Previous Section Back to Table of Contents Lords Hansard Home Page

Lord McIntosh of Haringey: My Lords, I can respond immediately. It is our intention to introduce them in October. That, of course, requires Royal Assent for this Bill by the end of July.

Lord Ezra: My Lords, I am glad to have that confirmation. But I was going on to say that, if it took a bit longer, I would not regard that as a matter for criticism as it is so important that these arrangements are correctly prepared.

I should be interested to know--perhaps the Minister can also answer this straightaway--what the overall costs of introducing the new system are likely to be, not only for the authority, but also for all the enterprises involved. In the debates in another place, figures of £500 million and even £750 million were mentioned. Those are extremely large sums, no doubt fully justified; but how are they to be recouped?

Furthermore, a specific concern in relation to the new electricity trading arrangements is the way in which the balancing and settlements procedures could act to the disadvantage of smaller operators,

4 May 2000 : Column 1149

particularly in the CHP and renewable sectors. Those operators could not control and balance their generation in the same way as larger operators and could therefore incur the penalties of oversupply in the balancing market as presently contemplated. Even in advance of NETA, the prices offered for exported electricity from CHP plants have fallen between 20 and 28 per cent below last year's level. In its environmental appraisal of NETA, the DTI said that,

    "it is likely to affect adversely the economies of some categories of CHP and other embedded generation".

I know that this issue has been much discussed, but it would be useful to know the Government's latest thinking on the matter, bearing in mind the importance which they attach to renewables and to CHP.

In conclusion, I trust that I have shown that I support the broad intentions as well as the individual proposals contained within this Bill. I have drawn attention to a number of issues which, if they could be dealt with positively, would, in my opinion, enhance the effectiveness of the Bill.

4.38 p.m.

Lord Borrie: My Lords, it is always a pleasure to follow the noble Lord, Lord Ezra. In the energy industry he has a tremendously wide and long-standing knowledge and interest. He declared a large number of interests at the beginning of his speech; I have but one interest to declare. I am a non-executive member of the management board of Ofgem, which is the Office of Gas and Electricity Markets. It was set up last year after the regulatory offices for gas and electricity were merged and Callum McCarthy was appointed regulator for both industries. The management board is intended to be some kind of model for the statutory authority created by Clause 1 of the Bill.

Like the noble Lord, Lord Ezra, I have long supported the view that it is desirable for utility regulation to be governed by an authority or board of some kind rather than to continue with the one-person regulator model which was established when the privatisation statutes were passed in the 1980s. Experience over many years has shown that, especially in the case of telecommunications and gas where privatisation resulted in the conversion of a public monopoly to a private monopoly, there is a likelihood of undue personality clash and confrontation between, on the one hand, the regulator, and, on the other, the chairman or chief executive of the powerful monopoly, which clearly is not in the public interest. In the case of the gas industry, we had to live for a very long time with the unfortunate decision of the Conservative government in the mid-1980s to privatise British Gas as a single private sector monopoly. According to the most interesting memoirs of the noble Lord, Lord Lawson of Blaby, who was Secretary of State for Energy in the early 1980s, he would have preferred to break up the British Gas Corporation because he judged competition to be a much more important consideration and objective than maximising government revenue. But, as he records, his successors

4 May 2000 : Column 1150

as Secretary of State for Energy took a different view. He suggests that they were pretty obviously leaned upon by a man--for those who can remember or picture him, it would not have been a very pleasant experience--namely, Sir Denis Rooke, then chairman of British Gas.

The noble Lord, Lord Lawson of Blaby, described Sir Denis as,

    "a large, craggy, overbearing man ... treating Ministers and officials alike with a mixture of distrust, dislike and contempt ... To break up the Corporation in any way was a negation of his life's work".

But, and noble Lords may recall, confrontation and somewhat vitriolic disputation from time to time did go on between the regulator and the utility industries, even when the personalities involved changed. The regulator, supported by the Monopolies and Mergers Commission, was determined to seek to bring about a separation of the natural monopoly elements of the energy industry--usually referred to as the "pipes and the wires" and for which no one advocates competition--that required continued regulation and the other elements of the energy industry such as generation, supply, and so on, where competition could be introduced and regulation eased as time went by. I stress the fact that regulation would be eased because, contrary to what has been said in the other place and, to some extent, by the principal Opposition Bench today, regulation is being eased all the time and, most properly, as competition progresses.

In 1997, at the time of the general election, the Labour Party's manifesto said in relation to the utility industries:

    "We will promote competition wherever possible. Where competition is not an effective discipline ... we will pursue tough effective regulation in the interests of customers".

To my mind, this Bill pursues that in a very straightforward way. It certainly makes regulation more effective; for example, through the statutory confirmation of the merger of the gas and electricity regulatory offices that has taken place, the creation of the gas and electricity markets authority, and the creation of a truly independent and separate consumer council. Very rightly, the Bill puts up front as the principal objective of the Secretary of State and of the authority the protection of the interests of consumers, adding the important wording, which noble Lords will also have noticed in other Bills,

    "wherever appropriate by promoting effective competition".

As I see it, the consumer interest objective is not simply the most obvious one of ensuring lower prices, desirable though that may be and desirable though their achievement may have been up until now through competition. Clearly, consumers have an interest in security and continuity of supply, so that continuing adequate investment is also required in the interests of consumers, not just in those of the companies, and so on.

Perhaps I may impertinently remind the Opposition Front Bench that the word "consumers" is defined in the Bill so as to include future consumers as well as present consumers. That clearly puts an emphasis on the need for the regulator to ensure that he does not

4 May 2000 : Column 1151

concentrate wholly on a narrow focus of immediate reductions in prices but ensures that there is adequate investment.

