Lord Whitty
Main Page: Lord Whitty (Labour - Life peer)(13 years, 10 months ago)
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Lord Whitty
“( ) In subsection (2), after paragraph (a), insert—
“(aa) requiring the holder of a licence to—(i) abstain from any sales activities while they provide or install, or facilitate the provision, installation or operation of, meters of a particular kind;(ii) only supply marketing material in written form while they provide or install, or facilitate the provision, installation or operation of, meters of a particular kind;(iii) supply independently written information outlining how to use the smart meter while they provide or install, or facilitate the provision, installation or operation of, meters of a particular kind”.”
Lord Whitty
My Lords, we are now moving on to Chapter 5 of the Bill and the issue of smart meters. We have touched on it from time to time at earlier stages, and I have said that some of the issues that arise in relation to the Green Deal also arise in relation to smart meters. The Government will need to consider the implications of the two programmes. I should probably make it clear at the outset that I am in favour of a roll-out of smart meters, but there are a significant number of consumer issues which arise in relation to the installation of such meters which, if wrongly handled, will lead to some resistance and backlash against them.
Smart meter installation is different from the Green Deal because the Green Deal is ultimately a voluntary scheme that the householder or landlord can take on board, and then he can decide whether it had been a good deal for his premises. With smart meters, the obligation is on the supply companies to install them. They are already beginning that installation, and some of them, particularly British Gas, already have a substantial programme under way. However, we should look at the implication for consumers. As colleagues will know, one of the problems in the energy market has been the ease with which people can switch and the potential cost of switching in terms of both the supply company and the method of payment.
If we have a wholesale introduction of smart meters—which make it more difficult, more costly or more of a hassle for the consumer to be able to say, “I’m fed up with the way this company is dealing with me; I want to switch to the next company”, or “I’m fed up with paying by pre-payment meter; I want to go on to direct debit” or whatever the choice is—and if the meter itself, the system under which the meter operates or the terms on which it is supplied make that more difficult, then we have significant consumer detriment. We must remember that the energy market is not one that is characterised by deep trust of consumers in their suppliers. Nor is it the case that the regulator has substantial powers over the peripherals: it has substantial powers over the supplier, but there is no real protection in relation to energy products or services in the same way. Installation of smart meters could lock people in to their current system unless we provide that the meters are reasonably interchangeable, compatible and available in a way that allows people to switch both method of payment and supply.
We have to bear in mind that the introduction of smart meters is not so universally supported as it probably is in this Room. Research by Consumer Focus a couple of years ago, as well as evidence from Which?, showed fairly deep resistance to it, and some misunderstanding. So there is some mistrust at the consumer end, to put it at it mildest. We also know that in other countries where similar programmes have been adopted there has been some resistance—for example in some states of America and, on broader human rights grounds, in the Netherlands. So it is a delicate area. If we are to achieve introduction with minimum consumer resistance and minimum delay and challenge, we need to be able to reassure the householder that the meter that they are installing will not stop them switching should they wish to change tariff, company or the method by which they pay.
So, Amendment 32C deals with the degree of compatibility. This is not just an issue of standards, because we have been talking about standards for smart meters for at least 10 years before we have introduced a single one, and we are still at a position where we do not have a common standard. It would obviously help if at this point we already had a standard, but the issue here is compatibility, which need not necessarily mean a single standard or specification. It is important that we can reassure consumers that installing a meter will not inhibit their choice.
Amendment 32B deals with a slightly more ticklish issue. When the supply company or their agent is required to go into households and install a smart meter, how will it deal with trying at the same time to sell other products that are related to the smart meter, or that could be made to be related to it? Protecting consumers during the installation process is essential if we are not to meet with some resistance. On the one hand, there is the possibility of mis-selling in these circumstances; on the other, some devices are coming on to the market that would make it much easier for consumers, on the basis of the smart meter, to know what was causing their energy consumption to increase and how they could control it. The basic smart meter primarily gives the supply company that information, although it also tells the consumer at any given time what their level of consumption is and the cost of it.
The amendment would allow information to be given to householders about other products that could help them to make sense of and use smart meters, but in a way which does not amount to hassle or to a situation where their mandatory presence inside the consumer’s house can be misused to sell particular products. The amendment effectively requires the marketing material to be in a written form so as to protect the householder from being misled or mis-sold a related product.
I have no doubt that the Minister and his officials will have comments to make on the exact wording, as will the supply companies; but unless we recognise this as a potential problem, we could find ourselves in some difficulty. In one sense we are ahead of the game in that some installation programmes are going on and we know that there will be no standard design or specification before 2014 at the earliest. We could therefore already be locking people in. We need to ensure that, as the programme rolls out, we minimise the degree to which that can happen in future.
