 House of Commons |
Session 2007 - 08 Publications on the internet General Committee Debates Energy |
Energy Bill |
The Committee consisted of the following Members:Chris Shaw, Committee
Clerk † attended the
Committee WitnessesNick
Winser, Executive Director, National
Grid David Smith, Acting
Chief Executive, Energy Networks
Association Alistair
Buchanan, Chief Executive,
Ofgem Allan Asher, Chief
Executive Officer,
energywatch Paul Spence,
Director of Strategy and Business Development, British
Energy Keith Parker,
Chief Executive, Nuclear Industry
Association Dr. Mike
Weightman, Chief Inspector, Nuclear Installations
Inspectorate Dr. Ian
Roxburgh, Chief Executive, Nuclear Decommissioning
Authority Tom
Burke Benet Northcote,
Chief Policy Adviser,
Greenpeace Miss Robin
Webster, Friends of the
Earth Russell Marsh, Head
of Policy, Green Alliance Public Bill CommitteeTuesday 5 February 2008(Afternoon)[Mr. David Amess in the Chair]Energy BillWritten evidence to be reported to the HouseEN 01
Barnardo’s and Save the
Children EN 02
Greenpeace EN 03 Friends of the
Earth EN 04 Energy Networks
Association EN 05 Energy Retail
Association EN 06
energywatch 4
pm The
Committee deliberated in private.
4.4
pm On
resuming—
The
Chairman: We will now hear oral evidence from our first
set of witnesses, and I welcome them to the meeting. As members of the
Committee will fully understand, witnesses are not always experienced
in these matters, so if anyone is nervous, they should take deep
breaths, relax and enjoy the sitting. May I ask the witnesses to
introduce themselves to the Committee from left to right as I look at
you?
Nick
Winser: I am Nick Winser, director of transmission at
National Grid.
David
Smith: I am David Smith, acting chief executive for
the Energy Networks
Association. Alistair
Buchanan: I am Alistair Buchanan, chief executive at
Ofgem.
Allan
Asher: I am Allan Asher, from
energywatch.
The
Chairman: Before calling a Member to ask the first
question, I remind all Members that questions are to be limited to
matters within the scope of the Bill, and in view of time constraints,
both questions and answers should be brief—I know that Committee
Chairmen say that at the start of all proceedings, but I do mean
it.
Q 81The
Minister for Energy (Malcolm Wicks): Having asked
questions in the past and more recently answered them, I am well aware
which is the easier role and am pleased to be undertaking it,
unusually, at the moment. When I discuss the energy market with
parliamentary colleagues, as I did this morning in a Westminster Hall
debate, I find that there seems to be a sharp divide of opinion between
those who feel that we have an energy market that is not only
competitive, but probably the best in Europe, to the benefit of
consumers, and those who are doubtful about that and
who feel that there is a lack of competition and that it is more like an
oligopoly than a competitive market. I would be grateful if the
witnesses could give their opinion on that
issue.
Alistair
Buchanan: I am happy to start by picking up the point
raised by the Minister with regard to comparisons with Europe.
Certainly, at the wholesale end of the market, we have seen a very
exciting development in the last three to four years, particularly in
gas infrastructure. We have seen 21 companies from around the world
invest £10 billion in our liquefied natural gas storage pipeline
infrastructure, thereby taking the UK from around 105 BCMs of demand
and 105 BCMs of supply to potentially 180 BCMs of supply by the end of
this year. With regard to Europe, we still see profound delays in the
development of some of their LNG facilities, such as in Wilhelmshaven
in Germany and Rotterdam in the Netherlands.
Perhaps what matters more to
consumers is what is happening in prices and in terms of choice. With
regard to choice, the experience of the UK—I would expand this
comparison beyond Europe—is that about 50 per cent. of customers
have taken the opportunity to choose their supplier. We are clearly
very keen to access the 50 per cent. who have not. By contrast, in
Germany that figure has been about 4.5 per cent. The best country to
compare us with would be Spain, which has hit levels of around 20 per
cent. of choice, and the Nordic region, which has around 10 to 15 per
cent. There is genuinely no other country that provides the degree of
choice or has encouraged and led customers to feel confident enough to
choose. As far as price is concerned, on domestic gas prices today, we
remain among the lowest of the 27 member states, and on electricity
prices, we are around the average.
To answer your question,
Minister, with regard to investment coming into the UK, domestic choice
and prices and industrial benefits, which for the decade between 1994
and 2004 were extraordinary by contrast to European industrial
counterparts, we think that the market works and has been very good for
the
UK.
Allan
Asher: There are some really good features of
the competitive market in Great Britain, and
energywatch is keen to make them work even better. That includes
switching and things like that. However, I think that it is too much to
think that it is as good as it could and should be. With regard to some
of these key metrics, such as prices, I was looking just yesterday at
the Department for Business, Enterprise and
Regulatory Reform’s website, which publishes very detailed
statistics on European prices every quarter. Complicated 80-page
reports are published every quarter, and many of the comparisons are
quite favourable. However, what really leapt out at me was that the
Department’s figures show that domestic electricity consumers
around Great Britain are currently paying 15 per cent. above the EU
average price, and on this report, we are the seventh cheapest out of
15 countries in Europe. I use that to show that this is with a market
that is most vigorously competitive, yet in Europe they are not;
Governments still use their utilities as secret stealth tax
officers and things like that.
