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Energy and Climate Change Committee Report

Volume 555: debated on Thursday 20 December 2012

I beg to move,

That this House has considered the matter of the publication of the Fifth Report from the Energy and Climate Change Committee, on Consumer Engagement with Energy Markets, HC 554-I, and the launch of inquiries into Energy prices, profits and poverty, and Smart meter roll-out.

I am grateful to you, Mr Speaker, and to the Backbench Business Committee for the chance to launch my Committee’s report on consumer engagement with energy markets, which was published today. My Committee has been paperless since the summer recess so my notes are on an iPad, rather than hard copy. I draw attention to my entry in the Register of Members’ Financial Interests.

This inquiry was prompted by our concerns that many consumers do not have a clear idea of how energy prices will be affected by investment in energy infrastructure—investment that is needed to provide a clean, secure and affordable energy supply for the future. Our report concludes that consumer engagement with the energy market is low and that this is linked to low levels of competition and consumer trust in the energy industry. Many consumers seemed unable or unwilling to take action to reduce their energy bills by switching provider. We are particularly concerned that some customers who have not engaged in switching may be among the more vulnerable, and that they are paying considerably more for their energy.

There is little incentive for larger energy suppliers to offer those consumers a better deal. Confusion felt by consumers faced with too many different tariffs has been a barrier to switching. Other barriers include apathy, which I fear I may be guilty of myself as a non-switcher; fear of ending up with a worse deal; feeling that switching is too much hassle; disinterest in energy issues; distrust of suppliers; and feeling that all suppliers are the same.

Ofgem plans to increase both switching and competition under its retail market review proposals by reducing and simplifying tariffs and making it easier for consumers to switch. The Prime Minister, during Prime Minister’s questions, recently pledged to ensure that

“energy companies have to give the lowest tariff to their customers”.—[Official Report, 17 October 2012; Vol. 551, c. 316.]

The Minister of State, Department of Energy and Climate Change, my right hon. Friend the Member for Bexhill and Battle (Gregory Barker), who is in his place,confirmed to us that the Department of Energy and Climate Change would be doing that in the Energy Bill. However, the Government’s proposals are very similar to those put forward by Ofgem. We question the wisdom of legislating to implement measures that are so similar to those Ofgem proposes to implement more quickly without legislation. Whether the Government’s and Ofgem’s measures on tariffs will improve the situation for consumers remains to be seen. It is crucial that, if they do not make improvements soon, stronger action is taken to ensure that consumers get a fair deal from energy providers. Our report concludes that the effect of the proposed reforms should be monitored and it proposes several indicators for tracking the effect on competition and on getting a better deal for consumers.

As I outlined earlier, the rising cost of investing in our energy infrastructure and of paying for DECC’s environmental and social policies will be reflected in consumer bills over coming decades. Currently, there is some confusion about the impact of this investment on consumer bills, and it is important that there is more clarity, because consumers are being expected to take action to offset these costs and avoid large rises in their bills. A very good way of doing that is by increasing energy efficiency, but we are concerned that this message is not getting across to consumers and that plans for informing consumers about energy efficiency lack detail.

Our inquiry heard from members of the public at events held in Southampton, East Bergholt, in my constituency, and Banchory. People told us that they did not know whom to trust for information about energy issues or where to go for advice. Given the importance of increasing consumer knowledge of these issues, we conclude that there is a case for streamlining the sources of information available to consumers to provide a single, independent, reliable and trustworthy source of information about these issues. Most of all, however, we need a full and frank conversation with the public about the contribution that consumers are being expected to make to ensuring that we have safe, secure and affordable energy supplies in the future. DECC should lead that conversation. Consumers need to be aware that bills may continue to rise unless they increase energy efficiency or otherwise reduce their energy consumption.

During our inquiry, energy price rises were reported by all major suppliers, and prices look set to continue rising. We are concerned about the effect on consumers, particularly those in fuel poverty.

I thank the Chair of the Committee, of which I have the honour of being a member, and my colleagues for being so forward thinking as to visit Anniesland college in my constituency in February to talk to real people about real problems. Does my hon. Friend—I believe he is my friend in this case—agree that it is important not only that we reach out to people and talk to them, but that we talk to people who have real problems? The Minister might think of trying that for a change, rather than staying within the walls of this palace.

I am grateful to the hon. Gentleman, who is a valued colleague on my Committee, for that intervention. I am looking forward to my visit to Glasgow in February. It is truly said that there is more fun to be had at a funeral in the west of Scotland than at a wedding in the east of Scotland.

My Committee is concerned about the effect on consumers, particularly those in fuel poverty. Price rises from energy companies this autumn mean that average annual energy bills have already risen by about 7%, and DECC’s own advisory group on fuel poverty has estimated that 300,000 more homes will be in fuel poverty by Christmas. Millions more may be affected unless radical action is taken. If consumers are to protect themselves against the rising cost of energy, they will need to act to reduce their bills. The success of the green deal and smart meter roll-out depends on public buy-in. Unfortunately, at present, public confidence is low.

Our report found evidence of a lack of consumer trust in energy suppliers, which may in part derive from a lack of transparency in energy company profits and prices. Some consumers blame energy company profits for the rise in prices. A poll undertaken by my Committee showed that one in two people believed that energy company profits contributed most to the 75% increase in the average household dual fuel bill between 2004 and 2010.

Greater transparency is needed in respect of energy company profits and energy prices, including across the whole portfolio of the vertically integrated companies. Our report makes recommendations for increasing transparency, but the issue warrants further investigation. Regaining confidence and trust will require both the Government and energy companies to demonstrate that consumers are getting a fair deal and, importantly, that vulnerable fuel-poor households are being reached and protected.

