Energy Bills Discount Scheme Regulations 2023

Lord Teverson Excerpts

Monday 22nd May 2023 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Energy Security and Net Zero (Lord Callanan) (Con)]

My Lords, these regulations were laid before the House on 25 April this year, as were the Energy Bills Discount Scheme (Northern Ireland) Regulations 2023, the Energy Bills Discount Scheme Pass-through Requirement Regulations 2023, the Energy Bills Discount Scheme Pass-through Requirement (Heat Suppliers) Regulations 2023 and the Energy Bills Discount Scheme (Non-Standard Cases) Regulations 2023.

These instruments ensure that essential energy bill support continues to be provided to eligible UK businesses, charities and public sector organisations, following on from the energy bill relief scheme support, which ended on 31 March this year. Each of them is a replacement for an earlier set of regulations that implemented that original scheme. Together, they cover UK businesses that are supplied by both licensed gas and electricity suppliers and licence-exempt suppliers. They also ensure that any end user receiving energy that is supplied with the benefit of these schemes through an intermediary will get a “just and reasonable” share of that benefit. In the absence of an intervention of this kind, energy bill support would no longer be provided to non-domestic customers where they were exposed to the impact of high wholesale market prices.

The Energy Bills Discount Scheme Regulations for Great Britain, the Energy Bills Discount Scheme (Northern Ireland) Regulations, the Energy Bills Discount Scheme (Non-Standard Cases) Regulations, the Energy Bills Discount Scheme Pass-through Requirement Regulations and the Energy Bills Discount Scheme Pass-through Requirement (Heat Suppliers) Regulations, which I will refer to collectively as the “EBDS Regulations”, have been created under the Energy Prices Act, which the Committee will recall gained Royal Assent on 25 October last year.

The Energy Prices Act, introduced in Parliament on 12 October last year, provided the legislative footing needed to ensure that businesses across the UK receive support with their energy bills through the energy bills discount scheme. The EBDS regulations are essential secondary legislation needed to implement and operationalise the scheme. The purpose of the regulations is to provide a discount on the wholesale costs for electricity and gas supplied by licensed and non-licensed energy suppliers to eligible non-domestic customers, and to make payments to suppliers in respect of those reductions in Great Britain and Northern Ireland. To protect eligible non-domestic customers from excessively high energy bills, the EBDS will run for a 12-month period from 1 April this year to 31 March 2024.

I thank the Secondary Legislation Scrutiny Committee for reviewing these regulations. We welcome the conclusion it reached and that it took some assurance regarding the effectiveness of the energy bills relief scheme pass-through requirements. I reaffirm that we will continue to monitor the effectiveness of the EBDS and that we expect to publish a report on both the Great Britain and Northern Ireland EBDS before the end of 2024, including the effectiveness of the pass-through requirements. We will continue to review our pass-through requirement communications strategy, including reviewing guidance on GOV.UK and offering engagement sessions to ensure that intermediaries understand their obligations and that customers receive the benefits that they are entitled to.

I turn to the details of the regulations. The EBDS regulations set out that, with few exceptions, all non-domestic customers with electricity and gas contracts from both licensed and licence-exempt non-domestic energy suppliers will be eligible for a discount when the wholesale element of their contract is above a certain level. Licence-exempt supply includes energy taken from the public electricity grid or received via wire or pipe.

The EBDS GB and EBDS Northern Ireland regulations provide for three elements to the scheme for end users of licensed suppliers. The EBDS (Non-standard Cases) regulations replicate this for end users of licence-exempt suppliers. First, there is a baseline per unit discount applicable to all eligible non-domestic customers’ energy bills throughout the scheme’s duration. The discount will be applied if wholesale prices are above a certain price threshold. Secondly, a higher rate of relief will be provided to those non-domestic customers that carry out a substantial part of their UK activities in certain energy and trade-intensive industry sectors—so-called ETIIs.

