My Lords, Amendments 51ZEB and 51ZEC, 51ZFB and 51ZFC are designed to amend Schedule 14 and permit unlimited liability for energy companies by seeking to ensure that the amount of compensation that can be required through a consumer redress order is not limited. I am aware that these amendments were debated both in Committee and on Report in the other place.
Our aim in drafting the powers in the Bill has been to ensure that the overall interests of the consumer are put first. With this in mind, we have sought to achieve a balance between the need for consumers to get speedy access to the redress they are due and an appeal process which is proportionate to the potential liability faced by energy companies and which does not present a barrier to entry for the small suppliers that we need to ensure a healthy competitive market.
In response to previous amendments, I mentioned that consumers can obtain redress through the courts under existing arrangements. However, the legal process is lengthy and does not offer a typically quick remedy for consumers who have lost out. This is largely because the legal process is necessarily equal to the potential sums at stake, where compensation is unlimited. Schedule 14 sets out powers which contain appeal mechanisms that are proportionate to the potential penalty. These are also limited to 10% of an energy company’s annual turnover and offer a relatively straightforward resolution of cases.
Accepting amendments to remove the cap could deny consumers timely compensation, as they would require us to make changes to the appeal mechanism, which could result in a more lengthy resolution of cases. Given how unlikely it is that consumers would lose out on a scale that went beyond the level of the 10% cap, we do not consider such a change is justifiable. As the noble Lord, Lord Whitty, has mentioned, for the very largest domestic energy suppliers to exceed a cap of 10% of annual turnover would mean penalties and compensation of over £1 billion. This contrasts
with the largest penalty imposed by Ofgem to date of £15 million. We therefore believe that the proposed cap on redress is unlikely to hamper Ofgem’s ability to impose appropriate redress orders.
As I have mentioned in relation to previous amendments, removing the cap on liability could also have adverse impacts on smaller energy companies and, in turn, on consumer bills, due to the increased cost of capital and insurance premiums for energy companies. I assure your Lordships that the approach set out in the Bill does not let companies off the hook. The combined 10% cap on penalties and redress will apply to each separate regulatory breach, so that any company breaking the rules on a number of occasions will face correspondingly larger payouts. For the reasons I have set out, I hope the noble Lord feels able to withdraw his amendment.