Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 630-639)




  630. Good afternoon, Mrs Robinson, perhaps you could introduce your colleagues to the Committee and then we shall begin.
  (Ann Robinson) I am Chair of energywatch. May I introduce Andrew Horsler who is a member of the energywatch Council? Lesley Davies is our Director of Policy.

  631. We have had your evidence and one of the major points in it is that you do not believe the market alone can be relied upon to deliver a secure, safe and affordable energy supply. What market failures have you identified? What kind of corrective measures do you think we should be taking to avoid them in the future?
  (Ann Robinson) The biggest market failure, the one we are most concerned with, because obviously we are here as the consumers' champion, is around how that competitive marketplace is working in practice for consumers. We are very concerned for instance about the lifting of the price controls which is a possibility which was announced recently by Ofgem. May I give you an example of why we are concerned? The market is working quite well for a number of people but there are something over five million pre-payment meters and 47 per cent of those who use them are earning less than £12,500 a year. Furthermore, when you actually look at gas, for example, 70 per cent of the people on pre-payment meters are in debt, which means they cannot switch suppliers. There is also evidence that there is not that much switching and when it does happen it is of marginal benefit. We are also concerned about the market in relation to transfers for instance. Considering the industry should be starting to clean up its act by now, our complaints about transfers are even higher this year than they were last year. We get a lot of problems with people erroneously transferred; they wake up one morning and discover they have no supply. That bit of the act needs cleaning up. The issues around marketing are pretty well known about: the harassment and the difficulties. There are several things but if I were to say what really mattered, it is let us clean up the position in relation to transfers, let us clean up our marketing act, let us get rid of debt blocking and let us keep the control on pre-payment meters until something better is on offer and people can genuinely switch.

  632. That is a shopping list. How do you as energywatch go about addressing that issue in the sense that you put forward your complaints—and I can understand them because they echo a number of the points we receive at constituency surgeries and the like? What is your relationship like with Ofgem? In large measure they have set the licence conditions, they have the power to enforce them, they have quite considerable influence in these matters. Do you think you get sufficient backing from Ofgem in the treatment of your complaints?
  (Ann Robinson) In some areas; for example we had a particular problem with an energy supplier who was mis-selling and we talked to Ofgem and they did start to put pressure on the supplier. So in that area fine. Just recently we have lost an argument about continuing some service standards on electricity which we wanted to be applied on gas. What I am actually seeing from Ofgem—and I do not want to get into a technical debate about what makes a competitive marketplace because that can be argued for ever; I am looking at the practical effect—in arguing this through with Ofgem, they have taken the view that people can vote with their feet so we do not need these standards any longer. What we are seeing is an increasing progress by Ofgem towards moving out of the regulation of the retail end of the market. Obviously we have a number of things we can do. We can do what we are doing now: lobbying very hard to make sure that people are properly protected, lobbying with Ofgem, lobbying with the Government and things like that. The second thing we can do is that we can hold the mirror up to poor practice in the industry and we are getting very quick at genuinely praising, naming and shaming and making comparisons about performance. The third thing we are doing, which is very, very important, is that we are looking at the possibility of using a whole range of consumer protection legislation and not just depending on Ofgem. If Ofgem is going to get out of the retail end of the market, then we have to use other levers as well. For example, we are in discussion now with the Office of Fair Trading about using their super complaint procedure which is an accelerated procedure to investigate an anti-competitive measure during a period of 90 days. It may be that something like debt blockage is the one we choose to do. It is very important that we do all of that, because we cannot afford to leave people unprotected.

