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Lord Peston: My Lords, the purpose of the Bill is to reduce prices. If as a consequence profits were made, that is all right. My point was that the purpose of the Bill was not to produce profits per se.

Lord Wade of Chorlton: My Lords, I would argue that it will be difficult for the consumers to achieve their aims unless it is clear to everyone that profits can be produced. One of the advantages of the Bill is that many more companies will be encouraged to come into the business, to invest in it, and to be aware of the consequences of their actions. To ensure that companies do that, they will have to make a profit. It is clear that we must not set up a series of regulators and regulations which discourage people from taking the opportunity that the Bill offers. The purpose of opening up markets is to encourage more people to invest in them. That is where the benefit to the consumer lies.

The noble Lord, Lord Peston, also referred to the question of pipelines over land. I cannot help but support him on that. The greatest rows that I have ever had in my life have been with people who wished to put pipelines over my land and did not pay me the compensation that I thought was my due. I envisage more rows of that ilk. If the noble Lord wishes to raise those issues during Committee stage, he will find a supporter on this side of the House. I hope that we can make clearer provisions regarding compensation so that we can seek to avoid the rows and difficulties in which landowners and those who wish to put pipelines over their land are now involved.

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I welcome the Bill. It will open many more interesting opportunities. I hope that with a further reduction in gas prices we shall see combined heat and power used on a greater scale. Within that context, the Government have to be aware that as the opportunities for investment widen we shall see further developments resulting from the reduction in gas prices. Over the next few years attitudes to energy and energy use will change quite dramatically.

With regard to other aspects—again I must declare an interest in energy from waste organisations—we must ensure that Government do not put unnecessary regulations in the way of allowing the market to evolve to the benefit of all. I hope that the Bill is another step forward in allowing the market place and the demands of the consumer to set the pace at which change occurs.

4.13 p.m.

Lord Skelmersdale: My Lords, when I started to prepare for this Bill, in which I should declare an interest as an adviser to British Gas, my eye lit on one of the many booklets I have accumulated about the utilities, which have become one of my abiding interests over the past few years. It is called, Gas: The Final Act and is subtitled Securing benefits for all consumers. It was part of the lobbying of the Government at a time when it was doubtful that legislative time would be found for the Bill in this Session of Parliament.

It occurred to me that it was a very apt title and my mind went back to the usually unsung but amazingly successful progress of the gas industry in this country over almost two centuries—rather longer than the noble Lord, Lord Ezra, has been involved in the energy field. The discovery that town gas could not only be liberated from coal but piped quite long distances and used both for heat and light, even in your Lordships' Chamber, was followed by the creation of a multitude of small gasworks up and down the country.

An element of regulation started to creep in. Was it, I wonder, for the first time that that word was used in relation to the utilities? I was not around to know! And this plethora of small companies and municipal undertakings was, as we all know, nationalised in 1949. The next 40 years of progress was truly amazing, as the noble Lord, Lord Ezra, said. Somehow this country—which really means the gas consumers of the 1950s, 1960s and 1970s—managed to finance the development of gas from the North Sea, and, more importantly, to lay thousands of miles of steel pipeline crisscrossing the country, and to convert every single appliance to natural gas so that 19 million domestic and business customers had access to gas in factories, workshops and houses the length and breadth of Great Britain. That network is now valued at a massive £17 billion. I would describe the process as a second industrial revolution.

It is, I believe, no accident that this Bill keeps that staggering undertaking, as my noble friend Lord Ferrers called it, as a near-monopoly pipeline system under the control of British Gas, albeit hedged about with Chinese walls so that the trading arms of the company should be treated in the same way as any other customer and not have a better deal. In another place, there was a question of turning the enterprise into a fully fledged

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subsidiary—a "separate legal entity" as it was called. For my money, that means that British Gas becomes a holding company with at least two subsidiaries—TransCo, and everything else. There would be immediate calls for all five business streams—I shall refer to them in a moment—to be independent, and eventually bids would come in for parts of the company. I firmly believe that separating out TransCo in such a way would lead to the break-up of British Gas. Even though it is currently turning itself from a home-based gas production and delivery company to one of our major export winners, it is not in the interest of government, the company or its shareholders for your Lordships to encourage that situation. To put it bluntly, it is not in the national interest.

