Clause 43 - Exemption from liability in damages

Energy Bill – in a Public Bill Committee at 3:15 pm on 31st January 2013.

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Amendments made: 4, in clause 43, page 45, line 6, at end insert ‘, or under paragraph 6 of Schedule3,’.

Amendment 5, in clause 43, page 45, line 13, leave out ‘or 3’ and insert ‘, 3 or 5’.

Amendment 6, in clause 43, page 45, line 22, leave out ‘under section 2 or 17’ and insert ‘of a kind mentioned in subsection (1)’.

Amendment 7, in clause 43, page 45, line 23, after ‘25’, insert ‘or paragraph 19 of Schedule3’.—(Mr Hayes.)

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Tom Greatrex Tom Greatrex Shadow Minister (Energy)

I do not wish to detain the Committee for long. Let me put a question to the Minister in relation to a specific point in the clause. Subsection (1) states that National Grid as system operator will not be

“liable in damages for anything done or omitted in the exercise or purported exercise of a relevant function specified in the regulations.”

With the exception of where National Grid has acted in bad faith or unlawfully, the organisation will be exempt from the payment of damages for its actions. As far as I am aware, the clause was not in the draft version of the Bill, so will the Minister explain why that was the case and why it has since been added in to the Bill, because, obviously, it was not available for pre-legislative scrutiny.

National Grid, as we have discussed, is a highly reputable commercial organisation that will carry out an important role in the delivery of EMR, but as a private company the purpose of at least some of its activity is to make a profit for its shareholders. It does not appear to be fair or sensible to protect a private company from being held responsible in court for its actions. Will the Minister outline the route open to a party that believes that it has been wronged or that it has suffered financially because of National Grid’s actions in relation to this clause? If that party cannot sue National Grid, should it sue the Government? Is the real impact of the clause to shift liability from a private company to the taxpayer?

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

Those are perfectly fair questions, and it is important that we put these matters on the record. The shadow Minister is correct to say that the measure was not in the draft Bill and was added later. As a result partly of representations that we received from a number of parties—the hon. Gentleman knows that the metamorphosis and evolution of the Bill was the product of many representations during pre-legislative scrutiny, as it should have been—we chose a system operator with care. It is an organisation with the skills and expertise necessary to do the job, because it already lies at the heart of the energy system. It is critical for those  skills to be available so that we can deliver EMR. The solution is an innovative one, which will utilise private sector know-how to deliver low costs for taxpayers, consumers and industry. Had we gone down a different road, we would have been obliged to encourage or invent an organisation that would have ended up with a profile and skills very similar to those of National Grid.

As with any innovation, we cannot foresee every issue that might arise. Indeed, we have debated such issues over the past few days—it seems like weeks. It is important, therefore, that we limit National Grid’s liability for damages on the specific EMR functions it carries out. In answer to the hon. Gentleman, such protection is not unlimited. The measure certainly does not protect the system operator from complaint or deny people redress against its decisions—we will build such routes of redress into the design of EMR—but it does afford the system operator appropriate protection from litigation similar to some public sector bodies.

Let us be clear that the clause does not grant or promise any limitation on liability at this stage for National Grid. It merely provides us with the option, as we examine the progress of the change, to limit the liability on specific functions when, after due consideration, we deem it appropriate. We do that because the innovation is an important one, and we want sufficient flexibility to gauge the character of the liability. We are certainly neither confirming that we will limit liability at this juncture nor specifying the limits on that liability. We will not, and with this power we cannot, shield National Grid from liability derived from acts done in bad faith that breach the Human Rights Act 1998 or for which it is liable under the Electricity Act 1989. Even the powers we seek are limited powers.

Photo of Alan Whitehead Alan Whitehead Labour, Southampton, Test

The Minister mentioned that the change will be made at no cost to the consumer, and one of the consequences will be the limitation of liability in a procedure that is a fairly new departure. Will he set out how National Grid will be rewarded for its work as system operator? Will it be rewarded directly, or will it be rewarded indirectly by being provided additional income in a block sum, out of which it might take some profit? If that is the case, might he propose any limitations on what National Grid might do as the result of its activities as a system operator?

Photo of John Hayes John Hayes The Minister of State, Department of Energy and Climate Change

That is a slightly broader matter that is beyond the specific scope of the amendment, as I am sure the hon. Gentleman knows, but it is a fair question. We would expect National Grid costs to be recovered through an extension of the existing system operators’ incentive regime, which he will know is administered by Ofgem. We do not see a significant change in those terms. Obviously, it will work within particular guidelines for the EMR. That is why he should not be excessively concerned about the powers over liability: liability will simultaneously be equally limited, of course, to the same territory.

We are not saying at this juncture that that liability would pass to the Government, but I take the point made by the hon. Member for Rutherglen and Hamilton West. If we were to exercise those powers, it is important that we should consider that carefully. I do not want to do the Opposition’s job for them, but it would not be  unreasonable for him to ask us to consider both the impact and the value for money. If we were to exercise the powers and liability were to pass to the Government, further work by Government would be needed to test the scale, extent and consequence of that liability.

On the basis of his remarks, I will certainly go back and consider all those things closely. However, in essence, the measures are born of our determination to ensure that National Grid does as good a job as possible, and we will decide on a case-by-case basis where the exemption will apply as we confirm the functions through secondary legislation, which Parliament will of course have a chance to scrutinise. On that basis, I commend the clause to the Committee.

Question put and agreed to.

Clause 43, as amended, accordingly ordered to stand part of the Bill.

Clauses 44 to 46 ordered to stand part of the Bill.