Adjustment of charges to help disadvantaged groups of customers

Question (19 January) again proposed, That the clause stand part of the Bill.

On a point of order, Mr. Atkinson. May we take jackets off?

You may.

I propose to add only a word or two to those spoken by the hon. Member for Wealden on Tuesday. We have the same general concern. The clause appears to be very broadly drawn, giving significant discretion to Ministers. Therefore, the sensible thing is for me, like the hon. Member for Wealden, to listen to the Under-Secretary’s response. However, we are very keen for the Government to undertake to consider the objections from the Opposition after the Committee stage and before Report, as they have done for other matters. I am very happy, as I am sure the hon. Member for Wealden and others would be, to meet after the Committee stage to discuss disputed matters that may be capable of resolution or progress. I hope, therefore, that the Under-Secretary will take note of the significant concern about the clause. Clause 27 is the only remaining clause that presents significant concern for the Opposition.

On Thursday, I promised to write to all Committee members with some statistics that I presented to the Committee on that day. The letter is in the process of being written. I point out on the record that when I said a figure of 40 per cent., I should have said 43 per cent., and when I gave a figure of 870,000, I should have said 837,000.

Disgraceful! [Laughter.]

I have not finished my mea culpa yet. Apparently, my presentation of the tables was also infelicitous and the correct interpretation of them will be set out in the letter, to put me and hon. Members straight. I apologise for any error that I made in my presentation.

Clause 27 will allow the Secretary of State to devise a scheme that will adjust gas and/or electricity charges if he considers that a group of customers of a particular energy supplier is being treated on less favourable terms than another group of customers. The Secretary of State will be able to define which group of customers the scheme applies to—whether gas, electricity or dual fuel, or a sub-group of those customers—as well as which charges are covered by the scheme and how they will be calculated. The clause will ensure that the Secretary of State has the power to address the type of unfair discrimination, identified by Ofgem’s probe into energy markets, that exists in respect of the charges that suppliers imposed on electricity-only customers and dual fuel customers.

On Tuesday, my hon. Friend the Minister of State and I endured many hours of debate when Opposition Members criticised the effectiveness of the regulator Ofgem and said that the Government should do more. Now we have come to a clause where the Government propose to do more, and Opposition Members still criticise. But then, whoever said that Opposition Members had to be consistent in their criticisms?

I was not one of those who led those criticisms. The issue at stake is that nobody knows when the Minister will use his powers, or in what circumstances. What we need is clarity. There needs to be an absolute degree of certainty among those working in the industry about whether certain things will be acceptable to either Ofgem or the Minister. There is a broad range of powers here, but without the detail to understand exactly what is intended.

The powers are largely based on existing powers found in sections 43A and 43B of the Electricity Act 1989 and sections 41A and 41B of the Gas Act 1986; they replace and expand on those powers. In each of those sections, which have existed since the Utilities Act 2000, the word “considers” appears in the first subsection, as here in the present draft. What is new in the clause appears in subsection (5), where the words

“(c) electricity and gas customers” are added to the categories that the Secretary of State can take into account to discover whether there are disadvantaged customers. That precisely covers the point, which I mentioned in my evidence to the Committee, of a potential lacuna where people are dual fuel users with the same supplier.

Subsection (7) caused some concern among Members, particularly the phrase “assumptions and calculations”. That is new because of the addition of dual fuel customers; it would not always be possible to compare directly the charges being made between groups of customers because of the interaction of their gas and electricity supply. That is why the widening is required.

The change will ensure that the Secretary of State has a full suite of powers to address price discrimination between electricity and/or gas customers. It will mean that the Secretary of State will be able to address cases where suppliers have cross-subsidised their gas businesses from their electricity businesses, as a result of which electricity-only customers have been charged more than can be objectively justified.