But I am getting ahead of myself. For 10 years I was inveigled away from the energy field, but I was able to watch from the sidelines the rapid changes that were occurring and the arguments, both pro and con, that were developing. Regarding "the selling of the family silver", how wrong that phrase turned out to be, with net revenue to the taxpayer increasing by leaps and bounds. In retrospect, putting revenue on deposit and earning interest might have been a better expression. Then there was the phrase which was peculiarly inappropriate for gas. "Privatising a monopoly", was the sneer from the Benches opposite, and from some on this side too. They conveniently forgot to mention that although, yes, British Gas was a monopoly supplier of a product, it was not a monopoly energy source—the noble Lord, Lord Ezra, made that point—nor did it have a monopoly of production.

No one has to use gas. In modern times the industry has always competed with electricity, oil and coal for heating. Firms and people use it because it is clean, convenient, as safe as possible, with a very good back-up service, and above all cheap; and it is becoming cheaper almost, it seems, by the minute—a reduction of over 20 per cent. after inflation in untaxed terms since 1986. Even in taxed terms that means a reduction of about 16 per cent.

Can we say the same of electricity? No. The only utility with which we can compare the industry is the telephone industry, which, although quite different, gives us some pointers as to what will occur when the Bill fully takes effect. So, too, does the competition introduced in 1990 for the industrial and commercial sector, and the few domestic customers using more than 2,500 therms a year. They have seen their gas bills fall by between 10 per cent. and 20 per cent., and, incidentally, the market share of British Gas fall to well below the 55 per cent. level suggested as appropriate by the Monopolies and Mergers Commission.

The industrial gas market is now completely open to competition, and competitors, mainly linked to oil and electricity companies, now supply more than half the total gas used in this country. That is quite a change since 1986. That is not why British Gas is going through a difficult stage at present. It is because it has been persuaded, by a mixture of Ofgas, the MMC and Government, all of which jointly hold the whip hand—and currently rightly so—to disaggregate the company.

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The original suggestion was just to separate gas trading from the transport of gas, which will, one can safely assume, remain a monopoly activity for many years to come. However, the board decided to go a great deal further and separate into not two but five business streams. TransCo, which operates the gas pipeline and storage business, would, as I have said, have been forced upon the board even if it had not gone along with the proposal willingly, as I believe it would. TransCo is now accompanied by Public Gas Supply, which deals with the 18 million customers using under 2,500 therms a year around whom the Bill revolves; Business Gas for those using more than that figure; Retail, selling a wide range of domestic cooking and heating appliances not necessarily powered by gas and thus directly competitive in the high street as that sector has always been; and finally Service, providing installation and servicing, mainly to domestic customers and small businesses, and again not a monopoly. So there are five business streams, each with its own managing director. I consider this restructuring as the business equivalent of the distribution network feat I mentioned earlier. Added to this, the customer base has fallen and obviously will continue to fall; so, if for no other reason, cost cutting is essential.

It is a truly massive upheaval, and it cannot be achieved without pain both to British Gas and to its customers, who, like all of us in these islands, are basically conservative with a small "c". (As my mother's family motto puts it, "Plutôt mourir que changer"—"better die than change": singularly inappropriate for this day and age, at least in this context, but there we are.) No wonder standards of service have slipped a bit and customer complaints have risen, but we should keep our perspective. The complaints may number thousands, but the customers number millions.

While talking about standards of service, it has been suggested by the Consumers Association that some standards are not appropriate for the new competitors that this Bill promotes but that they will remain appropriate for British Gas. In my book, this idea, which tilts the playing field that my noble friend Lord Ferrers is so keen to get away from in a totally unknown direction at the whim of the regulator, who already has far too much freedom, should be resisted. We all approve of competition but it must be fair and public—transparent, as my noble friend Lord Caithness called it.

We have already seen unfair competition in the gas industry, or at least competition which is less than even-handed, in the liberalisation of the contract market in order to encourage competitors. Only British Gas has had to publish its contract prices, thus giving the competitors a benchmark, while British Gas has had no knowledge of the prices it was competing against. I am very pleased that the regulator intends to correct this anomaly at last, but only for a trial period. It must not be allowed to happen at all with any gas sales, and I was glad to hear my noble friend on the Front Bench say that it could not happen under this Bill. Where would telephone competition be without the publication of the various firms' tariffs? How else can consumers make the fundamental choice that my noble friend talked about?

