Sections 24 to 26: Supplementary

– in the House of Lords at 4:27 pm on 21st June 2000.

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(".--(1) The Secretary of State may make regulations prescribing--

(a) descriptions of information which the Authority, a licence holder or the Council may refuse to supply under section 24 or 26; or

(b) circumstances in which the Authority, a licence holder or the Council may refuse to comply with a direction under section 24 or 26.

(2) The Council may, if no person is prescribed for the purpose under subsection (3), refer a failure by a licence holder to comply with a direction under section 24 to the Authority.

(3) The Secretary of State may make regulations for the purpose of enabling a failure to comply with a direction under section 24 or 26 to be referred by the person who gave the direction to such person (other than the Authority) as may be prescribed by the regulations.

(4) A person to whom such a failure is referred (whether under subsection (2) or regulations under subsection (3)) shall--

(a) consider any representations made by either party;

(b) determine whether the person failing to comply with the direction is entitled to refuse to do so and, if not, order him to comply with the direction; and

(c) give notice of his determination and any order under subsection (4)(b), with reasons, to both parties.

(5) A notice under subsection (4) may be published by either party to the reference; and subsections (2) to (5) of section 25 apply to the publication of such a notice as they apply to the publication of a notice under section 24(4).

(6) Section 60 of the 1989 Act (powers to make regulations) applies to regulations under this section as if they were made under Part I of that Act.

(7) The power of the Secretary of State to make regulations under this section is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.").

On Question, amendment agreed to.

[Amendments Nos. 151 and 152 not moved.]

Clause 27 agreed to.

Clause 28 [Exemptions from electricity licensing]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

In moving Amendment No. 153, I should like to speak also to Amendments Nos. 154, 155, 181, 182, 185, 187 and 323.

Clause 28 of the Bill provides for exemptions from the requirement to hold a licence to carry out the activities otherwise prohibited by Section 4 of the Electricity Act; that is, the generation, supply, transmission and, for the future, distribution of electricity. Clause 85 is similarly concerned with exemptions from the requirement to hold a licence to carry out the activities otherwise prohibited by Section 5 of the Gas Act.

Why do we have exemptions? Smaller generators, suppliers and the like are granted exemptions because, as they operate on a limited scale or for a particular purpose, it would be unduly onerous to subject them to the full regulatory burden associated with holding a licence. For example, owners of caravan sites who take a supply of electricity or gas from the system and redistribute it to the caravans would qualify for an exemption.

Amendments Nos. 153, 154, 155 and 323 introduce a requirement for the Secretary of State to go out to consultation before granting an exemption under Clauses 28 or 85. They require him to produce a notice that sets out the exemption he proposes to make, together with the reasons why he proposes to do so.

A copy of the notice should be served on the authority and the consumer council, and it should be published so as to bring it to the attention of those likely to be affected by the exemption. Those wishing to make representations are given a minimum of 28 days in which to do so.

In the context of this new obligation to consult, Amendments Nos. 181, 182, 185 and 187 remove the granting of exemptions from the list of decisions that triggers the duty to give reasons under Clause 41 and 86. This change helps to avoid setting an unfortunate precedent, since exemptions are granted by statutory instrument and it is not usual practice to require the giving of reasons for the making of legislation. This can be distinguished, however, from the giving of reasons for a proposal to grant exemptions, as required by the new consultation procedure.

Amendments Nos. 182 and 187 have two further effects. First, in the context of the general requirement introduced for the first time by Clauses 41 and 86 to publish reasons for key decisions, they clarify the matters which the authority or the Secretary of State should consider excluding when publishing those reasons. The amendments require that matters should relate,

"to the affairs of a particular individual or body of persons", before the requirement to consider exclusion is triggered.

Secondly, they ensure that the subsection (5) exception to the duty to give reasons--a decision subject to a disapplication direction by the Secretary of State--applies whether the decision itself was taken by the authority or the Secretary of State.

I hope that the Committee can agree with me that, taken together, this package of amendments represents a strengthening of the provisions of the Bill. I beg to move.

On Question, amendment agreed to.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 154:

Page 24, line 10, at end insert--

("(1A) Before making an order under subsection (1) the Secretary of State shall give notice--

(a) stating that he proposes to make such an order and setting out the terms of the proposed order;

(b) stating the reasons why he proposes to make the order in the terms proposed; and

(c) specifying the time (not being less than 28 days from the date of publication of the notice) within which representations with respect to the proposals may be made, and shall consider any representations which are duly made in respect of the proposals and not withdrawn.

(1B) The notice required by subsection (1A) shall be given--

(a) by serving a copy of it on the Authority and the Council; and

(b) by publishing it in such manner as the Secretary of State considers appropriate for bringing it to the attention of those likely to be affected by the proposed order.").

On Question, amendment agreed to.

Clause 28, as amended, agreed to.

Clause 74 agreed to.

Clause 85 [Exemptions from gas licensing]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 155:

Page 83, line 4, at beginning insert--

("( ) In subsection (1) of section 6A of the 1986 Act (exemptions from prohibition) the words ", after consultation with the Director," shall be omitted.

( ) After subsection (1) of that section there is inserted--

"(1A) Before making an order under subsection (1) the Secretary of State shall give notice--

(a) stating that he proposes to make such an order and setting out the terms of the proposed order;

(b) stating the reasons why he proposes to make the order in the terms proposed; and

(c) specifying the time (not being less than 28 days from the date of publication of the notice) within which representations with respect to the proposals may be made, and shall consider any representations which are duly made in respect of the proposals and not withdrawn.

(1B) The notice required by subsection (1A) shall be given--

(a) by serving a copy of it on the Authority and the Council; and

(b) by publishing it in such manner as the Secretary of State considers appropriate for bringing it to the attention of those likely to be affected by the proposed order."").

On Question, amendment agreed to.

Clause 85, as amended, agreed to.

Clauses 29 and 30 agreed to.

Clause 31 [Electricity licence conditions]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 4:45 pm, 21st June 2000

moved Amendment No. 156:

Page 29, line 9, at end insert--

("(4A) After subsection (3) there is inserted--

"(3A) Conditions included in a transmission licence or a distribution licence by virtue of subsection (1)(a) may require the holder, in such circumstances as are specified in the licence--

(a) so to increase his charges for the transmission or distribution of electricity as to raise such amounts as may be determined by or under the conditions; and

(b) to pay the amounts so raised to such licence holders as may be so determined.").

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

This amendment addresses a point raised by the noble Lord, Lord Currie, at Second Reading. He rightly noted (at cols. 1167-8) the absence from the Bill of measures relating to the provision of a supplier of last resort in electricity. This relates to the appointment of a supplier to take over the customers of another supplier whose licence has been revoked or suspended by the authority other than with his consent.

As in gas, we propose that there should be two routes through which funds might be made available to finance the costs of the appointment of a supplier of last resort.

First, each supplier will be required to post some form of approved bond with a person appointed by the authority. These bonds might take the form of, for example, insurances or parent company guarantees. In the event that a supplier's licence is revoked or suspended and one or more supplier of last resort is appointed, the bond of the failed supplier may be called to finance the additional costs of the appointee.

Secondly, standard conditions in transmission and distribution licences will permit the authority to require licence holders to increase the charge they make for the transmission and distribution of electricity and to pay the moneys raised to licence holders as directed. It is intended that this levy route will be used only in the event that the moneys which could be raised by calling the failed supplier's bond were not sufficient to cover the additional costs of the supplier of last resort.

The levy route is needed because the costs of a supplier of last resort are not readily calculable in advance and so it is not clear that there is a sensible level of bond cover which could be set which would cover every eventuality. The levy spreads the top-up costs across the whole of the supply industry.

We want it to be clear on the face of the legislation that the power exists for the authority to raise such a levy. The present power in the Electricity Act (Section 7, as amended by Clause 31 of the Bill) to include conditions in a licence condition does not give that clarity. Parliament took a similar view in respect of the Gas Act provisions when considering the Gas Act 1995. It used that Act to amend the Gas Act 1986 to make express provision of just this sort.

So the levy power which this amendment creates is not new. It replicates in electricity the existing gas provision and so allows for electricity licence conditions--and hence the supplier of last resort arrangements--to be established to mirror those in gas. Indeed, the draft standard conditions of electricity licences already contain both the bond and levy conditions which I have described. I beg to move.

Photo of Baroness Buscombe Baroness Buscombe Conservative

We should like to express concern with regard to the amendment. As we read it, it would permit the imposition of additional charges for the transmission or distribution of electricity. It would allow licence conditions to be imposed on a transmission or distribution licence which require the licence holder to increase charges to raise an amount set in the condition, and then to pay that money to other licence holders as directed by the authority.

The amendment refers, as indeed does the clause, to increased charges,

"for the transmission or distribution of electricity as to raise such amounts as may be determined by or under the conditions; and ... to pay the amounts so raised to such licence holders as may be so determined".

We are concerned about this provision. What does it actually mean?

Distributors are under a duty to operate the network in a manner that can demonstrate a level playing field. They are in effect under a duty to keep their charges down. But then along comes this stealth tax, in the form of what we consider to be a very vague power.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I am disappointed to hear the reference to "stealth tax", which has not previously arisen in relation to the Bill.

First, the provisions in the amendment are already contained in the Gas Act 1986, as amended by the Gas Act 1995. They exactly mirror the provisions in those Acts, which were passed by the previous administration. As I have said, there is nothing new in this provision; it is simply being extended to electricity.

What the supplier of last resort who comes in to receive the money is doing is to provide continuity of supply when a supplier fails in whatever way. The provision must be left at large, even though it is intended to be used for this single, narrow purpose.

In determining the standard conditions of electricity and gas licences under powers in Clauses 32 and 80, the Government intend that this power shall be used only for the purposes of supporting supplier of last resort arrangements. The purpose of the power is left at large because it may be useful in some unforeseeable way in the future, but there are safeguards against its being used in the way that the noble Baroness, Lady Buscombe, fears.

If the authority decides that it wishes to use the power for other purposes, it will need to use the licence modification procedures set down in the Bill so as to amend existing licence conditions or introduce further conditions providing for the use which may be made of any levy raised. As I said in introducing the amendment, provision is made for the amendment in the draft conditions which have already been published. The licence modification procedures require that the Secretary of State be consulted and provide him with a power to veto the authority's proposal. If that veto is not exercised, the authority must still gain sufficient support within the industry for its proposals. Failing that, a reference to the Competition Commission followed by an adverse public interest finding would be necessary before the new use for the power could be established in licence conditions.

I hope that that convinces the noble Baroness not only that the powers, which have existed for a very long time in the gas industry, are not likely to be abused, but that the amendment and other provisions in the Bill make it certain that they cannot be used other than for the single and narrow purpose of ensuring continuity of supply of electricity to the customer.

Photo of Lord Borrie Lord Borrie Labour

I should like briefly to welcome the amendment. Perhaps I may say on behalf of my noble friend Lord Currie of Marylebone, who expects to be here for most of the discussion in the Committee today, that I am sure that he too would welcome the amendment, because it fills the gap that my noble friend the Minister has explained: that gap between the position in the gas industry and the position in the electricity industry.

The amendment is to deal with a very limited situation that one hopes will very rarely, if ever, arise. The noble Baroness, Lady Buscombe, will recognise that in a competitive situation--and we are all in favour of the increased competition that has already been brought about and will be developed further--there is bound to be at any rate the possibility of a supplier's failing and being unable to meet the needs of customers. The notion of the supplier of last resort is intended to fill that gap and ensure that whoever becomes the supplier of last resort and therefore ensures that customers are not without supply will be compensated.

Given the qualifications, and the limited occasions when the provision would apply, this is a helpful equating of the existing position under the Gas Act 1986 with the position in electricity.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

Like the noble Lord, Lord Borrie, I completely understand the purpose for which the amendment is required. It seems to me that it is very necessary in the new arrangements, as it was in relation to gas in the former arrangements. The problem is how it is to be quantified. In the end, the levy has to be of a sum of money. No doubt the supplier of last resort will provide the Government with his estimate of how much it will cost him to take over and re-establish the supply. Surely there must be some way of testing that: some way in which there can be, as it were, an arbitration between what he will ask for and be paid and what the rest of the industry will have to find. It is not just a question of the principle; it is a question of the quantum.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

Of course, this is a last resort of last resort. First, it is a last resort in the sense that we do not really expect electricity companies to go to the wall and fail and be in a position in which they are unable to meet the needs of electricity customers.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

I recall when I was Chief Secretary to the Treasury having to pick up the bits when Rolls-Royce went to the wall.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

That was the case.

The noble Lord asked for quantum. I am saying that, first, we do not expect it to happen, because we expect the licence conditions to be sufficient to secure what is after all an objective of the authority under the Bill, which is that suppliers shall be in a financial position to meet their obligations.

After that, the next option is that the supplier of last resort shall post some form of approved bond with a person approved by the authority. That could be insurances or parent company guarantees, as I made clear. We think that in the remote case of a supplier's failing, it is most likely that it would be possible to achieve continuity of supply through a bond. For example, a parent company is likely to wish to support a supplier of last resort.

The last resort of last resort is that one has to go to a levy. We have had to provide a rather broader power, precisely because we do not know what the levy would be. Perhaps it is a good thing that I cannot give a very precise answer on this question. It is because there has been no practical experience in the gas industry, since the 1986 Act was passed, of having to appoint a supplier of last resort and having to cover that person's additional costs.

The supplier of last resort conditions in gas supply specify what a supplier appointed by the director to be a supplier of last resort must do. He is required to use all reasonable endeavours to secure that a new meter reading is taken at the premises of each of his new customers within 14 days of his appointment and to send a notice to all his new customers explaining that their supplier has changed and setting out the terms on which they are now being supplied. Many of the customers transferred from the previous supplier probably would not grasp what was going on anyway. The supplier of last resort would be in a reasonable commercial situation.

I know that that does not address the quantum question. All I can say about how large the levy would be is that it will be as small as possible and that for a levy to be proposed to the industry as a whole the authority would have to justify in the circumstances of each case how much money was required. By definition there cannot be a general answer to the question that the noble Lord, Lord Jenkin, asks.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

I am very grateful to the noble Lord for that very helpful description. In the last resort, is this a justiciable issue? Could it be tested in the courts?

