Higher Oil Prices

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Mr. O'Brien: First, stern words have sometimes worked quite successfully; indeed, in getting about £910 million from the big six and some of the generators, they have been very successful. It is a wonder what these sorts of negotiation can do. In the end, we regarded those negotiations as quite a considerable success.
The hon. Gentleman asks pertinent questions about the social tariff. We certainly had discussions with the generators and the suppliers about the social tariff, particularly with the big six, because they are the companies that interface with the customers.
About 600,000 people are on social tariffs at the moment. We want the companies to make a number of changes. Certainly, we want them to bring more people on to social tariffs. I will come back to the company that the hon. Gentleman mentioned in a moment. We want them to keep open the gateway, so that they can bring people on to social tariffs—particularly elderly people, but also people with young families who are in poverty.
Given the way in which the companies were privatised, essentially, they must compete on a range of issues, one of which is social tariffs. Customers can get different social tariffs, depending on the company that they are with. Some tariffs are extremely good; some are less so. Some of them just provide a reduction in price, with a couple of bells and whistles, and others provide quite a comprehensive service with advice, installation and a considerable amount of help.
Our discussions with the big six resulted in their agreeing to provide £225 million extra for people over three years—predominantly, although not exclusively, in relation to social tariffs. Most importantly, they agreed to bring people on to that lower price. We have an agreement that they will do that. Some of the gas companies, certainly the biggest one in particular, have not closed or stopped, but suspended such things—their phrase, rather than mine—and some customers cannot get access at the moment. I am not sure whether “suspended” or “closed” matters at this point.
Some of the gas companies are saying that they will reopen such access in due course, but they have an agreement that they will contribute a certain amount of funding to bring more people on to social tariffs, and that they are already doing so. They have also said that, as a result of the publicity on this, they have had quite a rush and that they are unable to process the considerable numbers with which they are now dealing. Is that a satisfactory explanation? As yet, I am unconvinced.
We want that company to adopt a more positive approach to its consumers in relation to social tariffs. I hope—all other things being equal—that a significant change will happen in the near future under the Pensions Bill. The hon. Gentleman will know that, in a previous incarnation, I helped the passage of that Bill. It will make a significant change, because it will enable the names of people who are on pension credit to be divulged to the companies. As a result, they can ensure that those people will benefit. Together with the companies concerned, we are looking at the way in which that can be done.
The measure will take away some of the costs that companies accrue in identifying people who should go on to social tariffs. At the moment, companies do not know who the poor pensioners are, so they go around cold calling, knocking on doors and asking, “Are you very poor? Are you a pensioner? Can we put you on the social tariff?”
The measure will enable us to disclose who the poorer pensioners are to the companies, so that they can avoid the cold calling and cut their costs in that respect. However, the energy companies will then have a large number of names. Many of those pensioners will not currently be on social tariffs—although, of course, some of them will be—and we would like the energy companies to adopt a more positive approach to bringing some of those people on to social tariffs.
It is fair to say that the energy companies are somewhat concerned, because they are aware that the measure might cost them a sum of money. Given some of their profits, in our view they can afford that sum of money, but discussion is still ongoing about how it will be done. We are anxious to encourage them to be as positive as they reasonably can be about getting as many people as possible who deserve to go on social tariffs on to them. It is a matter of whether or not they are going to look after their customers.
Do the energy companies really want to look after their customers and ensure that customers on low incomes are properly cared for, as they say they should, because they have a social tariff? Alternatively, are they going to say, “We just can’t afford to look after our customers properly at this stage, and we will have to leave it until some other time.”? That is not a satisfactory situation for energy companies to be in, but it depends on how they operate. We are discussing with them—the legislation has not yet gone through, so we still have time to have those discussions—how to get more people on to social tariffs. However, I entirely agree with the hon. Member for Northavon when he says that we need to have more people on social tariffs.
Mr. Geoffrey Robinson (Coventry, North-West) (Lab): It is a pleasure to serve under your chairmanship, Mr. Taylor. I compliment my hon. and learned Friend on presenting in such a reasonable way this European document, with which few of us disagree much.
