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The government must give a clear commitment that it will use the “sweeping and open-ended powers” granted to it by the Energy Prices Bill responsibly, industry figures have demanded.
The Bill was given Royal Assent on Monday (25 October) despite concerns from the industry, politicians, civil servants and experts in legislation. These related to the broad powers afforded to the energy secretary as well as the design of a revenue cap for low-carbon generators.
Energy UK and senior figures from the sector shared their concerns with Utility Week, including the risk that Ofgem’s role could be undermined. One said provisions in the Bill represented “a very ominous and potentially seismic shift”.
The Bill proceeded within two weeks from its first reading to becoming law, largely because it includes measures to implement the energy bills support schemes.
However, it also gives the secretary of state for business, energy and industrial strategy (BEIS) broad powers to “take steps (they) consider appropriate in response to the energy crisis”, including acquiring “infrastructure related to the supply or use of energy”.
The other criticisms levelled at the Bill were around the design of the Cost-Plus Revenue Limit on low-carbon generators. Trade body Energy UK has pointed out that while the windfall tax for oil and gas producers announced earlier this year included an investment allowance, this revenue cap does not. Nor does it include a sunset clause despite an amendment being tabled to introduce one.
It emerged this week that the permanent secretary to the BEIS department took the unusual step of asking for a ministerial direction last month to continue working on the Bill. Sarah Munby told then secretary of state Jacob Rees-Mogg her department had not had time to evaluate the Energy Price Guarantee against other potential interventions. She also admitted there was a risk of a “significant” impact on the public purse from fraud and gaming the scheme.
Other criticisms came from Dr Ruth Fox of the Hansard Society, who called for MPs to intervene to reduce the scope of ministerial discretion and define relevant powers more clearly.
Adam Berman, deputy director at Energy UK, told Utility Week: “What’s really concerning here is that nothing short of either an amendment to the Bill or attaching an amendment to a new piece of legislation, such as the Energy Bill, is going to change these primary powers. We are talking about powers that are pretty much unlimited, because they didn’t sketch out the mechanism, and are essentially in place indefinitely.”
He stressed that the industry understood the need to progress the Bill but said there were still significant concerns over the implementation of some of the measures and “a high degree of uncertainty about the powers this government, and future governments, will have and how they will use them”.
He added: “The fundamental issue with this legislation is that the government is asking industries and society to simply trust them. They have said that the powers are appropriately limited and justified, and to trust them that those powers will not be misused. When you are dealing with something like the Cost-Plus Revenue Limit, investors need to have more confidence.
“We are in a really difficult position here because those primary powers are on the books now and as I’ve said there are limited possibilities for changing those. So at the very least we need a very clear commitment from government about how they see those powers being used going forward. In particular in relation to things like the ability to change licensing, which seems to fundamentally undermine the retail market or at the very least fundamentally undermine the role of Ofgem.”
A source close to the regulator agreed, saying the Bill’s powers were “seriously concerning for Ofgem and its independence”. They added: “We have a regulatory system that has been followed across the world and this completely undermines it. There needs to be a pretty swift clarification of how the government currently regards the regulator.”
Meanwhile a senior figure at an energy retailer called it a “deeply flawed piece of legislation that allows sweeping and open-ended powers”.
They added: “This is a very ominous and potentially seismic shift and I’m amazed the Bill was allowed to go through in this form.
“We all need to keep our ears to the ground now on investor confidence because they will be very aware of the uncertainty this brings and will be wanting to see how the government proceeds.
“There’s a bit of a proof in the pudding now in the statutory instruments. Are they going to be in keeping with the assurances that the industry was given by the last secretary of state that the government won’t abuse these powers?”
The role of regulation and policy in tackling the trilemma is a core theme at Utility Week Forum, which will be held on 8-9 November. Find out more here.
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