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Domestic Heating Oil

Volume 523: debated on Wednesday 9 February 2011

Motion made, and Question proposed, That this House do now adjourn.—(Mr Dunne.)

Mine is a large constituency. I have urban areas to the north-east and a very large rural area running right up to the Cumbrian border. It includes two areas of outstanding natural beauty and many areas of special scientific interest. Very many of my constituents are “off gas” and rely on heating oil and bottled gas, and some of these would be classified as the rural poor or living in fuel poverty.

I have been made aware in recent months that there are issues in the domestic oil fuel market—rising prices and a lack of regulation and competition—but it has become clear from the level of constituency contact and from the level of desperation expressed that a crisis has been building up since summer last year.

Does my hon. Friend agree that in a constituency such as mine, which is a rural constituency next door to hers, many people do not have a choice about whether to use oil, because there is no access to gas or another alternative fuel?

I agree, and that is true in many constituencies.

When I contacted the office of the Secretary of State for Energy and Climate Change on this issue in early December, I was told that it did not believe that there was a problem and that it did not intend to do anything about it. This contrasts sharply with the experience of my constituents. Mr Kimber, who contacted me on 6 December, told me that the price of heating oil back in early October was 44p a litre. He said:

“Yesterday I obtained a quote online and was shocked to see the price had risen to 65 pence per litre. Today I obtained another quote from the same company and the price has gone up to 79 pence a litre today. How can this be now that the roads are free of snow and passable in nearly all areas locally?”

My constituency is similar to my hon. Friend’s and also has a rural part to it. People have told me not only that the price has gone up, but that an extra transport cost is loaded on if people want delivery within a short period of time.

Absolutely. Indeed, another constituent, Mrs Green, told me:

“The cost of heating oil is now nearly 100% higher than just two months ago yet oil prices have increased by just 10%. How can this be justified?”

The answer is that it simply cannot be justified. Indeed, when I and other Members started to ask questions about this issue, I was contacted by a number of people working in the heating oil industry who told me that their employers were telling them to refuse to accept orders of less than 1,000 litres. That meant that members of the public were being refused deliveries unless they were prepared to pay £800, plus the cost of delivery, and let us remember that this was just before Christmas.

I am grateful to the hon. Lady for giving way. Does she agree that that also applies in rural Somerset? We even have oil co-operatives in rural Somerset, members of which were running out of heating fuel as the winter months came on and the weather got bad, yet they were being charged the same excessively high prices when they were taking the trouble to drive on snowy roads to collect the oil, in containers that they had to purchase for £6 or £7 a piece. Therefore, even people who were not paying delivery charges were paying the equivalent sum, which did not include delivery.

. I also congratulate the hon. Lady on securing this debate and on reiterating how important it is to rural areas. The problem that she described, where oil companies deliver much larger quantities, was compounded by the fact that a lot of them were not telling the customers that they were doing so until the invoice arrived. People who were expecting bills of £200, which is bad enough, were then hit with bills of £800.

Absolutely, and I am happy to give way to hon. Members from across the House, because this debate is about an issue that affects all our constituencies.

When I first started to investigate the domestic heating oil industry, it became clear to me that it operates in a completely unregulated market, where suppliers can do exactly what they choose. A number of takeovers and mergers in recent years have led to the supply industry being owned by two or three companies. All that has happened quietly, without reference to the Office of Fair Trading or the Competition Commission. Prices are being driven up not by world shortages or global increases in the price of oil, although there is some of that. Rather, prices in this country have gone up by 100% in a very short space of time largely because suppliers have been clearly taking advantage of people in desperate need during the coldest winter in a generation.

I am grateful to the hon. Lady not only for allowing me to intervene, but for bringing this issue to the House. Does she agree that one of the fundamental issues in this debate is the fact that people in rural areas often do not have a choice? The problem with the market is that people do not have a choice over either the oil that they use or the suppliers available to them.

Order. The hon. Member for North West Durham (Pat Glass) should get a word in edgeways before she gives way to another Member, if only to help me remember whose Adjournment debate this actually is.

I appreciate the hon. Lady’s generosity in giving way to so many of us, because this debate is clearly about a huge problem across the country. I represent a part of Cornwall where, just as the hon. Member for Banff and Buchan (Dr Whiteford) said, there is no choice for people who are off gas. There is no choice of distributors, given what has been happening in the market.

I am happy that the Minister will be able to speak for himself when the time comes. No doubt he will give us his wisdom on that.

