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My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.--(Lord McIntosh of Haringey.)
In moving this amendment, I speak also to Amendments Nos. 2 to 7 and 14.
The gas and electricity industries have made enormous progress since privatisation both in terms of quality of service and price in a free market environment and for the benefit of the consumer. In establishing the new authority it must be of paramount importance to ensure that this progress is not compromised by the regulatory regime becoming too unwieldy, which would simply result in greater cost--cost that would eventually be passed on to the consumer.
Hitherto there have been two regulators: one for electricity and one for gas. Now, as a combined authority, how many more do we need? The Government have recognised that three is the ideal number of appointments to the board, having stated in their response to the consultation on the utilities Green Paper:
"The Government has concluded, in light of detailed consideration of responses, that small executive boards of 3 full time members should provide the most effective regulatory model for all the sectors covered in the Green Paper".
That was before half the Bill was dropped when there were four sectors. They continue:
"This model offers the advantages of collective but streamlined decision making by a small cadre of high calibre, professional regulators; greater accountability; scope for greater continuity and consistency when new regulators are appointed; and an ability to spread the regulatory burden. This is particularly important in energy and telecommunications, given the increasing complexity of these sectors".
The Government have also stated in the regulatory, environmental and equal treatment appraisals of utility reforms that there will be higher costs to the regulator as a result of the Bill. Moreover, in A Fair Deal for Consumers--Modernising the Framework for Utility Regulation published by the DTI, the Government say that,
"to the extent that additional costs are incurred, these will be passed on to the licensees and ultimately borne by the consumers".
That is a theme to which we on these Benches shall keep returning, for which we make no apology.
We have proposed a limit of five on the number of authority members. We have also tabled amendments to ensure that the new regulatory structure is fully accountable, particularly in relation to scrutiny by the Select Committee on Trade and Industry of the House of Commons. We firmly believe that the appointment to the authority of both the chairman and members should be referred to that committee in advance as a matter of due diligence. A similar procedure already exists for appointments to the Monetary Policy Committee of the Bank of England whereby individuals submit themselves to scrutiny by the Treasury Committee prior to appointment.
"weaken the power of the Trade and Industry Committee as an effective [scrutineer] of the regulatory process, as it would have been implicated in the appointment of those who serve in the regulatory authority".
We seek to mirror what already happens to the membership of the Monetary Policy Committee. All the members of that committee appear before the Treasury Committee before or shortly after appointment to answer detailed questions about their views and experience. The Treasury Committee will subsequently take evidence on the performance of the Monetary Policy Committee to see how it is delivering vis a vis the economy. It does not feel "implicated" or compromised by that procedure; indeed, it is the kind of scrutiny that would take place as a matter of course in any similar body in a commercial organisation. We contend, therefore, that the arguments rehearsed in another place against what we believe to be a sensible, transparent approach are spurious.
In addition to due diligence in regard to appointments, we propose in Amendment No. 4 that the degree of responsibility incumbent on members of the authority should be recognised on the face of the Bill by the inclusion of criteria, to be published by the Secretary of State prior to the coming into force of the Bill, about the skills and calibre of those appointed to the authority. We want to see a transparent, professional approach to appointments. Therefore, we seek an assurance that the calibre of members is such that they have the degree of experience, expertise and commitment to carry out their duties effectively. I have already referred to the Government's response to consultation on the Green Paper that there is a need for high calibre professional regulators. We now spell that out in these amendments.
In relation to the Monetary Policy Committee of the Bank of England, it should be noted that there is an obligation on the Minister to ensure that members have the appropriate skills and experience. As to the council, while we propose in Amendment No. 5 that the appointment of the chairman should be scrutinised by the Select Committee on Trade and Industry of the House of Commons, we do not believe that such a test should be applied to members of that body. We consider that it is sufficient to scrutinise the chairman as he is the driving force behind the council.
In tabling these amendments--I turn now to Amendment No. 6--we are mindful of the practical financial consequences of the Bill as currently drafted. We take into account, first, the costs associated with increased regulation; secondly, the threat of unlimited fines; and, thirdly, the unspoken parameters of implementing social and environmental policy. I articulate but a few examples of the cost implications which result in a significant and, frankly, depressing increase in cost, which in turn will significantly increase the capital cost to the utilities industries. In the circumstances it is appropriate to ensure that the Treasury is fully aware of the number of appointments, and terms and conditions of service, of staff to the authority.
Finally, in proposing in Amendment No. 14 that any notice issued by the council or the authority with regard to appointments should be sent to the Select Committee on Trade and Industry of the House of Commons and the Secretary of State we seek consistency in regard to consultation and proper communication. I beg to move.
In commenting on Amendment No. 1 I should repeat the declaration of interest that I made at Second Reading; namely, I am a non-executive member of the Management Board of the Office of Gas and Electricity Markets, commonly known as Ofgem. It is particularly appropriate to mention that interest in relation to this amendment. Ofgem is intended as a model for the new authority that is to be set up under the Bill. It may assist the Committee if I say that the Management Board of Ofgem was intended to consist of a total of 10 members: five executives and five non-executives (including myself). However, one of the non-executive members has resigned, so that currently the total is nine. The noble Baroness who moved the amendment will note that that number is rather higher than the maximum of five which she proposes.
I believe that informed opinion has moved on from the government statements during consultation to which the noble Baroness referred and that it is generally accepted as desirable that the authority, rather like Ofgem at the moment, should consist of both executives and a sprinkling of non-executives. If one has not only the chief executive but perhaps one, two or three (without specifying a precise number) of his key lieutenants and one adds a sprinkling of two or three non-executives, bearing in mind that sometimes there is illness or non-attendances for some reason and a quorum may be required, to place a maximum of five in the statute will unduly hobble the desirable composition of the authority.
One does not suggest that nine or 10 is the ideal; one can think of other figures. However, it is much better to have a minimum rather than a specified maximum as the Bill stands at the moment.
Does the noble Lord disagree with the Government in this matter? The Government have said that,
"in light of detailed consideration ... small executive boards of three full-time members should provide the most effective regulatory model for all the sectors", which would include water and telecommunications, if they were still there.
I believe that the authority should consist of a mix of executives and non-executives. I note that the Minister nods. The noble Baroness is a little out of step with current thinking on these matters. My experience in both the public and private sector, bearing in mind all the committees that have debated this subject in relation to the private sector--Cadbury, Greenbury, Turnbull and the rest--is that it is widely understood that non-executives with their greater responsibilities in the private sector, very properly, are usefully replicated in this sphere of the public sector. To confine the total membership to only five would inhibit, if not make practically impossible, the desirable mix that I have suggested. I ask the Committee to reject Amendment No. 1.
I support the comments of the noble Lord, Lord Borrie, based on my experience in a publicly-owned enterprise. For many years I served on the National Coal Board. It was very important that that board should have a mixture of executives and a sprinkling of non-executive personalities from other walks of life who could add to the knowledge and understanding of the many problems which it then had to face. I should have thought that it is going too far to limit the total membership of the new authority to five. That would limit very much the number of executives and non-executives on the board. Therefore, I feel great sympathy for the views expressed by the noble Lord, Lord Borrie.
I should like to make a modest point in relation to the rather odd notion that the chairman of the House of Commons Select Committee on Trade and Industry should be asked to confirm, or be consulted about, appointments. I wonder where my noble friend Lady Buscombe got that idea from. I believe that I heard her refer to the chairman of the Treasury Committee. I imagine that she meant the chairman of the House of Commons Treasury Select Committee. In that case, she was sheltering behind what I believe to be a rather bad precedent. I have great misgivings about the notion of consulting whoever may be from time to time the chairman of a House of Commons Select Committee. I should be grateful if my noble friend would tell me whether I have misunderstood the point.
I believed that that was so. However, I still find it an astonishing proposal and it is not one that I should be persuaded easily to support. I hope very much that my noble friends will think again before they elevate an unknown chairman. I am sure that the present chairman is a most admirable man or woman; I have no idea who he or she is. However, I should certainly not wish to confer powers, privileges or rights upon such an unknown person in the future.
I am most grateful to the noble Baroness, Lady Buscombe, for reminding us of the genesis of the proposals in the Bill. She quoted correctly and is quite right in saying that we are looking to have a small cadre of high quality professional regulators. Indeed, that is what we have under the chairmanship of Callum McCarthy. The authority has three executive directors, John Neilson, Dr Eileen Marshall and Richard Morse, who are all Ofgem employees.
However, my noble friend Lord Borrie is also right in saying that the amendment does not refer separately either to executive or non-executive directors; it refers to all directors. The result is that the noble Baroness's amendment would squeeze the number of non-executive directors to not more than two. That seems to me, as it does to my noble friend Lord Borrie, a thoroughly bad idea which is in conflict with the principles of corporate governance developed over the years with the assistance of the Cadbury and Hampel committees. Indeed, it is in great conflict with current practice, as debated during the course of the Financial Services and Markets Bill, which is nearly an Act.
The effect of Amendment No. 1 would be to limit the size of the authority. That would deprive us of non-executive members, who play an important role in ensuring that the authority has a wide range of skills, perspectives and experience upon which to draw. For example, one member may be appointed because of a particular knowledge of the issues surrounding fuel poverty; another may be appointed as an expert in economic analysis, competition matters or related businesses. They would have a role in de-personalising regulatory decision-making, which is a key government objective in replacing individual regulators with a regulatory authority.
That is why in relation to the authority we have adopted similar principles to the recommendations of Cadbury and Hampel and, indeed, what I believe is now generally accepted as best practice in business. Currently we do not envisage a membership of more than nine, as it is at present. However, the membership may need to increase; for example, for changeover periods between the appointment of a new member and the stepping down of an old one, or we may need to draw on particular skills or expertise that would call for the appointment of a supernumerary member of the authority.
After a great deal of thought, we have drafted the Bill in a way that affords flexibility regarding the size and composition of the authority, its overall numbers, the proportion of executive and non-executive members and whether they work full or part-time. We do not believe that it would be right to write a statutory maximum into the Bill.
Amendment No. 4 would restrict the flexibility of the Secretary of State by requiring him to publish criteria to be used for appointments to the authority. It would require him not only to publish criteria but to publish them only once; that is, prior to the coming into force of this paragraph. Of course, it is right that he should publish criteria. It is entirely possible that the criteria may change over time; for example, as progress towards competition in the gas and electricity industries advances, it is possible that the mix of skills required in the authority will change over time. Amendment No. 4 would simply make that impossible.
Amendments Nos. 2, 3, 5 and 7 require the appointments to be subject to prior consultation with the Trade and Industry Select Committee in the House of Commons. I believe that both the noble Lord, Lord Peyton, and the noble Baroness, Lady Buscombe, were wrong about the amendments. They have nothing to do with the chairman of the Trade and Industry Committee; they concern the committee itself. That is an interesting suggestion which has been made on many occasions. Personally, as a supporter of the legislature against the executive as a matter of political theory, I am rather in favour of it. However, one does not make a change of that kind in a Bill such as this without thinking very carefully about it.
Two years ago I was responsible for piloting the Bank of England Bill through the House of Lords. At that time, there were suggestions that appointments to the Monetary Policy Committee should be subject to confirmation by the Treasury Select Committee. The noble Baroness, Lady Buscombe, seems to believe that that is the case, but it is not. The appointments are made by the Chancellor of the Exchequer and it is entirely within the powers of the Treasury Select Committee to invite those who are proposed for nomination to the Monetary Policy Committee to appear before the Treasury Select Committee. Indeed, it does so. Within only the past couple of weeks it called Charles Allsop before it and suggested that he should not be made a member of the Monetary Policy Committee. Having listened carefully to their views, the Chancellor went away and did something else; in other words, he did appoint him to the committee.
Therefore, the Treasury Select Committee does not have power over the membership of the Monetary Policy Committee. No committee in another place has powers over public appointments of that kind. The noble Lord, Lord Peyton, believes that it is a very bad idea. I believe that, if it were properly thought through, it may be quite a good idea. However, it is certainly not appropriate to introduce it in this Bill at this time.
Amendment No. 14 would require both the authority and the consumer council to send copies of their draft forward work programmes to the Trade and Industry Select Committee. However, those bodies are already--or will be under the Bill--under a statutory obligation to publish their forward work programmes in such a manner as to bring them to the attention of persons likely to be affected by them and to consider any representation made in respect of the draft forward work programmes.
That will ensure that the information is in the public domain; it will provide an opportunity for alternative suggestions to be made, and allow for improvements before the final programmes are published. Surely there is plenty of transparency in those arrangements.
As for parliamentary scrutiny, the authority, the GECC and the Secretary of State can all be called to account before the parliamentary committees; not just the Trade and Industry Committee, which is named in the amendment, but also the Environmental Audit, the Social Security and the Public Accounts Select Committees. They all have interests.
Parliamentary scrutiny is addressed in the Green Paper, A Fair Deal for Consumers, which the noble Baroness, Lady Buscombe, quoted. It was asked whether a new Select Committee to scrutinise utility regulation was required. There was not much support for that, so we responded that the current arrangements for parliamentary scrutiny were adequate, but that Parliament might wish to take further steps to ensure effective co-ordination between the existing committees when it addressed the utilities issue.
I turn finally and briefly to Amendment No. 6, which would require Treasury approval for the number and the terms and conditions of service of authority staff. We have consulted the Treasury about its involvement. It used to be standard practice to write into legislation requirements for Treasury approval, but that is no longer the case. The Treasury is content to be consulted by the Secretary of State administratively and we are therefore satisfied that sound administration will result in it being consulted about pay scales and the associated terms and conditions of service of authority staff.
For those various reasons, we are not sympathetic to any of the amendments.
I am sure that the Minister performed a valuable service to the Committee in reminding it of the arrogance of the Chancellor of the Exchequer who was faced with a verdict, whether right or wrong, of the Treasury Select Committee as regards Mr Allsop. I do not propose to form a view, but the committee's view was that Mr Allsop was not fitted to be a member of the Monetary Policy Committee. The Chancellor then overrode it, just like that! He gave no reason, but said, "You're wrong and I'm right. He's going to be a member".
That makes a certain nonsense of the Bill's provision that the all-party Treasury Select Committee in the other place should interrogate and form a view. As the Minister said, as he piloted that Bill, he might have taken it a little more seriously. The situation poses a serious question about membership of the Monetary Policy Committee of the Bank of England. If the Treasury Select Committee can be treated in such a way, what is the point of having such a process?
Perhaps there is some point, particularly in the case of the regulatory body we are discussing today because it is an important body. It is not as important as the Monetary Policy Committee, but it is nevertheless of considerable importance. I seldom disagree with my noble friend Lord Peyton, but this is a matter on which he might reflect. Open hearings perform a useful democratic and public policy function, as suggested by my noble friend Lady Buscombe.
Whether the Trade and Industry Select Committee of the House of Commons is up to the job is another matter. I am so out of touch with the House of Commons, I would not know. However, open hearings which are attended by the press perform a useful function. That is an important proposal and I hope that the Government will take it away for consideration.
I turn to my final point. I had no intention of speaking, but the Minister provoked me when he justified the composition of the regulatory body by appealing to Cadbury and Hampel on corporate governance, saying that there should be executive and non-executive directors. Nothing could have been more absurd or ridiculous. Whether or not Cadbury and Hampel are precisely right, the point is that in business and industry the executive directors are the management and the non-executive directors are not. They exist in order to keep an eye on the management in the interests of the shareholders.
The situation is totally different in respect of a regulatory agency. Indeed, in many countries, particularly in Europe but also in other areas, such functions are considered so separate that they have two boards. They have a two-tier board system comprising a supervisory board and a board of management. This case is completely different because there are not those two functions. The regulators are performing an important function. I had a minor part in its genesis when we had to decide how to privatise the utilities and what was the appropriate form of regulation. We were in uncharted waters and we tried to put something in place. But the one thing that these people are not doing is managing the industry or the business.
It may well be that five is too small a number, but to say that there should be two categories--executive and non-executive directors--and to draw on Cadbury and Hampel and the model of corporate governance in order to justify that simply will not wash. I must say that during my years in this place I have seldom listened to a more threadbare argument than that put forward by the Minister today.
I wonder whether the noble Lord, Lord Lawson, was present during any of the debates on the Financial Services and Markets Bill. If he had been, he would have realised--the noble Lord, Lord Kingsland, will confirm that I am right--that the firm view of the Conservative Opposition was that the code of corporate governance, which arises from Cadbury and Hampel and other committees, should apply to the Financial Services Authority. That is despite the fact that the authority, like this gas and electricity markets authority, has no shareholders. That was the view of the Conservative Opposition, of innumerable speakers from the Conservative Benches with experience of City matters, of the Liberal Democrat Party and of a number of my noble friends. At the end of the day, we acceded to that view, which had not originally been our opinion, and introduced into the Financial Services and Markets Bill the provision that the authority and the Chancellor should have regard to the provisions of the code of corporate governance.
That was in exact contradiction to what the noble Lord, Lord Lawson, has just said. I should have welcomed his support on the matter when we debated it in Committee on the Financial Services and Markets Bill.
For perfectly understandable reasons, time seems already to have bleached the Minister's memory. He is right in saying that the Opposition supported a role for non-executive directors in relation to the FSA. However, the circumstances were different. First, the FSA was not, as the Minister was then at great pains to say, a classic regulatory authority. It was, by contrast, established in the form of a private company. It was partly for that reason that the Opposition felt it appropriate to have non-executive directors on the board--in exactly the same way as they would be on the board of a private company.
