|Previous Section||Back to Table of Contents||Lords Hansard Home Page|
Lord Sainsbury of Turville: My Lords, I am not certain that that was ever intended. There are three situations herethe Working Time Directive, the Horizontal Amending Directive and the final three bits of directives which apply to the specific areas of aviation, seafaring and road transport. It is not true that the Road Transport Directive is the only bit of legislation controlling drivers' hours. The tachograph rules limit driving hours for these drivers to a total of 90 hours per fortnight. So regulations already cover road transport to some extent. There is also a question about how Schedule 14 would apply to the situation, with some dispute as to the legal meaning.
Lord McIntosh of Haringey: My Lords, the climate change levy was introduced in April 2001 as an important part of the Government's climate change programme. The levy package is expected to deliver emissions savings of at least 5 million tonnes of carbon a year by 2010. The Government therefore have no plans to end the levy. Decisions about its rate and scope are, of course, subject to review on a Budget by Budget basis.
Lord Campbell of Croy: My Lords, I thank the noble Lord for his reply. As the levy was not introduced as a permanent fiscal feature and has now been operating as a tax for nearly a year, are there any plans for the period after that prescribed by the Kyoto Protocol, which was the original cause of the measure?
Lord McIntosh of Haringey: My Lords, the Kyoto Protocol has been updated and there are now much longer-term targets for tackling climate change. The energy White Paper published last week talks about dealing with climate change over 50 years. Our policies have to be adapted to deal with those problems.
Lord McIntosh of Haringey: My Lords, of course the noble Lord, Lord Ezra, is right that a considerable part of the White Paper is concerned with energy efficiency. We look forward to the resolution of the outstanding issues with emissions trading. We are talking about energy efficiency not just in buildings, but also, through European regulation, in fridges, personal computers and so on. We are looking forward to lower carbon fuels in transport.
Lord Dixon-Smith: My Lords, will the Minister kindly tell the House how much carbon dioxide is not being emitted into the atmosphere, let us say up until the end of the last year for which records were kept? He gave us the estimated figure at the start of the scheme, but he has not given us the actual figure.
Lord McIntosh of Haringey: My Lords, emissions in 1997 were 155 million tonnes of carbon. Taking that as a baseline, by 2020, under the business as usual position there would be 135 million tonnes of carbon. Adding in the target of reducing that by 15 million to 25 million tonnes by 2020 leaves a figure of 110 million to 120 million tonnes, which is equivalent to between 11 and 19 per cent.
Lord McIntosh of Haringey: My Lords, the noble Lord, Lord Ezra, tells me that it is quite a lot. I am sure that that is right, but I shall have to write to the noble Lord, Lord Dixon-Smith, on that point.
Lord Ezra: My Lords, the purpose of my question was to ask whether the total proceeds of the climate change levy should be devoted to improving energy efficiency. The Minister said that the levy was tax-neutral. That is not the point. I feel it is wrong for it to be used for other purposes. We should be concentrating the whole of the proceeds on energy efficiency.
Lord McIntosh of Haringey: My Lords, there are no proceeds for the Government. We are talking about approximately £900 million a year. That money is revenue forgone, because we have a decrease in employers' national insurance contributions of 0.3 per cent. No
The Bill marks a practical response from the Government to a difficult situation with which we have been confronted. The legislation has been brought forward specifically to deal with the problems faced by British Energy, the country's only private sector nuclear electricity generator.
Noble Lords will recall that my noble friend Lord McIntosh made a Statement to the House on 28th November about the company. The House will therefore already be aware of the background to the current situation. At the end of the summer last year, British Energy found itself in serious financial difficulty and was on the point of running out of cash entirely. That could have triggered a sudden and unplanned insolvency that would, in the view of the Government and the regulatory authorities, have posed a considerable risk to nuclear safety and the security of electricity supply. Support was therefore needed to ensure that stations could continue to operate safely and generate electricity.
With nuclear safety and security of supply in mind, the Government decided to extend a loan facility to the company, thereby allowing the breathing space to investigate the possibilities of a restructuring package. The Government's key priorities have been and continue to be nuclear safety and security of supply. However, as we go forward it is also important to consider how existing nuclear liabilities can be dealt with safely, effectively and at least cost to the taxpayer.
The Bill allows the Government to play their part in ensuring that, going forward, these objectives continue to be met, whether or not the restructuring succeeds. Nuclear power stations will continue to run, nuclear liabilities will be dealt with safely and effectively and customers' lights will stay on.
The Government have responded in a responsible way to the specific issues faced by British Energy. Our actions have been a sensible and practical response to these events. The same is true of the Bill.
I am aware that many noble Lords have a keen interest in the wider debate on future energy policy. Last week we published the energy White Paper. Noble Lords will have an opportunity to debate some of the issues raised in the White Paper in greater detail in the future.
I know that in particular many noble Lords will have strong views, one way or the other, on what role nuclear power should take in the longer-term energy mix. However, the Government's response to the problems at British Energy is quite separate from the question of new nuclear build.