Thirdly, there is the support aimed at domestic customers on heat networks. There will be a specific higher EBDS rate for heat networks supplying domestic customers set at a level to ensure that these customers do not face disproportionately higher prices than other domestic customers receiving the energy price guarantee. The EBDS regulations set out the process by which the energy supplier is reimbursed by the Secretary of State for the discounts that it gives. The EBDS (Northern Ireland) Regulations prevent end users who are outside Northern Ireland receiving the discount to their bills.

Finally, the EBDS regulations set out essential operational matters, including information and reporting obligations, enforcement powers and powers to impose civil penalties in respect of missing or defective declarations. Customers who receive gas or electricity from non-licensed suppliers—non-standard cases—will be supported under agreements on standard scheme terms. Due to the complexity of some licence-exempt supply chains, the non-standard cases regulations provide the Secretary of State with powers to obtain information from those involved and imply some terms into the contracts to help the scheme work more smoothly. Additionally, the regulations allow for revised EBRS terms, which expand eligibility under EBRS to include the cohort of non-standard customers who receive their energy via private wire or pipe, at a price pegged to wholesale rates.

The EBDS Pass-through Requirement Regulations, EBDS Pass-through Requirement (Heat Suppliers) Regulations, and EBDS (Non-standard Cases) Regulations provide for certain intermediary businesses, often landlords, that receive a benefit under the scheme but in turn provide energy to others to pass a just and reasonable amount of the benefit that they receive on to their end users. The regulations set out obligations on the intermediary, including calculating the amount and providing end users with information about this, as well as passing on the benefit as soon as reasonably practicable. They also set out the dispute mechanisms available.

To accompany the regulations, we have published a suite of non-statutory guidance, which provides further detail on how the schemes work. The objectives of these regulations are to protect businesses and non-domestic customers against the volatility of the variable market and avoid firm closures and redundancies, particularly for ETIIs. They also ensure that domestic end users on qualifying heat networks are offered appropriate support.

In conclusion, the EBDS schemes will be a source of critical support for non-domestic customers in the UK, particularly those in energy-intensive sectors, many of which are essential national infrastructure. I emphasise that the measures in these regulations are crucial, because they bring the schemes into legal existence. The EBDS Great Britain, EBDS Northern Ireland and EBDS non-standard cases schemes complement the existing large-scale support that the Government are providing during the energy crisis.

I hope the Committee will support these measures and their objectives, and I commend the regulations to the Committee.

[Lord Teverson (LD)]

My Lords, that is quite a long introduction, and I thank the Minister for it. I have to admit to him that I was looking around at the pictures, and thinking that it was interesting that Moses managed to base Judaeo-Christian law on 10 paragraphs, whereas here we have about 100 pages on energy. We will perhaps move on to that.

I wanted, while not trying to be disingenuous, to actually congratulate the Government on something in these particular instruments. In the instrument on heat suppliers, no. 455, on page 12, in paragraph 1E(6)(c), we actually have the court being able to apply a fine of up to £5,000 in terms of enforcement, which is how I read it. I thought, “bingo”: there is actually a way in which, when we go through all these pass-through regulations, we could actually have something which might appear like a civil on-the-spot fine, which is a way to deter or provide some jeopardy if these pass-through arrangements are not adhered to. But needless to say, in instrument no. 463, we are back to the 2% on the outstanding amount. I am not asking the Minister to go through that again, but I genuinely believe that there was a sensible solution in terms of enforcement and that sort of approach, which could have been used in the other SIs.

On the energy and trade-intensive industries, one of the sectors that is not there is agriculture. I know that the Minister has a very good relationship with Defra, but I wondered whether he could perhaps take back again the fact that the horticulture sector—poultry, I understand, as well—is equally energy intensive, yet that primary industry sector has been left out. I realise, clearly, that this SI cannot be amended to do that, but I show my regret in this context that the agricultural industry has been left out of that. Perhaps the Minister would like to offer an explanation of why.

There is a cap here, which I am not necessarily against, of £5.5 billion. Is it on a first come, first served basis, or are the Government completely assured that that limit will not be hit?

