Energy Bill

Public Bill Committee, 19 January 2010.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

On a point of order, Mr. Bayley, is it acceptable to take jackets off?

Hugh Bayley (Labour, City of York)

Yes, certainly.

Clause 16

Charles Hendry (Conservative, Wealden)

I beg to move amendment 35, in clause 16, page 13, line 12, after ‘them’, insert ‘and gas storage for them’.

Hugh Bayley (Labour, City of York)

With this it will be convenient to discuss amendment 33, in clause 16, page 13, line 18, leave out ‘or’ and insert ‘,’.

Amendment 34, in clause 16, page 13, line 19, after ‘pipes’, insert ‘or gas storage’.

New clause 20—Provision of gas storage facilities—

‘(1) The Secretary of State may by regulations set a minimum requirement for an amount of gas to be secured for use by—

(a) suppliers of gas to domestic and business customers, and

(b) gas-fired generators of electricity.

(2) The Secretary of State may by regulations establish the eligibility of suppliers and generators for inclusion in the requirement.’.

Charles Hendry (Conservative, Wealden)

It is a pleasure to serve under your chairmanship again this morning, Mr. Bayley, as we continue to make good progress in our consideration of the Bill.

The amendments link in to new clause 20. We were not sure whether the new clause would be successfully accepted into the Bill. Therefore, we tabled the amendments as back-up. Our preferred means is to amend the Bill through the new clause, which we will consider towards the end of our proceedings. However, it is appropriate to talk about the amendments at this stage. With that in mind, I hope that the Minister will be able to respond positively to the proposed ideas. I recognise that amendments 35, 33 and 34 are slightly awkward in their phrasing, but that is because we tried to find a way to build our proposal into the Bill in the event that the new clause is not agreed to.

Over the last couple of weeks, we have seen great pressure on gas supplies. We have come through it, but this is the third time that we have faced the issue in five years. It is now four and a bit years since I began this job. One of the first statements I heard from the then Minister for Energy, the right hon. Member for Croydon, North (Malcolm Wicks), was that we were awash with gas, and in a few hours he was explaining why we had almost run out. That was back in the early winter of 2006. We had a further problem last winter, when we were down to, perhaps, three days’ gas storage, and we have seen some pressure on it in the last couple of weeks. Clearly, we do not want to overestimate that. We do not want to pretend that there was a crisis when there was not, but we are right to be aware of the pressures and challenges that exist. It is also reasonable to point out that part of the reason there was not a crisis on this occasion is demand destruction. Demand for gas has been significantly down due to the recession—down by 5 per cent. across the board, and by 15 per cent. among industrial and commercial users. Therefore, had this been a normal economic cycle without the recession, the pressure on gas would have been significantly greater.

We have to look at the implications of that for the future. We have been helped in these last couple of weeks by the ability to bring back on stream every element of coal-fired generation in the country. That will not be the case in a few years. We will reach a situation where a third of our coal plant will be closed down by 2016 at the latest, as a result of the large combustion plant directive, and most of the rest of the coal will be out of commission as a result of the industrial emissions directive, if it goes through, as planned, by 2023. We face a situation where we simply no longer have the ability to call on coal as back-up. We expect new gas generation capacity in the generating mix. I would be interested to hear from the Minister how she views that. The Government’s low-carbon transition plan talks about the role of gas in the mix falling from 40 per cent. or more today, down to just 29 per cent. in 2020. There are very few people outside her Department who believe that those figures are realistic. At the same time Ministers talk about the huge amount— 20 GW—of planned potential new generating capacity, of which 60 per cent. is actually gas. If that were to happen, it is inconceivable that we could meet the Government’s target, so it would be useful to know where the Government really think we are going to end up in this process.

It is also important to note that, during this period of pressure, a considerable amount of electricity, much of it gas-generated, was exported to France. The interconnector with France has often been working at capacity, with up to 2 GW sent to France at a time when our own industrial users of gas have been asked to close down their factories for a period because of the pressure on gas supplies. There have been a number of interruptions. It is against that background that we need to do more to secure the gas storage facilities in the country. We clearly have many more diverse sources of supply than has been the case historically.

The LNG facilities have come on stream at South Hook and elsewhere, and that is an important contribution, which we do not in any way underestimate. However, the evidence is that an LNG facility does not mean that the gas can always be used, because the nature of such facilities is that the gas will often set off around the world without a destination in mind and then go to the highest bidders. In the early days of the new LNG facilities, much the gas was going to America. That has reduced due to the extent to which shale gas has been found there, and much of the gas was going to Japan because of the problems that they were having with their nuclear fleet. Only after those changes did we end up with more gas coming into the LNG facilities in the UK. Although such facilities make an important contribution, they cannot alone guarantee our security of gas supply.

There have also been new pipelines; for example, the Langeled pipeline to Norway is an extraordinarily important element. However, in the recent cold spell, we saw that it could not work at capacity because of structural and technical problems, so we were not getting as much gas through it as we needed to replenish our stocks. As a consequence, we ended up with four balancing alerts in one week. Large business users were asked if they would mind closing down, and there was a contractual basis for that to be done so it was a voluntary arrangement. Nevertheless, big British companies were asked to stop producing and manufacturing to conserve gas because of the pressure on supplies.

Joan Ruddock (Labour, Lewisham, Deptford)

The hon. Gentleman may want to reconsider what he has just said, which was that businesses had to stop manufacturing. If he checks, he will find that most companies with interruptible contracts have back-up supplies and alternative fuel. For most, that is the only way that they would sensibly have taken on an interruptible contract. One would not expect manufacturing to cease.

Charles Hendry (Conservative, Wealden)

I certainly accept that some of the companies concerned will have had alternative sources of supply, but that, inevitably, will be another form of hydrocarbon and is not good for our carbon emissions. I realise that that is a different point but there are consequences of such balancing alerts.

As we look further ahead, we see clear warnings. Last week, Alistair Buchanan, the very constructive and sensible head of Ofgem, warned the Financial Times that Britain’s gas markets faced a “cliff edge” in 2015-16, which could cause supplies to run short in the latter part of the decade. He focused on the security of gas supplies from places such as Turkmenistan. The amount that could come through to Europe and to Britain could be as little as one tenth or one fifth of what we assume is there.

Joan Ruddock (Labour, Lewisham, Deptford)

Again, I should put it on the record that we do not accept that analysis. In fact, the number of countries from which we now have the option of getting supply has dramatically increased. We do not expect reliance on Turkmenistan.

Charles Hendry (Conservative, Wealden)

I was not suggesting that there would be “reliance on Turkmenistan”, but there has been a significant assumption concerning the billions of cubic meters of gas that will be forthcoming from there. Alistair Buchanan’s point, which we have to take seriously, is that due to structural problems, delays in pipelines and other issues, we may not get anything like the amount of gas being forecast to come from Turkmenistan. An important aspect of the work that Ofgem is doing through Project Discovery is about looking at the potential sources of supply, identifying where the pinch points might be, and seeing how realistic the sources are and to what extent we can truly rely on them.

Last week the Energy Intensive Users Group and the Engineering Employers Federation wrote to the Financial Times to express concern

“at the complacent nature of some of the comments about the UK’s energy supply”,

and about gas and gas storage in particular. We have a challenge; I do not put it more strongly that that. We have seen three challenges in the past few years and we have to do much more to ensure the security of gas supply coming into the country, which means that we have to look more at the availability of gas storage.

We are critically short of gas storage for different reasons. In France, they have about 120 days of gas storage, but they are overwhelmingly dependent on gas imports. In Germany they have 100 days of gas storage. In the United Kingdom we have perhaps 16 days of gas storage at best. I realise that historically the North sea has been our gas storage facility, but as the gas from the North sea has started to be depleted and as we have become net importers of gas with all the problems that involves, we have not seen the sort of increase in gas storage that we need.

John Robertson (Labour, Glasgow North West)

Does the hon. Gentleman not accept that the climate of this country, other than in the past month, is usually such that we do not quite need the same storage facilities as other countries in mainland Europe? Would not the knock-on effect be that we would waste money in storage and he would complain to the Government about doing that as well?

Charles Hendry (Conservative, Wealden)

That is an extremely valid point. The point I would make is that we know what we are losing in terms of generation capacity in the next few years. We know that we lose a third of our coal, and we cannot replace that with coal with CCS in that time scale because the technology is not there, even though it is clearly being developed. We know that we are starting to lose our nuclear fleet and that all, bar Sizewell B, are due to close by the early 2020s. Some may get life extension, but that would be a bonus rather than something that we can count on. We can see a huge amount of plant coming out of use, and that will have to be made up by something else in the short term. New nuclear in time may fill it up, but in the short term it will not be able to do it. Therefore if new gas plant is to be built and we move from having perhaps 40 per cent. of our generating mix powered by gas to potentially 60 per cent., which some of the Ofgem scenarios anticipate, then 80 per cent. of our gas will be imported. So it is nothing to do with our climate, it is to do with the mix of generating plant that we have.

The other aspect, and this goes to the heart of the amendment, is that we are not saying that this should be Government spending. We do not advocate Government-funded strategic storage. We are saying that the companies that will be using gas either to burn it for generation or to supply it to domestic households must find a way of having certain amounts of gas storage which would be specified by the Secretary of State. This is a buffer. It is a security of supply issue that we think is important in a challenging and changing world.

Tobias Ellwood (Conservative, Bournemouth East)

My hon. Friend is making a powerful argument. Those people who would appreciate extra storage capability in the UK would be those 100 companies that were told on 7 January that they would have their supplies cut, even if only for a short period, because of the type of contract they had. They would very much like this extra storage as would much of Britain now.

Charles Hendry (Conservative, Wealden)

My hon. Friend makes an important additional point which is the nature of some of the contracts. What we have seen in many other countries is long-term contracts, significantly backed by Government. If there is a major event of a contract between the German Government and the Qatari Government, Chancellor Merkel is there in Qatar to sign it. Here those tend to be signed off by the British high commissioner or the ambassador without necessarily having the same degree of top-level Government support for long-term contracts. That is an important element that has to be addressed there too.

Brian Binley (Conservative, Northampton South)

I note the point about climate. Does my hon. Friend agree with me about the suggestion that for the next 30 years Britain will be cooler, not warmer? My real point is about the ability to buy gas on longer-term contractual arrangements. Is not that where the importance of storage comes in as well in terms of purchasing price on the open market?

Charles Hendry (Conservative, Wealden)

I absolutely agree with my hon. Friend on his latter point, but after the Met Office promised a barbecue summer and a mild winter I will not get involved in a discussion about where the climate is going. If the Met Office can get the forecast quite so wrong, my ability to project it for 20 years is perhaps without any basis in fact. I agree with my hon. Friend about long-term contracts. One of the advantages of gas storage which they have in Germany is that they are able to replenish their gas supplies in the summer when prices are cheaper and can maintain supply in the winter. When we are running short of gas in the winter, we end up importing it and paying the spot price which is massively higher. It has been calculated that it costs consumers about £1 billion more than it needs to because of the inability to buy sufficient quantities at the lower summer price to sell during the winter.

Joan Ruddock (Labour, Lewisham, Deptford)

Has the hon. Gentleman factored in the cost of building gas storage? It is phenomenally expensive, and it is therefore no good just comparing the price of the gas that one might buy in the summer with the situation today. For the record, we have the best of relations with the Qatari Government, and if our Prime Minister has not been there to sign a contract that does not mean that we do not feel secure in the contracts we have with them. Finally, the hon. Gentleman has posed frightening scenarios of how we might run out of everything because everything is closing down, but what calculation has he made of the contribution of renewables?

Charles Hendry (Conservative, Wealden)

I totally understand the importance of a good relationship with the Qatari Government, and I understand what is happening there.

On pricing, of course there is a price and I will come to that, but the crucial issue is that there is a price for gas security but an even greater price for insecurity. In the past few years, we have come close to running out of gas and having to say on a more substantial scale that people will have to switch off their businesses. At that point it is not a question of back-up, but of simply saying that there is no gas left. That did not happen this winter, but it nearly happened last winter and three or four years ago. In those circumstances, had we gone that bit further, we would have been in a situation in which companies around the world looking to invest in Britain would have said, “Look, this country pretends to be a first-world nation but can’t even maintain the gas supplies to its businesses.” Insecurity has a massive national economic cost, and that is why additional investment is required, along with greater focus and drive.

I am sure that the Minister, when she responds, will highlight some of the plans in the National Grid’s statements to bring some of that forward. Of the most imminent plans, two were supposed to be confirmed for definite towards the end of last year but have not been so far. A whole range of the plans have not even put in for planning consent at this stage, and one of them has been turned down by the Secretary of State but is still on the list as a potential plant. There is, therefore, enormous doubt and questionability in the system.

On the Minister’s final point about renewables, of course we would factor in renewables, but what we have learned from the past week or so is that there will be a greater need for back-up for renewables. During the particularly cold spell a couple of weeks ago, the contribution of renewables to our electricity generation was low, at one fifth of 1 per cent., because the United Kingdom was in an area of sustained high pressure and the wind was blowing almost nowhere. Therefore, as we increase the extent of renewables in the mix—we share the Minister’s commitment to that—there has to be either battery power, pumped storage and hydrogen facilities to move the wind-generated power from where it is generated to where it is needed, or enormous back-up capability, which will still almost certainly be hydrocarbons and gas. The growth of renewables may create a greater requirement for gas—for a plant to be used not 24 hours a day but at times when demand is greatest, such as on those cold January days when the wind is not blowing and we have to keep the lights on.

Michael Weir (Scottish National Party, Angus)

Has the hon. Gentleman factored into his argument the difference between how the market works on the European mainland and in the UK? When the Business and Enterprise Committee, on which my friend the hon. Member for Northampton, South also served, looked at that issue, we were concerned that because the European market was not as liberalised as the UK one it was not reacting to market signals, in that when gas was expensive in the UK, gas was not coming in from elsewhere in Europe. How will the hon. Gentleman’s amendment deal with that problem, given that he has mentioned the greater storage in continental Europe?

Charles Hendry (Conservative, Wealden)

The hon. Gentleman brings us to an extremely important and relevant point. In January last year, when we were approaching our coldest winter for 18 years—as it was then—and were about to face a dispute between Russia and Ukraine and massive pressures on gas supplies elsewhere in Europe, particularly in central Europe, we were exporting 25 million cubic metres of gas a day though one of the interconnectors and importing 26 million cubic metres through the adjacent one. It may be hard to imagine that amount; it is the equivalent of 250 Albert halls’ worth of gas being pumped out of the United Kingdom every day, at a time when we were facing particular pressure. Because of the pricing structure in the market, gas was being pumped into the United Kingdom from Norway or through LNG facilities and then being pumped straight out again. The gas was not coming to serve UK consumers, but was simply being transited through.

One issue we have to address is when to trigger a stop on exports, as happens in France and other countries. When gas supplies fall below a certain point, they ask whether a stop should be triggered. Last year, we were down to three days’ gas supply in storage, yet that measure was still not triggered in the United Kingdom. That issue is not addressed in the amendment, but the hon. Gentleman is absolutely right that it should be focused on. The market was working perfectly, the molecules were following the money, but our gas security was put at risk. We do not believe that Governments can be neutral in such situations.

The purpose of the amendment and the new clause is for Government to take a more active role in how to secure more gas storage in Britain. They cannot be neutral about it. Some welcome and important changes were made in the last Energy Act, in 2008. We think that Government have to go a stage beyond that and say to people, “If you are a gas user, in terms of generation capacity, or a supplier of gas to domestic consumers, you need to be able to satisfy Ministers that you have access to sufficient storage during the winter. That could be that you run your own storage facility, own it, put the gas in it and know it is there for you. It could be that you contract somebody else to do that work on your behalf but, again, you have a contractual arrangement. Or it could be that there is a long-term contractual arrangement with a supplier who is robust and where there is no doubt about the security of those issues.” We think that sort of change is necessary to ensure we have the security of supply and the storage that we need to build.

There have been some changes but Lord Hunt, the Minister who speaks in the Lords, has said that, if all that is planned to be built in the next couple of years comes through, it will lead to just five hours’ more gas storage in the country. As we increasingly depend on imports, which have to come from a wider range of countries around the world, our view is that that is not adequate; more is required. We would like to use the Bill as an opportunity to give the Government the powers to make that happen.

Tobias Ellwood (Conservative, Bournemouth East)

It is a pleasure to work under your tutelage again, Mr. Bayley. I wish to echo some of the points that have been made. One of the differences between the system in the UK and that in France and Germany is the absence of legislation. There is no legislation to ensure that we have the right levels of capacity. As my hon. Friend pointed out, our storage was the North sea. Since 2004, we have been a net importer of gas. An interesting fact concerning the last cold spell is that coal overtook gas as the major contributor of natural resources towards our power requirement. Although we are working to clean up coal—and this part of the Bill will get us there—we are a long way from ensuring that coal can take its correct place as part of the required energy mix. Until then, we rely on gas. I do not think the Minister should shy away from the importance of gas storage.

The issues about the cost of storage are relevant and how that is paid for is also important. That is where a timetable would make sense: for us to plan ahead to make sure that we have increasing storage capability, eventually to match that of our French and German counterparts. We are seeing changes in the gas scene and, with the development of the Nabucco and Langeled pipelines, important new assets are coming on to the market. The problem is that we are not able to buy gas when it is cheap and then use it, rather than buy it when it is expensive. That is the importance of energy security; to ensure that we are not again in the situation of having to tell companies, “Your gas supply will be turned off and you are going to have to use your back-up systems.” That is not good for the economy.

To reduce the risk, we cannot have an over-dependency on one area or resource, and we need to be able to identify and react to potential shifts in global energy requirements. That means recognising where the gas comes from and what would happen if those taps were tweaked or turned off. We have had illustrations of that in Russia and the consequent repercussions right across Europe. It is all very well saying that we can get our gas from Qatar, Norway or Russia, but if there is a sudden change in the dynamics and a dearth of gas across Europe, all countries will be looking after themselves and we are last in the queue—we are at the end of the stream. Ensuring that we can weather a storm in which there is a shortage of gas is therefore critical.

I echo my hon. Friend’s opening remarks and ask the Minister seriously to consider the amendments. We must change the amount of time we have to provide gas to our customers, particularly as all the gas stations will remain online until 2030 and all the other stations, whether they be nuclear or coal, will have expired by then. Gas is very much part of our energy mix. In fact, it is currently the senior part and will remain so for many years to come. That is why the amendments are important.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

This is something of a reprise of a debate that we had on the Floor of the House last week during the Conservative Opposition’s Supply day. I am not going to go over all that ground again, although it is important that we debate the issue in Committee. I believe that new clause 20 has significantly more merit than the amendments. The new clause proposes that there should be a minimum requirement for an amount of gas to be secured for use both by suppliers of gas to domestic and business customers and by gas-fired generators. However, it begs the question: how does one define “secured”? We can secure gas both by supply in this country and by contract for supply from outside. Although the new clause is entitled “Provision of gas storage facilities”, I am not sure that it does exactly what it says on the can.

When we table Opposition amendments the first time around, we usually do it to see what the technical objections and substantive arguments are. There is an argument for a new clause—I would be happy to work with others before Report on this—that imposes an obligation on the Secretary of State to require suppliers to either have or plan for enough storage in the UK. The substantive argument that we could face significant problems down the track is valid, because of the declining natural supply of gas from the North sea. It will last a long time and will not go away, and we are still going to use it and it is important, but we have to take account of the fact that it is in decline.

I want to make a substantive point about the way in which the amendments would work. We will have the clause 16 stand part debate shortly. It is not a significant clause, because the obligations that it puts on Ofgem are more window-dressing than substance. Moreover, the amendments are not significant either. They seek to add the words “gas storage”, but clause 16 already proposes that Ofgem should have a new duty and states:

“Those interests of existing and future consumers are their interests taken as a whole, including—

(a) their interests in the reduction of gas-supply emissions of targeted greenhouse gases; and—”

this is the important one—

“(b) their interests in the security of the supply of gas to them.”

That encompasses what the hon. Member for Wealden is arguing for without the need for an amendment. We will hear what the Minister has to say, but I anticipate that that will be her response.

My second point follows from last Wednesday’s debate. I was quite assertive, or aggressive, to the hon. Member for Tunbridge Wells (Greg Clark) because I believe that the argument he made to the press on the issue—a perfectly proper issue to raise in the press—was phrased to suggest an imminent risk of people losing their supplier. The Conservative press release was headed:

“Only eight days worth of gas left in storage”.

In it, the hon. Member for Tunbridge Wells said:

“When will the Government understand we need more storage capacity and the ability to get gas to consumers so nobody has to face the possibility of going without gas during cold snaps like this one?”

The intention must have been to cause concern or alarm and it certainly had that effect, as I reported to the House last week. It was a bit mischievous, to put it gently, to pray in aid the estimable Alistair Buchanan—we will no doubt discuss him later, in the context of other Ofgem responsibilities—because, as reported in the Financial Times, his concern about the “cliff edge”, and those were his words, was about 2015-16, not about now. Nothing I have read from Ofgem this month about the cold spell and our supplies in December and January has suggested that there is a threat to our security—nothing.

Tobias Ellwood (Conservative, Bournemouth East)

I am grateful to the hon. Gentleman for giving way, although I think that he is making a bit of a meal of the issue and digressing a bit from the Bill. Temperatures dropped hugely to minus 22°. It was an unprecedented cold snap, which necessitated an increase in gas requirements of more than 28 per cent. The first step, the first port of call that gas companies have to take is to limit the supply to those with interruptible contracts, which suggests that we are heading towards running out of gas. Gas companies would not do that if they did not think that they had to start taking precautions. The precautions they took were enough to guarantee domestic supply for those who obviously need it to weather the worst of the weather. I urge the hon. Gentleman to proceed with caution, because I think he is being a bit mischievous. The remarks were made simply to underline the fact that we need more storage in this country, which I think has now been accepted by the Government.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

The arguments from objective commentators—not from politicians—were about the issues for the UK in 2015-16 and beyond. I do not think that the hon. Gentleman would find any objective commentator—National Grid, Ofgem or others—who in the last month said that we were at risk of not having sufficient gas supply for the UK need.

Tobias Ellwood (Conservative, Bournemouth East)

It was a first step—a precaution.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

But the burden of the Conservative song over recent weeks has been to suggest that we are running out of gas. That was the implication. Of course, using up some of the gas storage means that there is less storage, but as the hon. Member for Wealden has fairly put it today, we have significant connections through the recently established interconnectors with Norway and the Netherlands. Norway is the most significant contributor. The interconnectors have worked almost without interruption since they were set up. There was one technical hitch in the supply from Norway—that is correct—but we have liquefied petroleum gas supplies coming into Milford Haven and the Isle of Grain, which we did not have 10 years ago. We also have our indigenous supplies from the North sea. The hon. Member for Wealden is right to say that when demand is greater—we had record demand—we turn to alternative suppliers such as the coal industry.

Hugh Bayley (Labour, City of York)

Order. May I remind all members of the Committee that we are debating whether the law should be changed to make further provision for the storage of gas, rather than debating comments made by Members in the last week or so? I hope we will focus on the content of the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I am happy to do so. I was arguably distracted by the hon. Member for Bournemouth, East.

