Electricity Privatisation

– in the House of Commons at 3:57 pm on 12th February 1990.

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Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon 3:57 pm, 12th February 1990

With permission, Mr. Speaker, I should like to make a statement about electricity privatisation, the publication of the draft regulatory licences for the industry and the non-fossil fuel obligation.

Good progress continues to be made in preparing the electricity supply industry for vesting on 31 March. The House will be aware that the second commencement order under the Electricity Act 1989 was made at the end of January. Today I am taking another important step towards completing the restructuring of the industry.

I have today made available to the House copies of revised drafts of the licences to be issued to the successors of the Central Electricity Generating Board and area electricity boards, which were initially published on 10 January 1989. The revised drafts take account of the commitments made during the passage of the Electricity Act, and of consultations since the original drafts were published. Other licensees will receive licences based on those drafts, but tailored to their particular requirements. Regulations are being laid today setting out how to apply for a licence and the details of the application procedure. The exemption order identifying those who will not require a licence is also being tabled today.

The principal changes in the draft licences published today are in the conditions dealing with price control, security of supply and the transition to a competitive market. The revised conditions are explained in detail in the explanatory notes that accompany the licences.

The average price for all customers supplied by the public electricity supply companies will be controlled by an RPI-X+Y formula, where Y represents the actual costs to the companies of purchasing the electricity supplied. Customers taking more than 1 MW will benefit from the competition in supply that will be introduced by privatisation. I expect many of them to enjoy price reductions. It may take some time for customers to gain experience of the market and negotiate terms. I have therefore sought an undertaking from the industry that it will use its best endeavours to offer a one-year real price freeze to customers taking more than 1 MW.

Customers taking less than 1MW will benefit from an addition to the price control. Although the industry has yet to propose a final figure, I see no reason why the average price to these customers should rise by much more than the current rate of inflation this year. The price control should prevent any further real increases before the end of March 1993. Indeed, the public electricity supply companies could well be able to offer some real price reductions to these customers in this period.

I believe that the combination of these controls will be more effective than the yardstick price control proposed in the original draft licences. Altogether I do not expect the average price for all customers to rise in real terms this year.

All these expectations on prices allow for the effect of the fossil fuel levy, which I intend to set for 1990–91 at a rate of 10·6 per cent. on the value of final sales. I expect the rate of levy to decline significantly over the next eight years. I shall shortly be laying regulations under which the levy will be established and collected.

I also intend to lay at the same time an order setting the initial non-fossil fuel obligation for the public electricity supply companies. The intention of the obligation is not only to ensure that existing and committed nuclear plant in England and Wales is contracted for; it is also to encourage the development of commercial renewable energy sources. Around 300 projects have been put forward to the area boards in response to that policy. The Government have been extremely encouraged by this response and wish to ensure a full contribution from renewables to the NFFO. Given the size of the response, it has not been possible to assess all those projects fully by the time the initial order needs to be made.

Accordingly, the initial order will cover only nuclear capacity. I intend to allow a further two months for the area boards to complete their negotiations with renewable operators and I shall then lay a second order relating specifically to renewables. That will ensure that renewables projects can be assessed fairly and a proper contribution obtained.

The initial order will, therefore, amount to some 8,000 MW or so in total for the period 1990–91 to 1997–98. As I told the House on 9 November, the Government will review the prospects for nuclear power in 1994. Decisions about the level of the obligation beyond 1998 will be taken then.

Returning to the licences, the conditions on security of supply have been amended to ensure that all suppliers meet the current standards of security, except where their customers choose otherwise. Suppliers may meet that condition by becoming members of the new electricity trading pool that is being established since the price of electricity in the pool will include a capacity charge that reflects the value of secure supplies to customers. Suppliers will have economic incentives to ensure that sufficient generating plant is available. I believe that that approach will provide secure supplies more effectively than central planning by a monopoly supplier.

As for competition in supply, the licences now incorporate provisions to implement the decisions announced on 29 September 1989. Those provide for an orderly and stable transition to a fully competitive market by allowing other suppliers to compete with the area supply companies for customers taking more than 1 MW at the outset, for customers taking more than 100 kW after four years, and for all customers after eight years.

The licences, therefore, contain corresponding transitional constraints on the premises that such competitors can supply. If they apply for licences to supply customers falling within those restrictions, I will look to the Director General of Electricity Supply to advise me on whether such licences should be issued.

