HL Deb 05 July 1989 vol 509 cc1170-89

3.13 p.m.

Report received.

Clause 1 [The Director General of Electricity Supply]:

Lord Stanley of Alderley moved Amendment No. 1: Page 1, line 11, at end insert ("in a manner that protects consumers of electricity without discrimination").

The noble Lord said: My Lords, with your Lordships' permission I wish to speak also to Amendments Nos. 32, 60 and 61, which are consequential on this amendment. The noble Earl, Lord Halsbury, who is supporting these amendments, tenders his apology.

The purpose of these amendments is to ensure that no one in any particular area is discriminated against as regards charging for electricity. I need hardly add that my particular concern is the rural community. Even though I appreciate that the Government's intention is the same, I suggest to your Lordships that the words used in Clauses 4 and 20 do not make this very clear. In fact the noble Lord, Lord Peston, went so far in Committee as to call the drafting "weasel words". Perhaps I would not go quite as far as that, but I do not understand it. Hence these amendments which I hope clarify the matter.

In Committee, the matter of charging rural users of electricity more than others was discussed under Clause 18, now Clause 20, but since then we have had both Report and Third Reading of the Water Bill, upon which your Lordships put forward the same point. However, my noble friend Lord Caithness persuaded me that the correct way to deal with the problem was by giving the Secretary of State and the director general under Clause 7 of that Bill duties to protect the rural consumer. The Government graciously drafted and accepted such an amendment at Third Reading. It is therefore with some hope that I return to the Electricity Bill with a similar amendment that would make it a specific duty on the Secretary of State and. the director general to ensure that rural users of electricity pay at the same rate as anyone else. In fact that is the position today, and will, I understand, continue for at least five years as promised by my honourable friend Mr. Michael Spicer in another place [Official Report, Commons, 6/4/89; col. 400].

These amendments, therefore, merely put on the face of the Bill the desires and hopes that he had. Having a somewhat suspicious nature, I fear that the new commercially orientated electricity plcs will in future have to answer to their shareholders and profitability will inevitably take precedence over service. So the promise might easily be forgotten and those least able to protect themselves will be charged more, not least those in rural areas because there neither is nor will be any competition from other sources of energy.

Noble Lords who followed a similar amendment in the Water Bill will note that we have included in this set of amendments an additional consequential amendment to Clause 20. I have to admit that it was in my mind to do so on the Water Bill, but, as I have said before, my noble friend Lord Caithness persuaded me—though not all of your Lordships—that such a course of action was impractical and indeed could have strange results because water charges are related to rates. However, in this Bill such an argument just cannot apply.

I was pleased, and indeed encouraged, to read reports of the remarks of my right honourable friend the Prime Minister when she attended the Royal Show on Monday. She said that she considered farmers to be the backbone of our society. That backbone, as many noble Lords know, is suffering at the moment from a series of financial slipped discs. So I hope the House will support this series of amendments, which will prevent any further financial burden being put on those who live in the country. I beg to move.

Lord John-Mackie

My Lords, I cannot add a lot to what the noble Lord, Lord Stanley of Alderley, has said on these amendments except to say, as I pointed out in my earlier efforts at Question Time today, that we in farming have to provide our own roads and our own street lighting, or at least lighting for buildings and houses outside. That is very expensive, as was pointed out earlier. Any discrimination which would make that more expensive for farmers would be completely unfair. I had experience of the early days in Scotland when the Scottish Hydro-Electric Board came into being. That board was going to charge a lot extra for laying electricity to remote farms. If I remember rightly, it had to change its policy and try to spread the price.

The Minister has told us that somewhere around 80 per cent., if not more, of the cost of electricity lies in the generation of it and that the spreading cannot therefore be all that expensive. I hope, therefore, that noble Lords will support these four amendments, which I feel will achieve non-discrimination for rural areas.

Lord Trafford

My Lords, I have some anxiety about these amendments on two grounds. First, in a number of different places in the Bill the statement is made that electricity shall be provided without discrimination. Clause 4(2)(a), for example, states that the prices charged to tariff customers shall not: distinguish … between different parts of that area". Elsewhere in the Bill there is reference to the avoidance of discrimination between various groups of people. Yet, in Amendment No. 61, which my noble friend will be moving, he wishes to add the words: particularly consumers in rural areas". It seems to me, therefore, that we are saying that there is one particular group which shall be singled out—apparently for all time, as no time limit is set on this factor—with regard to tying the hands and the pricing mechanisms of electricity suppliers. That seems to me to be an error.

There is a second point which makes me feel slightly uncomfortable. I hope that my noble friend on the Front Bench will be able to confirm that the area board chairmen have stated that they expect to maintain the current system of domestic tariffs—which does not discriminate—for at least five years. I should have thought that that represents an acceptable assurance to those who fear that there may be discrimination. In addition, the Bill quite clearly states on page 16, in Clause 20(4), that the, public electricity supplier shall not exercise any undue discrimination against any person or class of persons". Therefore, their concern is in part covered.

We should hesitate to write on to the face of the Bill that a particular group of people should be singled out either for discrimination or for protection from discrimination.

Lord Ezra

My Lords, I should like to support the noble Lord, Lord Stanley of Alderley, on this issue, despite what the noble Lord, Lord Trafford, has just said. Your Lordships will recall that when we debated the Telecommunications Bill and the Gas Bill we were all concerned about people in rural areas. It is a fact that to supply them with basic services costs more, but under public service arrangements they were not discriminated against. There is concern that under privatised arrangements they could be.

Therefore I believe that it is perfectly proper to instance them for specific consideration. These people have lived in those areas on the assumption that they would continue to be supplied with the basic services which they need to conduct their normal lives, without discrimination compared with those who live elsewhere. As the noble Lord, Lord Stanley, pointed out, there will undoubtedly be a temptation for a commercially oriented organisation to have regard to the costs of supplying the services. In rural areas those costs are undoubtedly higher. However, social considerations intervene.

