ELECTRICITY (FINANCIAL PROVISIONS) (SCOTLAND) BILL (Hansard, 26 October 1976)

§ The SOLICITOR-GENERAL for SCOTLAND (Lord McCluskey)
My Lords, I beg to move that this Bill be now read a second time. I am deeply honoured to be given this opportunity and I hope I may be given others to address your Lordships. I am not the first Scottish Law Officer to speak from this Dispatch Box, but I believe I am privileged to be the first serving Solicitor-General for Scotland to address this House as a Member of it. I have attended many of the debates since I was introduced into the House and I hope that I may be permitted to say that I am professionally accustomed to a different type of forum where the forms of speech are perhaps more trenchant, direct and uncompromising than is the custom in your Lordships' House. However, I assure your Lordships that I shall try fervently and quickly to adopt the habits of this House and if, in the beginning and at moments of passionate concern, I lapse into an unduly acerbic tone, I would ask your Lordships to be indulgent, to reprove me gently and to regard such lapses neither as intended discourtesies nor as an argument for devolution.
The Bill serves two separate and distinct purposes which I shall try to explain. 410 Clause 1 increases the statutory limit on the borrowings of the two Scottish Electricity Boards from£1,200 million to£1,950 million. The two Boards plan their power station programme jointly on an all-Scotland basis, and there is a joint statutory limit on the borrowing required by both Boards to finance the programme.
In accordance with establish practice, the Bill makes provision for an interim borrowing limit of£1,500 million, and this figure may be exceeded only when an order to extend the limit has been made. Any such order is subject to Affirmative Resolution procedure in another place. Depending upon the pace of investment by the Boards, the interim limit may either be increased directly to the final limit contained in the Bill or increased to a lesser amount, leaving the move to the final limit to be made by a later order. Borrowings against the existing limit of E1,200 million amounted to almost£1,100 million at the end of September; and it is now likely that the current limit will be reached well before the end of this year. It was originally expected that: the limit of£1,200 million would meet the requirements of the Boards until the end of the financial year 1977/8.
The need to increase the borrowing limit at an earlier stage has arisen because of inflation, because of price restraint policies which prevented the Boards from fully recovering their costs and because of the difficulty in determining in advance the level at which borrowing limits should be fixed. The Boards' borrowing requirements are determined mainly by the level of their capital expenditure and the extent to which this can be financed from internal resources. In turn, of course, the level of capital expenditure is determined by the Boards' forecasts of demand for electricity—and these forecasts have to be projected over a substantial period because modern power stations take at least seven years to plan and to build.
There are of course many fact ors which affect electricity demand, some of a purely Scottish or of a purely regional character, and others, such as the level of economic growth and price relativities, 'which are national in character. Noble Lords will appreciate that when the vagaries of the climate are added to the equation, the uncertainties involved in forecasting demand for electricity are bound to be great.
411 Earlier this year the Boards carried out a fundamental review of their forecasts, and this review led to a considerable reduction in the estimates that were previously forecast. The reduced estimates formed the basis of the Boards' capital investment programme which is described in their brochure Plans for the Future 1975–1982. During that period the Boards expect to finance nearly 40 per cent. of their capital requirement from internal resources, principally revenue surpluses, reserves and depreciation provision.
Following the Government's decision to phase out price restraint subsidies, both Boards made small profits in 1975/76, and they expect to be profitable again in the current year. But arrangements similar to those made under the provisions of the Price Code in April 1975 and April 1976, will apply next year, and the result will he to limit the surpluses available to the Boards. So, my Lords, you will appreciate that there will be little immediate scope for increasing the self-financing ratio by means of tariff increases; and the hulk of the proposed capital investment must be financed by borrowing.
The nuclear power station which the South of Scotland Electricity Board propose to construct at Torness is the principal item in the capital investment programme. This station, which could cost some£600 million at current price levels, is part of the Steam Generating Heavy Water Reactor programme which the Government announced in 1974. The South Board, if I may so describe them, were given consent to the use of the Torness site in February 1975, and the station is now planned for commissioning in 1985. But no work on the construction of the station will be undertaken before the completion of the examination of the future of the Steam Generating Heavy Water Reactor programme, an examination which we are carrying out as part of our overall review of energy policy. But whatever the outcome of that examination, there appears to be little doubt that additional generating capacity will be required in Scotland in the mid-1980s. We are therefore satisfied that the estimates produced by the Boards provide adequate justification for the increases in borrowing limits for which this Bill provides. May I emphasise that we are concerned here only with statutory limits.
412 Let me now turn to Clause 2. In 1967 primary aluminium production in this country met only 10 per cent. of our requirements and we had to import the rest at an annual cost of some£70 million. The Government of the day decided to examine the prospects for making import savings by promoting an expanded United Kingdom primary aluminium production capability.
The development of the new advanced gas cooled reactor nuclear power stations held out the prospect of providing cheap electricity supplies to aluminium producers. The 1968 White Paper announced that the North of Scotland Hydro-Electric Board were engaged in negotiations with the British Aluminium Company on an agreement to supply power to the company's reduction plant at Invergordon for a period of approximately 30 years. A contract was negotiated, and under it the North Board undertook to supply the plant with electricity at a cost related to the expected cost of generation at the new Hunterston B Station, an advanced gas cooled reactor station, then under construction by the South Board.
The Government recognised that the risks involved for the North Board were very large in relation to that Board's turnover and resources. The Government therefore assured the Board that they would examine the position and its implications for the Board's other customers if substantial losses were to arise. In the event, large deficits have in fact been incurred in the Board's smelter account. There are three principal reasons for this, which I may summarise. First, all the AGR stations have run into difficulties in the construction stage and Hunterston B is no exception. Commissioning of the station has been delayed by more than three years, and as a result electricity has had to he supplied to the smelter from more expensive conventional sources. The losses on the contract resulting from this have had to be funded by borrowing at high interest rates.
The second problem which has arisen is that the assumptions made in 1968 about the level of output at Hunterston B are very likely to prove unduly optimistic. These assumptions were used as a basis for determining the contract charges, so provision must now be made for losses which may arise from this source during the remaining period of the contract. The third problem which has come 413 to light is the risk of corrosion of boiler components. This is a highly technical matter, but it is being dealt with by restricting the operating temperature of the reactor, and there is a consequent loss of output of the station. This is known as "derating" and for the time being the derating of this station has been set at 20 per cent. The need for continued derating is being carefully studied, but it is impossible at present to know what the long-term level of de-rating, if any, will be. The company cannot properly be expected to carry any part of the costs arising from the de-rating, which was unforeseen when the 1968 contract was entered into, so these costs will be treated as a charge to the North Board's smelter account.
My Lords, when it became clear that these problems would cause substantial deficits on the North Board's smelter account, the Government undertook the promised examination of the situation and concluded that the sums involved were indeed too large to be borne by the North Board without imposing an unacceptedly heavy burden on that Board's other consumers. The Board were therefore informed that the Government would seek the necessary statutory powers to provide for the deficits on the smelter account to be reimbursed. That under-taking is fulfilled by this clause in the Bill.
I should have liked to be able to give your Lordships an indication of the cost of making good the deficits, past and future, but because of the continuing uncertainties that I have described I cannot do so. The deficit at the end of the North Board's financial year 1975/76 was just over£39 million. Even if no new difficulties were to emerge to affect the performance of Hunterston B, the total deficit over the life of the contract would be unlikely to be less than£100 million. On the other hand, serious continuing problems over the operation of Hunterston B could, after allowing for inflation, cause the deficit to reach£200 million, or even more. My Lords, this is a very gloomy prospect, but I am happy to be able to say one encouraging thing, and that is that good progress is now being made with the task of bringing Hunterston B into operation.
The first reactor was commissioned in February 1976, and the South Board 414 expect that the second will be synchronised with the grid before the end of this year. In the few months since it started generating electricity, the first reactor: has already produced 75 per cent. of the output of both reactors for which the Board have budgeted in the current financial year. However, having said that, it would be imprudent to suggest that the station's problems have been overcome, a did because of the continuing uncertainty about the future performance of Hunterston B we have felt unable to insert a financial limit in the Bill. But may I emphasise that each payment that my right honourable friend proposes to make will be: Prescribed by an order which will be subject to Affirmative Resolution in another place,
My Lords, the electricity supply industry is passing through a difficult period, but in spite of these difficulties we are certain that the South of Scotland Electricity Board and the North of Scotland Hydro-electric Board will continue, as. they have done in the past, to provide a highly efficient service—one which is of crucial importance to the economic and social well-being of the people of Scotland.
My Lords, I understand that it is one of the gentler customs of this House that when a new Member makes his first speech here it is spared too critical an assessment. That is a matter for your Lords sips, but for the Bill itself I ask no such indulgence. I commend it to your Lordships on its merits as a necessary measure of very considerable importance. I beg to move that this Bill be now read a second time.