The Government's actions in relation to British Energy are about dealing with the problems of a particular company, not about the future role of nuclear power. British Energy's nuclear power stations already exist. The nuclear liabilities associated with those stations already exist. I hope that all noble Lords will be able to agree on the importance of dealing safely and effectively with these stations and their liabilities, whatever their views on the desirability of new nuclear build.
The Government have agreed to support the restructuring package put forward by the company. This package, which is aimed at bringing the company back to financial viability within the private sector, contains a number of elements, all of which will need to be satisfied if the restructuring is to succeed.
The company had a number of weaknesses. It suffered a shortfall in cash, heavy indebtedness, excessive exposure to wholesale electricity prices, onerous contracts and significant historic liabilities. It is attempting to address those weaknesses through its restructuring plan.
In common with standard commercial practice for a company in difficulty, this plan involves a mixture of asset sales and a reduction in both debt and costs more generally. The company is in the process of selling its North American assets. The sale of its stake in Bruce Power, in Canada, was completed on 14th February, and the sale of its stake in Amergen is currently proceeding. The company is negotiating improved terms with its financial stakeholdersbanks, bondholders and other major creditors. BNFL has indicated agreement in principle to new contracts at reduced prices. In this way, the company has sought to address and mitigate areas of weakness in its operation.
The restructuring package also contained a reorganisation of the way in which the company would handle its nuclear liabilitiesincluding dealing with spent fuel and station decommissioninggoing forward. The company already makes annual payments to the Nuclear Decommissioning Fund. Once the restructuring deal is implemented, it will also begin to contribute to a new ring-fenced Nuclear Liabilities Fund. The company will begin by issuing £275 million of new bonds for the fund, and from then on every year the company will contribute 65 per cent of available cash to the fund. That ensures that the more successful the company, the more it will contribute to the cost of discharging its nuclear liabilities.
As noble Lords will be aware, the Government have recognised that if the restructuring is to work, it will need to contribute significantly to the company's historic nuclear fuel liabilities, currently managed by BNFL. The Government have also agreed to stand as guarantor behind future liabilities incurred by the company.
The Government are prepared to provide financial support for nuclear liabilities in this way because they recognise that, if the company failed, the Government would ultimately have to take responsibility for nuclear liabilities anyway given their responsibilities for nuclear safety and the environment. The restructuring deal represents a route by which British Energy's nuclear stations can contribute to these liabilities while avoiding the additional costs associated with administration.
In order for the Government fully to play their part in this deal, they will need to be able to pay for the existing contracts for dealing with spent fuel, while at the same time standing guarantee for the costs of discharging the company's liabilities in the future. The current ceiling on expenditure that can be incurred on nuclear liabilities under Schedule 12 of the Electricity Act 1989 prevents us being able to do that. The existing limit of £1 billion, extendable to £2.5 billion, does not give us the flexibility we need to be able to meet our side of the bargain. Therefore, Clause 3 of the Bill repeals that ceiling.
The Government have agreed to stand guarantee to the rest of BE's nuclear liabilities in the event that the company, through its new Nuclear Liabilities Fund mechanism, cannot meet the costs. Although these liabilities are unavoidable and known, the final cost of dealing with them is subject to considerable uncertainty. The Government have recognised that they must accept ultimate financial responsibility for these liabilities. It would not be consistent with that to apply a fixed financial ceiling to these costs. Noble Lords will therefore understand that the removal of the existing limit is an honest recognition of the fact that, ultimately, it is the Government who must take responsibility for ensuring that nuclear liabilities are dealt with safely and effectively.
The Bill also contains a provision to disregard any undertaking to make a grant under Schedule 12 for tax purposes. Without that provision, the Government's signing of a commitment to provide support for nuclear liabilities could in itself lead to a massive one-off tax bill for the company. Clearly, it would be illogical for the Government to give a financial commitment that would cause such an enormous fiscal liability for the companyone that might tip it into insolvency. Therefore, Clause 4 is a sensible provision to allow that financial support to be disregarded for tax purposes.
The provisions included in Clauses 3 and 4 allow the Government effectively to meet their responsibilities for nuclear liabilities if a restructuring goes ahead. However, the Government must also be fully prepared to ensure the continued safe operation of the nuclear power stations if the restructuring deal fails and British Energy is put into administration.
It is essential that the Government are prepared for the possibility of the company failing and going into administration. It is clearly important for British Energy's nuclear stations to be in safe and responsible hands. So, if the company goes into administration, the Government intend to stand ready to acquire the stationseither directly acquiring the assets, or acquiring the operating companies. Of course, that would not be necessary if an appropriate private sector purchaser came along to acquire the nuclear business from the administrator. However, the Government believe that that is most unlikely to happen because of the specific nature of the businessfor example, the significant nuclear liabilities associated with the stationsand the difficulty of predicting the financial consequences of operational risk. As we do not believe a private sector purchaser is likely, the Government want to be ready to act as purchaser of last resort.