However, there is a second and even more important reason why the Opposition felt that in that case non-executive directors were appropriate. It was that, unlike in this Bill, the FSA was given delegated legislative powers; but it was not answerable to your Lordships' House for the exercise of those powers. In those circumstances, it was right to introduce an extra check that is not necessary in this Bill; that was the check of non-executive directors. In answering the points which were made from these Benches in the course of the Financial Services Bill, the Minister was at great pains to say that the non-executive directors would always be in a majority, precisely to fulfil that supervisory role.
I suppose it is my fault for raising the Financial Services and Markets Bill, but the contrast between what the noble Lord, Lord Lawson, said and what his colleague said earlier was so great that I could not resist.
Perhaps I may return to the issue of the Trade and Industry Select Committee, which the noble Lord mentioned. He referred to the arrogance of the Chancellor of the Exchequer in rejecting the view of the Treasury Select Committee on the appointment of Mr Allsop. In present company, I cannot believe that any Chancellor of the Exchequer, past or present, would ever be arrogant.
Leaving that to one side, I am afraid that his recollection of the Bank of England Act is not entirely accurate. That Act does not say that there should be confirmatory hearings; it does not say that there should be consultation before an appointment is made; and it does not even say that the Treasury Select Committee should interview the candidates for appointment as members of the Monetary Policy Committee.
We have always taken the view--most recently we took this view in the consideration of the Financial Services and Markets Bill--that it is not for the Government to say what Select Committees in another place do. It is for them to set their agendas; it is for them to set their topics; and it is for them to set their procedures. It has been possible and it has been the practice for the Treasury Select Committee to interview the candidates put forward for membership of the Monetary Policy Committee. However, those hearings are in no way confirmatory and in no way do they implicate the Treasury Select Committee in the appointments which, quite clearly, under the terms of the Bank of England Act, are the responsibility of the Chancellor of the Exchequer.
I thank the Minister for his response to our amendments. With reference to the interesting debate on executive directors versus non-executive directors, if the mix is felt to be so important, why is that not referred to on the face of the Bill?
Turning to what my noble friend Lord Peyton of Yeovil said, I reconfirm our wish to see the appointments of the members of the authority scrutinised by the Trade and Industry Select Committee because we, on these Benches, believe in strengthening the powers of Parliament over the executive and that would be a good way of contributing to that aim. We have thought this matter through carefully and we are pleased that the Minister, in his response, has agreed with us, in principle, on this matter--
I was expressing a view, not about the provisions of this Bill, but as someone interested in public policy, that perhaps at some time in the future--if, for example, I can persuade my party to put the matter into a manifesto--it may be desirable for there to be confirmatory hearings. That has enormous implications for the relationship between the executive and the legislature, which are way outside the scope of this Bill. I, personally, and the Government, collectively, are behind the scope and the provisions of this Bill as drafted.
I thank the Minister. I accept what he has just said. I also take strength from his support of this matter as being worth considering when reviewing policy.
With regard to Amendment No. 6 and Treasury approval, the Minister stated that that used to be standard practice. We believe that it should be so again, given the degree of responsibility resting with the members of the authority in terms of cost implications.
I thank the Minister. We shall read Hansard with great interest to see what he has said and we may consider returning to some of those points on Report. I beg leave to withdraw the amendment.
In moving Amendment No. 8 I shall also speak to Amendments Nos. 10, 11, 13, 28, 29, 102, 103, 115, 282 to 284, 286, 317 to 322, 329, 331, 332 and 349. I shall not take the amendments in the exact order in which they appear on the Marshalled List, but I shall deal with all of them to the limited extent that the Committee is interested in the details of these rather technical matters.
Amendment No. 317 is a transitional provision making common-sense arrangements for the treatment of complaints and investigations which are in progress when the authority and the council come into being. Anything that would have engaged the council's duty to investigate complaints, had the duty already been in force when the complaint was made, will be treated as if the duty applied to it. For other investigations the authority will either agree with the council that the council will continue the investigation, or take such further steps as it thinks appropriate.
Amendments Nos. 102, 103 and 115 are minor amendments which make it clear that the consumer council's power to conduct investigations into matters relating to gas fittings and the use of gas applies in relation to consumers supplied by exempt as well as licensed suppliers.
Amendments Nos. 318, 319, 320, 321 and 322 repeal surviving references to the outgoing Gas Consumer Council and electricity consumers' committees that appear in various Acts which are not principally concerned with utilities regulation.
Amendment No. 329 corrects a reference to a provision in the Gas Act which is to be repealed because it concerns the power of the outgoing Gas Consumer Council to conduct investigations.
Amendments Nos. 331 and 332 repeal Sections 40 and 41 of the Gas Act which give the outgoing Gas Consumer Council duties in relation to advising the Director-General of Gas Supply and the production of annual reports.
Amendment No. 349 makes miscellaneous, very minor and consequential repeals to the Gas Act.
Amendment No. 10 brings the provisions aligning the council's obligation to have regard to the opinion of the authority as to the likely effects of disclosures, as it applies to the annual report, in line with other disclosure provisions elsewhere in the Bill.
Amendments Nos. 8, 11, 13, 28, 29, 282, 283, 284 and 286 are a miscellaneous group of minor amendments which improve and correct the current drafting. They all relate to the establishment and operation of the consumer council. I believe that they are not contentious and do not raise significant issues of policy which require debate. As noble Lords who took part in Second Reading will know, I wrote to them about those amendments when they were tabled last week. I beg to move.
The Minister is quite correct to say that the majority of the amendments are consequential and transitional. I shall only comment on the two final amendments to which he referred. First, I note that Amendment No. 11 requires the consumer council to submit accounts to the Comptroller and Auditor General. There does not appear to be a similar requirement for the authority to submit accounts to the Comptroller and Auditor General. Have I missed something?
Perhaps, in responding to my observations, the Minister will enlighten the Committee on that matter.
Secondly, Amendment No. 10 concerns the circumstances in which the authority is consulted by the council as to whether or not it should make public certain information. The Bill, as originally drafted, assumed that such requests by the council to the authority would be made on a case-by-case basis. However, by adding the words,
"or to information of a description", the amendment appears to move away from a case-by-case basis and towards the submission of some more generalised comment. I accept that the comment would come within that particular class of information: nevertheless it would be a more generalised comment.
Perhaps the noble Lord would be kind enough to let the Committee know the motive behind the amendment.
I should like first to deal with Amendment No. 11, the first of the two amendments that the noble Lord, Lord Kingsland, referred to. That amendment ensures that the accounts of the consumer council will be audited by the Comptroller and Auditor General rather than the choice of auditor being left to the Secretary of State.
We are committed to increasing transparency and openness to Parliament, and we believe that the auditor of these public bodies should be the Comptroller and Auditor General rather than an auditor appointed by the relevant Minister. An exception would be made if the auditor of a particular body needed a special type of knowledge or experience of a sort to be found in the private sector.
If the noble Lord cares to read in yesterday's Hansard the report of the Grand Committee proceedings on the Government Resources and Accounts Bill, he will see that I faced an amendment by the noble Lord, Lord Higgins, providing that all public bodies should be audited by the National Audit Office. I resisted that amendment. I think that it is better to come out into the open with this now, in case I am accused later of inconsistency. In the course of the debate in the Grand Committee I argued that it was not necessary to change from private audit to National Audit Office audit for all the existing non-departmental public bodies, but we have, as in this case, appointed the Comptroller and Auditor General as the auditor of all the public bodies established since the present Government came into office in May 1997.
Following that principle, the amendment is required because our original intention was to appoint the Comptroller and Auditor General by notice given by the Secretary of State under paragraph 7, but that would still leave the choice of auditor to the Secretary of State. Our amendment achieves greater certainty and clarity. It inserts into the Bill a requirement that the council's accounts are to be audited by the Comptroller and Auditor General and that a copy of the accounts and his report on them are to be laid before Parliament. If the noble Lord, Lord Kingsland, will consult the noble Lord, Lord Higgins, I think he will find that that is acceptable to the Opposition Front Bench generally.
The second amendment that the noble Lord referred to was Amendment No. 10. That aligns the council's obligation as it applies in the annual report--the obligation to have regard to the opinion of the authority as to the likely effects of disclosures--with other disclosure provisions elsewhere in the Bill. Since there is a range of other disclosure provisions in the Bill, it would be wise if I wrote to the noble Lord about what those other disclosure provisions are so that he can get the full flavour of the wisdom of Amendment No. 10. We have not moved away from a requirement to seek an opinion from the authority on a case-by-case basis on matters of disclosure. That requirement was never in the Bill.
moved Amendment No. 9:
Page 113, line 7, leave out paragraph (b) and insert--
("(b) have regard to any opinion expressed by the information publication arbiter as to the application of sub-paragraph (4)(c) to the information; and
(c) consider whether publication of the information in question is in the interests of consumers; and paragraph (b) applies whether the opinion is given in relation to the information itself or to information of a description which applies to that information.
(5A) In carrying out its functions the Council has a general duty to publish information when it is in the consumer interest to do so.
(5B) Before publishing such information the Council must consider whether the consumer interest is outweighed by any consideration of confidentiality attached to it.").
In moving the amendment, I should like also speak to the other amendments in the group, which deal with the same issue.
The amendment concerns the role of the gas and electricity consumer council, particularly in regard to its publication of information. I believe that it is common ground that there is support for the creation of a single consumer council to deal with gas and electricity and that it should have a degree of independence to express its opinion in support of consumers.
The issue that the amendments address is the extent to which the council could publish information in the interests of consumers after taking account of the possible impact of publication on third parties. It is a delicate issue, to which I referred at Second Reading. The question is who could determine whether there was likely to be an adverse impact on others as a result of the intention to publish certain information.
The Bill proposes that the authority's views should be taken into account in determining the matter. However, there are some doubts about that. After all, the authority is involved in the whole operation of the new system propounded in the Bill. Its interests could well at times be divergent from those of the consumer council. I should be particularly interested to hear what the noble Lord, Lord Borrie, has to say on this.
The authority itself might prefer that this delicate issue be determined by some third party. The proposition in the amendments is that there should be such a third party when the Freedom of Information Bill goes through and an appropriate authority is created, and that that might well be the party to decide these issues.
I am associated in the amendments with my noble friend Lady Sharp, who will also have something to say. I do not need to go into the matter at any greater length. The amendment is to deal with the issue of publication of information and who should express an opinion as to whether it adversely affects others. The proposition is that it should be not the authority, but a third party. I beg to move.
I am grateful to the noble Lord, Lord Ezra, for mentioning me in his speech supporting this series of amendments. I have a great deal of sympathy with him and feel that his amendments should be supported. It is appropriate--for conflict of interest reasons--that someone other than the proposed authority should determine these issues.
I have two brief questions for the noble Lord. First, Amendment No. 151, the substantive amendment proposing the appointment of an "information publication arbiter", that entity is described as a body, yet the noble Lord seemed to be referring to it in his speech as a person, an individual. Has he any further thoughts on that?
Secondly, I have a niggling feeling about the amendment, as an English lawyer used to the word "arbitrator" and to the fact that the person performing the same function across the Border in Scotland is the "arbiter". I am curious as to why the noble Lord chose the word "arbiter", the Scottish term, rather than the English term. It sounds a very agreeable word. Perhaps we should adopt it here as well, or for the UK in general.
The Opposition support the approach taken by the noble Lord, Lord Ezra. There will clearly be circumstances in which conflicts over the disclosure of information emerge between the authority and the consumer council. Some of that information might be confidential yet also relate to matters under investigation by the authority. In all those circumstances, we think it appropriate that a third party should be available to arbitrate on any dispute that could not be resolved between the two by consensus or compromise.
I do not think that I need add very much to what my noble friend Lord Ezra said on this subject. He clearly explained why we have put forward the amendment. It links up with the Freedom of Information Bill and the notion of the information arbiter. I do not know the derivation of the term. It is one which I, so to speak, took over from my noble friend Lord Ezra. I reiterate the points made by the noble Lord, Lord Kingsland. There is implicitly a conflict of interest between the role of the consumer council and the authority. It is important to try to make that differentiation.
I support one aspect of these amendments. I support having "arbiter" instead of "arbitrator"; it is shorter.
I take these amendments very seriously. In doing so, I distinguish three themes within them. I should like to consider each of them in turn. The first theme is the concept of an information publication arbiter. The amendments propose that the Secretary of State may appoint this person to consider whether any disclosures the council has in mind will have serious and prejudicial effects; in other words, whether they are outwith the council's powers, if I may use another Scottish word. The other amendments in this group oblige the council, in exercising its publication functions, to have regard to any opinion expressed by the arbiter.
The Bill already places the council under a duty to have regard to any opinions expressed by the authority. The authority, unlike the proposed arbiter, operates within a carefully constructed and balanced framework of duties. It is possessed of the relevant expertise; it is experienced in taking similar decisions itself, under its own publication powers; and it is in a continuing relationship with the council under the umbrella of the memorandum of understanding, which will enable them to work together to develop a common understanding of, among other things, "the seriously and prejudicially effect" test which both must consider in taking publication decisions.
We think it is a bad idea to have a new body, an arbiter, instead of this rather well-placed relationship between the authority and the council. What would happen if the authority expressed a view, even if the council was not required to have regard to that--the memorandum of understanding is, after all, intended to promote working collaboratively on matters such as the disclosure test--and the arbiter gave a different view? The result would be uncertainty and confusion. Should the council heed the arbiter, despite his lacking the advantages I have set out? On the other hand, if the arbiter and the authority agree, then the arbiter has added nothing to the process.
The second theme in the amendments concerns giving the council a general duty to publish information in the consumer interest, subject to deciding whether the consumer interest in publication is outweighed by any consideration of confidentiality attached to it. I acknowledge that this is a well-drafted amendment and that thought has been given to some of the issues. We do not believe that a general duty, as opposed to specific duties or general powers, to publish would be appropriate. The council's role is to advance the interest of consumers. Its publication powers are an essential tool of which it will no doubt wish to make extensive use. There need be no doubt that the council will be energetic in publishing information and advice.
What, then, would a general duty to publish add? Its principal effect, we believe, would be to create a risk that the council's priorities could be distorted. The volume of material which it could publish in the consumer interest is huge. It must be free to take decisions on priorities. It has other important functions besides publication--investigating complaints and other matters, researching issues and practice in other fields and countries, and so on. So we do not think that turning it from a power to a duty would be a good idea.
The amendments alter the disclosure test so that, like the Food Standards Agency, if the consumer interest in publication is stronger than confidentiality considerations, the council could publish. The council would have to decide where the balance of advantage lay, rather than determine whether or not the threshold would be breached. On the one hand, confidentiality is a lower threshold than serious and prejudicial effects; on the other, there would be no serious and prejudicial effects ceiling on what the council could disclose.
Later we shall consider amendments which seek to restrict what the council can disclose. I know it is a debating point, but if I find myself being too bold for the Conservatives and too cautious for the Liberal Democrats, perhaps we may be doing something right.
We recognise that the council may on occasion wish to publish information, even though this could possibly cause serious and prejudicial effects, because the consumer interest in publication is so powerful. In these cases it will be open to the council to ask the authority--at the head of a government department and able to publish such information if the case for doing so is strong enough--to publish it.
Lastly, I shall speak about Amendment No. 77 which would remove subsection (3) from Clause 20. In other words, it would remove the condition that information provided to consumers under this subsection must be in the public domain already. The subsection appears instead of a disclosure test. The purpose of this part of Clause 20 is to charge the council with making available to consumers information which is already in the public domain but which is inaccessible because, for example, it is in diverse forms and places. That could be information about services, tariffs, the "small print" and so on. The council's role will be to make this information readily available in ways which make it possible to make comparisons between companies.
It would be inconsistent and indefensible to give the council a broad power to publish without a disclosure test, or a condition limiting the power to what is in the public domain. For these reasons I think that this will be a distinctive and valuable part of the council's work. Therefore, we cannot support the amendment. I hope that, despite my jesting at the beginning, it will be thought that I have treated these amendments with the serious attention they deserve, but I am afraid we cannot support them.
I am much obliged to the noble Lord for that detailed response, but I must say that I am extremely disappointed. What the Minister has missed is the concern of the consumer council that it could remain, as it was previously, in the thrall of the authority. Under the previous regime the consumers' councils were, in all cases but gas, very much dominated by the views and the control of the regulators. Therefore, the feeling is that this important matter of the publication of information and deciding whether information could justifiably be published in the interests of consumers even if it might have an adverse impact on third parties should be determined by a body other than the authority which is so much involved in the regulatory process. It may be that some of our amendments require adjustment, but it is on the principle that I feel that the Government's response has been disappointing.
I should like to study very carefully what the Minister said, but I shall certainly be coming back to this issue at a subsequent stage. I beg leave to withdraw the amendment.
moved Amendments Nos. 10 and 11:
Page 113, line 9, at end insert--
("and paragraph (b) applies whether the opinion is given in relation to the information itself or to information of a description which applies to that information.").
Page 113, line 25, leave out ("who shall lay a copy of the statement") and insert ("and to the Comptroller and Auditor General within such period after the end of the financial year to which it relates as the Secretary of State may specify by notice given to the Council.
