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Energy Supply

Volume 470: debated on Thursday 17 January 2008

3. What assessment has been made of the impact on business efficiency of energy supply contracts which require 90 days’ notice of termination. (179523)

The Office of Gas and Electricity Markets—Ofgem—is responsible for regulating gas and electricity supply, including supply to the business sector. Termination arrangements are a contractual matter between the supplier and the customer.

My constituent, Mr. Mark Middleton of Coppicemoor Farm, Pytchley, near Kettering, has an electricity supply contract with npower. npower wrote to him 30 days before the end of the contract to ask him whether he would like to renew it. He said that he would not, but npower said, “Tough. You should have given us 90 days’ notice.” So Mr. Middleton is now tied into his contract with npower for another 12 months, after which he will seek an alternative supplier. Will the Minister look into the notice periods that companies impose on their customers? This inability to switch easily between suppliers is creating a brake on business efficiency.

The general principle has to be that business customers can protect their own interests, and that includes monitoring the terms of their contracts and the expiry dates involved. We recognise, as was noted in an earlier question, that high energy costs are affecting businesses as well as domestic customers. For those reasons, I would be happy to bring the hon. Gentleman’s concerns to the attention of the chairman of Ofgem, with a request that he consider whether any changes to the rules governing business supply are required.

Will the Minister give us his assessment of why energy prices have gone up so dramatically in the past few months? Is it simply to do with the price of oil? Does he have any evidence of the anti-competitive behaviour that was mentioned in a previous question? Or is it the failure of the EU energy markets to be properly competitive?

There are a range of factors. The major background factor has to be the huge global demand for energy in the emerging economies of India, China and many other countries, as well as the demand in the western economies. We have seen increases in the wholesale price of fossil fuels of between 50 and 80 per cent., and that has to be the major factor. The Chancellor is in discussions with Ofgem and the Secretary of State is also involved to make sure that the relationship between wholesale price increases and retail price increases is appropriate. We have a competitive energy market here; there is an issue in Europe, where we continue to press for the liberalisation of energy markets. The hon. Lady is right that that is another important factor.

The Secretary of State for Business, Enterprise and Regulatory Reform
(Mr. John Hutton)

My hon. Friend the Minister for Energy has met the chief executives of all the energy supply companies with a view to improving support to those at risk of fuel poverty. The level of support that companies are providing this winter has increased from £40 million to £56 million. The Minister for Energy and I will meet chief executives again shortly to discuss the best way to ensure continued support. Overall, the Government have provided £20 billion in support for the fuel poor since 2000, with 2 million households helped by our fuel poverty schemes and close to 12 million receiving winter fuel payments each year.

That is a good record, but more needs to be done. Some householders face price increases of 27 per cent., which has clear implications for the Government’s fuel poverty targets. In his discussions with companies, will my right hon. Friend commend those that offer good social tariffs and reprimand those that do not, reminding them of the possibility of compulsion?

I strongly support what my hon. Friend says. A number of electricity supply companies have done exemplary work in trying to address some of these issues, particularly with regard to those who rely on pre-payment meters. There is an issue there that is now being addressed. We have decided not to legislate in the Energy Bill to introduce mandatory social tariffs at this point, given the extra investment by companies and their commitment to continue it, but we will keep the matter under careful review.

Is it not the case that the amount of money that these companies spend on social tariffs is a pittance in comparison with their huge profits? Are not all these cosy conversations with the companies achieving practically nothing? With fuel poverty doubling over the last couple of years, is it not time to legislate to make poor people protected instead of hoping that companies will do what should be the Government’s job?

We should intervene in the most effective way possible. I know that the hon. Gentleman’s instinct is always to regulate and to legislate, irrespective of the ability of other mechanisms to deliver. That is not our approach. We are making progress on fuel poverty. There is obviously a growing issue with rising energy prices, which is why in our talks with energy companies we will be redoubling our efforts to find a sensible way to proceed, particularly for elderly consumers of gas and electricity, for whom I accept there is a particular hazard.

