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I do not think that either of the relevant two amendments, extraordinarily fluently spoken to though they were—I found them convincing before I started to think further about the matter—achieves this. That is partly due to the history of the matter. I am sure that the noble Lord, Lord Mogg, may query this, but I think that the directions and guidance adopted by successive Secretaries of State in relation to Ofgem and its predecessors have tended not to have the effect that was claimed for them when the various Secretaries of State introduced them. That is partly because of the primacy of the primary objective and partly because of Ofgem’s strength in focusing on what it sees as its primary objective, and using all its multitudinous resources—it probably provides more information on the energy markets than is provided by any other

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institution in the land—to pursue that primary objective. I cannot think of any directions or guidance issued in relation to an environmental agenda that have significantly altered Ofgem’s focus. That is even more true as regards the social agenda. I might have had slightly more sympathy with the amendments of the noble Lord, Lord Jenkin, had he included a third element on reducing fuel poverty.

For the reasons I have given, I do not think that the present combination of powers of the Secretary of State and primary duty of Ofgem works, but neither do I think that intervening at a rather late stage in the Bill to propose new definitions on what guidance and directions to Ofgem should achieve will resolve the situation. We need a broader discussion on what we expect the regulator to achieve, the boundaries of his responsibilities and the appropriate interfaces between government policy and the regulator in a new era in which climate change, fuel prices and social deprivation are more important in some ways than delivering the lowest average price to today’s consumer. Because these are such huge issues we ought not to try to bolt them on to this Bill at this point. Given that the newly established department takes in the economic dimensions of the energy industry, the security issue, the social issue of fuel poverty and, probably most importantly, the climate change issue, I appeal to the Minister to consider that now is the time for new thinking. Although I do not think that we shall get this right in the two or three weeks that remain of this parliamentary Session, it needs to be pretty high on the agenda of the new Secretary of State and his able colleague, the Minister. I would rather consider these amendments in that context than vote for or against them now.

Lord Jenkin of Roding: My Lords, the noble Lord said that we cannot put this right in the last two days’ consideration of the Bill. Given that he has taken a full part in this matter, he will recognise that this issue has figured at every stage of the Bill’s consideration in both Houses. I moved an amendment on this matter in Committee. However, at each stage the relevant amendments were found wanting; they were not what was required. The practice in Parliament, very properly, is that one has another go. The noble Lord may be right that the Government’s consultation on this, to which I referred, indicates the right way ahead. All the relevant information has been returned to the Government and we are now waiting for their response. However, that will come after this Bill becomes law. As I say, the consultation may show the right way ahead. However, I believe—I hope that the Minister agrees with me—that the debates we have had on this throughout the Bill’s passage have helped to illuminate the problem.

Lord Whitty: My Lords, I absolutely agree with that. I was not criticising anybody for having another go and getting it right. I was merely saying that this is a difficult problem and a very urgent one that we need to address outside the consideration of this Bill. However, we need to do that very urgently.

Lord Mogg: My Lords, I feel there is an inevitability about this intervention in that I feel a job description has been created before my very eyes. I acknowledge the excellent contribution of the noble Lord,

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Lord Oxburgh. I agree with noble Lords opposite that it comprised a splendid description of the challenges that we face. I also acknowledge the kind remarks made on all sides of the House that the amendments do not constitute a criticism of the actions that Ofgem has taken as an organisation, but rather, as the noble Lord, Lord Redesdale, commented when moving an earlier amendment, that any concerns relate to the terms of reference within which the authority has to work. That is an important point in respect to my remarks, which are not defensive. That point was later reinforced by the noble Lord, Lord Jenkin, with his customary elegance of descriptive language, when he compared concerns about Ofgem’s duties to a Christmas tree, topped by a clear bright fairy, with all sorts of baubles of different and often disjointed legislation. He explained that the purpose of his proposals was to stop the Christmas tree collapsing under its over-decorated weight.

As chairman of the authority, I should make it clear that I am not the clear bright fairy at the top of the tree. I underline that it is both the authority’s and my own view that it is for Parliament and the Government to establish the statutory duties under which we operate; hence the debate is very interesting and one in which I want to take part. However, I shall not vote on the measure because I feel that my function today is to explain how I view the matter and to respond to the questions that have been asked.

The amendment of the noble Lord, Lord Oxburgh, seeks to amend the Electricity and Gas Acts to include references to “existing or future” consumers. This emphasises the importance of thinking not only of the present but of the future. I greatly admire the noble Lord, Lord Jenkin, but unfortunately I have more problems with his amendments. I value the fact that he will not move the last of his amendments, which would fundamentally undermine through direction the independence of the regulator.