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

All the authority's decisions are in the end justiciable.

In my response to the noble Baroness, Lady Buscombe, I set out the ways in which the power would have to be used. In particular, I referred to the licence modification procedures and the need to consult the Secretary of State and gain sufficient support within the industry, as well as the possibility of a reference to the Competition Commission.

As to how far those matters apply to the issue of the size of the levy, which is the particular point raised by the noble Lord, I shall have to write to him. I suspect that we are dealing in last resorts of last resorts of last resorts.

On Question, amendment agreed to.

Clause 31, as amended, agreed to.

Clause 73 [Gas licence conditions]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 5:00 pm, 21st June 2000

moved Amendment No. 157:

Page 73, line 9, at end insert--

("( ) After subsection (2) there is inserted--

"(2A) Where the Authority proposes to refuse the application, it shall give to the applicant a notice--

(a) stating that it proposes to refuse the application;

(b) stating the reasons why it proposes to refuse the application; and

(c) specifying the time within which representations with respect to the proposed refusal may be made, and shall consider any representations which are duly made and not withdrawn."").

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I rise to move Amendment No. 157. I should like to speak also to Amendments Nos. 158 to 179, 288, 290, 291, 297, 298, 310, 311, 324 to 326, 330, 335, 336, 341 and 348. I acknowledge that this is a large group comprising 39 amendments, but I hope that the Committee takes comfort when I say that all of them are designed to do no more than tidy up the existing provisions of the Bill and the Gas and Electricity Acts. They stem from our desire to align the electricity and gas regulatory regimes as far as possible. This group of amendments covers a number of themes related to licences and licensing. We have organised the amendments within this group under those themes with the intention to help structure the debate. The themes are: gas licence conditions; standard conditions of licences; collective licence modifications; licence modification references to the Competition Commission; and a few minor miscellaneous amendments.

I begin with gas licence conditions, which are dealt with in Clause 73. Two of these amendments are worth a quick mention. The remaining three, Amendments Nos. 158, 159 and 325, are minor tidying-up amendments. Amendment No. 157 provides that the authority shall give reasons to an applicant for a gas licence should it propose not to grant a licence. This brings gas into line with the provisions in Clause 29 in relation to electricity licences. Amendment No. 160 delegates to the authority the power to make regulations in relation to applications for gas licences. We have already made a similar provision for electricity in Clause 29. The Government consider it is appropriate that the authority, which will be solely responsible for granting all licences, should have the power to specify the information it requires in order properly to assess applications.

The second group is concerned with standard conditions of licences (Clauses 32 and 80). There are five amendments in this group, four of which--Amendments Nos. 161, 169, 170 and 325--are related to the same point. They provide that the standard conditions to be included in electricity or gas licences granted after the establishment of the standard conditions by the Secretary of State should incorporate any changes which have been made to the standard conditions under powers elsewhere in the Electricity and Gas Acts respectively. The remaining amendment, Amendment No. 162, merely attempts to clarify the meaning of subsection (10)(b) of the new Section 11A inserted by Clause 32.

There are five collective licence modification amendments in Clauses 34 and 81: Amendments Nos. 163, 171, 172, 173 and 298. Four are minor tidying-up amendments of no significance. Amendment No. 172 corrects a small but significant drafting error in Clause 81 which relates to the tests which the authority is to apply in order to determine whether the level of opposition to a proposed collective licence modification is sufficient to prevent it proceeding with the modification. Without this amendment, the statutory frameworks for gas and electricity collective licence modification would be markedly different one from the other. The intention is, of course, that they should be the same.

The next group, comprising 10 amendments, deals with references to the Competition Commission in Clauses 35 to 39 and 82. All of these amendments are minor or consequential. Briefly, Amendments Nos. 164 and 291 are similar in nature and extend the definition of "relevant conditions" and "relevant licence" holder used elsewhere in the Electricity Act 1989 and the Gas Act 1986 to the Competition Commission's new power to veto licence modifications in Clauses 38 and 82.

Amendments Nos. 165 and 175 serve to clarify that the Competition Commission may veto proposed electricity licence modifications which do not go far enough to remedy or prevent adverse effects identified in its report as well as those that go too far. Identical amendments, Amendments Nos. 166 and 176, clarify that where the Competition Commission exercises its veto it may in turn modify only relevant conditions of licences as defined in the Electricity Act and Gas Act respectively. Identical amendments, Amendments Nos. 167 and 177, clarify that where the Competition Commission has vetoed collective gas or electricity licence modifications, the holders of such licences should be notified and receive notice of the Competition Commission's own proposed modifications. Amendments Nos. 168 and 178 provide for the consequential modifications to electricity and gas licences that might be necessary following modification by the Competition Commission of the standard conditions of a type of licence.

There are 11 amendments in the miscellaneous group: Amendments Nos. 288, 290, 297, 310, 311, 326, 330, 335, 336, 241 and 348. These amendments are related to licences and licensing but do not share any common theme. They are minor and technical amendments of no real consequence. I beg to move Amendment No. 157.

On Question, amendment agreed to.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 158 to 160:

Page 73, line 11, leave out from ("for") to second ("and") in line 12 and insert (""section 4 or 4A above" there is substituted "sections 4AA, 4AB and 4A"").

Page 73, line 28, after ("described") insert ("in the licence"").

Page 73, line 29, at end insert--

("( ) After subsection (10) there is inserted--

"(11) In this section "prescribed" means prescribed in regulations made by the Authority."").

On Question, amendments agreed to.

Clause 73, as amended, agreed to.

Clause 32 [Standard conditions of electricity licences]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 161 and 162:

Page 29, line 30, after ("shall") insert (", subject to such modifications of the conditions made under Part I of the 1989 Act after the determination under this subsection,").

Page 30, line 47, at end insert ("being modified)").

On Question, amendments agreed to.

Clause 32, as amended, agreed to.

Clause 33 agreed to.

Clause 34 [Modification of standard conditions of licences]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 163:

Page 33, line 29, leave out ("standard conditions") and insert ("anything done").

On Question, amendment agreed to.

Clause 34, as amended, agreed to.

Clause 35 [Electricity licence modification references]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 164:

Page 34, line 26, leave out ("and 14") and insert (", 14 and 14A").

On Question, amendment agreed to.

Clause 35, as amended, agreed to.

Clauses 36 and 37 agreed to.

Clause 38 [Competition Commission's power to veto modifications following report]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 165 to 168:

Page 36, line 34, after ("be") insert ("the modifications which are").

Page 36, line 43, after ("modifications") insert ("of the relevant conditions").

Page 37, line 30, at end insert ("or, as the case may be, the relevant licence holders").

Page 37, line 34, at end insert--

("(8A) Where, in consequence of a reference under section 12(1A), the Commission modifies under subsection (4)(b) the standard conditions of licences of any type, the Authority may make such incidental and consequential modifications as it considers necessary or expedient of any conditions of licences of that type granted before that time.

(8B) Where the Commission modifies the standard conditions of licences of any type as mentioned in subsection (8A) the Authority--

(a) shall make (as nearly as may be) the same modifications of those conditions for the purposes of their incorporation in licences of that type granted after that time; and

(b) shall publish the modifications made for those purposes in such manner as it considers appropriate.

(8C) The modification under this section of part of a standard condition of a particular licence in consequence of a reference under section 12(1) shall not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of this Part.").

On Question, amendments agreed to.

Clause 38, as amended, agreed to.

Clause 39 agreed to.

Clause 80 [Standard conditions of gas licences]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 169 and 170:

Page 77, line 1, after ("shall") insert (", subject to such modifications of the conditions made under Part I of the 1986 Act after the determination under this subsection,").

Page 77, line 6, after ("licences)") insert ("--

(a) the words "and sections 23(2), 26(1A) and 27(2) below" shall be omitted; and

(b)")

On Question, amendments agreed to.

Clause 80, as amended, agreed to.

Clause 81 [Modification of standard conditions of gas licences]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 171 to 173:

Page 77, line 13, at end insert ("; and

(b) after "the holder of the licence" there is inserted "being modified".").

Page 77, line 45, leave out ("or") and insert ("and").

Page 78, line 2, at end insert ("or").

On Question, amendments agreed to.

Clause 81, as amended, agreed to.

Clause 82 [Modification of licence conditions following Competition Commission report]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 174 to 179:

Page 78, line 46, at end insert--

("( ) After subsection (5) of that section there is inserted--

"(6) The modification under subsection (1) of part of a standard condition of a particular licence in consequence of a reference under section 24(1) shall not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of this Part."").

Page 79, line 20, after ("be") insert ("the modifications which are").

Page 79, line 29, after ("modifications") insert ("of the relevant conditions").

Page 80, line 15, at end insert ("or, as the case may be, the relevant licence holders.").

Page 80, line 19, at end insert--

("(8A) Where, in consequence of a reference under section 24(1A), the Commission modifies under subsection (4)(b) the standard conditions of licences of any type (that is to say, licences under section 7 or section 7A(1) or 7A(2)) the Authority may make such incidental and consequential modifications as it considers necessary or expedient of any conditions of licences of that type granted before that time.

(8B) Where the Commission modifies the standard conditions of licences of any type as mentioned in subsection (8A) the Authority--

(a) shall make (as nearly as may be) the same modifications of those conditions for the purposes of their incorporation in licences of that type granted after that time; and

(b) shall publish the modifications made for those purposes in such manner as it considers appropriate.

(8C) The modification under this section of part of a standard condition of a particular licence in consequence of a reference under section 24(1) shall not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of this Part."").

Page 80, line 45, at end insert--

("( ) In section 27 of that Act (modification of licences by order under enactments other than the 1986 Act), after subsection (1) there is inserted--

"(1A) The modification under subsection (1)(a) of part of a standard condition of a particular licence in consequence of a reference under section 24(1) shall not prevent any other part of the condition from continuing to be regarded as a standard condition for the purposes of this Part."").

On Question, amendments agreed to.

Clause 82, as amended, agreed to.

Clause 84 agreed to.

The Deputy Chairman of Committees:

There has been a wrong placing of Amendment No. 180. It will come after Amendment No. 181.

Clause 40 agreed to.

Clause 41 [Reasons for decisions under the 1989 Act]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 180:

Page 41, line 6, at end insert--

("( ) A notice under subsection (2) shall, in particular, contain details of--

(a) how the decision is proportionate; and

(b) how it complies with the Human Rights Act 1998.").

Photo of Lord Kingsland Lord Kingsland Conservative

In moving the amendment I speak also to Amendments Nos. 183, 184, 186, 188 and 189.

Amendment No. 180 has a twin amendment, Amendment No. 186. The issue is straightforward. Clause 41 of the Bill sets out the circumstances in which reasons for the decisions under the 1989 Act are given. The clause applies to seven decisions. Clause 41(2) states:

"As soon as reasonably practicable after making such a decision the Authority or the Secretary of State shall publish a notice stating the reasons for the decision in such manner as it or he considers appropriate for the purpose of bringing the matters to which the notice relates to the attention of persons likely to be interested".

Amendments Nos. 180 and 186 simply wish to add an obligation to be contained in the notice requiring the authority or the Secretary of State to say how the decision is proportionate and how it complies with the Human Rights Act 1998.

I do not see how the amendment could be objectionable to the Government. The Government introduced the Human Rights Bill into this Chamber in 1997. It became an Act the following year and is due to come into force in October 2000. I am in no doubt that those who are the subject of any decision taken under Clause 41 will scrutinise carefully the notice to see whether it conforms with the provisions of the European convention. In my submission it can only be in the interest of the Secretary of State or the authority to explain in exactly what way he or it believes that the decision has conformed with the terms of the convention.

Clause 58, concerning electricity, and Clause 94, concerning gas, insert new provisions into Sections 27A to F of the Electricity Act and Sections 30A to F of the Gas Act. They give the authority power to impose penalties for contravention of relevant conditions or requirements or failure of performance standards. As I am sure the Committee is aware, relevant conditions or requirements are defined under the Acts and amplified by the Bill.

The penalty has to be reasonable in all the circumstances but is otherwise wholly unconstrained. If the licence holder is aggrieved by inter alia the imposition or amount of the penalty, it may make an application to the court. If the court is satisfied that the imposition of the penalty was not within the power of the authority, it can quash or reduce it.

The Opposition take the view that procedures introduced by the new provisions constitute the determination of a civil right or obligation under Article 6 of the European Convention on Human Rights and, therefore, should provide a fair and public hearing before an independent and impartial tribunal. The provisions before the Committee do not do so because the authority is not independent of the executive. It is involved in the imposition of licence conditions, relevant requirements and setting performance standards; and there is no provision for an oral hearing.

It is true that the Government have furnished us with a procedure that they describe as a right of appeal. However, that right of appeal is no more than a narrowly confined right of review--a sort of judicial review "minus". In our submission it cannot cure the deficiencies of these procedures.

The amendments offer two alternative forms of appeal: the first based on the telecoms analogue contained in Statutory Instrument 1999 No. 3180; and the other based on the Competition Act model. Amendment No. 183, which refers to electricity, and Amendment No. 188, which refers to gas, insert new sections into Section 49B of the Electricity Act and Section 38B of the Gas Act, giving broader grounds of appeal from all relevant decisions of the authority including a decision to impose a penalty under the new Section 27A or 30A: that is, an appeal to the court on grounds of material error of fact, material procedural error, error of law or other forms of illegality including unreasonableness or lack of proportionality.

Amendment No. 184, dealing with electricity legislation, and Amendment No. 189 dealing with gas legislation, insert, as an alternative, new sections into the Electricity and Gas Acts giving even broader grounds of appeal, again from all relevant decisions of the authority including a decision to impose a penalty under the new Section 27A or 30A. Thus, the Opposition have helpfully provided the Minister with two alternative approaches from which he has the luxury of choice.

I want to comment, now, in more detail on the Government's so-called right of appeal. Under the new Section 27E, a licence holder can make an application to the court if it is aggrieved over the amount of the penalty. But there is no provision which would enable the court to find that the amount was unreasonable. In other words, the right of appeal is in reality a narrowly confined right of review rather than a proper right of appeal and does not even appear to offer similar grounds of review to those available on an application for judicial review.

