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Lord Peston: I am not sure that I like the word "ferret", but my reason for seeking to oppose the Question is to convince the Committee that I have worked very hard on this Bill. I have been working hard to try to understand it. Clause 4, however, is completely beyond me and what we call the "Notes on Clauses" shed no light at all. They seem merely to repeat the obscure and opaque wording of Clause 4.

I confess to the Committee that I have a further difficulty. I hope that it does not lower me in noble Lords' esteem. Clause 4 begins by stating:

but I cannot find Section 6A in the 1986 Act. Perhaps the officials in the Box can come over to the noble Earl in due course and tell us where—

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Lord Cochrane of Cults: Perhaps I may assist the noble Lord. Section 6A was imported into the 1986 Act by the Gas (Exempt Supplies) Act 1993.

Lord Peston: I congratulate the noble Lord. I did not understand a word that he just said because I did not even know of the existence of the 1993 Act. Is the noble Lord saying that what I call the 1986 Act is defective?

Lord Cochrane of Cults: The noble Lord raises an interesting point. No, I do not believe it to be defective. Due to the curious procedures of legislation, when an Act is amended it often assumes a form as if it had been written in that form to begin with. Perhaps I may explain a little further without wearying the Committee. There was a defect in the 1986 Act. It fell to me to introduce a Private Member's Bill in this House which subsequently amended the 1986 Act. That Act inserted into the 1986 Act Section 6A.

Lord Peston: I am indebted to the noble Lord. I understand that there is a Section 6A somewhere that one can find if one looks. However, that does not deal with my main point, which is that I do not understand a word of Clause 4. The clause is said to deal with exemptions from prohibition. First, as a practical matter, what does the clause deal with? What kinds of activities and what people may be exempt? Secondly, why is Clause 4 required to replace what I have not seen before? What is presently in the Act which requires this replacement? Have there been any exemptions in practice? The easiest way to understand what the clause is about is to have a practical example of how it has been used under the 1986 Act and how it may be used in this legislation. I raise the point because I have a duty as Opposition spokesman to scrutinise the Bill closely. I was tempted to let it go because I did not understand it. However, when one sees words like "Exemptions from prohibition" one needs a statement so that the ordinary ones among us can understand what the clause means. I beg to move.

Lord Boyd-Carpenter: I support the noble Lord, Lord Peston, in his remarks about the duties that he performs. As Opposition spokesman in this House, he performs them very well. I believe that what he has said applies to all of your Lordships who have duties as legislators.

I wish to comment on a rather odd procedure in Clause 4. As I understand it, Section 6A was inserted into the 1986 Act by another Act. This provision is now to be substituted for what was then inserted into the 1986 Act. No doubt it is an ingenious and convenient procedure, but it appears rather odd. Perhaps the Minister will comment on why it is done in this way.

Earl Ferrers: I confirm what my noble friend Lord Boyd-Carpenter has just said about the noble Lord, Lord Peston. The noble Lord is carrying out the correct functions of the Opposition, which is to query, ferret and ask questions. I agree with my noble friend that the noble Lord, Lord Peston, does so in an exemplary fashion.

I was particularly grateful to my noble friend Lord Cochrane of Cults for interrupting the noble Lord, Lord Peston and telling us what the problem was. He knows

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all about this matter, because it was his Private Member's Bill that amended the Act and caused the noble Lord, Lord Peston, such confusion. I agree with my noble friend Lord Boyd-Carpenter that in some respects it is not worded as clearly as the layman might wish. However, that is the way the parliamentary draftsman works.

I believe that the Committee has a useful opportunity to discuss exemption orders provided for in the clause. The purpose of the exemption provisions is to deal with what may loosely be called special cases where the licensing regime set out in other parts of the Bill is not appropriate or effective. Of the specific exemptions under scrutiny at the moment, one is a temporary exemption from the requirement for a supplier to have a shipper's licence where the shipper goes out of business pending the appointment of a new shipper. Gas supply to the customer has to be continued if that person goes out of business.

