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Electricity and Gas (Carbon Emissions and Community Energy Saving) (Amendment) Order 2011

Volume 733: debated on Wednesday 14 December 2011

Considered in Grand Committee

Moved By

That the Grand Committee do report to the House that it has considered the Electricity and Gas (Carbon Emissions and Community Energy Saving) (Amendment) Order 2011.

Relevant document: 34th Report from the Joint Committee on Statutory Instruments.

My Lords, these are minor and technical amendments that I hope will not delay the Committee for too long, but which have the potential for a profound impact for all small energy suppliers, being pro-growth and pro-competition. The amendments are deregulatory in nature, cutting red tape for smaller companies to enable them to compete on a more equal footing with the large, established suppliers.

The order gives effect to the outcome of a public consultation process earlier this year, and makes changes to the carbon emissions reduction target, CERT, and the community energy saving programme, CESP. Its primary effect is to increase the threshold at which suppliers are obliged to participate in both schemes from 50,000 customers to 250,000 customers. It further ensures that obligated parties under CERT, as is already allowed under CESP, can trade completed qualifying activity to the end of the programme. This will provide suppliers with flexibility for longer in terms of the options they have to meet their binding obligations. I emphasise that increasing the threshold for CERT and CESP does not mean that customers of small suppliers will lose out. Customers of small suppliers can still benefit from CESP and CERT because suppliers are free to promote these schemes to any householder, not only those customers they supply.

I am sure we can all agree on the importance of increasing competition in the domestic retail market. Competition is key to keeping prices as low as possible for consumers. However, with six large, established suppliers currently supplying 99 per cent of all households, it is clear that we need to take action to reduce barriers to market entry and growth so that smaller companies can begin to challenge the dominance of these big players. This measure is one step to enabling just that.

Energy suppliers with fewer than 50,000 domestic energy customers are already exempt from participation in CERT and CESP. This was to help avoid creating a barrier to new entrant suppliers whereby they would need to commit significant investment to set up CERT and CESP environmental programmes while still at an early stage. We recognise that compliance with some of the Government’s environmental and social programmes places a disproportionate burden on small suppliers as it involves significant fixed costs for which suppliers are not compensated.

The current threshold disincentivises suppliers from growing beyond 50,000 customers. Increasing it to 250,000 will ensure that no small suppliers will be required to participate in the final year of CERT and CESP. This will help boost competition without imposing new costs on the larger suppliers, burdening those suppliers’ customers or reducing the effectiveness of the programmes. Boosting competition is essential to drive innovation, improve the service customers receive from their supplier, and to keep prices as low as possible. I commend this order to the Committee.

My Lords, on our Benches we certainly support the measures in the order. I have three quick questions for the Minister.

It is important that the Government are seen to support a fair and workable distribution of conditions for suppliers participating in environmental and social schemes. In looking at the options, did the department consider a more tapered introduction, say with a small 50,000-strong block of customers rather than the cliff edge of 250,000? If it was considered, why was that approach not adopted? If it was not, might it be as the Government look at future schemes in the area?

My second question is: what estimates are there of the number of new suppliers that will enter the market as a result of this change in regulation? There is no guarantee that smaller suppliers will mean a reduction in the price of a householder’s bills, but we all know that we need to try to cut energy bills and end the dominance of the larger six.

In that regard—supplementary to it—I say that the Minister might find it hard to answer that question because, even if we change this regulation, that will not be the only barrier that prevents people coming into the market. Many of the other barriers, such as liquidity, are outside the Government’s control. Might the Minister take this opportunity to comment on what negotiations or discussions he has had with Ofgem about some of those other barriers to entry into the market, and about whether it intends to act on them in the near future?

My Lords, I thank the noble Lord, Lord Marland, for his introduction. This change is relatively moderate, minor and technical but it is generally welcomed. The issues that I want to raise are similar to those raised by the noble Baroness, Lady Parminter. Although I welcome the change, I am not sure how much impact it will have, and I have given some indication to the noble Lord of the questions with which I shall probe him for explanation.

Raising the threshold of CERT and CESP from 50,000 to 250,000 customers will benefit smaller suppliers that have reached, are about to reach or are just over the threshold and would struggle to meet the obligations imposed on them, but how many energy suppliers will that affect? I assume that the department has made some assessment or estimate of how many energy suppliers have reached that level and will benefit from not having to fulfil the obligation under CERT or CESP at this time. Any information that the Minister has on the scale of the impact and an indication of the number of companies or customers would be welcome.

