HL Deb 24 February 2004 vol 658 cc55-114GC

(Ninth Day)

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Viscount Allenby of Megiddo) in the Chair.]

The Deputy Chairman of Committees (Viscount Allenby of Megiddo)

Before we commence business, the noble Baroness, Lady Miller of Hendon, wishes to speak.

Baroness Miller of Hendon

Simply for clarification, I had given notice to the Minister's office that I would ask him today whether there had been any progress in its investigations regarding the pressure that we felt had been put on some suppliers in giving us advice. I have had a very satisfactory answer from the Minister, which is that the Committee will get the full answer next Monday. I have not had any response, but I am quite content, as I am sure the Committee will be, to leave the matter until next Monday.

I wish to raise another point, which the Minister may feel he is not in a position to answer today, in which case he can do so on Monday, if he so wishes. During the eighth Committee sitting, on 12 February, the noble Lord, Lord Davies of Oldham, made a statement—that is fine. However, we were concerned that on the following Saturday a newspaper reported Sir John Mogg, the chairman of Ofgem, as saying that he heard those statements with regret, and that they were very misguided. We thought that that was quite a strong word to use about something that the Government were doing. Do the Government have any comments on that, or would they prefer to comment later, when they have looked into the matter themselves?

Lord Jenkin of Roding

No doubt Ministers will respond to my noble friend's first point, but I wish to comment on the second one. I have had a good deal to do with regulators over the years and was the Minister who published the White Paper that led to the creation of Oftel, the first of the new-style regulators. I cannot remember an occasion since then when there has been quite such an open, blatant disagreement between a regulator and a department of state. My noble friend said that Ofgem used fairly strong language, which it is. Sir John Mogg said: To amend the Energy Bill in this way is unnecessary and misguided". He went on to explain why.

No doubt we will come to the matter when we debate the amendment, which I understand is to be moved on Report, to fulfil the undertaking given to the Grand Committee on 12 February about new subsidies for the transmission of offshore electricity. I do not know whether Ministers wish to comment on a row that has been very public and, I should have thought, very damaging to them.

The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty)

The row may have been very public, but until I came into the Room I was not aware of it. Clearly, I need to consult my officials and those in the DTI to see quite what Sir John felt was out of order. We have indicated which amendments we propose to bring back, which I cannot think Sir John would have found unhelpful, but we shall see what he was talking about. I certainly do not think that we are in the midst of a major row between Ministers and the chair of Ofgem. I shall leave the matter until Monday, as the noble Baroness suggests, and come back with a full account to the Committee.

Clause 106 [Power to modify licence conditions]:

[Amendments Nos. 115 and 115A not moved.]

Clause 106 agreed to.

Lord Jenkin of Roding moved Amendment No. 116: After Clause 106, insert the following new clause—


The Authority shall, within 6 months after the passing of this Act, review the rules about the use of pre-payment meters in order, among other matters, to determine whether it would be desirable to allow suppliers to offer concessionary energy packages to the users of such pre-payment meters."

The noble Lord said: With the amendment, we are discussing Amendment No. 132C. Perhaps I should say at the outset that my remarks will be primarily addressed to Amendment No. 132C, as we believe that it would more properly reflect the desires of those who wish to see changes in relation to pre-payment meters than Amendment No. 116. I hope that that will meet with the approval of the Committee.

Amendment No. 132C proposes to amend the Gas Act 1986 and the Electricity Act 1989 to allow the current restriction on the use of pre-payment meters to be relaxed or even removed where that would be in the consumer's interest and more consistent with the Government's overall social and environmental objectives for the energy sector. At the moment, it is not open to a supplier to extend to those who have pre-payment meters any of the special deals or arrangements that can be made in favour of normal gas and electricity consumers.

The ability of energy suppliers to provide a wider range of service through modern pre-payment meters is hindered by current statutory restrictions which prevent arrangements that would be beneficial to customers from being introduced. That stems from the Utilities Act 2000, which amended both gas and electricity legislation so that each industry is now permitted to use a pre-payment meter only to recover its own supply charges.

At the time, that was welcomed by the consumer bodies but now, nearly four years later, it is widely recognised as too sweeping to work effectively in customers' interests. In particular, it prevents the provision of combined energy service and supply packages to those customers who have pre-payment meters. Surely it is within the experience of noble Lords throughout the Committee that, on the whole, pre-payment meters are used by those of limited resources, sometimes at their own choice and sometimes because that is felt to be the best way to ensure that the customer will actually pay for the gas or electricity that he uses.

There are two main reasons for looking for a change. Research has shown that a great many electricity pre-payment meter users are not in debt and not in fuel poverty but choose that method of payment for their convenience and for ease of budgeting. One can understand that. For people whose lives are mainly based round the use of cash, a pre-payment meter is one way of making sure that they will not go into debt for the supply of gas or electricity. Therefore, people who like to budget in cash are especially likely to benefit from energy packages.

The second reason is that, although fuel-poor consumers may in general be expected to qualify for free energy-efficiency improvement under the Warm Front or priority EEC schemes, either some such customers on pre-payment meters may fall outside the qualifying criteria or the energy package may not fall within the scheme. Again, it may well be in the customer's interest to allow payment for such services through the meter.

The current restrictions could therefore distort consumer choice and prevent the energy services market reaching its full potential. I would regard that as a missed opportunity, particularly given the forthcoming pilot agreed by the energy services working group, led by the Minister's department, to suspend the 28-day rule in relation to combined energy services offered under domestic supply contracts.

There may well be other broadenings of the use of pre-payment meters that would be in the consumer's interest. For example, when customers with pre-payment debt move to new premises they often ask the industry to put the existing debt on the new meter. In such cases the industry is currently required to refuse the request and to seek payment by other means. I can well understand that this may be confusing and inconvenient for the customer. Consideration should therefore be given to whether, when a customer requests the transfer of a debt, this should be allowed.

I started from the proposition that it is wrong in principle that innovation should be forbidden by law, without any possibility of exception, where that would be in the consumer's interest. A more positive framework would be consistent with the Government's social and environmental objectives for the energy sector. To repeal the restrictions outright is one solution. However, Amendment No. 132C adopts a more politically acceptable approach—that is, a simple regulation-making power for Ofgem, with the Secretary of State's consent, to relax or remove the constraint, with the detail to be settled after consultation. This could be achieved by adding the words in the amendment to the end of paragraph 12(2) of Schedule 7 to the Electricity Act. That is one way of doing it.

I have been given to understand that Ministers may be sympathetic to an amendment along these lines. I say straightaway that the amendment is not drafted in a form which the Minister could accept today. However, it would be extremely helpful if the Minister who is to respond could give an indication of whether such a relaxation of the restrictions currently imposed on those who have pre-payment could be lifted. I beg to move.

Lord Ezra

I support the amendment so clearly moved by the noble Lord, Lord Jenkin of Roding. It seems wrong that those on pre-payment meters should be prevented by law, as matters now stand, from benefiting from the various energy packages which, in other legislation, have been stimulated by government in order to achieve government objectives. Bearing in mind the wide range of people who use pre-payment meters for various reasons, as the noble Lord, Lord Jenkin, pointed out, this should be put right and the noble Lord has tabled an amendment for so doing. It may or may not have the correct wording, but I fully endorse the principle behind it.

Baroness Miller of Hendon

My name is also on the amendment. It is totally unnecessary for me to add anything to the clarity with which my noble friend Lord Jenkin moved the amendment and the extra words added by the noble Lord, Lord Ezra.

Lord Whitty

As I understand the noble Lord, Lord Jenkin, he will withdraw Amendment No. 116 in favour of Amendment No. 132C, which gives the power to propose, consult and in due course regulate on an extension of the range of debt that can be collected from a pre-payment meter. At the moment there is a little flexibility in that any proposed regulations will be subject to the approval of the Secretary of State.

Clearly there are a number of inflexibilities in the present system which the amendment may well address, and there is no particularly good reason for maintaining the block on it. The noble Lord is right to say that we have considerable sympathy with what he is trying to achieve. Whether this is the best way in which to achieve it I will leave to the Committee to explore between now and subsequent stages. However, it is the Government's intention to bring forward an amendment to deliver what all noble Lords who have spoken are seeking to achieve with Amendment No. 132C.

3.45 p.m.

Lord Jenkin of Roding

We have started off on an extremely co-operative note; I hope that it will be maintained for the rest of today. I am grateful for what the noble Lord, Lord Whitty, has said. We look forward to seeing the amendment that the Government will bring forward on Report. In the mean time, I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Miller of Hendon moved Amendment No. 116A: After Clause 106, insert the following new clause—


After section 15A (licence modifications relating to new electricity trading arrangements) of the 1989 Act insert—


(1) The Secretary of State may, in accordance with this section, modify the conditions of licences of the type mentioned in subsection (1)(d) of section 6 for the purpose of introducing or implementing arrangements for the prevention of certain breaches of the renewables obligation by the licence holders.

(2) Before making modifications under this section, the Secretary of State shall consult the holder of any licence being modified and such other persons as he deems appropriate.

(3) Any consultation undertaken by the Secretary of State before the commencement of this section shall be effective, for the purposes of subsection (1), as if undertaken after that commencement.

(4) Where the standard conditions of licences are modified under subsection (1), the Secretary of State shall make the same modifications of the standard conditions for the purposes of their incorporation in licences of that type granted after that time.

(5) The Secretary of State shall publish any modifications—

  1. (a) in writing to all holders or applicants for licences who may be affected by such modifications, and
  2. (b) by publishing the modifications in at least two national daily newspapers and any appropriate trade journal or journals.

(6) The power of the Secretary of State under this section may not be exercised after the end of the period of two years beginning with the passing of the Energy Act 2004.""

The noble Baroness said: Amendment No. 116A would enable arrangements to be established that will prevent certain kinds of breach of the renewables obligation by suppliers of electricity. The precise form of the arrangements to be established is to be determined in accordance with the power provided for by the amendment. Under this provision, the Secretary of State is given the power to amend the standard licence conditions of suppliers who have the obligation to supply a proportion of renewable energy and whose compliance with the obligation is evidenced either by the production to the authority of renewables obligation certificates, known as ROCs, or by a payment into the buy-out fund.

The intent behind the amendment is to give the Secretary of State power to introduce a licence condition obliging suppliers to be signatories to a renewables obligations code. It is intended that the code would, in accordance with the terms of the licence condition, be designated by the Secretary of State. The code would contain conditions as to its amendment which are in similar terms to the conditions for the amendment of the balancing and settlement code: that is, specified parties may propose amendments provided those amendments satisfy or can be claimed to satisfy the amendment criteria contained in the licence and the code; the proposal is examined in accordance with the same criteria and by means of a pre-determined procedure and, following a final review by the governing panel, a recommendation to amend or not to amend is made to the authority; and the authority approves or rejects the panel's proposal on the basis of the same criteria used by the proposer and the panel.

Currently, the Secretary of State has no specific powers to make the proposed licence amendments. Therefore, a power is required to be introduced if a licence amendment for the specified purposes is to be made. The power given by the amendment is similar to the power granted to the Secretary of State to enable NETA provisions to be brought into effect. The scope of any licence obligation or code that may be developed under the amendment should be limited only to whatever is strictly necessary to enable the authority to carry out its administrative duties with the greatest efficiency. It should not be used to introduce policy issues, nor should it be within the power of the authority to introduce licence conditions that may directly or indirectly affect competition between suppliers.

In modifying suppliers' licences in this manner, the Secretary of State would be acting within the scope of his functions and the stated objectives of the Government as regards renewable sources under Clause 32, which permits the Secretary of State to impose renewables obligation on suppliers.

My commentary on the amendments is as follows. The amendment has been drafted as an amendment to the Electricity Act 1989, as amended by the Utilities Act 2000, in order to avoid the need to make further consequential amendments. Subsection (1) in Amendment No. 116A introduces the power to make an amendment to licence conditions to achieve the intended aim. Subsection (2) requires the Secretary of State to consult as he deems fit. Subsection (3) allows the Secretary of State to consult before the amendment comes into effect with the aim of achieving the intended aim as soon as practically possible. Subsection (4) provides that new licences shall contain the amended licence condition. Subsection (5) provides for the publication of the amended licence conditions.

Members of the Committee will notice that the method of publication is the same as that for which I have been asking in the case of other licence variation provisions and not that for which the Government have been asking, which is, in any manner the Secretary of State considers appropriate'.

Subsection (6) allows the amendment to be made at any time up to a final date of two years after the Energy Act 2004 comes into force.

I hope that the Government will accept this as a constructive amendment designed to facilitate and improve the regulatory licensing regime. I beg to move.

Lord Davies of Oldham

We appreciate the constructive approach taken by the noble Baroness and the Opposition to this area. She will recognise that, in response to that constructive approach, we said that we would take on board several of the points made during our last Committee sitting about the renewables obligation and securing the buy-out fund, and that we would bring forward amendments on Report to incorporate the fresh position. However, we do not believe that Amendment No. 116A helps the situation. I shall now identify the reasons why.

As the noble Baroness said, the amendment would enable the Secretary of State to make changes to the renewables obligation by means of modifying the licence conditions. As Members of the Committee will be aware, at present any changes require the affirmative resolution of both Houses. Given the importance of the renewables obligation, the Government cannot accept the reduction of parliamentary scrutiny that this would involve.

In addition, the amendment does not make it clear which breaches of the renewables obligation are intended to be covered by licence modifications and which would still require legislation. It is clearly essential that any changes impacting significantly on the obligation—thus materially affecting the prospects of achieving the Government's aim of increasing the contribution of renewables—should receive proper parliamentary scrutiny.

The Committee will be aware that the renewables obligation is a complex instrument with a number of interacting provisions. What appears at face value to be a minor or technical change may have far-reaching consequences. We need to assess those consequences before taking precipitate action, and the present system enables us to undertake that full and proper assessment.

I understand the desire on the part of the Committee and, in particular the noble Baroness, Lady Miller, in pressing her amendment, for a more flexible mechanism to make changes. However, we do not believe that that is the right way to achieve it. We are all aware that the shortfall in the renewables obligation as a result of the failure of TXU (UK) Ltd required changes to be made to the obligation in respect of late payments, and those changes are being progressed quickly.

I am not sure that use of the licence conditions route would save much time in the circumstances. The Committee will recognise that action has been taken since last October and changes in that regard are almost complete. I cannot see, therefore, how effective action could have been achieved any faster against the background of noting how important it is for a full assessment—through Parliament in its proper role of scrutiny—of the implications for the renewables obligation.

I want to reassure the noble Baroness that we take very seriously issues concerning the renewables obligation. We have already undertaken to move some way towards meeting certain of the issues defined by the Opposition, but we do not think that the amendment is acceptable. On that basis, while indicating our support for the proposals set out in the earlier amendments, I ask the noble Baroness to withdraw the amendment.

The Duke of Montrose

Will the Minister clarify one point? He said that the present renewables trading arrangements would require a positive message from both Houses of Parliament, but Clause 106 states that if the Secretary of State considers it necessary or expedient to change something, he may do so. That wording appears similar to that of the amendment. Is the Secretary of State allowed to modify licence conditions in such a manner as he considers appropriate—as provided in subsection (5)—on his own say-so, or does that also require the positive procedure?

Lord Davies of Oldham

As I said, the amendment envisages significant changes to what we all recognise is a complex and sensitive mechanism. We are talking about a market which involves substantial interests and to which substantial resources are devoted. In our view, that will require both a proper basis for consideration and adequate parliamentary scrutiny. That is the case as the Bill stands. The amendment would detract from that.

