Lord O'Neill of Clackmannan
Main Page: Lord O'Neill of Clackmannan (Labour - Life peer)Energy Bill [HL]
Lord O'Neill of Clackmannan Excerpts(13 years, 10 months ago)
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Lord Grantchester
My Lords, we agree in large measure with the amendments tabled by my noble friend Lord Whitty. We thank him for introducing the subject of smart meters so that we may discuss certain aspects of their operation. On his first amendment, on marketability, we understand that a balance must be struck between information provided to the consumer and possible salesmanship at the time of installation. He is quite right to draw the attention of the Committee to the fact that only 20 per cent of consumers view their energy supplier as “most trustworthy”, which is a huge gap to bridge in getting to a degree of confidence for the consumer.
On the question of smart meters and interoperability, as we know, at present consumers cannot change supplier without changing meters. We understand that there could already be something approaching 2 million smart meters in the marketplace, although the exact number is not known. It would be very interesting if the Minister could provide us with any figures. At Second Reading, my noble friend Lady Smith raised the question of interoperability. The Minister has since written to us to say that he has had discussions and will do his utmost to make sure that, as far as possible, interoperability will be maintained. What exchanges has the Minister had with the energy companies in this regard? I draw to his attention that this is a vital area for consumer confidence, and ask whether there are indeed ongoing conversations with the industry.
The noble Lord, Lord Jenkin, drew to our attention the fact that the Energy Retail Association has produced a draft code of conduct for consultation, building on suppliers’ current work on a draft voluntary code of practice on vulnerable consumers and accurate billing. Our understanding is that, when the code of practice comes into place, this interoperability should be a standard requirement. Perhaps the Minister can comment on whether, by the time the regulations are drawn up, smart meters will be not only entirely interchangeable between credit and pre-pay systems but completely interoperable between energy companies.
That leads me to ask the Minister a few general questions that are afforded by this opportunity. Does he have in mind perhaps undertaking a review of consumer protection in this field? It is a huge area and could benefit from such a constructive operation. Furthermore, does he have in mind a strategy to deliver consumer benefits? These smart meters are not simply a new device that will allow the “market to provide”, as he said. Perhaps we cannot simply install them and hope that they will work. There will have to be a strategy to ensure that the consumer benefits are realised and, indeed, a constant interactive review of the rollout strategy to ensure that all the opportunities are not missed. At the moment there does not seem to be any monitoring framework in mind. There are also no minimum standards to encourage not only general acceptance among consumers but some knowledge of what they are looking at when they see a smart meter. The whole consumer field could be greatly augmented by undertaking a constant interactive review. Lastly, has the Minister thought about an independent smart-metering delivery campaigns body to monitor these situations and perhaps to give him guidance on extra help to low-income and vulnerable consumers?
Lord O'Neill of Clackmannan
I welcome this amendment. It is important that we have a code that is as robust as possible, not least because this process will be carried out without a clearly identifiable body responsible for consumer protection. We have previously had gas and electricity consumers councils. After that, we had the combined one and Energywatch, which was folded into Consumer Focus, which, of course, will disappear. Many people have grave doubts about whether the citizens advice bureaux as presently constituted have the resources. They certainly have sufficient locations, but the question remains whether within these locations they will have people with the expertise to take on the protection of consumers when matters such as smart metering arise.
As has been pointed out, there is a great lack of public confidence in the energy suppliers in this country. That is quite a sizeable achievement, because for many years we were able to point to British Gas, the Post Office and one or two other companies as being the kind of companies that people could depend on and trust. Now, in large measure, either through commercial incompetence or greed—in the case of the Post Office it is not really greed, but I certainly would not acquit the others of a charge of greed—the public lack confidence in these companies.
The rolling-out of meters will go on for some time. We will have something like 18.5 million households with gas and another 24 million with gas and electricity, and then there are small businesses, shops and the like. So we could be talking about somewhere in the region of 45 million-plus meters being installed over a relatively short period.