  633. You argue that gas options are not the right instruments for encouraging an appropriate level of investment in the distribution networks. Do you have any alternatives to that?
  (Ann Robinson) No. The simple, straightforward answer is no. May I perhaps hint at something? I do not think I am in the position—I am not the regulator nor am I government—to start talking about what are appropriate investment drivers. I am not an economist, I am not a financial wizard. My role in life is to understand and explain the impact on consumers. On the auction thing, the thing that worries us more than anything is that we consider ourselves not here just for the consumers of today but tomorrow and the day after. The sorts of things we are concerned about are whether, for instance, there is sufficient investment in the infrastructure and whether the investment signals are big enough to do that. If I may go into that just a little bit, I understand—but you will be able to ask Transco more about this and I am sure they will be able to say more than I can—that the recovery from the last gas auction was something like £40 million. That is small beer in terms of an investment signal compared with the over £4 billion which has come out of this last price control review for capital infrastructure and replacement programme. The second thing is that the auctions are short term; they should send out a little short term signal, but who knows what the mix of short-term/long-term contracts might be in a few years' time. The final thing on this—and this is the worry about the infrastructure—is what is going to happen in Europe. We are all facing a situation where we become increasingly a net importers of gas. You have seen the figures as well about the possibility of importing 90 per cent of our gas by 2020. That gas is going to have to travel over large pipelines, so quite a significant infrastructure needs to be built in Europe. Where are the investment signals going to come from? Do we not need a European approach to make sure it is there? I am very worried about things like depending too much on the liberalisation of the European market, for instance, although the European Commission is very keen on the sorts of things that we are keen on in energywatch. They talk about affordable, secure supply, they also talk about accessibility to energy sources as a universal right, so that is all good stuff and we are behind what the European Commission is trying to do. Earlier this year, when the European Commission tried to get something going they got a bloody nose from Germany and France and I do not see that necessarily changing. There is a need to fashion some investment drivers within the European Community, with some special Government action to try to make sure the infrastructure is there and we need to have some very, very clear signals from Government that it is actually worth investing in the infrastructure. One clear signal might be—and this is where I said I might hint at something—for instance if as a response to fuel poverty the Government do say they will set up a framework to enable significant development of the gas pipeline to take place over the next ten years, that would be a very clear signal.

Mr Hoyle

  634. Obviously you make great play of transmission, storage, infrastructure in the information you provided us with. I just wonder when you make the comments on gas infrastructure and the assumption that the UK will become increasingly dependent on gas for generation, on what basis you made that assumption. Will market forces determine the energy mix? Have you allowed that there is a possibility of further nuclear stations?
  (Ann Robinson) That is a very big question. I have to say straightaway that in energywatch we have not necessarily got the expertise to have expert opinions on some of these things. Having looked at the evidence and what the energy policy reviewers have been doing, what that clearly states is that if no action is taken and we just let nuclear run out, then it is highly likely that we are going to almost double our dependence on gas for electricity generation. I have to take that as read. The question then becomes whether that is the right thing to do. Does that give us the security we need? When you think about the length of the pipelines and the political risks involved, it is reasonable to ask: what are the risks in terms of potential interruption to supply? If there is a potentially higher risk to interruption of supply, how do we put a value on that? It is not just for industry and the heavy industries and public services. Increasingly we are all using the Internet, who knows where we shall be by the year 2050. We just need to look at the cost of not adequately providing that. There are two parts to that. In looking at the security angle and putting a value on that, it means that we have to look again at the cost of some home produced energy, not just nuclear, but also renewables and CHP and all of that. It may be worth spending a little bit more to get that security. The alternative is things like investing in gas storage. I find it quite remarkable, if you look across Europe, take Germany for example which has been a net importer of fuel for some time, relative to consumption they have an almost 25 per cent capacity for storage. France is not that far behind. The European average is 14.1 per cent and that is pulled down because we in the UK only have a 3.7 per cent capacity and Spain are not very much better than us; about six per cent. Yes, if you are moving into a situation where you begin to import, then you have to do a proper assessment of the risk and you have to provide to mitigate those risks.

