ELECTRICITY (BORROWING POWERS) BILL (Hansard, 3 March 1959)

§ THE MINISTER OF POWER (LORD MILLS)

My Lords, I beg to move that the Electricity (Borrowing Powers) Bill be read a second time. This is, as your Lordships will observe, a short Bill, but it is nevertheless a very important one. Its purpose is to increase the limits which are at present imposed by Statute on borrowings by the Electricity Council and the Electricity Boards in Great Britain.

Before I describe in detail what the Bill does, it might be as well if I were to say what it does not do. It does not in itself permit the Electricity Council, or any Electricity Board, to borrow any sum of money, from the Treasury or from any other source. All borrowing, whether temporary or by way of stock issues or advances from the Treasury, requires the specific consent of the Minister of Power or the Secretary of State for Scotland, and, except in the case of the North of Scotland Hydro-Electric Board, the approval of the Treasury. The Bill does not change the position in that respect. But the aggregate borrowings of the Electricity Council, the North of Scotland Hydro-Electric Board and the South of Scotland Electricity Board are subject to an overall limit imposed by Statute in each case. The borrowings are now approaching those limits, and the Bill proposes to increase them. In other words, this is a proposal to increase the authorised capital of the industry. Increases in the 662 issued capital will continue to be subject to specific ministerial approval.

The electricity industry is, as your Lordships know, expanding very rapidly. It has, indeed, pursued a course of virtually uninterrupted expansion since its beginnings in the last decades of the nineteenth century, and so far it is impossible to see any end to the process. The consumption of electricity in this country has quadrupled in the last twenty years. In 1958 the Electricity Boards in England, Wales and Scotland sold over 8½ per cent. more electricity than in 1957. This rate of increase, if continued, would more than double the sales in a ten-year period. In countries like the United States, Canada and Norway, where consumption in relation to the population is much higher than it is here, the expansion of electricity sales is still going on. We have, therefore, to provide for a continuing increase in demand over a long period—certainly for as far ahead as it is possible to foresee at present.

The industry in this country has been accustomed to finance a proportion of its expansion by borrowing, and the Electricity Boards are permitted to borrow by the Statutes under which they operate. Parliament thought it right, however, to set a limit to the total borrowings that might be outstanding at any one time. This was obviously necessary because the borrowings are, in general, guaranteed by the Treasury and such commitments must be subject to periodical review. From time to time the Ministers responsible for the industry must come back to Parliament to ask for an increase in the sums authorised.

The Electricity Act, 1947, which set up the British Electricity Authority (as it was then) and the Area Electricity Boards, limited the borrowing powers of the Authority to £700 million. It was expected that these powers would serve for about seven years. This proved to be an accurate forecast, for the need to increase borrowing powers arose next in 1954 when the Gas and Electricity (Borrowing Powers) Act, 1954, was passed. This raised the ceiling to £1,400 million, and it was expected that this new ceiling would carry the industry on for another six years. Again this proved substantially an accurate forecast. The present Bill has been brought forward a few months earlier than was expected. During this time, however, we have seen 663 the initial outlay on the nuclear power programme and some increases in costs generally. These additions have been absorbed in the investment programme, without making it necessary to advance the date of this Bill to any great extent.

The present Bill proposes that the limit of £1,400 million for the Electricity Council and the Electricity Boards in England and Wales shall be raised to £1,800 million or such greater sum not exceeding £2,300 million as the Minister may by Order specify. On present estimates it is expected that the first limit, £1,800 million, will suffice until about March, 1962. About then, or, rather, a little before that time, the Minister will have to lay an Order in accordance with subsection (3) of Clause 1 of the Bill; and this Order may raise the limit to £2,300 million forthwith, or it may raise it to such lesser sum as the Minister thinks appropriate in the circumstances prevailing at the time. While the period of seven years covered by the total of £2,300 million accords with the forward plans of the Electricity Boards, it became apparent that this period would take us beyond the life of the next Parliament. In these circumstances I suggested that in 1962 there should be a break, requiring the Minister to lay a statutory instrument to cover the necessary borrowing for the next period. The Electricity Council were well content with this course, for they recognised that it was only reasonable that Parliament should look at their record halfway to the period covered by their current plans.

The borrowing powers of the North of Scotland Hydro-Electric Board are at present limited to £200 million, and the Bill proposes to raise the limit to £240 million or such greater sum, not exceeding £300 million, as the Secretary of State may specify by Order. Similarly, the borrowing powers of the South of Scotland Electricity Board, which are at present limited to £75 million, are to be raised to £110 million or such greater sum, not exceeding £135 million, as the Secretary of State may order. Thus the total increase in the borrowing rowers of the electricity industry in Great Britian is to be £475 million, and this figure can be increased by a further £585 million by ministerial Orders.