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I believe that this is a good Bill, even a very good Bill and that, despite the strictures of my noble friend Lord Caithness, it deserves support on all sides of the House. However, there are very real worries. British Gas, with the Government behind it, has over the years built up an enviable reputation for protection for those customers who find it difficult to pay their bills on time—incidentally, not necessarily those on income support and family credit. The citizens advice bureaux are quite right about this. It is vital that those schemes continue in the new competitive era.

It would also be damaging to the Government's reputation if the new entrants to the market were allowed licences for very small areas; for example, the Grosvenor Estate in London, without, say, Westminster City Council's flats in Page Street. This is why I am delighted that a sensibly-sized trial is to be made in the West Country, with its mixture of conurbations and rural areas.

I know that in some quarters the transferability of long-term contracts is a worry. They are to be moved as a block to new trading subsidiaries. How anyone can argue that British Gas should so damage its reputation as to allow the subsidiaries to fail is totally beyond me, and clearly also beyond the noble Lord, Lord Ezra. Sunoil are so insistent on this point that they sent me, through their lobbyists, not one but two briefing papers showing their concern. One wonders why, if it is a real point, other potential suppliers have not sparked on this.

I agree with the noble Lord, Lord Peston, about probity. Much more worrying to me are the financial standing and gas supply proposals of the new entrants. Both are of paramount importance but, so far as I can see, only the former is covered by Clause 1. If the new entrants' businesses were to fail, it would indeed be a section of the 18 million who would suffer. I should like to be told that the regulator will control this firmly and refuse licence applications if there is any doubt on either of these two scores: otherwise it will be a blow to the Bill, and perhaps an irredeemable one.

To sum up, fair competition with common rules which cannot be changed at the regulator's whim is good competition. It is good for the consumers and good for the suppliers, both new and old, as we have seen in the telecommunications industry. That is what I hope we all want to see in the gas industry. I think this Bill goes a long way to achieving it and, with a few tweaks here and there, will make a very successful Act of Parliament. For today it behoves all of us, wherever we sit, to wish Gas: The Final Act a safe passage through your Lordships' House.

4.26 p.m.

Baroness Macleod of Borve: My Lords, I should like to start by thanking my noble friend the Minister for the excellent way in which he has drawn our attention to what I believe is an excellent Bill. I must also declare not only an interest in, but an affection for, this Bill and all that is in it, because I had the privilege of being the first National Gas Consumer Council chairman. I think that was in 1971; and in those days I was able to work, not in conjunction with, but with "Mr. Gas" himself, Sir Dennis Rooke, who was responsible for making British Gas what it is today. I should also like to thank the noble Lord, Lord

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Ezra, for all that he said about British Gas. Of course I cannot speak on behalf of British Gas, but I know that he is right and I thank him very sincerely for all that he said.

We are today discussing one of the most important service industries in the country, and indeed in the world. By 1998 the competition in British Gas will have been introduced to 18 million domestic customers. It will include many more people in the country: those who for many years have wanted to have British Gas and to be on the pipeline. They may now have more opportunity for that than they have had in the past. But overriding everything, as we all agree, is safety. That problem has been overcome in most areas. There are very few problems now with safety, but because gas is a substance that can be easily ignited, it must be underlined that safety is paramount and is still the most important criterion for all suppliers and users of gas.

That leads me to say that domestic appliances and equipment must be installed by trained operators. I hope that that requirement will be in the Bill. British Gas has always trained its own installers in the past and I know that today many of the installers have been there, man and boy, from leaving school right through until retirement, such is their devotion to British Gas. I think perhaps I might be allowed to say that. They have been ably assisted, of course, as we know, by the members of Corgi, but it is vital that all new suppliers are required to use equally well-trained operators when they install appliances in domestic and other premises.

