---

(4)   In this section—

"consumers" includes both existing and future consumers;

"distributing", "distribution system", "transmission system" and "transmitting" have the same meanings as in Part 1 of the 1989 Act;

"gas" and "gas transporter" have the same meanings as in Part 1 of the Gas Act 1986 (c. 44);

"infrastructure" includes pipe-line systems, terminals and other facilities but does not include licensed pipe-line systems;

"licensed pipe-line system" means a pipe-line system that is operated by a gas transporter for the conveyance of gas to any premises or another pipe-line system as authorised by his licence under section 7 of that Act;

"offshore waters" means, in relation to Great Britain—

(a)   so much of the territorial sea of the United Kingdom as is adjacent to Great Britain; and

(b)   waters in a Renewable Energy Zone (within the meaning of Chapter 2 of Part 2 of this Act).'.—[Mr. Timms.]

Brought up, and read the First time.

Mr. Timms: I beg to move, That the clause be read a Second time.

Security of supply is vital to the UK—a key underpinning for our economy, and something that we all take for granted in our daily lives. Debates on the Bill both in the House and the other place have reflected the strength of feeling and concern on the issue among hon. Members of all parties. At the outset, I should like to thank the hon. Members for Tewkesbury (Mr. Robertson) and for Hazel Grove (Mr. Stunell) for their contributions to identifying what is now a broadly acceptable way forward to address security of supply in the Bill.

A provision agreed to on Report in the other place would have given the Secretary of State a broad duty to ensure the integrity and security of gas and electricity supplies. However, it was pointed out to us through numerous subsequent representations that it would unintentionally create great uncertainty in the market and undermine the independence of the regulator and incentives for investment. The provision was taken out of the Bill in Committee, but I undertook to think further about a proposal made by both Conservative and Liberal Democrat members of the Committee to require the Secretary of State to report annually to Parliament on security of supply. I said at the time that I thought that that was a helpful suggestion, so I am pleased to be moving a provision along those lines today, which I have been able to discuss with the hon. Members for Tewkesbury and for Hazel Grove. The new clause reflects the Secretary of State's ultimate responsibility for security of supply and her accountability to Parliament for its delivery.

4 pm

New clause 5 will place a duty on the Secretary of State to publish an annual report. She will also be required to lay the report before Parliament, which will provide an opportunity for an annual debate in Parliament during which hon. Members may scrutinise her account. I hope that that opportunity will be taken up. The report will have to cover energy security in both the short and long term. I envisage that the short term will relate to the next year or so, and I would expect the
 
13 Jul 2004 : Column 1321
 
long term to cover 10 years ahead, although certain aspects of the report will lend themselves to different time scales. For example, National Grid Transco currently forecasts plant margins seven years ahead in its seven-year statement, whereas the effects of the renewables obligation will extend well beyond 10 years. I do not think that we can put a firm figure on the time covered by "long term", but I hope that I have set out the sort of period that the report will cover.

Brian White: It was said in Committee that security of supply was not only a supply-side, but a demand-side issue. Will the Minister assure me that that will be considered in any report? Will the term "reasonable demands" allow the consideration of demand-side issues that should be addressed?

Mr. Timms: Yes, account will have to be taken of those issues. As my hon. Friend will know, we will report separately on progress made on energy efficiency, but the report about which I am talking will certainly need to take account of future realistic levels of demand and the extent to which we can identify reductions to that as a result of headway made on energy efficiency. My hon. Friend makes a good point.

We have specified areas that the report must cover: the availability of electricity generating capacity, or the plant margin; the availability of gas infrastructure, which we have defined as including pipelines and terminals for importing liquefied natural gas; and the availability of electricity and gas networks to get supplies to consumers. Those factors are especially important, and they focus on electricity and gas infrastructure located in Great Britain, which reflects the fact that that is where the Secretary of State and Ofgem have direct responsibilities.

The list is not exhaustive, but subject to the more general requirement that the report must deal with

"the availability of gas and electricity for meeting the reasonable demands of customers in Great Britain".

We will have to consider wider issues such as the one to which my hon. Friend the Member for Milton Keynes, North-East (Brian White) referred. If the report were published now, for example, it would be appropriate for it to cover measures taken to liberalise energy markets in Europe and to agree international treaties for gas pipelines. Those issues will change over time, and it is thus right for the specific focus of the report to be the availability of electricity generating capacity, gas infrastructure, and electricity and gas networks.

There has been discussion of whether the report should also address the security of oil supplies. Oil security is firmly on the Government's agenda and we play a full part in the work of the International Energy Agency, including its emergency oil-stocking arrangements. The IEA is a centre of expertise for oil analysis and publishes regular analyses on the long-term availability of oil. However, I suggest that this report is not the best or most appropriate vehicle to deal specifically with those issues. Its focus on gas and electricity reflects the fact that those are both regulated areas in which the Secretary of State and Ofgem have important duties in relation to security of supply. The situation is rather different in respect of oil, which has an internationally competitive market.
 