Customers are in the worst possible situation; it is a perfect storm. The market is completely unregulated. Added to that is a lack of competition in the market, where many suppliers are owned by just one or two companies, and suppliers are prepared to charge exorbitant prices simply because they can. On top of all that is the fact that we have just had the coldest winter in living memory.

The biggest supplier is DCC Energy, an Irish company that says it supplies a quarter of this country’s domestic market. It owns 41 heating and oil distribution companies and five price comparison websites. The websites of those 41 wholly DCC-owned companies state that they are independent, and none discloses the extent of DCC’s hold on the British market. DCC has recently been on a spending spree, buying up regional companies. It owns five price comparison websites, including BoilerJuice.

When I and others first raised this issue in the House, The Sunday Times carried out an investigation. It found that BoilerJuice, which is owned by DCC, only compared prices between DCC-owned companies, and that its so-called best deals were up to 65% higher than those of genuine independents. If that is not a deliberate intention to mislead customers, I am not sure what is. Since The Sunday Times outed BoilerJuice, prices have dropped by as much as 63%, which DCC has said was due to “fluctuating market prices”, but neither The Sunday Times nor I could find anything fluctuating in the market other than DCC’s panic.

Energy experts have advised me that DCC might actually control up to 50% of this country’s domestic heating oil market. GB Oils, another big company that is seemingly independent, is in fact a subsidiary of DCC Energy. NWF Fuels is another big player. It markets 14 different brands, including Pace, Fuelcare and WCF Fuels. On the surface, this looks like a market in which there are many suppliers and in which competition will work to keep down prices, but it is quite the opposite.

The hon. Lady has been very generous in giving way to Members on both sides of the Chamber. She said that she wanted to get input from right across the House and across the United Kingdom, and I should like to give her an example from Northern Ireland. Oil comes through the port of Belfast and is then farmed out to all the different areas across the Province. It is the same oil, yet the price fluctuates between £20 and £30 per 800 litres. Does she agree that that is another example of why regulation is much needed?

The whole House will be concerned by the points that my hon. Friend is making, not only about prices and the way in which these companies operate, but about the fact that they seem not to have been considered at all by the Competition Commission? Does she intend to refer the matter to the commission?

I want to hear what the Minister has to say. Then I will make a decision on that.

In its recent investigation, The Sunday Times found that, on any given day, those price comparison sites quoted exactly the same price, right down to two decimal points. DCC and the other companies that control large parts of the market deny that they are exploiting their market share unfairly to raise prices, or that a cartel is operating to fix prices, but I suggest that the Minister look at the evidence. If he does, he will be able to draw his own conclusions, as I did.

As a new Member, I have been really pleased that we can come to the House and raise issues such as these, when we see a clear injustice in the market, and that they are taken up by the press. These debates are a really powerful tool. Once I and other hon. Members started to raise this issue and the press picked up on it, I was contacted by many people from all across the country. Their interest is echoed by the interest shown here tonight. People were contacting me from places as far apart as south Kent and Northern Ireland. This is not just about my constituency; it is about all our constituencies.

I am grateful that the Government have finally agreed that there is a problem with this market. They have reluctantly and, I have to say, tardily referred these matters to the Office of Fair Trading. There are several questions that I would like the Minister to answer today. When I and others contacted the Department in early December to ask what it intended to do about this, why were we told that the Department did not believe there was a problem and that it did not intend to do anything about it? Why did it take a crisis and investigation by the press before the Minister was prepared to refer this to the Office of Fair Trading? Will he ensure that I and other hon. Members who have raised these issues are able to feed into the OFT investigation? When does he intend to regulate this market either by extending the role of Ofgem or by creating a regulator for the domestic oil and gas industry? Finally, what messages can I give to the many people who have contacted me and other MPs about the actions that the Government intend to take now and in the future to ensure that they are exploited no further?

I congratulate the hon. Member for North West Durham (Pat Glass) on securing this debate and on the persistence that she has shown in raising this matter over a number of weeks, both before Christmas and subsequently. I thank her for the correspondence I have received from her. She is absolutely right that this matter affects not just one part but every part of the United Kingdom—very much including Northern Ireland, because of the number of off-gas grid customers who live there. Every part of the country is affected, which is why we take the issue so seriously.

Speaking as a Member with a heavily rural constituency, I am sure that the hon. Lady will understand that I am sympathetic to the plight of many off-grid energy consumers—many living in rural areas, but not exclusively so—who were hit hard by high domestic heating prices and serious supply problems during the severe weather this Christmas. Many of them are fuel-poor, as the hon. Lady says, and as the hon. Member for Banff and Buchan (Dr Whiteford) said, many have no choice but to be off the gas grid because the gas grid simply does not exist where they live.