As we know, competition has already been pursued with considerable vigour so that business consumers and private consumers--at any rate, those who pay by direct debit--are assumed by the regulator to be adequately protected by competition and regulatory price caps are no longer needed. However, with all the enthusiasm and success that competition has had so far, I should like to remind your Lordships that a 70 per cent share of the domestic market is still held by British Gas. It may be thought that it will settle down at about that figure. It is true that consumers throughout the country have choice from rival suppliers, but I quote the retiring chairman of the Gas Consumer Council who said in her recent report that,

    "essentially consumers lack confidence in the new market".

Some may ask why they lack confidence. There have been some well-publicised, bad selling practices; there have been problems with changing suppliers; and there have been unauthorised transfers and similar, as the chairman put it, "tales of woe". These have all impacted on consumer opinion, and market share between the rivals may not alter much more until consumer perceptions and greater consumer confidence change and develop.

One also needs to say, as did my noble friend the Minister, that competition alone is insufficient to create--and I use my own words--overall consumer welfare. I emphasise to your Lordships that gas and electricity are not discretionary services that people can choose to take or not take. Moreover, although we would like them to solve as many problems as possible, market forces will not solve them all. The clauses to which my noble friend the Minister referred very properly provide for ministerial guidance to be issued on social and environmental matters. The Bill does specify "guidance", so I disagree with the noble Baroness, Lady Buscombe, who said that guidance inevitably means prescription. It does not; the words are different. As a member of the management board of the energy authority, I regard them as different.

The Bill also provides that the Secretary of State, the authority and the consumer council must have particular regard to the interests of the disadvantaged consumer. I suppose that is one of the reasons why I said that market forces are not entirely sufficient in this respect. If you do not give special consideration to the disadvantaged consumer and you price solely and only according to cost, then, inevitably, those who pay frequently--for example, the poor who want methods of payment whereby they can pay regularly by cash--will be faced with a more costly exercise. They will have to pay more. I hope noble Lords agree that it is good to see that standing charges are being removed. They can impact harshly on small users, such as a single old-age pensioner living alone. Surely we do not want too large a differential between the price paid by customers using direct debit and others using, let us say, pre-payment meters.

4 May 2000 : Column 1152

As my noble friend the Minister indicated, Ofgem has produced a comprehensive social action plan. I am sure that noble Lords will agree that there are a number of practical proposals in it to combat fuel poverty and social exclusion. Whether or not noble Lords agree with all of them, I am sure they will agree with many of them. They include easier access to payment facilities for those who want to pay frequently in cash; energy saving schemes of various kinds; and improved access to the competitive market for customers who are in debt and to whom market forces may not easily have regard.

In the future there will be a more powerful deterrent against misselling and other malpractices through the possibility of financial penalties being imposed by the authority. The gas consumer council already had that power, as the noble Lord, Lord Ezra, mentioned, but it has now been broadened and is of a more general nature. I have difficulty with the restriction that is imposed in the Bill which states that the authority may not impose a penalty unless notice relating to it is served within 12 months of the contravention or failure to which it relates. That may leave insufficient time for investigation of the alleged malpractice. It may also leave insufficient time for the authority to decide whether to use its powers under the Bill, or its powers under the Competition Act 1998. It would be unfortunate for the period to be left as short as 12 months.

I say to the Opposition Front Bench that the Bill gives the licensee a lot of protection with regard to the clauses on penalties. The clauses not only require any penalty to be of such amount,

    "as is reasonable in all the circumstances of the case".

The authority must publish a statement of policy to which it must have regard, and there is a right to go to the courts on what may be called "judicial review grounds". However--this is one of the points on which I agree with the noble Lord, Lord Ezra--there is no general right of appeal to the courts on the merits and, unlike the Competition Act 1998, no limits are set out in the Bill. I am not sure that that is satisfactory. As my noble friend the Minister is aware, a number of Bills are before the House at the moment and the Competition Act was recently enacted. The House is entitled to ask why there are discrepancies as regards the matters we are discussing as between one Bill and another.

Although the Bill does not explicitly say so, I believe that the consumer council is to have an advocacy role. This is not stated in so many words but at Second Reading of the Bill in another place Mrs Helen Liddell stated that that is its key role. She used the phrase,

    "partisan on behalf of consumers".--[Official Report, Commons, 31/1/00; col. 873.]

I have no objection whatever to that, but if that is the case I wonder about the appropriateness of the council also acting as arbiter of consumer complaints as between the consumer on the one hand and the company on the other. Why is there no ombudsman scheme? At this very moment my noble friend the Minister is piloting the Financial Services and Markets

4 May 2000 : Column 1153

Bill through the House which promotes, justifiably, the most powerful ombudsman scheme in the country as regards that area of regulation. Why has it not been thought of in regard to the matter we are discussing? I commend the Bill but I look forward to detailed discussion in Committee on a number of issues.

4.53 p.m.

Lord Jenkin of Roding: My Lords, it is always a pleasure to follow the noble Lord, Lord Borrie. I enjoyed his excursion into the initial steps that were taken in this country to set up regulatory mechanisms.

One must remember that it is less than 17 years since I introduced the White Paper which foreshadowed the privatisation of the telecoms industry. My studies on that occasion convinced me that to follow the model of the federal authorities in the United States would have been a grave mistake. At that stage we believed that it was absolutely right to establish a highly authoritative, prestigious and respected individual to take on the function of regulator. That step was so successful that it has been imitated in many other countries. Naturally enough, it was adopted for the energy industries. However, as the process matures, it is probably right now to consider a more corporate approach to regulation. I do not in any way object to the proposals in the Bill both for merging the two regulatory bodies--which in practice has happened already--and for them to be in the form of a body rather than an individual.

However, what is striking looking back over 17 years is the total and utter transformation that has overtaken the Labour Party in that time. Every single one of the Bills we are discussing was opposed root and branch by the party opposite. The Telecommunications Bill was filibustered for months by the then opposition in another place. We were told that the Electricity Bill and the Gas Bill were bound to put up prices. My noble friend on the Front Bench has described what actually happened. Now noble Lords opposite, such as the noble Lord, Lord Borrie, argue passionately the benefits of competition. One can only welcome that conversion.