However, the Government are currently prevented buying shares in privatised electricity companies under Section 74 of the Electricity Act 1989. This provision was originally put in place to give confidence that the privatisation process would be seen through and not quickly reversed. However, it has no real relevance in today's electricity industry, over a decade after the initial restructuring and privatisation. Its existence, however, would prevent the Government being able to buy the BE operating companies in administration. Clause 2 therefore seeks to repeal that provision. I should like to make it clear to noble Lords that there is no hidden agenda to renationalise the company. We would have no objection to a private sector buyer purchasing the companiesbut, as I have explained, we simply do not expect one to come forward. We therefore need to be ready to act as purchaser of last resort.
Clause 1 gives the Government explicit parliamentary authority to provide financial assistance to a BE company. The rescue aid which has been extended to British Energy is currently authorised under the Appropriation Act. However, under the concordat with the Public Accounts Committee which has been in place since 1932, it is usual that any significant or long-term expenditure should have additional specific statutory authority. Clause 1 provides that authority. Clause 1 also gives the Government explicit authority to incur expenditure on acquiring BE operating companies or assets. This authority would extend to cover any acquisition which took place in the event of administration.
It is perhaps worth clarifying for noble Lords that the expenditure authorised under Clause 1 will not, as a matter of policy, be used to deal with support for long-term nuclear liabilities. I have already referred to Schedule 12 to the Electricity Act, which contains a specific power to incur expenditure on nuclear liabilities. It is standard government policy to use specific spending powers where they exist rather than general ones. Therefore, expenditure on BE's nuclear liabilities will be made under Schedule 12 to the Electricity Act rather than Clause 1 of this Bill.
Finally, I should like to touch on recent developments since the restructuring deal was first announced to the House on 28th November. As announced on 14th February, the company's creditors have agreed to a binding standstill, and agreed in principle to a significant write-down in the value of what they are owed. The company has agreed and now completed the sale of its interest in Bruce Power, and has also made progress on the implementation of its new trading strategy. These developments mark a significant step forward for the company in implementing its restructuring deal.
However, that is by no means the end of the story. Much still needs to be done if the restructuring deal is to succeed. If it does not, the Government will need to be able to deal with the consequences of administration. So the Government cannot afford to be complacent. We need to continue to be ready for either eventualityrestructuring or administrationand the same applies to the Bill.
I hope that I have helped noble Lords to understand the broader framework and background to this legislation. I also hope that noble Lords will understand that what we are seeking to achieve with this Bill is the necessary flexibility so that the Government are able to operate effectively in the event of any of the possible outcomes of the current BE situation. This is a small and practical Bill which will allow the Government to meet their core commitments of guaranteeing nuclear safety, ensuring security of supply and dealing safely and effectively with nuclear liabilities in a variety of scenarios. I commend it to the House.
Baroness Miller of Hendon: My Lords, what a pretty pass the proudly named British Energythe flagship of the United Kingdom electricity industryhas come to. The blame lies fairly and squarely, in more or less equal measure, on all the parties involved. It lies on British Energy itself, for a certain amount of mismanagement. It also lies on BNFL, the Government's own key company, which, in the words of my honourable friend the Member for Reigate, failed to drag British Energy "off the rocks" where it had previously deposited it. The blame also lies on the operation of NETAthe new electricity trading arrangementwhich has resulted in the target reduction in wholesale electricity prices of 10 per cent being overshot and a lowering of prices by a massive 40 per cent.
Last, but not least, in this catalogue of those responsible for the present predicament of British Energy must be Her Majesty's Government. They confiscated £2.1 billion of the electricity industry's operating funds in the so-called "windfall tax". Then, in 2000, they imposed a business rates regime which
I accept that further recrimination is pointless, and I shall move on to the Government's solution as embodied in the Bill. For, with the situation that faces us, in the words of the late King Edward VIII when he was still Prince of Wales, "something must be done". The question is not only whether this Bill is the right way of resolving the problem but whether, in the light of the events since the Bill was introduced in another place, the Government should not go back to square one and start all over again. When the Bill was introduced, there was no certainty that a restructuring plan could be produced acceptable to shareholders and creditors alike.
Reports in the press and a written government statement dated 24th February indicate that a viable restructuring plan has been acceptedthe Minister told us that tooresulting in shareholders, institutions and employees losing a lot of money and with banks and substantial creditors accepting pie in the sky in the form of £275 million of equity and deferred bonds in lieu of payment of £1.3 billion debts due to them. I calculate that to be under 5p in the poundbut my arithmetic is not so good, so it is up to the Minister to correct me if I am wrong on thatnot in cash but in shares and bonds which may or may not be worth something in the future, if the company can get out of its present mess.
On 14th February, the company announced that it was considering what was to happen to the existing shareholders and bondholders. Perhaps when the Minister replies he will tell us what conclusion has been reached on that. The company has to find some optimistic investors willing to put up a further £275 million to fund decommissioning costs. The optimism is needed after seeing what has happened to the first lot of investors. As part of the restructuring plan, British Energy is selling its Canadian assets valued at £600 million at the knock-down price of £270 million, as the Minister told us.
British Energy is the only private sector nuclear generator and the country's largest single electricity generator and supplies about 22 per cent of our electricity requirements. The Minister in another place, Mr Wilson, said:
The answer lies in the Government's hidden agenda. The problems that have overtaken British Energyproblems which the Government helped to cause, as I explained previouslygive the Government the opportunity to slip that hidden agenda onto the statute book. Their plan is the back-door renationalisation of the electricity industry.