One of the hallmarks of this process at present is that it is shrouded in secrecy. The lack of transparency about the discussions taking place between the Government and the companies is, in many respects, quite astounding. There is not that much that we need to concern ourselves with in terms of commercial secrecy, but we need to know a great deal more. If we are not going to have what many of us would regard as appropriate bodies for consumer protection, if we are likely to have a lengthy period in which this rollout will take place and if we have a conspicuous absence of transparency in the planning and the bringing down, even intermittently, of tablets from the mountain, it is important that we have as robust a code as possible.
While we may get the usual claptrap from the Minister about the words in the amendment not being the exact words, we want reassurance. The public deserve reassurance. We as consumers will be paying for the installation of these meters even though they will be owned by some electricity or gas supplier. It must be made clear that we will have these meters for a long time. I remember that one of the past arguments against smart metering, at a time when there was not quite the environmental edge to the debate that there is now, was that these meters were robust enough to last for 40 years. It was the “If it ain’t broke, don’t fix it” kind of argument. We are going to be saddled with these damn things for a long time, so we should ensure that they are the right ones, that they are sufficiently flexible, that we begin to get clear indications of the intentions of the companies and that there is to be a sufficiently strong and robust process of consumer protection throughout that period.
To each of those requests, I would expect some kind of lukewarm response from the Minister, such as, “We’ll do our best. We’re all trying very hard, chaps”. Until such time as we can get something more robust than that, the least that we can hope for is a decent code of practice. My noble friend Lord Whitty has made a reasonable stab at that. The words may not be exactly what are required but, if the message can be got through and if at Report we can get something to reassure and protect consumers, we will not have made too bad a fist of this part of the Bill.
The Lord Bishop of Chester
My Lords, when the Minister does indeed bring the tablets down the mountain at the end of this short debate, I wonder if he could put on record what the Government anticipate will be the average capital and installation cost, which will be an additional burden on the energy consumer.
Lord Teverson
My Lords, perhaps I may make a short comment on the contribution of the noble Lord, Lord O’Neill. Of all the things that the Minister has or has not done, the one thing that he has not done is to come back on amendments and say that they are not exactly right and will not therefore work. I have never heard him make that particular response, to put the record straight.
Lord O'Neill of Clackmannan
It is usually the Whip who gets the dirty job of saying, especially to his noble friends, that they have a nice amendment but it is not quite good enough and they will have to come back. The noble Baroness has already done it several times, but perhaps the noble Lord was not in the Room at the time.
Lord Marland
My Lords, I am grateful to my colleague the Energy Minister, Charles Hendry, for coming down with his tablets from the other place to listen to the quality of this debate and indeed, according to the noble Lord, Lord O’Neill, the “claptrap” that I am about to tell him. I am sure that he did not mean that.
Lord Marland
We will wait and see. I am disappointed to hear that from a man who was on the government Benches for 13 years. We all know that smart meters started before we got into government and that consumer protection was not high on the noble Lord’s list then. Maybe he was internally debating with his own party; I hope so.
I am also extremely grateful to the noble Lord, Lord Whitty, and the opposition Front Bench, who telegraphed to us their message on these important issues before this event. It is a fundamental subject for us to address. At its heart, as the noble Lord, Lord Whitty, would say, is unwelcome sales activity on the one hand and interoperability between companies on the other. Those are the two salient points of his amendments.
I begin with a couple of factual issues to set the scene. We estimate that there will be 46 million smart meters. The noble Lord, Lord O’Neill, was right on that, which is excellent. We know that British Gas has rolled out around 250,000 so far; it told me so this morning. We also know that the average cost to British Gas is around £300 over a lifespan of 20 years. I hope that that deals with the comments of the right reverend Prelate.
