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Orders of the Day — Utilities Bill

Part of the debate – in the House of Commons at 5:46 pm on 31st January 2000.

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Photo of John Butterfill John Butterfill Conservative, Bournemouth West 5:46 pm, 31st January 2000

I recall that the unions opposed every privatisation. In the main, the reasons that they gave for that opposition have proved ill founded. I think that all hon. Members would agree—as would the Government, even—that privatisation has been benign, and that it has benefited both consumers and UK plc. That is evident in the falls in domestic prices: prices for both electricity and gas have fallen by 29 per cent., while telecoms prices have fallen by 50 per cent.—and by 80 per cent. when those prices take account of telecommunications with Europe.

It is proper now to look again at the privatisation process and seek to redress some of the imperfections in the original legislation. However, hindsight is a wonderful thing: it allows people to say how they would have introduced privatisation, but only after they have seen how the process turned out in real life.

I welcome several proposals in the Bill. The merger of Ofgas and Offer to form Ofgem is a good idea that the Select Committee recommended a long time ago, on the basis that one regulator for that sector offers a lot of advantages. That arrangement would not have been possible originally, as the two industries were privatised separately, but, in today's circumstances, it is a logical proposal. Similarly, the proposal for separate licensing of supply and distribution of electricity is sensible, and I support it wholeheartedly.

I am a little more worried about the proposals for the new electricity trading arrangements—NETA—which have attracted quite a lot of criticism. I have mentioned that Professor Bunn of the London business school thinks that prices will rise rather than fall. The difficulty is that the system to which we are moving is not based on real-time trading. Most of our western competitors have systems based on real-time trading, and they have achieved results in getting prices down. The new system is much more opaque and difficult to understand, and many of those being asked to participate in it have considerable doubts about whether it will work.

I hope that it does work, as all hon. Members are in favour of lower electricity prices for consumers. However, Larry Ruff of National Economic Research Associates does not think that abandoning real-time trading will work. He considers that it is not a sensible option, as it is wholly unproven. I should be interested to know how confident Ministers are that this novel idea will produce the hoped-for results.

There are concerns about certain participants in market supply. For example, I imagine that most hon. Members will agree that combined heat and power is an extremely good idea, being more efficient and economical. It is something that we should have been involved with a long time ago. However, the Combined Heat and Power Association has reservations about how it will be able to participate under the new trading arrangements. The association is at something of an impasse with Ofgem about the resources that might be given to it to allow it to participate in market supply.

In a recent submission to the Select Committee, the association stated: the CHAP is on the verge of having to withdraw from the NETA process, due to a complete lack of funding from OFGEM to resource the consultants and legal advisers needed to steer through the highly complex and opaque … process. That is worrying. If important market participants such as the Combined Heat and Power Association think that the process is not working, many other, smaller contributors—which all hon. Members will want to encourage, because we all want greater diversity of supply—may have even greater difficulties. To describe the NETA process as "highly complex and opaque" is probably an understatement, given that even those of us who take an interest in the matter have experienced some difficulty in envisaging how the process will work. That is not a new experience, admittedly. Many of us found it difficult to understand how the pool would work; some of us still do.

Another worry has to do with security of supply. I am not sure who, under the Bill, will have primary responsibility for that. I hope that the Minister will be able to clarify the matter when she replies to the debate. It is an important issue. When members of the Select Committee went to see Ofgem, I asked how the new system of calculating electricity prices would affect the balance in the market of the different types of generator. Ofgem could not give a clear answer; in fact, it said that it was not its responsibility, and that projecting how the changes would affect the balance of supply was not within its remit. However, it seems clear that coal-fired energy producers may be at a disadvantage.

I am also concerned that there is no clear idea from Ofgem or the Minister about what will happen to nuclear energy. Our nuclear capacity is likely to disappear altogether over the next 15 to 20 years unless the Government make an announcement to renew it. Within that period, it will steadily decline as a proportion of the market. That has implications for our Kyoto obligations and for what we are going to do for replacement energy.

The Secretary of State has been refusing consents for increased capacity for gas-fired generation. How will the new obligations be met, and what effect will that have on other generators and the security of supply? Those are important questions, but they are not being addressed by Ofgem, which says that they are not its responsibility or, I suspect—unless I hear otherwise—by Ministers. Who will take the strategic decisions to ensure that we always have security of supply?