HC Deb 07 July 1999 vol 334 cc1005-12 1.29 pm
Mr. Barry Gardiner (Brent, North)

It is just over a year since I first had occasion to bring to the attention of the House the bullying and anti-competitive practices of Transco, a division of BG plc. I cannot decide whether my hon. Friend the Minister for Energy and Industry is more likely to begin his remarks by saying, "We must stop meeting like this," or with the somewhat less comradely, "Oh no, not you again." In the hope that it will be the former, let me start by bearing some good news.

Two weeks ago, I had the pleasure to stand with my constituent, Mr. Andrew Duffield, outside the High Court, where his solicitors had read a statement in open court announcing that BG plc had made an out-of-court settlement of £101,000 plus costs to Mr. Duffield and to his company, EGS—Exoteric Gas Solutions—in respect of the libel perpetrated against that company, which I had brought to the Minister's attention in last year's debate. That is indeed good news. I take the opportunity to thank him for his close and continuing interest in the case. But for his interest, BG plc might have taken even longer to capitulate. BG plc has deep pockets and it is hard for any impartial observer to do other than believe that it attempted to use its huge financial resources to bully a fledgling business into submission by forcing EGS to incur massive legal costs before settlement of the case.

If all I had to report were good news, however, I would not have presumed to detain the House this afternoon. In fact, I will expose lies and prevarication at the highest level in BG plc and Transco, and what must either be incompetence or a shameless lack of resolve on the part of the supposed regulator in the industry, the Office of Gas Supply.

Beneath all that, I will show that Transco's illegal and anti-competitive practices continue unabated, despite an enforcement order that was issued by Ofgas. Most disturbing of all, I will provide evidence that public safety has been jeopardised by Transco's change in response-time targets and in procedures for handling uncontrolled gas escapes.

I must provide the House with some background. The Gas Act 1986, which was amended in 1995, introduced competition to the business of connecting premises to the mains gas network. Previously, the market had been a monopoly controlled by British Gas-Transco.

In January 1997, Mr. Duffield, who had been a senior manager at Transco, left to set up a specialist gas connection company, EGS, to compete against Transco. Under the Gas Act, Transco is charged with custodianship of the gas mains network and all competitors such as EGS must apply to it for a quotation for the final-stage connection of any new development.

Without that information, EGS cannot provide an accurate quotation to the end customer for the cost of the scheme. For that reason, Transco has a statutory obligation not to abuse its position by delaying a quotation to its competitor to advantage its connections team, which is competing for the direct business. Nor may it over-quote for the final connection to EGS in order to raise the price quoted by EGS to the end customer, thereby making its bid uncompetitive.

It was those statutory obligations that I accused BG plc of ignoring in the debate of 9 June last year. I have a copy of a letter from Mr. Richard Giordano, chairman of BG plc, to Mr. Duffield dated 24 June 1998. It says: I am fully aware of the statements made by Mr. Gardiner M.P. at the Adjournment debate in the House of Commons having received a full transcript from Hansard of the debate including the Minister's reply. BG plc is furnishing the Minister with a statement on the main issues that were raised, a copy of which will be passed to you. That was a lie. Despite three reminder letters, no such statement was ever passed to Mr. Duffield.

I have a copy of an affidavit sworn by Mr. Christopher Lefevre, a director of Transco, in which he deals with the circumstances surrounding the production of the libellous e-mail, the same e-mail in respect of which BG plc has had to pay £101,000 plus costs. That e-mail was headed: BG plc Transco Memorandum from the Area Directors to all Managers of District Operations. In the affidavit, Mr. Lefevre recalls that Phil Nolan, who was then Area Director for East Area, assumed the role of acting Area Director for South Area. Thus, Mr. Nolan, in two capacities, can be said to have sent the e-mail that was from all the area directors.

More than that, in the affidavit, Mr. Lefevre recalls that Phil Nolan asked me to deal with a letter sent by OFGAS". He continues: I had a general discussion about the issue with David Ashbourne, the Manager of Legal Services and decided to issue the e-mail of 27 March 1997 instructing staff not to deal with the Plaintiffs"— that is, EGS.

