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My Lords, in rising to move Amendment No. 1, I should like to speak also to Amendment No. 2. Both amendments concern Clause 8 which gives the authority powers to modify payment conditions in licences so that the ongoing costs of the authority and council can be recovered. It has always been our intention that any expenses incurred by the Secretary of State in setting up the authority or council should also be recoverable from licence holders. This category of expenses is identified in Clause 8(3) of the Bill. Amendment No. 1 puts beyond doubt that the authority's ability to modify payment conditions in Clause 8(4) encompasses the powers to make modifications so that any costs incurred by the Secretary of State can be recovered.
The second amendment helps to ensure a smooth transition from the old to the new funding arrangements. For this to happen new payment conditions need to be in place from the date of the establishment of the new bodies. The difficulty is that Clause 8(6) requires the authority to consult licensees before modifying licences. Clearly, until the authority exists it is unable to carry out the consultation itself. If new licence conditions are to be in place from the outset, provision must be made to permit the directors general or the Secretary of State, or both, to carry out the necessary consultation. The amendment makes the necessary provision for early consultation. I beg to move.
moved Amendment No. 2:
Page 6, line 2, at end insert--
("( ) Any consultation undertaken by the Director General of Gas Supply, the Director General of Electricity Supply or the Secretary of State before the commencement of subsection (6) shall be as effective for the purposes of that subsection as if undertaken by the Authority after that time.").
On Question, amendment agreed to.
Clause 9 [Objectives and duties under 1986 Act]:
My Lords, with Amendment No. 3 I should like to speak also to Amendments Nos. 6, 7 and 10. At Committee stage I moved Amendment No. 31 to insert in Clauses 9 and 13, which set out the objectives and duties under the Gas and Electricity Acts, a reference to sustainable development. In that I was supported by my noble friend Lady Sharp of Guildford and the noble Lords, Lord Beaumont of Whitley and Lord Hardy of Wath. The Minister gave his reasons why this should not appear on the face of the Bill, even though sustainability is one of the objectives of government policy. As an alternative, I propose that the reference to existing and future consumers in subsection (6) appears in subsection (1) so as to give it added prominence. I hope that this small drafting amendment, which goes some way to achieve my objective, is acceptable. I beg to move.
My Lords, I regret to say that I disagree with both noble Lords. The Bill already makes reference to existing and future consumers at lines 25 and 26 on page 7 and lines 36 and 37 on page 10. That is deliberate and explicit, because we support the point made by the noble Lord, Lord Ezra. The Government want sustainable development to be a serious consideration in the protection of consumers, which means that it is right to say explicitly that we are concerned about present as well as future generations.
Our difficulty lies with the effect of the amendment. I understand the desire to emphasise that the authority and the Secretary of State have a duty to existing as well as future consumers. It is an important principle and one which we have been careful to make clear on the face of the Bill.
The reference to future consumers removes any doubt that steps can be taken to promote energy efficiency, providing a long-term benefit to consumers in terms of lower monthly bills that offsets any marginal increase in unit price. It enables the promotion of renewables technology that will help ensure continuity of supply in years to come as fossil fuel reserves dwindle. And it helps explain why it is in the interests of consumers that energy companies are able to attract the capital they need to maintain the infrastructure for which they are responsible. But this principle is already clearly stated in Clauses 9 and 13 in the subsections which Amendments Nos. 6 and 10 would remove. Those amendments would add nothing of substance. They simply move the reference to "existing and future" to the place in which the term "consumers" first appears.
What these amendments would do, however, is to cast doubt over whether the broad definition of consumer applies to all the other references to "consumers" in Clauses 9 and 13. Not counting the subsections containing the definition, the term "consumer" appears no fewer than four times in each of the two clauses. What meaning is to be given to that term on the six occasions on which, by these amendments, the words "existing and future" are not to be inserted?
The amendments would leave this in doubt. The definition of "consumers" which they remove is clear: that the broad construction should apply to each and every use of that term in Clauses 9 and 13. The definition thereby provides a consistency within those clauses that would be lost if the proposed amendments were made. There is also the question of preserving consistency with the similar definition of "consumers" in Clause 17 which applies to the clauses setting out the functions of the new consumer council. One does not give prominence to something by putting it earlier in a clause. One gives effect to it by having a definition section which by parliamentary convention comes towards the end of a clause.
My Lords, if the Minister had not answered the noble Lord, Lord Renton, I would have done so now by saying that if the word "consumers" had the meaning the noble Lord gave it, the Government would not have introduced the definition in the later part of the Bill.
I regret that the proposed change has not been accepted. However, I am glad that again we have had firm assurance from Government that they subscribe fully to the principle of sustainability. They consider that they have done that by the wording in the Bill. I do not, therefore, insist on my amendment. I beg leave to withdraw it.
My Lords, in Committee I drew attention to the importance of energy efficiency and endeavoured to give it more prominence in the Bill. The proposed amendment was not accepted by the Minister. I now propose a different amendment. It seeks also to give greater prominence to energy efficiency by making it a major consideration of the Secretary of State and the authority in furthering that principal objective. I hope that the noble Lord will be able to accept the amendment in this revised form. I beg to move.
My Lords, I am sure that all noble Lords will agree with the noble Lord, Lord Ezra, about the importance of creating energy efficiency. In his lifetime and through his many activities the noble Lord has sought to do just that.
However, we are dealing with the principal objective of the new authority. I believe that one should keep the principal objectives basic and simple. It is not helpful to add to the basic objective set out in the clause as drafted. Clauses 70 and 99 provide adequately for requirements for energy efficiency targets under statutory regulation. I should have thought that that provision would meet the noble Lord's wishes.
My Lords, we had a useful debate on the positioning of the authority's duty to promote energy efficiency. My noble friend Lord Borrie recalls it well. I am sorry that I was not able to persuade the noble Lord, Lord Ezra, at that time of the appropriateness of leaving that duty subject to the principal objective to protect the interests of consumers.
As I said then, regulation is intended to mimic the effects of competition by putting downward pressure on costs and by creating incentives to improve efficiency and the quality of service to consumers. It is right, therefore, that the authority's general duties should have an economic focus--that is what this Bill is about--one which is primarily concerned with the price and quality of service offered to consumers. That is why the authority's principal objective is to protect the interests of consumers.
But we recognise the importance of encouraging energy efficiency. That is why, subject to the duty to further the principal objective, the authority is given a duty to promote efficiency in the use of gas and electricity. Let me dwell for a moment on what that duty entails. The authority has no choice as to whether it should comply. It must exercise its statutory functions in the manner it considers best calculated to promote the efficient use of energy. To that extent it is the same as the duty to further the principal objective. The only difference is that in the event of a conflict between energy efficiency and the interests of consumers, the interests of consumers present and future, as we have agreed, should prevail.
But how often will the interests of consumers conflict with any sensible measure to promote energy efficiency? The interests of consumers include the interests of future consumers. Measures to promote energy efficiency are in the longer-term interests of consumers as they result in decreased energy consumption and, consequently, lower monthly bills. For that reason, it seems unlikely that a measure to promote energy efficiency could ever be resisted on the ground that it conflicted with the duty to further the principal objective. If a measure were so costly or ineffective as to be contrary to both the long and short-term interests of consumers, it seems right that the interests of consumers should prevail. No matter which way one looks at it, the duty to promote energy efficiency is best left where it is.
There are also difficulties with the amendment proposed by the noble Lord. They would require the authority to further its principal objective,
"having regard to the need to promote energy efficiency".
My difficulty with the amendments is that I am uncertain where the "need" to promote energy efficiency comes from. It can be contrasted with the straightforward duty to promote the efficient use of gas and electricity, as required by Clauses 9 and 13.
It is true that there is a requirement to have regard to the need to secure that all reasonable demands for gas and electricity are met and that licence holders are able to finance the activities which are the subject of statutory obligations. But these obligations are very different from the promotion of energy efficiency. They stem from the regulators' primary duties under existing legislation--the "demand duty" and "finance duty". They form key aspects of the interests of consumers which must be satisfied if those interests are to be protected. The use of the word "need" in the formulation of these obligations reflects a statutory recognition of the unique status of these aspects of the interests of consumers. It is not an appropriate formulation for an obligation to promote energy efficiency which, important though it is, cannot be said to have the same fundamental status in defining the interests of consumers.
I do not wish to say more about any deficiencies in the wording of the amendment. I prefer to rest my argument against the amendment on the points I made at the beginning. I ask the noble Lord, Lord Ezra, to draw comfort from the strength of the wording of the duty to promote efficiency in the use of gas and electricity and not to press the amendments.
My Lords, I thank the Minister and the noble Lord, Lord Borrie, for their comments. The essential difference between the noble Lord and myself is that I regard energy efficiency as an intrinsic and essential part of the interests of the consumers. I do not see that it should be "subject to" the interest of consumers; it is a part of it.
In the latter stages of debates in Committee we dealt with the problem of fuel poverty. In this country, 4 million to 5 million people live in houses so poorly equipped and so inefficient in energy usage that they suffer seriously. We have proportionately a higher mortality rate in winter than any other country in western Europe. I should have thought that the issue is an essential part of the interests of consumers. I do not understand why it is made "subject to" those interests.
However, I take comfort from the other provisions of the Bill, as the Minister asked. I accept that the Government consider energy efficiency important but regret that they are not prepared to give the intrinsic status I should have preferred. In the light of the assurances we have received, I beg leave to withdraw the amendment.
My Lords, in moving Amendment No. 5 I shall speak also to Amendment No. 9 and immediately own up to an unfortunate glitch that has occurred. It was our intention that the amendments should be identical but for reasons I do not understand the word "viable" has disappeared from the second one. I believe that the Minister understands that our intention was that they should be identical. The amendments are supported by my noble friend Lord Jenkin of Roding who, unfortunately, cannot be here today. I hope that they will also be supported by the noble Lord, Lord Ezra.
I am bound to declare an interest as the joint vice chairman of the All Party Group on the Offshore Oil and Gas Industry and as a former non-executive director of Elf Exploration, which is now to be subsumed into the newly merged Total Fina Elf,
In Committee, my noble friend Lord Jenkin raised concerns about the impact of downstream regulation on the upstream industry, which could in turn affect the viability and diversity of the energy market, and the implication which that could have for consumers and a competitive energy market. He sought to discover the Government's view as to why the regulators should not also be advised to secure diverse and viable energy sources as that would clearly be in the interests of present and future consumers.
In reply, the noble Lord, Lord McIntosh, indicated that the responsibility for securing a diverse and viable energy market was for government. I agree with that--indeed, I applaud it and hope that it will continue to be the Government's position. But I want to make a couple of points.
First, if that is the broad policy of government--and I hope that he is not unintentionally fettering that wide policy-discretion of the Secretary of State--I am a little surprised by the provisions of new Clause 9. The clause states that it is the principal objective not only of the gas and electricity markets authority but also of the Secretary of State to carry out its functions. It would be helpful to have the Minister's reassurance, if nothing else, that in framing the provision in that way there is no unintended fettering of that wide discretion.
However, a further point remains to be addressed. Why should it not be a requirement that the utilities regulator has a similar obligation, as that would clearly support the principal duty imposed upon him in protecting the consumers' interests? That would be consistent with all that the Government seek to secure.
The Minister went on to say that the underpinning of security and diversity would be provided by a competitive market. I believe that in broad measure that is an accurate assessment. However, that will be the case only if the regulation of the downstream market does not, perhaps unintentionally, create barriers to investment and activity in the upstream sector. I believe that if the Government want to secure that objective, which we share, any barriers to investment upstream should be held to a minimum. In such circumstances, it would seem appropriate that as the regulator looks to his regulation of the downstream sector of the industry he should understand what might be the consequences of that regulation on the upstream.
In Committee, the Minister went on to make a reasonable observation that the future energy policy of this country will increasingly be conducted in the context of global and European markets. I am clear that the United Kingdom has been at the forefront of liberalisation in the context of the energy market in Europe. That began in the previous government and I acknowledge that it has successfully been continued under this Government. However, while some member states have been less than enthusiastic in participating in what the United Kingdom would regard as appropriate, it is clear that the Commission's ambitions for a single energy market in Europe are to be achieved by supporting security of supply across Europe. That is a commendable objective.
The amendments, by directly linking the interests of consumers to a diverse and viable energy market, will support the Government's ambitions for the United Kingdom energy market and support the EU's position for securing the supply of energy sources. They do not seek to support one energy source over another, but it should be remembered that our indigenous offshore oil and gas industry can, despite some people's fears, continue to play an important part in our energy market while also supporting thousands of jobs in some of the remoter parts of Scotland and elsewhere in the United Kingdom. It is the largest offshore industry in Europe and while it has reached a mature stage of development it is still of the view that more recoverable reserves remain to be produced than the 26 billion barrels of oil equivalent produced to date. The industry estimates that by 2010 some 57 per cent of the 3 million barrels of oil equivalent produced per day will be provided by gas.
The achievement of that offshore vision and objective by the industry would seem to have direct benefits for consumers. In those circumstances, it is particularly desirable that in every respect the regulator understands what can be achieved for the country as a whole. Our amendments would place an obligation of GEMA to safeguard the interests of consumers by ensuring that the energy market is both diverse and viable. It is a commonsense obligation and, as it supports the Government's declared objectives, I hope that it will be acceptable to them. It would introduce transparency and clarity to the role and remit of the regulator in protecting consumer interests. I beg to move.
My Lords, will the noble and learned Lord deal with a point that puzzles me? He made a persuasive speech about diversity, but I should have thought that an essential component would be coal. However, the noble and learned Lord did not mention coal once. He mentioned oil and gas, but not coal. I draw his attention to the fact that his government virtually closed down the coal industry, leaving only 15 pits in the country. There is no doubt that some people prefer coal as a fuel, but is the noble and learned Lord saying that coal is not necessary or that it is of such minor significance that it need not be dealt with?
My Lords, we return to the interests of consumers. I fail to see why in the Bill, whose main objective is to serve the interests of consumers, we should not try to give a good definition of those interests. They must comprehend a diverse and viable long-term energy supply. To have to be dependent in due course on only one source of energy would be dangerous and no one would welcome it.
In Committee, we were told that market forces will provide the solution. I do not agree entirely. The Bill is itself a demonstration of the extent to which the Government feel that they must intervene for other reasons against market forces. They are intervening seriously to ensure the development of renewables. That intervention is necessary because it would not happen under market forces. They are also committed to supporting combined heat and power to a greater extent than would be the case under market forces.
Perhaps I may turn to coal. We hope that, in an amendment which I shall move later and which I hope will receive widespread support, clean-coal technology will fit into the diversity of supply. Therefore, I should be very disappointed if, yet again, the noble Lord were to tell us that this is clearly part of government policy and that there is no need to state it. I believe that this is such an essential element in the interests of consumers that it should be stated. Therefore, I very much hope that, on reflection, the noble Lord will be prepared to accept the amendment.
My Lords, on this occasion I am pleased to be in agreement with the noble Lord, Lord Ezra, and I gladly support the amendment moved by my noble and learned friend to which the noble Lord, Lord Ezra, added his name.
I was not intending to add to what my noble and learned friend Lord Fraser of Carmyllie has already said. However, in spite of his knowledge and experience of fuel matters, I feel that the noble Lord, Lord Dormand of Easington, did not have his finger on the point when he referred to Clause 1. It seems to me that Clause 1 is so unspecific that it does not deal with the very necessary argument put forward in Amendments Nos. 5 and 9. As noble Lords may realise, I am all against unnecessary detail being added to any Bill. However, I believe that in Amendments Nos. 5 and 9 some foresight is being shown which should be expressed in the Bill. Therefore, I gladly support those amendments.
My Lords, we had a useful and full debate on the issue of security of supply in Committee. I am sorry that I do not seem to have convinced the House that security of supply is properly dealt with in the framework of the Bill as it currently stands. As I said then, the Bill is concerned with the economic regulation of gas and electricity. It is not an energy or an energy policy Bill. I am glad to have the explicit recognition of that point by the noble and learned Lord, Lord Fraser.
Before I proceed, perhaps I may say that, because that is the case, we are in no way fettering the freedom of the Secretary of State and, as Clauses 9 and 13 are amendments to the Gas Act and Electricity Act, they are in the context of the Long Title of those Acts. They are part of utilities regulation, whereas the discretion of the Secretary of State to maintain security of supply goes much wider than that and is not in any way fettered by the provisions in this Bill.
However, security of supply is indeed the responsibility of government as a whole. In order to achieve it, the Government must exercise a wide range of policy instruments. Relevant issues range from securing properly functioning utilities markets (which is the subject of this Bill), to the management of the UK continental shelf, to securing stability and access to overseas sources of energy, and of course, to the diversity of supply to which my noble friend Lord Dormand referred. It has always been our policy that there should be diversity of supply, on or under land, of domestic sources and not only of the offshore interests to which the noble and learned Lord, Lord Fraser, referred.
The bulk of these issues falls far outside the scope of utilities legislation. However, I am perfectly willing to acknowledge that one element is to establish appropriate economic regulation of the gas and electricity utilities. That is why the Bill makes it absolutely clear that the principal objective to protect the interests of consumers applies to both existing and future consumers. That is why there is a duty to secure that all reasonable demands for electricity and, so far as it is economical to do so, for gas are met. In the context of utilities legislation, that is security of supply. Therefore, the hierarchy of duties in the Bill already contains all the duties, relevant to the purpose of this legislation, which are necessary for security of supply.
As I said in Committee, it follows that amendments such as this are a distraction and would serve to confuse rather than enhance the framework of obligations and duties under the legislation. The noble and learned Lord, Lord Fraser, said that in Committee I answered that market forces would provide the solution. No, my Lords; I know the place of market forces and they are certainly important in many aspects of the Bill. However, I did not say that market forces could be relied on to preserve security of supply. Market forces play their part--an enormously important part--as a complement to the regulation of the utilities industries, but certainly the wider responsibilities of the Government are a recognition of the benefits and of the limits of market forces.
I do not believe that the amendments will add to the Bill and I seriously consider that they will confuse the orders which we give to the utility industry and its regulators.
My Lords, first, perhaps I may say to the noble Lord, Lord Dormand, that I hoped that he would understand that he should support what we are promoting. I may have given insufficient emphasis to it, but I made the point that these amendments do not seek to support one energy source over another. Perhaps I did not expressly use the word "coal". However, I certainly recognise the great importance of coal as an energy source within the United Kingdom. We are not saying that the oil and gas aspects of energy are in any way supreme. All sources should come under the duty that we wish to see imposed on GEMA.