  635. It is interesting that you use France as an example. You state that within France there is sufficient storage capacity for six months, but France's capacity to use gas is a lot less because it is more dependent on nuclear. In fairness you are trying to compare the UK with France and they are different animals in themselves and also France is a much bigger country and able to have much bigger storage facilities. Is it not true to say that we are nearer the continental shelf and we do work in a different manner from France and at the end of the day you have to remember that six months is a small supply compared with our use of gas.
  (Ann Robinson) I agree, but let us deal with the issue of being nearer the continental shelf. We know that it is going to be harder and harder to extract gas and oil from the North Sea. We shall get to a point where it is not worth it, because it costs us too much to do it. We have to take as given that we are going to be in the position where we have to have these extended pipelines. I know Norway is a possibility and it may be that we start importing from Norway. In fact it is judged that by something like 2020, Norway will only be able to supply something like 20 per cent of the EU needs. We are facing a situation where if we have that heavy dependence on gas, we are looking at Russia, we are looking at North Africa and we are looking at the Middle East. You quite rightly raised the question of another provision. We have said in our evidence that we have to think the unthinkable. We think the nuclear option should be properly examined and there ought to be a proper public debate which addresses these issues, that it is very clear in terms of the assessments and the trade-offs, that there is a clarity not a fudge, the underlying assumptions are clearly made so the public have an opportunity to debate those issues rather than people assuming the public will not buy this or will not buy that or will not buy the other. What a lot of consumers want is to be able to know—at my age they possibly do not mind too much but basically what has to be of interest—is that the lights go on in the year 2050, at an affordable price and their computer is not going to break down, their home heating system is not going to break down or whatever on a regular basis. That is what they are concerned about.

  636. Do you think there could be a possibility of running the magnox stations down and replacing them with a new generation?
  (Ann Robinson) If that is what the assessment says, having evaluated all the facts, then we have to put that in the public domain and go for it.

Mrs Lawrence

  637. You have touched on security of supply across the whole spectrum, but energy efficiency. I commented this morning that I read that energy efficiency is potentially the most overlooked area of potential. Energy efficiency campaigns had much less success with domestic customers than they have had with industrial customers. What steps would you take to persuade the public to take this issue seriously in your role representing consumers?
  (Ann Robinson) We are already doing that because we have set ourselves quite a hard target this year to advise people and refer people on to the correct places to get energy efficiency help and support. We set ourselves a target of that. One thing we are concerned about is that we need to look at this all of a piece. I mentioned already the tremendous gain which can be made by extending the gas pipeline, not simply in relation to fuel poverty, but also in relation to environmentally efficient methods of heating the home. The second thing to say on energy efficiency is that of course we are very, very much for it and it will be an important factor in taking people out of fuel poverty, but we have to be realistic about what can be produced. I should like to believe like everybody else that we get the maximum impact by everybody doing their part in terms of bringing home to consumers what they can gain from this. The practical reality is that by 2050 only half the housing stock will have been replaced and some of the housing stock is notoriously difficult to handle and get at. The fact has to be faced that despite the Government's efforts on the fuel poverty strategy and what is going into HEES (Home Energy Efficiency Scheme) and other programmes, there are many, many people who are not entitled to HEES, who are just above the benefit line who will not be able to afford to take on a more effective and efficient heating system. The third thing on energy efficiency is that we want and we are doing our bit but there is a plethora of ideas out there. We need a proper strategic co-ordinated approach to make sure the messages and the support and the help do get to the people who need them most. It is confusing.

Sir Robert Smith

  638. In your submission you say you do not agree with the cost reflective approach to electricity and gas pricing. Could you give a reason why you do not want to see that?
  (Ann Robinson) I shall put it very simply. We have a passion and I certainly have a passion about people's rights to fuel and accessibility to fuel. A cost reflective approach could mean that some people in rural communities, some people who are not getting gas piped to them at the moment, might have to pay a great deal in order to do it. Is that right? This is why I talked earlier about the European Commission and the public good. I do think there is a fundamental right to access to fuel because access to warmth it is a basic human right. Why do we have health care if we then put people in a position where they cannot keep healthy because they cannot keep warm?

  639. Do you think that should come through the pricing of the fuel rather than through Government intervention and investment to connect rural communities?
  (Ann Robinson) There should be both. The Government is intending to eradicate fuel poverty and if there is real commitment by the Government to doing that then they ought to put some new money into doing some of these things as well as encouraging good practice as part of industry.

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