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Session 2001 - 02
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Delegated Legislation Committee Debates

Draft Social and Environmental Guidance to the Gas and Electricity Markets authority

Sixth Standing Committee on Delegated Legislation

Wednesday 6 November 2002

[Mr. David Amess in the Chair]

Draft Social and Environmental Guidance to the Gas and Electricity Markets Authority

4.30 pm

Mr. Andrew Stunell (Hazel Grove): I beg to move,

    That the Committee has considered the draft Social and Environmental Guidance to the Gas and Electricity Markets Authority.

I appreciate this opportunity to discuss the social and environmental guidelines, although I have some serious reservations about them. Some hon. Members may ask why we should debate the guidelines at all. Several Labour colleagues have been kind enough to say to me, ''This is all motherhood and apple pie, so how on earth could one oppose it?'' It is motherhood and apple, but it is a very small piece of stale apple pie and the motherhood is so substandard as to attract the attention of the National Society for the Prevention of Cruelty to Children.

I served on the Standing Committee that considered what became the Utilities Act 2000, which set up the Office of Gas and Electricity Markets and generated the guidance notes before us today. It has been a long, painful journey from the passage of the 2000 Act to the confirmation of the guidelines today—two and a half years and they are still not in force.

I was in Committee when we were told clearly by the Minister that, once introduced, the guidelines would be in force for five years. Yet I notice from the cover note on the draft guidelines,

    ''It is anticipated that the Guidance will be reviewed in the context of the energy policy White Paper, which we plan to publish around the turn of the year.''

In other words, the guidelines, which were intended to apply for five years, will probably be in force for about five months. That may be all for the best because they are so ineffective that it makes little difference whether they are in draft form, in force or superseded.

The Government's enthusiasm for the guidelines is, perhaps, shown by another quote from paragraph (c) of the document's introduction, which states:

    ''The Government hopes that . . . the Authority will . . . support the development of appropriate initiatives'',

so the guidelines are not exactly at the cutting edge of steering. The associated memorandum, which is described as prepared by officials of the Department of Trade and Industry, but not endorsed by DTI Ministers, says that

    ''the authority is expected to take the guidance into account but no more—when undertaking its statutory duties.''

In other words, it is not to let the guidelines get in the way. That must be seen in the context of Ofgem and its director's having behaved wholly properly at every stage and strictly in accordance with its statutory framework. In my discussions over the years, while we

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have been waiting for the guidelines to be produced, various officials at Ofgem have made it clear to me that they see their role strictly in terms of the 2000 Act, which places primary if not sole responsibility on economic and market-driven parameters rather than environmental or social ones. Flowing from that is the fact that any creative or imaginative capacity intended to stretch the framework of the regulations to include other things has been positively and deliberately eschewed by Ofgem. I do not criticise it for that: it is acting entirely properly. However, if the social and environmental factors that the Government and the Liberal Democrats believe are important are to be taken into account, it can be done only through the document before us.

I draw attention to some of the comments made about the guidelines—first by the performance and innovation unit report ''Energy Review'' of February. On page 141, it stated:

    ''Ministerial guidance to Ofgem on environmental objectives should be more specific about the outcomes the government wishes to achieve.''

On page 146, it went substantially further by stating:

    ''we do not think the existing draft guidance on environmental concerns is sufficiently specific about the outcomes Government wishes to achieve and when it wishes to achieve them''.

On page 147, there is more in the same vein. The critique by the performance and innovation unit is a devastating view of the likely outcome of the guidelines. It is no wonder that the Government have already announced that they will be rethinking it in a few months.

Mr. Michael Jack (Fylde): I listen with keen interest as the hon. Gentleman reads out what others think of the guidelines. Will he tell us what he thinks of them, and how his party would modify them?

Mr. Stunell: Yes, of course I will. I have not come here simply to rehearse other people's views. Sadly, the consultation documents, which have been in the Government's hands, were insufficiently taken into account when drawing up the document before us. The Energy Saving Trust has sprinkled its comments with ''buts'' and ''howevers''. Having welcomed the document, it said that

    ''energy price reductions will at best make only minor inroads into fuel poverty, compared with energy efficiency''.

