CHARGES FOR PURCHASES BY ELECTRICITY BOARDS (Hansard, 8 March 1983)

§ Mr. John Moore
I beg to move amendment No. 4, in page 5, line 3, leave out 'purchases' and insert 'a purchase'.

§ Mr. Speaker
With this we may take Government amendments Nos. 5 to 9.

§ Mr. Moore
These are amendments to clauses 7 and 8 which deal with prices and charges. Clause 7 is concerned with tariffs and prices for the purchase of privately generated electricity. Clause 8 deals with tariffs and charges for the use of electricity boards' transmission and distribution systems. Those are the key financial clauses of the Bill.
We had a thorough discussion of the rather complicated issues in Committee and I promised to table amendments on Report to clarify and refine the expression in the Bill of the relevant economic principles. The fundamental principle is that electricity boards' dealings with private generators should not result in higher electricity prices to consumers generally.
I shall briefly explain the intention of the present amendments and deal first with tariffs and prices for the purchase of privately generated electricity. The key principle here is that the prices paid should be based on an electricity board's avoidable costs at the margin. Three of the detailed amendments are intended to clarify this principle. The most important is amendment No. 7, which introduces a new paragraph (b) to clause 7(3). This stipulates that the purchase by an electricity board of privately generated electricity should be on terms that reflect the costs that would be incurred by the board but for the purchase.
Two other amendments, Nos. 4 and 5, effect drafting changes that help emphasise that the approach is to be concerned with what happens on the margin. A further change that we believe to be necessary on purchase terms for privately generated electricity is related to the effect 784 that such purchases may have upon electricity prices generally. We envisage the possibility that purchasing privately generated electricity may, over time, enable the board to lower prices to consumers because it has been able to scrap old, high-cost plant earlier than would otherwise have been the case. It is, therefore, appropriate, in recognising this potential benefit, to delete the condition in the existing clause 7(3) that a purchase of privately generated electricity should not reduce prices to consumers, which is the basis for amendment No. 6. Nevertheless, private generators will receive the full value of their electricity sold to the board because of the provision that prices paid must reflect the cost that would have been incurred by the board but for the purchase, as I have explained.
The second element that needs to be refined is the return that the electricity board may seek from its assets used to meet a private generator's request either for the board to purchase his electricity or to use the board's transmission and distribution system. At present the Bill provides for boards to seek a payment for the use of these assets no greater than sufficient to provide a return comparable to the return received by the board on its assets generally.
Electricity boards have a variety of assets used for different purposes. Some of these yield a return higher than the board's past average return on its assets overall while others, although essential to maintain services to the consumers, in practice yield a lower rate of return. We believe that it would be right to relate the return that boards may seek to obtain from assets used to meet a private generator's requirements to the return that the board would expect to receive if it were employing the assets wholly for its own purposes. The intention, therefore, is to make a like-to-like comparison.
Amendments Nos. 8 and 9 to clauses 7 and 8 respectively are intended to achieve this aim. Instead of comparison being made with the return received by the board's assets generally, comparisons will be made with the return that the board expects to receive on comparable assets. These amendments to clauses 7 and 8 are intended to clarify the principles on which prices and charges are to be set by electricity boards in their dealings with private generators. It will help to ensure fairness to private generators as well as to consumers generally and I commend the amendments to the House.