I am not entirely persuaded by the noble Lord, Lord McIntosh. It seems to me that the point comes to this, and the noble Lord, Lord Ezra, made it well. If, downstream, one imposes a number of regulations on the industry, it would seem almost inevitable that by so regulating one is affecting decisions taken upstream. We seek to ensure only that when the regulator takes perfectly proper decisions relating to the downstream activity in the oil, gas or electricity world, he should have regard to what their impact might be on vitally important UK investment decisions offshore. That is all that we wanted to achieve. We certainly did not want him to extend his regulatory remit upstream. We wished simply for there to be a clearer understanding on that point.
The noble Lord, Lord McIntosh, said that the Minister of the day will have regard to just those considerations. I suppose that I am reassured to know that. But I still have some difficulty in grasping why he does not wish the regulator downstream to understand more clearly the possible impact of the regulatory decisions that he takes. However, I imagine that we shall be bashing our heads against the government wall for a very long time, and I do not propose to press the amendment now. With the leave of the House, I seek to withdraw Amendment No. 5.
My Lords, the amendment relates to the consumers council. My Amendment No. 67 in Committee was about the appointment of lay members in the regional organisation of the proposed consumers council. We were advised that the council was shortly to respond to the consultation on its organisation. That response has now appeared. On page 11, the report says that:
"there was considerable support for the role played by lay representatives of customers".
However, it does not say how that will be done. I wonder whether the Minister is in a position to enlighten us. I beg to move.
My Lords, the Government fully accept that lay members of committees--that is, individuals who are not employed by or otherwise connected with the council--can have a valuable role in broadening the range of experience and expertise on which the council can draw. They can have a useful role in assisting the council in its work on behalf of consumers. I declare my past interest as the husband of the former chairman of the national Gas Consumers Council in the late 1970s. We have taken care in Clause 18 and the relevant paragraphs of Schedule 2 to give the council all the powers that it needs to be able to set up committees with lay members. That answers the strict wording of the amendment, but I know that the aim of the noble Lord, Lord Ezra, was to get me to say a bit more about our intentions rather than to press the amendment.
The Government's view is that it is primarily for the council to decide how many committees it needs and the role that they should play. I shall explain how the council intends to develop its plans.
The Department of Trade and Industry has already identified the chairman designate of the new council, Ann Robinson. When the full council has been appointed--the target date is November this year--I understand that she envisages that one of its first priorities will be to consider the establishment of committees.
There are a number of important issues to be resolved, with decisions to be taken on how many committees there should be and the precise role that they should play on behalf of the council, so that their input complements rather than overlaps with the work of the full-time staff in the regional offices. Decisions are needed on what sort of people should be appointed to committees and the links between committees and the work of other local organisations. The committees will certainly contain lay persons. That is important, so that the council has access to a wider range of experience and expertise.
I understand that Ann Robinson favours the appointment of individuals with a professional interest in addressing and dealing with consumer-related issues. That might include individuals from trading standards offices, citizens advice bureaux, trade and commerce bodies, and caring and charitable agencies. That would have the benefit of making the exchange of information and links between the council and local organisations more effective.
Those will be matters for the council when it has been appointed, but it is worth stressing that the council's plan for the committees will be subject to proper public scrutiny, as Ann Robinson intends to draw up and consult on the council's proposals for committees before the end of this year. The noble Lord, Lord Ezra, and others will have a full opportunity to comment and offer suggestions on the plans. At that stage, assuming that the council is appointed in November, it will have some practical experience of how its regional office teams are operating--I have already answered a Written Question saying that there will be seven regional offices--and will be in a better position to identify the most suitable role for committees and their lay members.
I hope that that reassures the noble Lord and that he will not feel it necessary to press the amendment.
My Lords, I am greatly impressed by the Minister's modesty about his wife, who was a very distinguished chairman. I do not think that anyone has yet paid tribute to the outgoing gas and electricity consumer councils, which have been blessed with very special leadership. I am very grateful to both of them.
I am suspicious of professional consumers. Ordinary consumers know best and I am concerned that they should have access. Their views as consumers, rather than as professionals, should be taken into account. Their access should be given due consideration.
My Lords, I am grateful for that intervention. The chairmen of the existing consumer councils are still in post. I am sure that it will be appropriate to pay tribute to their services when their term of office comes to an end.
I take the noble Baroness's point about the direct representation of consumers rather than professional representatives. I am sure that Ann Robinson will pay attention to that. Perhaps the noble Baroness would like to take part in the consultation. She is well qualified to express her views.
My Lords, I should like to raise one issue that arises from the Minister's answer. I am grateful to him for including me in the circulation of the Parliamentary Answer that he mentioned, which said where the offices will be set up around the country. As I understand it, one of the offices is to be in Cardiff. The natural assumption is that it will cover only Wales. Concern has been expressed that it might serve a wider area. Is that the case?
The intention is that the Bournemouth office will cover the South West.
My Lords, Clause 20 requires the council to publish statistical information about customer complaints, including those made directly to licence holders or anyone carrying on activity on their behalf. It will be difficult for the council to achieve accurate, consistent and comparable counts of complaints received by companies, particularly telephone complaints, as there is ample scope for legitimate differences of interpretation on what constitutes an inquiry or a request for action or information and what might be regarded as a complaint.
For example, does the first call that a consumer makes to an electricity company advising that the power has failed constitute a complaint? If the consumer called back after four hours to say that nothing had been done, that would be a complaint, but what if they called back after 10 minutes? The amendment would restrict the obligation to the publication and analysis of complaints received by the authority and the council, as that will provide the only robust and equitable means of comparison of the customer service performance of different companies. I beg to move.
My Lords, I find the amendment unhelpful. It would deprive consumers of statistical information about a small number--or perhaps even a large number--of consumer complaints. The consumer council which will come into existence will no doubt receive many complaints and will have its own ways of devising what is a complaint and what are the differences between a complaint on the one hand and a request for information on the other. But electricity and gas suppliers and distributors will also have their own ways of doing that. If they need guidance, no doubt the new consumer council can give them guidance in order to achieve across the country some measure of accord on how to distinguish consumer complaints from requests for information.
However, if you cut out of the statistics complaints that have gone to the electricity distributor or supplier and not to the consumer council, then we in this House, the general public and consumers generally will have a deficient and defective piece of information as regards how many complaints, and the details and types of complaints and so on, are being made.
I recognise the difficulty which the noble Baroness, Lady Buscombe, has mentioned but it seems to me a difficulty of distinguishing between complaints and information which can be resolved by agreement between the companies and with guidance from the consumer council.
My Lords, up to a point, one must acknowledge that the public, as the noble Lord said, should have the right to make complaints. But surely it is necessary for us to consider to whom the complaint should be made, bearing in mind that the responsibility for registering those complaints will lie upon the council.
As the Bill stands, complaints can be made to various other bodies, including,
"electricity suppliers and electricity distributors (or anyone carrying on activities on their behalf".
How on earth is the council to be able to make a correct, comprehensive and formal report unless complaints are made to it?
It may be that the answer is for the Bill to be amended on Third Reading to ensure that if complaints are not made directly to the council but must be registered by the council, the people to whom the complaints are made should have a duty to report them to the council. Therefore, I believe that my noble friend has done a valuable service in drawing attention to this problem. It may well be that between now and Third Reading, the Government should reconsider the whole question.
My Lords, Clause 20 places the new consumer council under a duty to publish statistical information about complaints made by consumers against certain consumer-facing utility companies. I say immediately that the Bill provides what the noble Lord, Lord Renton, seeks; namely, that in order to collect those statistics and to publish that statistical information, the council has a right to demand information from the consumer-facing utility companies. So no amendment will be necessary on Third Reading.
As with the other provisions of Clause 20, the intention is to give the council the role of providing information that consumers need to make informed decisions about their gas and electricity suppliers. It is also intended to provide a spur to companies to maintain and improve levels of performance.
For the purposes of the duty to publish complaints statistics, the term "complaints" is defined to include complaints made to the companies concerned. The amendment would specifically remove that part of "complaints". I accept that to demand that information from the companies would put pressure on them to improve their performance. That is why we have included such complaints within the scope of this duty. But just because a restricted disclosure of complaints statistics would go part way towards helping consumers to form judgments is no reason to deprive consumers of the full picture. I believe that excluding complaints made direct to companies would seriously reduce the effectiveness of the provisions of Clause 20.
I am sure that the noble Baroness, Lady Oppenheim-Barnes, will agree that the whole pattern of consumer protection means that the complaints are made first to the company of which the complaint is made, whether it is a gas, electricity or bus company. You try to get the company to put it right first before you go to the consumer council.
As to how those complaints are registered, which appears to be the concern of the noble Baroness, Lady Buscombe, there are innumerable examples in both the private and public sectors of distinguishing between complaints which should be registered and which should go on to be recorded as evidence of poor performance and those which are simply routine. When a phone call comes in, you do not immediately say, "Is it an inquiry or a complaint?" You register who is making the call, the time of the call, whether a call has been made before and what the call is about. In other words, it is analysed. As a market research consultant, I have taken part in providing an analysis form which enables people who want to register customer complaints, whether in the private or public sector, to do so effectively.
It is not easy to do that, but it is certainly not impossible. To cut it out altogether would really be to take away a very important role of the consumer council, which is to provide a complete analysis of the interface between electricity and gas companies and their customers. I hope that the noble Baroness, Lady Buscombe, will not press the amendment.
My Lords, before the noble Lord sits down, perhaps he will elaborate on what he said. I accept that complaints made to the various companies which he has mentioned should be borne in mind. But is it really fair on the council to have to register complaints if the companies are under no obligation to report them to the council?
My Lords, companies are under an obligation to report them and they are under an obligation to report them in the form which the council requires.
My Lords, I am extremely disappointed by the Minister's response to the amendment. The industry feels strongly that restricting publication and analysis of complaints to those received by the authority and the council would provide the only robust and equitable means of comparison between companies in terms of their customer service performance.
Indeed, I quote from a letter addressed to the Utilities Bill team at the Department of Trade and Industry from representatives of the Electricity Association following the Committee stage. It states:
"Even against the assumption that the new Council will publish guidelines as to how a complaint is to be defined and recorded, there is still ample scope for interpretation between an enquiry or request for action/information and what might be regarded as a complaint. This is particularly so if telephone complaints are to be included, as they probably will be, given the growing numbers of customers who are using the telephone".
I am surprised also by the response of the noble Lord, Lord Borrie. The letter goes on to state:
"If companies are receiving significant numbers of initial complaints, but resolving issues quickly so that complaints are not being referred to OFGEM or the Council, surely that is to their credit! If they are generally offering a low standard of service, as the Minister suggests, that will very quickly be demonstrated through a whole raft of indices including Guaranteed and Overall Standards of Service, performance monitoring of Codes of Practice and Quality of Supply data. Even in the complaints arena alone, no poorly performing company will be able to 'firefight' to the extent necessary to ensure that all first time complaints are satisfactorily resolved quickly enough to avoid references to the Council. Customers can of course vote with their feet, as increasing numbers are now doing, and leave the offending supplier. Competition is a powerful deterrent to poor service".
I am not happy and I should like to test the opinion of the House.
moved Amendment No. 13:
Page 16, line 39, leave out ("of gas").
My Lords, in moving Amendment No. 13, I shall speak also to Amendments Nos. 14 to 19, 65, 76, 82 to 87, 90 and 98. These are for the most part minor drafting amendments which adjust the terminology used to refer to persons authorised by a licence or exemption in a number of clauses in the Bill, and introduce more consistency between gas and electricity provisions.
Amendments Nos. 82 to 87 to Clause 98 are additionally intended to make clear that, in any scheme introduced to help disadvantaged gas customers, adjustments may be made to the charges of authorised gas shippers as well as of suppliers and transporters. We were advised by the regulator that without such amendments a scheme could be more difficult to operate effectively. I beg to move.
moved Amendments Nos. 14 to 18:
Page 16, line 44, leave out ("authorised person") and insert ("person authorised by a licence or exemption").
Page 18, leave out lines 12 to 14.
Page 18, line 23, leave out ("of electricity").
Page 18, line 28, leave out ("authorised person") and insert ("person authorised by a licence or exemption").
Page 19, leave out lines 43 to 45.
On Question, amendments agreed to.
Clause 23 [Investigations by the Council]:
moved Amendment No. 20:
Page 23, line 13, at end insert--
("(5) Nothing in this section authorises the Council to direct the Authority to supply information which is subject to the restrictions on disclosure contained in section 55 of the Competition Act 1998 nor authorises the Authority to comply with such a direction.").
My Lords, in moving Amendment No. 20, I shall speak also to Amendment No. 21. Section 55 of the Competition Act 1998 restricts the disclosure by the competition authorities of information obtained under that Act regarding the affairs of any individual or business to "designated persons" in the performance of "relevant functions". Typically, those are other regulators exercising their sectoral regulatory powers. If the council, which is not within that pool of designated persons, was able to obtain information which it would not otherwise be entitled to via the exercise by the authority of its competition powers, it would mean that information could be disclosed without being subject to the safeguards provided under the Competition Act. It would also undermine existing arrangements for the separation of the regulator's Competition Act powers and sectoral powers. Amendment No. 20 prohibits the council from seeking, and the authority from disclosing, information protected by Section 55 of the Competition Act.
Turning to Amendment No. 21, Clause 27 gives the Secretary of State the power to specify by regulations the types of information which need not be supplied to the council. The extent to which certain categories of sensitive information, such as trade secrets and legally privileged communications, will be protected will therefore be determined only after the Bill receives Royal Assent. While the Government consulted on their proposals for regulations before the Bill was published, those proposals were only in outline and there is no obligation to consult on the form of the regulations themselves. Amendment No. 21 provides transparency in the exercise of the Secretary of State's power by requiring him to consult interested parties before making any regulations under this clause. I beg to move.
My Lords, perhaps I may deal with Amendments Nos. 20 and 21 in turn because they are not quite the same.
As noble Lords will be aware, in March the Government published a consultation document on categories of information which the authority and the licensees should be entitled to withhold from the consumer council. Information obtained by the authority other than from licensees under the powers it has as gas and electricity regulator was in the second of the classes in the document. Information obtained under the Competition Act 1998 is a subset of that group.
There are a significant number of Acts under which information could be obtained where that information might subsequently pass to the authority. I see no good reason to single out the Competition Act 1998 for explicit treatment here. In any case, for reasons I am about to give, I do not believe information will reach the council anyway. Under the regulations which we are to make, and on which we consulted, information such as information to which Section 55 of the Competition Act applies will be information which the authority is not obliged to pass to the council under Clause 24 of the Bill. The question, therefore, is whether it could do so.
The Bill does not add the consumer council to those bodies to whom Competition Act information, if I may call it that, may be passed under exceptions to the prohibition in that Act on disclosing such information. The prohibition on disclosure of information in this Bill expressly provides in Clause 104(11) that information obtained by the authority in the exercise of its concurrent competition functions is subject to the Competition Act prohibition on disclosure, and not to the one in the Bill. I hope that that reassures the noble Baroness, Lady Buscombe, that Amendment No. 20 is unnecessary.
Amendment No. 21 would add a requirement to consult the authority, the council and licensees' representatives on regulations under Clause 27. Clause 27 contains two regulation-making powers: in subsection (1), a power to set out the sorts of information the authority and licensees need not supply to the council, or the council supply to the authority; and in subsection (3), a power to appoint an adjudicator to determine disputes about whether information requested by the council or the authority can be withheld.
Taking the regulations under subsection (1) first, we have already sought views on what the regulations under Clause 27(1) should contain. We are now analysing representations received and will announce our future intentions in due course. In this case, therefore, the requirement is unnecessary and if there were to be subsequent amendments we would consult on those as well.
The House may recall that when we introduced subsection (3) of Clause 27 I noted that the information commissioner is a possible adjudicator under regulations. She is the front-runner, as a result of representations from various quarters in recent months. If we proceed to make regulations appointing her, I am not sure what more there would be to consult about. An express obligation to consult might oblige us to delay introducing regulations in order to comply with the duty and I do not believe there would be any benefit from that.
In those circumstances, without in any way being antagonistic to the thinking behind the amendments, I hope they will not be pressed.
moved Amendment No. 22:
Page 28, line 27, leave out ("or condition").
My Lords, in moving Amendment No. 22, I shall speak also to Amendments Nos. 23, 33, 34, 68, 79, 94, 97, 121, 122, 123 and 127. This group contains amendments which all relate in some way to the licences and licensing provisions of the Bill.
Amendment No. 22 needs to be considered together with Amendments Nos. 121, 122 and 123. The Government and Ofgem, with which we are working closely on the development of new standard conditions of licences, had it in mind to provide that in future provisions in licences as to licence revocation would be conditions. At present they are terms of the licence. The distinction between "terms" and "conditions" may not be self-evident but it may help if I say that terms of a licence may not be amended without the consent of the individual licenceholder whereas the legislation sets out procedures whereby licence conditions may be modified without such consent.
As well as moving the revocation provisions from one part of the licence to another, we also wanted to take the opportunity when determining standard licence conditions to update the revocation provisions themselves. We have recently completed a major consultation on all the draft standard licence conditions. It has become apparent that the industry is very uneasy about the proposal to move the revocation provisions, but, by and large, is supportive of the substance of the changes we wish to make to the provisions themselves. I might add, by way of an aside, that this is principally a matter for electricity licenceholders as the changes we propose, in the main, would bring electricity licences into line with gas licences.
In recognition of the response we have received, we now propose that revocation provisions remain licence terms; in other words, they may not be amended without the consent of the individual licenceholder. Amendment No. 22 reflects this by removing from Section 6 of the Electricity Act, as amended by Clause 30, a reference to conditions of a licence in the context of the revocation provisions of a licence.
But we still need a vehicle for making the changes to the provisions themselves. We have identified the licensing scheme as the most appropriate vehicle for making these changes. Amendments Nos. 121, 122 and 123 give the Secretary of State the power he needs to make these changes when the licensing schemes which Schedule 7 provides for are made.