The noble Lord, Lord McIntosh, addressed a number of the criticisms made of past legislation in this area. This country pioneered the privatisation of major public utilities. The telecoms privatisation was the first of its kind in the world. I am sometimes asked what I think about that. I hope that it may earn me a footnote in history! That privatisation has been imitated all over the world. When one considers the transformation that has taken place as regards the quality of service, the range of choice, the prices that are paid, and the huge diversity of provision that now exists in the telecoms industry--it has grown at an almost exponential rate--can anyone believe that that would have occurred under public ownership? One has only to make the comparison with what is happening in Germany to appreciate what privatisation of the British telecoms industry has achieved. I am sorry that we are not addressing the telecoms industry. It has been excluded from the Bill. But its progress constitutes an exciting story. However, even with the

4 May 2000 : Column 1154

benefits that privatisation brings in terms of price reductions and choice, it takes time for people to get used to having a choice of gas and electricity suppliers. Nevertheless the picture is now a vast improvement on the position before privatisation.

There are two areas of the Bill which I think will require amendment in Committee. They concern electricity and gas respectively. The electricity point relates to the proposed arrangements that are to replace the non-fossil fuel obligation. I was not a member of the Select Committee inquiry into non-food crops chaired by my noble friend Lady Hogg. However, I warmly supported its recommendations. Indeed, I was a member of the Select Committee that endorsed those recommendations. We supported the recommendations on the use of renewable fuels--our report discussed at length short-term coppicing--for the purpose of generating energy. The use of waste to generate energy is already making a small but growing contribution. There is considerable potential in the use of biomass although that is not, strictly speaking, a non-food crop. I am glad to see the noble Lord, Lord Haskel, in his place because I believe that he too is a supporter. The main thrust of the report was that these, as it were, industrial crops require a champion in Whitehall. We made a very strong recommendation that the Minister for Science--I am a little surprised not to see him on the Front Bench for this Bill--should have been appointed chairman of a committee to bring together the various interests. For whatever reason, the Government rejected that recommendation. The result is that we have a policy with responsibility still divided among the Ministry of Agriculture, the Department for Trade and Industry and other departments. We published a supplementary report quite recently criticising the Government's failure to accept what seemed to us a very sensible, indeed overdue, recommendation.

So we now have a proposed energy crop scheme to be introduced by the Ministry of Agriculture, Fisheries and Food. It is being treated simply as an extension of farming. Perhaps for that reason, this recently announced scheme seems to bear absolutely no relation whatever to what is contained in this Bill. I hope that the Minister will be kind enough to deal with my question in his reply. Can he explain how that scheme, which is concerned with energy, is going to fit in with the provisions for renewables in the Bill? It seems to me a classic example of what the Select Committee was aiming at; namely, to have--using the phrase favoured by the party opposite--joined-up government. There is absolutely no sign here of joining up what has been introduced by MAFF and the arrangements made in the Bill to replace the NFFO.

The criticism of the new arrangements is that the Bill sets out proposals for an obligation on suppliers to source part of their electricity production from renewable resources, but it is not technology-specific. It is proposed that the price be capped by means of a buy-back procedure enabling suppliers who are unable to meet their supply requirements in the market to pay the Government to relieve them of the proposed obligation.

4 May 2000 : Column 1155

I have been told that under these circumstances there will be no incentive for renewable developers to engage in the risks of research and development. As the report of my noble friend Lady Hogg made clear, there is still need for a great deal of R&D if we are to realise the potential. There is no incentive for the developers to engage in the risks which are also more expensive than the cheapest renewable resource. Allied to that is the lack of a guaranteed long term supply contract which must be at the heart of any policy of trying to achieve the substitution of renewables for traditional sources of energy. This means that where developers, for instance, are willing to attempt biomass power station development, they will find it extraordinarily difficult to raise the funds in the market to finance it. That is an example of where there appears to be a change which has not been properly thought through. One wonders how it is going to work.

It would be very expensive in Exchequer terms, and it is unlikely to fill the funding gap. I understand that the DTI proposes that there should be a grants regime to help, but that is not in the Bill. My Lords, that is not the way to do it. What is needed is a system which requires electricity suppliers to source a specified proportion of renewables, for instance, from biomass at a fixed price on long term contracts. That is the condition which will produce the most rapid and effective introduction of this much needed technology.

The costs would then form part of the costs of supplying electricity. That is as it should be. It should not fall onto the taxpayer through a grants system. I give the Government notice that I hope to move amendments to Clauses 61 and 62 in order to go into the issue rather more deeply in Committee.

My point concerning gas is quite different. It is the indirect effect of the downstream regulation on some of the upstream suppliers, notably the offshore oil and gas industry. The remit of Ofgem--as people are still calling it although no doubt we shall get round to calling it the gas and electricity markets authority, GEMA, or whatever--does not extend offshore with the minor exception of Clause 100 concerning gas quality. As Callum McCarthy has said, his jurisdiction stops on the beach. The offshore oil and gas industry is regulated separately by the DTI. As I said, in industrial parlance, the Bill relates to downstream matters and yet if it is not amended there is a risk that it will do considerable damage to the upstream industry.

I make it absolutely clear that the offshore industry is very keen to see the Bill enacted. The very simple reason is that it supports the new electricity trading arrangements. It will allow the Secretary of State to rescind the stricter consents policy on gas fired power stations. It is no secret that that misguided decision by the Government has had a quite damaging effect on the offshore industry and offshore gas field development. There is no doubt that bringing that to an end will be widely welcomed.

I do not share the view of the noble Lord, Lord Ezra, that this matter is something that can be allowed to drift on. We have to introduce the new arrangements

4 May 2000 : Column 1156

in the autumn. I hope that we shall see this Bill on the statute book by July because there is no doubt that the sooner we can lift the stricter consents policy the better.

