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The noble Lord said: My Lords, listening to that marvellous debate on the previous group of amendments, I was reminded that a number of years ago I spoke at a dinner immediately after Sir Peter Ustinov. It was a mixed blessing because as much as I enjoyed his speech, with every gale of laughter I knew that I was dead in the water. I had exactly the same feeling this evening.
I first moved a version of Amendment No. 32A as long ago as five months on the notion of a public interest test to be applied to mergers, acquisitions and takeovers in the energy sector. I was pretty easily swatted away by the Front Bench with references to light-touch regulation and the sanctity of the marketplace. I doubt whether we will hear much about light-touch regulation this evening, but it is possible. In Committee on 1 July, I raised the issue again, and said briefly that many countries are,
- “moving towards a point where they can look through deals and ownerships to see the real owners and the real purpose behind deals. We have been laggards on this”.
“The world is changing rapidly, and it is time for us to look more closely at whether we are semi-consciously drifting into the type of economy that the United States became in the late 19th and early 20th century, from which it eventually had to jolt itself”.—[Official Report, 1/7/08; col. GC 58.]
I could not have imagined how rapid that jolt would be and how prescient I might have been.
I still believe that there is an issue. If we believe that the Government are right—and I do—to move quickly with the banking bail-out, I do not think anyone in your Lordships’ House would argue that should an energy company fail, any responsible Government would move equally quickly to bail that energy company out. That is all the more reason why the rights and interests of citizens and consumers should be protected when such an energy company makes its original purchase.
Why are my fears not entirely fanciful? Let me offer two possible examples—one from the water sector and one from infrastructure. On 26 September 2000, RWE, according to the Independent newspaper, swallowed Thames whole. It paid £4.3 billion for the privilege and took on £3.5 billion in debt. Over the next six years, it drew out the maximum dividends that it could and made the minimum investment in the infrastructure, until it sold the business for £8 billion six years after buying it. The newspaper reported:
“A Thames spokesman said the refinancing was simply designed to replace debt guaranteed by RWE with debt issued against Thames as a free-standing company”.
What does that mean? It means that a price tag that became £8 billion had been pinned to a business by RWE compared with the £4.3 billion it had paid originally, but that a bond had been used to take on the cost of the original loan. I am not an accountant—
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“Thames Water is planning to shed 1,200 jobs, or 20 per cent of the workforce, as ... its ... parent company which also controls National Power, pushes ahead with plans to sell the business”.
The most important thing at the time was that the analysts felt that British management had been put under more pressure from Germany to slash costs to improve the balance sheet. That business could not be held to have been bought, run and sold in the interests of the taxpayers of this country.
Another example, one over which I agonise every week as I fly into Heathrow, is the purchase by Ferrovial of BAA. I do not think that anyone could claim that such a heavily leveraged purchase allowed Ferrovial to put anything like the capital investment into our infrastructure that we desperately needed to have access to the rest of the world, and indeed for the rest of the world to reach us. These are not small issues, and it was for those reasons that I raised them in the first place.
We are also moving into a very different regulatory environment, and it will be interesting to hear from the noble Lord, Lord Mogg. In an interview with the Guardian last week about his new job at the FSA, the noble Lord, Lord Turner, warned that a new cadre of higher-paid regulators would ask tougher questions about the health of financial institutions in the wake of the credit crisis. He also said:
“There will be more people asking more questions and getting more information than we were getting before. There is no doubt that the touch will be heavier. We have to make sure it is intelligent and focused on where the risks really are”.
The purpose of my amendment, which I shall not press—as the Government know—is to ensure that the noble Lord, Lord Mogg, his successors and the team that surrounds them have the powers to push before the curve. The noble Lord, Lord Jenkin, interestingly and accurately said that the key is regulators having the power to act ahead of the curve, not behind it. They should not have to clear up the mess that has been made, but should be able to ask the right questions and be tough enough before the event so that we do not end up with limp and lame companies that we as taxpayers have to bail out.
That is the purpose of my amendment. I have no intention of pressing it. I have had a lot of very good discussions with the Front Bench and with the Bill team. I think that we have begun to get somewhere, and I hope that my noble friend will confirm that. I think that it is somewhere important. I picked up something in the New York Times last Sunday that I had forgotten. It was a quote from The Great Gatsby in which Nick Carraway assesses the brutal world of Tom and Daisy Buchanan. He says,
“They smashed up things and creatures and then retreated back into their money or their vast carelessness ... and let other people clean up the mess they made”.
I do not want to live in a country where the regulator spends his life only clearing up the mess that others have made. I want the regulator to have the powers to ensure that the mess cannot be made in the first place. I beg to move.
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Lord Hunt of Kings Heath: My Lords, it is a great pleasure to respond to my noble friend. He and I were introduced into your Lordships’ House almost 11 years ago to the day. We have always had a fellowship of spirit. I have learnt that my noble friend is very persistent. He has made this point in a number of Bills and has proved to be pretty successful. Although he will not press the point today, I assure noble Lords that I am listening carefully. It is essential that we have robust powers at our disposal to intervene in energy sector mergers on competition grounds or when we have genuine concerns about security of energy supply.
