Energy Prices, Fuel Poverty and Ofgem

Part of Estimates Day — [1st Allotted Day] — Vote on Account, 2009-10 — Office of Gas and Electricity Markets – in the House of Commons at 6:55 pm on 16th December 2008.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Energy and Climate Change 6:55 pm, 16th December 2008

Absolutely. As the Chairman of the Select Committee said, there is a litany of things on which the Committee has had to prompt Ofgem to do its job properly. That is totally unacceptable.

Ofgem identified three ways in which the companies were exploiting their market dominance. The first is through pre-payment meter premiums. I take the point that there has been some progress, but we have still not eliminated excessive penalties on prepayment meters. I also take the Chairman of the Committee's point that there is no straight corollary between prepayment meter usage and fuel poverty. We need to ensure that the fuel poor in particular are not being overcharged for their energy. The second way relates to people who are off the gas main and who cannot access dual-fuel benefits. Some action there is necessary; indeed, it is good to see some.

The third way in which the companies exploiting their market dominance, on which I have seen no evidence of progress, is through local monopolies. It has been put to me that companies such as—I do not mean to single this company out specifically—London Electricity, which became EDF, make all their profits from their legacy customers; that is, from inertia and from the people who have not swapped to an out-of-area supplier. That is a classic example of a market not working. Where a company has a huge base of inherited customers, many of whom would be better off switching, but who have stuck it out because they do not know how to switch, cannot be bothered to switch or whatever, that company can cream off millions. Ofgem says that there is a problem, but does not seem to be changing much. We need to give a kick—with a hobnailed boot, I suppose—up the backside of Ofgem, so that it really gets serious with the companies.

The House would not expect me to reserve all my criticisms for Ofgem, and the Minister would be disappointed if I did not direct some at the Government, so I will balance things up. Ofgem and the Government are like Tweedledum and Tweedledee, because they both say exactly the same thing: "If you don't behave, we'll get tough." I have noticed that when I threaten my children with discipline but then fail to deliver it, they continue to misbehave. If the Minister thinks of himself as a slightly grumpy parent, I hope that he will realise that when he threatens discipline but does not deliver it, the children will go on misbehaving. My children have learnt—such behaviour is called learnt behaviour—and I am afraid that the energy companies have also continued to behave as they do. They have been told that they are in the last-chance saloon, but they have been ordering extra rounds over and over again.

Somebody has to draw a line. Somebody—I do not much care whether it is the Government, Ofgem or both—has to tell the energy companies. The fuel-poor and our constituents more broadly are fed up with people threatening to get tough. That has gone on long enough. The fuel companies have been given enough rope to hang themselves and that is what they have done. Now someone has to pull it a bit tighter. Of course they have a right to trade and make a profit. Indeed, we need them to make a profit to invest. I understand all those things. However, the energy companies are not making a profit through economic efficiency in a dynamic market; they are exploiting a quasi-monopoly, and the most vulnerable people in our society are losing out as a result. That has gone on for too long; it has to stop.

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