HL Deb 24 July 1989 vol 510 cc1148-57

4.18 p.m.

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

My Lords, with the leave of the House, I shall repeat a Statement made in another place by my right honourable friend the Secretary of State for Energy.

"With permission, Mr. Speaker, I should like to make a Statement about electricity privatisation and nuclear power.

"As a result of our preparations for privatisation, it has recently become clear that the cost of reprocessing and waste treatment of spent Magnox nuclear fuel will be a great deal higher than has been charged in electricity prices and provided for in the accounts of the CEGB and SSEB. The Magnox stations are drawing to the end of their lives. One is already closed, and most of the others are due to close within the next few years. Most of these costs therefore relate to the past, to electricity already generated and paid for. Future customers will be bearing the full cost of the electricity they consume. It would not be right to burden them also with costs arising from the past.

"It is important that the energies of the companies should be directed towards ensuring that their existing stations are run efficiently and at lowest cost. National Power will, subject to planning and other consents, also be building new PWRs. In order to enable the nuclear generating companies to focus their attention on the future, the Government have decided that it would be appropriate to relieve the new companies of dealing with these substantial problems of the past.

"The Government have considered carefully how best to implement this decision. It has been decided that both the assets and liabilities relating to the Magnox stations belonging to the CEGB and SSEB should remain under government control.

"The AGR stations will be assigned to National Power and the Scottish Nuclear Company, and will be privatised. These stations have many years of operation ahead. The operating performance of these stations has shown marked improvement and this can be expected to continue in the future. Therefore we have good reason to believe that the AGRs will have a long and successful future in the private sector. National Power will continue to construct Sizewell B and, subject to obtaining the necessary planning approvals and satisfactory contractual arrangements, intends to construct and operate three more PWRs.

"No changes to the Electricity Bill are needed to bring the Government's decisions into effect. I shall be laying a draft order before Parliament during the autumn to increase the limit on the amounts payable under Schedule 12 to the Bill from the interim level of £1,000 million to £2,500 million. This order will be subject to affirmative resolution and will give the House a full opportunity to debate our detailed proposals. The order will enable grants to be paid to National Power and to the Scottish Nuclear Company for unforeseen costs, as previously explained to the House. These powers will also be used to ensure that the Magnox stations can continue to be operated and their liabilities to be met.

"I am most concerned that nothing is done to jeopardise the future of the employees concerned. Their pension rights, their ability to benefit from the flotations, and their career prospects will be protected. To this end I shall discuss the implementation of the proposal with all the parties concerned, including the unions.

"We shall ensure that the necessary resources are available to maintain the present high standards of safety and environmental protection. We shall not take any steps which are not approved by the Nuclear Installations Inspectorate.

"Preparation for privatisation has brought new information to light. The costs for the Magnox stations, which have now become clearer, would present major financial problems for the two nuclear companies. They can be paid for only by the customer or the taxpayer. The Government do not believe that this legacy of the past should be borne by customers in the future. The Government have therefore moved rapidly to deal with the issue. It is right to separate the problems of the past from the prospects for the future. The nuclear generators will be able to concentrate their efforts on building a new generation of PWR stations and further improving the performance of the AGRs. On the basis of the presently planned life, the last Magnox station will have closed by 2002. Thereafter, commercial nuclear power generation will be wholly in the private sector. This where it should be and where it will fourish".

My Lords, that completes the Statement.

4.24 p.m.

Lord Peston

My Lords, I thank the noble Baroness for her important and interesting Statement. What the Government are proposing appears to be a half-way house between what they originally proposed—which was entirely to privatise all generation, including nuclear generation—and the suggestion that was made when your Lordships were discussing the Electricity MI, when many noble Lords on all sides of the House thought that the whole thing would be infinitely easier if the Government kept the whole of nuclear power in the public sector, at least for the time being.

This seems to be a half-way house and it is very puzzling. Before asking a series of questions, at least I welcome one aspect of the Statement, which is that nothing shall be done to jeopardise the future of the employees concerned. I am delighted to hear that and, as this has not been characteristic of the government, I am delighted to hear that they intend to discuss the proposals with all parties concerned, including the unions. That is a welcome return to rational behaviour on the part of the Government.

I have a series of questions to put to the noble Baroness. I am sorry that there are so many, but the Statement is important enough to warrant them and I should prefer to do it now rather than try to find some artificial way of raising the matter tomorrow when we return to our old friend the Electricity Bill.

