Mike Weir
Main Page: Mike Weir (Scottish National Party - Angus)
Michael Fallon
I rise to speak to Government new clauses 8, 9 and 10, and Government amendments 52 to 66, 68, 71 to 90, 101 to 107, and 119 to 135. I should also like to respond to the amendments tabled by hon. Members. I ask the indulgence of the House if my speech is necessarily fuller than it might be so that I can do justice to each of the six main areas in the group, namely the transparency of investment contracts; the counterparty arrangements; the capacity market; nuclear power; other issues including biomass, emissions performance standards and the costs of electricity market reform; and consumer tariffs.
I thank Opposition Members and other hon. Members for their contributions in Committee. The Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), said at the time that the Bill needed clear accountability and that Parliament must have the information it needs to scrutinise the delivery of electricity market reform properly.
New clause 5 and new schedule 1 seek to establish an expert panel to scrutinise electricity market reform. Let me assure hon. Members that development of the contracts for difference and investment contracts will be informed by close consultation with relevant experts. We have already taken a number of steps in that regard, which is why I suggest that new clause 5 and new schedule 1 are unnecessary.
Our decisions on strike prices for CFDs will be informed by analysis from the National Grid. The robustness of that analysis will be scrutinised by an independent panel of technical experts who will report to the Government. Their report will be published. Any divergence of opinion between the panel, the Government and National Grid will be reported and explained. Given the existing role of the panel of technical experts, I do not see a wider remit for another expert panel to look at CFDs.
I agree that investment contracts should be subject to rigorous scrutiny and the best available advice, which they will be. For investment contracts relating to renewables projects, I am minded to use the draft CFD strike prices informed by the robust process just outlined. For other low-carbon technologies, which are bilaterally negotiated, specialist advice will be sought as appropriate and there will be rigorous scrutiny. For example, for Hinkley Point C we have appointed technical and financial specialists to advise on whether any proposal represents value for money. We will publish details of that contract when and if it is negotiated.
Mr Mike Weir (Angus) (SNP)
I am listening closely to the Minister. Does he share the worries of many hon. Members? The Bill will presumably finish its progress in the House tonight, but we still do not know what the strike prices are. We have been promised the publication of a document setting out details including strike prices for months, but it keeps being put back. I am told that it will not appear before July. Does the Minister understand the concern about the transparency of the process because we will not know what the strike prices are before the Bill completes its passage?
Michael Fallon
The Bill is before the House today and tomorrow, and has some way to go before it completes its passage through Parliament. Let me assure the hon. Gentleman that he will have an indication of the draft strike prices before the Bill completes its passage. If he will allow me, I want to say more in a moment about how we can improve transparency.
Amendments 8 and 9, tabled by the right hon. Member for Don Valley (Caroline Flint) and the hon. Members for Rutherglen and Hamilton West (Tom Greatrex) and for Liverpool, Wavertree (Luciana Berger), focus on the important issue of transparency of investment contracts. The Bill requires all investment contracts to be laid before Parliament alongside a statement of their importance to Government objectives. For Hinkley Point C, we have also committed to publishing summaries of reports from our external advisers. There is a difficult balance to be struck between publishing as much as possible about a contract, while also allowing some commercially sensitive information to be withheld from publication. It is crucial that developers provide the information we need to show that a contract represents value for money, but it would be inappropriate to publish information that damages a developer’s commercial interests.
This point is relevant to amendments 163, 165, 166, 171 and 172, which were tabled by my hon. Friend the Member for Daventry (Chris Heaton-Harris) and relate to information acquired or produced under the Bill. It would not be appropriate to release commercially confidential information provided under the provisions, but let me reassure the House and the hon. Member for Angus (Mr Weir) that we will publish details on the CFDs and capacity agreements signed each year through annual updates to the EMR delivery plan, and details of how much of the budget has been expended. Secondary legislation, such as that under the capacity market provisions, will set out details of the information flows, transparency and handling of sensitive information. That includes information acquired under clause 27. Ofgem will continue to publish information gathered from generators about the biomass they have used.