On 1 September 1997, the same Phil Nolan wrote to Mr. Duffield specifically to confirm: I have issued no such instruction and there are no such instructions to that effect in place. That, too, is a lie. Phil Nolan has since been promoted to become managing director of Transco. Like the chairman of BG plc, Mr. Giordano, he remains in post.

The Minister is aware that, in February, Ofgas finally issued a decision document relating to its investigation of Transco. The document concluded that there have been unacceptable delays in Transco's quotations for connections, that there has been overcharging and that Transco's behaviour is anti-competitive". It goes on to say: There is a likelihood of continuing breaches, if action is not taken", and states unequivocally that information provided by Transco in the course of the investigation has proved to be untrue". At last we have some tough talk from the regulator. It is two years too late perhaps, but, despite the fact that Ofgas stubbornly refuses to interpret the Gas Act as allowing it to punish past action, at least it insists on compliance with statute and the introduction of a system of compensation for any future breaches. The order states: The scheme shall provide as a minimum for payments to be made in such amounts in such circumstances and on such terms as are provided in Attachment 2 to this order. Let us examine attachment 2, which deals with claims for compensation. Paragraph 7, subsection (ii) provides that: If, before the expiry of five working days from the submission of the claim the quotation is adjusted by Transco so that the reason why it was thought to be excessive has been addressed to the reasonable satisfaction of the person who submitted the claim no compensation shall be payable by Transco". That may not pass the crystal clear standard of plain English, but the effect is devastating. It means that Transco has every incentive to continue overcharging in the certain knowledge that, even if it is caught out, all it will need to do is agree to reduce the charge to the proper level within five working days. It will then not have to pay any compensation at all—not even the client's costs of showing that it has overcharged. That is not regulation, but a fraudster's charter.

The case of Mrs. Moyies provides an example of Transco's racketeering and of Ofgas's total ineffectiveness as a regulator. She lived in an area of Cumbernauld that was not supplied from the gas mains. She obtained a quote from Transco to have her home connected at a cost of £2,730.17, an exorbitant sum, but she calculated that, within three years, the savings on her Calor gas bills would have recouped that enormous investment. She borrowed the money and got connected by Transco.

Over the next few weeks, Mrs. Moyies's supply was cut off by Transco as it connected neighbouring properties. Those were connected for £146 per house. When she complained, her Member of Parliament, my hon. Friend the Member for Cumbernauld and Kilsyth (Mrs. McKenna), who is my good friend, took up her case and brought it to the attention of Ofgas and the Gas Consumers Council. Transco insisted that the charge was correct. Mrs. Moyies had to pay for the extension of the mains and it was then permissible for Transco to spur off that extension to neighbouring properties. Neither Ofgas nor the Gas Consumers Council had the expertise to show that Transco had overcharged.

Fortunately for Mrs. Moyies, Mr. Duffield heard of the case on Radio 4's "You and Yours" programme. He was able to demonstrate that Transco had overcharged by 120 per cent. Mrs. Moyies's bill was reduced from £2,730.17 to £1,231.14. Transco had overcharged in accordance with its own statement of charges, which it published and which were provided to the Director General of Ofgas herself.

In a letter of 5 May 1999, some six months after the original complaint to Ofgas, Mr. Graham Boorer, gas distribution engineer of Ofgas, wrote: Transco accepts that the charge was not in accordance with its Condition 5 charging methodology and that it overcharged for the connection. What did Ofgas do? It looked carefully at condition 5 paragraph (7) of the Department of Trade and Industry's standard conditions of public gas transporters' licences, which states: Where a statement in respect of the determination of such charges as are mentioned in paragraph (3) has been furnished to the Director under paragraph (3) or (4) then unless and until it has been superseded by a subsequent statement under paragraph (4), the licensee shall not make such a charge or agree or offer to make such a charge as is so mentioned other than the one determined in accordance with the methods and principles shown therein, unless the Director otherwise consents. Transco made a charge other than the one determined in accordance with the methods and principles shown therein. This was Transco's own statement of charges as mentioned in paragraph (3), which provides: The licensee shall comply with any directions given by the Director to furnish him with a statement showing the methods by which, and the principles on which such charges are to be made.