I believe that in this House we should pay regard to those social considerations, which apply particularly to people in this category. I disagree with the noble Lord, Lord Trafford, in this respect. This group of our compatriots is potentially at risk under the legislation and they should be exempted specifically from that risk. Therefore I support the amendments.

Baroness Elliot of Harwood

My Lords, I too should like to support the amendments of my noble friend Lord Stanley of Alderley. We discussed this matter at an earlier stage and the Minister said that he would reconsider the position. I believe that the proposals that have been put forward today are very much in tune with what he would like, and I very much hope that he will accept them.

Unless one lives, as I do, miles away in the country, it is very difficult to realise what an enormous difference electricity has made to life on farms in isolated areas. We all know about the Highlands: they had electricity before the south of Scotland. Now we all have electricity, and all agricultural work is organised around the use of electricity in every form. It is more economic and saves labour.

I therefore believe that this is a very important matter. I very much hope that the Minister will realise that this is an issue which all of us who live in rural areas or work in farming and agriculture believe to be extremely important, and that he will accept the amendments.

Lord Peyton of Yeovil

My Lords, I had hoped that we should see on the Marshalled List an entry in the name of my noble friend the Minister, at least in an attempt to meet the anxieties which were expressed very clearly during the Committee stage. It is not my intention to repeat at length the arguments in favour of giving special attention to the concerns and needs of those who live in rural areas; that has already been done by others. However, I should like to call your Lordships' attention to the alternatives offered by my noble friend's amendments.

The first amendment requires the Secretary of State or director to take into account the needs of those living in rural areas. I can see the possibility that, in order to blunt the concerns which have been expressed, the Government might yield to the temptation to insert those words into the Bill. However, I have very grave doubts as to whether they would be adequate. I fear that they would be merely cosmetic and might have little or no effect.

I greatly prefer Amendments Nos. 60 and 61 in the name of my noble friend which specifically require that there should be no undue discrimination against any person or class of persons, particularly in rural areas. Noble Lords may think that that says much the same as the earlier amendment, but in my view it is much clearer. I hope therefore that the Government will be moved to accept those amendments.

Lord Renton

My Lords, on the Water Bill I was glad to support my noble friend Lord Stanley of Alderley, and was very glad of the outcome of the persuasion which he and others exercised on that Bill. But if I remember rightly, it was not just a measure advanced to protect those in rural areas, taking the country as a whole. The purpose and the result of the amendments which he moved—and the Government accepted the last of them at Third Reading—was to ensure that there should be no discrimination within each area.

We have a slightly different situation this afternoon. I have some sympathy with my noble friend Lord Peyton in the detailed points that he made about the amendments. I find that the first amendment—which is the one we are discussing—is inconsistent with Amendment No. 32 and with Amendments Nos. 60 and 61. I say that for this reason: Amendment No. 1 says that the duties to be performed by the Secretary of State shall be performed: in a manner that protects consumers of electricity without discrimination". That could mean that people in urban and rural areas are all to be treated the same. But that is not what my noble friend Lord Stanley of Alderley and others are seeking in this amendment. Therefore, it seems to me that Amendment No. 1 is contrary to the argument which they are putting forward. My noble friend shakes his head, but if he can persuade the Government, and me and others, that that is not so, I shall be very interested to know what the argument is.

We know—I speak as one who is bath a consumer in an urban area, namely London and a consumer in a rural area—that the cost of electricity in London tends to be rather expensive compared with some other parts of the country. The great thing is that within each area, whether it be an urban area or a rural area, there should be no discrimination between consumers.

The difficulty that I find is that Amendment No. 1 militates against that aim because it seems to indicate that those consumers in urban and rural areas must be treated in the same way. But, by referring to rural areas collectively in Amendment No. 32 and again in Amendment No. 61, we are avoiding the situation that we happily reached on the Water Bill that there should be no discrimination between the consumers in any particular area. That is why I find some difficulty with the amendments. But, having said that, I hope that on this Bill the Government will find a way of reaching the admirable conclusion that was reached on the Water Bill.

3.30 p.m.

Lord Stoddart of Swindon

My Lords, while I understand what the noble Lord, Lord Renton, says, I nevertheless think that Amendment No. 1 is correct and the right road to pursue in order to achieve what the noble Lord, Lord Stanley, and I hope many other people wish.

The amendment must also be praised given the historic discrimination against rural areas not only in the electricity industry but in other industries too. I remind noble Lords that it was not until the industry was brought under public ownership in 1949 that rural areas were given much better consideration than before. As a result, 99 to 100 per cent. of all rural areas in this country now have access to an electricity supply, which was certainly not the case before 1949. Many of us are concerned that we may not return to that position. For example, when matters of capital expenditure are considered by a board, it may well take the view that, because the return from a strengthening of the electricity supply in a rural area will be much lower than extending the network in an urban area, the capital expenditure should be in the urban area where the flow of money will be better, rather than in the rural areas where the system needs strengthening, perhaps because bad weather conditions have weakened it generally. I think that that is what the noble Lord is getting at. That is the sort of thing about which many of us will be concerned when the electricity industry is privatised and split up into 12 area boards.

At the present time, while it is true that there are 12 separate area boards, the ethos of the industry is service rather than profit. There is a co-ordination of the operations of the electricity supply industry through the Electricity Council. That will not apply when the industry is privatised. That is why I think the noble Lord is perfectly right in bringing forward the amendment, which I believe deserves support.

Baroness Carnegy of Lour

My Lords, I do not know what my noble friend will say in reply to the amendment. I see the difficulties about the wording of Amendment No. 1, but the important thing that we need to hear from the Government is that something will be done about that before the Bill leaves the House.

