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The current rules require suppliers to provide customers with written notice of a price increase within 65 working days of the change taking effect. That means that some customers may not be told that their gas or electricity price has been increased until almost three months after the change has taken place. Although consumers have a 20-day period following the notification within which they can switch supplies to avoid the price increase, it is simply unacceptable to have such a delay between a tariff change and notification. Best practice must surely be to notify before a price increase, so that customers can consider whether they want to switch to another supplier or budget for the higher costs before they come into effect.
After a substantive debate on this issue in Committee, I wrote to Ofgem to highlight the strength of feeling of hon. Members, and to ask it to address the matter urgently. As the regulator, Ofgem is best placed to take steps to do that by changing licence conditions. It has responded to my letter, and announced that it will consult on the issue before Easter.
Given normal time scales, I expect that Ofgem will take action by the end of the summer. My firm expectation is that it will address the issue effectively but, if it encounters difficulties, it is important that the Government are able to step in and remedy the situation.
I am sorry to say that new clause 2, as drafted, would not work in practice. There needs to be a mechanism through which the Government can impose such a requirement on energy companies, as well as suitable enforcement measures to ensure compliance. That mechanism is the licence condition.
Government new clause 9 enables the Secretary of State to modify licence conditions in electricity and gas supply licences and to set the notice period within which energy suppliers must notify consumers of tariff changes. As is standard practice, it sets out that any modifications should be subject to consultation.
Government new clause 11 makes those modifications subject to parliamentary scrutiny. Therefore, a resolution of either House of Parliament would prevent the Secretary of State from making the modifications.
Government new clause 9 includes a sunset clause. The Secretary of State will not be able to exercise his power after a period of three years from the provisions coming into force. That is because the situation requires urgent resolution. Taking these powers should give a clear signal to industry that the Government expect the issue to be resolved swiftly and are ready to take direct action if needed.
The introduction of new clause 9 leads to a restructuring of the Bill, as many provisions relating to licence modifications are common to more than one part. Amendments 15 to 18, 20 to 26 and 29 to 35 are technical: they restructure the Bill to take account of the consolidation of licence modification provisions set out in new clauses 11 and 12.
Government new clause 10 applies the principal objective and general duties of the Secretary of State and Ofgem under part 1 of both the Electricity Act 1989 and the Gas Act 1986 to the exercise of this power, as well as to the exercise of any function by the Secretary of State or
Ofgem under parts 2 or 3 of this Bill. This ensures that those functions will be exercised to protect the interests of existing and future consumers.
Government new schedule 1 contains all the consequential amendments made necessary by the change, and collects together the existing consequential amendments required by the other clauses in this Bill.
The remaining Government amendments in this group are amendments 27 and 28. These correct a technical and unintentional anomaly-which was the fault of the Government-in clause 23. They ensure that, in relation to appeals under the market power licence condition powers, the Competition Appeal Tribunal can change both the amount of the penalty and the day by which it, or part of it, is required to be paid.
Amendment 2 aims to reduce any adverse impacts on security of supply and investment which may result from the market power licence condition introduced in clause 18 by making it an explicit requirement that before exercising the new powers, the Secretary of State should have considered these issues and be of the view that action would not affect them.
Security of supply and the need for increased investment in electricity transmission are, of course, matters of prime importance. The market power licence condition has been purposefully structured to limit the market uncertainty which may have a negative impact on investment. Our intention is that it will apply only where there are transmission constraints in existence. It is narrow and proportionate to the specific problem identified by Ofgem and contains a tailored appeals process as an added support for companies. There will also be a full consultation process on the licence conditions and Ofgem's accompanying guidance document to ensure that we avoid any unintended consequences and subsequent adverse impact on security of supply.
Finally, the inclusion of a sunset clause that limits the operational life of the licence condition to five or seven years gives the industry the certainty that this is a targeted measure. After that period of time, we anticipate that there should be sufficient investment in the transmission network to remove the constraint scenarios that give rise to market power exploitation, and that the licence condition will therefore no longer be necessary.