Ofgas argued that although the statement had been sent by Transco to the Director General of Ofgas, although Transco had published and accepted it as its basis of charging and although it accepted that it had contravened that statement and overcharged Mrs. Moyies, Ofgas could do nothing because the director general had never asked for the statement as per paragraph (3). Of course she had not done so. One does not ask for something that one already has. Ofgas is supposed to be the rottweiler regulating the industry. In fact, it is the industry's lap dog, or more accurately, it is Transco's.

The Ofgas connections steering group has collected statistics from Transco itself, which show that out of 77 responses to inquiries during September and October last year only 57 per cent. were within Transco's own standards. That record is appalling enough, but the strange thing is that it improves so dramatically—to 86 per cent. within standard—if one excludes responses to Mr. Duffield's company EGS.

Only 21 per cent., or one in five, of Transco's responses to EGS were within standard. An objective observer might regard that as clear evidence of blatant discrimination against EGS. Ofgas continues to regard those responses as a series of isolated and unconnected mistakes on the part of Transco.

In a letter dated 25 February 1999, Mr. William Sprigge, Ofgas's legal counsel agrees that: BG has on occasions treated EGS differently to other businesses requesting quotations. However, he is quick to add: Whether this has been deliberate is uncertain. We therefore cannot say that BG has not deliberately treated EGS differently to other businesses requesting quotations; nor can we say that it has. For such a shameless display of fence-sitting, I simply express the wish that all Mr. Sprigge's fences be henceforth topped with razor wire.

Finally, I must make good my claim that there is evidence that Transco has prejudiced public safety by its changes to the procedures for handling gas escapes and the reduction in response time targets for such incidents. Prior to the establishment of Transco in 1994, BG responded to more than 99.99 per cent. of uncontrolled gas escapes within one hour. Since Transco took over, its performance has fluctuated between 97 per cent. and 92 per cent. Given that there are more than 1 million calls a year, that means there are tens of thousands of occasions on which the public has been exposed to a significant danger for longer than would have been the case under the old British Gas company.

In May 1997, Mr. David Varney, BG plc's chief executive, wrote following a challenge at the company's annual general meeting that: concerning the figure of 96 per cent. performance against the applicable regulatory standard of attending uncontrolled gas escapes within one hour, the information, as best we know it, is accurate… In terms of your query as to the former standard of 99 per cent. within one hour, I confirm that we are working to improve performance in this area. However, we are not in a position to disclose information relating to the 1997 target at this time. Changes in response times are not the only adverse changes in safety standards that Transco has introduced. New working practices mean that teams attending uncontrolled gas escapes are often unsupervised. In some cases, the line manager is 100 miles away and yet different workers at the site believe that other members of their team have a supervisory role, which they do not.

I ask the Minister to raise those matters with the Health and Safety Executive and to establish what percentage of responses Transco currently meets within one hour, its current target response figure and the steps that it has taken to ensure proper supervision at the site of uncontrolled escapes and clarity and responsibility among the teams attending.

I said what steps Transco "has taken" because the safety issue is not new to Transco. Indeed, a report was prepared for the area directors of Transco in December 1996 by a senior manager who had particular expertise in the investigation of incidents and the formulation of policies and procedures to minimise the risk of further escapes. That investigation revealed that safety standards had fallen substantially from those inherited in 1994. In particular, the investigation revealed that procedures developed in response to previous incidents had lapsed into disuse. A serious question was raised about whether a single one of Transco's directors possessed the necessary skills and operational experience to carry out the proper review of incident trends.