I would like to draw attention to some of my constituents who took the trouble to join an oil co-operative in a rural area, but still got hit by this problem. I was contacted, and I would like the Minister to look at the letter that I forwarded to his office. It was from a couple of pensioners who wrote to point out that they would have had to spend between three and three and half months’-worth of their pension money on fuel over the year. That makes a mockery of what is happening in this market.

I will certainly look into those matters, and I hope that the hon. Lady has also referred them to the Office of Fair Trading, because that would provide exactly the sort of evidence that it is looking for to contribute to its investigation of this market.

I have been extremely concerned about the many representations that I have received from hon. Members on both sides of the House over the past few weeks, which clearly showed me that the market was not working as we would expect it to do. People who could not afford to pay those bills simply had to make a choice about whether to go without heating or without something else at a very difficult time of the year.

I am grateful to the Minister. Millions of people have been taken out of fuel poverty over the last decade or so, with the help of a massive investment, but it strikes me that with the demise of the Warm Front scheme in particular, the Government are now doing less about fuel poverty. I hope that the Minister will reassure us that more will be done in future.

I am sorry that that introduces a political note into a debate that has been non-partisan thus far. The Labour Government were committed by law to remove all vulnerable households from fuel poverty by 2010—and their record was one of dismal failure. In fact, the number was up by 3 million on the previous year. That is not exactly a record on the basis of which the hon. Gentleman should be preaching to us.

Underlying many of the complaints are concerns about the challenges of supplying energy to rural communities, and about whether the current market structure provides the reassurance that consumers can get fuels for heating at a price they can afford. There is a specific commitment in the coalition programme to help those in remote rural areas with their fuel costs, as well as to extend protection and support to off-grid energy consumers.

As a shadow Minister last year, I raised many of the issues that the hon. Member for North West Durham has raised now, and I was told that this was how the market had always worked. I am pleased that as a Minister, I have now been able to act on some of those concerns.

As I noted in the fuel poverty debate in January, a significant amount of concern has been expressed by the public, as well as by this House, about the domestic heating oil market. That is clear from the numerous parliamentary questions on the subject, and the issue has featured prominently in my postbag both as a Minister and as a constituency Member of Parliament.

As we all know, the price of heating oil is influenced by a range of factors. They include refinery capacity, stock levels, distribution costs, retail margins and exchange rates. Crude oil prices—which increased by 24% between the end of September the end of January—and seasonal factors also play a role. There were additional costs this winter because of the extra overtime that resulted from our relaxation of drivers’ hours.

The United Kingdom has traditionally operated an open and competitive market for oil and petroleum products, which we believe provides the best long-term guarantee of competitive prices for the consumer. In the light of that, the Government cannot and should not seek to control or influence oil prices, but safeguards exist through the Office of Fair Trading and the Competition Commission to ensure that competition is fair.

As an independent and professional organisation, the OFT plays the leading role in promoting and protecting consumer interests throughout the United Kingdom, ensuring that businesses are fair and competitive. Its tools to carry out that work are the powers granted to it under consumer and competition legislation. It has a wide range of enforcement tools at its disposal. For instance, under the Competition Act 1998 it can impose heavy financial penalties on companies guilty of breaching competition law, and can refer them to the Competition Commission for closer examination. I urge Members to raise their concerns and those of their constituents directly with the OFT if they have evidence of market abuse. I know that many Members have already done so. They should note that the OFT never confirms or denies the existence of investigations of specific companies, so that it can do its work as independently as possible.

On 21 January I made a written ministerial statement on the off-grid energy market. I noted that the OFT had been consulting on its annual plan to help to determine its work programme for 2011-12. That included proposals to prioritise markets affected by high, rising and volatile commodity prices. The off-gas grid energy market is clearly one such affected market. I am keen for the reasons for the high prices and supply issues affecting domestic consumers to be investigated thoroughly by an independent professional authority such as the OFT.

The recent winter also raised various questions about the minimum volume for heating oil orders. I thank the hon. Lady for the attention that she has given to that issue. Bulk supply by tanker is the most economic form of delivery for heating oil. According to the Federation of Petroleum Suppliers, the meters fitted to most road tankers used to deliver heating oil have a minimum delivery volume of 500 litres, and below that volume the meters are not sufficiently accurate to meet regulation on weights and measures. A while ago, the hon. Lady expressed concern to me about a requirement to take 1,000 litres. That should undoubtedly be investigated, because it does not appear to be borne out by our technical investigations. Pre-packaged smaller volumes of heating oil in containers are available, although the price per litre is often significantly higher than tanker delivery prices, owing to the additional packaging, storage and distribution costs.