On the thrust of this argument, it is absolutely fundamental that customers are protected from unwarranted and unwelcome sales activity. However, we must not ignore the fact that at times sales activity may be welcome, which we must bear in mind in legislating on this matter. Thanks to the previous Government, we already have powers available to us for consumer protection in the Energy Act 2008, which stands at the moment. It is fundamental that Ofgem is carrying out what I could not believe was called a “spring package” and will issue recommendations on how interoperability and the various issues that are absolutely fundamental to smart meters will be rolled out this summer. As I said, the Energy Act gives us powers to act on this. I do not believe that, as the noble Lord, Lord O’Neill of Clackmannan, suggests, companies go into smoke-filled rooms for clandestine meetings with Ministers to discuss these things. These matters have been discussed and aired openly because it is to companies’ advantage to work with the customer. After all, it is the customer who will be taking these on board.
As I said earlier, I am so concerned about these two issues that the noble Lord, Lord Whitty, has raised that I had a meeting with the chief executive of Centrica this morning. We went through it line by line. I must say that I was impressed by the way in which that company is determined to roll this out. I am also impressed that it is co-operating in a very difficult technical area with Scottish Power and E.ON and has relationships with RWE and EDF. Understandably, they are looking at how the technology develops, particularly in the use of telephones. British Gas is currently working with Vodafone and we hear now that British Telecom has come in with a product. It is a complicated product that is evolving. As Ministers, we will monitor and make sure that this has the consumer confidence that all of us in this Committee want to see. With that in mind, I hope that the noble Lord will withdraw his amendment.
Lord Whitty
My Lords, I am grateful to all noble Lords who have taken part in this debate. The Minister said that provisions exist in the 2008 Act and it is clear, as the noble Lord, Lord Jenkin, said, that some progress on a voluntary code of practice has been made. However, this section of the Bill is intended to move that forward in a way that meets anxieties that interoperability and householders’ freedom of choice are protected.
I should probably have declared a past interest: until last month, I was the chair of Consumer Focus. There has been some engagement, but not all our points have been met, in particular the issue that, from the word go of the rollout, consumers should not be subject to cost when they switch. The Minister has already consulted with British Gas and Centrica. There are about 250,000 smart meters out there. The estimate is that, by 2014, there will be 4 million, most of which will be British Gas. This is before the standards on interoperability have risen. My understanding is that, at the moment, if British Gas customers who have one of these smart meters want to switch, they will effectively be in dumb mode if they switch to another supplier whose meters are not compatible. Likewise, if they are on pre-payment but wish to switch, the smart-meter systems for pre-payment and for direct debit, for example, are not compatible.
In many ways, I am pleased that British Gas has taken the initiative in starting to roll these things out for all the reasons that people have given—we want them out there as soon as possible. However, the fact of the matter is that we are going to have a whole number of them that are not compatible and, unless we lay down principles in this Bill, that will continue. Those principles need to apply to the ongoing rollout and they need to apply to the standardisation that is introduced beyond 2014.
I agree with the noble Lord, Lord Jenkin, that the manner of meeting those requirements can be flexible. I am in favour of a strong voluntary code of practice covering this area, but the principles that lie behind my amendments should surely be in primary legislation. I accept that these amendments are probably too complicated and that ongoing discussions and outcomes need to be taken into account when we reach the final draft, but I would be concerned if we were to pass the Bill without the principles of, in particular, no detriment in terms of choice and no mis-selling being written into the primary legislation.
Lord O'Neill of Clackmannan
Is my noble friend not concerned that, from what the Minister has said, the ongoing discussions will probably be completed by the summer, by which time this Bill will have become an Act? Therefore, it will not be possible for us to deal with the outcome of these discussions in relation to this legislation. It will require a subsequent electricity/gas Act to accommodate it, unless we are going to have some kind of magic SI brought in at a later stage to take account of the discussions. Has my noble friend thought of this point?
Lord Whitty
My Lords, we get energy Acts rather frequently and one would hope that this would not provoke an even speedier reversion to new primary legislation in this field. As I understand what the Minister was referring to, he was speaking about the discussions involving the regulations that Ofgem is going to bring forward as part of its spring package, which—confusingly, as he says—will emerge in the summer. That is not necessarily the end of the line. I hope that, by the time the discussions are finalised in, shall we say, the late spring, the outline of this part of the Bill will be clear to Ofgem and those with whom Ofgem is consulting. If it is not, the situation to which my noble friend Lord O’Neill refers arises.