Where does this take us as regards regulation? Perhaps the House will bear with me for a moment while I give a specific example of where things have gone wrong recently. I shall go into detail in Committee. The Minister will be aware of the ending of the pool system for electricity, which has been welcomed on all sides. There was also a system for gas. However, that is a little more flexible because it can be stored in modest quantities. The old Ofgas engaged in consultation as to how best to balance the needs of suppliers and consumers. Quite obviously, the key issue is achieving capacity in the distribution network. After one or two false starts, a system of auctions was introduced. The offshore oil and gas industry criticised that pretty fiercely, but sadly it was not listened to. Such a method, the industry said, was bound to increase prices, and that is precisely what happened in successive auctions. The first was held in September 1999 for capacity in October. The prices increased. The auction system was amended. The March auction in the following year saw further significant price increases. The result is that the weighted average cost of entry capacity at St. Fergus, which is one of the very big landing stations, increased from 0.95p per therm in September 1999 to 2.75p per therm in March 2000. Under the old regime, prior to the auctions, the price was two-thirds of that per therm at 0.665p.

What is feared is that the same kind of thing will happen--I share the anxieties of the noble Lord, Lord Borrie--as regards giving primacy to immediate consumer interests. If GEMA looks for short-term benefits to consumers it could impact damagingly on the long-term supply of gas from the offshore oil and gas producers. That is exactly what happened with that system of auctions, and the industry is genuinely concerned that it will happen again. The result will be that a Bill which is intended to protect consumers will, in the end, make them worse off.

What is the answer? We need to have an effective cost-benefit analysis of any regulatory step that will impact on the upstream suppliers. The Minister referred to the need for transparency. He is right. Transparency is necessary, and this is one of the ways we can achieve it. Transparency was argued for in another place--it gained support from some government Back Benchers in Standing Committee--but so far the Government have not listened to the argument. Yes, they have consulted widely-- they have been told precisely what are the dangers--but they have not done anything about it. We in this House have a duty now to pursue the issue and to ensure that, under the new gas trading arrangements, Ofgem is obliged to submit a full cost-compliance analysis of any of its proposals.

I support the main thrust of both NETA and NGTA, but the Government's objectives are not likely to be met unless they are prepared to accept amendments to the Bill to remove the difficulties to which I have drawn attention.

4 May 2000 : Column 1157

5.11 p.m.

Lord Judd: My Lords, the noble Lord, Lord Jenkin of Roding, always makes an enjoyable speech. However, I think that, on reflection, he may feel that his entertainingly provocative remarks at the outset rather carried him away.

What impresses me about the Bill is that it reasserts some of the principles which we on this side of the House have always been about in our political lives. It reasserts the principle that we are looking not only at the efficiency of industries for their own sake--be they public utilities or not--but at the contribution they make to the well-being and quality of society as a whole. The Bill reasserts the importance of balancing the responsibility to shareholders--which is a very real responsibility--with the responsibility to consumers, not least the most vulnerable members of our society. At a time when many people in Britain have become sickened by a prevailing culture of greed, the Bill reasserts the principles of responsibility in leadership and administration by emphasising the importance of the links between directors' remuneration and the standards of the electricity service provided.

I cannot help recalling a discussion I had not long ago with an industrial chaplain whose responsibilities included one of the largest power stations in the country. He was not a particularly political man in party political terms. He remarked that one of the things which had always struck him was that in the old days of the publicly-owned electricity industry, whatever the difficulties (and he did not underestimate the difficulties), and whatever the bloody-mindedness (and he did not underestimate the bloody-mindedness that existed at times), there was a feeling that, at the end of the day, it was about Mrs Jones, Mr Brown and the people down the road getting their electricity. It was not primarily about producing a profit for the firm as an end in itself.

I believe that the Bill addresses that issue. I am glad to see that the Government are addressing it and I congratulate them on that. Potentially, the Bill can make a significant contribution to the morale of those working within the public utilities; to the whole industrial culture of our society; and to the rehabilitation of the concept of public service, whether provided within the public or the private sector.

The Minister referred to the environmental elements in the Bill. I should declare an interest because, in a voluntary capacity, I am a vice-president of the Council for National Parks and I serve on the north-west regional committee of the National Trust, as well as being a member, in an individual capacity, of various environmental groups.

In Clauses 10 and 14 of the Bill there are references to environmental responsibilities and to the guidance which should be given in this respect. In Clause 61, for example, there is a firm reference--the Minister underlined it--to energy from renewable resources. But when we look at the Bill and consider these different elements, there are potential contradictions which need to be taken seriously. If, for example, in endeavouring to fulfil the obligations spelt out in

4 May 2000 : Column 1158

regard to the provision of energy from renewable resources, there was a rush for and an ill-considered increase in the number of onshore wind-power systems, that may well represent a totally unacceptable pressure on important landscapes, including the national parks.

It is interesting to note that already it is envisaged that there may be proposed as many as nine significant major wind-power developments on the edge of the Lake District National Park, where I live. Such developments would also have severe implications, in some instances, for the Yorkshire Dales National Park.

When the Bill is considered, I hope that the Government will be prepared to accept the case for making it an explicit responsibility of the Secretary of State to take fully into account the national parks and other similar concerns when drawing up and making the renewables order. This would not only help to protect the landscape but would surely benefit those seeking to develop renewable energy; it would give greater certainty and clarity to the decision-making process; and it would ensure that projects--into which, necessarily, a lot of work had been put--were likely to succeed. They would have been assessed environmentally at an early stage of the process and would therefore be less liable to negation on planning grounds. This would positively assist the Government in reaching their renewable energy commitments.

There are a number of sources of renewable energy--small-scale hydro-electrical power, for example. It would surely be sensible to place an obligation on the Government to consult local communities and relevant interests in areas of high landscape quality--such as areas of outstanding national beauty and national parks--to ensure that only the most appropriate schemes are considered.