Of course, the price reductions may look a little more tenuous in the light of developments in the electricity market over the past two or three months. The trust went on to say that reliance on the extension of the gas network as a way of alleviating fuel poverty

    ''should not be the only suggested option for helping households in no gas areas.''

That refers to the need to promote combined heat and power.

Mr. Simon Thomas (Ceredigion): The hon. Gentleman is right in what he says about access to gas, but will he take on board the real difficulty experienced by people in rural areas who do not have access to mains gas? Indeed, there is no likelihood of such access. The private companies that deliver gas and oil by tanker are not covered by the guidance.

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Mr. Stunell: The hon. Gentleman is absolutely right, and he is not the only one to make that point. In response to the consultation, the Energy Saving Trust said that local combined heat and power plants provided opportunities for dealing with such isolated situations. I, too, concur with that view.

The consumer body, Energywatch, has expressed additional reservations about the social and environmental guidance. It says:

    ''Suppliers face an uncertain regulatory regime when it comes to acting in a socially responsible manner.''

The Combined Heat and Power Association also made some cogent comments about the guidance. It said:

    ''The current weak guidance that is currently under review does little to inspire confidence . . . that OFGEM will give greater priority to the Government's key areas of policy related to energy use in the UK and its impact on the environment.''

Of the document itself it said:

    ''Its contents are bound by so many caveats that it has little practical effect.''

Attention has been drawn to another significant factor, which is that the guidance does not impose the checks and balances of the Government's own regulatory impact assessments. There is no requirement in the guidance for Ofgem, when it makes regulations, to provide some account of what impact that has on both fuel poverty and the environment. The CHPA points out that that failure to provide an account of potential negative social and environmental effects is inconsistent with the guidelines imposed on Government Departments themselves for undertaking regulatory impact assessments. There is no shortage of external stern critics of this guidance. I want to make it clear that I associate myself with those criticisms.

In my remaining time, I want to focus on some of the specifics in the guidance and to ask the Minister to give a considered response to several detailed points. Paragraph 1.2 of the guidance says:

    ''Where the Government wishes to implement social or environmental measures which would have significant financial implications for consumers or the regulated companies, these will be implemented by Ministers, rather than the Authority, by means of specific primary or secondary legislation.''

I hope that the phrase ''significant financial implications'' can be explained. What are they? What is the threshold? Some of us might cynically say that, as a £650 million injection into an energy company did not merit parliamentary attention until my hon. Friend the Member for Twickenham (Dr. Cable) raised the matter in the House, perhaps the threshold is very high. It may be that £650 million is not significant, but I argue that it is—and I am sure that the Minister would concede that nil is insignificant. Somewhere between nil financial impact and £650 million impact comes the meaning of ''significant'' in this draft guidance. Is the threshold £10 million or £20 million? What threshold will apply?

Mr. Jack: The hon. Gentleman mentioned the figure of £650 million. Was it a financial measure, a social measure, or an environmental measure? Could he clarify what he means?

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Mr. Stunell: Having spoken in the debate and listened to the Minister, I honestly think that the Government are struggling to establish exactly why the figure of £650 million was put forward. I was far from satisfied with what I heard. The Minister may want to explain this.

The Minister for Energy and Construction (Mr. Brian Wilson): We always seek to provide early clarification. There are no grounds for confusion. As I repeatedly said in the debate, the two reasons for lending British Energy up to £650 million, which on both counts takes it outwith the parameters of the debate, were first security of supply and secondly to guarantee the safe operation of nuclear power stations. If the Liberal Democrats are opposed to either objective, it is proper for them to say so.

Mr. Stunell: The right hon. Member for Fylde (Mr. Jack) is answered directly by the Minister. However, I am trying to establish the meaning of the words ''significant financial implications''. They need qualification.


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Prepared 6 November 2002