One of the problems with social tariffs is that there is not just a difference, but a vast disparity, between the tariffs offered by different companies, which confuses consumers and others. That highlights the fact that some companies are doing a lot more than others, so I urge my right hon. Friend carefully to consider how to achieve not just an incremental increase in the amount of money going into the industry’s support for consumers, but a substantial increase right now, at a time when customers really need any extra support that they can get from a proper social tariffs programme.

As I said, we are in discussions with the energy companies, and those discussions are continuing. They have all promised to maintain the support that they are providing over the next three years. We will discuss with them what more, if anything, can be done. From the Government’s point of view, I have already pointed out some of the areas where we are investing directly in this issue. It is important to keep the overall picture clearly in mind. We are providing direct financial help with energy costs for households and we are also investing more over the next spending review period on energy efficiency for domestic households. We must continue to wage this war on a number of fronts, but I can assure my hon. Friend and all hon. Members who are rightly concerned about this issue that the Government are very seized of the significance of these matters and are doing all they reasonably can to address the concerns that are being expressed.

Last week, we witnessed what can only be described as a rather crude stunt in which the Chancellor reprimanded Ofgem as if it were somehow responsible for higher energy prices and fuel poverty. Is it not the case that, in addition to world commodity prices, the main component of our energy bills’ increase is the higher price of carbon? Is it not also the case that the main culprit here is not markets, but the Government’s failure to adjust their policy on addressing fuel poverty in a way that actually keeps pace with harsher global conditions? Does the Secretary of State agree with the hon. Member for Barnsley, West and Penistone (Mr. Clapham) that companies are, as he put it, conspiring to keep prices high?

My right hon. Friend the Chancellor has an obvious and perfectly legitimate interest in inflation, and given the significance of energy prices to overall inflation levels, I think that his intervention was entirely proper and appropriate. As he and my hon. Friend the Minister for Energy have said, we need to understand the interaction between wholesale and retail prices, and I think that it was perfectly fair and proper to initiate such an inquiry.

As my right hon. Friend the Chancellor has said, the regulatory arrangement for our energy market is one of the most effective anywhere in the European Union, and the result has been, on average, significantly lower energy prices in the United Kingdom. It is up to the competition authorities, which oversee unfair trading practices, to examine any evidence of criminal or illegal behaviour, and if there is any such behaviour, people should draw attention to it so that proper inquiries can be made.

Many economists might say that there is a difference between inflation and just higher prices, but we will not give the Secretary of State a tutorial on that today.

One of the most effective solutions to fuel poverty is to reduce households’ fuel bills by helping them to consume less in the first place. Should the Secretary of State not feel ashamed—indeed, he referred to this in his earlier answer—that the Energy Bill, which was published last week, contains nothing whatever to promote consumer and household energy efficiency, and will therefore continue and even exacerbate people’s exposure to rising fuel prices in the months and years ahead?

I have a great regard for the hon. Gentleman, but I have never seen him as my tutorial adviser when it comes to energy matters—or, indeed, to any other matter that I could possibly think of. However, I am grateful to him for at least the offer of some sort of support in the future.

I doubt that very much indeed, but it might be nice to have a chat with the hon. Gentleman socially, at least.

As to the wider issue of energy efficiency, the measures that we have taken have benefited more than 2 million households in the United Kingdom. We are doing more than previous Governments to tackle the issue of demand for electricity through energy efficiency measures, and we are seeking to make significant improvements in the work that we are doing.

The hon. Gentleman, along with others, seems to have been affected by the contagion that the only response to the issue is to legislate. That is, perhaps, a lesson with which I can help him out in this two-way exchange of ideas that we are to have. Legislation is not necessarily the right answer. The Government have the power and the means, and are using them, to help more households to become more energy efficient, and we can do that without any more regulation or legislation.