I can speak from knowledge of the problems of the Country Landowners' Association, which have been brought to our notice by the noble Lords, Lord Peston and Lord Wade. If they went to Bacton and saw how North Sea gas has been brought under the cliffs and through pipelines in Norfolk, they would be amazed at how British Gas has managed to restore the countryside of that county. It is difficult to find the pipelines. I believe that I am right in saying that the little yellow caps on the tops of stakes which we occasionally see in the countryside are the only means of denoting where the pipes lie beneath the surface. I hope that the Country Landowners' Association will be reassured that British Gas is one of the best organisations when it comes to restoring the countryside after installing gas pipes.

As I said, I was at the Gas Consumers Council when gas was first brought in from the North Sea and we all changed to North Sea gas. I say "we", but unfortunately I do not have gas. But everyone who is lucky enough to have it changed to North Sea gas. I well remember that at first North Sea gas was disgustingly smelly. It smelt so disgusting that British Gas removed the smell from the gas. It devised another smell which was not quite so bad, but at least the gas had some smell, so that one could not put one's head in a gas oven, as people occasionally did, without smelling the gas.

As the noble Lord, Lord Peston, said, the Gas Consumers Council received 25,500 complaints during 1994. Few problems arose from the service; most of them related to the method of payment and ability to pay. The present systems of payment, which will presumably be universal, are by direct debit, credit, or prepayment meters. They all seem to be unpopular, but then of course paying bills is always unpopular. That is more so now that

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there are only just over 300 showrooms where one can pay one's bills, have a grouse about services, or talk about whatever it is one needs to talk to people from British Gas about. However, there are 19,000 post offices. A great many of these are now far too small and it is sometimes difficult to get in to a post office. Nevertheless, one can pay one's bills at a post office.

The subject of paying bills takes me on to a point which I want to raise with the Minister; namely, the standing charge. The Minister was kind enough to draw our attention to the problems of the elderly, the disabled and people who cannot take enough exercise to keep themselves warm. They often use more fuel in their houses than the younger or the able-bodied among us. Bearing in mind that elderly and disabled users frequently feel the cold more, I want to ask the Minister today whether consideration can be given to reducing the standing charge for disabled and elderly people in our society. That would be enormously encouraging to them. I know that they would be very grateful.

Shareholders and consumers are important people and are the end users of all the work of British Gas. I urge those who are now running this vast and important industry to recognise that, although the customer is not always right, without them life in this country would be much the poorer. I wish the Bill a safe, short and quick passage.

4.34 p.m.

Lord Gisborough: My Lords, like so many of your Lordships, I welcome the introduction of the Gas Bill. Consumers in the industrial and commercial gas supply market have already benefited by savings of as much as 20 per cent. as a result of competitive marketing, and in April 1996, as we have heard, domestic consumers in the South West pilot area will benefit from similar price reductions through the process of liberalisation.

British Gas will inevitably lose some of its share of the domestic market, which will in turn mean that it will require a smaller quantity of gas supplied from fields in the North Sea operated either by itself or by other investors in North Sea oil or gas production. While British Gas may lose a share of the market, the size of the market will still remain constant or will possibly even expand, so British Gas should not find it more difficult to reassign to the new independent gas marketeers, at market rates, some of the supply of gas it will no longer require.

It is against that background that I am concerned about the precedent being set in Schedule 5, where we are effectively allowing the renegotiation of gas supply contracts freely entered into in the past by two willing parties just because the supplier at the consumer end may possibly change some time between 1996 and 1998 or beyond. I believe that that provision will have profoundly damaging effects both in relation to the future development of Britain's offshore gas and oil resources—and, hence, longer-term gas supply security—and internationally in relation to the sanctity of contracts, a principle that is fundamental to the interests of a country whose offshore sector enjoys such extensive offshore investment. For example, investment banks may be

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reluctant to supply investment capital to explore and then produce from North Sea fields if they believe that contracts to supply the oil and gas produced can be renegotiated at more favourable terms to the buyer some time afterwards, thus reducing the revenue and increasing the risk of the investment.

I am reminded of other legislation in an entirely different area which also threatened the sanctity of contractual law—namely, the Leasehold Reform Act, which also raised considerable concerns, particularly on this side of the House, back in 1992. In fact, that Bill led to something of a breakdown in party discipline for some time afterwards. The Leasehold Reform Act followed a precedent created by the previous leasehold reform legislation of some 20 years earlier under Labour. Every time this happens it becomes easier to legislate against existing contracts, until retrospective legislation will become fully acceptable. That will be a sad and highly damaging state of affairs. I am, as I was then, a strong supporter of liberalised markets, but not if it means sacrificing the United Kingdom's reputation internationally for respecting the sanctity of contract law.

