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Fourth Standing Committee
on Delegated Legislation
Tuesday 1 July 2003
[Derek Conway in the Chair]
Draft Electricity and Gas
(Modification of Standard Conditions
of Licences) Order 2003
The Minister for Energy, E-Commerce and Postal Services (Mr. Stephen Timms): I beg to move,
That the Committee has considered the draft Electricity and Gas (Modification of Standard Conditions of Licences) Order 2003.
I give you a warm welcome to our Committee, Mr. Conway, and welcome the hon. Member for Blaby (Mr. Robathan) to what I believe is likely to be his last Front-Bench appearance in his current post. I know that he has taken particular interest in this brief, given his experience in the field of energy, but I wish him well with his new responsibilities, as I am sure the rest of the Committee does too.
The order will complete the arrangements to provide for a procedure to modify standard conditions of gas and electricity licences by seeking a broad consensus among relevant licensees. The Utilities Act 2000 requires a number of steps to be taken in that process. First, the Gas and Electricity Markets Authority, or Ofgem, should issue a notice stating what modification it proposes, its reasons for the proposal and the effects. A period of not less than 28 days must be allowed for relevant licensees to register any objections that they may have.
Secondly, the authority must consider any objections registered within the period and, thirdly, the proposed modification may not proceed unless two conditions are met: both the proportion of relevant licence holders who object to the modification, expressed as a percentage, and the proportion of relevant licence holders weighted according to market share must be less than the percentages prescribed by order. The purpose of the order is to prescribe those percentages and to determine how market share is to be calculated for each licence type.
The percentages prescribed by the draft order for gas and electricity licences are 20 per cent. for the proportion of relevant licence holders, and 20 per cent. for the proportion of relevant licence holders weighted according to market share. That will permit sensible evolution of the standard licence conditions, but safeguard the position of licensees who may object to any particular proposal.
The order also proposes measures to weight market share for each type of licensee. For electricity suppliers, it is proposed that the number of metering points registered to each supplier should define market share, whereas for electricity distributors, it is the number of metering points registered to all suppliers on the licensee's network. For generators, the measure takes the average weekly registered capacity for each
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licensee in each four-week period for the preceding 12 months.
In the gas market, the market share for a supplier should be taken as the total number of consumers contracted to the supplier at the relevant time. For each gas shipper, the market share is the aggregated daily average of input and off-take on the national transmission system, and for gas transporters, it is the total volume conveyed to the premises of consumers during the preceding 12-month period.
The key reference date for the measures is the day on which the authority gives notice of a proposal to make a modification to a licence condition. The periods for calculation of the market shares have been proposed on the basis of the availability of data to the authority. We have taken care to use data that are reasonably available and to avoid imposing any additional burdens on licensees to produce extra information purely for the sake of the exercise.
Another important objective is ensuring that there is no undue delay in announcing the result of the process, following the end of the period allowed for objections to be registered. Delay would mean uncertainty for licensees, which they would not welcome. That means that the data for market share determination need to be collected for a period earlier than the notification period, otherwise there could be a delay of many weeks before the results of the process could be made known, which would be unhelpful. I hope that the Committee supports the careful balance that has been struck in those respects.
The process is not entirely new. A similar procedure had been in place for gas licences for some time, but the 2000 Act extended it to electricity as well. The procedure will provide a simpler approach to the modification of licences where there is widespread support for such a modification, and also ensure that changes that command widespread support are reflected in all licences, so helping to maintain a level playing field for licensees.
It is the practice for a Minister inviting Parliament to approve a draft statutory instrument to volunteer a view regarding its compatibility with convention rights, as defined in section 1 of the Human Rights Act 1998. The provisions of the draft order are compatible with convention rights. I commend the draft order to the Committee.
The Chairman: Before we proceed, I should say that it is in order for colleagues to remove their jackets.
Mr. Andrew Robathan (Blaby): It is a delight to spend yet more time with you this morning, Mr. Conway, and it is apt that we should be discussing energy, as I have heard on the BBC headlines, although I was unable to stay to listen to the full report, that the country is in crisis with regard to the future supply of energy. I am sure that the Minister will enjoy getting to grips with that and I am only sorry that, as he said, I shall not be there to assist him or otherwise.
Mr. Timms: If the hon. Gentleman had listened to the radio for a little longer, he would have heard me
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responding to the claims made in the Institution of Civil Engineers report.
Mr. Robathan: I am grateful to the Minister for his clarification. I suspect that he will have to spend many years offering such explanations, because there is a bit of a hole in the energy policy. After his nice words about my swan song, I shall not say too much about the fact that, with his enormous brief, he can be only a part-time Energy Minister. I am sure that he will bring to the job his great intellect—
Ian Stewart (Eccles): Quality.