As a court would not normally substitute its own findings of fact, it is not clear how a court would exercise the power to substitute another penalty from that originally imposed by the authority, or the power to substitute a different payment date from that originally prescribed.

Moreover, it is not clear whether the provisions in new Section 27E(3) are intended to take the place of any right on the part of a licence holder to bring an action for judicial review on the lawfulness of the actions and the authority in imposing the penalty. Are the provisions intended to provide the only right of redress for a licence holder?

That view appears to be supported by new Section 27E(8), which provides that:

"Except as provided by this section, the validity of a penalty shall not be questioned by any legal proceedings whatever".

Here we have a fine example of a classic ouster clause. It would preclude a licence holder from taking any further form of action, or even to seek an appellate review of a decision of the court. On that basis, it would not appear to be open to an aggrieved licence holder to apply to the court for a determination as to whether the authority has acted lawfully, reasonably and fairly in imposing a penalty, or has made a material error of fact in imposing a penalty.

In the Standing Committee debate in another place, the Opposition argued that the appeal procedure was extremely limited and contended that the first ground of appeal in Section 27E(4) was similar, though more restricted, to a provision for a judicial review and as such precluded an appeal on the fine itself or the actual facts, limiting it to a view on the basis of whether the authority acted in a quasi-judicial and fair manner, regardless of the decision made. The fine could therefore be unreasonable under an objective assessment but provided the authority regarded it as reasonable, and the authority had taken all steps to enable it to take that view, there could be no appeal.

We also argued that the second ground of appeal in Section 27E(4) was confined to procedural matters and that the third ground of appeal in Section 27E(4) was restricted to the timing of payment of the fine but that there were no grounds for appeal on the quantum or reasonableness of the fine.

We believe that as the authority will be the body responsible for establishing and enforcing obligations--for example, under the Electricity Act 1989--and for setting standards of performance, and for determining whether there has been a contravention of the Act or failure to achieve a standard of performance, and for imposing financial penalties, there should be a full right of appeal against the decisions of the authority. In this respect, the arrangements under the Bill are wholly inadequate. It should be possible to challenge a substantive decision of the authority in respect of any particular matter or to challenge that it has made a material error of fact or law.

I have already said that the remedy provided is less than that provided by judicial review and does not provide a full and proper appeal to an independent tribunal. As such, there must be considerable doubt whether the arrangements will be consistent with the Human Rights Act.

In the debate in Standing Committee in the other place (cols. 565 and 566), the Government maintained that no amendments were necessary and they referred to the explicit provision in new Section 27E(3) which allows the court, on an application from the licence holder concerned, to quash the penalty or substitute such lesser penalty as it considers appropriate in all the circumstances.

The Government maintained that it would be odd to insert these provisions if they did not intend licence holders to have the right to challenge the authority's decisions. The Government also argued that there was an inherent power of the judiciary to ensure that the executive complied with the will of Parliament as expressed in statute; and that the Bill was explicit that the reasonableness criteria should apply and that this was a term recognised in the United Kingdom courts. However, they suggested that ministerial references to reliance on reasonableness could be invoked in support in court.

It is likely that the provisions in Clause 58, in their present form, will be the subject of an application in due course to the court under the Human Rights Act 1998 on the ground that an aggrieved licence holder does not have unfettered access to an independent appeal tribunal which has power to examine all aspects of the contested decision involving a financial penalty.

We have suggested two alternative approaches to resolve the problem. The Minister is aware that an appeals procedure can be found in the Telecommunications (Appeals) Regulations 1999, which came into effect on 20th December 1999. The regulations provide an appeals procedure for a range of decisions of national regulatory authorities in respect of telecommunications in accordance with Article 1(6) of Directive 97/51/EC and Articles 5(3), 9(4), 9(6) and 19 of Directive 97/13/EC, which require member states to ensure that suitable mechanisms exist at national level under which a party affected by a decision of the national regulatory authority has a right of appeal independent of the parties involved.

Under the regulations, a new Section 46B is inserted into the Telecommunications Act 1984 which provides for an appeal against certain decisions of the Secretary of State and the Director-General of Telecommunications. An appeal can be made on one or more of the following grounds: namely, that a material error as to the facts had been made; that there was a material procedural error; that an error of law had been made; that there was some other material illegality, including unreasonableness or lack of proportionality. An appeal lies to the High Court or, for Scotland, to the Court of Session.

We recognise that the regulations apply only to appeals against the decisions specified in the regulation and that the regulations were introduced to meet the requirements of EC directives and as such they have no direct effect on the issues being raised by the electricity and gas companies. However, the provisions for appeals under the regulations address the concerns of these industries and it is difficult to see why the Government are not prepared to consider an equivalent arrangement for appeals against decisions under Clause 58. Indeed, the arrangements in the regulations provide a model which could be of general application in providing a basis for appeal by an agreed body from the decision of a regulatory body. I beg to move.

Photo of Lord Borrie Lord Borrie Labour

My Lords, the noble Lord, Lord Kingsland, has ranged widely in his closely argued submission, and properly so, because he has addressed himself to a range of amendments which are grouped together and he has discussed all of them. I do not propose to do that. I simply want to raise an issue regarding what I believe was a fundamental theme running through his remarks.

He said that the court, right of appeal to which is provided for in Clause 58, cannot review whether or not the amount of the penalty is reasonable. I believe that I quote correctly the noble Lord, Lord Kingsland, in saying that the court will have no right to say that the amount of the penalty is unreasonable. The noble Lord quoted from Clause 58.

However, we should bear in mind that the clause states that the penalty imposed by the authority must be reasonable in all the circumstances of the case; that is, the authority has power only to impose a penalty which is reasonable in all the circumstances of the case. We should also bear in mind the other part of Clause 58 which states that a ground for appeal to the court exists if the imposition of the penalty was not within the power of the authority.

In my submission, if the authority imposes a penalty which is not reasonable in all the circumstances of the case, it will have acted ultra vires (to use the English that we must all use nowadays in this regard) and the penalty will be beyond the powers of the authority. Therefore, the court may turn it down on that basis. I am referring to subsection (4) on page 58 of the Bill which states that:

"The grounds falling within this subsection are--

(a) that the imposition of the penalty was not within the power of the Authority under section 27A".

That is a fundamental point in the noble Lord's argument and it does not seem to me that he is entirely right in that regard.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 5:30 pm, 21st June 2000

I am grateful to the noble Lord, Lord Kingsland, for one thing: the concept of twinned amendments. I wish that I had thought of that. It makes it much easier to understand the proliferation of amendments, some of which relate to gas and some of which relate to electricity. Of course, I am familiar with the arguments that he adduced with regard to ECHR compliance. We debated that issue on a number of occasions during discussion on the Financial Services and Markets Act and I am glad that he has not lost his skill in presenting his case.

The amendments deal broadly with the ECHR compatibility of decisions taken by the Secretary of State and/or the gas and electricity markets authority in relation to licences and the appropriateness or otherwise of provisions by which licence holders may challenge those decisions.

Amendments Nos. 180 and 186 seek to ensure that any notice published under the new sections (inserted by Clauses 41 and 86 respectively) of the Electricity Act 1989 or the Gas Act 1986 which sets out the reasons for the key decisions listed in those new sections should contain details of how the Secretary of State or the authority have ensured that the decision is proportionate and compliant with the Human Rights Act 1998 and, therefore, with the European convention.

A key point with regard to the amendment is that it would not secure compliance. Under Section 6 of the Human Rights Act, it will be unlawful for any public authority to act in a way which is incompatible with the European convention. However, nothing in the Human Rights Act 1998 requires public authorities to explain how each decision that they take is compliant with the convention. Even if it did so require, an explanation would not ensure that the decisions were compliant. Whatever was asserted by such an authority, ultimately it would be for the courts to decide whether a decision was compliant. Therefore, the amendment does not add anything in that respect.

By requiring the authority and the Secretary of State to give reasons for their key decisions--they are set out in Section 49A, inserted by Clause 41--the Bill helps interested parties to judge for themselves whether decisions are compliant with the European convention and to take appropriate action if they believe that they are not.

Each amendment also requires the notice to contain details of how the decision is proportionate. It does not say what is meant by "proportionate" in this context. The concept of proportionality is, of course, one which applies under the European convention. If the word is used here in the sense that it is used in the human rights context, it is covered by the second limb of the amendment. If it means something else, I must ask what that is. It is hardly to be supposed that the authority or the Secretary of State will say that their decisions are not proportionate in the sense of "reasonable". Therefore, I am afraid that I cannot accept Amendments Nos. 180 or 186.

Amendments Nos. 183, 184, 188 and 189 would make all the decisions taken by the authority and/or the Secretary of State in relation to licence holders--including, but not limited to, those for which reasons must be given under the Bill--appealable to the High Court or, in Scotland, the Court of Session; and/or an appeals tribunal of the Competition Commission. The grounds for appeal to the High Court include material error as to the facts, material procedural error, an error of law and some other material illegality, including unreasonableness or lack of proportionality.

I believe that it is helpful to look at the issues raised by these amendments in order to distinguish the different kinds of decision which can be taken by the Secretary of State or by the authority. Some decisions fall into a category that, broadly speaking, sets the framework for regulation; that is, decisions such as the determination of specific licence conditions. In those cases, it is appropriate that the route of appeal should be to the reporting arm of the Competition Commission, which is well placed to take a view on this type of public interest decision.

Other decisions, such as those in relation to the granting or revocation of licences, or enforcement, have more to do with the application of the rules as they stand. In such cases, judicial review provides an appropriate right of challenge.

A third category of decision may require grounds for challenge that go beyond that of judicial review; for example, in the case of financial penalties the Government have provided for companies to challenge both the imposition and the amount of a penalty in the courts. In examining whether the amount of a penalty was reasonable in all the circumstances of the case, which it must be if the authority is acting within its powers, we believe that a court would be bound to consider the facts underlying the case. Therefore, those grounds of appeal go beyond judicial review.

The point that I make is that for each of the three types of decision the Government have provided a right of review that is appropriate to the case. By contrast, the amendments seek to impose a blanket provision for all decisions to be subject to exactly the same appeals procedures in the High Court and/or an appeals tribunal of the Competition Commission. We do not believe that that is the right way forward.

The noble Lord, Lord Kingsland, set out in some detail the analogies that he sees between these provisions and those of, first, the Competition Act and, secondly, the telecommunications appeals regulations. We do not believe that those analogies are sound.

I turn first to the Competition Act. In many cases, the nature of the decisions involved under the utilities Acts and under the Competition Act are quite different. Under the utilities statutes, decisions may fall into a range of categories of the kind that I have set out. A number of types of appeal may be appropriate, ranging from a route of appeal to the reporting arm of the Competition Commission, where a public interest-type decision is involved, through judicial review and into cases where something beyond judicial review is provided for, as in the case of financial penalties. The important point is that the right of appeal is appropriate to the type of decision.

A decision under the Competition Act about whether or not one of the prohibitions on anti-competitive behaviour has been breached is a determination as to how the law, which is to be interpreted in accordance with existing jurisprudence, applies to the facts. The appeal is heard by the appeal tribunal of the Competition Commission which is headed by the president, who has status equivalent to that of a High Court judge. Again, the important point is that the right of appeal is appropriate to the decision.

The noble Lord, Lord Kingsland, also referred to the Telecommunications Appeal Regulations 1999. As he rightly said, those were introduced in response to the requirements of the European Commission directives on telecom licensing and ONP, which, among other things, required member states to provide an appeals mechanism against certain regulatory decisions in the telecommunications sector. I thought that I heard him recognising that that directive is telecoms-specific and does not apply to the gas and electricity sectors, although he is at liberty to argue that it should apply.

The important point is that the rights of appeal against regulatory decisions in the gas and electricity sectors should be appropriate to those decisions. For example--I am repeating myself to some extent--the Government have provided for electricity companies to challenge the imposition of financial penalties on the following grounds: that the imposition of the penalty was not within the power of the authority under Section 27A; that any of the procedural requirements of subsections (2) to (4) or subsection (6) of Section 27A, which are concerned with the giving of notice, had not been complied with in relation to the imposition of the penalty, and that the interests of the operator had been substantially prejudiced by that non-compliance; or that it was unreasonable of the authority to require the penalty imposed, or any portion of it, to be paid by the date or dates by which it was required to be paid.

The Government believe that the provisions on financial penalties go further than judicial review and allow for appeal on similar grounds to those provided under the Telecommunications (Appeals) Regulations 1999, which include material factual or procedural error, error of law or some other material illegality. A court considering whether the imposition of a penalty was within the authority's powers would have to consider whether the penalty was, as the noble Lord, Lord Borrie, quoted,

"of such amount as is reasonable in all the circumstances of the case".

The court would therefore have to consider the circumstances or facts of the case.

It is important to stress that a company will be able to challenge the imposition and the amount of any penalty. New Section 27A of the Electricity Act 1989 and new Section 30A of the Gas Act 1986 give the authority the power to impose only such a penalty as is reasonable in all the circumstances of the case. If it is not reasonable in all the circumstances, its imposition will not be within the power of the authority under that section. Accordingly, if a company challenges the amount of a penalty on the grounds that its imposition was not within the authority's power under Section 27A of the Electricity Act or Section 30A of the Gas Act--which the Bill expressly makes a ground of challenge--the court will have to consider whether it was reasonable in all the circumstances. If it does not think so, it may quash or lower the penalty, as it thinks appropriate.

In all those respects, the Bill conforms with the requirements of the European Convention on Human Rights, with the Human Rights Act 1998, and with the objective of ensuring justice in these matters--an objective that I think that the noble Lord, Lord Kingsland, shares.

Photo of Lord Kingsland Lord Kingsland Conservative

I thank the Minister for his responses. Our reason for tabling the twinned Amendments Nos. 180 and 186 was not that we thought that the Government were under an obligation under the convention to explain exactly how they have fulfilled the proportionality criteria.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I think that the noble Lord means for the authority to do so in relation to each decision. That would be the effect of the amendments.

Photo of Lord Kingsland Lord Kingsland Conservative

Or the Secretary of State. The intention is to avoid needless litigation by requiring the authority or the Secretary of State to provide sufficient information on the facts so that anybody who is concerned about a decision can be satisfied that the Government have arrived at it properly. In that respect, we are trying to be helpful to the Secretary of State and the authority. There can surely be no objection in principle to such a clause. If the Government are convinced that they have to comply with the principle of proportionality, I see no reason why they should not have to comply with the requirements of the principle in a particular set of circumstances.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

That is what Clause 41 does. New Section 49A to the 1989 Act gives a full list of the key decisions of the authority or the Secretary of State for which reasons have to be given.