Amendment No. 23 to Clause 43 and Amendment No. 79 to Clause 88 correct omissions from the Bill. They would ensure that when the Competition Commission considers a reference made to it in connection with a proposal to create a new licensable activity, it would have regard to the same matters as the authority would have regard to in carrying out its functions. The current drafting is incomplete.
The remainder of the amendments in this group are minor and technical and in one or two cases consequential. In the main, they are aimed at correcting or improving the existing drafting of the Bill and raise no issues of substance. I beg to move.
My Lords, I am grateful to the Minister for that full explanation, although I shall want to read carefully what he has said. I had thought that the Minister would bring forward a further amendment, which, unless I have missed it, he has not included. I am concerned about the following matter. As I understand the scheme of things, it will be for the Secretary of State to set the standard conditions. He may talk to GEMA and reach a view as to what is appropriate but he will set the standard conditions. There are certain circumstances in which GEMA might ask the competition authorities to report on a matter. That is clearly a desirable provision. However, as I understand the position, under Clause 35 it is open to the authority to modify the standard conditions.
I ask the Minister to consider the following circumstance. Let us consider a standard condition that has been modified by the authority. At some subsequent time the authority takes the view that that modified standard condition has been breached. In those circumstances the authority looks to its powers under what is now Clause 59. As I understand the position, having discovered a breach of a condition in those circumstances, the authority could impose an unlimited fine. In such circumstances where the authority is, as it were, the legislating body in that it can modify the standard conditions, it is the authority that conducts the investigation and acts as jury in determining whether there has been a breach and as a judge in imposing an unlimited fine.
I hope that the Minister will reassure me that in those circumstances, notwithstanding the statement that he made on the first draft of the Bill that reached your Lordships' House, he continues to have no unease that the matter that I have mentioned does not in any way breach the European Convention on Human Rights. I believe that some unease should be felt at a situation where a single authority performs all those different functions. Those functions can only be separated out when the authority decides to refer the matter to the Competition Commission; it is not a matter that that body can address itself. I am uneasy about that situation. I would welcome hearing the Minister say yet again that he is confident that there is no prospect of breaching the European convention in these circumstances.
My Lords, the noble and learned Lord, Lord Fraser, is entitled to make the points that he has made. However, he makes them in the context of a series of amendments which should reduce his fears, at least in respect of revocation provisions of a licence. We shall take out what was originally proposed as being conditions of a licence which could, as the noble and learned Lord said, be changed under certain circumstances without consent and make them terms which cannot be changed without consent. To that extent, any change which is being made now gives me greater confidence in asserting--as I did at the beginning of our discussions--that the Bill is compatible with the European Convention on Human Rights.
My Lords, I make these statements, as always, on legal advice and that advice has not changed.
The noble and learned Lord makes a legitimate point which deserves a response; namely, that certain standard conditions can be modified without consent. Under certain circumstances a breach of conditions could invoke penalties. I do not call them offences as I do not want to reopen the debate that we had on the then Financial Services and Markets Bill. However, they are penalties.
If the noble and learned Lord is present when we debate Amendment No. 38 and the amendment with which it is grouped, he will hear what we think of unlimited penalties. I shall not weary the House by replying at length to the issue that he raised. However, I shall write to the noble and learned Lord before Third Reading and copy the letter to all other noble Lords who have taken part in the debate.
We go to extraordinary lengths to set out in the legislation procedures under which licence conditions may be modified without consent. I shall set all that out in the letter and reaffirm my confidence that I have done the right thing in making the declaration that I have.
moved Amendment No. 23:
Page 46, line 46, at end insert ("; and
On Question, amendment agreed to.
Clause 46 [Power to recover expenditure]:
moved Amendment No. 24:
Page 51, leave out lines 42 to 45 and insert--
("(b) a person ("the initial contributor") has made a payment to the distributor in respect of those expenses, the line or plant having been provided for the purpose of making a connection to any premises or distribution system as required by that person."").
My Lords, in moving Amendment No. 24 I wish to speak also to Amendment No. 25. Both amendments relate to the matter of electricity connections. Amendment No. 24 is perhaps rather obscure at first sight. Indeed, it amends a rather obscure part of the Bill and of the Electricity Act.
When someone requires a connection, they are required to pay for it. But the position need not always be as straightforward as it might appear. I seek to illustrate that point. Suppose that a cottage is built a mile from the nearest electricity distribution line. The owner of the cottage (or, under the Act as it will be amended by this Bill, a supplier acting with that person's consent) would have to pay for a wire to be brought from the nearest distribution line to the meter point in the cottage. Other equipment, such as transformers, might be needed. That is likely to be a significant expense.
Suppose that a couple of years later someone else builds a cottage a hundred yards from the first one and requires an electricity connection. The distribution company will almost certainly make a connection to the second cottage using the wire that was laid to the first cottage. In this case, it is only fair that the person requiring the subsequent connection should bear an appropriate proportion of the cost of the initial connection and that the person who had the initial connection should have his costs abated accordingly. Otherwise, the second person would be free-riding on the first person. I am tempted to call those persons "A" and "B" but I have got away without doing that so far.
This situation is catered for in Section 19 of the Act. That section is being amended by Clause 46 to reflect the separation of supply and distribution. However, the present drafting of the clause inadvertently limits the scope of the provision to the circumstances where the first person requiring the connection--who is called the "initial contributor" in the Bill--is the owner or occupier of the premises connected.
Section 16(1)(a)(i) and (ii) as inserted into the 1989 Act by Clause 44 provides that the person requiring a connection may be either, on the one hand, the owner or occupier of premises or the owner of a distribution system, or, on the other hand, a supplier acting with the consent of such a person.
This amendment widens the scope of Section 19 to include the case where the initial contributor is such a supplier.
Amendment No. 25 is rather more significant. I remind the House of the debate that we had on Amendments Nos. 190 and 191 tabled by the noble Lord, Lord Kingsland, and the noble Baroness, Lady Buscombe. When I rejected those amendments I said that the Government nevertheless accepted the importance of ensuring that the provisions of Clauses 44 to 48, as they now are, supported the making of terms covering all the matters which should properly be covered in the case of making and maintaining a connection even in the largest and most complex cases.
After further consideration, and as I promised last time, after further discussion with the industry, we concluded that the existing provisions did not quite achieve the effect that we wanted. This amendment is the result. It permits a distributor to require a person requiring a connection to accept any terms which it is reasonable in all the circumstances for that person to accept.
Ostensibly, that is a very wide power. But it needs to be borne in mind that this provision comes within the scope of Section 23 of the Electricity Act 1989, as amended by this Bill. Under that section, in the event of a dispute as to the terms offered by a distributor for the making and maintaining of a connection, either party may refer the matter to an authority for determination. So in the end the matter of whether it is reasonable in all the circumstances for a person to be required to accept a particular term is likely to become a matter for determination by the authority where the term is novel or unusually burdensome.
In the vast majority of connections cases, the terms are likely to be straightforward and to relate to the specific matters described in Section 16A. Only in the larger and more complex cases are the distributors likely to have to rely on the extra scope provided by this amendment.
There is one other aspect to this amendment to which I know the industry attaches especial importance and about which I should say a few words. The existing provisions of Clause 48 provide that a distributor may require a person requiring a connection to accept such terms limiting the distributor's liability for economic loss arising from negligence, as it is reasonable in all the circumstances for that person to accept.
It has been suggested that the existence of the present provision relating to the restriction of liability for economic loss resulting from negligence may impact on the wider-ranging provision which we are proposing to introduce alongside it. The suggestion is that the interpretation of the new provision may be constrained by the present provision and be considered as not extending to cover terms limiting liability in cases other than those covered by the existing provision.
I wish to be quite clear that that is not our intention. For that reason the amendment adds to the beginning of the existing provision, which now becomes paragraph 21(c), the words,
"without prejudice to the generality of paragraph (b)".
In other words, distributors are free to try to persuade customers to accept terms relating to the limitation of liability which extend beyond those covered by the existing provision. If the customer considers that what is being proposed is unreasonable, he may refer the matter to the authority for determination under Section 23.
As I indicated, we have worked with the industry to make sure that the connection provisions of the Bill achieve what the Government wish and at the same time achieve the effects which the industry considers important. This is a difficult and complex part of the legislation, but I am confident that we have now got it right. I express my gratitude to the industry for the contribution which it has made. I beg to move.
My Lords, perhaps I may express our support for Amendment No. 25 and thank the Minister for his very helpful clarification of this matter concerning connections. As he stated, it is in response to the amendments which we debated in Committee. I am aware that he has been in consultation with the industry between Committee stage and today. We are very grateful for that. I thank the Minister.
moved Amendment No. 25:
Page 52, line 32, leave out from ("29;") to first ("any") in line 33 and insert--
("(b) any terms which it is reasonable in all the circumstances for that person to be required to accept; and
(c) without prejudice to the generality of paragraph (b),").
On Question, amendment agreed to.
Clause 50 [General duties of electricity distributors]:
My Lords, in moving this amendment in my name and that of the noble Lord, Lord Beaumont, I shall also speak to Amendment No. 27 in the name of my noble friend Lady Sharp and myself.
Amendment No. 26 proposes adding to the general duties of licence holders under Clause 50 on page 53 of the Bill to the effect that they should,
"facilitate the achievement of the Government's national renewable energy targets, including small-scale renewable generation through net metering".
We debated these issues at some length at Committee stage. We sought to persuade the Government to introduce on the face of the Bill their precise renewable targets. However, the Government objected to that. It was felt that that was not the right place, even though the Government reaffirmed their determination that the targets should be achieved.
This amendment refers to that objective in more general terms, but at the same time seeks to emphasise the importance of achieving the Government's renewable targets. They are going to be very difficult targets to achieve. The more emphasis that is given to them the better. This seems to us to be the right place to do that. Therefore, I hope that with this more general wording the Government will be able to accept the amendment.
I turn now to Amendment No. 27, which deals with the problem of embedded generation. That is also a subject that we discussed at some length. It was agreed on all sides that embedded generation, which is local generation feeding into a local electricity distribution system, should be encouraged.
"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".--[Official Report, Commons, 20/6/00; col. 318.]
The amendment proposed follows precisely Mr Mullin's words and therefore I take it that it will be acceptable to the noble Lord. I beg to move.
My Lords, I would not like the fact that my name is attached to Amendment No. 26 but not to Amendment No. 27 to imply in any way that I do not support the noble Lord, Lord Ezra, and the noble Baroness, Lady Sharp, in their amendment. Both amendments are extremely important. It is always the Government's response that they do not want to add extra matter to the face of a Bill. It seems to me that in outlining the duty of an electricity distributor, which is what is done here, it is very important that at least the points outlined in Amendments Nos. 26 and 27 be added. There appears to be no doubt whatsoever that in suggesting these amendments we are suggesting that something should be put on the face of the Bill of which the Government approve and would like to see happen. The best way to do that is to put it on the face of the Bill so that any electricity distributor, looking at the Bill, knows that these measures are among his priorities. I very much support both amendments.
My Lords, I support both the amendment put forward by the noble Lord, Lord Beaumont, and my noble friend Lord Ezra and speak to Amendment No. 27 which is in my name and that of the noble Lord, Lord Ezra. I would like to say a word about the issue of embedded generation. It is clear, and there is a clear admission, that the new electricity generating arrangements disadvantage small generators of electricity yet, as we debated earlier, when we consider the interests of consumers it is not only current consumers but future ones with whom we are concerned. We know that unless we make a serious attempt to meet renewable targets future generations of consumers are going to be at a disadvantage. It is vitally important that we make a real effort to meet the targets.
Embedded generation, small-scale combined heat and power (CHP), small-scale solar panels, effective voltaics and so on, are all forms of energy generation which have great advantages. But they require encouragement. If we do not encourage them now we shall fail to develop the technology on a scale sufficient to enable it to be taken up by consumers. One of the great advantages of embedded generation is that electricity is generated close to its users; it does not incur the costs and losses of transmission. It is extremely important that there should be in the Bill powers and incentives to encourage this small-scale generation capacity so that future generations of consumers may benefit from it.
My Lords, in speaking to these two amendments I declare an interest as a member of the management board of Ofgem and a director of the solar energy group. I certainly support the objectives of the two amendments--we wish to promote embedded generation and renewables--but I have difficulties with them. The term "fair" in Amendment No. 27 is very subjective and open to widely differing interpretations. If one substituted more precise terms--such as "reasonable access" instead of "fair access" and "cost reflective prices" rather than "fair prices"--the amendment would be unnecessary because other aspects of the Bill cover the essential points.
Amendment No. 26 proposes net metering for renewables. Net metering is allowable under the Bill where it is appropriate, but not universally. It would be wrong to introduce general net metering for one simple reason: that is, that inflexible and unpredictable plant imposes substantial costs on the system which are ultimately passed on to the customer. The system operator has to take capacity off or put it on to the system in order to balance it and to maintain its integrity. That imposes costs.
It is important that we encourage both environmentally friendly generation, and flexible and predictable generation; better still, that we encourage environmentally friendly and flexible and predictable generation. Net metering eliminates an incentive for flexibility and predictability and will skew the nature of technical development in this area in the wrong direction.
It is worth noting that NETA has a number of special facilities for renewables which encourage small-scale renewable generation. In detail, these arrangements are very technical--I am not sure that they are fully understood--but they are carefully designed to encourage the emergence of aggregators, who will buy the inflexible and unpredictable part of output from small generators, pool those risks and therefore eliminate--or certainly substantially reduce--the discount that small, unpredictable generators will face. Those measures go quite a long way to meeting the concerns and overcoming the disadvantages. They are special arrangements; they go quite a long way towards promoting renewables without going as far as promoting net metering, which has quite substantial disadvantages.
My Lords, before the noble Lord sits down, he has noticed, has he not, the word "including"? There is no effort to make,
"small-scale renewable generation through net metering" a major item; it is merely one of the things included in the targets.
My Lords, by including a specific mention one is giving it weight over and above other measures which are equally important in the promotion of renewables and embedded generation.
My Lords, it is true that these amendments go to the issue of the treatment of small-scale embedded generation within the electricity distribution networks. As the noble Lord, Lord Currie, has drawn out, the Government have recognised in drafting the Bill the importance of small-scale generation--typically, embedded generation--to the development of environmentally-friendly generation technologies, in particular renewables and combined heat and power.
As I said in Committee--and as the noble Lord, Lord Currie, has confirmed--the Government have sought through the various provisions of the 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. I think it will be acknowledged that that was not the case before. That is why the Bill introduces changes to the regulatory structure of the electricity industry which will remove barriers to embedded generation and enable it to compete fairly on its merits. This is key to encouraging renewable and combined heat and power generation.
I should emphasise that this is a very significant shift in the regulatory framework, working to the benefit of embedded generation. Even though it is difficult to understand and to find in the Bill, it is important not to underestimate it. 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. This is underpinned in the Bill by the explicit duty imposed on distributors to facilitate competition in generation--including embedded generation--as well as in 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 that distribution companies will look at embedded generation on an equitable and transparent basis when considering any network augmentation.
Furthermore, the Government are looking closely at any further practical difficulties faced by embedded generation. We have committed ourselves 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.
Let me be clear--as the noble Lord, Lord Currie, has been--the Bill does not rule out net metering. Indeed, the market is starting, as it should, to address this issue. At least one supply company has already offered a net metering package. The Government welcome this, but we cannot agree that we should introduce a provision which would, in effect--even with the word "including"--prescribe a system of net metering. This would ignore the difference in value between electricity that a customer supplies to the network and that which he takes from it. Any such general obligation would imply a degree of mandatory cross-subsidisation that would have to be paid for by other consumers.
Nor do we agree that legislation is the place for exhortations about this matter. Legislation is the place for strong, practical measures to make sure that the regulatory framework properly addresses embedded generation. That is what we have provided. Of course electricity suppliers can offer net metering to their customers if they choose, but from the point of view of the law and of this Bill the way forward lies in the measures to benefit embedded generation that I have described.
My Lords, I note what the noble Lord said about embedded generation. He is quite right. It is obscure; one has to find one's way through a labyrinth in the Bill and supporting documents. I still find it difficult to understand why the words used by one of the noble Lord's ministerial colleagues should not be accepted. The noble Lord, Lord Currie, said that he did not know what "fair" meant. Apparently Mr Chris Mullin knew what it meant because he used the word in another place. Indeed the noble Lord referred to "fair access". I should like to withdraw the amendment with the proviso that I shall study carefully what has been said and may well come back to the matter at the next stage. I beg leave to withdraw the amendment.
My Lords, in moving Amendment No. 28, I should like to speak also to Amendment No. 32. Paragraph 4(1) of Schedule 4 provides for a distributor to recover the value of electricity taken improperly while being conveyed by a distributor. That provision does not, however, take account of the arrangements which have been put in place by electricity companies for recovering sums for the improper abstraction of electricity. The provision could imply that distribution companies have wider responsibilities than they actually have.
Primarily, responsibility for dealing with unlawful abstraction will be a matter for suppliers and not distributors. Under these arrangements, where electricity is stolen and the customer is taking supply from an identifiable supplier, the supplier makes good any additional costs incurred by other suppliers and any loss suffered by the distributor. The supplier is then able to pursue any remedies for recovering those amounts from the customer.
In a small number of cases where there is no identifiable supplier--for example, abstraction by an improper connection in the road--it would be appropriate for a distributor to have the power of recovery. The amendment would restrict the scope of the provision to those limited circumstances.
I turn to Amendment No. 32. The amendment would provide electricity distributors with rights of access to meters in the case of an emergency. While distributors will retain ownership of the thousands of meters currently in place, they will not have any right of access to those meters. Electricity suppliers will be responsible for providing and reading meters and the powers to enter premises for access to meters will be given to those 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 equally 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 to arrange for its meter operator to deal with the meter. Until that is done the consumer will be without electricity. That cannot be in the consumer's best interests.
Without the right of access to meters, distributors will be blamed for the poor and confused service consumers will receive, a problem not of the distributors' making. Consumers will rightly not be willing to listen to explanations about the subtle differences between the statutory powers of electricity suppliers and distributors when they are told that their power will have to be left off after they have called out what they still regard in many, many circumstances as the Electricity Board at midnight.
These amendments would enable distributors to enter premises in an emergency to inspect, repair and reinstall meters and, if I may say so, in that case serve the customer. The Government claim that their intention is to put customers first by offering a one-stop shop. Where the distributor is not appointed as the supplier's meter service provider, that simply will not happen. Without these powers distributors, through no fault of their own, will end up providing a poorer service to the customer. I beg to move.
