HC Deb 01 November 1995 vol 265 cc314-20

Lords amendment: No. 14, in page 8, line 27, at end insert— ("(6A) If the holder of a licence under subsection (1) above applies to the Director for a restriction of the licence, or for the revocation of the licence in accordance with any term contained in it, the Director shall, subject to subsection (6) above, accede to the application if he is satisfied that such arrangements have been made as—

  1. (a) will secure continuity of supply for all relevant consumers; and
  2. (b) in the case of each such consumer who is supplied with gas in pursuance of a contract, will secure such continuity on the same terms as nearly as may be as the terms of the contract.
(6B) A person is a relevant consumer for the purposes of subsection (6A) above if—
  1. (a) immediately before the restriction or revocation takes effect, he is being supplied with gas by the holder of the licence; and
  2. (b) in the case of a restriction, his premises are excluded from the licence by the restriction;
and in that subsection 'contract' does not include any contract which, by virtue of paragraph 8 of Schedule 2B to this Act, is deemed to have been made.")

Mr. Eggar

I beg to move, That this House doth agree with the Lords in the said amendment.

Madam Speaker

With this, it will be convenient to discuss also Lords amendment No. 15.

Mr. Battle

We welcome amendment No. 14. It underpins the guarantee of the security of supply, because it provides that, if a supplying company goes bankrupt, it will not be in a position to withdraw the supply until it has found a replacement. That adds some essential protection of consumers, who will not be subject to liquidation and therefore will not have their supply cut off.

I was slightly surprised, when I approached the Bill at a late stage, to find that that amendment was not in the original Bill. Perhaps it should have been on the face of the Bill. It has been added by Lords amendment. I hope that it is welcomed by the Government, as it is welcomed by the Opposition.

Mr. Rowlands

I wish to make a variation on that argument. As I understand it, that amendment will clarify what happens if a licensee decides not to continue to supply, and it clarifies the means by which that termination occurs.

I assumed that the amendment was needed because the Government gave the impression, in some of the early undertakings that we received about competition in gas, that a huge, new, great, wonderful pool of entrepreneurial skill would emerge—that new companies would emerge that are capable of delivering that new competitive gas supply. Inevitably, if there is a new style of supplier, a risk arises that that company may go bust or go into liquidation or run into trouble. I therefore understand the aim of the amendment.

I have read some troubling press reports. We now have an opportunity to ask the Minister to clarify matters. Will he tell us whether some of those reports are accurate? Is it true that the new suppliers are likely to be anything but new entrepreneurial skilful newcomers who will be exciting new players in the gas market? Recent press reports suggest that it will be Amoco Corporation of America, linked with Seeboard plc, the English regional electricity company. It will be BP and the Norwegian Statoil-Den Norske Stats Oljeselskap AS. It will be Total and Texaco Ltd., linked up with Calor Group plc. Those are huge oil moguls, which will dominate the market in supplying domestic gas as much as any of the new entrepreneurial companies of the type against which the amendment was presumably aimed to safeguard consumers.

The Minister should try to give us a flavour of the type of new licensee that he expects to emerge—or is it that, as it appears from press reports, we shall have not a marvellous burgeoning of exciting new gas suppliers but huge new forms of concentrated power? Is it true that oil companies will drill, produce gas and deliver into the households of the United Kingdom? That is not exactly an image of a wonderful new spirit of competition. It is a huge collection of other big barons entering the market to compete with the baron British Gas.

I believe that there is a serious issue as to what image and vision Ministers had when they went down that road of gas competition. I wonder whether the Amocos and the Totals and the Amerada Hesses and so on will reach Merthyr Tydfil and Rhymney—that is why the amendment is important. Who will be the new competitor in our district? I have a horrible, nightmarish feeling that it will be the electricity company—perhaps even the electricity company taken over by the water company. It would be wonderfully rich if one of the consequences in our district was that we had somehow reconcentrated what were public monopolies into combined private monopolies in which the same company delivered gas, electricity and water.

Those questions arise as a result of the pattern or type of new competition that may emerge. Certainly, if that arises, those amendments are unnecessary. However, if it does—if my interest and worry are proved right in the longer term—what would one have achieved if the result is that our water, electricity and gas are supplied by the same big brother, but privatised instead of public?

Mr. Eggar

I deal first with the provenance of the amendment, which is essentially technical. Hon. Members who considered the Bill in Committee will remember that there are in it a number of protections to ensure that a licence is granted not only to financially viable companies but to companies that meet various other criteria set by the director general.

The hon. Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) referred to what he described as a concentration of power. I do not want to get too mischievous in what is, and has always been, a basically friendly debate, but the idea that the Bill will lead to an extra concentration of power is a bit rich, considering that there was previously an absolute monopoly supported by the hon. Gentleman. Under that system, one company bought all the gas produced in the North sea and supplied it to the consumers. The Government were determined to break that monopoly and to introduce competition.