I assure the noble Duke that changes to the renewables obligation require affirmative resolutions of both Houses. Other than by introducing new primary legislation, we cannot be more assertive about parliamentary scrutiny than that.

Baroness Carnegy of Lour

Can the Minister give other examples of market-sensitive matters involving a lot of money for commercial organisations which are decided by order laid before Parliament, albeit by affirmative resolution?

Lord Davies of Oldham

I have no comparable reference before me. But the noble Baronesses will recognise that because of the significance of this market—there was the one regrettable failure with regard to TXU (UK) Limited—it has all along been envisaged that changes that affect it and have such a dramatic impact on significant interests should require that level of parliamentary scrutiny by affirmative order. That is what we envisage. I recognise the importance of flexibility; that is why, as I said, we made some positive responses to opposition amendments during our previous sitting. I am concerned that, in such a significant incident, we would need to protect proper parliamentary scrutiny. That is why I reject the amendment and defend the Bill's provisions.

Baroness Byford

Perhaps I may follow on from what my noble friend Lady Carnegy said. In Committee, we have been trying to clarify the use of words such as "substantial", "significant", "proper" and "appropriate", and at what time and level decisions are made. My noble friend makes a good point.

I accept that the matter falls under the affirmative rather than negative resolution procedure, which is a blessing, and that the amendment may not be the right one in the right place. I further accept what the Minister said about accepting some of our arguments during the previous sitting, for which we are grateful. However, I take my noble friend's point. I have raised the issue during the passage of many Bills.

The Minister partially answered my noble friend's question but many of us would much rather things were written into a Bill than into an order. Even if an order is introduced under the affirmative procedure, all we can do is talk about it; ultimately, the Government of the day get their way. So it is a flag-flying exercise. If, however, the provision is in the Bill, it must be adhered to. Perhaps the Minister will enlarge a little in response to both of our queries.

4 p.m.

Lord Davies of Oldham

I am grateful for the noble Baroness's contribution but I emphasise that the present arrangements in an area that we all recognise to be of great importance and sensitivity enable us to address a substantial difficulty within a matter of months. We all recognise that the failure last year with the default of TXU on I October was a substantial difficulty affecting the market. Under the present arrangements, we will have completed all the necessary changes by 1 April, a time of only six months.

As to the issue of licence conditions raised by the amendment, we do not envisage being able to effect change vastly quicker than that. Under the amendment proposed by the noble Baroness, Lady Miller, sensitivity with regard to the market would still be a major inhibiting factor on prompt action. Evaluation of the impact would still be necessary. It might appear that all that is necessary is a limited technical change, but we would need to work through all the implications for the market.

I understand the basis of the noble Baroness's argument to increase the element of flexibility. That is to be desired if we can effect it. We are meeting the representations made under previous amendments but we do not think that this amendment will advance that objective.

Baroness Miller of Hendon

I thank all Members of the Committee who have spoken in this short debate and the Minister for his remarks. It may well be that the amendment is not correct; I would not suggest for one moment that any amendment that we table will provide a 100 per cent solution. The problem is that no one seems to have a solution.

The Minister was helpful before by saying that he would take the amendments away, but I do not know with what he will return. I well remember that when we debated an amendment I suggested that securitisation was the way but that mutualisation was a possibility because others wanted it that way. The fact is that there is a black hole that we must in some way seek to fill. I am happy that the Government are taking away the other amendments to consider. I shall read carefully what the Minister said. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 107 [Alteration of transmission activities requiring licence]:

Baroness Miller of Hendon moved Amendment No. 116B: Page 87, line 30, after "place" insert "(the function of doing so being the "system operator function" for the purposes of this Act)

The noble Baroness said: I shall speak also to Amendments Nos. 116C, 116D and 116E. Inasmuch as we have no Divisions, every amendment before the Committee is, in essence, a probing amendment. This group of amendments is even more probing, if I can describe it in that way. This is a probing probing amendment.

Let me first put on record that the amendments were tabled in consequence of representations made to me and my colleagues by Scottish Power. They can be explained in few words. Amendments Nos. 116B and 116C are paving amendments for Amendment No. 116D. The two amendments simply seek to insert the technical words, "system operator function" and "system provider function" into paragraphs (3)(a) and (b) respectively. They are intended to define the difference between the transmission owner and the systems operator.

As I have said, the purpose of the two definitions is to pave the way for the main amendment, to Clause 108. In essence, it would prohibit the same body from being both the system provider and the system operator. The logic of the amendment is to ensure that not too much commercial power and control over the separate components of the combined generating and distribution systems fall into one set of hands. It is argued that there should be sufficient legal separation of the functions of system operator and transmission operator to ensure that the system operator cannot discriminate against other transmission owners in favour of their own transmission business.

Having put that as succinctly as I can, I must tell your Lordships that I have also had representations from Transco vigorously putting the opposite point of view, speaking strongly against the amendment and the concept of the strict separation of functions.

Perhaps I may summarise the argument against my Amendment No. 116B as fairly as I can. It is that the question of separation of transmission owner and system operator was extensively considered during the consultation process over the British Electricity Trading and Transmission Arrangements (BETTA). This consultation process was conducted over a period of two years, first by Ofgem and the DTI and then by the Trade and Industry Select Committee in the course of its pre-legislative scrutiny. I said at the outset of my remarks that the amendment I have tabled is supported by Scottish Power.

However, I am informed that while the separation of transmission owner and system operator functions is acceptable in Scotland, entirely different considerations apply to England and Wales. I understand that during the consultation and scrutiny, the separation of transmission owner and system operation functions was rejected. This is because in England and Wales, transmission and system operation are wholly separated from generation and supply. Transco has strongly represented to me, and no doubt to the Government too, that separation in England and Wales would result in a substantial loss of efficiency and increased cost to consumers. I have to admit that this is far too technical a matter for me to be able to judge the relative merits one against the other. Clearly, they have been examined at great length by experts. That is why at the beginning of my remarks I described this as a probing amendment—even a probing amendment to a probing amendment—and we look forward to hearing the Government's views on the subject.

For lay people such as us, this is a technical Bill. We have experts in the Room—the noble Lords, Lord Tombs, Lord Ezra and Lord Jenkin—and we on this side and the Ministers try to do our best to explore all the different issues. However, because security of supply and so forth are so important and necessary, it is right that when we are being lobbied by two different views and are unsure we should put them fairly and ask the Government to give us what they consider to be the answer. Obviously, when it comes to the Report stage, noble Lords will make up their minds when they have heard all the arguments. I beg to move.

Lord Jenkin of Roding

I have some difficulty because I do not know whether to support my noble friend Lady Miller of Hendon or whether to support her alter ego, my noble friend Lady Miller of Hendon. She put the case most charmingly, but it is clear that there is a distinct division of view between some of the operators and owners in this field. It is also clear that Scottish Power feels that it will be discriminated against by National Grid Transco if the separation system is extended to Scotland.

It would not surprise me in the least if this is an issue that has been under intensive discussion between the department and the relevant officials in Ofgem. They have a laudable ambition to ensure that all the arrangements are as transparent as possible. The public, particularly those concerned with the operation of the system, can then see how costs are allocated, how charges are made and how the different participants in the market are treated.

I also believe that Ofgem would want to ensure that this was as fair and even a market as possible. With the degree of intervention that may well be necessary in the complex electricity system that we have, it is most difficult to ensure that transparency. Where there is, as here, the merger of two different systems—the extension of NETA to include Scotland, under what in the Bill is called "BETTA", which will include the entire mainland of the United Kingdom—that will be difficult. I would have thought that when we debate the amendment tabled by the noble Lord, Lord Tombs, on transitional relief, there will be a strong case for that so as to enable the changeover to take place as smoothly as possible.

I am told by NGT that the fears that Scottish Power may find itself the subject of adverse discrimination are considerably exaggerated. There may be a case to be met, but it is not simply by insisting that there should be a separation of the two systems so that what is sometimes called the SO/TO system—that is an integrated system that has been running in England and Wales—should not apply to Scotland.

I, too, shall be interested to hear what the Minister has to say in response to this. I feel equally divided, although if I have to express a view it is to come down in favour of a system that will ensure the greatest uniformity and transparency across the country as a whole. If, as the Minister has indicated, in order to achieve that there needs to be special provision to recognise, for instance, the transmission costs in Scotland, that should be done as openly and clearly as possible. At a later stage in Committee, we will come to an amendment tabled by the Government on that subject.

I hope that the principle for which Ofgem stands on this will be borne firmly in mind before decisions are taken. I believe that it is an effective regulator and that it has done extremely well over the years. It has made enemies along the way, but that is the nature of effective regulation. That is how I see the position and not seek some concealed way of ensuring a favourable position for Scottish Power and perhaps other Scottish generators in ways that would not achieve market transparency. That is my view and I have a feeling that it is the view of my noble friend Lady Miller, mark two. Like her, I do not feel myself sufficiently qualified to make a firm decision one way or the other. An interesting argument has arisen and we look forward to hearing how the Government come down in response to the representations made to them.

4.15 p.m.

Lord Tombs

During our discussions last week, I said that we should recognise that there are real differences in Scotland from England and Wales. They are differences of geography, history and organisation. Those lie at the root of the argument. National Grid Transco is a separate outfit and not at all connected with the generators in England and Wales. It has enjoyed a single transmission operator and owner organisation. The Scottish boards are commercially independent and are jealous, or suspicious, of the notion that their system will be controlled by someone who has a competing, in a sense, system. It does not compete geographically but in terms of arguments on tariffs and similar issues.

There is a real need for the Scottish concerns to be recognised and provided for. That can be done either by the creation of a separate Great Britain operator or by the incorporation of some duty on National Grid Transco to preserve, or have regard to, or to treat equally the concerns of the Scottish boards. That problem will not go away. It is not a take over or a merger, it is a trading arrangement between commercially independent organisations. We have to have regard to the fact that one part of that organisation wants to feel that it will have equal independence of treatment from the person designated to be the system operator.

The later amendment, to which this leads the way, goes one way towards achieving that and I would regard that as satisfactory. It would disappoint National Grid Transco, but so does the proposed system disappoint the Scottish hoards. My judgment from having worked in both organisations is that the commercial imperatives should prevail. Either there should be a provision of this sort or a duty laid on National Grid Transco.

Baroness Carnegy of Lour

As these discussions continue, I hope that the Government will pay close attention to the noble Lord, Lord Tombs. His lifelong experience of the system all over the United Kingdom gives his wisdom a depth beyond that of other noble Lords, even those who have been Ministers. He knows the system from the inside.

On the wall of the Moses Room is a picture of Moses bringing down the Tablets of Stone. I rather wish that the noble Lord, Lord Tombs, was sitting underneath that picture, as well as our Deputy Chairman. I feel that he is able to illustrate these problems. We hear the arguments from both sides and those of us who live north of the Border are anxious that our generating companies should not operate on a playing field that is other than level.

I heard what my noble friend Lord Jenkin said about the need for transparency and I understand that. In all things, it is right to try to achieve as much transparency as possible. I cannot say whether I support my noble friend Lady Miller because she has not given us anything to support—she has presented two arguments.

Lord Whitty

I feel slightly redundant. The noble Baroness, Lady Miller, and the noble Lord, Lord Jenkin, have made cases for the defence and the prosecution and the noble Lord, Lord Tombs, has been cast in the role of Moses. However, I shall try to give the Government's view on these matters.

Amendment No. 116D would oblige National Grid Transco to create two separate group companies. That would be its effect, although it would not necessarily require a divestment of ownership. However, the starting point for the design of BETTA was, with substantial consultation, to do the minimum needed to be done to create the GB-wide competitive market for wholesale electricity.

There are a number of ways in which we could create a uniform structure. There is this way or, alternatively, Ofgem and the DTI could have proposed legislation which forced all transmission licensees to sell their transmission assets to the Great Britain Systems Operator, so that we create the same situation in Scotland as for in England and Wales. I suspect that had we proposed that there would have been the same reception as Moses received when he came down with the Ten Commandments. No way of altering the system to create exact congruence will be popular.

However, this is not the most important problem in the sense that Ofgem and the DTI concluded that to force the private companies to sell part of their business was a disproportionate solution and that this issue is not the most important in relation to transparency and distinction between different roles. The most important issue is to operate a system independent of generation and supply. That is why the GBSO role is to be created. We concluded that it was not necessary for transmission licensees to sell their transmission assets to the systems operator, whoever that role was assigned to.

It was not an objective of BETTA to separate out the systems operating function from the systems providers, which is the logic behind the amendment. It was only to separate out certain transmission functions from those with generation and supply interests. The conclusion of all the discussions on this is that the DTI and Ofgem are of the view that certain synergies can be gained from having the same person undertake systems operator and systems provider functions. Of course, the National Grid in England has combined the two roles for 10 years and in general it has delivered considerable cost savings from being able to trade off the cost of taking an action on the operator side of its business with the cost of taking an action on the transmission owner or systems provider side of its business.

There is no particularly good reason for ending that synergy. It would be much harder to properly incentivise a company that simply operated the networks but owned no assets. We therefore need to be careful about putting at risk arrangements which have successfully delivered improvements in efficiency.

Just as we do not think that it is necessary to force the Scottish transmission licensees to sell their assets under BETTA, we do not think that it is proportionate to force National Grid, as the amendment suggests, to divide its transmission assets into separate companies. Of course, both the systems operator and the systems provider are regulated. They are monopoly operations and are therefore subject to heavy regulatory oversight, including provisions on transparency sought by the noble Lord, Lord Jenkin. Both Ofgem and the DTI believe that the systems operator can be prevented from discriminating in favour of its own transmission assets effectively through the conditions of the licence.

They propose that the condition in the licence would be not to discriminate between providers or in favour of their own comparable provider activities where it undertakes them. The transmission licence conditions to apply under BETTA would cover such a requirement. It would be better to locate them in the licence provisions rather than in the statute. The licence condition will set the legal and contractual context for the application of all relevant non-discrimination obligations and will form the basis on which the regulator would intervene to enforce such a condition.

We recognise the problem, but we believe that it is better to operate through licence provisions rather than in statute. Perhaps it is worth adding that in addition to this, given the nature of the monopoly position, competition laws apply in this context to any discriminatory conduct or arrangements, which provide an additional safeguard. I therefore recognise the problem of non-congruence between England and Wales, and Scotland. Nevertheless, I think that it is not appropriate to try to create a congruence that is not really justified in terms of efficiency or transparency.

Lord Tombs

I find that response quite encouraging, at least in intent. However, since the Bill proposes the creation of a Great Britain system operator, I cannot see why it should not prescribe this non-discrimination requirement, to which it seems to me that the Minister has subscribed, or to which at least Ofgem has subscribed with his blessing.

Lord Whitty

I am prepared to consider that, but that is not quite the same as what is set out in the amendment. It proposes a requirement to split the company, which I will quite strongly resist. A non-discrimination provision, without commitment, I would be prepared to look at if Members of the Committee give me leave to do so.

Baroness Miller of Hendon

First, I thank the Minister for his comments. I also thank every Member of the Committee who spoke in this debate. Perhaps I may echo the words of the noble Lord, Lord Tombs. There was certainly a suggestion that some kind of compromise could be worked out and brought back.

The amendment made two proposals. It provided an opportunity for a first-class debate of the whole issue. It also offered a little light relief on the other side: the Minister nearly did not have to respond at all. He thought that I had responded to myself. The difference in approach between my noble friend Lord Jenkin, who thought that I was promoting the second part of the argument, and the noble Lord, Lord Tombs, who thought that I was promoting the first part of the argument, was interesting. My poor noble friend Lady Carnegy said that she could not say one way or the other because she was not quite sure what I was promoting. That was difficult.

