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Energy  and Climate Change Committee report recommends that Government proposals to increase Ofgem’s powers over energy supply and transmission could help to drive innovation in the energy sector and potentially reduce costs for consumers, but the proposals should be amended to ensure decisions the regulator makes are transparent and open to appeal.

• Report: Pre-legislative scrutiny of the Government’s draft legislation on energy
• Report: Pre-legislative scrutiny of the Government’s draft legislation on energy (PDF 498KB)
• Inquiry: Pre-legislative scrutiny of the Government’s draft legislation on energy
• Energy and Climate Change Committee

The Committee has been scrutinising the Government’s draft legislation on energy, published earlier this year. The draft Bill gives Ofgem new powers to change industry codes – these govern the way the industry participates in energy markets – in order to help consumers switch supplier more quickly and ensure suppliers match the amount of energy they buy against the amount customers actually consume.

It also enables the regulator to run competitive tenders for the design and construction of onshore transmission assets – the overhead lines, underground cables and substations that transfer electricity from energy generators to distributors.

Committee's recommendations

The MPs also recommend that:

• Before introducing the Bill in Parliament the Government should consult further with Scottish stakeholders to ensure that there is a level playing field for transmission projects across Great Britain
• Ministers amend the proposals so that competition for onshore distribution is subject to its own impact assessment before being introduced
• Government ensures its proposals are "future proof" so that suppliers are able to match the amount of energy they buy to the amount consumers use based on shorter periods than half-hourly settlement

Chair's comments

Energy and Climate Change Select Committee Chair Angus MacNeil MP said:

"The Government’s draft legislation is a step in the right direction. The energy industry has for too long been able to decide when to change the way it engages with the energy market. This has not served consumers well. Giving Ofgem the power to initiate these code changes should put the needs of customers front and centre. But in the interests of clarity and transparency, we believe that Ofgem should publish an impact assessment of any changes it proposes to make.

Likewise, industry should continue to have a right of appeal against any changes with which it disagrees on merit. The engagement Ofgem says it will undertake with industry about such changes should keep appeals to a minimum and enable alterations to be made as quickly as possible – to the benefit of bill payers.

The proposals to introduce competitive tendering for onshore transmission are also a positive move in principle. But again we want to ensure that any decisions Ofgem makes about whether to tender a project, and if so how, are open and transparent. We have concerns about the potential delays to projects created by the tendering process, so we suggest that when Ofgem makes a decision about tendering it once again publishes an impact assessment so that industry, communities and consumers are able to understand the reasons behind the decision Ofgem has reached. This will ensure once more that bill payers remain the focus of the Government’s proposals."

Secretary of State's powers 

The draft legislation also extends the Secretary of State’s powers to oversee the roll-out of the Government’s smart meter programme. Commenting on this, Mr MacNeil said:

"The Secretary of State should continue to have oversight of this nationally important scheme, but the ongoing concerns about whether the 2020 roll-out deadline can be met should not be ignored. We are calling for Ministers to set out clearly the responsibilities of all those involved in the roll-out and to ensure that they are able to deliver on them.

With these draft legislative proposals expected to be introduced to Parliament shortly, we are also urging parliamentarians to continue pressing the Government on this issue as the legislation makes its way through both Houses."

Background

The Government published its draft legislation on energy on 21 January 2016. It said the draft provisions would:

• enable Government to drive timely delivery of smart meters […]
• provide the Gas and Electricity Markets Authority […Ofgem…] with powers that support the introduction of arrangements for next-day switching and ensuring that suppliers use consumers’ actual half hourly electricity consumption data in settlement processes […]
• enable competitive tenders for some onshore electricity assets, fundamentally changing the way network investment is made while driving savings for consumers

The Government stated that it was "committed to increasing competition in the energy market and reducing energy costs for consumers," and added that the draft provisions were "fundamental elements to achieving this aim".

Following a request from the Government, the Energy and Climate Change Committee agreed to undertake pre-legislative scrutiny of the draft legislation. In its call for evidence the Committee sought views from stakeholders on whether the proposals in the draft legislation were sufficient to achieve the Government’s stated aim of increasing competition in the energy market and reducing energy costs for consumers.

The Committee also invited evidence on whether the draft legislation’s provisions were necessary, workable, efficient and clear.

Further information

• About Parliament: Select committees
• Visiting Parliament: Watch committees