Energy Bill

Lord Gardiner of Kimble Excerpts

Thursday 11th July 2013 Grand Committee

[Lord Gardiner of Kimble]

My Lords, first, I thank the noble Lord, Lord Whitty, for tabling these probing amendments, as he described them, and therefore providing this opportunity to continue the careful scrutiny of this part of the Bill. I have listened carefully to what noble Lords have said. I believe that we all want to secure the best for consumers but suspect that we may diverge on how that is best achieved.

Amendment 51ZA would require the Secretary of State to bring forward regulations to allow collective redress for energy consumers. We agree that consumers should be able to get the compensation that they are due when things go wrong. The consumer redress order powers we have put forward in the Bill will provide energy consumers with what we believe is the most appropriate and cost-effective way of obtaining this. In principle, collective redress can provide benefits in some sectors, but I am concerned about the potential impact such powers may have on the time and cost involved for energy consumers seeking redress through this route, and the impact of any additional costs on all consumers.

The most effective redress mechanism ensures that consumers receive timely and cost-effective compensation, and I was particularly interested in what the noble Lord, Lord O’Neill, said about balance in these matters. Under existing arrangements, energy consumers can already obtain redress through the courts, but the legal process does not typically offer a quick or cheap remedy for consumers who have suffered a detriment. In part, the concern that I have about the proposals from the noble Lord, Lord Whitty, on collective redress is that it would not speed up the process; indeed, it may, perversely, lengthen it, although I am sure that is not his intention. Consumers will also be required to identify themselves as potential claimants and join an action. Consumer redress order powers overcome these barriers by allowing Ofgem to take action on consumers’ behalf, without them needing to initiate action or incur costs.

Allowing collective redress via these amendments would benefit intermediaries involved in bringing such cases, who will seek awards that allow them to recover their costs—which would be borne by claimants or, where costs are awarded, by all consumers as energy companies seek to recover these sums. Collective redress could also encourage litigation on fine points of law, creating higher costs for energy companies, which would again risk increasing prices for consumers as a whole. In contrast, the consumer redress order powers contained in the Bill offer a speedier resolution to consumer detriment, which does not require consumers to come forward and take action, is proportionate to the sums at stake and minimises the potential costs for all energy consumers.

The noble Lord, Lord Whitty, asked whether the Bill’s provisions cover regular breaches of consumer law. The intention is that they will. If the breach is also a breach of licence conditions, such as mis-selling, that would be included.

The noble Lord’s Amendments 51ZE and 51ZF would increase the time limit for consumer redress order powers contained in Schedule 14 from, as the noble Lord has mentioned, five years to 15. I naturally have sympathy with amendments designed to ensure that consumers can obtain redress. The intention is certainly not for these time limits to be arbitrary. The time limit is consistent with the existing time limit for Ofgem imposing penalties on energy companies. In some cases, both penalty and redress may be appropriate, and so it is important that the enforcement regime that we establish allows Ofgem to balance both penalties and redress when looking to put things right.

This five-year time period for penalties was introduced as recently as the Energy Act 2010, following, as the noble Lord will know, two high-profile cases which showed the limitation of the then one-year limit for Ofgem to investigate and take action. There has been no case involving an energy company either before or since where it is alleged that this five-year time limit would not have provided ample opportunity for Ofgem to take action.

[Lord Deben]

On that point, I declare an interest as chairman of the Association of Professional Financial Advisers. I say to the noble Lord, Lord Whitty, that very long periods allowing for what is by then retrospective action can have a damaging effect on the confidence of an industry. We have to be very careful to get this balance right. The reference to the financial services industry made by the noble Lord, Lord Whitty, is a mistake because many people now recognise that that has done and will do significant harm, and is against any sense of human rights. There comes a point at which those who have been involved are now so far removed from those who are operating that it does not make sense. Five years was chosen, and it seems not a bad choice. I hope that the Minister will resist any temptation to go further. I say that as somebody who has no interest whatever in energy provision companies.

[Lord Gardiner of Kimble]

My noble friend provides an excellent prelude to further commentary on why the Government are concerned about the extension to 15 years. There are indeed jurisdictions with longer time limits than those afforded to energy consumers though these powers. Of course, there are others which are significantly less. These variations reflect various factors, including the length of time required to detect and act on wrongdoing, the scale of the sums at sake and the likelihood of sufficient evidence being able to investigate and determine a claim.

The powers are drafted to balance—a word that was used by my noble friend—these considerations without placing unnecessary additional costs on consumers. My noble friend has mentioned business. We are certainly seeking to provide an appropriate balance to all these matters. For those reasons—although I can assure the noble Lord, Lord Whitty, that his amendments have been given proper consideration—I hope that the explanation I have given is sufficiently compelling at this time that he might feel able to withdraw his amendment.