A word now about the regulatory authority. Under the Bill, the primary duty of the regulatory authority, like that of the Secretary of State, is to protect consumer interests. This is obviously altogether good. However, there is room for some debate on exactly what are consumer interests. Many of us would argue that in a highly stressful and pressurised society, the interests of consumers very much include space for recreation and enjoyment, and the qualitative, scenic and aesthetic value of the countryside. It is disturbing, therefore, that there is no specific reference in the Bill to environmental protection or to landscape and amenity issues as a significant duty of the regulatory authority.

It is true that the regulatory authority is required to have regard to any environmental guidance issued by the Secretary of State but, as I understand it, there is no obligation to respect that advice if the authority believes that it goes against the primary duty to protect consumers in a more immediate, limited, short-term economic way. I hope that the Government will be prepared to give the authority specific responsibilities in this respect and to lay down that where the authority takes action in this regard, there will be a duty on the Treasury, if necessary, to support what is required.

4 May 2000 : Column 1159

That could make a huge contribution to environmental protection and enhancement by, for example, leading to more overhead cables being place underground.

Similarly, the gas and electricity consumer council should--I hope that the Minister will agree with me--have a statutory responsibility to report on the wider environmental performance of utilities and not just, as at present stipulated, on the fulfilment of energy efficiency obligations.

In this context, it is important to note that it has been the practice of the regulator to make calculations on a comparative cost basis. This inevitably means that standards are set by places like East Anglia, where costs are less and where, usually, straight lines can be planned through good soil across flat ground. This, of course, puts operators in less favourable terrain at a considerable disadvantage. The financial constraints on them can be considerable. Consequently, they can see themselves having no alternative but to put in overhead cables where environmental and aesthetic considerations make underground cables the obvious requirement. This works against the highly commendable aspects of government policy which aspire to precisely such wider environmental concerns. The Bill needs to be tested by how far it makes the utilities instruments for delivering wider policy in this respect rather than instead undermining the Government's expressed intentions, not least for the national parks.

If as a society we want a decent environment, to be enjoyed by all, we have to pay for it and the costs should be fairly distributed across the nation as a whole. Hence, the importance of my reference to the role of the Treasury. I hope that the Minister will be able to indicate that these points are taken seriously by the Government and that he will introduce amendments to respond to them, thereby still further enhancing an otherwise sensible and encouraging piece of legislation.

I should like to finish as I started. I find the Bill exciting not only because it is practical and sensible but also because it reasserts the sense of responsibility at the heart of our industrial affairs.

5.23 p.m.

Baroness Byford: My Lords, I join other noble Lords in thanking the Minister for proposing the Bill so clearly. I welcome the setting up of a single regulatory body and a combined and independent consumer council, and the opportunity to consider additional social help for those in greatest need who carry the greatest burden of cost because, unfortunately, they cannot pay upfront through direct debits. Furthermore, I share the concern expressed by other noble Lords about the extra regulatory burdens that may be carried by industry and, with them, the extra costs. We shall come to those points in Committee.

My interest in the Bill is mainly related to the proposed obligation for suppliers of electricity to source a proportion of their production from

4 May 2000 : Column 1160

renewable materials. My noble friend Lord Jenkin rightly stressed what he saw as the lack of investment in R&D. I believe that there may be a need for some pump priming in this area. Perhaps the Minister will respond to that point when he replies. A committee, ably led by the noble Baroness, Lady Hogg, looked into the issue of renewable energy and came up with a number of recommendations on non-food crops. It recommended that a Minister of Science should promote those products, a point mentioned by my noble friend Lady Buscombe.

The use of waste, especially in incineration plants like that of Tyseley, is both impressive and a hopeful indication of one way of coping productively with what may be the major problem of this century. Hydro-power has always been awe-inspiring if only because the surrounding scenery is wonderful and the conversion plants are so massive. Wind power, to which the noble Lord, Lord Judd, referred, both onshore and offshore, is perhaps a mixed blessing, but given time and more research I am sure that it will contribute greatly to sustainable power generation. I smiled a little when the noble Lord, Lord Judd, said that he welcomed wind power but "not in my back yard". Many of us would take that view. I realise that national parks and AONBs have their place, but they have their responsibilities too.

My overwhelming concern, however, is with the use of non-food crops. At this point I should perhaps declare an family farming interest, which seems out of context in this debate but because of certain provisions of the Bill is not. Things seem to have gone quiet recently in the area of willow chip power generation. I suspect that I shall be asking the Minister for information on progress, or lack of it, any time now. That is for the future. Today I should like to ask about the intentions that lie behind the words in Clauses 61 to 66, to which other noble Lords have referred.

Will the Minister confirm that the Secretary of State will have powers progressively to increase the proportion of power to be generated by each supplier from renewable sources, whether in the form of an annual uprating or a periodic hike? Will he indicate whether the Government are minded to publish their proposals in the form of long-term plans to enable the producers of each renewable source to undertake necessary preparations to meet the demand? It is obviously a long-term project.

I am also concerned at the inclusion of Clause 64, which frankly I do not understand, even with the help of the Explanatory Notes. It seems to indicate that any electricity supplier which does not supply the requisite level of output generated from renewable sources can pay a sort of on-the-spot fine that will then be distributed by the authority among the electricity suppliers. Presumably the one fined will not be eligible to partake in the share-out of his own penalty, but it does not say that he cannot benefit from fines paid by other suppliers who commit the same misdemeanour.

4 May 2000 : Column 1161

Clauses 58 and 94 specify that financial penalties for breaking the licence conditions shall be paid to the Consolidated Fund. Would it not be more consistent for such penalties to be paid to the electricity suppliers, as in Clause 64?

I should like to suggest that there should not be a get-out from the obligation to use renewable sources, but that if there is shown to be good and sufficient reason for this escape route, the fines should be punitive and devoted in their entirety to research into the production and pre-treatment of renewables and into cleaner methods of power production from fossil fuels.