Another example is the operation of caravan parks. I hesitate to mention that for fear that my noble friend Lord Cochrane of Cults will interrupt me in the same way that he interrupted the noble Lord, Lord Peston. This clause affects the operation of caravan parks and similar premises where natural gas is distributed.

Another example is the operation of gas terminals. This was dealt with originally in Schedule 1. It will now be dealt with by exemption orders because of the complexity of the arrangements. A further example is the continued operation of dedicated pipelines where supply is undertaken pursuant to a licence under Section 8 of the existing legislation. A dedicated pipeline is one that goes from one place to another to supply a particular person.

It seems likely that a number of other special cases will arise where the exemption powers will have to be used. It is necessary for the clause to stand part of the Bill. Without it a number of firms would be unable to carry out their operations after the Bill is brought into force. In a number of cases it would not be possible to grant licences to regularise the business. I know that the purpose of the noble Lord, Lord Peston, was to find out the object of the clause.

I mentioned in replying to the debate on Second Reading that my department was considering the appropriate scope for exemption in respect of caravan parks. The matter is a technical one. Discussions continue to find the best balance between deregulation and ensuring that in appropriate cases customers are able to choose their gas suppliers. Final exemption will be subject to annulment in pursuance of a resolution of this House and another place. There will be an opportunity to review what finally emerges.

My noble friend Lord Boyd-Carpenter asked what exemptions had been made under the 1986 Act. I do not believe that as yet any have been made. The procedure provided for in that Act is the one that we have adopted in the Bill as it stands.

Lord Peston: The noble Earl said that the power had not been used at all. Therefore, the examples that have been given are hypothetical ones in order to elucidate the position. I am indebted to the noble Earl for giving those

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examples. At least I now understand what the clause is about. My intention was simply to seek elucidation. I hasten to say to the noble Lord, Lord Cochrane of Cults, that I have no intention of discussing caravan parks at this time or, if I have a free choice, at any other time. We shall come to that matter in due course.

Lord Cochrane of Cults: I thank the noble Lord for his consideration.

Clause 4 agreed to.

Clause 5 [Licensing of public gas transporters]

[Amendment No. 27 not moved.]

Lord Brabazon of Tara moved Amendment No. 27A:

Page 5, line 42, at end insert:
("( ) No licence shall be granted under this section to a public gas transporter where, in the opinion of the Director, any director of that public gas transporter has a conflict of interest in the safe, efficient and economic operation of the regulated pipeline system.").

The noble Lord said: On behalf of my noble friend Lord Wade of Chorlton, I beg to move the amendment standing in his name on the Marshalled List. I should also like to speak to Amendment No. 55A. My noble friend apologises to the Committee for not being able to move the amendment himself.

In its report in 1993 the MMC recognised the problems that arose from the various activities of British Gas being wrapped up in one company. Accordingly, it recommended that BG's trading division be divested. My right honourable friend the President of the Board of Trade rejected that advice. I understand that his decision was probably based more on a desire to expedite the introduction of competition than outright rejection of the concept of divestment. Indeed, my right honourable friend and the regulator both confirmed that commercial separation must be implemented.

Under the new market conditions established by this Bill, British Gas will operate in three principal areas. First, it will be the operator of the pipeline system—which is a natural monopoly business—to be called British Gas TransCo. It will then be one of the suppliers competing for the 18 million domestic customers to whom it is at present the only supplier. I understand that that will bear the name British Gas PGS (Public Gas Supplier). Finally, it will continue to operate in the highly competitive international market place and in the worldwide exploration business where it is already a major player.