My first question is fairly obvious. What does the phrase "remain under government control" mean? Will there still be a separate company somewhere (we do not know what it will be called) that will own these stations? Or are we to understand that the noble Baroness's department will own the stations? We should welcome an indication of what "under government control" means.

My second question refers to the reason why this will happen. Am I right in assuring that the Government's argument is that consumers of electricity in the past have not met the full costs of the nuclear generated electricity that they have consumed? Is that the point? They did not meet the costs, the Government have no idea about how to place those costs on them and therefore they have decided that they must place those costs on the taxpayer, because after all that is what this is all about.

If that is so, what about the AGRs, because the Government have decided that they will be sold off? Are the Government assuming—indeed, do the Government know—that the costs to date of the AGRs have been fully met by the consumer? I should be surprised to hear that the Government believe that, but I should like to know what the Government's view is. Why are the AGRs any different from the Magnox stations? I s it not too late for the Government to keep the AGRs in the pubic sector as well, which, I repeat, is the sensible procedure?

In the Statement the noble Baroness referred to the costs of reprocessing and waste treatment of spent Magnox fuel. She believes that will be a great deal higher than has been charged in the past. Is that the only reason? In other words, are there no decommissioning costs involved which are being taken into account? That is what we were debating when we last discussed this matter. Is it just a matter of reprocessing and waste treatment and no more? Has she anything to tell us about that?

Another question I have relates to the fact that the noble Baroness was reading a Statement that was given in another place. It says that the House will have a, full opportunity to debate our detailed proposals. May I assume that "the House" for this purpose means your Lordships' House, even though the Statement is simply a repetition of that read in another place? We regard it as extremely important to debate these matters in some detail.

I hate to rub salt into any wounds, but the noble Baroness has just announced that under Schedule 12 to the Bill her right honourable friend the Secretary of State already intends to raise the interim levels from £1,000 million to £2,500 million. Is she aware that we are surprised that we have reached this stage as quickly as we have? We assumed that that might be happening in some years' time rather than immediately. Is there any possibility that the £2,500 million could, in the Government's view, be exceeded: I do not expect an answer to that, but I have a more formal question. Am I right in thinking that if we ended up with more than a £2,500 million bill for this, then primary legislation would surely be necessary?

Although this is a short Statement it raises an enormous number of issues. I do not apologise for mentioning them at this time.

My final question is rather a raising of eyebrows. It was clear to many noble Lords on all sides of the House that the problem was central to the Bill. Can we believe that, because the implication of privatisation has suddenly dawned on the Government, this matter has only recently come to light? With no disrespect to the noble Baroness, I find that hard to believe. Is it the case not that new information has suddenly come to light but that it has suddenly dawned on the Government that the sums of money involved are so large that the whole of electricity privatisation is in peril, as we pointed out?

I look forward to the noble Baroness's reply and in particular to that concerning our ability to debate the matters in detail.

4.30 p.m.

Lord Ezra

My Lords, I thank the noble Baroness for that Statement. I should like to carry on where the noble Lord, Lord Peston, finished. I have always believed that the nuclear aspect was the albatross hanging around the neck of the electricity privatisation Bill and that it was the big problem which must be faced. I am not particularly surprised that the Government have now come forward with this Statement.

It raises a number of issues. First, we were told that the Government have decided that both the assets and the liabilities relating to the Magnox stations belonging to the CEGB and SSEB shall remain under government control. That was clearly stated by the noble Baroness when repeating the Statement. However, I cannot understand why later we were advised that no changes to the Electricity Bill were needed in order to bring the Government's decision into effect. I may have misunderstood the whole purpose of the legislation that we have debated at length but I believe that it is a major change and that if it is to be abstracted from the terms of the Bill an amendment is required. I cannot see how today the Government can say that they will abstract it from the Bill but that at the same time no modification is required. I should be glad to hear the noble Baroness's views about that problem.

Secondly, it was made clear in the Statement that the Government did not wish to burden consumers with past costs in relation to nuclear. There have been many past costs but one of the most important was that which occurred in the early days of the AGRs. Enormous delays were then encountered in bringing those stations into operation. I agree that the later versions of the AGRs have been more successful. However, if the Government are true to their intention of not burdening consumers with past costs in relation to the Magnox stations why should they be burdened with the past costs in relation to AGR stations? I believe that there should be some logic in the approach.

