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Clause 69 [Persons who may be required to submit abandonment programmes]:
Lord Hunt of Kings Heath moved Amendments Nos. 52 and 53:
52: Clause 69, page 59, line 13, leave out “from the installation” and insert “from any activity within section 30(6)—
(i) which has been or is carried on (or is intended to be carried on) from, by means of or on the installation, and
(ii) is an activity to which subsection (AA1) applies”
53: Clause 69, page 59, line 15, at end insert—
“(AA1) This subsection applies to an activity if—
(a) where the activity is the exploitation or exploration of mineral resources, it relates to an oil field for which the installation is or is to be established or maintained;
(b) where the activity is the conveyance of minerals, the minerals are got, or to be got, from such an oil field;
(c) where the activity is the unloading, storage or recovery of gas, it relates to a controlled place (within the meaning of Chapter 2 or 3 of Part 1 of the Energy Act 2008) for which the installation is or is to be established or maintained;
(d) where the activity is the conveyance of gas being stored or recovered, the storage or recovery of the gas relates to such a controlled place;
(e) where the activity is within section 30(6)(c)—
(i) the installation is in an oil field in respect of which P has an interest, or
(ii) the installation is in a controlled place in respect of which P has a licence under Part 1 of the Energy Act 2008.
(AB1) For the purposes of subsection (AA1)—
(a) “oil field” means an area which the appropriate authority (within the meaning of paragraph 1(2) of Schedule 1 to the Oil Taxation Act 1975) has determined to be an oil field for the purposes of Part 1 of that Act,
(b) P has an interest in an oil field if P is entitled to derive, or has at any time been entitled to derive, any financial or other benefit from activities within section 30(6) (other than paragraph (c)) carried on in the field.”
On Question, amendments agreed to.
Lord Hunt of Kings Heath moved Amendment No. 54:
54: Before Clause 80, insert the following new Clause—
“Duties of the Gas and Electricity Markets Authority
(1) In section 4AA of the Gas Act 1986 (c. 44) (duties of the Gas and Electricity Markets Authority)—
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(a) in subsection (1) after “interests of” insert “existing and future”,
(b) after subsection (2)(b) insert “; and
(c) the need to contribute to the achievement of sustainable development.”,
(c) omit subsection (5)(ba), and
(d) in subsection (6) for “this section “consumers” includes” substitute “subsections (3) and (4) references to consumers include”.
(2) In section 3A of the Electricity Act 1989 (c. 29) (duties of the Gas and Electricity Markets Authority)—
(a) in subsection (1) after “interests of” insert “existing and future”,
(b) after subsection (2)(b) insert “; and
(c) the need to contribute to the achievement of sustainable development.”,
(c) omit subsection (5)(ba), and
(d) in subsection (6) for “this section “consumers” includes” substitute “subsections (3) and (4) references to consumers include”.
The noble Lord said: My Lords, we had a very interesting debate on Report, which addressed issues around strategic investment in the electricity transmission grid in the medium and longer term, access to the existing grid in the shorter term and the need to give sustainability greater priority in Ofgem’s statutory duties. The debate about the role of Ofgem was extremely interesting. I am sure that in parallel with this group of amendments, it will have been very helpful to Ofgem to understand some of the issues that Members of your Lordships’ House feel are important for Ofgem to consider within the context of its statutory duties. It was a well balanced and influential debate.
The first element of our proposals is to change the duties of the Secretary of State and Ofgem in two ways. The first places the words “existing and future consumers” directly into the wording of the primary duty of Ofgem and the Secretary of State, as per Amendment No. 29A proposed by the noble Lord, Lord Oxburgh, on Report. We were persuaded by the noble Lord that placing that formulation of words directly into the primary duty would be a clear signal from Parliament that Ofgem and the Secretary of State must take the needs of tomorrow’s consumers into account when making decisions today.