In his speech to another place at Second Reading, the Minister constantly referred to British Energy, but the detail of the Bill shows that wider, limitless powers of acquisition are sought. Why? The Bill could be strictly confined to dealing with and solving the British Energy problem because of the clear ruling of Mr Speaker that, since the Bill is simply an enabling measure, it is not hybrid, with all the procedural problems that that would entail. That being so, I cannot see any reason why the Bill should not be confined to British Energy and its problems.
I shall seek further advice from the Bill Office on that particular point in view of the Speaker's ruling, but in any case I should like to give the Minister advance notice that it will be my intention at a later stage to ensure that the Bill is limited to its intended purposes and not used as a vehicle to renationalise the industry at the command of the Government's trade union paymasters. Perhaps the Government think that we did not notice the unanimous resolution at the TUC conference at Blackpool, calling for British Energy to be renationalised and the demand by John Edmonds, the leader of the GMB union, for what he called a "Railtrack style solution". That is the thin edge of the wedge, if ever I saw one.
Another problem created by the Bill is the fact that the Government are seeking a blank cheque for the amount they may spend on assisting British Energy and, indeed, the rest of the nuclear power industry. At present, Schedule 12 to the 1989 Act imposes a limit on payments for nuclear liabilities of not more than,
Parliament's job is to control the excesses of the Executive. If it wants more money than Parliament specifically grants, then it has to come back and explain itself. That is especially so with the limit removed and the Government's plans in the Bill for back-door renationalisation. The Government could find a pretext to buy up at least bits of other generating
First, if primary legislation is going to be amended by secondary legislation, it is essential that it should actually be discussed by Parliament and not slipped in under the wire just as Parliament is adjourning. Secondly, both Houses must be involved in amending the legislation. The matter must not simply be left to another place, as I suspect that the Government will attempt to do. The Government's current overwhelming majority there has reduced its function to a mere rubber stamp. Those provisions will be subject to an amendment that we shall table.
While we are discussing that matter, I want to question the power that allows the Government to amend "any other Act". Precisely what other Acts do the Government have in mindany other Act on the statute book, or any other Act dealing with the electricity industry? The Explanatory Notes claim that the provision is extremely,
I look to the Government to introduce an amendment specifically limiting the words to the situation that they say that they wish to cover, with absolutely no ambiguity. I do not expect to hear the Government say, as they usually do, that that would be unnecessary. We feel that it is necessary. I urge the Government and the Minister not to put themselves and this House through the same argument about an over-wide phrase that we have had on previous occasions.
The Bill was originally described as an enabling Act intended to deal with a unique situation. There seems to be no justification for the powers that the Government are taking under the Bill to continue indefinitely without further parliamentary scrutiny. We shall therefore propose a sunset clause.
This hastily drafted Bill exposes the taxpayer to unlimited and uncosted liabilities and seeks to give the Government wholly disproportionate powers to intervene further and expend unlimited amounts of taxpayers' funds in the entire electricity market. We on these Benches agree that some legislation is necessary. In view of the fact that the Government have been overtaken by events, namely the approval of the restructuring plan, they should really reconsider and reshape the whole Bill. However, failing that sensible step, we will seek to amend it by removing the more unacceptable, unnecessary and unconstitutional provisions that it contains.
Lord Ezra: My Lords, when the Bill was considered in another place, the energy White Paper had not been published. Now it has been. Unfortunately, it leaves open the longer-term future of nuclear power. It would have been much easier for us to consider the Bill's implications if we had known whether nuclear power was likely to have a future in the energy policy of this country. If it has a future, we would have to regard the Bill as a stepping stone to the further development of nuclear power. If it has no future, the Bill would be the first step in the ultimate decommissioning of nuclear power. Although the Minister was quite right in saying that its specific proposals have no reference to the longer-term policy, it is nevertheless always important in such matters to consider future implications. We are left in a degree of uncertainty.
The noble Baroness, Lady Miller of Hendon, referred to the problems that have led to the present difficulties. As she rightly stated, many of them have been beyond the compass of the company. For instance, the impact of NETA and the wholesale prices created something of a crisis in the generation of electricity, affecting not only British Energy but a number of other companies. Other problems include: the expensive BNFL contract for treating spent fuels, which is now under renegotiation; the somewhat illogical application of the climate change levy to nuclear power; and the surprising decision to charge a higher business rate on nuclear generators, which again discriminates against companies involved in nuclear power.
Finally, there was the question of the extent to which the company itself made commercial misjudgments. The big misjudgment was not to go for vertical integration. It did not make sure that it could get the benefit of the higher proceeds from retail prices for electricity compared with the wholesale price. My understanding of the Government's philosophy on
That is the mistake that British Energy made, by concentrating on the generation of electricity and not moving downstream. It is an interesting commentary on such affairs that the downstream operations of the oil companies are generally unremunerative, whereas the downstream operations of electricity companies are remunerative.