The amendment is unnecessary, although I understand and have sympathy with the reasons for tabling it. The narrow and targeted nature of the market power licence condition, together with its curtailed lifespan, will limit any investment uncertainty. In addition, the amendments to the duties of Ofgem and the Secretary of State introduced by clauses 16 and 17 will ensure that security of supply issues are considered when developing the licence condition.
On new clauses 18 and 21, energy companies currently have the right to block licence modifications proposed by Ofgem if more than 20 per cent. of licence holders or companies with 20 per cent. of the market share object to the proposed change. We recognise that there are concerns that the 20 per cent. threshold is too low and could make it too easy for major energy suppliers to block or dilute change intended to benefit consumers. For example, in many cases it would require a combination of only two of the major electricity companies to reach the required blocking threshold and thus veto change.
The 50 per cent. threshold proposed by the Lib Dems would make it more difficult for companies to veto Ofgem's changes to licence conditions, arguably enhancing Ofgem's ability to make timely changes for the benefit of consumers. There are, however, a number of risks associated with increasing the threshold, in particular the risk of inducing market uncertainty, which could impact adversely on much needed investment in the energy market and thus on security of supply. Given that changes to licence conditions can have potentially significant implications for a company's operations, it is appropriate that it should have an effective means of challenging these decisions.
The new clauses also address the mechanics of the blocking threshold. The issue was raised with my officials recently by Consumer Focus. Currently, the percentage of licence holders required to meet the blocking threshold is calculated by either market share or the number of licensees. But with some large companies holding multiple licences, the balance of power can be distorted, with those larger companies finding it easier to block modifications as a result.
The new clauses would change the rules so that there is one vote per group of affiliates, rather than one vote per licence holder, meaning that companies with multiple licences get only one vote instead of several, thereby levelling the playing field. It is not clear how much of an impact this change would have on larger companies, which will still find it easier to meet the market share blocking threshold. I accept that these issues merit attention and they are under active discussion in the Department. This is, however, a complex issue, and a quick legislative fix without a full understanding of the impacts is not necessarily the best way forward.
Mr. John Gummer (Suffolk, Coastal) (Con): I have listened very carefully to the Minister, and, having some experience of listening to civil servants, I think that, on the proposal before us, she has had a rather big dose of, "Better not, Minister." Bluntly, it is not good enough to say, "We all understand how difficult this is and we all have to put it off until we get it right." The truth of the matter is that most of us would like to see the proposal introduced now, and, unless the Minister can explain that she really will take some measure to do what I think is absolutely essential, we will have to take the view that her response is yet another obfuscation by a Government who have not stood up to those companies as they should have.
5.45 pm
Joan Ruddock: Perhaps I should regret having given way to the right hon. Gentleman. I was about to say that I am happy to provide an absolute assurance that we will further investigate both issues that the proposed change raises. They are under consideration and we are keen to do something about them.
I am afraid that I must turn to yet another new clause, new clause 22. The aim of providing information on bills should be to help a consumer gain a full picture of their consumption and understand and minimise the costs that they are paying. Having information regarding company profits on the bill would not achieve any of those objectives. Ofgem has already taken steps to improve the information on bills and ensure that suppliers also provide customers with an annual statement. Bills will
contain information on the customer's tariff, their energy consumption over the previous 12 months and the projected costs.
The annual statement will also contain information on the terms and conditions of the tariff that the customer has chosen, arming them with the information that they will need should they wish to change their tariff or supplier. The rules will be fully implemented by this summer. As of October, Ofgem will also require the big six energy companies to publish revenue, costs and profits from their electricity generation and supply businesses, and from their gas supply businesses. That will provide consumers with better visibility of the profits and margins of their energy supplier.