The second change to Ofgem’s duties is in response to noble Lords who wanted the Government to find a way to bring consideration of sustainability onto an equal level to security of supply, without limiting its independence. Amendment No. 54 will also place sustainability at the same level in the hierarchy of duties as security of supply; at the top of Ofgem’s list of secondary duties. That will move sustainability higher up Ofgem’s hierarchy of duties. We think that gets the balance right. It gives sustainability more prominence in Ofgem’s decision-making process, without disrupting its primary duty and without creating uncertainty for investment in new energy infrastructure.
While speaking to his amendment on Report, the noble Lord, Lord Oxburgh, emphasised that his key concerns, and the underlying reason for his amendment, were the current issues that generators face in connecting to the electricity transmission grid and the lack of strategic investment in the grid. The noble Lord, Lord Jenkin, my noble friend Lord Puttnam and many
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The noble Lord, Lord Oxburgh, was absolutely right about the importance of ensuring that negotiations are concluded in a timely fashion and that therefore the Secretary of State should have the power to intervene if that proves not to be the case. Our preferred solution is for Ofgem, the national grid and the wider industry to reach a satisfactory conclusion on their own. We will continue to work closely with the parties involved to encourage them to do so. The process is complex, and it has to balance out the interests of all market players. We will keep progress under review. We expect to get a report from Ofgem at the end of this year, and we will develop our renewable energy strategy, which we will publish in spring 2009. In doing that, we will consider the progress that has been made in the industry and in the discussions before deciding whether to exercise the powers. It would be helpful for everyone in those negotiations to know that we have that power up our sleeve and that we are prepared to use it if negotiations are not successful.
The power we propose is limited. It will allow us to amend licences and codes to deliver the high-level principles set out in the Transmission Access Review, including, but not limited to, firm connection dates. It may be used only for the purpose of facilitating access to, or efficient use of, the transmission system. The power is time-limited to two years from the date of commencement, and the Secretary of State is obliged to consult the holders of any licences that will be affected, Ofgem and anyone else that he considers appropriate. The two-year limit is helpful in the sense that it is a limited power and is a constraint on Government and the parties to the discussions to get on with it and make sure that agreement is reached.
5.45 pm
Amendment No. 59 has been tabled in response to the amendment of the noble Lord, Lord Jenkin, debated at Report, which was intended to allow distribution network operators to recover the costs associated with their statutory obligations to provide offers of connection to third parties. As the issue that the amendment addresses was discussed on that occasion, I do not need to go into it in great detail.
Under the current legislation, DNOs are able to charge for work carried out on the provision of that connection offer only if and when a connection is made. The problem is that where several connection offers are made and only one connection provided, DNOs cannot recoup all of their costs. It had been commonplace until recently for DNOs to charge upfront for these costs in recognition of that. However, these practices have, unfortunately, had to be stopped by Ofgem because it has discovered that they are not permitted by statute.
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The amendment will introduce a new clause to give the Secretary of State a regulation-making power providing for upfront charging for network connection offers. This is an efficient way of balancing the need to promote competition in those markets and providing an incentive against speculative connection requests.
Amendments Nos. 65 and 75 are technical amendments to ensure consistency between the powers in the Bill for the Secretary of State to modify licences granted under the Electricity Act 1989, the Gas Act 1986 and similar powers in the existing statutory framework for the energy sector; for example, in the Climate Change and Sustainable Energy Act 2006. I beg to move.
Lord Jenkin of Roding: My Lords, I have to say thank you again to the Government. Amendment No. 69 meets exactly the case that I made on Report and I am grateful for that.
On Amendment No. 54, I consulted Ofgem and told it that I would say that it is happy with the amendment. Ofgem has always recognised that it is for Ministers to set policy and for Ofgem as the regulator to operate the policy. I previously had discussions with Ofgem on the amendments that we discussed on Report and it is content with what is being done. I would add that, quite rightly, the Minister had to add rather more words than was in the rather simple amendment of the noble Lord, Lord Oxburgh. I refer to the substantial superstructure that he had built upon some very slender foundations. However, sustainability is now expressly in the amendment and that is good.
