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Lord Ezra: I thank the noble Lord for that full statement, which he sent me in writing earlier. So far as concerns CHP, I am pleased that he has confirmed that the Government have a reserved power to introduce specific obligations. It was never my intention to press for such obligations to be imposed at the present time. Obviously the position will remain under review, and if at any time it should be desirable for such obligations to be imposed, no doubt we shall exert suitable pressure on the Government to do so. I am satisfied with the CHP position as the Minister has explained it.

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However, we part company on the issue of clean coal technology. The Government fully support the concept. They fully recognise the global implications. They support further investment. But, unfortunately, what they will not do is support--what those of us who feel strongly about clean coal technology support--the construction of demonstration plants. Every attempt made so far to bring that forward has failed. We now have a date of 2005 when this matter might be re-examined. I do not find that very satisfying. Nonetheless, at this stage I do not wish to press the point any further. We may come back to it. We certainly will on different occasions. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 66 [Modification and abolition of fossil fuel levy]:

Lord McIntosh of Haringey moved Amendment No. 63:

    Page 68, line 43, leave out subsection (1).

The noble Lord said: My Lords, Amendment No. 63 has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 67 [Supplementary]:

Lord McIntosh of Haringey moved Amendment No. 64:

    Page 69, line 29, leave out from ("cost") to ("referred") in line 30.

The noble Lord said: My Lords, Amendment No. 64 has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 69 [Help for disadvantaged groups of electricity customers]:

Lord McIntosh of Haringey moved Amendment No. 65:

    Page 71, line 43, after ("of") insert ("the conditions of").

The noble Lord said: My Lords, Amendment No. 65 has already been spoken to. I beg to move.

On Question, amendment agreed to.

Clause 70 [Energy efficiency requirements for electricity distributors and suppliers]:

Lord McIntosh of Haringey moved Amendment No. 66:

    Page 73, line 18, leave out from beginning to ("that") in line 28 and insert--

("( ) An order under this section may specify criteria by reference to which the Authority is to determine energy efficiency targets for the electricity distributors or electricity suppliers on whom obligations are imposed by the order.
( ) The Secretary of State and the Authority shall carry out their respective functions under this section in the manner he or it considers is best calculated to ensure").

The noble Lord said: My Lords, in moving Amendment No. 66, I should like to speak also to Amendments Nos. 67, 88, 89 and 91. Although there are many words in these amendments, I can assure the House that they make only small, if important, changes to the energy efficiency provisions of the Bill. Amendments Nos. 66 and 88 do two things. First, they allow the Secretary of State to tell the authority what

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criteria to use in splitting up the obligations into separate targets for individual suppliers. That means that, rather than leaving it to its discretion, the Secretary of State could tell the authority that individual suppliers should be given a target in proportion to their market share. He could also specify how market share was to be calculated. The Government will be consulting further on all these issues before making orders under the provisions.

Secondly, consistent with the other provisions of the Bill, they make it clear that the duty to avoid distorting competition is a duty that is to be exercised in the judgment of the Secretary of State or the authority. At present the clauses are silent on the issue of whose judgment is involved.

Amendments Nos. 67 and 89 make it clear that trading of obligations can take place between gas and electricity obligations holders rather than simply among gas obligation holders on the one hand and electricity holders on the other. That flexibility to trade obligations between gas and electricity is essential to the Government's objective to provide scope for participants in the market to develop the most cost-effective mechanisms for meeting the Government's energy efficiency obligations.

The same objective gives rise to Amendment No. 91. That provides a power so that the Secretary of State can set one global energy efficiency target that can then be applied separately under the separate energy efficiency provisions for gas and electricity. He can provide for the authority to apportion the global target between gas and electricity and he can specify to the authority how that division is to be made. The reason we have had to introduce a separate order-making power to achieve this arises from the structure of the Bill. In general, the Bill works by amending the existing gas and electricity legislation. This is the case for the energy efficiency provisions. Therefore, in order to have the provision which links the separate gas and electricity legislation it is necessary for it to be a free-standing provision of the Bill. That is what we have done. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved amendment No. 67:

    Page 74, line 34, after ("supplier") insert ("or to a gas transporter or gas supplier (within the meaning of Part I of the Gas Act 1986)")

1986 c. 44.