§ Lord MOWBRAY and STOURTON
My Lords, it is one of the very pleasant tasks which occasionally fall to people in this House to answer debates on Bills. Very seldom, however, does one have the chance to answer a Bill at Second Reading when a Minister is making his maiden speech. When we have the combination of such a very pleasant personality and such a very useful Bill it is a doubly pleasurable task to be able to congratulate the mover of the Bill. It is a requirement of this House that one always says that one hopes to hear a maiden speaker again. In this case it is with sincere person so conviction that I say that. I know that in 415 any Scottish measures put forward by him he is supporting the noble Lord, Lord Kirkhill, who is supreme in these matters on Scotland.
The Scottish team in this House for years has had on the Labour Benches the noble Lord, Lord Hughes, who battled extremely well. The noble Lord, Lord Hughes, is still with us; we have Lord Kirkhill, and now we have the noble and learned Lord, Lord McCluskey. The manner in which he moved the Bill was moving and appealing. I went to some trouble to check up with my honourable friends from Ross and Cromarty and the noble Earl, Lord Cromartie, about this measure and I found that they all basically agreed that it was a very sound measure. My noble friend Lord Campbell of Croy, who would have liked to be congratulating the noble Lord on this his maiden speech, as is known is unable to be here, and I am a very inadequate substitute. Nevertheless, I should like to thank the noble Lord for the way in which he has explained this measure to us.
I was particularly happy to hear what he said—which was new—about the synchronisation with the grid coming on at Hunterston B. This is an investment in new generating capacity. We on this side often complain about Government money being thrown about. In this case there is no complaint at all; it is a wise investment. The quality of life in Scotland will be improved and, although the interest rates on£750 million plus£200 million will be more than nothing, at the end of the day there will be a reasonable return both on investment and in quality of life. It makes very good sense. The North of Scotland Hydro-Electric Board needed this Bill to pass in order to honour its contract with the aluminium smelter in Invergordon. It is a sensible and very good thing. I believe we would have done the same had we been in power. I cannot say more than that, my Lords, can I?
My Lords, Clause 2 is slightly worrying as it is open-ended. But against the open-endedness of it we have the comfort that Parliament has to be consulted or the matter has to be put before Parliament and therefore we have the ability to limit too great an open-endedness. It is a late hour. We have been sitting late last week and will be late again this week. 416 This subject has been well discussed and we are in general agreement with this Bill. It is a very happy occasion—the maiden speech of the noble Lord, the Minister—and, having said that, I think I have said enough.

