Electricity and Gas (Internal Markets) Regulations 2011

Lord Marland Excerpts

Monday 17th October 2011 Grand Committee

[Baroness Smith of Basildon]

My Lords, I agree—perhaps unusually—with the noble Lord, Lord Dixon-Smith. When I first picked up the package of papers I saw that it was, as he said, nearly 200 pages on the order itself, and the Explanatory Memorandum. If we look further to the impact assessment and the implementation and consultation, it is quite a hefty range of documents, and I am not sure that this Committee could do justice to those documents if we stayed here until tomorrow.

It is long, detailed and fairly complex. I am grateful to the Minister for trying to bring some order to it in the comments he made, and I think there is much in here with which we are quite happy. There are some errors and disappointments, and the noble Lord, Lord Berkeley, expressed some concerns, as has the noble Lord, Lord Whitty. I was struck by one comment he made when he said that on licensing the Government felt able to go further than was in the directives, which I understand and am not unhappy about.

However, it seems to me that the area in which the Government might have wanted to go further is consumer protection and the issue around switching and information for customers. I cannot see why, or how, switching can be effective for the consumer or the customer unless they have the information and are able to understand it and make use of it. The noble Lord will recall the noble Baroness, Lady Oppenheim-Barnes, who spoke for many of us last week when her frustrations boiled over into anger as she spoke of her experience in trying to switch energy companies.

Certainly, what is here today can make it easier. But, again, at the summit today at Downing Street, Chris Huhne made a comment about making switching easier. If we are going to put so much emphasis on the ability of the consumer to save money by switching energy companies, there is far more we need to do than what is in singular. Therefore, I welcome it, as far it it goes.

I have some questions that might help me assuage my disappointment and help me understand some of the issues. I am sure the noble Lord shares my disappointment at the response to the consultation from the energy industry. I would have liked it to be a bit more positive.

We have heard comments from the energy industry that it wants to help people reduce their bills, but its response to the consultation was a bit disappointing. On the issue of switching within three weeks—which is exactly the right thing to do in that area—while their IT companies were saying it could be done, the companies themselves were expressing concern and were, I think it is fair to say, less than enthusiastic.

I would like to ask the noble Lord a few questions on consumer protection, as I am not entirely clear about the effects of implementation. Is the three-week period from the end of the cooling-off period for the customer, or from when the customer first signs the documentation required to say that they want to switch? We have had two conflicting responses on that, so it would be helpful if the noble Lord could clarify that.

Also, I noted in the consultation document that the energy companies raised concerns about making it a legal right for customers to expect their supplier to be changed within three weeks. What was the outcome of that? I have been through the Explanatory Memorandum and the order itself. I may be missing something, but if an energy company fails to meet the 21 days for switching the customer, what action can the customer or the regulator take? What are the practical implications of it?

If the only action open to the consumer is to take action against the supplier then the company will have nothing to fear. I am also unsure as to how the customer will know which is at fault: the company they are switching to or the one they are switching from. Could the Minister outline the consequences of a company failing to meet the 21 days, particularly if it is a regular failure, rather than an occasional mistake?

The ability to switch depends on having the time, the capacity, ability and information to do so. The Select Committee in the other place has drawn attention to this issue. I have seen the new regulations and I take the point made by the noble Lord, Lord Teverson, about the checklist. What will be in it and will it be in a format that is clear, understandable and concise? A list of 58 questions and answers will not be satisfactory for any consumer. The Explanatory Memorandum states that the information will be put on the internet. If consumers have to go to the internet and wade through 58 questions and answers, it might be a week or so before they decide that they want to switch. Are the Government satisfied that the information available to the consumer will allow them to make an informed decision about their bills and supplier?

In a recent survey, Which? called the six major energy suppliers 12 times in a week and asked about the cheapest deal for the consumer. In most cases, the energy company got it wrong and failed to offer the cheapest deal. I think that EDF performed best, offering the cheapest deal in five of the 12 calls. One company said that the cheapest tariffs were available only online. Exit fees were not mentioned in a third of all cases. If the energy companies themselves are unable to give to the customer correct and accurate information about the cheapest deal, how can the consumer, who is not an expert, be expected to find them out for themselves?