I say that as someone who now lives further north than many noble Lords. The further north one goes, the more electricity matters. If one is a farmer, the drying costs of electricity are quite enormous nowadays. If one happens to be a long way from the site of electricity generation and the price of electricity goes up as a result, there will be great confusion in Scottish agriculture. That applies not only to agriculture; simply living further north affects you very much because you must keep your house warm and you therefore use more electricity. All those things matter very much.

"Rural" is not necessarily the word that I want to use, because there are towns in Scotland which are a long way from a site of electricity generation and may well be discriminated against. The Government must confront that matter, give a satisfactory reply today and, if possible, bring forward their own amendment at the next stage because it is a serious matter.

Lord Hylton

My Lords, this is an important amendment and I am glad that it has support from all sides of the House. Ever since nationalisation of the electricity industry—and perhaps even before—there has been a convention in practice that a public service principle would be applied to the price of electricity. Thus, although there are small differences between the price applied in one board area and another, by and large rural consumers are not discriminated against in favour of urban consumers. That is the principle which we all wish to see maintained and which the Government have no possible mandate for overthrowing.

I also see that, in the nature of things, distribution costs in rural areas are bound to be higher because of the length of transmission lines as compared with those in towns and for many other reasons. It is that kind of hurdle that we are trying to overcome.

We should perhaps also note in connection with the five-year moratorium that, by the time of privatisation, the price of electricity will already have increased very much above the going rate of inflation. I support the amendments.

Lord Williams of Elvel

My Lords, we also support the amendment moved by the noble Lord, Lord Stanley of Alderley, and the consequential amendments to which he spoke. The noble Lord, Lord Renton, asked what the argument is. Perhaps I may refer to the individual amendments as we go through to explain to him exactly what the arguments are.

Amendment No. 1 introduces a general precept that the director should exercise his duties, in a manner that protects consumers of electricity without discrimination". The director has many areas in which he must protect the consumer, not simply on tariffs or prices. Generally, he is required under the amendment—which, by itself, has nothing to do with prices—to protect the consumer without discrimination.

Amendment No. 32 goes a little further and lays a general duty under Clause 4 on the Secretary of State or the director to, take into account in particular the protection of the interests of consumers of electricity in rural areas". That amendment therefore moves a little further than the general paving amendment in Clause 1.

The guts—if I may put it like that—of the thesis of the noble Lord, Lord Stanley, lie in the amendments to Clause 20, because it is in that clause that we come to the power to recover charges. The two amendments to Clause 20—Amendments Nos. 60 and 61—not only directly address a general theme that the Secretary of State and the director should protect consumers without discrimination but specifically home in on the problem of prices. That is the logical sequence of these amendments, and that is why I believe that the noble Lord, Lord Stanley, has the sequence right. I hope that those remarks will help the noble Lord, Lord Renton, in his reading of the amendments.

The noble Baroness, Lady Carnegy, made an eloquent plea for Scotland but, as we know, in Clause 4(2) Scotland is covered by the common tariff. She is quite right. But, so far as the north of Scotland is concerned, all her arguments have been met by the Government in Clause 4(2). The point that I wish to make, and, I believe, the noble Lord, Lord Stanley, would also make, is that what is good for the Scots should also be good for the English and for the Welsh. We cannot understand why Scotland has this particular privilege under the Bill. We should like to see the matter regularised for those of us who have the fortune or misfortune to live south of the Border.

With great respect to my noble friend Lord John-Mackie and the noble Lord, Lord Stanley of Alderley, so far as we are concerned the point of the amendments is not to encourage the farmer. We are not necessarily supporters of the National Farmers' Union. On some occasions we may support the farmers; on others we do not. We feel that there are areas of rural poverty that need to be catered for especially. It is not necessarily the farmer who will be at risk if charges increase to a great extent to account for the capital equipment and other costs which go into transmitting electricity to the rural areas. It is the rural poor who will suffer; those are the people we have very much in mind.

A number of noble Lords have spoken. I believe that there is general support in the House for this amendment. I hope that the Government reply favourably to the noble Lord, Lord Stanley. However, time is running short and we have to come to some conclusion. In the light of all the arguments we shall be supporting the noble Lord, Lord Stanley, should he decide to take the opinion of the House.

3.45 p.m.

Baroness Gardner of Parkes

My Lords, I am sure that no one will be surprised to hear that I am opposed to the amendment. Although those who have put the case for the amendment have done so very clearly I feel that they have not really understood the problem. The amendment, instead of helping, may be harming the case.

As I understand it, the element of competition is the whole purpose of privatising electricity. It is the element of competition that distorts the issue and makes the situation totally different from that in the Water Bill. It is not a parallel. As the noble Lord, Lord Renton, said, there will be price differences in different areas. At present each domestic consumer—no one has referred to the difference between commercial and domestic consumers—in a certain area is getting electricity at a particular cost.

With the element of competition, instead of there being a monopoly right to supply all those people, anyone will be entitled to come into the area and supply electricity. That is true. The whole purpose of the Bill is to produce an element of competition.

Lord Williams of Elvel

My Lords, I know that the noble Baroness has been present at all our discussions in Committee. However, on all sides of the House it is understood that public electricity suppliers who supply to the consumer, domestic or otherwise, will have a monopoly in their area. I thought that that was an established fact.

Baroness Gardner of Parkes

No, my Lords, I am sorry; I think that that is quite wrong. I think that there will be secondary and tertiary generators who will be able to supply and that anyone will be able to offer a supply. That is what will happen and that is why the five-year protection may be relevant now. Following that period there will be nothing at all to stop the entry into this field of other people.