The major issue in the Bill is whether there should be a solvent restructuring or administration. The Government have left open the possibility of administration if solvent restructuring should not come about. So far, the steps towards solvent restructuring seem reasonably positive. The real issue that we should consider is the implications of either solution on the taxpayer. On that, we are not particularly helped by the Secretary of State, who said on 28th November that there was no real difference to the financial implications for the taxpayer, whichever solution was adopted.
We have to ponder that, as it seems that there are rather more risks with the solvent solution than with the administration solution. We do not know how the solvent solution might develop. In any event, the Government have to come in on the substantial requirement for decommissioningthey have already accepted that past decommissioning costs would be metand on the question of how spent fuels are dealt with. Therefore, the Government would be substantially involved, whichever solution were proposed. The Government ought to be very clear about which solution they think more acceptable, bearing in mind that the Secretary of State has said that the impact on the taxpayer would be neutral, whichever way was taken. There is therefore the question of the uncertainties of one solution against another.
Along with the noble Baroness, I am concerned about the open-ended commitment under Clause 3, which removes the ceiling of £2.5 billion in government financial assistance for nuclear liabilities such as spent fuel and decommissioning. We ought to have some figure in mind. If the Government believe that £2.5 billion is not adequate, we ought to know what is.
To have that limit removed altogether appears to introduce substantial uncertainty into the expenditure of public funds. The Bill, limited as it is to British Energy, raises major issues about how future nuclear electricity companies, if there should be such, should be run. We must consider the role that government and the private sector should play. We are in an exceptional situation in which the problems of decommissioning, of dealing with spent fuels and of securityparticularly in the present situation in the
Lord Jenkin of Roding: My Lords, not for the first time, I find myself in virtually 100 per cent agreement with the noble Lord, Lord Ezra, who I suspect knows more about energy than most other noble Lords. On the Front Bench, my noble friend Lady Miller of Hendon made a powerful speech in which she drew attention to many of the shortcomings of the Bill. I shall endeavour not to repeat what my noble friend or the noble Lord said.
The Minister referred to the temptation to address the issues in the White Paper. Like the character in Oscar Wilde's play, I can usually resist everything except temptation. However, I shall do my best to resist that temptation and that of boring everyone with a re-run of the debate on 8th January, which was initiated by the noble Lord, Lord Tombs.
The Bill was presented in another place, as it was this afternoon by the noble Lord, Lord Sainsbury, as being necessary to deal with the crisis that faced British Energy last year, when it appeared to be running out of cash. If that was all it did, I daresay that we should be able to deal with it fairly briefly, and perhaps neither the hour that was indicated as the time for this debate nor the single day that has so far been set aside for the Committee stage would not be unreasonable. However, I warn the Minister that most of the Bill is not confined to dealing with British Energy's problems, as was starkly made clear right at the end of Third Reading in another place by the Minister for Energy and Construction. In response to a question from Mr Djanogly, he said:
Clause 1, as I understand it and as explained this afternoon by the Minister, is confined to British Energy. The rest of the Bill is of general application. In light of speeches made in another place and by noble Lords in this debate, I am sure that the Government
I have questions for the Minister about the rescue of British Energy. Ministers have made much of the company's misjudgment and mismanagement as being the primary causes of its financial difficulties. As my noble friend stressed, when will we hear from Ministers about the damaging impact that government policy has had on British Energy and other UK generators? The Minister used a somewhat strange phrase in his speech when he said that they were placing "excessive reliance" on wholesale prices of electricity. What on earth did he mean by that? He later hinted that perhaps British Energy would have done better to have acquired some retail distribution companies; I shall come to that in a moment. However, when he winds up, the Minister must explain what he meant by "excessive reliance". It was a very strange phrase indeed.
NETA has had very damaging effects right across the generating industry. Some firms have been driven out of business altogether and others have been able to keep going only because they were part of a larger group with substantial retail activities so that they can offset their generating losses by recouping them from retail customers.
It is worth noting that the Government and the regulator Ofgem boast about the 40 per cent reduction in wholesale electricity prices but that very little of that has percolated through to the electricity bills of retail customers. I suspect that most noble Lords will have recognised that. Through our electricity bills we are paying for the reimbursement of generators' losses because of the wholesale prices collapse. As the Minister made clear, British Energy has been unable to pass that on and it was therefore generating at a loss. It finds itself at the mercy of what the International Energy Agency described recently as,
I accept that there has been over-capacity, partly as the result of the dash for gas. However, as I have said previously, to allow wholesale prices of electricity to fall below the short-term marginal costs of production is a recipe for disaster that is bound to end in tears. We are dealing with the result of those tears in this Bill.
I have several questions for the Minister, to which I hope he will respond. I return to my first question, which was: will the Government now openly acknowledge the damage that this collapse of wholesale electricity prices has had on the market?
Next, the Government require the acquiescence of the European Commission in agreeing the rescue package. It is perfectly true that it gave a very quick assent last autumn to the immediate bail out. However, I hope that I am right in believing that the rescue plans now have to go to the Commission for a more detailed assessment and approval.