The noble Lord said: My Lords, I have just spoken to Amendment No. 67. I beg to move.

On Question, amendment agreed to.

Clause 74 [Gas licence conditions]:

Lord McIntosh of Haringey moved Amendment No. 68:

    Page 77, line 36, leave out ("inserted") and insert ("substituted").

The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.

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On Question, amendment agreed to.

Clause 76 [Gas transporters]:

Baroness Buscombe moved Amendment No. 69:

    Page 78, line 3, leave out subsection (1).

The noble Baroness said: My Lords, in moving Amendment No. 69, I should like to speak also to Amendment No. 74. With regard to Amendment No. 74, the words,

    "it considers it appropriate to do so",

in Clause 77 provide an enormously wide discretion when one considers the need for the 20 to 25-year investment security required by independent public gas transporters. Independent public gas transporters have only limited opportunities to legally cross-subsidise. If a project fails to meet its target return because its infrastructure has been bypassed by a competitor, the shortfall cannot readily be recovered from elsewhere without breaching licence obligations.

The only remedy would be to raise prices to the domestic consumers already connected at the site. That cuts directly across the objectives of independent public gas transporters, which have been to achieve lower prices on individual developments through local scale economies. It would also put the authority in breach of its proposed duty to protect the interests of consumers and, if prices were not increased, its current duty under Section 4 of the Gas Act to ensure that licensees can finance the carrying on of their activities.

Since independent public gas transporters only win the project following an intensely competitive bid process, the outcome could be that the most efficient pipeline operators are punished at the expense of the least efficient. Alternatively, the outcome could be that consumers bear the brunt. Given the enormous width of the clause, it is difficult currently to predict how the discretion might be exercised.

An independent public gas transporter could win a development by being the most efficient in the bid process but then lose most of the connections, not through its own lack of efficiency, but because of price distortions generally. Given the current duty under Section 9 of the Gas Act for economy and efficiency, this gives perverse incentives.

The problem is exacerbated with investment already sunk by independent public gas transporters under the current competitive regime. Since the costs are sunk--they could hardly pull up the pipes--the new legislation will have a retrospective effect.

I turn to the drafting. The amendment seeks to preserve the unfettered discretion which the authority must have by law. It introduces, however, a device whereby the discretion may be exercised in a balanced and informed way by reference to guidelines. I beg to move.

7.45 p.m.

Lord McIntosh of Haringey: My Lords, was the noble Baroness speaking only to Amendments Nos. 69 and 74 and not to the other amendments in the group?

Baroness Buscombe: My Lords, I was perhaps a little unclear. My intention was not to move

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Amendments Nos. 69 to 73, but I thought that I had to move Amendment No. 69 in order to get to Amendment No. 74. So I have spoken to Amendment No. 74.

Lord McIntosh of Haringey: My Lords, I am grateful for that explanation. It does not make life any easier for me but I shall do my best. In order to make my response to Amendment No. 74 comprehensible, I have to refer briefly to Amendments Nos. 69 to 75, which refer to Clause 76. It is important to establish that what we are doing in this part of the Bill is to remove the geographic exclusivity for gas transporters. At the moment they have licensed areas and no one else is allowed to intervene in their licensed areas. We are saying that competition has to have force and that with various provisos set out in these clauses they can no longer have that exclusivity. Clearly, gas transporters do not like that. They would like to maintain the monopoly position that they have had in their various areas. But we think that it is right to have the objective of ending geographic exclusivity by removing the requirement that public gas transporters' licences may not include areas which are specified in the licensing of other public gas transporters. They object because it increases competition. We hope that it will reduce the prices that they can charge. Incumbent monopolies do not like this kind of thing, but we want consumers to benefit from increased competition. I am a little surprised that the Opposition are seeking to challenge any part of this thoroughly capitalist procedure.

I turn to Amendment No. 74. The clause as drafted is flexible enough to allow the authority to respond to changing circumstances. If the amendment were to be accepted, that flexibility would disappear. I think that giving the authority flexibility to use its judgment, and giving it the ability to protect consumers from being overcharged by incumbents, is a good policy aim. I commend our proposals to the House and I oppose Amendment No. 74.

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