Charles Hendry (Conservative, Wealden)

The hon. Gentleman referred to the quote I attributed to Alistair Buchanan in the Financial Times. I specifically referred to 2015-16. If we can see a pressure point now, five years out, does it not make sense for us to react to it now and put the gas storage in place so that if there is a pressure point within that time scale we have taken steps well in advance to prepare for it? I did not use the quote to suggest that it related to the problems of the last week or so, but simply to say that it enhances the case for taking sensible preparatory steps at this point.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

The hon. Gentleman knows that I agree with that proposition. I have never dissented from the fact that we need proper long-term planning for our energy security. It is hugely important. As it happens, the UK is relatively well placed, as is Europe. The hon. Gentleman will have read that the International Energy Agency think-tank made an announcement this month, repeating its assessment that the “gas glut” was likely to grow up to 2015. It then said:

“Europe is geographically well placed to secure gas supplies from a variety of external sources.”

The reality is that because of our indigenous supplies, our connections already in place, our contracts in place, our new use of liquid petroleum gas and our plans for the future, we are well placed. But, yes, we need to plan to make sure that we have security.

I hope we will realise that no alarm bell was sounded by Ofgem or by National Grid over the last few weeks. The companies that had their supplies interrupted because they had an interruptible contract, which meant that they knew the risk, had, as the Minister of State suggested, alternative supplies available. They planned against the knowledge that they might have a reduction in contract. No domestic supplies were curtailed and therefore we got through a very difficult period relatively comfortably.

We may have more difficult winter periods in the next few days if today’s forecast was accurate. Weather forecasts are less believed nowadays. The hon. Member for Wealden is on the right track with a variant of new clause 20 as the way forward. I do not think that we need to tinker with clause 16 in the way that is suggested because that point is covered if it needs to be covered. No doubt we will hear the Minister’s response to all these things any second now.

Michael Weir (Scottish National Party, Angus)

I want to make a few brief points. I have a lot of sympathy with what the hon. Member for Wealden is trying to do with new clause 20, although I am not sure that it will achieve what he sets out to do. He talks about a minimum requirement for the amount of gas to be secured. He does not say that it has to be by storage. I am sure that many will argue that the long-term contracts in place for LPG and others are securing the supply. He mentioned the contract that Germany had entered into with Qatar as part of its energy security.

There are a lot of problems. I mentioned in an intervention my concerns about the way the interconnector works and the difference between the liberal market in the UK and the less liberal market on the continent. That is an important point. Continental energy systems work very differently from ours. If we are to have new gas storage and security of supply for consumers in the UK we will have to go an awful lot further and look at re-jigging the UK market completely so that we could prevent the export of gas from the UK, a point to which the hon. Gentleman alluded.

The whole point of the interconnector is that it is supposed to react to market signals. It should be bringing gas from the continent to the UK to enhance our security when the price is high and there is demand for gas. That is simply not happening to a significant degree at the moment because of the way the market works on the continent. If we are to do as the proposal suggests, it seems to me that we have to work with our European partners to change the market on the continent to a more liberal one, or make the UK market less liberal, to ensure that we do not have that problem, which is exacerbated by most of our energy companies now being offshoots of the large European energy companies. Some would argue that they have a feeling for their home market more than indigenous companies might.

To build new storage capacity would place an enormous cost on the energy companies, which would inevitably be passed on to the consumer. They have been piling cost upon cost on to the consumer and will reach a limit at which the consumer will rebel. That has to be borne in mind. I have sympathy with the hon. Gentleman’s cause, but I am not convinced that the proposal will achieve what he is setting out to do.

Joan Ruddock (Labour, Lewisham, Deptford)

As always, Mr. Bayley, it is a pleasure to serve under your direction. I will try to deal with a couple of the issues raised before I make my main pitch regarding the amendments and the new clause.

The hon. Members for Angus and for North Southwark and Bermondsey both made measured speeches in response to the amendments, illustrating some of the complexity in trying to determine whether we have sufficient and safe supplies of gas. The Conservative party has tried to raise alarm over those issues, quite wrongly in our view. The facts do not bear out the arguments that the Conservatives have been making.

The hon. Member for Bournemouth, East said that interruptible contracts were not good for the economy. It is obviously the view of companies who voluntarily take interruptible contracts—nobody is forcing them to do so—that it is good economics. If a company gets as much as 10 per cent. off energy bills for a decade, one interruption probably makes very good financial sense. That is the situation in which they find themselves. There were, of course, no forced cut-offs but only contractual arrangements, freely entered into and undertaken according to the clear financial preferences of the companies involved. There was never a threat to domestic consumers and no one external to Government ever suggested that was the case during that period. I stress that alarm was raised completely wrongly in our view.

The hon. Gentleman also raised the question of Russian gas and, of course, the UK takes virtually no—or very little—Russian gas.

Tobias Ellwood (Conservative, Bournemouth East)

The Minister is right that we take very little—about 3 per cent. of Russian gas ends up here—but I am trying to illustrate that Europe is very much one village and relies heavily on Russian gas. If the taps are turned off, it will affect the price of gas and its distribution, and that will have repercussions. I do not know how severe they might be, but there would certainly be repercussions on the gas supply to the UK. If the Minister denies that, I do not think she is taking the matter as seriously as she should.

The second point the Minister raised was about interruptible contracts. They are a reflection of the system that developed in the UK, with the North sea oil supply acting as our huge reserve. Times have now moved on and we do not have the storage capacity of France or Germany. Rather than look back and keep contemplating what happened in the last cold snap, we are saying that we should use the Bill as a vehicle to improve our storage capability by 2015, when the situation may get worse. Let us be prepared for that longer cold snap because, had the last one been two or three more days, the businesses that grabbed contracts because they were cheaper would have suffered because they would not have been able to keep their alternative power supplies going.

Joan Ruddock (Labour, Lewisham, Deptford)

The only business that I saw on record clearly said that it had two weeks’ supply of alternative fuel and did not in any sense feel at risk. When I come to my major points, I think that the hon. Gentleman will see that he is looking to one single solution and that the market is much more complex. There are many solutions to the gas supply problem, which I hope to describe in a moment.

The Conservatives have also made much of their statement that there were only eight days’ gas left. There has been a failure to understand what gas storage means. Saying that there are only eight days’ gas left implies that no other gas was coming into the country. [Interruption.] But that is the implication, that there is eight days’ gas left. [Interruption.] No, if the lay person on the street was told eight days’ gas was left they would believe that all gas supplies would run out in eight days. That is a common-sense interpretation. Those who, sophisticatedly of course, know much better should not put out simplistic statements that clearly lead the lay person to believe that they would have only eight days’ gas left.

Charles Hendry (Conservative, Wealden)

If the Minister goes back and looks at the press release at the time, she will see that it was made absolutely clear that that was not the case. Therefore the statement that we put out, which was a beacon of clarity, did not say that. Others may have interpreted it, or it may suit the Minister to interpret it, in that way, but that is not what we said at the time.

Hugh Bayley (Labour, City of York)

Order. Before the Minister continues may I give some guidance to the Committee? I think that we have probably heard enough about whether the press statement of a week or two ago was alarmist. It is, of course, relevant to debate whether there are sufficient gas reserves. That is what the amendment is about, and I hope that the Committee will focus on that from now on.

Joan Ruddock (Labour, Lewisham, Deptford)

Thank you, Mr. Bayley, for that guidance. I think that you, I and the hon. Gentleman all know that in politics it is the headline that matters and not the content of the press release.

Anne Main (Conservative, St Albans)

Will the Minister give way?

Joan Ruddock (Labour, Lewisham, Deptford)

Let me just describe the facts and I will then happily give way. During the difficult period—the cold snap—overall storage was about two-thirds full and, had the cold weather gone on, that would have enabled a contribution at the level that was being made from gas storage to continue for over seven weeks. The gas storage facility does not have to replace all the gas being used because gas is still flowing from everywhere. The storage makes a contribution, which at that level would have been able to continue for seven weeks. The reality, for the record, is that that is what we have in the most extreme circumstances that we have faced in a long time.

Anne Main (Conservative, St Albans)

Putting it simplistically for the man in the street—as the hon. Lady said—surely we should be asking, “Do we have less gas storage than other countries? If we do, do we have sufficient or should we have more?” To ensure that we have more, the change should be made to the Bill.

Joan Ruddock (Labour, Lewisham, Deptford)

I am sorry to tell the hon. Lady that she is entirely wrong. That is not the question. When I come to my main contribution, I hope that she will understand the points I make then.

Brian Binley (Conservative, Northampton South)

The Government have intimated on a number of occasions that we need more gas storage. Is the Minister now arguing otherwise? She sounds complacent about the issue, but perhaps she will tell me that we shall move on to talk about the need for more gas storage. If so, I am happy with her remarks in that respect.

Joan Ruddock (Labour, Lewisham, Deptford)

I can assure the hon. Gentleman that I will come on to talk about more gas storage, but it is so important to understand that the point raised by the hon. Member for St. Albans is clearly about how adequate our supply of gas is, which is not the same as saying, “How adequate is our storage of gas?” Those are not the same thing, and I seek to make that point.

Let me say again how extreme the situation was. The previous record demand was in 2003 and was for 449 million cubic metres per day. On 7 January this year it was 454 million cubic metres per day and on 8 January it was 468 million cubic metres per day. We were dealing with unprecedented demand over those few days. What we have to ask ourselves, and what the person in the street wants to know, is, given unprecedented demand in unprecedented cold weather, did our gas supply stand up to the test? It did.

Amendments 33 to 35 and new clause 20 all relate to the debate that we have just had on gas storage. I must acknowledge that the hon. Member for Wealden has clearly said that the preference is for accepting new clause 20 rather than the amendments, but, for the record, I shall speak to the amendments. They expand clause 16 to make it explicit that when Ofgem is carrying out its principal objective of protecting consumer interests, those interests include the need for gas storage. The clarifications to Ofgem’s principal objective that clause 16 will implement will, without amendment, put beyond doubt that the interests of consumers include ensuring secure gas supplies. That is the point that the hon. Member for North Southwark and Bermondsey made.

I agree with the hon. Member for Wealden that gas storage is an important element of security of gas supply, but it is just one element. What is really important to consumers and businesses is that Britain has secure gas supplies, and that can be achieved in a number of ways, not just through gas storage. Clause 16 will comprehensively cover those interests, whereas the amendments focus on just one element. Gas storage is specifically encompassed by the phrase

“commercial activities connected with, the...supply of gas”

in new subsection (1B) in clause 16(3). Amendments 33 to 35 are, therefore, superfluous.

The aim of new clause 20 is to allow the Secretary of State to set a minimum requirement for an amount of gas to be secured for use by the suppliers of domestic and business customers and gas-fired power generators. It would also allow the Secretary of State to specify which customers and/or generators would benefit from that secure supply. I do not believe that the power is necessary.

The UK’s market arrangements have been tested rigorously during the recent cold weather. The market delivered secure supplies even though demand for gas reached record highs at the same time as four major losses of supply from Norwegian fields due to technical difficulties.

Charles Hendry (Conservative, Wealden)

Does the Minister accept that the thinking driving the amendments and the new clause is not problems of the past week or so but the challenges of the future? If 80 per cent. of our gas is going to be imported by 2020, that fundamentally changes the need for gas storage in this country. The proposals are about driving forward that necessary change, so it is wrong to tie them to the recent challenges.

Joan Ruddock (Labour, Lewisham, Deptford)

The hon. Gentleman makes his point but the unprecedented weather and demand is extremely relevant. Did the market prove effective in those circumstances? It did. He said that 80 per cent. of our gas is predicted to be imported by 2020. The Government are taking steps towards, and industry is responding well to, more indigenous gas production. We cannot take that figure as absolute, because more gas fields are being exploited and there is more reserve than perhaps people anticipated. It may become more and more worth while to get gas out of the sea.

We have seen the market in action. National Grid issued four gas balancing alerts—

Brian Binley (Conservative, Northampton South)

The Minister just said that we have seen the market in action, yet she has not given us any indication of how much more money we have to pay to maintain the supplies. She said that gas storage is very expensive, but there was no understanding in that statement of the difference between the cost of gas storage and the amount that we might save if we were able to buy in the longer term. Before making that statement, the Minister clearly had an understanding of that difference. What is it?

Joan Ruddock (Labour, Lewisham, Deptford)

The hon. Gentleman would not expect me to have those figures at my fingertips. I make the point again that to build gas storage is enormously expensive. We are therefore both right to say that, if the argument changes and gas storage becomes the best way forward and the other things that I will address are considered to be less effective, the comparison has to be made. I remind him that the unprecedented demand that we have recently seen is a once-in-a-decade demand. There is therefore a major issue as to how much money should be invested in gas storage to deal with an unusual situation where, as I will go on to maintain, the market responded. It has been argued that people may have paid more money, but that is not certain.

The comparison needs to be made. I do not have the figures at my fingertips, but our officials have looked into the issue and our argument is that gas storage alone is not the answer to everything. It will be part of the answer, but we will resist the new clause because we do not think that it is the way forward.

Judy Mallaber (Labour, Amber Valley)

I have lots of memories of snow during my childhood. Would my hon. Friend care to note that, while it may be unusual in this decade, I remember house supplies being cut off on the Conservative party’s watch after it decided to close down the pits?

Joan Ruddock (Labour, Lewisham, Deptford)

We are all very grateful to my hon. Friend for that intervention. I am sure that Mr. Bayley does not wish me to wax lyrical about the days of the three-day week, but many of us will remember them and we do not wish to learn lessons from some members of the Committee.

Brian Binley (Conservative, Northampton South)

I must press the Minister further. I remind her of the winter of discontent, but let us not go there. [Interruption.]

Hugh Bayley (Labour, City of York)

Order. I am not going to have a winter of discontent. We are not debating the degree to which gas was the cause of the three-day week, but whether this country needs to legislate for more gas storage. The Minister was explaining her case.

Brian Binley (Conservative, Northampton South)

May I press the Minister on the price issue? She made a fair argument about the relationship between the cost of the storage and the price of gas. In order to make that statement, the Minister must have an idea of the relative prices. I understand that she does not have them at her fingertips, but would she be kind enough—she intimated that officials have done work on this—to write to us with those figures? They are an important factor in her argument.

Joan Ruddock (Labour, Lewisham, Deptford)

I am more than happy to do whatever I can to help the hon. Gentleman. However, I ask him from a common-sense point of view to realise that the proposal is for an obligation to build gas storage, no matter what the price, for the whole year round, even in years in which none of the events under discussion might ever occur. Given that such events only rarely occur, that huge investment would be dead money for most of the year.

Tobias Ellwood (Conservative, Bournemouth East)

Will the Minister give way?

Joan Ruddock (Labour, Lewisham, Deptford)

I will give way, but we might need to make a little progress.

Tobias Ellwood (Conservative, Bournemouth East)

It was on a point of clarification. The new clause does not say “build gas storage”, although some of us would like eventually to wander down that route. It encourages the Secretary of State to ensure that there is a minimum requirement. That could still be achieved by gas companies owning a rig or a natural refinery, or by venturing into other agreements with organisations to ensure a guarantee of supply and avoiding the need to have gas storage here in the UK. That is why it was written in this way.

Joan Ruddock (Labour, Lewisham, Deptford)

Perhaps the hon. Gentleman would like to invite his Front-Bench spokesman to provide greater clarity on this point.

Tobias Ellwood (Conservative, Bournemouth East)

It is in the new clause.

Joan Ruddock (Labour, Lewisham, Deptford)

Yes, but I heard the speech as well. My understanding, and I stand to be corrected and I would welcome an intervention, is that we are talking about gas storage facilities—

Tobias Ellwood (Conservative, Bournemouth East)

It was drafted specifically in this way

Joan Ruddock (Labour, Lewisham, Deptford)

Let me seek clarification from the hon. Gentleman’s Front-Bench spokesman. If we are talking about market mechanisms we are talking about something quite different. We have market mechanisms and it is very difficult to understand how one would place an obligation on a company to enter into a market mechanism.

Charles Hendry (Conservative, Wealden)

I hope I can provide that clarification. The new clause talks about an amount of gas to be secured. I said in my opening comments that that could be a company owning and running its own storage facility. It could involve its contracting the storage out to another organisation, or it could be done through long-term contractual arrangements where those were seen to be sufficiently robust. There are energy companies in this country that are looking to buy their own gas fields internationally, so they know they will always have that available and could use the existing pipeline structure to provide that. That should be taken into account in handling. It is not purely storage in the United Kingdom; it is allowing the Secretary of State to say, “We want access to be provided by a number of means”, but to be satisfied that they are in place.

Joan Ruddock (Labour, Lewisham, Deptford)

I am grateful to the hon. Gentleman for his clarification. I think he weakens his case and makes the difficulties for companies even greater. It would be extraordinarily difficult for the Secretary of State to make such a requirement of companies, which would then appear to be interfering entirely in commercial contractual arrangements. That would be incredibly difficult. We have to deal with the fact that it can be physical storage and look at that issue. Perhaps the hon. Gentleman will reflect further on what he actually means by suggesting that the Secretary of State could impose on companies the need to enter into particular types of contract. Who would police that? Who would decide whether their long-term contract was sufficiently long term or secure, and so on? This is very difficult territory.

Let me return to my overall argument about the nature of the existing market and why we have confidence in that. I was about to say that National Grid issued four gas balancing alerts earlier this month signalling that it needed the market to bring forward more gas in response to the record demand. The market did exactly that. This serves to demonstrate the robustness of the regulatory framework we already have in place, within which the market delivers secure gas supplies. This includes sharp financial incentives to ensure gas shippers provide sufficient gas to meet customer demand; clear market information; and price flexibility.

The current gas market arrangements have attracted unprecedented investment in the UK gas import capacity over the last decade, leading to a fivefold expansion. This is my first significant point, to which the Opposition have not given sufficient weight. I know the hon. Member for Wealden mentioned it, but we now have oversized import capacity that is equivalent to 125 per cent. of the UK’s current gas demand—about 100 billion cubic metres. That new capacity includes the Langeled pipeline, the Tampen Link offshore pipeline linking the UK and Norway, the Balgzand Bacton pipeline between the UK and the Netherlands that has been built and upgraded, the interconnector between the UK and Belgium that has also been upgraded, the major new LNG facility at Milford Haven and the expansion of the Isle of Grain LNG import terminal.

We have not needed as much gas storage capacity as other EU member states. In addition to our significant import capacity, we have had and continue to have supply-level flexibility on our doorstep. The North sea fields still meet some 50 per cent. of our gas demand on an average winter’s day, and even during this period of high demand they have produced about a third of the country’s supply.

We do, however, recognise that as the indigenous gas supplies decline we need to have robust arrangements in place to ensure continued energy security. Part of our response is our commitment to diverse energy supplies, by increasing our level of renewables, encouraging new nuclear build and supporting the development of cleaner fossil fuels, alongside our commitment to improving energy efficiency. Nevertheless, gas will continue to be an integral part of our energy mix, and we are taking steps to address the risks associated with falling UK output.

We have taken action to maximise the remaining indigenous resources by providing new tax allowances to support the development of particularly challenging oil and gas fields, and by setting up a new taskforce to explore the development options for gas infrastructure west of Shetland. We have also encouraged more gas storage projects to come forward. We reformed the planning regime, which is widely believed to have been one of the most significant obstacles to new storage projects being completed, or completed on time. In Budget 2009 we confirmed that bought-in cushion gas was eligible for tax relief, and that should benefit some storage projects. New projects are coming forward, such as the Aldbrough facility in East Yorkshire, which started commercial operation last summer. We also recently approved a project in the Irish sea, which would add new capacity equal to approximately 30 per cent. of current UK storage capacity. In total, there are 22 gas storage projects at various stages of development in the UK, which, if they all came forward, would provide sufficient storage capacity to meet some 20 per cent. of current demand by 2020.

The recent cold weather has tested our capabilities to the limit, and those capabilities have responded.

Brian Binley (Conservative, Northampton South)

What does the 20 per cent. mean in terms of days added to our existing 14 or 15 days’ storage? What are the projection and the time frame?

Joan Ruddock (Labour, Lewisham, Deptford)

I am being offered advice, which I am trying to understand. I will check, and give the hon. Gentleman a precise answer. I think we both understand what 20 per cent. means—it is one fifth—but I want to be sure about how we express it. There is constant mention of number of days and, as I have tried to make clear, if we simply took a number of days, it would mean that that was equivalent to all the gas supply we could conceivably need. We do not draw on storage to replace all gas supply but to contribute to it, so the number of days can be expressed but the figure is not entirely meaningful. The hon. Gentleman should therefore beware of asking for information that does not add greater clarity.

Brian Binley (Conservative, Northampton South)

It is relevant to the ability to purchase gas at the best possible price.

Joan Ruddock (Labour, Lewisham, Deptford)

On that point I have no dispute with the hon. Gentleman—I agree with him. We expect a fourfold increase in our gas storage capacity.

Judy Mallaber (Labour, Amber Valley)

Is the point the hon. Gentleman is making, which might give a wrong impression, similar to saying there is five days’ supply of fresh milk in the shops? That might make people think we were going to run out of fresh milk in five days.

Joan Ruddock (Labour, Lewisham, Deptford)

My hon. Friend is correct. There is a difference between the understanding that we have in the Committee, and what the person in the street might think if it was suggested that milk or gas could run out.

Bill Wiggin (Conservative, Leominster)

Oh no, a milk crisis as well!

Joan Ruddock (Labour, Lewisham, Deptford)

Yes, we are getting into very difficult headlines.

I am trying to make it clear to the Committee that the actions we have taken to increase import capacity have delivered and the actions we have taken to increase gas storage capacity are already having an impact. The introduction of the kind of requirement envisaged by the new clause would be very likely to have a detrimental impact on the flexibility of the British market and to increase costs to consumers. That would particularly be so if the new clause required a certain level of gas to be secured, irrespective of costs or market conditions. That is why I made the point to the hon. Member for Northampton, South that the proposal prompts the question, would the obligation exist regardless of the cost and the impact on the market and consumers?

Guaranteed stores of gas would weaken the incentive for gas shippers to respond to market signals. There would be less drive to reduce gas consumption when demand was high and power generation switches from gas to other fuels, such as coal. That facility is an important strength of the British gas market, which other European gas markets do not have, and it leads to lower gas prices overall.

If the powers set out in the new clause were used to impose an obligation on gas shippers, they would effectively require them to contract to hold a certain amount of gas, which would have cost implications for consumers of gas and electricity. For example, gas prices would have been higher recently if market participants had not been able to take advantage of competitively priced LNG, which has dropped in price recently due to falls in world demand for gas. Those facts go to the heart of the points made from the Opposition Front Bench and by the hon. Member for Northampton, South. What are the implications? What are the effects on prices? Which best advantages the customer? Frankly, the situation cannot be predetermined. We have a sufficiently robust market that is properly regulated, and which comes forward and meets our needs, as we have recently seen.

The licensed gas shippers already have a strong financial incentive to balance their portfolios. There is a range of balancing tools on the supply side to which they have access: imported flows by pipeline, LNG by tanker, and storage. The shipper can purchase gas from the most economically attractive source, enabling consumers to benefit from the lowest prices.

I recognise that the new clause is only an enabling power. Even so, it could create regulatory uncertainty in the market, which could reduce investment in new infrastructure and increase costs to consumers, either through taxes or higher gas prices. The Government take security of both gas and electricity supplies very seriously. We keep the issue under constant review, working closely with National Grid and Ofgem, through its Project Discovery, and are committed to taking appropriate action to maintain our current high levels of energy security. For those reasons, I believe that the new clause is unnecessary and, worse, that it could have an adverse impact on the security of our gas supplies and the cost of gas to consumers.

