Lobby: An interview with Caroline Flint, shadow energy secretary

"This is about transparency, so people can be reassured there isn't gaming going on."

Unlike two years ago when Utility Week last sat down with Caroline Flint, she is not running late. In fact she is fully prepared and ready to go, only for her phone to buzz as she receives a message from her daughter. Even as she is potentially weeks away from becoming the UK energy secretary, Flint still makes time for her family. 

With the reply sent, she apologises with a smile and we get underway. That smile is one that will strike fear into the hearts of the chief executives of the major energy companies. Flint embodies a whole host of problems the big energy firms will face should the Don Valley MP be able to unleash her radical reforms.

The headline grabber is the price freeze. The pledge, made at the 2013 conference by Labour leader Ed Miliband, is still the topic for debate in energy. And Flint is keen to keep it in the forefront of people’s minds. This close to the election, the more publicity the promise gets the better. Bashing the big six is still seen as a vote winner.

Behind the pledge, as Flint is all too eager to stress, are the important structural changes to the market that a Labour government would make. The plan to abolish Ofgem – despite the vital role it plays in these reforms – still stands. As does the intention to re-establish an energy pool, potentially piggy-backing on established exchanges. The price freeze will ‘right the wrongs’ inflicted upon consumers by the companies, whilst moves behind the scenes creating a fair system take place.

First things first, the price freeze. With Miliband telling a party rally a two weeks ago a government under his leadership would cut bills and cap rises, is it still a freeze? “It’s a freeze. A freeze,” Flint retorts sharply. Her researcher quips that it would be a restriction on the suppliers increasing prices over the 20 month period. This debate, is a side issue to the main reforms and obviously an irritant to Flint, but it is important because the companies need clarity on how they will be affected.

The freeze – Utility Week gets corrected for calling it a cap with a stern look – is not a cap in the traditional sense, whereby prices can fall and rise up to a certain level. There will be no upward movement allowed in the energy price, even if a fall in wholesale prices are forced through before a wholesale price rise. The suppliers will have no means to recoup these costs. Two years ago, Flint said: “There’s no gain without pain in this”, so is this plan designed to make the big six suffer?

“It is not about suffering. It is about fairness,” she says. “The whole point of the price freeze is to give us 20 months to reform the energy market. The other reason goes back to when there was a substantial dip in the wholesale cost and the evidence shows those reductions were not passed on to consumers. We are compensating people for that.”

However, as we delve deeper into the freeze, Utility Week is told it would not be Labour imposing these cuts. It would actually be the much maligned – and still set to be scrapped – regulator Ofgem.

Flint, running down what must be a well-trodden path in her mind, sets out her first few days in office as energy secretary, says emergency legislation would give Ofgem the power and the duty to force suppliers to pass on falling wholesale prices. This will prevent the big firms locking in a profit margin when the freeze is imposed.

“It has become clear to me we need a power like this because Ofgem has confirmed in two reports – in 2011 and 2014 – that they believe there is evidence the wholesale cost falls are not being passed on. We need to tackle this,” she says with conviction.
“I know a number of companies have reduced their prices, but that is only for gas. There is a role for the regulator in saying whether those reductions are fair for customers or not.”

As for what makes a fair price, one that customers can stomach and allows the businesses to function, Flint is cagey.
“As much as interviewers have tried to tempt me, I’ve never got into what is an acceptable level of profit. What I can say is does the bill payer get a fair share of the dividend or benefit when things are going well? I don’t think they have.”

Flint, after another pop at the big six, returns to profit levels. The European utilities, and the UK supermarkets, operate on a profit margin of about 3 per cent, she says. “I think this is fair for me to the suppliers, where have you got the justification for this?”
The five per cent margin that Centrica and SSE have in the past claimed as fair is, according to the Labour front bencher, “over the odds” and should be more in line with their European counterparts.

So Flint will use Ofgem to cut bills and make them “fair” for customers, before making the regulator fall on its sword, ultimately to be replaced by a new regulator. Or, as energy secretary Ed Davey regularly taunts Flint with in Westminster, rebranded as Ofgem 2.
“Ofgem in its current guise doesn’t really fit in terms of what we need a regulator for this sector to do over the next 50 years. That’s why I don’t want to tinker with the present arrangements,” she adds making a reference to the rebranding accusations.

“We need to have a real sense in the public’s mind we’ve got a new regulator that is dealing with the problems we’ve highlighted over the last few years. There will be a number of tasks that are done by the present regulator that will be carried forward, but in a number of areas things will be different.”

These new opportunities for Labour’s energy watchdog will expand on Ofgem’s current remit to include off-grid customers and to champion community energy, on top of pulling the big boys into line, obeying the new authority.

But Labour has an authority problem of its own. Namely the Competition and Markets Authority (CMA). The investigation launched into the energy sector last year was welcomed by the coalition parties. Davey said it would with the problems in the sector, and both the Tories and Lib Dems said they would follow the recommendations made by the CMA.

Flint refused to commit to follow the CMA’s recommendations. Labour will press ahead with their plans for the market regardless, especially when it comes to ending vertical integration. “I’m still committed to doing something in this area,” Flint said.
She added: “This is not about companies completely divesting themselves of different parts of their organisation, it’s about giving transparency so people can be reassured there isn’t gaming going on from one part of the business to another.”

The final element of the radical overhaul of the energy market proposed by Labour is the re-introduction of the energy trading pool. She also swatted away thoughts this would be a similar system to the pool the Labour government abolished in 2000: “It’s not about going back to the pool of yester-years. What we are trying to do here is create transparency,” Flint said.

Labour is looking at the APX and N2EX pools, not only for inspiration, but the party could utilise these systems to speed up the introduction of a pool without having the complicated and potentially time-consuming build stage. Trading 100 per cent of energy through these “would have the same effect as introducing a pool”.

So the energy revolution is primed and ready to go. It will be led, intellectually at least, by Flint and Miliband should Labour win the election in May. But the dirty work will be left to Ofgem. The regulator will be forced to crackdown on the sector, before it too faces the wrath of Flint.

She said she intends to take up office in the Department of Energy and Climate Change after 7 May, entering somewhere she has never been before. If she does, it will be unchartered territory for the energy sector as well.