In explaining the purposes for which these great sums of money are required 664 I propose to deal with broad principles rather than details, because there is a great deal of detail already available to your Lordships in the Annual Reports of the Electricity Boards and in two booklets, Power for the Future, published by the Electricity Council, and Scotland—Power for the Future, published by the two Scottish Boards. The electricity supply industry in England and Wales estimates the borrowings required between April 1, 1958, and March 31, 1965, at £1,150 million. The Bill provides for an increase of £900 million in the borrowing limit, and this sum, together with £260 million which had not yet been borrowed on March 31 last year will bring the total available to £1,160 million. Thus the Bill provides for meeting the requirements of the industry in England and Wales until the end of the year 1964–65; although, as I have already pointed out, there is provision for the borrowings to be authorised in two stages. The borrowing powers of the two Scottish Boards would expire by about 1960, and the total increases proposed in the Bill will, on present estimates, enable the Boards to continue, also in two stages, until the end of 1964.

A rising proportion of capital outlay is being financed from the internal resources of the industry: that is to say, from depreciation provisions, trading surplus and so on. In England and Wales over the last ten years 33 per cent. of the total capital expenditure came from internal resources, and the estimate over the next seven years is of the order of 46 per cent. The industry is therefore planning to provide more from its internal resources, and proportionately less from borrowing, than it has in the past.

In the South of Scotland area up to the end of 1957, some 40 per cent. of capital investment had been provided from internal resources. The proportion will fall temporarily, owing to exceptionally heavy capital development now being undertaken, but in later years the proportion of internal finance is expected to advance well beyond 40 per cent. In the case of the North of Scotland Hydro-Electric Board the proportion is much lower, but special considerations apply to the development which is being undertaken in the North of Scotland.

665 Taking into account the continuous increase in electricity demand to which I referred earlier, the Electricity Council consider that the peak load which will have to be met in average cold spell weather in the winter of 1964–65 will be 29.5 million kilowatts. This is an increase of nearly 9 million kilowatts on the peak load in this winter of 1958–59. To meet this increase they intend to provide new generating plant with a total capacity of 12¼ million kilowatts. Some of the existing plant will not be fully operated or will be taken out of commission because of obsolescence; and the net increase in output capacity will be slightly more than 10 million kilowatts. Allowance must be made for plant out of service for maintenance or repairs at the time of the winter peak, so that the 10 million kilowatts will effectively provide just over 9 million kilowatts available for meeting the peak demand. The South of Scotland Board expect to commission over one million kilowatts of new plant, and the North of Scotland Board about 460,000 kilowatts.

Apart from the hydro-electric plant in the North of Scotland Board's programme, practically all of this new plant will be either coal-fired or nuclear. Well over half will, in fact, be coal-fired, but as is well known, nuclear power stations are more expensive, in terms of capital cost, than conventional stations; and according to the best estimate that can be made nuclear power will absorb nearly 47 per cent. of the total amount of £1,100 million which the Central Electricity Generating Board propose to spend on power station construction. Such an estimate can only be provisional at present because stations may be put in hand during 1964–65, for commissioning after 1966, and we have not yet decided what the nuclear power programme will be in those later years. I should like to make it quite clear, however, that we intend to rely, in the long term, on our indigenous coal and on nuclear power. I do not, of course, exclude water power to the extent to which it can be economically developed in this country.

The programme for burning oil in power stations, which was undertaken in 1955, was always seen as a means of overcoming the probable shortage of coal in the years before nuclear power could be developed on a large scale, and it was on this basis that contracts for the 666 supply of oil were entered into between the Electricity Authorities and the oil companies. The Central Electricity Generating Board have already converted some existing power stations to oil, while retaining the plant necessary to enable them to revert to coal in an emergency. Other power stations specifically designed to burn oil are now in commission or under construction, but only in the case of one of those, namely, that of Bank-side, would it not be possible to convert to coal burning if the occasion should arise. Of the total investment in power stations proposed over the next seven years, less than 4 per cent. represents oil-fired plant.

The oil-firing programme was modified in 1957 with the co-operation of the oil companies—whose public spirit I should like again to acknowledge—so as to reduce the amount of oil that will be used in the early 1960's. I am pleased to be able to say that within the last week the oil companies, the Central Electricity Generating Board and the National Coal Board have reached an agreement under which the conversion of two further power stations from coal to oil will be postponed for a year. This will not only help to reduce our present coal surplus, but since the coal will be carried by sea, it will be of some assistance to the coastal shipping trade.

§ LORD MILLS

My Lords, I heard the noble Viscount say that that is only temporary. But it is to be hoped that the surplus of coal also will be only temporary.