Michael Fallon
I am not able at the moment to give my hon. Friend a precise timetable. Last year, we had a competition, as he will recall, for CCS. We selected the two principal bids and we are continuing to negotiate, but as soon as I have more news on that, I will ensure that he is one of the first to hear.
I must thank the hon. Member for Brent North for amendment 149. He will see that the small error has already been corrected in the version of the Bill that was introduced to the House on 9 May.
My hon. Friends the Members for Daventry and for Waveney (Peter Aldous) have tabled a number of amendments to clause 41 covering the certificate purchase scheme, which is designed to replace the renewables obligation for the last 10 years of its existence. First, let me reassure my hon. Friend the Member for Waveney that the provisions he seeks to remove through amendments 153, 154 and 157 to 159 simply replicate legislation that exists under the renewables obligation. Caps have been set before, such as for bioliquids; exemptions already exist for very small suppliers; and costs of administering the scheme are already recovered from the RO buy-out funds. The powers he wants to remove through amendment 159 would, for example, be needed to revoke any incorrectly issued certificates. These provisions therefore ensure the continued effective operation of the scheme.
On amendments 155 and 156, requiring the immediate recovery of shortfalls in the levy from suppliers would be unnecessarily prescriptive. That may not be necessary if, for instance, the shortfall is very small and can be made up in the next round of regular levy payments.
Amendments 160, 161, 167 and 168 would either remove our ability to change future support levels for the scheme, or add further validation requirements on the underpinning evidence for a change. Although the Government do not intend to make banding changes under the certificate purchase scheme, I would not want to remove our ability to do so. As we have seen, where there is compelling new evidence to change support levels, such as to protect consumers, it is important that the Government can act, and these provisions are important as they set out the controls on any such change.
On the underpinning evidence, we already take a rigorous approach to the assessment of costs and income in banding reviews under the renewables obligation. I can assure the House that we would do so again in any review of support levels under the certificate purchase scheme.
Let me reassure my hon. Friend the Member for Daventry that, in relation to amendment 169, consumer costs will always be an important consideration in banding reviews. New section 32V(4)(e) in clause 41 makes specific provision for that.
That brings me to the last but most important issue in this group: the costs and benefits of electricity market reform to consumers. A number of amendments have been tabled by my hon. Friends the Members for Daventry, for Waveney, for Gainsborough (Mr Leigh) and for Christchurch (Mr Chope), and we must thank the last two of them for providing such excellent chairmanship of the Bill Committee.
First and foremost, let me be clear that electricity market reform—EMR—is good for the consumer. Gas prices are rising and are projected to carry on rising. We need to move to a more diverse energy mix, which breaks our dependency on both gas and fossil fuel generation. The contract for difference provides protection for consumers by ensuring that generators pay back when the market price goes over the strike price, and the price certainty it brings will reduce the cost of financing new power stations, and thus reduce costs to the consumer. EMR also serves the public interest by reducing carbon emissions and ensuring everyone can benefit from reliable electricity supplies. These are important matters, which is why I would not want to accept amendment 162 and make them subordinate matters when the Secretary of State is exercising functions under part 2 of the Bill.
On amendment 151, I would not expect use of the liquidity powers in clause 38 to increase costs for consumers over the lifetime of any intervention. The purpose of these powers is to protect consumers by driving competition and reducing prices. A positive outcome for consumers must be proven before action is taken, and that would be shown through an impact assessment, which would be published when consulting on any proposed use of these powers. On amendment 152, contracts for difference can only be for the purpose of encouraging low-carbon generation, so that change is not necessary.
Both today and tomorrow, we need to work in the best interests of consumers and ensure that energy is cheaper as well as greener. I hope that all Members on both sides of the House can see that EMR represents the cheapest way of securing a diverse, low-carbon and reliable energy mix.