The truth is that this is a very serious matter. We were lobbied quite strongly by Scottish Power and we have great sympathy with what it had to say. However, while my noble friend Lady Carnegy may not agree, the reason we did not think it fair simply to leave it on the table was not because we thought that we should do the Government's job for them, but that we could see important and interesting elements in the second part of the debate. This is such a difficult and technical area that we need to explore it in detail. We have achieved that end in so far as we must now look carefully at the Minister's words to see whether we can accommodate what he thinks might be acceptable to deal with the problem. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 116C not moved.]

Clause 107 agreed to.

Clause 108 [Transmission licences]:

[Amendments Nos. 116D and 116E not moved.]

Clause 108 agreed to.

Clause 109 [New standard conditions for transmission licences]:

[Amendment No. 117 not moved.]

Clause 109 agreed to.

Clause 110 agreed to.

Schedule 17 [Conversion of existing transmission licences: licensing scheme]:

Baroness Miller of Hendon moved Amendment No. 117A: Page 206, line 31, at end insert— (6A) The Secretary of State shall, by an order made under this paragraph, make provision for transitional relief.

The noble Baroness said: In moving Amendment No. 117A, I shall speak also to Amendments Nos. 117B, 118, 118A, 118B and 118C. I apologise to the Minister—I address the noble Lord, Lord Davies—for the somewhat disparate amendments in this group. They are not all quite the same, although they touch on similar things. However, I have tried to put them in order so that the noble Lord can respond to them without having to shuffle his papers as he did on the last occasion. At that time I spoke to my amendments out of order, which was not quite right. I understand that other noble Lords have added their names to various amendments in the group and I am quite sure that their remarks will complement my own brief explanations.

National Grid Transco owns and operates the high voltage transmission network in England and Wales; that is, the National Grid. It sets and recovers charges for connection to and use of its grid system in accordance with the charging statements derived from charging methodologies that it is required to maintain under its transmission licence. Under the terms of the licence, National Grid Transco is obliged to keep its charging methodologies under constant review and to make changes if it believes that such alterations will better meet the relevant objectives specified in the licence. Essentially, these require that NGT's overall charges reflect the costs it incurs and that they facilitate effective competition in the generation and supply of electricity.

In February 2002, NGT commenced such a review. This culminated in proposals subsequently approved by Ofgem which will fundamentally alter the way NGT calculates its charges for, connection to and use of its transmission system. In particular, the revised methodologies have moved some elements of the charges which used to be recovered by way of connection charges into the use of system charges. The new charging arrangements take effect in England and Wales from April of this year.

In December 2002, the Government confirmed that NGT would be appointed the GB system operator once the required BETTA legislation—that is, this Bill—has gained Royal Assent. One of the responsibilities of the GB system operator will be to set GB transmission charges and to maintain the GB charging methodologies and associated charging statements from which the GB system charges will be derived.

National Grid Transco has therefore initiated work with a view to developing GB charging arrangements. They will be based on new arrangements that will be implemented in England and Wales in April 2004. Initial analysis suggests that, as a consequence, there will be a significant impact on the charges faced by the generators who are located in Scotland. In particular, Scottish generators will be exposed to a significant and disproportionate burden of GB use of system charges, possibly picking up over 60 per cent of the total of such charges whereas Scottish generation accounts for only around 12 per cent of GB generation. Similarly, customers in the south of England will be disproportionately affected.

Such acute steps are neither appropriate nor desirable and should be avoided. Instead arrangements should be put in place that provide some form of transitional relief, such as phasing, from the initial impact of the new charges resulting from the roll-out of the GB market. That would not be new; precedent exists—for example, when NGC, as it then was, last introduced fundamental changes to its charges in 1993, the full effect was phased in over a number of years.

[The Sitting was suspended for a Division in the House from 4.31 to 4.41 p.m.]

Baroness Miller of Hendon

Given that NGT charges are derived from the charging methodologies provided for in its transmission licence, it could possibly be argued that Clause 106, particularly paragraph (b) of subsection (2), already provides a power for the Secretary of State to modify transmission charges introduced as a consequence of BETTA. However, the powers in Clause 106 are discretionary, and there is no guarantee that the Secretary of State will use the powers to mitigate the adverse effects of the new GB transmission charges.

What is needed, therefore, is something that requires the Secretary of State to provide interim relief rather than simply to do so at his discretion. This is what the amendment seeks to achieve. However, given that National Grid Transco has only just embarked upon the work necessary to introduce GB charges, the amendment does not seek to specify at this early stage the precise nature or the amount of relief that may be required to mitigate the inevitable adverse effects. Instead, it simply requires the Secretary of State to bring forward an appropriate scheme after consulting widely.

Amendment No. 117B seems on the face of it a statement of the impossible. The Secretary of State, from whom only the Prime Minister is higher up the scale, has a duty to publish the text of each licence under a new scheme to deal with existing transmission licences—it is open, transparent government. There is nothing wrong with that, one might think, but immediately after establishing the duty, the Bill proceeds to add a caveat; namely, that the text that he publishes may not be authoritative. What does that mean? Is it that the licence does not confer the rights to participate in the transmission of electricity; or is it that the text covers up something that relates to the operation of the licence but that is not published? If either of those is the case, how would the text indicate that it is not authoritative? If the text of a licence is not authoritative, what is the point of issuing it, never mind publishing it?

Amendment No. 118 would delete paragraph 2 of Schedule 17. The paragraph gives the Secretary of State wide—indeed, unlimited—powers to amend a code or agreement affecting transmission licences. if it appears to him to be desirable to do so in consequence of anything for which the scheme makes provision". The sole criterion for the power to tear up any agreement or code is that the Secretary of State thinks it desirable. In other words, subject to the very limited power of the courts to intervene, the Secretary of State can do very much what he likes, provided he thinks that it is desirable. That is the sole test. I shall not comment further on that amendment, as my noble friend Lord Jenkin wishes to speak to it also.

On Amendment No. 118A, can the Minister explain exactly what sub-paragraphs (1) and (2) of paragraph 4 mean? In particular, will he inform us whether the correct interpretation involves the possibility that the Secretary of State may alter retrospectively a scheme relating to changes to existing transmission licences? Will he also specify whether any scheme relating to changes to existing licences might affect moneys payable or receivable by parties to the altered licences? If that is the case, can he assure the House that no one would be required by the Bill to find sums of money relating to past performance?

Amendment No. 118B is consequential on Amendment No. 117A and would add that holders of generation licences shall be added to the list of those to be consulted about transitional relief, and only transitional relief. Amendment No. 118C is also consequential on Amendment No. 117A and defines "transitional relief" and "use of system charge". I beg to move.

4.45 p.m.

Lord Jenkin of Roding

I tabled Amendment No. 118 because paragraph 2 offended me, for the reasons that my noble friend has given. It seems to leave the matter entirely in the hands of the Secretary of State with, as the noble Baroness put it, very limited power for anybody to question matters or to intervene. So long as the Secretary of State thinks that a provision is desirable, he is entitled to make it.

This is a very extreme version of a form of legislation that was well summed up in a clerihew of many decades ago that appears in the epitome of lawyers' texts on such matters, Megarry's Miscellany-at-Law. It is a great book, which I recommend that the noble Lord, Lord Whitty, read. The following observation has always stuck in my mind: the attitude of modern governments—and I am sure that it applies to two of the governments of which I was a member—could be summed up in the phrase, If anything shall seem then the Minister may deem; A certificate of demption shall provide complete exemption". This is a similar situation.

When, from time to time, some of us protest about this form of legislation—my noble friend Lord Peyton expresses his distaste with considerable eloquence—I hope that, somewhere deep in the recesses of departments, people take note. We do not like it. Somehow one must find a better approach. Perhaps, on this occasion, the provision is so minor and consequential to the making of the scheme to which Schedule 17 relates that we ought to swallow our distaste and accept it. However, like my noble friend Lady Miller of Hendon, I find such provisions very distasteful.

Lord Tombs

The amendments that deal with the provision of transitional relief have been largely discussed earlier. We know the dangers and the reasons involved. I trust that they will be dealt with in due course.

Amendment No. 118, which stands in my name and that of other noble Lords, would delete words from line 15 of page 207 because they seem to be covered by Clause 1. One should avoid repetition so far as possible. I support the amendments.

Lord Davies of Oldham

It is our misfortune to have such a complex group of amendments punctuated by a Division, creating problems in ensuring the continuity of our discussion. I will do my very best to respond to all the points made in this short debate. I am grateful to the noble Baroness for suggesting that she move the amendments in such a form as to remove the need for me to reshuffle my notes. I regret to say that she has not achieved that objective. I would be already in a state of confusion if I followed precisely the order that she suggests because, believe it or not, I took a simpler approach to this group of interesting and challenging amendments. I intend to deal with the easiest amendment first, on the grounds that that would establish my credentials with the Committee, and hope to survive on the more difficult ones as we progress.

I shall refer first to Amendment No. 117B. Sub-paragraph (8) has been included so that if a mistake is found when the text of the licence is published, it can subsequently be rectified and the situation clarified. The amendment would remove that ability. We have included the sub-paragraph to provide clarity and transparency. I hear what the noble Baroness says in support of her amendment. We merely seek to establish as clearly as possible that the text should be treated as authoritative unless, because an error has been identified, a change must be made which will be specific and clear. I do not think that we could have expressed the situation more clearly, against a background in which we must guard against the possibility of error, requiring us to make a different statement.

Lord Tombs

I am grateful to the Minister for giving way. I have difficulty with the wording of sub-paragraph (8), which states: Any text shall be treated as authoritative unless the contrary is shown". The Minister referred to "inaccuracy", which is not the same thing. According to the provision, when a text is published, it is authoritative unless it can be shown that it is not. One may be able to show that a text is inaccurate, but I do not know how one can show that it is not authoritative.

Lord Davies of Oldham

The sub-paragraph relates to the text at the point at which a licence is published. We are saying that that is the authoritative position. However, if it were necessary to rectify a licence, we would need to clarify the position. We merely state in the Bill that we are committed to being explicit in that regard. I hear what the noble Lord says: the concept of "authoritative" has considerable weight attached. The intention is that the position is authoritative, provided that a change is not necessary and a position made to the contrary. The purpose of the provision is to make the situation as open and transparent as possible.

Lord Tombs

I am still puzzled by the last few words of the provision. If it is to remain, the sub-paragraph needs modification. I do not know how one can show that something is not authoritative. One can show that it is incorrect or badly judged, for example, but not that it is not authoritative, if the statute says that it is.

Baroness Carnegy of Lour

I once witnessed a competition in which the prize was a cut-glass vase for the person who could best expound on the obvious. Sub-paragraph (8) says that anything will be treated as authoritative unless it is not. In explaining it, the Minister said something clearly; when he looks at Hansard, he might find a way to reword sub-paragraph (8). However, I do not think that the noble Lord should win the cut-glass vase; it would not be a very good advertisement for the Captain of the Yeoman of the Guard.

Lord Davies of Oldham

I have no intention of entering that competition. If I inadvertently blundered into it, and at present I am highly placed, I shall try to withdraw myself from the competition as rapidly as possible.

In explaining the position to the noble Lord, Lord Tombs, I was trying to identify that we seek to be clear and transparent, and that therefore the provision shall be authoritative. However, we are aware that on occasion change might be necessary. Making the statement in these terms guarantees that we must be clear, transparent, open and honest when such a change takes place, because we are committed in the legislation to that principle. That is all that I seek to reflect in respect of the word "authoritative" in this provision.

Baroness Miller of Hendon

I am terribly sorry to disturb the Minister again on this simple point; I am grateful to him for giving way. He may recall that a long time ago, before the Committee was suspended for a Division, I said that on the face of it, the statement is impossible. The more the poor noble Lord tries to tell us that it is possible, the more he convinces us all that it is not. It is merely necessary to change one word. One cannot possibly state that the text shall be, treated as authoritative unless the contrary is shown". If the contrary can be shown, then it is not authoritative, full stop. That is the normal interpretation of the word. There is no point in discussing the matter further, but I wanted to ease the Minister's way. Sub-paragraph (8) contains a statement of the impossible, and sometimes when one is faced with the impossible, one must accept that something must be done about it.

Lord Davies of Oldham

I hear what the noble Baroness and the other Members of the Committee have said—I thought that this was the easiest part of the debate. As I disappear beneath the waves, I wish to point out that this is a clear attempt on the part of the Government to be open and clear about the position: issues should be described in authoritative terms. However, we are aware that, having described them in those authoritative terms, that is the issue that will govern the procedure. Some change to a licence may be necessary. We are merely indicating that we will be open, clear, honest and precise when we need to effect that change. If noble Lords are saying, "Well, you do not sound very authoritative now", we will reflect on that. If there is one thing that Ministers crave, it is the semblance of authority. I express enormous gratitude to the Committee for having tested me on this amendment.

On Amendment No. 118, we understand the concern that the noble Baroness expressed about the extent of the power granted to the Secretary of State to alter agreements with users of the transmission system. We do not believe that the provision should cause any concern. Its use is limited to a narrow purpose; that is to say, when a change is needed to an agreement or codes as a consequence of changes to a transmission licence for the purposes of BETTA. If the provision were not present, that could damage the smooth implementation of BETTA. Without it, the only other way to modify agreements would be through the "power to modify licence conditions". Some participants are unlicensed, and the agreement of the unlicensed parties to the changes to the agreement would need to be provided.

In particular, this provision relates to the framework agreements for the Balancing and Settlement Code (BSC) and the Connection and Use of System Code (CUSC). Those code framework agreements refer to an authorised area of England and Wales. Upon the introduction of BETTA the authorised area will no longer exist. These framework agreements therefore require amendment.

Without the provision in Schedule 17 we cannot be confident that we would be able to achieve the amendments needed within the timetable, as it would require the agreement of all parties to the framework agreement—including those who are unlicensed—and that would need to be complete at the time that the licensing system was applied. That is currently scheduled for soon after Royal Assent, so it would be a risky proposition for the smooth implementation of BETTA.

In general, both the Secretary of State and Ofgem intend to use the power to modify licence conditions to achieve amendments to codes necessary for BETTA. However, we do not have all the detailed steps that will need to be completed to enable a smooth transition to BETTA at present. Those are being worked out as a matter of priority but, as such, it is conceivable that in some circumstances the power to modify licence conditions will not be the appropriate way to achieve a modification to a code where that needs to be complete by the time that the licensing system comes into effect; namely, the start of BETTA.

I recognise that the argument is complicated, but it meets what the noble Baroness indicated in moving the amendment were the difficulties surrounding the issue. It is because of those difficulties that I am obliged to present a complex argument in defence of the position.

5 p.m.

Baroness Byford

I have been following the Minister's words fairly carefully. He said that steps were being worked out. Are things still not settled? Does that not add to the reason why my noble friend's amendment might be very applicable?

Lord Davies of Oldham

The noble Baroness is right; not all details with regard to BETTA have been completely worked through. It is a tight timetable to meet the objectives by Royal Assent. What has occurred is that the DTI and Ofgem have worked to ensure that documents describing the details of the BETTA project are in the public domain while the Bill is being discussed. So far, 35 such documents have been published.