Although I shall be disposed to act in accordance with the restrictions announced on 29 September, I accept that I will need to exercise discretion to deal with particular circumstances that already exist or may arise. Such cases will be considered on their merits. The licences also contain transitional limits on the extent to which National Power and PowerGen can engage in direct sales to enable competition in supply and new supply arrangements to develop.

The arrangements that I have set out today mark the successful achievement of another stage in this privatisation. When the new companies are vested on 31 March, this country will have the most competitive electricity supply industry in the world. I know that those in the industry are keen to be privatised to respond to the new challenges and to rid themselves of the dead hand of the public sector. I am sure also that the public will welcome the benefits of competition and will seize the opportunities to invest in the new companies.

Photo of Frank Dobson Frank Dobson Shadow Secretary of State for Energy and Climate Change

I thank the Secretary of State for his statement. I realise that my first point is not a matter for him, but will he confirm for the benefit of my Scottish colleagues that a statement on what is to happen to the electricity industry in Scotland will be made in the House?

The Secretary of State told us about his amazing RPI-X+Y formula, but there must be a more important definition of Y. Everyone in the country will want to know why it is necessary for there to be any electricity price increases. Will he confirm that price increases are quite unnecessary and are needed only to fatten up the industry for privatisation? Is it not the case that, over the past three years, coal prices have gone down by 6 per cent., electricity prices have gone up by 12 per cent., the generating board's profits have gone up by 90 per cent., and the new coal contract envisages further reductions in the price of coal? So why is it necessary to have any price increases for consumers?

The Secretary of State is an accountant and he is usually fairly precise, but his statement was rather vague about price increases to be faced by major industrial consumers in particular, such as the special steels industry, the chemicals industry and paper and board mills. Will he guarantee that he will not handicap those companies by enormous price increases in the run-up to 1992? What will be the increases for domestic consumers in future years?

Will the Secretary of State confirm that a nuclear levy of 10·6 per cent. means that nuclear power costs must now be at least 40 per cent. more than the cost of electricity produced at conventional stations? If that is the case, why does he insist that the most expensive stations on the system provide the base load while the cheapest power stations on the system are not run all the time? Surely that is the reverse of common sense.

I hope that the Secretary of State will forgive my colleagues and me if we do not comment on the licences, because we have had the details only since 3 o'clock and we have not had an opportunity to consider them in detail. However, do the licences place an obligation to supply upon the two main generating companies? If not, how can there be any guarantee of security of supply? Will the licences promote energy conservation by the distribution companies? Will they require the generating companies to install equipment to clean up flue gases, or is there truth in the rumour that the right hon. Gentleman is allowing the generating companies to wriggle out of their obligation to clean up flue gases? In other words, is it true that he is willing to accept them continuing in their present dirty ways, as they have for the past two decades, to make the industry more attractive to private purchasers?

We welcome the news that there are many applications for renewables, but will the Secretary of State reconsider the position and allow combined heat and power to be included in that category, and thus give it the boost that it needs?

Finally, will the Secretary of State confirm that everything in his statement amounts to his putting privatisation first, and that the interests of industrial consumers, the balance of payments, the environment and domestic consumers are all being put second to the requirement that has been placed on him by the Prime Minister, which is get the industry sold off as quickly as possible?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman asked me 10 questions. He is right that his first question—about Scotland—is a matter for my right hon. and learned Friend the Secretary of State for Scotland, and I shall certainly put it to him.

The hon. Member then talked about price increases and about fattening up the industry for privatisation, as he put it. He must make up his mind fairly soon about whether we are fattening up the industry for privatisation or selling it for a song. The fact is that we are doing neither. We intend to privatise the industry at a proper and fair price. If the hon. Gentleman had listened to what I said about price increases, he would have heard me say that I did not expect that on average there would be any price increases in real terms and that prices would stay the same in real terms. I shall not quote the Labour party's record on electricity prices as there are plenty of other questions to answer.

The hon. Gentleman asked me not to be vague about large users of electricity. I certainly shall not be vague and I have said that I expect the industry to offer terms to the large users and to any user over 1M W of consumption and to keep the price increases to the RPI for the current year. Thereafter, they will be in a position to negotiate freely for prices within the market and I know that a number of them are already setting about that task.

