Energy Market

Energy and Climate Change – in the House of Commons at 10:30 am on 13 November 2008.

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Photo of Judy Mallaber Judy Mallaber Labour, Amber Valley 10:30, 13 November 2008

What recent discussions his Department has had with energy companies on the energy market; and if he will make a statement.

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

We met the chief executives of the big six energy suppliers three weeks ago, and emphasised to them that, just as oil prices have fallen and petrol prices have therefore begun to fall as well, wholesale gas prices have come down. We want the companies to respond to business and consumer concerns about the fact that gas and electricity prices remain so high.

Photo of Judy Mallaber Judy Mallaber Labour, Amber Valley

As my hon. and learned Friend points out, oil prices have halved. Following those discussions, does he have an indication as to when the utilities will take action to cut bills so that households no longer suffer and businesses are able to have sustainable power contracts? Have they given any indication that they are prepared to take action on the Ofgem findings on the scandal of rip-off bills for those on prepaid meters and of those who are not connected to the gas mains? Why are they so quick to put prices up—

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

On prepayment meters, Ofgem has given the companies until December to respond to that point and we have indicated that if the companies fail to respond adequately, we are prepared to legislate. On gas prices, the gas companies say that they buy their gas sometimes up to about six months ahead on the advance markets and, therefore, it takes time for the gas price reductions—the last time I looked they had fallen by about 22 per cent.—to come through into gas bills. I am pleased to say that this morning's newspapers reveal that Scottish and Southern has indicated, as we asked the companies to do, that it is looking at lowering its prices as soon as it can. I now look to the other energy suppliers to give indications that they will be bringing down their prices to a more reasonable level.

Photo of Peter Luff Peter Luff Chair, Business and Enterprise Committee, Chair, Business and Enterprise Committee

I was grateful to the Secretary of State for the opportunity to discuss with him my Committee's report on fuel prices that was published in July, which proved that increased prices were the fault not of the companies but of the market. We are addressing market failure. Since we published that report, there has been a significant deterioration in market conditions. BizzEnergy, an electricity supplier in my constituency, has gone bust, with 160 jobs lost. The Government are allowing British Energy to be bought by EDF. Transparency and liquidity are being reduced in the electricity market. There will be one consequence— higher prices for consumers. Does the Minister agree?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

To ensure that we get long-term affordable electricity, gas and energy supplies, we need to make sure that there is diversity of supply. The hon. Gentleman rightly says that there are issues in relation to the market, which is why we asked Ofgem to look at it. It has reported and made a number of recommendations, which it has said must be put in place. We are waiting for the outcome of that consultation now. The hon. Gentleman is right to say that there are issues in relation to the market, but they are being addressed.

On British Energy, the Government have looked at the proposal, which would bring £12.5 billion of investment into the UK. Do the Conservatives think that is a bad thing? We think that it will help to provide security of energy supply for the long term. I am sorry if the Conservatives take a different view.

Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

When my hon. and learned Friend met Dick Turpin and the rip-off bill merchants, I hope he said to them that it was not on and that the time had come for a windfall tax. Did he also ask them why they failed to invest in storage capacity, as a result of which gas prices are being kept artificially high?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

There has been some investment in storage capacity and we have been anxious to make sure that that is brought on. We have given strong indications to the gas and electricity suppliers that—particularly in the current economic climate, with families concerned about the bills and where the economy is at the moment as the result of the global problems in the financial markets—they have a responsibility to bring down energy prices as soon as they reasonably can. We gave that clear message to the chief executives. We will not be satisfied if we think that there is any delay in doing that. We are looking to Ofgem, the regulator, to do its job.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Energy and Climate Change

Will the Minister accept that the energy market is a mess when it comes to social tariffs? Of the big six energy companies, one provides most of the social tariffs, and it has now stopped; it will not let new customers go on to social tariffs. Some of the others do not do any at all. Is that the right way for vulnerable customers to be treated? Is it not a risky strategy to rely on the goodness of heart of the energy companies?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

We have had an assurance from the energy companies that they will put a further £225 million into social tariffs. The way in which the energy companies were privatised means that they all have to compete. Ofgem has taken the view that they also compete on social tariffs. There is an argument for greater standardisation of social tariffs, and I have some sympathy with it, but the companies take a view, as, indeed, Ofgem does, that there is a market and this is one of the areas where they need to compete. Some 600,000 people are able to access these lower social tariffs, and I want to put more people on them so that they pay lower prices. That is why the Pensions Bill contains a provision to allow data sharing by the Department for Work and Pensions to enable the energy companies to know which people are on pension credit—in due course we would want to extend that further—so that they can be put on a social tariff, as I hope would happen.