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[Lord Whitty]

My Lords, Amendment 51ZE deals again with the redress powers. The issue here is that the Government have rightly given Ofgem the ability to require compensation as well as to fine for breach of licence conditions or consumer law, but it is not clear whether this could apply to the cases that are currently under investigation by Ofgem, to which my noble friend Lady Liddell, who is no longer in her place, referred earlier.

Those outstanding investigations include one that started in September 2010, looking at doorstep selling for Scottish and Southern, ScottishPower and npower; a separate one into doorstep selling for E.ON; one into customer complaint systems at EDF; and one into misleading tariffs from ScottishPower. In total, there are eight or nine ongoing investigations, some of which have been going on for three years.

Ofgem has therefore already started a number of such investigations and, as I understand it, will start some more in the months between now and Royal Assent. At present it does not appear that the powers to award compensation would be allowable under that welcome provision in this Bill. However, if Ofgem finds against the companies it seems likely that a significant number of consumers will have suffered detriment and that the consideration of potential damage to the companies has outweighed the Government’s determination to ensure justice for those consumers.

When a similar point was put in the Commons by my honourable friend Tom Greatrex, the Minister replied that this would be retrospective legislation. It is not retrospective legislation. Ofgem would have to find that there had been breach of consumer law or a licence that already existed. Previously, consumers would have to go to court to get compensation but the provisions in this Bill would allow Ofgem to award that compensation. This is not inventing a law in retrospect; it is ensuring that the compensation comes through an easier channel.

It is important that those consumers whose complaints are currently being investigated by Ofgem benefit in the same way as future consumers will from what is a sensible improvement to the situation by the Government. I hope that the Minister will not resort to the retrospective legislation argument, because it is not retrospective legislation; it is simply improving delivery of the penalty and the rightful compensation that is due to these consumers. I beg to move.

[Lord Gardiner of Kimble]

My Lords, I thank the noble Lord for his amendments. Amendments 51ZEA and 51ZFA are designed to amend Schedule 14 and permit retrospective application of these powers. I am aware that these amendments were debated both in Committee and on Report in the other place. The aim of these amendments is to allow Ofgem to require redress for events that happened prior to the enactment of this Bill.

In seeking to take powers through the Energy Bill, our objective has been to put consumers first and we will consider any amendments from that perspective. It may appear that it is in consumers’ best interests to seek to put right consumer harm irrespective of when it took place, but the effect of retrospectively applying powers in the energy market will have negative impacts on all consumers.

Noble Lords will be aware of the presumption that powers should not generally be applied retrospectively. This is an important principle, but we are also concerned by the effect this will have on consumers. It is likely that the introduction of the regulatory uncertainty that these amendments will create will lead to increases in the cost of capital for energy companies, pushing up bills for everyone. We want to avoid creating investor uncertainty, particularly when we are trying to encourage the private sector investment that is required to move to a low-carbon economy. Increasing costs will hit most heavily the small energy companies that we want to come into the sector. We want new entrants to the market and do not want to accept amendments that could hinder them.

In addition, smaller energy companies would be most likely to shoulder the burden of the increased costs of insurance premiums that could arise from these amendments, as companies seek to cover their liability for events prior to the enactment of the Bill. My noble friend Lord Deben touched on some of these concerns more generally when we debated an earlier group of amendments. The combination of these factors may push up costs for energy consumers, impacting the very people we seek to protect. The potential unintended consequences of these measures mean that, while I am entirely sympathetic to the intentions behind the amendments, it could be counterproductive to accept them. For those reasons, I hope that at this stage the noble Lord will feel able to withdraw his amendment.

[Lord Whitty]

My Lords, I am afraid that I do not accept those arguments at all. New entrants will not be affected. If they are not operating in the market at the moment, they will be operating under the very process that is prescribed in the Bill. There is therefore no uncertainty for them. Furthermore, the only retrospection will be in how compensation is delivered. Any breach will have been under a contract or licence that already existed at the time that the breach occurred. Any breach of consumer law would have been a breach of the law at the time, and therefore susceptible to a court case brought by one or more consumers at that point. This is not retrospective legislation. It is simply tying up the delivery of existing legislation and existing licensing conditions.

If the Government continue to resist this, they will need better arguments. There is no retrospection in the sense that the noble Lord, Lord Deben, talked about earlier. He perhaps had a point. This simply concerns consumers who are currently under investigation. We also have to bear in mind, when talking about the detriment to consumers, that some of them might have started a court case had it not been for the fact that they knew that Ofgem was beginning to investigate the situation and that they might be precluded from bringing such a case.

