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Mr. Gibb: We were trying to convey the fact that the official Opposition agree with the hon. Gentleman's vital point that, yes, the world has moved on.

Mr. Caplin: I was trying to ask whether the Conservative party had moved on, but I realise that that was far too difficult a question.

As multi-utility companies are clearly emerging, we need a new, modern regulatory framework. I believe that the Bill achieves that.

Fourthly, the Bill recognises the importance of environmental objectives and brings them into the heart of the utilities and their regulation. It gives Ministers powers to make regulations to promote energy efficiency and the generation of electricity from renewable sources. I was certainly encouraged by my right hon. Friend the Secretary of State's answer to the hon. Member for Lewes (Mr. Baker) on that point. The Bill places a duty on the regulator to have regard to statutory guidance issued by Ministers on environmental objectives in the relevant sector. Even Greenpeace feels that the Bill has some positive impact on environmental considerations.

Fifthly, the Bill brings about a more stable, consistent and transparent regulatory framework. In any Bill dealing with regulation, there are technical parts. The hon. Member

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for Tiverton and Honiton took us through many of those, so I shall not go over that ground again. The Bill is about building confidence by making regulation open, accountable and consistent and ensuring that the regulators' decisions are widely accepted.

I am glad that concerns in those five areas have been responded to over the past few months.

The hon. Member for Bognor Regis and Littlehampton and I both have electricity and gas provision from Seeboard in our areas. I gladly declare an interest in that Seeboard has 1,000 staff based in Hove. I asked the company what it thought about the Bill. In April 1998, it was the first electricity company in the country to abolish the standing charge, partly because of local pressure on behalf of people in fuel poverty. We are pleased that it responded, and that shows the effect that local campaigns can have. The Government also reduced fuel prices in their first Budget in 1997, by reducing VAT on fuel: a point to which we shall no doubt return in the general election.

Seeboard said that it supports the legislation because it recognises the existence of weaknesses in the current regulatory framework. It said that the legislation allows the current public electricity supply licence to be replaced by separate distribution and supply licences, which it supports, establishes a single regulatory body and sets up the consumer council, which it supports especially because of the regional element, which is important from its point of view. Seeboard also believes that the Bill will reduce the regulatory uncertainty that has existed in the marketplace for some time, but still allow companies to run their operations in the best long-term interests of their customers and, of course, their shareholders. Seeboard supports the changes in the Bill that are intended to give effect to those measures, and I am sure that the hon. Member for Bognor Regis and Littlehampton is pleased that the provider of power in our area gives the Bill a thumbs up.

The question of the social action plan and low income groups is at the heart of the Bill. That is the difference between the current, Conservative-sponsored legislation, which is about the supply of a utility, and this Bill, which is about putting the consumer first in utility regulation and the provision of services by utilities. The Bill will be regarded in years to come as an important, modernising Bill. It will reduce prices for the consumer, but it will do so in a way that allows the companies to continue to invest in their local areas.

5.46 pm

Mr. John Butterfill (Bournemouth, West): The Secretary of State was uncharacteristically churlish when he described what he had inherited in the industries that we are discussing. I remember well the situation in which privatisation first took place, because I had the honour of serving as Parliamentary Private Secretary to my noble Friend Lord Parkinson, who was then Secretary of State for Energy. Indeed, my hon. Friend the Member for West Worcestershire (Sir M. Spicer) was the Minister of State at the same time, and no doubt he will seek to catch your eye later, Mr. Deputy Speaker.

At that time, the nationalised industries provided a poor service to the consumer. In fact, they did not care much about the consumer. They provided their services at high cost, and there was no attempt to modernise the industries in the way that they were being modernised in other parts of the world.

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When we first suggested privatising energy industries, Opposition Members opposed it in principle, but they also claimed that it would not work. They said, "You can't possibly privatise a monopoly supplier and introduce competition into the process." Well, it did work, and the Organisation for Economic Co-operation and Development, as recently as 1996, held this country out as an example of how it should be done. What we did was not perfect, because we were pioneering at the time. We were doing things that people did not believe to be possible.

Mr. Caplin: If the privatisation of British Telecom was pioneering in the mid-1980s, why did the Tories get it so wrong with the water industry in the 1990s?

Mr. Butterfill: I do not think that we did get it wrong, although it was not possible to get everything perfect. Much play has been made by Labour Members of the prices at which the industries were sold, but we should remember the climate. Privatisation had not been attempted before. Many people, especially all the then Opposition Members and including some people in the City, did not think that it could be done. People were nervous about the prices that the industries would be sold at, especially because they would be subject to close regulation. Indeed, people told us that it would not be possible to privatise electricity provision unless we took the nuclear industry out. That is why nuclear was not privatised at the same time as the other generators.

Sir Michael Spicer: My hon. Friend makes an extremely important point about the difficulties that we faced. Does he remember that the chairman of what was the Central Electricity Generating Board said that something called megavars would blow up the whole industry if we privatised it?

Mr. Butterfill: I remember that well. The CEGB chairman was ambivalent about the whole privatisation process. We were told that selling the industry would be difficult, and impossible if nuclear were included.

We took professional advice on the prices that could be achieved. It is also important to remember that the Treasury had a real interest in the price. Many civil servants at the Treasury at the time are still Treasury officials now, and they were extremely worried about how much money privatisation would produce.

