HC Deb 08 March 1983 vol 38 cc746-52

`Notwithstanding any other section, the Secretary of State shall make such regulations as he thinks fit for the purpose of ensuring that operational control of the system of supply of all electricity using the integrated national network remains vested in, and exercised by the electricity boards in order that they may carry out an efficient, safe and economical distribution of the supply of electricity.'.—[Mr. John Smith.]

Brought up, and read the First time.

Mr. John Smith

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this it will be convenient to take the following: new clause 10—Operational control of the System of Supply— `Notwithstanding the provisions of any other section of this Act, the Secretary of State shall make regulations for the purpose of ensuring that operational control of the system of supply of all electricity using the integrated national network remains vested in and exercised by the Electricity Boards to ensure that they carry out an efficient and economical distribution of the supply of electricity to persons in their area who require it.'. Government amendment No. 3.

6.30 pm
Mr. Smith

Because of the importance of Government amendment No. 3, which is grouped with the new clause, I do not think that the debate will take long.

When this Bill was first considered in the House on Second Reading, and during the Committee stage, it was pointed out repeatedly by members of the Opposition that to introduce private sector generation electricity into the public electricity supply system could create severe problems for that system, which had been built up over the years and was highly sophisticated. Anyone who has watched it in operation or has gone to see the national grid centre will realise the sophistication that is applied to its administration. To bring in, as this Bill does, the capacity for private sector generation, to give the private sector generator the right to come in to the public system and to put an obligation on the public system to take from him the electricity that he generates and transmit it for him, seems to us to create very severe problems. These were discussed in detail, almost relentlessly, in Committee, and eventually the Government were forced to come to terms with the reality of the circumstances of the industry.

The idea behind this Bill was to privatise electricity production if at all possible, but they have come up against the great difficulty that it is extremely hard to do so. They have had to go in for all sorts of devices, including making the public sector boards the guaranteed market for the private sector generator. Eventually, however, after a lot of argument and a lot of pressure in Committee, the Government seemed to us to concede quite an important principle.

We sought to put that principle into new clauses 6 and 10, but it appears to me to be largely, if not totally, covered by Government amendment No. 3. This means, as I understand it, that when electricity boards are discussing with the private generator the arrangement that is to exist between them they can include terms and conditions to secure control by the electricity board of the operation of the electricity supply system. There is written into the statute protection against impairment of the integrity of the electricity supply system. That is something that we fought very hard for in the Committee and I am very glad that it has been achieved through the concession that the Government have made in the amendment.

It is a great pity that a similar sense of realism was not introduced into the proceedings on the Oil and Gas (Enterprise) Act, in which my hon. Friend the Member for Merthyr Tydfil (Mr. Rowlands) took a notable and prominent part. Had we got a realistic acceptance of the facts of life such as is contained in Government amendment No. 3, incorporated into the Oil and Gas (Enterprise) Act, we would have made a better job of it.

I am sorry that we need to have this Bill and the prospect of private sector generation of electricity, which is pretty farcical at the best of times.

The Secretary of State for Energy (Mr. Nigel Lawson)

It has been there for years.

Mr. Smith

It has been there in a very modified form for years. I am seeking to reply to the Secretary of State, who has wandered in at last to listen to the proceedings on this Bill, which stands in his name. He has managed to avoid most of the proceedings, but I suppose I am obliged to comment on his sedentary interruptions and my comment on that last one is that it was very minimal in character and the Government have never given a very good reason why circumstances have so changed that now private sector generation of electricity is a desirable thing. I fear that the motivation is highly political and ideological and has a lot to do with the Secretary of State's desire to be in favour with the Prime Minister and to have on his report card "Very good" under the section of privatisation. He has privatised everything that he can lay his hands on.

The difficulty with all these privatisation schemes is that they collide with the realities of life. I am very glad that one reality has been collided with in the sense that the Government have accepted the importance of maintaining the integrity of the electricity supply system. Although we do not think that amendment No. 3 is perfect, I certainly claim it as a very important victory for the Opposition in bringing the Government to terms with the realities of life.

Dr. J. Dickson Mabon

I naturally associate myself with what the right hon. Gentleman has just said about the efforts of all of us in the Committee dealing with this matter. We have the testimony of the columns and columns of contributions on this matter.

Let us look at Government amendment No. 3, because that is what we are going to accept even though technically we are discussing these two new clauses. I imagine that they will not be persisted with and that Government amendment No. 3 will be the one pressed upon us. It is a very good one and I think that the Government ought to get the credit for seeing the sense of putting something like this on the amendment paper and including it in the Bill. I know that Ministers have protested that it was never otherwise and that this amendment is a clarification of their intentions. Many people outside the Committee were quite distressed that the Bill might be left as it was without this clarification.

