Energy Prices

David Mowat Excerpts

Wednesday 19th October 2011 Commons Chamber

[David Mowat (Warrington South) (Con)]

I hear the hon. Gentleman’s comment on super-profits, but perhaps he will tell the House which way he voted on the windfall tax proposed on this side of the House on those same energy companies. They are making a 60% return on capital employed in a medium-sized field in the North sea, while the people whom he criticises today in the retail sector are making much less. Which way did he vote, and why has he changed his mind?

[John Robertson]

The hon. Gentleman is talking about a completely different area. I will talk about windfall taxes later, but suffice it to say that that proposal would have stifled what we were trying to do at the time. The hon. Gentleman thought that that was a good idea, but that is because he was on his side of the House and I was on my side of the House.

Eradicating fuel poverty involves tackling all three of the root causes that I mentioned. I have some sympathy with the energy companies as regards prices rising as a result of the influence of the wholesale energy market. As a member of the Energy and Climate Change Committee, I am fully aware that wholesale prices have risen by 30% this year, but I am also aware that they are lower than a few years ago. According to Bloomberg, in autumn 2008 the wholesale price for our gas hit prices of 70p a therm, compared with 59p a therm today, showing that wholesale gas prices have dropped by 15% since then. Similarly, prices in the wholesale electricity market reached £120 per megawatt-hour in autumn 2008; today, they are £51.20 per megawatt-hour, which is less than half the price back then.

As a result, there is great suspicion by many, including Ofgem, that the big six have not been passing on wholesale market price reductions. Surprise, surprise! As far as I am concerned, these are anti-competitive acts, especially towards smaller energy companies. Chapter II of the Competition Act 1998 prohibits the abuse of dominant position in a market by one or more undertakings which may affect the trade within the UK. According to the competition law guidelines,

“Conduct may be abusive when, through the effects of conduct on the competitive process, it adversely affects consumers directly (for example, through the prices charged) or indirectly (for example, conduct which reduces the intensity of existing competition or of potential competition). A dominant undertaking is under special responsibility not to allow its conduct to impair undistorted competition.”

I have previously accused the big six of acting like a cartel on many occasions. That is supported by the nature of the recent price rises, whereby tacit collusion appears to be taking place as the big six followed one by one in raising prices at a similar rate, following a price leader. Overall, it is debatable whether that accusation would be upheld in a court of law, but it is a fair political point to make.

The Government have not pursued every angle on energy prices, especially as one of their current positions is to say that pensioners in Glasgow and the rest of Scotland should use less gas and electricity this winter. According to the findings of the Hills fuel poverty review, which is out today, 2,700 people will die in England and Wales as a result of this year’s energy price rises by the big six energy companies. Should these people really take the advice of the Prime Minister and his Secretary of State to use less energy? I am sure that the Minister will have a copy of the review, and I suggest that he study it. The fact that so many people will lose their lives as a result of energy price rises means that we have to consider this seriously. I do not make that as a political point but as a point about human beings.

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[Steve Baker]

I think perhaps the hon. Gentleman and I will have to put our researchers in a room and have them fight it out, because my information is that the Deutsche Bank report has stated that a quarter of UK households could be driven into fuel poverty by being priced out of the market; that the most effective policy to bring energy costs down would be to abandon our unilateral renewables obligation, which would save 15% on costs; and that shale gas utilisation would save a further 15%.

[David Mowat]

It is not true to say that shale gas is more expensive than conventional gas. In the US, gas prices are now 50% of those on the European hub. That is a huge and unprecedented thing to have happened, and it is why the US is about to become a net exporter of gas. It has decoupled gas and oil prices due to shale gas. I am not saying that we can do that easily, but it has happened in the US, and it is wrong to say that shale gas is more expensive than other methods.

[Steve Baker]

I am grateful, and with that I will perhaps move past shale gas. My point was that there are enormous, abundant resources of shale gas. Of course there are problems, but as an engineer I just see problems to be solved and risks to be mitigated. I think we should get on with it. We must also remember the points that I touched on about the price distortions that we are deliberately introducing into the market, including the subsidising of large corporations through surplus permits to emit, which have a market value. Such distortions in the market tend to push prices up.

Of course, prices are expressed in money, and I wish to move on to my favourite subject—the distortions that have been introduced to the market through the financial system. I have a wonderful chart before me that prices crude oil from a base figure of 100 in 1945. It shows that the oil price has only been high and volatile since 1971. The two lines—one is US dollars and one is gold grams—are coincident until 1971, but once we came off Bretton Woods and the dollar was decoupled from gold, oil prices were suddenly high and volatile. I showed the chart to an EU energy regulator and he was astonished because all the main events in the history of crude oil prices are simply missing from the price in gold.

Let me move on to the chart that shows crude oil simply priced in gold and blown up. We can see that oil in gold is cheaper now than it was in 1950 and that the oscillations have been pretty much around the same mean. I have other charts relating to gold and they show that gas prices are cheaper today in gold than they were in 1994.

