Energy Bill

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Q 29Charles Hendry: May I explore that a bit further? Are you saying that you believe that the nuclear installations inspectorate does not have sufficient numbers of skilled people to assess reactor proposals of the types that are being submitted to them? And is it a general view within the industry that, if it wanted to invest in and build nuclear, there is enough information out there to make decisions on the cost of carbon, the waste disposal regime and the assessment procedures?
Roger Salomone: My understanding is that those views have been expressed, at the NII in particular, as an area where we might need to have more staff—more expertise on board. It obviously depends on how many proposals come forward; it will be dependent on demand in that sector.
Paul Noon: My union represents all the staff of the Health and Safety Executive, including the Nuclear Installations Inspectorate, and we have fought a long battle to try to improve the pay of our members in the NII. It simply does not have enough people. One of the reasons why it has not had enough people is that pay rates have been uncompetitive. Recently there has been a significant increase in pay for inspectors in the NII. My thought is, though, that that might stop some people leaving rather than bring salaries up to the levels needed to recruit, because the rates are still behind what people can get in other sectors of the industry in the UK, let alone what they could get if they chose to move overseas. So the direct answer is that it is difficult to see the NII, as currently formed, being in a position to properly discharge all the responsibilities that it will need to discharge for new nuclear licensing.
Q 30Martin Horwood: On some of the decommissioning programmes for nuclear and the new nuclear programme, the impact assessment that we have just been given seems to have identified some alarming risks, and one key concern is that there is still a risk that sufficient funds would not in practice be available. In particular, in a company undergoing a restructuring programme, the assets could be diverted and made unavailable to fund the liability. Do both of you think that in the end Government have to be the final guarantor of the costs of nuclear decommissioning and clean-up? Is that the only realistic option?
Stephen Radley: The starting point is that the nuclear industry should be financing itself and that we should be looking to the nuclear industry to pay its full share of all the costs, including operating, decommissioning and waste disposal. The sensible conclusion is that, if facilities are only to be built some time in the future, the costs cannot be predicted with absolute certainty. I do not think that it is sensible, therefore, to try to bolt down the position absolutely that there will be no taxpayer contribution to this.
Paul Noon: From the TUC point of view, first it is right that the regime should be set up in such a way that the industry is required to pay those costs as a guarantee that it always will. As with any other technology, however, there is bound to be a role for Government if it does not. Everything possible should be done, however, to structure it so that it does.
Q 31Martin Horwood: How do you see the provisions in the Bill in those terms? Do you think that it allows for the possibility that you have both identified—that the nuclear industry should pay, but as a last resort the Government could pick up the tab?
Paul Noon: We do not have a view on that, so I cannot help you.
Q 32Martin Horwood: Does the EEF have a view on the provisions in the Bill and how they allow or do not allow that to happen?
Roger Salomone: The main safeguard is probably going to be outside the Bill in the details of these decommissioning plans regarding the risk premium. This is the idea that waste management costs are to some extent unknown. We have not made specifications for this waste-management facility. It seems prudent, therefore, to add a premium to waste and decommissioning costs so that you minimize the risk that the Government will have to pick up some liabilities in the future.
Martin Horwood: That is extremely helpful.
Q 33Paddy Tipping: Energy prices have been pretty low for a decade, but now they are rising very steeply indeed and clearly that will have consequences for trade unionists. There is little in the Bill about fuel poverty. Should there be and what should it be?
Philip Pearson: It is a kind of elephant in the room as an issue because the increase in the number in fuel poverty back up to 4 million-plus is unacceptable. It is of great concern to the TUC. The Bill should, in our view, make provision for the mandatory introduction of social tariffs. There is no logic in the poorest in the country and the elderly paying the highest energy prices through fixed-price metering. We would want the Government to change position and give themselves the option to regulate for the mandating of social tariffs so that the big six energy companies know exactly what the minimum threshold is.
We have a minimum wage in this country. It is not a voluntary system that big companies can opt in or out of. We think there should be a minimum provision of social tariffs provided for in the Bill. In addition, we think it would be helpful if the Government gave themselves powers to introduce smart metering to accelerate the introduction of such tariffs. Those two mechanisms will not deal with the income issue, which is a major driver of fuel poverty, but they will significantly help the payment issue for those on the lowest incomes.
Q 34Paddy Tipping: Does the EEF have a view on smart meters?
