Charles
Hendry: There are different pressures in trying to achieve
different objectives. For example, there is the Climate Change Act 2008
and the legally binding requirement to reduce our carbon emissions by
80 per cent. by 2050. The Government could decide that climate change
needed more emphasis than energy security, because that was the world
in which we lived and they felt comfortable about security of supply.
The proposed new subsection appears to give Ofgem the ability to reach
a different conclusion, and Ofgem would decide the pricing structure.
Therefore, we could have conflict because the independent regulator
decided the balance but the Government, in policy terms, reached a
different conclusion. Will the Minister explain how that will work in
practice?
Joan
Ruddock: The issue is difficult, and I may not be able to
entirely satisfy the hon. Gentleman. When it comes to policy
decisions—setting overall strategy for climate change, for
example—the Government will obviously set the policy framework,
and it will be for them to decide all the issues in an overarching way.
Ofgem will, however, need to strike a balance when there are competing
courses of action. We have set Ofgem the clearly difficult task of
weighing up the issues and determining what is in the consumer’s
interests. We are aiming for more clarity because we know from past
experience that at times Ofgem has perhaps not entirely fulfilled the
role it has been
set.
Charles
Hendry: Does not that make it difficult for the businesses
concerned? They seek to abide by the rules and provide a pricing
structure that meets what
they believe to be Government policies and priorities, and if they put
extra effort into gas security because they are following this debate,
they could be told that their pricing structures are unfair to
consumers because Ofgem has reached a different conclusion and reckons
that low-carbon issues will be more important than the security of
supply. I am concerned about what happens in businesses that are trying
to make the right investment decisions but might see a conflict
developing between the Government’s priorities for low carbon
and security and those set out by Ofgem, which are independent and
would appear to have equal
validity.
Joan
Ruddock: I cannot dispute the hon. Gentleman’s
intellectual argument. In practice, of course, there is a continuous
dialogue between the Government and Ofgem, Ofgem and companies, and
companies and the Government. We are entering a new world in every
respect, and I foresee that it will be that constant dialogue between
all the parties that will enable us to get the best result from the
legislation. The Bill attempts to draw out the fact that there are
conflicting pressures, and to say to the regulator that it must take
account of them and make the best possible decisions in the interests
of the consumer. I cannot give the hon. Gentleman further comfort on
that
issue.
Charles
Hendry: I have one final word. We do not plan to press the
amendments to a vote, but will the Minister further consider, before
Report, whether greater clarification will be necessary so that in the
event of a disagreement of relative importance between Ofgem and the
Secretary of State, the views of the latter will carry
primacy?
Joan
Ruddock: I am delighted to give the hon. Gentleman that
undertaking. I assure him that I will look extremely carefully at all
my responses in Committee, to see if I may do better on
Report.
Simon
Hughes: There are two interesting and important
interrelated issues here. May I ask you, Mr. Bayley, to bear
it in mind that the debate has been specifically about the
constitutional interrelationship between the Secretary of State and
Ofgem? There is the wider issue of the balance of duties, which is in
the clause, and I would therefore be grateful if you allowed that to be
discussed in a stand part debate so that I could limit my remarks now
to the constitutional
issue.
The
Chairman: We can discuss such matters in a stand part
debate.
Simon
Hughes: I am grateful for that, Mr. Bayley. I
am sympathetic to the amendments, as is the consumer organisation
Which?, which would like the amendments to be more strongly worded. In
its briefing, it argues that responsibility for enacting policy in the
energy market should rest with the elected representative, the
Secretary of State, thus ensuring democratic accountability. It is not
currently clear that this is the case. It adds that the
amendments would help avoid any confusion when considering the
principal objective to promote consumer interest.
I
will come back to the debate about the balance of interests. I
understand the Minister’s point that in the existing Gas and
Electricity Acts there is the dual responsibility. That is the way
those two Acts are phrased. But when we come to the judgments about
balancing consumer interests and competitiveness—low
prices—and other issues like emission and climate change, the
Secretary of State should be accountable because there would be the
ability to influence those decisions as part of the political
process.
