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Column 811Primarolo, Dawn
Quin, Ms Joyce
Rees, Rt Hon Merlyn
Roberts, Allan (Bootle)
Ross, Ernie (Dundee W)
Sheldon, Rt Hon Robert
Shore, Rt Hon Peter
Smith, Andrew (Oxford E)
Smith, Rt Hon J. (Monk'ds E)
Smith, J. P. (Vale of Glam)
Taylor, Mrs Ann (Dewsbury)
Taylor, Matthew (Truro)
Thompson, Jack (Wansbeck)
Wardell, Gareth (Gower)
Wareing, Robert N.
Watson, Mike (Glasgow, C)
Welsh, Andrew (Angus E)
Welsh, Michael (Doncaster N)
Williams, Rt Hon Alan
Williams, Alan W. (Carm'then)
Wise, Mrs Audrey
Young, David (Bolton SE)
Tellers for the Noes :
Mr. Frank Cook and
Mr. Jimmy Dunnachie.
Question accordingly agreed to.
Lords amendments Nos. 81 to 89 disagreed to.
Lords amendments Nos. 28 to 50, 78 and 79 agreed to.
Lords amendment : No. 1, in page 1, line 11, at end insert "in a manner that protects consumers of electricity without discrimination".
Mr. Spicer : Lords amendment No. 1 requires the director to protect consumers without discrimination. This would apply irrespective of who was actually supplying any particular consumer. If this amendment were agreed the director would have no option but to ensure that all licensed suppliers dealt with their customers on exactly the same basis in all respects.
In terms of prices, there could be no differentiation on the basis of the different and disparate requirements and characteristics of the customers and customer groups--industrial, commercial and domestic customers would have to be treated identically under the terms of the amendment. Nor could there be any scope for individual contracts since the terms of these could not be allowed to differ from what was offered to all other customers. The prices charged for electricity would have to be the same for a factory and a flat.
The requirement does not stop with prices. There could be no special protection for groups such as the elderly and the disabled. Nor could there be any aid for those who have difficulty in paying their bills. This would clearly be discriminatory against those who are not elderly or who had paid their bills on time.
In short, this is a wrecking amendment that attacks the central theme of the Bill by preventing the scope for competition in the supply of electricity and by doing so,
Column 812rather than protecting the interests of consumers as it purports to do, it damages them by withholding the benefits of reduced costs and hence prices which would flow from competition.
It may be that the proponents of the amendment did not intend these effects but were concerned to ensure that there can be no unjustified discrimination between customers by suppliers. From this point of view, the amendment is unnecessary because, under clause 3, the director and the Secretary of State are already required to exercise their functions so as to protect the interests of all consumers of electricity in respect of prices. There are, in addition, provisions in clause 18 and in the public electricity supply licence preventing the public electricity suppliers from exercising undue preference or undue discrimination. These guarantee that the customer will always be able to get supplies at a fair price and will not be required to subsidise lower prices to others.
Mr. James Wallace (Orkney and Shetland) : One of the concerns in remoter rural areas is the high cost of supplying electricity. Quotes of £60,000 have been mentioned. Clause 19 says that expenditure on supply will be recovered from
"the person requiring the supply to such extent as is reasonable in all the circumstances."
Will the Minister explain or confirm that "all the circumstances" includes the means of the person who is seeking the supply of electricity?
Mr. Spicer : It certainly would not under the terms of the amendment. I have explained that no class of consumer could be the subject of discrimination--for or against. A fair, proper and reasonable price will be one that reflects directly the cost of providing a service. There are ways in which those who cannot pay are assisted, such as the the pre- payment system. There are other methods through social security legislation in which direct assistance is given.
Will a policy of non-discrimination in a new and competitive environment be in the interests of the rural customers whose interests the hon. Member for Orkney and Shetland (Mr. Wallace) has at heart? I understand that he is making a case for his poor rural constituents. If there is competition and the area companies are not able properly to compete in areas where there is intense competition, with the result that they lose customers in those areas, as in many instances they will have the same overheads they may have to increase prices for their remaining rural customers. That is something which seems to have eluded some of those who are arguing against competitive prices within their areas.
In saying that there will be the ability to charge prices to meet competition, we are talking about a downward pressure on prices. If that ability is denied, everyone, including rural consumers, will be the losers in the end within area boards.
We aim to ensure by the provisions in the Bill--I think that we wish to achieve the same result as the hon. Gentleman--that costs are a consideration. There cannot be cross-subsidisation when cost structures are not reflected in prices. We are trying to ensure also that area boards have the ability to compete for customers. In the process of competition, prices will fall.
Column 813area of the North of Scotland Hydro-Electric Board? How else can he defend the fact that there will be a common tariff in that area and not in others?
Mr. Spicer : I am sure that the hon. Gentleman was present in Committee when we debated that. It has been thought that the structure of the industry and the dispersal of the population in the north of Scotland are such that special conditions apply that do not apply in the rest of the country. The hon. Gentleman is as aware of the argument as I am. He may or may not agree with it but it is there and it is the argument that has won the day for giving the north of Scotland special treatment.