All the main planks of the BETTA project framework have been established and, for the most part, only details remain. However, a few issues of significance remain. The DTI and Ofgem expect to resolve those in the coming weeks. The detailed implementation arrangements will be resolved only during the final phase of BETTA. It is for that reason that the Bill seeks enabling powers rather than detailed provisions. I recognise the justifiable anxiety of the Opposition and the accuracy with which they identify the fact that some details have not been worked through, which is why we need powers in such terms. However, I hope that it will be recognised that the area is very complex and that work is ongoing. That is why we are not able to accept Amendment No. 118.

Lord Jenkin of Roding

I may have misheard the Minister, but I got the impression that, when he drew the distinction between licence holders and other parties who were not licence holders, he used a phrase along the lines of "proceeding by agreement". If the Government's intention in making changes to the codes and licences to which the schedule refers is to proceed by agreement—there is provision for consultation, but that is not the same thing—many of our anxieties would withdraw. However, if I misheard that, it would be quite appropriate to ask the Minister to make it clear that the Government might have to overrule some of the parties not prepared to agree.

Lord Davies of Oldham

It will be recognised that we hope to achieve agreement of the parties concerned for BETTA, in all aspects of it. The noble Lord will recognise that the broad structural framework has been achieved against a background of extensive consultation and agreement, but there are one or two outstanding points. There are also matters of detail on which the amendment would make it extremely difficult for us to achieve the objective of establishing BETTA within the time frame that we have. Of course we recognise that we cannot implement BETTA without the main structural positions being agreed with the parties, and that is the basis on which we are working.

Baroness Miller of Hendon

I would like to come back on one point. There are so many in the group that, if I waited until the end and we had gone through various other matters, it would be terribly confusing for us as well as for the Minister. As he knows, I always try to help him when at all possible.

I see that the Secretary of State obviously needs some power to vary agreements and codes. However, my noble friend tabled an amendment to remove paragraph 2, which is headed: Consequential amendment of related codes and agreements". The amendments are not merely consequential—let us say that straight out. We are talking about a major power that drastically affects the commercial interests of the licensee. That is a very serious matter.

Paragraph 2 states: The Secretary of State may include in a scheme under paragraph 1 provision amending a code or agreement relevant to the conditions of an existing transmission licence if it appears to him desirable to do so in consequence of anything for which the scheme makes provision". I emphasise, if it appears to him desirable to do so". We do not agree; we think that that wording is far too wide and allows the Secretary of State to do anything on a very important matter.

If the Minister is now saying that there will be some kind of agreement, we will not press the relevant amendment. We could not do so in any case, as this is Grand Committee. However, it is important that we know in detail what the Minister means by the words about which my noble friend asked him. As it stands, the provision is not appropriate to be left in, and nor is it consequential. We are slipping into giving the Secretary of State quite wide powers. We do not think that whether he believes that it is "desirable to do so" is the appropriate way to move forward, particularly when the Minister is talking about transparency. How transparent is the provision if it is merely based on what the Secretary of State thinks desirable at the time?

Lord Davies of Oldham

I have to give a fairly general answer to the noble Baroness, who is obviously not entirely satisfied with my answer thus far. I am seeking to establish that the licensing scheme is the means by which existing transmission licences are changed to licences to participate in transmission. It is also used to incorporate new standard conditions for transmission. Amendment of a code or agreement under paragraph 2 is limited by the nature of the licensing scheme. The Secretary of State may exercise the power only if that is helpful to the scheme. I hope that I am allaying the noble Baroness's anxiety. The power is not an eccentric one for the Secretary of State, but is restricted very much to being helpful to the licensing scheme and is within that framework.

I recognise that "desirable" is a softer test than that used to change licence conditions in Clauses 106 and 109, which require the change to be "necessary or expedient". We had aspects of that debate a little earlier. However, the power is to be used to amend agreements that have been entered into by non-licence holders such as traders. It is intended to be wide enough to ensure that such persons are not able to delay the BETTA timetable. I put it to Members of the Committee that that is a reasonable position for the Government to take with regard to a tight timetable. The power is restricted to a very limited area.

On that basis, I hope that the noble Baroness will consider withdrawing the amendment, although I recognise that I have not thus far addressed several other amendments. I agree with her that it has been necessary for the clarity of our proceedings to get the issues clear on amendments about which there are some difficulties.

On Amendment No. 118A, I reiterate the case that I made a little earlier. It is not impossible that errors could be made in the transmission licensing scheme. Therefore, a power to modify the scheme including retrospective modification is necessary. An error in the term of a licence would be capable of amendment only if a power were provided to amend the scheme itself. For example, one cannot amend the term of the licence by exercising the power to modify licence conditions.

I recognise that the subject is difficult. One example of when the provision might be used is where we use the licensing system to amend the term of an existing licence to set out where that licensee can operate. For example, let us say that an error was made in the scheme and NGC was licensed to operate in England only, whereas currently it operates in England and Wales. We would wish for NGC to continue to undertake its activities in England and Wales, and a modification to correct the error in the licensing scheme would need to be capable of having retrospective effect. I recognise what has been said on that subject. We would need a retrospective effect to ensure that NGC was not found to have committed a criminal offence while it continued to undertake its activities in England and Wales.

I want to stress how seriously the Government take retrospective modifications. I recognise the proper anxiety about them.

Lord Tombs

Can I make an observation that might help the Minister? Amendment No. 118 is extremely modest. It does not challenge the point to which the Minister is replying. It simply seeks to delete words in paragraph 2 that are already included in paragraph 1.

Lord Davies of Oldham

I am grateful to the noble Lord. However, as the subject has been raised, I was seeking to allay anxieties about aspects of retrospective consideration in the schedule. Concern has been expressed, so I seek to identify how narrow the definition is, but how essential it is in the circumstances in which we are placed.

We have had debates that cover Amendments Nos. 117A, 11813 and 1180 on previous occasions in Committee—certainly one occasion is very vivid in my mind, given the contributions of a number of noble Lords—as we have talked about the costs incurred by Scottish generators following the introduction of BETTA. The GB system operator has been charged with developing a GB charging methodology that is cost-reflective and non-discriminatory. That means that generators whose connection to the system imposes the greatest cost will pay the highest charges.

As generators in Scotland and the north of England are located furthest from centres of demand, they will face the highest charges. However, as we discussed previously, the Government intend to take measures to mitigate the impact on renewables. At the same time, it should be recognised that Scottish generators will no longer have to pay any inter-connector charges or a separate charge for access to the England and Wales market. It would not be fair for Scottish generators to receive the benefits of BETTA on day one, but, as the Opposition argue for, to receive transitional relief from the costs of BETTA. As I emphasised in the previous debate on the issue—I was not greeted with overwhelming enthusiasm from the Opposition—our analysis of the costs and benefits ended up in a fairly neutral position so far as Scottish generators were concerned.

5.15 p.m.

Lord Gray of Contin

I hate to spoil the Minister's speech, but I shall write to him within the next day or two to point out that the information that he gave in reply to the amendment that I moved a week last Thursday, to which he again referred just now, is not as accurate as he might believe it to be. However, I shall not spoil the rest of the evening for him.

Lord Davies of Oldham

The noble Lord is in no danger at all of spoiling my speech; he might well have spoiled my evening, but that is a different matter altogether. When he makes his representation, we shall examine it with the greatest care, and I hope that we shall be able to reply to him effectively. In any case, I would not be too sanguine about the possibility of the issue not arising again on later stages of the Bill. I am sure that we shall return to it.

Baroness Carnegy of Lour

When the Minister gets my noble friend's letter, will he bear in mind that to make a change that creates a level playing field is one thing, but to then allow a change to be made to create a newly uneven playing field is another? They do not necessarily cancel each other out. My noble friend will doubtless write more clearly about that, but perhaps he will refer to what I have said. He will find that there is some nonsense going on.

Lord Davies of Oldham

I hear what the noble Baroness says. She is talking to a former sportsman, and I have never liked the analogy of the level playing field. It does not matter whether most playing fields on which sports are played are level, because everyone changes round at half time. I merely indicate that Scottish generators have an equal score with their competitors in England and Wales. I hear that the noble Lord is challenging the figures that I cited to him and which I predict that we shall examine later. At present, so far as the Government are concerned, the score is level, so it is not for the Government to worry about the playing field.

Lord Tombs

I thank the Minister for giving way yet again. The interruptions to his flow do not show; nevertheless, I apologise. I want to make two points. One is rather specific and relates to his reply on the transmission costs. I keep saying that the geography is different, and that in Scotland a much sparser and simpler transmission system has developed. In many ways it is simpler because the Scottish boards historically did things differently from those in England and Wales. There is a physical case for different charges in Scotland. Quite apart from that is the question, if we do not have transition, of the impact on the trading arrangements. It would be extremely difficult and, I think, unacceptable to the Scottish boards.

On a much broader point, when I was responsible for the Scottish system some years ago, I was very conscious as an Englishman of London as a centre for decisions, which tended to throw Scotland to one side. I was a member of a so-called nuclear power advisory board, which consisted of five people and met regularly in London. When I asked if we could have one meeting in five in Scotland, I got the reply, "But Scotland is so far away". I pointed out as solemnly as I could that the distance from Glasgow to London was the same as that from London to Glasgow, but that did not have any effect and we still met in London.

It is a fact that National Grid Transco, the DTI and Ofgem are all located in London. Glasgow seems a long way away, and we are talking about something smaller than the main system. The Minister must be very much aware of that and guard against it, because it will provoke unfairness, rapid decisions made local to other pressure points, and a sense of unfairness that may find its way through political channels and other routes.

Baroness Carnegy of Lour

We cannot change sides to either side of the border at half time.

Lord Davies of Oldham

One cannot so far as the border is concerned, but one can with regard to the playing field on which one is operating. The proposal is that BETTA will operate on the basis that there is no discrimination between the generators. I understand the arguments made on the transitional position; I merely indicate that we do not think that the case has been made out, in terms of unfairness and so on.

The implications of the amendments are clear enough: they would discriminate against generators in England and Wales, which would have to pay increased charges as a result of the transitional relief granted to Scottish generators. That is a straightforward distortion of competition. I understand the motive behind it, but let us not make any bones about the fact that we seek to create a fair, open and transparent market. The amendments would certainly distort that. On that fairly important point of principle, I hope that the amendment might be withdrawn.

Given the protracted nature of my reply—not all of it of my own wont, as the Committee will recognise—I hope that I have responded to most of the points and that the noble Baroness will withdraw her amendment.

Baroness Miller of Hendon

I thank all Members of the Committee who have contributed in various ways to the whole group of amendments. I started off by apologising to the Minister, as it seemed a disparate group, although Scotland was the binding element of the amendments. Other than that, some of the issues were quite different.

I also thank the Minister for giving way on so many occasions and dealing with the group so charmingly, if I may say so. Once again, he has drawn the short straw. He did so during another sitting, and it was most unfortunate for him. I tried to help this time by tabling the amendments in the order that I did, only to discover that he thought that he would deal with them from the easiest to the most difficult. He found that the one with which he started was perhaps the most difficult of all. I feel for him; he had an excellent stab at a hard point.

I hope that the Minister will take Amendment No. 117B away and that his officials will try to find some different words; it does not look as though we are turning the world upside down. The Minister did not answer the second part of what I said on Amendment No. 118A. I asked whether, if any scheme made changes retrospectively, he could assure us that no one would be required by this legislation to find sums of money relating to past performance. On Amendment No. 118, he said that the discretion was very narrow within the licence. However, we are still concerned about it, and the Minister could come back with a different form of wording to make it clear that the amount of discretion was very tightly controlled. That might meet our difficulties.

With regard to the main body of amendments—Amendment No. 117A and the consequential amendments—we must agree to disagree. We were trying to search out from the Government what they felt about the issue. We are talking about complicated measures. We did not intend to make an uneven playing field, although there was a suggestion of that. We were trying to provide for phasing in during the transitional period, as has been done previously. The example that I gave of when it had been done before was not a precedent, so our proposal is not something against anyone's policy. We suggest a gentle phasing in to make the beginning somewhat easier. On that note, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[The Sitting was suspended for a Division in the House from 5.24 to 5.35 p.m.]

[Amendments Nos. 117B to 118C not moved.]

Schedule 17 agreed to.

Clause 111 [Grant of transmission licences]:

Lord Gray of Contin moved Amendment No. 118D: Page 89, line 40, leave out subsection (5).

The noble Lord said: After the excitement of the previous group, we return to our more wearisome progress through the Bill. This is a small amendment to leave out subsection (5); grouped with it is Amendment No. 118E, which would leave out lines 42 and 43. On Amendment No. 118D, I was encouraged by one remark of the Minister about how the Government hope to proceed by agreement. If that is a sign of how we shall proceed for the remainder of the Bill, we will all heave a sigh of relief.

This is a probing amendment designed to elicit the Government's motivation: why is the restriction considered necessary? Is there not a grave danger that if the Secretary of State may exercise the power only on a single occasion for a single licence there may be unfair advantage for a single company or person? Such advantage could turn out to be seriously unfair. The Minister has been good at giving examples to illustrate what the Government will do under the Bill. Perhaps he could now give us an example of the nature of the argument that could result in his directing GEMA to grant a transmission licence. It is undoubtedly implied in the wording of the Bill that if he did not so direct, GEMA itself would not necessarily grant the licence.

Amendment No. 118E is also probing. Is the Bill's wording constructed to mean that the Secretary of State may direct GEMA to refuse an application and then direct it to accept another one? Or is the intention to stop the Secretary of State from directing acceptance and then changing his mind and instructing that the application be refused after all? Or is the intention to restrict the Secretary of State to a single overruling of GEMA, whether that be to accept or reject a specific application?

Can the Minister give us another example of a set of circumstances in which he would want or need to issue an instruction to aid implementation of the new trading and transmission arrangements? On whose advice would he overrule GEMA? I beg to move.

Lord Triesman

I thank the noble Lord, Lord Gray. I promise him that I shall not add to the excitement following the previous group. I am not sure whether the amendment and this part of the Bill are simply complex or so significantly obscure that excitement is almost impossible. In trying to deal with the nature of the argument, as he put it, I shall try to set out the purpose of the clause, to enable everyone to understand what it is intended to achieve. It may well be that, not so much examples, but what is already happening, will illustrate the points that have been so appropriately raised with us.

The purpose of the clause is to enable the Secretary of State to appoint the GB system operator by requiring the Gas and Electricity Markets Authority (GEMA) to award a licence or to refuse any one application. Perhaps I should add in parentheses that, at present, under the Utilities Act, Ofgem has that power and it will be transferred to GEMA; it is not a power of the Secretary of State. Under Amendment No. 114, it might have been thought that the Secretary of State still had that power, but I want to be clear that it is GEMA that holds it.

That power will need to be exercised only if a GB system operator is not one of the existing transmission licensees. That is because in such a case, the licence will be modified to switch on the conditions applicable to the system operator. That will be done through the licensing scheme. If that power is commenced, it should not be capable of being exercised more than once, as the intention is that there should be only one system operator for Great Britain.

However, the power is unlikely to be used—this is where my explanation may be more useful than the provision of examples. In August 2002, invitations were sent out for applications from parties interested in being the system operator for Great Britain, and the process closed in September 2002. One application was received from the National Grid Company plc. Rather than giving examples, let me state that that is the company that made the application.

Amendment No. 118E would remove from the Bill a subsection the purpose of which is to enable the Secretary of State to appoint a GB system operator. In doing that, it is important to ensure that the authority—Ofgem/GEMA—turns down all but the chosen application. We cannot conceive of the Secretary of State overruling GEMA. The Secretary of State is making the transmission licence award because it is considered that such an important appointment should be considered and made by the Government direct; in no other circumstances would it be contemplated that that should happen.