Thirdly and more generally, would the Government not have been better advised to separate nuclear from conventional stations? Such an amendment was proposed and supported from all sides of the House. Many noble Lords on the Tory side also spoke in its favour. Would it not have been much simpler for the public to be quite clear in what it was being asked to invest? The nuclear stations have special problems such as past costs, decommissioning, the disposal of nuclear waste and other issues which burden the nuclear industry, important though it is in the energy field. Therefore, would it not have been better if right from the start the Government had decided to separate nuclear from conventional stations so that everyone knew where they were? The Government should then have accepted to take on that part of the nuclear burden which they have now decided to do in respect of Magnox and which they should do also in respect of the AGRs. Would that not have been a better and simpler solution and would it not have expedited the Government's intentions?

Baroness Hooper

My Lords, I am grateful to the noble Lords, Lord Peston and Lord Ezra, for their comments and the points that they have raised. As regards the welcome given by the noble Lord, Lord Peston, to the safeguarding of employees' rights and conditions, I point out that it is not unusual for the Government to consult widely and to include the trade unions. Considerable discussions about pension rights were held with the trade unions in respect of the Electricity Bill, as the noble Lord will remember.

I shall try to tackle some of the questions which the noble Lords raised. The type of company that is to be formed is still under consideration and the detail has not yet been finalised. That matter will be the subject of debate in the autumn. It is intended that it will be a separate company owned by the Government.

The noble Lord asked whether in the past insufficient provision was made by the consumers in respect of the charges. The provisions that were made have proved to be insufficient and they relate mainly to the charges in respect of Magnox stations, as we have always made clear. It is as a result of extensive scrutiny of the arrangements and extensive preparation for the privatisation that the full facts about those costs have emerged. In looking at the arrangements which now must be put in place we believe that it is important and right to separate the problems of the past from the prospects for the future, which we believe are good.

The noble Lord asked whether AGRs are fully covered. That brings me back into the area of unforeseen and unforeseeable costs which we debated during the course of the Bill. The provisions contained in Clause 98 and Schedule 12 are intended to cover any unforeseen costs relating to future operation as well as the past. It will certainly be the intention of the new companies to provide in their charges for all costs that are known. It is the intention of the Government that those costs should be known at flotation. Clause 98 remains in the Bill in order to cover any unforeseen costs. I emphasise, as we have always done, that the difficulties that we now face and their magnitude relate principally to the Magnox stations.

As regards detailed discussion in the autumn, an order of the type provided under Schedule 12, paragraph 4(2), is subject to affirmative resolution by the House of Commons. If necessary, any orders made by the Secretary of State under Clause 34, relating to the non-fossil fuel obligation, and Clause 35, relating to the levy, would by virtue of Clause 107 be in the form of statutory instruments subject to annulment in pursuance of a resolution of either House of Parliament.

Therefore, what all that means is that the order which is subject to the affirmative procedure and which is necessary to increase the £1 billion provision to the £2.5 billion figure would be subject to discussion only in another place; but since orders will be raised on the non-fossil fuel obligation and the levy under Clauses 34 and 35, the procedures there are open to discussion also in this House. In the event of any increase going over the £2.5 billion figure, as I said previously to the House primary legislation would be needed.

I hope that covers most of the points raised by the noble Lord, Lord Peston. I believe he asked why the information has only just come to light. In fact, the figures have emerged only over the past couple of months and it has been necessary to understand and analyse them before reaching a decision which we could put before your Lordships.

The noble Lord, Lord Ezra, asked for confirmation of the statement that there will be no changes necessary to the Electricity Bill. I can give him that confirmation. He also asked whether consumers were going to be further burdened with nuclear costs. I feel I must again make clear that the costs of Magnox stations are a legacy of government decisions taken 30 years ago, so the Government are taking the responsibility for dealing with those costs; not just because we have been urged to do so, as I recognise that we have, but because it is right to do so. Where future costs are concerned it is intended, as I said, that adequate provision for all foreseen costs will be made at the time of flotation of the company.

