Energy Bill
Debate between Lord Gardiner of Kimble and Lord Whitty
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.
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.