After all, however, this issue is only about the operation of the supply system. It is not, as I understand it—I am open to correction—dealing here with the argument referred to by the right hon. Member for Lanarkshire, North (Mr. Smith) on the parallel with the provisions of the Oil and Gas (Enterprise) Act. We were talking about the parallel with the participation agreements and the example given to us in the Oil and Gas (Enterprise) Act. If we had this new clause and some explanation on the question of the additional costs, if any—we are told that there are none, in effect, on balance—to the public system through the attachment of these private generators, we might go back and look at the Oil and Gas (Enterprise) Act and consider whether we should have better systems of tariffs for the gas being carried from the North sea within the gas grid system. Perhaps that is not strictly in order, however, although I see that the Secretary of State is anxious to intervene and argue this all over again.

This amendment is about the operation of the system. We had a very elaborate and enlightening explanation from the CEGB as to how the system is worked and how it brings in stations on a merit order. That was explained outside the Committee. This amendment, I understand, is addressing itself to that point. We remember the letter from John Lyons, which was of considerable length and was read out in the Committee. He argued the case that the system could be seriously embarrassed. This is clarified by amendment No. 3.

When the Minister is refuting the new clause—which will be easy—or commending the Government amendment—although I suspect that he will just formally move that, and perhaps he ought to take the opportunity now—I should like to know what happened to the argument about the tariffs, the no-profit, no-loss argument. The Minister went to considerable lengths in the Committee to assure us about this but I do not recognise on the amendment paper anything that is a companion to Government amendment 3 in this regard. I take it that that is the end of the story. Perhaps the Minister will confirm that. We will simply rest on ministerial assurances with regard to the financial side of this as distinct from the operational side.

The amendment is a tribute to the House of Commons and the way hon. Members argue their case in Committee, to the persistence of individual Members in representing the interests of people outside, and to the reasonableness of Ministers in recognising that there is genuine concern here that ought to be met in some way in the statute. I think that this is what the Government are trying to do and I commend them for it.

Mr. Deputy Speaker

Perhaps I should just make it clear, in view of what the right hon. Member has said, that we are discussing new clause 6, new clause 10 and Government amendment No. 3. They can all be discussed together. In due course we shall get to Government amendment 3 and I shall invite the Minister to move it formally.

Mr. John Spellar

I listened with interest to the comments of the right hon. Member for Greenock and Port Glasgow (Dr. Mabon) about the many columns in the Official Report of the Committee proceedings, although I doubt whether many of them report contributions from the right hon. Gentleman, which would be difficult in view of his great distance from this place when he chose not to participate in the Committee proceedings.

Dr. Mabon

That is thoroughly unfair. I missed one morning sitting of the Committee and it did not relate to this matter. The hon. Gentleman must do me justice.

Mr. Spellar

We shall have to examine the record to see whether the injustice is as great as the right hon. Gentleman suggests.

My right hon. Friend the Member for Lanarkshire, North (Mr. Smith) spoke of the differences between the Bill and the Oil and Gas (Enterprise) Act. Interestingly, we heard a great deal about that Act in the early part of the Committee but much less in the later part. That may have been due to the change of Minister and the more positive attitude of the Government to our representations thereafter. I hope that I have not done the Minister a disservice by mentioning that.

Like my right hon. Friend the Member for Lanarkshire, North, I am pleased that the Government have made this move with amendment No. 3. There was a significant change in attitude after most of the members of the Committee had visited the Bankside national grid switching centre and seen the great complexity of the operations and the dedication and technical sophistication of the staff. I believe that that experience had a major impact on the views of hon. Members on both sides of the Committee about the practicability of operating the scheme without taking into account the operation at Bankside and the work of the national grid.

Two aspects of amendment No. 3 require amplification. The first is the technical integrity of the grid system—the balancing of power supplies, the maintenance of the correct cycles and the health and safety aspects. Correct power loads must be maintained at all times so that machinery is not damaged and works at the highest efficiency. That area is clear and is almost certainly covered by amendment No. 3, although further clarification would be helpful.

The second aspect is that of merit order—bringing in stations according to the relative cost of the electricity that they produce, and the central control in bringing those stations on stream and into the system at a particular time. It is possible to run the national grid system by balancing supply without the considerations of merit order set out in John Lyons' letter about the financial contributions involved and the cost of the electricity. The question of merit order is important for the morale of the staff who year by year have managed to push up the thermal efficiency of the overall electricity supply system and to run a very effective and efficient system. I hope that the Minister will amplify this and confirm that amendment No. 3 will apply not only to maintenance of the technical integrity of the system but to the merit order system that has had such highly beneficial results not just for the industry but for the consumer.

Mr. Palmer

I shall be brief, as the Government have made an extremely important concession which goes to the heart of the Bill. I am glad that the Secretary of State for Energy is here for a while. He said from a sedentary position that there had been private electricity generation for a very long time. That is perfectly true. The original nationalisation Act of 1947 did not attempt to interfere with private generation when it was part of a normal industrial process.

