I could not have had a better intervention; I am just moving on to how we can reform the market to get fairer prices.
At a time when we are asking consumers to underwrite tens, if not hundreds, of billions of pounds to pay for the investment that we need, we must have an energy market that delivers fair prices. For the first time ever, the average annual energy bill has now hit £1,400—up by nearly £300 since the last election. Just this week, the Government’s own advisers on fuel poverty warned that unless Ministers change course, another 300,000 households will fall into fuel poverty this winter and up to 9 million people could be in fuel poverty by 2016.
From what the Secretary of State has said today and in the past, I think there is agreement across the House that Britain’s energy market needs to be more transparent, competitive and liquid if it is to work in the public interest. Having identified the problem, however, the Bill fails to do anything about it. As far as I can see, there is no provision to increase transparency; of 126 clauses, only one—clause 34—even addresses the issue of liquidity in the energy market, and even that clause does not propose concrete action. All it provides is a back-stop power, a measure of last resort, with no information about how or when the Government would actually use it to encourage market participation or improve liquidity.
The Bill could have scrapped the old model of unaccountable markets and secret deals and created a new, open, competitive market for energy by introducing a pool. I know that the Secretary of State has been hostile to the idea of a pool, simply because it did not work in the past, but the market has changed. When the pool was last in operation, there were effectively just two generators and the pool was one-sided with only generators placing bids. Today there are many more generators, so the issues we saw with the dominance of National Power and PowerGen in price setting would be much less of a problem—particularly if the pool were two-sided and both buyers and sellers could bid into it, as happens with the Nord Pool in northern Europe.
A pool would have three clear advantages over the current market arrangements. First, it would increase transparency. At the moment, no one really knows the true cost of energy because most of it is bought and sold through bilateral trades that are never made public. If all energy had to be traded through an open pool, those secret over-the-counter deals would end, companies would no longer be allowed to self-supply and we could establish a robust market reference price. If energy companies tried to blame wholesale costs for putting up bills, we would be able to see for ourselves whether that was true. When setting strike prices and reference prices for contracts for difference, as proposed in part 1, we would be in a much stronger position to set the right price, which will be vital to ensure that consumers get a fair deal.
The second advantage of a pool is that it would increase competition. If energy companies had to sell all their generation and buy all their supply through an open pool, anyone could compete on price to generate power or sell it to the public. This would encourage new
entrants to enter the market, provide fairer access for independent generators and community and co-operative energy schemes, increase competition and put a downward pressure on prices.
Thirdly, a pool would increase liquidity. We hear a lot about liquidity, but all it really means is whether the market is providing the things that people want to buy. While there have been some improvements in liquidity on the day-ahead market, one of the biggest barriers to effective competition is the lack of liquidity in the forward market. In order to compete, firms need to be able to buy energy a week ahead, a month ahead, a year ahead, or even further, to ensure that they are not over-exposed to sudden changes in the price of energy. However, many smaller suppliers struggle to get access to these longer-term contracts. The big vertically integrated companies are in a better position because they can, in effect, hedge their supply against their own generation. By introducing a pool, we would effectively ban self-supply, whereby energy companies can generate energy and sell it to themselves. If any company wanted a longer-term deal, it would have to secure it through the open market. What better way is there to improve liquidity than to insist that everything is sold in an open marketplace?
Alongside reform to the energy market itself, we must put in place a regulatory system that protects consumers. The views of the Opposition on the existing regulator, Ofgem, are well known. In our view, it has failed to use the powers that it already has to enforce its own rules. It has turned down new powers—on trading, for example—and time after time it has ducked the opportunity to get tough with the energy companies. Today I reiterate our policy: the next Labour Government will abolish Ofgem and create a tough new watchdog with the teeth to protect the public.
I recognise that that is not, unfortunately, the policy of this Government. Let me contrast their proposals on Ofgem with ours. Clause 117 will enable fines levied by Ofgem to be paid directly to consumers rather than going to the Treasury, as happens now. In itself, this is a perfectly reasonable change to make. Consumers who have been mistreated, not the Treasury, should receive redress. Over the past 10 years, the Treasury has received just over £30 million in fines from Ofgem. Evenly spread across all households, that works out at about 10p per household per year. However, according to research by the independent price comparison website, energyhelpline.com, the mismatch between the prices that energy companies pay for the energy they buy and what they charge their customers for it means that last year alone consumers could have missed out on savings of over £1 billion pounds—more than £50 per household.
The real issue is not about a redress framework for when companies get caught out misleading their customers or putting people on the wrong tariff but about creating a fair market in the first place. The first solution is to make the market more competitive and transparent, which our proposal for a pool would do. Given the dominance of the big six energy companies, their huge regional market shares, and the low numbers of people switching supplier, the second solution must be to create a regulator with the power to correct the existing market failure and force the energy companies to pass on savings to consumers when wholesale costs fall.
This Bill must provide a pathway to the world we hope to pass on to future generations. It must put the consumer first, providing the fair prices and fair dealing
that they have demanded for too long, with a guard dog for a regulator, not a poodle. It must stand up to the energy giants, providing the means and the will to make the energy producers the servants of our nation, not its masters. It cannot be a fudge to hold together disparate factions of the coalition until an election; it must be a roadmap for our nation’s destiny beyond our own lifetimes. I urge this House not to pass a law that is forgotten in a few years but to pass the legislation that we need and of which future generations will be proud—legislation for one nation, but for many generations ahead. I commend our amendment to the House.
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