The hon. Gentleman's fourth question related to domestic prices. I have said that customers below 1 MW will have the benefits of the overall price control and of regulation. I see no reason why their prices should increase by much more than the rate of inflation this year, although the area boards have not yet made their proposals. The price control formula will ensure that price rises are limited so that there will be no real increase in prices for the next two years. As I have said, they are maximum figures, and the area boards could well do better for many of their customers.

With regard to the fossil fuel levy that I announced, the hon. Gentleman is misleading the House if he states that it is an additional impost on electricity consumers. Consumers pay for the cost of nuclear power in their bills at the moment. The levy simply brings the matter out in the open, as set out in the Electricity Act 1989, and there will be no increase in the price of nuclear power as a result of the change. The levy will still be there, but, at 10·6 per cent., it is less than a lot of people thought, and it will decrease over the next eight years.

On the question of the obligation to supply, or the security of supply, I believe that the present arrangements under the Electricity Act are better than the previous bureaucratic arrangements of the Central Electricity Generating Board. Under the Electricity Act, the area boards are required to offer terms to any customers in their area and that offer will be backed up by the licensing conditions and by stiff financial penalties. Therefore, they will have a clear legal obligation to contract for sufficient supplies to meet the requirements in their areas.

The hon. Gentleman is right to raise the important matter of energy conservation. He should remember that over the past 10 years there has been a substantial improvement in energy efficiency in Britain. While there has been a 20 per cent. increase in gross domestic product, we have used the same levels of energy. We expect that to continue. It is very much in the consumer's interest to pursue improvements in energy efficiency. Several proposals in my statement will improve energy efficiency further. First—

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman's hon. Friend asked me 10 questions and I have not finished answering them. If he does not like it, he should speak to his hon. Friend about it.

The overwhelmingly important factor in efficiency of energy consumption is to create competition in generation. The area boards will have a responsibility to encourage energy efficiency and will draw up codes of practice.

The Government stand by their commitment to ensure that the European convention on flue gases, to which we are signatories, is met. Proposals will be made to do that in the most effective and efficient way possible. Negotiations on the most effective way will include desulphurisation retrofitting of electricity stations. In some stations, it will not be necesary because of the planned changeover to gas. Negotiations with the industry are being held now. I confirm that the Government are fully committed to the European directive. The industry will be fully committed to any environmental matters that arise out of the Environmental Protection Bill currently going through the House.

The hon. Member for Holborn and St. Pancras asked me about renewables and combined heat and power procedures. We did not include CHP power stations in the renewables. We believe that CHP proposals can provide some of the most efficient forms of electricity generation. There will be a great incentive for builders of electricity generating stations to use those principles wherever appropriate. In the initial period, most CHP proposals will come within the proposals for own-generation, which will be free of the fossil fuel levy. Builders of power stations will benefit from that.

The hon. Gentleman is wrong about privatisation. The purpose of privatisation is to provide customers with a better deal by encouraging competition in electricity generation. It can be seen from the date of my statement that that has already begun. At the end of the transitional period all consumers will benefit.

Several Hon. Members:

rose——

Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. The House knows that I always endeavour to look after the interests of Back Benchers and give them at least as long as Front-Bench Members. However, I ask hon. Members to put their questions succinctly so that we can get on with the business set down. This is a private Members' day.

Photo of Mr John Hannam Mr John Hannam , Exeter

Does my right hon. Friend recall that it was not long ago that the Labour party forecast price increases after privatisation in excess of 20 per cent.? Now Labour Members grumble that prices will increase at the level of inflation, something which the Labour Government did not achieve. Will he accept the thanks of consumers for the steps that he has taken to stabilise electricity prices after privatisation? Will he confirm that as competition brings itself to bear in the electricity supply industry there will be a downward presure on prices in the longer term?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

My hon. Friend is absolutely right. In the last five years of the Labour Government, the price of electricity increased by 6 per cent. in real terms for industrial customers and 5 per cent. for domestic consumers. A stabilisation in real terms is a substantial improvement on the record of the Labour party. As competition is seen to work, there will be a downward pressure on all prices.