Stephen Radley: To some extent, we cannot come to a full judgment on smart meters until the full cost-benefit analysis has been done. That work is proceeding at the moment, and we are anxiously awaiting the numbers. Without pre-judging what that says, we do see smart meters as a big opportunity both to improve energy efficiency in the homes where we have made limited progress so far and also in terms of business opportunities for UK companies.
Depending on what the numbers say, we need to look actively at how we can encourage the deployment of smart meters. This may be in the form of some kind of cost sharing between the suppliers and consumers. We probably also need to look at the issue of overcoming the up-front costs that would be involved in purchasing the smart meters, if it fell on the consumer. We are open-minded to some extent because the economics are still uncertain, but this is something the Government should be looking at very actively.
Q 35Mr. Hugo Swire (East Devon) (Con): What is your view on security issues? We hear a lot about security of supply from overseas countries, and our exposure to destabilisation in that respect. Is there enough in the Bill to address the concerns about a decommissioning programme, a nuclear build programme and a uranium enrichment programme, to say nothing of offshore renewable farms and oil and gas pipelines and so forth? What is your view of the security aspect of all this?
Paul Noon: Our main concern has been about over-reliance on imported gas. That has been a feature of submissions that we have been making for some time. There seems to be more recognition of that as an issue, although I could not say whether it is fully reflected in the Bill. One of the reasons why we have argued that there needs to be a nuclear component and that we need to develop CCS is that it is a domestic supply, and that is very important to us.
Q 36Mr. Swire: I am aware of that. That was not really my question. I prefaced my question by saying exactly that. My question was about security surrounding the decommissioning of nuclear installations, the commissioning of new installations and offshore wind farms, oil and gas within our own area, not about bringing in supplies from overseas.
Paul Noon: I am afraid I cannot answer at all about offshore facilities. In terms of the nuclear industry and nuclear decommissioning, I can say, from the direct observation of many members who work in that area, that there is a very, very strong emphasis on all aspects of security. We do not have concerns in that respect.
Roger Salomone: We would agree that there is a relatively robust regime in place at the moment for nuclear installations, and I think the decommissioning plans between nuclear operators and Government, which will be a feature of the new Bill, could go some way towards strengthening that by adding more detail.
Q 37Mr. Reed: The decommissioning costs of nuclear as an electricity generating source are fairly well understood by the industry and by people all over the world. I think that is beyond any meaningful doubt. Do you believe that the Bill does enough to make provision for those other electricity and energy generating sources—such as the oil, gas and coal industries—to cater to their own decommissioning costs and the management of their intergenerational waste, including, in the case of those three energy producing sectors, radioactive waste?
Paul Noon: That is not an area we have done any work on. If I were to say otherwise I would be misleading you.
Q 38Anne Main (St. Albans) (Con): Can I just take Mr. Pearson back to the elephant in the room, which he described to us? Fuel poverty and smart metering, which were in the energy White Paper, are noticeably absent in the Bill. Given that there is a degree of sclerosis, with industry wondering whether it can have a nationwide roll-out, do you have concerns that there is not enough direction, and, indeed, that interoperability might be compromised if people just roll this out in small areas without a comprehensive process being put in place?
Philip Pearson: Are you referring to smart metering?
Anne Main: Yes
Philip Pearson: Our colleagues from the EEF have already indicated the industrial opportunities that would come through an ambitious smart metering programme. Where would the meters be made? Could we ensure that they were procured in the UK? There are pilot studies going on. Frankly, we believe that we need to move rapidly from pilot to full-scale implementation. It would be a very popular measure, it would be a way of saving money, and a way of promoting UK industry. We believe that the Bill should contain enabling powers, and that that should be followed by consultation and rapid deployment. You may hear evidence from other organisations, such as Energywatch, in support of this—which seems to us to be a very rational way forward—and of getting it done quickly.
Q 39Anne Main: Do you believe that, while it may help people manage the amount of fuel they use, it may also, particularly with pre-payment meters, help to alleviate fuel poverty by possibly switching people to smarter tariffs?
Philip Pearson: I totally agree. This would be a key opportunity, a win-win situation. To have smart metering and social tariffs applied together would, I think, be something that the Government could rightly be proud of as a significant way of addressing the problem of fuel poverty.