The Community document sets out immediate, short, medium and longer-term considerations and stresses that Governments are obliged to help, in the immediate short-term, to alleviate the impact on vulnerable groups and vulnerable members of society. Clearly, it comes into the ambit of what we are discussing to consider what has been done and what can be done to help those who are suffering the most from the big increase in oil and gas prices.
It is a little disappointing that, while the Government’s statement talks about long-term responses, such as the global energy initiative, we have not really mentioned what we are doing in the short term. Perhaps that is because the Government have fallen short of their own hopes in the short term. Good though the £1 billion three-year loft insulation initiative has been, the Government cannot leave things there. They must pursue directly and with considerable energy the mechanisms that have been mentioned, particularly social tariffs, which we MPs increasingly come up against.
The Chairman: Order. In this section of the Committee’s deliberations, hon. Members should ask a brief question or a series of brief questions. There will be an opportunity for them to make speeches later.
Mr. Robinson: In that case, I shall delay my few remarks.
Peter Luff (Mid-Worcestershire) (Con): I am grateful, Mr. Taylor. I am sorry for bouncing my—for these purposes—hon. Friend on the Committee.
I have one question for the Minister about a sin of omission. I agree that there are few sins of commission in the document—it is all motherhood and apple pie—but I am concerned about its failure to address the structural changes that are needed in the European energy markets, particularly in relation to the oil-gas price link, which is referred to broadly, or tangentially, at one point. The link is hardly surprising given that the market is rigged. What are the Government doing to build a properly functioning, separate gas market within the European Union that is de-linked from the arbitrary link with oil prices?
Mr. O'Brien: The EU wants greater energy liberalisation, and we are pleased that we were able to reach agreement on the internal market package at the Energy Council on 10 October. That is helpful. Key elements include more effective regulation, unbundling the establishment of an agency to facilitate the development of cross-border trading, investment and measures to increase market transparency, which is the main issue. One problem has been identifying in detail how some of the gas and electricity markets operate in Europe. In Germany, there are many of the long-term deals that some in our energy industry call sweetheart deals, in which people have long-term guarantees. That is not really an open market.
The Government’s aim—and, indeed, that of the Commission, we are told—is to ensure that the investment and competition needed for consumers is secured in a wider energy market. We want several changes as part of the internal market. Let me list some of them. First, the existing unbundling of transmission networks on production and supply businesses in some of the vertically integrated companies are very concerning to us, and we want the situation to change.
Such a change would affect not only the electricity markets, but the gas markets as well. In our view, regulators in parts of the EU need to have effective powers to ensure that the market operates. They need to be sufficiently independent of Governments and the pressures of government to ensure that the market operates properly. However, let us not get too carried away with the idea that everything must be completely independent of Governments, because there is sometimes regulatory capture. We must ensure that the regulators do not get too close to the companies that they regulate. That is a risk in some cases. Effective regulation is needed, coupled with independence, so that the regulators can ensure that the market operates properly. We want the European Commission to look at each country to ensure that that is happening.
We need more to be done to co-ordinate cross-border regulatory activity to ensure that we get some information on how the market operates in other countries and that that information is provided by the regulators, but not just on a cross-regulator basis. Frankly, we in government want to know how some of the deals are done in Europe, too.
Measures are needed to ensure that the infrastructure to support a wider internal market is created. That will be long term, by its nature, particularly in relation to transmission lines, but we do have things such as interconnectors now. We have arrangements whereby a stronger market can operate. However, we need to do much more work in that area. The Commission is aware and, judging by our discussions with it, seems to want to secure the same open and more transparent—not completely transparent but certainly more transparent—market that we want. However, I would be the first to acknowledge—I do not think that there would be any real disagreement on this from the Commission—that there is an awful lot more work to be done, particularly in opening up some of the European markets and to ensure that the market is liberalised in the way that we and the Commission want.
Mr. Anthony Wright (Great Yarmouth) (Lab): When fuel poverty and higher oil prices are discussed, one area that always seems to be missed out is that people who live in rural communities are stuck with one choice: heating oil. There seems to be no regulation of the heating oil industry. Extreme difficulties have been caused because there has been a huge increase in prices and people have to pay for that commodity up front. Has there been any discussion of that problem with the oil companies or in the European Union?