On making inquiries, I have been told that that process is unlikely to be completed until next year2004and that, if it does come forward, approval may not be given for as long as 18 months. I should like the noble Lord to indicate whether he considers that to be a realistic and likely timetable. If it is, what happens if, in the interim, British Energy finds it impossible for whatever reason to deliver its restructuring plan? In his speech, the noble Lord said that we are not through the woods yet. But perhaps I may say that I believe he was a little less than frank about some of the problems that he faces as he hacks his way through this particular jungle.
There are other implications of the Government's rescue. One result of it, as put to me the other day, is that the Government have now become a major stakeholder in the nuclear industry. The challenge to the industry is to see whether it can now deliver profitably with a realised wholesale price of electricity no more than £16 per megawatt hour. In other words, do the Government accept that this rescue of British Energy, and British Energy itself, are not to be seen merely as a temporary caretaking operation and BE a temporary caretaker company, or do the Government recognise that the company must have a long-term future, with nuclear generation accepted as being of fundamental importance in today's British electricity industry, whatever the future may be, as indicated by the noble Lord, Lord Ezra?
One is the need to strengthen the skills base. The noble Lord will remember that I raised that point in response to the Statement on the White Paper. But why have the Government given such a negative response to the proposal for the creation of a special skills council for the nuclear industry? Is it because at this point they are thinking big and that the nuclear industry, with only 135,000 skilled employees, is too small to warrant a separate special skills council?
The noble Lord will remember that, in answer to my question after the Statement, he said that all that would be dealt with by the skills council. But why, then, is there no special skills council for this industry? It is not merely a question of skills for nuclear new build; clearly that is not the case. It is the case of having the skills necessary to run the existing industry. What does,
Secondly, why is nothing being done to strengthen the Nuclear Installations Inspectoratethe nuclear regulator? Is that not essential if the rescue of British Energy is intended to help to keep the nuclear option open? Such strengthening will certainly be essential if there is to be a prospect of new nuclear build. However, we are not debating that today. But what about the process of the safe decommissioning of existing nuclear power stations? I am told that the NII does not have enough people even to do that job properly, and that is causing considerable anxiety in the industry. Therefore, I hope that the noble Lord will be able to answer my point about the inspectorate.
Thirdly, I come to the question of nuclear waste. When will the Government move forward on the institutions and procedures leading to the safe disposal of nuclear waste? The Minister had much to sayperfectly properly because it is in the Billabout the question of nuclear liabilities. Much of that is concerned with the legacy of waste. The new deal between British Energy and BNFL is certainly welcome, but is it more than simply a holding operation? Is it not time that the Government began to grasp the nettle and recognise that the safe disposal of waste is a high priority?
All those questions arise directly from Clause 1 of the Bill, and they deserve answers. However, I now turn briefly to Clause 2. As I said a few moments ago, the rest of the Bill goes far wider than the woes of British Energy.
I want to mention one matter which the noble Lord dealt with at some length in his speechthat is, the repeal of the provision of the 1989 Act banning the Government from buying shares in electricity companies. Although the Minister said that there is no present intention to invoke subsection (1), it is there in the Bill: unlimited in scope; unlimited in time; and
For the company and the shareholders that is not a voluntary sale but a forced sale. That is one of the consequences of the repeal of this provision of the 1989 Act. It might be the salvation of the company concerned, but I suspect that there might be a smile on the face of the tiger on the Front Bench opposite.
I believe that this House could reasonably insist on amendments of the kind outlined by my noble friend Lady Miller. To acquire a new electricity company which it does not own at present should not be dealt with as a by-product of this British Energy rescue Bill but in separate primary legislation aimed at that purpose. At present, as the Bill is drawn that would not be required. The Government could rely on this clause and buy whoever they like.
Surely, the question of the repeal of other parts of the 1989 Act by resolution, by order made under the Bill, must be subject to an affirmative order in both Houses as recommendedI shall not weary the House with thisby the scrutiny committee. It is not sufficient to have a negative resolution for the repeal of parts of primary legislation.
I also agree that there should be a sunset clause so that if this does not deliver in time the Government must come back to the House with fresh legislation, and there must be an upper limit on expenditure; otherwise, what we are given is simply an indefinite power to spend unlimited sums of taxpayers' money, and it is part of our job to stop that.
In conclusion, I agree in large measure with the view taken by my honourable friend in another place. It is far from clear that a solvent reconstruction is better than letting the company go into administration. We have been told that the cost is the same. I regard it as wholly inconceivable that the regulators and other authorities, the administrator or whoever, could possibly allow the management of these companies to imperil safety or undermine security. To suggest otherwise is scare tactics. The Government have certainly not heard the last of this sad affair.
Lord Howie of Troon: My Lords, it gives me particular pleasure to reassure my noble friend that I welcome the Bill and support his endeavours in taking it through this House. However, like the noble Lord, Lord Jenkin of Roding, I agree to a large extent with much of what was said by the noble Lord, Lord Ezra. It is by no means difficult to agree with the noble Lord, Lord Ezra, on energy matters. He is almost always right and should be listened to with the greatest care.
