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Baroness Miller of Hendon: I thank the Minister for his clear explanation of the amendment. It was a little surprising that it took so long to appear, but that is not meant as a criticism because the Minister did announce that he would introduce an amendment with the effect of this amendment.
There is no point in repeating what the Minister said, because we all understand the points that he made. The whole hydro benefit system was introduced by a Conservative government in 1957, and created in recognition of the higher distribution costs in remote highlands and islands. However, I have one question for the Minister. The amendment seems to be an attempt to replicate the social responsibilities of the Hydro-Electric Board—which is now called Scottish and Southern Energy. Will the Scottish Office—that is to say the taxpayer—pick up the bill now that the cross-subsidy has been forbidden? I am not quite sure whether the Minister said that now the system would pay or that all the people would contribute. I would be most interested if he could clarify that matter.
To the extent that the amendment restores the position that the Conservatives created 47 years ago, we certainly do not oppose it.
Lord Gray of Contin: I welcome the amendment. It is very important for those who live in the north of Scotland, and very important for the future of developing industries in the north of Scotland. The old north of Scotland Hydro-Electric Board had built-in provision in social clauses. Those all went when denationalisation came in, and I am not suggesting for one moment that they should have been reinstated. However, in this amendment I believe that the Government are realising the difficulties which exist in distant, remote areas. For 13 years I had the honour of representing the constituency of Ross and Cromarty, as it was then. Parts of that constituency were very remote, and the thought of having to provide a power supply to some of those places was horrific. Had provision not existed at that time for assistance to be given, many places there would not have had power.
Therefore, I am very grateful to the Government for what they are doing in the Bill to ensure that the additional costs which occur in areas such as the
Highlands of Scotland are appreciated and that the benefits will accrue accordingly. I thank the Government very much. I have never been slow to criticise them with regard to certain issues in the Bill and I have no doubt that I shall wish to criticise them about many more, but I appreciate what they have done in this instance.
Baroness Carnegy of Lour: I welcome this government amendment. If noble Lords are worried that the Government are being too friendly to northern Scotland, they can observe on page 7 of the Marshalled List that, under proposed subsection (10) of the new clause, the matter will be reviewed after three years and every three years thereafter so that, should circumstances change, it need not be a permanent arrangement.
I believe I am right in saying that, at present, in the north of Scotland electricity is very expensive, even now, compared with most places. I know that my bill is absolutely terrifying. If the noble Lord had been in Scotland over the past week and had experienced the low temperatures, he would realise that that accounts for quite a lot of one's bill. Therefore, the amendment is helpful.
I am glad that my noble friend pointed out that these are not social clauses. The arrangement comes within our present system and it is being continued in this way. We are very grateful to the Government for taking the trouble to introduce it in such a way that it will not be objected to by the European Commission.
The Duke of Montrose: I do not want to delay the Committee but I have one question. Ofgem announced last month that it intended to end the hydro-benefit subsidy system in Scotland after it received legal advice that hydro benefit was probably discriminatory and contrary to EU law. I went back to Scottish and Southern Energy and asked whether it could tell me under which EU law it was found to be discriminatory. SSE was not terribly helpful. It said that it thought it might be something to do with the position on renewables, but I said that that seemed quite impossible. How would the Government manage to overcome the idea that it was probably discriminatory?
Lord Dixon-Smith: I hesitate to intervene as a Sassenach in this debate, particularly as, when I finish, I suspect that I may have some Scots in kilts harrying me down the streets of London. However, I believe it is important to point out that the costs of the generating distribution industry are finite. The charges to the customers must meet those costs and earn a profit. Therefore, if we are to give some people a lower share of the real cost, someone else must pay the extra cost because it must be met. That is where I am in danger of offending the Scots.
If the Minister tells me that the intention is to use the orders where appropriate to try to ensure that, as near as possible, the consumers all ultimately pay more or less the same price, that is one thing. I believe that that is probably the intention behind the scheme. But if he does not tell me that that is the intention, there may be
many irate Englishmen complaining about the Whitty formula and comparing it with the Barnett formula, which always seems to have been slightly one-sided—to Englishmen, at any rate.7 p.m.
