Lord Teverson
Main Page: Lord Teverson (Liberal Democrat - Life peer)(13 years, 10 months ago)
Grand CommitteeRead Full debate Read Hansard Text
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 Teverson
“Energy tariffsEnergy tariffs
(1) After consultation with electricity and gas retail sellers, and consumer groups, the Secretary of State shall introduce regulations that make it mandatory for electricity and gas through pipeline supply companies supplying to domestic properties to configure their tariffs so that the initial units of energy supplied are at a lower cost to the consumer than remaining units.
(2) The principles of the scheme shall be—
(a) that the number of lower priced initial units shall represent the average amount of energy required for a household of that size to keep warm, clean and fed to a modest but acceptable standard; (b) the tariff price for the initial units shall be equal to the medium term marginal cost of the production of that energy;(c) overall, the new combined tariff should be revenue neutral to the energy supply companies.(3) The scheme and its tariffs will be assessed and audited by the Office of the Gas and Electricity Markets, who will also be responsible for the capture, analysis, and reporting of all information to the Secretary of State regarding the implementation and management of the scheme.”
Lord Teverson
My Lords, there are many strange things about electricity bills. This amendment caused me to look at mine more carefully. There are four pages of information, which normally I fail to look at—and most of the time when I need to look at it I find it too complex and I understand it less after I have read it than I did before I read it. On tariffs, the first tranche of units used by a normal consumer is at a significantly higher level of charge than the ensuing tranche. Some consumers may have even more divisions, but I have two and, as it is for most people, the first units used are far more expensive. On 23 December 2010, my first units were 20.1p each and the next units after I had finished those were a quarter less at 14.55p. I do not know whether that completely replicates what other people have, but it seems fairly representative.
We have two issues affected by tariffs generally. When I learnt economics as a corporate economist, we learnt that on the whole when prices were high you demanded less and that when they were less you demanded more. That was a demand curve, in which I am sure all noble Lords are well versed.
We are really trying to do two things in the Bill. One is to reduce the amount of electricity and energy used in the nation, thereby reducing carbon emissions. The other is to reduce fuel poverty by investment in making houses, dwellings and business premises more energy efficient. Yet these types of tariff—higher at the beginning and less at the end—mean that the market signals that we are trying to do exactly the opposite. That is why I have tabled my amendment in this way. I will be interested to know whether the Minister criticises the way in which it is written, as the noble Lord, Lord O’Neill, seems to think he might.
I would like to probe this area particularly. There should be a better way of doing this, which is what my amendment attempts. First, it says that things should be the other way round, so that there is an incentive to keep energy consumption relatively low and that those normal consumers who suffer fuel poverty are charged less. Having tried to table a suitable amendment, I absolutely agree that it is difficult to encapsulate exactly how that should happen, which is why it suggests a general scheme of what we are trying to achieve. At the end of the day, the arbiter would probably have to be Ofgem. We want the electricity units used by an average household for essentials to be at the lower rate, with a higher rate after that. Overall, the outcome should be revenue neutral. I say, maybe from my work as an economist, that the existing dual-pricing function is probably an indication of a monopolistic marketplace. You certainly do not have perfect pricing here. At another time, maybe we will want to address that.
Unfortunately, the amendment does not state that pre-payment meters should not charge significantly more than ordinary electricity tariffs, thus heavily and severely working against the poor and the fuel poor. We might consider that another time; perhaps it goes back to the smart meter issue. However, that is not what the amendment is about. It is about trying to bring a much more just tariff into the industry. The only way in which that can happen is through legislation. I beg to move.
Earl Cathcart
My Lords, I certainly support the thrust of the amendment, as I devoted almost my entire Second Reading speech to the subject. When I looked at my own electricity bill, I noticed that I was being charged nearly 30p for the first 900 units, after which the price dropped to about 13p; I obviously must have a word with the noble Lord, Lord Teverson, to see where he gets his from. I argued that that way of charging seemed cack-handed. As my noble friend said, it seems to defy the laws of supply and demand and their relation to price. The greater the demand, the greater should be the price. When I asked other customers and neighbours, they confirmed that they, too, were charged nearly double for the initial units that they consumed.
I further argued that the first few thousand units should be relatively cheap—near the break-even point of the supplier—and that the more you consume, the more expensive the units should become. Therefore, the more you use, the more you pay per unit. I am afraid that I have no idea what the break-even point for energy suppliers is but, if they are able to charge some customers below 10p a unit for daytime use, it must be somewhere below that—around 6p or 7p per unit. I presume that Ofgem would know exactly what the break-even points are for each supplier and, if not, it could find out. It begs the question whether energy companies should be required to disclose the break-even points and the changes throughout the year, which could then be verified either by auditors or by Ofgem.