It is therefore necessary to include the power in the subsections to ensure that the authority refuses all but the successful application to achieve that single application status. However, that power needs to be available only prior to the appointment by the Secretary of State of a system operator for Great Britain. Once the system operator is appointed, there is no need to refuse anyone else.

It may be asked why the power is necessary when I have already said that NGC, an existing transmission licensee, is to be the only Great Britain system operator. The Bill cannot at this stage constrain the Secretary of State's choice as to who is the appropriate candidate. The Secretary of State has issued a statement saying that she is minded to appoint NGC as the single GB system operator under BETTA. However, it is not possible to make that designation until the legislation is in force; we are at a step before that.

The amendment would allow the Secretary of State at any time to request that the authority turn down an application for a transmission licence. I hope that I have demonstrated that that would be neither necessary nor appropriate for BETTA in the circumstances. I understand the exploratory nature of the amendment, which was intended to elicit that information, and hope that the noble Lord will feel able to withdraw it.

Lord Gray of Contin

I am grateful to the Minister for that full explanation of both amendments. We will study carefully what he said but, in the mean time, I seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 118E not moved.]

Clause 111 agreed to.

Clause 112 agreed to.

[Amendment No. 119 not moved.]

Clause 113 agreed to.

Schedule 18 [Property arrangements schemes]:

5.45 p.m.

Lord Gray of Contin moved Amendment No. 119A: Page 208, line 17, leave out sub-paragraph (3).

The noble Lord said: Again, these are essentially short-term measures. Schedule 18 itself is essentially short-term, in that there is only a three-month window in which to apply for a property arrangement scheme. However, the start of that window is not specified, in that the clause that refers to the schedule—Clause 113—comes into force on such a day as the Secretary of State may by order appoint. It is at least theoretically possible that there may be a great deal of time available to ponder, design and produce all manner of property arrangement schemes.

The schedule makes clear that an element of compulsion may be involved. In those circumstances, I am concerned to know what property rights or liabilities would be liable to be transferred—especially those which would not otherwise be capable of being transferred. Does the use of the word "transfer" mean that money, as in buying and selling or compensation, will not be involved? Will the Minister give examples of possible property arrangement schemes, highlighting the circumstances in which they might be appropriate and including an instance of transfer that would not otherwise be possible?

Amendment No. 119B would, after "shall", insert, "within three calendar months". Under the provisions of the schedule, the application for a property arrangement must be made in a given period of three months. There are 21 days' grace between the making of the scheme and its implementation. Seven days are allowed for applying for review of a GEMA decision, and there is a further seven days in which someone who has applied for review may apply for an interim arrangement.

It seems unreasonable that no limit is set on the time GEMA takes to determine an application. How long would GEMA normally be allowed? Do the Government expect any sort of a backlog to arise because of the three-month window for making applications? Would GEMA recruit extra temporary staff to deal with any such backlog? If so, which departments or organisations would be approached for help?

I hope the Minister will be able to reply to these amendments as fully as he replied to the first set I put to him. We shall wait and see. I beg to move.

Lord Whitty

I am not sure that I can give detailed replies with the same level of erudition as my noble friend Lord Triesman. In essence, the issue is straightforward. I understand why anxieties are raised; we are talking about transfer of property and, as the noble Lord said, there could be an element of compulsion involved without the agreement of a third party. I emphasise that that would be used as a last resort and that there is provision for compensation, but the provision is vital. If it were removed, that could be detrimental to the introduction of BETTA.

To answer the questions asked by the noble Lord, Lord Gray, about what kind of property we are talking about, for the most part, we are almost certainly discussing property such as leases, licences of intellectual property, contractual rights and so forth, rather than cash. Nevertheless, that is property and the provision could involve compulsory purchase of property.

Obviously, in the first instance, we would hope that all parties concerned—the transmission asset owners, the transmission system operator and so on—would be able to agree on how the new system will operate and how the parties will interact and arrange their affairs. But that may not occur. It will be necessary to use the property arrangement scheme only if agreement cannot be reached and if that would result in BETTA failing or being undermined.

In order for that provision to be used, an application to use the property arrangement scheme would, as the noble Lord said, have to be made within three months of BETTA's introduction. Were the provision not there, we would be in danger of allowing the BETTA system not to operate in practice. On the procedures, I understand that GEMA intends to publish the procedures that it intends to follow when the Act is in force.

On the second amendment and the question of a timetable, it is important that we allow time for all the parties' interests to be fully considered. That requires some flexibility. Some of the matters on which the authority may have to decide may be straightforward—a simple assignment of a single software licence, for example, where the main licence could not otherwise be assigned. But other issues may be much more complicated.

Whatever the application, it is incumbent on the authority to consider whether the proposal is necessary or expedient for the implementation of BETTA, as well as deciding what arrangements to impose. In that context, it is important that all affected licensees' and third parties' interests must be considered. The authority needs to act as rapidly and as expeditiously as possible, but it will be operating in a system in which its decisions can be challenged under administrative law.

That cuts both ways. On the one hand, if it fails to take all those issues into consideration, it can be challenged. On the other hand, if it takes too long about it and there is detriment as a result of the delay, it could also be challenged. So it is not easy to define a fixed period or even a normal period in the sense in which the noble Lord, Lord Gray, asked me to do.

We do not expect a backlog. We hope and expect that in almost all instances, the parties will reach agreement without resorting to that last resort provision. The staffing issues will therefore probably not arise. In any case, they will be an administrative matter for GEMA rather than for the Ministry, so I cannot answer that question. We do not anticipate that that will lead to any serious pressure on staffing.

However, if we removed the provision or imposed a timescale that would prevent the authority from carrying out its duties, that could in certain circumstances lead to delay in BETTA's introduction or compromise the ability to implement BETTA at all. The deletion proposed by the first amendment would clearly lead to that consequence. Were we to place too tight a timescale on the authority, the same problem could arise. We must ensure that the process is pursued, taking into account the interests of all parties concerned. It would be unhelpful to those parties were a tight timescale to be imposed on them in all cases.

Baroness Byford

Before my noble friend replies, as my name is linked with the amendment, perhaps I could ask a couple of questions. The Minister said clearly that the provision would be enacted only if agreement were not reached. That is the second amendment on which a Minister has said "only if". Would it not make more sense to include those words? At present, as my noble friend clearly spelt out, the provision is open-ended.

The Minister went on to say that there would be guidelines about the length of time, that the response would be as rapid as possible or that a normal period would be used. Other Members of the Committee may know, but I should be grateful if he would tell me whether there is a recognised normal period. He said that it may be possible to respond in three months. I know that this is a DTI Bill rather than a Defra Bill, but the Minister will be well aware that I am still concerned that, for example, payments due from the foot and mouth outbreak have still not been completed two years later.

We all want to get the system up and running, but what do the Government anticipate that a normal period may be? Earlier, we were referred to the Utilities Act. We raised similar concerns before it was passed. Is there anything in that Act to help my noble friend by giving him some idea of the sort of period anticipated?

If there is a major challenge that may go to the courts, that will obviously take some time, but at present, reading the provision to which the amendments refer, it seems open-ended. It could take a considerable time, but no guidelines have been given. In his response, the Minister did not define the period at all; he gave us only a generality. Is there any provision in previous Acts that would help my noble friend and me to be more satisfied about the Bill's wording?

Lord Gray of Contin

I am grateful to my noble friend for that intervention and I entirely agree with her. I take the points made by the Minister, but I still believe that deadlines are not a bad thing for concentrating the mind. I only suggested three months to see what would be the Government's reaction. If they could argue a case for six months, we would listen.

The Minister said that they do not expect delays. Surely in legislation we should provide for the unexpected as well as the expected. Delays could have a serious effect. As a safeguard I would like a time limit to be imposed, but I shall listen to the Minister's further remarks on that. In any case, we will certainly consider carefully what he has already said, but we may want to return to the matter on Report.

Lord Whitty

In response to the point about last resort, the process is triggered not by the regulator but if a transmission licensee applies. In other words, it can effectively be used only if no agreement is reached. So it is not a question of the regulator becoming irritated and deciding on the last resort; someone must decide that they cannot agree with the other parties. In that sense, it does not need to be spelt out that it is a last resort; it is a last resort because negotiations must have broken down before it can operate. That is not at the regulator's discretion.

I understand what was said about the timescale, but we do not know how complex the issues that arise will be. GEMA may set out an idea about timescales in its procedures, but it would be unwise to lay down a statutory limitation at this point. The assurance that parties to such agreements will have is that if the authorities delay unreasonably they are challengeable in law. Equally, they would be challengeable if the opposite were to take place and by hurrying it through they ignored or did not take into account the interests of one of the parties.

Although I understand why people may want some reassurance, it would be unwise to put that in statute. There may be something in the guidance that the regulators themselves may issue, but at this stage I would resist the building into the Bill of a statutory timetable. There are not many areas where in similar circumstances involving potentially complex negotiations the regulator is under a specific timetable to resolve matters.

6 p.m.

Lord Gray of Contin

I thank the Minister for that explanation. We shall give the issue a little more thought. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 119B not moved.]

[Amendment No. 119C had been withdrawn from the Marshalled List.]

Baroness Miller of Hendon moved Amendment No. 119D: Page 213, line 6, after "order" insert "subject to the positive resolution procedure

The noble Baroness said: In moving Amendment No. 119D, I shall speak also to Amendments Nos. 144A, 146A and 146B. In doing so, I should mention that I propose to table similar amendments to Clauses 24 and 72. Those provisions have already been dealt with by the Committee, so I shall introduce the amendments on Report.

The Bill contains at least 12 Henry VIII clauses As the Committee will know, that alludes to the popular perception of that king as an executive autocrat. It means a provision that allows an Act of Parliament—not necessarily the one that grants the power—to be modified by statutory instrument. This is a power which, although not invented by the present Government, has been used by them with ever-increasing frequency since they have been in power.

A Henry VIII clause is normally, and quite rightly, made subject to the affirmative resolution procedure. However, there are some cases, in our view, where the affirmative resolution procedure itself needs to he strengthened by what I may call a "super affirmative procedure". The super affirmative procedure is set out in Amendment No. 146B, the last amendment in the group. Basically it requires more than the usual procedure employed for ordinary affirmative resolutions.

In those cases, the Secretary of State will have to do more than table the order. Before he does so, under proposed subsection (2) he will have to give Parliament a detailed explanation. There must then be a 60-day consultation period before the order is laid. That is covered by proposed subsections (3), (4) and (5). Under subsection (6), the Secretary of State, in formally laying the draft order before Parliament in the ordinary way, will also have to inform Members of both Houses what representations he has received and what amendments he has made as a consequence. Subsection (7) of the proposed new clause provides a definition of the word "enactment".

There is a precedent, set by the Government themselves, in the Regulatory Reform Act 2001, where Sections 4 and 5 make provision for prior consultation before a Henry VIII order is made.

Despite the fact that there are, as I have said, no fewer than 12 Henry VIII clauses, I have not applied a shotgun approach to them. I have selected only four for a special super affirmative procedure, modified from the more detailed one required by the Regulatory Reform Act.

I shall now deal with the four remaining amendments in the group in order. Amendment No. 119D affects paragraph 21 of Schedule 18. The schedule does not specify either the positive or negative method of ratifying the order. Presumably that was not an oversight but due to the fact that, as I assume, the Government rely on the general provisions of Clause 156.

However, we believe that this particular provision in the 18th schedule should in any case require the use of the positive resolution procedure. More than that, we believe that it needs the super affirmative procedure. The reason for this is because of the powers given to the Secretary of State to refer Ofgem's determinations to the Competition Commission. The occasions when this could arise are too serious to be allowed to slip through, probably unnoticed, under the negative procedure.

Amendment No. 131 A relates to paragraph 14(2) of Schedule 22, which enables the Secretary of State by order to modify any of the time periods specified in the schedule. It therefore has the potential adversely to affect the exercise of persons' appeal rights. This is currently constrained only by the negative resolution procedure.

Amendment No. 144A relates to Clause 155, which enables the Petroleum Act 1998 to be modified by Order in Council to give effect to international agreements relating to the construction, operation, use, decommissioning or abandonment of a pipeline or offshore installation.

Amendment No. 146A is to Clause 156(3). The clause relates to powers exercisable by statutory instrument and the amendment is merely consequential to ensure that the exercise of that power is subject to new Section 156A.

If and when I am able to introduce the similar amendments to Clauses 24 and 72, I shall be drawing the Committee's attention to the effect of those two clauses. Respectively, Clause 24 allows the Secretary of State scope to increase the NDA's borrowing by increasing the limits. Clause 72 permits the Secretary of State to give effect to international agreements which Parliament may never have had the opportunity of discussing in the first place.

The new Section 156A created by Amendment No. 146B lays down the super affirmative procedure that I believe is essential in the four special and particular cases that I have set out. I beg to move.

Lord Whitty

As regards the first amendment. I am in a slightly strange position. Having looked at the issue, I find that the paragraph of the schedule to which the amendment relates was drafted some time ago when this was a stand-alone Bill. It relates to a situation when the relevant clause of the Enterprise Act had not commenced.

Having considered the matter—partly as a result of having my attention drawn to it by the amendment—it is our view that we do not need to retain the power and that the best way of dealing with it is to delete the sentences completely. So we shall bring forward amendments to do just that and to remove the whole of paragraphs 21 and 22 of Schedule 18.

I cannot be so accommodating on the rest of the amendments.

Earl Attlee

Perhaps you should just sit down now.

Lord Whitty

The noble Baroness is suggesting that in those clauses which give a very specified power to the Secretary of State we should go for a special super affirmative resolution procedure. That is a concept which is alien to many Members of the Committee and I do not see the need for it. The name of Henry VIII has been much maligned in this context. He would have regarded the provisions as being preposterously restraining on him.

We have to look at the precedents for this. I have quite a long brief here, which I can read out, or I can write to the noble Baroness. There are situations where a special procedure has been operated, more or less in the terms suggested by the noble Baroness, but the provisions to allow that are open-ended provisions to modify legislation in an unspecified way for unspecified reasons. Some of them arose in the Local Government Act—certainly the noble Lord, Lord Dixon-Smith, will remember them—and others arose under Northern Ireland legislation, where powers are given to amend the primary legislation without specifying why. In all such cases, including the ones relating to the earlier clauses, there are specified reasons and means for modifying the clause, most of them relating to the implementation of international agreements.

I know that there is a running argument in parts of the House about whether Parliament should negotiate treaties. The practice is that we do not negotiate treaties but the effects of treaties come into legislation. This is one way of making sure that treaties come into legislative operation. It has been used before. It is a very specified and particular reason for what is being called a Henry VIII power. It is not a proper Henry VIII power in the sense that it has a wide range of unspecified actions that the Secretary of State is allowed to take.

Even the marginally more open-ended question of increasing the borrowing limit of the NDA is very specific. I do not therefore believe that in this context we require a special procedure. It is no different from many of the other contexts in which we use the affirmative procedure. It would be difficult to justify it in this context when a whole range of affirmative resolution procedures are at least of similar provenance and where no open-ended power is given to the Secretary of State. So in all of these instances I would resist the imposition of a special procedure on these clauses.

Baroness Miller of Hendon

It seems to be one to us and three to the Government. I believe that that is a fair summation of what the Minister said.