( ) The Comptroller and Auditor General shall--
(a) examine, certify and report on each statement of accounts received by him under sub-paragraph (3), and
(b) lay a copy of each such statement of accounts, and of his report on it,").
Amendments Nos. 10 and 11 were spoken to with Amendment No. 8. I beg to move.
At Second Reading I referred to the undoubted fact that whereas the onshore utilities industries--gas and electricity--are currently regulated by two regulators and will be regulated by the new authority, those regulators' remit stop at the beach. The offshore oil and gas industry comes under an entirely different system of regulation; namely, the Department of Trade and Industry. The thought that lies behind the two amendments in my name, as I adumbrated briefly at Second Reading, is that it is perfectly possible--indeed, there has been recent experience to suggest--that a zealous pursuit of the regulatory objective by the onshore regulator Gas and electricity markets authority--GEMA--could adversely impact upon what I would call, in the industry parlance, the upstream industry. In other words, overzealous and immediate protection conceived to be in the interests of consumers could operate to their detriment by inhibiting investment financing for that part of the offshore industry. That industry has an astonishing record since gas field resources became apparent and it started operating in the early 1960s. There have been huge discoveries, bringing massive advantage to the UK economy. Some £160 billion in taxes has been paid since the 1970s, and in 1998 exports were valued at £3 billion, which is a massive contribution to our economy.
The gas supplied by the offshore industry is already making a major contribution to our nation's ability to meet the Kyoto dioxide targets. Switching to gas-fired power stations has enabled carbon emissions to fall by 12 million tonnes per annum between 1990 and 1997. The offshore industry supports one of the main thrusts of the Bill because it will enable the Government swiftly to remove the current embargo, such as it is, on the construction of new gas-fired power stations. As I made plain at Second Reading, I have always regarded that measure as misconceived. The Government recognise that when the new arrangement is introduced, they will be able to abandon that restriction.
There is a regulatory gap between the responsibilities of GEMA and the DTI. The amendments to Clauses 4 and 5 seek the Government's views on whether there might be the opportunity to achieve some meshing of the two regulatory systems, so that the one takes account of the other in managing energy policy. We all want a sustainable, viable and diverse energy market. The fear of the offshore industry is that the Bill may militate against achieving it.
The amendment to Clause 4 seeks to ensure that GEMA is obliged to make a cost/benefit analysis of projects proposed in forward work programmes--not of every decision that it makes, as that would be wholly inappropriate. When making recommendations and decisions about the strategic relevance of a forward work programme, GEMA should take account of its impact. That would ensure full understanding of the cost of burdens and regulations throughout the whole energy chain, to minimise the impact on a competitive and diverse energy market--which is in the overwhelming interests of consumers. If existing and future consumers are to be protected in the longer term, some way must found of closing that regulatory gap.
I am most grateful to the noble Lord, Lord McIntosh, for receiving a delegation from the industry a few days ago. With him were representatives of the department responsible for the Bill and the bodies that regulate the offshore industry, so we were able to test the arguments on both sides.
My amendment to Clause 5 seeks to ensure, particularly in light of subsequent changes to projects in the forward programme--notwithstanding that they may have been occasioned by representations--that the authority will make an assessment of the costs, benefits and impact on businesses and include it in the annual report. That is proposed to mesh the two different regulatory systems, which might otherwise operate to the detriment of consumers.
While the initial concerns that I voiced at Second Reading reflected the views of the offshore industry, it entirely recognises that the interests of the whole energy chain need to be considered if a competitive and diverse energy market is to be maintained. The two amendments seek to recognise points made at Second Reading. The noble Lord, Lord Borrie, indicated that the regulator should not concentrate wholly on the narrow focus of an immediate reduction in prices but should ensure adequate investment for the future. The amounts that have to be raised from the market and spent by the industry offshore run into hundreds of millions of pounds. The noble Lord was right and the amendments reflect what he usefully said on that occasion.
Consideration and understanding of the real impact of regulation across the market will prevent one particular part of the energy chain carrying a disproportionate burden that could ultimately feed through to the market and consumers and to the supply and use of energy sources in the long or short term. The amendments support the Government's intentions; will facilitate more effective competition; provide a more consistent, transparent and predictable regulatory framework; ensure that regulation is flexible enough to accommodate and encourage future market development; and ensure that gas can continue to make a contribution to the Government's environmental objectives.
At Second Reading, the noble Lord, Lord Currie of Marylebone, made the valid point that if one is making a cost/benefit analysis, it is often easier to assess the cost than to gauge the benefit. All of us who have tried to do so will endorse his remarks. However, I should just point out that I do not believe that that is a reason for not trying so to do.
The introduction of this check and balance, which the proposal would require of the authority, would surely lead to a greater understanding on the part of the authority of the impact of regulation throughout the whole energy chain--that is to say, the offshore oil and gas wells, and so on, although we are talking primarily about gas wells here. In that way it would be able to shed some light on the benefits that can be gained from the proposals that the authority might be considering. I suggest also that such an approach would be consistent with the current regulatory regime with which government departments have to comply to ensure a transparent and accountable regulatory framework.
In later amendments, I shall revert to the problem that the gas industry has experienced as a result of quite inappropriate forms of regulation by the present regulators which, instead of helping consumers, has led to a considerable increase in prices. That is merely an indication of what can happen if there is no clear understanding of what the impact of such regulation will be.
I understand that we cannot have seamless regulation. In a sense, we are dealing with two different parts of the same industry for which a different regulatory regime currently exists and, as far as I am aware, there is no proposal that they should be merged. But they should be meshed in such a way as to enable them to take account of each other. That is something that the Bill does not provide at present. I believe that my amendments suggest a way forward. I beg to move.
I rise to speak in wholehearted support of what my noble friend Lord Jenkin of Roding has articulated so clearly in relation to the need to take a realistic and practical approach to the forward work programmes. His point about the need for meshing is also most important.
It is not necessary to repeat the arguments that my noble friend put forward, but I should like to add a few comments on Amendments Nos. 26 and 27, which deal with the costs and benefits of regulation and the regulatory impact issues. These amendments would enable the issue of the set-up costs for the council and the authority, which may be recovered from licence holders, to be probed. The amendments would require the expenditure involved to be "reasonable".
Amendments Nos. 37 and 49 would impose additional obligations on the authority in discharging its primary duty, requiring it to ensure that the obligations imposed on licence holders are the minimum necessary to attain the principal objective and to ensure that the licence holders can fund and, where it is reasonable to do so, recover the cost of meeting those obligations.
We are looking for the minimum necessary to be placed upon licence holders. It is worth remembering that the Secretary of State, Stephen Byers, said in another place in April of this year that the central objective of the Government's energy policy was to ensure secure, diverse and sustainable supplies of energy at competitive prices. That objective cannot be realistically achieved without having regard to the additional financial burdens placed upon licence holders as a result of this Bill.
In essence, the consumer is being put first in this Bill; but, ultimately, what the consumer wants is more for less. Therefore, a balance has to be struck if licence holders are to able to do their job for the benefit of the consumer. Expecting the financial viability on the part of the provider to be low priority is, therefore, unrealistic.
I am grateful to the noble Lord, Lord Jenkin, for the way in which he introduced these amendments. I well understand the concerns of the offshore industry. I was pleased that the noble Lord gave me and my officials an opportunity to talk to those concerned. I also well understand that the concerns of the industry are rather wider than the amendments that the noble Lord has placed before the Committee. I say that because a cost-benefit analysis can be carried out, but that does not necessarily mean that it is taken note of and that the concerns of the offshore industry are actually accounted for. I shall, therefore, take the amendments literally, together with the cost-benefit analysis of them, and then say a few words about the wider concerns of the offshore industry.
Amendment No. 12 would require both the authority and the council to include in their forward work programmes an assessment of the impact on businesses in the energy supply chain of each project that they propose to carry out. Indeed, as the noble Lord, Lord Jenkin made clear, the energy supply chain includes upstream as well as downstream.
Amendment No. 15 would require, where necessary, a further impact assessment to be included in the annual report of the authority. Amendment No. 17 is similar. It would require the authority to include a regulatory impact assessment in its annual report in respect of additional costs imposed on licence holders as a result of the activities of the authority, the Secretary of State and the council. The noble Baroness, Lady Buscombe, made that clear.
Such assessments carry a cost in themselves. But it is not clear that they would result in any substantive benefit. When it comes to the cost of regulation, the forward work programme clause already contains a requirement to include an estimate of the overall expenditure of the authority and the council respectively for the year. Where the projects lead to the exercise of regulatory functions and powers, the legislation already provides robust checks and balances.
I shall, first, take the authority. Many of the projects outlined in its forward work programme will involve the modification of licences. Licence modification procedures are, quite rightly, subject to proper due process. The authority is required to consult interested parties before new licence conditions or modifications can be made. The effect of the modification and the reasons have to be set out. Once decisions have been taken, the Bill will require the authority to provide a full explanation for them.
Where a licensed company disagrees--or, in the case of a standard licence condition, enough licensees disagree--with the licence change, the change has to be dropped or the matter referred to the Competition Commission for a ruling on where the public interest lies. That is a fundamental safeguard for licensed companies. Where other interested parties like offshore companies raise concerns, the authority, like other public bodies, will be bound by the normal principles of administrative law in considering those concerns.
However, we must remember that this is a Utilities Bill directed at the regulation of electricity and gas companies in the UK. It is not an energy Bill or an energy policy Bill. We acknowledge that regulation can affect other sectors. But the authority's direct powers extend only to licensed companies. If we were to add an explicit reference to the offshore industry on the face of the Bill--as we would if we were, in effect, talking about the energy supply chain--there would, for example, be a legitimate case for a similar reference to the coal industry or to manufacturers of generating plant. Indeed, the list could be endless.
If the offshore industry or another interested party had concerns that a particular measure, while having short-term attractions, would operate against the long-term interests of consumers, the authority would be bound to have regard to those concerns in the light of its principal objective; namely, to protect the interests of consumers. Indeed, as the noble Lord, Lord Jenkin, rightly reminded us, that means not just current but also future consumers. After all, they are the ones who will benefit from offshore investment. We are clear that the definition of the "interests of consumers" includes both short-term and long-term interests.
Although the authority's principal objective is to protect the interests of consumers, that does not diminish the importance attached to the interests of the offshore industry. The long-term interest of consumers demands a steady supply at reasonable prices. As such, the interests of consumers and those of the offshore industry converge. There will be occasions when a full regulatory impact assessment is appropriate. But the authority should continue to have discretion to apply the procedures most suited to the gas and electricity sectors within the transparent decision-making framework that the Bill puts in place.
The amendments extend to the council. The council's only direct power in relation to companies, however, is concerned with access to information. The Bill tackles this matter separately and we shall be debating Clause 24, which contains the relevant power, in due course.
In addition, the Bill gives the Secretary of State a power to define the information which companies and the authority need not supply to the councils. The Government have published a consultation document setting out some proposals for the areas which such regulations may cover. These include a proposal covering information where the compliance burden of supplying it would be excessive.
I turn to the Secretary of State. It is already the Government's position that proposals for new primary or secondary legislation should be subject to their own regulatory impact assessment. Our intention to produce impact assessments when Ministers use the secondary powers in the legislation was set out in the regulatory impact assessment on the Bill which was published in January and updated in April.
Taken together, the existing arrangements and proposals amount to a satisfactory means of keeping the regulatory burden to a minimum. I know that that is a general opposition concern, which I appreciate, and with which I sympathise. These amendments have been motivated by a desire to minimise regulatory burdens. But I fear that the opposite would be the outcome. The authority and the council would be saddled with an unnecessary bureaucratic chore.
Amendment No. 19 would have the effect of making it a statutory requirement for the authority to include its statement of accounts as a part of its annual report. I have sympathy, in principle, with the amendment. It would ensure that readers have in one document an account of the authority's activities alongside a statement of the resources used in delivering those activities. That would be a good thing. The Bill will make it easier to publish the authority's annual accounts with the annual report by aligning the respective reporting periods. Hitherto, the regulator has been required to produce an annual report on a calendar year basis. The Bill, however, will change that. It will require the authority to prepare its annual report on a financial year basis.
However, I do not believe that we should make it a statutory requirement. There is always a risk of delay in completing the audit which may lead to delays in producing the annual accounts, and it would certainly be undesirable for the annual report to be delayed for that reason. I accept the general principle but I should prefer not to be tied down in the way provided in the amendment.
Amendments Nos. 26 and 27 in Clause 8 give the authority powers to modify conditions in licences to ensure that the expenses of the Secretary of State in setting up the authority and the council, and the ongoing expenses of the council, can be recovered. We are working on the basis that there is widespread support for the establishment of the authority and the council. There must be recognition, therefore, that costs will arise from their establishment. Of course, those expenses should be reasonable. But the Government are not in the business of seeking to recover unreasonable costs from business. We are looking for cost-effective expenditure. The expenses will be those that are needed to establish the new regulatory bodies and to fund the ongoing expenses of the council.
The amendment refers also to the recovery of the Secretary of State's costs in establishing the authority and the council. There are costs associated with the establishment of the authority and the council. In the case of the authority, those are primarily the costs of merging Offer and Ofgas. We do not currently anticipate that the Secretary of State will incur any significant expenses in relation to the establishment of the authority. Of course, there will be some transitional costs but there is provision in the clause for recovering those legitimate costs.
Finally, I turn to Amendments Nos. 37 and 49. The Bill gives the authority a new principal objective to protect the interests of consumers. Amendments Nos. 37 and 49 would require the authority and the Secretary of State to have regard to ensuring that, in pursuing the new objective, the obligations imposed on licensees are the minimum needed. They would also seek to ensure that licence holders are able to meet the costs of their obligations and to recover them where that is reasonable.
I believe that the amendments misunderstand the significance of the new consumer objective. It is understandable that the Opposition are concerned about the risk of over-regulation. Of course, it is true, as the noble Baroness, Lady Buscombe, said, that the regulatory costs are ultimately borne by consumers. But that is why the first part of the amendment is unnecessary. If the authority has a duty to protect the interests of consumers, it will not be doing its job if it imposes unnecessary regulation on licensees.
Again, these are serious, important amendments. I am sorry that I have spoken for so long about them but I hope it will be recognised that they deserve the attention which the Government have given to them.
Yes. Although the offshore industry is important, it is not the only factor which is important. If you start to write into a Bill the need to take account of the concerns of the offshore industry, through the old legal maxim that the inclusion of one means the exclusion of others, you may end up by neglecting, for example, the coal industry or the plant manufacturers.
I did not wish to embark on a discussion of the economics of the offshore industry, on which the noble Lord, Lord Jenkin, is far more expert than I am.
I shall obviously read what the Minister said on the subject generally. He said that if he dealt with the offshore industry, he would also have to deal with the other industries. I am reminded, inevitably, of that marvellous publication Cosmographica Academica which has the memorable phrase, "I cannot be fair to you because if I was fair to you I would have to be fair to everybody else too". I understand the logic of that. That wonderful short, slim volume is full of bons mots of that kind. Although the title is in Latin, the quotations are all, of course, in English.
I am not sure that the noble Lord has really addressed himself to the question of the two different systems of regulation. I am grateful to my noble friend on the Front Bench for picking up the suggestion that they should be more effectively enmeshed in some way. After all, they are part of the same supply chain. I understand what the Minister said; namely, that this is a Bill about the onshore industry--gas and electricity suppliers. But one has to ask also, particularly of gas but also of electricity: from where do they get their materials? Is that not absolutely at the heart of their business?
If the regulator, because of his pursuit of what is now his primary objective--the protection of consumers--is tempted to ignore the long-term concerns of the supplying industries, one's last state will be worse than the first. It seems to me that that is something of which the Government need to take rather closer note.
We shall want to study carefully what the Minister said in his reply. Unless my noble friend on the Front Bench wants to add anything about her amendments, at this stage, I shall seek leave to withdraw the amendment.
moved Amendment No. 13:
Page 3, line 2, at end insert--
("( ) The Authority must send a copy of any notice given by it under subsection (4) to the Council.").
On Question, amendment agreed to.
[Amendment No. 14 not moved.]
Clause 4, as amended, agreed to.
Clause 5 [Annual and other reports of the Authority]:
[Amendment No. 15 not moved.]
I rise to move Amendment No. 16 and to speak to Amendment No. 18. Although the two amendments would lead to differing demands on the authority, they have a common objective; that is, they both seek to probe the reasons why the Government wish to have regulation in these two sectors.
I have no doubt that the Minister will have read carefully the proceedings of the Bill in another place. He will recall, in the Second Reading debate, that the Secretary of State accepted the argument that regulators are not appropriate in those circumstances in which a utility sector is fully exposed to competition, as the following extract from the debate illustrates. My honourable friend Mr Gibb asked:
"Does the right hon. Gentleman believe that there is still a role for the regulator when the utility sector involved--even if it is a narrow one--is fully exposed to fierce competition?".
The Secretary of State responded:
"There may be a limited role, but it would depend on the specific circumstances. As a general rule, my personal view is that regulators are not appropriate in those circumstances, and I should much rather have the discipline of an effective market".--[Official Report, Commons, 31/1/00; col. 793.]
Given that the Secretary of State accepted that point, it is surely appropriate to build a timetable into the Bill which enables the Government to assess when full competition has been reached so that regulatory bodies and associated costs can be scaled down at that point.