Charles Hendry (Conservative, Wealden)

You heard it here first: the prediction of the Amber Valley milk crisis, due to hit by the weekend, when the children of Amber Valley will be forced to switch to alcopops instead of their daily “pinta”, if they have not already done so.

We have had a very interesting and important debate on gas storage. I am very grateful that the Committee has had the opportunity to discuss the matter in some depth. The fundamental point is that we are trying to look ahead at the challenges that the country might face in the next decade, and to move beyond a debate about what has happened in the last fortnight. The Minister talked about some of the other sources of supply that might come into the mix. Realistically, however, on the time scale we are talking about, they are of very little benefit. New nuclear cannot come into play before 2017-18 at the earliest. On the massive roll-out of renewables, the offshore wind change that the Government has planned will be toward the end of that decade rather than in the early and middle part. We know that our coal plant is significantly coming out of commission in the middle of this decade and therefore the likelihood is that, if we are to keep the lights on and generate the necessary power, gas will have to play a more important part. If we move to a world, as Ofgem predicts in part of its Project Discovery work, in which by 2020 80 per cent. of our gas will be imported, then we have to take steps now to ensure that we have the storage facilities for that eventuality.

The Minister used some fairly obscure arguments to try to make her case. She said, on security, that the amount of money needed could make storage a bad investment because it will not be needed most of the time. In all issues of national security one pays money in the hope that one will never actually need it, but one knows that it is there in extremis. The same argument could be made about Trident, I imagine. Indeed, the hon. Lady probably made that argument about Trident in a different life.

Bill Wiggin (Conservative, Leominster)

But they stopped making it.

Charles Hendry (Conservative, Wealden)

They have indeed stopped making that argument. But there is a very strong case for saying that some investment is necessary to protect us against moments of extreme need and extreme danger.

Joan Ruddock (Labour, Lewisham, Deptford)

Surely the hon. Gentleman needs to acknowledge two things. First, there are many other ways—and I cannot imagine that my arguments sounded so obscure—of bringing gas into the country when we are under pressure. We have demonstrated how many investments we have made; in fact, we have 125 per cent. capacity in terms of imports. Secondly, we are, as I indicated, already seeing more gas storage planned and coming on stream. It is a question of, “What more does the hon. Gentleman want?”

Charles Hendry (Conservative, Wealden)

If we look further ahead, we see that it is quite possible to have an environment where more gas facilities will have been built internationally than there are the molecules available to power them, and therefore gas will be rationed by price. The energy facilities will be working at full capacity only if we are prepared to pay top dollar—if we are prepared to pay more than the other countries in the world who might be bidding for that gas at the same time. A year or so ago that was not the case. The Americans and the Japanese were prepared to pay more for that gas and therefore those facilities were lying idle for significant periods. That is not the case now, but it was the case. Therefore, price will become a rationing factor. If one wants to smooth out those price fluctuations, having gas storage is an important way of doing it, as my hon. Friend the Member for Northampton, South emphasised.

The Minister also made the point that if there is more gas storage, then there is less incentive to switch from gas to other fuels. I think that is a rather perverse approach. One wants to ensure that if people want to use gas, the gas is available. Therefore, having a greater Government approach to delivering that will be important. Critically, we have not tried to impose a single solution. We have not said that everybody who wants to use gas in generation must have their own storage. We think that is much too prescriptive. We want to allow the market to deliver the right solution. A significant energy company in this country is actively looking to buy its own gas field internationally and then use the existing pipeline infrastructure to make sure that it has all the gas that it needs at any time. It would be peculiar to say that it must also have a gas storage facility in the United Kingdom when it has invested to that degree to try to ensure securities of supply.

What we seek to do through the amendment is give the Secretary of State the ability to assess, company by company, the arrangements that they have in place. We also want to make sure that, as we approach a period in which gas is going to be more important to the United Kingdom, either as a basic fuel or as a back-up fuel as renewables come on stream to a greater extent, we can be comfortable that the gas storage exists.

The Minister talks about 22 projects at various stages of development, but many of those have not even submitted planning applications. Those that have do not have the funding; they have not agreed on the partners to take them forward. Those that we assumed would be in their final stages according to National Grid’s 10-year statement—we expected to have that in place by the end of last year—have still not done it. There is a significant amount of uncertainty, and we are trying to provide greater security.

Joan Ruddock (Labour, Lewisham, Deptford)

I am finding this difficult to follow. Why would the hon. Gentleman not believe that the commercial interests of the companies and the development that they clearly want would not go ahead? It is entirely in their interests to be able to supply their own markets and customers with the energy that they need. What will the Secretary of State have to do to the companies to make them behave in a way that differs from their own commercial interests?

Charles Hendry (Conservative, Wealden)

If we look at what happened early last year when the Russia-Ukraine dispute was building up, we see that German gas storage, even though it was pumping out an enormous amount of gas to its neighbours who simply did not have the storage, was substantially full at the end of that period and was almost at the same levels at which it started. Ours, in the meantime, has been massively depleted, because we had a different and much more liberal regime that allowed it to be exported at will according to where the demand was. The market worked, but our national security was compromised.

What we are saying is that, as we inevitably become more dependent on gas imports, we need to do more to protect the consumer against such external shocks. We cannot predict where they will come from, but there is a high likelihood that there will be future shocks. We are not talking about the Government owning and running the gas storage themselves, but they have a leadership role to ensure that it is put in place.

Joan Ruddock (Labour, Lewisham, Deptford)

The difference between us is that we believe that what is necessary will come on stream; the companies have made it evident that that is the case. The hon. Gentleman refers to the difficulties in mainland Europe, but the UK did not fall into difficulties. We were able to continue with our suppliers and were not in the position that he suggests.

Charles Hendry (Conservative, Wealden)

Let us have a further reassessment: we were down to just three or four days’ worth of gas storage left in this country, because so much gas had been shipped out at a time of national pressure approaching what was the coldest winter for 18 years. There were real difficulties that needed to be assessed.

The amendment would be a precautionary measure. We are entering more difficult periods, because we will be less able to depend on our own sources of supply. Supplies will come from a range of different countries and we recognise that there will be agreements in place on those contracts. Nevertheless, we are moving toward a greater period of uncertainty. What the Government need to address most is the role they truly expect gas to play. Their low-carbon transition plan states that the role of gas is declining from 40 per cent. of generation capacity to less than 30 per cent. As part of its Project Discovery, however, Ofgem stated that it could possibly be double that amount. In other words, 60 per cent. rather than 30 per cent. of our electricity generation could come from gas. That makes a critical difference to the amount of gas that we will be importing and to the need for storage in this country.

I have indicated that we do not plan to press the amendment to a vote and that we will withdraw it. I am keen, however, to work with the Liberal Democrats to see whether we can return with an amendment on Report. The fundamental issue, which is of greatest importance, is that this is not just about what is happening now. We are moving into a more difficult period, when we are going to be more import-dependent. Government need greater powers to secure the necessary storage and other long-term contracts, in order to ensure that consumers do not run out or face significant price spikes, which happens in times of shortage. I beg to ask leave to withdraw the amendment.

Charles Hendry (Conservative, Wealden)

I beg to move amendment 12, in clause 16, page 13, line 14, leave out ‘or the Authority (as the case may be)’.

Hugh Bayley (Labour, City of York)

With this it will be convenient to discuss the following:

Amendment 13, in clause 16, page 13, line 22, leave out ‘or the Authority’.

Amendment 14, in clause 17, page 14, line 23, leave out ‘or the Authority (as the case may be)’.

Amendment 15, in clause 17, page 14, line 31, leave out ‘or the Authority’.

Charles Hendry (Conservative, Wealden)

Mr. Bayley, I hope we can move with greater speed through this part of the Bill. The amendments seek greater clarity about what is intended. Our view is that there should be a clear distinction between the role of the Secretary of State and the Government, which is to set policy, and the role of the regulator, which is to regulate within that policy framework. I seek clarification from the Minister on where that boundary lies. We are seeing some changes, which we understand. We discussed them during the course of the Energy Act 2008, when the Government resolutely refused to go down this route, in spite of much encouragement and temptation. We need to be clear where the balance of decision making applies. Clause 16(3)(1A) says:

“Those interests of existing and future consumers are their interests taken as a whole, including—

(a) their interests in the reduction of gas-supply emissions of targeted greenhouse gases; and

(b) their interests in the security of the supply of gas to them.”

The issue that arises from that is clearly that the interest of consumers is the primary duty of Ofgem. It is not clear who decides the relative importance to be put on security of supply or low carbon. The phrasing of the Bill says that Ofgem can decide on that relative balance. By deleting the word “authority” in a number of these areas, the amendments would make it clear that the Secretary of State has that primacy. Policy making is at the heart at the role of Government and we are keen to see that with greater clarity.

That is no reflection on Ofgem; the work that Ofgem has been doing on Project Discovery has been of immense importance to the nation in understanding the challenges and options that are open to us. It would be helpful to have greater clarity from the Minister as to where the primacy of power will lie.

Joan Ruddock (Labour, Lewisham, Deptford)

Clauses 16 and 17 clarify Ofgem’s principal objective by setting out that the interests of current and future consumers include their interests in reducing greenhouse gases and in security of gas and electricity supply. Those interests need to be considered by the regulator when it is undertaking its functions in regulating gas and electricity markets. It is worth noting that clauses 16 and 17 do not give Ofgem any new powers. The effect of amendment 12 would be that, in cases where Ofgem is carrying out its functions in regulating the gas market, it would be for the Secretary of State to decide how it could carry out its functions and what would further the principal objective. In other words, Ofgem would no longer have discretion to consider how best to regulate gas markets in order to further its principal objective. Amendment 14 would have the same effect with respect to Ofgem’s functions as regulator of the electricity markets. Amendments 13 and 15 are consequential on amendments 12 and 14.

The amendments would have the impact of undermining the current system of independent regulation of the gas and electricity markets. Ofgem would need to refer every decision it made to the Secretary of State to test whether the Secretary of State thought the decision was the best way to further its principal objective. Undermining regulatory independence in that way would reduce regulatory certainty and risk investment at a time when it is needed.

The reason for the references in clauses 16 and 17 to

“the Secretary of State or the Authority”

is that they amend the Gas Act 1986 and the Electricity Act 1989. Those Acts give both Ofgem and the Secretary of State powers to act in regulating the gas and electricity markets. We intend each to carry out its functions in the way that is best calculated to meet the principal objective of protecting the interests of current and future consumers, including their interests in reducing greenhouse gases and ensuring security of gas and electricity supply.

The amendments would have a detrimental effect on the operation of the regulatory framework. I hope that that I have indicated to the hon. Member for Wealden that it is very clear that the Secretary of State, as always, sets the policy and the regulator’s principal duties are in statute. Within that, the regulator must have independence, and the proposed new subsections bring clarity to the principal duty.

Charles Hendry (Conservative, Wealden)

May I take the Minister back to clause 16(3), which introduces the issues of reduction of emissions and security of supply? It does not give them relative weight and does not suggest that the Secretary of State will give further guidance on the relative weight. Therefore, it will be for Ofgem to decide.

Joan Ruddock (Labour, Lewisham, Deptford)

That has to be the case, but, obviously, policy constantly develops on security of supply and emission reductions to tackle climate change, so there will always be a dialogue and a policy framework within which Ofgem will act. However, when it comes to deciding on a particular course of action, as the independent regulator, it will have to weigh up the balance between the two issues. It is impossible to say that more weight should be given to one or the other because the circumstances in which Ofgem has to perform that balancing act cannot be predicted. To fix the balance between the two in stone would be to shackle the regulator. I agree with the hon. Gentleman that that may seem somewhat unsatisfactory, but I do not think that we can expect to go further. It is important that we have introduced the clarification of the principal role of Ofgem, not least because current consumers may not benefit directly, or may even suffer some degree of disbenefit, if it became necessary to take a course of action that could impose an additional burden on them to serve the interests of future consumers.

It is a complex matter. Ofgem will have to make difficult decisions and there will be conflicts in doing that. Through the Bill, we seek to indicate to Ofgem that both issues will have to be weighed in the balance.

Charles Hendry (Conservative, Wealden)

There are different pressures in trying to achieve different objectives. For example, there is the Climate Change Act 2008 and the legally binding requirement to reduce our carbon emissions by 80 per cent. by 2050. The Government could decide that climate change needed more emphasis than energy security, because that was the world in which we lived and they felt comfortable about security of supply. The proposed new subsection appears to give Ofgem the ability to reach a different conclusion, and Ofgem would decide the pricing structure. Therefore, we could have conflict because the independent regulator decided the balance but the Government, in policy terms, reached a different conclusion. Will the Minister explain how that will work in practice?

Joan Ruddock (Labour, Lewisham, Deptford)

The issue is difficult, and I may not be able to entirely satisfy the hon. Gentleman. When it comes to policy decisions—setting overall strategy for climate change, for example—the Government will obviously set the policy framework, and it will be for them to decide all the issues in an overarching way. Ofgem will, however, need to strike a balance when there are competing courses of action. We have set Ofgem the clearly difficult task of weighing up the issues and determining what is in the consumer’s interests. We are aiming for more clarity because we know from past experience that at times Ofgem has perhaps not entirely fulfilled the role it has been set.

Charles Hendry (Conservative, Wealden)

Does not that make it difficult for the businesses concerned? They seek to abide by the rules and provide a pricing structure that meets what they believe to be Government policies and priorities, and if they put extra effort into gas security because they are following this debate, they could be told that their pricing structures are unfair to consumers because Ofgem has reached a different conclusion and reckons that low-carbon issues will be more important than the security of supply. I am concerned about what happens in businesses that are trying to make the right investment decisions but might see a conflict developing between the Government’s priorities for low carbon and security and those set out by Ofgem, which are independent and would appear to have equal validity.

Joan Ruddock (Labour, Lewisham, Deptford)

I cannot dispute the hon. Gentleman’s intellectual argument. In practice, of course, there is a continuous dialogue between the Government and Ofgem, Ofgem and companies, and companies and the Government. We are entering a new world in every respect, and I foresee that it will be that constant dialogue between all the parties that will enable us to get the best result from the legislation. The Bill attempts to draw out the fact that there are conflicting pressures, and to say to the regulator that it must take account of them and make the best possible decisions in the interests of the consumer. I cannot give the hon. Gentleman further comfort on that issue.

Charles Hendry (Conservative, Wealden)

I have one final word. We do not plan to press the amendments to a vote, but will the Minister further consider, before Report, whether greater clarification will be necessary so that in the event of a disagreement of relative importance between Ofgem and the Secretary of State, the views of the latter will carry primacy?

Joan Ruddock (Labour, Lewisham, Deptford)

I am delighted to give the hon. Gentleman that undertaking. I assure him that I will look extremely carefully at all my responses in Committee, to see if I may do better on Report.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

There are two interesting and important interrelated issues here. May I ask you, Mr. Bayley, to bear it in mind that the debate has been specifically about the constitutional interrelationship between the Secretary of State and Ofgem? There is the wider issue of the balance of duties, which is in the clause, and I would therefore be grateful if you allowed that to be discussed in a stand part debate so that I could limit my remarks now to the constitutional issue.

Hugh Bayley (Labour, City of York)

We can discuss such matters in a stand part debate.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I am grateful for that, Mr. Bayley. I am sympathetic to the amendments, as is the consumer organisation Which?, which would like the amendments to be more strongly worded. In its briefing, it argues that responsibility for enacting policy in the energy market should rest with the elected representative, the Secretary of State, thus ensuring democratic accountability. It is not currently clear that this is the case. It adds that the amendments would help avoid any confusion when considering the principal objective to promote consumer interest.

I will come back to the debate about the balance of interests. I understand the Minister’s point that in the existing Gas and Electricity Acts there is the dual responsibility. That is the way those two Acts are phrased. But when we come to the judgments about balancing consumer interests and competitiveness—low prices—and other issues like emission and climate change, the Secretary of State should be accountable because there would be the ability to influence those decisions as part of the political process.

Ofgem has its supporters and its critics, but it is a quango. It is at one step removed from accountability. It has moved pretty slowly, if not very slowly, on many of the issues in which consumers have had most interest. I do not think it is to be regarded overall as a friend of the consumer. It has been regarded generally as a friend of the industry. Therefore it would be better and more responsive if Ministers were accountable for these things rather than the regulatory authority.

I heard what the Minister said to the hon. Member for Wealden about reflecting on the debate. It is wise that we all step back and do that. But my instinct would be to say to the hon. Gentleman that we are right to pursue this on Report and to ask the Minister to think about the constitutional accountability. I think this is where the public would expect us to be able to hold Ministers to account and not to hear them say that it is a matter for the regulator and they will tell us next year what it thinks.

Charles Hendry (Conservative, Wealden)

I beg to ask leave to withdraw the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

The same issue arises in this clause as in the next one. I will therefore make the arguments only once. As would be expected, I have looked at the original clauses in the Gas and Electricity Acts, as amended subsequently. So that those who follow our proceedings can understand what is happening, we need to see the effect of the proposed change. The current proposal is to take the Gas Act and quite significantly restructure the obligations. Section 4AA (1) states:

“The principal objective of the Secretary of State and the Gas and Electricity Markets Authority... in carrying out their respective functions under this Part is to protect the interests of consumers in relation to gas conveyed through pipes, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas so conveyed.”

So effective competition is the method. Subsection (2) states:

“The Secretary of State and the Authority shall carry out those functions in the manner which he or it considers is best calculated to further the principal objective, having regard to-

the need to secure... all reasonable demands...”—

so that is security of supply—

“and (b) the need to secure that licence holders are able to finance the activities.”—

so that is to make sure that they are viable economic undertakings. It then continues about other duties. Subsection (3) states:

“(3) In performing that duty, the Secretary of State or the Authority shall have regard to the interests of-

(a) individuals who are disabled or chronically sick;

(b) individuals of pensionable age;

(c) individuals with low incomes; and

(d) individuals residing in rural areas;

but that is not to be taken as implying that regard may not be had to the interests of other descriptions of consumer.”

It therefore points to categories of people who will be in the mind of the Secretary of State or the regulator. The central provision of the current Act is not significantly altered by the rest of the clause.

Subsection (2) shortens the principal objective to protecting the interests of consumers and does not get into a qualification or definition. Proposed new subsection (1A) then introduces a new proposal, which I welcome as far as it goes, although my comments are intended to explore how far it goes. It states:

“Those interests of existing and future consumers are their interests taken as a whole, including...in the reduction of gas-supply emissions of targeted greenhouse gases”,

which is clearly an important consideration, given the climate council’s debate,

“and their interests in the security of the supply of gas to them”,

which we have just debated. We then come to a third provision, which is set out in proposed new subsection (1B):

“The Secretary of State and the Authority shall carry out their respective functions under this Part in the manner which the Secretary of State or the Authority (as the case may be) considers is best calculated to further the principal objective”—

the protection of consumers’ interests—

“wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas conveyed through pipes.”

If the Act is changed by the Bill, therefore, we will have a principal objective of protecting the interests of consumers, and I buy that, because it seems to be the right starting point. The clause then looks at how we define that objective, and we find that the definition includes issues relating to greenhouse gas emissions and security of supply. Proposed new subsection (1B) then talks about the principal objective being met

“wherever appropriate by promoting effective competition”.

This is a lawyers’ minefield, and if the issue were ever contested with Ofgem or the Minister, the question would be what comes first and what the hierarchy is. The protection of consumers is at the top, which is fine, but where does effective competition stand in relation to greenhouse gas emissions and security of supply?

My straightforward point to the Minister is that, having looked at this carefully—I have not paid for or taken counsel’s opinion to get an answer—I am not clear how Ofgem, the Secretary of State or their successors would balance these considerations. I would like us to put on record how the process would work, because this is an important issue. I am grateful that emissions and security of supply are included, because those are the right considerations, but I am not sure whether they have equal billing with competition or whether they are secondary to it when it comes to the crunch.

I hope that I have put the case clearly. It is right for us to look at the responsibilities of the Minister and Ofgem, and we need to know how the different considerations will be weighed up in this clause and in the following, comparable clause, which deals with electricity.

Joan Ruddock (Labour, Lewisham, Deptford)

Clause 16 clarifies—that is our intention—the principal objective of the Gas and Electricity Markets Authority, or Ofgem, in relation to the regulation of the gas markets. The principal objective of Ofgem and the Secretary of State when exercising statutory functions relating to the regulation of the gas and electricity markets is to protect the interests of existing and future consumers. That objective relates only to the carrying out of the functions that Ofgem already has under legislation. That is an important point, and we are not giving Ofgem any new powers. In the context of the clause, those functions include the licensing of the gas network and market activities and ensuring the compliance of licence holders.

The principal objective will not be changed by the clause, but its meaning will be clarified in two ways. First, the clause will put it beyond doubt that the interests of consumers include the reduction of greenhouse gas emissions and ensuring energy security. That was implicit in the current legislation, given that consumers clearly have an interest in those issues. It was also explicit, but only to the extent that Ofgem already has secondary duties to have regard to aspects of the issues in carrying out its functions. What the present clause does is to make that assessment part of the principal objective, and therefore an integral part of identifying where consumer interests lie, rather than a subsidiary consideration.

I doubt whether, for the record, I can be more explicit than I have in making those remarks, but I shall reflect, as we have all agreed I should. If, on Report, or in any other way, such as by writing to hon. Members, I can say more, I shall do so. However, I believe that what I have said should make our meaning clear: it is to make the assessment part of the principal objective, and therefore an integral part of identifying where consumer interests lie, rather than a subsidiary consideration.

Secondly, Ofgem is currently required to protect the interests of consumers by promoting effective competition wherever that is appropriate, as the hon. Member for North Southwark and Bermondsey said. Although effective competition is fundamental to consumer protection, it may not always be sufficient in the energy markets and there are times when more immediate action, such as the enforcement of existing, or the urgent introduction of new consumer protection measures is required to safeguard consumers’ interests adequately. I think that the hon. Gentleman and I are both aware of circumstances in the recent past when Ofgem was effectively forced by public opinion and Government pressure to act, and to do things more quickly, because reliance on competition did not produce the required results. With issues such as prepayment meters we saw a need for it to take more robust and immediate action.

The clause makes it clear that Ofgem, before reaching a decision, must consider whether the interests of consumers would be better protected by other means alongside, or instead of, the promotion of competition. It does not give Ofgem any additional powers, but it clarifies the framework within which the regulator is expected to carry out its functions. Given the importance of transparency and predictability in the energy market framework, we consider it right and proper to ensure that the basis for Ofgem’s decisions is clearly supported by primary legislation.

Clause 18

Charles Hendry (Conservative, Wealden)

I beg to move amendment 25, in clause 18, page 16, line 21, at end add—

‘(d) the establishment of a competition for the construction of undersea high voltage direct current cables for the purposes of connecting offshore electricity generation to the onshore grid.’.

I hope that you may forgive me for one moment, Mr. Bayley, if before I speak to the amendment I refer to an issue that we discussed a little earlier. The Minister said in relation to gas storage issues that companies had not had to stop manufacturing. I have since had information from the Chemical Industries Association that of its 12 members whose power supplies were interrupted five had to shut down for the period in question; so there was an important implication for the interests of UK plc, and I hope it is appropriate to mention that.