The Bill is an attempt to provide a framework within which different types of competitors can emerge. We are not thinking only of the type of companies to which the hon. Gentleman referred and which have so far publicly announced that they will supply nationally. We wanted to produce a framework within which regional suppliers could emerge. I have always been keen to safeguard opportunities for very localised producers.

Let me describe a scenario that I have in mind and how it can come about under the Bill. Personally, I believe that a major source of gas supply to the United Kingdom will be coal-bed methane. We have to get the technology right but there is no reason why, over a period, we should not be able to produce it competitively, as the United States has managed to do.

Because of the location of the major consumers of gas in the United Kingdom—they have historically been around the coalfields—there is a ready and nearby market for constant supplies of gas which are particularly appropriate to coal-bed methane producers. That might also apply to remoter villages in, for example, South Yorkshire, which are perhaps not on gas supplies but which are near mains gas supply systems and coal-bed methane supplies.

I wanted to provide a framework in which, over time, localised suppliers could emerge, producing for perhaps three or four coal-bed methane wells and supplying to relatively few purchasers. I have never heard it suggested that there were tremendous opportunities in the south Wales coalfields because I have never heard it suggested that there was the same methane availability there as there almost certainly is in other parts of the country.

The hon. Gentleman also asked whether people will want to compete in the valleys. I see absolutely no reason why they should not. I also see no reason why the Bill's provisions should not make it easier for communities that are not already on gas to be put on gas. There will be an average reduction in the price of supply.

Mr. Rowlands

I am grateful to the Minister for the thoughtful way in which he has replied. However, I do not think that it would be much of an achievement if the overall effect is that the alternative supplier turns out to be our electricity company. Is that the type of company that the Minister envisages as British Gas's main competitor in areas such as mine?

Mr. Eggar

It is probable that in most parts of the country the relevant regional electricity supplier will want to be able to supply gas. How successful and competitive it will be is another matter, but the huge advantage from the hon. Gentleman's constituents' point of view is that they will no longer have to buy from just one supplier. Whatever the alternative or alternatives—incidentally, I think that there will be more than one alternative to British Gas—consumers will have a choice. The history of competition is that it drives down prices and improves the quality of service because it is only when that happens that consumers can be persuaded to move from existing suppliers. Whoever British Gas's competitors are, the hon. Gentleman's constituents are likely to benefit.

Mr. Michael Connarty (Falkirk, East)

I completed an Industry and Parliament Trust fellowship with British Gas, and therefore took a self-denying ordinance and did not seek to serve on the Committee scrutinising the Bill. I can assure the Minister, however, that much of the drive for competition came from British Gas, which felt that it would get the regulator off its back and that a free-for-all would ensue.

As a former graduate of the dismal science of economics, I am reminded of the fact that all capitalist endeavour tends towards monopoly. My hon. Friend the Member for Merthyr Tydfil and Rhymney (Mr. Rowlands) was right about the small regional monopolies that will emerge as competitors, just as they have in the water and electricity industries. I cannot envisage many people making large amounts of money from, according to the Minister's vision, extracting methane, although I hope that some will take that technology forward.

4.15 pm

The Lords amendment has to do with the holder of a licence applying to have that licence restricted. The worry is that, when the licences are drawn up, there will be profitable, cherry-picking areas and also areas of marginal profit—for instance, when I was studying British Gas, a decision was taken not to run the pipeline to Gretna all the way across the border to the north of England, because it was thought that that would be a loss-making venture compared with a pipeline direct to Gretna. The same sort of scenario will recur with these monopolies. Some people will be supplied with gas; many more will be left aspiring to be supplied with it.

My worry is that people will apply to remove from their licences areas that are not currently being supplied—and that would be allowed, because the amendment stipulates only that a person is a relevant consumer under the new section 6(B) if immediately before the restriction or revocation takes effect, he is being supplied with gas by the holder of the licence". So people whose homes are not on the pipeline may be excluded from the licence holder's area and will never be connected. To change the licence, another supplier would have to be found. So many areas of Britain, under competition, will not be linked up, because all the competition will be about making money out of buying and then selling gas to end users. The companies will continually try to make profits from their regional monopolies, not to serve the needs of consumers.

Thus, although the Government laud competition, the chances of people in the remoter parts of the United Kingdom getting a gas supply will diminish with this Bill, even if it includes the Lords amendment.

Mr. Eggar

I am keen to be helpful. Two distinct issues are involved here. First, will customers already connected to a gas supply benefit from competition; and will there be more connections? All the evidence so far is that competition will lead to reduced prices and improved standards of service and choice for consumers. Once people are linked up to the gas system, there will be no difference resulting from the Bill. The right to withdraw from the market is carefully circumscribed, and the interests of the consumer as regards supply are protected.

The other issue concerns whether people and enterprises not currently linked up to a gas supply will have a better or worse chance of being linked up as a result of the Bill. I strongly believe that their chances will be improved, for a number of good reasons. The first is that, under the Gas Act 1986, it was in practice impossible for British Gas to spread the charge of initial connection over a period. If householders have to pay as much as £1,300 for connection, and have to buy boilers and so on on top of that, that will represent a considerable outlay. So that was a negative factor, which will be removed once this Bill gets Royal Assent.

