Domestic Gas and Electricity (Tariff Cap) Bill

Lord Lennie Excerpts

Committee: 1st sitting (Hansard): House of Lords
Monday 11th June 2018 Grand Committee

Moved by

[Lord Lennie]

3: Clause 1, after “cap” insert “or tariff cap exemption”

[Lord Lennie (Lab)]

My Lords, this issue is especially relevant to the green challenger companies coming into the market, particularly those that have R&D interests. Suppliers must also be informed about tariff cap exemptions and it may be that these are being considered for green energy companies with R&D interests. That is not the same as saying that we have any sympathy for the possible gaming that could go on with green tariffs among the big six and other suppliers. They may just be billing companies that cite a certain percentage interest in the green market and then seek to have that applied to their exemption from the tariff cap when it comes into effect. That is not the purpose of the amendment; it should apply purely to the 90%-plus green provider and supplier companies. Obviously we take on board and support what has been said by my noble friend Lord Berkeley, but ask that this amendment also be considered. I beg to move.

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[Lord Lennie]

Before this comes to an end, would the noble Lord repeat what he said about midata having the ability to steer customers to the cheapest tariff available to them in association with smart meters? When does the noble Lord think this will become available? This is quite revolutionary. It is exactly what is needed, and it was suggested in the Smart Meters Bill, if the noble Lord recalls, that the smart meter could provide that kind of information. Is that how it would be communicated—through a smart meter—or directly to customers?

[Lord Henley]

Midata is a method of electronically transferring customers’ data from a company system to a third party, such as a price comparison website. I was saying that that could lead to innovative third-party switching devices. I think I might have said at Second Reading of the Smart Meters Bill that some apps were already available that could do that for an individual. Therefore, the noble Lord, Lord Lennie, could sign up to something that said, “Always shift me to whatever is the cheapest tariff”. I cannot remember the name of the one already in existence. The noble Lord might then find that two or three times a year he was changing supplier without knowing it, always going to a cheaper one. It might be that the noble Lord, being very virtuous, wanted a greener one or something else, and other such things could be arranged. I hope that is what midata will help the noble Lord and others to do.

[Lord Henley]

The noble Lord is absolutely right about the SMETS 2 meters. I will write to him about SMETS 1 meters and it might be that he is correct about that. I was only mentioning that as an advantage that will be available in the future to customers.

[Lord Lennie]

On that basis, I beg leave to withdraw Amendment 3.

Amendment 3 (to Amendment 2) withdrawn.

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Moved by

[Lord Lennie]

25: Clause 7, page 4, line 38, at end insert—
“( ) The Secretary of State must within six months of the passing of this Act publish a statement outlining the criteria that are to be used by the Authority in the review to assess whether conditions are in place for effective competition for domestic supply contracts.”

[Lord Lennie]

My Lords, the history of the electricity market has not been an unbridled success. That is why we are here. We want to ensure with these amendments that Ofgem has the right steer and takes account of the right criteria in determining whether market conditions truly apply. I take the point made by the noble Baroness, Lady Featherstone, that we do not want there to be a permanent cap on tariffs, but the tariff is likely to last longer than is currently scheduled.

I recently had some experience of Ofgem. It contacted me after Second Reading to say that it disagreed with me, which was not surprising, and asked whether I would like to meet and talk about it. I said yes and left a message to say where I was, but I have heard nothing since. If your Lordships have any influence on Ofgem, please use it, because I am still available for discussion should it wish to have it.

What comparable or appropriate market conditions should be in place? We met some of the smaller supply companies. They talked about supermarkets being almost perfect markets: you have choice ranging from price reducers to quality suppliers with everything in between, with the consumer able to shop around and choose where he or she wants to spend whatever amount of money on whatever product. That is true to a degree, except that the likelihood is that you will go to your local producer or supplier.

The comparison to the market for electricity is remote. The market conditions for electricity are that you have monopoly suppliers who supply your energy at a cost that they determine. They supply it at a price to attract the customer—we have heard this before—and then bump up the price once they have you and hope that you do not notice, because you are online, you pay by direct debit and you do not receive communications about that. And so it goes on.

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[Lord Henley]

I am sorry that the noble Lord, Lord Lennie, is having problems getting to meet Ofgem, but I am sure that it is an assiduous reader of our debates and will have noted what he said. In case it is not, I will pass on his message to Ofgem to say that he would be grateful to have that meeting—obviously, I want to be as helpful as possible.

That may assist our discussion on Amendments 25, 26 and 28, which would amend Clause 7 to include matters that Ofgem must have regard to when carrying out its review of the conditions for effective competition. As the noble Lord is aware, the Bill purposely does not define what the conditions for effective competition should be, although, as a major government programme, it requires Ofgem to consider the progress that has been made in rolling out smart meters.

It is right that Ofgem considers the market as it evolves over the next few years. Setting out now in the Bill the factors that it must consider would not be helpful. The BEIS Select Committee agreed with that approach in its report, which states:

“We believe that setting a definition of ‘the conditions for effective competition’ before setting the cap could create incentives for suppliers to game the system or treat the cap as a box-checking exercise rather than going above and beyond their obligations. It would also risk creating unnecessary opportunities for legal challenges”.


The factors set out in the noble Lord’s amendment appear to be broadly sensible. But this is a job that is best left to the regulator and is something that has to be considered in the light of the market as it is at the point that it is being reviewed, not now. Obviously we will have to consider that on different occasions if we have to extend the Bill. I do not see how binding Ofgem to a set of factors would be helpful.

As I made clear earlier and as my noble friend has made clear, Ofgem recently published a paper on the setting of the cap, which is out for consultation at the moment. It includes a consideration of the factors that indicate that the conditions for effective competition are in place and the extensive programme of work aimed at making it easier for customers to engage in the market and encourage them to switch suppliers. Ofgem also set out in its annual report on the state of the energy market an assessment of issues such as barriers to market entry or exit, the level of competition between firms, and the range and quality of service offerings. In its work on future supply market arrangements, it is assessing whether more fundamental changes to the structure of the retail energy market may be needed to allow disengaged consumers to get a good deal. Ofgem has said that it will need to assess which, if any, of these it considers to be crucial to lifting the cap.

Ofgem has said in its consultation paper that it expects to keep these factors under review as the market develops and that it will report on progress in creating the conditions for effective competition, alongside its annual reports on the energy market. It has also said that in order to recommend that the cap should not be extended for another year, it would expect to see sustained progress that would allow it to be confident that currently disengaged consumers could gain a reasonable deal from the energy market without price protection.

I hope that the noble Lord will accept that his amendment is possibly overly prescriptive. Ofgem will consider what is relevant and necessary at the time. I hope, therefore, he will be able to withdraw his amendment. I repeat what I said earlier: I hope he manages to have his meeting with Ofgem and, if he has any problems, he should get in touch with my office.

[Lord Lennie]

I am grateful to the Minister for his offer of support for my meeting with Ofgem. I am sure it will happen soon—I am sure Ofgem has ears and eyes and can read, so I expect a call fairly soon. I am also grateful that he welcomed the suggestions we have laid out in the amendment and finds them useful as a steer that Ofgem may choose to use. I am not sure that they are the be all and end all, but it is a range of suggestions. I will certainly read the consultation paper Ofgem has put out and respond to it. In the meantime, I am happy to beg leave to withdraw the amendment.

Amendment 25 withdrawn.