Joan Ruddock (Labour, Lewisham, Deptford)

We will have to check the record, but I was making the point that they should not have had to shut down, because if they have an interruptible contract, they should have alternative generation in place. If they chose to shut down manufacture, they did not make a sensible decision when taking an interruptible contract.

Hugh Bayley (Labour, City of York)

With that exchange over, we should move on to the amendment.

Charles Hendry (Conservative, Wealden)

We shall return to the matter in due course.

The clause deals with access to markets, and I believe that we all agree that new generation capacity is of little value if it cannot connect to the national grid. We are all aware of a wide range of issues concerning connection. It is difficult to explain why some wind facilities that have received planning permission are being given grid connection dates a decade in the future, and even further ahead. A whole range of issues on connectivity need to be addressed as part of energy policy. Amendment 25 refers to the connection of offshore facilities.

The briefing provided for this part of the Bill states of the terms for connection of new generation electricity to the grid:

“The proposed change will clarify that Ofgem, in assessing the regime for grid connections, should consider the interests of consumers not only in efficient investment, but also in curbing emissions and in a secure energy supply. The Government believes that ensuring a regulatory framework that supports early, efficient deployment of low-carbon and other generation within a timeframe consistent with project development plans would meet the consumer interest.”

There is no doubt that we all agree that the phenomenal potential of offshore wind is a key part of that. We followed with great interest the announcements during the past week or so on the round 3 licences in which there has been an exceptional amount of interest in trying to take forward that investment.

The hon. Member for Angus often reminds us that a great deal of that renewable electricity generation will be off the coast of Scotland. Currently, 15 per cent. of all Scotland’s electricity is exported to the rest of the United Kingdom. I am not sure that “export” is the right word, but it is almost certainly the word that the hon. Gentleman would like to be used. The electricity comes from Scotland to England.

Michael Weir (Scottish National Party, Angus)

We export electricity not just to England, but to Ireland.

Charles Hendry (Conservative, Wealden)

I feared that the hon. Gentleman would take us into a different debate, so I am glad to be corrected.

The potential for renewable electricity generation in Scotland is estimated to be 60 GW, which is 10 times the total demand in Scotland, so there is an enormous need to get that to market elsewhere. We are persuaded that if the offshore potential for wind is to be actively developed, it is important to have high-voltage DC cables along the coast, as set out by the National Grid in some of its proposals to link up many of those facilities, and to bring that power to areas where it is in greatest demand and of greatest use. National Grid estimates that such bootlaces would cost around £6.5 billion to build, and either it could be required to build them, or the process could be put out to tender if there was interest in doing so.

It will be very challenging indeed to meet the objectives and targets for offshore wind. At the moment, there is a shortage of ships, cranes, skills and money. Apart from that it is probably going rather well, but a great deal more needs to happen if we are to see the investment coming to fruition. The reason for the amendment is that the Government need to do more in taking a strategic lead, and requiring high voltage to be put in place will enable that to happen.

An issue relating to the supply chain is that if the market potential continues for the next 20, 30 or 40 years, not just to 2020, the companies that produce the cables will look to the United Kingdom as a place to invest. The extent to which high-voltage DC cables will be required will take up much of the world’s global output of every year over the next decade. There is a need for greater manufacturing capacity, and we all agree that we want that investment to come to Britain. To make those multi-million pound investment decisions, businesses need to understand that the Government have a clear strategy and will require the cablings to be put in place.

That is all made more complicated by the absence of a road map on how the renewables targets are to be delivered. I understand that the Government are working on a road map, but it seems rather slow in coming. We think that our proposal is a better way to do it, rather than requiring point-to-point connections. Our understanding is that that could make many projects unaffordable, as was indicated by some of the academics who gave evidence to the Select Committee.

The Minister has the chance to be bold and say that we have a strategic opportunity. By this small amendment, we can require the cabling to be put in place and start to make more likely the delivery of the massive roll-out of off-shore wind.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

This is a welcome short debate about how we get our infrastructure in place. I have a couple of questions for the hon. Member for Wealden and, like him, would also be interested in the Minister’s reply.

The first question arises from the amendment’s proposal of a competition. I wonder whether the hon. Gentleman has thought that the logical thing would be to have a competition for producing the place and type of infrastructure we need, given that there is an equally valid argument that Government, having talked to industry, need to decide the appropriate infrastructure, location and format.

My second question is connected to that. The hon. Gentleman has heard me say before that I am enthusiastic supporter of a European supergrid. We have various bits of a potential supergrid already in place around Europe. There are bits interconnected, and we have heard about some of them today, but the concept of a European supergrid is much bolder and bigger. I am not clear whether the hon. Gentleman and his colleagues believe that the best way to obtain the necessary energy security for Europe that could give us energy independence as a continent, is to work with our European colleagues and have a common European energy policy, which produces an agreed European supergrid, just as we need an agreed European train network. Government decide in essence where lines are going to go because they have to be interconnected. I have never heard the Conservatives say that they are signed up to that, and that it should be led by the European Union.

Whatever our arguments and differences about the European Union, energy policy, like environmental policy, is self-evidently better dealt with at a European-wide level where possible. The supergrid is clearly better sorted at a European level. We have several other countries immediately next to us: Ireland on the one side; the Netherlands, Belgium and France on the other. Scotland and the north-east have Scandinavian countries, in particular Denmark, Norway and Sweden, which are relatively proximate for potential supply. We know that there is currently a rather ridiculous and unco-ordinated set of activities building pipelines from Asia to Europe, influenced by all sorts of financial and political considerations. Competitive attempts are made to bring security of supply; some will avoid Russia and come further south; some will come through the Black sea or from the Caspian sea. There is a whole set of proposals.

Other countries in the European Union are extremely nationalistic about energy policy. The French and Germans have been particularly nationalistic about these things in the past. If we are to harness, particularly but not only, renewables to give us access to and security of supply of oil and gas from elsewhere—whatever our energy efficiency and reduction in consumption—we need a planned short, medium and long-term project up and running as soon as possible.

Finally, the hon. Member for Wealden and his colleagues have often heard me argue that the best way of maximising the benefit of renewables, both for use in and export from this country and for use in other countries across the European Union, is to allow for the hydroelectric schemes of Norway, the solar schemes of Europe’s Mediterranean countries and those on the south of the Mediterranean in north Africa—they are also interested in the issue—and for the tidal opportunities that I anticipate we will hear more about this spring when the Crown Estate announces the result of its work in the Pentland firth and so on. All that seems to logically point towards an integrated European supergrid. We, the UK, need to be signed up to that, as do Energy Ministers at the Council of Ministers.

I am not suggesting that our Secretary of State is not committed to that, but I doubt whether the Conservatives are, because I have never heard them say so. I would like to hear from the hon. Gentleman whether he, as his party’s spokesman, is willing to say, “We, the Conservative Party, pledge our undying commitment to a European energy policy with a European supergrid driven and promoted by the EU.” That would be a refreshing, positive and reassuring outcome. We may not, however, get such a statement today, tomorrow or any day between now and the general election. It would be an opportunity missed.

I have always been a bit concerned that the Conservative party has not caught up with the importance of working, planning and deciding together, so I am intrigued to know what lies behind this modest but potentially hugely important amendment. It would be important only if it became what Europe needs, which is a commitment to a European energy supergrid driven, organised and co-ordinated in the European Union.

Michael Weir (Scottish National Party, Angus)

I agree with much of what the hon. Gentleman has said. We have also been very supportive of the supergrid idea to link us with Scandinavia and other European countries. I have some concerns about amendment 25. First, given what has happened in the carbon capture and storage competition, the word “competition” fills me with dread in relation to energy policy. Another point is that high-voltage cables may be the way forward for the round 3 wind farms, but other wind farms, particularly in the Scottish sector, are nearer inshore where the more sensible thing to do may be to take the cables onshore and link to the grid through the existing infrastructure. That leads to the argument of transmission charges, but I will resist that today, because we have been through it many times. The argument, however, must be dealt with at some point. The high-voltage cable is a good idea, but, as the hon. Gentleman has said, we need to investigate the possibility of a European supergrid, which will allow us to import as well as export energy through our offshore renewables.

Joan Ruddock (Labour, Lewisham, Deptford)

I think that there is a degree of confusion, and I hope that I will be able to clarify things. The hon. Member for North Southwark and Bermondsey asked about developing a supergrid and co-operation in Europe. The Government always seek co-operation within, and are an active member of, the European Union. The development of a supergrid could sit well with many of our wider energy policy’s objectives, particularly our offshore wind policy. In December, my colleague Lord Hunt signed a political declaration with eight other European Energy Ministers from Germany, France, Belgium, the Netherlands, Luxembourg, Denmark, Sweden and Ireland to co-operate on the development of offshore wind infrastructure in the North and Irish seas. The intention is to prepare, at working level, a strategic plan for early this year to be enshrined in a memorandum of understanding to be signed in 2010. The hon. Gentleman will therefore see that we are willing to pursue those European connections. We see the sense of his argument. The European supergrid, which has been consented to by all the relevant members, must be one very positive potential future solution to securing all our energy needs in Europe.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I am aware of the agreement and I welcome it. Does the Minister think that the signatories, including this country, will seek to promote widening the agreement to the other 19 countries of the EU? The new Climate Action Commissioner is the Danish Minister and the new Energy Commissioner is the German nominee to the Commission. Will the Minister reassure us that the Government plan to engage early with those two key people in Brussels, so that there will be not just eight countries working together, but Britain leading 27 countries working together with the two key people in the Commission?

Joan Ruddock (Labour, Lewisham, Deptford)

I can assure the hon. Gentleman that we expect to be positively engaged with new Commissioners. That is in all our interests. We know them well already and that is a very good start. I would not want to pre-empt what the working party hopes to bring forward, but it is called a strategic plan and I think that augurs well for the future. There are many Ministers in other countries, with whom we have very close connections, who share our aspirations for developing diversity of supply, serving our consumers well, and providing security of supply.

For the record, I should make it clear that we have decided that National Grid, as national electricity transmission system operator, NETSO, will be responsible for co-ordinating development of both onshore and offshore grid connections. That should ensure that the grid can be developed in a strategic and co-ordinated way, while being responsive to generators’ needs. Ofgem recently consulted on changing National Grid’s licence to, among other things, publish and keep updated an offshore development information statement that will present potential scenarios and National Grid’s best view of the development of the transition network offshore and the Crown status already agreed to assist National Grid in that work. I hope that is helpful to members of the Committee.

Clause 18 gives the Secretary of State the power to limit or eliminate the circumstances in which, or the extent to which, a licence holder may obtain an excessive benefit from electricity generation in a particular period. The intention is to prevent undue exploitation of market power where transmission constraints exist. The amendment seeks to add the establishment of a competition for constructing undersea high-voltage cables for connecting offshore generation to the onshore grid to the list of modifications that may be made by virtue of the Secretary of State’s powers in clause 18.

It is difficult to see what the amendment would achieve. The constructor or owner of the cable connecting offshore generation projects to the onshore grid has no role to play in the electricity balancing system and is therefore not in a position to significantly influence the conduct of a generator as regards constraint costs. There is no incentive for offshore generators, obviously, not to generate and transmit to the grid all of the electricity that they produce due to the level of payments that they receive through the renewables obligation certificates. Generators are also unable to increase generation at a given time due to the intermittency of the wind. In addition, the power in clause 18 (1) to amend generation licence conditions does not extend to the amendment of conditions of a transmission licence and would therefore not affect the holder of such a licence. Those companies participating in a competition for an offshore transmission licence are therefore highly unlikely to be in a position to engage in the undue exploitation of market power by generators, which is what clause 18 is designed to tackle. It would therefore not be appropriate to extend the scope of the clause in the way envisaged by the amendment.

I note that the Secretary of State has already used powers granted by the Energy Act 2004 to establish an innovative regulatory regime to connect offshore wind projects to the onshore grid in the most effective way. That regime allows for the construction and ownership of cables connecting offshore generation projects to the onshore grid to be undertaken by means of a competitive exercise. What the hon. Member for Wealden seeks to do through the amendment is not what clause 18 would do and the amendment is therefore inappropriate. The hon. Gentleman appears to seek to introduce competition into the process, probably in order to speed it up and get ahead. However, that is already being done in a different way using existing powers.

Ofgem has already commenced tendering for nine offshore generation project connections and expects to grant the first offshore transmission licences for those connections from summer this year. I therefore welcome the hon. Gentleman’s support for the competitive approach—I understand that in the past his party had not put forward such a measure in connection with these connections. I am glad that he now believes that to be the right way forward, and I assure him that it is already under way, albeit in a slightly different form. I hope that he is satisfied that a process involving competition is under way, and that he will feel able to withdraw the amendment.

Charles Hendry (Conservative, Wealden)

This has been a useful and relatively brief debate on the issues involved in taking forward the investment in offshore generation. There has been a discussion about whether it should be a competition, and the Minister is absolutely right—when we initially made the proposal some months ago, there was a suggestion that National Grid should be mandated to put in place that connection. In response to representations by Ministers and others, we think that perhaps there is scope for doing it in a different way, and that a competition would be more appropriate.

The hon. Members for North Southwark and Bermondsey and for Angus clearly have doubts about competition. It could be that the competition would come out with only one bidder willing to do the work, but at least it would have been done in a more open way. Similarly, if a competition for a new bus route solicited a bid only from Mr. Bayley’s bus services, and nobody else was interested in running that service, it would go forward in that way. However, that does not negate the purpose of having a competition in the first place.

The hon. Member for North Southwark and Bermondsey tried to put the debate into a European context. I shall endeavour to answer that without straying into a debate that would be more appropriate elsewhere, but I am keen to respond to his point. This matter can certainly tie into the concept of a supergrid. I think that I would be considered an early adopter of the concept of a supergrid, and we should pay great credit to Eddie O’Connor, who was one of the people who had the genius to develop the idea, and the imagination to try and drive it forward. The fact that it is now being taken so seriously owes a significant amount to the drive from him and his company.

The idea was also taken forward by Tony Blair as Prime Minister, who raised it directly with the German Chancellor to see whether we could try and move the discussions forward. In a way, the Minister’s response has shown the way that such things can be developed. There has been an agreement between a range of Energy Ministers from those nations that will be affected and who desire to work together, co-operate and try to deliver on this idea. It does not necessarily need to be something that covers every aspect of the European Union. I am not sure that Bulgaria, Romania and Greece have a particularly strong view about the development of a supergrid in the North sea. There is clearly a need for co-operation, but many of those things should be done through treaties and agreements between the individual nation states that have the most to gain and that will benefit most, rather than by requiring all 27 EU nations to reach agreement. In that way Norway could be part of an agreement, which clearly cannot be done within the European Union.

The hon. Member for North Southwark and Bermondsey mentioned the potential development of a southern grid linking into the solar power in the Sahara, and the discussion and development of that does not need to involve every northern European state, as that could impede progress rather than move it forward. He also mentioned some of the pipeline infrastructure, which tends to depend on treaty arrangements rather than on agreement by the whole of the European Union. Although the European Union may generally be supportive of the Nord Stream development, Russia has negotiated treaties with the nations through whose territorial waters the pipeline would pass to get their agreement to the concept. That is the right approach.

We have to be careful about the limit of European competence. I will be careful, Mr. Bayley, not to stray beyond the issues that we are looking at in the Bill. I would be nervous if there were to be a European energy policy that determined whether we could build nuclear power stations, that determined that CCS done only on a European competition model could go ahead and that we could not run our own national schemes, and that would have a Europe-wide approach to energy efficiency. There are individual national issues on which we should absolutely rightly be able to make decisions, but we completely understand that if we are trying to deal with climate change and emissions, co-operation with our European partners plays an important part. I am therefore completely in favour of co-operation and of working together, but many of the issues ultimately come down to energy policies that should rightly be decided at national state level.

There is nothing in the amendment that would make it more difficult to develop a European supergrid, which would be a natural way of taking things forward. The thinking behind the amendment is to find a way of driving forward the investment that we are keen to see in the offshore renewables sector, not just in wind, but in the crucial development of marine renewables technology a decade or so from now.

The Minister has made some pertinent remarks about why it is difficult to tie in the amendment to this part of the Bill. We understand her concerns, and I will therefore seek leave to withdraw the amendment. Importantly, however, National Grid has been one of the organisations that have been most keen to develop the concept, because it sees it as particularly important for the level of investment required. The Government have up to now opposed the concept of high-voltage DC cabling. Lord Hunt, when he appeared before the Energy and Climate Change Committee, said as much, and I hope that we are beginning to see a softening of the Government’s approach. The Minister said that National Grid was in the position of co-ordinating the approach, and I hope that there will, therefore, be a generally open approach to how best to take things forward and encourage those sorts of investments. It may be that that sort of competition could be set up without the need for legislation, but that might be an issue for another Government to assess and see how best to take forward. We have had a useful debate about how we can best encourage development in the offshore renewables sector, a development which I think we all care to see very much indeed. I beg to ask leave to withdraw the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I beg to move amendment 36, in clause 18, page 16, line 21, at end insert—

‘(d) the minimum notice period by which the licence holder must inform their customers of any change in their energy tariffs.’.

Hugh Bayley (Labour, City of York)

With this it will be convenient to discuss the following: new clause 4—Transparency on energy bills—

‘(1) The Secretary of State may modify—

(a) a condition of the licence of section 11A of the Electricity Act 1989 (transmission licences and supply licences) to make provision on energy bills for information on the cheapest tariff available to the customer from their supplier;

(b) a condition of the licence of section 23 (1) (b) of the Gas Act 1986 (transmission licences and supply licences) to make provision on energy bills for information on the cheapest tariff available to the customer from their supplier;

(c) the standard conditions incorporated in licences under those provisions by virtue of those Acts;

(d) a document maintained in accordance with the conditions of licences under those Acts, or agreement that gives effect to a document so maintained.’.

New clause 18—Limit to number of energy tariffs for residential customers—

‘Within six months of the passing of this Act, the Secretary of State shall, by regulation, limit to no more than 10 the number of tariffs which each energy supplier may offer to any residential customer.’.

New clause 19—Publication of energy tariffs—

‘(1) Within six months of the passing of this Act the Authority will publish or cause to be published, at least three times a year, in national, regional and local press a full list of energy tariffs [“the consumer energy price list”] applicable for the next period of six months.

(2) The dates of the publication of the “consumer energy price list” shall be during the thirty days before—

(a) 1 April,

(b) 1 September, and

(c) 1 January.’.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

New clauses 18 and 19 have been tabled by the Liberal Democrats, and new clause 4 by the Conservatives. I will take the items in the group in turn. I anticipate that my contribution will be interrupted by lunch.

Amendment 36 is on a matter that was pursued by the hon. Member for Amber Valley in her questioning of Mr. Alistair Buchanan when he gave evidence to the Select Committee in December. She had been well briefed, as always, by Which?, and I saw a fairly robust set of questions, putting to Mr. Buchanan and his colleague Mr. Wright, who appeared to give evidence, the point that Ofgem was not perceived as a great friend of consumers. In particular the hon. Lady pointed out a particular anomaly that is of concern at the moment.

The amendment would deal with that anomaly and would require the minimum notice period by which the licence holders must inform their customers of any change to their energy tariffs to be an automatic condition of the licence. I think that I shall be told by the Minister that it was already possible to include it as a condition; I want to ensure that it will always be included as a condition.

The issue arises because at the moment—and there is an early-day motion about it—energy companies have 65 days after a price rise to inform customers of it. Customers then have only 20 days in which to switch, after they have been informed. The research done by Which? shows that 98 per cent. of people want their supplier to notify them ahead of the price rise.

It seems obvious to me that a customer buying a product at price x, which is about to go up, who has a legal right to change at any time to another supplier, should know that the price is going up before it happens, rather than later. It certainly seems to me that 65 working days is a ridiculously long period in which to make it acceptable to tell customers that the price has gone up. It is something like three months.

I understand that the current licence condition dates back to 2006. Previously suppliers were required to give retrospective notification within 10 days. I do not think that there is any strong argument that retrospective notification is sufficient, and it seems to me that in this day and age people should be notified either at the time, or, preferably, in advance.

On page 115 of my copy of the uncorrected transcript of evidence of the Energy and Climate Change Committee sitting on 2 December 2009, when Mr. Buchanan, Mr. Marlee and Mr. Wright gave evidence, the hon. Member for Amber Valley—I should probably have alerted her to the fact that I would be quoting her; but it will all be favourable comment, so she need not worry—said:

“On bills, Alistair”—

it is a bit friendly—

“you were a bit damning earlier about how opaque the bills still are but I thought that was your responsibility. Have you not imposed a new licence condition that bills must be clear and easy to understand? Is it then your responsibility to go back and make sure that they are? This report is still very damning.”

There was a reply about those issues, but I shall hold off on that, as it relates to the new clause.

The hon. Lady went on:

“There have been fairly damning reports from both Which? and The Plain English Campaign. What about this phrase in the Which? Report that ‘the regulator's efforts to address confusing tariffs are weak and impossible to enforce, leaving consumers struggling to find and keep a good deal’. Would you care to comment?”

Again, I shall come back to the response. There was a series of exchanges and then the hon. Lady said to Mr. Buchanan:

“I found it confusing when I was suddenly approached in Sainsbury’s by somebody wanting me to sign up to some new contract there, and I am meant to know about these things and understand them.”

That led to debate about the issue of the advance or retrospective notification of price changes. Mr. Buchanan said:

“The second issue here, and because we were going to make an announcement I have been given permission by my sustainability senior partner to mention it today, is that I think Which? is touching on a very strong nerve when they talk about why companies have 65 days. We have just created a consumer panel of 100 people; we are going to ask them to have a look at this. Although the general probe...that Andrew has been talking about will get a full review in 2012, if we think this needs particular action sooner than that, then we will pursue that.”

The hon. Lady’s question was then:

“Why do you have to wait for a panel? Why can you not just tell them it is not acceptable? I do not know of anywhere else where somebody would take 65 days to tell me the price of something that I was buying was going up. You name another supplier of anything that I buy that would take 65 days to tell me?”

Mr. Buchanan said:

“It is good for us to talk directly with our consumer panel on this. That is what we are going to do. This is going to be their first project to look at.”

Peter Atkinson (Conservative, Hexham)

I remind the Committee that with this we are taking the following:

New clause 4—Transparency on energy bills—

‘(1) The Secretary of State may modify—

(a) a condition of the licence of section 11A of the Electricity Act 1989 (transmission licences and supply licences) to make provision on energy bills for information on the cheapest tariff available to the customer from their supplier;

(b) a condition of the licence of section 23 (1) (b) of the Gas Act 1986 (transmission licences and supply licences) to make provision on energy bills for information on the cheapest tariff available to the customer from their supplier;

(c) the standard conditions incorporated in licences under those provisions by virtue of those Acts;

(d) a document maintained in accordance with the conditions of licences under those Acts, or agreement that gives effect to a document so maintained.’.

New clause 18—Limit to number of energy tariffs for residential customers—

‘Within six months of the passing of this Act, the Secretary of State shall, by regulation, limit to no more than 10 the number of tariffs which each energy supplier may offer to any residential customer.’.

New clause 19—Publication of energy tariffs—

‘(1) Within six months of the passing of this Act the Authority will publish or cause to be published, at least three times a year, in national, regional and local press a full list of energy tariffs [“the consumer energy price list”] applicable for the next period of six months.