Q 40Charles Hendry: I have a brief question specifically on gas storage. You will be aware, and those of you from the EEF particularly will be aware from your members’ perspective that two years ago we nearly ran out of gas, and that a huge price hike did tremendous damage to much of British business. Since then, the situation has changed significantly. A pipeline has opened up, and we have new liquid natural gas facilities, but there is still a need for improved gas storage facilities. Is it your perception that the measures in the Bill will do enough to provide sufficient new gas storage, or does more need to be done?
Roger Salomone: I think that the measures in the Bill are welcome to provide a clearer framework for investing in and deploying offshore gas storage. The Planning Bill is probably equally important, and that is the Bill that we are looking at to deliver that.
Q 41Dr. Iddon: How will the transfer of responsibility for electricity safety to the Health and Safety Executive change the way in which it is enforced in view of the fact that HSE is complaining about a shortage of funds and staff? Is that a good idea?
Q 42Paul Noon: We support it as an idea, but it must come with sufficient resources to be effective. That is the only question in our mind. We believe that the Health and Safety Executive is well placed to do that but, like everything else that the Health and Safety Executive does, it needs priority to do it effectively.
Q 43Dr. Iddon: So you have no objections to the transfer.
The Chairman: If Members have no further questions, I thank our first set of witnesses for appearing in front of us, and call the next set of witnesses.
We will now hear oral evidence from npower, E.ON, EDF Energy, Centrica, Scottish Power, and Scottish and Southern Energy. I welcome the witnesses, and perhaps you would like to start by introducing yourselves, starting with Dr. MacLean.
Dr. MacLean: I am Keith MacLean from Scottish and Southern Energy.
Sara Vaughan: I am Sara Vaughan from E.ON UK.
Guy Johnson: I am Guy Johnson from npower.
Denis Linford: I am Denis Linford from EDF Energy.
Barry Neville: I am Barry Neville from Centrica.
Rupert Steele: I am Rupert Steele from Scottish Power.
The Chairman: Thank you all. Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and that, in view of the time constraints, both questions and answers should be brief.
Q 44Steve Webb (Northavon) (LD): You will know that last year the Government talked about legislating for social tariffs, and that not legislating was conditional on action by you on social tariffs. We have all received letters from you telling us the wonderful things you were doing about social tariffs, and I hope that in your response you will not simply list them, because we are familiar with them. Can I put a proposition to you that essentially it is not your job to do the Government’s work for them, that you are in business principally to make money, and that although you spend a few million here or there on social tariffs, it is entirely peripheral to what you do and in the scale of your operations is miniscule? Therefore, if the Government want to achieve the social objective of social tariffs, they should do so by legislation. Having little chats with you and threatening you has failed to deliver, especially even with what is happening with fuel poverty. Is that a fair characterisation?
Dr. MacLean: I do not think that that is a fair characterisation. In part you are correct in that the problem is a complicated one, that poverty is one of the key factors and that it is not something that we can deal with. But the fuel part of the problem is something that we can do a lot about, and we spend not millions but billions on energy efficiency measures, both measures included in Government schemes and voluntary ones. We believe that that is the right approach, because the measures actually cure the problem rather than treating the symptoms. They provide a permanent opportunity to create warm, dry homes that require very little fuel and therefore become almost independent of its price. We believe that that is a big role that our company can play. However, we have to recognise that there are severe limitations when it comes to the income side of things.
Finally, the work that we can do would be an awful lot easier if we could find a better way of targeting those who really are needy, either working together with Government or looking at some form of agency that will deal with that issue so that the help goes where it is needed: that we find those properties that we can treat and those people who are most in need of benefits, which they are often not even claiming.
Sara Vaughan: That is right. We view fuel poverty as a complex issue; it does not have a single solution. Something like a social tariff might seem like an easy answer but it is not as easy as it seems. If, for example, you set a tariff at a particular level, who then is going to deal with it when the prices go up? Who is going to deal with the hedging of that tariff? How is the pricing of it going to work? Are you, by virtue of putting in place a social tariff, going to undermine the customer’s engagement with the market, with the sorts of sustainable solutions that Keith referred to in terms of energy efficiency, insulating their homes and moving forward in a more sustainable way to engage with the market? Are you even going to take away those customers’ chances to engage with the competitive market by virtue of just putting in place a social tariff? The targeting point is an important one as well; it is difficult to target.
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Prepared 6 February 2008