My Lords, I shall reply to opposition Amendments Nos. 28 and 32 and I shall then speak to my Amendments Nos. 30, 77, 78 and 103. I should like first to say a few words about an amendment which we propose to make at Third Reading on rights of entry to premises.
We have recently received--within the past few days--representations from electricity distribution companies which are concerned to ensure that they have sufficient rights of entry to premises in cases of emergency. We have listened to their arguments and are persuaded that we should act. Therefore, we will be tabling at Third Reading a small amendment to Schedule 4. As is my usual practice, I shall write to noble Lords to explain the amendment when it has been tabled. The reason I mention this now is both to inform the House and to underline that we are always ready to accept the industry's proposals to amend the drafting of the Bill where its proposals are well founded. That is not the case for Amendments Nos. 28 and 32.
Amendment No. 28 was originally proposed to us by the Electricity Association. It expressed concern that paragraph 4 of new Schedule 6 to the Electricity Act, as inserted by Schedule 4 to the Bill, appeared to place responsibility on distributors to recover the value of electricity illegally abstracted from their distribution networks, whereas in their view all responsibility for energy used by consumers should be the responsibility of suppliers. I am happy to give to the House the response we gave to the association explaining why its concerns were unfounded and why, therefore, this amendment is not appropriate.
First, paragraph 4 of new Schedule 6 gives distributors statutory rights to recover the value of illegally abstracted electricity. It does not place obligations on them to do so. In practice, I understand that there are agreements within the industry itself which may assign such a role to distributors. That would normally only be in cases where there was no supplier to whom the role could appropriately be assigned; for instance, if someone were illegally to connect into a distribution line in the street. The sole purpose of paragraph 4 is to make the distributors' lives easier in these cases by allowing them to use civil legal procedures to recover the value of the electricity so taken.
Secondly, new Schedule 6 has been drafted so that paragraph 4 applies only in cases where paragraph 3 does not. Paragraph 3 provides that a contract shall be deemed to be in place with a supplier where someone takes a supply of electricity without there being an express contract in place. That could cover a number of circumstances, but what is relevant here is that it would cover electricity taken illegally, always provided that a supplier can be identified as being responsible for the supply taken. If not, and only if not, the statutory rights--not obligations--under paragraph 4 would be available to distributors.
I turn to Amendment No. 32. Again, this proposal was first made by the Electricity Association. We considered it carefully but were unable to accept it. This is not a safety issue, despite what the noble Baroness, Lady Buscombe, says. It is a competition issue. The amendment does not improve safety but it does undermine competition. Certainly, it is usually the distributor who needs statutory rights of entry in an emergency. We have made proper statutory provision for that. But a distributor does not need rights of entry, except in case of emergency, to inspect, repair or replace my deluxe all-singing, all-dancing electric rice-steamer with an egg poacher side attachment. By the same token he does not need them for a meter. It is irrelevant that the distributor might happen to own the meter.
At present it happens that the public electricity suppliers own most of the meters in this country. It may be that these will pass to and remain with their distribution arm after the separation of supply and distribution. That is a matter for the public electricity suppliers and in the longer term also for the authority, which continues to consider the implications for competition of meter ownership. However, the Bill assigns statutory rights and responsibilities for meters and metering to suppliers, not distributors. Suppliers will not have to own meters or provide services for themselves, but may procure them from third parties, who may, of course, include distributors. That is because metering of electricity supplied to premises is a supply not a distribution matter. It also ensures that customers may deal with their supplier for metering as for all other aspects of their electricity supply--the one-stop shop principle. Distributors will continue to be responsible for line and plant. 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.
The way we have structured the legislation allows for full competition in metering services. By giving all matters relating to metering to suppliers, we have quite rightly removed the distribution companies, which may well continue to have associated supply companies under the same ownership, from statutory access to meters operated by their supply competitors. Equally, we place distributors on the same statutory footing as independent providers of meter services who have no statutory rights. Both could nevertheless exercise the supplier's rights of entry on his behalf and with his agreement.
I turn to the government amendments, Amendments Nos. 30, 77, 78 and 103. Amendments Nos. 30 and 78 are technical amendments to do with meters, in particular pre-payment meters, and the rights that licensed companies have to enter premises related to meters and pre-payment meters. Amendment No. 77 reflects government policy that pre-payment meters should not be used to recover charges other than those owed for the supply of gas or electricity. For example, hire purchase payments for cookers or fridges should not be charged through a pre-payment meter.
Amendment No. 77 aligns the provisions implementing this policy for gas with the provisions relating to electricity set out in paragraph 8 of Schedule 5 to the Bill. First, the amendment ensures that the restriction on non-supply related charges applies to suppliers authorised by exemption as well by licence. This is achieved by the reference to an authorised supplier, which is defined in Section 48, as amended, as meaning a licensed or exempt supplier. Secondly, as metering is part of the process of supply, the costs of providing the pre-payment meter itself should be recoverable.
Amendment No. 30 corrects an omission by giving a power of entry to a licensed supplier to install a pre-payment meter. In order to reduce the number of disconnections, the Bill gives companies a right to fit a pre-payment meter instead of disconnecting, but the associated right of entry was omitted. Amendment No. 78 corrects a similar omission in gas by creating a right of entry corresponding to the right to fit a pre-payment meter in the first place. This is achieved by the reference to paragraph 7(3)(a). Amendment No. 78 also deals with an issue which arises in gas but not electricity. There is a risk of an explosion if gas mixes with air in a service pipe or in an appliance such as a cooker. This can occur when a meter is fitted. So if a company fits a pre-payment meter it needs to purge gas from the system and then test it.
In the absence of the right of entry to premises covering this purging and testing, the licence holder would be forced to leave the pre-payment meter in the "off" position if the consumer was not present, and the consumer would then have specifically to request another visit from the company before he could use his cooker or boiler, doubling the "waiting for the gasman" excuse which employees are known to give from time to time. The amendment would make such a visit unnecessary. We propose extending the right of entry with the words at the end of new paragraph 23(2)(c). As paragraph 3(5) also deals with installing or replacing a meter it is preferable that the power to test and purge the system also applies in relation to paragraph 3(5). I must emphasise that only licensed companies, and not exempt ones, have rights of entry. Licence conditions apply, including the requirement to have a regulator-approved code of practice on access to consumers' premises.
Amendment No. 103 changes the Rights of Entry (Gas and Electricity Boards) Act 1954 in respect of rights for electricity suppliers and distributors to reflect the abolition of the concept of public electricity supplier and to provide for electricity what the Gas Act 1995 provides for gas: namely, that a person who is authorised by an agent of a licensee, to whom the rights of entry in the Electricity Act apply, may apply for a warrant to exercise the right of entry. For the reasons given, I cannot support Amendments Nos. 28 and 32.
My Lords, I shall read with care in Hansard what the Minister said about Amendment No. 28. We may well return to that matter at Third Reading. With regard to Amendment No. 32, I am sorry that the noble Lord feels that what we suggest does not impinge on safety but damages competition. I would say that the contrary is true. At one point I thought that we were talking about different amendments. We are talking about the right of access to meters in cases of emergency. We are talking about the responsibility on the part of the industry to serve the customer in cases of emergency. We strongly believe that the amendment deals with that situation. When we raised the issue in Committee the Government were not willing to respond to our amendments. They still feel unwilling to respond to what we believe is a commonsense, practical amendment. I intend to test the opinion of the House on Amendment No. 32. I beg leave to withdraw Amendment No. 28.
moved Amendment No. 29:
Page 127, line 34, leave out ("belonging to") and insert ("provided by").
My Lords, in moving Amendment No. 29 I should like to speak also to Amendments Nos. 32, 93, 95, 99, 101, 102, 124, 125 and 128. These amendments are all minor and technical. They make adjustments to the Bill which reflect changes to, or arising from, other parts of the Bill. One could say that about a great many amendments!
Amendments Nos. 29 and 31 provide that provisions which concern distributors' plant and line in new Schedule 6 to the Electricity Act relate only to electrical line and plant actually provided by a distributor, rather than to any line or plant.
Amendment No. 93 makes two changes to the Bill. The first limb of the amendment places the authority under a duty to send a copy of a new licence or an extension to or restriction of an existing licence to any licence holder likely to be affected by its granting. The second limb changes the provisions in Section 15A of the Gas Act which relate to billing disputes so that they apply to all consumers, not just domestic consumers. This is to make them consistent in this respect with the equivalent electricity provisions.
Amendment No. 95 is a purely technical amendment to the drafting and has no substance at all--it says in my brief. It must have some substance! Amendment No. 99, which is a corollary to the second limb of Amendment No. 93 to which I have just referred, and Amendments Nos. 101, 125 and 128 all amend the provisions of Section 44A of the Electricity Act and Section 15A of the Gas Act, which relate to billing disputes, to reflect the abolition of the concepts of public electricity supplier and tariff customer and to make the gas provisions applicable to all customers, not just domestic ones.
Amendment No. 102 amends Section 59 of the Electricity Act, which relates to making of false statements and so on to reflect the changes elsewhere in the Bill to provisions for rights of entry. I beg to move.
moved Amendment No. 30:
Page 128, line 22, leave out from beginning to ("an") and insert ("Where an electricity supplier is authorised by paragraph 2(1) to install a pre-payment meter on any premises, any officer or other person authorised by the supplier may at all reasonable times enter the premises for the purpose of installing such a meter.
(5) A power of entry for the purpose of removing or installing").
My Lords, I spoke to this amendment with Amendment No. 28. I beg to move.
moved Amendment No. 31:
Page 128, line 44, at end insert ("provided by the distributor").
This amendment was spoken to with Amendment No. 29. I beg to move.
moved Amendments Nos. 33 and 34:
Page 131, line 2, leave out ("inserted") and insert ("substituted").
Page 131, line 3, leave out ("inserted") and insert ("substituted").
On Question, amendments agreed to.
Clause 57 [Information with respect to levels of performance]:
moved Amendment No. 35:
Page 57, line 22, leave out subsection (6) and insert--
("(6) Subsection (3) shall cease to have effect.").
My Lords, in moving Amendment No. 35, I shall speak also to Amendments Nos. 80, 96, 100, 126 and 129. Companies are under a duty to provide the authority with information concerning the standards of performance they have attained in their dealings with customers. At present (and ever since standards of performance were introduced) failure to comply with this duty is a criminal offence, triable in the magistrates' courts, carrying a maximum fine of level 5 on the standard scale (currently £5,000).
These amendments taken together decriminalise the failure to provide information, making it instead a "relevant requirement". Failure to comply with a "relevant requirement" can lead to action by the authority, through enforcement orders up to financial penalties. I say this to the noble Lord, Lord Renton, who raised a question about how the information on standards of performance could be enforced. I did not go into detail because I did not want to anticipate the fact that we are now making it a civil rather than a criminal offence.
Specifically, Amendments Nos. 35 and 80 decriminalise failures to provide information. Amendments Nos. 96 and 100 make the duty into relevant requirements, and Amendments Nos. 126 and 129 are technical consequential amendments to the schedule of repeals.
The reason for this change is consistency, on two counts. First, all the other duties relating to standards of performance are relevant requirements and, secondly, almost all the other duties requiring the provision of information to the authority are also relevant requirements. The one exception is failure to provide information which the authority has requested when investigating possible breaches of relevant requirements. Clearly, if that failure were subject to the same enforcement provision, we should get into endless loops.
There is no ulterior purpose behind the amendments. It is simply neater if all the standards of performance provisions are treated consistently. I commend the amendments to the House. I beg to move.
My Lords, this amendment relates to the possibility of double jeopardy arising from the combination of the authority's competition and regulatory functions. The point was raised at Second Reading by my noble friend Lord Kingsland.
The authority has a dual role in its sector, as regulator and as the competition authority. Its competition powers are exercised concurrently with those of the Director General of Fair Trading. If the new United Kingdom competition regime is to develop in a fair, consistent and coherent manner and undertakings are to receive the benefit of the safeguards provided by the Competition Act, competition matters must be dealt with by means of competition powers across industry as a whole, including the regulated sectors.
During the passage of the Competition Bill, provisions were added by the Government which amended the Electricity Act 1989 and the other sectoral statutes to ensure that double jeopardy did not arise where the exercise of competition powers was more appropriate. This amendment makes similar provision to Section 25 of the Electricity Act 1989, as amended by the Competition Act 1998. It would prevent the authority from imposing a penalty where the contravention is one which the authority is satisfied should be dealt with under the Competition Act. I beg to move.
My Lords, the amendment is based on the fact that the provisions on licence enforcement orders in the Gas and Electricity Acts contain a restriction that the regulator shall not make an order if it is satisfied that the most appropriate way of proceeding is under the Competition Act. This provides a substantial measure of protection against what has been described as double jeopardy. But there is no equivalent restriction in relation to the penalties provisions in Clauses 59 and 95 of the Bill.
The position in relation to financial penalties is not exactly the same as that on enforcement orders. The regulator has a duty to make licence enforcement orders. The limitation that is now in Section 25 of the Electricity Act was, therefore, essential if overlapping enforcement was to be avoided. However, the power to impose penalties is only a discretion and the regulator therefore has the ability to avoid any overlap.
Nevertheless, the Government naturally wish to achieve as much consistency as is practical between provisions which the Bill inserts into the Gas and Electricity Acts and provisions that are already there; and they wish to achieve as much clarity as it practical on the interaction between licence enforcement provisions and Competition Act enforcement provisions.
The noble Baroness has raised an issue that merits attention and I am grateful to her. I have considered the drafting of Amendment No. 36 and I am pleased to accept it. We shall bring forward an equivalent amendment for gas at Third Reading.
moved Amendment No. 37:
Page 58, line 10, at end insert--
("( ) the Authority shall not impose a penalty under subsection (1) where the licence holder shows that--
(a) he used his best endeavours to avoid the contravention or failure in question; or
(b) the contravention or failure was due to circumstances beyond his control.").
My Lords, penalties may be imposed on licence holders on the basis of strict liability. Therefore, a company may be liable to a penalty even where it has taken all possible steps to avoid any breach of its licence. That means that a company may be penalised for matters entirely beyond its control: for example, power outages caused by storm damage. I always think of the example of the storms of 1987, which I thought were an "act of God". Indeed, when I was a law student we often referred to "acts of God", which do not seem to be discussed any more, not least by this Government.
A company may also be penalised where the allowed capital and operating expenditure inherent in the price control regime results in the ability of the company to implement the optimum replacement and maintenance regimes being curtailed, potentially leading to an increased likelihood of power failures and longer restoration times.
The Government's justification for this draconian approach seems to be that consumers are not concerned how a problem occurs but merely want someone punished for it. We feel that that approach is unfair and unjustified. When one looks, for example, at the rate of power system failures elsewhere in the developed world, it is evident that the utilities in this country have provided services to an extremely high standard when compared to those elsewhere. One has only to go on holiday to places such as France and Spain to be made aware of what amazing services we receive in this country and have received for some considerable time.
The amendment would provide a "best endeavours" defence against such penalties, ensuring that companies are not penalised for matters beyond their control as a consequence of the constraints placed on them. If the standards deteriorate, who is to blame? Is it the companies; or is it the body which now effectively controls the amount that can be spent on replacement and maintenance? If a company can demonstrate that it is spending in accordance with the allowances, is it to be penalised by the very body that determined those allowances? I beg to move.
My Lords, the amendment seeks to preclude the imposition of financial penalties in cases where the licence holder concerned uses his "best endeavours" to avoid a contravention or failure, or where the contravention or failure was due to circumstances beyond the control of the licence holder. It is similar to an amendment tabled by the noble Lord, Lord Kingsland, and the noble Baroness, Lady Buscombe, at Committee stage, but that sought to limit penalties to cases of recklessness and negligence.
We have resisted amendments of this kind throughout the passage of the Bill and we are going to do so again on behalf of consumers. There are valid precedents for the approach that the Government have adopted. The National Lottery Act 1998 and the Broadcasting Acts 1990 and 1996 provide for the relevant regulatory authority to impose financial penalties for contravention of licence conditions. They do not provide get-out clauses for companies which breach their licences without negligence or intent; they do not even provide an automatic get-out where circumstances are beyond their control or their best endeavours. There is a good reason for this. We see no reason why the Government should provide a weaker power in relation to vital public services such as gas and electricity. We hold to the view that the onus should be on the licence holder to maintain compliance, particularly when the consumers concerned cannot move to another service provider, as in the case of electricity transmission and distribution companies and gas transporters.
Let us look more closely at the matter. There may be circumstances, for example in relation to repeated failures to maintain security of supply, where the individual contravention cannot be traced directly to any fault of the licence holder on that occasion but the underlying picture is one of inadequate investment in the long term. Contraventions involving interruption of supply can cause considerable harm to the interests of consumers, both domestic and business. It is entirely right that the onus should be on the licence holder to comply and that the authority should have the opportunity to impose a reasonable financial penalty where the obligation is not fulfilled.
Another point to stress is that, as I explained in response to similar amendments in Committee, these amendments entirely ignore the nature of the powers that we are providing. The authority will have a power, not a duty, to impose financial penalties; it will not be compelled to do so. Any penalty that it imposes must be reasonable in all the circumstances of the case. It is very unlikely that any penalty which did not take account of efforts by a licence holder to correct a contravention could be considered reasonable in all the circumstances of the case. Any such penalty would certainly be likely to be challenged in the courts. However, consumers deserve proper protection and the amendment does not help in that respect. I hope that the noble Baroness will withdraw her amendment.
My Lords, while I thank the Minister for his response I am sorry that he has resisted the amendment. As the Minister observed, we are talking about vital public services. We on these Benches do not seek to defend those who are responsible for repeated failures in supply, for example because of underlying inadequate investment. We agree with the noble Lord in that respect. However, we are talking about companies which use their best endeavours in all circumstances to maintain supply. We shall read with care in Hansard the Minister's response. On that basis, at this stage I beg leave to withdraw the amendment.
moved Amendment No. 38:
Page 59, line 18, at end insert--
("(6A) No penalty imposed by the Authority under this section may exceed 10 per cent. of the turnover of the licence holder (determined in accordance with provisions specified in an order made by the Secretary of State).
(6B) An Order under subsection (6A) shall not be made unless a draft of the instrument containing it has been laid before and approved by a resolution of each House of Parliament.").