(2) The dates of the publication of the “consumer energy price list” shall be during the thirty days before—

(a) 1 April,

(b) 1 September, and

(c) 1 January.’.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

On a point of order, Mr. Atkinson, may I take off my jacket and suggest that those who wish to join me do the same?

Peter Atkinson (Conservative, Hexham)

You may.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

We were talking about Ofgem. I was quoting from the Energy and Climate Change Committee evidence session of early December when, among others, the hon. Member for Amber Valley, who is not in her place, was quizzing Mr. Alistair Buchanan, the chief executive of Ofgem. I had just come to the point in their last exchange when the hon. Lady was suggesting that there could be immediate action to deal with the anomaly that the current rules allow energy suppliers to increase their prices but not tell their customers for 65 days. Mr. Buchanan said that he was going to talk to Ofgem’s consumer panel and that it was to be its first project.

Does the Minister agree that, whatever the history, it is nonsense that people can be told about a price increase three months after it has happened, but have a much shorter period—only 20 working days—in which to change supplier as a result of that price increase? Does she agree that something ought to be added the Bill to deal with that through licence conditions? What will the timetable be if there is not such a change in the Bill? How long will people who have had increases or are going to have increases have to wait before the law or the policy is changed, so that they get advance notice of any increases?

The amendment is entirely of merit and would be hugely popular among users. It would do nothing adverse to the utility companies. It would, however, give them the advantage of up to three months of increased price and payment from customers, and a reduced chance of the customers changing to another tariff. All the eggs are in the basket of the utility companies and none of the advantage lies with the consumer.

I have covered the amendment in the group. There are also three new clauses, one of which is in the names of Conservative Front-Bench Members. New clause 18 would

“Within six months of the passing of this Act,”

require the Secretary of State to

“limit to no more than 10 the number of tariffs which each energy supplier may offer to any residential customer.”

When we were questioning the representatives of the six companies, they told us, in general terms, how many tariffs they had and accepted that, historically, they had had a huge number of tariffs. They explained that some were historic and that there were so many because each region in England, Scotland, Wales and Northern Ireland had separate arrangements. We have had helpful responses because we asked them how many tariffs they currently have.

The conclusion is that there are still hundreds, if not thousands, of tariffs. From the point of view of the consumer, the situation is still extremely confusing. The backdrop to the new clause is not only my concern that the current situation is thoroughly confusing, but the not untypical experience of a constituent of my hon. Friend the Member for Kingston and Surbiton (Mr. Davey).

Margaret Erskine has been in a long-running dispute with npower, which I have taken up with npower and Mr. Buchanan. With her agreement, I am going to summarise her complaint, as set out in a letter to my hon. Friend in November. She applied to be an npower gas and electricity customer on 19 May 2006 and an agreement was made that no more than 4,572 units would be charged for gas at the higher unit rate. She was entitled to a discount because she was receiving both gas and electricity from the same supplier and was paying by monthly direct debit.

In her first year as a customer, she was charged 4,432 units, just below the figure that she had been given at the higher rate, and clearly within the rules set out. However, in the following year, to 15 May 2008, she was charged 6,194 units at the higher rate. That clearly did not satisfy the agreement that no more than 4,572 units would be charged at the higher rate.

I am going to pause here, because the issue about the nature of the tariffs and how they are described also relates to the debate that we will have later about investigations and the timetable for investigating. The Minister will be aware of that issue because we have discussed it in general terms before. I am not going to repeat the same facts twice, but I lodge with her the fact that this case has two implications in terms of the transparency of the system and the investigatory process.

Margaret Erskine took up the matter with npower and would, I am sure, be happy to release the correspondence generally. She was told that for the year from 1 November 2007, no more than the published total of 4,572 units would be charged at the higher rate. It was perfectly clear to everyone—her phrase—apart from npower and Ofgem, that this was not so for any year that included the six months between May and November. The point that she discovered was that npower effectively changed its tariff year when it introduced a new tariff. Unbeknown to her, the year that ran from when she started, and annually thereafter, did not qualify her for the benefit of a lower tariff charge after the higher number of units.

We have all probably paid bills in which the first set of units is paid at a higher rate, which then diminishes. I think that has always been an unfair system because low users and poor users are inevitably charged at a higher rate per unit than high users, who get a discount once they use more than a certain amount.

I have always felt that there needs to be a system that does not give a benefit for using more energy. It seems a perverse incentive; we should be trying to incentivise people to use less energy, not more. One reason for transparent tariffs is to expose the fact that at the moment there is a benefit to the companies from those who use less and a disbenefit to them from those who use more, given the amount of money that people pay.

A most extraordinary explanation was given in a letter from npower, which states:

“We took this (ie the abnormal number of higher units charged in the period 1 May to 31 October 2007) into account when we set our lower gas charges in April 2007”.

Miss Erskine, however, says that that is complete nonsense and has shown that the balance for the six months that would have given her the advantage if they had been counted from the beginning, and that for the following six months, were similar. Before setting out the comparative tables that show how unfairly she was treated, she writes:

“Since more units were being charged at the higher rate from 1 May 2007 and since the rate of charge for these units was increased, the result was an even higher charge than before. The possibility of gaining from the reduced rate for the balance of the units was remote, in the summer months, for most customers. The hope expressed in the letter that ‘...it’s now a bit clearer’ went down like a lead balloon!”

She then states that the seasonally weighted profile is detailed in the letter of 7 July and outlines what actually happened in the relevant year, before concluding very strongly on the lack of action and senseless explanations from Ofgem.

That information has been of use because it has amplified one of the complaints about the system. To be fair to the companies, the general message that they had too many tariffs and that the system was too complicated has been getting through. The companies have supplied us with the summaries of their current tariffs, which we requested when their representatives attended our evidence sittings. A survey of utility companies in a “Spotlight” article in the August 2009 issue of Call Centre Focus—I was not previously familiar with the magazine—concluded that Scottish and Southern Energy Group, to be fair to it, had the greatest customer satisfaction of all the big six utility companies.

Scottish and Southern Energy Group states that it

“currently offers 13 distinct nationwide energy products across its four regional supply businesses: Scottish Hydro; Southern Electric; Swalec and Atlantic.”

It then sets them out. The first two are Standard Energy and Standard Energy Online—one pays less online. There are also energy saving tariffs including Better Plan, which provides discounts for customers who reduce their energy use by 10 per cent. There is also an M&S vouchers option called M&S Energy. There are three discount tariffs, one of which offers 10 per cent. off purchases at Argos and Homebase. Another involves discounted high street vouchers for participating stores, and the other is a social tariff.

There are two time-limited tariffs: Atlantic Online FP and Price Fix 4 August 2011, which fix the price over a longer period. The other three are energyplus Pulse, which provides support for the British Heart Foundation; power2, which is a green tariff involving tree planting and other initiatives; and Go Direct 2, an online tariff with paperless billing and direct debit. There are also regional variations and

“a discount available from standard credit for those who pay by direct debit.”

Moreover, there are prepayment meters and Economy 7 and Economy 10 options.

That illustration, from just one of the six companies, shows the breadth and range of options available. Anybody interested in our affairs can see the evidence submitted to the Committee outlining the companies’ tariffs: Scottish and Southern Energy Group’s response is in the document entitled EN 10, ScottishPower’s is in EN 11, and so on. Colleagues will be pleased to hear that I will not read all of them, although I am tempted to because they show the complexity of the product. [Interruption.] I could indeed read them all, if encouraged.

The conclusion, however, is that there are all sorts of variations. There are discounts for prompt payment. There are still discounts for prepayment meters and monthly direct debit. Then there is a whole range of different types of tariff, sometimes with slightly unhelpful or misleading names: capped deals, fixed deals and tracker deals. Sometimes the deals stay on the adopted tariff, sometimes they revert to a previous tariff.

I am sure the Minister must agree with me that from the point of view of the ordinary consumer—the person who does not have all day to spend weighing things up: who runs a home or has a busy life; who may not be well, or who may be fit but busy; who may not be terribly numerate or literate; who may be poor; or who has other pressures—we could be much stricter in what we require Ofgem to insist on. That is why my colleagues and I have said that it must be reasonable to say that in any part of the country there is an upper limit to the number of tariff options—10 for any customer in any product.

Of course, the figure 10 is arbitrary; it could be 12, eight or six. I am not seeking to argue that there cannot, for good practical reasons, be different tariffs in different parts of the country. However, for one user in one place I would like the Minister to say whether she supports the range and variety of options that exist now, or whether she agrees that Ofgem has been a paper tiger—a toothless wonder—in trying to ensure that the utility companies serve their customers rather than themselves. There are many people, as Margaret Erskine discovered, who pay more than they should pay because they could not work their way through the minefield of options and come out safely on the other side.

That leads us to new clause 19, which is consequential on the other new clauses. It requires that

“Within six months of the passing of this Act”

Ofgem

“will publish or cause to be published, at least three times a year, in national, regional and local press a full list of energy tariffs...applicable for the next period of six months.”

We have chosen three months. It could be two months, twice a year or quarterly, because there are, for most people, three times a year when they think of a new start and new beginnings: the new year, when people plan for the year ahead; the new financial year at the beginning of April; and, for a lot of people, there is the new school and academic year, which also precedes winter. We are not so bothered about that. It could be quarterly, but I hope the Minister will agree that it is about time that people were able to find, in one place at one time, in an easily accessible way, a league table that gives the up-to-date information—just a grid and a list of suppliers and options—so that they have the best possible chance, in a way that is directly comparable.

Michael Weir (Scottish National Party, Angus)

I have listened carefully to the hon. Gentleman and I understand his point. What strikes me as one of the problems for consumers is not so much the number but the complexity of the individual tariffs. Even if presented with the choice of two, it is often very difficult to work out which tariff suits a person’s circumstances and is the best one to go for. I am just a bit concerned that new clause 19 would not be able to determine the best tariff for an individual person.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I understand that point, and the hon. Gentleman is right. I would like a combination of both, to be honest. In its memorandum to the Committee, Ofgem told us that it requires all the energy companies to have best practice that should advise people about the cheapest tariff. However, that does not go far enough. Out of fairness to Ofgem, I want to put its policy on the record, to pick up on the point made by the hon. Gentleman, and add another about where it ought to go next.

Document EN 13, a memorandum submitted for our deliberations, states that, following its energy supply probe,

“Ofgem has put into place a package of reforms to make it easier for consumers to understand their bills and engage with the energy market...From 1 September 2009 Ofgem introduced two new licence conditions which stop suppliers charging more for one payment than another. The first requires that any difference in the terms and conditions offered in respect of different pay methods must be cost reflective.”

We have already touched on that debate. It continues:

“The second prohibits undue discrimination between terms and conditions offered to different groups of customers.”

I am still not persuaded. I understand the argument that if people have a prepayment meter, which is a bit of kit they receive only if they ask for one, it costs a bit more. There is therefore a differential cost to such customers and it is proper to reflect that. That is still unfair because the people who have prepayment meters are generally those who are most strapped for cash. Either they are paying more themselves or the burden is spread over everybody else.

In this market where the choice of suppliers is so limited—unlike the telecom market or groceries, where hundreds of options are available—I can see no justification for a differential unit price, according to whether one pays by cheque or direct debit or prepayment meter. A fair system would not give advantages to people who are, bluntly, the most affluent, the best off, the most organised and who run their lives by direct debit because they know there will always be enough in their bank account. It is unreasonable that the charge should be higher for those who are not in that position and who have things like prepayment meters, either voluntarily or forced on them. Ofgem has not gone far enough to get rid of the unjustified price differences.

Under the heading “Clearer information on bills” the memorandum from Ofgem states:

“From July 2010 energy suppliers will be required to make significant improvements to bills to aid customer understanding and help them compare tariffs. Under the new rules each bill will need to display:

The tariff name

The customer’s consumption for the past 12 months in kilowatt hours

The projected cost in pounds per year if the customer remains on the same tariff and uses the same amount of energy

Suppliers will also have to supply customers with an annual statement containing this information plus the principal terms and conditions of the tariff. It will also:

Point out any premiums or discounts that apply to the tariff compared to standard monthly direct debit with the same supplier

Contain a reminder that the customer can switch along with advice on how to do so

To underpin these rule changes, from September 2009, Ofgem also set out over-arching standards of conduct that set out how we expect suppliers to behave. For example, suppliers should not sell a customer a product that they do not fully understand or is inappropriate for their needs and they should not offer products which are unnecessarily complex or confusing.

We also looked into the issue of the large number of tariffs that are currently available and decided that, at this time, any restriction would have negative effects on customer choice (eg there are currently a variety of different payment methods available, green tariffs, capped rates and social tariffs) and the ability of suppliers to innovate. However we recognised the issue of customer confusion which our remedies sought to address.

Given the detailed investigation that has been undertaken, Ofgem believes it is appropriate to allow the remedies that have been imposed time to take effect. Ofgem will closely monitor the impact of the new measures and remains willing to amend the remedies should they prove insufficient in addressing consumer concerns.”

I am, to be fair to Ofgem, aware that it has said that the situation is still confusing. We have taken some measures and others will be taken. To deal with the point made by the hon. Member for Angus, unless a customer can be told on their bill, over the phone or both what is the cheapest tariff for them, often, they will not avail themselves of it and will pay over the odds.

Michael Weir (Scottish National Party, Angus)

I think that gets to the point. As the hon. Gentleman quoted, Ofgem says that suppliers should not sell a customer a product they do not fully understood or that is inappropriate for their needs. My slight worry with his amendment is that if we are publishing simply a list of tariffs, it will be very difficult to look at individual needs within that. There needs to be more contact between the supplier and the customer to discuss these individual needs, rather than a simple table for a customer to stick a pin into to choose a tariff.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I absolutely agree. A good consumer world would be one where, three times a year, there was a table, a contact phone number, an e-mail address and a website for those who wanted to check all the implications, but also a little explanation of the particular characteristics of a tariff, together with the price. Then there would be the good practice referred to in the conversation, “What is good for you?” However, a person would also be told about the cheapest option on offer from ScottishPower, npower or whatever.

New clause 4 has been tabled by the hon. Member for Tunbridge Wells (Greg Clark) and his colleagues, and signed up to by my hon. Friends and me. It would implement an additional measure to do what we have been talking about and ensure that the cheapest tariff is available on bills sent out by companies. A person should receive a bill and, in addition to the things they are now going to be told, they should be informed of the cheapest option.

We are on the way to improving the system, but it has been terribly slow and people have paid hugely over the odds. The poor have been greatly disadvantaged, and I hope the Government will be at least as robust as they have sounded recently, and indicate either that they will accept the amendments and new clauses, or that they will insist that Ofgem implement those measures later this year, unless there is a marked improvement in the ease with which customers can choose cheaper and clearer tariffs. This is an important issue—it is one of the biggest energy-related issues in the country—and I hope the Minister will be responsive.

Charles Hendry (Conservative, Wealden)

The amendment and new clauses are bound together by the desire to give more information to consumers. There is a growing sense that consumers do not have enough information to make real choices, and the Bill provides us with a vehicle for making the necessary changes that would give people the opportunity to make informed choices and ensure that they receive the best deal available.

Amendment 36 has significant validity. A consumer’s only being notified three months after a tariff has changed is something we would simply not accept in any other aspect of our lives. I hope the Minister will come forward with a positive response. If she will not accept the amendment, I hope she will indicate how the matter could be addressed in another way.

The background to the legislation is the perception on the part of consumers that they are not getting the right deal from their energy companies, although they cannot tell. There is too much opaqueness and a sense that although retail prices go up quickly after wholesale prices rise, they do not come down as quickly once those wholesale prices decline. We know that Ofgem held an investigation into that, but it looked only at whether there was a general market failure across a range of companies; it did not look at the behaviour of specific companies. Together with the Liberal Democrats and others, we are keen to ensure that consumers are given as much information as possible in order to choose.

Companies are already beginning to go down the route of giving people more information. They recognise that there are some aspects of people’s bills about which they would like greater clarity. For example, companies are now providing details about the extra charges in bills that have nothing to do with the actual electricity bills. ScottishPower is incorporating elements that state that wholesale energy costs account for 54 per cent. of people’s bills; delivering energy to their homes accounts for 19 per cent.; looking after the energy account accounts for 18 per cent.; and the VAT and Government obligations—renewable energy, social incentives, the carbon emissions reduction target, profitability of retailers and other aspects— accounts for 9 per cent. Companies are telling people that they should be aware of how the bill is broken down. Centrica uses a rather effective radiator symbol to indicate how the different elements stack up in people’s total gas bill, and it uses an energy efficient light bulb symbol—I am glad to say—to show how they apply to its electricity bills.

First Utility is perhaps the company that has led the way. Its starting point when taking on a new customer is to equip them with a smart meter. It believes that a smart meter can be used properly only if people understand what they are paying for, and what the opportunities and options are elsewhere. The bill shows people how many kilowatt-hours they have used per month, and the cost for each of the previous four months. It gives a breakdown of the hours of the day when consumption is high and when it is low, so that people can begin to understand what might cause that, and react to any surprise elements. It gives an hourly-spend figure and considers the four-week usage elements as well. The consumer can therefore look at that bill and say, “I understand why I am paying this much money. I understand why I am using more energy at this time of day”, or “I am surprised by that. What is running in my house that is using up so much electricity? What can I do to address that issue and further reduce my bills?”

It is said that smart meters will not necessarily reduce people’s bills, but they will if consumers chose to use them intelligently. They give the power to the consumer. Other things such as smart grids will in time reduce demand but the key element of the smart meter is that it will ensure that consumers are in charge of their consumption patterns and tariffs.

We are keen to push things further. The new clause is straightforward. It simply says that consumers would be told on their bills what tariffs they were on, which would be the cheapest tariff available to them and how they would go about switching to it. The hon. Member for North Southwark and Bermondsey referred to changes that Ofgem is bringing in, but the annual statement does not provide the up-to-date timely information that consumers require and would find helpful. It shows the comparison only between the consumer’s tariff and the standard direct debit rate, not between their tariff and the one that would be the cheapest and most appropriate for them.

The new clause is a starting point, and we have tabled it in a way that we hope will be extremely easy for Ministers to accept. We would like to go much further, but by going for a modest initial approach we hope that the Minister will say yes, and that we can then explore further. I realise that that is a vain hope, but there is no reason to lose hope this early in the afternoon.

We think that other things should happen in due course. Consumers should be empowered by having information on their bills about how their household consumption compares with that of similar households in their area. First Utility will be doing that shortly, so it is clearly technically possible. It means that the consumer can make an active comparison between the electricity and gas they use and what would be expected for a house the size of theirs.

They should also have information about the environmental charges, because if we want to engage people in a real debate about climate change and energy efficiency, they will need to know what they are paying for those things. That information is hidden away rather opaquely in their bills, which means that we cannot have this important and honest debate with the public. If they know what they are contributing to the costs of the renewables obligation certificates, the European Union emissions trading scheme and the carbon emissions reduction target, they can say, “Okay. I think I’m getting value for money. I think this is important.” Otherwise, we will have an abstract debate about moving in the right direction, without the public ever understanding what amount they are contributing.

I also hope that the levy for carbon capture and storage will be a clearly explained part of the Bill, rather than something tucked away in the figures, so that people can see what their direct personal contribution will be. I hope that that will enable us to have an honest debate about pricing. Those measures put the consumer in charge and enable them to make the right choices about the right pattern for them.

I understand the appeal of new clause 18 and why the hon. Member for North Southwark and Bermondsey has chosen to table it, but we have to beware of perverse consequences, as the hon. Member for Angus mentioned. If we were to go down the route proposed in the new clause, it would be possible that a company wishing to introduce a new tariff could do so only by removing an existing one that might be popular. The wording does not make it clear whether historical tariffs would be allowed to be maintained, or whether when a new tariff was introduced people would be forced to migrate from an existing one that they might have opted into, to something that may or may not be as good for them.

Many of the tariffs on offer are clearly time-related; they are linked to people committing to a certain price over a period of months. That may make it more difficult, according to when the time scale is to be introduced and the particular publication point at which it could happen. We understand the principle and thinking behind it—it is intended to enhance simplicity—but we need to be persuaded that there will be no perverse consequences.

The driving point is to give consumers more choice. A key area in trying to deal with fuel poverty is to ensure that consumers actively consider their opportunities to switch. In an earlier debate on the Bill, we heard about the range of issues and how complicated it can be to switch. Many people start the process but do not continue to the final act of switching, because it seems too complicated and they cannot be certain that they will be better off. We want to ensure that consumers have that information, so when they try to make an accurate comparison they can be in no doubt as to what is the best tariff to suit them and their circumstances.

Joan Ruddock (Labour, Lewisham, Deptford)

This has been a very interesting debate. We have heard a lot of suggestions about what is best practice, and the hon. Member for North Southwark and Bermondsey has raised many cases of the very worst practice.

First, I need to look at the technical details of amendment 36. It seeks to amend clause 18, to extend the list of provisions in the Secretary of State’s powers to include the ability to set a “minimum notice period” for suppliers to give consumers of changes to their energy tariffs. Clause 18 is designed to prevent the exploitation of market power, which leads to generators obtaining excessive benefits. The notification of tariff changes is therefore out of the scope of the clause.

In any event, clause 18 applies only to generation licences. The amendment would require the modification of supply licences and would therefore need to be a self-standing provision to be effective. I suggest that the amendment makes no sense in terms of the clause against which it is tabled. Having said that, I have every sympathy with the sentiment behind the amendment. Both the Government and Ofgem recognise that energy tariff changes are a matter of concern and, of course, action is being taken to address those issues.

I will deal with the issues, even though I am making the case that the amendment is out of the scope of the clause. Following its probe into the energy retail markets, Ofgem highlighted the need for suppliers to notify customers of a price increase as soon as possible, and preferably in advance. It also announced a number of licence modifications effective from yesterday. Those modifications included an extended period of 20 days for customers to notify their supplier that they wished to switch tariffs following a price increase. When customers notify that they want to switch, the price increase will not apply to them. There is a requirement for suppliers clearly and prominently to explain to consumers the right to switch in order to avoid price increases, and extra time for consumers in debt to switch after being notified of a price increase, to give them an opportunity to clear their debt and switch.

It is quite clear that Ofgem has made a number of responses to the issues raised over a period of time by many hon. Members and by the Government. The question that we have to ask, which is clearly posed in this debate, is “Is this enough?” I do not think that it is, if energy companies can still take 65 days to notify. I am told that energy companies are generally taking much less than 65 days to notify, and Ofgem has made clear what is expected in terms of best practice. It has also said that it is keeping the matter under review. I intend to draw this debate and the strong feelings expressed here to Ofgem’s attention and ask it to address the matter urgently.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I understand the Minister’s point on the technicalities and I am grateful for her tone on the substantive arguments. It should not be that a supplier should “preferably” notify a customer in advance. Does she agree that there is no excuse for a supplier of a product not telling somebody about the cost of that product in advance? I know of no other regularly bought and sold product in this country that somebody could buy or sell without knowing that the price has increased for a week, two weeks, a month, two months or three months. Does the Minister agree that that is unacceptable? The position should move to informing in advance and to giving people the opportunity to change product or supplier.

Joan Ruddock (Labour, Lewisham, Deptford)

As I said, I have every sympathy with what the hon. Gentleman has said. We have to allow Ofgem to work this through because if energy companies have to give prior notification to every customer, they will need a mechanism that requires a lot of people to be engaged in transferring the information at the same time.