Photo of Lord Kingsland Lord Kingsland Conservative 5:45 pm, 21st June 2000

The giving of reasons and satisfying the principle of proportionality are two entirely different things. Someone can give reasons for a decision that is disproportionate.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

The amendment would merely ask for a statement from the Secretary of State or the authority that the decisions are proportionate. Neither is likely to say, "These are my reasons. They are not proportionate".

Photo of Lord Kingsland Lord Kingsland Conservative

The amendment would require the Secretary of State or the authority to say in what way the decision was proportionate. They would have to set out the facts to demonstrate that the decision was not excessively penal. We may well return to that point on Report.

The Minister also talked about the range of decisions that the authority or the Secretary of State will have to make, the different circumstances in which each decision is made, and the inappropriateness of having a uniform appeals procedure for so many unpredictable events. If that is true for the appeals procedure that we propose, it must also be true for the procedure that the Government propose. With great respect to the Minister, I am not impressed by his argument. Perhaps he should have accepted that there should be a different appeals procedure to fit every decision procedure but that it should satisfy a minimum standard of review or appeal, which should reflect the fundamental principles in the European convention.

As the noble Lord, Lord Borrie, said--this point was endorsed by the Minister--the grounds under new Section 27E(4)(a), in Clause 58, for challenging the authority's decision under the new procedures introduced by the Bill include the submission that the imposition of the penalty was not within the power of the authority under new Section 27A.

However, that does not empower the court to reopen the underlying facts of the case that gave rise to the authority's decision. Under Section 27A(1), the authority needs only to be satisfied that a contravention has occurred or is occurring. The Minister maintains that the court can look at the facts, because the authority has to impose a penalty that is reasonable in all the circumstances. In contrast, we say that that confuses two issues: the authority's power to impose a penalty and the amount of that penalty. The two alternative forms of appeal that we are putting forward would allow the court or the tribunal to review the underlying facts. In our submission, that option is not open in the procedure set out by the Government.

The Minister rightly recognised that the telecoms model, which the Opposition have tabled as one alternative, is telecom specific because the Government were obliged to introduce the procedure as a result of the European Community directive. But I should like to leave the Minister with this thought. Why is something that is considered appropriate to telecommunications as a public utility not appropriate to electricity and gas as public utilities? Is there something about the nature of decision-making in the telecoms industry which requires the rights of licensees in that industry to be so much greater than those for electricity and gas? I do not expect the Minister to respond to that now but he may wish to reflect on it.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I have responded to it already. I went into some detail as to what is the important issue in what is being proposed by the Opposition; namely, the extension of rights under appeal under the telecommunications appeal regulations to gas and electricity. As I said, there are different kinds of decision, different from those relating to telecommunications. The right of appeal which is provided in the Bill is appropriate to those three types of conditions. There is no less protection in the Bill than there is in the telecommunications appeal regulations. It is just that the protection is more appropriate to gas and electricity.

Photo of Lord Kingsland Lord Kingsland Conservative

I thank the noble Lord the Minister for generously providing me with that response. My thesis is that the Minister's last remark cannot be right on the face of the Bill. But we now have an extensive account of what has occurred in the debate on the amendments on the face of Hansard. In begging leave to withdraw my amendment, between now and Report stage I shall read that account and the Minister can be reasonably confident that we shall return to this matter at Report stage.

Amendment, by leave, withdrawn.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 182:

Page 41, line 11, leave out from beginning to ("resulting") in line 18 and insert ("In preparing a notice under subsection (2) the Authority or the Secretary of State shall have regard to the need for excluding, so far as that is practicable, any matter which relates to the affairs of a particular individual or body of persons (corporate or unincorporate), where it or he considers that publication of that matter would or might seriously and prejudicially affect the interests of that individual or body.

(5) This section does not apply to a decision").

On Question, amendment agreed to.

[Amendments Nos. 183 and 184 not moved.]

Clause 41, as amended, agreed to.

Clause 86 [Reasons for decisions under the 1986 Act]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 187:

Page 85, line 1, leave out from beginning to ("resulting") in line 8 and insert ("In preparing a notice under subsection (2) the Authority or the Secretary of State shall have regard to the need for excluding, so far as that is practicable, any matter which relates to the affairs of a particular individual or body of persons (corporate or unincorporate), where it or he considers that publication of that matter would or might seriously and prejudicially affect the interests of that individual or body.

(5) This section does not apply to a decision").

On Question, amendment agreed to.

[Amendments Nos. 188 and 189 not moved.]

Clause 86, as amended, agreed to.

Clause 42 agreed to.

Clause 87 agreed to.

Clauses 43 to 46 agreed to.

Clause 47 [Additional terms of connection]:

Photo of Baroness Buscombe Baroness Buscombe Conservative

moved Amendment No. 190:

Page 50, line 11, after ("negligence") insert ("or breach of contract").

Photo of Baroness Buscombe Baroness Buscombe Conservative

In moving this amendment, I shall speak also to Amendment No. 191. These amendments concern the nature of the relationship between distributor and customer. Under the new arrangements for the supply of electricity, customers will have a direct contractual relationship with the supplier who sells them electricity but the customer's connection to the network will remain the responsibility of a distributor.

Clause 43, which amends Sections 16 and 17 of the Electricity Act 1989, places a statutory duty on distributors to make and maintain a connection to premises if required to do so by the customer or a supplier acting on the customer's behalf.

Clause 47, which amends Section 21 of the 1989 Act, permits distributors, as part of the arrangements for such a connection, to limit their liability to the customer for economic loss which arises from the distributor's negligence.

There is one crucial issue which the DTI has, with respect, been unable to answer; namely, whether the distributor-customer relationship is entirely statutory or whether the initial statutory obligation then triggers a contractual relationship.

Amendment No. 190 asks whether the relationship between the customer and the distributor is contractual by extending the limitation of liability to loss arising from breach of contract by the distributor.

Clause 48, which substitutes a new section for Section 22 of the 1989 Act, permits customers to enter into a special agreement with a distributor under which the terms of the connection would be agreed between them outside of the statutory framework provided by Clause 43. However, unlike the present Section 22, no provision is made for the distributor to be able to compel a customer to do so.

While a distributor may agree to connect a customer only subject to certain safeguards--for example, providing security for costs--we believe that there will be some instances when the nature of the connection will impose additional burdens on the distributor, who should have the ability in such cases to require the customer to agree the terms of connection contract outside of the statutory framework. Amendment No. 191 would enable the distributor to do so where it was reasonable in all the circumstances. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

Amendment No. 190 would mean that a person requiring a connection could be required by a distributor to accept terms which would limit the distributor's liability to that person in respect of economic loss resulting from a breach of contract.

The Government are opposed to this amendment on legal and policy grounds. From the point of view of the law, we are not convinced that a court would conclude that terms agreed under Section 16A form a contract. Our reasons are as follows. Sections 16(1) to (3) place a duty on distributors to make a connection when required to do so. That duty encompasses not just the making of the connection but the subsequent maintenance of it for so long as the connection is required.

The terms themselves which are mentioned in Section 16(3) and 16A form the basis of a statutory agreement which governs the performance of and adds a gloss to the statutory duties in Section 16(1) and (2). We would not expect any terms derived from these provisions to be regarded as terms of an ordinary and independent contract.

As a result, the distributor is under an obligation to make and maintain a connection once terms are agreed. Such terms may be determined by a third party--that is, the authority--in the event that the parties cannot agree the terms between themselves.

For that reason, we do not think that the amendment achieves what it sets out to achieve and in any case, we do not consider it appropriate to second guess what the courts may decide by making reference in the Bill to a contract.

I am aware that some parts of the distribution industry are concerned about how they might enforce the obligations of the other party if such an agreement is not a contract. In our view, where a term provides for connections to be satisfied by the customer before the making of a connection, failure to satisfy the conditions would absolve the distributor from the duty to connect on the basis of Section 17(1)(c).

In the event of a continuing breach by a customer of an obligation of his, we are confident that a court would reach a sensible conclusion, imposing such a remedy as it considered appropriate, taking account of all the circumstances of the case. We do not think that the existence of statutory duties would necessarily preclude the award of damages in appropriate circumstances.

However, as I said, we also have difficulties with this amendment on policy grounds. Our view is that it would not be proper to allow distributors as of right to include terms which limit their liability in respect of economic loss arising from any breach of any term agreed under Section 16A of the Electricity Act. We understand that the concerns which lie behind this amendment stem in the main from the rapid growth in the use of computers and other electronic equipment which use and store information of huge commercial value. Such equipment, and the information it stores, is especially vulnerable to any interruption in, or deterioration in the quality of, its supply of electricity. Anybody who tries to connect into the Palace of Westminster at the weekend will know about that! This is an issue which has increased greatly in importance since the present legislation was enacted in 1989.

It is not difficult to see why distributors may be concerned about their exposure to economic loss as a result of this development, but it is important to bear in mind that customers who rely heavily on IT equipment face the prospect of severe--possibly fatal--business disruption in the event of some damaging change in their electricity supply. Clearly, both sides must take the necessary measures to protect themselves both physically and financially. In designing the legislative framework, it is necessary to strike the right balance between the interests of both parties. We believe that Amendment No. 190 would provide distributors with an inappropriate level of protection compared with the person requiring the connection; that is, the customer.

I turn now to Amendment No. 191. The effect of this amendment would be to remove from an undefined group of persons the right to seek a connection under Section 16 and to require them instead to enter into a special connection agreement, provided for by Section 22. This amendment seems to be designed to allow distributors in effect to require customers with large loads or embedded generation to make a connection agreement under Section 22. For such customers, connection agreements are inevitably complex and wide ranging. This is because both the making of the connection and the subsequent behaviour of the customers can have effects on the wider operation of a distribution system which can give rise to further, and possibly continuing, costs for the distributor.

I think it might be helpful if I were to say a word or two about the distinct purpose for which special connection agreements under Section 22 have been designed. Sections 16 to 21 of the Act, as amended by this Bill, set out a statutory framework governing connections to electricity distribution systems. In discussing Amendment No. 190, I set out the Government's views on the status in law of the terms made under Section 16A. We have concluded that it is not certain that the courts would interpret such an agreement as a contract.

For this reason, we are providing in Section 22 an alternative means for obtaining a connection. The intention is that there should be no doubt as to the status of the special connection agreement as a contract, since it is not governed by the provisions in the previous sections. The Bill says nothing about which of the routes made available by the Bill for the making of a connection agreement, whether it is Section 16A or Section 22, should be used for the purpose of agreeing the terms on which a connection is to be made. That is deliberate. The Government's policy is that everyone requiring a connection should be on the same legal footing.

This is especially important in the case of embedded generation, which is one of the targets of this amendment. The Government have sought through various provisions in this Bill to make sure that embedded generators get fair access to distribution systems so that they can compete in the generation market on level terms with conventional large-scale generation. There are a number of reasons why we think this is important, but perhaps the key one is that we are conscious of the crucial role that embedded generation, in the form of renewables and CHP plant, will have to play in meeting the Government's climate change targets.

The amendment, at a stroke, would undermine all of what I have just explained to your Lordships about the Government's intentions, and that is why we must oppose it. However, although I am opposing the amendment, I accept that we must be clear that the provisions in Sections 16 to 21 do in fact support the inclusion in Section 16A terms of the full range of matters which it is proper for distributors to wish to incorporate in large and complex cases.

The Electricity Association has suggested to Department of Trade and Industry officials that this is not the case. Officials have promised to look further at this point and to let the association know in good time whether they think that anything needs to be done in order to address this concern. On this basis, I hope that the noble Baroness, Lady Buscombe, will not press either of these amendments.

Photo of Baroness Buscombe Baroness Buscombe Conservative

I thank the Minister for his response. First, in relation to Amendment No. 191, I am pleased to have his suggestion that the Department of Trade and Industry will meet again with the Electricity Association to discuss this issue. It is one of considerable concern to the industry.

Turning to Amendment No. 190, the noble Lord is also right in saying that this is of enormous interest to the industry. With great respect, we are not satisfied with the Minister's response, and I wish to test the opinion of the Committee.

On Question, Whether the said amendment (No. 190) shall be agreed to?

Their Lordships divided: Contents, 61; Not-Contents, 130.

Division number 1

See full list of votes (From The Public Whip)

Resolved in the negative, and amendment disagreed to accordingly.

Clause 47 agreed to.

Clause 48 [Special agreements with respect to connection]:

[Amendment No. 191 not moved.]

Clause 48 agreed to.

Clause 49 [General duties of electricity distributors]:

Photo of Lord Ezra Lord Ezra Liberal Democrat 6:15 pm, 21st June 2000

moved Amendment No. 192:

Page 50, line 36, at end insert--

("( ) to facilitate the development of embedded generation"").

Photo of Lord Ezra Lord Ezra Liberal Democrat

In moving Amendment No. 192, I shall speak also to Amendment No. 193. The purpose of these amendments is to add to the general duties of licensed electricity distributors. In the case of Amendment No. 192, it is to add the duty of facilitating the development of embedded generation to which the Minister referred in commenting on the last amendment.

Perhaps I may remind the Committee that embedded generation is small-scale generation, generally deriving from renewables or combined heat and power, which is too small to supply onto the national network and has to link up with local networks. It brings power and heat generation closer to communities and local industry. The successful development and growth of embedded generation helps to develop new environmentally-friendly technologies and services.

According to the DTI, the amount of embedded generation is likely to increase by an extra 8,000 to 10,000 megawatts over the next decade. By then, more than 25 per cent of generating capacity could come from this source. This is one of the most significant developments in electricity generation and distribution since the development of the National Grid. It reflects major technological change. Bringing the source of generation close to consumers could lead to big savings. Less electricity would be lost through long-distance transmission. Embedded generation technology is more flexible and less polluting. It changes altogether the electricity scene we have been used to in the post-war period, with mammoth power stations distant from their customers. Here we have a situation in which more and more power will be generated in smaller amounts close to the customer.