However, his earlier amendment, Amendment No. 30, has echoes of that and problems remain.

7 pm

We share a sense of urgency; indeed, the intervention of the noble Lord, Lord Whitty, disappointed me, because he will be well aware of some of the efforts that have been made in the past few years to raise climate change and fuel poverty up the agenda. That is consistent with our obligation and economic duty to consumers. We can discuss that at another time and in another place. Amendment No. 31, as the noble Lord, Lord Jenkin, said, involves a procedural issue which, if Amendment No. 30 were accepted, there would be merit in pursuing.

I must examine Amendment No. 30 to underline, in answer to earlier questions, why I have concerns. Subsection (1) places the Secretary of State under an obligation to issue guidance to the authority in the exercise of its functions under legislation. The nature of the guidance is set out in subsection (3), which has interesting wording that goes to the heart of the issue. The guidance,

“must, in particular, be given with a view to the desirability of ensuring that the functions of the Gas and Electricity Markets Authority are exercised in a manner most likely to contribute to”,

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security of supply and—these are interesting words—

“the mitigation of or adaptation to the consequences of climate change”.

There is a risk of introducing uncertainty about how the Secretary of State will issue that guidance and how it will fit in with the principal duty to consumers. In the words,

“desirability of ensuring that the functions ... in a manner most likely to contribute to”,

there is no consideration of the cost to consumers and no indication that this needs to be achieved efficiently. These are particular concerns to an economic regulator for which, as earlier debates have shown, there is a clear wish to maintain its economic duty.

Lord Jenkin of Roding: My Lords, I am sorry to interrupt the noble Lord, but these are hugely important issues. He will be aware that the existing guidance under Section 3B of the Electricity Act 1989, as amended, states that the Secretary of State,

“shall from time to time issue guidance”.

Perhaps I should have used “shall” in my amendment, rather than “must”. It would not have made any difference to the meaning; it is the same.

Lord Mogg: My Lords, I have no difficulties with the obligation on the Secretary of State; what follows in the nature of the guidance needs to be addressed. Perhaps parliamentary counsel might have encouraged the use of “shall”, but I am happy to continue with “must”.

The nature of the guidance is wide and has a potential for being prescriptive. That would be even more the case had the noble Lord, Lord Jenkin, decided to press his amendment on the ability for direction. However, that indicates the thinking behind the amendments. Subsection (4)(a) of Amendment No. 30 mentions,

“any proposals from the Secretary of State”,

and “any ... timetable”. It is very broad. I am sure that present Ministers would not do this, but future Ministers could set out prescriptive terms as to what we should do and how we should do it in short order. The circle is completed by the response that the authority “must have regard” to the guidelines. The shift from an economic regulator acting independently and making judgments about highly complex issues, as the noble Lord, Lord Oxburgh, indicated, would be severely restricted. The whole tenor of these amendments, whatever is intended, is in principle to indicate control, limitation and management of the authority. It would represent a radical departure from the present independence of the regulator. The effect of the new powers would be significant, whether they were used or not.

I shall address the concerns about uncertainty. Noble Lords’ debates during the passage of the Bill have centred upon the risks to the changes that a principal duty would make and the introduction of uncertainty. Perhaps I may quote my noble friend Lord Smith of Kelvin, who is chair of Scottish and Southern Energy. He wrote to me and agreed that I should refer to his letter to explain what a major British energy company considers. This is relevant, because it relates not only

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to the perception of the regulator regarding investment, but the need for certainty, which is particularly important. He states:

“We are aware that ... people have raised concerns about the remit of Ofgem ... it is vital that the legislative framework should not compromise Ofgem’s independence, or objectivity. This is a major issue, with huge consequences, and there are serious concerns from the energy industry over whether this sort of decision should be taken at Report Stage of the Energy Bill—without due consideration or consultation”.

I have omitted large chunks of the letter, which goes on to say that,

“the presence of an independent regulator with the requisite powers has led to a highly competitive energy market that has delivered a stable investment climate”.

It is of fundamental importance—most of all at the present time, given the challenges regarding renewables and climate change generally—that we have that certainty. Changing it, or even implying some sort of change, which Amendment No. 30 does, would produce a shiver of apprehension and possibly discourage investment within the UK.