Photo of Mr Peter Hardy Mr Peter Hardy , Wentworth

Will the Secretary of State deny that for the past 12 months and for some time ahead every quarterly domestic electricity bill will be at least £10 higher as a result of the preparation for privatisation? Will he further deny that the sale price for the industry compared with its asset value will be so low as to make all other privatisations look responsible?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

No, I do not accept that. On average, prices will not increase over the whole range. The electricity industry will be privatised at what will be seen to be a fair and proper price.

Photo of Malcolm Moss Malcolm Moss , North East Cambridgeshire

Although I congratulate my right hon. Friend on his statement, which shows that privatisation is well on target to meet the proposed timetable, which is excellent news for domestic electricity customers, does he agree that heavy industrial users have short memories? In the past five years of this Government industrial electricity prices have decreased by 10 per cent., whereas in the last five years of the Labour Government they increased by 6 per cent.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I have provided a cap for large industrial users in the first year. Afterwards they will be able to negotiate prices in a competitive market. Many expect to benefit from price reductions.

Photo of Mr Alexander Eadie Mr Alexander Eadie , Midlothian

Does the Secretary of State agree that his statement today is so important and significant for consumers and the electricity industry that it should be the subject not merely of a statement but of scrutiny and debate in the House? In his carefully worded statement he said that he would not expect prices to rise above the rate of inflation. Many consumers will see that as faith, hope and charity because he is not in a position to guarantee that that will happen. Many knowledgeable people in the industry believe that prices will increase substantially. Does the Secretary of State agree that many consumers see as most important, not the question of competition, but the security of supply? We do not want the lights to go out.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman can speculate about prices. I have given the House the information as best I can and the figures I gave are accurate. It is interesting to remember how wide of the mark previous speculation has been, and I am afraid that the hon. Gentleman is wide of the mark, too.

I recognise the importance of the security of supply. As I pointed out, the arrangements that we are making now are better than existing arrangements whereby the security of supply or the obligation to supply is a planning decision for the CEGB. Under the new arrangements the area boards must offer terms to the customers in their area. Those terms and the generation for which they have contracted is backed up by licences. It will be a licence condition that the suppliers contract for adequate supplies and there will be severe financial penalties if they get it wrong. That will provide the security of supply that we all want and expect to see at a better, more economic cost than previously.

Photo of Mr Trevor Skeet Mr Trevor Skeet , Bedfordshire North

While I pay tribute to my right hon. Friend for his clear statement, may I refer to the non-fossil fuel obligation? It is important to bear in mind the size of the nuclear industry arid not to wait until the review in 1994 when it may be too late. Nuclear power stations must be built and we must have an ongoing research and development programme. Unless that is done, the country could be in great difficulty with its electricity supply.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I appreciate my hon. Friend's long-term concern and interest in the nuclear industry. We have organised the industry with Nuclear Electric and a good level of management to ensure that our substantial nuclear capacity is used to best advantage in the interim period. Meantime, it is right to give a degree of certainty to what will happen in the short term. That is why I said that we shall review the prospects for nuclear power in 1994. but remain committed to a long-term role for competitive nuclear power. Between now and 1994 we shall be giving a considerable amount of thought, and, if necessary, devoting a considerable amount of research, to establishing the best way forward after that.

Photo of Mr Dafydd Elis Thomas Mr Dafydd Elis Thomas , Meirionnydd Nant Conwy

As I am sure the Minister accepts, we welcome the identification of the role of renewables, which he has emphasised. Can he tell us more about how renewables projects will be assessed fairly and properly, as he said they would be? He referred to the dead hand of the public sector, but he has had to use that so-called dead hand to maintain the life of the nuclear industry. How does he propose to deal with the older Magnox stations in respect of which decisions may have to be made before 1994? Can he say precisely how he intends to undertake the review in 1994?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I do not know that I can say anything further in reply to the last part of the hon. Gentleman's question. However, the first two points that he makes are important. As I have said, about 300 renewables projects have been put forward for consideration. These extend right across the range of all the sorts of renewables that the hon. Gentleman and others will be aware of. They amount, in total, to a capacity of between 1GW and 2GW—a substantial improvement on what we have at the moment. It would be idle to pretend that they are all likely to be developed sufficiently to be included in the obligation. We want to see whether these projects, with the financial assistance of the obligation over the period, appear to have a viable future. If so, we shall give them every encouragement.