Embedded generation can usefully supplement the capacity of the grid in particular localities. The difficulty under the earlier system was that the capacity of the grid could be augmented only on a very large scale. Embedded generation introduces much greater flexibility, adding to capacity where it is needed.

In the latest report of the Royal Commission on Environmental Pollution, which was issued on 15th June, specific reference is made to the importance of embedded generation. The report states that:

"The relatively small size of renewable energy plants generating electricity and local CHP plants does not fit easily with an electricity distribution and transmission network based on massive generators and highly centralised control".

That refers to the previous system. It goes on,

"The national grid and the regional distribution systems need to become more favourable to small and very small environmentally friendly generators which sometimes need to import electricity. Regulatory policies will need to promote, and must not inhibit, this development. The government and the electricity supply industry must together devise a system which can handle a growing quantity of this embedded generation securely and efficiently".

I should like to read from the debate which took place yesterday on combined heat and power, when the Parliamentary Under-Secretary of State for the Environment, Transport and the Regions, Mr Chris Mullin, said,

"We want to ensure that CHP and other embedded generation is treated on the same basis as conventional generation. We also want to ensure that it has fair access to the wider networks at fair prices, and that it is fairly rewarded for the benefits that it brings to the network through its "focus on local solutions on sustainable energy".--[Official Report, Commons, 20/6/00; col. 318.]

In the light of this important development, I hope that the Government will seriously consider the amendment. Unless we have something like this on the face of the Bill, the need to secure fair and open access to the growing amounts of embedded generation will not be secured.

The related Amendment No. 193 deals with the more precise problem of net metering in the case of small, localised generation. The basis of net metering is that the same price is paid for any electricity received as is paid to the user for any electricity sent out. That would be particularly important for very small operations including, possibly, as the technology develops, operations on a domestic scale. So that too is an important aspect of the same problem. I beg to move.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

In the course of trying to begin to make myself familiar with the Royal Commission report--it is a formidable document and one which will repay a great deal of study--I too was impressed with the passages on the importance of this growing feature of our electricity supply, embedded energy.

The noble Lord, Lord Ezra, quoted one recommendation. I was particularly struck by the recommendation in paragraph 8.54, which says,

"There appears to have been no research as yet into these problems"; that is, that it requires a much more sophisticated distribution network if it is going to take account both of the large generators and of a large number of small generators. But no research has been conducted either by the National Grid Company or by any other body. The paragraph continues,

"We recommend that the government takes responsibility for promoting, and ensuring sufficient funding is available for research into technologies that solve the problems of controlling electricity networks in which there is a high proportion of embedded and intermittent generation, and into the economic and institutional issues that will need to be resolved".

My interest in this arises partly because we shall be coming, I hope shortly, to the question of renewable energy. Many renewable energy sources will qualify as embedded generation. I am astonished that there has been no research into the distribution consequences of the growth of embedded generation sources.

Photo of Baroness Sharp of Guildford Baroness Sharp of Guildford Liberal Democrat

I support the amendment of my noble friend Lord Ezra, and pick up the same theme of the need to support the development of renewable sources of energy.

My noble friend mentioned, and we shall be debating later, the combined heat and power issues. I should like to mention another area which is growing fast, though not as fast in this country as it might; that is, small-scale solar power photovoltaics. In 1992 the Energy Technology Studies Unit (ETSU) produced a study which showed that, if units were suitably placed on roofs, two-thirds of the electricity in this country could be acquired from solar power.

There is absolutely no incentive for households to make use of such new technologies when at the moment they are charged 6p to 7p per unit for electricity, and, if they offer it to the grid, they are offered 2.5p to 4p back for it. It is important therefore that the net metering issue is brought to light and considered.

The Americans are moving forward extremely fast in photovoltaic technology. Last year there was a 20 per cent increase in California in the use of photovoltaics and the Germans too have been introducing legislation to encourage it. This is a small amendment for which we are asking, but one that will provide a considerable incentive to help to develop the new technologies.

Photo of Baroness Buscombe Baroness Buscombe Conservative

We on these Benches have difficulty in supporting these amendments. We feel that they undermine what is otherwise a completely neutral position.

Clause 49 imposes a simple obligation on the distributor who is, we must remember, the keeper of the monopoly distribution network. He is there to develop and maintain a system which is efficient, co-ordinated and economical, and to facilitate competition in supply and generation. Add anything else to that and we risk upsetting the balance. We therefore cannot support the amendments.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I hope it was clear from my opposition to Amendment No. 191, which the noble Baroness, Lady Buscombe, moved a few minutes ago, that we do not agree with the Opposition on this, but that we recognise the importance of small-scale--typically embedded--generation to renewables and to the electricity market more broadly, and of course of combined heat and power.

The Bill introduces changes to the regulatory structure of the electricity industry which will remove barriers to embedded generation, which Amendment No. 191 would have brought back again, and enable it to compete fairly on its own merits. That is the key to encouraging renewable and combined heat and power generation. For example, the separation of electricity supply and distribution, presently combined in the Public Electricity Suppliers, will change the way distribution systems are managed to the benefit of embedded generators. That is underpinned in the Bill by the explicit duty imposed on distributors to facilitate competition in generation, including embedded generation, as well as supply.

It is also supported by the draft distribution licence conditions which, for example, place system entry and exit points on an equal footing and introduce a power for the regulator to direct distributors to publish long-term development plans, as transmission licence holders are already required to do. In addition, distributors will be obliged to offer terms for connection to embedded generators--something which is not a feature of the present legislation.

The aim is to put in place a framework so that embedded generators will be able to obtain full value for their energy output and any locational benefits they provide, and so that distribution companies will look at embedded generation on an equitable and transparent basis when considering any network augmentation.

The Government committed themselves to addressing any continuing problems relating to the operation of distributed generation and its connection to the distribution system that are identified by a new industry-wide working group chaired by Ofgem and involving DTI, DETR and representatives of the industry.

Given all those measures, we believe that, on the face of the Bill, in regulation, in licences and in every place where it is appropriate, we are taking practical steps to encourage embedded generation and we believe that that is more important and significant than the declaration which Amendment No. 192 would place on the face of the Bill. We believe that in practice it would not achieve anything that we are not already addressing.

I turn to Amendment No. 193 on net metering. I make it clear that the Bill does not rule out net metering. However, we think that it is wrong in principle to prescribe a system of net metering, since it would ignore the real difference in value between the electricity that a customer supplies to the network and that which he takes from it. Any such general obligation would imply a degree of cross-subsidisation, which would have to be paid for by other consumers.

It is, of course, open to electricity suppliers to offer net metering to their customers if they choose to do so. We understand that at least one company has already done this. We are glad about that and we welcome that initiative. But the way forward, from the point of view of the legislation, lies in the measures which benefit embedded generation, which I have already set out in some detail, and not in declarations of the sort provided by Amendment No. 193.

I hope that the noble Lord, Lord Ezra, and the noble Baroness, Lady Sharp, will recognise that we are on the same side and that the Government are taking the practical steps.

Photo of Lord Beaumont of Whitley Lord Beaumont of Whitley Green 6:30 pm, 21st June 2000

I am delighted to hear that the Government are taking these important steps, which will become more important as further efficient methods of generation of renewable energy are made available. I particularly refer to the article in this week's edition of New Scientist about the new breakthrough in the production of wind generation, using much smaller wind generators and much better methods of transmitting power over longer distances.

Am I to understand from the Government that, in spite of their good intentions, they believe that these amendments would not only be superfluous but would in some way be deleterious to their aims? It appears to me that the inclusion of small-scale renewable generation through net metering does not in any way imply, as the Government seem to be saying, the forcible application of net metering on an obligatory basis at a particular rate. The inclusion of small-scale renewable generation through net metering would involve a considerable amount of discretion about how it is done. I might be persuaded by the Government that it is unnecessary, but I am not at all persuaded that it would be deleterious to their objectives. I find it very difficult to accept both apparently contradictory arguments at the same time.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

If I may respond to the noble Lord, Lord Beaumont, I never used the word "deleterious". I said that nothing in Amendment No. 192 adds to the practical measures that we have in hand. I see no point or advantage in adding a declaration when the practical measures of policy contained on the face of the Bill, in regulation, in licences, are already in hand. As to--

Photo of Lord Beaumont of Whitley Lord Beaumont of Whitley Green

I absolutely accept that. It may be that the word "deleterious" is the wrong word to use. It was the word which leapt to my mind at the time. I was referring to the Government's opposition to Amendment No. 193, which we are discussing at the same time.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

The argument is that net metering may be appropriate in some circumstances. However, where a genuine difference exists in the value of input and output, the singling out of net metering for praise on the face of the Bill would have the effect of imposing cross-subsidies, which do not seem to us to be justified.

Photo of Lord Ezra Lord Ezra Liberal Democrat

I thank those who have participated in this interchange. I also thank the Minister for his response, and particularly for his reaffirmation of the Government's support of the major changes that are now taking place in electricity generation away from large, centralised stations to embedded localised generation.

However, I am sorry that the Government are not prepared to include in the Bill the proposed declaration. In my view, it would act as a coping stone for the various practical measures which the Minister has indicated are being taken. It could regularly be referred to as symbolising and indicating, in a few words, the Government's intention; the detail could then be found elsewhere. I should like to reconsider this issue to see whether the concept can be introduced elsewhere, which the Government may be prepared to accept at a later stage.

I also regret the fact that net metering cannot be introduced. The amendment does not suggest that it should be imposed, but that it should be taken into account. The concept of net metering is a relatively new one. It is not yet practised in this country, but it is widely practised in other countries and has facilitated--the word that we use--these new developments, particularly at the very small end. Unless something like this is introduced, a lot of technological development that is taking place here and elsewhere could be frustrated so far as this country is concerned. That is also a matter which I should like to reconsider. In the mean time, however, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 193 not moved.]

Clause 49 agreed to.

Clause 50 agreed to.

Schedule 4 [Schedule to be substituted for Schedule 6 to the 1989 Act]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 194:

Page 116, line 32, at end insert--

("Deemed contracts in certain cases

2A.--(1) Where an electricity supplier supplies electricity to any premises otherwise than in pursuance of a contract, the supplier shall be deemed to have contracted with the occupier (or the owner if the premises are unoccupied) for the supply of electricity as from the time ("the relevant time") when he began so to supply electricity.

(2) Where--

(a) the owner or occupier of any premises takes a supply of electricity which has been conveyed to those premises by an electricity distributor;

(b) that supply is not made by an authorised supplier; and

(c) a supply of electricity so conveyed has been previously made by an electricity supplier, the owner or occupier shall be deemed to have contracted with the appropriate supplier for the supply of electricity as from the time ("the relevant time") when he began to take such a supply.

(3) Nothing in sub-paragraph (2) shall be taken to afford a defence in any criminal proceedings.

(4) The Authority shall publish a document containing provision for determining the "appropriate supplier" for the purposes of sub-paragraph (2).

(5) The Authority may revise the current document published under sub-paragraph (4); and where it does so it shall publish the revised document.

(6) The express terms and conditions of a contract which, by virtue of sub-paragraph (1) or (2), is deemed to have been made shall be provided for by a scheme made under this paragraph.

(7) Each electricity supplier shall make (and may from time to time revise), a scheme for determining the terms and conditions which are to be incorporated in the contracts which, by virtue of sub-paragraph (1) or (2), are to be deemed to have been made.

(8) The terms and conditions so determined may include terms and conditions for enabling the electricity supplier to determine, in any case where the meter is not read immediately before the relevant time, the quantity of electricity which is to be treated as supplied by the supplier to the premises, or taken by the owner or occupier of the premises, during the period beginning with the relevant time and ending with--

(a) the time when the meter is first read after the relevant time; or

(b) the time when the supplier ceases to supply electricity to the premises, or the owner or occupier ceases to take a supply of electricity, whichever is the earlier.

(9) A scheme under this paragraph may (subject to section 7B) make different provision for different cases or classes of cases, or for different areas, determined by, or in accordance with, the provisions of the scheme.

(10) As soon as practicable after an electricity supplier makes a scheme under this paragraph, or a revision of such a scheme, he shall--

(a) publish, in such manner as he considers appropriate for bringing it to the attention of persons likely to be affected by it, a notice stating the effect of the scheme or revision;

(b) send a copy of the scheme or revision to the Authority and to the Council; and

(c) if so requested by any other person, send such a copy to that person without charge to him.

:TITLE3:Supplies of electricity illegally taken

2B.--(1) Where any person takes a supply of electricity which is in the course of being conveyed by an electricity distributor, the distributor shall be entitled to recover from that person the value of the electricity so taken.

(2) Where--

(a) any person at premises at which a connection has been restored in contravention of paragraph 3(1) takes a supply of electricity which has been conveyed to those premises by an electricity distributor; and

(b) the supply is taken otherwise than in pursuance of a contract made with an authorised supplier, or of a contract deemed to have been made with an electricity supplier by virtue of paragraph 2A above or paragraph 4S (former tariff customers) of Schedule 7, the distributor shall be entitled to recover from that person the value of the electricity so taken.

(3) Each electricity distributor shall make, and from time to time revise, a scheme providing for the manner in which, and the persons by whom, the quantity of electricity taken in such circumstances as are mentioned in sub-paragraph (1) or (2) is to be determined for the purposes of that sub-paragraph.

(4) Sub-paragraphs (9) and (10) of paragraph 2A shall apply in relation to a scheme under this paragraph as they apply in relation to a scheme under that paragraph.

(5) In this paragraph "value", in relation to any electricity taken in such circumstances as are mentioned in sub-paragraph (1) or (2), means the amount which, if the electricity had been taken in such circumstances as are mentioned in sub-paragraph (2) of paragraph 2A, could reasonably be expected to have been payable in respect of the electricity under a contract deemed to have been made by virtue of that sub-paragraph.").

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

In moving this amendment, I speak also to Amendments Nos. 201, 292, 299, 300, 303, 304, 312, 337, 338, 344, 346 and 347. This group includes Amendments Nos. 195 to 197, for which I imagine that the Opposition would prefer to put their case before I knock it down.

