Clause 10 - Functions of the Authority

Energy Bill – in a Public Bill Committee at 2:00 pm on 24 January 2013.

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Question proposed, That the clause stand part of the Bill.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

Like the previous two clauses, this is relatively uncontentious. It gives the Secretary of State the power to confer

“functions on the Authority for the purpose of offering advice to, or making determination on behalf of, a party to a CFD.”

I would like to tease out a little more detail on the advice or determinations envisaged under the clause, and any extra resource required to allow the authority to carry out this important function.

The Minister is aware of the Opposition’s position on the authority. It is no secret that we have concerns about the performance of the regulator and the way it has undertaken its role up to the present day. I am sure that all Committee Members are aware of our position and we will discuss it later. Rather than get into a lengthy debate about the merits of Ofgem just now, I want to ask about the preparedness of Ofgem as currently constituted to carry out the functions ascribed to it under the Bill.

The role of Ofgem is important. According to annexe D published alongside the Bill, Ofgem will be responsible for overseeing and managing the performance of the system operator. It will be able to take enforcement action in the case of a licence breach, or the breach of a relevant requirement, and set financial rewards to incentivise efficient performance. The regulator will also have the important responsibility of setting revenue controls for the system operator. Last year I asked the Minister’s predecessor what assessment he had made of the number of Ofgem staff between then and 2020. On 14 June 2012 I received a response from Charles Gallacher, the director of GB external relations at Ofgem, who wrote that the impact of the Government’s electricity market reform and off-generator resourcing was yet to be fully determined. Therefore, as this policy was still in development, they had not made any projections of the impact of the EMR proposals on Ofgem’s staff numbers in the years to 2020.

I was slightly surprised by that response, given that by that point the draft Bill had been published. Can the Minister provide any update on whether an assessment has been made of the impact of the Bill’s proposals on  Ofgem and whether it will require more staff? Are the functions that are being conferred on Ofgem similar to those that are already carried out? Is it his view that it would make little difference? I appreciate that these are points of detail, but they are important and significant. I am not asking him to denigrate the regulator but simply to confirm that in his opinion the regulator will be able to carry out its important functions under electricity market reform.

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

It is important to understand Ofgem’s role in this respect. Ofgem certainly needs functions conferred on it to carry out this role. Such functions will be conferred by order, as the shadow Minister will understand, and will be designed to reflect the CFD contract. It is fair to say that Ofgem’s role will be limited. Its role will be only as set out in the contracts. It does not have a more permissive role. It is playing the role of an independent expert in relation to highly specified matters in the contract. I take the hon. Gentleman’s point about not getting into a wider debate about the role of the regulator. His point about the likely costs in relation to that is a reasonable one. It is certainly one I want to say more about. I do not have that information to hand, but it seems to be a valid question and I will come back to the Committee, if necessary in writing, or in a later sitting. I will be happy to make any information that we have available.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

Is the Minister as concerned as I am that when Ofgem carried out the retail market reform there were huge delays? One of the reasons cited was the amount of work that they had to do. That obviously relates to their resources. Is he concerned that much of this may be delayed if those additional resources are not available?

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

That is a perfectly fair point. Because of the particularity of the role they were playing here, we can be confident that the delays that the hon. Gentleman suggests are extremely unlikely to occur, but it is right that we give proper assurance about any additional costs. Ofgem already has a responsibility in respect of biomass certification under—

Sitting suspended for a Division in the House.

On resuming—

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

Before we were interrupted by the process of democracy, the Minister was in mid-flow, and we were very attentive.

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

That is most generous of you, Mr Leigh. I was about to make the case that this measure is an extension of Ofgem’s existing competences. It currently has a responsibility to enforce licence conditions and to continue biomass certification under the renewables obligation, so this is a marginal addition to what Ofgem does. We are discussing the issue with Ofgem, which is an integral part of the EMR governance framework—in other words, our EMR steering board. I emphasise that things that the shadow Minister mentioned from annexe D  of our policy update are all part of Ofgem’s role in overseeing the systems operator. I reinforce the point that any addition would be absolutely marginal, given that it is an extension of what Ofgem already does. With that reassurance, I beg to move that the clause stand part of the Bill.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.