Lastly, my only other question is whether the Northern Ireland situation has been sorted out with the European Union, in terms of approval, which I understand is in process.

[Baroness Blake of Leeds (Lab)]

I also add my thanks to the Minister for his fulsome explanation of the regulations before us today. I think we are on record as saying that we were disappointed with the delay at the beginning, but I think we can now say that it seems as though the mechanisms are up and running, and delivering for the people who desperately need this support provided.

I do not want to go over all of the points that have been covered and raised, but I have a couple of questions, particularly with reference to the Energy Bills Discount Scheme (Non-Standard Cases) Regulations. The noble Lord, Lord Teverson, raised the agricultural sector; that is one to consider. Could the Minister anticipate whether there will be other areas coming forward that are struggling and are not covered under this provision? As we know, this area is regarded as a relatively small part of the market. “Relatively” is a very broad definition, and I would like to know whether the Government actually know the precise size of this area as we go forward.

One area that we have raised on several occasions is the whole area of implications for vulnerable customers and the provision that is laid out for intermediaries to cover. We recognise that the Government are developing a guidance and communication strategy to ensure those intermediaries are aware of their obligations, and therefore pass on the support as required.

--- Later in debate ---

[Lord Callanan (Con)]

I thank the noble Lord, Lord Teverson, and the noble Baroness, Lady Blake, for their valuable contributions. I start by saying that the Government have implemented the EBDS to protect businesses and non-domestic consumers from the volatility of the market and, of course, to deliver critical energy bill support, while also taking account of the fact that wholesale prices are now well below previous levels seen during the peak of the energy crisis. The schemes have been designed to operate robustly and guard against fraud and gaming. We will continue to monitor the schemes to ensure that this support is provided to the people and businesses it is designed to help.

I will now respond to the questions raised by both noble Lords. As the noble Lord, Lord Teverson, pointed out, the regulations require that relevant intermediaries, including landlords, claim the benefit and pass it on to end-users. Intermediaries must take all such reasonable steps necessary to ensure that they are provided with the energy bills discount scheme benefit to which they are entitled, so that they may pass it on to their end-users.

We have taken a consistent approach to determine ETII eligibility. Organisations that operate primarily within an eligible sector will be eligible for the support. This means that about 50% of UK revenue generated in the relevant period must be from activity in an eligible sector. I am sorry to tell the noble Lord that the Government currently have no plans to review the eligibility criteria for the energy and trade intensive element of the EBDS. The Treasury-led review of the energy bill relief scheme took account of many contributions from the private sector, trade associations, the voluntary sector and other types of organisations, and the list is what we ended up with following that.

Finally, I can confirm to the noble Lord, Lord Teverson, that discussions with the European Commission are ongoing, and we hope to reach a conclusion on them soon.

The noble Baroness, Lady Blake, also raised the role of intermediaries and pass-through. As she said, we will continue to monitor the effectiveness of the pass-through regulations as well as our communications strategy for communicating to end-users. Detailed guidance has been produced on GOV.UK to help ensure that consumers and intermediaries, and those who advise them, are aware of the specifics of the scheme.

With regard to the noble Baroness’s point on non-standard cases, we have engaged with a range of stakeholders, and the extended eligibility announced on 1 April means that non-domestic customers on private wire networks are now supported. This includes businesses receiving energy from biomass and waste, to give two examples. The Government remain committed to ensuring that consumers continue to receive help with the rising cost of living, which at the moment includes energy bills. These regulations are vital in ensuring that support is delivered to non-domestic customers and, crucially, to domestic heat network consumers. I therefore commend them to the Committee.

[Lord Teverson (LD)]

On Northern Ireland, I am interested to understand whether the Commission is being difficult and finding objections or whether it is just a question of it taking the time that it takes.

[Lord Callanan (Con)]

The noble Lord will understand that I do not want to go any further at the moment. It is a sensitive area. We are engaging in discussions with the Commission and hope to reach a decision soon. I very much hope that it is not just being deliberately difficult but is seeking the necessary reassurances with regard to the state aid regulations.