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Column 430Wardle, Charles (Bexhill)
Tellers for the Noes :
Mr. David Lightbown and
Mr. Tom Sackville.
Question accordingly negatived .
It being after Ten o'clock, further consideration of the Bill, as amended, stood adjourned .
That, at this day's sitting, the Electricity Bill may be proceeded with, though opposed, until any hour.-- [Mr. John M. Taylor.] As amended (in the Standing Committee), again considered .
able to finance the carrying on'
financially and technically competent of undertaking'.
Government amendments Nos. 79 and 80, and the following amendments :
No. 131, in page 3, line 10, leave out thereby'.
No. 132, in page 3, line 12, leave out to such premises'. No. 133, in page 3, line 24, after efficient', insert and economic'.
No. 104, in page 3, line 28, leave out subsection (4) and insert-- (4) In carrying out all their duties the Secretary of State and the Director General shall take into account, in particular, the needs of the low paid, those who are disabled and of pensionable age.'.
No. 146, in page 3, line 30, at end add--
and in respect of subsection (3)(a)(ii) above, those who are medically dependent on electricity supply, and in respect of subsection (3)(a)(i) above, those on lower incomes.'.
Mr. Illsley : Amendments Nos. 134 and 135 have been tabled in the name of my hon. Friend the Member for Sedgefield (Mr. Blair) and others. Amendment No. 134 relates to the duties laid upon the director in relation to licence holders. Among those duties, the director must ensure that a licence holder is able to finance the carrying on of the activities for which he is licensed. Our amendment seeks to introduce a requirement for technical competence as well as financial ability.
In view of recent events in the latter part of 1988 when a business man purchased a power station in South Wales, perhaps the clause itself could do with further strengthening when it comes to the character of the people who want to buy such stations and involve themselves in the industry. In an industry such as electricity generation, distribution and supply, there is an obvious need for the very highest standards of technical competence, not only on the part of the scientists and operatives employed in the industry but on the part of those who will be directly involved in making the financial, investment and planning decisions on behalf of the industry.
Column 431A phrase which was bandied about in Committee talked of the responsibility of "keeping the lights on", but there is a little more at stake than that. We have hospitals, schools, offices, factories, foundries, warehouses, mines and any form of building which houses an industry or an enterprise : all rely on a secure supply of electricity. It would be an act of the utmost criminal folly if the supply of electricity to any of these or the supply of electricity in general, together with the future planning and investment requirements of the supply industry, were to be jeopardised by the poor performance of the director in deciding on the financial or technical competence of those who were allowed to invest or take part in the industry.
Yet, as the Bill stands, anyone who can afford to set up in the industry can apply for a licence to do so. There are clauses, particularly clause 7, which impose conditions, but those conditions will be formulated by the director in conjunction with the Secretary of State. It is quite unthinkable that anyone without technical competence would attempt even to consider setting up in the industry, but towards the end of last year it appears that someone actually did so. A Mr. Casfikis purchased a power station in south Wales with the intention of running it. When further investigations were made into the purchase it was found that the gentleman was a man of straw. If there are profits to be made from the industry, however, the profitable companies will be bought out by others. There will be mergers and takeovers. We have seen this week what can happen when a company decides that it will buy out another company. A major finance house carries out an inquiry into the bona fides of a particular company and a firm of City lawyers advises on the legal aspects. If it is anything like what happened with the House of Fraser, all hell breaks loose. If anything illustrates the dangers of clause 3 as it stands, with the director making the decisions on financial and technical competence, it is the fiasco of the sale of the House of Fraser.
In that case the investigations were undertaken by a City firm of financiers. What chance has the Director General of Electricity Supply in trying to judge the financial and technical competence of a company that wishes to come into the electricity supply industry when the City of London cannot do it? Obviously, in those circumstances a large responsibility is being placed on the shoulders of the director general.
In the private sector, the industry will be subject to takeovers and mergers. They will involve major companies without the slightest interest in electricity, let alone in the security or obligation of supply. The larger companies will consider a generating company as simply another part of their portfolios.
We can expect, too, takeovers from abroad. We can well understand, because of its financial situation, that Electricite de France would very much like to invest in our power companies. Obviously, it will be looking long and hard at what happens after privatisation. There will be indications of overseas takeovers by companies that this country finds, perhaps, offensive or unwanted. What remedy will there be? Those takeovers will take place. There will be nothing to stop them, other than such bodies as the Monopolies and Mergers Commission and the Office of Fair Trading. However, if those takeovers comply with the regulations, there will be nothing to stop them. I shall cite two examples of such takeovers in the
Column 432past year in my area. There was the takeover of Rowntree by Nestle and, in my constituency, the takeover of the Redfearn glass firm by a Swedish company.
The electricity supply industry has 12 area boards and each area board covers a considerable area with a considerable number of consumers. Once those boards begin to be swallowed up by larger companies, obviously there will be a much smaller industry and there will be a move back towards the monopoly.
The structure, as it has been outlined in the White Paper and the Bill, might be put at jeopardy because of takeovers and mergers. Set out in the Bill is a horizontal structure with the separation of generation, distribution and supply. However, in future what will there be to stop the larger companies buying into other aspects of the industry--the supply and distribution sectors--or the suppliers coming back into generation to tie up the loose ends and moving us back into a system of vertical integration?
The area boards or the public electricity suppliers, as they will be known, will have power to have their own generation capabilities. We will therefore start from a small amount of vertical integration which could be increased by mergers of the area boards. We could also see--perish the thought--British Coal, if it is privatised, being bought by the electricity companies. We could see major consumers of electricity being purchased, which will again bring into question coal imports.