To summarise, I hope that Members will welcome new clauses 9 to 13, new schedule 1 and amendments 15 to 18 and 20 to 35. I hope that the hon. Member for North Southwark and Bermondsey (Simon Hughes) will not press new clause 2 to a vote, and that Members will not press new clauses 18, 21 and 22 or amendment 2, either.
Simon Hughes: I am conscious that we have 13 minutes left as we begin the second of five groups of new clauses, new schedules and amendments, so I shall be brief in the hope that, between us, we can start to consider the third group before we have to vote.
I am grateful to the Government for tabling new clauses 9 to 13 and the consequential amendments, which would introduce provisions that my hon. Friend the Member for Harrogate and Knaresborough (Mr. Willis) and I sought to introduce in Committee-but which the Government voted against. A belated conversion is better than no conversion, and I am always willing to receive a better drafted amendment, but I just make it clear that we are doing something that we should never have had to do by legislation, because the situation should never have arisen. For the first time, we are ensuring that the big six energy companies tell people in advance of changes to their prices. Today, they can still tell people 65 working days after they have changed their prices, and that is just nonsense. They should never have been able to do so, and I am grateful that at last common sense has prevailed as a result of my party's pressure, which the Conservatives supported and, at last, the Government have acknowledged.
That is, however, symptomatic of the problem that the right hon. Member for Suffolk, Coastal (Mr. Gummer) identified a moment ago and my hon. Friend the Member for Harrogate and Knaresborough and I have identified all the way along. Late in the day, the Government have realised that the big six energy companies have called all the shots, and the regulator, Ofgem, which the Conservatives set up when they were in power and Labour allowed to continue, has just not been up to the job. That is why we have also tabled new clauses 18 and 21, which go together as a pair, and new clause 22. I shall briefly comment on each one.
I would like to signal in advance, Madam Deputy Speaker, that if you are very kind and indulgent we would be grateful for votes on new clauses 18 and 22, but if not on both, then on one of them, at the 6 o'clock guillotine.
New clauses 18 and 21 contain an absolutely straightforward proposal that was picked up on by the right hon. Member for Suffolk, Coastal; I am grateful
for his support. At the moment, if a company has a 20 per cent. share of the market, it can block any proposals by the regulator for changing the licence conditions. Yes, there is an appeal mechanism, which can be taken up to the Competition Commission, but the regulator has shown itself to be very reluctant to go down that route. We are seeking to ensure that one of the big six companies cannot alone prevent changes in the rules that would be against their interests. It is entirely wrong, and unacceptable, that in terms of prices and the way that the energy companies give people information about what they are doing, one company can hold consumers to ransom in this way. Our proposals are thoroughly supported by Consumer Focus, the consumers' representative group.
Our second proposal would prevent energy companies from being able to collect a set of licences and thereby accumulate a similar power, under the radar, in a way that works against the fulfilment of consumers' wishes, as reflected by Ofgem.
The third proposal is probably the most timely and would affect people most at the moment. Colleagues will probably be aware that on Monday, Ofgem, like a sleeping giant waking up to its obligations, produced a report on the prices that the gas and electricity companies have had to pay and the prices that they were charging their consumers. In summary, as was reported yesterday in many newspaper headlines and national news bulletins, energy suppliers are making more than £100 out of every customer by refusing to cut bills during the record freeze. We have had record cold weather, with people probably having had to use their energy supplies more than in any recent winter in living memory, and yet during that period the energy companies have had a larger share of profits than ever before.
The figures for the big six companies-British Gas, Scottish Power, EDF Energy, npower, Scottish and Southern Energy and E.ON-show that in the last quarter, net profit margins per average dual fuel customer widened from £75 last November to £105 at the start of this month. That is the highest average margin enjoyed by the industry since 2004. In the next few days, we are expecting some of the big companies to report their profits, with possible increases in profits up as much as 50 per cent. and potential profits of up to £550 million. When bills such as the one that I have here drop through people's letterboxes telling them that prices are going up or staying the same, it is not an unreasonable proposition that the customer should know what profits are being made out of them by the big six energy companies. I am sad that the Minister resisted what seems to be an absolutely essential prerequisite for customer choice.