The government amendments deal with provisions for deemed contracts and the determination of disputes. The provisions for deemed contracts are included in Amendments Nos. 194, 299, 337 and 338, which introduce provisions into the Electricity Act for deemed contracts such as already exist in the Gas Act. They provide that where a supply is made to premises without an agreed contact being in place between a customer and a supplier, a contract shall be deemed to be in place with the appropriate supplier. An example of a case in which this is necessary is when someone moves into premises without previously having made a contract with a supplier. In addition, they provide a right to a distributor to recover the value of electricity illegally taken from a distribution system through the civil process of debt recovery. This reminds me of the bedsit days of my youth!

In addition, the Gas Act is amended to align it with the Electricity Act, in that the provisions which restrict deemed contracts to categories of customer whose demand is below a specified threshold are being repealed, making them applicable to all categories of customer.

Amendments Nos. 201, 292 and 300 relate to disputes determination. These amendments update the existing provisions of the Electricity Act, so that disputes determination by the authority applies to the statutory obligations on distributors to provide a connection. At present, it applies to statutory obligations to supply by a public electricity supplier, which are being repealed. In addition, they amend the Gas Act to align with the electricity provisions so that disputes determination applies to all customers not just domestic customers.

The consequential Amendments Nos. 303, 304, 312, 344 and 347 make some small, technical changes to the Bill, resulting from the abolition in the Electricity Act of the concept of "public electricity suppliers" and the separate definition of supplier and distributor. I beg to move.

Photo of Baroness Buscombe Baroness Buscombe Conservative

I shall do battle on Amendment No. 195 and, in so doing, speak also to Amendments Nos. 196 and 197. Amendments Nos. 195 and 196 would provide electricity distributors with rights of access to meters in the case of an emergency.

Electricity suppliers will be responsible for providing meters at each point they supply and retrieving and processing the readings from them (described as "metering services" and "data services"). The supplier can appoint an agent to fulfil its responsibilities in respect of those services.

While distributors will retain ownership of the thousands of meters currently in place and must offer suppliers terms for the provision and operation of meters, they will not have any right of access to their meters. The powers to enter premises for access to meters will be given to suppliers who will be able to exercise those powers themselves or through persons appointed by them. A distributor could be appointed for this purpose, but a supplier will not have to accept the distributor's terms and will be able to select another party to provide metering services.

Where the supplier has not appointed the distributor as its agent for metering services, the distributor will not be able to deal with a faulty meter on the customer's premises. In that event a distributor will be able to disconnect the supply only in order to leave a safe situation, and ask the supplier--he would be in rather an unenviable position of explaining this to the customer--to arrange for its meter operator to deal with the meter; until this is done, the consumer will be without electricity. The amendments would enable distributors to enter premises in an emergency to inspect, repair and reinstall meters. In that way we believe that they are entirely practical.

The purpose of Amendment No. 197 is to clarify that the protection of electricity supply equipment from distress will pass to the successor of the company that installed that equipment. As presently drafted, Schedule 4 provides immunity from distress for equipment which is marked or branded with the name of an electricity company. As a result of the reforms in the electricity market, many of these assets will pass to different owners but remain in place for some time bearing the name of a predecessor in title. It is unclear whether the immunity from distress will pass to the successor company. The amendment deals with this point.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 6:45 pm, 21st June 2000

I am grateful to the noble Baroness, Lady Buscombe, for her explanation of those amendments. I apologise for my flippant remarks at the beginning. The noble Baroness, Lady Buscombe, knows better than to take me seriously.

I turn to Amendments Nos. 195 and 196. At present, the distribution arm of public electricity suppliers owns most of the meters in the country. We intend that in future suppliers and not distributors should be responsible for providing customers with meters and related services. Suppliers will not have to own the meters or provide services themselves, but may procure them from specialist metering firms or, as the noble Baroness, Lady Buscombe, said, from distributors. This policy aims to increase competition in metering and also ensure that customers have a "one-stop shop"; that is, they deal with the supplier for everything, rather than having to deal with different people for different aspects of their electricity service.

Distributors will continue to be responsible for line and plant, and so it is right that they should have various rights of entry related to those, including emergency access. But there is no reason for them to have privileged access to meters, for which they are not responsible.

It is important to remember that this is not an issue of safety. Of course it is usually the distributor who needs entry in an emergency and we have made provision for this. But if the fault is with an electric heater or cooker, there are no additional rights of entry enforceable by court warrants to inspect or replace these items, and similarly it is not necessary for a faulty meter. It is irrelevant that the distributor might happen to own it.

Moreover, it is anti-competitive. It would retain a link between supply and distribution which runs against the thrust of the Bill in separating the two. Also, specialist metering firms, which may also provide meters to suppliers for use by consumers, do not directly get these rights, so why should we skew the competitive playing field against them?

Of course, both specialist firms and distributors can benefit from a supplier's right of entry in relation to meters if they are authorised by the supplier, for example when the supplier has sub-contracted its metering requirements. But the responsibility for how those rights are exercised should remain with the supplier who has the responsibility.

I turn to Amendment No. 197. The current drafting in Schedule 4 states that if electrical plant lines or meters are marked sufficiently to indicate an electricity company as the owner, they cannot be treated as part of the landlord's property or be seized if, say, the landlord goes bankrupt. I think that it was the issues of seizure and distress that the noble Baroness, Lady Buscombe, was most concerned about.

The drafting does not say that the name of the company which owns the relevant equipment must be marked, only that the mark should be sufficient to indicate that some electricity supplier or distributor is the owner. This seems sufficient to cover the case which might lie behind the amendment; namely, when equipment is marked with the name of a company which might no longer exist, for example a public electricity supplier, where ownership has passed to a successor supplier or distributor. Therefore I do not believe that this amendment is necessary.

On Question, amendment agreed to.

[Amendments Nos. 195 to 197 not moved.]

Schedule 4, as amended, agreed to.

Clause 83 [The gas code]:

Photo of Baroness Buscombe Baroness Buscombe Conservative

moved Amendment No. 198:

Page 81, line 18, at end insert--

("( ) In paragraph 12 (failure to notify connection or disconnection of service pipe), in sub-paragraph (1) after "meter" in both places where it occurs there is inserted "or gas device".

( ) In paragraph 13 (failure to notify disconnection of meter)--

(a) in sub-paragraphs (1) to (3) after "meter" in each place where it occurs there is inserted "or gas device", and

(b) after sub-paragraph (4) there is inserted--

"(5) In this paragraph and in paragraph 12, "gas device" means any device other than a meter forming part of or used in conjunction with the metering installation at any premises."").

Photo of Baroness Buscombe Baroness Buscombe Conservative

In moving Amendment No. 198, I wish to speak also to Amendments Nos. 199 and 200. These three amendments are technical amendments to clarify the legal uncertainty in the current provisions of the gas code in the Gas Act. They complement the authority's current activities in bringing greater competition in meter ownership in the gas market and in the carrying out of meter installation and maintenance activities. Encouraging competition in these areas will bring down prices for the benefit of consumers.

Amendment No. 198 seeks to amend paragraphs 12 and 13 of the schedule. The two sub-paragraphs require persons carrying out work which involves removing a meter or connecting a meter to a service pipe to inform the supplier and the gas transporter concerned. The information in question is specified in regulations under paragraph 12. However, in any metering installation, there are other fittings than purely the meter and service pipe. In a domestic installation there will be a small pressure regulator and connecting pipes. For larger industrial and commercial installations there may also be pressure and temperature controls apparatus.

In the new competitive environment it may be the case that different parties will own the meter and other parts of the apparatus. This amendment ensures that if work is carried out to any part of the metering installation other than the meter the same information is given to the supplier and transporter in respect of that work as is currently given in respect of work involving the meter alone. This enables the supplier and transporter to ensure that their records of ownership and work carried out are kept up to date and helps to ensure the overall safe operation of the metering installation.

Amendment No. 200 seeks to remove a barrier to the free transfer of title in meters when installed in consumers' premises. A failure to attend to this is likely to discourage new meter owners and so reduce the scope for competition in the market.

The issue is that ownership in items such as gas meters can normally be transferred by what is known as "delivery"--that is, a physical or symbolic handing over of the meters--if at the relevant time they are in the possession of the party seeking to sell them. This is, however, not the case if at the relevant time they are in the possession of a third party, such as the hirer or consumer. In such a case, in order to transfer title the consent of the party in possession of the goods would be required. This is a considerable barrier to the transfer of title. Amendment No. 199 makes that consent unnecessary without changing the terms of the hiring agreement.

The third amendment seeks to amend paragraph 29 of Schedule 2B. This paragraph provides that meters and gas fittings of gas transporters and suppliers, provided that they are marked with a sufficient mark indicating the owner, are not liable to be seized by creditors of the consumer in recovering debts, and are also not deemed to be the landlord's fixtures. The latter provision is of particular importance as otherwise the common law could deem the ownership in the meter to pass from the gas transporter to the owner of the property as soon as the meter was fixed to the property. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I hope that I can reassure the noble Baroness, Lady Buscombe, that these amendments are not necessary.

Amendment No. 198 would have the effect that a notice should be given if a "device" which is not a gas meter but "forms part of it" or is used "in conjunction with it" is to be disconnected. The present drafting would require such notice to be given only if the meter is to be disconnected. The amendment is unnecessary and also far too broad. It is unnecessary because if the device is part of the meter, disconnecting the device would automatically entail disconnecting the meter, thus triggering the existing notice provisions.

The other part of the definition of "device" relates to something that is not part of the meter but used in conjunction with it. If it does not simply mean something that is necessary to the operation of the meter, how far does it go? A gas cooker is used in conjunction with a meter in some sense. Any reasonable interpretation of the word "meter" already covers what needs to be covered, and does not extend to cookers and the like. So the amendment is not only unnecessary but goes too far.

Amendment No. 199 is also unnecessary and would have effects which extend far beyond the provisions of the gas code, with which these amendments are concerned. The current wording of the gas code says that any gas "fittings" owned by gas transporters or suppliers cannot be treated as landlord's fixtures and cannot be subject to distress or taken in bankruptcy or other court proceedings. Amendment No. 199 seeks to extend this to cover fittings owned by anyone other than the consumer.

The term "fittings" is defined by Section 48 of the Gas Act to include pipes and meters, and also apparatus and appliances for use by consumers for heating, lighting and other purposes. In other words, it covers both pipes and such things as cookers. Gas pipes are unlikely to be owned by anyone other than a transporter, supplier or the owner of the premises. So the amendment would be unlikely to have any effect in that regard.

But when it comes to items such as cookers, the effect of the amendment would be that if the cooker was owned by, say, a gas appliances company which was providing it under a hire purchase agreement, it could not be seized--not even by the company which provided it. Equally, a gas appliance belonging to a landlord would be deemed not to be a landlord's fixture, notwithstanding that it was fixed or fastened to the premises. These are odd effects to seek to achieve.

The purpose of the existing provision is simply to protect the property of gas transporters and suppliers. The amendment does not seem to benefit them and has the perverse consequences to which I have referred.

Amendment No. 200 is also unnecessary, as well as being too broad. It would apply to all gas meters, including meters owned by the customer himself. But even if it were tighter than that, it is unnecessary. This is because the consent of consumers is not necessary to transfer ownership of meters or fittings owned by suppliers or transporters. For the sale of a gas meter which is in a consumer's premises, Section 29(4) of the Sale of Goods Act 1979 would simply require an acknowledgement by the consumer that the meter or fitting is held on behalf of the buyer rather than the seller, and this would constitute delivery of the goods by the seller. The contract that the consumer signs with the supplier could simply say that such acknowledgement will be deemed to have been given in the event of a sale of a meter, or, alternatively, that the payment of a bill on which the change of ownership is mentioned constitutes delivery.

The Sale of Goods Act requires there to be a "delivery" of the goods by the seller, whether actual or constructive. This amendment would mean that the seller of a gas meter would have no way of making "delivery" of the meter to the buyer, and some alternative method would have to be prescribed. It would also mean that the position in respect of gas meters differed from that in respect of electricity meters.

The gas code has been around for a number of years. The first two amendments simply cast doubt on generally accepted interpretations of terms to the detriment of every other place where they are used. I hope that the noble Baroness will not press these amendments.

Photo of Baroness Buscombe Baroness Buscombe Conservative

I have listened with great care to what the Minister said. I simply cannot agree with him that these amendments are either unnecessary or too broad--not least because we have developed these proposals very much in consultation with the gas industry, which is deeply concerned about these issues. With great respect, we are not satisfied with the Minister's response and I should like to test the opinion of the Committee.

On Question, Whether the said amendment (No. 198) shall be agreed to?

Their Lordships divided: Contents, 44; Not-Contents, 114.

Division number 2

See full list of votes (From The Public Whip)

Resolved in the negative, and amendment disagreed to accordingly.

[Amendments Nos. 199 and 200 not moved.]

Clause 83 agreed to.

Clause 51 agreed to.

Schedule 5 [Electricity metering]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 7:06 pm, 21st June 2000

moved Amendment No. 201:

Page 120, line 19, after (""provided";") insert--

("(bb) after sub-paragraph (2) there is inserted--

"(2A) Section 23 of this Act shall apply in relation to any dispute arising under this paragraph between an electricity supplier and a customer.";").

On Question, amendment agreed to.

Schedule 5, as amended, agreed to.

Clause 52 agreed to.

Clauses 88, 53, 89, 54, 90, 55, 91 and 56 agreed to.

Clause 92 [Information with respect to levels of performance]:

[Amendment No. 202 not moved.]

Clause 92 agreed to.

Clause 57 agreed to.

Clause 93 [Information to be given to customers]:

[Amendment No. 203 not moved.]

Clause 93 agreed to.

Clause 58 [Financial penalties]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 204:

Page 55, line 29, at beginning insert ("and that compliance by the licence holder cannot be secured by other means,").

Photo of Lord Kingsland Lord Kingsland Conservative

Clauses 58 and 94 introduce a power for the authority to impose financial penalties of,

"such amount as is reasonable in all the circumstances of the case", on any licence holder that,

"(a) has contravened or is contravening any relevant condition or requirement; or

"(b) has failed or is failing to achieve any standard of performance prescribed under", the relevant Acts.

The authority is obliged, prior to imposing a penalty, to give notice of its intentions to do so, and to set out the acts or omissions by the licence holder which have resulted in the contravention or failure, together with the relevant condition, requirement or standard of performance. In the event that the authority, having considered any objections or representations made by the licence holder in question, proceeds with the penalty, the authority must give at least 42 days' notice of payment.