I am slightly more critical of the amendment on the two-year power which the Government are taking. I have received a representation from one of the companies involved in the negotiations, which states:
“We understand that the Government is using it as a sword above our heads in order to ensure a conclusion is reached, but it is a concern nonetheless”.
The noble Lord has given some explanation as to how he sees the Government proceeding on this, but he must be aware that the industry is not totally happy with the deadline. I am sure that it will do its best to try to negotiate proper arrangements. It is the enormously important issue of getting proper access to the grid, as the Ofgem report clearly made out. Will the noble Lord just be aware that there is a feeling that the sword of Damocles is not far away and that the Government need to be reasonably sensitive to that?
Lord Hunt of Kings Heath: My Lords, I do not want to prolong the proceedings but I think that referring to the sword of Damocles is a bit of an exaggeration. We want to see a successful outcome and I have already stressed that we want the parties to come to an agreement. We think that we need this as a reserve power but it is also important that the power is not held for ever—we need to see a successful conclusion. I am encouraged by what the noble Lord says in that I think he is reflecting that, despite the challenges, the parties are determined to do everything they can to see a successful resolution. We would much prefer that, and I very much hope that we do not have to make the order. I prefer to describe this as a reserve power and one that is time-limited.
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Baroness Wilcox: My Lords, I thank the Minister for tabling these amendments. Through the long and convoluted arguments, I am glad that the Government have agreed that something that ensures sustainability is properly taken account of in a workable and appropriate way.
On Question, amendment agreed to.
Lord Hunt of Kings Heath moved Amendments Nos. 55 to 57:
55: Before Clause 80, insert the following new Clause—
“Power to amend licence conditions etc: transmission systems
(1) The Secretary of State may modify—
(a) a condition of a particular licence under section 6(1)(a) to (d) of the Electricity Act 1989 (c. 29) (generation, transmission, distribution and supply licences);
(b) the standard conditions incorporated in licences under those provisions by virtue of section 8A of that Act;
(c) a document maintained in accordance with the conditions of licences under section 6(1)(a) to (d) of that Act, or an agreement that gives effect to a document so maintained.
(2) The Secretary of State may exercise the power conferred by subsection (1) for the purpose only of facilitating—
(a) access to a transmission system in Great Britain or offshore waters;
(b) efficient use of a transmission system in Great Britain or offshore waters.
(3) The power conferred by subsection (1)—
(a) may be exercised to make different provision in relation to different classes of customer;
(b) may be exercised generally, only in relation to specified cases or subject to exceptions (including provision for a case to be excepted only so long as specified conditions are satisfied);
(c) may be exercised differently in different cases or circumstances;
(d) includes a power to make incidental, supplementary, consequential or transitional modifications.
(4) The power conferred by subsection (1) may not be exercised after the end of the period of 2 years beginning with the day on which that subsection comes into force.
(5) Provision included in a licence by virtue of that power—
(a) need not relate to the activities authorised by the licence;
(b) may do any of the things authorised by section 7(2) to (4) of the Electricity Act 1989 (c. 29) (which apply to the Gas and Electricity Markets Authority’s power with respect to licence conditions under section 7(1)(a)).
(a) waters in or adjacent to Great Britain which are between the low water mark and the seaward limits of the territorial sea, and
(b) waters within an area designated under section 1(7) of the Continental Shelf Act 1964 (c. 29);
“transmission system” has the meaning given by section 4(4) of the Electricity Act 1989 (c. 29).”
56: Before Clause 80, insert the following new Clause—
“Section (Power to amend licence conditions etc: transmission systems): procedure
(1) Before making a modification, the Secretary of State must consult—
(a) the holder of any licence being modified,
(b) the Gas and Electricity Markets Authority, and
(c) such other persons as the Secretary of State considers appropriate.
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(2) Subsection (1) may be satisfied by consultation before, as well as by consultation after, the passing of this Act.
(3) The Secretary of State must publish details of any modifications as soon as reasonably practicable after they are made.
(4) In this section “modification” means a modification under section (Power to amend licence conditions etc: transmission systems).”