I should like to return for a moment to the subject of nuclear power, because this new industry will play an increasingly important part both in our own electricity supplies and in exports. At present there are five consortia of firms which have design teams trained by the Atomic Energy Authority and which are capable of tendering for the construction of complete nuclear power stations. It seemed desirable—indeed, inevitable, I think—that the industry should develop in this way if it was to be built up quickly, bearing in mind that the Authority could not devote unlimited resources to training designers. There is in no sense "a closed shop", but a firm which contemplates entering the nuclear field must be prepared to spend a great deal of money on acquiring know-how and in development work before it can expect to see a return. Moreover, the number of nuclear power stations that will be built in this country before 1966 will not now exceed twelve to fourteen. They have been growing in size. The opportunities for a new consortium would, therefore, be somewhat limited in the near future.

However, there are opportunities both here and overseas for the manufacture of small reactors, including research reactors, and I know that a number of firms are interested in this field. The Atomic Energy Authority has given advice to some of these firms. The Authority cannot, however, cover all the possible types of reactors that could be built; other countries have undertaken development along different lines and if a British firm can obtain permission to make use of, say, American development work, so that it can sell in export markets reactors of a different type from those we have developed here, I see no reason why it should not do so.

I will now, with your Lordships' permission, refer for a few moments to expenditure on distribution. This is less, in total, than the expenditure on power stations and mains transmission, but for all the Area Boards together it amounts 668 to over £700 million for the seven years. This is a considerably higher rate than in the past. Naturally in the earlier years the available capital had to be largely concentrated in overcoming the shortage of generating plant, and expenditure on the reinforcement of the distribution system had to be kept down to a minimum. With the increasing load, much of this expenditure can no longer be postponed. Moreover, the number of consumers is still increasing. Many of the people who want supplies of electricity are in rural areas, and it is satisfactory to note that the Area Boards in England and Wales are slightly ahead of the programme they adopted in 1953 for connecting 85 per cent of the farms by 1963. At the present time nearly 75 per cent. of farms have a supply of electricity and there is every reason to expect that the programme as a whole will be completed on time.

An industry which is proposing to spend these vast sums of money must satisfy itself and must also be prepared to satisfy your Lordships' House and the country as a whole that it is making the fullest use it can of its capital equipment. One measure of this use is the system load factor, which is the ratio of the number of units actually sent out in a year to the number which would have been sent out had the maximum demand been maintained continuously throughout the year. To obtain a true picture, the ratio must be adjusted for weather conditions. The adjusted load factor has gone up from 42.7 per cent. to 46.8 per cent. in the last ten years, and the Electricity Council estimates that the figure will improve further, to 49.2 per cent. by 1964–65. This estimate does not take account of a recently announced change in the Generating Board's tariff which may lead to a further improvement.

I am not suggesting, my Lords, that we should rest content with the figure of 49 per cent., or something slightly more, and I am sure the industry will not relax its efforts. It is satisfactory to note the progress that is being made, but there are limits to the improvement which is possible. In the United States, for example, where there is a high level of shift working, and consequently a much more favourable pattern of fuel use than ours, the load factor is about 60 per cent., and they do not expect any material improvement.

669 The load factor could be greatly improved if we could develop cheap and efficient means for storing the energy that could be generated at off-peak hours. There are, in fact, two schemes under construction that will achieve this effect. There is the pumped storage scheme at Ffestiniog in Wales and one to be promoted at Loch Awe in Scotland, where water will be pumped up to a high level when the demand for power is low, and allowed to run down, driving turbines, when the energy is needed. These two schemes will eventually provide us with some 700 megawatts of power at peak hours. But such schemes are possible only where the configuration of the country is suitable and consequently the scope for further development along these lines is limited. Many other methods of storage are possible in theory, but none is yet usable on a commercial scale. Research is going on, however, and I am satisfied, on the advice of my Scientific Advisory Council, that the research programme is adequate.

I should like to think that substantial improvements could be made in the methods of transmission and distribution, not only to save expense, but also to reduce the need for overhead lines in the countryside. While at present there are no practical alternatives, the manufacturers are striving all the time for improvements in the existing techniques, and are collaborating with the Electricity Boards. Wherever it is technically possible, the Boards go to considerable lengths to avoid interfering with amenities. They choose their routes with great care, and even go to the length of using helicopters and coastguard rocket apparatus to enable them to erect lines through wooded country without cutting trees unnecessarily. Your Lordships may be assured that the Boards have very much in mind the need to find ways and means of lessening the impact of their lines on amenities. Placing more electric lines underground would involve much greater expense, for the cost may be up to fifteen times as great as the cost of an overhead line and may also lead, with high voltage lines, to considerable technical difficulties. Some short lengths of high voltage underground cable are, however, in service.

I hope that I have said enough to show that the additions to the borrowing powers of the Boards are necessary, and 670 that the expenditure proposed by the Boards is broadly of a nature which Parliament should approve. I accordingly commend the Bill to your Lordships' House. I beg to move.