My Lords, in moving Amendment No. 38 I should like to speak also to Amendment No. 81. The amendments deal respectively with electricity and gas. As the Minister indicated a moment ago, as the Bill now stands there is a requirement in Clauses 59 and 95 that any penalty imposed must be reasonable in all the circumstances of the case. My noble friend Lord Currie of Marylebone and I proposed in Committee that there should be a cap or upper financial limit on the penalty that may be imposed. We put forward that case on the lines of the Competition Act 1998 in which the maximum specified is 10 per cent of the turnover of the company.
In response to our amendment tabled at Committee stage the Minister was inclined to believe that a specific limit was unnecessary. However, he recognised that some points had been made in favour of a limit and that the issue merited serious consideration. I understand that the Minister is now willing to agree to such an amendment. He has provided official drafting assistance to arrive at the simplified and--I am sure noble Lords will agree--clear amendments that are now before the House. We are extremely grateful to the Minister for his reconsideration of the matter and the trouble that he has taken. I beg to move.
My Lords, the noble Lord, Lord Borrie, makes a good case for the first part of Amendment No. 38. However, a considerable burden will be placed on both Houses of Parliament if they are asked to approve--which means a positive resolution--perhaps a good number of relatively minor matters. I hope that the Government do not agree to subsection (6B) of the amendment.
My Lords, when one finds a provision in the Competition Act reflected in the Utilities Bill one is dangerously close to joined-up government. That is desirable inasmuch as the penalty, which hitherto has been unlimited in the framework of the Bill, is now subject to a restriction. If the hint is correct and the Minister is prepared to accept the amendment it is a considerable improvement. However, we shall consider the matter further because we are not entirely sure who in practice is the licence holder. If BP Amoco is a single licence holder, a penalty of 10 per cent of turnover does not appear to be much of a restriction. However, more realistically, given the way that the market has developed a penalty that is restricted to 10 per cent of turnover will provide some companies with a degree of comfort.
My Lords, noble Lords may recall that at Committee stage I tabled an amendment in very similar terms to that tabled by the noble Lords, Lord Borrie and Lord Currie of Marylebone. I then joined them in urging this matter on the Government. These Benches welcome the fact that the Government have responded positively to these amendments. We join the noble Lord, Lord Renton, in expressing slight surprise at the terms of subsection (6B), in that it imposes a considerable burden on both Houses of Parliament.
My Lords, we are concerned about the implications of this amendment. I add my voice to the observations of my noble friend Lord Renton and my noble and learned friend Lord Fraser of Carmyllie. We do not regard a maximum penalty of 10 per cent of the turnover of the licence holder as a concession. We suggest that the penalty should be limited to turnover in the United Kingdom. Our concern is that this may set an inflated tariff which in the eyes of the regulator becomes the norm. In particular, in cases where there is only a small breach a penalty of 10 per cent of turnover may amount to an awful lot of money in the circumstances. We believe that it may give the regulator an inflated perception of what is a reasonable tariff. With a cap of this nature there is a possibility that the ceiling may become the norm and set precedents for the future. The Minister will be aware that we on these Benches are keener on a proper defence as opposed to a cap, although the latter is better than nothing. We are also concerned that in the long run it may prove to be grossly unfair.
My Lords, perhaps the noble Baroness, Lady Buscombe, and the noble and learned Lord, Lord Fraser of Carmyllie, can solve a problem that has worried me all my life. I have never known what a gift horse looks like. If they are good at looking gift horses in the mouth, perhaps when they come back next time they will tell me what they look like. I believe that in accepting these amendments we are doing rather well. The amendments again draw to the attention of the House the issue of a specific upper limit on financial penalties imposed by the authority for contraventions of licence conditions, standards of performance and other specified statutory obligations. The amendments seek to impose an upper limit on any financial penalty of 10 per cent of the turnover of the licence holder concerned, with detailed provisions set out in an order made by the Secretary of State. This introduces a limit on financial penalties analogous to that under the Competition Act 1998, which, as I understand it, was not opposed by the Opposition at that time.
It is right that this is not a concession. We do not think that the Bill as drafted was wrong. As we have repeatedly said, penalties are already limited under the Bill. New Section 27A of the Electricity Act 1989 and new Section 30A of the Gas Act 1986 give the authority a power only to impose such a penalty as is reasonable in all the circumstances of the case. The Bill also provides licence holders with a right to challenge both the imposition and the amount of the penalty in the courts if they consider them unreasonable; and gives the court powers to quash the penalty or to impose a lower penalty if it agrees with the licence holder. I think that those are the protections that the noble Baroness, Lady Buscombe, sought. This imposes a genuine constraint on the level of any penalty.
However, the Government have taken careful note of the views of the House on this point. We have also listened carefully to the points put to us by interested parties outside this House. I note, for example, that the Gas Consumers Council, in contact with officials at the Department of Trade and Industry, recently declared itself in favour of a 10 per cent of turnover ceiling. The noble Lords, Lord Borrie and Lord Currie, who may be presumed to have the ear of the regulator, have tabled these amendments on two occasions.
I recognise that an upper limit would give extra comfort to companies which are concerned about these provisions, although I would stress once again that companies which adhere to their licences and fulfil their statutory obligations have nothing to fear from the financial penalties provisions.
We would not be accepting this amendment if we thought that there was any risk that it would unduly inhibit the operation of these powers. It is of vital importance that any limit which is imposed does not undermine the purpose for which these powers are being introduced: to protect the interests of consumers.
I turn for a moment to the precise terms of the amendment. It would give the Secretary of State power to make detailed provisions, for example, in relation to the definition of turnover by order made by affirmative resolution. This appears to strike the right balance in terms of giving the Secretary of State flexibility to vary the precise terms of the order, while providing the appropriate level of parliamentary scrutiny. The amendment also mirrors the equivalent Competition Act provisions in this respect.
As I said earlier, it is clear that the industry would draw some comfort from the amendment; and that it would not damage the Government's objectives. We are, therefore, ready to accept both the amendment under discussion and the identical amendment for gas under Clause 95.
My Lords, I thought that I had already given the exact analogy and precedent. The Competition Act 1998 contains an exactly comparable cap on financial penalties and provides for affirmative resolution procedures. I understand that the provision has gone to the Delegated Powers and Deregulation Committee. The pressure on us is always to increase the scope of parliamentary scrutiny. I hope that this will not be seen as a defect of the amendment.
My Lords, in moving the amendment, I speak also to the consequential amendments.
Clause 59 provides licence holders with the power to seek review by the High Court or Court of Session of a financial penalty imposed by the authority. In Committee the Minister indicated that the scope of the review would allow the court to look at the circumstances and facts of the case. The Minister commented:
"The Government believe that the provisions on financial penalties go further than judicial review and allow for appeal on similar grounds to those provided by the Telecommunications (Appeals) Regulations 1999".--[Official Report, 21/6/00; col. 302."
He continued later:
"There is no less protection in the Bill than there is in the telecommunications appeal regulations".--[Official Report, 21/6/00; col. 304.".
However, from the drafting of the Bill it is far from clear that the court has the power to examine all the facts and the circumstances of a case. There is nothing in the drafting of these provisions which indicates that the court's power to consider the reasonableness of a penalty extends beyond the normal public law standard of considering Wednesbury reasonableness. If that is the limit of the court's power, it will be able to vary a penalty only where the penalty imposed is so unreasonable that no authority properly directing itself would impose it.
The amendments would convert the right of review into a right of appeal similar to that provided by the Telecommunications (Appeal) Regulations 1999. They would allow the court to consider appeals on the same grounds as appeals under those regulations and thus meet what appears to be the Government's intention of ensuring, as the Minister puts it, that,
"there is no less protection in the Bill than there is in the telecommunications appeal regulations".
I beg to move.
My Lords, it is a pity that the noble Baroness has repeated an argument put forward on a previous occasion by the noble Lord, Lord Kingsland: that the Bill does not go beyond the judicial review type of decision on the basis of Wednesbury unreasonableness.
I draw the attention of the noble Baroness to two provisions in the Bill. First, as has been said several times, and the noble Baroness agrees, the penalty which may be imposed must be reasonable in all the circumstances of the case. I stress the words "reasonable in all the circumstances of the case". I believe that it is impossible to determine whether a penalty is reasonable in all the circumstances of the case unless the facts are considered.
Secondly, under subsection (4) of new Section 27E, one of the grounds for going to court is,
"that it was unreasonable of the Authority to require the penalty imposed, or any portion of it".
It seems clear enough that if a penalty is not reasonable in the circumstances of the case, it can be challenged. Under new Section 27E, it will be unreasonable for the authority to require the penalty to be imposed.
That is fundamental to the point the Minister made clear in his intervention following the remarks of the noble Lord, Lord Kingsland, on the last occasion. An aggrieved person who thinks it unjust that the penalty has been imposed can appeal to the court--that is not the word used by the noble Baroness but it has precisely the same effect--and apply on a number of grounds, including that the authority has acted beyond its powers and that the penalty is not reasonable in all the circumstances of the case. Under that provision, the court must be prepared to consider all the relevant circumstances and facts.
My Lords, these amendments relate to the statutory right of review which is available under the Utilities Bill in relation to the imposition of financial penalties, and they seek to replace that right of review with a right of appeal to the High Court analogous to that provided under the Telecommunications (Appeals) Regulations 1999.
I am afraid that I shall take a long time in responding to the amendment. I had hoped that when I met the noble Lord, Lord Kingsland, and the noble Baroness, Lady Buscombe, after the Committee stage I had persuaded them that if I read out the following long statement it would be satisfactory for the purpose. I go no further than expressing a hope.
The Government are satisfied that the specific rights of review they have provided in relation to financial penalties under the Utilities Bill are appropriate. It has been suggested that they somehow give less protection to licence holders than is afforded in relation to regulatory decisions by judicial review or, in the telecommunications sector, by the Telecommunications (Appeals) Regulations (S.I. 99/3180). That is not the Government's view.
The Telecommunications (Appeals) Regulations, inserting Section 46B into the Telecommunications Act 1984, were made in response to the requirements of two EC telecommunications directives (the Licensing and ONP Directives) which required member states to provide an appeals mechanism against certain regulatory decisions. Section 46B of the Telecommunications Act 1984 provides that:
"a person aggrieved by a decision to which this section applies may appeal against the decision on one or more of the following grounds:
(i) that a material error as to the facts has been made;
(ii) that there was a material procedural error;
(iii) that an error of law has been made; or,
(iv) that there was some other material illegality, including unreasonableness or lack of proportionality".
In the Utilities Bill, the Government have provided for electricity and gas companies to challenge the imposition of financial penalties on the following basis: first, that the imposition of the penalty was not within the power of the authority under Section 27A of the Electricity Act 1989 or Section 30A of the Gas Act 1986; secondly, that any of the (procedural) requirements of subsections (2) to (4) or (6) of Section 27A of the Electricity Act or Section 30A of the Gas Act (concerned with the giving of notice) have not been complied with in relation to the imposition of the penalty and the interests of the operator have been substantially prejudiced by the non-compliance; or, thirdly, 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.
It has been said that a licence holder's rights of appeal against the imposition or amount of a penalty are severely limited--less than the rights available on judicial review--and that the provisions would not allow the court to look at the underlying facts of a case to determine whether the amount of a penalty was unreasonable in all the circumstances. The Government do not agree with this analysis.
Section 27E of the Electricity Act and Section 30E of the Gas Act provide that a licence holder aggrieved by the imposition, the amount or the payment schedule set for any penalty may make an application to the court. As I have said, one of the grounds on which such an application may be made is that it was not within the power of the authority to impose the penalty in question.
The formulation that a decision of a regulator or other body is "not within its powers" is common to a number of statutory rights of review in legislation; for example, in planning law. In the planning context, the courts have held that the formulation is wider than a classic ultra vires ground and encompasses challenge on grounds very similar to the grounds of judicial review, including that where the jurisdiction to make an order depends on particular facts there is no evidence to support those facts and that a regulator has otherwise gone wrong in law.
But the Bill goes beyond that. Under Section 27A of the Electricity Act and Section 30A of the Gas Act, the authority only has power to impose a penalty,
"of such amount as is reasonable in all the circumstances of the case".
If the amount of a penalty is not reasonable in all the circumstances of a case, it follows that the imposition of the penalty would not be within the power of the authority under that section and an application could therefore be made to the court under new Section 27E(4)(a) of the Electricity Act and new Section 30E(4)(a) of the Gas Act.
Accordingly, if a company challenges the amount of a penalty on the grounds that the imposition of it was not within the authority's power under Section 27A of the Electricity Act or Section 30A of the Gas Act, the questions the court will have to consider will include whether the penalty was indeed reasonable in all the circumstances. If it does not think this is the case, it may quash or lower the penalty as it thinks appropriate.
In Committee, the noble Lord, Lord Kingsland, acknowledged that "reasonable in all the circumstances" is the test in the Bill. But, he said,
"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".--[Official Report, 21/6/00; col. 335.]
The latter test, however, applies on judicial review, whereas we have provided an express and specific right of review on the face of the Bill. The use of the word "reasonable" in this context has the same meaning as when used expressly in any legislation; that is, its ordinary English meaning of "appropriate or fit in all the circumstances". The two tests are distinct.
It has also been suggested that since the authority is required only to be "satisfied" that a contravention has occurred, the imposition of a penalty could be unreasonable under an objective assessment but provided the authority's view that a contravention had occurred was not manifestly unreasonable, there could be no challenge on this ground. Again, the Government disagree.
It is necessary to look at the relevant subsections--that is, proposed Section 27A of the Electricity Act and proposed Section 30A of the Gas Act--as a whole. As we have said, the court can and should look at the facts to determine whether the authority acted within its power by imposing a penalty that was reasonable in all the circumstances of the case. Those circumstances must on any reading include the extent of the contravention or failure in question. It is improbable that the authority would be satisfied that there was a contravention or failure where there was none. However, in that unlikely event, the question whether there had been a contravention or failure would be part of the question whether the authority had acted within its power to impose a penalty.
Looking again at the grounds of challenge provided under the Telecommunications (Appeals) Regulations against those provided for in relation to financial penalties under the Utilities Bill, the Government believe that the Bill's provisions match up to the protection afforded by the regulations. For example, the court will have the ability to look at the imposition and amount of a penalty and in so doing will have to look at the circumstance--in other words, the facts--underlying the case. Accordingly, the court will be able to quash or reduce a penalty if there has been a "material error as to the facts".
Procedural error is, as I have already set out, a separate ground for challenge under Section 27E(4) of the Electricity Act and Section 30E(4) of the Gas Act. Error of law, or some other material illegality, including unreasonableness or lack of proportionality, would fall under the ground that the imposition of the penalty was not within the power of the authority--again a specific ground under Section 27E(4) of the Electricity Act and Section 30E(4) of the Gas Act. In light of this analysis, the Government consider that the right of statutory review provided in relation to the imposition of financial penalties under the Utilities Bill is appropriate and provides an equivalent degree of protection to licence holders as that provided by the Telecommunications (Appeals) Regulations 1999 as well as going beyond that provided by judicial review. On that basis, we believe that the amendments are unnecessary.
My Lords, I thank the Minister for his full response to the amendment. As he will appreciate, at this stage I do not want to make a full reply. I hear what the noble Lord, Lord Borrie, had to say, but in response to the statement I would rather confer with my noble friend Lord Kingsland and then consider whether to return to the matter at Third Reading. On that basis, I beg leave to withdraw the amendment.
moved Amendment No. 52:
Page 62, line 5, at end insert--
("Review of conditions giving rise to penalties.
27G.--(1) It shall be the duty of the Authority to keep under review any licence condition the contravention of which may give rise to a liability to a financial penalty under section 27A.
(2) Where any such licence condition--
(a) is expressed in insufficiently specific terms, or
(b) may otherwise be interpreted ambiguously or without legal certainty, the Authority shall take appropriate steps to amend or revoke that condition in accordance with the procedures laid down in sections 23 to 26A."").
My Lords, penalties for breach of licence conditions will be imposed on licence holders on a strict liability basis, yet licence conditions may not be expressed in terms which are precise or specific enough for the licence holders to be aware of every instance in which the authority may determine that a breach has occurred.
The drafting of such conditions will inevitably give rise to legitimate differences in interpretation between the authority and the licence holder. For example, some licence conditions require the licensee to use "best endeavours", while others require the licensee to "make sufficient arrangements" or to "take reasonable steps".
An ambiguous statutory provision would be interpreted by an independent court or tribunal and according to the cannons of statutory interpretation construed in favour of the defendant. However, in this case interpretation and adjudication will be by the authority--the body responsible for the drafting. If the penalty regime is introduced as proposed, the authority will be in a position to determine that a failure has occurred, notwithstanding the legitimate difference in interpretation, and impose a penalty. The amendment would require the authority to keep licence conditions under review and take appropriate steps to amend or revoke those which may lead to doubtful penalisation. I beg to move.
My Lords, I am entirely sympathetic to the intention of reducing the risk of unclear licence conditions which may lead to inadvertent contraventions and the imposition of financial penalties. However, we do not believe that the Bill runs that risk.
Our position is that, if a licence condition is worth having, it should be properly enforced. If the condition is unclear, that is something that should be taken up between the authority and the licence holder. It is not a matter which relates only to the issue of financial penalties but is fundamental to regulatory certainty. For example, if a company is in breach of its licence, the authority already has a duty to make an enforcement order stating what the licence holder must do, or must cease to do, in order to return to compliance. If the condition were thought to be unclear and companies claimed that it was lack of clarity that led to the breach, one would expect them to take up the matter with the authority, irrespective of the potential for financial penalties.
Let us not forget that if a company continued to contravene its licence conditions after it had been ordered to comply by the authority, it could face legal action for any loss or damage suffered by third parties--that is, basically the consumer--as a result of its failure to comply. Therefore, a considerable incentive already exists for the licence holder to clarify the precise effect of the licence conditions to which it is subject.
Of course, any penalty which is imposed in relation to contravention of licence conditions and other obligations must be reasonable in all the circumstances of the case. I believe that that is the mantra for this Bill. The circumstances of the case clearly would include the question as to whether it was clear that a company was in compliance. It would not be reasonable for the authority to impose a penalty on the licence holder for non-compliance if the provision in question was unclear. Such a decision would certainly be very likely to be challenged in the courts.