We remain firmly convinced that nuclear power will have a better future in the private sector. We believe that it is right to separate the problems of the past from the prospects for the future. We believe that Magnox stations will continue to perform realiably in the short term and that the AGR performance, which has been much improved, will continue to improve. I should add that in 1988–89 the AGR output in England and Wales was 27 per cent. higher than the previous record. The costs were potentially there, but their full extent has only recently been brought to light. The Government are determined to make clear the full cost of nuclear power. We believe it would be wrong to fudge this and that is why the matter has been brought before your Lordships at the earliest possible point.

Baroness Seear

My Lords, I am not sure that one should raise large questions in response to a Statement, but one is left absolutely flabbergasted that a change of this magnitude and importance is brought forward now. Can the noble Baroness explain what process of investigation was undertaken before the Electricity Bill was drafted and which failed to throw up the facts of the issue? I realise that this is a big question to ask on a Statement but it leaves us speechless. Who advised the Government? Where did the information come from on which the Government based the Bill and which overlooked this trivial little matter of nuclear energy?

Baroness Hooper

My Lords, I said that the full extent of the figures emerged only over the past couple of months. The scrutiny of the accounts of nationalised industries, as the noble Baroness will know, is in the first place a matter for the auditors concerned. From time to time the department meets the industry and its auditors on the accounts. Clearly this happens on an ongoing basis in normal circumstances. However, in the preparation for privatisation all parties have been looking very keenly at the accounts to ensure that they properly reflect all the costs. It is as a result of that examination that the figures have emerged. There has been no attempt to deceive anyone, certainly not this House. We are laying our proposals and the facts before the House at the earliest possible time.

4.45 p.m.

The Earl of Halsbury

My Lords, I thank the noble Baroness for her Statement. Will she confirm that everything towards the end of its life is a legacy inherited from the past? The cost of decommissioning is the cost of not having designed something as you would do 40 years later. In relation to AGRs, will the noble Baroness confirm that we are talking only of two groups of stations: Hunterston B, Hinkley B, Torness and Heysham 2? The others are low-performance prototypes which should be dealt with on the same lines as the Magnox because they will never be economic in terms of their historical cost. Therefore, to that extent I am in agreement with the noble Lord, Lord Ezra.

It seems to me that the noble Baroness is trying to pre-empt the decisions of governments 40 years hence. I have always been taught that no government can commit their successor save through an Act of Parliament which is repealable. I cannot see that it is going to be a business proposition to sell to the City of London something unknown that is to be decommissioned in 40 years' time when we have no experience of decommissioning the first.

Baroness Hooper

My Lords, I am grateful to the noble Earl for his contribution, which is, as always, well founded on his knowledge of the industry. However, on the facts that the Government have been considering in reaching this decision the problem area is very much the Magnox stations which we feel should be kept under sector control. The information coming forward about the progress of the AGRs shows that some of the problems that have emerged in the past have been overcome and that all the AGRs—not only those referred to by the noble Earl—have a long and successful future ahead of them.

Lord Boyd-Carpenter

My Lords, can my noble friend add a little to her answer to the noble Baroness, Lady Seear? As I understood my noble friend, she said that the extent of these costs had only recently come to light. Can she explain how that could be? As I understood her earlier answers, many of these costs go back a great many years. Surely, the government system of accounting took account of them. They must have been available to her department and to Ministers. Can my noble friend explain why only at this very late stage the existence has come to light of these large liabilities which require to be dealt with?

Baroness Hooper

My Lords, provision that had been thought adequate as regards future liabilities on de-commissioning, re-processing and so on, stood both on a historic cost and on a current cost basis at £3.4 billion in the 1987–88 accounts. The provision in the 1988–89 accounts is likely to be at least double that figure. The majority of these costs are for nuclear provision which will be inherited by National Power. It is simply a matter of fact that the full extent of these future costs has only been definitively worked out in the recent past.

Lord Stoddart of Swindon

My Lords, is the noble Baroness aware that her Statement this afternoon will have been received with incredulity by those who have had anything to do with the electricity supply industry and nuclear power over a period of time? The Minister will know that on many occasions figures supplied by the CEGB to the Sizewell inquiry and to the Energy Select Committee in another place gave the impression that the Magnox stations were efficient and that they produced electricity at lower cost than coal-fired stations. Those figures were used for all kinds of purposes—for bolstering up a future nuclear power programme as well as for other reasons.