The noble Lord, Lord Ezra, made the very good point that it is more expensive to maintain lines of supply to remote places. That is true. But the present area boards are quite happy to maintain a fixed price at the same tariff, whatever price has been agreed, for the person in the remote area as for the person in the town. The boards appreciate that there will be additional costs associated with a rural supply but accept the point made by the noble Lord, Lord Williams, that there are areas of rural poverty. All sorts of social reasons have been mentioned in this debate as to why the supply needs to be continued. The boards are prepared to bear the extra cost involved.

What the boards are not prepared to do is to put themselves in a position where they find that someone comes forward—I think the phrase is "cherry-picking"—and says, "I will supply electricity to, say, the City of Oxford and supply it more cheaply than you do. It is a nice little area which is easy to supply. I will supply that area and undercut the price of the local supply company". All the customers in that area, which has a high density of population and offers a high profit margin in comparison with a rural area, will say, "Yes, we should like our electricity to be cheaper", and so they get it more cheaply.

However, I do not at all suggest what I think has been put forward in this debate; namely, that rural customers should have their price put up. I argue that the amendment would prevent an area board reducing its tariff to meet a competitor who came forward. As a result the board would lose all its town customers and would be left only with rural customers.

It should be remembered that the boards have a duty to supply. They cannot refuse to supply power to people. There is a charge for connection, as we have debated in this House many times. There is no argument about higher costs. One noble Lord from Scotland mentioned certain areas in which delay on a line would cost £100,000. Of course no one saw that as realistic. If the area board is left only with the rural customers and a few people who do not care what they pay, in the long run that will be worse for everyone because the higher costs will still have to be borne by the supplier.

I can see that the noble Lord, Lord Williams, does not believe me, but that is certainly the industry's reasoning. The industry is perfectly happy to supply at the same rate to town and rural customers alike. However, if that is written into the Bill as proposed it will prevent entry into a normal competitive business situation should the time come when there are other suppliers. As I understand it, under the Bill other suppliers will be entitled to come in as secondary suppliers and licences will go out at other levels.

As I pointed out, water is not a parallel. There is not the same element of competition involved. The noble Lord, Lord John-Mackie, raised the issue of discrimination. I believe that I have covered the point. But this would be a reverse discrimination that might work just the wrong way. My noble friend Lady Elliot has made clear the importance of electricity to the farming industry and the difference that it has made over the years. I accept what she says; indeed we all accept those arguments. I agree with the noble Lord, Lord Peyton, who pointed out that there were differences in these amendments.

I do not agree with the point made by the noble Lord, Lord Renton. I do not think that he has understood the full implications of my remarks. He said that the rate should be the same within each area. But that would not apply. Each area will have both types of area to supply: the more densely populated, cheaper area and the more expensive area. One could not do this by area; it would not work in the same way.

Lord Ezra

My Lords, perhaps I may point out to the noble Baroness that my understanding of the kind of competition that will arise as a result of this measure is not at all in line with her interpretation. I believe that there will be a certain amount of competition at the generating end and a certain amount of competition in the supply to large industrial consumers. I cannot see for many years competition in the supply to domestic consumers, which is what the noble Baroness has been discussing. I do not believe that that is a feasible proposition under this legislation.

Baroness Gardner of Parkes

My Lords, it is the concern of the electricity authorities that they will be painted into a corner. They do not foresee it happening immediately, in the next three to five years; but after that there is a possibility that secondary and further licences granted would enable people to supply within limited areas. In choosing the areas they would pick those with maximum profit. Anyone coming into business as a competitor will clearly look for where the greatest profit is. Such suppliers will have no obligation to supply any person in the country, remote or not remote. They will be able to offer their supply in any area that suits them. Certainly this is how the industry sees the position. This is why the industry is so very concerned about this amendment. It does not believe that the situation is parallel with that of the water industry.

Lord Stoddart of Swindon

My Lords, will the noble Baroness give way? Is she saying that the industry is so concerned about possible competition that it must have a reserve power to give detrimental treatment to rural areas to be able to meet that competition? That is what it sounds like.

Baroness Gardner of Parkes

My Lords, no. The noble Lord is trying to turn my argument on its head. As I explained previously—and I shall repeat it—the electricity authorities are perfectly happy to supply urban and rural areas at the same price. If a competitor comes in to undercut them, to take away all their business in the urban area, leaving them with only the rural area, it could create an adverse effect for the area board on the overall costing of the supply. Where the same charge has been guaranteed for everyone, the only people left to be supplied would be the rural customers. They would be paying higher prices with no discrimination against them because they would be the only people being supplied. It would all be supplied at the same price, but much more expensively than if they had been able to retain a competitive base and supply some of the profitable areas as well as the less profitable ones. I can see that the noble Lord has a further comment.

Lord Stoddart of Swindon

My Lords, I find the argument quite incredible. If the noble Baroness is correct in her argument that a new firm can come in and be competitive to the extent that it will take away all the urban business from the established business, then there is something radically wrong with the established business, or we should not go ahead with this Bill.

Baroness Gardner of Parkes

My Lords, I shall quote figures which have no relevance. If you are paying 10p per unit and you get a leaflet through your door to the effect that you can have all your power at 5p or 7p a unit, would you not think twice about it? I certainly would.

Lord Stoddart of Swindon

My Lords, perhaps I may—

Noble Lords


Baroness Gardner of Parkes

My Lords, it is not a new argument. We have seen this cherry picking in transport. People take the profitable routes. No one wants the unprofitable routes. Anyone looking for a new opportunity looks to where profit can be made, It would mean that the electricity industry as it now exists could be left with the duty to supply. The noble Lord, Lord Stoddart, made the point that it might consider whether or not it would extend into a rural area. There is an obligation to supply. If someone asks for a service in the most remote area, the electricity authority has to be willing to connect him. There is the duty to supply—not without cost, but certainly with obligation. This is where its hands would be tied. It has a duty to supply even the most unprofitable area. If it has an overall pool of supply with the good and bad mixed together, it can make a much better go of it than if it ended up with only the unprofitable section. That would force costs up for the rural area. On those grounds I oppose the amendment.