I thank the Minister for accepting the fact that the paragraphs in the schedule needed to be deleted. It looked as though we were setting a precedent with this group of amendments. It did not last very long, but it was better than nothing.

I shall read carefully what the Minister said. I have had problems with Henry VIII clauses—not only in this Bill but in many Bills—which are creeping more and more into legislation. One must make a stand at some stage and say, "We do not believe that it is right". The Minister referred to another Act which contained such a provision with regard to international agreements, and Clause 72 of this Bill refers to international agreements.

I shall read carefully what the noble Lord has said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 18 agreed to.

Clauses 114 and 115 agreed to.

Schedule 19 agreed to.

Clauses 116 and 117 agreed to.

Clause 118 [Standard conditions for electricity interconnectors]:

[Amendment No. 120 not moved.]

[Amendment No. 121 had been withdrawn from the Marshalled List.]

Clause 118 agreed to.

Clause 119 [Consequential amendments of the 1989 Act]:

[Amendment No. 122 not moved.]

Clause 119 agreed to.

[Amendment No. 123 not moved.]

Clauses 120 and 121 agreed to.

Clause 122 [Standard conditions for gas interconnectors]:

[Amendment No. 124 not moved.]

Clause 122 agreed to.

Clauses 123 to 126 agreed to.

Clause 127 [Objective of an energy administration]:

6.15 p.m.

Lord Brooke of Alverthorpe moved Amendment No. 125: Page 99, line 4, after "system" insert "in compliance with its licence conditions and general duties

The noble Lord said: The amendment—and the two that follow at Clauses 128 and 130—relates to the proposed special administration regime for energy licensees. The Department of Trade and industry consulted on this matter last summer, but there are still some loose ends to tie up.

As we understand the position, there are some inconsistencies in administration arrangements across the different regulated utilities. For example, special administration may be enforced in the water Industry for breaches of licence conditions or general duties, yet for the energy sector the assumption is that administration arrangements will apply only in cases of insolvency. Amendment No. 125 is therefore proposed in the interests of good practice and consistency across the board.

Amendment No. 126 relates to Clause 128 and seeks to ensure consultation at a timely and appropriate stage through the established industrial relations machinery. For any employee the experience having his or her company placed into administration is, at the very least, extremely worrying. It is well known that the consequences, both in terms of future employment security and pension provision, can be dire. It is therefore only right and fair that there should be proper and meaningful consultation throughout any such process. The amendment does not seek to create any new structures, but simply to ensure that existing arrangements are honoured properly.

Amendment No. 127 relates to Clause 130 and seeks confirmation that the arrangements for a special administration regime do not, are not intended to, override the statutory duties on employers of protected persons under the Electricity Act 1989.

Clause 130 appears to lay a duty on the administrator to prioritise the interests of creditors and, subject to them, the interests of members of the company. A clear statement is needed that this statutory duty will not override duties arising under the 1989 Electricity Act.

That Act empowered the Secretary of State to make regulations that would protect employees then in the industry from detriment in respect of their pension provision. These were enacted as the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990. Similar protection was provided for employees in Scotland under Schedule 15 to the Act and the Electricity (Protected Persons) (Scotland) Pension Regulations 1990.

The regulations impose a duty on the relevant employer to maintain or provide its protected employees and protected beneficiaries—together called "protected persons"—with pension rights on both an ongoing basis and in three particular circumstances. Those circumstances are as follows: first, in the event of the partial or total winding up of the scheme; secondly, arising from the restructuring, or change of ownership of the participating employers; and, thirdly, where employees transfer from one employer to another within the electricity industry.

The amendment would also support the objective of maintaining energy network services as this will clearly depend on achieving the fullest co-operation of staff. In such circumstances it will obviously be helpful if staff are not pre-occupied with concerns about their future employment. I beg to move.

Lord Whitty

The first amendment seeks to link the objective of energy administration directly to the fulfilment by the company of its licence conditions and its general duties. I understand my noble friend's argument that a company's administration should continue to comply with its licence conditions and we considered whether we should stipulate that in the Bill. However, we concluded that a direct reference to the licence conditions was unnecessary because the energy administrator would, in any event, need to be mindful of the company in administration continuing to comply with all the licence conditions. Otherwise the consequences for members and creditors of the company if it ceased to be licensed could be damaging. We therefore considered that it was not necessary to stipulate that in this context.

It is also unnecessary to link the objective to the fulfilment of the company's general duties, which are quite wide. The objective already links to maintaining and developing an efficient and economical system. Insofar as this is a general duty of the company, there is no need to refer to it again in the clause.

The approach as drafted focuses on the policy objective—which must be the main and overriding reason for introducing the special administration—that there should be no interruption to gas or electricity networks. In other words, the lights should not go out. That is the overriding responsibility of the administrator. Insofar as licence conditions can be complied with within that, clearly there is an expectation that the administrator would ensure that they were. It is important that that overriding responsibility should be spelt out; anything else may cause confusion.

The other two amendments relate to the interests of employees in the case of energy administration. The first deals with a requirement to notify the trade unions of an application. I appreciate that there may well be a general argument for that, which my noble friend Lord Brooke may wish to pursue, but the clause follows the precedent of existing insolvency law and adapts only where necessary for the purposes of energy administration. It would be odd if such a provision were written into this kind of administration if it was not generally provided in other administration circumstances.

Clearly the employees are subject to the same protection as in any other "ordinary" administration. It will be for the company to ensure that its employees are properly informed. That is the main area of communication with the trade unions.

Amendment No. 127 would require the energy administrator to exercise his powers in a way which protects the interests of employees, insofar as that is consistent with the objective of energy administration. That may be highly desirable but, again, we are following the precedent of existing insolvency law and adapting it only where necessary to meet a particular situation. Again, there is no real justification for treating employees of a protected energy company in energy administration differently from those in ordinary administration.

Of course, under existing insolvency law, employees can be classed as creditors under paragraph 99 of Schedule B1 to the Insolvency Act 1986, which is to be found in Schedule 16 to the Enterprise Act 2002. In that regard, their interests would be protected under energy administration just as would those of other creditors. Under paragraph 74 of that schedule to that Act, an employee who is a creditor of the company may apply to the courts if he believes that the administrator is acting unfairly to harm his interests as an employee creditor of the company.

My argument against the second and third amendments is that there is no reason for us to depart from the ordinary rules of administration in this respect. The text therefore follows that objective. The noble Lord, Lord Brooke, referred to a piece of legislation—I did not hear entirely what he said—and suggested that there is a precedent. Clearly if that is the case I shall look at it and consider whether it gives me any cause to modify that argument.

The noble Lord, Lord Lea, whose name is attached to the amendment, is not in his place. He has been campaigning for such legislation for trade unions for at least 35 years to my knowledge— it was in his evidence to the Donovan commission in 1966—but has never succeeded. He will not succeed through this back door either.

Lord Brooke of Alverthorpe

I thank the Minister for his response. I regret that my noble friend Lord Lea is not in his place to elucidate on the evidence put to the Donovan commission. I certainly do not remember the fine detail of that.

Taking the last point first, if we have raised a precedent that requires further attention, I should be grateful if my noble friend will take the matter away, discuss it with his officials and consider whether there is any opportunity for some variation of what has been stated to meet the precedent previously established.

As to my noble friend's other points, naturally we believe that the Government have recognised, so far as they can, that this is a special piece of work that must be undertaken by specially qualified people. That will ensure that the work is carried out and seen through fully by the best qualified and, in many respects, protected staff.

We have endeavoured in our representations to ensure that employees' terms and conditions are up to the best possible level, particularly in regard to protection of pensions. Indeed, in certain areas, we have tried to achieve minor breakthroughs to ensure that their best interests are protected. I recognise that the generality of applications will similarly apply in this area but I was hoping that we might look for some special changes for involved employees.

It seems that we have not so far convinced the Minister with our arguments. I shall take away the points he made, reflect on them and consider whether to bring back further arguments at a later stage. Alternatively, we may accept the arguments put to us today. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 127 agreed to.

Clause 128 [Applications for energy administration orders]:

Baroness Miller of Hendon moved Amendment No. 125A: Page 100, line 5, at end insert— ( ) Before making (or proposing to make) an application in relation to a company under this section, or consenting (or proposing to consent) to such an application by GEMA, the Secretary of State must

  1. (a) have consulted the directors of that company; and
  2. (b) be satisfied that there is no reasonable prospect that the company would otherwise be able to avoid going into administration or insolvent liquidation within the meaning of section 214 of the 1986 Act."

The noble Baroness said: An energy administration order is defined by Clause 126 as one made by a court in relation to a protected energy company. It provides that while the order is in force, the affairs, business and property of the company are to be managed by a person appointed by the court. Clause 128 gives power to apply to the court for an energy administration order. It limits the power to apply for an order to the Secretary of State or to GEMA if the Secretary of State authorises it.

Under the Bill in its present form, there is a danger that an energy administrator might be appointed prematurely. I believe that the test for the exercise of the Secretary of State's power to apply for the appointment of an energy administrator is the same as the court will exercise in deciding whether or not to grant it.

Administrators cost a great deal of money, adding to a defaulting company's problems and depleting still further the funds available to the creditors. It should be recognised that a company in financial trouble can sometimes be rescued or reorganised without an administrator being appointed. This may involve, for example, a formal arrangement with creditors or an informal arrangement with one or more of them.

High profile cases in recent months have included British Energy and AES Drax. In the case of TXU Europe there was a six-week period before the appointment of the administrator. During that period, the orderly sale of the K supply business was achieved. Those three examples are from the competitive, as distinct from the monopoly, segments of the energy market.

However, the appointment of administrators, as distinct from an informal rescue, in any kind of business, including energy administrators, is likely to be a value-destroying step for any company. That is because administrators are bound to act in a somewhat rigid manner. They are not likely to stick out their necks by taking a commercial risk to carry on or further the business. Usually, an administrator will be an insolvency practitioner who will have little or no knowledge of the business, even if he has access to outside expert advisers.

It seems desirable, therefore, that the Secretary of State should be required to consult the directors of the company before, in effect, pulling the plug by taking the drastic step of applying for an energy administration order, or even by taking the commercially damaging step of announcing an intention to do so.

The amendment also prohibits the Secretary of State from applying to the court for an energy administration order unless he believes that there is no other reasonable prospect that the company would be unable to avoid liquidation. In other words, the amendment prohibits the Secretary of State from acting in haste. It requires the Secretary of State to consult with those who will know at least as much about the affairs of the company as his advisers and the headline writers in the financial press.

The amendment does not unduly restrict or delay the exercise of the Secretary of State's powers to apply for the appointment of an administrator. Consultation with the directors need not be a lengthy process. It could be carried out in a matter of hours or even in the course of a telephone call. It does not impose on the Secretary of State the responsibility of carefully considering whether it is better for an administrator to be appointed than to allow a rescue to be organised. But having to give consideration to that alternative is no bad thing. It is not a novel idea. It frequently happens in the ordinary world of commerce when a creditor has to decide whether it is better to seek a winding-up order or to appoint an administrator rather than go along with a rescue plan.

I recognise that there is an added dimension in the case of a failing energy company; that is, the need to ensure that there is a continuity of supply to customers. There is no reason to believe that a very short consultation with the directors would prejudice that. Neither would the requirement that the Secretary of State must take all relevant factors into account before deciding whether to apply for an energy administration order.

On the contrary: the effect on customers is one of the matters that the Secretary of State would undoubtedly want to take into account. This amendment, far from inhibiting or restricting the Secretary of State's power to act, will enhance it. By following the procedure laid down in the amendment, he will be protecting himself from a challenge in the courts about the way that he has exercised his discretion. I beg to move.

6.30 p.m.

Lord Triesman

Amendment No. 125A would require the Secretary of State both to consult the directors of a protected energy company and to be satisfied that there is "no reasonable prospect" that administration or insolvent liquidation could otherwise be avoided before making an application for an energy administration order. I have tried to fit in my mind what the noble Baroness, Lady Miller, said about how rapidly that might be operated in extreme circumstances. I must confess that at the moment I find it hard to reconcile the notion that it could be done in hours or on a telephone and still meet what I think is the quite serious test of no reasonable alternative, which might well be difficult. Of course, it could be brief—that is not inconceivable—but it would be difficult.

I hope that what I have already said illustrates that I completely understand the proposers' concern that the Secretary of State should not use premature powers or act precipitately—possibilities that have been described—and should not seek an energy administration order lightly. That is quite right. By any standards, that would be a very serious matter. The noble Baroness referred to the rights of the creditors and the desire to explore other options. The delays that are sometimes needed in order to consider what the alternatives might be were also mentioned. They are all serious matters.

I concur that the Secretary of State first should be satisfied that there is no reasonable prospect that the company can avoid going into administration or insolvent liquidation by means of a workout or some alternative solution. To do that he would no doubt normally consult the protected energy company and others, such as the regulator and insolvency experts, as appropriate.

However, it would not be appropriate to place either requirement envisaged by the amendment in the Bill. The purpose of the provisions for energy administration for protected energy companies is to ensure, as the noble Baroness said, that "the lights stay on". In the most extreme circumstances, there should be a provision to ensure that the lights stay on in the very unlikely event that such a company faces insolvency. I do not imagine that that would be an event which would occur with great frequency.

However, I say to the noble Baroness that were there to be any risk of the lights going out, by any standards, it would be an extremely dire and public event that would cause considerable consternation. For those reasons, it is important to think about the alternatives that we believe are already in the Bill.

I should add that I take very seriously the noble Baroness's argument that by and large administrators are averse to commercial risks. However, in the extreme circumstances of a real risk of the lights going out, I doubt whether anyone would take any risks on the side of Government because of the serious consequences.

In exceptional circumstances—clearly they would be very exceptional circumstances—this may require the Secretary of State to act with the greatest possible dispatch. It cannot be right to require him first to consult the directors of the company or fully to satisfy a test that "there is no reasonable prospect" that the company would otherwise be able to avoid administration or insolvent liquidation. As always, the Secretary of State will have to act within the bounds of administrative law. In any sense, that is a constraint that must remain. But he should not be further constrained at the point when that rather more remarkable and dramatic circumstance potentially could occur.

I would also observe that even where there is no consultation prior to the making of an application, there should be sufficient time before the hearing for the Secretary of State to discuss the application with the company. It would be possible for the Secretary of State to withdraw the energy administration application if, following discussions with the company, it appeared that energy administration was unnecessary.

The Secretary of State has a duty to serve notice of the application on certain interested parties listed in the Bill once the application has been filed at court. Therefore, there will be a short window in which to make representations to the Secretary of State before the hearing and a further opportunity to raise objections at the hearing. Alternatively, if the interested parties concur with the Secretary of State's judgment, it is intended that they will be able to waive this notice period under the energy administration rules.

I therefore hope to assure Members of the Committee that energy administration will not be sought lightly. The reason that the Secretary of State must have freedom to act quickly would be to keep the lights on. In those circumstances, the amendment is inappropriate. In conclusion of this point, I recognise that the circumstances I am describing probably would occur either not at all or very rarely. But the provision of a safety net of this kind in legislation is none the less, in our view, essential.

Lord Jenkin of Roding

The noble Lord said that he cannot conceive circumstances in which a transmission company might find itself in the difficulties envisaged in the clause. One must remember that this does apply only to transmission companies. However, the same might have been said about British Energy shortly before it had to come before the Secretary of State to say that there would be a number of unpaid bills. The Government had to step in with substantial sums of money with the threat of administration hanging over their head. I heard this morning, in a report to the all-party nuclear group, that British Energy is well on its way to hauling itself out of its difficulties and may be able to repay its Government loan. I regard that as good news.