The Government believe that Lords amendments Nos. 23 and 24 do not make sense. On the one hand, they would allow the supplier to show due preference in setting tariffs, but on the other they would prevent him from showing any discrimination. In particular, the supplier will not be allowed to show discrimination to rural customers. As no discrimination is to be shown to anyone, it is difficult to see what additional protection could be offered to any particular group. It is clear that any preference to any customer or group of customers must introduce a degree of discrimination. If there is no discrimination there can be no preference, due or undue. Load management is a major part of any electricity supplier's planning to optimise operations and to reduce costs. If by offering particular terms a supplier can persuade customers to accept limitations on their supply, or to use power in such a way as to help improve load management, that will be of benefit to all customers. That applies equally to the domestic consumer using the economy 7 tariff as to an industrial customer who has agreed load shedding arrangements to have effect at short notice. The amendments would prevent that happening.
We understand that all the amendments are motivated by the objective and desire to ensure in future that due regard is paid to, and adequate protection provided for, rural customers. That is shown most clearly in amendment No. 8 to clause 3. We sympathise with that motivation. The clause already requires the director general and the Secretary of State to exercise their functions to protect the interests of all consumers in regard to prices. Nevertheless, we accept that the amendment will reinforce the requirement in respect of rural consumers. No doubt it would serve to draw to the attention of the Secretary of State and the director general the particular needs of rural consumers. In view of that, we invite the House to accept amendment No. 8.
Mr. Alan Williams : I wish to speak to Lords amendment No. 1 and the consequential amendments Nos. 23 and 24. As the Minister has pointed out, those amendments are about rural prices and the fears of constituents in rural areas that as a consequence of the Bill they may pay more for their electricity than urban consumers.
One can understand why the costs of distribution are greater in rural areas. Simply reading the meter is more expensive and the length of transmission lines means that the distribution costs are higher. If the privatised distribution companies started imposing economic costs on rural consumers, it could mean substantially increased charges. About 80 per cent. of the cost of electricity is for
Column 814generation, and distribution accounts for only about 20 per cent. Nevertheless, if the price of electricity is about 6p per unit, in towns and big cities the cost including distribution may be only 5p. Therefore, those areas may be helped. In rural towns the cost of electricity would be 7p or 8p per unit and in rural villages it would be more like 10p. For individual farmsteads or remote cottages the cost may be 15p or 20p per unit. That sort of price structure could emerge if we applied rigorous economic costing. It would hit our rural areas and farmers badly. There are many poor people in rural areas and rural poverty is sometimes as extreme as inner city poverty.
In Committee the hon. Member for Berwick-upon-Tweed (Mr. Beith) pointed out forcefully that people do not realise that this provision is in the Bill. If people in rural areas realised that that was the case there would be outrage. There would be no end of complaints from our constituents and the postbags of Members representing rural areas would be full. Conservative Members would perhaps suffer disproportionately.
In Committee the Government's reply to our argument was that the provision for differential pricing already exists and that our present electricity boards could, if they chose, charge rural consumers more than urban consumers. Under the present structure the industry is in the public sector so there is public accountability. Once it is privatised, the threat of differential pricing would be much greater.
One of the local authorities in my constituency, independently of my work on the Bill, realised that that could be a consequence of the Bill. Dynevor borough council wrote to the Department of Energy expressing its concern. The reply, dated 19 June, stated : "The Bill makes it clear that tariffs may relate to different areas."
It is obvious that differential pricing is possible. The letter also said that the area boards
"have given an assurance that they expect to maintain common tariffs for domestic consumers for five years from privatisation." That gives a period of grace of five years. The letter then offers the reassurance that, after that time, should the private companies "choose to introduce differential tariffs, the licence also requires that any difference in the price offered to different tariff consumers would only be permitted so far as it reasonably reflected differences in the costs associated with the supply."
I represent a constituency second only in size to Brecon and Radnor, and we fear that the remote areas will be adversely affected. Prices will be higher in rural villages in general and could even be doubled or trebled in remote areas.
The principle of differential pricing is unjustifiable. I speak on behalf of the rural dwellers who already suffer from inadequate services, such as a lack of buses, and who have to face extra costs for rural transport. It is generally accepted that, for most services, urban areas should subsidise rural areas. For example, postal, telephone, gas and water services all operate under standard pricing. The Water Bill, which has paralleled the Electricity Bill, contains a clause that specifically rules out differential pricing.
I hope that the Government will accept the sensible Lords amendments, which would ensure that electricity pricing protects consumers without discrimination.
Mr. Beith : Despite the Government seeking refuge through technical objections to the wording of the amendments, their purpose is quite clear. They are about whether the new companies should be allowed to charge more to rural customers than to urban customers. The Minister failed to deal with that issue. The technical defects of the amendments are obvious, but the Government could have tabled amendments to put the objectives of the Lords amendments in the correct form, as they have with other amendments.