I like the wording in the new clause proposed by my noble friend Lord Teverson. Subsection (2)(a) says that,
“the number of lower priced initial units shall represent the average amount of energy required for a household of that size to keep warm, clean and fed to a modest but acceptable standard”.
I suggested at Second Reading that it would not be too difficult for energy companies to obtain the council tax banding of each property, so that they could differentiate between, say, band A and band D properties. Obviously, a single person living in a bedsit would not require the same amount of energy as a couple with 2.4 children living in a three-bedroom or four-bedroom house. As things stand at the moment, there is little or no difference in the tariffs for living in a bedsit or a six-bedroom house. That is wrong. The person in the bedsit is paying a much higher proportion of their energy bill at the higher initial rate that is currently charged. Perhaps the electoral roll could help in determining how many adults live in each property.
If we are going to try to do something about fuel poverty, I believe that the way in which we charge customers must be changed, which is the whole thrust of my argument. In 2008, there were 4.5 million households in fuel poverty. I believe that, after the recent cold snap of November and December, this figure jumped dramatically, perhaps to 6.5 million households, 50 per cent of whom are pensioners. Those in badly heated homes are more prone to illness, which just pushes the problem and the cost on to the NHS. It was not surprising to read in the papers recently that energy companies have been cashing in on the cold snap and increasing their profit margins by 50 per cent. I am glad that Ofgem is investigating; it will report its findings on excessive profit margins in March. Consumers feel hard done by. Some whom I have asked feel that they are being ripped off.
Can Ofgem make energy companies change their tariff structure? I realise that energy companies are profit-making public companies, some of which are foreign owned. Can, as the amendment provides, the Government introduce regulations to force companies to change their tariff system so that the initial units supplied are at a lower cost to the consumer than the remaining units? Subsection (2)(c) of the amendment provides that,
“overall, the new combined tariff should be revenue neutral to the energy supply companies”.
I hope that the energy companies are willing to discuss this.
The thrust of my argument is to get as many of the 6.5 million households currently in fuel poverty—that is 26 per cent of total households—out of fuel poverty. I believe that progressive charging may be one way of achieving this. It would act as a real incentive for all households to reduce their consumption and to take up the Green Deal.
I received a useful letter this week from my noble friend Lord Marland, saying that the Committee on Climate Change looked into introducing rising block tariffs two years ago, before the recent hike in energy prices. It said that rising block tariffs would have an adverse impact on fuel-poor households, as they generally require more energy to heat their homes to an acceptable level. This is because the fuel poor tend to live in less energy efficient homes. Many of them, including pensioners, tend to spend more time in their homes. This suggests that a rising block tariff would make it more expensive for them to heat their homes to an adequate standard and make it more difficult to remove them from fuel poverty. The Committee on Climate Change concluded that rising block tariffs,
“should not be introduced until fuel poverty has been addressed through targeted energy efficiency improvement and other fuel poverty measures”.
Quite so; I cannot argue with that. But is this not exactly where the Green Deal comes in? If the tariff system was changed and these households took up the Green Deal, they should be much better off.
Lord Marland
My Lords, I am grateful to the noble Lord, Lord Davies, for summing up so well—he has done most of my job for me, which is extremely kind. The noble Earl, Lord Cathcart, drew this matter to my attention several months ago, as did the noble Lord, Lord Teverson. I am extremely sympathetic to it, but this debate has thrown up the different and slightly schizophrenic aspect of this tariff system. On the one hand we have the inequality of it, and on the other we have to take into consideration things like the fuel poor, inefficient houses, time tariffs, colder parts of the UK and so on.
There are two fundamental things that I can suggest to the Committee. The first, as I said earlier, is that we are going to carry out a full-scale review of fuel poverty and its implications. We will be announcing that review in the very near future, and it will look into the various aspects that noble Lords have brought up here. Secondly, I recognise that this is a complicated issue, not a simple matter which the Committee can debate now and then present a conclusion on. I can therefore suggest—and we have already started work on it—that officials within the department should look very closely at this in order to determine its operability without reference to the climate change committee, and between Committee and Report stage we will have the opportunity to explore it further with noble Lords who may wish, with officials, to see whether there is merit in this amendment. That is a genuine offer. I agree with the noble Lord, Lord Davies, that this is not a matter for this Bill as it is a complicated issue that needs considerable thought. Therefore, despite the merits of the amendment, I ask the noble Lord, Lord Teverson, to withdraw it.