I want finally to turn to the amendments involving tariffs and to speak to the relatively minor Government amendments in that group before addressing the amendments tabled by the hon. Member for Angus. In line with the Prime Minister’s crucial commitment to ensure that people are on the cheapest tariff for their preferences, Government amendments 119 to 133 will align the powers in clause 121 more closely with Ofgem’s retail market review proposals. Government amendments 119, 120, 122 and 123 further clarify that those powers cannot be used for the purpose of imposing price controls by limiting the powers of the Secretary of State to make provisions under clause 121 only to the list set out in subsection (3).
In line with Ofgem’s retail market review proposals, Government amendments 125, 127, 128 and 131 will restrict the power to move customers from one tariff to another only to those customers on tariffs closed to new joiners. Government amendment 126 ensures that suppliers will have at least one core tariff slot that is not prescribed. Government amendment 130 clarifies that the power to prescribe that a supplier offers fixed or variable rate tariffs does not equate to setting the price or term for the tariff. Finally, Government amendments 121, 124, 129, 132 and 133 reword a number of the definitions to ensure that the powers can be exercised in the context of existing requirements placed on suppliers as a condition of their supply licence.
Amendments 21 and 22 were tabled by the hon. Member for Angus and address concerns he raised in Committee. Amendment 21 relates to the proposed Secretary of State power set out in clause 121 to move consumers off poor-value dead tariffs. His amendment would leave the only basis on which people can be moved off poor-value dead tariffs as an opt-out for consumers. Moving customers off such tariffs is a key part of meeting the Prime Minister’s commitment on energy bills. I would like to reassure hon. Members that in the event that Ofgem’s reforms are unduly delayed, we fully intend to make use of the opt-out approach rather than an opt-in. As a result of Ofgem’s review, however, it could become clear that there are certain circumstances in which some consumers could be actively disadvantaged by an opt-out approach, so we consider it prudent to retain the option to pursue an opt-in approach if necessary. Consumers could be disadvantaged should it, for example, transpire that as a result of market changes they would actually be better off staying on specific closed tariffs or that taking an opt-out option means they face contractual difficulties, such as a breach of contract.
Mr Weir
I understand what the Minister is saying, but as it stands clause 121 says that there can be a switch to a different supplier or different terms, “unless the customer objects”. The customer can always come back and say, “No, I don’t want to do that”; even though the company is saying, “This is a better tariff for you”, the customer still has the ability to do that. The difficulty with including subsection 3(e)(ii) is that, as the regulatory impact assessment said, very many customers never get round to switching and do not react when they are given offers or told a better deal is available. Leaving that provision in would allow companies simply to offer customers these things but not push them forward.
Michael Fallon
There may well be consumers who are not aware that they are being left on these tariffs, so we need to be careful about that, too. Ofgem could, however, deal with such matters, and I want to make it absolutely clear that the decision on whether to take an opt-out approach or an opt-in one will be made by the Secretary of State, or by Ofgem acting on his behalf, and not by energy suppliers.
Amendment 22 would add a new power for the Secretary of State in relation to customers with pre-payment meters, and there is a difficulty with it, too. The amendment is in two parts: paragraph (f)(i) specifies that these customers should receive the lowest tariff offered by the supplier, regardless of meter type; and sub-paragraph (ii) specifies that no more than 20% of each of their payments should go toward repaying existing debts.
Clearly, the aim of the amendment is to help out the most vulnerable customers, and I wholeheartedly support that. The Government are keen to see that consumers who use pre-payment meters are not disadvantaged, particularly the 20% of the fuel poor who currently pay for their gas or electricity in this way. Since 2010, there has been a major step forward in the treatment of consumers with pre-payment meters, with all the large energy suppliers choosing to equalise their pre-payment tariffs with standard credit prices.