The Government have abandoned the case for those who live in the countryside. Should the private companies be allowed to charge their rural customers more than their town customers? The Government answer that crucial question with two voices. For the north of Scotland, the answer is "No"--by statute, there can be no discrimination between urban and rural customers in any part of the hydro board's area. However, in the south of Scotland, in the whole of England and in Wales, discrimination will be allowed between different parts of each area. There is no sense in adopting two such contradictory positions.
The Minister was in some difficulty when trying logically to respond to my intervention. He said that there were special circumstances and difficulties in different areas. Remoteness is remoteness, wherever it is. It is rather less remote on the outskirts of Inverness in the constituency of my hon. Friend the Member for Inverness, Nairn and Lochaber (Sir R. Johnston) than it is at the top of the Cheviots in my constituency, where the privatised company will be allowed to charge different tariffs.
My hon. Friend the Member for Orkney and Shetland (Mr. Wallace), who is present, put it to the Minister at an earlier stage that it would be perfectly practicable to extend the common tariff from the north of Scotland to all areas, thereby confirming the practice of the existing electricity boards. The Minister replied :
"I did not say that there was no way in which we could do it. I said that there is no way in which we would want to do it."-- [Official Report, 6 April 1989 ; Vol. 150, c.400.]
Conservative Members must realise that the Government have no desire to protect rural consumers from tariffs that discriminate against them, which is a ludicrous position to adopt.
The Government's only other defence is that the chairmen designate of the electricity companies that do not yet exist have said that for five years they will maintain common tariffs. That statement is not enforceable in the courts and is without authority. It is, by their own definition, a transitional arrangement, at the end of which the companies may launch a programme of higher charges to rural consumers.
Any right hon. or hon. Member who doubts that possibility should consider the case of British Gas. Only two weeks ago, British Gas warned that it will introduce variable tariffs for domestic consumers in different regions if a price war develops with privatised electricity distribution companies. The new chairman of British Gas warned that he would have to meet the competition
"to hold the load",
which means that consumers in some areas might enjoy price reductions, but that there would be compensatory increases in others. That will happen also in the privatised electricity industry beyond the north of Scotland area, unless the Government accept the Lords amendment or make comparable provision. The Government expect it to be that way and even want it to be that way. I doubt
Column 816whether many Conservative Members who normally sit on the Back Benches but who are not present tonight realise that they voted for such an arrangement.
The concept of higher charging will take one of two forms, or both. The electricity companies may pick out some of the smallest communities that are the most expensive to serve and penalise them, or they may operate adverse tariffs over a wider area, against larger sections of the rural community. I take the example of a small area, Holy Island, in my constituency. It is served by a special cable, and when the south of Scotland electricity company is established, it would be open to it to impose a higher tariff.
The same could apply to a comparable area, the Isles of Scilly, but for one factor--the Prime Minister's be te noire of Europe. The Isles of Scilly laid a new cable so that they could be served by mains electricity, which is cheaper than the high-cost, locally-generated electricity that they used before. However, the European regional development fund made it a condition of the grant that made that scheme possible that for the life of that cable --a period of 40 or 50 years--the Isles of Scilly would be charged only the same tariff as that imposed on the board's other areas.
The hon. Member for St. Ives (Mr. Harris), who is also present, was involved in that process and will know of that decision. He must appreciate that only his constituents in the Isles of Scilly are protected, but others of his rural constituents could be charged higher tariffs. The company may say, "We shall have to look after the consumers on the Isles of Scilly because of the terms of the ERDF grant, but we can put up the prices in other parts of the St. Ives constituency as we can do, in Cornwall, Northumberland in mid-Wales."
The electricity companies' alternative approach could be to operate a higher price structure outside the major urban areas, where they would want to compete more aggressively. Higher tariffs would apply not just to one or two remote rural communities but across a broad band of rural areas outside the major conurbations. Either way, a penalty will be exacted from rural consumers who have no choice of other fuel and who are the victims of the monopolistic character of energy supply.
In most cases, rural customers will not have access to gas, which is why the electricity companies will be able to milk them for higher tariffs. The only alternatives for consumers are Calor gas and oil, and they will not have access to the major competitor to electicity--gas--that will be the cause of such price wars as arise in urban communities. Consumers who are unable to make the switch to another fuel, and to benefit from the competition between those other fuels and electricity, will be penalised.
Farming, the small business sector, tourism and all the other activities on which rural communities depend will face higher electricity charges. And the small industries which have been developed in rural areas and which are the cornerstone of any strategy for rural Britain will be among those most adversely affected by higher tariff differentials. That has been been recognised by the National Farmers Union, which has written to hon. Members protesting vehemently at the possibility of differential tariffs against rural areas. The electricity consultative council for the south of Scotland area has written in similar terms, saying : "Our concern relates particularly to rural electricity consumers whether Domestic, Commercial or Industrial, in the South of Scotland who may be involved in higher