In addition, the Government also stated at Second Reading that the Bill would result in the outcome of every utility facing competition, as the following additional extract illustrates. My honourable friend Mr Alan Duncan said:
"Over the past few years, most of the privatised utilities have faced new entrants and new competition. Which utilities does the Secretary of State consider remain monopolies facing no competition?".
The Secretary of State responded:
"As a result of the measures that we are introducing, there will be none".--[Official Report, Commons, 31/1/00; col. 785.]
In the light of those exchanges, does the Minister agree with his right honourable friend?
I am of course aware that, in the course of the Second Reading debate in your Lordships' House, and in response to some remarks made by me, the Minister said that there was an important caveat to be made about competition in the utilities sector, particularly relating to electricity and gas. As he rightly pointed out, in the electricity sector there is a national grid, and in the gas sector certain pipelines are common to all parties and cannot be subject to the kind of fierce competition to which the Secretary of State referred without some artificial intervention by a regulatory authority to mimic competition.
I accept that, in those circumstances, a continuing role for the regulator will be required. But, apart from those circumstances, does the Minister accept that, as long as the conditions of fierce competition are established, the roles of the regulators in both sectors become--to use a word which became a leitmotiv in the Financial Services and Markets Bill debates--otiose. I beg to move.
I hope that my noble friend does not entirely accept the tempting arguments of the noble Lord, Lord Kingsland. He said, rightly, that for some while now, and certainly for some years to come, competition will be developed, in which case regulation can quietly be reduced. In recent times, Ofgem has been able to say in relation to the supply to customers throughout the country that price caps are no longer needed because competition is such that that would be "otiose", to use the word of the noble Lord.
The noble Lord, Lord Kingsland, rightly said that, in relation to the pipes and the wires--to use my own shorthand--ongoing monopoly inevitably means that there has to be regulation. I only rose to speak because the noble Lord did not make these points and add only that he should pay regard to the fact that fuel--we are talking about gas and electricity--is an essential for the community. Therefore, the social and environmental aspects referred to in the Bill are extremely important in regard to regulation. Despite the merits of competition, with which the noble Lord and I agree, there are circumstances in which competition may result in the disadvantaged consumers in society (disadvantaged either because they are poor or because they live in remote areas) being excluded from the desirable situation whereby all members of the community have the benefit of the supply of those essential fuels.
I shall not develop the environmental points. But there are social and environmental aspects of regulation which we should not ignore. Competition on economic grounds, although tremendously beneficial, does not necessarily meet all those requirements.
I support the remarks of the noble Lord, Lord Borrie. I fully endorse the view that regulation should diminish as competition develops and the market-place functions effectively. However, some aspects of the two fuels are basic, as the noble Lord, Lord Borrie, mentioned, and will probably continue to require a degree of intervention or regulation over many years. I refer to the disadvantaged consumers, who specifically need help. Reference is made to them in the Bill in clauses which we shall debate later.
Environmental aspects are particularly serious at a time when the price of fuel (particularly of electricity) is diminishing. The interest in energy efficiency and the achievement of the Government's objectives in reducing pollution may be ignored unless there is some degree of intervention to deal with it, as proposed in the Bill.
Therefore, while I support the concept that, as competition develops, the role of regulator should be adapted accordingly, I still feel that in the aspects referred to by the noble Lord, Lord Borrie, there will be a continuing role for some time to come.
Perhaps I can add to the remarks of the noble Lord, Lord Ezra, and those of my noble friend Lord Borrie, with which I fully agree, about the nature of competition and supply in electricity.
A unique feature of the national grid system is the need to balance it on an almost second-by-second basis, without which it will become unstable. So it is not merely a question of a monopoly grid needing regulation; it is also a question of the need to balance the system centrally. That means that supply issues need a watching eye close to real time when the need to balance the system is pressing. Some players in the market have momentary but important monopoly positions. We need to watch and regulate that. That aspect will be crucial, even when supply competition is highly vigorous.
Many followers of the electricity industry argue that that is a reason why competition in supply cannot work effectively. I do not believe that. I believe that reforms in electricity trading are vital. But we should be aware that there will be a special need to have a watching brief over competition and supply because of the unique characteristics of electricity. Gas also has some of those features, but not to the same extent.
I support the view taken by my noble friend and endorse the comments that the noble Lord, Lord Ezra, has made. One expects healthy competition to be a good thing. However, I am sure that many in Westminster will be aware that over the past two or three years there have been some grim examples of hard-sell competition. For example, pensioners have had their doors knocked on repeatedly at night. Therefore, I believe that we need to have a monitoring capacity to protect the consumer, who otherwise might benefit substantially from free competition.
I should make it clear that we are entirely committed to encouraging competition as the consumer's best friend in the utilities markets. That is why the principal objective of the authority is to protect the interests of consumers wherever appropriate by promoting competition. That establishes a presumption in favour of competition as the means through which the interests of consumers should be protected. It will ensure the maximum penetration of effective competition consistent with the practical, economic and other constraints prevailing in the gas and electricity sectors, to which my noble friends Lord Borrie, Lord Currie and Lord Hardy have referred.
It is always a good debating point to seek to get me to disagree with the Secretary of State. However, the noble Lord, Lord Kingsland, is on safe ground here because he quoted from Hansard. There cannot be any doubt but that what the Secretary of State is reported as saying in Hansard is an accurate reflection of his views. The Secretary of State made clear the Government's belief that, with the advance of competition in the utility sectors, the role of the regulator would diminish. We have all agreed with that in this debate. But to argue that the role of the regulator will diminish is not to say that we can predict that it will ultimately disappear, or even how rapidly it will diminish.
There will continue to be some activities in each of the gas and electricity sectors in which competition is either non-existent or, as yet, imperfect. I am not sure whether the mathematical formulation of an asymptotic curve is appropriate here, but certainly the idea that sector-specific regulation could be removed within a measurable period of years is rather unlikely. In electricity, for example, distribution will be a monopoly activity for the foreseeable future. Supply, although in theory now fully open to competition, continues to reflect the historical dominance of the public electricity suppliers. So although it is important that competition should be promoted as the best way of protecting consumers' interests, it is equally important that we do not build in a bias which would abandon regulation before the market is ready for that.
Clause 5 already obliges the authority to include in its annual report an assessment of competitive developments in each sector. If the authority believed that competition had reached the stage in which regulation was no longer necessary or desirable, it would be open to it to say so in that assessment. The record of bodies in recommending their own demise is well known! But as I have said, it is our expectation that regulation will continue to be needed, at least in certain areas, for the foreseeable future. Therefore, we believe that it would be an artificial exercise to make the authority set a timetable for the withdrawal of regulation.
Similarly, I should expect the assessment of competitive developments to describe areas in which regulatory controls had been relaxed and the reasons why they had been relaxed. I should also expect it to describe other areas where representations had been made for reducing regulatory controls and the reasons why controls should not be relaxed in those areas. Ofgem has already indicated its intention to relax licence conditions on supply over the course of the next two years.
I believe that the existing provisions for annual reports will help the process of reducing regulatory controls as competition develops. However, I believe that it would be an unnecessary burden to require the authority to identify and justify every single regulatory requirement that had not been relaxed. I am afraid that I cannot, therefore, accept the amendments.
The Minister will be pleased to hear that, provisionally, I am relatively content with his answer. I can see the difficulties that were outlined by other noble Lords about mimicking competition in a complex utility such as electricity. What pleased me about the Minister's response is that he said nothing whatsoever about social and environmental objectives, which were raised by the noble Lord, Lord Borrie, and others. I was delighted that the Minister did not use the social and environmental dimension as a reason for the regulator to continue in existence.
Had he done so, I would have pointed out that, for example, such matters as were referred to by the noble Lord, Lord Borrie, apply equally to the oil sector in remote parts of the country with impoverished consumers. Therefore, the social and environmental aspects of regulation are just as important in relation to oil and, indeed, coal as they are in relation to utilities such as gas.
I shall sit down content in the knowledge that, once fierce competition is established in the sector and effectively mimicked in circumstances where only one party can ever be involved, we shall see the end of regulation. I beg leave to withdraw the amendment.
moved Amendment No. 20:
Page 4, leave out lines 10 to 20 and insert--
("(1) The Authority shall publish advice and information which will promote the interests of consumers in relation to gas conveyed through pipes, and may publish that advice or information in such manner as it thinks fit.
(2) In particular, it shall secure that records of its decisions, and the information on which they are based, are kept and made available with a view to enabling members of the public to make informed judgements about the way in which it is carrying out its functions.
(2A) In publishing advice or information under this section, the Authority must consider whether the publication of the advice or information in question would or might seriously and prejudicially affect the interests of a particular individual or body of persons (corporate or unincorporate), and if that is outweighed by the public interest in publishing that advice or information.").
In speaking to Amendment No. 20, I should like to speak also to Amendment No. 23. Today we are discussing the role of an important body--the new gas and electricity markets authority (GEMA). It will make important decisions about energy affecting most consumers and, of course, the regulated energy companies. I believe that public bodies that make decisions for us--such as the new GEMA--should operate as openly and transparently as possible. Ideally, such principles should be enshrined in the law, so creating a general expectation that openness should occur. Ideally, such bodies should operate a presumption of openness: that means information being publicly available unless there is a good reason for it not to be. There are many processes that will help bodies to achieve this. My amendments pick up three aspects of this.
The first subsection of each of the amendments places the authority under a strong duty to publish information in the consumer's interest--a presumption of openness. The key word I have used is "shall" instead of "may", as used in the Bill as currently drafted.
The second subsection of each of the amendments requires the authority to publish its decisions and the information on which those decisions are based. The wording is similar to that in the Food Standards Act 1999 which set up the new Food Standards Agency. This is a new public body which is making efforts to operate openly and transparently. This might, for example, mean that the authority publishes the minutes of its meetings and any background papers attached to them; or, as the Food Standards Agency is doing, it could hold open meetings around the country. I understand that the agency is opening up its board meetings too.
The third subsection of each of the amendments requires the authority to incorporate a public interest test when deciding whether or not to publish information. As Clause 6 is currently drafted, the authority would not publish information if it was thought to,
"seriously and prejudicially affect the interests of a particular individual or body of persons".
However, there may be circumstances where a company is behaving in a way which is detrimental to its customers. If GEMA wanted to alert the public to the problem, it might find that it was not able to do so because of the serious harm that it may be claimed to cause that company. In making decisions whether to publish, the two concerns should be balanced. If the public interest in publishing the information is greater than the serious harm that it may cause to the company, it should be published.
I hope that the Minister agrees with me about the importance of the openness of regulatory bodies. How the regulatory structures are set out in this Bill is likely to have an impact on other legislation such as the forthcoming water Bill.
Today we are talking about what is, to all intents and purposes, a new body. It will have a primary duty towards the consumer. It will also have particular regard to specified groups of people such as the disabled, the chronically sick, pensioners and those on low income; and it will have to take account of economic, social and environmental interests in its policy making. It will have a range of different interests to reconcile.
It should operate differently from OFFER and Ofgem before it. I believe that the public need to see that the regulatory body for gas and electricity is operating differently from before. They will also need to understand how and why it makes the decisions that it does. I hope that these amendments will help that process. I beg to move.
We on these Benches very much support the two amendments brought forward by the noble Baroness, Lady Wilcox. In many senses, they pick up the spirit of the amendments that we put forward in terms of openness of information to the consumer councils. We endorse fully what the noble Baroness said about the need for the new authority to be seen to be open and available to consumers.
I should like to pick up on one point that was touched on by my noble friend Lady Wilcox. As I understand it, the Government have already made clear in relation to the two industries whose regulation was withdrawn from this Bill at an earlier stage in another place--namely, water and telecommunications--that it remains their intention that the provisions so far as concerns the consumer councils shall follow broadly the same pattern so far as is possible, having regard to the different natures of the four industries. To my mind, it is therefore important that we get these provisions right in this Bill.
Although it may be perfectly possible in theory to move a whole lot of amendments about the consumer provisions in the legislation for telecommunications and water--it may be one Bill; it may be two--we anticipate the possible argument that "the House accepted this in the Utilities Bill and therefore we are not going to listen to any further arguments".
The noble Lord, Lord McIntosh, always listens to the arguments and then mostly says "No".
Not today we hope. It is important that in debating these provisions about the consumer councils we have in mind that the Government have indicated that they will want to harmonise them as much as they can in future legislation.
Having said that, I am absolutely certain that the key words of "openness" and "transparency" are vital--particularly in giving the reasons for decisions. If an authority has to turn down a request, it is enormously important that everyone should understand very clearly the reason for that. In that sense, I, too, support my noble friend's amendments.
So far as concerns the disclosure of information in the Bill, generally the Opposition will need to be persuaded that any change from what is likely to be the ultimate content of the Freedom of Information Bill is desirable before we would be prepared to depart from the terms of that Bill.
Perhaps I may first say to the noble Lord, Lord Jenkin of Roding, that I do not first listen to the arguments and then say "No"; I listen to the arguments and persuade noble Lords to withdraw their amendments.
I should say to the noble Lord, Lord Kingsland, that we will be discussing the Freedom of Information Bill. That Bill is drafted in such a way that there are specific information regimes in specific sectors which can be different from the basic minimum requirements of the Freedom of Information Bill. It is important that we should understand that. I shall be setting that out in more detail when we come to the appropriate amendments.
I have listened to the arguments and I am aware of the views of the National Consumer Council. I take them very seriously.
The amendments seek to make a number of changes to the publication function of the authority. They make publication of information and advice in the consumer interest a duty rather than a power, as the noble Baroness, Lady Wilcox, made clear. But we believe that this is mistaken. The authority has a primary duty to protect the interests of consumers, and the power to publish information and advice is one of the tools it has in carrying out this primary duty. Sometimes--but not always--that duty will prompt it to exercise this power.
In addition, the concept of a broadly defined duty to publish can be mistaken. The publication role is one of the many activities of the authority. That means that it has to decide priorities between its activities and allocate resources accordingly. If the duty to publish information is not to distort the setting of priorities, the authority would have to have some discretion as to what to publish and what to leave unpublished. I am sure that that is what the noble Baroness intends. However, this element of the discretion would make the duty very difficult to enforce. In our view, this kind of function is better encapsulated in a power rather than a duty, and that is what the Bill provides.
Secondly, a new duty on the authority to make available the records of its decisions, and the information on which they are based, is proposed. The Bill already requires the authority and the Secretary of State to publish their reasons for key decisions. In addition, the Freedom of Information Bill, which will apply to the authority when it becomes law--I refer here to the matter raised by the noble Lord, Lord Kingsland--will oblige the authority to maintain and operate an approved publication scheme which the authority must adopt having regard to the public interest in the publication of reasons for its decisions.
The authority will be making decisions every day. I assume that the noble Baroness, Lady Wilcox, is seeking a record of decisions with regard to the exercise of key regulatory functions. The Gas and Electricity Acts already require the regulator to keep a public register in which the provisions of every licence, exemption, modification or revocation of licence conditions, direction, consent or determination made under licences and enforcement orders must be entered.
We do not believe that the requirements proposed in the amendments add anything to those requirements and we have to oppose this feature of the two amendments.
The third and last aspect of the amendments seeks to replace the existing disclosure test with one which obliges the authority to weigh the public interest in disclosure against any serious and prejudicial effects. Again, we do not think that this adds anything of substance to the power that the authority already has. Under Clause 6, the authority must have regard to the need for excluding matters which would cause serious and prejudicial effects. It is not required to exclude them. This means that the authority has the power to decide that, even though serious and prejudicial effects are likely, the interest in publication is strong enough to justify publication.
I said earlier that the Conservatives appear to be looking to limit the grounds for publication and that the Liberal Democrats, on the whole, are looking for ways to extend them. Although I do not think it is intended, this amendment would limit the power of the authority to publish information because it would take away the "have regard" criterion for excluding matters which would cause serious and prejudicial effects and replace it with a requirement. I do not think that that would be the right move. I urge the noble Baroness not to press the amendment.
In his reply the Minister referred to the National Consumer Council, but when I spoke I did not refer to that body. I should have done so and for that I apologise. The National Consumer Council, of which I was chairman, and the National Federation of Consumer Groups, of which I am president, along with other consumer groups, have all pressed for the wording to be changed here.
I have come across this kind of wording many times in the past. I recall, some seven years ago, when I first saw the introduction of the banking code. All the way through the code stated that the consumer or customer "shall", while the bank "may". Perhaps I attach more importance to those words than do the Minister and his advisers in the Box.
I should like to take this opportunity to thank the noble Baroness, Lady Sharp of Guildford, for supporting these amendments, and my noble friend Lord Jenkin, who also demonstrated his support.
I think that this represents a missed opportunity. If the people of this country are to be convinced that we are moving away from secrecy towards greater openness and if there is to be a presumption of openness, the words chosen to be put on the face of the Bill are extremely important. I shall not press my amendment today, but this issue will be raised again and again--indeed, each time a new body is set up. I repeat: I should prefer to see the word "shall" used in place of the word "may". However, for the time being, I beg leave to withdraw the amendment.
moved Amendment No. 21:
Page 4, line 17, leave out from ("matter") to end of line 20 and insert ("which relates to the affairs of a particular individual or body of persons (corporate or unincorporate), where publication of that matter would or might, in the opinion of the Authority, seriously and prejudicially affect the interests of that individual or body.").