13 Jul 2004 : Column 1322
 

The new clause also specifies that the report is to be prepared jointly by the Secretary of State and Ofgem, reflecting their complementary roles. Areas such as enforcement of licence conditions are properly delegated to the independent regulator, as the necessary expertise lies with Ofgem. Of course, the regular discussions that we have with industry at ministerial and official level about security of supply will also help to inform us as we draw together the report.

Mr. Martin O'Neill (Ochil) (Lab): My hon. Friend has just mentioned energy efficiency, but since the responsible Ministry is the Department for Environment, Food and Rural Affairs—at least, it has a substantial part of the responsibility—should it not be included in the Bill, and even if not, should not a nod be given in its direction to say that its information will be utilised as well?

Mr. Timms: I can certainly give my hon. Friend the reassurance that we will work with DEFRA and other Departments in compiling the report, but the legislation vests the legal obligations for ensuring security of supply in the Secretary of State and Ofgem. Hence, they have lead responsibility in preparing the report.

Mr. Bill Tynan (Hamilton, South) (Lab): Will the report contain a plant margin percentage that would require to be met every year?

Mr. Timms: Yes, the report will specifically address the question of the plant margin.

The new clause represents an important step forward. It will enable Parliament, industry and the public to scrutinise the Secretary of State's assessment of the security of energy supplies in Great Britain and to call her to account. Again, I am grateful to Opposition Members for making this helpful suggestion and for the constructive way in which both they and the industry have helped in developing the proposal. I hope that the whole House will feel able to support the new clause.

Mr. Laurence Robertson: I thank the Minister for the generous and courteous way in which he has dealt with the new clause. He has certainly involved me at every stage, for which I am grateful to him. We have got to a position that is acceptable to hon. Members in all parts of the House, and that is very sensible.

I wish to go back a little bit in time and explain what the Lords—certainly the Conservative Lords—were thinking about when they proposed the original provision, which placed a duty or even burden on the Secretary of State in respect of the integrity and security of gas and electricity supplies. Of course, that provision came on the back of power cuts in California, New York, Italy and, more relevantly, London and the west midlands. Those problems arose for different reasons that were not necessarily related to the actual generation of electricity, but following those incidents, the BBC programme "If . . . the Lights Go Out" was broadcast. On that day, which was particularly cold, the national grid and Transco issued a warning of insufficient margin, as the margin fell to about 7 per cent. That is not necessarily a dangerously low position, but put together, all those factors had an effect and inspired those in
 
13 Jul 2004 : Column 1323
 
another place to table an amendment to the Bill that placed responsibility for securing energy supply with the Secretary of State.

The issue also went wider. We now face a situation in which our indigenous gas and oil supplies are starting to decline; I shall not put it any stronger than that. There are a lot of environmental pressures on the coal industry from the large combustion plant directive and the emissions trading scheme. Rightly, we have our own targets for reducing emissions. Over the next 20 years, unless extensions and new build are embarked upon, the nuclear industry will decline from its present 22 per cent. of electricity generation to just 2 per cent. We all support renewables in terms of the practical challenge of building them and bringing them online, as well as in a philosophical sense, but there is a long way to go to make up the potential loss of the nuclear and coal generating industries.

The point that I am making, in a roundabout way, is that there is a question mark over the security of supply and our ability to generate sufficient electricity in the medium term. The medium term could be two, three, four or five years, or slightly longer—it is a moveable feast—but however we define it, the problem remains. It is not only Conservative Members who put forward that proposition—as the Minister and Liberal Democrat Members know, many industry commentators share our concern. They are worried that falling wholesale prices will make many investors nervous about investing in the generating business, given that they have to make money and can choose to invest anywhere.

That was the general background to the drawing up of the amendment that the Lords originally added to the Bill. The Minister is right to say that that was perhaps misinterpreted by the industry. People came to us and said, "You were the party which freed up the electricity industry in the first place—why are you supporting a clause that could reverse that?" Of course, it would not have had that effect, because it gave the Secretary of State no more power than he—or she, in this case—already had. There was alarm, however, and the last thing that we wanted to do was to create any more uncertainty in the market. I readily agreed to discuss it with the Minister, and we have reached a sensible compromise whereby the Government will produce an annual report on the position with regard to gas and electricity over the short to medium term.

I entirely accept the Minister's explanation as to why the report will not deal with oil, because that situation differs in many respects. However, it is serious and needs addressing. We all remember the difficulties in the early 1970s following the huge hike in oil prices, and we have all endured the recent scare over the security of oil supplies, not to mention price. But I digress slightly.

The Minister said that the report could provide the opportunity for a debate in the House. That is important, because I would not like the report to be hardly seen, heard about or debated. People like me can come to the Dispatch Box and ask for a debate, but if the Government are not willing to provide the time, it will not happen. Will the Minister confirm that he intends the report to be debated in Parliament every year? If he can give that assurance in clear, unequivocal terms, I see no reason why we should not support the new clause.
 
13 Jul 2004 : Column 1324
 

4.15 pm

---