With regard to the Magnox stations, the position is quite simple. Subject to the overriding safety considerations of the nuclear inspectorate, the life of some Magnox stations may be extended somewhat. That is what we shall seek to do. It may be that in some cases additional expenditure will be necessary. The first consideration is safety, but if the life of a station can be extended we believe that that would be a good idea.

Photo of Mr Peter Rost Mr Peter Rost , Erewash

Now that my right hon. Friend, for very sensible reasons, has arranged a transition period, during which it will be necessary to restrict free competition, can he give us an assurance that he is satisfied that, with regard to investment intentions, new independent producers will have the same incentive during that period? If not, he will not get the benefit of diversity of supply and genuine competition at the end of the transition period.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

My hon. Friend is absolutely right. We are very anxious indeed that a sufficiently large number of independent projects should come forward. We know of about 20 that are being considered at the moment. We believe that the publication of the licences, which will give potential investors in independent generation more detail about how to proceed, will bring forward further projects. It is important that potential investors should know that they will be very welcome to become suppliers. So long as they meet the technical requirements, there is no reason why they should not be part of a highly competitive and expanding generating business.

Photo of Mr Peter Pike Mr Peter Pike , Burnley

Why does not the Secretary of State recognise that, in the private sector, energy conservation and the development of renewable sources of energy will always come second to the profit motive? Would not it be in our best interests, in terms of energy and environmentally, for this important industry to remain in the public sector?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I should expect the hon. Gentleman to say something like that, but it does not fit very well with the facts. We have a non-fossil fuel obligation. In particular, we are obliged to encourage renewable sources to play their part during the initial period—while they are being established. I think that that is the answer to the hon. Gentleman's question. We have set up the machinery, and it appears to be working even better than we thought it would. At some stage the hon. Gentleman will regret what he has just said.

Photo of Mr Geoffrey Dickens Mr Geoffrey Dickens , Littleborough and Saddleworth

As the propaganda war about the privatisation of electricity gathers momentum, does my right hon. Friend agree not only that industrial users have benefited greatly from our management of electricity supply, but that domestic consumers, householders, can be grateful? Is it not the case that, over the past five years, they have benefited from an 8 per cent. decrease, in real terms, in their electricity bills, whereas during the last five years of the Labour Government they suffered an increase, in real terms, of 9 per cent.? Whom should the householder trust with the management of electricity—the present Government, or the Opposition, who, when in office, raised prices?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

My hon. Friend makes his point extremely well. The privatised electricity supply industry will greatly benefit the consumer.

Photo of Kim Howells Kim Howells , Pontypridd

Will the Secretary of State clarify whether the price increase, which he described as not being a real one, includes the nuclear or fossil-fuel levy, call it what one will? Can he assure the House that the nuclear levy will not increase when the first costs of decommissioning start to come through?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The indications of the prices that I gave include the fossil fuel levy, which must be paid. The levy will put Nuclear Electric in a cash positive position for the first eight years of its operation and, during that time, fossil fuel will be on a declining path. The company will be able to meet all its obligations during that time, including decommissioning costs.

Photo of Mr Michael Stern Mr Michael Stern , Bristol North West

Does my right hon. Friend recall that during the passage of the Electricity Bill the non-fossil fuel obligation was universally branded by the Opposition as a device for the perpetuation of nuclear power? Does he agree that the range of options for renewables that have now been introduced not represent only a direct contradiction of that belief, but an indication of the extent to which the process of increasing the supply of renewables has been helped by the privatisation process?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The process of privatisation appears to be working extremely well with regard to renewables and will be beneficial to the environment. In about two months' time I intend to lay the order about renewables, but I should make it clear that it will relate to the initial tranche of renewables. We have reserved an additional 600 MW for further renewable projects after that time. If that allocation does not appear to be enough in the light of experience, we shall give serious consideration to increasing it still further.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

Surely the truth of the matter is that when the Government decided to set forth on their privatisation of electricity after the general election the first thing they needed to do was to allow the industry to increase prices massively to fatten up the enterprise. The next thing the Government did was to allow the industry another 8 per cent. in accordance with the RPI and then to announce that they would allow the nuclear section of the industry to be subsidised to the tune of about £10 billion with the decommissioning of the Magnox nuclear reactors. Now the right hon. Gentleman has told us that the next price increase will be based on two variables—minus X plus Y. He has told us what Y is, but he has not told us what X is. My guess is that X represents the electoral factor in the run-up to the next general election.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman, as usual, goes wide of the point. I know that the hon. Gentleman watches such things carefully and I advise him to watch some of the statements made by his hon. Friends the Members for Holborn and St. Pancras (Mr. Dobson) and for Dagenham (Mr. Gould) as to exactly what they would do to the coal industry should they ever have the opportunity. The hon. Gentleman should consider those statements carefully as that would be a more productive use of his time. Y equals input costs, X represents cost savings through efficiency. It is a minus figure.

