§ 5.6 p.m.
§ House again in Committee on Clause 63.
§ Lord Peyton of Yeovil had given notice of his intention to move Amendments Nos. 225 and 226:
Page 47, line 28, leave out paragraph (a) and insert—
("(a) one shall be designated as the generating company;")
§ Page 47, line 28, after ("two") insert ("or more")
§ The noble Lord said: If I were to move the amendments it would inevitably involve going over much of the same ground which was well trodden during our debate on the previous amendments. With great effort I shall resist the temptation to take up the Committee's time explaining why they are not wrecking amendments either by intent or by effect. Therefore I do not move them.
§ [Amendments Nos. 225 and 226 not moved.]
§ [Amendment No. 226ZA not moved.]
Lord Williams of Elvel moved Amendment No. 226ZB:
Page 48, line 2, after ("liabilities") insert ("including contingent liabilities")
§ The noble Lord said: In moving Amendment No. 226ZB it may be for the convenience of the Committee if I also speak to Amendment No. 226ZC. The amendments are, as are a number of amendments which follow over the next few pages of the Marshalled List, designed to clarify what is in the Bill so that we understand fully its nature.
§ There is an accounting theory that "liabilities" do not include contingent liabilities. Clearly the generating board has contingent liabilities, as does the Electricity Council. I shall not go through those liabilities but many of them are guarantees which both the generating board and the Electricity Council make. We need to be satisfied that they are covered in the Bill as drafted and that there is no necessity for an expression such as I am suggesting in the amendment to cover that point. I beg to move.
The Earl of Dundee
I am grateful for the opportunity provided by the amendment to confirm that Clause 63(1) requires the CEGB to make a scheme to transfer all its property, rights and liabilities to successor companies. There are no exceptions to that general obligation.
In the context of statutory transfers the word "liabilities" includes contingent liabilities. Therefore the contingent liabilities of the CEGB will indeed be allocated by the transfer scheme and will be vested in the successor companies to the CEGB.
As regards the contingent liabilities of the Electricity Council—the other amendment that the noble Lord addressed—the same remarks obtain, but, in the context of statutory transfer, the word "liabilities" is a reference to legal liabilities. I make 43 that point because I think that an accountant would view a contingent liability as something rather different and something for which provision should be made in the company's accounts. Let us take, for example, the costs of decommissioning a nuclear power station in the future. While the power station is operating, there is no legal liability for decommissioning, and so nothing to transfer. Any obligations that arise in the future will fall on the owner of the power station. The Bill operates to transfer legal liabilities of the CEGB at the transfer date. That would include liabilities from actions of the CEGB before the transfer date, even though at the transfer date no one was aware that the liability existed.
I hope that that clarification will reassure the noble Lord and that he may thus feel able to withdraw his amendment.
§ Lord Williams of Elvel
I am most grateful to the noble Earl. I accept—since he has said so—that "liabilities" here represents legal liabilities which include the accounting definition of contingent liabilities. If that is what I have understood him to say, I am satisfied so far as that point goes. Will he then kindly tell me what will happen to Electricity Council loans that have Treasury exchange cover? Those are loans that are liabilities to the Electricity Council, but have a contingent liability to the Treasury. Will that contingent liability to the Treasury equally be passed across, or is there some other arrangement for that?
The Earl of Dundee
The only accepted rights and liabilities to that obligation are those set out in Clause 63(6) which concern corporation tax because of the residual Electricity Council's continuing responsibility for the pre-vesting tax liabilities of the electricity boards and electricity stock where the Electricity Council's rights and liabilities are to be transferred to the Treasury. In the context of statutory transfers, I again confirm that the word "liabilities" includes contingent liabilities.
§ Lord Williams of Elvel
Does the noble Earl include in "electricity stock" foreign currency obligations incurred by the Electricity Council?
§ Amendment, by leave, withdrawn.
§ [Amendment No. 226ZC not moved.]
§ Lord Williams of Elvel moved Amendment No. 226ZD:
Page 48, line 9, at end insert—
("(5A) Any company nominated as a successor company under the above sections shall have a duty to further the conservation and enhancement of natural beauty and the conservation of flora, fauna and geological or physiographical features of special interest, and for securing the public enjoyment thereof, on any land transferred to the company, whether it is held for the purposes of generating electricity or otherwise.
(5B) Where any company nominated as a successor company wishes to dispose of any land in a National Park, Area of Outstanding Natural Beauty, or land which has been designated by virtue of its scientific or geological interest, or is designated under this section by virtue of its natural beauty, amenity or recreational value, it shall not do so without the express consent of the Secretary of State. In giving such consent, the Secretary of State shall consult with the Countryside Commission and Nature Conservancy Council and shall not give his consent without first ensuring that the requirements of section 5A(1) of this section have been satisfied. The Secretary of State shall, in addition, require any land offered for sale to be offered first to a competent body, and shall not approve the sale to any third party without the provision of a management agreement and/or restrictive covenant prior to sale for the purposes of securing the conservation of such land.