The second part of the amendment relates to changing the way debt is repaid by customers on pre-payment meters. Customers in this situation currently repay a fixed amount at fixed intervals, for example, each week. The amount repaid is calculated for each consumer on the basis of their personal circumstances and ability to pay. The amendment proposes a limit of no more than 20% of the top-up amount, which in practice would turn most or all repayments from a fixed rate to a proportional one.
There are at least three reasons why we should not legislate in that way, the first of which is the cost to consumers of changing meters to accommodate such a provision. Secondly, let us consider the following: if a family paid a total of £10 a week, with 20% going towards repaying the debt, it would take the family seven years to clear the debt. This plan would also require the family to continue to pay £10 a week or £20 a week during the summer months, when most pre-payment meter customers use very little gas. If they reduce the total weekly payment in that period, the overall repayment period of the debt will, of course, increase again. Thirdly, there are existing obligations on suppliers under their licence to take into account a customer’s ability to repay when setting a repayment schedule. Suppliers are currently obliged to develop individualised repayment plans that take account of ability to pay, but existing pre-payment meters are not designed to allow for debt levels to be deducted on a proportional basis.
Mr Weir
I understand what the Minister is saying and I understand his objection, but if he looks at the excellent report on the issue from Citizens Advice he will see that it gives an example of someone who had £7 of every £10 put into the meter taken towards debt. We are trying to introduce a limit—although perhaps 20% is the wrong figure—so that that sort of thing does not happen.
Mr Weir
On the arbitrary cap, I agree with what the hon. Lady has been saying, but it seems to me that the amendment would mean that a company faced unlimited liability for any consumer redress order that affected more than a single consumer, which could have serious implications, for instance for investment in any infrastructure that might be required. Will she address that point?
Luciana Berger
I am expecting to hear from the Government about that, and I intend to address the point later. After I have done so, I will be happy to respond to any further questions the hon. Gentleman might have.
As I was saying, the Bill also contains a crucial loophole. The new powers would not apply to current Ofgem investigations. That is why we raised concerns in Committee, and it is why we have brought back amendments addressing the point on Report. Before I address the specific issues, let me remind the Minister why this will matter a great deal to households across the country.
Over the last few years there have been far too many cases of people being mistreated or misled by their energy providers. In April last year EDF agreed to pay £4.5 million after an investigation found it had been mis-selling to customers, and in April this year SSE was given a record fine of £10.5 million for running a sales process where people were given information that simply was not true. There are other ongoing investigations into practices at E.ON, npower and ScottishPower, and overall Ofgem is currently carrying out 15 formal investigations into potential malpractice by energy suppliers. Its enforcement team is also informally reviewing an additional 12 cases.
That is why we agree that schedule 14 represents a step in the right direction. It gives the regulator the power to order companies to compensate customers who have been misled about their energy deal and tariffs and the arrangements by which they are put on those tariffs.
None of those ongoing investigations will be covered by the new powers now being introduced, however. That means that any company found guilty of wrongdoing in any inquiry that begins or concludes today, tomorrow, next week, next month or at any time before this Bill receives Royal Assent will escape the new penalties all together. Also, if in future the regulator finds that there have been other failings by suppliers that took place before the Bill became law, those companies will avoid sanction as well.
I wonder how the Minister can think that that is right. How will it be fair to consumers who have suffered bad practice by their suppliers that they are not to receive due compensation? Amendments 2 and 5 would close this loophole and make all energy firms that break the rules fully accountable both to their customers and the regulator. I hope the Minister will agree that that is the right thing to do and support these changes.
Gregory Barker
The hon. Gentleman asks a fascinating and timely question, one which deserves a proper answer. He may have misheard me, because when I said “global turnover” what I actually meant was UK turnover. Nevertheless, that is clearly a very significant amount.
