GAS REGULATION BILL. (Hansard, 8 July 1920)

THE UNDER-SECRETARY OF STATE FOR AIR (THE MARQUESS OF LONDON-DERRY)

My Lords, this Bill may be shortly described as one for the reconstruction of the gas industry. In a way it is a complement to last year's Bill for the reconstruction of the electrical industry, though the problems are different. That Bill was chiefly one for abolishing the limitations of area which were throttling progress. The particular difficulty has not yet been felt in the case of gas, which is not supplied over long distances; but the gas industry, too, has been subjected to restrictions, such as fixed standards of quality, formerly luminiferous and later of calorific value, which are no longer in harmony with modern scientific notions, and prevent the most economical use of that precious asset, coal. The Bill deals not only with the quality of gas but also with charges. The industry, as is generally known, has been hard hit by the increased cost of coal and labour, and the existing statutory charges are now entirely out of date. But for the Temporary Increase of Charges Act, very many of these undertakings would be practically bankrupt. It will be generally agreed that the time has come to restore the financial stability of the industry and enable it to resume its progress.

Turning to the text of the Bill, it will be seen that it is proposed to provide, firstly that charges for gas shall be based upon the number of heat units supplied to the customer, instead of upon the number of cubic feet of the gas supplied, as at present. Secondly, it provides for the consequential adjustment of standard and maximum prices and sliding scale provisions and for an addition to the standard and maximum prices to compensate for the increased costs and charges of, and incidental to, the production and supply of gas; thirdly, for the more efficient testing of the gas; and, fourthly, for facilities for the obtaining by gas under takers of further powers by a simplified procedure. The Bill will apply to undertakings owned by local authorities as well as to companies' undertakings carried on under statutory authority. The conditions which have led to the greatly increased cost of production 74 and supply of gas apply with equal force to both classes of undertakings, and the Bill proposes to deal with both on exactly the some basis. According to the latest available returns—those for the year 1913—there are 831 statutory gas undertakings in the United Kingdom, of which 312 are owned by local authorities, and 519 by companies, and they supply more than 7,000,000 consumers. The capital invested in these undertakings, including money borrowed by local authorities, is over £140,000,000, £45,000,000 representing local authorities' borrowings, and £95,000,000 representing the share and loan capital of the companies. The three large London gas companies account for £41,000,000 of this latter amount, so that outside London the gas supply of the country is about equally shared between local authorities and companies. The charges which may be made for gas are in practically every case regulated by Statute, either by means of statutory maximum prices or, in the case of many companies, by the fixing of standard prices, with a sliding scale, under which dividends are increased or decreased according to the amount by which the price actually charged is below or above the standard price. In every case the dividends which a company may be paid are also limited by Statute.

It is well known that gas undertakings have only been carried on throughout the war, and since 1918, under great difficulties arising from shortage of coal, the high prices of raw materials and the increase of labour costs. The service which the industry rendered to the country during the war in the production of benzol and toluol for munitions purposes, and in other ways, could hardly be over-estimated, and I am very glad to have an opportunity of paying a tribute to the gas companies for the patriotic work they have done during the war. It is bare justice to the industry to recognise that this has been done under most discouraging circumstances. for under the operation of statutory provisions relating to price and dividend, which were admirably suitable for normal conditions, but were unable to bear the strain of all the abnormal conditions arising out of the war, the financial stability of all classes of gas undertakings was being seriously undermined, and notwithstanding the greatly increased demand for the community which they supply, the profits were steadily declining. 75 The serious increase of costs, which had then already begun to take place, led to the passing of the Statutory Undertakings (Temporary Increase of Charges) Act, 1918, the operation of which is limited to a period of two years after the termination of the war. Under that Act the "appropriate" department was authorised to allow a temporary increase of charges above the statutory maximum to an extent (1) that would enable local authorities to carry on their undertakings without loss, provided that the increased prier should not be more than 50 per cent, above the statutory maximum, and (2) that would enable companies to earn a dividend on their ordinary capital, not exceeding three-fourths of their maximum or standard rate of dividend, or on their pre-war rate of dividend, whichever was the lower. More than 200 companies and nearly 150 local authorities have had to take advantage of the relief afforded by this Act.

