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4 Feb 2003 : Column 249—continued

6.43 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths): I am very grateful to my hon. Friend the Member for Leicester, East (Keith Vaz) for securing this debate and giving the House the opportunity to hear in detail the problems that were caused to his constituents and to hear how those responsible reacted, so that we can all learn the lessons from this. This has become an issue because of his and others' efforts, on which real progress has been made. He will never know just how fast the Department of Trade and Industry officials reacted to his standing up for Leicester in this debate.

I fully share my hon. Friend's concerns about the adverse impact on the residents of the Belgrave area of Leicester of the interruption of their gas supply in December. As he has explained, the interruption was of unusual severity, and was caused when a main owned by Severn Trent Water burst and damaged the Transco gas main. Customers were left without a gas supply for several days, and my hon. Friend was right to identify among his chief concerns the level of compensation subsequently offered to those customers by Transco, and the co-ordination between Transco, Severn Trent Water and the other utilities involved in the incident.

I thank my hon. Friend for the briefing that he has given to the House, and my right hon. Friend the Member for Leicester, West (Ms Patricia Hewitt), who personally briefed me on this issue on behalf of her constituents, as did my hon. Friend the Member for Leicester, South (Mr. Marshall). They left me in no doubt of their anger on behalf of their constituents, and their desire to ensure that firm lessons were learned from the incident so that other Members' constituents would not suffer what is at best inconvenience and at worst considerable disruption. I also pay tribute to the local Labour council, whose response showed it to be a shining example of councils that are well organised to help people locally, working closely with local people. It did its best to co-ordinate the necessary activities. The Belgrave neighbourhood centre, which I know my hon. Friends and right hon. Friend visited during this incident, performed a magnificent task in helping people in their time of need.

My hon. Friend the Member for Leicester, East asked direct questions about the compensation regime, and gave us an idea of his understanding of it. Concern about the regime governing compensation for gas customers affected by third-party action has been under

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discussion for some time. Individuals affected by third-party damage, and their representatives, were justifiably aggrieved about the lack of an automatic regime to compensate individuals and businesses when third parties—particularly, as in this case, water companies—had damaged gas mains and caused interruption to their supply.

Although interruptions that were Transco's fault did result in the automatic payment of compensation for inconvenience caused, any that were the fault of others and impinged on Transco and its customers did not attract such compensation. In those circumstances Transco, as the supplier, was entitled to declare force majeure and not pay compensation. Sadly, as my hon. Friend said, the performance of the water company and third parties was patchy at best. On some occasions they would compensate customers, but on others they would not: they would deny liability, and would dig in for a protracted legal wrangle with Transco.

Clearly the position was highly unsatisfactory. I am pleased to say that since 2000 the industry regulator, the Office of Gas and Electricity Markets—Ofgem—which oversees such matters, has pursued the establishment of arrangements under which consumers would receive compensation. We strongly encouraged Ofgem in that course, and we believe the outcome marks a considerable advance for gas consumers. I am grateful to my right hon. Friend and others for the help, advice and exhortation that they gave the regulator.

Under the Water Industry Act 1991, water companies were not automatically responsible for the payment of compensation for inconvenience. They were, however, responsible for any ensuing loss or damage. As for compensation arrangements with Transco in cases such as this, detailed discussions have taken place with the company, and in the autumn of 2001 Transco agreed to compensate customers on a no-fault basis. Transco or its insurers would then seek redress from the third party concerned. Those arrangements were formalised in March 2002. The agreement now runs from last April until 31 March 2007, the end of the current Transco price control period.

I know that my hon. Friend and other hon. Members will warmly welcome this agreement. It will be reviewed at the same time as Transco's price controls, to ensure that customers receive exactly the same level of compensation for interruptions caused by third parties as they would receive for those caused by Transco itself. It is of course important, in the light of the information that my hon. Friend has supplied to our Department and to the House, that any review gives full consideration to what actually happened in Leicester during that winter evening and in the subsequent days.

Keith Vaz: I understand the Government's difficulties in intervening when an agreement has been reached between these companies and the regulator. However, it is surely open to the companies themselves to come together and say, "Well, we have looked at the situation, and 2007 is a long time away. Can we consider raising the compensation level before then?" I am not asking the Government to intervene if they have no power to do so, but presumably they would not want to prevent those companies from taking such action.

Nigel Griffiths: That is right; indeed, we would want to go further than simply not preventing them. We

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would want to offer the active encouragement that my hon. Friend urges on them, because that is the right thing to do. It is regrettable that, so far as I am aware, the water company itself has not paid compensation. Transco has paid out, and I should not like it to be thought that Transco was limiting its compensation because of Severn Trent's unwillingness to meet its share. The regulator will undoubtedly look into that matter.

I want to ensure that the issue of boardroom matters and profits, which my hon. Friend raised, is separated from that of the tremendous efforts of Transco and water company staff, who worked round the clock in difficult circumstances to reconnect the supply. I should also acknowledge the fact that fan heaters and other items were supplied. The electricity grid's difficulty in maintaining them is a tribute to the scale of the problem, rather than an indication of a lack of preparedness on its part. However, it must answer for itself, and the arrangements certainly did not proceed entirely smoothly. It is important that lessons are learned by the companies involved, and by other companies that may be involved in future. I am pleased that Transco paid to suppliers compensation of £187,000 in respect of 1,226 constituents of my right hon. and hon. Friends. It was due to make further payments in respect of domestic consumers on 25 January, and I am seeking confirmation that they have indeed been paid. When I receive it, I shall write to my hon. Friend.

In conclusion, it is important to stress the need for third parties, as well as utilities, to learn the key lessons from the experience of the constituents of my right hon. and hon. Friends.

Keith Vaz: I thank my hon. Friend very much for what he has said so far, but I raised several other points,

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and unless he can respond to them now, I wonder whether he might write to me about them once he has considered them.

Nigel Griffiths: Absolutely. I am sorry if I gave my hon. Friend the impression that I was about to sit down—it was my intention to raise some of these key matters.

We agree entirely about the need for improved co-ordination, and I shall ensure that these matters are taken up with Ofgem. I do not doubt that my hon. Friend's concern about the appropriateness of compensation levels has been noted, and is shared by other Members of the House. I shall ask Ofgem to look at those matters as well and to report back to my hon. Friend directly as well as to the Department. I want to ensure that Transco keeps Energy Watch informed of progress, deals with any inquiries that it has raised on behalf of my hon. Friend's constituents and meets its responsibilities on behalf of consumers.

I understand that Transco has commissioned its own report into the incident, which will be conducted by an independent and external consultant, and that the key issues which emerge will be shared with Severn Trent Water and my hon. Friend's excellent local authority– whose own report I also commend. If other local authorities want a model of how a council should react to such an incident, they should beat a path to the door of my hon. Friend's council and talk to the people there who showed excellent leadership in the incident—as they do in many other aspects of their work.

It is vital that all share their findings and views with Ofgem. I want the substantial improvements to the regime in respect of third party damage to show fruit. My right hon. Friend the Secretary of State and I are keen to identify further advances that might be made.

I am grateful to my hon. Friend for bringing this issue to the attention of the House. If he feels that any other matters require further clarification, I shall be happy to write to him.

Question put and agreed to.

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