Lord O'Neill of Clackmannan
I find this a confusing debate. First, we have an elegant contribution from the noble Lord, Lord Teverson, explaining how there is a failure in the structure of the market and the present pricing arrangements. We then get an endorsement of this from the noble Earl, Lord Cathcart, who, with the greatest respect, is riding one of his hobby-horses. We are all entitled to do that, but half way through the business he changes horses and is not very sure whether he is going one way or the other.
One of the factors in making the Green Deal successful for consumers will be rising gas and electricity prices, because the Green Deal will make the savings that much greater. It will make the savings that much greater that much earlier if the initial block of electricity or gas units consumed is as high as possible; it is then the second tranche from which you may make some savings. That appears to be a recognition of the fact that we anticipate that, certainly for the rest of this decade, energy prices will continue to rise for a variety or reasons—changes in generation, shortage of supply or volatility of supply because of Middle Eastern uncertainties. All these things will, in varying degrees, result in a steady increase. That is one of the attractions—perhaps not the most compelling one—of the Green Deal. The amendment would in many respects undermine the attractive features of the Green Deal.
Equally, the climate change committee has argued that the majority of fuel-poor households have structural deficiencies which require more electricity to be used in keeping the rooms warm. Therefore, the priority must be to get people’s homes improved. The apparent attraction of making the price of the initial tranche lower is complicated by the fact that these people are always going to be the ones who will go into the second tranche to keep their houses warm. There are elements of contradiction in both arguments.
We have mentioned the role of Ofgem as a potential arbiter—a body that could hold the ring. Although Ofgem’s function is in part to protect the consumer, it is also to promote competition. The argument advanced by the proponents of privatisation and subsequent liberalisation was that, after liberalisation, you would have a competitive market in which the players would change the manner in which the old state monopoly had dealt with pricing issues. In fact, as we have seen, while it was apparently in the interests of the state monopoly to behave in a particular way, it is in the interests of these private oligopolies to behave in much the same way, in that they have not radically changed the nature of pricing.
Some of us have sought to introduce arguments about the injustice of the pre-payment meter to many households, although not all, as pre-payment meters suit consumers in a number of households, perhaps because people are there only part-time—the house may be a second home in a rural area, for example. The point that I am getting at is that it was only through the threat of intervention on the part of the last Government that we began to move on this issue. I think that only one company—Scottish and Southern—was prepared to change its pricing structure in relation to pre-payment meters. There may have been others, but that is the one that I remember from the big five or six in this area.
I do not think that Ofgem has the power to do this at the moment and I am not sure that it would want to do it. The argument advanced by the climate change committee is somewhat tentative, but it has some weight. If we are going to try to deal with the question of consumption and price, the speech of the noble Lord, Lord Teverson, provided an elegant solution. I respect him for that, but I am not sure whether it is the ideal solution. We have had a reasonable excuse to have a good debate, but I am not sure whether at this stage this is really the best way in which to deal with the problem. It would be preferable if we gave the regulator powers that it ceased to have some time ago to go in and explore this, if not independently to change it. I know that its powers are being reviewed; it certainly does not have the powers to interfere at this stage, as I understand it. But if it was to be given those powers following the government review, that might be a way in which to deal with the matter.
I am not certain that this amendment will achieve what it is trying to do in respect of the poorer households that spend a fair amount of money heating their homes. It is unlikely that we could get a tariff structure to enable all the heating of the poorest people’s homes in the country to be done on the lowest tariff. If we could get that, we would go some way towards alleviating the problems faced by the disadvantaged. Equally, we might well put ourselves in the position of having disproportionately higher prices for the second tranche, which might reach a level that brings additional people into fuel poverty. So we seem to be damned if we do and damned if we do not.
