Energy Bill [HL]

Lord Oxburgh Excerpts

Monday 31st January 2011 Grand Committee

[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 Oxburgh]

On cost, does the Minister agree that the purpose of rolling out smart meters is to save money and to make our electricity generating system more robust and less expensive? It is unlikely to offer the prospect of reduced prices, but it could offer electricity prices that rise a little less rapidly than they would have done otherwise. It should be a double win. The companies will avoid the inconvenience and cost of having people come round to read meters. They will also get a much better understanding of the power requirements of different parts of the community at different times, which will allow them to manage the electricity system better. From the consumer’s point of view, they avoid the inconvenience of inaccurate and late bills, with which we are all familiar. They also get the opportunity, if they so wish, to manage their consumption in a way that will lower their costs. This should be a win-win proposition. The Government and the companies—if they believe this, as I hope they do—have a responsibility to spread the word abroad.

--- Later in debate ---

[Lord Oxburgh]

My Lords, the step tariff to which the noble Lord, Lord Teverson, has drawn attention clearly has its origin in the old concept of the standing charge—a charge that companies levied to cover people coming round to read the meters, preparing paper bills and all that sort of thing. The smart meter arrangements, which we have just been describing, will remove nearly all the justification for that concept. It would be useful if the Minister considered how he might ensure that the benefits of introducing the meters can be passed on to the consumer; it will obviously be some time before the whole system is drawn out. If any step is needed, it really should be a very small one. Smart meters should certainly make the handling of pre-payment meters identical to conventional ones; there need be no difference in charge. I presume that pre-payment meters will be managed the same way as top-up phone cards, so the whole thing should be straightforward.

Inverted tariffs can work. They have been used for water in Sydney, Australia—you get your first so-many cubic metres of water at a particular price and, as your water use goes up, so does your price. That is not quite the same, because a lot of subsequent use of water would be for watering large lawns and things of that kind, which is not quite what we are talking of here. Also, in my Shell days, we used something like this in Nigeria, where the company gave away a certain amount of electricity—enough to run a refrigerator, a number of light bulbs and a television—and charged consumers only when they went above a particular level. Those things have worked and have been used to alleviate poverty. Whether this is quite the way to do it, I am not sure; I am with the noble Lord, Lord O’Neill. However, there is an important idea here.

[Lord Whitty]

My Lords, the noble Lord, Lord Teverson, is to be congratulated: he has really put his finger on what is utterly wrong with the whole structure of tariffs in the energy market. It is an object of public policy to reduce fuel poverty, and it is an object of public policy to reduce consumption of energy, yet we have a structure of hugely complicated tariffs for households—2,500 tariffs, or whatever it is—the net result of which is that the poor pay more, and that the more you use the less you pay. That is an absurdity arising from a combination of an oligopolistic market, a history of the standing charge, and a sort-of ideology behind the Ofgem intervention about cost reflectivity. If you were really trying to achieve the outcomes that successive Governments have declared, you would restructure and regulate the market in the direction proposed by the noble Lord, Lord Teverson.

Obviously, there are complications. There will be winners and losers. I disagree with the climate change committee and, to some extent, with my noble friend Lord O’Neill—the bulk of the fuel poor are fuel poor because of the price that they pay for electricity, not because they have to use more of it, even though it is true that a programme of improving the energy efficiency of buildings would ideally predate any change in the tariff structure. A sub-group of the fuel poor have to spend to use an enormous amount of energy to meet minimum comfort levels, but the majority are hit because of the prices that they have to pay within the properties that they occupy.

There would have to be some sophistication of the proposition made by the noble Lord, Lord Teverson. The crude definition is a rising block tariff, but it is not necessarily the only way in which to act. The Government would be well advised to ask Ofgem, the energy companies and everybody else in the field to look at the whole concept. Until we effectively reverse the structure of tariffs, we will not achieve those two objectives and—via the objective of using less energy—the energy-security objective of energy policy. The noble Lord, Lord Teverson, has a big idea here. I suspect that the noble Earl is correct that the Minister will not leap overboard and grab this amendment, but we need to think radically here and ensure a proper analysis of how the restructuring could be done effectively with minimum collateral damage.

--- Later in debate ---

[Lord Hannay of Chiswick]

I too would like to say a few words in support of the amendment, which is designed to strengthen the powers of the authority with regard to public service obligations on gas suppliers, like the obligations that already exist on oil suppliers. The debate has so far shown that UK gas storage capacity is too low in terms of the crucial insurance policy that it represents for this country either against a direct cut-off of gas supplies; or against sharply rising prices of such supplies, perhaps due to a cut-off somewhere else when we find ourselves at the end of the supply line. It would be helpful if the Minister could confirm that UK gas storage capacity is much lower than that of other EU member states—not just the ones cited, but quite a few more. Is our vulnerability really also not lower than theirs? Now that North Sea gas is running down, I believe that our vulnerability is every bit as high as theirs.