I hope the Government can at least take on board these concerns and look at the best way of dealing with them in terms of the legislation and reassuring householders that smart meters will not inhibit their choice or lead to their being ripped off in some other way when the installation takes place. I beg to move.
Lord Jenkin of Roding
My Lords, like the noble Lord, Lord Whitty, with many of whose remarks I entirely agree, I, too, have been trying to keep in touch with what has been going on—indeed, ever since I was offered the chance of installing a smart meter by one of my suppliers, only to be told that I could not possibly have it because it was in a porch and, therefore, accessible to anyone passing the house. It seems to me that these are the kind of things that must be dealt with.
I think that the noble Lord, Lord Whitty, has not fully taken account of the extent of the discussions, which have been going on now for some time, between the Government, the industry, Ofgem and consumer groups. These discussions have been extremely positive and seem to me to have been exactly the right way forward. We now have the Government’s prospectus—issued in July, I think—and a draft code put out by the Energy Retailers Association, which works with Energy UK, that sets out how a code might deal with precisely the points to which the noble Lord, Lord Whitty, drew our attention.
I am told that this has attracted comments from the consumer organisations, which are clearly interested in seeing how it will develop. In terms of securing a system that is both clear and at the same time offers flexibility—and flexibility is something that the industry has tried to build into the system; there must be some flexibility in how this will be done—a code which can be more easily amended in the light of experience may be better than trying to establish firm statutory rules, such as those in the amendments which the noble Lord has moved.
One of the points right at the heart of these discussions is that the right of changing your supplier has to be built into the system. I have had a letter from my noble friend’s department only this morning in response to a representation that I made to him a couple of weeks ago. It states:
“Common specifications will also be the means for achieving ‘inter-operability’, which means that suppliers can use smart meters installed by other suppliers, allowing easy switching.”
It seems to me that that is the kind of standard which the noble Lord, Lord Whitty, was looking for, and I think it is now firmly taken on board by both the industry and the department. Indeed, I have been told that the question of maintaining the right to switch suppliers has been regarded as a sine qua non. It has to happen with the installation of smart meters, and nothing in the system should prevent it, given that it is the way in which competition can be made to produce benefits for the consumer. A voluntary code that balances flexibility to provide the customer with information, while at the same time guaranteeing their rights, would be a very desirable way forward. I do not know what my noble friend will say but, against that background, the amendments might be regarded as being overprescriptive.
Lord Marland
I am grateful to the noble Lord, Lord Oxburgh, for his commentary on this issue, which partly answered the question of the noble Lord, Lord Grantchester. It is mutually beneficial to both parties that smart meters are introduced. As I mentioned, Ofgem has consulted all groups closely to find a way forward. It is for it to report and to determine whether there should be a tightening of existing powers under the Energy Act following its spring package.
The total financial benefits of introduction are as yet unknown. There are a number of ways in which one could look at them. An executive of British Gas told me this morning that, when she was young, her father used to sit her down in front of the electricity meter to see it going round and round and to show the cost that was being incurred in the household. As I have said, I have sat my own children down and said, “Look, this is what’s going on”—I have one of those little boxes, which I commend to your Lordships. They are horrified that, at one point, it shows 298 an hour and then, at another, 130 an hour. There will obviously be a lifestyle change, which we cannot begin to assess, as people seek to reduce the cost of their electricity. I discussed with Centrica this morning the likely impact on bills. We estimate that there will be a saving of £14 to £15 on an electricity bill net of the cost of installation.
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 Marland
I thought that I had explained this but, for clarification, Ofgem is dealing with this short-term interoperability under its existing licensing and code. We have the primary powers, which the previous Labour Government created under the Energy Act 2008, to enact the necessary changes that are thrown up as a result of this. Indeed, we will use them if we need to.
Lord Whitty
I am glad to hear that, but my recollection of the 2008 Act is that it does not deal specifically with this point.
Lord Whitty
It deals with interoperability, but it does not deal with the cost to the consumers of not having interoperability, which is what lies behind this point. It may be that the Government can interpret that sufficiently widely to intervene, but I am not necessarily convinced of that. This is effectively the last piece of legislation before the main part of the rollout is going to occur and, unless we have those principles embedded in primary legislation, the Minister’s leverage with Ofgem and the supply companies will be more limited as we go down the line.
I shall return to this amendment in perhaps simplified form at a later stage in this process. Some of us who sit through energy Bills are pretty convinced of moving in this direction. As the noble Lords, Lord Teverson and Lord Oxburgh, said, the aim is to reduce the cost of electricity, both in terms of supplying it and in terms of the cost to the consumer. That will work only if the consumer is in a position to interpret the information that a smart meter gives effectively and proactively and if the smart meter installed at the beginning of the process is still relevant to a changed supply tariff or method of payment for the householder at any given point. The principles need to be laid down here. This is not a matter that we should avoid as we go on through the passage of the Bill. I beg leave to withdraw the amendment.