I am a bit confused and I am sure that other noble Lords are as well. It may be that listening to me has made matters worse. If we are to deal with this issue, we really need to deal with it on the basis of far stronger and more comprehensive evidence than we have at the moment. The present system does not work, but I am not sure whether something as flip as this amendment will necessarily come up with the answers that quickly.
Baroness Maddock
My Lords, I support my noble friend in raising an important issue, which has led to rather a long debate. In reply to my noble friend, could the Minister tell us where we are in getting the utility companies to simplify their bills and make them clearer? If the Green Deal is going to work and people are going to understand where their energy savings are, the bills need to be better. In the past, you might try to work out the payback on new technology. We had a condensing boiler and it was really complicated to look back over a year—we had changed suppliers at the time—to work out what we were saving. I think that in the end I did work it out and we had saved at least a quarter of the gas in a year with the condensing boiler, but it was no mean feat. Given that the Green Deal depends on people understanding such things and that we know that we will not all have smart meters in the near future, it would be helpful if the Minister could tell us a little about that.
I support my noble friend Lord Cathcart on what we need to do to help those in fuel poverty, but I cannot agree with him on trying to do it on council tax bands. The banding of your house does not relate to your ability to pay the council tax or any other bill. That is why I have been so against it for so many years. However, I support him in his aim to do something about fuel poverty. I have probably declared my interest before but, like the noble Lord, Lord O’Neill, I am involved with National Energy Action, which is a charity trying to do something about the fuel poor. We have been doing it for over 25 years now.
Lord O'Neill of Clackmannan
Could the Minister give us any evidence that this has taken place with any degree of consistency? We normally find that upward changes in prices as a consequence of market conditions are introduced almost immediately but that, when there are downward movements as a result of the same market circumstances, it takes rather longer. It seems that the customer in the middle is left having to pay more for longer and getting the benefits of lower prices for a shorter period.
Baroness Northover
The noble Lord might be reassured if I could conclude. We are sympathetic to what the noble Lord, Lord Whitty, intends. We have to give careful consideration to the amendment to make sure that the unintended consequences that I have just mentioned are not brought to bear. I therefore propose to him that we take away the amendment for further consideration, because we understand the principles behind it. On that basis, I wonder whether he might be willing to withdraw the amendment.
Lord O'Neill of Clackmannan
My Lords, I support this amendment and compliment the noble Lord, Lord Jenkin, on covering pretty well the whole of the case. Like him, I was approached by a company called Gateway, which is in the business of constructing storage facilities—or would like to be in the business of constructing storage facilities. My understanding, which the Minister will perhaps confirm, is that at the moment we have around 5.9 billion cubic metres of gas storage facility in the UK, and that we could need in extremis to double that or—instead of storing the four or five days’ worth of gas that we have at the moment—go up to 20 days’ worth. The consumption of this additional gas is not on a pro rata basis; it tapers because other things would happen.
My point is that the balancing mechanism is essentially the market mechanism, which assumes that this will be fine if we have a gas storage facility that blows up, as happened a few years ago. World market conditions were not affected to any great extent by that but we still had to buy in additional supplies. If something happened in the United Kingdom that in some way interrupted or interfered with our present indigenous supplies, we would not be affected by world prices. On the other hand, there could be a world crisis and an interruption to supply because we may well be the last in line for Russian gas supplies. There are reasons why we would be last in line in a world crisis, not least because for a long time we were self-sufficient and exported gas. There were periods in the 1990s when we changed the nature of our gas contracting and, as a consequence, we have tended more towards short-term contracts than long-term ones. Therefore, we have less of a claim on access to the world market.
The point I want to make is that it is fine to use the market-balancing mechanism when there is, in effect, a UK problem, but when there is a world problem, it becomes exceedingly expensive. If we are to be prudent, it is necessary for us to look at what would be regarded as getting the balance right between the two options. Neither of them is exclusive. In the case of the PSO, we would give a signal to the market that our very low level of storage ought to be increased.
