Draft Social and Environmental Guidance to the Gas and Electricity Markets authority

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Mr. Wilson: Did the hon. Gentleman say that his constituents faced huge increases in electricity bills?

Mr. Thomas: No. There have been increases in bills for tankered-in oil and gas and there is no control over that in the guidance, nor does Energywatch have any control over the problem.

I welcome the statement within the guidance that Ofgem must pay due diligence to the Welsh language. However, it highlights the fact that the utility companies are not covered by the Welsh Language Act 1967. One reason why we need to include in the guidance that the utility companies and Ofgem must work together to ensure that Welsh speakers have access to their services is that it was missed out of the Act. I leave that thought hanging in the air as something to sort out in future.

The guidance is weakest and least effective on environmental issues. That is not as much a reflection of the wording of the guidance—which goes as far as any guidance can go—as of the structure in which the guidance must operate. As the regulator of the gas and electricity markets, Ofgem is not part of the Government's sustainable development and climate change objectives. Yes, the Government can issue guidance saying that Ofgem should do X, Y and Z, but the basic weakness is that the Utilities Act 2000 and various other Acts that apply to the market have not made the Government's climate change, sustainable development and renewable energy objectives a statutory requirement on Ofgem. I accept that the guidance is a fudgy way to try to do all of that and therefore the wording has to be the way that it is. Nevertheless, I place on the record my opinion that it is very weak.

Let us consider some specific issues. The energy efficiency commitment seems to be on track. So far, the voluntary pattern of work seems to be working. However, embedded generation—CHP—is way off track. The failure is one of imagination as well as of action. We were considerably shocked by evidence taken in the Environmental Audit Committee in the recent case of the new electricity trading arrangements for embedded generation. There is huge discrimination against embedded generators. At present, anyone who wants to join the national grid as an embedded generator—for example, a small CHP or biomass plant or even a renewable wind turbine on a farm—pays not only the shallow connection charge, which is

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the charge for joining the grid, but also the deep connection charge. It is often the case in rural areas, which is where windpower is being developed, that the grid is weak. Ofgem tells windpower developers that the whole grid must be upgraded to attach and carry the new source of renewable generation. The full cost falls on the developer, not on the country as a whole as an investment for the future.

That situation does not exist for major generators, which pay only the shallow costs. Nuclear power stations already have the grid worked out very well—no problem there. That is why, if there is to be new nuclear generation, which I oppose, it will be near present or previous nuclear generation sites, because the network is already there.

Ofgem's main proposal to overcome the problem, which is dreadfully holding back the development of renewable and sustainable energy, is that when such generators come into the grid, instead of paying all of the deep and shallow charges at the beginning, the payments will be phased over time and perhaps partially reimbursed. For example, if a wind farm is developed and lifts the national grid in an area, when another wind farm is developed there may be a way of reimbursing the first wind farm. After all, without the earlier development, there would not be a second one, whatever it might be. However, the principle is still that the embedded generators pay more than the major generators and, therefore, the development of sustainable energy is stymied.

The conclusion of the Environmental Audit Committee, with which I strongly agree, is that there is a significant inconsistency in the way in which Ofgem treats embedded generators compared with network generators. I remember that Mr. Callum McCarthy was visibly surprised when we questioned him about it. He had to turn to his advisers, because he was not sure that that was the case. When it was confirmed that it was the case, the light dawned on him. I hope that the light dawned on Ofgem as well and that it is reflected in the guidance notes. I hope that the Minister will confirm that he will discuss with Ofgem how to ensure that embedded generators are no longer penalised for trying to join the network. If he cannot confirm that or at least say how it will be addressed—

Mr. Jim Murphy (Eastwood): He will not have time.

Mr. Thomas: I think that the Minister actually has plenty of time, but if the hon. Gentleman does not believe in democracy, that is fine. If the Minister does not address the issue, the guidelines will just be paper—they will not be real.

Ofgem must ensure that incentives are incorporated in the next price review, which will be the next statutory opportunity to make such changes. If the Government ensure that that happens, they will have my support and, I am sure, the support of Members of all parties.