On the whole, the British Energy situation was reasonably well handled. But one must recognise why it arose. As the noble Lord, Lord Sainsbury, told us in the debates on the Electricity Act last year, British Energy got into difficulties because it did not have a retail arm that could pay the losses on its generating arm, whereas most other generating companies had a retail arm, with the result—as we know well and the Select Committee in another place complained—that there was no reduction in retail electricity prices to reflect the 40 per cent reduction in wholesale electricity prices. Therefore, in one sense, Ofgem's administration of NETA was a direct cause of the collapse of British Energy, which drove prices down to a level at which British Energy could no longer make a profit.

For most of today, we have been talking about the regulation of transmission companies and the issue of licences, changes, codes, and so on. I am sorry to speak for so long, but I come to my point. In the light of the experience that we saw with NETA, I do not believe that the regulators would not drive the transmission company into a position where it is unable to meet its obligations.

The Government have recognised that this is a very serious matter by introducing an entire chapter to this part of the Bill to give them the power to do so. I would regard it as quite strange if they said that it is purely hypothetical and will not happen. It happened at British Energy, with considerable embarrassment to the Government, who had to step in. That is all history—but I do not regard a recurrence as inconceivable.

I hope that the new administration at BETTA will recognise that there is no future in driving prices down—whether generating prices or transmission costs—to the point where companies cannot pay their bills. This is an important chapter. It is important to have appropriate safeguards. I have listened carefully to what the noble Lord, Lord Triesman, said. I hope that the Government will give some further thought to this so that they do not simply step in and take the actions envisaged under this chapter without there having been a proper opportunity for the directors of a company to explain their case and where they stand.

Lord Triesman

It is entirely right and fair that the noble Lord, Lord Jenkin, should refer our attention to British Energy. I understand that potentially such occasions could occur. I think that they would be relatively unusual occasions. A critical point in the noble Lord's submission was that here was an example where, with time and a great deal of discussion, the company has begun to develop ways in which it can successfully survive. I hope that the generality of cases would be ones in which time was available for all kinds of consultation and opportunities to seek expert advice, as a result of which the company could survive.

In general, the regulator will be required to assure the financial viability of the network companies and it would be something of a surprise to stumble on some of these events without knowing that they might occur. None the less, I accept that it could happen. I do not want to speculate about such circumstances overmuch. I concede that such a scenario is a possibility. However, it is hard to imagine that an emergency might frequently occur where the Secretary of State felt that he had no time at all to consult or to think about any options of the kinds mentioned by the noble Lord, Lord Jenkin.

I should like to pose the question in different terms. Could we guarantee that such a scenario would never in any circumstances occur? The answer is that probably none of us are satisfied that that could never happen. In circumstances where we are not satisfied that it could never happen, there needs to be some reserve powers that give sufficient authority to ensure that the lights stay on.

6.45 p.m.

Lord Jenkin of Boding

I should like to draw the noble Lord's attention to a point that I made at Second Reading. Under the operations of NETA, the Ofgem regime of the time, Callum McCarthy thought that the was doing a marvellous job in getting prices down by 40 per cent. When it was pointed out to him that he was simply driving one generator after another into administration or bankruptcy, he said, "Well, that's the cost of getting prices down". I hope that Sir John Mogg and his colleagues at Ofgem will not take that high-handed view. When Callum McCarthy went off to run the Financial Services Authority, my comment in the House was, "God help the banks".

Lord Triesman

I should be very careful not to trespass into the reasons why British Energy or others faced difficulties, but I understand the point made by the noble Lord. I hope that noble Lords will forgive me for reiterating that if we ourselves cannot be satisfied that a really urgent circumstance could never occur, it is sensible to make provision for that very rare possibility.

Baroness Miller of Hendon

I thank my noble friend for his timely intervention and for pointing out the situation with regard to British Energy and NETA, which I think that most noble Lords accept are the real reasons why British Energy unfortunately got itself into so much trouble. We only hope that BETTA really is better in that respect. It is interesting that Part 3, Chapter 3, is such a large chapter dealing with the special administration regime for energy licensees, energy administration orders, and so forth. I do not imagine for one moment that it could be quite that rare, otherwise it would be unusual to have such a big portion of the Bill dealing with the matter. I think that that is there as insurance so that people know what to do.

I am sorry that the Minister does not see a need for my amendment. He was quite complimentary about how it was dealt with and spoken to. However, I shall read carefully what he said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 126 not moved.]

Clause 128 agreed to.

Clause 129 agreed to.

Clause 130 [Energy administrators]:

[Amendment No. 127 not moved.]

[Amendment No. 127A had been withdrawn from the Marshalled List.]

Clause 130 agreed to.

Clause 131 agreed to.

Schedule 20 [Conduct of energy administration]:

Lord Whitty moved Amendment No. 127B: Page 220, line I leave out sub-paragraph (2) and insert— (2) In sub-paragraph (6) of that paragraph. for paragraphs (a) to (c) substitute— (a) a voluntary arrangement approved under Part 1, or (b) a compromise or arrangement sanctioned under section 425 of the Companies Act (compromise with creditors and members)."

The noble Lord said: In speaking to Amendment No. 127B, I shall speak also to Amendments Nos. 127C to 127G. The amendments correct minor drafting errors in Schedule 20, which provides for Schedule B1 to the Insolvency Act 1986, to which I referred earlier, to have effect in relation to energy administration, amended to allow for the circumstances of energy administration.

I assure Members of the Committee that none of the amendments makes any difference to the substance of the schedule. I therefore hope that Members of the Committee would be prepared to accept them. I beg to move.

Baroness Carnegy of Lour

The schedule seems most amazing. I would not have the slightest idea whether the amendments were an improvement; nor would any lawyer at present. Would it not be possible to republish the schedule, rather than referring to countless amendments? It is very difficult to understand, which seems bad drafting practice.

Lord Whitty

It is normal drafting practice, but no doubt the noble Baroness is nevertheless correct to say that it is pretty incomprehensible. It would obviously have been better had we reproduced the 1986 schedule as amended by our proposals in the original Explanatory Notes. I regret that we did not do so, but we can provide a version of what is now Schedule B1 before the next reprint of the Explanatory Notes, if that would be helpful, and copy it to the Committee. I shall need to check whether, if the amendments are accepted now, they can be incorporated, so that all the infelicities of drafting can be removed. That might be helpful. However, the individual amendments are minor and it would make more sense to make a complete schedule available before Report.

Baroness Carnegy of Lour

I am concerned not so much for the Members of the Grand Committee, this House or the other place, but the people who must operate the Bill when enacted. The amount that it will cost in legal fees for someone to sit looking up what all the changes amount to will be enormous over the years. There is a strong argument for reproducing the schedule in its final form in the Bill. That is what I was suggesting, but perhaps I am wrong about that.

Baroness Byford

Perhaps it would help the Government if we said that we would not accept the amendments, so that they could get it right by Report. That would fit well with what my noble friend said.

Lord Whitty

That would be to confuse ourselves further. There may be infelicities in the drafting now but, if we can put them right before the next stage, we could see what the schedule would look like as amended both by the original Bill and the drafting amendments. If we did what the noble Baroness, Lady Byford, suggests, and did not adopt the amendments until then, we would need yet another version of the schedule between Report and Third Reading.

The noble Baroness, Lady Carnegy, is undoubtedly right that it is difficult to interpret. Without committing my colleagues to not producing equally complicated cross-references between different Acts, if we can do so for this Bill, that will be incorporated in the next reprint of the Explanatory Notes, if that would be helpful to the Committee. Without wanting to be churlish, it would be better to adopt the amendments so that any misdrafting can be corrected before the next stage.

Baroness Miller of Hendon

I thank the Minister and my noble friend Lady Carnegy for her comments. It is terrible when we receive letters with "Defra" written across the top and know that something else is coming and they say, "These are all simple drafting amendments". However simple they are, we must quickly look through them in case we are told off because they were not quite so simple or involved more than drafting amendments.

Normally, it is easy for me because I have a lawyer on tap at home and pass it on, saying, "What do you think about this?". I must tell the Committee that he took great exception to looking at this. I was interfering with social events when he wanted to watch various programmes on the television. The document is 10 pages long and refers non-stop to other documents. He pointed out to me that if I really wanted him to give a legal opinion, I would have to pay for it. I did not think that the Government would take that on board.

It is important that we try to make things simple. This is not the first time that this has happened: we get it all the time. Schedules always refer to this, that and the other provision and one must be a knowledgeable lawyer to cope with what is being said.

Lord Roper

I am grateful for what the Minister said, but I feel that the points raised by the noble Baroness, Lady Carnegy, are worthy of greater consideration. Will the Minister give me an assurance that paragraph 312 of the Explanatory Notes, which refers to Schedule 20 at the moment and is rather brief, will be reprinted in extenso incorporating effectively Schedule B1 to the Insolvency Act 1986, as amended by this legislation? If that were the case, and if it were possible to do that by Report, it would clarify the issue and be helpful. I would be grateful if the Minister could give me such an assurance.

Lord Whitty

That is the intention. Clearly, it would probably be produced as an annex and would refer to that paragraph rather than disturbing the literary flow of the Explanatory Notes. That would be our intention, and we could obviously provide it to noble Lords in draft in advance of the next stage. The issue before us tonight is whether that incorporates the amendments. It would be clearer if it did.

On Question, amendment agreed to.

Lord Whitty moved Amendments Nos. 127C to 127G: Page 220, line 2, leave out "sub-paragraph (6) of that paragraph" and insert "that sub-paragraph Page 222, line 28, at end insert— ( ) In paragraph 101(3) (joint administrators), after "87 to" insert "91, 98 and". Page 222, line 29, leave out "for sub-paragraph (2)(a)" and insert "in sub-paragraph (2)—

  1. (a) omit the words from the beginning to "order";
  2. (b) for paragraph (a)"
Page 222, line 33, leave out "sub-paragraph (2) of that paragraph" and insert "that sub-paragraph Page 225, line 12, leave out "of the company

On Question, amendments agreed to.

Schedule 20, as amended, agreed to.

Schedule 21 agreed to.

Clauses 132 to 139 agreed to.

Clause 140 [Modifications of particular or standard conditions]:

Lord Jenkin of Roding moved Amendment No. 128: Page 107, line 25, leave out "appropriate" and insert "necessary

The noble Lord said: In moving the amendment, one can be fairly brief as it speaks for itself. The question is whether, under Clause 140(1), the Secretary of State should be able to make modifications to the, conditions of a gas or electricity licence held by a particular person", simply if he considers it appropriate. I hope that someone will be able to explain that that means by any person holding any licence, and not only the company that may have had to have an administrator appointed. That seems a wholly subjective test. If we substitute "necessary", as I suggest in the amendment, clearly that would be justiciable. If not, one would have to prove bad faith in order to resist having one's licence amended under the clause. That is the effect of "appropriate". With "necessary", it is clearly open to parties to argue whether a particular licence change affecting any person holding a gas or electricity licence was necessary in the light of the energy administration.

I strongly argue that, because a very wide number of licence holders could be affected—perhaps all the licence holders who supply or draw electricity from the company that has gone into administration—the measure ought to be subject to a fairly clear justiciable test. "Necessary" does that and "appropriate" does not.

The Government would be wise to accept Amendment No. 129, regardless of whether they agree with Amendment No. 128. To the words in subsection (5): The Secretary of State must publish every modification made by him under this section",

I would add, and shall include a statement of the reasons why he considers each such modification to be necessary".

I am sure that he could do that in a letter. If he is to hold this stringent power with considerable consequences for many licence holders, then when he publishes a statement of what he has done in the modification, the statute should require him to set out the reasons why. I beg to move.

7 p.m.

Lord Triesman

As the noble Lord, Lord Jenkin, has made clear, Amendment No. 128 would reduce the discretion of the Secretary of State to make modifications to licence conditions. I hope that noble Lords will not mind my saying that the proposed change from "appropriate" to "necessary" revisits some of the issues on discretion. I shall not go through all the arguments that we have rehearsed throughout our debates; I shall deal with the amendment. Rather than allow the Secretary of State to make modifications where "appropriate", it is proposed to allow her to do so only where she considers it "necessary".

I understand the concern and I have been attentive to the arguments made in its support at other points in our discussion of the Bill. There is concern that the power should not be overused. Although the term, Where the Secretary of State considers it appropriate", may sound too loose for the noble Lord, Lord Jenkin, it is none the less standard legal terminology with a considerable number of precedents. In saying that, I am fully aware that Members of the Opposition have objected to the fact that the number of precedents has been growing. Indeed, that is part of their objection. However, the fact is that that is how legal terminology is now constructed. Furthermore, the powers exercisable by the Secretary of State to make those modifications would be construed in accordance with administrative law. The modifications made would need to be reasonable and for the purposes of this particular provision, not wider.

It may assist Members of the Committee if I point out that we intend to use this power to make such modifications as are required to secure the recovery of costs of energy administration. That is its purpose. We do not at present envisage any wider exercise of the power. I should add that in consideration of that, we have had no adverse representations from the industry about the provision as stated and with those purposes in mind.

I hope that I have it right that the noble Lord, Lord Jenkin, asked about "discussion with any person". That may well be a wide requirement, but plainly the Secretary of State will need to make a judgment about who should be consulted in such circumstances.

Amendment No. 129 would require the Secretary of State to make a statement outlining the reasons for making a licence modification. In effect it is an appeal for transparency and is one of a number of such appeals that have been made. I understand the point and I take note that it has been urged throughout.

However, we believe that the amendment is unnecessary because there is an existing duty on the Secretary of State to give reasons for modifications to the conditions of a licence. Section 49A of the Electricity Act 1989 and Section 38A of the Gas Act 1986 require the Secretary of State to publish reasons as soon as reasonably practicable after modifying the conditions of a licence. That will include modifying the standard conditions. So that is an obligation currently in legislation.

Lord Jenkin of Roding

I am sorry to interrupt, but I want to make sure that I understand the noble Lord. While that applies to the standard conditions and licences, would it apply where there is a modification of an individual licence that has been granted to a particular person? Do the earlier clauses apply to them? That is what distinguishes this case from the others.

Lord Triesman

Section 49A applies to the following decisions of the Secretary of State: the revocation of a licence, modifications of the conditions of a licence, the giving of any direction or consent in pursuance of a condition included in a licence by virtue of other sections of the Act, the determination of a question referred in pursuance of a condition included in a licence by virtue of the section, a determination of a dispute referred to under the various sections of the Act, the making of final orders, the making or confirmation of provisional orders and the revocation of a final or provisional order which has been confirmed. In short, it is comprehensive. I hope that I made it clear in my answer that it is the conditions of the other clauses that require the Secretary of State to publish reasons as soon as reasonably practicable after modifying the conditions of a licence in all those circumstances. I sought merely to add the thought that it also includes modifying the standard conditions themselves. It is genuinely comprehensive. I hope that that answers the question put by the noble Lord.

The notice would need to be published in a way considered appropriate by the Secretary of State for the purpose of bringing the matter to the attention of persons likely to be interested. Ofgem must also send a copy of the notice to the licence holders to whom the modification relates. Ofgem is subject to the same requirements if it makes a modification to the licence conditions. It cannot escape from the set of criteria that I have just outlined.

I hope that noble Lords will forgive me for elaborating at length, but I thought that a comprehensive response was the only appropriate way to deal with the serious question put to me by the noble Lord. I hope, too, that the noble Lord will feel that I have addressed the principal concerns expressed in the two amendments.