Lord Teverson
My Lords, I thank my noble friend the Minister for his reply. I suppose that I ought to feel very comforted by having both the opposition and the government spokesmen speak against me. That ought to feel like old times and add a feeling of warmth—which is obviously lacking among the fuel poor—but it does not. I thank noble Lords for their discussion of this. As I said in my opening remarks, as you try to write this sort of amendment, you find all the difficulties about applying it. The words of the noble Lord, Lord Whitty, summed it up in many ways.
Again, the quantum of fuel poverty concerns not so much the amount of energy used but the cost of that energy. That is what we have seen in the huge increase in the number of fuel poor, which has risen primarily in response to the very substantial increases in energy prices. This debate has exposed the problem that the current tariff structures are just not right They are not right in terms of a competitive market, in terms of serving consumers, or in terms of justice within our society. For that reason, I welcome the Minister’s remarks that this area is to be looked at further and that, although this might not be exactly the right solution, it is something that will be pursued. I look forward to hearing the outcome of that.
I say to the noble Lord, Lord O’Neill, that I do not see the conflict between this and the Green Deal, which is not about reducing emissions or energy consumption in a household to zero but about making energy efficiency within our stock of dwellings much better—as I know that he knows, and which I know he supports. So I do not see them in conflict at all.
With that undertaking from the Minister that this area will continue to be looked at in the Department of Energy and Climate Change, I am happy to withdraw the amendment.
Baroness Smith of Basildon
I am grateful to the noble Baroness for giving a detailed explanation, although I am not really sure that she understood fully the points that I made. I apologise if there was not enough clarity in what I said. I have asked that a copy of the brief that was e-mailed to me today by her department should be given to her as well. I shall make sure that she receives that.
We have heard so many times about what the market mechanism will provide under the Green Deal. Previously, in this area of policy, it has been more about the commercial arrangement than market mechanisms, but the Government seek to alter that—as I understand it, on the basis of one case in which the Secretary of State has been asked to intervene. Is this an appropriate way in which to progress? Although the Secretary of State has been asked to intervene, the new clause gives the Secretary of State powers to seek information on how negotiations are going and then to issue a notice granting rights. I am concerned that the Government feel that they could be acting on behalf of one of the participants in a commercial arrangement. I am not sure that that is prevented from happening in the clauses we are discussing.
I am happy for the noble Baroness to take this away and come back to me on this matter. There was another point that she did not address. Some companies have put it to me that such a clause, whereby there can be direct intervention by the Secretary of State in what was a commercial arrangement, could impact on the investments of those companies in the industry. That is quite a serious matter, and I asked whether there had been any discussions with the industry on investment. I appreciate that she does not have the information to hand, but if she could let me know it would be very helpful.
Lord Teverson
I like this part of the Bill. Good questions have come from the noble Baroness, which we would not have dealt with in Committee otherwise. First, as the Minister says, these provisions give the opportunity for small oilfields to be exploited when the infrastructure and investment in that would not otherwise allow that at all. Secondly, to pick up the point made by the noble Lord, Lord Moynihan—although he is not in his place—it must make it possible for smaller, independent oil companies to exploit those opportunities, which would not otherwise be there if there was no sharing. The pipelines that are already there are in a certain way a ransom strip. They are a monopoly of a facility that has been invested in, rightly, by those organisations, but they give undue leverage to those organisations. Also, the fact that this legislation is here means that commercial deals will almost certainly be done, whereas they might not be if it was not here. So this is a good clause in the Bill.
Baroness Northover
I welcome what my noble friend Lord Teverson has said. I note several things in relation to what the noble Baroness said. I point out that the briefing, which I hope she received all of, says that, while there are understandable differences of view—infrastructure owners are wary of change, but potential users are often strongly in favour—the industry is broadly speaking supportive of the case for change. On the point of whether the Government should be involved in something like this or whether it should simply be left to commercial negotiations, EU law requires the provision of a dispute resolution procedure for access to upstream gas pipelines.
My noble friend Lord Teverson pointed out that we have a responsibility as the UK Government to ensure that these resources are accessible. The fact that they are, as I have mentioned, in smaller pockets and may need that kind of sharing of infrastructure makes it even more important now that this is addressed. That is why that is being done: it is in the national interest that it is done and not simply left to market forces to resolve in these circumstances. On that basis, I hope the noble Baroness will feel that I have adequately addressed the issues that she has raised. If she remains concerned, we can have further discussions. In the mean time, I hope she is happy for this clause to stand part of the Bill.