Finally, I underline how much importance we attach to the issues to which noble Lords has drawn attention—climate change and the like. They have not been neglected. The noble Lord, Lord Whitty, was not present at an earlier discussion on an earlier amendment of the noble Lord, Lord Jenkin. He was gracious in complimenting Ofgem for its activity in social policy, fuel poverty and the need for action in those areas. Similarly, we have made major changes on sustainable development, with huge levels of investment into the system. It is possible, with the present guidance and the amendment of the noble Lord, Lord Oxburgh, to envisage that we will continue to operate within government prescription with regard to climate change and the like.

I conclude by paying a tribute to the many compliments that have been paid to Ofgem. I am not entirely sure that I have been able to repay them in the same way by complimenting the level of debate that I have seen all the way through the passage of the Bill.

Lord De Mauley: My Lords, it may be an understatement to say that this issue has attracted a great deal of attention from expert voices during the passage of the Bill, and today has been no exception. The question of where the line should be drawn, as the noble Lord, Lord Whitty, said, between protecting energy consumers and not freezing out the development of a healthy renewable energy sector, which would be to the long-term benefit of consumers, is tricky. It is unsurprising that we have returned to this issue at this stage. I am sure that it will come up again. Finding a workable and effective solution is further complicated by the need to protect the independence of the regulator. Like the noble Lord, Lord Mogg, I am glad that my noble friend Lord Jenkin has acknowledged this and has decided not to press Amendment No. 32, which we felt went too far down the route of political interference. However, it is becoming ever clearer that something needs to be done, and I, like all noble Lords, look forward to the Minister’s response.

Lord Hunt of Kings Heath: My Lords, this has been an extremely important debate. We have discussed access to transmission systems, security of energy

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supply and the whole balance of the relationship between the Government and Ofgem. I say right at the start that the Government will want to reflect on this debate as they take forward future energy policy. The noble Lord, Lord De Mauley, was correct to say at the conclusion of the debate that there is an extraordinary balance to be struck between ensuring certainty for industry in terms of future investment and, as the noble Lord, Lord Jenkin, described it, regulatory certainty in relation to long-term investment. However, as my noble friend Lord Whitty suggested, we are in changing circumstances and we have to ensure at all times that the regulatory system is as effective as possible. All these matters need to be taken into account.

In a sense, this has been a debate about the roles of government and Ofgem and about how effective Ofgem has been within the criteria laid down by the Act and guidance. I pay tribute to the work of the noble Lord, Lord Mogg, and that of Ofgem. However much debate there may be about whether there should be changes, adjustments and different emphasis within Ofgem’s duties, I am sure that we all pay tribute to the noble Lord and the staff of Ofgem for the work that they do.

I want, first, to pick up the issue of timely and efficient access to the existing electricity transmission system, which is very important, and the need for a step-change in the approach to new investment in the grid infrastructure—in particular, the whole question of investment ahead of need or, as it has been described, “strategic investment”. The noble Baroness made a very telling point in that regard and about the whole question of encouraging development in Scotland in relation to renewable energy access to the grid infrastructure. The noble Lord, Lord Oxburgh, also spoke eloquently about that.

There can be no question but that the Government believe that dealing with grid access and strategic investment is vital. The day after the proposed Ofgem amendments were discussed in Grand Committee, my department, together with Ofgem, published the Transmission Access Review, which focused on exactly those issues. The report recommended both short and long-term solutions to the problems that had been raised.

For example, on strategic investment, as a result of the Transmission Access Review, the national grid and Scottish transmission companies are conducting detailed transmission studies, which will set out the new investment that we need in the transmission network for 2020 and beyond, as well as prioritising within that investments which are essential, those which are likely to be needed and those which may be needed. This process is intended to break what some have described as the problem of the current “chicken and egg scenario”, whereby infrastructure cannot be built until generators invest, and generators do not want to invest until they know where the infrastructure will be. It is clear that in our long-term interest, we have to break out of that position.

These studies are helping to create a virtuous circle by giving generators a clear signal as to where and when network capacity will be available so that they can plan and invest in their projects accordingly. One has then to read across to the Planning Bill, which I

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hope will also give much greater certainty in relation to the planning system as it affects those major infrastructure projects.

