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Clause 26

Energy Bill – in a Public Bill Committee at 5:45 pm on 19th January 2010.

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Time limit for the imposition of financial penalties

Photo of Simon Hughes Simon Hughes Shadow Secretary of State for Energy and Climate Change

I beg to move amendment 23, in clause 26, page 21, line 36, at beginning insert ‘With effect from 1 June 2010’.

Photo of Peter Atkinson Peter Atkinson Conservative, Hexham

With this it will be convenient to discuss amendment 5, in clause 26, page 22, line 1, leave out subsection (3).

Photo of Simon Hughes Simon Hughes Shadow Secretary of State for Energy and Climate Change

Clause 26 is in the part of the Bill that covers financial penalties by the Gas and Electricity Markets Authority. The issue is a live one; it is the other half of the debate in which the case of Margaret Erskine was raised. I referred to it earlier and indicated that I would come back to it in the context of this debate.

My hon. Friends and I have tabled two amendments. Amendment 23 would change the rules about the period in which an investigation can occur. We raised the matter with Ofgem representatives in the evidence sessions, and they said that this was one of the two areas where they had asked for changes. They asked Ministers for greater powers and the Ministers had acceded.

Amendment 23 would bring the new timetable into operation from 1 June 2010. The intention is to try to get it up and running as soon as is reasonable. The Government have said that they want the Bill to be on the statute book before the general election. That has to take place no later than June, so the date in the amendment seems reasonable.

Amendment 5 would delete subsection (3) of clause 26, which states:

“The amendments made by this section do not apply in relation to any contravention or failure occurring before the day on which this section comes into force.”

I want to make it very clear that we do not seek to provide a retrospective penalty; we seek, from now on, to extend the period in which investigations can start and continue from one year to five years. It is clear to Ofgem, to the Government and to us that the present system is flawed. Investigations have begun but, to speak bluntly, they have run out of time. The clock has ticked and passed the deadline for investigations to be completed. Ofgem has said that to Ministers; Ministers have said that to us. We all agree that we need a longer period.

The amendment seeks to allow current problems to be investigated for a period of up to five years, and for that to apply to issues that are live now, as opposed to issues that will be live in future. I do not think that that should offend the lawyers at all. The extension to the time limit would not apply to licence breaches that happened before the date of the passing of the Act. It would not make things retroactive; it would simply allow Ofgem to impose a penalty for a licence breach already committed, rather than introducing new retroactive offences.

The clearest example of that was the differential tariff pricing that I referred to earlier, when Energywatch made a complaint to Ofgem. Energywatch complained in March 2008 over npower’s use of the tariff year. A “tariff year” was defined at the time by npower:

“When we publish gas charges, we state that 4,572 higher priced primary block kilowatt-hours will be applied each year. The year quoted is a ‘tariff year’ that begins with the introduction of any changed charges. When npower change the way customers are charged, a new tariff year commences from the date it changed.”

It stated that its customers had never been informed of the existence of a tariff year. They had never been given a definition of it, nor had how to operate it ever been explained to them. npower has conceded that; it is not a matter of dispute. The charge is, therefore, that because how the tariffs were structured was changed and the tariff year was restarted at a different time, consumers  never reached the 4,572 kWh threshold and so did not benefit from the falling block tariff. In the end, they paid the higher rate for more than 4,572 units.

Consumer Focus has looked at that, as Ministers know. I know, too, that the Under-Secretary of State for Energy and Climate Change is due to have a meeting shortly with Consumer Focus to continue to look at the issue. [Interruption.] That is what I am told, anyway, whether he knows that that is in his diary or not. I tell him that on 16 January 2010, The Times reported that

“A spokesman for the Energy Minister’s office said: ‘Mr. Kidney will be meeting Consumer Focus to discuss the details contained in the briefing.’”

He has it coming down the trap towards him and that is a good thing. The analysis by Consumer Focus says that 2.2 million customers were overcharged by an average of £47 each, amounting to over £100 million in total.