Paragraph 2 of Schedule 5 as currently drafted would allow British Gas without counterparty assent to assign contracts to an affiliate which may not have the financial means and structure necessary, or even possibly the inclination, to meet the commitments that British Gas made on freely entering those contracts. As it has been expressed by one Member in another place, if the going got really tough British Gas could allow those smaller operations to founder as companies and its obligations would then disappear. The gas suppliers would then be left to pick up the tab.

I believe that there is merit in British Gas being able to renegotiate gas supply contracts in the event that its share of the domestic market reduces with the introduction of competition, but only in circumstances where the North Sea producer is aware of that option when he enters into an agreement with British Gas initially. In other words, the retrospective aspect of the provision should be withdrawn so that the assignment of rights and liabilities applies only to gas contracts negotiated and agreed after the Bill has received Royal Assent. Any future gas supply contracts negotiated after Royal Assent would be subject to liabilities being reassigned, but then at least both parties negotiating would be aware of that extra dimension at the time of negotiation.

4.39 p.m.

Baroness Gardner of Parkes: My Lords, I have no more interest to declare than anyone who has a gas supply in the house. However, listening to the statement that there were few service complaints made me realise that I must pursue mine. For four months I have been writing to British Gas and making numerous telephone calls which have resulted in no action at all.

This is a most interesting Bill, which will have a far greater impact on the 18 million gas consuming households than the privatisation of British Gas as an integrated, though strongly regulated, monopoly. As we have all heard, from April 1996 in the pilot area domestic

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gas consumers will be able to choose who supplies the gas on which they depend for warmth and comfort in their homes.

I welcome the new Gas Bill as a landmark in the progress towards choice for the consumer. In drafting the Bill, the Government have no doubt taken account of the importance of making sure that entry into the market by new gas suppliers will not be hindered. But in examining the Gas Bill, particularly from the standpoint of consumers—and I speak now on behalf of the Gas Consumers Council, which has asked me to raise the point—I see that the balance of parliamentary protection may be moving away from the domestic consumer towards the gas supplier.

My concern is that the Bill on its own will not provide as much statutory protection for consumers as the present Gas Act, which had already been improved through the Competition and Services (Utilities) Act 1992 to incorporate principles of public service embodied in the Citizen's Charter. The supply of gas, electricity, water and telephone services into people's homes is widely recognised as a public service. The Citizen's Charter has clarified what the consumer is entitled to expect from the utilities that provide those services: accessibility, choice, information, non-discrimination, openness and standards, including redress.

It is the Government's intention to transfer key obligations to the standard supply licence conditions. Those obligations will then cease to be matters for parliamentary control. They will instead be under the discretionary control of the Secretary of State for Trade and Industry and/or the regulator.

The move to a competitive gas market should not require the relinquishing of major statutory principles of consumer protection which serve to promote the public service ethic. The rationale of the Citizen's Charter has clarified what a consumer is entitled to expect from a public utility. Why, if an industry is about to become competitive, should those carry any less weight?

An example of that in the new Gas Bill is the decision to remove "public gas supplier" from the 1986 Act and replace it merely with "gas supplier" or "licensed supplier". I hope that in reality it does not reflect a new attitude towards treating the supply of gas like any other commodity, rather than as a public service.

What are the most important structural changes? First, the removal of the statutory obligation to supply: Section 10(1) of the Gas Act 1986 places an obligation on the gas supplier,

    "to give and continue to give a supply of gas".

That obligation has been replaced by an obligation on the public gas transporter (TransCo) merely to connect the premises to the network. That is in paragraph 4 of Schedule 3. The omission of that fundamental obligation seriously diminishes consumer protection. The Gas Consumers Council believes that most suppliers to domestic consumers would find such obligations acceptable and that there should be a statutory obligation to supply any consumer who requests it. As has been mentioned by many speakers, that is vital to prevent cherry-picking and ensure that all gas consumers have the opportunity to benefit from competition.