I am concerned also at the implication, in Clause 28, that exemptions to the licensing requirements may give rise to an overburden of bureaucracy for those people who rent out accommodation in rooms or flatlets and have their own power meters controlling the supply. Would it not be preferable to allow electricity and gas to be supplied without a licence up to a specified amount each year by any one supplier? That would eliminate the need to have a system for granting exemptions to, for example, the thousands of people who let out two rooms as bedsits. I apologise if my questions to the Minister are a little specific, but they relate to an important, albeit small, part of the Bill.

We should also like to now how much money has been allocated already under regional development regulation grants to those who produce non-food crops.

I agree with the comments of other speakers regarding the extra regulatory burdens and look forward to debating the matter in greater detail in Committee.

5.30 p.m.

Lord Beaumont of Whitley: My Lords, I, too, should like to thank the Minister for his exposition of the Bill. He rather depressed me as far as the end of his third theme. He seemed to be concentrating very much on monetary saving and lowering the cost of energy. I do not believe that to be a major consideration, or that it is necessarily to be welcomed. In the interests of defeating global warming, the costs of energy probably have to be kept up. They must include the costs of global warming, and that will raise energy prices enormously.

The question of the poor, which no one who knows my record in this House will think that I underrate, is to be dealt with in different ways: by the redistribution of wealth, which no one has appeared prepared to tackle, and by individual arrangements suggested in the Bill and in relation to its provisions. I am on the side of that approach. The matter is not to be dealt with by merely reducing the price of something that already costs the whole world a great deal.

I agree almost entirely with the remarks of the noble Lord, Lord Judd. I share the vice-presidency of the Council of National Parks and I have read its briefing, although I do not necessarily agree with all of it. For instance, I have a slight weakness for wind generators and have crossed swords with the right reverend

4 May 2000 : Column 1162

Prelate the Bishop of Worcester on the matter. I hope that we shall hear from the right reverend Prelate in Committee. I am aware of the necessity of sorting the matter out, so that it is seen to be taken into account. It is important that everyone who has a case to argue is given the chance to do so.

As the noble Lord, Lord Judd, said, we need to discuss consumers, not as spenders of money but as enjoyers of wealth--people being given satisfaction in regard to the environment in which they live and the knowledge that the environment as a whole, in terms of global warming, is being cared for by their government.

If we take these matters into account, there will be a large number of amendments for debate in Committee. I very much look forward to the Committee stage, which I believe will be very worth while. I hope that the Government are prepared to meet people such as the noble Lord, Lord Judd, and myself on the matters that we shall be putting forward. I suspect that I shall find myself in the same Lobby as the noble Lord, and I am sure that I shall not find myself in the same Lobby as the Conservative Front Bench, who seem to make the mistake of concentrating almost entirely on the monetary values involved in the Bill rather than social and environmental values. Those are important. They are the business of the Government. I pay tribute to the Government to the extent that they have already included those concerns in the Bill's content, and to the extent that that has attracted an attack by the Conservative Party. That can be nothing but a badge of honour. I hope that they will see their way to producing more in the forthcoming stages.

I commend the Bill. It is an enormous step forward. However, there are improvements to be made.

5.35 p.m.

Baroness Wilcox: My Lords, as my noble friend Lady Buscombe has so eloquently and movingly said, it is a great disappointment that the Government removed the telecommunications and water provisions from the Bill during its Committee stage in another place. I disagree with the suggestion by the noble Lord, Lord Beaumont, that my noble friend spoke only of money.

Water now rates its own Bill--so disadvantaged water consumers will just have to wait. A White Paper on communications regulations might eventually result in an "Ofcom" and a consumer council to mirror it--so telecommunications consumers too will just have to wait. I find that very disappointing.

So what have we? I am looking forward to the promised and heralded shift in the balance of regulation in favour of consumers of energy. I am looking also for a more accountable, open and consistent approach to utility regulation across the board, combined with effective and independent consumer representation. I and the many consumer representatives across the country will judge the Bill on whether it lives up to these criteria.

4 May 2000 : Column 1163

We are talking here of essential services. The United States has right-to-know legislation, over and above the Freedom of Information Act, which recognises how essential and life-supporting the utilities are, and how powerless and lacking in effective choice the domestic consumer often is, especially the poor and disadvantaged consumer. On this point, I agree with the noble Lord, Lord Borrie. I have long argued, as I did during my time as chairman of the National Consumer Council, and as does David Hatch, its present chairman, for the establishment of independent consumer councils across the utilities, and that they should be independent and strong advocates of the interests of domestic consumers in their particular sector. The effectiveness of the legislation that is before the House will depend on some of the Bill's detailed provisions. Perhaps I may outline four key areas of concern to consumers.

As well as operating transparently and openly, the gas and electricity consumer council (GECC) should have a research capacity to enable it to speak authoritatively about consumers' experiences and the activities of the regulated companies. I welcome the Government's amendment in the Commons to require the GECC's work to focus on the needs of disadvantaged consumers under the provisions of Clause 17.

The ability of consumer councils to gain access to company information and to disclose and publish information will be crucial in enabling them to carry out their job effectively, independently and authoritatively, and to gain the confidence and respect of consumers. There are concerns about the provisions relating to GECC's access to company information and the disclosure test for the publication of information.

Secondly, I believe that GECC's power to publish information is crucial to its role in protecting consumers. I am concerned that the criteria set out to enable it to decide whether to publish (Clause 19(3) and (4)) may be too restrictive in certain circumstances. GECC will be able to publish information only if it satisfies one or more of three criteria: that the individual body or concern has consented to the disclosure; that the information is available to the public from some other source; or if, in the opinion of the council, the publication of the information does not,

    "seriously and prejudicially affect the interests of the individual or body".