It would also be helpful if the consumer was advised not to switch on the doorstep. Forty per cent of those who switch as a result of doorstep selling find that they have got not a better deal but something that is worse or no better than they have already. I would like energy companies to offer every customer the best deal available—I have never understood why there are so many different tariffs anyway.

Annex 1 to the Explanatory Memorandum outlines directive 2—the electricity directive. I am not sure why directive 1 is not there. It sets out the articles of the directive and what has to be done to comply with them. Why under Article 3(7), which requires member states to introduce a number of measures to protect vulnerable customers, is Warm Front listed as something that the Government are doing, when that programme is being phased out, indeed abolished? I am unclear why that is still in the transposition notes on action being taken by the Government. It seems unusual to refer to something that is being phased out. I appreciate that, when the consultation was undertaken, there was no intention on the part of the previous Government to get rid of Warm Front, but now that it has gone, I do not understand why it is still in the document. Since that programme is being phased out, do we have to go back to the EU and say what else we are doing?

The document also mentions the Green Deal as helping vulnerable customers. It does not say that it is a very limited measure that does not help those in the private rented sector as Warm Front did. There is a gap, because that help will take some time to come in. Can the Minister explain why that information is being given?

A further issue brings us back to Consumer Focus. Consumer Focus is going; the Government are getting rid of it. The legislation, the Explanatory Memorandum and the accompanying documents refer to the successor body. Which successor body will that be? Will it be Citizens Advice, which was mentioned during the passage of the Public Bodies Bill, or will responsibility come back to the department? I am not clear who will undertake that role and what funding will be available to ensure that it is properly undertaken.

The Minister mentioned networks, access and storage facilities. All those are referred to in the impact assessment as ensuring greater competition and falling bills. Does the Minister understand a slight scepticism being felt about that? Very few customers see their bills coming down; they may see a smaller increase. Can he give us more information on how this will impact on the consumer and assure us that the cost savings will return to the customer and not just mean larger profits for the energy companies?

The final part is on the regulatory framework. There has been a reprieve for Ofgem in the Public Bodies Bill. Is the Minister satisfied that it has the resources to undertake the additional regulatory functions it is taking on? I endorse the comments made by my noble friends, Lord Berkeley and Lord Whitty. The local estate heating system is a bit of a minefield. There are estates in my former constituency where people feel their bills are too high and want the opportunity to switch companies, but this would have the effect of increasing bills for others. This is a dilemma and more work is required.

In relation to the comments made by the noble Lord, Lord Berkeley, the impact assessment does not refer to the impact this would have on airports or ports. It talked instead about the costs to Ofgem. If there are associated costs that are not referred to in the impact assessment, or that I have missed, then there is an issue. We need to find a way of not imposing costs that would make businesses unprofitable and put them in jeopardy, particularly in times of recession. The impact assessment states that further legislation would be required. Does that mean we will have another opportunity to look at this before it is implemented? I hope that the Minister can address some of the points and concerns that have been raised.

[Lord Marland]

My Lords, it is, as always, a great opportunity to look at the contents of the Bill. I am afraid that I agree with the noble Lord, Lord Dixon-Smith, about its size. Let us not forget that this regulation was agreed by the previous Government in 2009, at a negotiation in Europe. So I share the noble Lord’s complaint: I have inherited this vast document of noble exchanges at a very high level—beyond my pay grade—in Europe. The net result is that we have a broad regulation which we have attempted to modify and improve, taking on board what a number of noble Lords have said. We have largely accepted everything that is here, because it has been imposed upon us by the EU, through previous negotiation. We have taken four issues which we have tried to mitigate and improve on. Those are: loosening the private network owners’ situation—about which the noble Lord, Lord Berkeley, is concerned—small generation interests, gas storage, which we have tried to find a more transparent way of managing, and switching licences. These are four areas which we, as a department, have decided it would not be in the best interests of the consumer to adopt wholeheartedly.

