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Lord McIntosh of Haringey: Amendment No. 190 would mean that a person requiring a connection could be required by a distributor to accept terms which would limit the distributor's liability to that person in respect of economic loss resulting from a breach of contract.
The Government are opposed to this amendment on legal and policy grounds. From the point of view of the law, we are not convinced that a court would conclude that terms agreed under Section 16A form a contract. Our reasons are as follows. Sections 16(1) to (3) place a duty on distributors to make a connection when required to do so. That duty encompasses not just the making of the connection but the subsequent maintenance of it for so long as the connection is required.
The terms themselves which are mentioned in Section 16(3) and 16A form the basis of a statutory agreement which governs the performance of and adds a gloss to the statutory duties in Section 16(1) and (2). We would not expect any terms derived from these provisions to be regarded as terms of an ordinary and independent contract.
As a result, the distributor is under an obligation to make and maintain a connection once terms are agreed. Such terms may be determined by a third party--that is, the authority--in the event that the parties cannot agree the terms between themselves.
For that reason, we do not think that the amendment achieves what it sets out to achieve and in any case, we do not consider it appropriate to second guess what the courts may decide by making reference in the Bill to a contract.
I am aware that some parts of the distribution industry are concerned about how they might enforce the obligations of the other party if such an agreement is not a contract. In our view, where a term provides for connections to be satisfied by the customer before the making of a connection, failure to satisfy the conditions would absolve the distributor from the duty to connect on the basis of Section 17(1)(c).
In the event of a continuing breach by a customer of an obligation of his, we are confident that a court would reach a sensible conclusion, imposing such a remedy as it considered appropriate, taking account of all the circumstances of the case. We do not think that the existence of statutory duties would necessarily preclude the award of damages in appropriate circumstances.
However, as I said, we also have difficulties with this amendment on policy grounds. Our view is that it would not be proper to allow distributors as of right to include terms which limit their liability in respect of economic loss arising from any breach of any term agreed under Section 16A of the Electricity Act. We understand that the concerns which lie behind this amendment stem in the main from the rapid growth in the use of computers and other electronic equipment which use and store information of huge commercial value. Such equipment, and the information it stores, is especially vulnerable to any interruption in, or deterioration in the quality of, its supply of electricity. Anybody who tries to connect into the Palace of Westminster at the weekend will know about that! This is an issue which has increased greatly in importance since the present legislation was enacted in 1989.
It is not difficult to see why distributors may be concerned about their exposure to economic loss as a result of this development, but it is important to bear in mind that customers who rely heavily on IT equipment face the prospect of severe--possibly fatal--business disruption in the event of some damaging change in their electricity supply. Clearly, both sides must take the necessary measures to protect themselves both physically and financially. In designing the legislative framework, it is necessary to strike the right balance between the interests of both parties. We believe that Amendment No. 190 would provide distributors with an inappropriate level of protection compared with the person requiring the connection; that is, the customer.
I turn now to Amendment No. 191. The effect of this amendment would be to remove from an undefined group of persons the right to seek a connection under Section 16 and to require them instead to enter into a special connection agreement, provided for by Section 22. This amendment seems to be designed to allow distributors in effect to require customers with large loads or embedded generation to make a connection agreement under Section 22. For such customers, connection agreements are inevitably complex and wide ranging. This is because both the making of the connection and the subsequent behaviour of the
customers can have effects on the wider operation of a distribution system which can give rise to further, and possibly continuing, costs for the distributor.I think it might be helpful if I were to say a word or two about the distinct purpose for which special connection agreements under Section 22 have been designed. Sections 16 to 21 of the Act, as amended by this Bill, set out a statutory framework governing connections to electricity distribution systems. In discussing Amendment No. 190, I set out the Government's views on the status in law of the terms made under Section 16A. We have concluded that it is not certain that the courts would interpret such an agreement as a contract.
For this reason, we are providing in Section 22 an alternative means for obtaining a connection. The intention is that there should be no doubt as to the status of the special connection agreement as a contract, since it is not governed by the provisions in the previous sections. The Bill says nothing about which of the routes made available by the Bill for the making of a connection agreement, whether it is Section 16A or Section 22, should be used for the purpose of agreeing the terms on which a connection is to be made. That is deliberate. The Government's policy is that everyone requiring a connection should be on the same legal footing.
This is especially important in the case of embedded generation, which is one of the targets of this amendment. The Government have sought through various provisions in this Bill to make sure that embedded generators get fair access to distribution systems so that they can compete in the generation market on level terms with conventional large-scale generation. There are a number of reasons why we think this is important, but perhaps the key one is that we are conscious of the crucial role that embedded generation, in the form of renewables and CHP plant, will have to play in meeting the Government's climate change targets.
The amendment, at a stroke, would undermine all of what I have just explained to your Lordships about the Government's intentions, and that is why we must oppose it. However, although I am opposing the amendment, I accept that we must be clear that the provisions in Sections 16 to 21 do in fact support the inclusion in Section 16A terms of the full range of matters which it is proper for distributors to wish to incorporate in large and complex cases.
The Electricity Association has suggested to Department of Trade and Industry officials that this is not the case. Officials have promised to look further at this point and to let the association know in good time whether they think that anything needs to be done in order to address this concern. On this basis, I hope that the noble Baroness, Lady Buscombe, will not press either of these amendments.