I welcome the report. Recommendation 13 refers to transparency in respect of profits and trading. Does the hon. Gentleman agree that it is worrying that when a previous report advised Ofgem of the need to look at the wholesale market and trading, and made a number of recommendations, Ofgem declined to take the opportunity to look into this area more closely? It is worrying that Ofgem does not see its role as looking at the source of the issue: where wholesale prices are made and when those trades are made.

It is true that Ofgem could have been a little more vigorous and robust in its response to the concerns raised about how profits are made in different parts of some of the vertically integrated businesses. This is a complex area, but more could be done to promote transparency without infringing the commercial rights that companies obviously want to protect for themselves.

We want the Government and energy companies to demonstrate that consumers are getting a fair deal and that vulnerable, fuel-poor households are protected. With fuel poverty projected to hit 3.9 million households and pressure on low-income consumers from rising energy prices, along with tariffs that penalise those who are struggling, there is clearly still a long way to go. My Committee is therefore today launching a further inquiry to investigate energy prices, profits and poverty. The inquiry will aim to answer one question: are energy companies offering consumers a fair deal? We are interested in what factors determine prices and what contribution they make to a typical bill; the extent to which the Government or regulator should intervene, if at all, to influence prices; whether Ofgem is protecting consumers and, if not, how it could improve; and whether other measures could ensure that consumers are paying fair prices. On profits, we wish to examine whether the public’s perception that prices are rising because of company profits is fair; why there is so much uncertainty about how much profit companies are making; how information about profits is communicated and whether this could be improved; and how better transparency and trust could be developed in the energy industry.

We will be looking at whether the Government are on track to eliminate fuel poverty by 2016; the findings of the Hills review and its impact on fuel poverty policy; the extent to which fuel poverty policies are reaching the right people and how this might change under the energy company obligation; measures for vulnerable consumers living in solid-wall and hard-to-treat properties; and the extent to which fuel-poor households engage in switching and energy efficiency schemes.

I thank my hon. Friend and his Committee for their excellent report. He will know that the all-party group on off-gas grid is in the middle of its inquiry, so I welcome this extra investigation. He has long been an advocate for households in his constituency and elsewhere. Will he ensure that the new inquiry includes a reference to off-gas grid households?

I am happy to tell my hon. Friend and constituency neighbour that we will extend our inquiry to cover that point; we have published the terms of reference, but I am sure we can probably still manage to squeeze it in.

May I say on behalf of the coalition Government that we greatly welcome the report published today? There is a lot in it, and I will certainly be studying it in more detail over the Christmas period as I munch my cold turkey. The imperative of acting in the interests of consumers and being prepared to be radical is something the Government take to heart. That is why we are bringing forward the most radical, sweeping changes since privatisation to how consumer tariffs operate. We will take on board my hon. Friend’s recommendations, including those published today. We are absolutely aligned in the interests of ensuring that consumers get the best deal.

May I also welcome my hon. Friend’s announcement today of a further inquiry? We all have an interest in ensuring that we do much better and raise the level of ambition in relation not only to communicating these messages but to understanding the underlying causes. It sounds as though the report will greatly help policy making.

Order. I have, exceptionally, allowed that lengthy intervention because I know that the Minister is not allowed to make his own speech, but please could any further interventions be shorter?

May I assure my right hon. Friend that the phrase “cold turkey” is not going to be associated with my Christmas at all? Nevertheless, I welcome the constructive engagement that my Committee has with him and his Department, on these issues in particular.

The members of my Committee are all such gluttons for punishment and so well supported by our staff that we are, as I said, launching another inquiry today. Our consumer engagement report concluded that there was an urgent need to begin engaging consumers with the smart meter project, and that the concerns that have been raised about smart meters need to be addressed if roll-out is to be a success. Every home and small business in the country is due to have a smart meter installed by 2020. That roll-out will be paid for partly by consumers in their bills. Energy suppliers are expected to benefit from reduced operating and generation costs, and suppliers should pass on some of those savings to consumers through lower prices. In order to reap the benefits of smart metering, consumers will need to use the information about energy use provided by their in-home display to reduce their energy consumption and cut their energy bills.

Our consumer engagement inquiry suggests that only about half of people have heard of smart meters and that not all of them support roll-out. Although the full roll-out is not due to begin until 2014, there is a risk that if engagement levels do not increase, consumers may be reluctant to allow smart meters to be installed in their homes. That could be an obstacle to the success of the programme and the potential for consumers to benefit from it.

Our consumer engagement report also highlighted a lack of consumer trust in energy companies, but it is those very energy suppliers that will be delivering smart meter roll-out directly to consumers. The Government must not be complacent. They should spread the word to consumers as part of the honest conversation that my Committee has recommended. The Committee will monitor progress towards delivering the smart meter roll-out and we are today putting out a call for evidence. We are particularly concerned to explore: what criteria will be used to judge the success of the project and whether the cost and time scale predictions are realistic; whether smart meters will empower consumers to take greater control of their energy consumption; whether enough is being done to ensure that financial benefits accruing to suppliers will be passed on to consumers; how to achieve transparency on what consumers are paying towards the roll-out; and how to ensure that vulnerable customers, including consumers on pre-payment meters, reap the benefits.

The consumer engagement report that we are publishing today has important messages for the energy industry, for the regulator, for consumers and for the Government. I commend the report to the House.

Question put and agreed to.