The financial penalties provisions in the Bill can be contrasted with the powers inserted in the Gas Act by the previous government. Under Section 28(7)(a) of the Gas Act the regulator could impose an unlimited, but appropriate, financial penalty on a company for a likely future breach of its licence conditions. Evidently there were no concerns about the clarity of licence conditions when those powers were introduced or the previous government would not have introduced them. It seems odd to assume that licences have become distinctly less clear as the regulatory system has evolved. We believe that the amendment is unnecessary.
My Lords, I am sorry that the Minister feels that the amendment is unnecessary. We have talked about this matter at great length with members and representatives of the utilities industries. The whole aspect of reviewing conditions which give rise to penalties is of deep concern to them. We are sorry that the Minister feels that it is unnecessary to respond. He referred earlier to "looking a gift horse in the mouth". Our interest is in good law. On that basis, I wish to test the opinion of the House.
moved Amendment No. 53:
Page 65, line 42, at end insert--
("( ) Before making an order, the Secretary of State must consult those persons who appear to him to represent the generators of electricity from renewable resources--
(a) as to the current availability and projected generating capacity of the industry;
(b) as to the terms proposed in the order;
(c) as to any specific provisions that will be required in the order as to length and terms of any contracts to be made by electricity suppliers or otherwise;
(d) as to the sum and different such sums which are to correspond with the supply of a given amount of electricity generated in different ways under section 32C(2); and
(e) on such other matters, if any, as he considers appropriate, to ensure that the provisions of the order will provide a suitable environment for investment in generating capacity for electricity from diverse renewable resources in order to meet the targets for production of electricity from renewable resources set by the Secretary of State.").
My Lords, I shall speak also to Amendment No. 56. The Royal Commission on Environmental Pollution reported two weeks ago that unless carbon dioxide emissions are reduced by 60 per cent within the next 50 years, our climate will change markedly. The changes will not be pleasant. They will effectively destroy the British landscape and submerge large tracts of low-lying and coastal land, rendering obsolete all the energy currently being expended on the Countryside and Rights of Way Bill.
The report makes 87 recommendations. I am principally concerned today with those that urge the Government to replace fossil fuels with renewable energy sources, such as wind power, solar power, energy crops and biomass. The report says that growing crops for energy purposes should be regarded as a primary use of our agricultural land.
According to Robert Shrimsley of the Financial Times, the Government expect a surplus of £50 million on the climate change levy. That allegedly fiscally neutral tax will apparently swell the coffers of the Government, who are minded generously to dedicate half of the income to research into offshore wind power, which should get at least £10 million, and other renewable sources. I hope that that will not be heralded as new money. The Government are ending the non-fossil fuel obligations. Perhaps the Minister will assure us that the integrity of existing generators' NFFO contracts will be protected.
We must ensure that the Bill allows, even encourages, parties to enter into long-term contracts for renewable resources. I spoke on Second Reading against any let-out clause to permit suppliers to avoid meeting their 10 per cent obligation by purchasing notional renewable energy certificates from the Government, the proceeds of which purchase will be shared among other suppliers. Such a scheme surely means that if the use of non-fossil fuels is too expensive or difficult, everyone in the producer pool can ignore their obligation, pay their fine and sit back and wait for their share of everyone else's fine.
Similarly, the ability of electricity generators to switch off electricity production from renewable sources whenever demand drops must be checked. There must be an obligation to encourage parties to make long-term contracts with a variety of renewable sources and to honour them through thick and thin. When demand falls, it should be fossil fuels--oil, gas and coal sources--that are switched off. Unless and until the Government ensure that these things happen, it will be difficult, if not impossible, to increase the use of non-renewables in electricity generation.
The British Wind Energy Association has said that £10 million will not fund a farm, although it might be enough for a couple of offshore turbines. Private finance will not be forthcoming unless there is a rock solid legal framework and a government-supported commitment to the regular use of renewable sources over the long term.
The same argument applies to biomass. To raise its contribution to the same level as hydro power would require the planting of 100,000 to 150,000 hectares--250,000 acres in old money--of willow short rotation crop or miscanthus. That would be a huge increase on current plantings, using approximately half the land currently set aside. The money available under the rural development plan for England should allow us to achieve 20 per cent of the above figure. However, that fund lasts only until 2005-06, after which farmers have to go on nurturing their crops in the expectation of continuous demand.
The Department of Trade and Industry publication Financing Renewable Energy Projects makes crystal clear the assurances that banks and others will seek before they will lend the money. I shall highlight but three. First, on the power purchase agreement, the document says:
"This contract is the cornerstone of most renewable projects. The power purchaser must be creditworthy. Lenders will want the contract term to extend beyond the term of the loan. The contract will be assessed by the lenders for its economics and conditions that might cause early terminations--lenders will want the ability to cure any defaults rather than face termination".
Secondly, the document goes on to say:
"In a power purchase agreement the terms and price should be clearly defined and there should be no 'market out' clauses allowing for contract cancellation due to market conditions".
Thirdly, on page 14, it states:
"Repayment provisions are usually a function of the project economics and lenders will require full repayment of their loans well within the period of the major contracts, in particular the power purchase agreement (and/or the fuel waste supply contract for an energy-from-waste project). Lenders will normally be prepared to see their repayments tailored specifically to the cash flow profile of a project. A typical repayment would be approximately ten years from the start of the project, with a maximum of 13-15 years, depending on the term of major contracts".
I should like to ask the Minister whether the people who wrote that had anything to do with the drafting of the Bill.
The use of biomass will not only result in cleaner electricity and somewhere for the banks to put their millions. It will enable farmers to grow a crop instead of having set aside. It will mean also that the growing trees will consume the same amount of carbon dioxide as is produced when the wood is burnt during electricity generation.
In other words, biomass, seen from an environmental viewpoint, should have a neutral pollution effect. From an agricultural point of view, it will enable farmers to switch from the much maligned common agricultural policy while continuing to care for and protect our green and pleasant land. Moreover, the crop has significant wildlife and biodiversity benefits.
I do not feel that with so much at stake we should simply rely on the promises of the Secretary of State to take the necessary steps to ensure the future. Our amendments spell out what must be included in a clear obligation to consult all parties involved and only to make a renewable order that takes into account the requirement for a suitable environment for the investment.
Amendment No. 56 merely corrects the grammar. I beg to move.
My Lords, I congratulate the noble Baroness, Lady Byford, on her presentation of the case. I do not wish to be excessively partisan but I am reminded of an occasion some years ago when I was in another place, taking part in a debate on the threat of global warming. There were, I think, 90 Conservative Members sitting opposite, all of whom were passionately opposed to public expenditure. I pointed out that about 80 of them represented constituencies which lay less than 100 feet above sea level. I said that I looked forward to the time when each of them, being opposed to public spending, would have a squeegee mop and seek to do a Canute to stem the approaching waters.
Things are changing and the stakes are now seen publicly to be very much higher. I certainly endorse the basis of the noble Baroness's excellent presentation. But I have an anxiety. As I see it, the contents of the renewables basket, in terms of that which is likely to be imminent, is far less varied than it should be. The noble Baroness referred to wind power, biomass and energy crops. I am fearful about the question of on-shore wind power. The noble Baroness referred specifically to off-shore wind power, which is a different matter.
I should hate to think that because we can move rapidly in relation to wind power there will be too many wind power eggs in the basket. I should hate to think that in 50 or more years time the visible legacy of this Government, who are doing such good work, will be seen as a proliferation of windmills disfiguring the glorious landscape of our country.
I spoke briefly on the matter in Committee. My noble friend may wish to reply to the fact that there sometimes seems to be an inflated view of the contribution windmills can make. I referred--and I mention it again--to one proposed wind farm which is under consideration in part of my own county. That would produce in a year only the amount of electricity which Drax power station, the cleanest of our power stations, produces in six days.
We must give greater priority to biomass. We could rapidly start to produce energy crops of enormous importance and make a marked contribution to achieving the Government's splendid target. But my anxiety is that we do not have the outlets or the generative capacity to use those energy crops which the noble Baroness mentioned. If the Government are to see their very commendable targets achieved, they must give a push to ensure that British agriculture can use land wisely.
Let us think about the enormous areas of land which have been set aside in recent years. We could actually put that land to a positive and valuable use. Therefore, we should be looking with more urgency at that aspect.
I ask my noble friend for an assurance. I hope that we shall not get into a situation where, in order to achieve the Government's splendid targets and not having developed alternative forms of renewable energy, local planning authorities would have their arms and elbows twisted to give favourable consideration to wind power developments which their communities do not like and for which posterity would not thank us if our landscape was disfigured as it would be.
I do not suggest that we should have no windmills on-shore. But the place for them is at sea. To allow a temporary need, which is unnecessary if we develop biomass properly, to disfigure part of our glorious heritage would be a mistake. That is best avoided by urgent action in this year of grace instead of allowing a delay, creating a problem which we may regret before very long.
My Lords, the noble Lord has performed a valuable service by stressing the environmental factors which arise with regard to the production of electricity and other forms of fuel. We must prepare for events which cannot always be foreseen. Climatic change will be a vital factor. The change in scientific progress, which often comes at short notice and as a great surprise, is another factor which may have a bearing on the matter.
My noble friend who moved the amendment was right to stress what she did. It is an important amendment. It may be that there are some industrial interests which do not want the flexibility and adaptability which the amendment would provide. But it is extremely important that this clause, which is very necessary, should be strengthened and the position it has in mind made more flexible by the terms of the amendment.
As I said, it may be that some vested interests do not welcome it. On the other hand, one should bear in mind that the Country Landowners' Association, the National Farmers Union and some very important scientific industrial lobbies--British Biogen and Abre, the largest biomass generator in the United Kingdom--want this matter dealt with. I think that something should be done, in all parts of the House, to support the amendment moved by my noble friend.
My Lords, I support the amendment so ably moved by the noble Baroness, Lady Byford. Before the Secretary of State makes an order relating to the renewables obligation, it is important that, as well as consulting the authority and the council--which he is bound to do--he should also consult closely with the persons who are likely to generate the electricity from renewable sources. It seems to be perfectly logical and sensible that he should do so. Otherwise, there would be a lack of understanding of the scope of the issues involved. The amendment clearly sets out what the Secretary of State should seek to establish before he proceeds to make an order. Therefore, I warmly support the proposal.
My Lords, it is difficult to resist an amendment which is moved on the basis of preserving England's green and pleasant land. I find it difficult, on emotional grounds, to resist what is being said. However, there are different ways of preserving England's green and pleasant land. I agree with the noble Lord, Lord Hardy, that perhaps in some parts of the country, wind farms might not be the best way to do that.
The noble Baroness, Lady Byford, is right to be concerned that the new obligations in Clause 62, in connection with electricity from renewable sources, should provide the right investment environment. That is the concern of the Government, too. I assure the noble Baroness that consultation with renewable generators on all the issues listed in the amendment, with one exception, is already taking place, and will in future take place, under the provisions for consultation already in the Bill.
Before noble Lords look at the bottom of page 65 and see reference to the authority and the council, perhaps they would turn to page 66 and see that the consultation required has included, now includes, and will in future include such other persons, if any, as he considers appropriate. I assure all Members of the House that the consultation includes those named in the amendment, and will continue to do so.
The exception is the question of long-term supply contracts. As I explained in Committee, the Government simply do not accept that we should retain a feature of the old non-fossil fuel obligation mechanism--Government-mandated long-term renewable supply contracts--which runs contrary to the entire thrust of the Government's market-based policy for the new renewables obligations.
I turn to the broader underlying issue; that is, whether the new obligations as planned by the Government will deliver sufficient investment in renewables to meet the Government's renewables targets. The Government consulted last year on the kinds of support mechanisms which should be used to promote the development of renewable energy.
Among a number of diverse views in the responses to that consultation there was considerable support for an obligation on suppliers. That is why we are putting a long-term obligation on suppliers which will last until 2025. That will determine from the outset the profile of the obligation on suppliers, the eligible renewables, the buy-out mechanism and the mechanism for recycling buy-out receipts.
Renewable energy resources are limited in their availability and the rate at which they can be deployed. I think that that point was recognised by the noble Baroness, Lady Byford. The Government are therefore confident that such a long-term obligation and the premium price which renewables will attract will enable suppliers and generators to bring forward renewables capacity in the confidence that there will be a market for the product at prices that will attract appropriate levels of investment capital.
In line with the move to a market-based approach, the matter of individual contracts and the choice of technologies to meet the supply obligation is a matter properly left for negotiation between generators and suppliers. The Government recognise, however, that in order to meet the 10 per cent target it may be necessary to bring forward long-term technologies such as offshore wind power and energy crops, which were spoken to so eloquently. We are considering support for those technologies in the context of the spending review 2000.
The noble Baroness, Lady Byford, sought assurance that the integrity of the existing non-fossil fuel contracts would be secured. I am happy to give her that assurance. We are working with the industry to ensure the integrity of existing contracts. Indeed, that is the purpose of Clause 67, which we shall come to in due course.
As I have said, it is difficult when amendments are moved in such a way that opposition appears to be supporting sin rather than opposing sin. However, it is not as simple as that. Although most of the matters in the amendment are unexceptional, we think it is important to reassert our opposition to long-term contracts which appear to be implied by the amendment.
My Lords, I thank the Minister for his lengthy and detailed response. I also thank the noble Lord, Lord Hardy, for his comments; my noble friend Lord Renton and, indeed, the noble Lord, Lord Ezra. I shall read carefully what the Minister has said and discuss it with my noble friend Lord Jenkin, who is extremely sorry that he is not able to be in his place.
In addition, perhaps I may make two comments regarding onshore and offshore wind power, which were referred to in the Minister's response and in contributions by other noble Lords. The truth of the matter is that once such wind power stations are set up, they will cost nothing, whereas the planting of non-food crops involves ongoing costs. I would be grateful if the Minister could consider that point before Third Reading. There is a difference between the two. Wind can be captured at no cost, but growing crops have to be cared for and there are continuing costs.
My Lords, the noble Baroness is right. However, construction costs can be considerable, and there are ongoing costs. There is the problem of noise and the problem of people who live nearby who did not want wind power stations near their homes in the first place. In some cases, there is a great deal of bird mortality as a result of the operation of windmills. From time to time, the sails fall off. Wind speeds can sometimes be so high that they cannot possibly operate and produce electricity as they are designed to do.
My Lords, I am grateful to the noble Lord. He perhaps adds to the point I make. I referred earlier to non-food crops produced by farmers on set-aside land. I also said that that would obviously encourage wildlife and biodiversity. The comments of the noble Lord add to my argument, which I am delighted to hear.
My Lords, I believe that the noble Baroness invited me a moment ago to write to her between now and Third Reading. Time is short, but if she has not seen the leaflets on renewables published by the Department of Trade and Industry, I shall certainly send them to her.
My Lords, I thank the Minister. However, I am sure that I have seen the leaflets. Perhaps I may also mention one matter following the Minister's response.
In response to an earlier amendment and indeed, in the Minister's response to me, it was said that market forces would perhaps have a bearing on this matter. However, earlier, the Minister stated that market forces could not be entirely replied upon. Hence, I press the point that the amendment is extremely important.
I thank all noble Lords who have taken part in the discussion. I shall discuss the matter with the noble Lord, Lord Jenkin. Meanwhile, I beg leave to withdraw the amendment.
My Lords, in moving Amendment No. 54 I shall speak also to Amendment No. 59.
Amendment No. 54 seeks to allow small generators to obtain the best possible price for their output. A generator using wind power, for example, will not be able to predict exactly how much output he will have available at a given time in the future. He is required to contract to supply three-and-a-half hours ahead. If he contracts, say, for 20 kilowatt hours and can only make 18.3, he falls foul of what is called the "balancing mechanism" and is charged heavily for his failure.
Amendment No. 54 will allow each operator to calculate his minimum output, sell that at price X and then contract with another company to receive anything above X. The company who takes that excess may be a supplier, it may be a consolidator or an electricity broker, and may be in the local area or anywhere in the country. The advantage to the generator is that he avoids the penalty of under-producing and may obtain a premium for the fact that his output comes from renewable sources and can be counted by an end-user towards avoidance of the climate change levy.
This arrangement was endorsed by Ofgem/DTI and in the conclusions of its document of October 1999 on page 84, Section 75, it said,
"The new balancing mechanism unit splitting arrangements will allow ... a fixed volume to be sold to a supplier within the same Grid Supply Point Group. Since the output contracted is fixed and secure, the price achievable for this output should be attractive ... The remaining unpredictable proportion ... could then be managed either directly by the generator or by using the services of a supply aggregator acting at either a local or national level".
I understand that the reason this option is not on the face of the Bill is that major alterations would have to be made to what is called the "master registration agreement". Global warming and the need to use renewable sources is too serious a matter to allow substantial changes to an operating agreement to stand in the way.
Amendment No. 59 will enable renewables generators to ensure that they can obtain any renewables premium, even if they sell their physical output to a supplier who does not need to meet the renewables obligation. Sales by generators might be made at brown electricity prices and the certificate sold separately to a supplier who needs it to make up any difference between green and brown electricity prices. Some customers want to buy green power. The "greenness" of the electricity from renewable energy sources has a value that is separate from, or additional to, the value that the customer places on the energy. One could say that renewables generators produce energy and greenness as two separate outputs. Amendment No. 59 enables them to sell those outputs separately. I beg to move.
My Lords, I shall have to read carefully in Hansard what the noble Baroness, Lady Byford, said. Some of her comments do not strike a bell with me at all in relation to these two amendments. If I may, I shall read again what she said and write to her on the issues. I do not believe I am capable of replying to them at the moment. However, I am capable of replying to the amendments and I shall try to do that.
Amendment No. 54 is intended to allow renewables generators to sell their output to more than one supplier. Nothing in the new renewables powers under Clauses 62 to 65 places any obligations or restrictions on generators at all. All obligations are on suppliers. Therefore generators are free to do what they like with the electricity they generate. It is purely a matter of choice and contract as to how many parties they choose to sell their output to.