57: Before Clause 80, insert the following new Clause—
“Section (Power to amend licence conditions etc: transmission systems): supplemental
(1) A modification under section (Power to amend licence conditions etc: transmission systems) of part of a standard condition of a licence does not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of Part 1 of the Electricity Act 1989 (c. 29).
(2) Where the Secretary of State makes modifications under section (Power to amend licence conditions etc: transmission systems)(1)(b) of the standard conditions of a licence of any type, the Gas and Electricity Markets Authority must—
(a) make the same modification of those standard conditions for the purposes of their incorporation in licences of that type granted after that time, and
(b) publish the modification.
(3) The Secretary of State may by order make such modifications of provisions made by or under an Act or an Act of the Scottish Parliament (whenever passed or made) as the Secretary of State considers appropriate in consequence of provision made under section (Power to amend licence conditions etc: transmission systems).”
On Question, amendments agreed to.
Lord Davies of Oldham moved Amendment No. 58:
58: After Clause 83, insert the following new Clause—
“Licensing of activities relating to smart meters
Schedule (Smart meters: licensable activities) contains amendments to the Gas Act 1986 (c. 44) and the Electricity Act 1989 (c. 29).”
The noble Lord said: My Lords, I shall speak also to the other government amendments in this group.
At Report, my noble friend Lord Dubs proposed an amendment to the Bill related to the type of market model that will underpin the rollout of smart meters to all households. As we recognised during our debate on that amendment, our current competitive metering market offers certain advantages when proceeding with a smart meter rollout.
However, the scale and complexity of delivering 47 million smart meters—to all homes in Great Britain—may mean that we will need to consider centralising some or all metering services in order to ensure an efficient and well managed rollout. I think that our earlier debates recognised the magnitude of this task.
The type of market model used to roll out smart metering to the domestic sector will be a key determinant of the project’s costs and benefits. As such, the Government have already undertaken a considerable amount of analysis of the various market model options. That work will conclude by the end of the year.
As I made clear on Report, at this stage our objective is to ensure that we have a legislative basis to deliver a range of future options—something that noble Lords also identified during our previous debates as being of great importance. I believe that that was also the motivation behind the amendment of my noble friend Lord Dubs.
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Having considered the existing smart meter provisions in the Bill, and having looked, as we indicated we would do, very closely at my noble friend’s amendment, we have tabled a number of amendments which we believe better enable us to deliver a range of market model options in future.
Providing for centralisation of services in a competitive market is a challenging and complex issue, as the House will readily appreciate, and it touches on important matters such as competition law. The amendment seeks to take account of these types of complexities while delivering the overall aim of the amendment tabled by my noble friend on Report. The new clause and schedule amend the Secretary of State’s powers under the Gas Act 1986 and the Electricity Act 1989 to create new licensable activities. This amendment ensures that, by affirmative order, the Secretary of State can create new licensable activities in connection with providing, installing or operating smart meters or the related communications infrastructure. The clauses include a power to restrict the geographic scope of the licence to enable centralisation of activities on a regional or national basis.
The power also provides that the Secretary of State may make regulations so that he or Ofgem will be able to award these licences following a competitive tender process, the detail of which is outlined in Schedule 4. I recognise that the noble Lord, Lord Jenkin, has tabled an amendment to the Government’s proposals and I shall listen to his case with the greatest interest.
We believe that this type of power is the best way to ensure that we can deliver a range of market model options while ensuring that, whatever model is finally chosen, we retain an appropriate element of competition. These amendments will help to ensure that we can select the most appropriate market structure to deliver a successful rollout of smart meters to the domestic sector. All sides of the House appreciate the significance of this massive task. We are seeking through these amendments to reflect the concepts advanced on Report by my noble friend Lord Dubs, supported by other noble Lords. At the same time, we are providing a structure which the Government can make workable in the future in a challenging environment. I beg to move.
Lord Jenkin of Roding: My Lords, I speak to my two amendments in this group. I can promise noble Lords who are awaiting the next debate that I shall be much shorter than I was last time. This is a very short point.
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