Energy Price Freeze

Pete Wishart Excerpts

Wednesday 2nd April 2014 Commons Chamber

[Mr Mike Weir (Angus) (SNP)]

Things are certainly beginning to move fast in the energy market with this week’s reference to the Competition and Markets Authority and the announcement of Scottish and Southern Energy’s price freeze. The price freeze is welcome, but it is worth noting that it is not quite what it seems as it applies only to the standard tariff charged by the company, and anyone who looks at the website will see that the company still has many different tariffs.

However, the two events do, I suppose, allow both sides to claim some success. This afternoon the Government have claimed that competition works, while the Labour party points to its idea of a price freeze, and of course the two-year investigation has the added benefit of kicking difficult decisions to the other side of the general election. What it does not do is take action to deal with the huge contradiction that sits at the heart of energy policy. We all agree that we want our constituents to get relief from high energy bills, but we also want the massive investment that is required to meet our future energy needs, and to decarbonise the electricity supply.

In the very week when the IPCC issued a very alarming new report on the current impact and probable future impact of climate change, these are issues that cannot simply be swept aside as we struggle over how we get relief from higher energy bills for our constituents. The argument about how we got to the position of the big six energy companies will not take us very far. It is undoubtedly true that the privatised companies, at least initially, did not take adequate action to deal with future energy security, but like all newly privatised concerns set about making sure that they were attractive to investors and maintained a high share price. This offers one explanation for why most were quickly swallowed up by multinational energy companies and the big six came into being, with only SSE and Centrica still being independent UK-based companies.

I have looked at the Labour party document "Powering Britain: One Nation Labour's plans to reset the energy market". It is long on analysis, but I have some queries about how it will work. A price freeze is a headline idea, but so far there have been no real ideas about what will happen thereafter, and whether it would actually do much good. The price freeze would be temporary. It would do nothing to deal with the huge inequalities that currently exist within the energy system; it would simply freeze these in place. For example, those who are on an expensive tariff or on higher tariff pre-payment meters would still continue to pay more than those on direct debit payments. Surely some action should be taken on these issues, which we have debated several times in this place.

SSE, in its response to Labour's consultation, said:

“the proposals would not significantly reduce energy prices or provide energy investors with the long- term certainty they require to invest in the energy infrastructure consumers depend upon".

It further makes a point that I have often asked: what happens at the end of the freeze? The executive summary of the document talks about creating a tough new regulator to replace Ofgem, but what will be the powers of that regulator? If it is the intention to keep down prices, will it have the power to impose price caps or profit caps? Or as SSE put it in its more gentle terms

“Notwithstanding the proposal for a 20-month price freeze, the consultation does not appear to have a clear commitment or a sustainable solution to reduce costs of electricity and gas”.

The document talks about tackling the vertical integration of the companies. We all seem to assume that the CMA will tackle vertical integration, but hon. Members should look at what it says about that on page 14. It also talks about some of the benefits of vertical integration. Given the history of the Office of Fair Trading investigation into companies and what it says itself, we cannot take it for granted that it will tackle vertical integration. In an intervention on the hon. Member for Glasgow North West (John Robertson) I asked exactly what the terms of the ring-fencing will be. That will be important.

Other items in the document are old favourites, such as simplifying tariffs to encourage switching. But the elephant in the room is how we continue to encourage the much-needed investment in our energy infrastructure. When SSE announced its price freeze, it also announced that there would be 500 job losses and that it was pulling out of several renewable developments, which seems fairly clear evidence that those of us who did question whether a price freeze would come at the cost—

[Pete Wishart (Perth and North Perthshire) (SNP)]

My hon. Friend will know that SSE is based in my constituency and there is great concern among the Perth staff about exactly what will happen. With the advantages that we see from the press release there are also consequences. I am sure that my hon. Friend will address those.

[Mr Weir]

My h F is correct. As I was just saying, the price freeze does come at the cost of much-needed future investment and the jobs that it could create. It does seem to me that the CMA investigation will mean that there will be a slow-down in investment over at least the next two years while companies wait to see what will happen and how they will be affected by its conclusions.