When we touched on this subject at Second Reading, the Minister told us, “I have just signed the document offering planning permission”, and said that this may well go ahead. Something like 15 projects at present enjoy planning permission but nobody sees the need to act on them because there is no clear indication that the Government are prepared to give them active support by way of a PSO. We need additional supply if what I have been told by Gateway is true. I have no reason to doubt that, although I accept that Gateway is in this business and will want to enhance its case, which is not unreasonable. The same could be said for the gas traders who have been successful in tipping the balance the other way. It is necessary for us to have a clearer indication.
Lord Marland
The noble Lord has such talent in one body. So we have 20 days’ storage. The noble Lord, Lord Hannay, said quite reasonably that we should compare ourselves to other countries. Obviously, Germany and France have more than that, but they do not have their own gas supply. They are entirely reliant on what used to be called the old Iron Curtain countries for their supply. I would be concerned about the security of supply in the light of some of the endeavours that they have been through. We in this country still produce 50 per cent of our own gas and we are still finding more gas, which will not, admittedly, stop the supply being eroded, but will decelerate the erosion. We have a secure contract. The noble Lord, Lord O’Neill, suggested that we must have good long-term contracts; we probably have as good a long-term contract as any country in the world with Norway, from whom we receive 20 per cent of our supply, managed by Shell, the former company of the noble Lord, Lord Oxburgh—and a marvellous job it does as well. My own view is that we have a very significant secure supply.
Let us look at the matter of storage. Yes, we have given planning permission to various endeavours, but at the moment the cost of storing gas is significantly higher than the price of storing oil, so not unsurprisingly people are giving due consideration to the commercial viability of this project. Of course, part of the thing that we must do in government is to weigh up the pros and cons and absolutely ensure that the nation has security of supply, which is fundamental to all Governments, and to be able to gauge that. We have not had a greater opportunity to gauge that than the unfortunate months of November and December last year, which were beyond record for bad weather, when we came through with flying colours. There were certain countries—and we shall not mention the names—that did not do so. Given the tests that we have had, we have come through with flying colours.
We should not be complacent, of course. That is why we have acted swiftly to engage in planning permission and to make it much easier for big infrastructure projects to be authorised quickly. But we cannot sit in government and insist that certain things are going to be carried out unless they have gone through proper consultation. In many ways, the noble Lord, Lord Jenkin, gave me the answer to the question posed by his excellent amendment. Ofgem is already considering our requirements and carrying out a significant code review consultation, which will be produced at the end of February, on the resilience of our gas energy supply. It would be right for us to take on board what Ofgem has to say, to review it and then carry out what powers are necessary to ensure that, if there are areas that need to be dealt, the Government deal with them.
I hope that that sets the scene for the current gas supply situation. I hope that it answers a number of the excellent questions that noble Lords have asked and allows my noble friend Lord Jenkin to withdraw his amendment.
Lord O'Neill of Clackmannan
Perhaps the Minister could answer two questions. First, could he give us the number of billion cubic metres we have in storage at present? Secondly, am I right in saying that the effect of the amendment would be permissive rather than prescriptive? If it is only permissive, why not include it?
Lord Marland
I thought that I answered the question on the storage available. I do not know precisely what amount is in storage as of today, but we have capacity for 4.6 billion cubic metres with another billion cubic metres of capacity in construction.
As for enablement, it is not for the Government to be too prescriptive. Already, in months, 25 per cent of gas storage is under construction. Already, we have tested that against difficult winter conditions. Already, we have found that it is satisfactory. As I mentioned, Ofgem is carrying out the review, so it would be wrong at this point in proceedings to pronounce on findings that might be different from those of the Government or us in this Room. We should listen to what it has to say, take it on board, and perhaps use powers available to us.
Let us not underestimate the difficulties. The noble Lord referred to Gateway, a company with which I am familiar. Its issue has been one of planning. The problem has been in Lancashire, if my memory serves me right. There is nothing that we in government can do about that if the local authority does not determine that it is the right thing to have.