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Earl Ferrers moved Amendments Nos. 154A to 154J:

Page 70, line 14, leave out from ("mentioned") to ("and") in line 17.

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Page 70, line 19, leave out from ("above") to end of line 21.
Page 70, line 24, leave out ("or, if the supplier thinks fit, such two").
Page 70, line 26, leave out ("nominated associates") and insert ("the nominated associate").
Page 70, line 36, leave out ("or nominations").
Page 70, line 43, leave out ("a particular") and insert ("the").
Page 71, line 2, leave out ("or any, or by or against both or all") and insert (", or by or against both").
Page 71, line 4, leave out ("any one") and insert ("either").
Page 71, line 6, leave out ("any") and insert ("the").

The noble Earl said: In formally moving these amendments, I shall speak also on Amendment No. 155: that is, the amendment of the noble and learned Lord, Lord Brightman. Before the Motion is put, it might perhaps be convenient for the noble and learned Lord to speak first to his amendment, Amendment No. 155, and for me to reply to it. My amendments are really in lieu of his. I beg to move.

9.30 p.m.

Lord Skelmersdale: It may help the Committee if my noble friend explains the substantial changes that the Government are making to this schedule. It will then be easier for the noble and learned Lord, Lord Brightman, to respond.

Lord Brightman: I shall deal with this matter as briefly as I can. The point is that if British Gas enters into a contract to purchase gas from a gas field and then transfers the contract to another company, under the ordinary law British Gas would remain liable to the gas field in the event of default by the transferee company.

Schedule 5 appears to me to disregard that principle by enabling British Gas to hive off contracts without remaining liable in the event of default by the transferee company. What is more, Schedule 5 enables British Gas to transfer contracts to either of two companies of its own choice. British Gas is in theory therefore in a position to pass good contracts over to company A and unprofitable contracts to company B. If it wished it could then walk away from company B. Amendment No. 155 is designed to meet that risk by providing that nothing in the schedule should relieve British Gas of its liability under a transferred contract in the event of default by one of the two nominated associates, as the transferee companies are called.

Amendment No. 154C, which has been tabled but not yet moved by the Government, only permits contracts by British Gas to be assigned to a single trading entity. The result is that the risk that worried me seems to have been reduced and perhaps eliminated altogether. If there is only one associated nominated company, only one trading entity, then it is almost inconceivable that British Gas would allow that company to go bankrupt.

Amendment No. 154C, which is the amendment which allays my anxiety, arrived somewhat late in the day, although I was greatly helped by an explanatory letter which I received from the noble Earl this afternoon. However, I have not had time to consider it in the depth I should have liked. I expect to find that my worries are over. In the circumstances, it is not my present intention to move Amendment No. 155. I express my grateful

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thanks to the noble Earl for considering my Amendment No. 155 and for making many amendments to Schedule 5 which go so far to meet my point.

Lord Gisborough: Two or three years ago, certain companies entered into long-term agreements with British Gas to buy its gas. On the back of those contracts those companies entered further contracts to sell the gas and had arrangements with their customers. The Bill, which is retrospective, seriously interferes with, if not negates, those contracts for purchasing gas and leaves those companies with outstanding contracts to sell the gas. It is a dangerous situation because it sets a precedent which may make future companies buying contracts wonder whether the rules will be changed during the tenure of those contracts. However, I am extremely grateful to my noble friend the Minister for agreeing, as he did, to see the company representatives concerned. I know that he understands the matter a great deal better than I do and I hope that when he comes to speak he will be able to give some comfort and perhaps put forward proposals for dealing with the damage that would appear to have been done to those companies.

Lord Peston: Before the noble Earl outlines his view of all these matters, I really would like to change my mood and congratulate the Government on what they seem to have done. The noble Lord, Lord Gisborough, raised the matter at Second Reading. The noble and learned Lord, Lord Brightman, has been very concerned about contracts. The Government have had the rather difficult task of providing a balance as regards the interests of British Gas, bearing in mind, in particular, that when it was a public utility it was obliged to sign long-term contracts for supply at what now are very uneconomic prices.