Under the current arrangement, companies can spread the notification over a period of time. That makes a lot more sense administratively; a company could get so many people in to do a particular task and not need them again until there was another price rise or tariff change. One has to acknowledge that it is not absolutely clear how the transfer of the information at the same time would be organised cost effectively. If something costs more money to do, the cost is passed to consumers.

We need Ofgem to look into the situation in great detail. As the hon. Member for North Southwark and Bermondsey said, the current provision means that only those who have the ability to know will know, but those who do know have a new opportunity to say that they wish to cancel, and they will not bear the penalty of the increased tariff. We have made some progress, but I ask, as the hon. Gentleman does, whether it is enough. I do not believe that it is.

Anne Main (Conservative, St Albans)

I cannot be alone in having received some helpful phone calls from the Government asking whether I am in debt and worried about my financial security. I am sure that an automated telephone call could be generated to allow people to know that in a month’s time their energy bill will be altered. I cannot see that that would need armies of people.

Joan Ruddock (Labour, Lewisham, Deptford)

The hon. Lady may be right. All I am really saying is that we made the position clear; the Secretary of State for Energy and Climate Change, when he gave evidence last October, said:

“I do not think it is acceptable that customers should have to wait 65 days to be informed of price rises. Ofgem have a specific mission that the best practice is notifying consumers of a price rise as soon as possible, and preferably in advance...I think 65 days is a pretty long backstop.”

We have made it clear where we stand. A mechanism needs to be found.

Joan Ruddock (Labour, Lewisham, Deptford)

I was about to address new clause 4.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

I was about to intervene before the Division bell went. I apologise for not being at this morning’s sitting. While I find the Minister’s remarks, in response to my hon. Friend the Member for North Southwark and Bermondsey and the hon. Member for Wealden, to be conciliatory and understanding, the reality is that in October the Secretary of State, no less, said that the situation was unacceptable. The Minister of State says, in this Committee, that it is unacceptable. She said that my hon. Friend’s amendment is flawed, and we accept her understanding of that. Surely, all she need do is say to the Committee that she will bring back, on Report, a new clause that either instructs Ofgem to instruct the companies, or instructs the companies themselves, to have an appropriate scheme in place by a specific date. Why will she not just simply do that?

Joan Ruddock (Labour, Lewisham, Deptford)

I think that I simply will not do that because I have already indicated how I expect it to proceed.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

Procrastination.

Joan Ruddock (Labour, Lewisham, Deptford)

No, on the contrary. It is reasonable that Ofgem has had an opportunity to consider the issue. It has said that it is looking at it. We all agree that something more needs to be done, and some things have been done, as I have described. There will obviously be a further opportunity for me to be questioned on the issue.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

Will the hon. Gentleman give way? Apologies—the hon. Lady.

Joan Ruddock (Labour, Lewisham, Deptford)

If the hon. Gentleman refers to me as a gentleman, he will find that I will not give way.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

The Committee’s proceedings have been conducted with a real sense of co-operation and a real desire to achieve outcomes for some of the poorest customers, particularly the fuel-poor. Ofgem’s record, however, has been deplorable. The Minister and the whole Committee know that Ofgem has been one of the most useless and toothless organisations it has been possible to invent. No Minister of State should simply say, “I’m going to pass this on to Ofgem to consider in the fullness of time, and at some point in the future people might get an account sent to them by which the price increase is indicated on time”.

Joan Ruddock (Labour, Lewisham, Deptford)

I have made my position clear on all counts, and, as I have indicated, I will be in touch with Ofgem. I know that work is being done, and I will see that I am in a position to report further to the Committee. [Interruption.] I should make some more progress.

Mr. Brian Binley (Northampton, South) (Con) Will the Minister give way?

Joan Ruddock (Labour, Lewisham, Deptford)

I will give way on this occasion, but we need to have some regard to our lack of progress. We still have a lot of new clauses and amendments to cover, and I would like to make some progress.

Brian Binley (Conservative, Northampton South)

I am most grateful. The Minister has been kind during the whole process. I am, however, confused. The Minister welcomed the fact that action could be taken on this important issue, but Ofgem is not flavour of the month with many people in the industry because of its inability to get real involvement in those areas. Thirdly, we have the Minister later taking additional powers. The whole thing is confusing. Why does she not only simply tell us that something needs to be done, but take the opportunity to come back on Report with an inclusion, or even an acceptance of the new clause tabled by my hon. Friend the Member for Wealden? The Minister should do something in the Bill, so that we all know that when she says that there are things to be done, she really means it.

Joan Ruddock (Labour, Lewisham, Deptford)

The hon. Gentleman asks that I bring something back on Report and do something in the Bill. That is not necessary; we want to get action, and action by Ofgem does not require further provision in the Bill. I have undertaken to ask Ofgem urgently to address the matter.

I shall move on to new clause 4, which aims to enable the Secretary of State to modify licence conditions for electricity and gas transmission and to supply licences. The purpose of doing so would be to require that customers’ bills provide information on the suppliers’ lowest tariffs. The provision of clear and transparent bills is critical for the effective functioning of the electricity and gas markets, so I have some sympathy with the sentiment behind the new clause. Ofgem has consulted widely on proposals to improve customer information, and has received views from a range of organisations, including consumer groups. I support the changes that Ofgem has made. It is fair to say that whatever we think of Ofgem’s past record, the evidence we have received and the evidence before our eyes shows that Ofgem has recently made changes that we all ought to agree have been more in the interests of consumers.

As a result of those changes—the hon. Member for North Southwark and Bermondsey referred to this—each domestic customer’s bill will need to display the exact tariff name; a comparison of the customer’s consumption in the period covered by the bill with the corresponding period in the previous year, if available; and, except where a customer has been with a supplier for less than 12 months, the customer’s consumption for the past 12 months in kilowatt-hours, and the projected costs in pounds per year if the customer remains on the same tariff and uses the same amount of energy.

Customers will be entitled to an annual statement that contains this information plus the principal terms and conditions of the tariff. It will also point out any premiums or discounts that apply to the tariff as compared with the supplier’s standard monthly direct debit tariff. The statement will contain a reminder that the customer can switch, along with advice on how to do so. Ofgem has chosen comparisons with the supplier’s standard monthly direct debit tariff in order to help inform customers of the offers available to them. This is because it is considered more practicable and helpful than comparing a customer’s tariff with the cheapest available offer. That might not seem obvious, so I would like to explain why we think that is the case.

Suppliers’ standard monthly direct debit tariffs are widely available, so they can act as a benchmark when making a comparison with all other tariffs. This is not the case with suppliers’ cheapest tariffs, which tend to be temporary, introductory offers or only available online. These would not be available to all customers, due to their circumstances or status with the supplier, and may not provide the best deal in the longer term.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I hear what the Minister says and I understand her second point, but she has to accept that not everybody has access to direct debit. Millions of people do not and there are others—millions, I am sure—who do not want to use it because they do not trust other people to take the right amount from their bank accounts. Could she just accept that direct debit is not a proper or reasonable standard because for many people it is not available?

Joan Ruddock (Labour, Lewisham, Deptford)

The hon. Gentleman is arguing a case about the cheapest tariff. My argument is that if there needs to be a tariff for comparison, which is what the amendment seeks, then the direct debit standard monthly tariff is the most appropriate benchmark. So it is not a case of saying that that is what people should go on to, but it is freely available and commonly used, and it is Ofgem’s and our view that it is the most appropriate benchmark. That is the only context in which I raise that tariff.

Charles Hendry (Conservative, Wealden)

The Minister referred to the fact that some of the cheapest tariffs may not be available because they may be an introductory offer. The amendment refers to

“the cheapest tariff available to the customer from their supplier”.

That would by definition exclude tariffs to which they were not entitled. She might also note that one of the things that annoys people most is that they get an attractive introductory offer and as soon as they have been ensnared, the prices start going up. That causes a great deal of anger.

Joan Ruddock (Labour, Lewisham, Deptford)

I agree with the hon. Gentleman entirely on that point, but he is proposing something that I cannot foresee being practical—that for every single individual the energy company could provide the cheapest tariff for that individual, as opposed to its cheapest tariff. There is a real difference, and in order to provide the cheapest tariff to that individual person and household, it would be necessary to know a whole raft of answers to questions about the circumstances of that individual household. The general tenor of debate on these issues has been about the cheapest tariff that the company offers. I took that to be what the hon. Gentleman referred to.

I expect Ofgem to continue to work with energy suppliers, consumers and consumer representatives to ensure that consumers have good information about the best electricity or gas deals and how to switch to them. It is also important that consumers understand their consumption, so that they can reduce it and their emissions as far as possible.

I turn now to new clause 18, which aims to require the Secretary of State to limit by regulation the number of retail tariffs offered by energy suppliers to no more than 10, within six months of the Bill becoming an Act of Parliament. The hon. Member for North Southwark and Bermondsey, who proposed this, said that it was arbitrary to pick on 10. It would be difficult to set a specific number, as distinct from saying that it would be desirable for companies themselves to operate a limit—to help with information and to enable people to get the best deal—in order to avoid unnecessary and useless tariffs. We would all want to encourage that. To set a specific number does create problems.

It is crucial to the efficient working of the energy market that consumers be able to engage fully with and understand the range of products available to them. Again, I have every sympathy with people who are currently baffled by the array of different tariffs on offer. Like most people in this room, I suspect, I have not delved into this issue in any depth because it is daunting and I do not have the time. We all recognise the difficulties.

However, while undoubtedly well intentioned, the new clause would have an unintended and detrimental impact on innovation and choice. That risks higher prices for consumers, and may also mean that the introduction of tariffs that meet real consumer needs and wants would be slower. We have seen in recent years the growth in popularity of online tariffs and the advent of green tariffs. We can expect further tariff innovations associated with smart metering, such as the new “time of use” tariffs. If the new clause were adopted, we could anticipate that tariff innovations such as these would be less likely to be introduced and would be introduced more slowly, as suppliers would be more cautious about introducing innovative tariffs that usually have a small and limited market.

In addition, the new clause would make it more difficult for suppliers to offer a range of tariffs tailored to customers’ needs. For example, there are now tariffs with or without a standing charge, which will appeal to different customers depending on whether they consume large or small amounts of energy. We should also not forget the existing range of social and discounted tariffs aimed at helping the most vulnerable consumers to meet their energy needs. In general, the ability to offer a range of tariffs that can more fully meet consumer needs and enhance the overall competitiveness in the market, leading to lower prices, is of course a positive one.

The critical issue is ensuring that consumers can understand what is on offer and can easily find clear and comprehensive information that will help them make the right choices regarding the most cost-effective energy supplies for their circumstances. Lack of clarity and transparency is the real issue. That is why Ofgem is taking action to address confusion about the range of tariffs available and ensure consumers can select the best tariff for their needs. It has introduced new rules to make suppliers’ marketing clearer, improve information on all consumers’ bills and require suppliers to provide customers with a detailed annual statement from this year. The statement will include a comparison of the customer’s current tariff with their supplier’s standard monthly direct debit tariff, as I said, and a reminder that customers can switch. That will help them to establish whether they might be able to move to a cheaper tariff.

Ofgem has also introduced new overarching standards, including requirements that suppliers must not sell a customer a product or service that he or she does not fully understand or that is inappropriate for their needs and circumstances, or offer products that are unnecessarily complex or confusing. Most importantly, Ofgem will be monitoring the effectiveness of the remedies; as part of the process, we expect it to review whether the changes have proved sufficient to help consumers understand the range of tariffs available to them.

New clause 19 requires Ofgem to publish a full list of available energy tariffs in the national, regional and local press at least three times a year. The published tariffs would be fixed and be the only ones available for the six months following publication of the list. It is, of course, important that consumers should have easy access to the information that they require to understand the full range of tariffs.

Following its probe into retail energy markets, Ofgem is taking action to ensure that consumers are aware of the range of tariffs available and can select the best tariff for their needs. As I set out earlier, customers will get with their current tariff a comparison with their supplier’s standard monthly direct debit tariff and a reminder that they can switch. That will help them work out whether they might be able to move to a cheaper tariff. In addition, Ofgem has introduced new rules that require written estimates to be provided prior to the completion of door-to-door sales, to help prevent mis-selling.

Consumer Focus also plays an important role in overseeing the switching and price comparison websites. Consumer Focus accredits reputable price comparison websites through the confidence code, its voluntary code of practice. Accredited websites help consumers decide the best deal for their circumstances, by comparing their current supplier’s tariffs and usage with those of all the major suppliers.

I am not sure whether it was the hon. Gentleman’s intention to limit the introduction of new tariffs, and changes to the rates of tariffs, but that would be a consequence of the drafting of the new clause. Such a requirement would limit customer choice and significantly undermine competition by limiting the opportunity for the introduction of new tariffs, or the amendment of existing ones—a point made by the hon. Member for Angus. It could also lead to higher overall prices for consumers. If tariffs are fixed for six months, suppliers would probably load an extra risk premium on to customers because they would not be able to respond to price changes and price shocks in the wholesale market. Furthermore, fixed rate energy deals suit the needs of some consumers, but not all of them.

The debate has covered a number of important issues related to energy tariffs. All of us consider this to be a field where many unsatisfactory practices still continue. Ensuring that consumers can understand their own bills and the other options available to them, and can be confident that they will not get hit with price rises without appropriate forewarning, is central to the delivery of the fair deal for consumers to which the Government are committed. However, a number of measures have been implemented recently to address those issues and we look forward to seeing more action from Ofgem in due course. I therefore believe that the hon. Member’s amendments and new clauses are unnecessary at this stage.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

The Minister has given a careful and gentle reply, but consumers need a robust ministerial response to an organisation that has existed for many years, and which the British public view as one of the most feeble regulators. As my hon. Friend the Member for Harrogate and Knaresborough said, Ofgem has been pathetic in upholding the interests of consumers over the years; it has always been slow off the mark and behind the curve. It is always unwilling to be tough enough for the utility companies and it has always responded belatedly and slowly to public pressure.

To be fair, however, Ofgem has moved in recent months and I have outlined its current position. However, it is not acceptable that we should have to wait for it again to consider when it will move next. My hon. Friend and I have indicated what needs to happen. If the Government are not willing to table a new clause or amendment on Report to ensure that people know in advance what their bills will be, we will do it for them. I believe that all Opposition parties and a significant number of Government Back Benchers would support that. The Government ought to realise the way the wind is blowing and join those who see the need to stand up for the consumer. I hope that the Minister will not resist that too much.

I am also minded to try to persuade my Opposition colleagues that, when they choose subjects for Supply days, they should table a motion along the lines of, “This House has no confidence in Ofgem,” with a proposal for reducing the salaries of those in charge until they understand the implications of what they do. We have to get the message across. I hope that those who listen to and read our deliberations understand that some of us think that they—particularly the poor and disadvantaged—have been ripped off and have not been supported by the regulator, in all the time that it has had power. I do not think that I can be clearer. If, after the general election, there is not an overall majority, Ofgem had better watch out. [Hon. Members: “Oh!”] I hope it gets the message loud and clear.

I have dealt with the issue of needing to tell people the price in advance. I will not talk at length about the benchmark tariff, but I wish to respond to the Minister’s reply to my point. I understand the difference between the benchmark and the lowest tariff available to the consumer. I also understand that every household has a different pattern of use and that what may be cheaper for one family may not be cheaper for their neighbour.

Using the standard monthly direct debit figures as a benchmark—they may indeed be the standard lowest price—implies, by definition, that people are being incentivised to go for direct debit. That is not an option for a lot of people and many others do not want it as an option. Some people will never trust the system to take money from their bank account. Neither will they ever trust the person who receives the money to control when that happens.

Joan Ruddock (Labour, Lewisham, Deptford)

Something has struck me. If a company’s cheapest tariff is an online tariff, what is the value in telling consumers who cannot possibly go online about that cheapest tariff?

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

That is why we have to try to get an understanding that works and is available for everybody. We have been logical, because we have said that there should be no difference in the unit cost whether one pays online, through direct debit, by cheque or by prepayment meter. The Minister’s point is perfectly valid if we agree that there should be different rates depending on how one pays. If there is no difference of rate, however, that issue does not arise. We can then argue that a standard tariff of a monthly payment might be the cheapest way to do it.

On the number of tariffs, there could be more felicitous or accurate drafting to make sure that we are not seeking to get everybody to move to a new tariff. The intention behind our proposal is that only a limited number of tariffs should be available, but that does not mean that they cannot change over time.

I am open to the argument that there should be eight tariffs rather than 10. The great god choice is not as wonderful as people often proclaim it to be, and socialists in the Labour party do not normally argue that it is what everybody needs most. Our experience with the utility companies tells us that people can have far too many choices—if they cannot understand what the choices are, they have no choice at all.

New clause 19 is not intended to be inflexible, but there would be merit in having some rigour or discipline in the frequency with which people can change the prices. I suggested that the tariff should be advertised three times a year, or quarterly. Most people pay quarterly or more frequently, and very few people pay less frequently than that. That comes back to the initial debate about when people should be told about price rises.

I do not see any reason why there would be the great administrative burden mentioned by the hon. Member for St. Albans in her intervention. If people were to know three months in advance that there was going to be a price rise, they could receive that notification in the batch of three-monthly bills. That would cover most people in the country who get a bill, and I do not see that there would be a great cramping of the style of the utility companies.

We will go away and reflect on the best drafting of the new clauses and amendments. Initially, we were minded to press the amendment to a vote, but I buy the Minister’s point about the amendment being more appropriate for a different stage of the Bill, so I will not seek to get colleagues to divide on what is an inappropriately placed amendment. However, I give notice that an amendment, or a new clause, will be tabled on Report, to ensure that Ofgem does its job better and that the utility companies tell people in advance how much their energy will cost and address some of the other issues. I hope that, by then, the Minister will have realised that it will be in her interest, as well as that of the consumer, to support the measure. I beg to ask leave to withdraw the amendment.

Peter Atkinson (Conservative, Hexham)

In order to make progress, it may be convenient for the Committee to consider clauses 19 to 25 together.

Charles Hendry (Conservative, Wealden)

On a point of order, Mr. Atkinson. I know that we have had an extraordinarily long debate about the amendment, but we have not had a clause stand part debate. There were some other matters relating to the clause that it would be helpful to discuss.

Peter Atkinson (Conservative, Hexham)

If the hon. Gentleman wants a clause stand part debate, he is welcome to it.

Charles Hendry (Conservative, Wealden)

I do not intend to keep the Committee long, but I should be grateful if the Minister clarified a few points. Under the market power licence condition, Ofgem’s powers have been increased due to suspicions that the constraints have resulted in gaming by some of the energy companies, particularly in Scotland. The interconnector to England is limited to 2.2 GW, which is insufficient to cope with the constraints in Scotland, although there are plans to upgrade it to 3.3 GW by 2011. As renewables uptake increases and fossil fuels and nuclear power come off line, Scotland will become more reliant on base load from England and larger connections will need to be made.

There is some ambiguity about whether that new power is to overcome balancing issues in the grid or whether it is to identify gaming, and it would be helpful if the Minister set out what the powers are intended for and how she expects them to be used. There is concern that there is no definition of what constitutes a constraint, and the authority has the ability to determine what that might be. Again, it would be helpful if the Minister set out her interpretation of the concept of a constraint.

We also need greater clarification on what would be considered as gaming. As the volume of renewables increases in the mix, there will be a need for more gas plant as a back-up capacity, which will run only for limited periods. That would inevitably be more expensive per kilowatt-hour, as there will be a need to recoup the capital costs over a shorter operating period. That could be considered gaming, although it would be a natural commercial activity. I would be grateful if the Minister clarified whether she would consider that to be gaming.

The legislation should not be drawn in such a way as to discourage the development of peaking plant available when there is a need for a small amount of extra capacity in times of great demand, as that could discourage investment. We need a distinction between what was referred to during the evidence-taking session as a “good spike”, a signal that demand is outstripping supply, and a “bad spike”, where there is considered to be an abuse of market power. I would be grateful if the Minister provided further clarification on those issues before we continue with further consideration of the Bill.

Michael Weir (Scottish National Party, Angus)

I want to raise some concerns about the market licence condition. After hearing the evidence from Ofgem and the energy companies, I remain slightly confused as to what the position is, so I would like to press the matter further.

As I understand it, Ofgem takes the view that it would like more power to control excessive returns in the wholesale market and has particular concerns about balancing market constraints in the grid system. As has been pointed out, the main constraints appear to be in the Cheviot gap and the interconnect between Scotland and England. ScottishPower has raised the prospect that the situation has a very adverse effect on the two main Scottish generators and the ability to invest in future plant.

When we explored the issue in evidence, it appeared that the main problem was that there should have been a major upgrade of interconnection before the adoption of the British electricity trading transmission arrangements, or BETTA, system that brought the Scottish grid into the UK-wide transmission system. That was not done, and the result has been that due to weaknesses in the grid, the present system of constraints has arisen. As I understand it—perhaps the Minister can clarify this—generators can be paid not to generate electricity at certain times when the grid cannot take the electricity because of a lack of capacity. That is a concern.

As the hon. Member for Wealden said, when the amount of renewables changes on the grid, and as we see other types of generation, coal and gas could increasingly become a back-up system for renewables when not enough is produced from wind or whatever. It could become very difficult for them to come on the system if capacity was constrained. My main concern is that while Ofgem appears to take the view that companies might deliberately exploit the system to make excessive profit, it does not seem to me that it produced any concrete examples in its evidence of when that has happened. It mentioned that it had set up the Competition Act inquiry, but apparently the matter was not pursued.

It is fair to say that there is a lot of disagreement between Ofgem and the companies about the real reason for ending the inquiry. Can the Minister tell us anything more about that? In particular, will she tell us why she feels the Competition Act cannot deal with the matter? I would have thought that if there was any evidence of an electricity company abusing its market position in such a way, the Competition Act should have been able to deal with it.

When I pursued the issue with Sarah Harrison of Ofgem in the evidence session, she stated that it was important to think ahead. She said:

“In a world that envisages a connect-and-manage approach to transmission access, those opportunities for constraints on the network are going to get even greater. Therefore, there is the risk that undue exploitation can be exercised.”——[Official Report, Energy Public Bill Committee, 5 January 2010; c. 72, Q172.]

In other words, Ofgem seems to be of the view that someone in the future could do something to benefit from the constraints, although there is no evidence that that has been done at present. Sarah Harrison also quoted a figure of £125 million as the cost of such constraints as evidence that the clause should go through. However, on being pressed by me, she conceded that this was the cost of constraint within the whole grid system, rather than that due to abuse of the constraint system. Does the Minister have figures if she feels there has already been abuse within the system, as opposed to constraints over the whole system? Again, if I understand it correctly, that arises because of deficiencies in the grid system, and not necessarily—although it could be the case—due to abuse. It is important to make that distinction.

If we are to have a truly open market in energy, we cannot also try to restrain generation in this manner. ScottishPower made a point about the adverse effect of risking investment in new generation in Scotland and therefore security of supply. The point, which was explained by Rupert Steele during his evidence, is that in a commodity-only market, there needs to be a way to signal the value of capacity to stimulate investment. If restrictions are placed on the balancing market and only short-run marginal costs went into the equation, there would be less incentive to invest in new plant. I reiterate that that could become important when we are looking at more renewables, with regard to where the base load comes from. Not all plant can be turned on and off as necessary. In essence, it seems that rather than necessarily being a symptom of use of the market, the constraints might well signal the need for greater investment.