The authority is required, for example, by virtue of the proposed Section 30B, to prepare and publish a statement of policy with respect to the imposition of penalties and the determination of their amounts and undertake such consultation as it deems appropriate when preparing or revising the statement.

Proposed Section 30C provides certain time limits on the imposition of penalties where no final or provisional order has been made in relation to a contravention or failure. The authority may not impose a penalty in respect of the contravention or failure unless the notice relating to the penalty was served on the licence holder within 12 months from the time of the contravention or failure. Where a final or provisional order has been made, the notice must be served within three months from the confirmation of the provisional order or the making of the final order or, when the provisional order is not confirmed, within six months from the making of the provisional order.

An aggrieved licence holder may make an application to the court, which shall have the power to quash the penalty, substitute a lesser amount or substitute alternative dates for payment. The grounds on which the court may exercise its powers are only on the basis that the imposition of the penalty was not within the powers of the authority under, say, the proposed Section 30A; that the requirements of, say, proposed Section 30A have not been complied with; or that the date by which the penalty is to be paid is unreasonable.

The Opposition's view is that this is an enormous concentration of power in the authority. The authority is already empowered to determine and impose licence conditions and standards of service; Clauses 58 and 94 add the power to levy a fine. The limitations which circumscribe a court's ability to intervene in an abuse of this power leave the power exercisable without proper supervision. In the case of the authority, the powers of the "legislature", the "executive" and the "judiciary" are combined in one board with only one full-time member, and all its members are unelected. That is constitutionally unsound, especially in an activity where penalties are imposed.

The Minister is well aware of the Opposition's view that the use of these powers is likely to introduce conflict, most obviously with the European Convention on Human Rights. The Clause 58 and Clause 74 procedures, which authorise the imposition by the regulator of potentially unlimited penalties on licence holders with a wide swathe of obligations, clearly constitutes the determination of a civil right or obligation within the meaning of Article 6 of the convention. The procedure may also constitute the determination of a criminal charge within Article 6.

Since the procedure determines a civil obligation, Clauses 58 and 94 ought to offer a fair and public hearing before an independent and impartial tribunal. These clauses do not do so. The authority which determines whether to impose a penalty is not independent of the executive and, in any event, there is no provision for an oral hearing. As the Minister is aware, it is the Opposition's view that the right of appeal provided by Section 27E is a narrowly confined right and not a proper right of appeal, which at best offers similar grounds of review to those available on an application for judicial review. As such, it cannot operate to cure the deficiencies in the procedure before the authority.

The powers granted by Clauses 58 to 94 also lead to multiple exposure by licence holders. The licence holder is likely to be exposed to penalties both under the Competition Act 1998 and under Clauses 58 and 94. Whereas the Competition Act provides a clear framework determining the levels of fines that will be imposed, Clauses 58 and 94 have no such structure. There may also arise an obligation to make compensation payments to customers where they have failed to achieve a certain standard of performance.

Our amendments to these clauses seek to do the following. Amendment No. 204 relating to the electricity industry and Amendment No. 217 relating to the gas industry require the authority to be satisfied that compliance cannot be secured by other means before it imposes a penalty under the new Section 27A for electricity or 30A for gas.

Amendment No. 205 for electricity and Amendment No. 218 for gas insert a defence into what is otherwise an offence of strict liability--that is to say, a defence that says that if there was no intention or recklessness and the licence holder took all reasonable steps to avoid the alleged contravention or failure to act, there should be no penalty imposed.

This matter was debated in Committee in another place. If the Minister looks at columns 556 and 557 of Hansard, he will see that at one point in her contribution the Minister appeared to be suggesting that there should be no penalty where the contravention was genuinely inadvertent; but there are other parts of her contribution which suggest the opposite. If it really is the Government's intention that no penalty should be imposed where the breach was truly inadvertent, I suggest, with the greatest possible respect to the Minister, that that intention should be on the face of the Bill.

Amendments Nos. 210 to 214 with respect to electricity and Amendments Nos. 223 to 227 with respect to gas remove from the Bill the references to the expression "application procedure" and replace them with references to the rights of appeal under the new Sections 49B and 38B which the Opposition are trying to insert.

Finally, Amendment No. 215 regarding electricity and Amendment No. 228 regarding gas insert new Section 27G into the Electricity Act and new Section 30G into the Gas Act, requiring the authority to keep under review licence conditions which will give rise to penalties if breached. If they are insufficiently clear, in our view the authority must take appropriate steps to amend or revoke them. I beg to move.

Photo of Lord Borrie Lord Borrie Labour 7:15 pm, 21st June 2000

It may be helpful to the Committee if I speak at this point to Amendments Nos. 206 and 219 standing in my name and that of my noble friend Lord Currie of Marylebone. The amendments form part of the group that we are discussing.

Our amendments propose to introduce an upper limit on the financial penalties envisaged in Clauses 58 and 94. The Liberal Democrat Front Bench has amendments covering similar ground, and will no doubt wish to speak to them. At present the only limitation on the penalty that may be imposed is--this phrase has been quoted many times today--that it should be,

"reasonable in all the circumstances of the case".

The lack of any upper limit is a matter of concern, because it may cause some unease, even some alarm among licensees because, apart from the phrase that I have just quoted, the amount of the penalty seems unlimited.

The amendments represent one option for addressing the point by imposing an upper limit similar to that to be found in the Competition Act, passed as recently as 1998. On Second Reading of this Bill on 4th May, my noble friend the Minister said, as reported at col. 1175 of Hansard, that that Act was different, because it was based on European law, which is true, and that there was no reason to follow that. But in my view the Competition Act is an interesting, perhaps valid, precedent. There is a degree of overlap in the malpractices covered by that Act and by the Bill, and the gas and electricity regulator and the new authority created by the Bill have concurrent powers with those of the Director-General of Fair Trading to enforce the Competition Act.

Indeed, in March this year the Director-General of Fair Trading and the specific industry regulators, including the Office of Gas and Electricity Markets--the immediate predecessor of the new authority to be created by the Bill--published guidance, which I have in my hand. It is only eight pages long. It helpfully elucidates for anyone interested the factors that those regulators would take into account in assessing penalties under the Competition Act within the 10 per cent turnover maximum that that Act provides. In that guidance the regulator stated that the twin objectives of policy would be to reflect in the imposition of any penalty the seriousness of any infringement and to ensure that the threat of penalties would deter undertakings from breaking the law.

It seems to me that when the new authority created by the Bill publishes, as the Bill requires it to do, its statement of policy on penalties, it is very likely to state very similar objectives; namely, to reflect the seriousness of the offence and the need to "incentivise" compliance and to use penalties as deterrents to malpractice.

The new authority may also have regard to the experience of the European Commission over not just a few months of the Competition Act 1998, which came into effect only in March this year, but over 30 years, with that maximum penalty of 10 per cent of turnover. That experience demonstrates that in determining penalties the European Commission has--I summarise, of course--taken account, on the one hand, of the length and gravity of infringement, the behaviour of the parties and the profits that may have been made out of unlawful behaviour, and, on the other hand, of such mitigating factors as a co-operative attitude towards the investigations.

Financial penalties under the Competition Act or under the Bill will need to reflect a very wide range of different circumstances, so the size of penalties in particular cases will vary considerably. But I rather doubt that any penalty would be above 10 per cent of turnover, because I doubt whether above 10 per cent of turnover could feasibly be,

"reasonable in all the circumstances of the case".

There might be a perception by the public, licensees and the industry generally that without a top limit the authority newly created by the Bill would have an unduly large amount of power and be unduly arbitrary, even though we may think differently. Therefore, as a matter of perception, it may be as well if, as with the Competition Act 1998, we insert into the Bill such a maximum as we suggest in the amendments, or such other maximum as the Government think appropriate.

Photo of Baroness Sharp of Guildford Baroness Sharp of Guildford Liberal Democrat

I rise to speak to Amendments Nos. 207 and 222, which are part of the group of amendments currently before the Committee.

As the noble Lord, Lord Borrie, pointed out, our amendments are very similar to those that he and the noble Lord, Lord Currie of Marylebone, have put forward; they are twin amendments on the same issue. The main difference is that their amendments specify not only that there shall be a penalty cap of 10 per cent of an undertaking's turnover, but also that the turnover shall be that not only of the undertaking itself, but also of its affiliated and related undertakings. In this respect, the amendments of the noble Lords are probably preferable to ours, because they are more specific and make it clear that it should be the broader, rather than the narrower undertaking.

I should like to say a few words about the amendment and very much support the noble Lord's line of thinking, because, as he made clear, the purpose is to provide a cap on fines. The current terminology in Clause 58 is very open ended. It talks of,

"a penalty of such amount as is reasonable in all the circumstances of the case".

That was the point that the noble Lord, Lord Kingsland, made when explaining the purpose of the Opposition's amendments.

When discussing the issue in Committee in the other place, the Minister of State for Energy and Competitiveness in Europe argued that the term "reasonable" was well recognised in English law and gave the authority more flexibility. I accept that, but it totally misses the point of the amendment, the purpose of which is not to suggest that all penalties should be set at 10 per cent of turnover, but that that should be the maximum penalty imposed.

I take on board the fact that the authority has published its policy for assessing and imposing penalties and will review it and, in the process of review, consult very widely. As the noble Lord, Lord Borrie, pointed out, at present it is minded to have the 10 per cent limit, but in the measure as it stands no limit is imposed. That seems to me to be unreasonable in the circumstances of the case.

The issue is one about which gas and electricity undertakings are extremely concerned. The CBI, the Electricity Association and Powergen have all expressed a wish to see a cap of some sort imposed. Powergen, indeed, has raised the possibility of being exposed to a multiple risk of penalties simultaneously from different sources--from the Office of Fair Trading and the regulator at the same time. That is probably over the top. Nevertheless, it argues that such regulatory risk translates itself into higher borrowing rates which, given the capital-intensive nature of the industry, have a knock-on effect on capital expenditure.

As the noble Lord, Lord Borrie, made clear, the regulator has concurrent powers with the Director-General of Fair Trading. We on these Benches believe that the Competition Act 1998 provides a good precedent. That considered penalty, which is imposed on a company that has abused its position of power in relation to customers and suppliers, was debated at length in the context of that legislation. It seems to us to provide a very good precedent for this Bill.

Photo of Lord Currie of Marylebone Lord Currie of Marylebone Crossbench 7:30 pm, 21st June 2000

I rise briefly to speak to the amendments in my name and that of my noble friend Lord Borrie. In practice, this ceiling on fines will not make any difference to the penalty actually levied, but it will make a difference to perceptions, as my noble friend so clearly indicated. I just flag up one important area in addition to those mentioned by my noble friend: overseas investment. The British utilities sector, in particular electricity and gas, has benefited from inward investment. Such decisions are often made on the basis of relatively simple checklists, and the warning sign of no limit on penal fines can easily deter inward investors. I believe that that would be detrimental to the sector and the economy. Therefore, I support the amendment.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

All these amendments are concerned with financial penalties and enforcement but they cover a number of different topics within that broad heading. I should like to speak first to the government amendments and then respond to the other amendments which have been moved or spoken to.

I turn first to government Amendments Nos. 208, 209, 216, 221, 222, 229, 230 and 231. Amendments Nos. 209, 216, 222 and 229, which form a group, are tabled in response to a concern raised during Second Reading by my noble friends Lord Borrie and Lord Currie. The concern was that the limit of 12 months for the imposition of a financial penalty from the date of contravention, where no enforcement action had been taken, would leave too little time for investigation of alleged malpractice and could provide a company being investigated with a view to the imposition of a financial penalty with an incentive to drag its feet in supplying information so as to avoid a penalty altogether.

The Government have listened to that concern and take it very seriously. It is crucial that the financial penalties powers operate effectively. It is equally important that companies can operate in the knowledge that there will be some kind of statute of limitation on the authority's ability to probe past events. It is a matter of striking the right balance. That is why the Government have tabled amendments to Clauses 58 and 94. The amendments apply to situations where no enforcement order has been issued; that is, where the authority becomes aware of an alleged contravention in the past and wishes to investigate it with a view to imposing a financial penalty. The amendments make no change where an enforcement order has been issued in relation to the contravention. Clearly, in that case the authority will already have carried out its investigation and will have enough information to decide whether a penalty is justified.

The effect of Amendments Nos. 209 and 222 is, therefore, to provide two separate triggers for the power to impose a financial penalty. First, as at present, the authority will be able to impose a financial penalty if within 12 months of the contravention it has issued a notice stating its intention to do so. Alternatively--this is the new point--it will also be able to impose a penalty so long as, within 12 months of the alleged contravention, it has issued a notice under Section 28(2) of the Electricity Act, or Section 38(1) of the Gas Act, requiring information from the licence holder for the purpose of exercising its enforcement functions (including the power to impose financial penalties) where it appears to the regulator that a licence holder may be contravening, or has contravened, a licence condition or other relevant obligation.

The amendment removes any incentive for companies to drag their feet in providing information to the authority. It does not alter the financial penalties provisions in any other way. In particular, it does not widen the scope of the powers, but is simply intended to ensure that the authority has long enough to investigate any alleged contravention and, where appropriate, impose a reasonable financial penalty in cases where 12 months is insufficient to gather enough information about the contravention.

Amendments Nos. 216 and 229 are effectively consequential on Amendments Nos. 209 and 222. They extend the scope of the powers to require information. Therefore, they apply to the financial penalties provisions and to information requested in relation to alleged contraventions of individual standards of performance, as well as contraventions of relevant conditions and requirements. This is to ensure that the scope of the relevant information provisions matches that of the financial penalties provisions.

The other government amendments to which I should like to speak are technical and consequential. Amendments Nos. 208 and 221 replace a reference to commencement of a subsection with a more accurate reference to commencement of a section of the Utilities Act 2000. Amendments Nos. 230 and 231 flow from amendments made to the Gas and Electricity Acts by Clauses 59 and 95, which relate to licence enforcement rather than financial penalties. Those amendments are designed to ensure consistency with the existing enforcement provisions. They have the effect that, where the authority decides to use its new discretion not to make an enforcement order, it will be required to give notice to the licence holder and publish a notice setting out its decision, in the same way as it would where it was precluded by its duties from taking enforcement action.

