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6.30 pm
Many of the remaining amendments in the group are technical, tidying amendments, which is welcome. The most interesting are those from amendment No. 63 onwards, which relate to smart meters. I entirely endorse the comments that other hon. Members have made about these important provisions. It is welcome that we are setting the framework for smart meters to be introduced. Smart meters will empower householders, so that they can not only play their part in tackling climate change and helping to save the planet, but use their household appliances much more efficiently and reduce their energy bills, thereby tackling fuel poverty. That has to be a good thing and, as the hon. Member for Wealden pointed out, may contribute towards a more intelligent use of energy on the grid more broadly.
It is a shame that the time scales envisaged in the amendments are of the rather more relaxed kind that were typical of the old Department for Business, Enterprise and Regulatory Reform, rather than the imaginative new Department for Energy and Climate Change. It is pretty disappointing that the process will be complete only by 2020. We all know—the financial crisis has underlined this—that the House and the Government can certainly move fast when they want to. It would therefore be nice to see a greater sense of urgency in the planning of the introduction of smart metering.
The Minister is right, however, that there are complicated details to be sorted out. I understand that, and the devil will be in the detail. I am sure that I am not alone in having already been lobbied quite extensively by advocates of different systems and technologies. We can all anticipate a heated debate on the regulations and orders made under the Bill. It will be important that we get them right and that we correctly balance commercial competitiveness, affordability for energy customers and the environmental priority of having the best possible technology to allow people to reduce their energy use.
Overall, however, progress is progress. I end by congratulating the Government on the bulk of the amendments and on the green shoots of environmental change that they are beginning to cultivate in their policies.
Mr. Mike O'Brien: I was interested in the opening comment that the hon. Member for Wealden (Charles Hendry) made about the vote moving his way. I look at the assembled ranks behind him and wonder whether that would continue—mind you, Mr. Deputy Speaker, I look at the similarly empty Benches behind me and wonder what our majority would be. I join the hon. Gentleman in praising the work of Dr. Tim Stone and welcome the establishment of the office of nuclear development, which was set up by my predecessor, my right hon. Friend the Member for Croydon, North (Malcolm Wicks), who was with us earlier, and our predecessors in the Department for Business, Enterprise and Regulatory Reform, including the then Secretary of State.
Let me deal with the points that have been raised. On the target of two years plus 10 years, we are undertaking a massive project and we need the time to do it properly. New build provides us with the opportunity to make sensible provisions early on. We would like to consult the building industry on how quickly we can introduce the scheme, but it makes sense that new buildings should have the new smart meters as soon as possible.
The hon. Member for Cheltenham (Martin Horwood) raised a couple of issues, including one about clause 57 and the need for materiality before a prosecution is undertaken. If somebody knowingly or recklessly gave information that was utterly immaterial to the decommissioning process, it would be a bit onerous for us even to give them a small fine. People do things frivolously, and that can be taken as reckless; therefore, we need some element of materiality in a criminal prosecution. That is why we have decided to accept the proposal made in the other place that there would need to be some issue about the release that was deserving of prosecution.
The hon. Gentleman also asked about the public becoming responsible for decommissioning. I remind him that nuclear power was initially public, which meant that there was an obvious public liability in relation to decommissioning. However, in respect of the introduction of nuclear power in the future, we have said that we are putting in place robust mechanisms to ensure that the taxpayer is protected, through ensuring that the operator securely pays sufficient funds to cover the costs of decommissioning and waste management. We have no intention of subsidising new nuclear, and that will include the costs of constructing the stations. Keeping the costs of construction under control is a matter for energy companies, not the Government.
The strength of the regime lies in the wide range of powers that we have taken. They include the power for the Secretary of State to modify a programme, issue a direction, request information, undertake reviews and, if appropriate, bring criminal proceedings to ensure compliance. The power to place bodies corporate associated with the operator under certain obligations—for example, if the Secretary of State considers that there is a risk to taxpayer protection—adds further strength to that regime. The regime is fairly robust and will ensure that we can protect the taxpayer. Having responded to those points, I hope that the House will be able to support the amendment.