The original draft of that report caused such a stir that its commissioner, Mr. Lefevre, phoned its author, who was buying a sandwich in his lunch hour. On answering his mobile phone in the supermarket, the author was curtly asked to destroy the report. He refused to do so, but eventually agreed to modify some of the language contained in it. The author of that report, which caused such embarrassment and disquiet to Transco, was of course Mr. Andrew Duffield who had been assigned that as a final project before his departure to set up EGS.

Some people might venture that the extraordinarily poor service that EGS has received from Transco in the past two years—the constant delays in quotation, habitual overcharging, and the refusal to pay the prescribed penalties for statutory breach even where it is admitted that they are due—has been in no small way related to the embarrassment that Transco felt at Mr. Duffield's report on its company safety.

Be that as it may, the fact that Ofgas has either not possessed, or failed to apply, powers to protect Mr. Duffield is just as serious. It must be the concern of all hon. Members that assurances are sought and received from Transco about public safety, that anti-competitive behaviour in the industry is eradicated and that Ofgas begins to take seriously its role in regulating that industry and protecting consumers such as Mrs. Moyies and companies such as EGS.

1.50 pm
The Minister for Energy and Industry (Mr. John Battle)

I thank my hon. Friend the Member for Brent, North (Mr. Gardiner) for raising this matter again and for securing this debate. I welcome the debate; he should not apologise for returning to the matter. It is the role of us all as Members of Parliament to persist in drawing attention to injustices and flaws in the structure of our laws and budgets. He has done so assiduously. He has raised serious matters on behalf of his constituent.

Although the Government do not run energy industries—all the companies operate privately in the marketplace—the gas and electricity industries are subject to competition regulation, to tackle both abusive market power and anti-competitive market practices. The independent regulator—there is now one regulator for the gas and electricity industries—operates within the relevant Acts of Parliament.

When we came into office in 1997, we inherited the Gas Act 1995 and the Electricity Act 1989, which set out the parameters for activities. We decided that, although they were okay as far as they went, they were flawed. We are updating them, and, when we have an opportunity, we shall change them through primary legislation. Indeed, we have already acted to change the terms of operation under the licence conditions.

My hon. Friend asked some detailed questions about the interpretation of conditions of standard. If I cannot reply now to all his points, I shall ensure that he receives a detailed response in a follow-up letter.

The gas and electricity industries occupy a crucial position in the United Kingdom economy, accounting for 2 per cent. of the gross domestic product. They provide essential services to millions of people. Our intention is to ensure that consumers come first and that the regulatory regime reflects that. We accept that the system is far from perfect and have already implemented a better and fairer one, which re-emphasises the consumer.

We issued a Green Paper on the regulation of utilities last spring, which laid the foundations for a better and more efficient regulatory system. We proposed to improve and align gas and electricity regulation under a single energy regulator, to separate electricity distribution and supply, and to provide a new basis for delivering policies to encourage energy efficiency and generation from renewable sources.

In response to our consultation in July 1998, we announced the intention to merge the Office of Electricity Regulation and the Office of Gas Supply. They now fall under a single energy regulator in one body. We also announced that the new regulator should organise the appropriate structure in which all energy industries are regulated. We have made a fresh start, with the appointment of one person to the posts of Director General of Gas Supply and Director General of Electricity Regulation—not least because electricity companies are now selling gas, and gas companies are now selling electricity.

Such a structure needs to be reinforced by law, and, when parliamentary time allows, we shall align the regimes of electricity and gas regulation, which were out of sync under the legislation that we inherited.

We have also taken action to change the rules when they do not work immediately in favour of the customer. As a result of complaints that I as a Minister and many other hon. Members have received about door-step selling, we inserted a marketing clause into the gas suppliers' licence to challenge bad practices and improve them. We intend to use the proposed utilities Bill to sort out regulation at the earliest opportunity.