Lord Jenkin of Roding

I am extremely grateful to the noble Lord for his very comprehensive reply. I turn first to the second amendment. He has answered in full the point that I sought to make. The only point I want to add is that I am full of admiration for the speed with which the piece of paper was put into his hand. He is well served by his officials. If there are now blushes behind the Minister, then so be it.

On the first issue, the only point I wish to make is that I hope it will not necessarily be taken as a point against an amendment that it has not been suggested by one of the outside interests. This Committee is a place in which Members can apply their own judgment to the legislation before them. Many points have been proposed for amendments that were not suggested by outside interests. I hope that that is not regarded as an argument against an amendment. Perhaps the outside interests have greater faith in the competence of Ministers to regard modifications as appropriate because they will only be the ones that they will not mind. I am not sure that they would be wise entirely to accept that view.

However, the Minister said that there are plenty of precedents for the use of the word "appropriate" and that he does not like the word "necessary". I shall read carefully his words, but in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 129 and 130 not moved.]

Clause 140 agreed to.

Clause 141 agreed to.

Baroness Miller of Hendon moved Amendment No. 130A: After Clause 141, insert the following new clause—


Where an energy administrator has been appointed in relation to a protected energy company in accordance with the provisions of this Chapter, the Secretary of State and GEMA, in carrying out their respective functions under Part 1 of the Gas Act 1986 (c. 44) (gas supply) and Part 1 of the Electricity Act 1989 (c. 29) (electricity supply), must have regard to the need to ensure that the energy administrator is able to fulfil his obligations in relation to the business of the company."

The noble Baroness said: In the case of an ordinary commercial company regulated by the Companies Act, the duties of a receiver or manager are primarily to the secured creditor who has appointed him. It is a duty to recover the debt owing to that creditor, even though that may not suit the wishes or even the best interests of the other creditors or shareholders.

However, when the Secretary of State appoints an energy administrator, she is doing so in the interests of ensuring continuity of supply and of protecting customers. The aim of the amendment is to require Ofgem, the gas and electricity regulator, to take account of the functions and duties of an energy administrator appointed in relation to a protected company.

The purpose of the amendment is to ensure that there can be no risk that the work and objectives of an energy administration regime could be frustrated by a conflict with an inappropriate regulatory action.

It is a matter of concern that the regulatory actions of Ofgem during the period of an energy administration will set the framework within which the energy administrator can perform his functions, but may also impact on his freedom of movement in the exercise of his discretion. There is, therefore, the potential for Ofgem, in exercising its statutory functions, to clash with the energy administrator in the exercise of his functions.

That is not just a hypothetical possibility. This amendment was inspired by a recent event. In the special administration of Railtrack, such a dispute did arise. Without going into unnecessary detail, that case arose in relation to the rail administrator's important power to determine track access charges. The case went as far as the Court of Appeal, with both parties being funded, in effect, by the taxpayer. The litigation revealed that the relevant legislation did not establish a clear predominance of powers between the administrator and the regulator.

The lesson has clearly not been learnt because the same defect is evident in the treatment of energy administration set out in the present Bill. The issue is a particular problem in the case of energy supply. Although the regulator's duties and those of the administrator may overlap in some cases, they are not the same. In some cases, therefore, that could lead to each of them reaching a different conclusion.

Energy administration as provided for in the Bill is, in essence, a variation of the normal insolvency regime. As I said at the beginning of my remarks, energy administration must reflect the public interest in the operation of the network. But the regulator has no duty to recognise the functions of the administrator when he exercises his own powers. That is an undesirable situation which this amendment seeks to put right.

To avoid any unnecessary clashes and misunderstandings, and even the potential for them, as between the administrator and the regulator, the amendment places a duty on the regulator to have regard to the functions and duties of the administrator. Bearing in mind that the administrator will have been appointed at the behest of the regulator, this should not be an onerous burden, rather it should be one which the regulator should be willing to assume without having been told to do so. Indeed, it might be an unreasonable exercise of his powers if he fails to do so.

The amendment does not create, or even suggest, any ascendancy of the administrator over the regulator, or vice versa. On the contrary, the amendment will help to foster a relationship of mutual co-operation which is more conducive to meeting the purposes of an administration regime quickly, efficiently and in the public interest. I beg to move.

Lord Whitty

I understand the concerns that the interaction between the regulator and the energy administrator should be clear and that the administrator should not be unreasonably frustrated by the operation of the regulator. However, I draw a slightly different conclusion from the recent court case of Winsor v Bloom in relation to Railtrack.

The decision, and the moratorium on the enforcement of proprietary and legal rights against a company in special administration, also applicable in an energy administration, provide ample clarity as to how the two bodies should interact. The moratorium provisions prevent the instigation of legal proceedings against the company without either the consent of the energy administrator or, alternatively, the leave of the court. That provides the protected company with a "breathing space" in order for it to organise its financial affairs.

In Winsor v Bloom the court considered the moratorium and its effect on the enforcement of proprietary and legal rights. The decision in that case confirms that a company in energy administration will still be under a duty to comply with all its legal and regulatory requirements. Those duties would be unaffected by the energy administration order. Ofgem will still be able to carry out its regulatory function in respect of the company, including the making of determinations and imposing enforcement orders. However, under the moratorium provisions, Ofgem would need either to secure the consent of the energy administrator or the leave of the court to institute legal proceedings against the company, should it be required to enforce any of its decisions.

That decision of the Court of Appeal seems to strike a balance different from that proposed in the amendment. Energy administration should not reduce the regulatory obligations of the company in energy administration, nor should it affect the duties of the regulator, except in accordance with the moratorium, the safeguards and the built-in breathing space. The law following Winsor v Bloom seems clear and clarifies the relationship. It would be inappropriate and unhelpful for the Bill to make slightly different provisions, as the amendment would do, in respect of energy administration.

It should also be borne in mind that Ofgem is under a duty to have regard to the need to secure that the company can finance its own activities. The duty on Ofgem is not altered by the fall that the company is in energy administration.

In my submission, the courts have now provided ample clarity on the relationship between the regulator and the special administrator, covering the regulator's actions towards the company in administration. They will obviously be constrained by the usual dictates of administrative law, and also by Ofgem's special requirements to have regard to the need to secure that the company can finance its activities.

I draw a slightly different conclusion: the courts have already given us ample clarification of the relationship, and it would be wrong to put it in different terms on the face of the Bill.

7.15 p.m.

Baroness Miller of Hendon

I thank the Minister for his explanation. I have forgotten the name of the case he quoted and I would be grateful if he could repeat it.

Lord Whitty

It is Winsor v Bloom.

Baroness Miller of Hendon

I thank the Minister. I shall look at that case. I thought that this was a good amendment, but we live and learn. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 142 and 143 agreed to.

Lord Jenkin of Roding moved Amendment No. 131: Before Clause 144, insert the following new clause— Remit for GEMA to regulate environmental markets


(1) In addition to the regulatory powers conferred on GEMA by the 1989 Act (as amended), GEMA or a body authorised by GEMA, or to whom GEMA shall have the right to delegate any of its functions, shall have power to regulate environmental markets so that such markets are recognised and regulated as markets in their own right, and not only as compliance tools in the regulation of gas and electricity markets.

(2) The power conferred on GEMA by this section shall include a power to regulate, so far as it lies within the competence of the United Kingdom government, environmental markets which will be developed under the European Union Emissions Trading Scheme.

(3) Regulations may be made to define the scope of the power conferred on GEMA by this section, including appropriate enforcement powers."

The noble Lord said: The amendment stands in my name and that of my noble friends. It would introduce a new clause headed: Remit for GEMA to regulate environmental markets".

It is interesting to reflect that the UK has taken a lead internationally in developing and establishing environmental markets. The market in renewable obligation certificates has become an effective instrument for enabling people to be certain that they will derive the benefit from their certificates that they had bargained for—and for companies to sell them on and others to buy them. It is a precursor of the European emissions trading scheme, which is another market that has developed in the environmental field.

The financial services industry in this country can be proud that it was the first to develop that kind of market. Of course there have been other emission trading schemes; for example, 20 years ago in Chicago there was a trading scheme in PM10 particulates. Nevertheless, given the way that the market has developed here, its sophistication and the number of participants, it has certainly established itself.

If these markets are to work well, they need sound regulation and effective compliance measures. In the UK, despite the lead we have taken, it is not clear who is regulating these markets. My inquiries reveal that this is a matter of some concern to those operating in them. I should say that these are substantial markets. By 2010, the cash flows from renewable energy, if it achieves 10 per cent of the market, could be worth £2 billion, one third of the value of the cash flow from all electricity generation. Much of that will be subject to the buying and selling of certificates. Thus I make the case that such a market needs to be regulated and to work efficiently.

GEMA, the regulator, has no remit to consider how environmental markets work, including for example the renewable energy market and ROCs, and notwithstanding that these affect energy prices and consumers. GEMA is able to take into account only the effect on the environment of the generation, transmission, distribution and supply of energy, and not vice versa.

One example where Ofgem could make a practical difference to the market is to alter its registry for renewable obligation certificates. Currently, the registry works adequately to provide a compliance mechanism for the obligation and, as such, fulfils Ofgem's present responsibility in the area. But it also means that Ofgem cannot spend resources on anything that would improve the market.

As the European emissions trading scheme and the Kyoto-related markets develop, which they assuredly will, it is ever more important that these environmental markets are recognised as markets in their own right, not just as compliance tools for the energy industries. This is important because improving the efficiency of the environmental market will lead to reduced costs.

Perhaps I may cite an example. When the hole in the buy-out fund appeared following TXU going into administration, the next auction of ROCs achieved a significantly lower price than had been the case before. The result was that ROCs became less attractive and, to that extent, impacted adversely on the Government's targets for achieving renewable energy supplies.

I would argue that it is not enough for GEMA and Ofgem to regulate in the sense of managing the energy industries. They are dealing here with a market in its own right, one that needs to be regulated. In addition to Ofgem's increased regulatory powers in this area, improving environmental markets and having a positive effect on consumers, it will also help the authority to achieve the Government's environmental targets as set out in the White Paper. If an environmental market such as that for ROCs—and there will be others—can be made to work more efficiently, it will become more likely that the goals and targets set by the Government will be met. The costs of meeting any goal will decrease, which means that a given amount of money will go further. It also means that it will become more attractive for players to become involved in the market, increasing its financeability, investment, market activity and liquidity, and reducing costs further.

The case for the proper regulation of the environmental market is strong and now needs to be firmly addressed by the Government. If GEMA is not to regulate it, then who shall it be? Someone will have to take on the regulatory role. Would it be the Financial Services Authority? However, it is not familiar with this area of national policy, whereas GEMA is deeply involved and could perfectly well take on the role.

The case for GEMA to do it is that it would be a form of joined-up regulation. As it is involved in the energy market, it could be involved in these environmental markets. The case is now being addressed. And, if I may say to the noble Lord, Lord Triesman, it was addressed by an outside body which is a substantial operator in the market. It is looking for clearer and firmer regulation so as to make the market better. Efficient markets are more attractive to more players. As more players become involved, all the other advantages will flow.

There is much to be said for this amendment. I have discussed it at some length with those who are involved and I have been convinced that something of this kind is necessary. I beg to move.

Lord Whiny

I share the sentiments of the noble Lord, Lord Jenkin, as regards the important and positive role that environment markets can play in meeting environmental objectives, and the need to ensure that the markets operate properly and efficiently and are authentic.

The amendment give GEMA the power to regulate markets and to give environmental credits and certificates—which, as the noble Lord said, means ROCs—the European emissions trading scheme and other trading schemes which may come out of the large combustion plants directive and so forth. There are two issues. First, the amendment would hugely widen Ofgem/GEMA's powers, which are at present based on gas and electricity. The players in these markets cover a wider range of industries and would therefore change the nature of Ofgem/GEMA considerably. Although Ofgem administers a number of environmental programmes and covers an environmental action plan, its main remit is on competition and consumer protection. The participants in trading schemes have a different relationship with consumers and there is a different structure of industry from the gas and electricity industries.

Once the emissions trading scheme is set up, there will also be other structures to regulate those markets. There are two aspects. First, there is the management of the environmental outcome of the market—setting the targets and authenticating the achievements in environmental terms, which in the UK is the Environment Agency—and the propriety of the market and its functioning, which will be the responsibility of the FSA as with other markets. It is true that while the FSA does not have the experience of these markets, which are just developing, it has huge experience of markets as a whole. It would bring that experience to bear.

There are a number of aspects which it would not be immediately appropriate for Ofgem to run or would end up with it clashing with other and more appropriate regulators. There is an underlying question, too: that is, what is the basic remit of Ofgem? The noble Lord will know that there have been a number of discussions on whether Ofgem should have more explicit environmental objectives than the current legislation gives it.

There have been many arguments discussing that in the context of the energy White Paper, but the decision was that it should not be broadened into those environmental objectives and that it should be a matter for the government departments and the appropriate environmental regulators. Whether one agrees with that decision or not, that is the legislative position. Therefore, to give Ofgem powers in an area for which it does not have mainstreams in its objectives would seem to me a mismatch of function and role.

The other point on the amendments is that there is a power for Ofgem to delegate its powers to a new body set up specifically for this purpose. It seems to me that if we are considering setting up a new body, specifically in relation to the renewables obligations market, that should be considered in the round rather than tacked on to Ofgem's responsibilities, which run into a number of conflicts in any case.

There may be a case for having a different body regulating the totality of the market. The Committee will know that a review of the obligation is scheduled for 2005–06. Any decisions relating to the regulation of that market are perhaps best left for that, rather than establish it as a knock-on to Ofgem/GEMA's responsibilities under the Bill.

I return to the main point. It would bring the Ofgem/GEMA set-up into an area of industry for which it currently has no wider responsibility. That seems to me to lead to some difficult areas of conflict and lack of clarity. I do not disagree that the Government need to think carefully about the regulation of those markets, particularly as there will be growth in a number of them. However, I do not believe that we should jump to this conclusion and impose the obligation on Ofgem.

Lord Jenkin of Roding

I listened carefully to what the Minister said and I am grateful for what he said about the Government recognising that there is now a need to address the regulation of these markets. He may well be right—I shall need to discuss the matter with those advising me—that GEMA is not the right body. Indeed, in my opening speech, I asked: if not GEMA, who? It might be the Financial Services Authority.

I hope that the Government will be able to think about the issue between now and the Report stage. I shall certainly consult on it. I am tempted to say that we should bring back another amendment, perhaps appointing a different regulator or imposing a different duty on the Government to provide for the regulation of these markets. As the Minister recognised, the efficient working of these derivative markets, if such they are, is an important instrument in developing the Government's overall energy policy. No one denies that. But if the market is not working properly because there is no effective regulator and because no one has the power to help to increase the liquidity of the market to attract more players so that the market becomes more efficient, it is to that extent operating against the Government's own energy policy. Therefore, it seems to me that the Minister's own department has a real role in the matter. I do not believe it is a DTI matter; it is primarily a Defra matter.

I am grateful to the Minister, wearing his Defra hat, for going as far as he did in recognising the need for regulation. I suspect that we may want to try again, but we will look most carefully at what he said. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Triesman

This may be a convenient time to adjourn the Committee until 3.30 p.m. on Monday, 1 March.

The Deputy Chairman of Committees (Viscount Simon)

The Committee stands adjourned until Monday, 1 March at 3.30 p.m.

The Committee adjourned at twenty-seven minutes before eight o'clock.