Secondly, it will be open to any competing transporter to link with the main gas supply, having regard, of course, to safety considerations. It may well be that competitors will be able to lay the necessary pipes at a lower cost than British Gas and therefore make things possible that would not otherwise be possible. Thirdly, individual householders will have the right, again subject to safety provisions, to link their properties—trenches will have to be dug and pipes laid, for example—directly with the nearest supply.

For all these reasons, I think that it is likely that more connections to the gas supply will take place when the Bill is enacted. There is some evidence to support that. For example, under the 1986 legislation, competitors may compete to supply gas to certain new developments. There is some evidence that British Gas's competitors have been able to supply such developments at a cheaper price and have won some contracts.

The Bill will help our constituents rather than harm their interests and meet the concerns to which the hon. Gentleman has drawn attention.

Lords amendment agreed to.

Lords amendment No. 15 agreed to.

Lords amendment: No. 16, in page 8, line 38, leave out from ("no") to ("before") in line 39 and insert ("domestic supply licence shall authorise the supply of gas to any premises")

Motion made, and Question proposed, That this House doth agree with the Lords in the said amendment.—[Mr. Eggar.]

Madam Speaker

With this, it will be convenient to discuss also Lords amendments Nos. 17 to 21.

Mr. Rowlands

I wish to know more about the context in which the amendments have been tabled. The Government have supplied helpful notes on the amendments, and I thank them for so doing. It would seem that, during the introduction of pilot areas, before there is full competition after 1998, there can be monopoly suppliers. A monopoly supplier can be British Gas or any authorised licensee. British Gas is to assume the responsibility of being a monopoly supplier in most of Britain between now and 1998, yet the director general, Miss Spottiswoode, has made the extraordinary statement that British Gas's future is in considerable doubt because of long-term North sea contracts that have tied it to high prices.

Perhaps the Minister will comment on the plight, as it were, of British Gas—I hold no brief for British Gas, and the Minister knows that I was a great supporter of Sir James McKinnon during the earlier part of his regulatory activities—as a result of entering into long-term contracts when it was a monopoly supplier. After all, it had a statutory responsibility to deliver a secure supply. It was willing to pay quite high prices because it expected to be the supplier for the next 20 years and beyond and responsible for domestic gas supply. That is the context in which some long-term contracts were entered into.

There are questions to be asked. Miss Spottiswoode caused more than a flutter in the dovecote when she commented on the future of British Gas if long-term contracts remained around BG's neck at the end of 1998. We know that British Gas will be the monopoly supplier throughout most of the United Kingdom between now and the end of 1998.

It is reasonable to ask the Minister how he thinks that any difficulties might be resolved bearing in mind the shadow that hangs over the future operations of British Gas because of the long-term contracts to which I have referred. Does he share Miss Spottiswoode's view that the survival of British Gas is in doubt given the structure of the Bill and long-term contracts? As I have said, it had a statutory role to play, a role different from that which it will play in future years.

Mr. Eggar

I could not help but smile when the hon. Gentleman said that he holds no brief for British Gas. I remember when he was No. 2 to the now noble Lord Owen on the Labour Front Bench, and he did indeed read out a brief that was provided to him by Sir Denis Rooke, who at that time was the chief executive of British Gas, in order, as he saw it of course, to demolish a point that I was trying to make from the Conservative Back Benches. If the hon. Gentleman casts his mind back, he will see that from time to time there has been a slight liaison between himself and British Gas.

The main justification of the amendment is, of course, to clarify the drafting. It is also to deal with an anomaly that has arisen. As I mentioned earlier, there are already provisions for suppliers other than British Gas to supply consumers, and they are fairly limited; they are for new developments. As originally drafted, the Bill would have made it impossible for those developments to be supplied with gas. That is the background for the clarification.

My next point is a more general one about comments made, and which I have read, by the director general in the newspapers. I have made it clear on a number of occasions, going back a considerable number of months, and it is now widely accepted, that the contractual arrangements for gas purchases entered into by British Gas, in the context of the monopoly industry, are not appropriate for the new competitive world. It is therefore both inevitable and desirable that some degree of contract renegotiation should take place. I see that renegotiation as a matter to be pursued commercially between British Gas and the other companies involved. I understand that some preliminary discussions have taken place, and I shall continue to follow developments closely. It would not be appropriate at this stage for the Government to intervene.

The hon. Gentleman mentioned the director general's alleged concern about the financial health of British Gas. The director general made it clear that there was no immediate threat to British Gas. She was at pains, I believe, to point out that it is her responsibility as director general, under her statutory duties, to consider all possibilities, however remote they are. These renegotiation discussions are important and I have no difficulty with the director general drawing attention to the importance of the negotiations. I note that British Gas has also welcomed the fact that she had done so. I hope that that assists the hon. Gentleman.

Lords amendment agreed to.

Lords amendments Nos. 17 to 68 agreed to.

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