Ofgem has its
supporters and its critics, but it is a quango. It is at one step
removed from accountability. It has moved pretty slowly, if not very
slowly, on many of the issues in which consumers have had most
interest. I do not think it is to be regarded overall as a friend of
the consumer. It has been regarded generally as a friend of the
industry. Therefore it would be better and more responsive if Ministers
were accountable for these things rather than the regulatory
authority.
I heard what
the Minister said to the hon. Member for Wealden about reflecting on
the debate. It is wise that we all step back and do that. But my
instinct would be to say to the hon. Gentleman that we are right to
pursue this on Report and to ask the Minister to think about the
constitutional accountability. I think this is where the public would
expect us to be able to hold Ministers to account and not to hear them
say that it is a matter for the regulator and they will tell us next
year what it
thinks.
Charles
Hendry: I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Question
proposed, That the clause stand part of the
Bill.
Simon
Hughes: The same issue arises in this clause as in the
next one. I will therefore make the arguments only once. As would be
expected, I have looked at the original clauses in the Gas and
Electricity Acts, as amended subsequently. So that those who follow our
proceedings can understand what is happening, we need to see the effect
of the proposed change. The current proposal is to take the Gas Act and
quite significantly restructure the obligations. Section 4AA (1)
states: “The
principal objective of the Secretary of State and the Gas and
Electricity Markets Authority... in carrying out their respective
functions under this Part is to protect the interests of consumers in
relation to gas conveyed through pipes, wherever appropriate by
promoting effective competition between persons engaged in, or in
commercial activities connected with, the shipping, transportation or
supply of gas so
conveyed.” So
effective competition is the method. Subsection (2) states:
“The
Secretary of State and the Authority shall carry out those functions in
the manner which he or it considers is best calculated to further the
principal objective, having regard
to- the need
to secure... all reasonable
demands...”— so
that is security of
supply— “and
(b) the need to secure that licence holders are able to finance the
activities.”— so
that is to make sure that they are viable economic undertakings. It
then continues about other duties. Subsection (3) states:
“(3)
In performing that duty, the Secretary of State or the Authority shall
have regard to the interests of-
(a) individuals who are
disabled or chronically
sick; (b)
individuals of pensionable
age; (c)
individuals with low incomes;
and (d)
individuals residing in rural
areas; but
that is not to be taken as implying that regard may not be had to the
interests of other descriptions of
consumer.” It
therefore points to categories of people who will be in the mind of the
Secretary of State or the regulator. The central provision of the
current Act is not significantly altered by the rest of the
clause. 12.15
pm Subsection
(2) shortens the principal objective to protecting the interests of
consumers and does not get into a qualification or definition. Proposed
new subsection (1A) then introduces a new proposal, which I welcome as
far as it goes, although my comments are intended to explore how far it
goes. It states:
“Those
interests of existing and future consumers are their interests taken as
a whole, including...in the reduction of gas-supply emissions of
targeted greenhouse
gases”, which
is clearly an important consideration, given the climate
council’s
debate, “and
their interests in the security of the supply of gas to
them”,
which we have just
debated. We then come to a third provision, which is set out in
proposed new subsection (1B):
“The
Secretary of State and the Authority shall carry out their respective
functions under this Part in the manner which the Secretary of State or
the Authority (as the case may be) considers is best calculated to
further the principal
objective”— the
protection of consumers’
interests— “wherever
appropriate by promoting effective competition between persons engaged
in, or in commercial activities connected with, the shipping,
transportation or supply of gas conveyed through
pipes.” If
the Act is changed by the Bill, therefore, we will have a principal
objective of protecting the interests of consumers, and I buy that,
because it seems to be the right starting point. The clause then looks
at how we define that objective, and we find that the definition
includes issues relating to greenhouse gas emissions and security of
supply. Proposed new subsection (1B) then talks about the principal
objective being met
“wherever
appropriate by promoting effective competition”.
