Energy Bill

Lord Campbell-Savours Excerpts

Wednesday 6th November 2013 Lords Chamber

Moved by

[Lord Campbell-Savours]

105: After Clause 137, insert the following new Clause—
“Rising block tariff energy supply scheme
(1) The Secretary of State shall have regard to the desirability of establishing specifications for the introduction of a rising block tariff scheme governing electricity and gas prices and shall consult representatives of the gas and electricity supply industries prior to the establishment of such regulations.
(2) A rising block tariff system of energy pricing is one in which there is a basic threshold price for electricity and gas and an additional percentage price premium applicable to each block of units above that threshold.
(3) A national standard for rising block tariffs shall cover the following matters—
(a) the number of units of gas or electricity to be provided by the supplier of the basic threshold price annually;(b) the number of units comprised in each subsequent block of units;(c) the additional price premium payable per unit applicable to each block; (d) the calculation for the purposes of setting the minimum number of units to be applied at the basic threshold price quarterly;(e) the arrangements for the setting of standing charges.(4) Nothing in this Act permits the Secretary of State to determine the basic threshold price of electricity where a rising block tariff is in force.
(5) The Secretary of State shall report to Parliament on the operation of the scheme within 12 months of the coming into force of this section.”

[Lord Campbell-Savours]

My Lords, I apologise for my non-attendance in Committee. This was due to a clash with sittings of a number of domestic committees which I needed to attend.

This is a subject I have raised on a number of occasions over the years both at Question Time and in the form of amendments to previous legislation. Since last raising it in 2008 I have had the opportunity to further refine and simplify the scheme. RBT— rising block tariff—arises from what appears to the public to be an anomaly in energy pricing which defies all logic. The rising block tariff applies to domestic suppliers of gas and electricity.

If we examine our gas or electricity bills, we will note that initial units of electricity and gas are charged at a higher rate than subsequent units. Low-use consumers are penalised by the pricing structure, not only because of the early units penalty but by the levying of standing charges. The present system is regressive in its financial impact by penalising poorer sections of society. The system also lacks any incentive to conserve energy. If we are serious about energy conservation, we should use the pricing structure for units of energy to influence investment in conservation.

The problem is that, although a relatively free market in domestic energy prices can influence conservation investment as prices increase, the effect is limited due to a lack of real incentives. We need a penalty built into cost to the domestic consumer, whereby the higher the consumption of units, the higher the price—in other words, a reversal of the present arrangement. Furthermore, introducing such incentives would provide an opportunity to affect the position of people on low incomes without necessarily drawing them into means-testing.

Why cannot domestic energy prices be set at a discount for the first block of units, with subsequent blocks priced at increasing rates? It would be perfectly possible for the first block, what we might call block A, to be set at a discount from block B, the standard tariff, which itself could be priced at less than block C, the premium tariff: discount tariff over standard tariff over premium tariff. The block A tariff would be universally available to all consumers and set at a level that maximised the benefit to low-income households in blocks A and B. A fixed allocation of units would be available to all domestic customers. The Government would set the number of units in each of those blocks and the percentage difference in cost per unit in between blocks A, B and C.

However, it is critical that the block A price, the discounted tariff, is set in the free market by the energy suppliers. The Government would play no part in setting the block A discounted tariff unit price, but would leave suppliers free to set their prices, which would need to be at a rate to ensure that their block B and C prices were viable, competitive and affordable for consumers.

What would be the advantages? The system would induce investment in conservation, and there would be more careful management of energy use by householders, as consumers sought to avoid moving into higher blocks, particularly into block C. There would be an element of redistribution. It would reduce the growing shift towards means-testing. It would reduce CO₂ emissions. Suppliers would retain control of the price by, crucially, being responsible for setting the block A discount price.

I recognise that it would be difficult to set the volume of units to be applied to each block—in particular, block A. It would be necessary to calculate and agree a reasonable number of units to be allocated to block A for a core usage of electricity—I call that the CUE. The CUE would be set taking into account multiple occupancy, disability and basic energy requirements per household. As I said, the RBT would be available to all, but set at a level that provided for basic energy needs. It could be calculated on the basis of an agreed square footage space energy requirement. In particular, pensioner households’ space requirements would need to be fully considered, but it is likely that many pensioners would move into block B areas of consumption; certainly in heating fuel requirements. The RPT does not do away with state support for low-income pensioner households but, as I said, it would reduce dependency on the state for heating support and transfer responsibility for that support to “heavy users” in the process of redistribution.

Some households are single fuel, and would lose out compared with dual-fuel households. The answer is to provide every domestic hereditament with two energy entitlements: one for gas and the other for electricity. Single-fuel households would be entitled to two electricity entitlements. The need to provide two entitlements for single-fuel households stems from problems with heating requirements. It may seem complicated as I put it to the House, but when you analyse it, the system I am advocating is quite simple.

It might be possible to have a separate RBT for certain separately defined disability groups with prescribed greater heating requirements. They could be assessed on a different basis. In their case, it might be possible to have either fewer blocks with greater spread in terms of volume of units, or a greater number of blocks with a narrower spread. Regarding seasonal temperature differentials, householders invariably consume more energy in the winter months, when there are greater heating requirements. It would be necessary to ensure the transfer on of units between quarters at the end of each quarter, as is currently done with free minute allocations for some mobile phones.

