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Utilities Bill

3.23 p.m.

Report received.

Clause 8 [Payments by licence holders relating to new arrangements]:

Lord McIntosh of Haringey moved Amendment No. 1:

The noble Lord said: My Lords, in rising to move Amendment No. 1, I should like to speak also to Amendment No. 2. Both amendments concern Clause 8 which gives the authority powers to modify payment conditions in licences so that the ongoing costs of the authority and council can be recovered. It has always been our intention that any expenses incurred by the Secretary of State in setting up the authority or council should also be recoverable from licence holders. This category of expenses is identified in Clause 8(3) of the Bill. Amendment No. 1 puts beyond doubt that the authority's ability to modify payment conditions in Clause 8(4) encompasses the powers to make modifications so that any costs incurred by the Secretary of State can be recovered.

The second amendment helps to ensure a smooth transition from the old to the new funding arrangements. For this to happen new payment conditions need to be in place from the date of the establishment of the new bodies. The difficulty is that Clause 8(6) requires the authority to consult licensees before modifying licences. Clearly, until the authority exists it is unable to carry out the consultation itself. If new licence conditions are to be in place from the outset, provision must be made to permit the directors general or the Secretary of State, or both, to carry out the necessary consultation. The amendment makes the necessary provision for early consultation. I beg to move.

On Question, amendment agreed to.

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Lord McIntosh of Haringey moved Amendment No. 2:

    Page 6, line 2, at end insert--

("( ) Any consultation undertaken by the Director General of Gas Supply, the Director General of Electricity Supply or the Secretary of State before the commencement of subsection (6) shall be as effective for the purposes of that subsection as if undertaken by the Authority after that time.").

On Question, amendment agreed to.

Clause 9 [Objectives and duties under 1986 Act]:

Lord Ezra moved Amendment No. 3:

    Page 6, line 20, after ("of") insert ("existing and future").

The noble Lord said: My Lords, with Amendment No. 3 I should like to speak also to Amendments Nos. 6, 7 and 10. At Committee stage I moved Amendment No. 31 to insert in Clauses 9 and 13, which set out the objectives and duties under the Gas and Electricity Acts, a reference to sustainable development. In that I was supported by my noble friend Lady Sharp of Guildford and the noble Lords, Lord Beaumont of Whitley and Lord Hardy of Wath. The Minister gave his reasons why this should not appear on the face of the Bill, even though sustainability is one of the objectives of government policy. As an alternative, I propose that the reference to existing and future consumers in subsection (6) appears in subsection (1) so as to give it added prominence. I hope that this small drafting amendment, which goes some way to achieve my objective, is acceptable. I beg to move.

Lord Renton: My Lords, with great respect to the noble Lord, I do not believe that Amendment No. 3 is necessary. When one uses the word "consumers" as it appears here it means any consumers at any time. I do not believe that "existing and future" is at all necessary.

Lord McIntosh of Haringey: My Lords, I regret to say that I disagree with both noble Lords. The Bill already makes reference to existing and future consumers at lines 25 and 26 on page 7 and lines 36 and 37 on page 10. That is deliberate and explicit, because we support the point made by the noble Lord, Lord Ezra. The Government want sustainable development to be a serious consideration in the protection of consumers, which means that it is right to say explicitly that we are concerned about present as well as future generations.

Our difficulty lies with the effect of the amendment. I understand the desire to emphasise that the authority and the Secretary of State have a duty to existing as well as future consumers. It is an important principle and one which we have been careful to make clear on the face of the Bill.

The reference to future consumers removes any doubt that steps can be taken to promote energy efficiency, providing a long-term benefit to consumers in terms of lower monthly bills that offsets any marginal increase in unit price. It enables the promotion of renewables technology that will help ensure continuity of supply in years to come as fossil

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fuel reserves dwindle. And it helps explain why it is in the interests of consumers that energy companies are able to attract the capital they need to maintain the infrastructure for which they are responsible. But this principle is already clearly stated in Clauses 9 and 13 in the subsections which Amendments Nos. 6 and 10 would remove. Those amendments would add nothing of substance. They simply move the reference to "existing and future" to the place in which the term "consumers" first appears.

What these amendments would do, however, is to cast doubt over whether the broad definition of consumer applies to all the other references to "consumers" in Clauses 9 and 13. Not counting the subsections containing the definition, the term "consumer" appears no fewer than four times in each of the two clauses. What meaning is to be given to that term on the six occasions on which, by these amendments, the words "existing and future" are not to be inserted?

The amendments would leave this in doubt. The definition of "consumers" which they remove is clear: that the broad construction should apply to each and every use of that term in Clauses 9 and 13. The definition thereby provides a consistency within those clauses that would be lost if the proposed amendments were made. There is also the question of preserving consistency with the similar definition of "consumers" in Clause 17 which applies to the clauses setting out the functions of the new consumer council. One does not give prominence to something by putting it earlier in a clause. One gives effect to it by having a definition section which by parliamentary convention comes towards the end of a clause.