This is a
lawyers’ minefield, and if the issue were ever contested with
Ofgem or the Minister, the question would be what comes first and what
the hierarchy is. The protection of consumers is at the top, which is
fine, but where does effective competition stand in relation
to greenhouse gas emissions and security of supply?
My
straightforward point to the Minister is that, having looked at this
carefully—I have not paid for or taken counsel’s opinion
to get an answer—I am not clear how Ofgem, the Secretary of
State or their successors would balance these considerations. I would
like us to put on record how the process would work, because
this is an important issue. I am grateful that emissions and
security of supply are included, because those are the right
considerations, but I am not sure whether they
have equal billing with competition or whether they are secondary to it
when it comes to the crunch.
I hope that I
have put the case clearly. It is right for us to look at the
responsibilities of the Minister and Ofgem, and we need to know how the
different considerations will be weighed up in this clause and in the
following, comparable clause, which deals with
electricity.
Joan
Ruddock: Clause 16 clarifies—that is our
intention—the principal objective of the Gas and Electricity
Markets Authority, or Ofgem, in relation to the regulation of the gas
markets. The principal objective of Ofgem and the Secretary of State
when exercising statutory functions relating to the regulation of the
gas and electricity markets is to protect the interests of existing and
future consumers. That objective relates only to the carrying out of
the functions that Ofgem already has under legislation. That is an
important point, and we are not giving Ofgem any new powers. In the
context of the clause, those functions include the licensing of the gas
network and market activities and ensuring the compliance of licence
holders. The
principal objective will not be changed by the clause, but its meaning
will be clarified in two ways. First, the clause will put it beyond
doubt that the interests of consumers include the reduction of
greenhouse gas emissions and ensuring energy security. That was
implicit in the current legislation, given that consumers clearly have
an interest in those issues. It was also explicit, but only to the
extent that Ofgem already has secondary duties to have regard to
aspects of the issues in carrying out its functions. What the present
clause does is to make that assessment part of the principal objective,
and therefore an integral part of identifying where consumer interests
lie, rather than a subsidiary
consideration. I
doubt whether, for the record, I can be more explicit than I have in
making those remarks, but I shall reflect, as we have all agreed I
should. If, on Report, or in any other way, such as by writing to hon.
Members, I can say more, I shall do so. However, I believe that what I
have said should make our meaning clear: it is to make the assessment
part of the principal objective, and therefore an integral part of
identifying where consumer interests lie, rather than a subsidiary
consideration. Secondly,
Ofgem is currently required to protect the interests of consumers by
promoting effective competition wherever that is appropriate, as the
hon. Member for North Southwark and Bermondsey said. Although effective
competition is fundamental to consumer protection, it may not always be
sufficient in the energy markets and there are times when more
immediate action, such as the enforcement of existing, or the urgent
introduction of new consumer protection measures is required to
safeguard consumers’ interests adequately. I think that the hon.
Gentleman and I are both aware of circumstances in the recent past when
Ofgem was effectively forced by public opinion and Government pressure
to act, and to do things more quickly, because reliance on competition
did not produce the required results. With issues such as prepayment
meters we saw a need for it to take more robust and immediate
action. The
clause makes it clear that Ofgem, before reaching a decision, must
consider whether the interests of consumers would be better protected
by other means alongside, or instead of, the promotion of competition.
It does not give Ofgem any additional powers, but it clarifies the
framework within which the regulator is expected to
carry out its functions. Given the importance of transparency and
predictability in the energy market framework, we consider it right and
proper to ensure that the basis for Ofgem’s decisions is clearly
supported by primary
legislation. Question
put and agreed
to. Clause
16 accordingly ordered to stand part of the
Bill. Clause
17 ordered to stand part of the
Bill.
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