The idea that resisting the amendment is in the interests of consumers, or that it should be resisted because it implies a breach of the principle—which I fully support—of not legislating retrospectively, is wrong. I hope that the Government will look at this again before Report. At this point, I beg leave to withdraw the amendment.

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[Lord Gardiner of Kimble]

My Lords, Amendments 51ZEB and 51ZEC, 51ZFB and 51ZFC are designed to amend Schedule 14 and permit unlimited liability for energy companies by seeking to ensure that the amount of compensation that can be required through a consumer redress order is not limited. I am aware that these amendments were debated both in Committee and on Report in the other place.

Our aim in drafting the powers in the Bill has been to ensure that the overall interests of the consumer are put first. With this in mind, we have sought to achieve a balance between the need for consumers to get speedy access to the redress they are due and an appeal process which is proportionate to the potential liability faced by energy companies and which does not present a barrier to entry for the small suppliers that we need to ensure a healthy competitive market.

In response to previous amendments, I mentioned that consumers can obtain redress through the courts under existing arrangements. However, the legal process is lengthy and does not offer a typically quick remedy for consumers who have lost out. This is largely because the legal process is necessarily equal to the potential sums at stake, where compensation is unlimited. Schedule 14 sets out powers which contain appeal mechanisms that are proportionate to the potential penalty. These are also limited to 10% of an energy company’s annual turnover and offer a relatively straightforward resolution of cases.

Accepting amendments to remove the cap could deny consumers timely compensation, as they would require us to make changes to the appeal mechanism, which could result in a more lengthy resolution of cases. Given how unlikely it is that consumers would lose out on a scale that went beyond the level of the 10% cap, we do not consider such a change is justifiable. As the noble Lord, Lord Whitty, has mentioned, for the very largest domestic energy suppliers to exceed a cap of 10% of annual turnover would mean penalties and compensation of over £1 billion. This contrasts with the largest penalty imposed by Ofgem to date of £15 million. We therefore believe that the proposed cap on redress is unlikely to hamper Ofgem’s ability to impose appropriate redress orders.

As I have mentioned in relation to previous amendments, removing the cap on liability could also have adverse impacts on smaller energy companies and, in turn, on consumer bills, due to the increased cost of capital and insurance premiums for energy companies. I assure your Lordships that the approach set out in the Bill does not let companies off the hook. The combined 10% cap on penalties and redress will apply to each separate regulatory breach, so that any company breaking the rules on a number of occasions will face correspondingly larger payouts. For the reasons I have set out, I hope the noble Lord feels able to withdraw his amendment.

[Lord Whitty]

My Lords, I thank the Minister particularly for that last point, because it indicates that it would not apply to a single breach—a single act of mis-selling or whatever—that applied to a large number of people. I am grateful for his explanation but I still think there is a difference between a limit on the ability of the regulator to impose a fine and a limit on compensation. However, although I am not in favour of a limit on compensation, he is right to say it is pretty unlikely to be applied and therefore it is not an issue to which I intend to return. I beg to withdraw.

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[Lord Gardiner of Kimble]

My Lords, I am particularly grateful to the noble Baroness for this opportunity to consider this clause, which will enable the Secretary of State to charge fees for providing energy resilience services in the event of a disruption or threatened disruption to energy supplies. It will allow the Government to recoup some or all of the costs of the services provided to businesses, and to set appropriate fees for these services.

The clause does not set the rate of any fees or charges. It will enable the Secretary of State to set fees either through secondary legislation or through administrative means and, as such, to recoup some or all of the costs of providing the service. It cannot and will not be used as a revenue-raising measure; that is not the purpose of this provision. The services will be provided on a discretionary basis, because businesses can choose to take advantage of them or not, based on balancing the effect on revenues and meeting contractual obligations against cost of the service.

The services which the Government may provide, to help improve the resilience of the energy sector, are those such as making available personnel, supplies, equipment or other assets, to businesses. Examples of where the Government could provide a service for which it might be appropriate to charge businesses include: provision of personnel in event of widespread impacts on workers due to flu or industrial action; equipment or vehicles which have greater flexibility in extreme weather conditions, allowing companies to carry out repairs or clean up more effectively; and provision of assets to enable a critical component of the supply chain to remain viable in the short term and until alternative options are identified.