The noble Baroness, Lady Parminter, also raised the issue of the impact there could be on bills. Has any assessment been made of the smaller companies, having been relieved of the obligations, passing on the savings that they make to customers? If smaller companies no longer have those obligations, presumably that will assist them with their profit margin. Is it expected that the customer will receive some benefit? My understanding is that, in effect, the larger companies pick up the tab of the obligations not being undertaken in future by smaller companies. Is there any expectation of additional cost being passed on to the customer from the larger companies?

It may be more to do with my lack of computer skills than the DECC website, but I could not find the consultation there. The Minister rightly laughs at me, but I challenge him to find it. I was interested to see whether any responses to the consultation had not been satisfied by the order. The issue that has been raised already is tapering, but I am not sure about it because I could not access the consultation. Did the Government consider tapering the threshold for obligations? Even under the new proposed higher level, which we welcome, there is still an issue about there being an absolute limit at which substantial obligations come into force. Were there representations and responses from the smaller suppliers about a more gradual and graduated approach? If so, were they considered by the Government and what was their reason for rejecting any such taper?

The impact assessment commented on the costs. Is there any impact on carbon or is this measure carbon- neutral? Paragraph 3 of the Explanatory Memorandum, which is headed: “Matters of Special Interest to the Joint Committee on Statutory Instruments”, made the point that there was a delay in the Government announcing their intention to pursue this order change —that was announced in June—because they were considering wider possible changes to the CERT scheme. They are ongoing and are being pursued at the same time as the amendments presented here because they are under strict time constraints. If the Minister could expand on that and say anything about the changes that the Government are looking to introduce, that would be helpful.

Finally, I welcome the Minister’s comments about how essential it is to have market reform if we are to do anything to benefit consumers and assist them with energy prices. As he said, this is just one step. It is a small step but it is welcome. If he can reassure me as regards the points that I have raised, I would be grateful.

My Lords, I am very grateful for what appears to be a very harmonious coalition of views from all parties, as always. I thank the two noble Baronesses for their comments, particularly the noble Baroness, Lady Smith of Basildon, who I gather has been suffering from a bad cold. However, she made it here today to keep baiting me, as she normally does. I hope that she is feeling well and recovers in time for Christmas.

Before I respond to the points that have been made, I wish to give noble Lords an overall feel of things. CERT and CESP end next year. We do not want to do anything too radical because we all know that we have the ECO coming next year, so we did not think that it was necessary to bring in a tapering scheme for example, but we are consulting on it for the ECO. I know that the noble Baroness, Lady Parminter, knew the answer to that question before she asked it, as, I believe, did the noble Baroness, Lady Smith. We are consulting on that. As I say, there is only a year left. The whole idea of this is to increase competition and not radically to change what is fundamentally a good policy. As the noble Baroness, Lady Smith, said, getting value for the consumer is at the forefront of all our parties’ minds.

Ofgem is about to publish its views on how we can get liquidity into the market. We welcome the fact that it is looking at that. Currently, seven suppliers in the market will benefit from this change. By increasing competition through increasing the threshold we want to encourage other suppliers into the market. I cannot tell noble Lords offhand how many will join this merry thing but others will be looking at it very closely. Seven suppliers is actually the same amount again as there are in the big six, so that is positive competition. The noble Baroness, Lady Smith, loves asking about our website because she knows that I have never seen it in my life. I am sure that it is very good. We consulted in December 2010 and announced our interim views in June 2011 and now we are bringing the measure into law. The noble Baroness wishes to intervene. She is going to ask me about the website again.

I just wanted the Minister to clarify whether the consultation responses were on the website. Perhaps my efforts to find them on the website were completely hopeless.

We know that the noble Baroness is not completely hopeless. I look to my officials for information. I am told that there was a summary of responses on the website. As noble Lords know, I am not an expert on that, but it is history now, is it not?

I thank my noble friend for that very kind interjection. I think that the noble Lords, Lord Henley and Lord Hunt, are here for fun and games. We might stay and watch them later.

Does it reduce carbon? Obviously, that is not the intent of what we are doing here. The intent is to get competition into the market. It will not really change the carbon aspect of things, which is not central to the process. In consultation, we took evidence and more than 80 per cent of the people consulted were for these changes, so there was overwhelming approval. I hope that that deals with most of the questions that I have been asked. On that basis, I ask the Committee to support this order.

Motion agreed.