Photo of Brian Jenkins Brian Jenkins Labour, Tamworth

My hon. and learned Friend gives us assurances that the companies say this and say that, but does their track record not bear investigation? A company's role is to maximise its profits at any cost, and we knew that when we introduced the regulator. It has watched the industry for a few years, but when are the Government going to buy it some new teeth?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

My hon. Friend is right to say that we must always examine the track record of the companies. There is public concern that they have been quick to indicate that prices will rise and slow to indicate when prices will fall, which is why I have welcomed the statement by Scottish and Southern Energy in response to our meeting with it and with the other chief executives. I look to those other energy companies to follow its example and start to say when some prices will come down. Parliament has said that it wants an independent regulator, which Ofgem is, so Ministers cannot keep telling the regulator what it has to do, because it is supposed to be independent. None the less, we have had meetings with Ofgem and we have indicated that we want it to be robust in ensuring that it protects the interests of the market and of competition.

Photo of Greg Clark Greg Clark Shadow Secretary of State for Energy and Climate Change

Why do gas and electricity cost more in Britain than on the continent?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

All the way through the early part of this decade, we have had much lower gas prices than most of the continent, because the market was able to operate very effectively to ensure that prices fell. Europe operates using a different system. It operates long-term and often not very transparent deals, particularly in the business sector. Deals that can last for some years are signed, holding down some of those prices. When our market falls and we get the benefits, Europe does not. When the market starts to rise and our prices rise, it takes some time before Europe renegotiates some of its long-term contracts. We are pressing, with the EU Commission, to get more transparency into some of those deals and to get a more effective market operating in Europe. We want to ensure that we all get the benefit of a more successful and competitive market, because we all want to pay the lowest price that we reasonably can.

Photo of Greg Clark Greg Clark Shadow Secretary of State for Energy and Climate Change

Mr. Speaker, did you know that the Minister's new Department has 900 policy advisers? Do you think that he might have done better with that, given that level of advice? One of the reasons why British customers suffer price spikes is that, due to the absence of a serious energy policy over the past 10 years, we have only 14 days worth of gas storage compared with 99 days worth in Germany and 122 days worth in France. A further reason is the structure of the market. Four weeks ago—not three, as the Minister said—the Secretary of State stood at that Dispatch Box and said that he had given the big six energy companies four weeks to take urgent action or else he would do so. A month later, there has been no change and no action—he has fallen at the first fence. Will the Minister act to stop prepayment meters being used to make the poor subsidise the well-off?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

Well, the hon. Gentleman knows very well that Ofgem has undertaken a consultation and has said that the energy companies must respond by December. In case he has missed it—I know that he is not that well informed —[Interruption.] He starts running down the officials who advise us, but they cannot respond to him; if he wants to start having a go at people, we can all play games like that.

On prepayment meters, the energy companies have been given until December, and Ofgem has said that it wants a response and action. We have said that we are prepared to legislate if the energy companies do not respond on prepayment meters. It certainly is the case that we have ensured that our energy market is able to operate more effectively than those in Europe. In recent years, we have been able to keep our average energy prices lower, and we now need to ensure that we have greater transparency in the broader EU market.

Photo of Russell Brown Russell Brown Labour, Dumfries and Galloway

I applaud the work that my hon. and learned Friend is doing on social tariffs, but in rural constituencies such as mine, social tariffs do not matter to many people, as their only form of heating is oil, liquefied petroleum gas or coal—the latter has also risen significantly in price. Will he consider ways to reduce bills for people who rely on those fuels?

Photo of Mike O'Brien Mike O'Brien Minister of State, Department for Energy and Climate Change

We are already looking at the market for heating oil, which does cause me some concern. We want to ensure that it operates efficiently and effectively. The market for coal is now much more international—and certainly more European—than regional, and that affects the price. Some 90 per cent. of the coal supplied in the UK goes to the power stations, so very small amounts go to domestic use. My hon. Friend is right to say that many people are worried, especially in former mining constituencies such as mine, where people receive and use free coal. Others choose to use coal and therefore have to pay the price, and we want to ensure that they are not overcharged.