The need for this power became apparent last year when there was a threat of industrial action by drivers, which would have caused widespread disruption to fuel supplies across the UK. As a result of that, the Government have set up a military fuel school to train military personnel to drive commercial fuel tankers. Drivers could be deployed to haulage companies in the event of a future dispute of this nature, and this power would enable us to charge those companies for some or all of the costs incurred by Her Majesty’s Government—which is to say, the taxpayer.

My noble friend Lord Roper raised the Delegated Powers and Regulatory Reform Committee, and the recommendation for the removal of subsection (3)(b) which enables the Secretary of State to set the levels of the fees by means of a direction to be laid before Parliament, as well as by means of regulation. The Government are considering all the committee’s recommendations very carefully and will respond in due course. However, I take this opportunity to clarify why we feel that this provision is important.

The requirement for the services proposed is likely to arise in the event of a significant unexpected disruption. This may be necessary to plan and provide services in a situation of emergency and urgency. There may well be situations where it would be appropriate and feasible to set out the level of fees to be charged for a particular service in secondary legislation, and the Government would aim to do so in those circumstances. However, it is likely that there may also be circumstances where it is not feasible to work within the timetable required for secondary legislation, and the flexibility afforded by ministerial direction would be required for those sorts of situations. Lack of this flexibility may make the services difficult to deliver within the optimum timescale. At worst, it could render timely delivery completely unfeasible, with the consequential loss of benefit to businesses, the economy and consumers.

My noble friend Lord Roper mentioned other matters in relation to the publishing of the department’s reply. We will be happy to make it available. It will be published on the department’s website as promptly as is possible. That is in hand.

My noble friend Lord Jenkin made some points. I will say that these powers are not connected with, and would not apply to, provisions elsewhere in the Bill on the security of electricity supplies and capacity market provisions.

For the reasons I have set out, and given the importance of the provision for improving national resilience, the clause should stand part of the Bill.

[Lord O'Neill of Clackmannan]

Will the Minister clarify one point? If there is an official strike, for which due notice has been given, and military personnel are used as strike-breakers, companies will have to pay the Government for the use of the strike-breakers. In that event, what would the companies have to do to recoup the money that they had been forced to lay out to pay for the strike-breaking? Would they have recourse to the courts? Would they be able to sue the unions for the money involved in the strike-breaking activity?

[Lord Gardiner of Kimble]

My Lords, this provision is not designed to interfere with the normal relationships between employers and employees. Wherever possible, the Government’s preference is for the supply of fuel to be maintained by the normal, civilian supply chain. Military personnel would be deployed only where this is not possible. Ministers will take a decision to deploy military personnel only where there is a threat of significant disruption to fuel supplies. Industrial action in this sector can have a very serious impact on the UK economy, as well as endangering the health and safety of our citizens.

[Lord O'Neill of Clackmannan]

The Minister did not answer the question. If the Government impose a charge on companies in the event of an industrial dispute where military personnel have to be responsible for driving tankers, what redress will the companies have to recoup the money that they will have to pay to the Government to fund the strike-breaking exercise?

[Lord Gardiner of Kimble]

We do not anticipate that the companies could recoup in those circumstances.

[Baroness Worthington]

It seems to me that we have got to the bottom of this. It is a very narrow thing that is needed, yet the Government have created an incredibly enabling piece of legislation with no scrutiny. It is poor legislative drafting to have taken such a wide-ranging power. The Minister says that it will not apply to electricity, or will be used only in certain circumstances—which boils down to the Army learning how to drive fuel tankers. That is very narrow, but this is not a narrow provision. It almost sounds as if one could interpret this as the Government going into the energy supply business. It is that broad. I am glad and encouraged that we are not. I am also reassured to hear that this is discretionary, although how that would play out I am not sure. Either you deploy or you do not deploy.

Is the Minister saying that we would not deploy unless the company agreed to pay? That would be a reduction in the security of the country. The company might say, “No, we’re not paying for that”. Who in their right mind would say yes? If you are an oil company, you will not have factored into your bottom line unexpected payments to the Government for people to drive your tankers. The money has to be recouped from somewhere, and a company would be perfectly within its rights to refuse to pay. In that case, the Government will have to deploy their personnel anyway, or risk an interruption in our fuel supply. This needs to be narrowed in its application. It needs more definition in law.

I absolutely agree with the noble Lord, Lord Roper, who pointed to the delegated powers recommendation that subsection (3)(b) does not deserve to be here. It is far too wide-ranging. The whole thing is ill conceived. As I pointed out, in a disaster situation the last thing you want to be doing is negotiating around who is paying who. We have a Government. We pay taxes for a reason. That is what we expect of government. This is penny-pinching from the Treasury and it does not deserve to be in the Bill.