The other danger for embedded generation and renewables is the proposal—I do not think that it is a formal proposal yet, but it is certainly being

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discussed—from Ofgem to introduce proximity charging. That is to say that the farther generators are from population centres, the more they will have to pay. I am sure that hon. Members can work out that the main areas of tidal, wind and biomass generation are some distance from the main population centres. They are not to be found around London, Birmingham, Edinburgh or Cardiff, but in rural areas, so if proximity charging is introduced, the smaller renewables generators and embedded generators will find it extremely difficult to pay the charges. It would be ironic if rural areas could not access cheap electricity or gas because they have to pay tankered-in costs and could not benefit from, for example, a nearby wind farm. That would be a supreme irony and a supreme failure of the guidance. I ask the Minister to rule out proximity charging or to exempt renewables from such a charge.

As far as they go, the guidelines are positive and useful, but all that the Minister can do is give guidance and require Ofgem to show that it has taken the guidance into account. Ofgem can still take decisions that are injurious to renewable and sustainable energy and embedded generation. Therefore I hope that, in working on the guidelines and in the White Paper, the Government will consider the need to place sustainable development and renewable energy on a statutory, not just a voluntary, footing.

5.41 pm

Gregory Barker: It is a great pleasure to follow the hon. Member for Ceredigion, with whom I have the pleasure of serving on the Environmental Audit Committee. He spoke with his usual native eloquence and I sympathise with much of his analysis.

I broadly welcome the guidance, especially its emphasis on renewables and embedded generation. However, I find some of its contents hard to stomach, particularly the points that it makes about fuel poverty.

Paragraph 2.7 begins:

    ''The Government regards fuel poverty as a major priority''.

I would take that at face value, were it not said by the same Government who went out of their way to kill the Home Energy Conservation Bill before the House rose in the summer—a Bill that had cross-party support and had gone a long way towards completing its passage through Parliament. Due to Treasury pressure, the Government caved in and killed off that measure, which would undoubtedly have helped a great many people out of the fuel poverty that we all wish to see eradicated.

Paragraph 2.7 says that the Government

    ''has published a Fuel Poverty Strategy, setting a target of ensuring that by 2010, no vulnerable person need risk ill-health due to a cold home''.

Yet in a written answer, which I received today, from the Under-Secretary of State for Environment, Food and Rural Affairs, the hon. Member for Scunthorpe (Mr. Morley), I was told:

    ''There are no statutory requirements for energy conservation authorities to make a 30 per cent. improvement in domestic energy conservation. However, authorities have prepared reports which

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    show measures that, if implemented, have the potential to achieve an overall improvement of 30 per cent. over twelve years from 1996.''

The reply states that those targets have been placed in the Library. However, it concludes:

    ''The overall average reported improvement in the first five years was 8 per cent. It is therefore clear that authorities are not going to make the improvements they originally hoped for.''

So I do not know how the Government can say that, by 2010, no vulnerable person need risk ill-health. The ministerial answer and the guidance are totally incompatible.

I can say to the Minister that I would have a lot more confidence in the Government's ability to deliver on these fine words, were they not the same Government that killed the Home Energy Conservation Bill.

5.44 pm

Mr. Wilson: Let me try to deal with some of the points that have been made. I welcome the debate and, as always on such subjects, we have had a good and interesting debate, with sensible and worthwhile points being made on both sides.

Let us remember what we are debating here: guidance to the Gas and Electricity Markets Authority, to Ofgem. There is a danger here. I understand the attraction of calling for the Government to run everything, and saying that all the desirable ends that hon. Members have referred to should be achieved by the Government. However, that would be crossing a line, although a thin one, and that would fatally undermine the concept of independent regulation. Before anyone goes too far down that road, they should consider whether they support the principle of independent regulation, or whether they think that that should be dismissed and all of these matters covered by the Government and by ministerial decree.

We try to maintain a balanced position, and the regulations form part of that. I do not think that giving instructions to Ofgem to do something can be substituted for ministerial responsibility. If there are big strategic decisions to be taken on social and environmental issues, that is a matter for Ministers, and they should accept political responsibility for that, but they should not pretend that, as a surrogate for that, everything can be achieved by telling Ofgem what to do. That would make Ofgem's position as an independent regulator untenable. Getting the balance right is difficult.