I cannot believe that it is the Government's desire to bankrupt British Gas as a result of the Bill. But, equally, a contract is a contract. Other concerns are getting into this business and some degree of fairness must apply to them. In looking at the amendment of the noble and learned Lord, Lord Brightman, I thought that this was an impossible state of affairs. I have to congratulate the noble Earl. In so far as anything could possibly be done, it looks as though his amendment just about does it, within the imperfections of the world in which we live. As I understand it, the noble and learned Lord, Lord Brightman, has said that he is content. I have been subject to pressures from all sides and I can only say that I am content. I hope, therefore, that the amendment in the noble Earl's name will work. I assume it will and I wish it good speed.

Lord Skelmersdale: It is my feeling that my noble friend and his department have squared the circle in a most elegant way. I congratulate them on it.

The Earl of Caithness: Having raised this matter at Second Reading, I, too, would like to congratulate my noble friend on what he has done. With his agility of mind I am sure that he can do it with the same ease as regards some of the amendments that we have already discussed.

Earl Ferrers: Such a bouquet of flowers coming from all round the Chamber is most unusual. I think that I must probably have got it wrong to have received all that. I am

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deeply grateful to the noble and learned Lord, Lord Brightman, who was courteous enough to write to me some time ago and tell me of the amendments that he proposed to put down. That enabled me to consider the matter in some detail. I am bound to say that I did have a certain amount of advice and help over that consideration, without which, of course, I would have been completely incapacitated. The result was that he alerted us to a problem.

It is not an easy issue. The difficulty we have is in meeting the two principles of separation, that is, making sure that the operation of the common pipeline network which is owned by British Gas is not distorted by the company's trading position, and avoiding undue detriment to the position of British Gas's counterparties. It would not in our judgment be possible to meet the first of those objectives if we sought to deal with the second in the manner which the noble and learned Lord suggested in his amendment. Requiring the pipeline to guarantee the gas purchase contracts of one supplier among many could be seen to compromise its neutrality. If those guarantees were ever called, that could raise the prospect of pipeline tariffs for the whole industry being raised in order to support British Gas's counterparties.

We came to the conclusion that more work needed to be done to the Bill about this. There is a concern that the present provisions of the Bill might allow one of the supply subsidiaries to be, as it were, a man of straw. That would obviously not be right. We propose that the Bill should limit British Gas to a single supply subsidiary rather than allowing the company to have two. That would guarantee that all the contracts were vested in a substantial business with a turnover of several billion pounds a year. Since British Gas will continue to have a monopoly in the domestic market in most of the country until some time in 1998 and the sheer number of customers in that market will limit the speed at which the company's market share can fall after that time, we think that this change will effectively meet the anxieties which have been expressed.

That is why I tabled the amendments. I understand that the noble and learned Lord has not had time to consider either of these amendments or—I was going to say more importantly—my letter. It would be extravagance on my part to suggest that my letter was more important. I wrote to him as soon as I could but, as he will realise, the matter took some consideration. I am sorry that he was unable to have the letter earlier than he did.

If the noble and learned Lord will withdraw his amendment, and if the Committee considers that it would be appropriate to accept my amendments, I would find that helpful. If the noble and learned Lord is agitated between now and Report stage, I shall be more than delighted to try to help him and meet any points of concern. I do not just say that to my noble friend Lord Gisborough. He expressed concerns to me earlier when he came to see me. We are continuing to consider, with the affected parties, whether there is an appropriate solution which will allow the network code to proceed in a fair way. I understand his position about having entered into contracts which might have untoward

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effects. This is not an easy matter. We are trying our best to see whether there are ways of overcoming the problem. I hope that meets the Committee's approval.

On Question, amendments agreed to.

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