I turn to the various other amendments that have been moved or spoken to. Amendments Nos. 204 and 217 seek to insert into the financial penalties provisions a requirement that the imposition of a penalty must be essential to secure compliance. This would seem to rule out the imposition of penalties for contravention of licence conditions, standards of performance and other statutory requirements where the licensee had--possibly under pressure--desisted before the proposed penalty was imposed. I remind the Committee what we are trying to achieve by introducing the powers to impose financial penalties. The crucial point to note is that under the current enforcement system the regulator is always one step behind the company. There is little to prevent a company breaching its obligations, provided it is not caught, and as a result the level of protection afforded to consumers is very poor. These amendments would reintroduce those weaknesses just as we have sought to eliminate them. They would reproduce some of the weaknesses in the financial penalties provisions inserted into the Gas Act by the party opposite.

At present, the regulator is under a duty to "make orders" to secure compliance with licence conditions and specified statutory obligations. The regulator must issue an order, subject to certain exceptions, if it appears to him that a supplier is contravening, or is likely to contravene, a licence condition or a specified statutory requirement. The key point about the existing enforcement regime is that it applies only to current and likely future breaches of obligations. This means that a company which is breaching its obligations but which ceases to do so when challenged cannot face further action, regardless of how long the contravention has been continuing or the harm it has done to consumers or competitors.

If subsequently the company contravenes the same licence condition, the regulator is compelled to start enforcement action again. Every time a company is challenged, it has only to desist from the act or omission to avoid the consequences of non-compliance. The regulator is left chasing shadows. Under the Gas Act 1986, as amended, the regulator may impose a financial penalty on a licence holder of such amount as is reasonable in all the circumstances (which is the standard phrase) for contravention of licence conditions and other statutory obligations. However, the penalty can be imposed only as part of a final order aimed at securing compliance (as in the words of the opposition amendments). It therefore relates only to current and likely future breaches and suffers from the same flaw as the enforcement order process within which it is couched; and it provides little or no real deterrent. That is why it is necessary to introduce powers to impose penalties for past as well as current breaches of obligations. That means that the authority is able to ensure compliance on an ongoing basis and to deter future breaches rather than being left one step behind.

Of course, everybody is worried about financial penalties. However, if companies do not contravene their licence conditions, no financial penalty will ever be imposed. I hope that that will always be the case. However, if the authority is to have these powers it must have the necessary tools to enforce them in all the conditions to which I have referred. To do anything else would be unfair to consumers.

Amendments Nos. 205 and 218 provide a defence for the licence holder against the imposition of financial penalties where the licence holder can prove that the contravention did not occur as a result of intentional or reckless behaviour, or where the licence holder took all reasonable steps to avoid the contravention or failure.

It has a similar effect to Section 36(3) of the Competition Act 1998 which provides that a penalty can be imposed only for breaching the prohibitions where the breach has occurred intentionally or negligently. Frankly, it is of no interest at all to the consumers, those who are on the receiving end of contraventions of licence conditions and statutory obligations, and failures to meet standards of performance, whether those contraventions occurred intentionally or recklessly, or whether they were down to other factors--particularly when the consumers concerned cannot move to another service provider, as is the case where the electricity transmission and distribution companies, and gas transporters, are concerned. The fact is that utility companies provide vital services to industry and the public. The onus should be on the utility companies to strive to fulfil their obligations, and to overcome whatever difficulties they face in doing so. They should be making strenuous efforts to play by the rules they accepted when they entered the sector and to adhere to their obligations.

Restricting financial penalties to cases of reckless or intentional contraventions, or cases where insufficient effort has been made to remedy the contravention, would send the wrong signals about the importance of these services and would risk omitting some serious contraventions from the scope of financial penalties. The amendments also ignore the nature of the powers we are providing. I stress that the authority will have a power, not a duty, to impose financial penalties. It will not be compelled to do so.

When speaking about reasonableness, the noble Lord, Lord Kingsland, said that in Committee in another place Mrs Liddell appeared to suggest that there was no penalty if the contravention were inadvertent. She was explaining the point that the penalty has to be reasonable in all the circumstances. The fact of culpability--that is, where on the scale the inadvertence or negligence of the operator lies--is relevant to the amount of the penalty. The court is able to review whether the penalty is reasonable.

On the noble Lord's point about multiple jeopardy, the Government do not accept that the powers to impose financial penalties will cause multiple jeopardy. It is important to remember that the financial penalty has to be reasonable in all the circumstances of the case. Any financial penalty would have to take into account compensation paid to customers or penalties imposed under the Competition Act in respect of the same conduct. Any penalty which did not take proper account of those issues would in itself be unreasonable.

I turn to Amendments Nos. 206, 207, 219 and 220 to which the noble Lord, Lord Borrie, the noble Baroness, Lady Sharp, and the noble Lord, Lord Currie, spoke. There are minor variations in the formulation used in the two sets of amendments, as the noble Baroness pointed out, but they seek the same thing. The Government still take the view that what matters is the explicit requirement that the penalty must be reasonable. I think that the noble Lord, Lord Currie, veered in that direction. We have taken the view that a specific limit of this kind is not necessary.

A penalty could indeed be very large, but only if the breach in question had been sufficiently serious, and had done enough harm, to warrant a large penalty. On the other hand, a minor contravention could not attract a penalty of anything like 10 per cent of turnover.

There will be transparency in the arrangements. The authority will have to consult on and publish a statement of policy with regard to the imposition of penalties; and to have regard to that statement when it imposes a penalty. And, of course, companies will be able to challenge both the imposition and the amount of any penalty in the courts. The Government believe that those factors represent genuine constraints on the level of any penalty and a genuine protection for licence holders.

We take the view that a specific upper limit on financial penalties is not strictly necessary. Penalties are limited to that which is reasonable, and that is a genuine constraint. However, I have listened to the concerns expressed by those who have spoken in the debate. I recognise that some points have been made in favour of a limit. I recognise that there is persistent pressure for such a limit from the industry; and that even consumer bodies are not unanimous about our current proposals. I can see that there are issues here which merit serious consideration. I certainly agree that I shall consider the matter before the next stage.

Finally, I turn to the group of amendments starting with Amendment No. 210 relating to the statutory right of review which is available under the Utilities Bill in relation to the imposition of financial penalties. These would have the effect, as did the group of amendments starting with Amendment No. 180, of replacing that right of review with a right of appeal to the High Court on grounds set out in proposed new Section 49B of the Electricity Act and Section 38B of the Gas Act as proposed by Amendments Nos. 183 and 188 respectively. It would provide for appeal to the High Court, or in Scotland the Court of Session, on the imposition and amount of a financial penalty and the payment scheduled for that penalty. The grounds for appeal would be material error as to the facts, material procedural error, an error of law or some other material illegality including unreasonableness or lack of proportionality. But the Government believe that the provision in the Bill for companies to challenge the imposition and amount of a financial penalty and the payment schedule for that penalty in the courts are entirely appropriate to the financial penalties provisions. I set out my arguments to that in response to Amendment No. 180.

The Bill allows companies to apply to the High Court to challenge the decisions of the authority in relation to the imposition of a penalty. The High Court is clearly an independent tribunal for the purpose of Article 6 of the European Convention on Human Rights. Clauses 58 and 94 therefore comply with the European Convention on Human Rights in accordance with a number of decisions of the European Court of Human Rights, most notably the Bryan case. These cases take a composite approach looking to a combination of initial regulatory procedures and subsequent rights of appeal in order to ascertain Article 6 compliance.

I shall try to avoid repeating the other arguments which I used in a lengthy speech in response to Amendment No. 180. I hope that these arguments will persuade noble Lords not to press the amendments.

Photo of Lord Kingsland Lord Kingsland Conservative 7:45 pm, 21st June 2000

I listened with interest to the introduction of his amendment by the noble Lord, Lord Borrie, and to the Minister's response. Superficially, a cap on penalties would be an improvement to the Bill. However, from the way the noble Lord, Lord Borrie, formulated his amendment, it is clear that he intends to include not only the company but also an aggregated turnover measure of any affiliate or related undertaking.

If one considers the financial scale today of some of these utility companies, and the international complexity of their ownership, 10 per cent of the total turnover of some groups could involve a massive figure. I do not say that, on behalf of the Opposition, I would not be prepared to entertain a limit. However, with respect to the noble Lord, Lord Borrie, the provision needs more careful shaping.

If the Bill includes a limit, there will be a tendency for the penalising authority to aim at that target. If the target is 10 per cent on a large utility company which is owned, perhaps, by an American corporate entity, the turnover could be in billions of pounds of which 10 per cent would be a vast figure. I say that in order to encourage debate on the matter rather than to agree or disagree on the issue. I believe that it is a good idea to consider the matter further and to return to it at Report stage.

The Minister has encouraged me to reflect on two other matters. The first is the question of intention. It is a subject over which he ranged widely in the Financial Services and Markets Act. We contend that, if an act by a licensee is done neither intentionally nor recklessly nor negligently, that act should not attract a penalty; the act has been done innocently. The Minister said that that may be unfair to the consumer. One the other hand, to penalise a licensee in those circumstances may be very unfair to the licensee.

In my submission, in those circumstances, the proper approach of the Government is to be as fair as possible to both parties. The Opposition can see no rational reason in such circumstances for being unfair to a licensee. If the penalty-attracting offence is inadvertent, imposing a penalty will never be a deterrent, so why impose it? Who are the Government intending to impress by imposing it? I ask the Minister to reflect on that between now and the Report stage.

The final point to which I want to refer is the question of reasonableness. I was interested to hear the remarks made by the noble Baroness, Lady Sharp. "Reasonable in all the circumstances" is the test in the Bill. But the test in law, the test for an authority acting outside or beyond its authority, requires an action to be so unreasonable that no reasonable person would ever entertain it. So we have the difficulty of two contrasting tests of reasonableness: first, the test of reasonableness in the Bill, which is reasonable in all the circumstances; and, secondly, the test that a court will apply in order to intervene, which is so unreasonable that no reasonable person would entertain it.

What is so lacking in the Bill is some mechanism whereby a common definition of reasonableness can be achieved so that the court will inevitably intervene if the authority has not acted reasonably in all the circumstances. That is the legislative challenge which the noble Lord faces. He is so good at meeting challenges, I am sure that by the Report stage he will have met that challenge on the face of the Bill. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 205 not moved.]

Photo of Lord Borrie Lord Borrie Labour

had given notice of his intention to move Amendment No. 206:

Page 56, line 39, at end insert--

("(6A) No penalty imposed by the Authority under this section may exceed 10% of the aggregate turnover of the licence holder and any affiliate or related undertaking of the licence holder (determined in accordance with such provisions as may be specified in an order made by the Secretary of State).

(6B) In this section--

"affiliate" means any holding company (which has the meaning set out in sections 736, 736A and 736B of the Companies Act 1985) of the licence holder, any subsidiary (which has the meaning set out in sections 736, 736A and 736B of the Companies Act 1985) of the licence holder or any subsidiary of a holding company of the licence holder; and

"related undertaking" means any undertaking (which has the meaning set out in section 259 of the Companies Act 1985) in which the licence holder has a participating interest (which has the meaning set out in section 260 of the Companies Act 1985).").

Photo of Lord Borrie Lord Borrie Labour

I want to thank the noble Lord, Lord Kingsland, for his questioning but helpful comments and to thank my noble friend the Minister for his considerate response.

[Amendment No. 206 not moved.]

[Amendment No. 207 not moved.]

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 208 and 209:

Page 56, line 45, leave out ("that subsection") and insert ("section 58 of the Utilities Act 2000").

Page 57, line 18, leave out from ("failure") to end of line 21 and insert ("later than the end of the period of 12 months from the time of the contravention or failure, unless before the end of that period--

(a) the notice under section 27A(2) relating to the penalty is served on the licence holder under section 27A(6), or

(b) a notice relating to the contravention or failure is served on the licence holder under section 28(2).").

On Question, amendments agreed to.

[Amendments Nos. 210 to 215 not moved.]

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 216:

Page 59, line 20, at end insert--

("( ) In section 28(1) of the 1989 Act (power to require information, etc.), for the words from "the Director" in the first place they appear, to "42B below" there is substituted "the Authority that a licence holder--

(a) may be contravening, or may have contravened, any relevant condition or requirement; or

(b) may be failing, or may have failed, to achieve any standard of performance prescribed under section 39 or 39A, the Authority may, for any purpose connected with such of its functions under section 25 or 27A to 27F".").

On Question, amendment agreed to.

Clause 58, as amended, agreed to.

Clause 94 [Financial penalties]:

[Amendments Nos. 217 to 220 not moved.]

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 221 and 222:

Page 96, line 9, leave out ("that subsection") and insert ("section 94 of the Utilities Act 2000").

Page 96, line 30, leave out from ("failure") to end of line 33 and insert ("later than the end of the period of 12 months from the time of the contravention or failure, unless before the end of that period--

(a) the notice under section 30A(2) relating to the penalty is served on the licence holder under section 30A(6), or

(b) a notice relating to the contravention or failure is served on the licence holder under section 38(1).").

On Question, amendments agreed to.

[Amendments Nos. 223 to 228 not moved.]

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 229:

Page 99, line 2, at end insert--

("( ) In section 38(1) of the 1986 Act (power to require information, etc.)--

(a) for "Director" in each place where it appears, there is substituted "Authority";

(b) after "requirement" there is inserted "or may be failing, or may have failed, to achieve any standard of performance prescribed under section 33A or 33AA,";

(c) for the words from "his functions" to "signed by him" there is substituted "its functions under section 28 or 30A to 30F in relation to that matter, by notice in writing";

(d) for "him" there is substituted "it".").

On Question, amendment agreed to.

Clause 94, as amended, agreed to.

Clause 59 [Licence enforcement]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 230:

Page 59, line 28, leave out ("and (4)") and insert (", (4) and (6)").

On Question, amendment agreed to.

Clause 59, as amended, agreed to.

Photo of Baroness Amos Baroness Amos Government Whip

I beg to move that the House do now resume. In moving the Motion, I suggest that the Committee stage begin again not before 8.55 p.m.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.