Baroness Buscombe: I thank the Minister for his response. First, in relation to Amendment No. 191, I am pleased to have his suggestion that the Department
of Trade and Industry will meet again with the Electricity Association to discuss this issue. It is one of considerable concern to the industry.Turning to Amendment No. 190, the noble Lord is also right in saying that this is of enormous interest to the industry. With great respect, we are not satisfied with the Minister's response, and I wish to test the opinion of the Committee.
6.5 p.m.
On Question, Whether the said amendment (No. 190) shall be agreed to?
Their Lordships divided: Contents, 61; Not-Contents, 130.
Anelay of St Johns, B.
Astor of Hever, L. [Teller]
Attlee, E.
Blatch, B.
Brabazon of Tara, L.
Brougham and Vaux, L.
Buscombe, B.
Butterworth, L.
Campbell of Croy, L.
Carnegy of Lour, B.
Clark of Kempston, L.
Coe, L.
Colwyn, L.
Craig of Radley, L.
Crathorne, L.
Dean of Harptree, L.
Dixon-Smith, L.
Feldman, L.
Ferrers, E.
Fookes, B.
Fraser of Carmyllie, L.
Freeman, L.
Gardner of Parkes, B.
Geddes, L.
Hanham, B.
Hayhoe, L.
Henley, L.
Higgins, L.
Hooper, B.
Howe, E.
Jenkin of Roding, L.
Jopling, L.
Kingsland, L.
Knight of Collingtree, B.
Laird, L.
Luke, L.
Lyell, L.
McConnell, L.
Mackay of Ardbrecknish, L.
Mancroft, L.
Marlesford, L.
Montrose, D.
Naseby, L.
Northesk, E. [Teller]
Oxfuird, V.
Palmer, L.
Park of Monmouth, B.
Pearson of Rannoch, L.
Rawlings, B.
Reay, L.
Rees, L.
Renton, L.
Roberts of Conwy, L.
Rogan, L.
Seccombe, B.
Selborne, E.
Skidelsky, L.
Stodart of Leaston, L.
Taylor of Warwick, L.
Thomas of Gwydir, L.
Tombs, L.
Acton, L.
Addington, L.
Ahmed, L.
Alli, L.
Amos, B.
Andrews, B.
Archer of Sandwell, L.
Bach, L.
Barnett, L.
Bassam of Brighton, L.
Beaumont of Whitley, L.
Berkeley, L.
Blackstone, B.
Blease, L.
Borrie, L.
Bragg, L.
Brennan, L.
Brett, L.
Brooke of Alverthorpe, L.
Burlison, L.
Carter, L. [Teller]
Christopher, L.
Clarke of Hampstead, L.
Cledwyn of Penrhos, L.
Clinton-Davis, L.
Cocks of Hartcliffe, L.
Currie of Marylebone, L.
David, B.
Davies of Oldham, L.
Desai, L.
Dholakia, L.
Dixon, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Evans of Watford, L.
Ezra, L.
Falconer of Thoroton, L.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Fyfe of Fairfield, L.
Gale, B.
Geraint, L.
Gibson of Market Rasen, B.
Gladwin of Clee, L.
Goldsmith, L.
Goodhart, L.
Goudie, B.
Graham of Edmonton, L.
Greaves, L.
Grenfell, L.
Hardy of Wath, L.
Harris of Greenwich, L.
Harris of Richmond, B.
Harrison, L.
Hayman, B.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Howells of St. Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Janner of Braunstone, L.
King of West Bromwich, L.
Kirkhill, L.
Layard, L.
Lea of Crondall, L.
Lipsey, L.
Lockwood, B.
Lofthouse of Pontefract, L.
Longford, E.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
McIntosh of Hudnall, B.
MacKenzie of Culkein, L.
Mackenzie of Framwellgate, L.
Mar and Kellie, E.
Mason of Barnsley, L.
Massey of Darwen, B.
Merlyn-Rees, L.
Methuen, L.
Miller of Chilthorne Domer, B.
Mitchell, L.
Molloy, L.
Morris of Castle Morris, L.
Morris of Manchester, L.
Newby, L.
Nicol, B.
Patel of Blackburn, L.
Phillips of Sudbury, L.
Pitkeathley, B.
Plant of Highfield, L.
Ponsonby of Shulbrede, L.
Prys-Davies, L.
Ramsay of Cartvale, B.
Razzall, L.
Redesdale, L.
Rendell of Babergh, B.
Rodgers of Quarry Bank, L.
Russell, E.
Sawyer, L.
Scotland of Asthal, B.
Scott of Needham Market, B.
Serota, B.
Sharp of Guildford, B.
Shore of Stepney, L.
Shutt of Greetland, L.
Simon, V.
Stone of Blackheath, L.
Symons of Vernham Dean, B.
Tomlinson, L.
Tordoff, L.
Uddin, B.
Wallace of Saltaire, L.
Walmsley, B.
Warner, L.
Warwick of Undercliffe, B.
Weatherill, L.
Whitaker, B.
Whitty, L.
Wigoder, L.
Wilkins, B.
Williams of Mostyn, L.
Williamson of Horton, L.
Woolmer of Leeds, L.
Young of Old Scone, B.
Resolved in the negative, and amendment disagreed to accordingly.
6.15 p.m.
Clause 48 [Special agreements with respect to connection]:
[Amendment No. 191 not moved.]
Clause 49 [General duties of electricity distributors]:
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