As I said in my written ministerial statement, in response to the OFT’s consultation on its annual work programme I wrote to John Fingleton, the chief executive of the OFT, on 19 January asking him to bring forward its competition and consumer study of off-grid energy. The issues involved became particularly acute during the immediate run-up to Christmas. When I tried to order oil for my own home in early December the price was 40p a litre. Three weeks later it was 70p a litre. The severe weather compounded the problems, making a difficult situation potentially catastrophic. We owe a debt of gratitude to the delivery companies and their drivers, who worked long hours, often in difficult conditions, to try to ensure that they reached every home that was running out of oil before Christmas. They did not quite reach everyone, but they improved the position massively.

I also suggested to John Fingleton that the study should explore longer-term consumer issues such as lifetime payback, consumer standards, and labelling for alternative energy sources or supplies. Such a study would provide an independent assessment of the off-grid market, and would be immensely helpful in establishing what further action might be necessary to ensure that it worked properly.

Following my letter and other discussions with my Department, I was pleased when the OFT announced on 25 January that it had brought forward its study to allow time to consider any recommendations before the next winter, and in the light of increasing public concerns about aspects of the market. There will be a market study under powers granted by the Enterprise Act 2002 to examine all issues concerning energy supply to off-grid customers. The OFT is now consulting on the precise terms and scope of its study before the investigation itself formally begins in March.

The OFT proposes that the study should cover the whole of the UK, and has suggested a number of themes including the following: how well competition provides choice for consumers at a local and regional level, in respect of which the monopolistic issues to which the hon. Lady referred are clearly relevant; whether the terms and conditions of supply provide consumers with clear information, competitive prices and fair terms and conditions, which should include addressing the issues the hon. Lady raised in relation to websites which the public would assume are independent; and the experience of customers. The OFT proposes to survey the views of off-grid energy users around the UK. In addition to the Department of Energy and Climate Change, the Scottish Government, the Welsh Assembly Government, the Northern Ireland Executive, the Department for Business, Innovation and Skills, the Department for Environment, Food and Rural Affairs and trading standards departments will be involved in this work, to ensure that the full range of concerns are taken properly into account.

The OFT will work closely with Ofgem where issues overlap with those within Ofgem’s jurisdiction. While the study’s focus is not specifically on access to, or use of, the gas and electricity networks, the OFT will be working closely with Ofgem to assess the interaction between access to networks and the development of the off-grid renewables market. The OFT proposes that the market study should consider the supply of off-grid energy, to cover a wide range of domestic energy sources including heating oil, liquefied petroleum gas and renewable energy from a range of sources.

As the Competition Commission completed an in-depth investigation of the LPG market in 2006, with market orders from 2009 to enable switching between suppliers, the OFT also proposes to focus on the effect of those orders so far. The OFT retains an ongoing statutory duty to consider from time to time whether the orders are being complied with. Market studies by the OFT involve an analysis of a particular market with the aim of identifying and addressing any aspects of market failure, from competition issues to consumer detriment, and the effect of Government regulations. This can result in a range of different outcomes. There can be enforcement action by the OFT. There can be a reference to the Competition Commission. There can be recommendations for changes in laws and regulations. There can be recommendations to regulators, self-regulatory bodies and others to consider changes to their rules. There can be recommendations to specific businesses. There can be campaigns to promote consumer education and awareness. Alternatively, a clean bill of health can be issued. It is at this point that we will need to decide whether additional regulatory powers are necessary.

The consultation by the OFT closes on 28 February. The OFT has asked to receive representations from interested parties on the planning scope and issues for the study before formally carrying out its investigation of the off-grid energy market. I reiterate that a market study is distinct from an investigation. A market study is not about any particular company or business, but instead considers the overall market structure. Investigations into specific companies will be prompted by direct evidence of market abuse, and be undertaken separately.

I therefore encourage hon. Members on both sides of the House to participate actively in the investigation, and to raise their constituents’ concerns directly with the OFT. We have listened to the concerns expressed from every part of this country, from every political party and from all types of different communities, and we have decided that a full investigation into the way this market is working is now appropriate.

I am very pleased that the OFT is going to take forward that work formally. I believe that it will enable us to ensure that we can learn from the problems experienced this winter and go forward into next winter with a market that is more fit for purpose, so that all our constituents can benefit as we would wish them to do.

Question put and agreed to.

House adjourned.