I beg to move, in page 13, line 37, to leave out from "Board," to the end of the Clause, and to add:shall not later than the expiry of three months or of such longer period as the Electricity Commissioners may in any case allow after the end of each year of account in which such supply is received make a return to the Commissioners setting out the actual cost of such supply during the preceding year of account, and an estimate of the cost at which the undertakers could themselves have provided a like supply had this Act not been passed and if the aforesaid actual cost is less than the said estimate, after such adjustment thereof, if any, as the Commissioners are satisfied ought to be made the Commissioners may direct that the undertakers shall apply for the benefit of their consumers by a reduction of tariffs or charges, or otherwise the difference between the aforesaid actual cost and estimate as so adjusted except to the extent that the Commissioners are satisfied that the said difference has already been so applied.This Amendment is an attempt to meet a promise given on the Second Reading of this Bill, which was that where the Board supplies electricity to an authorised undertaker, that electricity should be conveyed in turn by the 388 authorised undertaker to their consumers, without any added profit—in other words, that the electricity is transmitted at cost price plus, of course, cost of transmission. We are informed that Sections 31 and 32 of the Electricity Supply Act, 1926, are very difficult to operate, which means that it is difficult to ensure that supplies are transmitted to consumers by an authorised undertaker without any undue or hidden profit. This Amendment, framed on the best advice we can get, is to make certain that the cheaper electricity which we propose to supply to authorised undertakers shall be transmitted to the ordinary consumers in their areas with the minimum amount of added profit, though, of course, the undertakers are entitled to their ordinary charges for transmission and so on. Long and elaborate calculations are involved in these matters and I do not propose to weary the Committee with them, even if I were capable of explaining them, but; in effect, the Amendment says that within a certain period not later than the expiry of three months, or such longer period as the Electricity Commissioners may in special cases allow, a return shall be made by the authorised undertaker as to the actual cost at which they get this electricity from the new Board and also as to the cost at which they themselves could have provided a like supply had this Act not been passed.
The difference between the two amounts is the amount which the Commissioners may direct a company or a local authority to apply by way of reduction of tariffs to consumers. The difference between the price at which they get electricity and the price at which they themselves could have provided a like supply of electricity is the amount which, under the terms of this Amendment, we say should be passed on to the consumers by way of reduction of tariffs. I take it that everyone agrees with the purpose of this Amendment; that we should not supply electricity at cost price to concerns which, in turn, would make a profit from the distribution of that electricity. Our desire is that electricity shall be produced and supplied in the Highland areas at the lowest possible price and this Amendment is an attempt to make clear—
I am telling the hon. Member; at any rate, I am doing my best. This is an attempt to make it clear that we 'shall supply electricity at cost price and take whatever actuarial means are at our disposal to ensure that it shall be transmitted to the consumers of the authorised undertakers at the price at which we supply it, plus the ordinary cost of transmission.
§ Mr. Pethick-Lawrence
I should like to be quite clear on this point. I think I understand the general principle which the Secretary of State has enunciated, but what I am not quite clear about is whether the reduction which will be brought about as a result of this Amendment, will apply to all consumers who are supplied by a particular authority, or whether it will apply to particular consumers who are being served by an additional supply. Is additional supply to be given in bulk at the centres of the organisation, or in a way particularly applicable to certain areas? What I supposed—probably wrongly—was that there was a certain area belonging to an original authority which could better be served by a public authority than by the original authority and I wanted to make sure that a particularly expensive area would not have to pay the original high rates and that the benefit brought about by the allocation of areas would accrue to the out-of-the-way districts to which the new supply was being brought.
Let us take the hypothetical case of an authorised undertaker who has a large area of supply. The new Board sells to this authorised undertaker 10,000 kilowatts or whatever the number may be at x price. If it would have cost the undertakers more than x to provide that supply themselves the difference must be applied to all their ordinary consumers. That is to say they are not to apply the benefit of this cheap electricity to one section of their consumers alone; they have to reduce their tariffs to all consumers.