In the past two weeks, in addition to our debates today, two Oral Questions have focused on the security of supply and the proposed takeover by EDF of British Energy, which have brought to the fore some of the issues to which my noble friend referred, and which, I suspect, the noble Lord will soon return us to.
There is no question that our energy market is changing. There are greater levels of foreign investment; we are becoming more reliant on important energy; and we have all been feeling the effect of global energy prices. Many of those factors have benefits for our energy market, particularly in terms of foreign investment, but we have to face up to other serious issues to ensure that we have a long-term, sustainable energy policy and security of supply.
7.30 pm
I can offer my noble friend reassurance that the Enterprise Act enables the Government to intervene in any merger where such intervention can be demonstrated to be a proportionate and necessary measure to protect a legitimate public interest. Three public interests have now been specified in UK law as legitimate considerations. The first is national security, which incorporates the concept of public security provided for in European law. The second is ensuring plurality, quality and standards in the media, and recently we added the stability of the UK financial system.
Energy and energy security are, of course, matters of legitimate public interest and are directly relevant to national security. I understand that there is widespread support for this view among other European states and case law supports this view. Our understanding is that under the existing public interest consideration of national security, if the Secretary of State had any security of supply concerns related to an energy merger, he could intervene. Having examined the matter carefully, we do not believe it is necessary to introduce a further public interest consideration relating specifically to energy.
Some perverse incentives might come about if we were to specify energy in the way the amendment suggests. I return to the debate we had last week in Oral Questions because we strongly support the liberalisation of Europe’s energy markets and firm action by the European Commission to tackle protectionist behaviour by member states. I think we have the support of the whole House in pursuing that. For the UK to propose identifying the energy sector as a special case when considering mergers might be taken to indicate a shift away from the firmly held position of the UK.
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There is also the point, which is often made by Ministers when lists are proposed for specification in a Bill, that if we specify in legislation particular sectors that may be deemed to raise issues affecting the public interest, it can create uncertainty about what may be considered to fall within the concept of national security and potentially reduce our scope to apply it in mergers in sectors not listed.
On the second element of my noble friend’s amendment and the desire to ensure plurality of ownership, we believe that there are sufficient existing provisions designed to prevent excessive concentration of ownership. In response to my noble friend’s third point, I know from the discussions that he has had with my officials that one of his major aims is to increase transparency and accountability in the intervention process. I am pleased to confirm to the House and my noble friend that in response to these discussions the Office of Fair Trading has agreed to amend its guidance to make it explicit that in the event of an energy merger it would consult Ofgem and that Ofgem’s response would then be sent to the Secretary of State in full and made public.
I hope that in the context of this debate and my noble friend’s amendment I have assured him that his proposal is already covered and that the OFT’s amendment of its guidance will add to the transparency that he seeks. My noble friend said that he will not press his amendment, but I hope that he will consider that the Government have responded in a sympathetic but proportionate way to the issues he raised.
Lord Puttnam: My Lords, I thank the Minister. I not only accept what he said, but I wish to add that his department has been extraordinarily courteous and has gone to a lot of trouble in reaching the point that we have managed to agree. I am grateful for that. My dearest hope is that I will never have to stand up and say, “I told you so”. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Renton of Mount Harry moved Amendment No. 32B:
32B: After Clause 91, insert the following new Clause—
“Nuclear power generation: report on operation of market
(1) The Secretary of State shall, no later than two years following the commencement of this section, and every two years thereafter, report to Parliament on the operation of the market in nuclear power generation.
(2) Reports under subsection (1) shall include an assessment of the extent to which any one nuclear power generator has a dominant market position.”
The noble Lord said: My Lords, I am conscious that dinner time is approaching, and I shall be as brief as possible. The amendment follows on very well from the one moved by the noble Lord, Lord Puttnam, and the Minister’s remark that he would support—I hope I quote him correctly—the liberalisation of the European energy market. The difficult question is how that liberalisation will be made to happen. I go back to the exchange that we had in the House during Oral Questions on 21 October. I expressed a fear of overdominance by Electricité de France or its English subsidiary, known as EDF, once it had acquired British Energy and was
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“Do the Government have any intention of having a golden share in our nuclear industry in order to protect what will be a vital British national interest? Some of us feel a little uncomfortable about there not being equal access to markets in France”.—[Official Report, 21/10/08; col. 1046.]
That was a very gentle way of putting it, but both those suggestions were turned down by the Minister, who politely dismissed them saying that the Government intend to take the government share in British Energy in cash, which would be used to decommission old nuclear stations.