Lords amendments Nos. 47 to 53 agreed to.
Mr. Mike O'Brien: I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker: With this it will be convenient to discuss Lords amendments Nos. 55 to 57, 64, 66, 72, 76, 78, 95, 96, 102 and 104.
Mr. O'Brien: This group of amendments covers a large group of areas that the Bill addresses, including: the duties of Ofgem and the related issue of access to the transmission grid for new electricity generation projects, including renewables; the ability of distribution network operators to recover the costs associated with making offers of connection to new developments; and ensuring consistency between the Bill and the existing statutory framework for energy policy.
Let me deal with this group of quite complex but important amendments. We have had a lot of debate about Ofgem and its powers during the passage of the Bill. A number of concerns have been raised, centring on the need to give sustainability greater priority in Ofgem’s statutory duties and the need to address the problems of strategic investment in the electricity transmission grid in the medium and longer term, and access to the existing grid in the shorter term.
After the determination shown on the subject by Members of both Houses, we brought forward a package of amendments in the other place that we believe will address those key concerns. The first element of our proposals, in Lords amendments Nos. 54, 95, 96 and 104, is to change the Secretary of State’s and Ofgem’s duties in two ways. The first is by placing the words “existing and future consumers” directly into the wording of the primary duty. In the other place, the Government were persuaded by arguments that placing such a formulation of words directly into Ofgem’s primary duty would be a clear signal from Parliament that it must take the needs of tomorrow’s consumers into account when making decisions today. It is a key signal about the importance of sustainability in decision making.
The second change to the duties was made in response to those who wanted the Government to find a way to put consideration of sustainability on to an equal level with security of supply.
Mr. Brian H. Donohoe (Central Ayrshire) (Lab): Will the Minister give way, before he finishes talking about Ofgem?
Mr. Mike O'Brien: I have not left the point about Ofgem, but I was going on to the second part of it. I shall make that point and then give way to my hon. Friend.
The second change in relation to Ofgem was making sustainability equal with the issue of security of supply. Amendments Nos. 54, 95, 96 and 104 will therefore place sustainability at the same level within the hierarchy of duties as security of supply, at the top of Ofgem’s list of secondary duties. We are confident that that will give sustainability more prominence in Ofgem’s decision-making process, while maintaining its primary focus on consumer protection, without creating uncertainty for investment in new energy infrastructure.
In the other place, peers emphasised that their key concern was the problems that generators face in connecting to the electricity transmission grid. Before I continue on an issue in which I know the hon. Member for Angus (Mr. Weir) is interested, I will give way to my hon. Friend.
Mr. Donohoe: It is clear in example after example in my constituency that Ofgem is powerless in a number of ways. What is being done to improve the situation so that we can best protect our constituents? Clearly, just now, Ofgem is almost a toothless tiger.
Mr. O'Brien: It seems to me that the way in which Ofgem was set up gives it quite strong powers. In the past, it has worked with the industry to ensure that competition was effectively delivered. We have been clear with Ofgem that we expect it to use its powers robustly in future to ensure not only that competition is effectively delivered, but that consumers are fully protected.
That needs to be done within the context of recognising that we are expecting billions of pounds-worth of investment in new generation to come from the energy companies. We are asking for vast amounts of money from them—billions of pounds—for new power stations, renewables development, wind farms and nuclear. The change in the size of the agenda is massive. Ofgem is well aware that it has a role in ensuring security of supply and a competitive market, and that the consumer is dealt with responsibly when it comes to competition. However, it must also ensure that the energy companies are able to bring forward that very substantial generation, to ensure that we have the energy that consumers need for the future.