Lord Moyne

My Lords, perhaps I may suggest that in a competition for domestic supply there would be a conflict as to the ownership of the supply lines. Would there not be a danger of getting the wires crossed?

The Parliamentary Under-Secretary of State, Department of Energy (Baroness Hooper)

My Lords, I have listened with interest to the variety of points that have been raised. I shall attempt in my few remarks to respond to some of the questions that have been put. We are all grateful to the noble Lord, Lord Williams of Elvel, for differentiating between the various amendments before us and for drawing our attention in particular to the fact that Amendment No. 1, which is the first in this grouping, has a general application to consumers overall.

Clause 1, to which Amendment No. 1 relates, simply gives the Secretary of State the power to appoint the Director General of Electricity Supply and sets out the provisions which apply to that appointment. We do not feel that it is appropriate that it be used as a clause for assigning duties to the director. As the noble Lord, Lord Williams, pointed out, that is properly handled in Clause 4.

The central purpose of the Bill is to create a climate in which fair competition will develop and flourish. My noble friend Lady Gardner's understanding is perfectly correct. Where it is appropriate to protect consumers against unfair discrimination we believe that we have ensured that the necessary safeguards have been provided. As my noble friend Lord Trafford pointed out, Clause 20 of the Bill therefore prohibits a public electricity supplier from showing undue preference or exercising undue discrimination in fixing his tariffs. The public electricity supply licence provides similar protection in respect of contract sales. The licence requires that the terms offered to contract customers should not be materially more or less favourable than those on which it supplies, or offers to supply, to comparable contract customers. This will ensure that, for example, the problems which arose in respect of the pricing policies of British Gas and which were referred to the MMC, resulting in fundamental changes being made to those policies, cannot arise in respect of electricity sales. Your Lordships may be reassured that our proposals already contain the necessary protections for consumers in this respect.

Furthermore, if—as this amendment proposes—the director were required to protect consumers without discrimination, he would be obliged to treat all consumers on the same basis and not just in relation to prices. He could not differentiate between them in any way. This would create obvious and unworkable difficulties. For example, the conditions in the public electricity supply licences which require licensees to make special arrangements for the provision of services for the elderly and disabled would not be permitted; nor would the condition requiring licensees to produce a code of practice on the payment of bills setting out the assistance available to those in difficulty; nor would the related condition, which requires the licensee to adopt a special procedure for dealing with customers in default, be permitted. These conditions are designed to provide valuable assistance to those groups. They have been warmly welcomed by consumer organisations generally and indeed, I believe, by Members of your Lordships' House. It would be an enormous step backwards to prevent those arrangements being made.

The amendment would also have the effect of preventing the director from taking account of the essential differences in the requirements and characteristics of industrial, commercial and domestic consumers which distinguish them from one another. He would be unable to allow suppliers to offer different tariffs to those different classes of customer. Nor would individual customers be able to enter into contracts with their supplier on any terms which differed from those for other customers. For example, ICI would have to be supplied on exactly the same terms as an ordinary domestic customer.

These limitations would not only apply to public electricity suppliers and their customers. The duty would apply to all consumers. The amendment would, therefore, require the director to ensure that there was no discrimination between a public electricity supplier's customers and those of a private electricity supplier—first and second tier suppliers. He could not, therefore, allow second tier suppliers to supply customers, or offer to supply potential customers, at a lower price than the public electricity supplier. The reverse would also apply. That was the point that my noble friend Lady Gardner of Parkes was making.

Your Lordships will appreciate the consequences of this. I have said that fair competition is the central theme of the Bill. With no prospect of competition there would be no opportunity or incentive for new entrants to come into the market. The director would have to ensure that all customers of all suppliers were supplied on the same terms. That is a totally illogical and retrograde step and is of no benefit to consumers.

4 p.m.

Lord Peston

My Lords, I am sorry to interrupt the noble Baroness but perhaps she should reflect on what she has been saying. I believe that she said that what her noble friend Lady Gardner of Parkes stated was right. But what her noble friend said is completely incompatible with the whole section of the Bill on licensing of supplies. Clauses 5, 6, 7, 8 and so on all say that no one can enter the supply without the permission of the Secretary of State and the director. They say that they must give reasons why they are allowed to supply. They say that the licence must include conditions which, if the amendment were passed, would certainly include non-discrimination against rural areas. Those of us who have been mystified by the intervention of the noble Baroness, Lady Gardner, are even more mystified by the Minister saying that her Bill is compatible with what she said. It is totally incompatible.

Baroness Hooper

My Lords, I was coming on to deal with some of these points more specifically, but perhaps I can take the opportunity to say that new entrants into the market will require licences. But the noble Lord has not satisfactorily explained how the licence conditions, which may operate against each individual licence holder, should be made general in a way that will fix prices among all licence holders.

I now turn to Amendment No. 32 and I hope that I shall pick up some of the other points as I go through it. This is the closest amendment in the grouping to the amendment of my noble friend Lord Stanley which was defeated at Committee stage. The whole point of our proposals is that they are designed to give protection to all consumers. We believe that the fairest way of achieving that is to ensure that one group's costs are not unfairly subsidised by imposing additional costs on other groups. It is wholly reasonable therefore that prices should reflect costs. Certain of your Lordships appear to be seeking to give preferential treatment to consumers in rural areas because it is feared that any change in the current tariff system would unfairly discriminate against rural consumers. If that is based on an assumption that rural consumers impose the highest costs on their suppliers, I remind the House that, of all the area boards, the one with the highest operating costs—my noble friend Lady Gardner did not mention it—is the London board, which has no rural consumers at all.