Our approach would allow for a relatively straightforward resolution of relatively simple cases. Accepting amendments to remove the cap would require us to make changes to the appeal mechanism, which could deny consumers access to the timely compensation they are due, as it could result in a far lengthier resolution of cases if the stakes are much higher. In considering whether such a trade-off is justifiable, we should take into account just how unlikely it would be for consumers to lose out on this scale. Exceeding a 10% cap of annual turnover would mean penalties and compensation of over a £1 billion for the very largest domestic energy supplier. The largest penalty imposed to date by Ofgem has been £15 million and under our legislation the cap for the largest would be set at £1 billion. A cap on redress is therefore unlikely to hinder Ofgem’s ability to impose appropriate redress orders.
In addition, there are unintended consequences of removing the 10% cap on penalty and redress, as that could also increase the costs of capital and insurance premiums for energy companies. Again, that would particularly affect the smaller companies—the very ones we are trying to attract into the sector—with all the adverse impacts on consumer bills that I mentioned earlier.
Energy companies should be in no doubt, however, that these powers are designed to ensure that consumers receive appropriate compensation. The combined 10% cap on penalties and redress will apply to each separate regulatory breach. If companies flout the rules on a number of occasions, they will therefore face correspondingly larger payouts. For the reasons I have set out, I hope that hon. Members will, on balance, agree not to press their amendments to a Division.
Mr Weir
I find myself in the unusual position of agreeing with a lot of what those on both Front Benches have said. I have a lot of sympathy with the amendments and, unlike the Minister, I do not find any difficulties with amendments 2 and 5. If a company has been doing over consumers, whether it has been doing it the day before the Act comes into force or the day after does not seem to make any difference. If we are seriously considering making such companies pay such large sums for their misdemeanours, I would be happy to support those two amendments. That would send a clear message that we are fed up with some of the things that have been coming to light in recent years and with how the consumer has been mistreated, taken for granted and, frankly, milked, by some companies.
My hon. Friend the Member for Glasgow North West (John Robertson), if I may call him that, made very good points about turnover.
Gregory Barker
I am grateful to the hon. Gentleman for giving way, particularly as I have only just sat down. Let me be absolutely clear on this important point. For investigations by Ofgem that are already under way, Ofgem will continue to negotiate compensation on behalf of affected consumers. Companies that fail to negotiate and agree satisfactory redress can expect Ofgem to reflect that lack of co-operation in the penalty it sets.
Mr Weir
I accept that, and I understand what the Minister is saying, but he said in his speech that the maximum penalty to date had been £15 million. Under the Bill he is talking about £1 billion. There is a massive difference between the two and my point stands: if consumers have been ripped off, it does not matter whether it happened just before the new system was introduced or just after that. The same should apply, in my view, and I do not have any great problem with that proposal.
However, I have a big problem with amendments 3, 4, 6 and 7. As I said in an intervention on the hon. Member for Liverpool, Wavertree (Luciana Berger), I have a worry—the same sort of worry as the Minister—about the effect that the amendments would have on the company. It seems that one aspect of the Bill is about trying to get investment into the energy industry. For far too long there has been insufficient investment; a lot of modernisation and new investment is needed to get our energy system up to scratch. The figure is 10% of the turnover, whatever that turnover will be—I am still not clear what the word covers. That takes me back to the days when I served on the Select Committee on Energy and Climate Change with my hon. Friend the Member for Glasgow North West and we had the big six in one day and asked them about their profits. We asked whether they had made their profits selling to the consumer and they replied, “Oh no, we didn’t do that.” We asked whether they made them through generation, and heard, “Oh no, we didn’t make it from that.” We asked, “Where did you make those profits? You have large profits,” and no one could answer the question. There is great difficulty in pinning down what is meant by profit and turnover. In a time when we have six big energy companies, five of which are effectively multinational companies—we have seen in recent weeks what happens with the tax of multinational companies—we need a bit more clarity about what is meant by turnover.