As well as considering the building of new infrastructure, the Transmission Access Review looked at the importance of using the available infrastructure more efficiently—for example, by sharing access between generators. As part of this, industry needs to update the current industry framework to ensure enduring grid access arrangements that will allow faster connection for new generation projects. Industry is currently negotiating the rules that govern grid access and is due to report back on progress at the end of this year. However, due to the importance of reaching a conclusion, we have stated that if industry and Ofgem do not make sufficient progress by the end of the year, the Government will consider options for wider reform, including legislation, to bring about the necessary changes in the context of their renewable energy strategy and wider energy policy goals. That must be the right approach. We must allow the discussions with industry to take place and we must hope that they reach a satisfactory conclusion, but we must also reserve the right to take action if that does not occur. I think that that is the right balance and the right role for government in this area.

The noble Lord, Lord Oxburgh, has suggested that Ministers should look into taking legislative action now to allow them to intervene where necessary, and I think that I have answered that point: we think it best to take the latter approach if necessary.

7.15 pm

I was also very interested in the comments of the noble Lord, Lord Jenkin. He is right with regard to the strict letter of the law in terms of existing and future customers. Notwithstanding that, I think his point is that the amendment would be a signal from Parliament that Ofgem has to take account of the needs of tomorrow’s consumers when making decisions today. I know that we tend to have debates across the Floor about whether a signal is the right way to use legislation. Sometimes it is, so we look sympathetically on the noble Lord’s amendment, and I undertake to give it further consideration between now and Third Reading. That is not a total commitment but a commitment to look at it as sympathetically as possible. I hope that noble Lords understand what that means.

We had much debate at previous stages of the Bill on the importance of Ofgem’s duties. My right honourable friend the Secretary of State has echoed the importance of sustainability and the urgent need to tackle climate change. Like a number of noble Lords who have spoken on this subject, he also believes that the growing importance of sustainability should be properly reflected in Ofgem’s duties. We are considering how we can make the existing sustainability duty more prominent within Ofgem’s structure of duties, while maintaining Ofgem’s primary focus of consumer protection. Again, I shall hope to give further information on that at Third Reading.

I now turn to the first two amendments that the noble Lord, Lord Jenkin, has pursued in the debate. The existing statutory social and environmental guidance

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currently sets out guidance for Ofgem on how it might make an appropriate contribution to the achievement of government policies on issues of wider public interest, such as social and environmental matters. Although the guidance sets out what the Government expect, it does not direct Ofgem on how we expect it to achieve this. That is because of the nature of the relationship between government and the independent regulator. I think that in general noble Lords feel that that is right, although there are clearly issues around the overall statutory structure that affect the specific duties laid on Ofgem. Ofgem’s current social and environmental guidance has not been updated since 2004. As the noble Lord, Lord Jenkin, suggested, we have had a consultation this summer and that has now closed. We expect to issue a response to the consultation by the end of this year and hope to have guidance formally in place early in 2009.

The noble Lord, Lord Jenkin, has heard that there are some specific issues relating to the wording of his amendments, as was mentioned by the noble Lord, Lord Mogg. I do not intend to go over that but, in his later interjection with my noble friend Lord Whitty, I think he accepted that the question of the regulator’s future duties and responsibilities is very important. We will not come to a conclusion on the issue over the next few days. They are matters to which the new department and my right honourable friend the Secretary of State clearly need to give attention.

Equally, we have to have regulatory certainty, as the noble Lord, Lord Jenkin, said, to secure long-term investment. Holding that together and ensuring that that certainty is maintained through changing circumstances is a considerable challenge. It is clearly one that the Government need to address. We have paid serious attention to the debates that have taken place today. I hope that the noble Lord, Lord Jenkin, will not pursue his amendments and that he will accept that we strongly believe that the matters he raised are critical to this nation.

Lord Oxburgh: My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 30 to 32 not moved.]

Lord Puttnam moved Amendment No. 32A:

32A: After Clause 91, insert the following new Clause—

“Energy public interest considerations

(1) After subsection (2C) of section 58 of the Enterprise Act 2002 (considerations specified as public interest considerations for the purpose of the main merger regime) insert—

“(2D) The following are specified in this section—

(a) the need, in relation to energy supplies, for there to be a plurality of persons with control of the energy enterprises providing those supplies;

(b) the need for security of energy supply.”

(2) After section 58A of that Act insert—

“58B Construction of consideration specified in section 58(2D)

(1) For the purposes of section 58 and this section, an enterprise is an energy enterprise if it is involved in the production or supply of electricity or gas.

(2) For the purposes of section 58, where two or more energy enterprises—

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(a) would fall to be treated as under common ownership or common control for the purposes of section 26, or

(b) are otherwise in the same ownership or under the same control,

they shall be treated as all under the control of only one person.

(3) The power under subsection (3) of section 58 to modify that section includes power to modify this section.””

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