It is wrong, therefore, to say that the Government of the day sold off the electricity industry cheaply. We wanted to get as much money as possible, but we wanted privatisation to succeed. We took professional advice on the price that could be obtained.

Everybody was surprised at the success of the enterprise. Labour Members were amazed that privatisation worked. It is wonderful to look back with hindsight and say that the industry was sold off cheaply, but at the time people were astonished that it was sold at all.

Mr. O'Neill: The old nationalised industry was run by technologists and, at best, technocrats, not by business people. The accounting systems were of a perfunctory character and were somewhat opaque in several respects. However, that was a reflection not of the quality of management, but of the emphasis on technology.

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Technology was at the core of the business. If something could improve technological performance, it was tried, but the question of whether that was necessarily good for the consumer was not considered. That was one of the factors that made pricing difficult. However, a lot of people made a lot of money out of privatisation, and perhaps there was not quite so much naivete in the City as the hon. Gentleman suggests.

Mr. Butterfill: I do not think that anyone has suggested that the Government of the time were deliberately given inaccurate advice, nor that the advisers were guilty of professional negligence.

Mr. John Cryer (Hornchurch): Time and again, when they were privatising the railways, the previous Government were warned--by the unions and by independent bodies--that the price was set too low. They took no notice of that advice.

Mr. Butterfill: I recall that the unions opposed every privatisation. In the main, the reasons that they gave for that opposition have proved ill founded. I think that all hon. Members would agree--as would the Government, even--that privatisation has been benign, and that it has benefited both consumers and UK plc. That is evident in the falls in domestic prices: prices for both electricity and gas have fallen by 29 per cent., while telecoms prices have fallen by 50 per cent.--and by 80 per cent. when those prices take account of telecommunications with Europe.

It is proper now to look again at the privatisation process and seek to redress some of the imperfections in the original legislation. However, hindsight is a wonderful thing: it allows people to say how they would have introduced privatisation, but only after they have seen how the process turned out in real life.

I welcome several proposals in the Bill. The merger of Ofgas and Offer to form Ofgem is a good idea that the Select Committee recommended a long time ago, on the basis that one regulator for that sector offers a lot of advantages. That arrangement would not have been possible originally, as the two industries were privatised separately, but, in today's circumstances, it is a logical proposal. Similarly, the proposal for separate licensing of supply and distribution of electricity is sensible, and I support it wholeheartedly.

I am a little more worried about the proposals for the new electricity trading arrangements--NETA--which have attracted quite a lot of criticism. I have mentioned that Professor Bunn of the London business school thinks that prices will rise rather than fall. The difficulty is that the system to which we are moving is not based on real-time trading. Most of our western competitors have systems based on real-time trading, and they have achieved results in getting prices down. The new system is much more opaque and difficult to understand, and many of those being asked to participate in it have considerable doubts about whether it will work.

I hope that it does work, as all hon. Members are in favour of lower electricity prices for consumers. However, Larry Ruff of National Economic Research Associates does not think that abandoning real-time trading will

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work. He considers that it is not a sensible option, as it is wholly unproven. I should be interested to know how confident Ministers are that this novel idea will produce the hoped-for results.

There are concerns about certain participants in market supply. For example, I imagine that most hon. Members will agree that combined heat and power is an extremely good idea, being more efficient and economical. It is something that we should have been involved with a long time ago. However, the Combined Heat and Power Association has reservations about how it will be able to participate under the new trading arrangements. The association is at something of an impasse with Ofgem about the resources that might be given to it to allow it to participate in market supply.

In a recent submission to the Select Committee, the association stated:


That is worrying. If important market participants such as the Combined Heat and Power Association think that the process is not working, many other, smaller contributors--which all hon. Members will want to encourage, because we all want greater diversity of supply--may have even greater difficulties. To describe the NETA process as "highly complex and opaque" is probably an understatement, given that even those of us who take an interest in the matter have experienced some difficulty in envisaging how the process will work. That is not a new experience, admittedly. Many of us found it difficult to understand how the pool would work; some of us still do.

Another worry has to do with security of supply. I am not sure who, under the Bill, will have primary responsibility for that. I hope that the Minister will be able to clarify the matter when she replies to the debate. It is an important issue. When members of the Select Committee went to see Ofgem, I asked how the new system of calculating electricity prices would affect the balance in the market of the different types of generator. Ofgem could not give a clear answer; in fact, it said that it was not its responsibility, and that projecting how the changes would affect the balance of supply was not within its remit. However, it seems clear that coal-fired energy producers may be at a disadvantage.

I am also concerned that there is no clear idea from Ofgem or the Minister about what will happen to nuclear energy. Our nuclear capacity is likely to disappear altogether over the next 15 to 20 years unless the Government make an announcement to renew it. Within that period, it will steadily decline as a proportion of the market. That has implications for our Kyoto obligations and for what we are going to do for replacement energy.

The Secretary of State has been refusing consents for increased capacity for gas-fired generation. How will the new obligations be met, and what effect will that have on other generators and the security of supply? Those are important questions, but they are not being addressed by Ofgem, which says that they are not its responsibility or, I suspect--unless I hear otherwise--by Ministers. Who will take the strategic decisions to ensure that we always have security of supply?


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