My hon. Friend has pursued the case of Exoteric Gas Solutions with me and my Department. We have had many meetings and much correspondence on the issue, which was raised in the House in June last year. Following his constituent's complaint, the Office of Gas and Electricity Markets—Ofgem—carried out a thorough investigation into Transco's connections business, and found Transco to be in breach of standard condition 11(1) of its licence and section 9(2) of the Gas Act.

Ofgem consequently made an enforcement order against Transco, requiring it to introduce systems for handling quotations for connections to its pipeline system and to achieve the International Standard Organisation 9001 standard for the systems. Transco also had to introduce a liability scheme for failures to meet standards of service. Ofgas, as it was then, imposed the enforcement order on Transco on—I think—19 February, so things have moved on significantly since last June.

To be in breach of an enforcement order is a serious matter. It is the first time that such an order has been made against Transco. It takes the form of a public notice and the company must take responsibility for it. I know that Transco is taking it very seriously.

I thank my hon. Friend for drawing my attention to the particular case of Mrs. Moyies's connection. I cannot answer it in detail in the House, but I will ask for a thorough investigation of the practice in order to draw out implications for the structure of the entire connections industry.

My hon. Friend mentioned that legislation allows the Director General of Gas Supply to make provision in a final enforcement order for a monetary penalty. In addition, if an enforcement order is made and not complied with, the legislation confers the right of action on persons who suffer loss or damage as a result of that non-compliance, subject to certain defences.

That describes the situation under the regulatory regime that we inherited from the previous Administration. We are considering those arrangements very carefully to see whether improvements can be made for future cases of alleged breach of licence conditions. It may be possible to give the regulator powers to impose monetary penalties that are proportionate to the circumstances for past as well as continuing breaches of licence conditions. I know that that is what my hon. Friend has consistently and persistently campaigned for, and I hope that we can give him some solace in the not too distant future.

Mrs. Linda Gilroy (Plymouth, Sutton)

I congratulate my hon. Friend the Member for Brent, North (Mr. Gardiner) on bringing this important matter before the House and particularly on highlighting the lack of expertise available to assist consumers in pursuing such issues. In the forthcoming utilities Bill, for which we hope, and the follow-up to the review, will my hon. Friend the Minister ensure that the Gas Consumers Council or its successor body has the resources to make such expertise available?

Mr. Battle

My hon. Friend makes an excellent point. She has championed energy consumer councils in her time in the House. In the revised regulation that we hope to introduce under the utilities Bill in the not too distant future, we hope to give consumers a much strengthened voice through the consumer councils. As she said, that means that they ought to have the resources to enable them to do the job well and properly.

I should mention the important question of safety, which is paramount. Under the licence condition, which is tighter than the general condition, a response must be made within one or two hours. I should emphasise that the National Audit Office, a body entirely independent of the Government, published a report on competition in the domestic market on 12 May, and some of its headline points were encouraging.

As we know, prices are down; all suppliers are offering lower tariffs. Customers have a choice; 26 companies are active in the domestic market. Crucially, safety has been maintained and the quality of service to customers has on the whole improved. I shall keep a close eye on safety, although the NAO's report was encouraging and I was heartened by the fact that it was, in the main, so positive.

On the downside, the report pointed out that many customers do not have sufficient knowledge of changing structures. There has been a maelstrom of change since the days of one nationalised gas company. Companies have proliferated, with new entrants to the marketplace as well as the separation of former nationalised industries. People do not know how much the market has changed or know what to expect. It is all right saying that they all have choice, but if they do not know of what, life is made incredibly difficult. There have been complaints of poor selling techniques and lack of information on what to expect. That in turn can drag down quality and performance. I am determined that that shall not happen, and I am sure that the regulator cannot tolerate it either.

I shall look in detail at all the points that my hon. Friend the Member for Brent, North has made. We must consider how we shape the market's regulatory structure for the future. That is precisely the point of our White Paper—

Mr. Deputy Speaker (Sir Alan Haselhurst)

Order.

It being Two o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Sitting suspended, pursuant to Standing Order No. 10 (Wednesday sittings), till half-past Two o'clock.