6.45 pm

Interestingly, however, there is considerably less private generation today than there was 10 years ago Indeed, I dealt with this in an article. The amount of private generation has been shrinking constantly. If private generation as part of a general industrial process were that much more efficient, one would expect the proportion to increase, but the reverse has been the case. There is no mystery about that. It is not a matter of ideology. The electricity boards and the CEGB are specialists in generation, so they can produce electricity more cheaply than the average private generator. There is nothing new about the savings that come from specialisation. The latest example is the decision of London Transport to close its two stations at Lots road and Greenwich because it is cheaper to obtain its electricity supply entirely from the national grid. That is surely the correct test and adequately answers the Secretary of State's muttering from a seated position.

Two main changes are being brought about in the Bill. First, the boards must link the private generators to the system. That decision is no longer a commercial matter. Secondly, private generators have a right to use the public network to supply private industrial consumers or others. The efficiency of achieving that at minimum cost has always depended on the operating circumstances. In other words, the boards should not have to take a high-cost supply at a time inconvenient to them from the merit order point of view. As a result of the Government's acceptance of merit order as the determinant, as I hope it will be, the tariff arrangements will be very different. This is part of the answer to the point made by the right hon. Member for Greenock and Port Glasgow. Electricity is not sold like little apples. Very often, it is sold according to the time of day. At peak times, electricity units are almost worth their weight in gold, but they are a glut on the market at 3 am on a warm June night. Thus, the operation order is the key not just to the integrity of the system but to pricing. Nevertheless, it would be less than generous of me if I did not thank the Government for making the change. Reality seems to be breaking through at every stage of the Bill, and that is all to the good.

Mr. Gray

I announced in Committee our intention to introduce a Government amendment to ensure that electricity boards retain operational control of their supply systems"—[Official Report, Standing Committee G, 1 February 1983; c. 345.] when responding to requests from private generators. We have now had detailed discussions with the Electricity Council about the exact wording and I am satisfied that amendment No. 3 affords the necessary protection. Due to the time taken in consulting the industry, we were not able to table our amendment before the Opposition new clauses were tabled but I am glad that, having seen our amendment, which has been agreed with the Electricity Council, the Opposition feel that we have met their very, reasonable concerns, although we have used a different approach to the mechanism for doing so.

I readily respond to the comments of the right hon. Members for Greenock and Port Glasgow (Dr. Mabon) and for Lanarkshire, North (Mr. Smith) that this was an example of the House of Commons doing its work properly. This has been achieved by argument and persuasion and does the Committee credit. I pay my respects to the Opposition for the constructive way in which they approached this part of the Bill. I shall not flatter them too much because on other parts of the Bill they were not perhaps so constructive. However, slowly and surely persuasion may bring them to our way of thinking.

The amendment makes an addition to clause 5 and requires that an offer made by a board in response to a request from a private generator should include any reasonable terms and conditions which the board may consider necessary for it to retain control of the electricity supply system. The amendment is directed at the boards' ability to operate minute-by-minute control so that they can maintain constant supplies to consumers. It does not affect the boards' duty to respond to a private generator's request under clause 5 to provide supplies of electricity or permit him to use the transmission and distribution system, except on this minute-by-minute basis, nor does it affect the financial terms that will be offered to a private generator for the purchase of his electricity, which are governed by clause 7.

The private generator or supplier will be required to conform with reasonable terms and conditions made by the board to ensure the continued safe and efficient operation of the system and thereby the regular supply of electricity to consumers generally. The boards have, of course, statutory obligations to give a constant supply and maintain frequency and voltage. The amendment will help avoid any conflict between these obligations and those towards private generators.

Mr. Palmer

Surely the boards will have some say about the time within the 24 hours that the private generator comes on to the system. The board will not be obliged to take high-cost units when it can get cheaper units from its own sources of generation.

Mr. Gray

I should have continued a little longer before I gave way, because I am about to deal with the point that worries the hon. Gentleman.

The terms and conditions which a board may impose could include the timing of taking a private generator's supply into the board's system. In the case of a purchase from a large private station by the CEGB, the private generator may have to take his place in the merit order of generating stations. That is the point that concerned the hon. Members for Bristol, North-West (Mr. Palmer) and for Birmingham, Northfield (Mr. Spellar).

We believe that the amendment offers boards necessary protection and, unlike the amendment proposed by the Opposition, allows the boards to decide what terms and conditions are desirable in each case. We believe that to be important. It should not serve as a deterrent to private generators. The clause already allows boards to impose reasonable terms and conditions. The amendment removes any doubt about whether the terms and conditions could include those relating to operational control. If a private generator considered that any term or condition was unreasonable, he would have access to arbitration under clause 9.

I am sure that all right hon. and hon. Members will welcome the amendment, and I commend it to the House.

Dr. Mabon

When the amendment mentions terms, does that include tariffs?

Mr. Gray

No.

Mr. John Smith

In view of the turn of events and the concession made by the Government, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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