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.
Lord Davies of Oldham
My Lords, I am going to offer a word of solace to the Minister: I recommend that he suggests that the noble Lord withdraws his amendment, not that the Government should accept it. I doubt whether the Government will accept it, not least because although this has been an interesting and informed debate, the cross-currents have been very sharp and very obvious. In seeking the objectives that we all seek, the question of strategy is difficult. I doubt whether this Bill can stand the strain of carrying an amendment which indicates that the whole of the tariff position should be restructured as far as the electricity companies are concerned, particularly given that we are short of information.
First of all, the companies are short of information about which households ought to have preferential treatment. I very much enjoyed the thoughtful and considered speech of the noble Earl, Lord Cathcart. He took us with him in terms of the objectives, but council tax will not do as a measure of the relative strength or weakness of household economies. We are in the historic position—as the noble Lord, Lord Oxburgh, identified—that this initial tariff is the old standing charge written into a new pricing framework. Now there are elements of a standing charge which companies have to meet.
However, our consideration with this Bill is, how do we make the Green Deal effective? I listened very carefully to my noble friend Lord O’Neill, who indicated the difficulties of both ends of the spectrum in this argument. In terms of making the Green Deal effective, it would complicate matters enormously if we were also saying that in a short period of time, we would be changing the nature of the pricing policy. There is enough of a problem with pricing anyway. We all know that we have a terrifying situation at the moment with world energy prices and the issues faced by consumers. None of us knows what lies ahead, but it is unlikely that energy will become significantly cheaper in the foreseeable future. Therefore households treat energy bills with great seriousness.
Can this be solved along the lines of this amendment? In due course, I think it would probably need to be. We have to get away from the issue of why the pricing policy is as it is. The Bill has to deliver the drive towards the Green Deal. The priority has to be to emphasise to households that they must pursue strategies to reduce the consumption of electricity. It is consumption that we have got to reduce or, more accurately in many cases, we have got to reduce waste, given that our houses are so ill-equipped for the circumstances.
We have to deliver the Bill’s objectives before we move, and expect the industry to move, to that dimension identified by the amendment of the noble Lord, Lord Teverson. This has been a very useful debate, but I fear that if the concept in that amendment was put into the Bill, we would complicate matters enormously in terms of the impact on households. We would therefore fail with the main strategy to which we are all committed under the Bill. I hope the Minister will take a similar view.
Lord Whitty
“( ) The information to be provided about a tariff by virtue of subsection (2) with regards to the amount of the tariff must be guaranteed not to change for a period of 12 weeks.”
Lord Whitty
My Lords, this amendment was originally in a group, but it has been disentangled, as it may be more logical for it to stand alone. It deals with the requirement in Clause 72(2) that a supplier must provide its domestic customers with information regarding one or more of its lowest domestic tariffs. In other words, it is an obligation on the supplier to ensure that the consumer knows what the lowest tariff is so that they can move to that tariff. This was so central to the coalition’s programme that it was referred to in the programme itself, which said:
“We will increase households’ control over their energy costs by ensuring that energy bills provide information on how to move to the cheapest tariff offered by their supplier”.
I therefore welcome the clause and its fulfilment of that commitment.
Of course, it is also true that there is a history of people moving to heavily advertised tariffs only for that tariff to change after a reasonably short time, often without notice during the period of the switch. This is a relatively modest attempt to ensure that this does not happen. If the householder switches on the basis of the supplier’s advertised lowest tariff, there should be no change to that tariff until after a period of 12 weeks. This seems a reasonable protection for the householder and would make a reality of Clause 72(2), which in itself is an important principle and one that I welcome. I beg to move.
Baroness Northover
I thank the noble Lord for his amendment. He makes a good point: it would not help consumers if information on lowest tariffs was often quickly out of date. The amendment would require the Government to guarantee that a supplier’s lowest tariff was available to customers for 12 weeks after information about that tariff had been provided to them on their bill, thereby allowing them sufficient time to consider the information on their bill and to act on it before their supplier could move the goalposts and change the price.
The powers that we are seeking in the Bill would allow the Government to require suppliers to inform customers about their lowest tariff and how to switch to it. It is a feature of our competitive market that energy suppliers are able to react to changes in the market through dynamic pricing. The amendment would effectively prevent suppliers from making changes to the price of a tariff for a period of 12 weeks, which is not the intention of these proposals. Such a requirement would limit suppliers’ ability to react to changes in the market and may lead to a more conservative pricing strategy, risking higher prices for customers across the board—in other words, the law of unintended consequences, which we have been looking at in other areas.
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 Whitty
I am grateful to the noble Baroness for her recognition of the issue. Given her assurance, I beg leave to withdraw the amendment.