I took the matter up with Ofgem and npower, writing to them after it had been brought to my attention by the lady in south-west London. In a letter to me, Ofgem has said that if the Consumer Focus analysis is right, action should be taken, but that in legal terms its hands are tied by the one-year barrier that currently applies. I will not take the Committee through the whole of my correspondence with Andrew Duff, the chief executive officer of npower, who courteously and promptly replied on 12 November, nor the correspondence I had with Mr. Buchanan, who replied promptly on 20 November. However, I will select a couple of things from their replies.

Although npower argues that it has made changes so that the issue will not arise again, and has explained that it was all part of a process of changing how it bills, the reply does not adequately deal with the failure of information and the fact that people were led to believe that they would be on a lower rate than they were after a certain time. Margaret Erskine, the lady who brought the matter to my attention and that of my hon. Friend the Member for Kingston and Surbiton (Mr. Davey), and then was also in contact certainly with The Times, if not with other newspapers, was offered and, I understand, accepted a small compensatory ex gratia payment by npower. However, she has changed her supplier, as she was a thoroughly discontented npower customer.

The matter had been brought to the attention of the press in the autumn by Consumer Focus, because of not only that lady’s complaint but that of another named complainant: Andy Beck, an npower customer from Teignmouth in Devon. He said:

“When Ofgem received the complaint in March 2008 it still had two months before the time limit ran out and could, among other things, have issued a ‘stop the clock’ order. What’s more, where it cannot act directly, it could pass its conclusions on to other people or organisations that could take the matter further”.

There is, therefore, evidence that a large number of people were overcharged. It may be a matter of only £50 each, but if there are 2.2 million customers that would come to over £100 million.

There was some uncertainty about when Consumer Focus started its investigation. Although I had been led to believe that the inquiry had started, when npower wrote to me it said that it had not been alerted to that fact. Consumer Focus has confirmed, however, that it  has done its investigation. In the briefing, which I am told the Under-Secretary has also received, the watchdog says:

“Following an investigation, Consumer Focus has concluded that npower overcharged 2.2 million of its gas customers in 2007-08. Our analysis suggests that the potential overcharge per person is a maximum of £78, with an average figure of £47 per customer, equating to an overall consumer loss in excess of £100 million...It is our view, therefore, that the £6 provided in goodwill payments to just 200,000 of the 2.2 million customers affected is not sufficient.”

The investigation covered 2007 and 2008, and the report elaborates on those data. The report is on the Under-Secretary’s desk, as it is on mine. To be fair to npower, it denies that it has breached its licence conditions or its contract with customers. It explains that its promise not to charge more than 2,572 units a year referred to the tariff year, which can be different from a calendar year, and that it resets the clock each time it changes its terms and conditions, as it did in May and November 2007. The supplier also said:

“We completely reject any suggestion that our gas customers are each owed £47 and have seen no calculations to support this figure.”

There is, therefore, a dispute.

As well as the proposal that in the future there is a five-year period, we seek to ensure that where there is a breach that could otherwise be investigated, but where the clock might tick and time might run out before the change is made, the investigation is able to continue. It does not, it seems to me, break the principle that the supplier should not be liable for something they were not aware of. If there is a breach they are in breach. In the past they would only have been time-barred because the investigation could not continue.

If we are to give Ofgem some credibility in the future—I will not repeat my concern about its past failure of credibility from the consumer’s point of view—we should allow it to carry on investigations where there are major issues of complaint. I hope the Minister will be sympathetic if not to the specific wording, at least to the proposition behind these amendments.

Photo of Joan Ruddock Joan Ruddock Minister of State (Department of Energy and Climate Change) 6:00 pm, 19th January 2010

These amendments relate to slightly different aspects of the coming into force of the new five-year time limit for Ofgem to impose financial penalties for breaches of licence conditions. Amendment 23 would ensure that this new time limit came into force on 1 June this year. As it stands the amendment would only affect the penalty provisions under the Gas Act 1986; it would not apply to the provisions under the Electricity Act 1989. Clause 36 already provides that the penalty provisions will come into force at the end of the period of two months beginning with the day on which it is passed, so we believe it is quite unnecessary to specify a commencement date within clause 26 itself. I agree there should not be a long delay, but this has clearly been addressed in the Bill, so the amendment is not necessary.