On prices and on switching, as
Alistair rightly says, just over 50 per cent. of people have
switched—I think it is 52 per cent., which is great—but
48 per cent. have not. The efforts that we have gone to over seven
years have been drawing less and less fruit. Only a third of people
over 60 have switched, and our efforts to get more are not going
anywhere. Many features of the market are just not working. Six million
consumers on prepayment meters are paying £200 a year more than
they could get on the same company’s direct debit tariff. It
goes up worst of all in the north; it is £480 more if you have a
direct debit in the north than on the company’s best
tariffs. I guess
that, with some of those elements, there are some features of the
market—not all, but some—that are clearly not working for
consumers, and we should understand that and be prepared in the Bill to
do something about it.
Q
82Charles
Hendry (Wealden) (Con): May I start with a specific
question, primarily to Ofgem, after which I shall broaden it to a
slightly larger issue? Suggestions have been made that Ofgem’s
remit should be changed, specifically to give it an environmental role
or to deal with social tariffs. Would you let us know how you think
that would work? Is it possible to have two primary duties, or do you
think that there should be only one primary duty and a range of
secondary
duties? Alistair
Buchanan: Yes, I can take that further. You
probably do not want to hear this, but I think that
broadly there are five models that you might want to look at. I should
say at the outset that we feel that we can do our job with the remit
that we were given in 2003. In that year, we were given social and
environmental guidance by Ministers. Importantly, however, remember
that any significant financial matter has to be dealt with by the
Secretary of State—by the Department for Environment, Food and
Rural Affairs or the Department for Business, Enterprise and Regulatory
Reform. We were given guidance in 2003. In 2004, Parliament gave us a
sustainability duty. Helpfully, under the Lazarowicz Bill last year,
there were significant improvements in administration—for
example, of the renewables obligation certificates scheme.
The five options that have been
raised over the past few months are these. The first route is a
sustainability duty, which is primary to an economic duty. The second
route is the concept that Ofcom has, which is that you have a citizens
duty, as well as your consumer one. Ofcom appears to manage that very
well; it appears to understand how it would handle conflicts between
the citizen and the consumer, and it has a route march setting out how
conflicts should be resolved. The third route would be to use
additional guidance. That may be something that the Government may want
to consider. The
fourth route would be to look at our secondary duties. Currently, our
primary duty is to promote and protect the consumer effectively
wherever possible, through competition in the markets. Our secondary
duty tells us that that we have to be mindful of a
certain group of consumers—vulnerable consumers. Particularly
highlighted are the elderly and those who live in rural areas. Perhaps
you want to revisit that—for example, by considering whether
children should be included in that category. When I was speaking to
the Scottish Affairs Committee on fuel poverty in
Scotland, that certainly seemed to concern them. Finally, you have the
reinstatement as a secondary duty of sustainability.
I think those are your five
models. I believe that Ofgem currently can carry out its functions with
the duties and roles that you have given us; but clearly, it is going
to be something that you want to debate quite actively in the next few
months. Nick
Winser: Our view is that the current provisions are
probably there or thereabouts. There might be a
question about interpretation of them. Certainly,
Ofgem has moved towards taking forward the responsibilities for
sustainability, and we applaud that. That may have a bit to go,
considering the scale of the task ahead of
us. There is also a
question about the interpretation in terms of time. Looking a long way
ahead, we would quite like to see Ofgem—we are working closely
with Alistair’s people on this—take a long view and think
about where the carbon and renewables targets might be leading us and
ensure that we are together and making the right regulatory changes to
ensure that we can get to those targets in the long term. It is about
looking a long way
ahead.
Q
83Paddy
Tipping (Sherwood) (Lab): Mr. Buchanan, you
gave a curtain-raiser to your appearance before the Committee today in
an interview with the Daily Record—I think that it is
headlined “Power to the People”—in which you said
that customers in Scotland could save £200 million by switching,
which you advocate. You also advocate better targeting and
identification of customers at risk and better welfare rights advice.
By contrast, Mr. Asher, you are keen to see social tariffs,
which already exist on a voluntary basis, put on a mandatory footing.
Which is the better way to go
forward? Allan
Asher: From my point of view, I should like to praise
companies such as British Energy—Scottish Energy, as it trades
as in Scotland—and EDF Energy that are doing some really
excellent things in social tariffs. Scottish Power has announced that
it is introducing a social tariff, although, sadly, it is for only
those over 60, but the rest of the companies are doing not very much at
all. Some are spending a tiny sum: npower, for example, is spending
less than 4 per cent. of all the money that is going into social
tariffs. It has said plainly and publicly that it just will not do it
unless it is required to.
Indeed, until
now, even British Gas and EDF have said, “We just can’t
stick at these voluntary contributions. If the other companies are
going to undercut us in the market, we will have to withdraw these
really good social tariffs.” I fear that for the Committee, this
is one of the last chances. If Parliament says to suppliers, “We
think that two doing something and one doing a little bit is
enough”, the good social tariffs that we see in the market will
soon disappear. Companies will get the view that all is okay, and they
can go home until next time. However, if the Committee were to insert
just an enabling power—not to impose anything, but just so
that Parliament has the power if the companies start to pull out and
leave consumers in the lurch—that would make all the
difference.
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| ©Parliamentary copyright 2008 | Prepared 6 February 2008 |