(5C) For the purposes of this section—
a "competent body" is a body whose inclusion on a list of competent bodies held by the Sectetary of State has been agreed by the Countryside Commission, Nature Conservancy Council, English Heritage, Historic Buildings and Monuments Commission and, in the case of Wales, Cadw.").
§ The noble Lord said: We have had a number of discussions in Committee on environmental matters and the noble Baroness was kind enough to say that she would have a close look at the amendment moved by the noble Lord, Lord Norrie, the other day with a view to the Government perhaps bringing forward something at a later stage.
§ The object of the amendment is to bring to the Government's attention the land held by successor companies of the CEGB. I should declare a small interest in the matter as President of the Council for the Protection of Rural Wales. The CEGB is the owner of large tracts of land in Snowdonia. It owns more land in Snowdonia than does the Welsh Water Authority. Since the question of the land owned by future water companies has occupied much of noble Lords' time, it is only proper that the land owned by the CEGB, which, as I understand it, will be passed on to the privatised companies, should occupy some of the Committee's attention.
§ According to the amendment, land in national parks, SSSIs and other areas declared for the purposes of the subsection, could not be sold without first being offered to competent bodies. By "competent bodies" we have in mind national parks and local authorities as well as voluntary conservation bodies. If they are so sold, they should be subject to management agreements or restrictive covenants.
§ I believe that the amendment, which is promoted not only by the Council for the Protection of Rural Wales, but also by the Council for the Protection of Rural England and other bodies associated with it, tacks on to environmental amendments that we have discussed previously. I hope that Ministers will be prepared to look at the amendment rather closely to see whether there is a point that needs to be settled here. I beg to move.
§ 5.15 p.m.
§ Baroness Hooper
I must say at the outset that I believe that the analogy with the industry to which the noble Lord, Lord Williams of Elvel, has drawn our attention, is a false analogy. I should point out that, although the noble Lord has referred to certain areas of land in Snowdonia and so on, the water industry owns very large areas of open land to which 45 the public has access. I believe that, in figures, those amount to 430,000 acres of which some 8,000 acres are in national parks or areas of outstanding natural beauty, whereas the CEGB owns just over 48,000 acres.
Obviously, for safety and security reasons, operational sites in the electricity industry are subject to restrictions on access; for example, safety clearances are required around high voltage plants. I am sure that the noble Lord accepts all that. But it is difficult to see how National Power could secure the public enjoyment of land on which a nuclear power station is situated, for example, while it also has a duty under its nuclear site licence to take all necessary steps to prevent unauthorised persons from entering the site. Nevertheless, where possible, the CEGB and the Scottish boards already encourage recreational use of land. I am sure that that is true of the areas of Snowdonia to which the noble Lord referred.
One of the ways of off-setting the impact of a power station on the environment is to provide nature trails and wildlife reserves. However, as the noble Lord said, we have been through all that, I can assure him that, certainly in relation to this part of the amendment, I shall take the points into account when looking at the general environment picture that we discussed last week. I hope that we can bring forward a response to meet the concerns.
In addition to the point about securing public enjoyment of sites owned by the successor companies to the present boards, the amendment seeks to put controls on the disposal of land in national parks or areas of outstanding natural beauty. As I have said, I could understand the proposal if the electricity industry presently owned large areas of open land. My understanding was that it does not, apart, obviously, from the exception in Wales to which the noble Lord referred. In that context, the development that has been made at Dinorwic in respect of a power storage facility is a most environmentally sympathetic one and has been extremely well conceived.
However, I should say that the analogy with the water industry is misconceived. When he moved the relevant amendment to the Water Bill on 8th June, my noble friend Lord Hesketh said that no other industry had land holdings of comparable scale and significance to those of the water industry. He went on to explain that one of the reasons for moving the amendment was that much water authority land was of quite exceptional beauty and environmental quality.
I therefore believe that there is no reason why that sort of restriction should be put upon the electricity supply industry. The electricity supply industry should not be picked out in that way when similar restrictions do not apply to other industries, but do apply to the water industry because it has clearly been proved that that is a special case. Therefore with the assurance that I shall consider the first part of the amendment in the general environmental conclusions to which we come, I hope that the noble Lord will accept my reasons for not being able to agree to the amendment that he proposes regarding the disposal of land.