Differentials in regional temperature are not fully considered under present domestic energy pricing arrangements. It has been argued that a national pooling arrangement should be in place to compensate consumers in colder regions for their higher energy costs. Privatisation of the industry and competition in the market place have made this difficult to introduce. Under RBT, any such pooling arrangements, if required, would need to be based on block A volumes of units allocated, rather than on price.

A problem could arise over the timing of the introduction of RBT. It could be constrained by limited public understanding of the value of investing in conservation measures. The answer is to introduce a rising block tariff system over an extended period, perhaps as long as 10 years. Such a period would enable power suppliers, consumers and the energy conservation industry to adjust. In particular it would enable suppliers of energy to refocus their efforts on further developing and refining their conservation packages, which will be of greatest interest to domestic energy users.

In October 2008 in an article in the Guardian, Ed Miliband referred to the principle behind the amendment when he said he was,

“looking at the structure of tariffs so that people might no longer have to pay the highest price for the first tranche of gas and electricity they used”.

Unfortunately my party has not been exactly sympathetic to following up the original idea, primarily put off by large family energy requirements, which I have now set out to address through the core usage of electricity, the CUE. The larger the CUE, the steeper the subsequent block increases.

There is much support for the idea in Europe as countries increasingly find themselves struggling with higher energy prices. Arguments over climate change and the more efficient use of resources will inevitably take us down this route. The noble Lord, Lord Oxburgh, came to my rescue during the closing moments of the debate in 2008, when he advised the House that,

“in eastern Australia this rising block tariff is used on domestic water”,—[Official Report, 28/10/08; col. 1510.]

to help conserve water supplies. I also understand that Ofgem was supposed to have had a look at my and other proposals for RBT during a recent review of energy prices. Perhaps the Minister might give an update on what happened to the Ofgem inquiry.

This system, or one based on the same principles, is utterly inevitable. The public understand what this discussion is about. Just as everybody understands the arguments put by the noble Lord, Lord Forsyth, in his amendment, this equally is an argument that the public understand. The public are interested as to why the energy companies insist on charging the highest prices for the lowest volume consumers. Perhaps the Minister will explain whether she thinks there is a way out of this conundrum. I beg to move.

--- Later in debate ---

[Baroness Verma]

I, too, thank the noble Lord, Lord Campbell-Savours, for his amendment. The noble Lord has a long-standing interest in this matter and I understand his desire to encourage more energy efficiency and to reduce the energy bills of low-income households. We considered in the past the case for rising block tariffs. When the issue was debated during the passage of the Energy Bill 2011 we were concerned, as we are now, that they would have an adverse impact on fuel-poor households with high energy consumption. I followed very carefully the noble Lord’s argument that this would not happen, but I believe that many consumers would see their bills rise under a rising block tariff.

The Committee on Climate Change has also examined the case for rising block tariffs and concluded that they,

“should not be introduced until fuel poverty has been addressed through targeted energy efficiency improvement and other fuel poverty policy measures”.

We are addressing fuel poverty through the Warm Home Discount. This year more than 1.1 million households will receive an automatic rebate on their electricity bill of £135 and more than 2 million households will receive assistance from the scheme as a whole. As the noble Lord rightly points out, we are also tackling the poor energy efficiency of our homes through the Energy Companies Obligation and the Green Deal. Some 230,000 vulnerable and low-income households will be warmer this year because of the measures installed in their homes under ECO.

Clauses 130 to 133 are intended to enable the Secretary of State to simplify the tariff market, to increase competition in the retail domestic energy market through greater consumer engagement and to get consumers on to the best tariff for them. We have introduced these clauses to give statutory backing to Ofgem’s reforms of the retail energy market. These reforms have been developed to ensure that customers are on the cheapest tariff that is in line with their preferences with their current supplier. They will introduce a simpler, clearer tariff framework so that consumers can compare tariffs across the market more easily.

The noble Baroness mentioned smart meters. I agree with her. When people have smart meters installed, that will help them recognise the amount of energy that they are paying for at the time of use, and will inform them of when to use energy at different times of the year to get the best value out of it during the day. However, we are just rolling out smart meters now. They are not yet part of a mass rollout. So a key measure is to give consumers the ability to compare tariffs, banning complex multi-tier tariffs and requiring suppliers to structure all tariffs as a standing charge and single unit rate.

Introducing a framework for rising block tariffs would cut across Ofgem’s reforms to deliver a fairer, more transparent and competitive market. We are backing its proposals, not instructing it how to regulate the market. Ofgem is an independent regulator and is best placed to assess the regulatory changes needed. Although I suspect that he will not, I hope that the noble Lord will find my explanation reassuring, and that he will withdraw his amendment.

[Lord Campbell-Savours]

My Lords, the Minister said that she thought that it would be easier for consumers to compare tariffs. The reality is that, if she had supported the amendment moved by the noble Lord, Lord Forsyth, that would have been the case. In reality, there will be very little difference in the way that billing is presented, and certainly in the ability of the public to comprehend billing.

I latched on to the statement made by my noble friend on the Front Bench when she referred to smart meters. Although I was engaged, as was the noble Lord, Lord Teverson, in the smart meter debate in 2008—we had those critical meetings at the end before we managed to win, as he will remember—I did not realise the significance of this until my noble friend referred to it just now. It is possible that smart meters will give us some of the information that I need to further reinforce my argument when, no doubt, in a few years’ time, I once again table the same amendment in the hope that one day someone will pick it up and we will transform the energy consumption arrangements for the average household in the United Kingdom. I beg leave to withdraw the amendment.

Amendment 105 withdrawn.