Getting that balance right is always going to cause a lot of debate and disagreement. Ministers are supporting Ofgem, but we are also making it clear that the new Department expects it to use its powers robustly. At the same time, it must recognise that there is a wider agenda than merely keeping prices as low as possible. Recognising that agenda is desirable for all us, as the energy suppliers agreed when we met them yesterday. It is also important that we bring forward that investment and deal fairly with suppliers.
Alan Simpson: I am grateful for the Minister’s clarification, because the implications of the words added to Ofgem’s primary duty are quite far reaching. Is the Minister confident that Ofgem understands that this is not simply a bolt-on phrase that is being added to the primary duty, but a sea change in thinking? I ask that because whenever we have asked Ofgem to address specific commitments either to a future shift to renewable energy or to specific provisions that address the needs of the fuel poor, we have not been able to get it to go beyond its primary duty, which is delivering price competition within the market. If the poorest have had any choice, it has been simply to change supplier. What the Minister said represented a much more radical upheaval in the thinking. Does he feel that Ofgem is clear about the scale of the sea change that he has invited them to accept?
6.45 pm
Mr. O'Brien:
That depends how we define radical sea changes. I am sure that Ofgem is aware of the changes. We meet Ofgem officials frequently to discuss such
issues, and they are aware. Indeed, more importantly, the suppliers and generators of energy will need to be aware that the requirements are part of Ofgem’s remit. Therefore, when it comes to making decisions, they will have to have regard to the requirements. They are important changes, but whether they amount to a sea change or an element of radicalism remains to be seen. We have made it clear to Ofgem that we expect it to have full and proper regard to the changes when it makes decisions.
Mr. Weir: Will the Minister give way?
Mr. O'Brien: I was just about to move on to the hon. Gentleman’s concern about transmission grids, but I will give way on that point.
Mr. Weir: I always find that the problem with Ofgem is simply that the guiding factor was not necessarily consumers, but its strange vision of locational charging. That everything was determined by an economic theory of locational charging was always the excuse, for example, when we approached it about difficulties with grid connections. I am not sure that the changes to bring sustainability will necessarily deal with that central problem with Ofgem.
Mr. O'Brien: At the time of privatisation, when the rules under which Ofgem operates were set, it was required to have regard to competition in particular. Ofgem officials have always fallen back, in my discussions with them, on that requirement. With the legislation, we are trying to clarify and emphasise some of Ofgem’s roles, so that we can get it into a better position to deal with the issues, without damaging the way in which we expect companies to bring forward long-term investment.
For example, if we were to start arbitrarily changing the parameters of Ofgem’s activities, investors—many of whom are from other countries and are putting large amounts of resources into the UK—would question whether they wanted such a presence. Because this market is a good one, I believe that most of them would want to be here in any event. However, there are degrees and proportions of investment, and we therefore want to ensure that we have the Ofgem rules right. We have listened with care to the arguments in this place and the other place on how to introduce issues such as the need to look after the interests of future consumers and sustainability. We have also examined how to ensure that electricity transmission issues are better addressed.
In the other place, Lord Oxburgh urged the Government to consider bringing forward a power for the Secretary of State to intervene to resolve some of the grid access issues if the current industry process to reform the codes and licences were to fail or be delayed in some way. Having given that careful consideration, we introduced amendments Nos. 55, 56, 57, 72, 76 and 102 to deal with the problem. It is vital that the industry negotiations make significant progress quickly, and that the Secretary of State should therefore be given the power to intervene only if that proves not to be the case.
These amendments will give the Government the power to amend licences and codes and will help deliver the high-level principle set out in the transmission access
review. It may be used only for the purpose of facilitating access to, or efficient use of, the transmission system. The power is time-limited to two years from the date of commencement, and the Secretary of State is obliged to consult the holders of any licences that will be affected, Ofgem, and anyone else he considers appropriate.