It surprised me that the hon. Member for Hazel Grove complained that the regulations are to last in this form for only five months—which is not quite accurate anyway, although the principle is the same. From everything that he said about the regulations, one would have thought that five months was too long, because he does not regard them as in any way helpful or adequate. In fact, the proposal that they should last for less than five years came specifically from the PIU review. This is a dynamic scene, in which we are learning as we go. Many side-effects of the Utilities Act 2000, perhaps not fully envisaged when it was passed, are manifesting themselves now. I do not want to lock myself—in terms either of Government

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action or guidance to Ofgem—into something that will last for five years. In five years, many further changes will have taken place.

If we accept that this is guidance, let us be clear about the relationship between guidance and the statutory obligations on the authority, which take absolute precedence over guidance. The authority is required only to have regard to the guidance; it is expected to take the guidance into account, but no more than that, when undertaking its statutory duties. Whether that is the proper formulation is not really this Committee's concern. Given that that is the relationship between guidance and statutory duties, it is completely unrealistic to expect the guidance to take precedence over statutory duties. That would be illogical in terms of the legislation to which the guidance is subsidiary.

The hon. Member for Hazel Grove commented that social and environmental objectives have been ''eschewed by Ofgem''. I do not think that that is fair, against the background that I have just given: Ofgem has statutory duties to observe, so cannot be expected to have unilaterally carried those agendas forward either on a par with, or in addition to, its statutory duties. However, without waiting for this guidance to be introduced, Ofgem has done much in relation to the social and environmental agendas. Earlier this year, it published its annual review on its social and environmental action plans. I commend those documents to Committee members.

The hon. Member for Ceredigion focused, perfectly properly, on fuel poverty. Hon. Members will find a lot of really good stuff about fuel poverty in Ofgem's annual review. That work is widespread and is progressing consistently. I do not have time to go into the contents of the report today, but consideration is given to what can be done about prepayment through metering; about limiting disconnections, on which subject a lot of progress has been made; and about the problem of voluntary—I am sorry, involuntary—disconnections, focusing on the people who have to cut themselves off. Those people are metered but their cases are not registered as disconnections. Progress has been made on such matters as a result of initiatives by Ofgem, by my Department and by the relevant companies that are fully involved. The idea that there was a complete hiatus while we awaited the, admittedly lengthy, production of the regulations, during which neither Ofgem nor anyone else looked at social or environmental issues, is a complete misrepresentation of reality.

Following on from my point about fuel poverty, the biggest energy issue for many domestic consumers is cost, although they are probably under-represented in this debate. We are all concerned with a wide range of issues: renewables, energy efficiency and 101 other aspects of the energy debate, which is why it is so difficult to get the balance right. If the average punter in the street was asked, ''What is the most important thing about energy?'' they would say that the price should be kept down and, even if the supply were not the cheapest possible, it should be affordable. That features very prominently in Ofgem's calculations and

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it should not be dismissed lightly. In doing that, Ofgem is pursuing its primary remit.

I have had discussions with Ofgem on the way that its remit has been carried out and about its effectiveness, particularly in relation to domestic consumers, but, given the large fall in the wholesale price of electricity, it cannot be denied that electricity in this country is very cheap compared with its price in the past, and in other countries at present. That cannot be dismissed lightly. I do not play down any of the other factors that have been raised, but affordability is central to most of the people whom we represent.

The primary legislation provides that the authority should carry out its functions with regard to any guidance that is issued. The guidance provision—I mention this to clarify the matter—ensures that elected Ministers rather than the authority set social and environmental objectives. The provision ensures that the authority is alert to the Government's social and environmental objectives. It enables regulation to make a proper contribution to the attainment of the objectives and maintains the principle that the authority operates at arm's length from the Government in matters of economic regulation.

A clock in the Room incorrectly says that it is 6.40 pm, so I should check how much time I have left. I cannot go through every piece of guidance, but I do not think that, taken collectively, anyone could take exception to the guidance. On every count the guidance facilitates the objectives about which we have broadly agreed. I do not think for a moment that Ofgen has not pursued the objectives according to its own lights and against the background of its statutory duties. However, the fact that it should pursue the objectives has now been set down.

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