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The obligation to supply has been transferred to the gas supply licence (Condition 2). Many speakers have already voiced their concerns about the extent to which consumer issues have been transferred to something that is not subject to parliamentary scrutiny. My particular anxiety with the obligation to supply in the gas supply licence is exacerbated by the obscure wording that is used.

    "To make available a supply of gas",

means little in comparison with the wording contained in the Gas Act 1986, which has been in use in other pieces of legislation since the last century. I should certainly welcome clarification of what that means. I had hoped that there would be a revised version of the Draft Standard Conditions of Gas Suppliers Licences available for Second Reading which would have clarified the issue. I trust that it will be available at the Committee stage.

Then there is the removal of the statutory obligation to publish prices. Again, the subject has been mentioned by many others, including my noble friend Lord Skelmersdale, who made it clear that British Gas would like to see that obligation. Section 14(1) of the Gas Act 1986 requires the public gas supplier to fix tariffs from time to time and to publish them,

    "in such manner as in the opinion of the supplier will secure adequate publicity for them".

The Gas Bill seeks to delete that requirement in paragraph 8 of Schedule 3.

The requirement to publish price information so that all gas consumers in the supplier's licence area have access to it is fundamental to the creation of a market that serves all consumers and not just those who are "economically active". The point made by my noble friend Lady Macleod is relevant there. People who have disabilities or are unwell certainly do not have the time to be "economically active" enough to seek out the best thing for them. General publication of prices will be to the advantage of consumers and will be one of the key means of discouraging cherry-picking.

Like the obligation to supply, it will be a feature of the supply licence under Condition 3. I believe that availability of that price information is too important to leave to regulation, which again can be changed at any time by the Secretary of State and the regulator without the consent of Parliament.

I have been told that this obligation may have been moved to the licence to allow for flexibility in the market since consumers themselves, as has happened in the industrial and commercial market, may find that they do not want the rigidity of a statutory obligation to publish prices. The industrial and commercial market is the home of the professional energy buyer for whom negotiation of energy contracts is a means by which to steal a march over his competitors. I find it difficult to imagine that 18 million domestic consumers would each want to negotiate his or her own individual contract. It is remarkable how many widows have never even signed a cheque. We are seeing a gradual change, but many women have never made any arrangements for themselves. As time goes by, the same state will apply to men or women; they have always left it to their partner to make arrangements and suddenly they will have to make choices for themselves.

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My final point is that there is a duty to secure effective choice. I draw noble Lords' attention to Clause 1 of the Gas Bill, which will give the director general a primary duty to,

    "secure effective competition in the carrying on of activities the carrying on of which is required to be licensed under section 7A below".

That is delightfully woolly. It is primarily a duty for the director general to secure competition between competing elements of the gas industry, but it will not necessarily afford effective choice to all gas consumers.

The aim of the Gas Bill should not merely be the introduction of competition into a monopoly market for the industry, it should be the means by which all gas consumers achieve the benefits of choice. Competition and choice are not necessarily synonymous; it is important to appreciate that within the context of the Bill. Competition should not be an end in itself, it should be the means by which all consumers are able to benefit from lower prices and better service through a real choice between gas suppliers.

Clause 7 of the Bill gives the director general a duty not to grant licences to certain applicants, as has already been mentioned together with the point about the disabled. I welcome that duty. It seems to me that it would be better, as the noble Lord, Lord Peston, pointed out, to refer to "low income households" or, "households in receipt of income support", rather than using the phrase,

    "likely to default in the payment of charges".

That could refer to people who are well able to pay for their gas supply but do not wish to do so.

Returning to the point about Clause 7, I see that the duty is only the first hurdle in deterring cherry-picking. A licence area may have been framed so as not to exclude artificially any of the groups mentioned in the clause, but there is no provision requiring the supplier to show that in actuality he is supplying a fair proportion of those consumers. Nor is there a corresponding duty on the director general requiring her to monitor the consumer mix or the portfolio of consumers to show that suppliers she has licensed are committed to the public service ethic that is integral to the gas supply.

There should be a clear, unequivocal duty on the Director General of Gas Supply to work towards establishing choice for 18 million gas consuming households. Competition will mean little if consumers do not have choice. This Gas Bill should mean that choice will be available. I support the Bill.