Amendment No. 59 is intended to allow generators to sell their green certificates separately from their physical output if they wish. Clause 64, to which the amendment relates, is already drafted so that they can. It is fundamental to the certification system that a certificate may be traded separately from the physical electricity to which it relates. There would be no point in having such a provision otherwise. That is why Clause 64 is drafted the way it is. It simply allows the authority to certify that a generating station has generated renewable electricity that has been supplied to customers in Great Britain. A supplier may subsequently present such a certificate to the authority as evidence that he has fulfilled such amount of his obligation under Clause 62 as is certified, irrespective of who has actually been involved in the purchase of the physical output of the generator in question. Indeed, the Government's intention was indicated in Conclusions in Response to the Public Consultation, published in February this year, which stated on page 11 that,
"the trade in green certificates may be entirely separate from trade in the electricity that gave rise to their issue".
Therefore, although I may not be able to satisfy the noble Baroness, Lady Byford, in terms of the issues raised in her speech, I hope that she will be satisfied that these amendments are unnecessary.
My Lords, I find myself in the unusual position of accepting what the Minister said but acknowledging that we may not be speaking about the same things. It would seem logical at this stage, therefore, for me to withdraw the amendment. We will both then have a chance to look in Hansard at the other's contribution. I beg leave to withdraw the amendment.
My Lords, I hope to do better with Amendment No. 55. There appears to be doubt about the date at which this obligation comes into force. It was to have started in 2003. But my latest information is that it will happen next year. Perhaps the Minister will clarify that point.
Whatever the implementation date is, it is clear that it will be some way ahead. It does not make sense to hold a renewables order until all public electricity supply companies have been split. It should be possible for the Government to ensure that an order applies to the public electricity supply companies in relation to their supply function even before they are formally split. I beg to move.
My Lords, I want to add just a few brief words to what my noble friend has already said. Amendment No. 55 has the advantage of adding to the main purpose of the Bill, which is to enable adaptability to take place in the changing circumstances of the future. It would be a great pity if something to the effect of this amendment were not included in the Bill.
My Lords, I recognise that Amendment No. 55 addresses a real issue. This amendment is aimed at allowing a renewables order to be put in place before the introduction of separate licensing of supply and distribution. It reflects a concern that there may be an interval between the introduction of separate licensing of supply and distribution and a renewables order. As the clause is currently drafted, we cannot make a new obligation until the separation has taken place. To that extent the noble Baroness and I are in agreement. This is because the clauses are drafted so as to place the obligations on the new category of electricity suppliers as they will exist only after the separation. But I want to reassure the noble Baroness that this will not be a problem in practice.
We aim to introduce a new renewables order as soon as we can, consistent with the timetable we are establishing for full and proper consultation on the detail of the order. Equally, we will waste no time in bringing in the separate licensing of supply and distribution. That is why the Government tabled Amendments Nos. 113 and 114 for consideration today which will allow this to happen before the transfer schemes under paragraph 2 of Schedule 7, which will split the public electricity suppliers into separate supply and distribution companies, have been approved by the Secretary of State.
As a result of these amendments, the only remaining important matter to be settled before we can make the separation will be to finalise the new licence conditions for supply and distribution. And we are already well down the path towards that. Therefore I am confident that the separation of supply and distribution will not be the cause of significant delay to the coming into effect of a new renewables order. But even if it were a matter of a few additional months, the practical effect would not be significant. What is at issue here is the legal starting point of a long-term obligation that the Government have said we intend to impose over a period up to 2025. Once we have finished our consultation, it will be quite clear to everyone what the obligation will be and the period over which it will be in effect. So a few months' difference in the actual date on which the order comes into effect would hardly impact on the development of the arrangements to meet the obligations under it. I hope that the noble Baroness, Lady Byford, will accept that this is a problem which does not in practice need to be addressed by this amendment.
My Lords, I thank the Minister for those comments. However, I am not sure how to take his response. He has not disagreed with the amendment; therefore I am rather surprised that the Government have not accepted it, particularly as the Minister mentioned that they would introduce a renewables order. According to my humble thought processes it does not follow that the Government have not accepted the amendment. I am somewhat disappointed at that.
My Lords, with the leave of the House, I apologise if I have not made myself clear. We have to separate the distribution and supply licences because one cannot introduce an order which applies to the old organisation of the industry; it must apply to licensees as they will exist after the coming into effect of the Bill.
My Lords, I understand what the noble Lord is saying. But I believe that he mentioned a time lapse before the separation can take place which could delay the introduction of a renewables obligation. However, I shall read carefully in Hansard what the Minister has said. At this stage I beg leave to withdraw the amendment.
My Lords, the Bill as drafted does not properly differentiate between different types of renewable electricity. As my noble friend Lord Jenkin mentioned at Second Reading, our fear is that this will lead to the development of cheaper renewable energy sources such as onshore wind and energy from waste.
The problem is that considerable investment is needed in order to bring forward new renewables--we mentioned these earlier--including offshore wind and biomass. This amendment highlights the opportunity for a renewables order to be "banded".
I have been advised by the CLA, the NFU and the British Biogen, the trade association for the emerging biomass industry, that banding is essential in order to secure the necessary investment, particularly in biomass. It is proposed that an order should require suppliers to purchase a proportion of the renewables obligation from new sources.
The Minister confirmed in a meeting following Second Reading that the Government favour a market solution to developing renewable energy. In the same breath, the Minister confirms the Government's willingness to provide substantial grant aid for new renewables. There is a logical inconsistency in this approach. Our alternative suggested in the amendment is to have a double market approach: one for old renewables and one for new ones. This will ensure that the industry is enabled to finance its own R&D, producing much needed savings in public expenditure. I beg to move.
My Lords, I assure the noble Baroness, Lady Byford, that the amendment is not necessary. If we wanted to set specific obligations for particular technologies, which is the purpose of her amendment, we can already do so using the powers in new Section 32A(1)(b),(c) and (d) in Clause 63. New Section 32A(1)(b) states,
"that only electricity generated using specified descriptions of renewable source is to count".
New Section 32A(1)(c) states,
"that only electricity generated by specified descriptions of generating station is to count".
New Section 32A(1)(d) states,
"that a specified minimum amount of electricity generated ... is to be counted".
Therefore, all of the measures that the noble Baroness seeks to provide for are already provided for in the Bill.
The amendment is contrary to the thrust of the Government's renewables policy, which is to leave the market, not the Government, to pick the winners. We recognise that this will lead suppliers to go for the immediately accessible technologies first. That is right and proper. We want to achieve our renewables targets as efficiently as possible to fight global warming.
I can confirm--the noble Baroness, Lady Byford, will recall this from the Committee stage--that we are looking at the scope for making limited additional government support available for offshore wind and energy crops. One possibility, though not the only one, is to draw some funding from the £50 million Climate Change Levy Fund. This and other options will be pursued in the Spending Review 2000.
I do not see any conflict between going first for those technologies which will have a quicker impact on the environment and the climate and providing resources for other renewable energy sources which may take longer to develop. I believe that the longer term renewables technologies will benefit from the renewable obligations too. As electricity suppliers move towards the 10 per cent target, they are likely to find that there is insufficient availability of cheaper renewables and they will need to look increasingly to offshore wind and energy crops to meet their obligation. I believe that it is recognised that these energy sources cannot be brought in overnight. It would be prudent therefore for energy suppliers to look ahead now to ensure that these technologies will be brought forward on a timescale and in sufficient quantities to meet their needs.
On the basis that provision is already made in the Bill to meet this amendment's objectives, I hope that the noble Baroness will not press it.
My Lords, I thank the Minister for those comments. I am slightly alarmed by his reference to the market picking the winners. I find that disturbing, as what one person might consider to be a winner one year may not prove to be a winner in the long term in terms of providing something that is beneficial to the country as a whole.
I refer to willow crops and energy crops. These crops may take a little longer to become established. The Arbre plant is still in its early stages. Those kind of plants need investment. Along with my noble friend Lord Jenkin, I have tried to ensure that we try to encourage a greater variety of renewable resources. I believe that the Government recognise that farming has gone through difficult times. If we are to allow the market to pick the winners, we may not get any winners at all. If we do, they may be those big, unsightly wind turbines about which the noble Lord, Lord Hardy, has reservations.
I have spoken at length on this matter. I am disappointed with the Minister's response but at this stage I beg leave to withdraw the amendment.
My Lords, in moving this amendment I shall speak also to Amendments Nos. 63 and 64. Amendment No. 58 fulfils the commitment I made in Committee on 21st June when I said that I would bring forward a government amendment in response to Amendment No. 241 in the name of the noble Lord, Lord Kingsland. This amendment has the effect that the Secretary of State may only make different provision for different suppliers if he is of the opinion that no supplier would be unduly disadvantaged in competing with other suppliers by his making different provision. I believe that the amendment is consistent with the objectives of the original amendment proposed from the Benches opposite and I ask the House to support it.
Amendments Nos. 63 and 64 are two small, linked technical amendments which simplify the drafting of the renewables provisions without altering their substance. They delete a specific power to amend the NFFO reference price because the powers under Clause 67 are sufficient to achieve the same objective. The amendments will also simplify the transitional arrangements made under the clause. I beg to move.
My Lords, I am grateful for that. In answer to the noble Lord, Lord Renton, the qualification applies to both paragraphs.
My Lords, in moving this amendment I shall speak also to Amendment No. 61. Clause 65, as drafted, is no doubt intended to protect the consumer from the failure of the market in renewable energy or, as we hope, both the market in new and old renewable energy. I understand the Minister's concern for the fuel poor and indeed share it. However, the opportunity for suppliers to buy their way out of the obligation must be carefully controlled in order to ensure a stable market. In fact, there is no need for the mechanism until or unless there is market failure. This amendment requires the cost of electricity to have become excessive in the light of the need for renewables before the buy-out mechanism kicks in. I beg to move.
My Lords, I entirely support the noble Baroness's concern that the new renewables obligation should be met by the generation of renewables and not by the buy-out mechanism as far as possible. But these amendments would have the opposite effect of what is intended. They would allow the use of the buy-out mechanism under Clause 65 for renewables only after the event and only if the price of renewables was judged to be excessive.
The Government's intention is to put in place a long-term renewables obligation lasting until 2025. This will determine from the outset both the level of the obligation and the level of the buy-out price. Under our plans everyone will know exactly what the cost level will be beyond which suppliers will not be obliged to purchase renewables. Only by doing this can we provide the certain and stable regulatory framework against which suppliers will be able to plan to meet their obligations and generators, together with their financiers, respond by constructing the necessary plant.
However, the noble Baroness's amendment would leave the sword of Damocles hanging over the heads of the industry. Supplies and generators would never know when a price cap would be introduced, or at what level, so that they and their bankers would never have a certain basis on which to price their projects. That would be regulatory uncertainty at its worst. It would bear particularly badly on the more expensive, less near-market technologies that have been so rightly raised. That is because they would be operating closer to the cost margin at which this delayed price cap might suddenly be introduced. Nothing could be more calculated to deter long-term agreements for renewables, which was the concern of the noble Baroness, Lady Byford, when we discussed Amendment No. 53, than the risk that the underlying pricing assumptions could be suddenly overturned by a future price cap.
Therefore, I urge the noble Baroness to accept that the question of the level of the buy-out price under this clause has to be settled in advance and not left hanging, as this amendment would require. The level of the buy-out price will be a key element of the further consultation which we shall carry out before introducing the new renewables obligation.
moved Amendment No. 62:
After Clause 65, insert the following new clause--
(" . In making an order and other arrangements under sections 32, 32A, 32B and 32C of the 1989 Act the Secretary of State may also make provision for--
(a) electricity generated by any form of combined heat and power stations;
(b) electricity generated by approved systems of clean coal technology.")
My Lords, the purpose of this amendment is to extend the renewables obligation to include combined heat and power and clean coal technology. Perhaps I may deal first with combined heat and power. The Government's support for that way of making better use of the electricity generating capacity in the country is well known. They have set an objective, as they have for renewables, for the year 2010. In discussions I have had with the noble Lord since Committee stage he has assured me that CHP will be included in the energy efficiency obligations which are dealt with in Clauses 70 and 99. That is one kind of obligation contained within this Bill. I am quite satisfied about that.
However, the purpose of this amendment is to make sure that CHP would come into the other kind of obligation, the renewables provision, which imposes an obligation on suppliers to take certain types of electricity. As regards renewables, my proposal is that it should be extended to combined heat and power. That is the simple proposition that I make. In view of the Government's known support for CHP, I believe that it should come into both sorts of obligations contained in this Bill as regards the energy efficiency obligation and the proposed extension of the renewables obligation. That is the proposition as regards combined heat and power.
The proposition as regards clean coal technology we touched on earlier. We ought to be moving in the direction of having plant operating on clean coal technology systems in this country. The noble Lord, Lord Dormand of Easington, is one of a number who have been fighting the battle for years. We need to create a climate in which that type of activity can be stimulated.
As I mentioned at Committee stage, I tried some years ago to persuade the government to extend the non-fossil fuel obligation to include clean coal technology. That was on the point of being agreed, but then it failed. It was a Private Member's Bill and these days the fate of such a Bill is uncertain. It is another way in which the creation of this type of plant could be brought about. If there were an obligation to take a proportion of electricity produced by clean coal technology, then we would get the plant to produce it. There is not a situation at present in which one would put money into the venture because, on a straight comparison with other forms of energy generation, it would be too expensive. And so it is with regard to renewables. That is the whole reason for the renewables obligation. Therefore, I strongly propose--I hope that it will gain support--that the renewables obligation be extended both to combined heat and power and to clean coal technology. I beg to move.
My Lords, I endorse the comments of the noble Lord, Lord Ezra. The logic of the case for combined heat and power is clear. It is both sensible and economic. There are also double benefits from combustion.
So far as concerns clean coal technology, we debated this matter earlier and I certainly do not wish to delay the House. I accept that the Government recognise that clean coal technology is desirable and that there could be a substantial international market for its development. The point I wish to make is that, if our mining engineering and related industries are to take advantage of that opportunity, there has to be a home base of a sufficient size to provide the demonstrations required to attract an international audience.
In her admirable speech, the noble Baroness, Lady Byford, was sweepingly condemnatory of fossil fuels. The raw consumption of fossil fuels which emit noxious gases must come to an end. But, whatever we do, the world will continue to burn vast quantities of coal. If we were to shut down all our pits and coal-fired power stations tomorrow, it would make very little difference to the total amount of coal which will be burnt internationally. It is therefore highly desirable for a number of countries to ensure that clean coal technology is supported not only at its research stage but at its development stage, in order to demonstrate to the world that the planet need not continue to be polluted on the scale that it inevitably will be if leads are not taken.
Britain is in a position to give a lead. I hope that the Government will take a favourable view of the case that the noble Lord, Lord Ezra, has been advancing for a very long time, with the support of a number of my noble friends, of whom the noble Lord, Lord Dormand of Easington, is a notable example. I hope that the Government will recognise that we have an international opportunity. We may also be able to respond to an international obligation in a material and sensible way if the views expressed in the amendment are considered sympathetically.
My Lords, my name has been mentioned twice in connection with this amendment, which I strongly support. The arguments need not be repeated; the onus is now on the Government to disprove the case for clean coal technology, which has been made for a number of years.
My Lords, I am grateful to the noble Lord, Lord Ezra, and others for the time that they have taken in discussions with me and my officials between Committee stage and now. The meeting we had last Thursday--which ended with us walking out and leaving his advisers talking to DTI officials--was particularly helpful. It provided more light than we are often able to achieve across the Floor of the House. As a result of those meetings, I have twice written to the noble Lord: once on combined heat and power on 29th June, and once on clean coal on 3rd July. Those letters are in the Library of the House.
Let me restate what I said in the letter on combined heat and power. I can confirm that the Bill already contains a power which would allow the Secretary of State to set a specific obligation for combined heat and power if he wished. That is what subsection (a) of the noble Lord's amendment would provide. This is by virtue of new Section 41A(5)(b) as introduced by Clause 70 of the Bill, which applies to electricity--if that is difficult to find, it is on page 73, line 39--and there is a gas equivalent under Clause 99.
This subsection provides that the Secretary of State may specify the action which qualifies for the purpose of meeting an energy efficiency target. The effect of this is that he could set an obligation for requiring suppliers to meet energy efficiency targets and specify that the only way of meeting the targets is by installing or otherwise procuring CHP. New Section 41A(9), and its gas equivalent, removes any possible doubt about CHP being able to count towards targets in this way. But I have to say again that we do not intend to use the powers in this way. This is because we are already putting in place an extensive range of measures in favour of CHP, which I explained in Committee and in my letter.
I wrote to the noble Lord, Lord Ezra, on 3rd July to explain the context of the Government's policies for clean coal. I can confirm the main points of what I said. The Government's policy with regard to the coal industry should be seen in the context of the Government's central energy policy objective to ensure secure, diverse and sustainable supplies of energy at competitive prices. Our October 1998 White Paper, Conclusions of the Review of Energy Sources for Power Generation, highlighted the need for an acceptable level of diversity and saw coal as a main contributor to diversity of UK electricity production into the foreseeable future. That is why the Government were so concerned that distortions in the electricity market were pushing out existing coal-fired plant at the expense of new gas build and undertook a programme of reform to remove those distortions.
That programme will be complete with the introduction of the new electricity trading arrangements later this year. At that point we will be able to relax the stricter consents policy for new gas-fired power stations that we introduced to safeguard diversity while the reforms were undertaken. We recognise that the restructuring of the market and the lifting of the stricter consents policy will be a challenge for the UK coal industry, and we are in discussion with the European Commission about a programme of state aid to help the industry through this period of restructuring.
The rationale for government support for cleaner coal technology R&D fits firmly within this policy framework. A key purpose of the R&D programme is to identify the extent to which all the extensive coal resources of the UK can be used as a source of energy in the future. Both coal bed methane and underground coal gasification technology offer some promise to contribute to future energy supply in the longer term if they can be successfully developed commercially on a large scale.
A further element of the rationale of the programme is the contribution that cleaner coal technology would make towards achieving global environmental goals as part of the climate change programme. My noble friend Lord Hardy is right about that. In the UK, the availability of gas as a fuel for electricity generation means that clean coal does not offer environmental advantages other than over existing coal capacity. Any clean coal plant would probably displace existing coal plant, at some cost and without substantial efficiency gain.
However, coal used for electricity generation is expected to grow substantially in developing countries and the efficiency gains to be derived from improvements to existing coal plant and the adoption of new advanced cleaner coal technology plant is expected to make a substantial difference to emissions at the global level, again a point referred to by the noble Lord, Lord Hardy. The R&D programme will underpin substantial export opportunities, with business and employment benefits for UK companies.