Mr. Robathan: Quality indeed, and although the Minister might not have written a book some 17 years ago about the energy market, as he did about broadband, I am sure that he will do so soon.
We have heard a full explanation from the Minister, but I have three questions. Although the order seems non-controversial, I note that paragraph 4.1 of the explanatory memorandum says:
''A set of measures has been devised which draw on existing means of measuring market share and which are widely recognised and accepted by licensees.''
First, can the Minister tell us what objections, if any, he has received? I employ a clever Oxford undergraduate from my constituency on what is euphemistically called work experience. I gave him the order to read, and asked him to supply some notes so that I could entertain the Committee with some cleverly-crafted words. The note that he left me said, ''I didn't really understand the bureaucratic jargon and gobbledygook.'' Having been a Member of the House for 11 years, I understand what he means. However, experience enables me to understand the memorandum a little better, except in one place. I draw to the Committee's attention a remark at the bottom of page 3:
''But the alternative would be to and review the extent to which this calculation best meets the needs of the licensees''.
As that makes no sense, will the Minister briefly clarify what it is meant to say? That will not necessarily undermine his case, and it is important to be sure that we cross each t and dot each i.
Finally, the memorandum and the regulatory impact assessment are signed by the Minister's predecessor, the hon. Member for Cunninghame, North (Mr. Wilson), as this was his order. On 24 June, he wrote in The Daily Telegraph:
''Within 24 hours of my standing down as energy minister last week, positions which I had established against the advice of officials were being quietly reversed. They were back in control until my successor goes through the same process as I did of learning a complex brief.''
Will the Minister tell us whether the order represents a reversal of positions, or has it been delivered as signed by his predecessor?
Mr. Andrew Stunell (Hazel Grove): I add my congratulations to those expressed by the Minister to the hon. Member for Blaby on his new appointment. Energy spokespeople seem to come and go with alarming frequency. So far, I have survived the purge, but we must see what happens next.
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As the Minister knows from our previous meeting in a delegated legislation Committee, I, too, turn first to the explanatory notes and, like the hon. Member for Blaby, I am puzzled by paragraph 4.3. I thought that it would say something about how the Government intend to conduct their policy. It states that
''in some cases market shares may be taken as those that prevailed around one month before the Authority issues a notification of proposed licence modification. But the alternative would be to''—
but there is no alternative. I look forward to knowing what alternative the Minister discounted.
Mr. Robathan: Could it be that officials have taken control, leaving it out so that even the Minister does not know it?
Mr. Stunell: I am not a great fan of Harry Potter, but perhaps there is a missing page between pages 3 and 4.
The hon. Member for Blaby did not make it entirely clear whether he ploughed though the explanatory notes or the order.
Mr. Robathan: Both.
Mr. Stunell: I admire the hon. Gentleman's courage and determination, given that he is in his twilight years in this responsibility.
My question to the Minister is whether he and his officials are satisfied that the order does not also have a missing platform, so to speak. I am worried that it might not be as foolproof as I am sure his brief says it is.
On a more serious note, we welcome the order in principle. It will bring some certainty, and it comes after a great deal of consultation. However, it is a matter of concern that the domestic sector in the gas and electricity supply industries is now dominated by just six companies—the same six for gas and electricity.
The structure of the order means that, in effect, two companies have a veto on changes in the electricity market—British Gas Transco and Powergen—and I am informed that both have more than a 20 per cent. share of the market. In gas, BGT is the dominant supplier. I would like to hear that the Minister is satisfied that the structure of the order does not give an oppressive power, or a right of veto, to just one or two players in that cramped market, especially as further consolidation is widely expected.
The calculation of market share appears to be based solely on meter points. It seems that a supplier of power to an aluminium smelter will be credited with the same amount as the supplier of power to an old lady in a single-bedroom flat. I may have misunderstood something, but I cannot see in the order anything that discriminates between the industrial and commercial supply market and the private market. Perhaps the Minister can give us some information on that.
I finish by asking the Minister to say what good the order will achieve, or what evil it will avoid. Was he aware of evidence of market or regulatory failure before it was introduced? In all honesty, what improvements can we expect to see now that it has been introduced?
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From time to time, individual Members and the House collectively rail against the huge volume of regulation that has to be considered. It is one thing to consider regulations and say that they are technically okay—that they have been consulted on and nobody objects to them—but quite another to put one's finger on exactly what good they do and why we are making them. I look forward to the Minister's answer to that point.