Although the sums involved in 10% of turnover are significant, my bigger worry is that a company could be under investigation for an alleged breach for a considerable time. If there is a set limit, whether it is 10%, 20% or whatever, anyone thinking of lending that company money for infrastructure projects—most of them borrow from large financial institutions or other lenders—will know the contingent liability and what they are dealing with. I grant that if the liability is absolutely unlimited the sums involved are unlikely greatly to affect the big companies, given their size, but the uncertainty might well affect them. As we all know, those lending sums of money of such magnitude will consider the state of the company. A potential unlimited liability going into many billions of pounds, if there has been such an incident, could seriously undermine the company’s ability to borrow the money for much-needed infrastructure in our energy supply system.
I have a great deal of sympathy with those four amendments and understand what the hon. Member for Liverpool, Wavertree is trying to do, but I have a difficulty with them. Perhaps when she winds up she could expand on them and reassure me on the points I have made.
We must also remember that the provision would affect not only the big six energy companies but all regulated persons. If I understand correctly, that would include the small companies that are trying to get into the market. The Government say that they want to bring new entrants into the market, including the smaller companies that are beginning to nibble away at the edges of the big companies. If they were faced with such a penalty—let us hope that none of them would be—it would be the death knell for them.
John Robertson
The hon. Gentleman makes a very good argument and I had not thought of going down that road. Does he accept that those small companies could, through no fault of their own, follow what the large companies are doing and get themselves into bother that they did not really think about when they first started doing whatever it was that they did?
Mr Weir
My hon. Friend makes an excellent point. Whereas the big six would be able to take that financial hit, many of the smaller companies would not be able to do so. These proposals would take us down a road that could have serious repercussions. Many small companies are beginning to break into the market. Many of them are particularly strong in renewables, for example, and that is one way in which much of our renewables investment might be generated in the future.
I ask the shadow Minister to think about my points. I have sympathy with the amendments and understand what they want to do. We all want to ensure that any energy company that has been mistreating consumers is dealt with severely. There are two sides to this, however, so let us not rush into doing something that could have profound and unforeseen results.
John Robertson
It is a pleasure to follow the hon. Member for Angus (Mr Weir). He was an excellent member of the Energy and Climate Change Committee when it was first put together and I am very sorry that he is not still a part of it—but there is time for him yet, as they say.
I agree with a lot of what the Minister said—I do not pick holes in things just for the sake of it—but it is not my place to worry about whether the big six have financial difficulties or whatever else. Personally, I could not give one jot about any of those companies. They are big enough to look after themselves and they certainly know the rules, because they know how to break them and get away with it.
I support every one of the amendments tabled by my colleagues on the Front Bench. I have no problems with them whatsoever. The only thing I have to say to the Minister is that I was slightly disappointed by his speech. He talked about hard-working families and, yes, I believe that hard-working families should always be looked at and looked after as best we can. My constituency has more than its fair share of elderly people and it has the highest percentage of single women in any constituency in the country, which probably means that most of them will be elderly. That means that they might have some difficulties that other people do not have. There are also quite a number of people who are disabled. We have found over the years that those are the people who do not complain, because they are frightened to, and who do not get the help they probably should get. Once again, we are getting to a stage when people think that their biggest bill is their electricity bill, their gas bill or both. According to some newspaper articles, people will be more worried about how they pay their fuel bills than how they pay their mortgage.
I do not worry about the big six, because they are making plenty of money, but we have to nail down what we mean by profit and turnover. Let us take EDF, a large multinational company that is to build a new nuclear power station, from which it will make a lot of money. It also has other power stations in the United Kingdom on which it makes money, and of course it is involved in retail as well, where it says it makes 2% profit. It makes some 17% to 19% profit from generation. It puts that 19% alongside the 2% when it comes to giving shareholders a dividend, but it tells Government that it is making only 2% profit. The company may therefore put up its prices—SSE did so only last October—yet these same companies are making enormous profits. They are telling people, “Invest in our company because you can get a return for your money.” That is not right.