The clause might have the perverse effect of discouraging new investment. If there is evidence of the consumer suffering as a result of what is happening, clearly the market power licence condition is fair and should be pursued. I would like some reassurance, however, that we are not going down a road that will endanger necessary investment in the grid system and future generating capacity.

Joan Ruddock (Labour, Lewisham, Deptford)

Before I answer the specific questions that have been asked, it might help the Committee if I try to set out what is embodied in the clause, because it is easier to get the framework.

The clause sets out the framework within which the Secretary of State will have the power to introduce a condition on generation licences to protect the consumer from undue exploitation of market power in the electricity balancing market. Ofgem has identified an aspect of that market that is vulnerable to the exploitation of market power, to the detriment of consumers. In March, it consulted on potential solutions to the problem, including the introduction of a specific licence condition. That consultation revealed that one example of the exploitation might have led to costs of up to £120 million to the consumer during the 2008-09 financial year alone.

The problem area being targeted is unique to the electricity balancing market. As electricity cannot be stored, National Grid has an obligation to ensure that supply and demand are constantly in balance. In some areas, the transmission lines that transport the electricity do not have the capacity to move excess generation to the areas that need it. Such situations are known as transmission constraints. I was asked to define “constraint”—that is the definition. In such scenarios when a constraint arises and there is generation one side of it that cannot be received at the other side, National Grid will often rely on the help of a number of plants either side of the constraint to increase or decrease generation and so maintain balance.

Occasionally, due to the location of a constraint and the spread of available generation, National Grid will find itself dependent on a specific company to alter its output to help to balance the system. That can create an opportunity for the generator to exploit that market power and charge over-high prices for its services. Those excessive fees are ultimately passed on to the consumer via electricity bills, and that is what we wish to prevent by taking the new power.

It is vital that the problem is addressed now—the hon. Member for Angus referred to this. In the coming years, the transmission network is set to be upgraded considerably, and that work will ultimately remove the conditions that provide the opportunities for the exploitation of market power. In the short term, however, the practical implications of that development and maintenance of the network will be an increase in transmission constraints and hence the potential for exploitation. I believe that the clause provides a proportionate and effective way to ensure that the consumer is protected during the coming years. Importantly, it is a targeted solution that will avoid regulatory uncertainty, and therefore any impact on much-needed generation investment.

Four specific conditions have been outlined under which a generator may be deemed to have received an excessive benefit as a result of a transmission constraint period. I emphasise that this is all about excessive benefits, not normal commercial opportunities that arise in the balancing of the electricity market. The first condition is when an electricity company has acted in such a way as to make it more likely that National Grid will be forced to accept its offers and bids in the balancing mechanism at a high price. For example, it may withhold the electricity produced by a particular plant from the market because it predicts that National Grid may later rely on that plant to produce electricity to balance the system. The company is then able to use a resulting position of market power to charge an excessive price for that increase in generation. That is probably what the hon. Member for Wealden was referring to when he asked if it was “gaming”—I imagine that it is the appropriate term.

The second condition applies when a generator takes advantage of market power during an existing transmission export constraint and charges National Grid an excessive amount to reduce its generation, knowing that the system operator will have no choice but to accept. The third condition refers to a bilateral balancing contract with National Grid known as an inter-trip. Inter-trips are an automatic switch that can be fitted to a generation plant. It will trip if the transmission system becomes overloaded and it allows National Grid to run the system at a higher capacity than would otherwise be possible. Licence holders are able to charge an arming fee to allow the set up of the controls on their generation plants. There is evidence to suggest that arming fees for commercial inter-trip services have not always been priced reasonably and the clause aims to prevent such exploitative behaviour.

Those three conditions correspond with those scenarios that need to be tackled to protect the consumer. Although it is not our intention to go further, we need to be sure that the Government have the power to address any related scenarios that come to light as we consult on the licence condition, and that is the purpose of condition four. Although it is not expressly set out in the clause, our clear intention is that the licence condition will relate only to situations where there are transmission constraints, and it will be applied to all generators on a non-discriminatory basis. Our aim is not to prevent generators from flexing prices or following normal market behaviour. The conditions have been specifically designed to target behaviours that enable generators to earn excessive profits where restricted transmission capacity allows them to do so.

I shall now try to answer some of the specific questions asked. The hon. Member for Angus asked about the Competition Act inquiry into the pricing and dispatching of ScottishPower and Scottish and Southern Energy. It was launched in 2008 by Ofgem to look into a problem with transmission constraints on the Cheviot boundary, as the hon. Gentleman indicated. As Ofgem failed to find an infringement using competition law, the case was dropped. Ofgem was confident that exploitative practices had been taking place and believed that the lack of infringement was due to intrinsic limitations applying to competition law in these specific circumstances, as there are often difficulties with defining “market power” in the electricity market.

We have found that when Ofgem is confident that there is abuse taking place, and companies are charging higher prices or benefiting more than they should, it has been unable to fit the complaint into competition law. That is why it has sought a means of tackling the problem and why we have sought to facilitate that in the clauses on market power licence conditions.

I was also asked how Ofgem had arrived at the figure of £125 million and if that sum related to excess profits or the overall cost of the balance arrangement. Following the evidence session, I asked for clarity on that point, with which I have now been provided and which I shall share with the Committee. Ofgem, in its initial consultation document on the market power licence condition, estimated that in a worst-case scenario, the potential direct costs attributable to undue exploitation of market power in the balancing mechanism could have been as much as £125 million in 2008-09. That is very much a maximum that assumes that every balancing action in Scotland will involve the exercise of market power. That figure is derived by taking the average megawatt per hour price for various balancing actions in Scotland, comparing that with the average price in England and Wales, and then multiplying by the forecast level of Scottish constraints. The higher average price in Scotland is considered to be due to lack of competition and evidence of the exploitation of market power.

Hearing that may not please the hon. Member for Angus, but that is the basis on which Ofgem calculated the figure. It is clearly the worst-case scenario, using constraints that exist between Scotland and England; if they were all the subject of market power abuse, that would be the outcome.

Michael Weir (Scottish National Party, Angus)

I understand what the Minister is saying, and I look forward to considering in more detail the written explanation, which seems reasonably complex. However, it is clear that there are natural constraints in the system, and it seems unfair to cite the full cost of those constraints as the result of misuse of market power. It appears that Ofgem is saying that its calculation of £125 million is likely to be due to the abuse of market power. However, as we all know, there are constraints in the Cheviot boundary. There are also constraints in other parts of the system, and if Ofgem takes that attitude, it may well make companies think, “Do we want to invest if we are not going to get a return, because it is going to push our prices down?”

Joan Ruddock (Labour, Lewisham, Deptford)

The issue is complex, as the hon. Gentleman has said. Obviously, we do not have the expertise. It is difficult for any of us to distinguish whether natural or normal commercial practices would be involved—whether a company was gaining some financial reward from an opportunity in the balancing market, or whether it was exploiting the position and gaining an excessive reward because of its market power. That is the judgment that Ofgem has made and the calculation that it had to quantify. It has indicated what the case would be in that fairly extreme scenario.

We must be willing to accept that Ofgem is confident that there have been abuses of market power and that it needs to have an opportunity to make accusations properly within a legal context, when it thinks that that has happened. Of course, there also have to be systems of fairness and accountability, and companies so charged have to be able to make their case. We will come to that later in the Bill. Here we are providing the framework within which such presumed misuse of market power can be tested by Ofgem. At the moment, that appears not to be the case.

Let me try to conclude. The Government believe that the electricity balancing market is currently vulnerable to exploitation, and estimates suggest that there may be a high cost to the consumer. For that reason, we think it absolutely right that we should target such exploitation and ensure that consumers are properly protected until the underlying cause is resolved through the completed upgrade of the transmission network.

I will acknowledge one further point that I was asked about and which I have so far failed to address. It regards the question of whether this is a problem of the need to further upgrade and invest in the transmission network. That is absolutely the case. Over time, with greater investment, we envisage the problem not existing in the way that it does today. We will come on to discussions about investment in the transmission network. The Government are absolutely committed to making such investments, as a result of which the problem will undoubtedly not exist in the same way in future.

Peter Atkinson (Conservative, Hexham)

Would it be convenient to take clauses 19 to 25 together?

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

On a point of order, Mr. Atkinson. I would like to ask the Minister questions on clause 23.

Clause 23

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I have a simple pair of questions, which go together. The Minister might not be able to answer them now, which I will understand, but it will be helpful if she can. If not, can she supply the information and make it available to the Committee at the earliest available date?

The clause deals with penalties imposed by Ofgem under their regulatory powers. We want to consider that fully, and we will want to consider it again on Report. Can the Minister publish and circulate the penalties that have been imposed by Ofgem until now, with a summary of the reasons for which they have been imposed; the amounts of the penalties; the periods that companies or others were given to pay them; confirmation that they have all been paid; an indication of where there have been appeals in the past; and, when there has been a challenge through a procedure or in the courts, the penalties imposed.

It has been difficult to discover exactly what the history is without a comprehensive trawl. The Minister will have better access to the information than some of us, and I am sure that she has the ability to work with Ofgem to give us the information at the earliest date. May I request first that that information is supplied and, secondly, that it is given to us in reasonable time before the Bill is considered on Report, so that if we want to come back to this, we can?

Joan Ruddock (Labour, Lewisham, Deptford)

I think I would be well advised to accept the hon. Gentleman’s offer, but I will write to him rather than try to trawl through all my briefings and give him an inadequate or incomplete answer. On the penalties imposed by Ofgem in relation to the breach of the market power licence condition, companies will be allowed to appeal directly to the competition appeals tribunal. In that instance, they may dispute the decision to issue a penalty, the size of that penalty and the date by which they have been directed to pay. That is sufficient information on the clause. I will undertake to provide in writing, as speedily as possible, all the information that the hon. Gentleman has requested.

Clause 26

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I beg to move amendment 23, in clause 26, page 21, line 36, at beginning insert ‘With effect from 1 June 2010’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss amendment 5, in clause 26, page 22, line 1, leave out subsection (3).

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

Clause 26 is in the part of the Bill that covers financial penalties by the Gas and Electricity Markets Authority. The issue is a live one; it is the other half of the debate in which the case of Margaret Erskine was raised. I referred to it earlier and indicated that I would come back to it in the context of this debate.

My hon. Friends and I have tabled two amendments. Amendment 23 would change the rules about the period in which an investigation can occur. We raised the matter with Ofgem representatives in the evidence sessions, and they said that this was one of the two areas where they had asked for changes. They asked Ministers for greater powers and the Ministers had acceded.

Amendment 23 would bring the new timetable into operation from 1 June 2010. The intention is to try to get it up and running as soon as is reasonable. The Government have said that they want the Bill to be on the statute book before the general election. That has to take place no later than June, so the date in the amendment seems reasonable.

Amendment 5 would delete subsection (3) of clause 26, which states:

“The amendments made by this section do not apply in relation to any contravention or failure occurring before the day on which this section comes into force.”

I want to make it very clear that we do not seek to provide a retrospective penalty; we seek, from now on, to extend the period in which investigations can start and continue from one year to five years. It is clear to Ofgem, to the Government and to us that the present system is flawed. Investigations have begun but, to speak bluntly, they have run out of time. The clock has ticked and passed the deadline for investigations to be completed. Ofgem has said that to Ministers; Ministers have said that to us. We all agree that we need a longer period.

The amendment seeks to allow current problems to be investigated for a period of up to five years, and for that to apply to issues that are live now, as opposed to issues that will be live in future. I do not think that that should offend the lawyers at all. The extension to the time limit would not apply to licence breaches that happened before the date of the passing of the Act. It would not make things retroactive; it would simply allow Ofgem to impose a penalty for a licence breach already committed, rather than introducing new retroactive offences.

The clearest example of that was the differential tariff pricing that I referred to earlier, when Energywatch made a complaint to Ofgem. Energywatch complained in March 2008 over npower’s use of the tariff year. A “tariff year” was defined at the time by npower:

“When we publish gas charges, we state that 4,572 higher priced primary block kilowatt-hours will be applied each year. The year quoted is a ‘tariff year’ that begins with the introduction of any changed charges. When npower change the way customers are charged, a new tariff year commences from the date it changed.”

It stated that its customers had never been informed of the existence of a tariff year. They had never been given a definition of it, nor had how to operate it ever been explained to them. npower has conceded that; it is not a matter of dispute. The charge is, therefore, that because how the tariffs were structured was changed and the tariff year was restarted at a different time, consumers never reached the 4,572 kWh threshold and so did not benefit from the falling block tariff. In the end, they paid the higher rate for more than 4,572 units.

Consumer Focus has looked at that, as Ministers know. I know, too, that the Under-Secretary of State for Energy and Climate Change is due to have a meeting shortly with Consumer Focus to continue to look at the issue. [Interruption.] That is what I am told, anyway, whether he knows that that is in his diary or not. I tell him that on 16 January 2010, The Times reported that

“A spokesman for the Energy Minister’s office said: ‘Mr. Kidney will be meeting Consumer Focus to discuss the details contained in the briefing.’”

He has it coming down the trap towards him and that is a good thing. The analysis by Consumer Focus says that 2.2 million customers were overcharged by an average of £47 each, amounting to over £100 million in total.

I took the matter up with Ofgem and npower, writing to them after it had been brought to my attention by the lady in south-west London. In a letter to me, Ofgem has said that if the Consumer Focus analysis is right, action should be taken, but that in legal terms its hands are tied by the one-year barrier that currently applies. I will not take the Committee through the whole of my correspondence with Andrew Duff, the chief executive officer of npower, who courteously and promptly replied on 12 November, nor the correspondence I had with Mr. Buchanan, who replied promptly on 20 November. However, I will select a couple of things from their replies.

Although npower argues that it has made changes so that the issue will not arise again, and has explained that it was all part of a process of changing how it bills, the reply does not adequately deal with the failure of information and the fact that people were led to believe that they would be on a lower rate than they were after a certain time. Margaret Erskine, the lady who brought the matter to my attention and that of my hon. Friend the Member for Kingston and Surbiton (Mr. Davey), and then was also in contact certainly with The Times, if not with other newspapers, was offered and, I understand, accepted a small compensatory ex gratia payment by npower. However, she has changed her supplier, as she was a thoroughly discontented npower customer.

The matter had been brought to the attention of the press in the autumn by Consumer Focus, because of not only that lady’s complaint but that of another named complainant: Andy Beck, an npower customer from Teignmouth in Devon. He said:

“When Ofgem received the complaint in March 2008 it still had two months before the time limit ran out and could, among other things, have issued a ‘stop the clock’ order. What’s more, where it cannot act directly, it could pass its conclusions on to other people or organisations that could take the matter further”.

There is, therefore, evidence that a large number of people were overcharged. It may be a matter of only £50 each, but if there are 2.2 million customers that would come to over £100 million.

There was some uncertainty about when Consumer Focus started its investigation. Although I had been led to believe that the inquiry had started, when npower wrote to me it said that it had not been alerted to that fact. Consumer Focus has confirmed, however, that it has done its investigation. In the briefing, which I am told the Under-Secretary has also received, the watchdog says:

“Following an investigation, Consumer Focus has concluded that npower overcharged 2.2 million of its gas customers in 2007-08. Our analysis suggests that the potential overcharge per person is a maximum of £78, with an average figure of £47 per customer, equating to an overall consumer loss in excess of £100 million...It is our view, therefore, that the £6 provided in goodwill payments to just 200,000 of the 2.2 million customers affected is not sufficient.”

The investigation covered 2007 and 2008, and the report elaborates on those data. The report is on the Under-Secretary’s desk, as it is on mine. To be fair to npower, it denies that it has breached its licence conditions or its contract with customers. It explains that its promise not to charge more than 2,572 units a year referred to the tariff year, which can be different from a calendar year, and that it resets the clock each time it changes its terms and conditions, as it did in May and November 2007. The supplier also said:

“We completely reject any suggestion that our gas customers are each owed £47 and have seen no calculations to support this figure.”

There is, therefore, a dispute.

As well as the proposal that in the future there is a five-year period, we seek to ensure that where there is a breach that could otherwise be investigated, but where the clock might tick and time might run out before the change is made, the investigation is able to continue. It does not, it seems to me, break the principle that the supplier should not be liable for something they were not aware of. If there is a breach they are in breach. In the past they would only have been time-barred because the investigation could not continue.

If we are to give Ofgem some credibility in the future—I will not repeat my concern about its past failure of credibility from the consumer’s point of view—we should allow it to carry on investigations where there are major issues of complaint. I hope the Minister will be sympathetic if not to the specific wording, at least to the proposition behind these amendments.

Joan Ruddock (Labour, Lewisham, Deptford)

These amendments relate to slightly different aspects of the coming into force of the new five-year time limit for Ofgem to impose financial penalties for breaches of licence conditions. Amendment 23 would ensure that this new time limit came into force on 1 June this year. As it stands the amendment would only affect the penalty provisions under the Gas Act 1986; it would not apply to the provisions under the Electricity Act 1989. Clause 36 already provides that the penalty provisions will come into force at the end of the period of two months beginning with the day on which it is passed, so we believe it is quite unnecessary to specify a commencement date within clause 26 itself. I agree there should not be a long delay, but this has clearly been addressed in the Bill, so the amendment is not necessary.

Amendment 5 would mean that the new five-year time limit for the imposition of penalties by Ofgem would apply retrospectively. I know the hon. Gentleman has argued that it is retroactive but that does not mean it is not retrospective. It is. Legislation does not usually have a retrospective effect. The prospect of doing this can create legal uncertainty for businesses and inhibit investment in markets. There are also potential human rights implications. Although it is probably true that many businesses will already retain some relevant information for five years or more, it is likely that they will only keep some information for up to 12 months because that is all that is required to comply with any Ofgem investigations under the current time limit.

I understand why the hon. Gentleman feels so passionately about this. I share his passion because undoubtedly customers have had very bad treatment and it has not been possible to compensate them for that. Two examples that I sought to have explained to me clearly needed to be addressed. One was the £2 million penalty that Ofgem recently imposed on EDF for very poor performance in providing electricity connection quotations. Ofgem identified more than 100 breaches of the time limits for providing quotations, but was only able to impose a penalty for 47 of those breaches because they had not come to its notice in time and had therefore occurred more than a year previously when this was reported. Obviously in this case we have a company being fined and penalised for behaving badly, but not to the full extent because of the one-year time limit.

On npower, the hon. Gentleman has quoted extensively from records and the experiences that individuals have had of restarting the tariff year, so that they had to build up again to get back on to the cheaper rate. While Ofgem was able to secure compensation for some customers—obviously, the one to whom the hon. Gentleman referred was one of those—it was constrained by the one-year time limit regarding the amount that it could achieve and the number of people who could be compensated.

I have no doubt that this is a pressing problem. The Government have sought to find a solution through the clause, which was tabled as a consequence of Ofgem having experienced difficulties and having come to the Government saying, “We need a means of being able to address the problems.” As I have indicated, at the moment we must allow for the fact that companies might be keeping the required information for one year only, as that is all that is needed to comply with any Ofgem investigation.

It would not be fair to make the new time limit retrospective because many licensees might not have the evidence to defend themselves adequately if Ofgem decided to investigate an alleged breach of licence condition that is within the new five-year time limit, but before the legislation came into force. In other words, at the time of the alleged breach, the company would not have known that it could be investigated up to five years later and should therefore keep records accordingly.

Not giving the provision retrospective effect will also give businesses time to ensure that their systems are suitable to deal with future Ofgem investigations under the new time limit. Although I sympathise entirely with the hon. Gentleman’s wish to see the measure brought in more quickly, for all the reasons I have outlined, it is regrettably not possible for me to support the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I am grateful for the Minister’s constructive and sympathetic response. She wins the argument on the first point—I accept that elsewhere in the Bill there is a provision that would bring something into force immediately—and I will seek leave shortly to withdraw the amendment.

On the second issue, I reserve my position as to whether we could win the argument about whether the measure was retrospective or retroactive, and therefore within proper legal processes. Obviously, we do not legislate retrospectively, and I buy that. Arguably—but sadly—the Minister has a good point about the practicality of the measure in relation to matters that are currently in train. Her argument about the records being held by the company might mean that it would be impractical to deliver, which could be a barrier to the change. I will go away and think about it. Obviously, I am keen to ensure that we do not allow clear abuse of a supplier’s power to result in the sort of customer and consumer disadvantage that has clearly taken place, and which so far can only be remedied in part, it would seem, and on an ex gratia basis, to customers who remain unhappy that, bluntly, they have been deceived and not properly informed.

I would be grateful—as I am sure would many others, not least those who have made complaints—if when the Under-Secretary of State for Energy and Climate Change goes to the meeting that he spoke about, he made a report on it to those with an interest in the matter, possibly including members of the Committee. That report could be used and passed on to our constituents who have raised the issue, or to other individuals who have made a complaint and feel disaffected or not adequately compensated.

Following his conversation with Consumer Focus, if the Under-Secretary can do anything that would get companies to make an appropriate reimbursement of moneys that people have paid that were over and above what they expected to pay, that would be a positive advantage, even if it cannot be done by legal enforcement. I look forward to constructive engagement with that issue and with the ministerial team when it reports back. For now, however, I beg to ask leave to withdraw the amendment.

Clause 27

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I beg to move amendment 24, in clause 27, page 22, line 6, leave out ‘considers’ and insert ‘discovers’.

This is a simple amendment with which we seek to replace one word with another. This part of the Bill centres on the adjustment of energy charges and clause 27(1) reads:

“If the Secretary of State considers that some customers of an energy supplier (the “disadvantaged customers”) are treated less favourably than other customers of the energy supplier (the “advantaged customers”) as respects charges for energy, the Secretary of State may by regulations make a scheme for the adjustment of charges for energy with a view to eliminating or reducing the less favourable treatment.”

The mission is a good one, but I think that the drafting of the clause has omitted the conventional word that allows the Minister discretion over the matter. I seek to make it a more objective consideration and a question of fact so that, if the Secretary of State discovers that there are less favourably treated customers, the obligation on him to think about regulations follows on from that. We can then talk about whether he would have to introduce them or not. I would be grateful if the Minister could tell me whether I am right in thinking that the drafting of the Bill could be tighter and whether the amendment would meet that objective. [Interruption.]

Charles Hendry (Conservative, Wealden)

The Under-Secretary says “You’re wrong” from a sedentary position. I am sure that he will give us a chance to understand his thinking with greater clarity in a moment. The hon. Member for North Southwark and Bermondsey has picked up on an important issue that runs all the way through clause 27. It is a bad piece of drafting and it will be a bad law if passed as drafted. The clause is too subjective—we will discuss that during the clause stand part debate. The fact that, according to its opening sentence, the Secretary of State can consider something means that he will have a huge raft of powers. What is missing from the clause is real evidence. In fact, the word “discovers” is not sufficiently robust; the word should be “establishes” or “confirms”. There should be no doubt about the evidence. It should not be based on the Secretary of State having a slight hunch or deciding on a whim one morning that something is not quite right.

We want a much more robust approach and the sort of factual evidence that Ofgem would be required to have if it was going to exercise the powers. It does not seem right that the Secretary of State should be able to operate on a whim and a hunch on a Monday morning when he pops into the office thinking, “I need a headline today; what shall I do? Oh, something’s popped up here!” He will then be able to act on it as if he was dealing with it on the basis of fact. The wording is sloppy and we look forward to the Under-Secretary trying to reassure us that it is not as sloppy as it appears.