The GECC must also consult the body concerned and have regard to any opinion expressed by the authority about the publication of information. I am concerned that there may be cases in which the GECC wishes to publish information to protect consumers but it may be seen to affect "seriously and prejudicially" the interests of the energy provider. Currently, the Bill does not allow the GECC to publish

4 May 2000 : Column 1164

information which is in the interest of the consumer but which might,

    "seriously and prejudicially affect the interests of",

the company concerned. I believe that that is an omission and that the GECC should be able to take account of the public, or even consumer, interest in deciding whether to publish such information. Other bodies such as the Food Standards Agency have a duty to consider the public interest when deciding whether to publish information.

Thirdly, I am concerned that the GECC will be able to access such information only via the regulator. I welcome the provision in the Bill to give it direct access, but I am concerned about the provision which enables the GECC to refer to the regulator refusals by companies to provide information. I do not believe that the regulator is the appropriate authority to deal with it, given that part of the consumer council's role is to scrutinise the decisions of the regulator. Therefore, there is a potential conflict of interest in arbitrating on such information requests. The National Consumer Council believes that the most suitable authority is the information commissioner--that position is established under the Freedom of Information Bill--and I support that suggestion.

Fourthly, third party rights to challenge the competition decisions of the Office of Fair Trading were given to consumer bodies under the Competition Act 1998. Given that the legislation gives utility regulators concurrent powers with the OFT on competition matters, it is open to the consumer council and other consumer bodies to challenge the regulator's competition decisions. However, this Bill does not give third parties the right to challenge the regulator's other decisions and I believe that it is, therefore, inconsistent. The Bill imposes a bias in favour of the companies over the consumer, as they will be able to challenge the decisions of the regulator on both competition and non-competition issues, and I believe that that is a further inconsistency. For the sake of consistency and to reflect the shift in emphasis of the regulatory systems in favour of consumers, as we are told the Bill seeks to do, the GECC and all consumer bodies should have that right.

Finally, the businesswoman in me always hopes for a free and active market that competes for every kind of customer. However, for the present I believe that in the case of essential life-supporting services which are still moving out of their old monopolies--sometimes into new ones, sadly--some kind of intervention in the market remains essential. I look forward to following through these points at Committee stage.

5.43 p.m.

Lord Currie of Marylebone: My Lords, like my noble friend Lord Borrie, I start by declaring an interest as a non-executive member of the Ofgem management board, a special adviser to Ofgem and the DTI on the reform of electricity trading arrangements, and director of the Solar Energy Group.

I greatly welcome this Bill. It provides a much sounder basis for the joint regulation of the electricity and gas sectors, and an appropriate focus on

4 May 2000 : Column 1165

consumers, both present and future. The Bill will also greatly enhance competition. Contrary to some of the voices on the Benches opposite, I believe that the Bill will allow regulation itself to bring down the weight of regulation. The Bill also gives due weight to social and environmental concerns and clears the way for the long overdue reform of wholesale electricity trading arrangements.

I should like to comment briefly on the withdrawal of telecommunications and water from the Bill. Contrary to the observations of the noble Baroness, Lady Buscombe, I do not believe that the result is a ramshackle Bill; on the contrary, we now have a much more coherent measure. The case for dropping telecommunications and water in view of the need for future legislation is a good one. The noble Baroness, Lady Wilcox, was concerned that consumers in the water and telecommunications sectors might have to wait, but I believe that to be a misrepresentation. A great deal can be done under existing provisions, as is demonstrated, for example, by the social action plan which Ofgem has developed under current legislation ahead of this Bill.

I make one plea. I hope that when those Bills come before Parliament we do not lose sight of the ambitions of the 1998 Green Paper A Fair Deal for Consumers which sought to modernise and make consistent across the sectors the framework of utility regulation. That future legislation must be aware of the need for consistency which will bring considerable benefits.

One of the key elements of this Bill, as noted by the Minister, is the sounder basis of governance that it gives to regulation. There was a real need for consistency between gas and electricity regulation which separate regulators simply did not provide. With the two sectors being so intertwined on both the supply and demand sides, and many major companies operating in both sectors, it was crucial to provide consistency in regulation to avoid important distortions to the competitive marketplace.

Like my noble friend Lord Borrie, I believe that the proposed structure of governance for the authority is a good one. My experience of the management board of Ofgem is that it works well in an advisory capacity, and I believe that in an executive capacity it will work well in the form of the new authority. It helps to depersonalise regulation--that is a great advantage--and does not slow down decision making. The creation of the single regulator helps to lighten the regulatory burden that faces companies. It means that they do not have to face two regulators simultaneously.

A crucial part of the Bill is the facilitation of the reform of wholesale electricity trading. Royal Assent to this Bill is required as soon as possible if the very tight timetable for implementation of that reform is to be achieved. Many other matters must be achieved by Ofgem, the DTI and the companies, but the key element is Royal Assent to the Bill. We are all familiar with the failures of the old pool system which remained unreformed for far too long. Along with retail competition and tough and fair regulation of the

4 May 2000 : Column 1166

monopoly part of the business, the reform of electricity trading will deliver very major benefits in the form of lower prices.

Business is now preparing for this new trading environment. The private sector has come forward with proposals to launch power exchanges, and companies are preparing for the implementation of NETA. Traders are entering the market to create a much more vigorous, vibrant and deep market. Vigorous forward trading of electricity now takes place in anticipation of the reforms to come. If one looks at the prices revealed by that forward trading, which did not happen before because of the dominance of the monopolies, one sees that they are very substantially reduced. If one looks several years ahead, one sees that the reduction is of the order of 20 to 25 per cent. That is an indication of the major benefits which will flow to customers, not just from the reform of electricity trading, but from the introduction of competition into this sector.

It is not just a price benefit that we shall see. The broad evidence is that distortions to competition impede innovation while truly competitive markets provide a major spur to innovation and change. I have no doubt that the abolition of the pool, and the genuine competition in electricity that that can bring, will surprise us by the nature of the changes and innovation that it can bring.