Mr. O'Brien: Yes, there has been some discussion with the oil companies. The fall in the oil price will benefit some of those who use heating oil, but the heating oil price depends to some extent on the capacity to transport and deliver it. There is a lag in the fall of heating oil prices at the moment, which is a concern and something that I want to examine.
There are two areas in which there appears to be a lag regarding the effect of the change in oil prices: the price of heating oil; and the retail price of petrol. It looks as though the lag for falling petrol prices has been squeezed—it is normally about five weeks. There is a drop in the price of crude oil and then there is a drop in the retail price of petrol up to five or six weeks later. We now have a drop in the price of petrol.
I am not entirely satisfied that we have squeezed the lag for heating oil as much as we ought to. I want to examine the situation much more closely, so I cannot give a reassurance just yet that I am satisfied that that market is operating as efficiently as we would like it to for the benefit of the consumer. We need to ensure that heating oil prices follow the market, but there are some structural issues in the market that I want to tease out a bit more to determine why there is a delay in the drop in heating oil prices.
Steve Webb: As this is a helpful forum in which to have a measured question and answer session, rather than the frustrating soundbites that we get during questions in the Chamber, it is good to take the opportunity to raise a second issue. If I say the words “peak” and “oil” in the same sentence, people may have glazed expressions and there might be some concern about where I am heading, but I wonder whether the Minister could tell us the Government’s position on the first report—I was given it yesterday, but I do not know whether it is newly published—of the UK industry taskforce on peak oil and energy security? Serious organisations are involved in it, including one of the big six energy companies. It will take me just a moment to clarify my question, if you will allow me to do so, Mr. Taylor.
The simplistic argument is that oil output is going to peak—of course it is at some point—and it is suggested that supply and demand indicate that when it gets more expensive, new fields will be found and marginal fields will be explored, so people ask what is the substance of this peak oil argument. However, let us consider the contention, which is being taken increasing seriously, that we might reach peak capacity much sooner than the industry balance sheets would have us believe or, perhaps, national Governments are prepared for. What is the Government’s attitude to that developing theory, which was once regarded as extreme and heretical, but is now coming more into the mainstream? Is there anything in it, as far as the Government are concerned, or is just for the birds?
Mr. O'Brien: I would not go so far as to suggest that it is, as the hon. Gentleman says, for the birds. We need to look at how the oil market is operating. I made the point earlier that there were some structural issues in relation to the oil market. Some of the new oil sources and reservoirs, in particular, tend to be smaller and do not come on so often. We know that there are substantial reserves of oil and gas in the world that can keep us supplied for decades to come. Whether we will be at a particular point of peak—and, if we are, how much that matters—depends on various factors. Peaks only matter if there is a sharp drop after them. I do not think that we are likely to see the sort of peak after which we get such a sharp drop. We do not really know quite where the peak is.
There is, to some extent, a lack of information in this market. We do not know where all the oil reserves are and we constantly discover more. It is difficult to predict whether we have got to some peak and whether we will not get to another one a few years later. Additionally, in some parts of the market, there is a lack of open information. Some countries choose not to disclose information and, in one or two cases, if they did so, it would not necessarily be terribly reliable. Gauging the peak is not easy or straightforward. I am not convinced that I have a straightforward answer to the hon. Gentleman’s question regarding whether it would matter, although I suspect that it probably would not matter a great deal.
Mr. Wright: Returning to the previous point about the price of heating fuel, is there any evidence that the companies are suppressing the possible reduction? My hon. and learned Friend mentioned a five-week delay between the price coming down and that drop being seen by the customer, but I do not see the evidence of that coming forward. Is there any evidence that we have a similar situation to the one we have with the banks, for instance, in which the banks are not passing on interest rate reductions to the customers? Are the oil and gas companies doing the same thing and not passing reductions on to the customers as soon as they possibly can?
Mr. O'Brien: I do not have a clear answer to my hon. Friend’s question, on the basis that we need to look much more closely at what is happening in that market. I want to get more information before responding in any detail to him. However, I hope that, over the coming weeks, we will be able to get a clearer picture of exactly what is happening in the heating oil market and then take a view about the issue that he raises. Although I do not have an answer for him, when we have a clearer picture of the situation—it will probably take a few weeks to examine the market—I will be happy to meet him and talk through these issues.
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