At the moment, we have a split attitude to EDF. There is a twofold problem. On the one hand, the Government welcome EDF buying out British Energy and being ready to go ahead with building new nuclear power stations in this country. On the other hand, EDF already has 6 million customers. I declare an interest; I am one, and from my experience, 6 million customers are already too many. On 22 September, I wrote a letter to the managing director of customer relationships pointing out that I have two different tariffs for my warmwise electricity. That was five weeks ago, but I have not had an answer. Equally, I received a very pleasant piece of paper inviting me, like many others, to claim my four free, energy-efficient light bulbs. I and others in my family claimed them, but none of us has received them.
Lord Jenkin of Roding: My Lords, I got mine.
Lord Renton of Mount Harry: My Lords, my noble friend did better than I did because I have not. From a customer point of view, that is at the heart of what we have to consider in future relationships with EDF. In July, EDF’s gas price increased by 22 per cent and its electricity price increased by 17 per cent. It was announced one day and came into force the next, so we cannot expect EDF to be frightfully popular with individual customers at the moment. The bigger question is the big scale. EDF is an experienced generator of nuclear power. It operates 58 nuclear stations in France and is building a new facility at Flamanville.
At that same Question Time, the noble Lord, Lord Tomlinson, said that he considered that there was a moral obligation on the French Government to open up their domestic energy market to free competition. The noble Lord, Lord Hunt, as today, urged liberalisation of the market in Europe. The fact is that that will not happen. You cannot see President Sarkozy allowing it to happen in France. In that context, I ask the Minister to look at our position vis-Ã -vis EDF. It is worth remembering that, even two years ago, other electricity generating companies complained about EDF’s abuse of dominance in the industry.
Against that background I have tabled the modest proposal in the new clause, which would require the Secretary of State every two years to report to Parliament
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After all, this is the beginning of an important new stage in power generation in Britain. It is better to establish now how to make certain that we are getting information and protecting our interests rather than to wish in five years’ time that we had done it when this was all beginning. It is therefore a small step in the right direction that I suggest: regular reporting to Parliament. I very much hope that the Government will be able to accept it. On that basis, I beg to move.
Lord Teverson: My Lords, I was very interested to hear the noble Lord, Lord Renton, moving his amendment, but the other area of market dominance where we have a problem is that of size. I suppose that that is a production market position. It concerns not just the British Energy sites but those of the Nuclear Decommissioning Authority. That is of equal importance in terms of future monopoly.
Lord Hunt of Kings Heath: My Lords, let me start by commenting on EDF. I have nothing to add to what I said in the House last week when we debated this. The European Commission will investigate the EDF takeover of British Energy. That investigation will take account of the impact of the transaction on the UK market, including many of the points raised today. The EC will also consult Ofgem and the Office of Fair Trading as part of its investigation.
The Government have agreed with EDF that the company will sell land to other potential nuclear operators at some specific sites in certain circumstances. We hope to accelerate development of new nuclear power stations in the UK by making desirable sites available to at least one further potential operator. I understand from my officials that there is considerable interest among other potential operators in those sites and that opportunity.
The Government have been extremely active in urging liberalisation within the EU. It is fair to say that the third package of internal market legislation will bring about a real improvement in the way that energy markets operate across the EU. It will make EU energy markets more transparent and competitive and create opportunities for UK companies to invest and compete in those markets. We are making some progress in that area, which I believe is fundamental to ensuring security of supply. Equally, we should welcome foreign investment in the UK. If a company is prepared to invest huge sums of money in the UK, surely that is a mark of confidence in the UK that we should welcome.
We do not need the amendment. We already have robust, independent authorities able to investigate and inquire into competition in energy markets. I said in response to my noble friend Lord Puttnam that we have the intervention powers that we require under the Enterprise Act. I have made clear that, in the interests of transparency, the OFT guidance will be amended
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We have the right structure to enable the competition authorities to intervene and take a view. We have the intervention powers of the Secretary of State under the Enterprise Act. On nuclear power, I have said that we have the opportunity to make sites available to other companies.
I end with the conclusion that the very fact that this country is attractive to foreign investors is a mark of confidence in the UK and in the stability of our arrangements, which I am confident will play an important role in ensuring the long-term energy supply which all noble Lords want.
Lord Renton of Mount Harry: My Lords, no one would object to or disagree with the noble Lord's final sentence. I am disappointed that he does not feel able to accept my amendment. It would be very helpful to Parliament to have such a regular report every two years, but there it is. I only hope that he will not in five years’ time regret his refusal tonight. That said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 94 [Parliamentary control of subordinate legislation]:
Lord Hunt of Kings Heath moved Amendment No. 33:
The noble Lord said: My Lords, I hope not to detain the House too long on this important matter. This is a minor, technical amendment. Clause 94 provides that Orders in Council, orders and regulations under the Bill are generally subject to the negative resolution procedure. Subsection (2) sets out the exceptions to this. Our amendment clarifies that the regulation-making as well as the order-making powers set out in subsection (2)(a) are subject to the affirmative resolution procedure. I beg to move.
On Question, amendment agreed to.
Lord Hunt of Kings Heath moved Amendments Nos. 34 to 37:
On Question, amendments agreed to.
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