The general result of the changes that have taken place has been so serious as to impair the whole financial credit of the industry, and in the interest of the community it has become imperative that steps should he taken to restore it. Before the war most companies could, without difficulty, raise all the additional capital they needed at or above par, and very many undertakings were able to issue debenture stock at 4 per cent., and even lower. It is obvious that it will not be possible in future, certainly not for many years, to issue capital at such rates. Practically no ordinary stock is being issued at present, and the rates payable on preference and debenture stock approximate to 7 per cent. The statutory obligations of the undertakings cannot, however, be fulfilled without expending a great deal of fresh capital within the next few years, and unless steps are taken to restore the credit of the industry, it will either be impossible to raise the necessary money or it must be raised on such onerous terms that the burden on the existing shareholders and future consumers will be almost intolerable.

It does not appear possible to deal with this situation by any merely temporary measure. No investor will put his money into a gas undertaking on a security which does not possess at any rate some degree-of permanence. There is, in fact, no possible alternative to giving both to companies and local authorities some permanent 76 relief from the onerous conditions with regard to price, which, under circumstances that exist at present, and are likely to continue for many years, have become not only inequitable, but actually impossible. The principle upon which it is proposed to deal with this question is laid down in Clause 1, subsection (3) of the Bill. The intention is that such additions shall be made to the statutory charging powers in the case of each undertaking as will compensate for the additional expenditure attributable to the abnormal conditions caused by the war, thus leaving the undertaking with substantially the same profit-earning capacity as in June, 1914. It is not proposed by the Bill to alter the principle of the sliding scale, where that is in force, powers being taken only to make the necessary modifications to adapt the sliding scale to the new basis of charge. If any undertakers wish to obtain a modification of their sliding scale, or of their authorised rate of dividend, it will be open to them to make an application for a special Order under Clause 10 of the Bill, or to proceed by private Bill.

The technical provisions of the Bill are based to a very large extent upon recommendations made to the Board of Trade by the Fuel Research Board in a Report dated January 29, 1919. This has been published as a Parliamentary paper. The main recommendation contained in that Report was that the existing system of charging the consumer according to the volume of gas which passes through his meter should be replaced by a system under which he will pay only for the number of heat units in the gas he receives. Subject to this most important protection for the consumer, the Fuel Research Board advised that greater latitude should be given to the undertakers with regard to the nature of the gas supplied by them, so that it would be possible for the gas industry to take advantage of any improvements in the technical processes of the manufacture of gas, and to supply such gas as can most economically be produced and as is found in practice best to meet the requirements of their consumers.

I think I ought to read the recommendation winch was made by the Fuel Research Board who state very clearly their opinion on this point. They say— We are convinced that the desired elasticity is to be obtained … by so safeguarding the interests of the consumer that each gas 77 undertaking may be given freedom of choice as regards raw materials, processes of manufacture and quality of gas, so that it may be in a position to meet the needs of the locality most satisfactorily. For each centre of population and industry has its special conditions and environment which ought to be considered: its distance from the sources of coal, the types of coal which are available and the outlets which exist for the principal product and its by-products. We believe that the interests of the consumers can best be conserved if their contract with the gas undertaking is based on the sale and purchase of heat energy measured in fixed units which can be scientifically determined by simple means. We propose therefore that the consumer should be charged for the thermal units which he actually receives in the same way as the consumer of electricity is charged for the Board of Trade units which pass through his meter. Clause 1 of the Bill accordingly provides that Orders may be made by the Board of Trade for the repeal of any statutory provisions requiring the supply of gas of any particular illuminating or calorific value, and for substituting a power to charge per 100,000 thermal units (defined as a "therm") instead of per 1,000 cubic feet.

There being between 800 and 900 statutory undertakings which will have to be dealt with, it is important that the machinery to be set up under the Bill for the purpose should be of the simplest possible kind, and it is proposed, therefore, that the Board of Trade should have power to deal with these cases by means of Departmental Orders. Due provision is made that before any Order is made by the Board of Trade public notice of the application shall be given, and that an opportunity shall be afforded to all persons interested to make representations on the matter and that when desirable an inquiry shall be held. The unit of measurement which the Bill proposes to adopt is 100,000 British thermal units, and the number of heat units is defined as a "therm." The Order to be made by the Board of Trade will translate the authorised price per 1,000 cubic feet into a price per therm.