Liberal Democrat Members take the simple view that, so far, the big energy companies have given Government and Ofgem the runaround, and Ofgem, instead of acting in the interests of the consumer, has been a toothless tiger. Prices have gone up for consumers, many of whom have low household incomes. People have been paying over the odds and the energy companies have been making massive profits. We have to change the balance of power, and all these new clauses are about doing that. The Government have conceded on one of them and we are grateful. However, that is just
the beginning of what needs to be done, and it is sad that it is so little, so late, and that the Government are unlikely to accept the rest of the amendments.
Charles Hendry: As the hon. Member for North Southwark and Bermondsey (Simon Hughes) said, it is sad that we will not have more chance to debate these issues today. We have quite rightly had a substantial debate on carbon capture and storage and emissions performance standards, and it shows the folly and shortcomings of the timetabling of debates that we cannot have more time to discuss such important energy issues at a time when they are so relevant to people in this country.
I welcome the Government's tidying-up amendments. They are not likely to win any plain English awards, as they are rather obscure, but we understand that they are important to make the Bill more substantive and put things in order. We also welcome very much the Government's response on the 65-day notification period. I congratulate the hon. Gentleman on how he has pushed the matter forward. A 65-day period is simply too long and was unacceptable, and it is quite right that Ministers should now take a power to address the problem and require a reduction in the notification period if Ofgem does not act as we would all expect.
I understand that the Minister's hope and preference is that tariffs should be announced in advance, so that there is no retrospection at all, or at worst within 10 days. That would return us to the situation that appertained before the Government changed the notification period to 65 days. We welcome that and hope that it can happen. We also welcome the sunset clause, which is appropriate in these circumstances. We need to act quickly, and that provision will put pressure on the Government and the regulator to do so in an appropriate way.
There are other issues that we wished to address, such as concerns about profitability. We recognise that there is a case for openness and information for consumers, but one has to question why it should be uniquely on energy bills. When we buy a car or a holiday we do not need to know the company's profits, and with so many tariffs in existence it is hard to relate the profits of an energy company to the particular tariff that a customer is on and the contribution that they are making to those profits. Those matters need to be explored further with the Government, and we hope to have the chance to do so in due course.
Mr. Gummer: I have no particular angst about the profits of energy companies. They ought to make profits, and I will not get tied up in the arguments about that. However, it is much better if energy companies are given the opportunity to work within a regime that the public think is fair. I therefore welcome what the Government have done, although they could have moved further on some of the issues that the hon. Member for North Southwark and Bermondsey (Simon Hughes) raised.
The Government ought to be on the side of the energy companies. If the energy companies can work within a system that the public perceive as fair, it is much easier for them. If they work within a system that the public perceive as unfair, that does not help them to do what needs to be done. We need a real relationship
between Government, energy companies and consumers to deliver a carbon-free economy. That is not easy, and we have to get it right. The current structure gives some of the less attractive elements of the media the ability to present the whole system in a way that is damaging to those of us who are fighting for a low-carbon, and finally non-carbon, economy.
I hope the Minister will be tougher with her civil servants, so that we can find answers more quickly and clearly. Will she please also tell them that in future there shall be no occasion on which initials shall be used, and that she will explain things in a way that those who are watching on television can understand? I have been listening carefully to the debate, and I do not think anybody outside can have understood it. We have all used shorthand terms and words that do not mean anything to the general public. I beg her to get her officials to understand that we need a partnership with the general public, and we have to get it right. Frankly, we are not getting it right at the moment because we are not prepared to explain to people what we are trying to do in language that they understand.
New clause 9 accordingly read a Second time, and added to the Bill.
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