Lord Whitty: Until the noble Lord's intervention, I was basking in the praise and gratitude of our Scottish colleagues. But of course there is an implication for consumers in Essex, as the noble Lord knows.
The answer to the noble Baroness's question is that rather than one supplying company bearing the cost, all supplying companies will bear the cost. Presumably, all or most supplying companies will try and pass on as much of their costs to their ultimate consumers as they can. If it is all passed on, the increase in bills would be roughly 0.3 per cent if it were spread evenly, a small part of the total bill.
To that extent, consumers elsewhere are supporting consumers in the north of Scotland, whose prices would otherwise be significantly higher. They are already high in most cases, as the noble Baroness, Lady Carnegy, says, and they would be higher were this benefit to be removed. The nationalised north of Scotland Hydro-Electric Board had the hydro benefit as part of its provisions. This was a replacement for that measure on privatisation as a licensing condition, because it could be held to discriminate against one company. That is the EU law point—once it is spread around all companies, there is no problem because we are not being discriminatory.
While always bearing in mind the point of the noble Lord, Lord Dixon-Smith, I will sit down with the support of our Scottish colleagues and say that we are trying to maintain a position which the system had, in different ways, managed to deliver to consumers in the north of Scotland for the past 45 years. We have found a way round this which I think will be beneficial and will not be at too great a cost to everybody else.
Lord Dixon-Smith: Before the Minister sits down, let me say that I entirely agree with what he says. However, he has not said that the intention behind this is, within reason, to try and equalise the costs at the point of the consumer. Is that the intention?
Lord Whitty: The point of competition policy and regulation is not entirely to equalise cost; it is, however, to provide the most cost-effective means by which to benefit the consumer. The cost to Scottish consumers is, and is likely to remain, higher than average, even after this measure is applied. That has always been the case, but the higher cost is partly offset.
On Question, amendment agreed to.
Clause 151 [Payments of sums raised by fossil fuel levy]:
Baroness Miller of Chilthorne Domer moved Amendment No. 133:
- Page 116, line 22, after first "the" insert "Secretary of State or"
The noble Baroness said: This group of amendments seeks to probe the Government on their intention with regard to the surpluses that are built up from the auctioning of income that the non-fossil purchasing agency carries out. Clause 141 contains some suggestions about what will happen in Scotland, leaving the rest of the UK in a very different position.
Let me give noble Lords the background. When the Utilities Act 2000 was introduced, changes had to be made to the contracts which are let under the non-fossil fuel obligation. The new arrangements for the NFFO contracts in England and Wales provide that, first, the non-fossil purchasing agency pays generators the contract price for each kilowatt of power generated and, secondly, the non-fossil purchasing agency auctions the output of those contracts.
At the moment, the NFPA receives more income from the auctions than it needs to pay generators and so a surplus of money is building up. A similar situation arises in Scotland with the Scottish renewables order contract in that a surplus pot of money is building up, although I understand that the details of the auction arrangements are slightly different.
As I understand it, Clause 151 enables Scotland to act in a more desirable way than the rest of the UK. The difficulty with regard to the surplus that is building up in the rest of the UK is that no provision is made for it, save for that first £60 million. The first £60 million of the pot was covered by the Sustainable Energy Act 2003 which specified that that £60 million had to be spent on renewable energy projects. However, unless the Minister tells me differently, I understand that that is less than one year's worth of the build-up of such surpluses so the surplus will continue to build and the Energy Bill, as presently drafted, does not provide for the same purpose as it does in Scotland. In other words, that surplus should go into renewable energy projects. Perhaps the Minister would intimate whether my interpretation of the Bill is incorrect. However, if it is correct, I wonder why Scotland has the benefit of the surplus being spent on renewable energy projects and England does not. I beg to move.
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