What prospects are there for the area boards? They will either be strong enough, or have the financial muscle, to stand alone after privatisation, or, if they have a large industrial customer base, they will stand threatened by the introduction of independent investors who will take away those large industrial customers and leave them at the mercy of the predators, the larger companies within the industry.
If, as we are led to believe, there are upwards of 20 companies ready and waiting to come into the industry, that threat is already there. We have yet to have names put to the 20 companies that have been talked about during the past three months. However, we will obviously take the Minister at his word and believe that the threat from those companies exists.
I shall cite two examples. There is the Yorkshire electricity board, which is my board, and the north eastern board, both of which have a large base of industrial consumers. If we compare those boards with the south eastern electricity board, the reverse is true. That board has a large domestic consumer base and obviously the new boards in the south-east will set off as being more attractive to investors. They will start off with a financial advantage because they will have locked-in customers--the domestic consumer, unlike the industrial consumer, cannot opt out and look to the private generator. It is important to consider that 49.5 per cent. of the north-eastern board's customers are industrial and that industrial customers account for 52 per cent. of the Yorkshire electricity board's market. The one customer common to both those boards is the coal industry, which is a major consumer of electricity.
With the introduction of coal and oil imports after privatisation, both aimed at taking away British Coal's share of the market, there will be a further knock-on effect in our areas. The area boards will lose their custom as we face further colliery closures.
Column 433The Government should reconsider clause 3, especially the duties of the director regarding the financial and technical competence of entrants into the industry. They should tighten the Bill to enable companies or area boards, such as Yorkshire and north-eastern, to fend off the takeover bids with which they are bound to be faced after privatisation.
Dr. Kim Howells : It is important to draw attention to the implications of those parts of the Bill that test the probability that licence holders will seek to secure their hold on particular parts of the market by expanding their operations, as my hon. Friend the Member for Barnsley, Central (Mr. Illsley) has said, beyond the straightforward business of marketing and selling electricity. We are talking about area boards--licence holders--six of which have annual turnovers of more than £1 billion. Even the smallest, the south Wales board, has an annual turnover of £500,000.
The diversification of the boards is mainly discussed in terms of electricity generation, but I am sure that the Minister is well aware that several boards have been hyperactive in putting together generating projects and, in some cases, joint ventures for power production.
I echo the concern expressed by my hon. Friend. Is the Minister aware that there is a great deal of talk about generating boards buying back into their supplying companies in the future? It has even been suggested that they might buy coal mines as well as other sources of fuel. What implications will that have in terms of the creation of new, future monopolies?
Mr. Michael Spicer : The hon. Member for Barnsley, Central (Mr. Illsey) has focused on amendment No. 134. I understand the purpose of his introductory remarks, and I listened with great care to what he said.
We believe that the present wording of the Bill is more embracing than amendment No. 134. The present wording enables the director to do what he wants to do--to check the financial credentials of a potential new entrant and to bear in mind that entrant's future viability when considering such matters as pricing formula and his other duties. The present wording meets the concerns expressed by the hon. Gentleman, especially in relation to clause 3(1)(b), and offers other advantages.
The hon. Member for Pontypridd (Dr. Howells) was concerned about anti- competitive practices. So would we be, if there were the kind of anti- competitive practices that he has in mind. The normal anti-competitive rules and laws will apply. The Bill makes specific provision for the operation of the Monopolies and Mergers Commission and deals with the interrelationship between the powers of the director general to protect competition and the more general powers of the MMC.
While we would not want to restrict any reasonable diversification or development by any company, we agree that there should be consideration of anti-competitive practices. We think that the current institutions and laws for protecting the industry from the predatory behaviour that the hon. Gentleman has in mind are adequate.
On the basis of that explanation, I hope that the hon. Member for Barnsley, Central will withdraw his amendment. Certainly we would not accept any of the amendments, and particularly those which, contrary to
Column 434what the hon. Member for Pontypridd was concerned about, are aimed at restricting competition and competitive pressures.
Mr. Illsley : In view of the speech of my hon. Friend the Member for Pontypridd (Dr. Howells) and the points that I made in my contribution, we still feel that the Bill needs strengthening, particularly as regards financial mergers and takeovers. As the Minister is not willing to accept amendments on the point, we will divide the House.
Question put , That the amendment be made :--
The House divided : Ayes 60, Noes 160.
Division No. 145] [10.21 pm
Banks, Tony (Newham NW)
Barnes, Harry (Derbyshire NE)
Beith, A. J.
Bennett, A. F. (D'nt'n & R'dish)
Bruce, Malcolm (Gordon)
Buckley, George J.
Campbell, Menzies (Fife NE)
Ewing, Harry (Falkirk E)
Ewing, Mrs Margaret (Moray)
Garrett, John (Norwich South)
Hogg, N. (C'nauld & Kilsyth)
Home Robertson, John
Howells, Dr. Kim (Pontypridd)
Hughes, John (Coventry NE)
Mitchell, Austin (G't Grimsby)
Molyneaux, Rt Hon James
Pike, Peter L.
Powell, Ray (Ogmore)
Taylor, Matthew (Truro)
Wareing, Robert N.
Welsh, Andrew (Angus E)
Welsh, Michael (Doncaster N)
Williams, Alan W. (Carm'then)
Tellers for the Ayes :
Mr. Nigel Griffiths and
Mr. Allen McKay.
Alison, Rt Hon Michael
Arnold, Jacques (Gravesham)
Baker, Nicholas (Dorset N)