§ Mr. Buchanan
But an authorised undertaking may be electricity producers. That being so might it not happen that you would have two prices for electricity? Take the case of Fort William. They now supply electricity. This Board may 390 supply them with electricity in bulk at a fixed price. Fort William may be selling their own electricity at a higher price. You would say to them "This electricity must be sold at the price at which you bought it, plus the cost of distribution." But Fort William would be selling electricity made by themselves to another consumer at another price.
This matter is extraordinarily difficult. I have sweated over this thing for a long time and I do not pretend to be able to make it crystal clear. Indeed, I am sure hon. Members engaged, in the industry often find great difficulty sometimes in understanding the implications of Sections 31 and 32 of the 1926 Act. Let me reply to the point raised by my hon. Friend the Member for Gorbals (Mr. Buchanan). The Board sells at x price to the authorised undertaker and the amount of the difference between x price and the price at which Fort William would be able to manufacture a like supply of electricity themselves, must be applied in a general reduction to all Fort William consumers.
I am not quite satisfied, possibly because I do not understand the matter, but I visualise a Highland district which is rather expensive to supply. In order to enable that district to get electricity at a reasonable price the Board comes in and gives an additional supply to the existing authority. The Secretary of State seemed anxious to prove that that new area was not to get a special advantage. I was rather anxious that the area should get that advantage; otherwise that supply to that particular out-of-the-way area might be prohibitive. If means were given to the existing authority to enable them to supply an out-of-the-way area that out-of-the-way area should get a considerable benefit from that new supply. It seems to me that the provision specially made by which there would be no special advantage given to the new area, might defeat the object for which the extra supply was being given.
That is a different matter from the construction schemes outside the 391 Grampian Company's area which we envisaged under this Bill, and in which these conditions do not obtain. I now understand that my right hon. Friend is referring to isolated areas inside the Grampian Company's territory.
Then I ought to make it perfectly clear that we are not interfering in this Clause at all with the Grampian Company's tariffs, except in so far as the total amount of the difference between the cost of the cheap supply we are giving the Grampian company and the cost at which the company could have themselves produced that supply, must be applied all over their tariffs and all over their areas. Is that clear?
§ Mr. Pethick-Lawrence
It is clear, but is it a satisfactory solution? Here you have certain areas inside the Grampian Company's authority which do not get the electricity at present because it is difficult to supply them. What I hoped was that special reduction of tariff in those areas would be achieved. I understand that this Amendment is to prevent that. I may have misunderstood the position but I hoped that that would have been the result.
§ Mr. Sloan
With the best intentions in the world I am not quite able to follow my right hon. Friend's explanation. The Commissioners, as far as I can see, are going to have some job if they have to separate the different sources of power and find out where a reduction in cost has to come in. In the first place, it seems to me there must be a fairly large amount of transmission before it will have the slightest effect upon the production of any undertaking. I think the Amendment means nothing at all to the undertakings which are having electricity transmitted to them. Perhaps my right hon. Friend will be able to tell us how they will separate their own production from that which is being taken in and let us know exactly where the consumers are to get the benefit from the concession that is being made by the Amendment.
§ Sir A. Gridley
I think it is clear that it would be a sensible course for the Government to take this Clause out of the Bill for the time being and think the 392 matter over before Report. Consider the position of the Grampian Company. They have their own hydro-electric station. In the course of the next three or four years they will presumably be connected up to the new Board's hydro station and be taking a considerable supply from that source. They are also connected up to the Central Electricity Board, with whom they have agreements, and therefore there will be pumping into the area of the Grampian Company very shortly, three different sources of supply, which may vary from time to time. It sometimes happens that there is a serious breakdown, and the Glasgow Corporation or the Clyde Valley Company, whose mains are all interlinked with the grid, will be the actual suppliers of current through the grid up to the North of Scotland. There have been breakdowns in Glasgow which have been met by transmitting from Yorkshire. It is impossible to say where and in what quantity, and at what load factor, you may be taking your supply from these three or four sources, or which consumers are actually getting the benefit of these supplies from alternative sources. It is a most complicated and cumbersome and absurd Clause.