Gas storage has to be an important element of both our and the European Union’s long-term energy security policy, along with other elements such as the diversification of supplies, the diversification of pipelines, more interconnectors between member states and more competition in the single market. The right honourable gentleman the Prime Minister is going to Brussels at the end of this week to discuss all those issues, because that is the topic of the European Council this week. I hope that it will make progress on all those issues. We need to put ourselves in a better position than we are now, so far as gas storage capacity is concerned. As the noble Lord, Lord Jenkin, said, the simple way to achieve that is through the PSO. That is the thrust of the amendment and why I support it.

I ask the Committee’s forgiveness for straying slightly outside this piece of legislation when I ask the Government whether they are considering a minimum requirement for gas storage in the European Union on each member state. That is highly desirable, as it has proved for oil. If it were to be introduced, it would likely be helpful for this country. There was a great deal of opposition from the suppliers when the oil requirement was introduced in the 1970s, but you do not hear anything about it now. It is taken as the most natural thing in the world that we and every European Union country hold—I think—40 days’ supply of oil. Working now for an EU minimum that would apply to all member states would be worth while. If we were to move down that road, the amendment would put us in a position to meet any obligations. It would therefore make our position in the negotiations for a minimum requirement in the EU much stronger. We would be showing other member states that we were serious about working for this, even though we were merely introducing a potential power to do it.

I see no particularly good arguments for resisting the amendment. After all, it does not impose an actual obligation on anyone; it merely makes it possible to do so without further legislation if it can be shown objectively to be both necessary and desirable. I therefore hope that the Minister will give serious consideration to it in his reply.

[Lord Oxburgh]

My Lords, I briefly add my support to this amendment. The noble Lord, Lord O’Neill, is right that our dependence on gas will undoubtedly increase over the coming decades; as renewables and other sources of low-carbon energy come in, gas will be very important. It is equally true that the amount of storage that we could get away with when we had the North Sea producing at full rate could be relatively small, but it is also clear that the storage that we have today is inadequate. I will not go into the details, but something like 10 to 20 days’ supply is what we should be thinking of today. This will not happen without regulation of some kind. The supply companies have no incentive to do it, and what both industry and the consumer need is gas, not compensation.

[Lord Davies of Oldham]

My Lords, all that needs to be said about this amendment has been said by informed Members of the Committee. I congratulate the noble Lord, Lord Jenkin, on his amendment, which was supported so strongly by my noble friend Lord O’Neill, who also knows energy issues so well. It reinforces the case.

I am always worried when this issue of days crops up. The noble Lord, Lord Jenkin, indicated that France and Germany are different from the United Kingdom. They have been massively different historically because we have had our own indigenous resources. Our needs for storage are therefore very different from the needs of those and other countries in Europe. When I was charged with responding on energy matters for the previous Government, I always used to shudder when the “Today” programme would say, “The French have 90 days’ security of supply and we have four”. One felt the shudder go round the nation because of a colossal risk that we were all taking with energy. That is not so, and we must not spread alarm, but we must make provision for the future in a significantly changing situation, and we need to adjust to it. As the noble Lords, Lord Jenkin and Lord O’Neill, indicated, we are talking about a significant increase over present storage capacity. However, we are different from those other countries.

There were one or two occasions in the past when the United Kingdom’s position at the end of that supply line cost us and we paid higher prices for gas in some circumstances. One remembers that enormous row with the Germans, who had to go to the European Community over the extent to which German companies seemed rather better at availing themselves of the available gas from Russia than we were. So this is an immensely serious issue, and there is no doubt that storage is the key issue. We have a range of suppliers, but a range of suppliers is no good if we do not have the storage capacity to deal with potential interruptions. There will always be limited supplies as far as gas is concerned, and it is obviously the case that we have issues regarding our own supplies.

I hope the Minister will accept the crucial point made by the noble Lord, Lord Jenkin, in his amendment—that this is in addition to what is in place at the moment. It is an empowerment that we might need. We might not need it, but if we do not, then it will not be utilised. However, it would be remiss of us if we did not guarantee that this power was in this Energy Bill. I therefore hope the Minister, who I know has to wrestle with all sorts of difficulties in responding to even the most constructive of amendments, will appreciate that the Committee expects a positive response.