3.30 p.m.

Lord Ezra: My Lords, if the Minister had not answered the noble Lord, Lord Renton, I would have done so now by saying that if the word "consumers" had the meaning the noble Lord gave it, the Government would not have introduced the definition in the later part of the Bill.

I regret that the proposed change has not been accepted. However, I am glad that again we have had firm assurance from Government that they subscribe fully to the principle of sustainability. They consider that they have done that by the wording in the Bill. I do not, therefore, insist on my amendment. I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Lord Ezra moved Amendment No. 4:

    Page 6, line 35, at end insert ("; and

(c) the need to promote energy efficiency").

The noble Lord said: My Lords, in Committee I drew attention to the importance of energy efficiency and endeavoured to give it more prominence in the Bill. The proposed amendment was not accepted by the Minister. I now propose a different amendment. It seeks also to give greater prominence to energy efficiency by making it a major consideration of the Secretary of State and the authority in furthering that

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principal objective. I hope that the noble Lord will be able to accept the amendment in this revised form. I beg to move.

Lord Borrie: My Lords, I am sure that all noble Lords will agree with the noble Lord, Lord Ezra, about the importance of creating energy efficiency. In his lifetime and through his many activities the noble Lord has sought to do just that.

However, we are dealing with the principal objective of the new authority. I believe that one should keep the principal objectives basic and simple. It is not helpful to add to the basic objective set out in the clause as drafted. Clauses 70 and 99 provide adequately for requirements for energy efficiency targets under statutory regulation. I should have thought that that provision would meet the noble Lord's wishes.

Lord McIntosh of Haringey: My Lords, we had a useful debate on the positioning of the authority's duty to promote energy efficiency. My noble friend Lord Borrie recalls it well. I am sorry that I was not able to persuade the noble Lord, Lord Ezra, at that time of the appropriateness of leaving that duty subject to the principal objective to protect the interests of consumers.

As I said then, regulation is intended to mimic the effects of competition by putting downward pressure on costs and by creating incentives to improve efficiency and the quality of service to consumers. It is right, therefore, that the authority's general duties should have an economic focus--that is what this Bill is about--one which is primarily concerned with the price and quality of service offered to consumers. That is why the authority's principal objective is to protect the interests of consumers.

But we recognise the importance of encouraging energy efficiency. That is why, subject to the duty to further the principal objective, the authority is given a duty to promote efficiency in the use of gas and electricity. Let me dwell for a moment on what that duty entails. The authority has no choice as to whether it should comply. It must exercise its statutory functions in the manner it considers best calculated to promote the efficient use of energy. To that extent it is the same as the duty to further the principal objective. The only difference is that in the event of a conflict between energy efficiency and the interests of consumers, the interests of consumers present and future, as we have agreed, should prevail.

But how often will the interests of consumers conflict with any sensible measure to promote energy efficiency? The interests of consumers include the interests of future consumers. Measures to promote energy efficiency are in the longer-term interests of consumers as they result in decreased energy consumption and, consequently, lower monthly bills. For that reason, it seems unlikely that a measure to promote energy efficiency could ever be resisted on the ground that it conflicted with the duty to further the principal objective. If a measure were so costly or ineffective as to be contrary to both the long and short-term interests of consumers, it seems right that the

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interests of consumers should prevail. No matter which way one looks at it, the duty to promote energy efficiency is best left where it is.

There are also difficulties with the amendment proposed by the noble Lord. They would require the authority to further its principal objective,

    "having regard to the need to promote energy efficiency".

My difficulty with the amendments is that I am uncertain where the "need" to promote energy efficiency comes from. It can be contrasted with the straightforward duty to promote the efficient use of gas and electricity, as required by Clauses 9 and 13.

It is true that there is a requirement to have regard to the need to secure that all reasonable demands for gas and electricity are met and that licence holders are able to finance the activities which are the subject of statutory obligations. But these obligations are very different from the promotion of energy efficiency. They stem from the regulators' primary duties under existing legislation--the "demand duty" and "finance duty". They form key aspects of the interests of consumers which must be satisfied if those interests are to be protected. The use of the word "need" in the formulation of these obligations reflects a statutory recognition of the unique status of these aspects of the interests of consumers. It is not an appropriate formulation for an obligation to promote energy efficiency which, important though it is, cannot be said to have the same fundamental status in defining the interests of consumers.

I do not wish to say more about any deficiencies in the wording of the amendment. I prefer to rest my argument against the amendment on the points I made at the beginning. I ask the noble Lord, Lord Ezra, to draw comfort from the strength of the wording of the duty to promote efficiency in the use of gas and electricity and not to press the amendments.

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