It seems to me that if we are serious about energy prices, we ought to be asking serious questions about the value of money. Right now, one of the biggest problems we face is that “Helicopter Ben” Bernanke is printing dollars and distorting energy prices worldwide. That brings us back to the imperative that has been discussed: people will be in fuel poverty, choosing between heating and eating.

I ask the Government to consider how we can deliver a shale gas revolution. I want them to consider along with the EU Commission whether we should continue aggressive green policies in isolation. I want them to consider those policies and whether it is sensible to keep pushing up prices. Finally, I want them at least to consider some of the monetary effects on energy prices that, in my view, are now crucifying us all.

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[David Mowat (Warrington South) (Con)]

I will speak as briefly as I can about three issues: unconventional gas, fuel poverty, and what we should be doing about the big six—or, perhaps more pertinently, what we should not be doing.

First, I do that think that unconventional gas is a panacea, but the Government need to take it a little more seriously than they have up to now. There has been a lot of discussion about wholesale gas prices rising and getting bigger and bigger, but that is not wholly true. It is true in Europe but it is not true across the world. In the US, the Henry Hub market for wholesale gas is now 50% of the level that it is in Europe. If we were purchasing gas at that price here, we could cut all fuel bills by one third immediately. That has been achieved by a remarkable technical innovation to do with fracturing and horizontal drilling, which is probably the most significant change in the energy industry in the past two decades. It has not happened here yet and there is some way to go before we can say that it will happen here, but both the industry lobby and, frankly, the green lobby are very suspicious of unconventional gas. In my view, that is why the Government need to take it seriously. The US has been able to generate more energy from gas than from coal, and that has a massive impact on its carbon emissions. The quickest way for anybody to reduce carbon emissions is to replace coal with gas as soon as possible. I would like to see that point taken more seriously, and it is not true that gas prices are increasing everywhere worldwide—they are not.

Secondly, we have heard a lot about fuel poverty and there have been some very powerful speeches, particularly from Opposition Members, on this issue. I have heard the figure that 2,700 deaths are the result of fuel poverty each year. That is a terrible statistic and is one that we all need to take seriously.

We missed the opportunity a decade or perhaps two decades ago to embark on a programme of cheap nuclear power in the way that France did, and frankly we are paying the price for that now. However, I believe that both sides of the House voted for the Climate Change Act 2008. It may well be that we need that Act and that it is the only way forward, but we need to be clear about the implications, because whichever way one looks at its requirements, it puts up the cost of energy. That might be right, but putting up the cost of energy in that way increases fuel poverty at the margin, all other things being equal. We talk about CCS, wind power and solar power, all of which cost more than gas and other methods, and it is very important that we fully understand that they do not come cheaply. We need to be very careful, as we legislate more for targets of 80% reductions by a certain date, that we understand what we are doing.

Finally, I want to talk about the big six. As has rightly been said—I heard it said recently—most of those companies are now foreign owned. The other thing about the big six is that we require them to spend £200 billion in our country in the next 15 years. They can choose whether they do that or not, but if they do not, we will face a bigger problem here than fuel poverty: the lights will go out. Coal stations will be coming off stream in the next three or four years and nuclear is coming to the end of its life. We face a very serious issue here in a way that no other country in Europe does and, as far as I can see, the only way we can deal with that is through massive investment—some of which, perhaps unfortunately, is going to have to come from those people, who are, as has rightly been said, a cartel in some ways. I have heard language today about them; indeed, I think I heard an Opposition Member accuse them of criminal behaviour and of being a cartel that had rigged the market and that should be fined 10% of turnover, which would cost them £10 billion. It is a terrible thing to accuse directors of criminal behaviour. We have no evidence of that and it is not true. We have an oligopoly and we have to manage it.

[Luciana Berger]

Four of the big six energy companies have admitted that they had been involved in doorstep selling practices that they have now had to stop because they were wrong. They were mis-selling packages on the doorstep which meant that people were paying more for their energy.

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[David Mowat]

Is it the position of the Opposition Front-Bench team that the big six should be fined 10% of turnover? That was the point made from the Opposition Back Benches.

We have also heard words such as “obscene greed”. We have to make the market more competitive, and I agree with the motion that it is right that to get new entrants coming in and to make the market more transparent. It is clearly right that we make it much easier to switch between suppliers. I hope the Government make progress on that as quickly as they can.

Eight months ago Government Members voted for a windfall tax on energy companies, including one of the big six. That proposal, which was opposed by almost all Opposition Members, has resulted in fuel prices coming down for motorists, which is part of the mix. I find it a little difficult to take that the Opposition opposed that windfall tax on people who are making more money in terms of return on capital employed than the big six, and now the Opposition say that we are being light on the industry.

[Mr Deputy Speaker (Mr Nigel Evans)]

Order. We have three remaining speakers. The winding-up speeches will start at 6.30, so speeches of just under eight minutes, including interventions, should get everybody in.