In moving Amendment No. 21, perhaps I may speak also to Amendments Nos. 22, 24, 25, 76, 78, 94, 147, 281, 289, 296, 309, 333 and 343. It may be appropriate for me to remind the Committee of what I said at Second Reading; namely, that every part of this Bill has been duplicated because it amends both the Gas Act and the Electricity Act. Of course, that means that virtually every amendment has also had to be put down twice. For that reason, this group is not quite as long and complicated as it may appear at first sight.
All the amendments concern the power of the authority to publish and to bar unauthorised disclosure of information. Amendments Nos. 21, 22, 24 and 25, concerned with the authority's power to publish information and advice in the interests of consumers under Clause 6, are essentially tidying up provisions. Amendments Nos. 21 and 24 make it clear that, as is the case with the regulator's existing powers to publish which Clause 6 adapts, it is only the possibility of serious and prejudicial effects for the body to which the information relates, as opposed to any body, with which the disclosure test is concerned. Amendments Nos. 22 and 25 make it clear that the interests of consumers includes the interests of future as well as present consumers.
The other amendments in this group carry forward the well-established practice of providing, in legislation which empowers public authorities to require information from individuals and businesses, that unauthorised disclosure of information so obtained shall be a criminal offence.
At present, the Gas and Electricity Acts each contain a provision to this effect, but they are slightly different from each other. The amendments repeal those sections and replace them with one regime; namely, the new clause to be inserted by Amendment No. 281--the key amendment after Clause 102--which will apply to information obtained under either Act, as befits a situation where there is a single licensing authority operating lined-up--I almost said "joined-up"--licensing regimes.
Like the existing provisions, the new clause works by prohibiting disclosures and then defining exceptions where disclosure is permitted. Generally these exceptions are for disclosures from one regulatory authority to another for the purpose of facilitating the performance of the other authority's statutory functions.
In addition, the various publication powers conferred on the authority and the council elsewhere in the Bill are, as a rule, exceptions to the prohibition on disclosure. However, each typically is subject to its own "harm test" limiting what may be disclosed without the consent of those to whom the information in question relates. Furthermore, the protection afforded by the new clause will apply to information obtained under the Bill, for example, by the consumer council under Clause 24.
In summary, the amendments carry forward the principle that unauthorised disclosure should be a criminal offence, and establish a common regime for each of the three statutes--the Gas Act 1986, the Electricity Act 1989 and the Bill. I commend the amendments to the Committee. I beg to move.
I should like to respond briefly to the Minister's opening remarks. I do not know what has been the experience of other noble Lords, but I have found trying to deal with this Bill, trying to understand its structure and to work out where its amendments fit, and trying to understand the Government's proposal on the order in which the clauses and schedules are to be dealt with, extremely difficult.
While working on the Bill last weekend, I had to come to the conclusion that this is not a good way to try to bring legislation before Parliament. No doubt the minute that passed from parliamentary counsel to the Minister in charge of the Bill in another place explained why it was necessary to legislate extensively by reference to the existing Acts rather than simply to write a new Bill. I can understand that Ministers may have decided to accept the situation without perhaps fully appreciating quite how complicated this was going to become. Every time a change is proposed, it has to be done twice, using two amendments. Finding one's way around the provisions has proved to be a difficult problem.
It may be perfectly acceptable to the noble Lord and his advisers who have lived with the legislation from the start and now understand how to negotiate their way through it. However, I should like to put on the record that for Back-Benchers, and perhaps even more acutely for my noble friends on the Front Bench, this Bill contains several hurdles over which one must leap even before one can begin to address its substance. I hope that those in high places who will need to make decisions on matters such as this in the future may perhaps take note of my remarks.
I am very sympathetic to what has been said by the noble Lord, Lord Jenkin. Indeed, I made many of the same comments when I first encountered the Bill. If the Gas Act and the Electricity Act are, in effect, being repealed and replaced with a new Act, why not simply repeal those Acts and then introduce new legislation?
Unfortunately, the situation is more complicated than that. This legislation repeals only one part of the Gas Act and of the Electricity Act; namely, the regulatory elements. The two Acts each contain a great many more provisions that are not to be repealed. Furthermore, the two Acts are not aligned with each other. They were introduced three years apart--understandably, I do not blame the previous government for that. Conditions were different and the industries were constituted in very different ways. The Acts could not be brought into line.
We have tried to effect a compromise here. We have taken out whole chunks of the Gas and Electricity Acts and replaced them with whole chunks as set out in this Bill. We felt that it was better to do that than to amend words in certain lines through certain clauses and so forth. Thus we have tried to meet the problem half way. I hope, therefore, that negotiating the Bill is a little easier than it might otherwise have been. Had we gone in the direction of amending in minute detail rather than gross replacement of entire sections, so to speak, we would have needed to introduce Keeling schedules to every one of the amendments as well. That would have further increased the complexity of the exercise.
I believe that on the whole we have come to the right conclusion on how to handle the matter. However, I am sure that parliamentary counsel and those responsible in the department will take very seriously the comments made by the noble Lord, Lord Jenkin.
As regards the order of consideration, I feel that by and large it has been successful. We are dealing with the Bill in the order in which we need to deal with it, with the amendments numbered in the right way. I may be proved wrong on this over the course of our deliberations, but I am pleased that we have worked it out in this way and that we have done so with the agreement of the Front Benches opposite.
I cannot answer that question. It is not even a matter for the Government; it is for the Law Commission to consider.
moved Amendments Nos. 24 and 25:
Page 4, line 33, leave out from ("matter") to end of line 35 and insert ("which relates to the affairs of a particular individual or body of persons (corporate or unincorporate), where publication of that matter would or might, in the opinion of the Authority, seriously and prejudicially affect the interests of that individual or body.").
Page 4, line 38, at end insert--
("( ) After subsection (3) of that section there is inserted--
"(4) In this section "consumers" includes both existing and future consumers.".").
On Question, amendments agreed to.
Clause 6, as amended, agreed to.
Clause 7 agreed to.
Clause 8 [Payments by licence holders relating to new arrangements]:
[Amendments Nos. 26 and 27 not moved.]
moved Amendments Nos. 28 and 29:
Page 5, line 21, leave out ("or") and insert ("and").
Page 5, line 36, leave out from ("may") to ("of") in line 39 and insert ("give directions to the Authority for the purpose of securing that sums relating to any of the expenses mentioned in subsection (3) are included in the sums payable by virtue").
On Question, amendments agreed to.
Clause 8, as amended, agreed to.
moved Amendment No. 30:
After Clause 8, insert the following new clause--
(" .--(1) A person who is not a licence holder may appeal to the Authority to withdraw or vary a decision (other than that in section 47 of the Competition Act 1998).
(2) In this section "decision" means--
(a) the introduction of a new licence condition;
(b) the modification of an existing licence condition;
(c) any other decision prescribed by the Secretary of State in regulations made under this section.
(3) The application must--
(a) be made in writing, within such period as may be specified in guidance issued by the Secretary of State under subsection (9);
(b) give the applicant's reasons for considering that the relevant decision should be withdrawn or (as the case may be) varied.
(4) The Authority may decide--
(a) that the applicant does not have a sufficient interest in the relevant decision;
(b) that, in the case of an applicant claiming to represent persons who have such an interest, the applicant does not represent such persons, or
(c) that the persons represented by the applicant do not have such an interest.
(5) The Authority, having considered the application, may--
(a) withdraw or vary the relevant decision;
(b) decide that sufficient reasons have not been shown why it should withdraw or vary the relevant decision.
(6) Where a decision has been made under subsections (4) or (5), the Authority must notify the applicant of its decision, give reasons for that decision and make them public.
(7) The applicant may appeal to the Competition Commission against a decision of the Authority notified under subsection (4) or (5).
(8) The making of an application does not suspend the effect of the relevant decision.
(9) The Secretary of State shall issue guidance about the procedures for applicants for making an appeal under this section.").
At Second Reading, I raised the matter of third parties having the right to appeal against the decisions of the authority. I raised the distinction between this legislation and the Competition Act 1998, under which consumer bodies, for example, have the right to challenge competition decisions of the Office of Fair Trading. The utility regulators are subject to this provision where they have concurrent competition powers.
My proposed new clause would give bodies other than licence holders the opportunity to appeal against the non-competition decisions of the authority. Such decisions could include the introduction of new price controls or new licence conditions, or the modification of existing ones. The new clause is modelled on Section 47 of the Competition Act which sets out the procedures for third party appeals.
I am most interested in consumer bodies having this opportunity. The gas and electricity consumer council would be a particularly appropriate body for this. I believe that the consumer councils in the different sectors are vital in advocating the interests of consumers. An effective framework in which they can operate is important for us all. Having the right to challenge a decision made by a regulator should be a part of that framework.
After I raised this point at Second Reading, the Minister kindly sent me a letter setting out the reasons why it would not be appropriate for such a right to be made available for energy regulation. I understand that the same letter was sent to some other Members of the Committee. I am most grateful to the Minister for letting me know the Government's thinking and that they considered the issue important. It was very helpful. I understood the Minister's point that competition decisions are different in nature from those of an energy regulator.
However, I tabled the new clause because I wanted to raise the fact that there is an inherent unfairness in the regulatory system in that it is tipped in favour of the companies and against consumers. Companies can challenge the decisions of a regulator, but consumer bodies cannot. So, when the regulatory authority is making decisions, it will be concerned about who can challenge those decisions. The companies' right to do so must make them a continuous presence in the decision-making process. Potentially, therefore, consumers could lose out. Having this right of appeal would even out the imbalance.
This is an issue that applies to other areas, not just to energy. The regulatory model in this Bill is likely to be followed in other areas such as the forthcoming Bill and even communications regulation. It could apply to such areas as postal services and rail, where both a regulatory and a consumer body exist. I have been pressed by the National Consumer Council, the National Federation of Consumer Groups and various other bodies to take this matter on board and think for the future. It is an important issue. Once more, I urge the Government to reconsider their position. I beg to move.
I normally feel extreme sympathy, if not support, for any amendment on consumer matters proposed by the noble Baroness, Lady Wilcox. In this case, however, I feel that, given the noble Baroness's record, the proposal is extreme. It begins with a statement that any person who is not a licence holder may appeal, not only to the authority but further, in subsection (7), to the Competition Commission. It is suggested that any person should be able to do that, despite the fact that before the authority's decision is made, as I understand it, anyone can make comments to inform the authority of his or her views.
I bear in mind a point that my noble friend the Minister has repeated several times; namely, that the principal objective of the authority against which the appeal is to be made is to promote the interests of the consumer. Yet, in putting forward this amendment, there is a kind of suspicion on the part of the noble Baroness that the authority will not do that very well; that it will not, before a final decision is made, take note of comments from the National Consumer Council and other appropriate bodies.
Although I feel that the new clause is rather extreme in its statement that anyone can appeal, subsection (4) backtracks from that. One of the grounds for the authority rejecting the appeal is that the applicant does not have "a sufficient interest" in the relevant decisions. I should have been slightly more persuaded of the merits of the new clause if, instead of beginning as it does with the statement,
"A person who is not a licence holder may appeal"-- which clearly means any person--it had required the appeal to be made by someone who had a sufficient interest. That is the position arrived at if subsection (4) is taken into account, but only after the authority has been put to the trouble of dealing with an appeal from someone who may have no such sufficient interest.
While I feel that there is something in the amendment--although it does not take into account the rights of people to put forward their views before a final decision is made--as drafted, it seems to be "round the wrong way" in that it enables anyone to lodge an appeal and then the authority can knock it back if the person concerned has insufficient interest.
I hate to think that I have made it sound as though "any old bod" could challenge a decision. I thought that there were safeguards to ensure that bodies challenging a decision would have a legitimate interest. I refer to subsection (4).
Yes, I agree with the noble Baroness. But that is for the authority to determine. Anyone may make an appeal, but, so far as I can see, a ground for rejecting it is that the appellant does not have a sufficient interest. Given the way in which the amendment is drafted, the authority will have to look into that question.
We, too, have some difficulty with the wording of the amendment, although we agree with the spirit of the proposal. We feel that there is often an imbalance between representation on the part of the corporate sector, which frequently engages professional lobbyists to push its interests, and the consumer sector, which relies on consumer organisations. Such organisations are sometimes less well organised than the professional lobbyists. We therefore feel that there is an inherent imbalance and we have some sympathy with the spirit of the amendment; however, we are not particularly happy with the wording.
This issue was debated in the Green Paper and referred to in responses to the Green Paper. I recognise that the noble Baroness, Lady Wilcox, is right. There is an asymmetry in the present position. Licensees can force the authority to refer licence modification decisions with which they disagree to the Competition Commission but third parties, including consumer groups, cannot.
We decided against extending the ability to challenge the authority's decisions having given careful consideration to the responses. The argument is, in part, a practical one. We need to retain streamlined and efficient regulation. There have been few references to the MMC or its successor body, the Competition Commission. That is a strength of the system. References are time-consuming for all concerned. They can take up to nine months each. They create uncertainty until the issue is resolved. They distract management from other matters. Giving the council, and other third parties an ability to force a reference would inevitably add to the number of references.
I know that the noble Baroness, Lady Wilcox, would say, quite reasonably, that consumer groups would act responsibly, and would not trigger trivial references. But I think it is bound to be the case that if a new right of appeal is introduced, it will be used. Otherwise there is little point in having it. And if more decisions were referred, decision-making would tend to shift to the Competition Commission and away from the authority. On the whole, that would undermine the authority. It would undermine the principle of sector-specific regulation which we set out here.
In any case, new rights for consumers to challenge the authority are unnecessary. The gas and electricity consumer council will have full opportunities to contribute and influence the statutory consultation process which precedes licence modification decisions. Indeed, noble Lords have recognised that. The noble Lord, Lord Borrie, referred in particular to that point. It will have enhanced rights of access through the Bill to information to enable it to make a fully informed contribution. And the Bill--and this is important--will require a full explanation of decisions once they have been taken. This requirement, I think, negates the first part of the amendment. If the council or other consumer group makes a sound, well-researched representation during the consultation process, and the authority is required to account for its decisions, then I think that we can safely assume that the explanation will cover the reasons why a certain approach was or was not adopted. There is no need for a separate power to require the authority to account for its decision.
In considering third party rights, it is also important to refer to the change which this Bill makes to the regulator's general duties. For the first time, the regulatory authority will have a principal objective to protect the interests of consumers. There should, in other words, be no clash of interests and no need for the council to be able to second guess the authority.
I thank the Minister for his reply. I am grateful that he recognises that there appears to be an imbalance on the face of the Bill.
I am somewhat thrown by the fact that noble Lords do not like the wording of the amendment. It was modelled on Section 47 of the competition legislation. However, I accept that the noble Lord, Lord Borrie, knows more about these issues than I do. I apologise if the wording has defeated my ambitions in this area.
I thank the Minister. I shall continue to press for the consumer where I can. I am grateful that the Minister did not raise the concern that such a right would delay the decision-making process. It is an argument I hear from others. I believe that we take as long as necessary to make these important decisions on behalf of the consumer and with regard to open and fair competition. I beg leave to withdraw the amendment.
In moving this amendment, I speak also to Amendment No. 42. Amendment No. 31 is supported by my noble friend Lord Beaumont of Whitley who unfortunately cannot be here today--I am delighted to see that he is present--the noble Lord, Lord Hardy of Wath, and my noble friend Lady Sharp of Guildford.
The amendment is of a fairly fundamental nature. It refers to the principal objectives of the Secretary of State and the gas and electricity markets authority in carrying out their respective functions. As has been repeatedly mentioned in the course of debate, they are to protect the interests of consumers. Clause 9 refers to gas, and Clause 13 to electricity in the same terms. The purpose of the amendment is to add after the word "consumers" the words, "in the context of sustainable development".
I recognise that this is a Bill which deals with economic regulation. However,
"economic regulation of the utility industries does not take place in a vacuum. The ways in which the utility regulators carry out their functions have consequences for the social and environmental, as well as the economic, aspects of the pursuit of sustainable development".
The words that I have uttered are not mine; they are the words of the Government. They are contained in the draft statutory social and environmental guidance to the gas and electricity markets authority. It continues:
"The Government intends"-- there is nothing advisory about that word--
"that the regulatory system should make an appropriate contribution towards achieving sustainable development. This means that economic regulation should be conducted in a way which is alert to the Government's wider social and environmental goals".
The Bill deals with economic regulation. The Government say that they intend that it shall be seen in the framework of sustainable development. That should be on the face of the Bill. We should be able to debate the issue. It is not satisfactory to say that the Bill is about economic regulation when the Government state categorically that it is their intention that economic regulation shall be viewed within a sustainable framework.
The amendment is simple but fundamental. I believe that it properly reflects the Government's intentions as set out in the draft guidance. The word "intend" goes way beyond guidance. The Government should have said that they hope, or have a firm expectation. They should not have used the word "intend". If they have an intention, that is very firm indeed. Therefore I believe that the words "sustainable development" should be on the face of the Bill. I beg to move.
I am sorry that I misled the noble Lord, Lord Ezra, about my presence today. I had to write a note of apology; I cannot be here later. I was unaware when we would reach the amendment and therefore gave a rather blanket apology.
The noble Lord, Lord Ezra, has put the case very strongly. We are talking here about the long-term benefit of the consumer. As the Bill now stands it may be that regard will be had only to the short-term benefit of the consumer. The major problems before us today, whether they be global warming or other matters, mean that we must think much further ahead than would have been the case five, 10 or 15 years ago. Therefore, for that reason and for those given by the noble Lord, Lord Ezra, I believe that this matter should be included on the face of the Bill.