Surely the commonsense way of dealing with the handing on of the benefit which comes from a very economic source of generation—water power—is to provide that the undertaking, if it is a company which is taking the supply, should have its dividends 'limited pro rata with its charges. There you have effective control and if the company, by virtue of getting a cheaper supply from the new Board's stations, is able to save £10,000 or £15,000 a year, which enables it at the end of the year to have a larger sum available for distribution, you can limit the dividends that it can distribute unless it makes a certain reduction in its tariffs. That is better than using a terrific steam hammer to crack what really ought to be a thin-shelled nut. The Commissioners are to be supplied annually by the undertaker with the cost of the supply taken and, having furnished the Commissioners with a hypothetical estimate of the amount for which they could put down a new station, and obtain current from the station, the Commissioners are then to decide whether that estimate is right or wrong, and once again the authorised undertaker is in the hands of the Electricity Commissioners. If all these duties 393 are to be put on the Commissioners, not only with regard to this undertaking but scores of others, the staffs will have to be multiplied ten times to enable them to deal with all these matters. I urge the Government, in their own interest, to withdraw the Clause and apply their minds to a far simpler method of achieving the same result.
§ Mr. Buchanan
This is a cumbersome Clause, difficult of administration, and one wonders whether it will work. One does not want to see Clauses which are of no use at all, particularly in an Act of Parliament which is to bring a new experiment to the Highlands. I see nothing but difficulty here. The Committee would agree on the principle that the supply of electricity, particularly if it is abundant, should not be used by any other undertaking as a means of financial gain. It should be used for the general benefit of the consumers, and not of picked consumers. It will be most difficult to apportion the supplies obtained from different sources, and it may prove not to be worth the investigation. It would be better for us if my right hon. Friend could adopt a simpler method. He is worthy of commendation and not of criticism for trying to do this. He would have been subject to much more criticism if he had done nothing. But I am not sure that this method is the best. I would ask him to look at it again and see whether there could not be an improvement on his Amendment.
§ Mr. Colegate (The Wrekin)
I share the hon. Member's feeling that the Secretary of State should be commended for his effort to pass on the benefit of a cheaper supply to consumers, but the Clause is so complicated that his object cannot possibly he achieved by it. There is a very simple test. Is it the type of 'agreement which any two private companies would enter into if a similar situation arose? Of course not. No one with commercial or industrial experience would negotiate or sign an agreement of this type. I urge that further consideration should be given to the matter and to alternative methods of passing on the benefits of the cheaper source of supply. My hon. Friend the Member for Stockport (Sir A. Gridley) mentioned the limitation of dividends. That has worked extremely successfully with a large num- 394 ber of gas companies. A gas company working under that arrangement cannot increase its dividends except in so far as it decreases its charges to consumers. That is not a theoretical or highly complicated arrangement of the type set out in the Amendment, but it is a method which has worked successfully with great advantage to the consumer and has been a great incentive to efficiency on the part of the producers for a great many years. I would urge the Secretary of State to reconsider this matter and to see whether he cannot adopt that method of passing on the benefit of reduced charges to the consumer. It is a method I should like to see extended to many industries.
§ Sir H. Williams
I hope that the Secretary of State will respond to the appeals that have been made to him. I am trying to visualise how this will work. You have the actual cost, and then you go into the hypothetical cost—always a little difficult for those administering the existing Act so far as their relations with the Electricity Board are concerned. Having established that the hypothetical cost is lower than the actual cost, a lump sum payment will be made by the Board to the undertaking concerned. They find that they have, say, £5,000 which they did not expect. They then have to look at the whole of their accounts. They may have 20,000 or 30,000 consumers, and they must find out what each consumer's share is, go through all their accounts, and make out 30,000 cheques in order in some cases to return 2s. 6d. The cost of administration will be greater than the cost of the benefit, and it seems the most cumbersome method I have ever heard of. Not many people realise how costly these clerical operations are. The B.B.C. licence, for instance, costs is. to issue. It costs 8d. to cash a cheque. What will be the cost of sending a cheque for 2s. 6d.? It will cost Is. 2d. if you take postage, clerical work and the rest of it. It is a most cumbersome method, and it would be much better to let the money be carried forward into the next year and have some readjustment nr come method of adjusting dividends 'as has been suggested.