4.50 p.m.

Lord Cochrane of Cults: My Lords, I welcome this Bill very much. It is a good Bill. First, I must declare an interest. I am chairman of a family company which is an exempt gas supplier. This company, for which gas supply is an incidental service to customers, is a member of two trade associations in the holiday parks industry. I advise both associations on an informal basis, without remuneration or expenses. The members of those associations could benefit in certain circumstances were

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the Bill to be amended or were the Secretary of State to use other powers contained in Clause 4 of the Bill that is now before your Lordships.

As I said earlier, this is a valuable Bill, intended to promote competition in the gas supply industry, and I am sure that it will achieve much of that. However, complicated arrangements are needed to achieve the extreme fragmentation among consumers that is envisaged.

There is a price to be paid for promoting competition in the gas industry. The more the competition, the higher that price could be; the greater the fragmentation, the greater will be the price that will be exacted in administrative, legal and operational complexity. So far, with gas, that has not bitten very hard at the consumer level. But as the number of deregulated consumers increases towards the intended 18 million, so it will become plainer and plainer, unless simple in concept and lightly applied.

Experience since 1986 indicates that that has not always been the case. The Gas Act imposes a far greater potential for control and regulation through Ofgas and the pipeline executive on small-scale gas systems than occurs with comparable electricity systems. Put simply, that is because the Electricity Act controls only supply at high voltage, whereas the Gas Act (and this Bill) controls gas supply at any pressure. Consequently, a number of persons who in a small way could distribute gas usefully are faced with an elaborate licensing system imposed by the Act and administered by Ofgas. This anomaly has been partly recognised in a previous Act which exempted piped supply within a building—for example, flats or bedsits; perhaps I may reassure the noble Lord, Lord Peston, that I think he is safe, but one cannot count on it—by a landlord, or if the supply to any premises is mainly propane or butane.

Noble Lords will note the contrast between "buildings" on the one hand and "premises" on the other. It should be remembered that for these purposes a supply through pipes can involve a pipe almost as short as 18 inches—or so Ofgas, in one of its more excited moments, told me. An unauthorised supply is a criminal offence. Perhaps my noble friend can tell me how many prosecutions, successful and unsuccessful, have been authorised since 1986. If the answer is that there have been very few, it must surely be a spent provision and should therefore be removed from the Bill, perhaps to be replaced by a civil offence.

One way to reduce the economic price of fragmenting supplies is to reduce the number of controlled suppliers by exemption. In another place my honourable friend the Member for Melton and Rutland introduced amendments that would do just that. And better still, they would promote the supply of natural gas, which always comes through pipes, to small communities and groups which larger suppliers might find unattractive for some reason. That point has been made earlier.

My right honourable friend the Member for Enfield North, Mr. Eggar, said of the amendments of the Member for Melton and Rutland that he was "on to a good point". That, I might say, was high praise indeed. He added that when the Bill was passed it would be possible, by powers contained in Clause 6A, to deal with the point. However, it will be more reassuring to those concerned—who are

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not necessarily all in caravan parks, as was implied in the reply to my honourable friend—if my noble friend could state that he plans to deal in one way or another with the anomaly revealed.

Today, on a caravan park, there is a choice of four main fuels for customers. Traditionally, and still by far the greatest fuel supply used for cooking, and space and water heating is bottled butane, the supply of which is exempt from control under the existing Gas Acts and remains so under this Bill. Next, there is electricity, which similarly is not controlled, although there is a price cap on it. Finally, there is piped propane, exempted by the 1993 Act. This means that the Bill's effect is to oppose the adoption of piped natural gas and favour, as less regulated although not always cheapest, the other fuels. It also has to be remembered that bottled gas is generally more expensive, less convenient and in certain limited circumstances more dangerous than any of the alternatives. I repeat that at the moment in this industry bottled gas is the dominant fuel. It should now be recognised that its continuing use should be regarded as obsolescent and its abandonment should be hastened.

I am confident that my noble friend the Minister responsible for small businesses recognises the immense burden that well-intentioned, though inappropriate and unnecessary, legislation can impose on business, and particularly on the smaller or newly established trader, or indeed on a trader seeking to make large capital expenditure to improve the facilities that he offers. He, too, can be over-burdened.