I can also confirm what my noble friend Lord Trafford asked in this respect. I remind your Lordships of the assurance given by the area board chairmen of England and Wales and the chairman of the South of Scotland Board that they expect to maintain the current system of tariffs for domestic customers for five years after privatisations, which will cover the transitional period. I assure your Lordships that suppliers will not be permitted to load their costs on to, say, rural consumers, commercial consumers or any other group of consumers simply so that he may increase his profits or undercut his competitors. Because of the duties placed on him, the director will be looking very closely at prices to ensure that the requirements of the Bill and the licence are being adhered to. That will include the requirements of Clause 20, which prohibits a supplier from showing undue preference or exercising undue discrimination against any tariff customer or group of tariff customers. That will ensure that a supplier cannot offer a lower price to one class of customers or to an individual customer or group of customers within that class simply to undercut a competitor if it was not justified on the basis of the true costs of providing those supplies.

Should the director consider that a supplier's pricing policy does not conform with those requirements, he will have the necessary powers to require him to rectify the sitution. Nobody has suggested that in carrying out his duties the director general would not be giving rural customers fair treatment. That is certainly not the case.

The noble Lord, Lord Williams of Elvel, referred to proverty in rural areas, I should have thought that it is very difficult for him to justify such an arbitrary cut-off. There will always be people in all areas who experience difficulties. To take an example, we are all well aware of the present problems in the inner city areas. I cannot see any justification whatever for requiring consumers in the inner cities who already have problems to subsidise the costs of supplies to those in rural areas. There is no justification for doing so. I believe that it is totally illlogical, just as it would be if we suggested that any other group of consumers or another class should be given preferential treatment.

Reference has also been made to a similar debate on the Water Bill. I believe that it was the noble Baroness, Lady White, who, while expressing concern about the need to protect rural customers in that context, made the point that it must be recognised that electricity is open to some kind of competition, whereas for water there is no choice. That is absolutely correct. There is a real and fundamental difference between the industries. For electricity not only do we have the competitive pressure from other electricity suppliers, but also the competitive pressure from competing fuels. It is that difference which justifies and necessitates that they be treated differently.

On this question of monopoly of supply, it is right to emphasise that there are two types of supply licence specified in Clause 7. It is true that the public electricity supplier has an obligation to supply within the area, but he has no monopoly. Suppliers granted licences under Clause 7(2) will have a right to supply premises specified in their licence and to compete with the public electricity supplier for customers. We believe that that is an important element of competition permitted by the Bill.

We believe that the duty placed on the director by Clause 4(3) in respect of prices ensures that the interests of all consumers are protected. We cannot endorse a proposal which would give preferential treatment to one group at the risk of disadvantaging others. I hope that I have demonstrated why we cannot support this amendment.

I turn now as rapidly as possible to Amendments Nos. 60 and 61. We believe that Amendment No. 60 is unworkable. It would prevent a public electricity supplier from discriminating between any person or class of persons when fixing his tariffs. However, the clause would still permit the supplier to exercise due preference when doing so. It would simply not be possible for a public electricity supplier to show due preference if at the same time he was prevented from exercising any discrimination between his consumers. I remind your Lordships that it is in the consumers' interest that a public electricity supplier should be permitted to exercise due preference or due discrimination.

For example, there will be cases where the demand pattern of a customer enables the supplier to optimise his operations and thereby reduce his costs. That is clearly beneficial to all his customers. Therefore it would be reasonable to permit him to offer terms to that customer reflecting the benefits of that particular sale to the supplier. A specific example affecting many customers would be the Economy 7 tariff, but the same factors would also apply to the various load management arrangements which currently benefit the industry. Therefore there is a demonstrable need for suppliers to be able to show discrimination or preference where it is due, and on that basis I cannot accept the amendment.

Amendment No. 61 seeks to protect rural consumers in particular from discrimination through the public electricity suppliers' tariff systems. In this case I have to say that the amendment is unnecessary. The wording of Clause 20(4) specifically prohibits a public electricity supplier from showing undue preference to any person or class of persons, and from exercising undue discrimination against any person or class of persons. This would, by definition, include rural consumers. There is no need for the additional qualification that has been proposed.

The provision in the Bill will prevent unfair pricing practices such as predatory pricing, where the only justification for charging different prices is the convenience or policy ends of the supplier. A supplier would not, therefore, be permitted to offer a lower price to one class of consumers, or to an individual consumer or group of consumers within that class, simply in order to undercut a competitor.

Your Lordships are aware that the area boards—acting in accordance with a similar requirement under the Electricity Act 1947—currently offer the same tariffs to all customers within the same class. I remind your Lordships, however, that they are not bound to do so. I know that much concern has been expressed about the explicit provision in the Bill that permits a public electricity supplier to charge different tariffs in different areas, cases and circumstances. I must emphasise, however, that this power is not new: the area boards have had precisely the same power for over 40 years. Our proposals have not changed that position although they have clarified it. In that context I remind your Lordships that the area boards have of course, given a welcome assurance that they expect to maintain that system for a five-year period.

Nor are the provisions of the Bill the only constraint on suppliers. The public electricity supply licence contains conditions which reinforce the provision on undue preference. A licensee will be prohibited from cross-subsidising between any of his separate businesses; for example, between the supply of electricity to his tariff and contract customers, or between his supply and appliance sales businesses. Secondly, the licence specifically prohibits the public electricity supplier from supplying at different prices unless those differences reasonably reflect differences in the costs associated with the supply.

The noble Lord, Lord Stoddart, asked about preferential capital investment in urban areas. The duty placed upon public electricity suppliers by Clause 10(1) is to maintain an efficient, co-ordinated and economical system of electricity supply. That applies throughout the supplier's area.