When an Order has been made the undertakers to whom it applies will be put under an obligation to declare the calorific value of the gas which they intend to supply. They will be authorised to alter the declared calorific value from time to time, but if they do so they must, at their own expense, alter, adjust, or replace the burners in consumers' appliances so as to secure that the gas can be 78 burned in them with safety and efficiency. The Order will also prescribe the additional charge which can be made for gas supplied through pre-payment meters to cover the additional cost incurred by reason of that method of supplying gas. Provision is made also that if, within two years after the passing of the Act, any gas undertakers have not applied to the Board of Trade for an Order the Board may, after due notice to the undertakers, make an Order applying to the undertaking.

The statutory restrictions which it is proposed shall in future replace those now in force are set out in Clause 2 of the Bill. By this clause provision is also made that the gas shall be free from sulphuretted hydrogen, that under normal conditions it shall he supplied at a minimum pressure of two units. In the Bill as introduced power was sought where necessary to limit the proportion of inert or incombustible constituents in gas. It was not thought that it would be necessary to impose a limitation in every case, because as a general rule the fact that the consumer will only pay for the umber of heat units he receives will be a sufficient guarantee that tire undertakers will not put themselves to the unnecessary expense of distributing at their own cost an excessive proportion of incombustible gas. As a result of the discussion of this question in the Standing Committee of the House of Commons it was, however, felt that the divergence of opinion amongst experts was so great that it would he desirable to deal with the matter by providing for further inquiry, and subsequently, if found necessary, by the making of a special Order imposing any limitation of the proportion of incombustible constituents in the gas that may be required.

A further question which had been brought to the attention of the Board of Trade—and I apologise for detaining your Lordships on so technical a matter—was as to the necessity of placing any limitation upon the proportion of carbon monoxide in the gas. This was not recommended by the Fuel Research Board. Opinions on this question also are very much divided and it is accordingly proposed to deal with it in the same manner as the question of "inerts."

The new method of charge will make the testing of gas a matter of the first importance in the interests of the consumer, 79 and it is proposed by the Bill to apply to the whole country the system which has worked well in London for a large number of years under which the situation of the testing places, the apparatus to be provided, and the mode of carrying out the tests are prescribed by three gas referees appointed by the Board of Trade, and the reports of the gas examiners appointed by the local authorities to test the gas are adjudicated upon, if necessary, by an independent chief gas examiner appointed by the Board of Trade. The remuneration and expenses of the Metropolitan gas referees and of thy chief gas examiner are recoverable by the Board of Trade from the London gas companies, and it is proposed by Clause 7 of the Bill to apply the same principle to the officers to be appointed under this Bill by means of a levy upon the gas undertakings which will not exceed 3s. for each million cubic feet of gas.

Attention may be drawn to the provisions of Clause 9 under which the penalty for failure to supply the declared calorific value of the gas is made much more stringent than under present conditions. The object of this clause is not, however, to seek to penalise the undertakers for occasional failures to comply with their statutory requirements, but rather to induce them to supply gas fully equal to the declared calorific value and of as constant a quality as may be practicable.

By Clause 10 of the Bill the Board of Trade take power to make special Orders for the same purposes as those for which Provisional Orders can be made under the Gas and Waterworks Facilities Act, 1870, and for the other purposes named in the clause, including power to authorise the obtaining of supplies of gas in bulk from any available source such as coke-ovens, the provision of separate supplies of gas for industrial purposes, and arrangements for the joint working and amalgamation of undertakings. The powers to authorise superannuation and pension funds, and the redemption of obsolete capital were introduced into the Bill by the House of Commons' Committee.

The procedure proposed by this clause has been adopted in several recent Acts, notably the Electricity (Supply) Act of last year, and offers a simple and satisfactory means of obtaining additional powers without unnecessary formality, while preserving Parliamentary control. It is proposed that before any special 80 Order shall come into force it shall be laid before each House of Parliament for not less than 21 days. Full provision is made in the Schedule of the Bill for public notices of applications for special Orders, and for the consideration by the Board of Trade of objections made to them, and for the holding of inquiries, where necessary, before an Order is made.

Clauses 11 and 12 deal with the testing of meters, and enable the Board of Trade to authorise an increase of fees charged by the local authorities by whom the testing is carried out, and to make Regulations with regard to the testing of gas meters in lieu of the fees and Regulations prescribed by the Sale of Gas Act, 1859.