In the past few days it has been publicly declared that the Director General of Gas Supply—that is, the head of Ofgas—has asked for a substantial pay rise because the workload of Ofgas is now far greater than that contracted for at the time when she first took post. I believe that claim to be well-founded, on the facts that I have just given. The 1994 annual report of Ofgas states that in that year staff numbers increased from 45 to 65; that is, by more than 40 per cent. An extra Treasury grant had to be sought and funding agreed for the increase and for extra office space. That is a direct result of the scattergun approach to increased competition, perhaps rather hastily adopted.

To avoid more escalating charges and red tape, it is now inevitable that regulating natural gas supply down to the smallest level cannot be sustained either usefully or sensibly. The answer is to adopt a policy of low-level deregulation that mimics that applied to the three competing fuels. By that means, the greatest good will accrue to the customers and the least amount of red tape will be deployed.

For those reasons, which I have put as briefly as I can, my noble friend should use the enhanced powers that he will possess after Royal Assent to deregulate the lower levels of natural gas supply so that there can be a uniformity of competitive control. An assurance to that effect will naturally be widely welcomed.

I now turn to a wholly unexpected power contained in the Gas Act 1986 which will continue unless this Bill is suitably amended or the point is dealt with in some other way. That power concerns the rights of sovereign states in terms of the Visiting Forces Act which, as a noble and gallant Lord said to me the other day, is seen as allowing visiting forces to do much as they choose, with the general

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framework of the common and criminal law providing the long-stops. But they may not distribute gas, except propane or butane, through pipes without authorisation from Ofgas and a cash deposit to ensure continuity of supply. In a Written Answer to me in yesterday's Hansard, I gather—I think from the American Government—that the sum of £1,330.74p has been deposited over a number of years. Should I have added up the figures wrongly, I apologise to your Lordships. I do not have Hansard beside me. That seems to be a nonsense. I hope that my noble friend will feel that that extraordinary arrangement can be dealt with by way of amendment. As it concerns a sovereign state, I feel that it would be better in every sense for it to be written into the Bill rather than dealt with by powers which he undoubtedly possesses under Section 6A of the 1986 Act, as amended.

Despite those strictures, which for me are quite mild, I am sure that the Bill takes a valuable step towards freedom of choice. For that reason I shall support it with even more enthusiasm when my noble friend agrees that the improvements that I have suggested also have his support.

5.1 p.m.

Lord Sefton of Garston: My Lords, I gave notice to the noble Earl that I intended to speak in the gap. Quite deliberately, I did not put my name on the List of Speakers because I expected that this would be a Second Reading debate. Normally, during a Second Reading debate the principle of the Bill is discussed. The Bill is given a Second Reading and it goes into Committee, when we start to talk about the detail. It seems that we have done the reverse of that today. Everyone seems to be talking about the detail.

But that is not the reason why I have risen to speak. I do so because everybody seems to welcome the Bill. It is likely that I shall not oppose the Bill. Indeed, it would not be sensible to do that. But certainly I do not welcome it. I believe that in the few short minutes available to me, I have a duty to tell the House why I do not welcome it.

I do not welcome the Bill because it drives the energy systems and production in this country further into the hands of private concerns, whose main aim will be to increase the number of customers to make the maximum use of the product that they are selling. Nobody, not even the noble Lord, Lord Wade, would disagree with that. I do not think that anybody in the House would disagree with that definition of what is being done.

But this is not just a matter of gas consumers being affected by the Bill; it concerns the whole of our energy system. I was glad to hear that the noble Lord, Lord Wade of Chorlton, brought in the issue of combined heat and power. That is a system which, if it is to be successful at all, will call for massive government encouragement and investment. It is a sensible thing to do. I am worried that the Bill does not contain a clause which in any way relates to the question of our energy resources.

When we discussed the Coal Industry Bill, I said that what would happen would be that the coal industry would go out of existence. It is not far off going out of existence. I just heard someone say, "That's ridiculous".

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But is it? I believe that the coal industry will decline further. I must be careful what I say because if I talk about the past the noble Earl, Lord Ferrers, will describe me as being bizarre.

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