I realise that I have spoken at length but I felt that I should put the record absolutely straight on this important matter. I hope that my remarks will have convinced many noble Lords who may have been in doubt of the reasons why the Government do not feel able to accept any of the amendments in this grouping.

As regards Amendment No. 1, I shall not reiterate the arguments but I must point out that its effects would be so widespread as to wreck the whole basis of the Bill. I urge all noble Lords who support the principles of the Bill to vote against it.

4.15 p.m.

Lord Sefton of Garston

My Lords, if the noble Baroness will give way I should like to ask her to say a little more—

Noble Lords

No, no!

Lord Sefton of Garston

My Lords, I am perfectly in order according to the rules of this House. I asked to interrupt the noble Baroness and she kindly gave way. I now intend to ask the question.

Noble Lords

Hear, hear!

Lord Sefton of Garston

My Lords, the noble Baroness said that nobody justified the subsidies from one set of people to another. For many years I was a member of the Merseyside and North Wales Electricity Board. It was constituted as such for a specific reason. In the setting up of the electricity industry it was understood that one of its vital jobs was to provide power to those who until then had been denied it. The whole of the North Wales area was then enabled to become an efficient supplier for produce and dairy food to the Merseyside area. That subsidy was paid by the large users in Merseyside to the hill farmers in North Wales.

If the Government subscribe to the point of view that there should be no subsidy from one set of people to another, what will be the position in five years' time when all the network which the present Merseyside and North Wales Electricity Board maintains in the hill farms of Wales needs to be renewed at a tremendous cost? Who will pay for that? Will it be the board, thereby using its facilities to make a profit in the industrial area, in order to pay for the network, or will the people in North Wales have to pay for its renewal? If that is so, then the cost visited upon the hill farmers of North Wales will be that again the area will become denuded. There is no other form of power such as gas and therefore it will mean that North Wales will revert to its position in 1945, when it was practically denuded. Quite simply, does the Minister agree that when that tremendous expense is required it should be subsidised by someone in order to enable the people in North Wales to live there?

Baroness Hooper

My Lords, with the leave of the House, the example quoted by the noble Lord entirely justifies the Government's opposition to these amendments. That is precisely the kind of deal that we wish to allow the area boards to carry out. I assure the noble Lord that there is no possibility of a public electricity supplier being permitted to charge differently simply on the basis of geographical location. The noble Lord's worst fears are certainly not justified.

Lord Stanley of Alderley

My Lords, I took four minutes to open the debate and I shall try to end it in the same time. I believe that enough time has been spent on it and a decision must be reached on the principle. I shall first try to comment on a few remarks which I believe to be important.

The noble Lords, Lord John-Mackie and Lord Hylton, spoke about costs. I must remind the House that the cost of distribution is only 20 to 30 per cent. of the whole cost. The main cost lies in the generation. In that regard I agree with noble Lords opposite that if there is to be competition there will be competition there. One will not get competition in a village such as Little Tooting (if there is such a village) which I quoted during our discussions on the Water Bill.

Secondly, my noble friend Lord Trafford raised the point that there are powers and the Bill contains the words "not to discriminate". I am sorry, but I must now agree with the noble Lord, Lord Peyton.

The words contained in the paragraph are reasonable words. I go further, because they are the kind of words which were contained in the Water Bill. The Government then accepted an amendment on this issue and I shall quote what was said by my honourable friend Mr. Howard on 3rd July, when the amendment was before another place. He said that there was a need for further protection for rural customers, and he said: A direct consequence of the amendment is a substantial additional reinforcement for consumers in rural areas". [Official Report, Commons, 3/7/89; col. 50.] I am sorry but if it applies to water, then it applies to electricity.

Regarding the set of amendments and the point raised by my noble friend Lord Peyton, I see them all hanging together with the possible exception of Amendment No. 1. However, certainly Amendments Nos. 32, 60 and 61 must be read in conjunction and cannot be separated one from the other.

I was confused by what my noble friend Lord Renton said. Either I have it wrong or he has it wrong. He wanted all consumers in one particular electricity area to be treated equally. That is what my amendment says. Perhaps I can put that in agricultural terms by saying that there is no question of pigs being more equal. We are all equal in that area, and these amendments are drafted in that way. If they are incorrectly drafted, I shall redraft them; but I should like the principle to be decided now. We have wasted enough time and have had enough Second Reading speeches.

My noble friend Lady Carnegy raised the question of Scotland. Of course, there is the nasty sore of the North Scotland Board which has been granted the privilege of equal charging. I asked in Committee: what is the difference just because the north of Scotland has a lot of hydro-electric power? In Wales there are two nuclear power stations. I just cannot see the difference.

My noble friend Lady Gardner treated us to a Second Reading speech. I can only repeat that the competition will be in the generation and not in the supply.

I was pleased at the way in which my noble friend Lady Hooper started her remarks, and I thought I was going to get on all right. She said that it is the Government's desire to protect the consumer, and that that is written into the Bill. I must admit that later on, when she commented on my Amendment No. 32, she said the opposite. Therefore, I feel that I may have to join some of your Lordships who do not understand this Bill. I believe that there are very few who understand the Bill completely.

Concerning my amendment, at the end of the day the noble Baroness was talking about charging ICI the same as a domestic consumer; and she said that that would be a consequence of my amendment. That would not be so. My amendment says that the director general and the Secretary of State should pay particular regard. If the electricity plcs go to the director general and the Secretary of State and say, "Look, we want to charge this", if they think that is reasonable then they are entitled so to do. I should like to tighten that further but I cannot, and I do not believe that it would be fair. However, I do not think that that is a valid point.

I am sorry to say that my noble friend gave me no satisfaction over her original wish not to discriminate against those least able to protect themselves because there will never be any competition there. All noble Lords know that the purpose of my amendment is perfectly clear. It may be that the drafting is wrong, and I agree with my noble friend that I am suspicious about Amendment No. 1. However, I do not believe that we can continue like this, and I shall put this matter to the House. If the drafting is wrong, I shall redraft it or ask the Government to do that for me on Third Reading. I commend the amendment to your Lordships.