David Kidney (Labour, Stafford)

I will engage with the amendment. As the hon. Gentleman has said, his point relates to the clause stand part debate, during which I shall defend the entire clause to his satisfaction, I hope.

Clause 27 will allow the Secretary of State to make schemes to remove any disadvantage suffered by customers of an energy supplier who are treated less favourably than other customers of that supplier in terms of the prices they pay for their energy use. Amendment 24 would allow the Secretary of State to take such steps where he discovers that some customers are being treated less favourably rather than where he considers that to be the case.

The very first debate on part 2 of the Bill was introduced by the hon. Member for North Southwark and Bermondsey and centred on whether we should change a “may” to a “shall”. There is a “may” in line 9 of clause 27, but the hon. Gentleman is not seeking to change it to “shall”. I would therefore argue that the Secretary of State’s decision whether to make a scheme remains permissive whether we use either “discovers” or “considers”.

There must be some circumstances in which “considers” is a broader and stronger word than “discovers”, but it might be the other way around in other situations. For example, if the Secretary of State is told of a shocking situation, one could say that, having discovered it by being told, he should do something about it. “Discovers” might be thought of as a more pressing word than “considers”. Alternatively, the Secretary of State might know for a long time that something is terrible and it might be the length of time that is has carried on being terrible that makes the Secretary of State feel that something should be done. “Discovers” would not be the appropriate word then, because the Secretary of State knew for ages, so “considers” would be the stronger word. Sometimes one is better and sometimes the other is.

Charles Hendry (Conservative, Wealden)

The Minister has given us two different versions of the word “consider”. Does that not show why the word is inadequate in this circumstance? Will he consider or discover a better word, which is tougher and clearer, rather than one that can be interpreted in totally different ways?

David Kidney (Labour, Stafford)

No, I do not accept what has just been said. I gave two different scenarios to show the difference between “considers” and “discovers” depending on the circumstances. Consideration is a word that suggests that somebody has weighed up all the evidence, given thought to it and made a decision. Judges give consideration to cases and Secretaries of State give consideration to things. “Consider” is an appropriate word.

The amendment would, in practice, make little difference to the clause. Whether or not the amendment is made, the Secretary of State will still have to identify a group of customers that is being less favourably treated and then decide whether to exercise his discretion to make a scheme. The change would not mean that the Secretary of State must provide for a scheme whenever he becomes aware that unfair treatment is happening.

As I explained in an evidence session, these are intended to be back-stop powers. In the first instance, Ofgem will be expected to act quickly when it discovers evidence of undue discrimination among customers. If, however, Ofgem is unable to take appropriate and speedy action to deal with any such unfairness, the Secretary of State will consider whether consumers are being disadvantaged and, therefore, whether he needs to introduce a scheme using the powers. The powers give the Secretary of State the discretion he needs to make schemes and ensure that consumers do not suffer harm. I can assure hon. Members that Ministers are ready to use the powers if it becomes necessary. I hope that the hon. Member for North Southwark and Bermondsey will agree to withdraw his amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

The hon. Member for Wealden made absolutely the right criticism of the clause. This probing amendment sought to deal with the first of the discretions, and there are others, as the Minister has pointed out. We have tested the issue before and this clause stand part debate allows us to test it again. There is “considers” or the alternative wording, which may need to be adjusted, and there is the “may” or “must” option. The hon. Member for Wealden was right in the points that he made.

I understand the Minister’s argument; yes, judges do give consideration to things. The argument gets weaker when he says that the measure is there as a back-stop and if Ofgem does not intervene, the Secretary of State is there to pick things up. The history of doing things when Ofgem has not, has not been a happy one, so that is not an entirely persuasive argument. We are certainly keen that there should be back-stop powers because if Ofgem continues to be a relatively toothless tiger, somebody has to do something. I am happy that there is a two-stage operation.

I will reflect on what the Minister has said. This is not about semantics. There are normal words that parliamentary draftspeople use; I think that this one comes from the style of the conventional formulation rather than a more precisely required formulation. I am sure that we will come back to the wording, either in this House or the House of Lords. For the time being, I am happy to go away and reflect. I hope that we can build a consensus on this side of the Committee on the best way to deal with the clause as a whole, including this word. I beg to ask leave to withdraw the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I beg to move amendment 10, in clause 27, page 22, line 25, at end insert—

‘(d) liquid petroleum gas for domestic use customers;

(e) fuel oil for domestic use customers.’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss amendment 11, in clause 27, page 22, line 32, at end insert—

‘(d) as respects a relevant liquid petroleum gas for domestic use customer;

(e) as respects a fuel oil for domestic use customers.’.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

These are probing amendments to explore whether we should add the two categories of people who have already featured in our debates: those who receive liquid petroleum gas for their domestic heating and those who receive fuel oil. The clause gives Ofgem the power and the Secretary of State the back-up power to intervene where there is seen to be differential treatment. There is an attempt to categorise the sort of people who might be regarded as disadvantaged, or a combination of whom might be disadvantaged. The list currently reads: electricity customers, gas customers and dual fuel customers. The amendment is to explore whether LPG customers and fuel oil customers should be included.

Michael Weir (Scottish National Party, Angus)

I understand what the hon. Gentleman is trying to do. I think it is similar to what I tried earlier. Clause 30 defines an energy supplier, and suppliers of LPG or fuel oil do not seem to fall under it, so his amendment would be ineffective.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

The hon. Gentleman is right. As we have discussed before, the market means that the suppliers are often the local garage or local distributor; they are not suppliers in the context of the Bill. We need to find another formulation. The hon. Gentleman did indeed try to open up this debate before and we supported his efforts. There is a will in the Committee to try to deal with the people who are not on the gas mains in large numbers in Scotland, Wales and England. I want the Minister to tell me how to include LPG and fuel oil customers within the abilities of Ministers and Ofgem to consider who is disadvantaged, so that they can have the disadvantage remedy. This formulation may not be right, but there may be another that is.

The second amendment in the group is to do a similar thing later in the clause, so it would allow both the customer category and the charges and costs to be taken into account. I look forward to the Minister’s reply.

David Kidney (Labour, Stafford)

As I highlighted during our debate on social price support last Thursday, I fully recognise the difficulties faced by some people who do not have access to the gas grid and therefore have little option but to buy heating fuels. Amendments 10 and 11 aim to bring the heating oil and LPG markets within the parameters of the Secretary of State’s power to adjust energy charges to help disadvantaged groups of consumers. They suffer from the legal flaw that the hon. Member for Angus pointed out: that the scheme relates only to licensed suppliers and these people are not licensed.

Those off-gas grid consumers, who are likely to be electricity-only customers, are already some of the potential beneficiaries of the clause as drafted. The clause gives the Secretary of State powers to address unfair discrimination between different categories of gas and electricity customers and provides for the introduction of schemes to adjust charges accordingly.

One of our main motivations for introducing these powers is for Ministers to have powers to ensure that people who are off the gas grid will not be treated unfairly in comparison with those who are on it. Our current intention with regard to the design of the new social price support mechanism, for a rebate on electricity bills, will ensure that consumers who are off the gas grid will receive the benefit. The hon. Member for North Southwark and Bermondsey asked to hear what I am going to say about how we can improve the situation. Clearly, the major option is to introduce some kind of new licensing system.

As I said last Thursday, I do not believe that bringing domestic heating oil and similar fuels under the same type of regulation as the gas and electricity markets is the right solution. Neither do I think it would be proportionate as the solution. The Electricity and Gas Acts deal with markets where there are natural monopolies, which means that competition cannot be expected on its own to protect consumers from the risk of unfair exploitation. In contrast, there is no natural monopoly in the distribution of heating oil, gas oil or liquefied petroleum gas. Consumer protection legislation such as the Sale of Goods Act 1979 applies to those fuels, and there is competition legislation. As we debated last week, the Office of Fair Trading, the Competition Commission and local trading standards all have powers that apply to those sectors. The Competition Commission has investigated the LPG market and after five years recommended changes and made orders as a result.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

We understand the Minister’s point and he is right to repeat his earlier arguments. However, he has had time to reflect on last week’s debate and to suggest how we bring the suppliers of liquid gas into a scheme in which the people paying their tariffs get access to some sort of social tariff from the suppliers. The reality is that, despite getting something knocked off their electricity bills, people in rural areas in particular will now pay extraordinarily extortionate prices for a product that they have no option but to buy. The Minister is proposing to do absolutely nothing, which is the frustration.

David Kidney (Labour, Stafford)

That is an unfair characterisation of my position. I do not think that suppliers can charge extraordinary amounts of money for their services without any recourse to a remedy. As I mentioned, the whole of consumer protection legislation is there to protect them, as is the Office of Fair Trading and the Competition Commission.

Bill Wiggin (Conservative, Leominster)

I do not normally intervene if I can possibly help it but, it would be helpful if the Minister realised quite how difficult it is in my constituency for customers for LPG find it. The Competition Commission recommended that the tanks that people have at their houses do not continue to belong to the companies that supply them but become exchanged between various suppliers, so to some extent things have got better. If the Minister saw a contract, he would find that he has to sign up for two years, irrespective of any price change. It is not fair to say, therefore, that there is a proper free market, because he has to bind himself into his supplier because he is an LPG consumer. Whether they can move the tanks around is no longer the criterion that holds the customer, giving them no freedom of choice and no freedom to escape from a contract once they have signed up to it. I do not think that the Minister was necessarily aware of that, although I have written to him about it on behalf of my constituents.

Peter Atkinson (Conservative, Hexham)

Order. Before the Minister replies—I am happy for him to do so—we are in danger of repeating a debate that we have already had in Committee. I hope that hon. Members will bear that in mind.

David Kidney (Labour, Stafford)

I find it extraordinary that a Labour Minister is defending the industry and free market operators from the Conservative and Liberal Democrat parties. Nevertheless, that is my current position. I am saying that there is a competitive market, subject to laws about consumer and competition protection, which provides the protection for those customers. For those in fuel poverty, I have suggested a route, which, as the Chairman reminded us, we debated for a long time last week.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

The Minister is missing my point. We understand that there is a market. The reality is that, whether someone is the wealthiest or the poorest person buying heating oil, for instance, they pay the same price. The only difference is how much someone pays at a particular time. The poor buy smaller amounts and therefore pay more per litre than the wealthy. There is no social tariff whatsoever in those markets. The Minister is not promising to do anything about it. The amendment tabled by my hon. Friend the Member for North Southwark and Bermondsey is attempting to ascertain from the Minister a more comprehensive response to the issue than simply knocking down the amendments because they are inappropriate at a particular time.

David Kidney (Labour, Stafford)

The hon. Gentleman and I will never come to one mind, it appears, because we shall both carry on along parallel lines. I am saying that people in rural areas off the main gas grid will get support if they are in fuel poverty or at risk of fuel poverty from a scheme that gives them money off their electricity bills. I do not see how he can possibly deny that, whereas I cannot deny his point that I am not proposing a similar scheme to give them money off their heating oil, their coal or their LPG. I am not suggesting such a scheme. An active, caring Government can give people alternatives to dependency on those energy sources, to make the market even more competitive.

For example, as well as the social price board we can look at energy efficiency measures that we promote, assist, subsidise, advertise and so on. We can look at alternative technologies that enable people to find new ways to heat their homes, so that they are not dependent on the traditional forms of energy. We can also look at new ways to help people make their payments, for example through credit unions.

To come back to the point made earlier by the hon. Member for Leominster, of course the Competition Commission made two orders last year. One was about transparency of charges and the other one was about enabling people to switch suppliers. So the points that were made have been addressed.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

Obviously we are listening and we hear what the Minister says. However, will he accept that, irrespective of the results of the investigation by the Competition Commission, all the evidence from consumer organisations is that there are large parts of the country where there is no choice? If one looks at the country as a whole, there is choice, but for many people there is no choice in their county, region, village, town or community.

David Kidney (Labour, Stafford)

Perhaps this will come as a surprise but, as the Minister, I do not pretend to have all the solutions. The one point that I have considered since our debate last week and that I certainly took to heart is whether it would be valuable for hon. Members if I were to offer to bring together the appropriate people so that we, as a Committee, can have a discussion with those people present.

For example, we could bring in Consumer Focus, the expert body on the position of consumers; the Office of Fair Trading, the expert body on competition law, or Ofgem, the expert body on regulating gas and electricity markets. If it would be valuable for members of the Committee to get together with me and those expert bodies to look at what protection the law presently provides, what those actions last year by the Competition Commission and Ofgem on the licence conditions have done, what further powers those bodies have and to investigate whether they feel that they need more powers, I am happy for us to do so. We can get together to examine that idea in greater detail, between now and the Report stage. If that would help hon. Members—[Interruption.] I am hearing that people would find it helpful, so I will endeavour to arrange such a meeting so we can consider all those matters together.

I hope that the hon. Gentleman will withdraw his amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

Those are some of the most helpful and positive responses we have had.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

What a nice man.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I am not sure whether the Minister will want to put that comment on his election manifesto, but we will see. [Laughter.]

The Minister’s words are very helpful. I saw assent from the Conservative Members as well as from my hon. Friend the Member for Harrogate and Knaresborough. I am sure that our colleague, the hon. Member for Angus, would think the same about this suggestion. It is a helpful way forward. There are clearly people who are disadvantaged. I hope that, on that basis, there can be progress and I beg to ask leave to withdraw the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I beg to move amendment 6, in clause 27, page 22, line 37, at end insert ‘, or

(c) the method by which the customer pays their energy bill’.

David Kidney (Labour, Stafford)

In preparation for dealing with this amendment I received a briefing from my top-rate group of officials. They do an excellent job, but even with all their assistance I still had difficulty in capturing the argument about how many of those in fuel poverty use a prepayment meter and how many of those who use prepayment meters are in fuel poverty. My officials got me the 2007 figures for England and I thought it would be useful to begin my response to this amendment by setting them out.

First, of the people who use prepayment meters how many are in fuel poverty or at risk of falling into it? Among gas customers, 2.2 million households use prepayment meters. In the bottom 40 per cent. of income distribution, 60 per cent. or 1.3 million households use a prepayment meter and 47 per cent. use standard credit. In the top half of income distribution, 600,000 households or 27 per cent. use a prepayment meter and 40 per cent. pay by standard credit. There are not huge differences between the figures. There were 2.9 million households in 2007 using prepayment meters for electricity. In the bottom 40 per cent. of income distribution, 60 per cent. or approximately 1.75 million use a prepayment meter and 47 per cent. use standard credit. In the top half income distribution, 29 per cent. or around 870,000 use a prepayment meter and 43 per cent. pay by standard credit.

Coming at it from the other direction, how many people who are in fuel poverty use a prepayment meter? Some 2.8 million households were in fuel poverty in England in 2007. Of the electricity customers within that 2.8 million, 1.1 million paid by direct debit, 1.2 million paid by standard credit and 500,000 paid by prepayment meter. So the easy comment that the hon. Gentleman made—I do not mean that as a criticism because we all fall into this trap of saying that these are the poorest most vulnerable customers—is not borne out by the figures.

Phil Willis (Liberal Democrat, Harrogate and Knaresborough)

They might be.

David Kidney (Labour, Stafford)

Indeed. Who knows which of the 2.8 million are the most severely impoverished? If 500,000 of the 2.8 million use a prepayment meter, clearly more than 2 million who are fuel poor in this country are not paying by prepayment meter. Of gas customers 900,000 pay by direct debit, another 900,000 pay by standard credit and 400,000 pay by prepayment meter. That does not add up to 2.8 million so 600,000 pay in other ways. I thought that those two sets of statistics were useful to frame the debate.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

That is really helpful. I am very grateful. Obviously this will be in Hansard, but perhaps the Minister could let us have the tables at some stage. We have all been scribbling furiously, but that would be helpful. May I ask for one clarification? Does standard credit mean cheque, postal order or cash? I assume that it does, but could the Minister confirm that?

David Kidney (Labour, Stafford)

Standard credits refer to people who get a bill and pay it. It could be by cheque; it could be that they get their bank to send the payment; or they could go and pay the bill at the bank or the post office.

I have one last statistic. It is not something that my officials got for me specially; it was in the Ofgem probe. When it was investigating the reason for the difference in what prepayment meter customers were charged compared with other customers, and it said that some of the charges were excessive, it asked what the cost-reflective amount of prepayment meter was. Roughly, once it had stripped out the things that it thought were not acceptable, it said that the cost was something like £88 per year. I do not want to place too much emphasis on a particular amount because it will vary between customers and over time, but I thought that a ballpark figure would be useful for our discussion.

I shall now deal with the amendment. It would make it clear that the powers for the Secretary of State to adjust charges to help disadvantaged consumers would allow him to take into account payment methods when calculating the level of disadvantage. In fact, clause 27 is sufficiently wide to enable the Secretary of State to take payment methods into account.

Ofgem’s probe proved that campaigners were right that there had been some scandalous examples of overcharging of prepayment meter customers in the past. I count myself as having been one of those campaigners, when I was a Back Bencher. As a result of Ofgem’s finding and its decision to act, there has been a transfer of value of £96 million from suppliers to prepayment meter customers, and a new licence condition that says that in future the only difference permitted by Ofgem in its role as a regulator will be the actual cost of the payment method.

The explanatory statement provided by the hon. Member for North Southwark and Bermondsey makes it clear that the amendment aims to tackle the tariff differentials between prepayment meter customers and direct debit customers. I understand the concerns that have been raised, but I am hesitant to agree that politicians substitute the view of the suppliers and Ofgem with their own to that degree. Action has already been taken to address price differentials that are not cost-reflective. Ofgem’s probe investigated the differentials that consumers paid for different gas and electricity payment methods, and rooted out differentials that did not reflect the differences in cost to the gas and electricity suppliers of the different payment methods.

In September 2009, Ofgem changed licence conditions, to ensure that differences between payment methods are no more than broadly cost-reflective, and in a recent report Ofgem stated that tariff differentials for prepayment meter customers now reflect cost differences, on average. Five out of the big six energy suppliers have gone further and have equalised their prepayment tariffs with standard credit tariffs on both gas and electricity. For example, the average dual fuel prepayment customer now pays £4 less than the average standard credit dual fuel customer. That compares with a figure of £41 more in July 2008. It has been suggested that further action is needed to equalise direct debit and prepayment meter tariffs. The motivation is to help fuel-poor customers using prepayment meter tariffs, which I would support. However, equalising tariffs in that way shifts where the costs of the payment method fall, so that people on standard credit and direct debit tariffs subsidise prepayment meter customers, as prepayment meters cost more to provide. That might help the up to 20 per cent. of fuel-poor people who use prepayment meters, but it would not help the around 80 per cent. of fuel-poor customers who are on standard credit or direct debit tariffs. Fuel-poor customers on such tariffs—we have discovered that there are many such households—would end up subsidising prepayment meter customers.

I fully agree that consumers should not suffer unjustified price differences because of their payment method. I support Ofgem’s work in putting in place new rules to protect the consumer further, in particular the proposal to clarify bills and require an annual statement, and the prompt to switch, which will include a comparison of the householder’s tariff with the supplier’s base monthly direct debit tariff. All those moves should help consumers to understand how to get a better deal on electricity and gas.

We need to keep looking for improvements, to make the system work better for consumers. We are legislating to give Ofgem improved enforcement powers to strengthen consumer protection, and to make it clear that Ofgem should address consumer detriment proactively, as and when it is identified. In the coming years, the national roll-out of smart meters will also give added impetus to removing all such differentials.

We will continue working with Ofgem and the energy companies to ensure that consumers, particularly the vulnerable, are given a fair deal, and we will continue to push forward our other measures, such as the introduction of the new social price support, to tackle more effectively the wider problems of fuel poverty. Tackling fuel poverty is not just about energy prices, of course; energy efficiency and incomes must be addressed too. The Government are doing so through programmes such as Warm Front and the winter fuel allowance.

As I said at the outset, the amendment is not necessary to give the Secretary of State the power to do what the hon. Gentleman urges on me, but I have explained my hesitation to commit to doing so. I have found the debate useful in weighing the arguments for and against making the difference, and I am sure it will remain a live issue if the clause remains in the Bill when it becomes an Act and when we consult over the summer on further measures to reach our shared objective of tackling fuel poverty. In the circumstances, I ask the hon. Gentleman to withdraw the amendment.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

I thank the Minister for his comprehensive, well-informed and helpful reply. I have two short questions, which he might be able to answer straight away. For the purposes of Hansard, I have given away the briefing that would have allowed me to answer one of them myself, but it would be helpful to put it on the record. He said that five of the six big companies do not now disadvantage prepayment customers with their tariffs. I have read the papers, but I have forgotten which one still uses differential payments. Will he put that on the record?

David Kidney (Labour, Stafford)

It is British Gas, on gas.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

Secondly, the Minister, in starting his reply and before he went into the substance of the issue, said that he does not believe that it is necessary to amend the Bill to give Ministers the power to deal with differential payments if they want to. Will he elaborate? I do not doubt what he says, but it would be helpful if he could put it on the record for me and those who have not seen what measures in the Bill or existing legislation give that power.

David Kidney (Labour, Stafford)

Subsection (6) refers to the customer’s charges, and the overall impact of subsection (1) and the assumptions and calculations made in subsection (7) enable the Secretary of State to determine whether charging people according to their method of payment makes them disadvantaged customers.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

That is helpful. Again, I do not doubt what the Minister says. I will have a look at how the provisions work together. I read them differently, but if that is the advice given, I am prepared to accept that it is probably more likely to be right.

On the substance, before I accept the Minister’s request, the figures that he gave were helpful. They are counterintuitive in many ways. I think that we all started from an assumption about how many people in lower income groups, or who pay more than 10p in the pound on fuel bills, pay by forms such as direct debit. He said that it was probably about 30 per cent. of the total, which is much higher than I expected. I think that everybody else in the Committee probably had the same view. The figures are useful, and we can all learn from them in ongoing debates.

I am sure that I remember the Minister campaigning on the issue before he became a Minister. I do not doubt his commitment. I urge him to keep monitoring the issue to ensure that we minimise disadvantage and give people the freedom to make and vary their choices without financial penalty, depending on what works best for them. I am content that we have made good progress, and I am grateful to him, his officials and others for helping us. I beg to ask leave to withdraw the amendment.

Peter Atkinson (Conservative, Hexham)

Order. Before I call Mr. Hendry, I say to the Committee that shortly we will have been sitting for three hours. I do not know for how long Committee members propose to go tonight, but if they want to go much beyond 7, I will adjourn the Committee for an hour for supper. Perhaps Committee members can work out how they want to play it.

Charles Hendry (Conservative, Wealden)

I can think of few more enjoyable ways to spend your birthday evening, Mr. Atkinson, than by listening to debate on clause 27 rumble on. There is a modest amount of debate still to be had on the clause, and I think that significant progress will be made after that. If you are minded to allow us to sit slightly beyond 7, and if that is the view of other Committee members, we can return briefly to the subject to finish it on Thursday morning.

Simon Hughes (Liberal Democrat, North Southwark and Bermondsey)

On a point of order, Mr. Atkinson. I may be wrong, but the advice that I received is that there might be a vote at 7 in any event. Certainly, for our part, we will be content to adjourn for today at 7 pm. I do not put pressure on the hon. Member for Wealden. I am content for him to make the points that he wants to make, if the Labour Whip is content, and I am sure that we can co-operate fully for the beginning of the next sitting.

The rest of the debate is in Hansard.