I believe that, together, these amendments will at least assist in dealing with the issues of grid access and strategic investment, as well as helping to make sustainability a more prominent part of Ofgem’s culture as it continues further to develop the work it has already done in this area. I am not presenting this to the hon. Member for Angus as a panacea; it is not. We recognise precisely what he says—that there are issues about transmission access to the grid and that they have to be resolved. That is why we sought the transmission access review to look further into how to resolve these problems, and the process to get agreement on how to deal with it is now under way. This will give the Secretary of State the ability to resolve some matters—if necessary, on the grounds that agreement has not been reached.
Amendment No. 64 was made in response to another of Lord Jenkin’s proposed amendments in the other place. It introduces a new clause to give the Secretary of State a regulation-making power to provide for distribution network operators to charge up front for the work carried out in providing network connection offers.
The practice of up-front charging was until recently carried out with Ofgem’s approval—until it was found to be unlawful. The Government believe that an element of up-front charging for assessment work related to large commercial projects is an efficient way of balancing the need to promote competition in the market for distribution network connections, while disincentivising speculative connection requests. What happens is we get these speculative requests, they get a slot, they crowd out those that are more definite, and it ends up with those who want access being put further down the queue. We need the capacity to charge some fees, so I believe that this is the right approach. It is envisaged that the regulations will be made, following a consultation by Ofgem to ascertain the most appropriate way of allowing these charges to be levied.
Amendments Nos. 65, 69 and 75 are technical amendments to ensure consistency between the powers in the Bill for the Secretary of State to modify licences granted under the electricity and gas Acts and similar powers in the existing statutory framework for the energy sector. I will not go any further into these amendments, but I am happy to answer any questions about them. I recommend that the House accept them.
Charles Hendry: We welcome the Government’s response to recommendations made over the last few months about Ofgem’s remit. We understand that it was difficult to go down the route of giving Ofgem a dual primary duty. At the end of the day, that would have meant that it had a duty to consumers and an equal duty towards sustainability. It is probably right that it is for the Government to make any decision about the balance between those two objectives, rather than devolving their power to an independent but unelected body.
We recognise the Government’s sensible approach of attempting to rebalance Ofgem’s responsibilities to ensure that the interests of future consumers, alongside those of current consumers, are taken into account. That will
allow Ofgem to require that actions be taken now to provide for our long-term energy security and to address issues of long-term affordability as well. Generally speaking, the Minister has found a clever way through the different options put to him, and we support him in that.
We welcome the explicit highlighting of the requirement for Ofgem to take account of measures that will assist sustainable development—essentially putting at the top of the list of secondary duties a duty towards sustainability. Although that does not go as far as some might have wished—some wanted sustainability to be a primary duty—it makes it clear that it is at the top of the list of secondary duties. That is also something that we think should work effectively.
There has been much discussion—in Committee and more generally—about problems of access to the grid, especially for renewables. The current position, whereby applications have to be connected in the order in which they were applied for, is absurd. It has led to some facilities not getting a connection for years after they have been given planning consent and been built. The worst case I know of is the offer of a connection in 2022—14 years from where we are now—even though the facility will be available to run many years before that. It is right for the system to be able to take account of planning considerations and actual construction issues, and to be able to distinguish between projects that can be brought on stream at an earlier stage than others that are many years off.
It is genuinely desirable to achieve the objective through voluntary agreements and it is appropriate to see whether such agreements can work. We await with great interest the outcome of discussions between the regulator and the industry. If agreement cannot be reached, however, we simply cannot allow the situation to drift on; the Government need to have powers, so that a solution can be imposed if it cannot be found through voluntary agreement. We hope that those powers will not be needed, and that the voluntary agreement will work, but we support the Government in taking on these powers, if necessary.
Martin Horwood: We welcome the amendments in general terms, but some aspects of them are a little disappointing. Unlike the hon. Member for Wealden (Charles Hendry), I am afraid that we regret the fact that the sustainability requirement was not placed alongside security of supply as part of the primary responsibility in Ofgem’s remit.
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