Energy Bill

With the exception of Government amendments 27 and 28, these amendments relate to the notification period within which energy companies must inform their customers or tariff changes. New clause 2, tabled by the hon. Member for North Southwark and Bermondsey (Simon Hughes), also relates to that matter. The current rules require suppliers to provide customers with written notice of a price increase within 65 working days of the change taking effect. That means that some customers may not be told that their gas or electricity price has been increased until almost three months after the change has taken place. Although consumers have a 20-day period following the notification within which they can switch supplies to avoid the price increase, it is simply unacceptable to have such a delay between a tariff change and notification. Best practice must surely be to notify before a price increase, so that customers can consider whether they want to switch to another supplier or budget for the higher costs before they come into effect. After a substantive debate on this issue in Committee, I wrote to Ofgem to highlight the strength of feeling of hon. Members, and to ask it to address the matter urgently. As the regulator, Ofgem is best placed to take steps to do that by changing licence conditions. It has responded to my letter, and announced that it will consult on the issue before Easter. Given normal time scales, I expect that Ofgem will take action by the end of the summer. My firm expectation is that it will address the issue effectively but, if it encounters difficulties, it is important that the Government are able to step in and remedy the situation. I am sorry to say that new clause 2, as drafted, would not work in practice. There needs to be a mechanism through which the Government can impose such a requirement on energy companies, as well as suitable enforcement measures to ensure compliance. That mechanism is the licence condition. Government new clause 9 enables the Secretary of State to modify licence conditions in electricity and gas supply licences and to set the notice period within which energy suppliers must notify consumers of tariff changes. As is standard practice, it sets out that any modifications should be subject to consultation. Government new clause 11 makes those modifications subject to parliamentary scrutiny. Therefore, a resolution of either House of Parliament would prevent the Secretary of State from making the modifications. Government new clause 9 includes a sunset clause. The Secretary of State will not be able to exercise his power after a period of three years from the provisions coming into force. That is because the situation requires urgent resolution. Taking these powers should give a clear signal to industry that the Government expect the issue to be resolved swiftly and are ready to take direct action if needed. The introduction of new Clause 9 leads to a restructuring of the Bill, as many provisions relating to licence modifications are common to more than one part. Amendments 15 to 18, 20 to 26 and 29 to 35 are technical: they restructure the Bill to take account of the consolidation of licence modification provisions set out in new clauses 11 and 12. Government new clause 10 applies the principal objective and general duties of the Secretary of State and Ofgem under part 1 of both the Electricity Act 1989 and the Gas Act 1986 to the exercise of this power, as well as to the exercise of any function by the Secretary of State or Ofgem under parts 2 or 3 of this Bill. This ensures that those functions will be exercised to protect the interests of existing and future consumers. Government new schedule 1 contains all the consequential amendments made necessary by the change, and collects together the existing consequential amendments required by the other clauses in this Bill. The remaining Government amendments in this group are amendments 27 and 28. These correct a technical and unintentional anomaly—which was the fault of the Government—in clause 23. They ensure that, in relation to appeals under the market power licence condition powers, the Competition Appeal Tribunal can change both the amount of the penalty and the day by which it, or part of it, is required to be paid. Amendment 2 aims to reduce any adverse impacts on security of supply and investment which may result from the market power licence condition introduced in clause 18 by making it an explicit requirement that before exercising the new powers, the Secretary of State should have considered these issues and be of the view that action would not affect them. Security of supply and the need for increased investment in electricity transmission are, of course, matters of prime importance. The market power licence condition has been purposefully structured to limit the market uncertainty which may have a negative impact on investment. Our intention is that it will apply only where there are transmission constraints in existence. It is narrow and proportionate to the specific problem identified by Ofgem and contains a tailored appeals process as an added support for companies. There will also be a full consultation process on the licence conditions and Ofgem's accompanying guidance document to ensure that we avoid any unintended consequences and subsequent adverse impact on security of supply. Finally, the inclusion of a sunset clause that limits the operational life of the licence condition to five or seven years gives the industry the certainty that this is a targeted measure. After that period of time, we anticipate that there should be sufficient investment in the transmission network to remove the constraint scenarios that give rise to market power exploitation, and that the licence condition will therefore no longer be necessary. The amendment is unnecessary, although I understand and have sympathy with the reasons for tabling it. The narrow and targeted nature of the market power licence condition, together with its curtailed lifespan, will limit any investment uncertainty. In addition, the amendments to the duties of Ofgem and the Secretary of State introduced by clauses 16 and 17 will ensure that security of supply issues are considered when developing the licence condition. On new clauses 18 and 21, energy companies currently have the right to block licence modifications proposed by Ofgem if more than 20 per cent. of licence holders or companies with 20 per cent. of the market share object to the proposed change. We recognise that there are concerns that the 20 per cent. threshold is too low and could make it too easy for major energy suppliers to block or dilute change intended to benefit consumers. For example, in many cases it would require a combination of only two of the major electricity companies to reach the required blocking threshold and thus veto change. The 50 per cent. threshold proposed by the Lib Dems would make it more difficult for companies to veto Ofgem's changes to licence conditions, arguably enhancing Ofgem's ability to make timely changes for the benefit of consumers. There are, however, a number of risks associated with increasing the threshold, in particular the risk of inducing market uncertainty, which could impact adversely on much needed investment in the energy market and thus on security of supply. Given that changes to licence conditions can have potentially significant implications for a company's operations, it is appropriate that it should have an effective means of challenging these decisions. The new clauses also address the mechanics of the blocking threshold. The issue was raised with my officials recently by Consumer Focus. Currently, the percentage of licence holders required to meet the blocking threshold is calculated by either market share or the number of licensees. But with some large companies holding multiple licences, the balance of power can be distorted, with those larger companies finding it easier to block modifications as a result. The new clauses would change the rules so that there is one vote per group of affiliates, rather than one vote per licence holder, meaning that companies with multiple licences get only one vote instead of several, thereby levelling the playing field. It is not clear how much of an impact this change would have on larger companies, which will still find it easier to meet the market share blocking threshold. I accept that these issues merit attention and they are under active discussion in the Department. This is, however, a complex issue, and a quick legislative fix without a full understanding of the impacts is not necessarily the best way forward.