I support the amendment moved by the noble Lord, Lord Ezra, and suggest that we should not disregard the longer term. Bearing in mind that we may be only months away from net dependence on gas imports, perhaps we should recognise that in 10 or 15 years' time there may well be capacity to use the research done in the 1970s and 1980s into the possibility of an alternative source of gas. I do not suggest that at this stage we embark on the implementation of the Westfield technology, with which the noble Lord, Lord Ezra, will be familiar, but it is not a bad idea for those responsible for the gas and electricity industries to give consideration to what may be a crisis in a relatively short time.
I have some difficulty in speaking to this amendment. I believe that when we on these Benches were in government the term "sustainable development" first emerged in relation to something as delicate as the rural economy, in particular planning matters. I do not believe that it is particularly apposite here. However, the draft statutory social environmental guidance to the gas and electricity markets authority makes it clear that the Government have committed themselves to the goal of sustainable development. For these purposes, "sustainable development" is defined as "a better quality of life for everyone, now and for generations to come". That sounds like nirvana. To put such an incredibly broad term on the face of the Bill is perhaps a step too far given the terminology used in the guidance.
In addition, I question the use of the words "in the context of sustainable development" in relation to the Secretary of State and the authority carrying out their respective functions to protect the interests of consumers. What else can it mean but the protection of the interests of consumers generally? Surely, it does not mean the protection of consumers from the utility industries. We on these Benches cannot support the amendment.
I rise to support my noble friend who moved the amendment and to thank others who have also given their support. The reason why it is important that this provision is on the face of the Bill is that in many senses the definition of the interests of consumers in paragraphs (a) and (b) of subsection (4) carries the implication that those interests are best looked after by the promotion of a competitive industry. We are all cognisant of the fact that competition helps to ensure that consumers get the best deal. However, we also recognise that there are social and environmental costs. As the Minister himself said not long ago, when we look at consumers' interests we must consider not simply the short term but the long term. Therefore, these are inter-generational issues. I am aware from the debate yesterday in Committee on the Government Resources and Accounts Bill that this is an issue in which the Minister takes a particular interest.
Once one begins to look at these inter-generational issues, it is important that sustainable development is written into the Bill. Unless we have an eye on sustainable development, we shall affect the interests of future generations. In that sense, it is well known in economics that social costs and benefits can diverge from private interests. It is noticeable that the Government have taken a lead, for example in relation to Kyoto, to ensure that long-term environmental interests are considered. It is important that government take that lead because the private individual does not naturally think in those terms.
We feel very strongly that this matter should be written into the Bill so that it is quite clear to those who seek to interpret it that we look to the long-term interests of the consumer, not to short-term private issues.
I support the objective of sustainable development but worry about this particular amendment, in part for the reasons given by the noble Baroness, Lady Buscombe. Sustainable development is a very broad concept that perhaps fits uneasily into the specifics of the Bill. However, the Bill also makes clear that longer-term inter-generational questions are very much the concern of the regulator today. The Bill defines consumers as both present and future consumers. As drafted, the Bill would place on the authority the requirement to be concerned about future sustainability. As a member of the management board of Ofgem, I know that that body certainly considers not only the short-term position but also the longer-term development of the industry. Therefore, I do not believe that the amendment is necessary.
I hear some of the hesitations that other Members of the Committee have expressed about the wisdom of writing this matter into the Bill. The noble Lord, Lord Beaumont of Whitley, will remember that some five years ago he and I served on a special Select Committee under the chairmanship of the noble Lord, Lord Tombs, to examine the issue of sustainable development. I well recollect that we had more than one session to try to decide what "sustainable development" meant. We had the Brundtland definition which referred to meeting the needs of society without prejudice to the ability to meet the needs of future generations. We also had the definition of my right honourable friend John Gummer which made reference to meeting the needs of today without cheating on our successors. As a concept, clearly it is unexceptionable. However, I believe that it may create difficulties as a statutory objective.
A few months ago a Question was tabled about the coal industry. I am not sure whether the noble Lord, Lord Hardy of Wath, was involved at the time. However, in a supplementary to the noble Lord, Lord Sainsbury of Turville, I said that if the Government sought ways to meet the Kyoto targets on CO 2 it was not immediately apparent that to encourage power stations to burn more coal was the best method. With considerable aplomb the Minister said that there was always a need to balance conflicting objectives, which is right. There is another example of that in today's press. The Government have made a huge number of statements about the need for sustainable transport and to get people out of their cars and on to public transport, bicycles and so on, and with much of that I have sympathy.
However, what does the Department of Trade and Industry now seek to do? It seeks to make it easier for people to buy many more cars by making them cheaper. The Minister may wriggle in his seat, but the fact of the matter is that it is very difficult to see how these matters can easily sit next to each other. It may be that car makers and distributors should not make unreasonable profits, but the Government need to explain to the country why it is right to increase the price of petrol and introduce powers to charge for parking and so make it more difficult for people to use their cars and, at the same time, make it easier for people to buy cars by cutting the price.
Briefly, the point I am making is that the concept of sustainable development is rather vague. It concerns "peace and motherhood" and we are all in favour of it provided we do not try to define it too closely. I do not believe that it would be right to include it in the Bill.
I am not wriggling in my seat; I was making a sceptical face. No other part of my body moved. I am expressing my scepticism that anyone from the Conservative Benches should believe that it is wrong to act to avoid excessive charges by motor dealers in this country. If it is perfectly possible for cars to be offered more cheaply, we believe that consumers should obtain them more cheaply. If we can help to achieve that, I believe that it is the right thing to do, and I believe that the Conservative Front Bench in the Commons was of the same opinion.
Of course, we all agree with the objective of sustainable development, even if the noble Lord, Lord Jenkin, has some difficulty in defining it. However, I am afraid I must say that the amendments are aimed at the wrong target. We must remember that the Bill is, as I said, not an energy policy Bill; it is a utilities Bill. It deals with economic regulation and, to use the word of the noble Lord, Lord Kingsland, it "mimics" the effects of competition by putting downward pressure on costs and creating incentives to improve efficiency and quality of service to consumers. It is right that the authority's general duties should have an economic focus generally concerned with price and quality of service offered to consumers. That is why the authority's principal objective is to protect the interests of consumers.
In "the interests of consumers" we include their fundamental interests in ensuring that their reasonable demands for gas and electricity are met and that their supplies are secure. That is why we have the demand criterion and the finance criterion. However, we recognise that the way in which the authority exercises its functions can have significant consequences for the environment and for society as a whole. The authority should weigh such considerations properly in the balance.
The noble Lord, Lord Ezra, says that this issue should be on the face of the Bill so that it can be debated. My response is that it is on the face of the Bill in Clauses 10 and 14. In any case, while the principal objective and duty in subsection (2) of Clauses 9 and 13 deal with economic considerations, the authority is also subject to duties in relation to energy efficiency, public safety and the environment. In the definition of "consumers", subsection (3) requires the authority to have regard to the interests of people who are disabled or chronically sick, of pensionable age, who have low incomes or who reside in rural areas. All those social and environmental objectives are on the face of the Bill.
However, we structure the duties in the Bill to ensure that when a choice is made between alternatives of equal benefit to the consumer the authority should lean towards the one that does most for energy efficiency, public safety and the environment and takes account in Clauses 10 and 14 of the Government's social and environmental objectives. It should be recognised that measures concerned with such matters will often be in the interests of consumers, in particular their long-term interests, as noble Lords have said; that is, the interests not only of present but of future consumers.
Therefore, there should be no conflict between the two sets of duties and no problem will arise. However, it would be wrong for the general duties of an economic regulator to be amended in the way that the amendments propose. The concept of sustainable development incorporates social and environmental, as well as economic, considerations. If we incorporate the social and environmental considerations into the principal objective, we remove the priority afforded to the interests of consumers. That is contrary to the principal purpose of regulations as set out in the Bill. It would leave the authority uncertain as to how it should respond if pressed to take measures which, in the interests of the environment, are neither in the long nor the short-term interests of consumers.
However, other matters in the social and environmental field should be decided by the Government and implemented through specific legal provision, not necessarily in the course of this Bill. They fall outside the scope of economic regulation. Examples of government action as opposed to authority action include the climate change levy with its exemptions for renewables and good quality combined heat and power, the pensioners' winter fuel payments, and our support for research and development into renewables.
We are all on the same side. However, I believe that the amendments are aimed at the wrong target and would not achieve the effect which the noble Lord, Lord Ezra, seeks.
The Minister said that the objectives we are trying to achieve are included in Clauses 10 and 14. In looking at those clauses, I see that guidance on social and environmental matters may, indeed, be issued from time to time. However, nowhere in the Bill is there a definition of what the objectives might be. Perhaps I may say in passing that, although I remember perfectly well, with the noble Lord, Lord Jenkin, the debates that we had in the special Committee of this House, I still do not see much difference between the definitions of Mrs Brundtland and of John Gummer. It seems to me that they have almost exactly the same basis.
The case for saying that sustainable development is difficult to define is grossly over-stated. However, as what we are trying to achieve is not imposed or mentioned in Clauses 10 to 14, I rather suspect that it is a matter to which we shall return. However, I defer to the noble Lord, Lord Ezra, whose name is first on the list, as to what should happen to this particular amendment.
Before the noble Lord, Lord Ezra, responds, perhaps I may say two things. First, I did not complain that sustainable development is difficult to define. I believe that it is a well understood concept and that it could be defined. If, for other reasons, it had been right to accept this amendment, I should not have been worried about it. Secondly, the noble Lord, Lord Beaumont, says rightly that our social and environmental policies are not defined. It is not intended that they should be defined here. They are as they will be set out in guidance from time to time.
I thank the Minister and noble Lords who have taken part in this discussion. In a sense, I suppose that this matter involves a play on words. As the noble Lord, Lord Currie, rightly pointed out, if one reads on in Clause 9 one finds that consumers are defined as "both existing and future consumers". Therefore, that may be another way of talking about sustainable development.
However, what surprised me about the Government's response to the amendments is that they are so firm on this subject in the guidance. Their stance seemed to me to go beyond guidance. It was a firm statement of government policy. I believe that firm statements of government policy should be in the relevant Bill, but it appears in the guidance. There is a definition of "consumers", both present and future.
I should like to reflect on these matters. I shall certainly come forward with an amendment at a later stage, perhaps putting "consumers present and future" in an earlier part of the Bill so that one does not have to read on in order to find out what is meant by "consumers". That may be a way round what has turned out to be, surprisingly to me at any rate, a difficult issue. I should have thought that as the Government feel so strongly about sustainable development they would have welcomed the opportunity to put it in the Bill. That is not so. Therefore, we must consider another way of getting across that point. With that, I beg leave to withdraw the amendment.
In moving Amendment No. 32, I shall speak also to Amendment No. 33. In doing so, I shall discuss all the issues that I want to cover in the group.
The Bill provides for the abolition of Ofgas and Offer and their replacement by a single regulatory authority for gas and electricity whose primary objective will be to protect the interests of consumers. The effect of that commitment is to reorder the priorities of the regulators. For example, Clause 9 states:
"For section 4 of the 1986 Act (general duties of Secretary of State and Director) there shall be substituted--
4AA.--(1) The principal objective of the Secretary of State and the Gas and Electricity Markets Authority (in this Act referred to as 'the Authority') in carrying out their respective functions under this Part is to protect the interests of consumers in relation to gas conveyed through pipes, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas so conveyed".
In a recent paper for the Institute of Economic Affairs, Mr Stephen Littlechild, the former electricity regulator, described as "positively unhelpful" proposals by the Trade and Industry Secretary, the right honourable Stephen Byers, to make protection of consumer interests the "principal objective" of regulators. Mr Littlechild said:
"The duty to promote competition will no longer be unqualified; this will have to be demonstrated to be the most appropriate way to protect consumers".
He went on to warn that the regulatory change in emphasis could open the floodgates to companies appealing to the Competition Commission against attempts by Oftel and Ofgem to promote competition.
I am anxious to hear the Minister say to the Committee today that Mr Littlechild's analysis is incorrect. I am fortified in my expectation that that will be the Minister's answer by his final remarks to the noble Lord, Lord Ezra, about the noble Lord's amendment. In response to the noble Lord's request to include the expression "sustainable development" in Clause 9, he said that it would both remove the priority of consumer interest and leave the authority uncertain as to how to respond.
Moreover, earlier today, in responding to my Amendments Nos. 16 and 18, the Minister was clear beyond peradventure that the only circumstances in which competition between persons engaged in commercial activities would be inappropriate in promoting consumer interest would be those involving what the noble Lord, Lord Borrie--in a magnificent colloquialism--described as "wires and pipes".
If the only exception to the fierce competition between parties to promoting the interests of consumers is wires and pipes, I suggest to the Minister that my Amendment No. 32 is entirely appropriate. It seeks to replace the word "appropriate" with the word "possible". From what the Minister said today to the noble Lord, Lord Ezra, from what he said to me and from what he said at Second Reading, the clear inference is that the only circumstances in which the consumer interest would not be completely served by,
"competition between persons engaged in, or in commercial activities connected with", would be the wires and pipes circumstances. My amendment would make it clear, beyond doubt, that in no circumstances whatever would the fears expressed by Mr Littlechild have any firm ground.
As regards Amendment No. 33, the existing legislation requires the gas regulator, for example, to protect the interests of consumers. He must ensure that licensed companies can finance their activities. Under the Bill, the financing duty becomes subordinate to the new primary duty to,
"protect the interests of consumers . . . wherever appropriate by promoting effective competition".
Further, the new gas and electricity markets authority (GEMA) merely has to "have regard to" the need to ensure that licence holders can finance their activities. This duty is, therefore, much less clear than the existing one and does not promote the objective of regulatory certainty.
Substitution of Amendment No. 33 for the existing words in the clause would resolve that uncertainty. I beg to move.
I am not responsible for Stephen Littlechild. I do not believe he is right in saying that we are abandoning competition by the way in which we formulated the principal objective of the authority. Although I said so at Second Reading and during debates on previous amendments, I had better say it again in order to see whether I can convince the noble Lord, Lord Kingsland.
Under the Bill, the authority is given the principal objective of protecting the interests of consumers. It is to do so wherever appropriate by promoting effective competition. This requirement is built into the principal objective, and so it is the authority's primary duty. Together, they establish a presumption in favour of competition as the means through which the interests of consumers are to be protected.
The authority must ask itself whether it can best protect the interests of consumers through competition or in any other way, such as price controls. It is clear that competition is the preferred mechanism in the absence of any good reason to the contrary. The re-emphasis on competition will ensure the maximum penetration of competition consistent with the practical, economic and other constraints prevailing in the gas and electricity sectors. If the noble Lord, Lord Kingsland, likes that to be defined as "wires and pipes", so be it. It is just the way things are.
Whether competition is the best means of protecting consumers in any particular case is a matter of judgment for the authority. That decision will depend on the practicalities of introducing or increasing competition, the costs of establishing the competitive arrangements and the benefits--some of which may be long-term or uncertain--of competition over other forms of regulatory control.
It seems to me clear, and someone said it in the House of Commons, that something which is not possible cannot be appropriate. That seems self-evident. But just because something is possible, it is not necessarily appropriate. For example, it would be possible to establish competition by duplicating the grid and the network in electricity. Perhaps that is what the noble Lord, Lord Kingsland, means by "wires and pipes". However, that would promote competition only at a cost wholly disproportionate to the benefits that it would bring to consumers. So if we change the word "appropriate" to "possible", the duplication of the electricity grid and network would have to be taken seriously because, of course, it is possible, even though for other, perfectly overwhelming reasons, it is not actually appropriate.
So it is right that the authority should have some discretion as to whether to promote competition in a particular case. That is why the authority should promote competition wherever appropriate and not simply where it is physically possible to do so. None of that plays down the importance that we ascribe to the role of competition as a means of protecting consumers. I would expect the authority to draw on competition as the means of protecting consumers in the absence of a sound justification for not doing so.
I now turn to Amendment No. 33 which makes changes that go to the heart of the general duties. I shall set out those general duties as the noble Lord, Lord Kingsland, has spoken about them. The Bill puts consumers at the heart of the authority's general duties. We are giving the authority a principal objective to protect the interests of consumers. It will be the authority's sole primary duty to carry out its functions in the manner best calculated to further the principal objective. That is the effect of subsection (2) of Clauses 9 and 13.
That provision is intended to result in a fair deal for consumers. Putting consumers at the heart of the general duties will make a real difference to regulatory perspective. There can be no doubt where to draw the regulatory line; it must be drawn with the interests of consumers in mind. It ensures that the right balance is struck between the interests of consumers and those of shareholders.
Apart from the duty in respect of competition, the directors-general of gas and electricity supply have two primary duties. The first is the duty concerned with securing that all reasonable demands for gas and electricity are met--the demand duty. The second is the duty concerned with securing that utility companies are able to finance their licensed activities--the finance duty.
Under existing legislation, both the demand duty and the finance duty are stand-alone duties; they are ends in their own right. Under this Bill, those duties are positioned where they more naturally belong, as aspects of the duty to consumers. That helps to explain what we mean by the "interests of consumers" as that phrase is used for the principal objective. It incorporates not simply the narrow consumer interest in a high quality service at low cost, but also the broader requirements of a sustainable industry.