Amendment 5 would mean that the new five-year time limit for the imposition of penalties by Ofgem would apply retrospectively. I know the hon. Gentleman has argued that it is retroactive but that does not mean it is not retrospective. It is. Legislation does not usually have a retrospective effect. The prospect of doing this can create legal uncertainty for businesses and inhibit investment in markets. There are also potential human  rights implications. Although it is probably true that many businesses will already retain some relevant information for five years or more, it is likely that they will only keep some information for up to 12 months because that is all that is required to comply with any Ofgem investigations under the current time limit.

I understand why the hon. Gentleman feels so passionately about this. I share his passion because undoubtedly customers have had very bad treatment and it has not been possible to compensate them for that. Two examples that I sought to have explained to me clearly needed to be addressed. One was the £2 million penalty that Ofgem recently imposed on EDF for very poor performance in providing electricity connection quotations. Ofgem identified more than 100 breaches of the time limits for providing quotations, but was only able to impose a penalty for 47 of those breaches because they had not come to its notice in time and had therefore occurred more than a year previously when this was reported. Obviously in this case we have a company being fined and penalised for behaving badly, but not to the full extent because of the one-year time limit.

On npower, the hon. Gentleman has quoted extensively from records and the experiences that individuals have had of restarting the tariff year, so that they had to build up again to get back on to the cheaper rate. While Ofgem was able to secure compensation for some customers—obviously, the one to whom the hon. Gentleman referred was one of those—it was constrained by the one-year time limit regarding the amount that it could achieve and the number of people who could be compensated.

I have no doubt that this is a pressing problem. The Government have sought to find a solution through the clause, which was tabled as a consequence of Ofgem having experienced difficulties and having come to the Government saying, “We need a means of being able to address the problems.” As I have indicated, at the moment we must allow for the fact that companies might be keeping the required information for one year only, as that is all that is needed to comply with any Ofgem investigation.

It would not be fair to make the new time limit retrospective because many licensees might not have the evidence to defend themselves adequately if Ofgem decided to investigate an alleged breach of licence condition that is within the new five-year time limit, but before the legislation came into force. In other words, at the time of the alleged breach, the company would not have known that it could be investigated up to five years later and should therefore keep records accordingly.

Not giving the provision retrospective effect will also give businesses time to ensure that their systems are suitable to deal with future Ofgem investigations under the new time limit. Although I sympathise entirely with the hon. Gentleman’s wish to see the measure brought in more quickly, for all the reasons I have outlined, it is regrettably not possible for me to support the amendment.

Photo of Simon Hughes Simon Hughes Shadow Secretary of State for Energy and Climate Change

I am grateful for the Minister’s constructive and sympathetic response. She wins the argument on the first point—I accept that elsewhere in  the Bill there is a provision that would bring something into force immediately—and I will seek leave shortly to withdraw the amendment.

On the second issue, I reserve my position as to whether we could win the argument about whether the measure was retrospective or retroactive, and therefore within proper legal processes. Obviously, we do not legislate retrospectively, and I buy that. Arguably—but sadly—the Minister has a good point about the practicality of the measure in relation to matters that are currently in train. Her argument about the records being held by the company might mean that it would be impractical to deliver, which could be a barrier to the change. I will go away and think about it. Obviously, I am keen to ensure that we do not allow clear abuse of a supplier’s power to result in the sort of customer and consumer disadvantage that has clearly taken place, and which so far can only be remedied in part, it would seem, and on an ex gratia basis, to customers who remain unhappy that, bluntly, they have been deceived and not properly informed.

I would be grateful—as I am sure would many others, not least those who have made complaints—if when the Under-Secretary of State for Energy and Climate Change goes to the meeting that he spoke about, he made a report on it to those with an interest in the matter, possibly including members of the Committee. That report could be used and passed on to our constituents who have raised the issue, or to other individuals who have made a complaint and feel disaffected or not adequately compensated.

Following his conversation with Consumer Focus, if the Under-Secretary can do anything that would get companies to make an appropriate reimbursement of moneys that people have paid that were over and above what they expected to pay, that would be a positive advantage, even if it cannot be done by legal enforcement. I look forward to constructive engagement with that issue and with the ministerial team when it reports back. For now, however, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 ordered to stand part of the Bill.