§ Mr. Henderson Stewart
It seems to be the general view of the Committee that if any other method could be found, it would be wise to find it. Examples have been given of precedents in the case of. 395 gas companies which might well be adopted. Precedents are to be found also in the electrical industry, and the method of dealing with it is found in the Act of 1926, which has frequently been referred to. The Committee which dealt with that Act deserves the admiration of the House. It went into this Matter with minute attention, and it envisaged such a situation as we have here. In Sections 31 and 32 of that Act we have the whole thing placed before us. The consumer is completely safeguarded. We have to ensure that by the introduction of this new Board companies which take its supply do not make excessive profits but will pass them on to the consumer. Everybody is agreed about that. What we are trying to do is to find a way of ensuring it. My right hon. Friend produces a new provision which looks politically very attractive, but it is not necessary. It is window-dressing. Section 31 and 32 of the 1926 Act are by the Schedules incorporated in this Bill. Section 31 says:On a power company commencing to receive a supply of electricity from the Board, the Minister of Transport may revise the maximum prices authorised under the special Act of the company to be charged by the company for supplies, other than supplies in bulk to authorised undertakers, and may revise the standard prices fixed by such Act and on such revision in determining the maximum and standard prices regard shall be had to any change in the cost of electricity to the company attributable to this Act.Is not that completely analogous? Section 32 says:Where any company, being authorised undertakers and not being a power company receive a supply of electricity either directly or indirectly from the Board, the Electricity Commissioners may, if, having regard to any change in the cost of electricity to the company attributable to this Act, they think it expedient, by a special order … make provision as to the relation between the charges to be made for electricity and the dividends to be paid by the company, etc.In the first case we have the consumers' position safeguarded, and in the second we have the assurance that the company is not to make excess profits. What more can we ask, and why bother us with this cumbersome and unworkable Amendment?
If it were all as easy as my hon. Friend seeks to explain it, I would not have moved this Amendment. 396 We are not only dealing with the Grampian Company; we are dealing with authorised undertakers and with local authorities. In the case of local authorities there is no question of dividends.
Surely my right hon. Friend is not going to suggest that the local authorities will take advantage of their position and refuse a reduction to their consumers?
That is what I am trying to explain. We are dealing not only with a company which earns and pays dividends, but with local authorities. We cannot, therefore, get a formula which applies readily equally to these types of producers. It is not so easy to relate any reduction in price to standard dividends. For example, the Grampian Company has, as the Cooper Report stated, been paying on an average only about 3⅘ths per cent., but their standard dividend, fixed by Section 10 of the Scottish Highlands Electricity Supply Order, 1932, is 8 per cent. Are we, therefore, to assume that before any advantage in prices is to be passed on to the consumer in the Grampian area the standard dividend of 8 per cent. is to be paid? If it were all so easy and could be boiled down to a simple formula we would have done it.
I agree that this form is not the last word to be said on the matter. We have had the advice of the Electricity Commissioners and of skilled accountants, and we have discussed it with the Grampian Company and everybody concerned. To the best of our knowledge and belief we can calculate the price at which we supply electricity to an authorised undertaker. There may be differences of opinion and calculation as to the cost at which a like supply of electricity could be produced by authorised undertakings, but we are assured by accountants that that is not impossible. We say that the difference between the cost at which the supply can be produced and the cheaper price at which it can be given ought to be transmitted to the consumers. I am willing in the light of anything that has been said to see between now and the Report stage whether there can be any possible Amendment that would be of advantage. We are all agreed on the principle. The sole point about which we have to make tip our minds is how to get a formula that is more or less watertight and that 397 will apply equally to authorised undertakers and local authorities. We admit the difficulties; we openly announce the difficulties; but we say that this is the best that we have been able to do up to now. We think it is watertight, but we do not guarantee it. It is the best we can do, but if between now and the Report stage we can get anything better, we will certainly get it.
§ Amendment agreed to.
§ Clause, as amended, ordered to stand part of the Bill.