Of course, consumers have an interest in ensuring that all reasonable demands for gas and electricity are met. Ensuring that they receive a supply is the gas and electricity consumers most fundamental interest. That is why the demand duty is restated as an aspect of the primary consumer duty.
Who could doubt that consumers have an interest in ensuring that utility companies operate in a viable market with a long-term outlook? It is no good to them if the return to shareholders is so low that utility companies are unable to attract the capital needed to maintain their infrastructure.
On the other hand, it is certainly not in the interests of consumers that utility companies are able to make excessive profits, or pay excessive remuneration to certain people. The right balance must be struck between the interests of consumers and the interests of shareholders. That is why the finance duty has been incorporated as an aspect of ensuring the interests of consumers.
The words "have regard to the need" to secure that reasonable demands are satisfied, and that licence holders are able to finance their activities, reflect the weight that should be given to those aspects of the interests of consumers. They represent confirmation in statute--these are the words that the noble Lord, Lord Kingsland, would take out--that the consumer interest expects reasonable demands to be satisfied and licence holders to be able to finance their activities. It is difficult to see how the authority could comply with its primary duty (to further the protection of the interests of consumers) without carrying out its functions in a manner best calculated to secure those ends.
The amendments proposed would reinstate the demand duty and the finance duty as ends in their own right and make them independent of, and subject to, the duty to further the principal objective. They deny that the interests of consumers necessarily incorporate those matters that form the demand and finance duties. We resist them because they would render the general duties as a whole incoherent and leave the authority in doubt as to how it should interpret the "interests of consumers" for the purpose of the principal objective.
I thank the Minister for his very full reply. As regards Amendment No. 32, if I understood him correctly, on the substance of the matter he and I are in agreement. Perhaps I shall reflect on introducing a word other than "possible" to try to provide the Bill with more precision at Report stage.
However, as regards Amendment No. 33, I confess to serious disappointment with the Minister's response. To me it seems unreasonable to expect, on the one hand, licensees to have imposed on them obligations by the authority and, on the other, not to be furnished with the wherewithal to finance them. I am equally surprised that the Minister is prepared to see a weaker obligation with respect to meeting all reasonable demands in Great Britain for gas and electricity conveyed to consumers. In those circumstances, I beg leave to withdraw Amendment No. 32. However, when Amendment No. 33 is called, I shall seek to test the opinion of the Committee.
In moving the amendment, I should like also to speak to the following amendments: Amendments Nos. 41, 48, 53, 285, 294, 295, 302, 305, 306, 307, 308, 327, 328, 334, 339, 340, 342 and 345.
This group of amendments brings together the bulk of government amendments concerned with the functions of the gas and electricity markets authority. I shall start with Amendments Nos. 36, 41, 48 and 53.
The functions of the authority and of the Secretary of State are principally set out in the Gas Act 1986 and the Electricity Act 1989, as those Acts are amended by the Bill. However, once the Bill receives Royal Assent they will also have functions under stand-alone provisions of the Utilities Act. For example, Clause 4 requires the authority to prepare, consult on and publish a forward work programme. Clause 26 empowers the authority to publish a notice issued by the consumer council setting out its reasons for refusing to supply information.
The general duties in Clauses 9 and 13 relate to the authority's and the Secretary of State's functions. Similarly, the obligation in Clauses 10 and 14 to have regard to social and environmental guidance and the health and safety duty under Clauses 11 and 15 also relates to those functions. Amendments Nos. 36, 41, 48 and 53 make it clear that references to the authority's or the Secretary of State's functions in those clauses relate to their functions under the provisions of the Utilities Act equally as they relate to those under the Gas Act and the Electricity Act.
The amendments that follow are more technical or consequential in nature. Amendment No. 285 broadens the effect of paragraph 8 of Schedule 3 to ensure that in all documents relating to transfers under Clause 3 references to the authority or consumer council, as appropriate, are substituted for references to the outgoing directors general and Gas Consumers' Council. In particular, this will ensure that paragraph 8 will have effect in relation to licences. Amendments Nos. 295 and 305 insert words accidentally omitted to clarify that the existing standards of performance powers under Section 33A of the Gas Act 1986 and Section 39 of the Electricity Act 1989 apply in individual cases--in other words, for each customer or potential customer individually.
That is to emphasise the difference between "individual" and "overall" performance standards. If the former are not met--for example, if a company misses an appointment-- compensation is payable to the individual customer concerned. Overall standards, such as that 95 per cent of letters to a company should be answered within 10 days, do not lead to individual payments if they are missed. But companies are required to run their businesses in a way that can reasonably be expected to lead to the standards being met.
Amendments Nos. 295 and 302 are technical amendments in relation to the power of the authority to require information from licensees in certain conditions, such as the suspicion of a breach of licence conditions or revocation of a licence. Amendment No. 295 ensures that the scope of the information power in Section 38(1) of the Gas Act 1986 matches the authority's revised duties and corrects a minor omission from the Gas Act 1995.
Amendment No. 302 inserts into Section 28 of the Electricity Act 1989 the equivalent provision to Section 38(1A) of the Gas Act. Amendments Nos. 306, 307 and 308 clarify that the existing standards of performance powers should apply to electricity suppliers. Distributors are covered by Clauses 53, 54 and 56.
Amendments Nos. 327, 328 and 342 repeal various provisions of the Gas Act and the Electricity Act consequential to the provisions of Clauses 59, 94 and 95. Each of Amendments Nos. 334 and 340 repeals provisions of the Gas Act which are the duplicate of provisions of the Bill. Amendment No. 340 repeals paragraph 15(2) of Schedule 7 to the Gas Act, which is the duplicate of Clause 5(9). Amendment No. 334 repeals the latter half of Section 47(7) of the Gas Act, which is the duplicate of paragraph 10 of Schedule 1 to the Bill.
Finally, Amendments Nos. 339 and 345 repeal spent provisions of the Gas Act and the Electricity Act respectively, which are concerned with the compulsory purchase of land in Scotland. I beg to move.
In moving this amendment I wish to speak also to Amendment No. 51. The amendment refers to the functions of the Secretary of State and the authority in regard to the promotion of efficiency and economy on the part of persons authorised by licence to carry gas, or, in the case of electricity, similarly, and to protect the public from the dangers arising from the conveyance of gas, or, in the case of electricity, appropriately.
Our concern is that this important issue is made subject, in the case of gas, to subsection (2) and appropriately in the case of electricity. We feel that these are matters of such importance that the same words as are used in introducing subsection (3)--namely, "in performing that duty"--should be introduced. We fail to see why these important issues--promoting efficiency and economy, and protecting the public from dangers--should be relegated to an inferior position. The case for re-emphasising the importance of promoting efficiency is tied in with the whole of the Government's environmental policy and, therefore, should be emphasised accordingly. It is extremely surprising that the question of safety should be relegated in this way.
It is perfectly true that later on in the Bill in the case of gas--in Clause 11--the Secretary of State and the authority have to consult the Health and Safety Commission about all gas safety issues, and similarly in Clause 15 regarding electricity. But that does not alter the fact that in the duties of the Secretary of State and the authority safety is made, in Clause 9(5), subject to subsection (2) which deals with the need to secure, as far as possible, that all reasonable demands for gas to be conveyed through pipes are met and that licence holders are able to finance their activities. It does not seem to be proper that those two considerations should predominate over dealing with these issues. Matters of efficiency and safety should therefore be treated more seriously than they are on the face of the Bill. This can easily be corrected by introducing the words "in performing that duty" in place of "subject to subsection (2)". I beg to move.
I gave a quite full response to the same issue when we were debating Amendments Nos. 31 and 42. Both those amendments were concerned with raising the profile of environmental and social issues in the authority's general duties. These amendments seek to achieve the same purpose by elevating the duties to promote energy efficiency, protect public safety and have regard to the environment to a level equal with that of the principal objective.
As I said before, regulation is intended to mimic the effects of competition by putting downward pressure on costs and by creating incentives to improve efficiency and customer service. It is right that the authority's general duties should have an economic focus. However, we recognise that the way in which the authority exercises its functions can have significant social and environmental consequences. That is why the authority is subject to secondary duties in relation to energy efficiency, public safety and the environment and will be required to take account of social and environmental guidance issued by the Government.
As I said on the previous amendment, that ensures that when the authority is making a choice between alternatives of equal benefit to the consumer, it should lean to the one that does the most for energy efficiency, public safety and the environment and takes account of the Government's social and environmental objectives. But it would be wrong to remove the priority afforded to the interests of consumers by making these considerations of equal importance to the principal objective in the way proposed by Amendments Nos. 39 and 51. To do so would run counter to the principal purpose of regulation. Measures which run counter to the interests of consumers, which could arise if we gave it equal prominence, fall outside the scope of economic regulation and are properly matters for government.
I am sorry that I am not able to say any more on this matter, but I dealt very fully with the previous amendments. In my view, the amendments raise essentially the same issues and create the same problems.
I thank the noble Lord for that answer. I think that there is some contradiction in the way that subsection (3) and subsection (5) are treated. Subsection (3) uses the words "in performing that duty". It could be argued that that derogates from the main objective because it refers to a particular class of consumers.
That is indeed correct; it refers to a particular class of consumers. But it is still within the context of the interests of consumers. It is because the other issues of energy efficiency, public safety and social and environmental objectives do not come within the same envelope that they have to be dealt with in a different way.
I do not agree with that analysis. I feel that efficiency, and, particularly, public safety, rate higher treatment than is proposed. However, I do not suggest that we should divide on this issue. I shall reflect on what the noble Lord said and come back to the matter at a later date. I beg leave to withdraw the amendment.
I, too, am puzzled by the hierarchy, which defies logic. Certain matters are central and are summed up by the words "in the interest of consumers". The raising of capital and other matters are next in the hierarchy. Environment and safety--to which the noble Lord, Lord Ezra, referred--come later in the Bill. Some matters do not appear to rank in that hierarchy at all. One of them is securing a diverse, viable and long-term energy supply.
I fail to understand how objectives can be regulated by a points system according to where they appear in the Bill, which seems to be the logic of the Government. At least the matters mentioned by the noble Lord, Lord Ezra, are in the Bill, whereas the impact on the energy chain is not. I suspect that I will receive the same answer as I did to my Amendment No. 12 about the long-term impact on the upstream industry and the problems of ensuring that GEMA will take account of it. The Bill rests on the phrase "future consumers" and that is not enough. It ought to spell out the other considerations that the regulator must bear in mind when exercising his powers to protect consumers.
On Second Reading I referred to recent changes in gas trading arrangements that have the effect of increasing the cost to new entrants to the transmission pipelines, because the regulator insisted on auctions to match gas production with the ability to transmit it. That regulation was implemented without assessing the impact on long-term supply. Doubt is immediately cast in people's minds as to whether they ought to invest. If gas supply begins to languish, that will not be in the interests of consumers because they would have to use higher-cost imported gas.
Another fear looming on the horizon, of which the regulator should be bound to take account, is Ofgem's ambition to change gas and electricity trading and balancing regimes. It may make sense on paper to have a similar system for recognising that the load varies at different times of the day and week and--unlike the half-hourly electricity pool--finding ways of balancing supply and demand, but to move to a shorter balancing day for gas would significantly increase costs to the entire offshore industry--particularly the more mature fields, which depend on a regular offtake to operate efficiently. The result could be premature decommissioning of fields no longer regarded as viable, accelerating the need to import gas. Ofgem's apparent ambition to merge the two could quickly operate to the disadvantage of consumers, as auctions have done.
We all want a secure, efficient, competitive and diverse energy market, but while some of those objectives are written into the Bill others are not. How can we expect GEMA to take account of the wider objectives if there are no references to them in the Bill? My amendment would ensure that the authority will have regard to the need to secure a diverse and viable long-term energy supply. The noble Lord, Lord McIntosh, owes the Committee a better explanation of how the hierarchy is supposed to work and why some objectives have been omitted. I beg to move.
I offer a word or two of support for the noble Lord's amendment. In the 1970s and early 1980s, working out the UK's energy requirements was almost a parlour game. The only certain thing was that no one produced an accurate detailed forecast. I do not suggest that detailed forecasts of energy requirements in 20 years should be attempted now. The Magnox stations will be phased out shortly and relatively soon we shall have one nuclear power station at Sizewell and be increasingly dependent on imported gas. The oil situation is such that no one today contemplates establishing oil-fired power stations to replace anything we have or to meet future needs.
Although I have argued strongly for the retention of the coal industry in Britain, I have emphasised the need for improvements in the technology so as to enable coal to be burned cleanly. Given the enormous volume of coal that will continue to be burned in India, China and elsewhere, clean burning is clearly an international need. The last government were at fault for not giving adequate priority to research and development in that technology.
I was shocked the other day by a reference to a proposed substantial investment in wind power on the Yorkshire coast. That may be desirable--although as an environmentalist, I am not happy about the bird mortality that would inevitably result. The estimated annual output of that wind farm would be equivalent to six days of operation at a Drax power station. Opposition Members will recall that Drax power stations are flue gas desulphurised. While we may insist on a contribution from renewables, they may not provide more than the target the Government have rightly set. Not only must that target be met but also the fuel and power needs of our country. For that reason, I trust that the noble Lord accepts my support and that if I make a reference to the need for coal consumption and a mining industry in Britain, it is on the basis that they are environmentally clean.
I, too, should like to support the amendment moved by the noble Lord, Lord Jenkin, and Amendment No. 52. I do so very much for the reasons so eloquently outlined by the noble Lord, Lord Hardy. This brings us back again to the issue of the Bill being seen in the longer-term context; in other words, that decisions which simply have a short-term impact should not be taken by the authority. The securing of a diverse and viable long-term energy supply is a crucial long-term consideration. Therefore, I support the proposal that this should be included in the Bill.
As it has been grouped with these two amendments, I should like to speak to Amendment No. 46, which is tabled in my name and that of my noble friend Lady Sharp. It proposes to insert the words,
"and to safeguard the security of electricity supplies", into the new Section 3A(2)(a) of the 1989 Act, as set out in Clause 13. This is a most important issue. In the old days of the CEGB, which very few can now remember, it was quite clear that the responsibility for ensuring that the lights did not go out lay fairly and squarely on the shoulders of the board. In this more diverse situation with the Government, the new authority, the new electricity trading arrangements and the system operator being involved, together with the various companies, we now need to know who the country can expect to have the responsibility for securing electricity supplies.
The proposal here is that that responsibility should lie with the Government and the authority. If that is not so, perhaps we may hear from the Minister who does have that responsibility. When dealing with utilities and one as fundamental as electricity, I believe that this point should be made.
Perhaps I may briefly add my voice of support to the amendment moved by my noble friend. If he is right, I believe I share his perplexity. I cannot understand why what is contained within the amendment is not wholly acceptable to the Government; indeed, I thought that it contained much of what was intended to be achieved by the Bill. If my noble friend is correct in believing that the answer he will receive is that this securing of,
"a diverse and viable long term energy supply", is in some way sufficiently covered and contained within the definition of "consumers" in subsection (6), I shall consider that to be an extremely fragile basis for establishing such an important objective.
If, as the Government have been keen to emphasise, there is to be a set of, if you like, "ringing declarations" in the Bill about what is to be achieved, it would seem to me to be infinitely more desirable to set out such provisions in this clear unequivocal way rather than relying on the somewhat obscure subjection (6), which gives us a definition of "consumers".
I should like to support the amendment of my noble friend Lord Ezra, and those of the noble Lord, Lord Jenkin. We spoke earlier about the concept of hierarchy. My noble friend has reminded me that there was indeed a time when the CEGB ran a hierarchy, or a merit order, which was established in order to ensure security of supply on the part of the electricity industry.
Having moved away from the managed market of the CEGB into this much more diverse market system, it is important to recognise that the market does not necessarily provide for security of supply. Should the electricity system fail in this county, we know very well that it would not be just a matter of the lights going out; it would also be a matter of all the computers going down. Great difficulties would arise in the event of that happening. Therefore, the buck has to stop somewhere. Someone has to take responsibility for ensuring that there is security of supply in this country. It would seem obvious that the authority should take that responsibility. However, if that is not so, I repeat the question put by the noble Lord, Lord Jenkin: whose responsibility is it?
This is the Utilities Bill; it is concerned with the economic regulation of gas and electricity. As I said before, it is not an energy Bill or an energy policy Bill. The responsibilities to which the noble Lord, Lord Jenkin, and others have referred are very real; but they are the responsibilities of government. To achieve those objectives, government must exercise a wide range of policy instruments, which can include securing properly functioning utilities markets. That is the purpose of the Bill. But it can also include the management of the United Kingdom Continental Shelf and securing stability and access to overseas sources of energy.
Most of the issues regarding a diverse and viable long-term energy supply fall far outside the scope of utilities legislation, as defined in the Bill. However, that is not to say that establishing appropriate economic regulation of the gas and electricity utilities is not an important element; indeed, that is the Bill's purpose. It imposes a principal objective: to protect the interests of consumers, wherever appropriate, by promoting competition; and a duty to secure that all reasonable demands for electricity and--as far as it is economical to do so--for gas, are met. To all intents, that is ensuring security of supply in the context of utilities legislation.