But we do not see the need for support for demonstration projects as a priority at present. There are a number of commercially proven cleaner coal technologies available from a number of suppliers, both in the UK and overseas. They do not need to be demonstrated again on a commercial scale and subsidised by the taxpayer. Our funds are best channelled to R&D for more advanced technologies capable of offering substantial efficiency and environmental benefits.
However, the Foresight Task Force identified a case for demonstration after about 2005, and the Government undertook in their October 1998 White Paper to re-examine the position in about three years' time. We shall honour that commitment and take account of all the points that have been raised in debate, including the potential export benefits.
I trust that I have given a sufficiently clear statement of the Government's position on the issues of combined heat and power and clean coal to enable the noble Lord, Lord Ezra, not to press his amendments.
I thank the noble Lord for that full statement, which he sent me in writing earlier. So far as concerns CHP, I am pleased that he has confirmed that the Government have a reserved power to introduce specific obligations. It was never my intention to press for such obligations to be imposed at the present time. Obviously the position will remain under review, and if at any time it should be desirable for such obligations to be imposed, no doubt we shall exert suitable pressure on the Government to do so. I am satisfied with the CHP position as the Minister has explained it.
However, we part company on the issue of clean coal technology. The Government fully support the concept. They fully recognise the global implications. They support further investment. But, unfortunately, what they will not do is support--what those of us who feel strongly about clean coal technology support--the construction of demonstration plants. Every attempt made so far to bring that forward has failed. We now have a date of 2005 when this matter might be re-examined. I do not find that very satisfying. Nonetheless, at this stage I do not wish to press the point any further. We may come back to it. We certainly will on different occasions. I beg leave to withdraw the amendment.
moved Amendment No. 63:
Page 68, line 43, leave out subsection (1).
My Lords, Amendment No. 63 has already been spoken to. I beg to move.
moved Amendment No. 64:
Page 69, line 29, leave out from ("cost") to ("referred") in line 30.
My Lords, Amendment No. 64 has already been spoken to. I beg to move.
My Lords, Amendment No. 65 has already been spoken to. I beg to move.
moved Amendment No. 66:
Page 73, line 18, leave out from beginning to ("that") in line 28 and insert--
("( ) An order under this section may specify criteria by reference to which the Authority is to determine energy efficiency targets for the electricity distributors or electricity suppliers on whom obligations are imposed by the order.
( ) The Secretary of State and the Authority shall carry out their respective functions under this section in the manner he or it considers is best calculated to ensure").
My Lords, in moving Amendment No. 66, I should like to speak also to Amendments Nos. 67, 88, 89 and 91. Although there are many words in these amendments, I can assure the House that they make only small, if important, changes to the energy efficiency provisions of the Bill. Amendments Nos. 66 and 88 do two things. First, they allow the Secretary of State to tell the authority what criteria to use in splitting up the obligations into separate targets for individual suppliers. That means that, rather than leaving it to its discretion, the Secretary of State could tell the authority that individual suppliers should be given a target in proportion to their market share. He could also specify how market share was to be calculated. The Government will be consulting further on all these issues before making orders under the provisions.
Secondly, consistent with the other provisions of the Bill, they make it clear that the duty to avoid distorting competition is a duty that is to be exercised in the judgment of the Secretary of State or the authority. At present the clauses are silent on the issue of whose judgment is involved.
Amendments Nos. 67 and 89 make it clear that trading of obligations can take place between gas and electricity obligations holders rather than simply among gas obligation holders on the one hand and electricity holders on the other. That flexibility to trade obligations between gas and electricity is essential to the Government's objective to provide scope for participants in the market to develop the most cost-effective mechanisms for meeting the Government's energy efficiency obligations.
The same objective gives rise to Amendment No. 91. That provides a power so that the Secretary of State can set one global energy efficiency target that can then be applied separately under the separate energy efficiency provisions for gas and electricity. He can provide for the authority to apportion the global target between gas and electricity and he can specify to the authority how that division is to be made. The reason we have had to introduce a separate order-making power to achieve this arises from the structure of the Bill. In general, the Bill works by amending the existing gas and electricity legislation. This is the case for the energy efficiency provisions. Therefore, in order to have the provision which links the separate gas and electricity legislation it is necessary for it to be a free-standing provision of the Bill. That is what we have done. I beg to move.
My Lords, I have just spoken to Amendment No. 67. I beg to move.
moved Amendment No. 68:
Page 77, line 36, leave out ("inserted") and insert ("substituted").
My Lords, I have already spoken to this amendment. I beg to move.
My Lords, in moving Amendment No. 69, I should like to speak also to Amendment No. 74. With regard to Amendment No. 74, the words,
"it considers it appropriate to do so", in Clause 77 provide an enormously wide discretion when one considers the need for the 20 to 25-year investment security required by independent public gas transporters. Independent public gas transporters have only limited opportunities to legally cross-subsidise. If a project fails to meet its target return because its infrastructure has been bypassed by a competitor, the shortfall cannot readily be recovered from elsewhere without breaching licence obligations.
The only remedy would be to raise prices to the domestic consumers already connected at the site. That cuts directly across the objectives of independent public gas transporters, which have been to achieve lower prices on individual developments through local scale economies. It would also put the authority in breach of its proposed duty to protect the interests of consumers and, if prices were not increased, its current duty under Section 4 of the Gas Act to ensure that licensees can finance the carrying on of their activities.
Since independent public gas transporters only win the project following an intensely competitive bid process, the outcome could be that the most efficient pipeline operators are punished at the expense of the least efficient. Alternatively, the outcome could be that consumers bear the brunt. Given the enormous width of the clause, it is difficult currently to predict how the discretion might be exercised.
An independent public gas transporter could win a development by being the most efficient in the bid process but then lose most of the connections, not through its own lack of efficiency, but because of price distortions generally. Given the current duty under Section 9 of the Gas Act for economy and efficiency, this gives perverse incentives.
The problem is exacerbated with investment already sunk by independent public gas transporters under the current competitive regime. Since the costs are sunk--they could hardly pull up the pipes--the new legislation will have a retrospective effect.
I turn to the drafting. The amendment seeks to preserve the unfettered discretion which the authority must have by law. It introduces, however, a device whereby the discretion may be exercised in a balanced and informed way by reference to guidelines. I beg to move.
My Lords, was the noble Baroness speaking only to Amendments Nos. 69 and 74 and not to the other amendments in the group?
My Lords, I am grateful for that explanation. It does not make life any easier for me but I shall do my best. In order to make my response to Amendment No. 74 comprehensible, I have to refer briefly to Amendments Nos. 69 to 75, which refer to Clause 76. It is important to establish that what we are doing in this part of the Bill is to remove the geographic exclusivity for gas transporters. At the moment they have licensed areas and no one else is allowed to intervene in their licensed areas. We are saying that competition has to have force and that with various provisos set out in these clauses they can no longer have that exclusivity. Clearly, gas transporters do not like that. They would like to maintain the monopoly position that they have had in their various areas. But we think that it is right to have the objective of ending geographic exclusivity by removing the requirement that public gas transporters' licences may not include areas which are specified in the licensing of other public gas transporters. They object because it increases competition. We hope that it will reduce the prices that they can charge. Incumbent monopolies do not like this kind of thing, but we want consumers to benefit from increased competition. I am a little surprised that the Opposition are seeking to challenge any part of this thoroughly capitalist procedure.
I turn to Amendment No. 74. The clause as drafted is flexible enough to allow the authority to respond to changing circumstances. If the amendment were to be accepted, that flexibility would disappear. I think that giving the authority flexibility to use its judgment, and giving it the ability to protect consumers from being overcharged by incumbents, is a good policy aim. I commend our proposals to the House and I oppose Amendment No. 74.
My Lords, I am disappointed by the Minister's response to Amendment No. 74. I hear what he has had to say with regard to competition and flexibility. However, there is a need to consider the viability of the independent public gas transporters. In order to be in business, they have to invest for a long period. Clause 77 as it stands gives an enormously wide discretion to the authority which they feel is unreasonable.
My Lords, I realise that I failed to reply to an important point made by the noble Baroness in introducing Amendment No. 74. I apologise for that. She said that the phrase,
"by the Authority where it considers it appropriate", is too broad. That is for a very good reason. We expect the companies to protect their investments, but we expect them to protect their investments by using contracts. In our view, the authority should become involved only when there are disputes.
I failed to reply to another point raised by the noble Baroness, for which again I apologise. She said that the Bill is retrospective because the pipes are already in the ground. Clause 77 deals with pipes already in the ground. The discretion which the noble Baroness criticised includes the ability of the authority to allow transporters to place conditions on consent which protect their investment if it thinks that it is in the interests of consumers. I think that we have thought this out properly. We have thought about the short-term position, where people have investments and where the threat is that new people can come in, and we have thought about the long-term interests of consumers and the industry.
My Lords, I hear what the Minister has had to say. We have had a good deal of consultation with the industry on this point. The industry does not feel that what the Minister has said thus far has given it enough assurance. On that basis, when we reach Amendment No. 74, I should like to test the opinion of the House. I beg leave to withdraw Amendment No. 69.
moved Amendments Nos. 77 and 78:
Page 86, line 13, leave out from ("installed") to end of line 15 and insert ("by an authorised supplier on any premises shall not be used to recover any sum other than a sum owing to an authorised supplier in respect of the supply of gas to those premises or the provision of the meter."").
Page 86, line 28, at end insert--
("(4) In paragraph 23(2), for paragraph (c) there is substituted--
"(c) exercising a power conferred by paragraph 3(5) or 7(3)(a) (and testing gas fittings, and making any adjustments required for their safe operation, after the exercise of the power)."").
On Question, amendments agreed to.
Clause 88 [Altering activities requiring gas licence]:
moved Amendment No. 81:
Page 102, line 3, at end insert--
("(6A) No penalty imposed by the Authority under this section may exceed 10 per cent. of the turnover of the licence holder (determined in accordance with provisions specified in an order made by the Secretary of State).
(6B) An Order under subsection (6A) shall not be made unless a draft of the instrument containing it has been laid before and approved by a resolution of each House of Parliament.").
My Lords, on behalf of my noble friend Lord Borrie, I beg to move.
moved Amendments Nos. 82 to 87:
Page 108, line 5, leave out ("persons who supply gas") and insert ("authorised suppliers").
Page 108, line 11, leave out from ("by") to ("provision") in line 15 and insert ("authorised shippers or authorised transporters (as well as by suppliers); and
(b) in relation to charges payable to suppliers,").
Page 108, line 27, leave out ("persons who supply or transport gas") and insert ("authorised suppliers, authorised shippers or authorised transporters").
Page 109, line 12, leave out ("persons who supply or transport gas") and insert ("authorised suppliers, authorised shippers or authorised transporters").
Page 109, line 21, leave out ("persons who supply or transport gas") and insert ("authorised suppliers, authorised shippers or authorised transporters").
Page 109, line 26, at end insert--
("(7) In this section and section 41A "authorised shipper" means a person authorised by a licence or exemption to arrange with any gas transporter for gas to be introduced into, conveyed by means of, or taken out of a pipe-line system operated by that transporter."").
On Question, amendments agreed to.
Clause 99 [Energy efficiency requirements for gas transporters and suppliers]:
moved Amendments Nos. 88 and 89:
Page 109, line 45, leave out from beginning to ("that") in line 8 on page 110 and insert--
("( ) An order under this section may specify criteria by reference to which the Authority is to determine energy efficiency targets for the gas transporters and gas suppliers on whom obligations are imposed by the order.
( ) The Secretary of State and the Authority shall carry out their respective functions under this section in the manner he or it considers is best calculated to ensure").
1989 c. 29.
On Question, amendments agreed to.
Clause 102 [Maximum prices for reselling gas]:
moved Amendment No. 90:
Page 114, line 17, leave out from ("supplier"") to end of line 20.
On Question, amendment agreed to.
moved Amendment No. 91:
Before Clause 103, insert the following new clause--
OVERALL ENERGY EFFICIENCY TARGETS.
(" .--(1) For the purposes of the exercise by the Authority of its functions under either or both of--
(a) section 33BC of the 1986 Act (energy efficiency requirements for gas transporters and suppliers) and any order made under that section, and
(b) section 41A of the 1989 Act (energy efficiency requirements for electricity distributors and suppliers) and any order made under that section, the Secretary of State may by order specify an overall target for the promotion of improvements in energy efficiency.
(2) Where an overall target applies in relation to both sections mentioned in subsection (1), the order specifying the target may make provision for the Authority to apportion the target between--
(a) persons who are gas transporters or gas suppliers (for the purposes of section 33BC of the 1986 Act and any order under that section); and
(b) persons who are electricity distributors or electricity suppliers (for the purposes of section 41A of the 1989 Act and any order under that section), by reference to such criteria as may be specified in the order.
(3) The Authority shall exercise its functions under the provisions mentioned in subsection (1) in relation to which an overall target applies (and in particular its functions relating to the determination of energy efficiency targets) in the manner it considers best calculated to result in the achievement of the overall target.
(4) Before making an order under this section the Secretary of State shall consult the Authority, the Council, gas transporters, gas suppliers, electricity distributors, electricity suppliers, and such other persons as he considers appropriate.
(5) An order under this section shall not be made unless a draft of the instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.")
On Question, amendment agreed to.
moved Amendment No. 92:
Before Clause 103, insert the following new clause--
(" .--(1) Schedule 4 to the 1986 Act shall apply to an electricity distributor as it applies to a gas transporter as if, in each place where they occur, for the words "gas transporter" there were substituted "electricity distributor".
(2) Schedule 4 to the 1989 Act shall apply to a gas transporter as it applies to an electricity distributor as if, in each place where they occur, for the words "electricity distributor" there were substituted "gas transporter".
My Lords, this amendment seeks to give gas transporters or electricity distributors the right to install the infrastructure of the other utility subject only to the same limitations placed on that other utility. The amendment does not seek to enlarge existing powers but merely to enlarge the number of entities capable of exercising them. In this case, it would be the owner or occupier, often a developer, who will be able to decide who shall enjoy these rights.
The Minister will be pleased to hear that this is essentially a probing amendment to gauge the Government's thinking in this area, given that our overriding interests are to save costs as well as to be expedient about the manner in which those works are carried out. I beg to move.
My Lords, I am grateful to the noble Baroness for explaining the amendment. Perhaps I may explain the fundamental underlying differences between the gas and electricity provisions with regard to street works. In gas there is a duty on the gas transporter to connect anyone within 23 metres of a gas main. That is an absolute duty and means that there have to be corresponding powers to enable gas transporters to fulfil their duty.
In electricity there is a duty to connect any person on request, subject to questions of practicality and cost which are reflected in the terms offered for the making of a connection, rather than an absolute right within a prescribed distance of an established part of the electricity distribution network. We believe that it is reasonable to insist that in the 21st century everyone should be able to have access to electricity but it would not make sense to require a transporter to put in several miles of gas main to service one customer in a remote location.
Turning to the detail of the proposed new clause, if it is designed to align the regimes governing street works under the Gas Act and the Electricity Act by making electricity distributors subject to obligations under the Gas Act and vice versa, this is inappropriate because each Act deals with a defined subject area; namely, gas on the one hand and electricity on the other.
If the amendment is designed to assist those who are active in both the gas and electricity markets, it is misguided. A company which is both an electricity distributor and a gas transporter will have appropriate rights under the Electricity Act 1989 and the Gas Act 1986 which he should use according to which activity necessitates the street works. If both of them necessitate street works, he will need to exercise rights under both Acts. However, that should not create any problems for a company.
I should point out that there are other difficulties with the amendment. For example, if the amendment is made workable, there will be a potential for companies to use one Act to exercise rights and, when this proves unsuccessful, to attempt to use the other Act as a way forward. Granting rights under Schedule 4 to the Electricity Act to gas transporters could result in them having more extensive rights to land belonging to third parties than is presently the case.
On either interpretation of the amendment, it is inappropriate and could lead to damaging rather than helpful consequences.
moved Amendments Nos. 93 to 103:
Page 132, line 14, at end insert ("; and
(c) at the end of paragraph (b) there is inserted "; and--
(c) to any other person who holds a licence and whose interests may, in the opinion of the Authority, be affected by the grant."
. In section 15A (billing disputes)--
(a) for "domestic customer" (in each place) there is substituted "customer";
(b) subsection (10) shall cease to have effect.").
Page 132, line 15, leave out paragraphs 7 and 8 and insert--
(" .--(1) Section 24 (modification references to Competition Commission) is amended as follows.
(2) In subsection (1)(a)(i) and subsection (1A)(a), for "required" there is substituted "regulated".
(3) In subsection (6) for "4 and 4A(1) and (2) above" there is substituted "4AA, 4AB and 4A".
(4) In subsection (8) for "and 26 below" there is substituted ", 26 and 26A.
. In section 27(3) and (4) (modification by order under other enactments) for "required" there is substituted "regulated".").
Page 132, line 21, leave out ("inserted") and insert ("substituted").
Page 132, line 30, at end insert ("33C,"").
Page 133, line 5, at end insert--
(" . In section 36(2) (keeping of register), in paragraph (c)--
(a) the words "made otherwise than by order" shall be omitted; and
(b) for "subsection (5)" there is substituted "subsection (7)".").
Page 133, line 12, at end insert--
("( ) after the definition of "authorised area" there is inserted--
"authorised supplier" means a person authorised by a licence or exemption to supply to any premises gas which has been conveyed to those premises through pipes;
"authorised transporter" means a person authorised by a licence or exemption to convey gas through pipes to any premises or to a pipe-line system operated by a gas transporter.").
Page 133, line 14, after ("6A;";") insert--
("( ) the definition of "domestic customer" shall be omitted;").
Page 134, line 39, after ("40A,") insert ("42,").
Page 136, line 23, at end insert--
(" .--(1) Section 44A (billing disputes) is amended as follows.
(2) In subsection (2)--
(a) for "a public electricity supplier" there is substituted "an electricity supplier";
(b) for "tariff customer" there is substituted "customer".
(3) In subsection (8)--
(a) for "public electricity supplier" there is substituted "electricity supplier";
(b) for "tariff customer" there is substituted "customer".
Page 136, line 23, at end insert--
(" . In section 59 (making of false statements etc.) in subsection (2)(a), for "a public electricity supplier" there is substituted ", or other person acting on behalf of, an electricity distributor or electricity supplier"
Page 137, line 12, at end insert--