§ Lord MACKIE of BENSHIE
My Lords, I feel I cannot let this convivial occasion pass without adding my welcome to the new Minister and my congratulations on his introduction of the Second Reading of this Bill. It is a Bill which is vital to Scotland, but I do not want to say anything about it at all. Like the noble Lord who has just spoken, I know little of it; but I know that it is a great pleasure to welcome a new Minister in this House. I was warned, I may say, by the Scottish Bar that a man of some ability and charm was coming to our House and that he should be welcomed and looked out for thereafter. Therefore I am very happy to add my congratulations to those which have already been given.

The Earl of SELKIRK
My Lords, I should also like to add congratulations to the noble Lord, who succeeded in making what I thought was one of the dullest Bills I have read for a long time really quite interesting. The noble Lord has very wide and high experience in law, concerned particularly with the field of drafting—on which I believe Parliament could do a lot better than it is doing at the present time. If the noble Lord is able to add a little skill to that side of things he will certainly be performing a very important task for this House. I think it is an admirable scheme to bring into this House Scottish Law Officers if they are not Members of another place, and I hope the practice will he continued. I hope it will help him in his tasks as Solicitor-General. I am sure it will add strength to the Government Front Bench—and the more strength there is on the Government Front Bench, the more useful it is to this House. That is a burden which lies particularly on their shoulders.
This Bill in fact is a rather formidable one, and some of the figures quoted by the noble Lord I found rather disturbing But this is no time to go into the problems and I hope that some of the points which he raised will in fact resolve themselves. I should like to make one further remark. 417 This is of course a Money Bill and is therefore treated by us in a special way. Would it not be desirable in normal practice to have the words "Money Bill" somewhere on the draft of the Bill itself? It is true that it can be seen on the Order Paper which is before the House, but I would suggest that it is not unreasonable that a Money Bill should, in some way or other, be described as such. I suggest that, because there are occasions when Bills come forward and we are not always sure whether or not they are Money Bills. I think they should be clearly stated to be what they are. Finally, I will merely say that I hope the noble Lord will come to address us as often as he can. Of course, he will not address us unless he is told to and he will not address us if he is told not to. Nonetheless, I am quite certain that he will be very welcome when he comes.

§ Lord McCLUSKEY
My Lords, may I first thank the noble Lord, Lord Mowbray and Stourton, for his support for the Bill? That is the most important thing I have to say, because it is very welcome indeed for us to have such solid and unstinted support for the Bill from noble Lords opposite. On a personal level, may I also thank him again for his kindness and say that I hope it will continue to be extended to me when I speak from this Dispatch Box or indeed from the scat now occupied by him. But I do not expect that to happen within the period covered by this Bill, which takes us to 1982. I should also like to thank the noble Lord, Lord Mackie of Benshie. I am not quite sure how to take his remark that he was told to look out for me, but I shall judge that in the light of subsequent events.
I should like, too, to thank the noble Earl, Lord Selkirk, who is a distinguished member of the same Faculty of Advocates of which I am a member. He has drawn attention to a point that I will certainly take up. I may say that in the original print of the Bill which came from the Commons certain parts were italicised, and that was perhaps a clue to the fact that it was a Money Bill. But it may well be that these Bills should be marked in a clearer way when coming before this House. I thank noble Lords opposite for what they have said, and I thank your Lordships in general for your kind reception.