While British Gas proposes to place its PGS business—the one that supplies our homes—into a separate company, there is no such proposal for TransCo. In that case, rather than place it in a separate company BG has erected a system of Chinese walls. I suggest that that system of Chinese walls—a device usually employed as a temporary measure—is not a satisfactory way of proceeding for a number of reasons. First, they do not constitute a sufficient guarantee of a level playing field between BG and other PGS companies; secondly, they will provide insufficient transparency between BG business units; thirdly, they increase the risk of dispute on the fair allocation of costs, confidentiality of data and, ultimately, the terms under which other gas companies compete with BG trading units; fourthly, the opaque corporate structure

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will provide Ofgas with much greater problems in its policing role; fifthly, they fail to address the political problems arising from the fact that within BG there will remain a substantial monopoly operation which will ensure that the row over executive remuneration could continue indefinitely; and, lastly, they fail to recognise that British Gas is effectively steward of the national asset, the pipeline system, and that the protection of the asset must be—and be seen to be—an absolute priority.

The most sensible solution to those problems would be that offered by my honourable friend Mr. Alan Duncan in another place. His amendment, which is in the same terms as Amendment No. 55A would have provided for TransCo to be a separate wholly owned subsidiary of British Gas, dedicated to the monopoly transportation business alone. Most unfortunately, that amendment did not find favour in another place.

These amendments, which I now commend to the Committee, would go a long way towards reassuring the nation that a key national asset was properly protected, and it would confer some valuable benefits in improving the competitive gas supply regime.

First, they would give the monopoly company and its directors unambiguous objectives, free from any conflict of interest. The pipeline operation is a natural monopoly. It is a massive UK infrastructure system, worth an estimated £18 billion upon which the supply of gas to homes and factories throughout the land is dependent. Clearly, it requires directors who have a focused and clear fiduciary duty to protect, maintain and improve the regulated assets, and whose commitment to the safe maintenance and renewal of the system is not compromised in any way by conflicting loyalties to one of the supply companies.

The assets of TransCo need to be safeguarded. The public need to be reassured that the funds set aside for renewing the system, parts of which date back to Victorian times, will be there when required and not siphoned off to meet some more urgent cash demand in some other part of British Gas's business.

Secondly, these amendments would assist in the ring-fencing of the TransCo operation for the benefit of the regulator, Ofgas. The more clearly that TransCo is delineated as a separate operating company, the easier it will be to define the area of responsibility for Ofgas. I believe that in limiting the role of the regulator to that part of the business which is by nature a monopoly we would help the regulator to be clearly focused on the area of gas supply which is not subject to the disciplines of competition and where regulation has a clear role to play.

Thirdly, these amendments, particularly Amendment No. 55A, would allow clear external judgment to be made on the company's performance. Indeed, in the present climate it would deliver one very important benefit. The row about the pay of utility directors arises in part because there is a public perception that they are just running the same gas boards and electricity boards of old, but paying themselves 10 times as much. If the monopoly part of the business (where risks are inevitably less than in the competitive area) were ring-fenced there could be legitimate public scrutiny of the directors' pay leaving the level of executive pay of the risk-taking businesses entirely, and properly, a

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matter for the shareholders alone. Finally, they would provide a safeguard to ensure the permanent UK ownership and control of TransCo's monopoly assets.

In conclusion, I wish to make it plain that there is no ulterior motive in these amendments to force British Gas against its will to divest itself of its key asset. I suspect that the company raises the spectre of divestment largely to frighten those who believe in the concept of national champions and do not want British Gas's status as one such damaged. Surely, though, there can be no danger to British Gas in applying to TransCo the same arrangements as it is applying to PGS. I believe these amendments do make a great deal of sense, and would not damage British Gas's prospects. I hope that they will find favour with my noble friend. I beg to move.

7 p.m.

Baroness Gardner of Parkes: I oppose the amendments. Having listened to my noble friend, I understand that he is suggesting that TransCo be made a separate entity. I attended the all-party meeting we had with the chairman and chief executive of British Gas. I went to that meeting under the impression that it would be a good thing to have TransCo as an entirely separate company. I put that point at the meeting, and I was completely satisfied by the answer I received that it would not be a good thing. At the time I thought that it was parallel to the electricity national grid. I have followed the matter up since and found that it is not a parallel. Therefore I oppose the amendments.

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