I congratulate the noble Lord, Lord Jenkin of Roding, on being the architect, among others, of telecom privatisation. Few of us could have foreseen the benefits. However, I caution about the specifics raised in his detailed remarks. He referred to the need of careful cost/benefit analysis before regulatory change. But it is easy to identify the costs of changes, and difficult to identify the benefits. I have argued strongly that Ofgem should not attempt a cost/benefit analysis of reform of electricity trading because it will easily identify the costs, but the real benefits which arise from competition, particularly innovation, are hard to identify. Therefore, if one is considering regulation to promote competition--that is a key part of the regulatory function--one will impede change in that direction by a requirement of that kind. We shall need to look carefully at the detailed proposals.

The noble Lord, Lord Ezra, referred to the position of renewables and CHP. There is concern that the new trading arrangements will hit CHP and renewables. Much has been done to allay those concerns. Lower electricity prices, of course, will hit all generators. It will make their position less easy because they will receive a lower price. However, it is worth noting that many CHP plants are, on average, net importers from the grid. Companies in that position will benefit from the reform of trading arrangements.

The lower prices resulting from these reforms make it a good time to bring in the climate change levy if it is well targeted to promote the use of clean, green fuels and technologies and to discourage the use of dirty fuels. That should help the position of CHP and renewables.

4 May 2000 : Column 1167

However, it is clear that the new trading arrangements place a greater premium on that type of generation which is predictable, consistent and forecastable, and disadvantage generation which is uncertain. I think that that is entirely appropriate. When there is unpredictable supply to the market, the system operator has to buy in expensive flexible plant to meet any shortfall. That is an additional cost that unpredictable sources of generation, whether clean or dirty, place on the system. That should be recognised in the system. It was not recognised in the old pool. One of the advantages of the new arrangements is that it will be recognised; and that will give an incentive for generators to be more predictable and reliable.

However, those renewables which are, unavoidably, less predictable may bear some cost. That has been mitigated. Some technical arrangements to do with aggregation will mitigate the effects on those unpredictable sources of supply. I would expect to see aggregators come into the market to help to manage this risk on the part of such generators. The team implementing the reform of electricity trading and Ofgem have gone to considerable lengths to examine whether there are additional problems that renewables and CHP face which need to be dealt with.

A lot has, therefore, been done. It would be a mistake to allow concern for this sector--as I said, I have a direct interest--to deflect us from the crucial aim of getting maximum efficiency from our generation sector. That is an appropriate objective. If prices fall sharply, and that raises environmental concerns, let us respond in the appropriate way: to tighten, strengthen and extend the climate change levy to deal directly with those environmental concerns.

I have a few more detailed points on the Bill to which I shall want to return in Committee. There has been discussion on whether there should be a cap on the level of fines that the new authority can impose. I see little advantage to the authority in having the freedom to impose unlimited fines. I do not see why the position should not be consistent with legislation such as the Competition Act. It is the type of feature which could discourage inward foreign investment. When people make foreign investment decisions, they consider the regulatory map, and a provision for unlimited fines might discourage. It is an issue to which we should return in Committee.

As my noble friend Lord Borrie said, the time limit of 12 months for the imposition of financial penalties may well be too short. In addition to the need to carry out the investigation, such a time limit could easily give an incentive for an alleged culprit being investigated to engage in a variety of delaying tactics. That is an undesirable feature.

There may also be an omission from the Bill. As regards gas, we already have arrangements to provide for a supplier of last resort in the event of commercial difficulty. I do not think that there is such a provision in the Bill for electricity. That is a concern because with the extension of competition we must expect the failure

4 May 2000 : Column 1168

of a supplier in the more competitive environment and we must avoid that leading to any unnecessary disruption of supply to ordinary customers.

Finally, I welcome the independent role of the consumer council together with its information-gathering powers. In Committee we should consider whether the precise powers are consistent with other legislation such as the Freedom of Information Bill, to avoid undesirable scope for legislative arbitrage (if I may use the term) between the differing powers of various Acts. I share the concern of the noble Baroness, Lady Wilcox, that the authority appears to be adjudicator in the event of disputes between the council and the authority on information questions. That is an uncomfortable position to put the authority in.

I welcome the Bill. It will bring great benefits to customers, both large and small, and I look forward to the more detailed discussion in Committee.

5.57 p.m.

Lord Kingsland: My Lords, my noble friends who spoke from the Opposition Benches today have reaped such a rich political harvest that I see no need either to embellish their language or elaborate their arguments. It would be both impertinent and otiose on my part. I should be like a gleaner in stubble land. I shall look ahead, therefore, to the Committee stage of the Bill in order to ask the Minister some questions.

However, before doing so, perhaps I may respond to one remark by the noble Lord, Lord Beaumont of Whitley. He made one or two--if I may so say in all generosity--unsporting comments about the excellent speech of my noble friend Lady Buscombe. In particular, he referred to my noble friend's monetary approach to the Bill. But he will have heard the Minister say that since the passage, by the previous government, of the gas and electricity legislation the consumer has benefited not in monetary but real terms by some 30 per cent.

That is real wealth creation, by measures passed by a Conservative government, for the consumer. What could be a more tangible contribution to the welfare of the nation than that? The Minister quoted that statistic, not my noble friend. But his charm and self-effacing manner prevented him from attributing it directly to the Conservative Party.

The noble Lord, Lord Beaumont of Whitley, made an observation about the social and environmental benefits of the Bill. If he takes the trouble, which I am sure he will, to read my noble friend's speech in Hansard, he will see that she said that those benefits were highly desirable. What my noble friend rightly objected to was the fact that the benefits were being delivered through the Bill by more regulation, at higher cost to the consumer; and not by the general tax and welfare legislation initiated by the Treasury in the normal course of managing the Budget. I have no difficulty in endorsing the position taken by my noble friend.

Next Section Back to Table of Contents Lords Hansard Home Page