The amendments proposed are, therefore, a distraction and would serve to confuse rather than enhance the framework of obligations and duties under this legislation. This is simply not the place to make a law imposing such wide-ranging duties--duties that no government could conceivably neglect. Perhaps I may assure the Committee that the Government are indeed working to ensure security of supply.
On a day-to-day basis, the markets will ensure that energy supplies are maintained. The diversity of approach and the ability to change quickly that are provided by competitive markets ensure the sort of responsive system needed to underpin security and diversity. But, of course, the Government are acting to meet their responsibility to set the framework within which the energy markets can achieve that.
The Bill makes provision for the new electricity trading arrangements, which we shall discuss next week. These will increase the incentive on generators and suppliers to ensure that adequate generation is available to meet demand. Generators and suppliers will face commercial penalties, which could be large, if they do not meet their contractual obligations. This will be an important further contribution to security of supply. The new electricity trading arrangements will also ensure that the appropriate price signals are given to bring forward new investment when this is needed, and that customers manage their demand to the benefit of energy security.
The existing framework of regulation provides for tough service standards on transmission and distribution companies. These are monitored by Ofgem, the industry regulator, and include guaranteed standards whereby the distributor must pay the customer if the service levels laid down are not met. There are also licence conditions applying to gas suppliers and transporters that lay down quantified standards of security of supply in relation to meeting demand. These are enforced by Ofgem. The measures are backed up by wide-ranging emergency powers under the Energy Act 1976. These will permit the Secretary of State to make orders regulating or prohibiting the production, supply and acquisition of fuels to ensure security of supply.
The Electricity Act also includes powers to give directions on the level of stocks and the use of generating stations. Further measures are set out in the Electricity Supply Regulations 1988, which provide for the continuity and safety of electricity supply. Those require electricity supplies to be constant except in certain limited circumstances.
We shall continue to keep strategic issues relating to diversity and security of supply under careful review. Future energy policy will increasingly be conducted in the context of global and European markets. We have been working actively with the European Commission and other member states to help to build a single European market. That will not only help to promote free trade in energy but should assist in improving the security of supply across Europe.
I hope it is clear from what I have said that there is no derogation in any way by government from their obligation, which we fully recognise, to secure a diverse and long-term energy supply. It is simply that these amendments are in the wrong Bill. Those are issues of government policy and not the economic regulation of the utilities.
In so far as they are obligations on Ofgem, they are obligations on GEMA. Nothing detracts from that. But the objectives of GEMA are set out very deliberately, as in all these cases, to ensure that it is not possible or necessary to play off one objective against another.
There is a direct analogy with the Bank of England Act 1998. There was pressure from all sides of the House to say that, in addition to the objective of price stability which was set for the Monetary Policy Committee of the Bank of England, there should be all sorts of other objectives--many proposed by Members on my own Back Benches--on exchange rates, employment and many other thoroughly worthy objectives. If a body like the Monetary Police Committee or GEMA is set a number of different objectives which are potentially in competition and conflict with each other, it does not know what to do. There must be a hierarchy and something at the top. The interests of consumers are at the top.
It does not all require legislation. Those are issues of government policy, some of which require legislation and some of which do not. I set out a whole list of legislation going back 25 years. Some of our obligations in securing a diverse and viable long-term energy supply are indeed in legislation. Some are not and do not need to be. Governments do not operate only through legislation.
We are grateful to the noble Lord for his reply. He has obviously gone into the matter in some length. But what worries me about his reply is that I think he believes it.
Having heard the arguments on this and other amendments, I cannot for the life of me see why we cannot write into this Bill that GEMA should have regard to those other government obligations. I just do not understand why some of those are included and some are not and why there has to be a sort of hierarchy.
But the Minister has been kind and given the Committee a lengthy explanation of the amendments. I am sure that the noble Lord, Lord Ezra, and others will want to consult together to see how we can best reflect our objective of having those matters included on the face of the Bill without interfering with the Government's objective of having a Bill to regulate the gas and electricity industries. We shall want to return to the matter on Report, but, with that, I beg leave to withdraw the amendment.
moved Amendment No. 41:
Page 7, line 16, at end insert--
("( ) In this section and sections 4AB and 4A, references to functions of the Secretary of State or the Authority under this Part include a reference to functions under the Utilities Act 2000 which relate to gas conveyed through pipes.").
On Question, amendment agreed to.
Clause 9, as amended, agreed to.
Clause 13 [Objectives and duties under 1989 Act]:
[Amendments Nos. 42 to 47 not moved.]
moved Amendment No. 53:
Page 10, line 25, at end insert--
("( ) In this section and sections 3B and 3C, references to functions of the Secretary of State or the Authority under this Part include a reference to functions under the Utilities Act 2000 which relate to electricity conveyed by distribution systems.").
On Question, amendment agreed to.
Clause 13, as amended, agreed to.
Clause 10 [Guidance on social and environmental matters in relation to gas]:
moved Amendment No. 54:
Page 7, leave out lines 24 to 27 and insert--
("(1) The Secretary of State shall issue guidance to enable the Authority to contribute to the attainment of any social or environmental policies, in particular policies to reduce emissions of greenhouse gases in line with the target of a 2% cut in carbon dioxide emissions by the year 2010 and any subsequent climate change targets that are adopted and any other targets set out or referred to in the guidance.").
I rise formally to move this Amendment No. 54. I emphasise the word "formally" because Amendments Nos. 55 and 60 in the name of the noble Lord, Lord Ezra, are probably more to the point than Amendments Nos. 54 and 59 standing in my name and that of the noble Lord, Lord Hardy of Wath. But there are times when I look at the progress that we are making and I wonder whether the 2 per cent cut in carbon dioxide emissions by 2010 is not rather more realistic than the target of 20 per cent which is contained in the other amendments to which I have referred.
In spite of what the Minister is bound to say in reply to the amendments, it is not at all a bad idea to insert into the Bill a certain amount of realism as to what we must achieve in terms of our objectives. The noble Lord, Lord Ezra, will speak to his amendments but the amendments in his name and that of the noble Lord, Lord Hardy, and myself are all to that end.
Perhaps I may comment on the other amendments in the group. Amendments Nos. 56, 57 and 58 in the name of the noble Lord, Lord Kingsland, seem to me to be well worth supporting. I am rather dubious about the meaning of Amendment No. 62 in the name of the noble Lord, Lord Kingsland. I suspect that it does not mean very much but, if it means something, I suspect that I do not like it at all. But the other amendments put forward by the noble Lord, Lord Kingsland, seem to me to be admirable and I want to support them in the course of formally moving this amendment. I beg to move.
I want to speak to Amendment No. 55, which is a correction of Amendment No. 54, where the figure of 2 per cent is referred to instead of 20 per cent.
As the noble Lord, Lord Beaumont, has made clear, the purpose of the amendment is to put into the legislation the very firm commitment which the Government have to a 20 per cent cut in carbon dioxide emissions by 2010. That is so firmly enshrined in government policy that it is proper that it should find its place in legislation and it is appropriate that this should be the legislation in which we place it.
It is entirely relevant to the functions of the regulator that that objective, so firmly stated and repeated by government, should be in the Bill. We know that the Government would prefer to retain a more flexible approach. Nonetheless, this is a matter of such fundamental environmental importance that we on this side of the Chamber would like to press very hard for it to be included in the Bill. I hope that, on consideration, when the Minister replies, he will accept this proposal. It is entirely in line with present government policy.
In rising to speak to this group of amendments, we wish particularly to refer to Amendments Nos. 56 to 58 and 61 to 63. We are concerned to ensure that there are sensible constraints with regard to the implementations of Clauses 10 and 14, which relate to guidance on social and environmental matters in relation to gas and electricity.
Let me make it clear that we are not opposed to the scope of these clauses; it is their effect that, if unchecked, could ultimately work against the interests of consumers, in terms both of quality of service and of price. These provisions give Ministers a discretionary power and we want to know how that power will be invoked. Under the existing framework there is an obligation on the part of the regulator to have regard to the disadvantaged, particularly the elderly and the chronically sick. That is a very good thing and at present, in response to that, approximately £1.20 per year from our electricity bills, for example, is used for energy efficiency initiatives and similar measures.
The effect of this Bill could multiply that sum. Will that benefit the consumer? And to what extent should our utility bills be used as a form of stealth tax to fund the Government's social and environmental projects? In our social security debates in this Chamber we consider winter fuel payments and other initiatives covered by the Department of Social Security and paid for from Treasury funds. We believe that this Bill provides an open ticket for the Government, in future, to mask the cost of those initiatives by placing them at the door of the licence holders in the utilities industries and, ultimately, the consumers.
Our amendments seek at the least to ensure that guidance issued by the Secretary of State pursuant to these clauses will be properly reviewed and considered at regular intervals for the long term. In particular, Amendments Nos. 58 and 63 would require any guidance issued to be laid in draft and approved by each House of Parliament. Although not regulations in the pure sense, the guidance will be used to set the framework in which the authority operates and yet, in preparing it, as currently drafted, the Secretary of State is not constrained by the Bill's regulatory objectives. We believe it to be appropriate therefore that a much higher degree of scrutiny is applied than is presently proposed. The amendments would make the issuing of guidance subject to affirmative resolution procedure.
An additional consideration which the Government must take into account in this context is the possible limitations on the powers of the Secretary of State, under Clause 14, as a result of Directive 96/92/EC, which sets out common rules for the internal market in electricity. Indeed, there is a corresponding Directive 98/30/EC for the internal market in gas.
Taking the electricity directive as an example, its purpose is to encourage the completion of the internal market in electricity and it is one of the measures adopted to establish the internal market within the European Community. The directive sees the completion of a competitive electricity market as an important step towards the completion of the internal energy market, but recognises the need to balance the opening of electricity markets to competition and the need to comply with public service obligations. In some member states the imposition of public service obligations is seen as necessary to ensure security of supply and consumer and environmental protection which free competition, left to itself, will not guarantee.
The directive allows member states, subject to Article 86 of the European Union treaty, to impose in the general economic interest public service obligations which may relate to security, including security of supply; regularity; quality and price of supplies; and environmental protection. Obligations must be clearly defined, transparent, non-discriminatory and verifiable. There is also provision for member states to derogate from the application of the provisions of the directive relating to generation and the management of networks in so far as the performance of the obligations would obstruct the performance in law or fact of obligations imposed in the general economic interest.
The scope for derogation is constrained by the requirement that the development of trade must not be affected to such an extent as would be contrary to the interests of the Community, which are defined to include, inter alia, competition for electricity customers in accordance with the directive and Article 86 of the treaty. Article 86 (formerly Article 90), provides that, in respect of public undertakings and undertakings to which member states give special or exclusive rights, member states must not enact or maintain measures contrary to the rules in the treaty, including the competition rules in Articles 81 (formerly 85) to 89 (formerly 94).
Article 86 also provides that undertakings entrusted with the operation of services of general economic interest must be subject to the rules of the treaty, including the rules on competition in so far as the application of such rules does not obstruct the performance, in law or in fact, of the specific tasks assigned to them, and provided the development of trade must not be affected to such an extent as would be contrary to the interests of the Community.
The Secretary of State will therefore, we believe, be constrained by the requirements of the directive to the extent that any guidance on social or environmental matters amounts to the imposition of a public service obligation. We question therefore how the Minister proposes to respond to that.
I do not want to delay the Committee, but would like to say that, as it stands, Clause 10, new Section 4AB, is extremely vague. It says,
"The Secretary of State shall from time to time issue guidance about the making by the Authority of a contribution towards the attainment of any social or environmental policies set out or referred to in the guidance".
We know perfectly well that the Government have a target of 20 per cent. How much better it would be to incorporate that target into the legislation.
Let me deal first with Amendments Nos. 55 and 60. I shall pass over Amendments Nos. 54 and 59.
These amendments seek to ensure that the guidance to the gas and electricity markets authority is particularly focused on the Government's policies related to climate change and more specifically to the Government's domestic target of reducing carbon dioxide emissions by 20 per cent by 2010. While I sympathise with the purpose of these amendments, which is to ensure that the guidance addresses the important issue of climate change, they are, first, unnecessary and, secondly, over-prescriptive.
As long as climate change remains an important issue in terms of the Government's environmental policies--I do not see it going away--it is not credible to suggest that the Secretary of State would choose not to include references to climate change policies and relevant targets in the guidance. In fact, paragraph 6.2 of the preliminary draft statutory guidance to GEMA already refers to both the domestic objective of reducing carbon dioxide emissions and the Government's Kyoto commitments to reduce greenhouse gas emissions.
Why should we explicitly focus on this environmental goal and not others? I ask that of the representative of the Green Party as much as anybody else. What about the objective of making prudent use of natural resources? What about the objective of generating 10 per cent of electricity from renewable resources by 2010? Focusing the guidance specifically on the issue of climate change would ultimately detract from the social dimension of the guidance. Is the Government's goal of substantially alleviating fuel poverty in the years ahead, for instance, any less worthy than that of the climate change targets?
Focusing the guidance particularly on one aspect of environmental policy is not in line with our policy intention which is to provide guidance to the authority on both the Government's environmental and social policies and objectives to enable the authority to make an appropriate contribution to our sustainable development agenda. Amendments Nos. 55 and 60 simply pick out something which is of great importance but is only one matter among many; they are sub-optimising.
I now turn to Amendments Nos. 56 and 61. They ensure that the Secretary of State will issue a new version of the statutory guidance every five years at minimum. In addition, the amendments stipulate that the guidance should be issued on a long-term basis or, in other words, that the guidance should be based on the Government's long-term social and environmental policies and objectives.
I shall clarify our thinking on these issues. Inevitably the very nature of many social and environmental issues such as global warming and fuel poverty will mean that the Government's policies and objectives in these areas will look to the longer term. I suggest that it is unnecessary to specify on the face of the Bill that the guidance should be issued on a long-term basis. The Government will clearly wish to include their long-term policies in the guidance; otherwise, GEMA would not be able to make an appropriate contribution to these policies and objectives.
However, in addition to its long-term social and environmental policies and objectives, the Government may also wish to include social and environmental policies which aim to address more short-term concerns. Amendments Nos. 56 and 61 would make that impossible. In terms of actually issuing the guidance on a long-term basis, the Government have already stated in the Green Paper that the guidance should be issued on a medium-term basis to last several years. We do not wish to issue and re-issue short-term guidance. That would be unhelpful to the authority and to regulated companies. It could also lead to regulatory instability causing the cost of capital to rise and damaging the interests of consumers.
A possible time-frame suggested in the Green Paper for re-issuing the guidance was the length of a Parliament, or a price control period--a similar time-frame to that suggested in the amendment. It would be over-prescriptive to attempt to state on the face of the Bill how often the Government should issue the guidance. If the guidance is to consist largely of the Government's long-term policies and objectives, it may well not be necessary to re-issue the guidance every five years. Therefore, much as I sympathise with the purpose of these amendments, they are over prescriptive.
I also resist Amendments Nos. 57 and 62 because they are in conflict with our policy intention in issuing guidance and because I believe they are unnecessary. While it is the Secretary of State who will decide what is included in the guidance in consultation with the authority, council and licence holders, it is the authority itself which will ultimately decide what action should be taken on the basis of the policies and objectives in the guidance.
Therefore, the only way the Secretary of State could ensure that the guidance did not impose costs on consumers would be to omit all policies whose attainment could conceivably result in the authority, in having regard to the guidance, imposing significant costs on consumers. In this way the purpose of the guidance would be undermined, as the Secretary of State would be forced to omit the vast majority of social and environmental policies and objectives of relevance to the economic regulatory activities of GEMA. The amendments are unnecessary. While the current draft of the guidance refers to some broad headline aims--such as the attainment of the UK's commitment under the Kyoto protocol--I do not accept the argument that this will automatically result in GEMA imposing unreasonable costs on consumers.
We are not suggesting that the targets and policies in the guidance are for GEMA and GEMA alone to meet. GEMA's role is to act as an economic regulator operating within a statutory framework that provides appropriate checks and balances on the scope of its activities. That said, economic regulation does have social and environmental implications and it is important that all aspects of these should be properly managed. GEMA should have the opportunity to have regard to and make appropriate contributions to social and environmental policy objectives when taking decisions in the economic sphere, and the guidance will achieve this.
The noble Baroness, Lady Buscombe, mentioned the European directive and asked what we are doing about it. We have already taken most of the steps required to comply with the directive that she mentioned. Indeed, we are well ahead of the targets set for achieving competition. There are some provisions in this Bill, such as the ending of geographical exclusivity for gas transporters--I believe that we shall discuss that matter next week--which complete the process. We are satisfied that nothing in the Bill breaches our directive obligations. However, I realise that that is a summary reply to a long and well considered intervention from the noble Baroness, Lady Buscombe. I shall write to her on the matter and send copies of the letter to other noble Lords who took part in the debate. However, I am sorry that we cannot accept the amendments.
In regard to Amendments Nos. 55 and 60, the noble Lord gave the impression that if reference was made to the 20 per cent cut in carbon dioxide emissions by the year 2010, that would imply the exclusion of many other desirable objectives. But in fact the wording of the amendments does not do that at all. The amendments state:
"The Secretary of State shall issue guidance to enable the Authority to contribute to the attainment of any social or environmental policies"-- that opens the gate to anything that the Government might wish to propose--but in particular mention the issue which is a prime objective of present government policy. It seemed to us to be entirely relevant to mention it in that context. This measure should be given further consideration but we do not propose to press it at this stage.