginal cost of gas generation and the market distortions reduced?

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[Lord Lennie (Lab)]

My Lords, as we have heard, this instrument enables the Secretary of State to set a date after which heat networks can no longer apply for support under the energy bills discount scheme. Under the scheme, qualifying heat suppliers are required—that is the word used—to apply for support, which they then pass on to their domestic customers in the form of energy bill discounts. The Department for Energy Security and Net Zero has said that not all QHSs have applied for EBDS support. Although the scheme itself will end on 31 March, there is currently no effective date for applications to be received. The Minister has set this out—so far, so tidy.

DESNZ has estimated that 3,000 qualifying heat suppliers may not have applied for the EBDS, but we do not actually know, because there was no register of the qualifying heat suppliers. We do not know how many there are or where they are, so we cannot follow them all up. That is one of the problems with the scheme that was set up. However, we estimate that up to 60,000 domestic customers may lose out on support as a result of qualifying heat suppliers not applying for a scheme discount, as required.

As we have heard from the noble Earl, Lord Russell, the noble Lord, Lord Vaux, and the Minister the value of lost discounts is about £1,200 a customer. That loss will disproportionately affect disadvantaged groups, such as the elderly and ethnic minorities—people who have been described as “skint little people”—who are significantly more likely to be on heat networks. Could the Minister set out what specific initiatives have been undertaken to encourage take-up of EBDS bids by heat networks? Have they made inroads into identifying where the qualifying heat suppliers are, so that they can be targeted and encouraged to apply? Which initiatives have been successful, if any, and how recently? Has it been an evolving, slow process?

The proposal in this instrument makes administrative sense, rather than leaving open an estimated total liability of £6 million for not closing the scheme to new applicants. Administrative sense is one side of this equation; the other side is the customers, and it seems less considered from their perspective. The Joint Committee on Statutory Instruments and His Majesty’s Opposition initially expressed concern that an obligation was being placed on intermediaries without any means of enforcing it. It is all very well requiring someone to do something when, if they fail to do it, nothing happens except that the individuals can take them to court or to the ombudsman.

How many times has that happened during the course of the scheme? I suspect it is very few times, if any. Can the Minister tell us whether any such initiatives have been taken? Essentially, this is about a vulnerable customer being required to take their landlord to court to get a subsidy for their gas bill. The chances of that happening are fairly remote, but we will no doubt hear from the Minister on that. This means that companies and organisations that have failed to apply for, or pass on, discounts have simply got away with it. Who knows the truth of that? We do not know who they are.

As I indicated, we support the closing of the scheme and the ending date for applications, but we are unhappy with the way the scheme has been allowed to drift into oblivion with no forfeit for those who should have acted on it.

[Lord Callanan (Con)]

I thank all three noble Lords for their contributions. I am proud to say that, through the scheme, the Government have provided support to hundreds of thousands of households, helping them with financial pressures when they needed it most. The Government remain fully aware of the continued challenges posed by cost of living pressures, including the impact of energy bills. We are providing extensive financial support to households, including a package of support to assist households with the rising cost of living—this will total over £104 billion, or £3,700 per household on average, between 2022 and 2025. All three noble Lords recognised the extensive package of support that was put in place.

I totally understand the points made by the noble Earl, Lord Russell, and the noble Lord, Lord Lennie, on the heat network sector. The noble Earl is right that our database is not as good as it could be in terms of what heat networks are available. It is perfectly possible at the moment for anybody to build a block of flats and, in effect, set up a heat network; they do not necessarily have to tell the Government about it. However, if noble Lords remember, we recognised that in the Energy Act, where we took powers to regulate the heat network sector. That is why we are introducing new consumer regulations for heat networks and, from next year, we will have new consumer protections in place, provided through the Energy Act. That will give Ofgem powers to investigate and intervene in networks where prices for consumers appear to be unfair, or if prices are significantly higher than comparable heating systems. They are, in effect, natural monopolies, and therefore it is right that consumer protections exist. Those regulations will also seek to introduce back-billing rules, which exist already to protect gas and electricity customers.

The noble Lord, Lord Vaux, raised an important point about reaching as many customers as possible. It is indeed a priority for my department to ensure that as many customers as possible access the support available to them. So far, 12,000 applications have been approved under the scheme, which means that hundreds of thousands of domestic customers have been supported. We think that that figure of 12,000 represents the vast majority of qualified heat suppliers. We know that a scheme that was very much developed in haste in response to the energy crisis—as noble Lords will remember—was never going to be perfect. On top of that, we will strive to make sure that as many people as possible are reached by the scheme— but we think that it has reached the vast majority of eligible customers. We are targeting communications at heat suppliers with vulnerable customers, including housing associations and local authorities, and we will continue to do so.

The noble Lord, Lord Vaux, raised an important question—not at all related to this statutory instrument—about the distortions of gas and electricity pricing, and the protections provided to customers as part of that. It is fair to say that this is a big issue that we are concerned about. Ultimately, the answer to the noble Lord’s question is that, as the amount of gas on the network declines and the amount of gas used to generate power declines, prices will stabilise and there will be a steady decoupling. There are no immediate solutions to that. Perhaps it would be more sensible for me to write to the noble Lord with more detail on the considerations that have gone into this, because a lot of work has gone on, including a lot of studying of the market to see how we can improve it. I recognise that many people consider that they are getting renewable electricity through their suppliers, but the price that they receive for it reflects the cost of gas in the system, because it is a centralised market. I recognise that people see that as anomalous, and we are looking closely at this.

As I said, we recognise that customers on heat networks are not currently protected by the same set of protections as other customers, so in future they will be protected by Ofgem via the regulations that I mentioned earlier. The noble Earl, Lord Russell, raised concerns about the impact on vulnerable customers on communal networks. Careful consideration has been given to equality when amending these regulations. We are fully aware that heat networks are more likely than other comparable heat sources to serve vulnerable and elderly customers, which is why we have carried out a number of activities to try to ensure that they receive the support to which they are entitled. We continue to engage with stakeholders such as the Heat Trust to learn about any issues with the customer journey, such as on the pass-through, and any other heat networks struggling with their applications so that we can continue to provide them with support.

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[Lord Lennie (Lab)]

In the unlikely event that a customer takes a heat network to a court or ombudsman before the scheme closes, I presume that that application could continue beyond 31 March if it is not resolved by then and that the payment could duly be made.

[Lord Callanan (Con)]

That is indeed the case. The application would continue beyond 31 March. Even after the scheme has ended, the responsibility of the supplier during the application of the scheme continues to be legally valid and therefore it is possible to take retrospective action against a heat supplier that has not fulfilled its legal obligations.

Motion agreed.