I was a little surprised at the onslaught on the Bill launched by the noble Baroness, Lady Miller. It seemed to me that she attacked it rather as though she was trying to sink the "Bismarck". The Bill is not the "Bismarck". Her speech was very critical but in one respectwhen she came to what she called the Government's hidden agendathe noble Baroness raised my hopes and spirits. I said to myself, "If only I could be sure that the Government had such intentions at the back of their minds". I have a horrible fear, however, that the noble Baroness was exaggerating.
I do not want to say much about the Bill. However, as the noble Lord, Lord Ezra, stated, it has implications for the future. We all know that nuclear power is necessary to secure a variety of sources of energy and that it is free from carbon dioxide emissions. That is why I was particularly pleased when the noble Lord drew attention to the burdens placed upon the nuclear industry by the climate change levymentioned also by the noble Baronessand the undue burden of the business rate. Such burdens should not continue to be imposed upon the industry; they should be removed.
That apart, I welcome the Bill. It secures a future for the nuclear industry, although it does not tell us what that future is, nor indeed does the recent White Paper on energy, apart from the fact that the option will remain open. That does not tell us much that we did not already know. However, one part of the White Paper caught my attention. The chapter on transport points out that there is a future for hydrogen as a fuel for vehicles. Indeed, people are talking about the coming of the hydrogen economy. Last December, in the Foundation for Science and Technology, we were told that one gramme of hydrogen contains something like two-and-a-half times as much energy as a gramme of petrol. That is a significant increase; it explains why, if usable, hydrogen is desirable.
However, there is a problem. Hydrogen cannot be reaped like biomass, nor can it be dug up like coal. It has to be produced by a chemical process which requires a great deal of heat. There is no likelihood that renewables could produce that amount of heat without covering vast areas of the country with windmills which some people find unsightly. They take up an awful lot of room.
The only possible source of sufficient heat to produce the hydrogen economy is nuclear power. For that reason, if for no other the Government should change their rather negative and somewhat churlish attitude towards nuclear power. To take up a point by
The Select Committee on Science and Technology of this House produced a report perhaps three or four years ago, but little has happened. The Government issued a paper advising on the manner of consulting on the disposal of nuclear waste. That is not good enough. The Government must begin the resuscitation of the nuclear industry, partly by means of the Bill and partly by making up their minds to push ahead with the proposals for the disposal of nuclear waste which were clearly and simply laid out in the Select Committee report.
Lord Gray of Contin: My Lords, in the debate on the gracious Speech on 20th November I declared a number of past energy interests. However, in view of the nature of the Bill I should repeat previous interests in British Energy inasmuch as I advised Scottish Nuclear for about a year prior to its privatisation. I continued to advise British Energy, as it then was, for about 18 months after it was joined by Scottish Nuclear.
British Energy, like other generators, has come through a very difficult period during which the wholesale price of electricity has fallen by approximately 40 per cent per kilowatt-hour while the retail domestic price has remained substantially consistent. That figure, as pointed out by my noble friend Lord Jenkin of Roding, was given to the House by the noble Lord, Lord Tombs, on 8th January when he initiated an interesting debate on the electricity supply industry. The noble Lord drew our attention to the fact that the rating burden on nuclear power stations is 50 per cent higher than that on fossil fuel stations and no less than 200 per cent higher than on wind-powered stations.
However, those are by no means the only disadvantages which government policy presents to the nuclear industry. There is the uncertainty over nuclear waste, which has already been mentioned and about which the Government have been dithering for years. And there is the cursed climate change levy, which is indiscriminately imposed despite the fact that nuclear power is not responsible for any of the pollution. This imposition has cost British Energy £100 million. Now, on top of those extra overheads, the industry will suffer from the missed opportunity of the energy White Paper. There will be other times when we can discuss that, but the indifferent press which it received highlights the general disappointment that prevails.
The Government are totally unrealistic and over-optimistic in their estimates of the contribution to power generation from alternative sources of energy. The only consolation which the energy Minister,
Industry and the public had better prepare themselves for higher electricity prices, and power cuts too, unless steps are taken to extend the life of existing nuclear stations until new replacements can be constructed. I am relieved that there appears to be nothing in the Bill which precludes British Energy or indeed any other company from such an application.
Alternative sources of energy can never wholly replace nuclear power, dependent as they are on the unpredictable weather for which these islands are notorious. At best, alternative sources will provide a useful back-up support.
So, in my view, the Government could have done little else other than support the British Energy call for help. By convention, this House does not vote on Second Readings save in exceptional occasions. For that I feel thankful as I would have found it very difficult to support my party if it had decided to oppose the Bill at Second Reading, as happened in another place. It may be that amendments will be tabled. I shall study them in due course, but I agree with the principle of the Bill. I congratulate the Government for showing initiative in supporting British Energy. I say that not because I have any great sympathy with the Government's policy in general, but because, had they not taken the action they have in the Bill, the whole British nuclear programme could have been at risk.