Is the Minister telling us the that CEGB has only found out the real cost of Magnox stations at this stage? If so, what right had it to give information to Select Committees of this House and other important bodies without perhaps paying proper regard to the truth of those figures? Can the Minister also say whether it is not a fact that as regards the Magnox stations the capital costs of most of them have been virtually written off'? Therefore, are we not talking only of the operating costs and the costs of reprocessing concerning the total cost of energy per unit sent out from those power stations?

If those are the only costs involved and there are no capital costs to be amortised, then it is incredible and impossible to believe that such costs are below those of the early AGR stations. The Government should look again at this problem and at the figures on which their decision is based. I really do not know quite how to conclude, I am so concerned about this matter. Obviously, other noble Lords are concerned. I wish to emphasise to the noble Baroness the seriousness of the Statement and the considerable doubt which can be thrown on the basis on which it is made.

Baroness Hooper

My Lords, I am well aware of the importance and significance of the Statement. I repeat that the process of privatisation has focused attention on the true cost of nuclear power and of the Government's determination to make the cost transparent. That has resulted in new figures being brought to light. The industry, the Government and their advisers have undertaken a thorough analysis of the make-up of the provision as part of the preparation for privatisation. Some costs had not been previously identified, and others were accounted for differently. There are a variety of reasons.

The 1989 accounts will include for the first time costs which had not been previously provided for and the impact of tax on long-term provision. Most of the costs involved are those of reprocessing and disposing of the spent fuel from past generation. These costs will not go away.

The Earl of Lauderdale

My Lords, I ask my noble friend to clarify one point. I do not think that we want to turn knives in wounds at this stage. With regard to the provision of money that has to be increased, we understand that that is a matter for the other place. But since much wider issues, apart from the provision of money, arise, can the Minister assure us that there will be an opportunity to debate the matter in this House? If she is not herself a usual channel, perhaps she will communicate the view that this House must have a good look at the subject in the autumn?

Baroness Hooper

My Lords, I am grateful to my noble friend. I shall certainly communicate with the usual channels. I am sure that we shall be able to inform your Lordships at the earliest possible opportunity what the procedure will be. I indicated that there are other orders and regulations due to be made under the Bill which would give an opportunity to debate, if not the specific increase of funds, then the wider issues which have been presented in this Statement.

Viscount Hood

My Lords, the figures that the Minister has given are somewhat confusing. We have heard before and during the debate of the very large provision made by the CEGB. The figures that the Minister has now given are shown to be very large indeed. I assume that this must necessarily be provision out of revenue. It follows therefore that the consumer pays. I assume that the provision has been re-invested in the business and does not have a corresponding cash availability to meet the costs when they arise.

I hope that, in the fullness of time, the Minister will be able to provide figures which will relate the provision already made to the very large additional appropriation included in the Bill.

Baroness Hooper

My Lords, yes. The provision, that I quoted earlier and which exists in the CEGB's accounts, standing at £3.4 billion in the 1987–88 accounts, was the result of charges made to the consumer. In that sense the consumer paid. Apart from the Magnox stations which are to be dealt with separately by the Government, future costs will also be accounted for in the charges to the consumer. I believe that most investors would treat such provision as equivalent to debt in many respects.

Lord Cledwyn of Penrhos

My Lords, is the noble Baroness aware that in my experience in both Houses I have not come across a situation comparable to the present one? She has repeated a Statement of the utmost significance and of national importance. It affects the Electricity Bill. As I understand it, the question of nuclear power is dealt with in Schedule 12 and in related clauses of the Bill.

In the light of what noble Lords, including the noble Earl, Lord Lauderdale, who has just left the Chamber, have said, it seems that there is a strong case for the Government withdrawing from the Bill Schedule 12 and the relevant clauses so that this entire matter can be considered. For some reason or another the Government and their advisers had not given proper thought to this aspect of the electricity industry before the parliamentary draftsman handed them the Bill. Therefore, will she consult her right honourable friend Mr. Parkinson and ask him whether he will now consider withdrawing the parts of the Bill relating to the Statement?

Baroness Hooper

My Lords, we still believe that the Bill is a good one and will achieve our objectives. Our proposals are consistent with the Bill as presently drafted. Indeed the proposals which are the subject of this Statement will contribute to the success of the privatisation. A good deal of extra work will be needed but we are confident that privatisation of the electricity industry can be completed as intended.