4.23 p.m.

On Question, Whether the said amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 117; Not-Contents, 91.

Addington, L. Belhaven and Stenton, L.
Airedale, L. Birk, B.
Ampthill, L. Blease, L.
Ardwick, L,. Blyth, L.
Bonham-Carter, L. McNair, L.
Boston, L. Masham of Ilton, B.
Boston of Faversham, L. Mason of Barnsley, L.
Broadbridge, L. Mayhew, L.
Bruce of Donington, L. Milner of Leeds, L.
Burton of Coventry, B. Monson, L.
Callaghan of Cardiff, L. Moran, L.
Carmichael of Kelvingrove, L. Morris, L.
Mountevans, L.
Carter, L. Mountgarret, V.
Cledwyn of Penrhos, L. Moyne, L.
Cocks of Hartcliffe, L. Nicol, B.
Craigavon, V. Northfield, L.
David, B. Ogmore, L.
Davies of Penrhys, L. O'Neill of the Maine, L.
Dean of Beswick, L. Peston, L.
Donaldson of Kingsbridge, L. Peyton of Yeovil, L.
Dormand of Easington, L. Phillips, B.
Elliot of Harwood, B. Pitt of Hampstead, L.
Elwyn-Jones, L. Ponsonby of Shulbrede, L.
Ennals, L. Prys-Davies, L.
Ewart-Biggs, B. Radnor, E.
Ezra, L. Raglan, L.
Falkland, V. Robson of Kiddington, B.
Foot, L. Rochester, L.
Gainsborough, E. Sainsbury, L.
Gallacher, L. Seear, B.
Galpern, L. Sefton of Garston, L.
Gladwyn, L. Serota, B.
Glenamara, L. Shackleton, L.
Graham of Edmonton, L. [Teller.] Shannon, E.
Sharples, B.
Grey, E. Shaughnessy, L.
Hampton, L. Shepherd, L.
Hanworth, V. Stallard, L.
Harris of Greenwich, L. Stanley of Alderley, L. [Teller.]
Hatch of Lusby, L.
Henderson of Brompton, L. Stedman, B.
Hirshfield, L. Stodart of Leaston, L.
Houghton of Sowerby, L. Stoddart of Swindon, L.
Howie of Troon, L. Strabolgi, L.
Hunter of Newington, L. Strange, B.
Hutchinson of Lullington, L. Taylor of Blackburn, L.
Hylton, L. Taylor of Mansfield, L.
Hylton-Foster, B. Thurlow, L.
Irvine of Lairg, L. Tordoff, L.
Jenkins of Hillhead, L. Turner of Camden, B.
John-Mackie, L. Underhill, L.
Kilbracken, L. Walston, L.
Kinloss, Ly. Whaddon, L.
Kinnaird, L. White, B.
Lawrence, L. Williams of Elvel, L.
Lloyd of Kilgerran, L. Wilson of Rievaulx, L.
Lockwood, B. Winchilsea and Nottingham, E.
Longford, E.
Lovell-Davis, L. Wise, L.
McIntosh of Haringey, L.
Abercorn, D. Constantine of Stanmore, L.
Airey of Abingdon, B. Cork and Orrery, E.
Alexander of Tunis, E. Cullen of Ashbourne, L.
Arran, E. Davidson, V. [Teller.]
Beloff, L. Denham, L. [Teller.]
Belstead, L. Dundee, E.
Bessborough, E. Eccles, V.
Blatch, B. Eden of Winton, L.
Bolton, L. Elles, B.
Borthwick, L. Elliott of Morpeth, L.
Boyd-Carpenter, L. Elton, L.
Brougham and Vaux, L. Gardner of Parkes, B.
Bruce-Gardyne, L. Gibson, L.
Caccia, L. Glenarthur, L.
Caithness, E. Grantchester, L.
Campbell of Alloway, L. Gray of Contin, L.
Campbell of Croy, L. Hailsham of Saint Marylebone, L.
Carnegy of Lour, B.
Carnock, L. Harvington, L.
Clitheroe, L. Havers, L.
Cockfield, L. Henley, L.
Coleraine, L. Hesketh, L.
Hives, L. Nelson of Stafford, L.
Hood, V. Norrie, L.
Hooper, B. Nugent of Guildford, L.
Jenkin of Roding, L. Oppenheim-Barnes, B.
Johnston of Rockport, L. Oxfuird, V.
Kaberry of Adel, L. Pender, L.
Killearn, L. Penrhyn, L.
Knutsford, V. Prior, L.
Lucas of Chilworth, L. Rankeillour, L.
McFadzean, L. Rees, L.
Mackay of Clashfern, L. Renton, L.
Mancroft, L. Sanderson of Bowden, L
Margadale, L. Skelmersdale, L.
Marley, L. Strathcarron, L.
Marshall of Leeds, L. Strathclyde, L.
Maude of Stratford-upon-Avon, L. Sudeley, L.
Suffield, L.
Merrivale, L. Terrington, L.
Mersey, V. Teviot, L.
Montgomery of Alamein, V. Thomas of Gwydir, L.
Mottistone, L. Trafford, L.
Mowbray and Stourton, L. Tranmire, L.
Munster, E. Ullswater, V.
Murton of Lindisfarne, L. Whitelaw, V.
Melson, E.

Resolved in the affirmative, and amendment agreed to accordingly.

4.33 p.m.

The Earl of Dundee

My Lords, I beg to move that the House do now adjourn during pleasure.

Moved accordingly, and, on Question, Motion agreed to.

[The sitting was suspended from 4.33 to 4.36 p.m.]

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