British Energy produced a plan for solvent restructuring as an alternative to administration, and the Government have responded. British Energy nuclear stations generate more revenue than their operating costs and it seems to me that to close them down would have been absolute folly. In any event, we have no indication of much interest from elsewhere in taking over those assets in the event of administration. We all hope that the solvent restructuring plan will succeed. Early indications are that the signs are promising. But administration has not gone away and much depends on the ultimate success of the plan.
The Minister said a little about the Bill in the event of the plan not being successful, an eventuality that we hope will not arise. But the company in such circumstances would be in administration. Security of supply would be in immediate jeopardy. What contingency plans do the Government have in the short term for such an event?
The noble Lord, Lord Sainsbury, assured the House that the Government do not have any plans for renationalisation. Of course, we would vigorously oppose that. In practical terms, how would further rescue plans be implemented?
How, I ask myself, did British Energy reach this state of desperation? Since privatisation it has been a highly successful company. It has operated within the rigid requirements of the Nuclear Installations Inspectorate; it has a first-class safety record and good labour relations; it has made an excellent impression overseas; and it is respected within the industry.
Government policies, to which I have already referred, certainly played a significant part in creating its problems, but mistakes, I suspect, may have been made in its strategy. Perhaps it was not sufficiently broad based. Perhaps it was asking too much of one person to make Dr Jeffrey both its chairman and chief executive officer. On the technical side his knowledge and experience are second to none, but in itself that demanded an enormous amount of his time and dedication.
Furthermore, his successful negotiation of the investment programme overseas should not be forgotten. With hindsight, it might have been wiser to have had the technical and commercial expertise in different hands. British Energy is not the first company to have discovered that the joint role is not an automatic recipe for success.
The company must now be given a chance to implement the many facets of the restructuring plan. It is to be hoped that, under the new leadership of Mr Adrian Montague, the company will recover and, in due course, fully merit the confidence that has been shown in it.
Lord Sainsbury of Turville: My Lords, I thank noble Lords for their useful contributions to the debate. This is a short Bill, but it paves the way for the Government's future response to the problems of British Energy. It has been helpful for us to have an opportunity to consider both the specifics of the Bill and the wider issue of government's approach to British Energy.
Noble Lords have raised many issues on the Bill. However, it is important to remember that we are essentially faced with a specific situation. We have to deal with it in a practical and sensible way. I very much appreciate the words of the noble Lord, Lord Gray, who recognised that we have to deal with whether the business can be restructured or whether it goes into administration. We have to look at the matter from that point of view. I also share his view that it would be folly if this led to any kind of shut down of our nuclear capacity. Nuclear power still produces over 20 per cent of our electricity and we cannot afford that capacity to be removed.
The noble Baroness, Lady Miller of Hendon, raised a number of questions, one of which concerned bondholders. In that context the Government set out the limits of their support for British Energy's restructuring plan on 28th November. It was for the company to reach agreement with its creditors within the limit of that support. It is a commercial matter for the creditors as to what their recovery will be under the terms reached with British Energy on 14th February.
As regards the shareholders, the company has made it very clear that a successful restructuring will inevitably involve a significant dilution of their interest. The noble Baroness, Lady Miller, and the noble Lord, Lord Jenkin of Roding, raised the spectre of re-nationalisation. If we were trying to re-nationalise companies we would simply have let this particular company go into administration. In the circumstances of it being totally unlikely that a buyer comes forward, we could then take it over. The quite clear intention behind the arrangements which we have made is to give this company an opportunity to restructure and remain in the private sector.
The noble Baroness, Lady Miller, then raised three areas of potential blame as regards British Energy. There is the question of BNFL and whether it is in some way responsible for British Energy's current position. Its relationship with BNFL is a commercial one between two companies. As the Minister of State for Energy and Construction said in another place, the difficulties of British Energy on the present scale came to our attention as a result of it becoming clear that the deal between BNFL, a commercial entity in its own right, and BE would not be enough to solve the problems of British Energy. There were substantial other problems involved which I have already enunciated.
The noble Baroness and the noble Lord, Lord Ezra also raised the new electricity trading arrangements (NETA). I do not accept that the reduction of wholesale prices was a disaster, as the noble Lord, Lord Jenkin of Roding, implied. It has removed distortions which were inherent in the pool. It has helped to open up a highly competitive electricity market, which has resulted in a fall in prices to consumers. We have also seen a very substantial reduction in fuel poverty. That is in part attributable to the fall in electricity prices.
A question was raised about the part played by the climate change levy as regards the problems of British Energy. That levy was never meant to be a carbon tax; it is a downstream energy tax designed to encourage all sectors of business and the public sector to improve their energy efficiency. In that context it would have made no sense to have taken out nuclear energy which is a large part of the whole.
The noble Baroness, Lady Miller, raised the question of starting the Bill afresh now that restructuring is complete. But it is not complete. We have to face a situation where we can deal with a successful restructuring and also with the question of what happens if the business goes into administration. In that context it is essential we have everything in place to deal with administration in a proper and efficient way.
She raised Clause 2, which is concerned with the removal of restrictions on the capacity to acquire certain securities. She particularly highlighted subsection (3) which I shall read because I believe it will be helpful. It states that,
|Next Section||Back to Table of Contents||Lords Hansard Home Page|