It comes as no surprise that the noble Lord, Lord Dixon-Smith, has heard from one or two of the major energy companies, because they, quite naturally, do not like everything that is going on. We in Government—and I think that we would all in this Room agree about this—want, largely, to protect the consumer, not the provider. It therefore comes as no huge surprise that, in this particular instance, one or two of the companies are disappointed. That does not mean that we do not have to work with these big six, because they are fundamental to delivering supply and we must congratulate them on much of their work.

The noble Lord asked me a specific question in relation to ACER. The point about ACER is that it deals with cross-border issues, whereas Ofgem deals with issues in relation to the UK. ACER has, of course, a broader remit than Ofgem. My noble friend, Lord Teverson, asked about the views of the other European states. I am afraid that is way above my pay grade. Who would be able to navigate the minefield of the views of some of the European states? My concern is what goes on in this country and I know that is his primary concern despite his great knowledge of Europe.

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[Baroness Smith of Basildon]

That is really helpful, but just for clarification could he tell me how that would fall into place and whether it would be the consumer who had to take action to ensure that happened, or whether it would be a matter for the regulator to deal with?

[Lord Marland]

I guess that it would be both, because the consumer will apply to the regulator, which would be the normal way for the regulator to impose that on the supplier.

I dealt with the question on checklists. Warm Front still exists, of course, and will do so for another year, so it is reasonable to use it. Of course, we brought in a whole load of other measures, which the noble Baroness knows. For the sake of clarity, from December 2011, 4 million of the most vulnerable energy customers in Britain will receive letters to tell them that they are eligible for free or heavily discounted insulation of their loft or cavity walls, which is the Green Deal that we were talking about earlier.

[Baroness Smith of Basildon]

That is the ECO, is it not?

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[Lord Marland]

Yes, they will get the ECO through the Green Deal. A whole amount of measures was issued at the energy summit today, with which I will be very happy to furnish the noble Baroness. As for the issue of PRS and Green Deal, I think that we have debated that quite extensively and I really do not want to go over the old ground. We share a significant problem and concern, and in the end I think that we were all singing off the same hymn sheet in that debate.

Lastly, on the question of whether Ofgem has the right resources, it is important that it has. It has a task to manage this enormous amount of legislation in front of us, and we will watch very carefully to ensure that it is up to the task. The noble Baroness was quite right to raise that issue now, because it is important that customers at all levels are protected. I believe that the legislation goes a long way to doing that. As I said earlier, it is legislation that we have inherited, but there is a lot of good stuff in it. Would we have done everything to the letter of the word? Perhaps not. Are you pleased with everything that we have done to the letter of the word? Perhaps not. But it is legislation, and good legislation with the consumer in mind, and I think that we would all applaud that.

[Lord Berkeley]

I am very grateful to the noble Lord for the answers that he gave me on ports, airports and the bulk tariffs. My question applies equally to some of the examples from my noble friend Lord Whitty on the bulk suppliers of power to tenants, as we could call them, who opt to go to another supplier. As a result, the bulk supplier may lose the level of discount that he would have got if he had been selling to the whole lot. My impression from the Minister’s answer was: “Well, tough on the bulk supplier”. It could be a not-for-profit organisation; it does not have to be a commercial port. Is my interpretation of that correct and, if so, is there anything that Ofgem could do to mitigate the effect with a little bit more discussion? I would be grateful for his response.

[Lord Marland]

I am concerned to give the right answer about not-for-profit organisations, so I shall write to the noble Lord on that rather than ask him to whisper more in my ear. I do not know the answer, and it is an important question.

I should clarify one point about the switch to Citizens Advice. The detail is being worked out and no decision has therefore been made, but that is the likely intention of the transfer. With that in mind, I commend the regulations to the Committee.

Motion agreed.