Photo of Mr Peter Hordern Mr Peter Hordern , Horsham

It is welcome to hear that price increases to the domestic consumer will be contained, at least in the next two years, within the rate of inflation. From the taxpayers' point of view, can my right hon. Friend tell us whether substantial sums will be required to write off assets before privatisation occurs, as they were for the water industry? If not, what will be the position?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

There may be some slight increase in domestic prices this year, but for the next two years after that they will be contained in real terms. For the figures for the privatisation of the company, my hon. Friend will have to wait until we produce the prospectus. We are in the process of producing balance sheets for the companies before privatisation. We shall ensure that the assets are sold at a proper and realistic figure.

Several Hon. Members:

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Photo of Mr Bernard Weatherill Mr Bernard Weatherill , Croydon North East

Order. The House knows that I have an obligation to protect private Members' business. I shall call three more Members from each side and then, I regret, we shall have to move on.

Photo of Charles Kennedy Charles Kennedy Shadow Spokesperson (Health)

I echo the earlier plea for a separate Scottish statement. This is an extremely important matter, and I see that there is a Scottish Office Minister on the Treasury Bench. Will the Secretary of State obtain confirmation from the Scottish Office that such a statement is intended and thus avoid the suggestion that one hand does not know, or is not in tandem with, what the other is doing? Is not the truth of this afternoon's statement that all the tough political decisions are being postponed beyond the latest date of the next election? Why, in the transitional period, has the Secretary of State not found room for incentives for energy efficiency? Will he explain what he meant by this statement, which occurred among a lot of ministerial gobbledegook: The licences, therefore, contain corresponding transitional constraints on the premises which such competitors can supply. May we have that in English?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I shall pass on to my right hon. and learned Friend the Secretary of State for Scotland the request for a statement on Scotland. As the hon. Gentleman knows, that is not a matter for me.

With regard to the juicy extract that the hon. Gentleman gave from my statement, I meant that, because there is an eight-year transitional period for the introduction of competition, for the first part of that period, customers with more than 1 MW of consumption will be free of all restraint. At the end of four years, the limit will be reduced to 10 kW. Thereafter, there will be no constraint. During that period, there must be a regulation to stop anybody supplying electricity to those areas that are the exclusive purview of the area boards. The regulations cover that.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman says, "A free market". He should consider how this will benefit the coal industry during that period.

Photo of Michael Jack Michael Jack , Fylde

In response to the remarks of those Opposition Members who wear their environmental credentials on their sleeve, will my right hon. Friend confirm that 34 per cent. of the principal greenhouse gas—carbon dioxide—comes from coal-fired power stations? Will he confirm that there is nothing in his statement to prevent the nuclear workers in my constituency from making their contribution to addressing this environmental problem?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

My hon. Friend is right. A substantial amount of the greenhouse gases that are produced from power generation in this country come from fossil-burning power stations. Nuclear power stations have a substantial advantage over that. Nuclear power has one big disadvantage: it is required to pay the cost of disposal of its waste. The disposal of the wastes of the fossil fuel generators is part of the problem that we have to tackle in the near future.

Photo of Mr Dale Campbell-Savours Mr Dale Campbell-Savours , Workington

I ask the Secretary of State a slightly hypothetical question: is it not fair to say that, if nuclear power were cheaper. the coal mining industry, and the mining industry generally, would be asking for a nuclear levy to help them in their difficulties?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I do not normally answer hypothetical questions, but I take the hon. Gentleman's point. We are dealing with the real world in which nuclear power is more expensive than fossil-generated power. It is possible to get the price down to a competitive rate, and I shall do everything that I can to deal with the problems.