The power is intended as a reserve power. Ofgem has already introduced new licence conditions to prohibit the kind of discrimination previously described, and we  are confident that this will mean that such practices will not be repeated in future. The clause is still necessary to ensure that the Secretary of State has powers to intervene should it become necessary—if, for example, Ofgem is unable to obtain the necessary level of agreement from licence holders to allow it to introduce or amend licence conditions to prevent future discrimination.

The hon. Member for Wealden said that Ofgem does not have the same relaxations, as he regarded them, as the Secretary of State has here. Given that it is intended that the Secretary of State should step in, usually after Ofgem has failed to take the necessary action, having exercised its powers to investigate, the things that the hon. Gentleman believes should be done will already have been done by Ofgem.

I want to address the issue around subsection (7) and the word “assumptions”. First, it is restricted by its link to the words “and calculations”. It is a formula to enable the Secretary of State to make the necessary comparisons, to see whether one group is disadvantaged compared with another. It is also restricted by the opening words of the subsection: that it is

“for the purposes of this section” and no other purposes, that this ability of the Secretary of State exists.

More widely, under the Gas Act 1986 and the Electricity Act 1989, the Secretary of State has a duty to have regard to best regulatory practice in carrying out his functions under the legislation. The duty requires him to have regard to the principles under which regulatory activity should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed. Subsections (8) and (9) of clause 27 make it clear that the carrying out of the Secretary of State’s functions under the clause are covered by the better regulation duty.

Clause 29 requires the Secretary of State to give advance notice of any proposals to make regulations under these powers and consider any representations or objections raised with him. In line with the better regulation duty, the Secretary of State would consult fully and complete an impact assessment before any scheme to adjust charges could come into force. When Sarah Harrison of Ofgem gave evidence on the point in answer to a question from me, she made it clear that it was helpful to Ofgem, in carrying out its duties in regulating the supplier companies, that this reserve power should exist with the Secretary of State.

As far as the suppliers are concerned, it makes sense for them to comply with Ofgem in changing their licence conditions; if they did not, they would know that the Secretary of State would step in with something much more effective. In that sense, they would prefer to cling to nurse for fear of something worse.

That was a good coda.

We discussed the interrelationship between Ofgem and the Minister earlier in Committee. In defence of those of us who were critical of Ofgem, I should say that my criticism was not that there should not be a Government role—that has never been the criticism. In opposition, one rightly criticises and probes to check that the powers that a Bill gives to Ministers or regulators are clear and that we know what we are getting. That was the burden of our song. We do not step back from the points that we made last week on the inappropriate  inclusion of Ofgem as an alternative in an earlier part of the Bill. Ministerial powers can override and direct, but we need to know in advance their extent, breadth and import, and to have as few variables as possible.

I am grateful to the Minister for his response. I remain concerned that this is a sloppy bit of the Bill. We have to assess legislation against criteria to see whether it is appropriate. The first criterion is need, and that has not been proven in the Minister’s argument so far. He talked about an existing power in other areas under the 2000 Act and explained that it has never been used, so, as I say, the need for the power is not clear.

The second criterion is urgency; we were told by the Minister of State that only issues that were pressing were going to be incorporated in the Bill, and we see no reason for urgency on this matter. I think that Ofgem, in evidence, said that how much should be taken forward was not its choice, that it was not appropriate that it should have a view on the powers and that the Government should decide. Ofgem did not sense the urgency.

Thirdly, is the power appropriate? That is not yet proven. The Under-Secretary has done his best to defend his case, but we have significant doubts about not only the powers that will be taken, but—more importantly—the potential scope for confusion. He has an unclear set of powers and it is not evident how those relate to the powers that Ofgem has. Nevertheless, the clause is perhaps better discussed in another place, where we have a raft of lawyers. Their lordships may wish to return to it in due course.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

In a spirit of optimism I think that it may be convenient to consider clauses 28 to 37 together. Mr. Hughes, do you have a problem with that?

No.

Clauses 28 to 37 ordered to stand part of the Bill.