Photo of Mr Peter Thurnham Mr Peter Thurnham , Bolton North East

In seeking to achieve the lowest possible prices, especially for industrial consumers facing foreign competition, will my right hon. Friend ensure that there is no cross-subsidy between industrial and domestic consumers so that all consumers, large and small, can benefit from the welcome advantages of competition?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

That is an important part of what we are seeking to achieve in the initial years, and further ahead. Cross-subsidisation would negate the purposes of the Act.

Photo of Mr Tam Dalyell Mr Tam Dalyell , Linlithgow

In the formula RPI-X+Y, what are the determinants of X? Those who use mathematical formulae had better be very precise.

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

I suggest that the hon. Gentleman has a look at the licences; they are precisely all the costs incurred by the area boards other than the costs of electricity, which they have to buy from the generators.

Photo of Mr Barry Field Mr Barry Field , Isle of Wight

Can my right hon. Friend confirm that the non-fossil fuel obligation and the eventual right of large industrial producers of electricity—such as the Fawley oil refinery—to sell their excess capacity will make an outstanding contribution to the reduction of global warming and CO2?

Photo of Dr Alan Williams Dr Alan Williams , Carmarthen

Will the Minister give an accurate statement of what is to happen to the 12,000MW flue-gas desulphurisation programme? The Government were committed to that programme and to completing it by 1993, but it seems that in their enthusiasm to privatise the electricity industry that commitment has vanished. Does not that show that when there is a choice between helping the rich, which is what privatisation is, and cleaning up the environment, the environment always comes a very poor second under this Government?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman is cleverer than he sometimes pretends. He knows perfectly well that there is an EEC directive which requires us to reduce sulphur levels, and that the Government are committed to doing that. They are not, however, committed to doing it in a non-efficient way. We are looking at the best way of achieving it. Achieve it we will and we shall be seen to achieve it, but we shall not do it in a way that is not the most sensible—even the hon. Gentleman would not advocate that.

Photo of Kevin Barron Kevin Barron Shadow Spokesperson (Energy and Climate Change)

Is not the non-efficient way, as suggested in the right hon. Gentleman's statement, an expansion of the generation of electricity by nuclear means? As for the misnamed fossil fuel levy announced today, should not the right hon. Gentleman admit that nuclear generation is more than 40 per cent. dearer than fossil fuel generation?

Speaking of the quaintly named interim period, has not the right hon. Gentleman told everybody today that there will be little or no competition in electricity generation for the foreseeable future? Why has he not protected consumers, both industrial and domestic? He must be well aware that British Coal has reduced its prices to the electricity generators in the past three years by £850 million. That could have led to a cut of 4 per cent. in prices over the past three years, but instead they have increased by 15 per cent. in order to fatten the industry for privatisation.

How can the Minister tell industrial and domestic consumers that they must accept an increase of at least the rate of inflation—8 per cent.—when he knows full well that the major expense that the generators will face in the next three years lies with British Coal, which has provided them with a contract that will save them £450 million in that period? Why has he not protected consumers, instead of letting his friends in the City and everyone else get ready to run away with the profits at the consumers' expense?

Photo of Mr John Wakeham Mr John Wakeham , Colchester South and Maldon

The hon. Gentleman misunderstands the nuclear position, on which we have stated our policy. We shall review the prospects for nuclear power in 1994. In the meantime, we shall complete Sizewell B and make the most effective and efficient use of existing nuclear capacity. That seems a sensible policy.

As for the protection of the consumer, and of prices, a great chunk of my statement provided an indication of price levels which I believe are a good protection for consumers for the next few years—very much more so than was possible under the last Labour Government.

I know that the hon. Gentleman takes the coal industry very seriously. So do I. That is why we brought the Coal Industry Bill before Parliament—it represents a substantial improvement in British Coal's finances—and why it is necessary to continue. I would be the first to pay tribute to the efforts of the coal industry to improve productivity in recent years, but the hon. Gentleman's proposition that the coal industry's improvements in efficiency could all be passed on to the consumer was not sensible, given that they were largely paid for by the taxpayer in recent years. The great problem facing the coal industry is that it should not rest on its laurels but should continue the improvement, so that at the end of the three-year contract I believe it possible that coal will still be the prime choice of fuel for the British generation industry. The hon. Gentleman should be worried lest competition from oil, gas and imported coal takes a great share of the market and produces more unemployment in the coal industry. None of us wants that.