§ Lord Williams of Elvel
I am grateful to the noble Baroness for her response. Clause 63 refers not only to supply companies but also to the transmission company. We do not yet know how the land owned by the CEGB will be split between the supply companies and the transmission company, that is to say, the national grid. Large tracts of Snowdonia are owned by the Central Electricity Generating Board but they are used not for putting up supply installations such as nuclear power stations, other than Trawsfynydd which we shall ignore for the purposes of this argument, but are used by the national grid for putting down supply lines which in fact disfigure the landscape.
The worry in CPRW is that that may be overlooked in the course of consideration of this Bill. I am most grateful to the noble Baroness for taking my arguments on board, considering the matter and investigating whether there are proper concerns. If she wishes a delegation from CPRW to attend on her to explain exactly what this is about in Wales—and I am sure that there are areas in England which may go to the grid system and which are in national parks and areas of outstanding natural beauty—I can certainly arrange such a meeting. In the light of her remarks I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Lord Williams of Elvel moved Amendment No. 226ZE:
Page 48, line 11, at end insert ("or Value Added Tax").
§ The noble Lord said: This is again a clarificatory amendment. When establishing rights and liabilities with respect to corporation tax it is difficult to see how value added tax will be treated. Accounting treatment of value added tax and the ins and outs (if I may put it that way) at a year-end are extremely difficult to compute. While it is possible, with great dificulty, to make tax computations with respect to corporation tax (these are complicated matters), value added tax, if you close it off at the year-end, is extremely difficult to compute. It has to be done, but I am assuming that accepted rights and liabilities will include the balance on the value added tax. Nevertheless, no doubt I shall have some comment from the Government Front Bench on this matter. I beg to move.
The Earl of Dundee
Clause 63(2) requires the Electricity Council to make a scheme for the transfer of all its property, rights and liabilities to a successor company or companies. There are only two exceptions to this which I mentioned a short while ago. Those are set out in subsection (6); namely, corporation tax and, by way of reference to Clause 87, British Electricity stock. We shall have the opportunity to discuss corporation tax when we reach Clause 86 and Schedule 11.
For our present purposes I think it is enough to note that we believe that it would not be right for the council's corporation tax liability to be devolved to the successor companies to the electricity boards. This is because the way in which the electricity supply industry in England and Wales is taxed for corporation tax purposes is unique: the Electricity 47 Council is the sole taxpayer. The arrangements that we are setting in place to deal with corporation tax liabilities recognise that fundamental point.
As for British Electricity stock, the council's rights and liabilities are to be transferred to the Treasury, as I also mentioned a little while ago. As I made clear, all other liabilities including contingent liabilities are to be transferred to the successor companies in accordance with the scheme. VAT, however, is rather different from corporation tax. I hope that the Committee will bear with me for just a moment in a rather detailed and technical explanation.
There was a group registration for VAT purposes for the whole of the electricity supply industry in England and Wales. I understand that that group registration was terminated on 1st April 1989. While the group registration was in force the Electricity Council as the representative member of the group was liable to account for the VAT due in respect of supplies made by any of the existing statutory bodies—for example, the boards and the council itself. However, each of those statutory bodies was jointly and severally liable for any VAT due from the council.
From 2nd April onwards each of the existing statutory bodies has been separately registered for VAT purposes and therefore each body is solely liable to pay VAT due in respect of the supplies it makes. Any VAT liability of an existing statutory body which is outstanding immediately before the transfer date, whether in respect of the period before the transfer date or the period after that date, will be inherited by the relevant successor company. There is no reason why the Electricity Council should be treated in any different way.
In summary—and I hope that the noble Lord, Lord Williams, will feel able to agree—it is not constructive to make specific provision to deal with any outstanding VAT liabilities. In view of that I ask him, if he sees fit, to withdraw the amendment.
§ Lord Williams of Elvel
I am grateful to the noble Earl. After the group registration of the Electricity Council for VAT purposes lapsed on 1st April 1989, what will be the treatment of the balance as at 1st April 1989, which of course continues because the value added tax is difficult to compute and indeed difficult to collect? What will happen to that on vesting?
The Earl of Dundee
My understanding is that 1st April 1989 is the cut off date and therefore that liability thereafter will devolve on the new company.
§ Lord Williams of Elvel
Can the noble Earl say, since the Electricity Council will cease to exist, who will take up the liability of that council?
The Earl of Dundee
I do not think that the year-end calculation of VAT will be a problem as the boards are now responsible for their VAT calculations. Any work about the end of 1988–89 will fall to the successor companies.
§ Lord Williams of Elvel
I am rather surprised at that answer because I should have thought that the group registration which the Electricity Council had up to 1st April 1989 would have imposed on the Electricity Council a necessity to make up its accounts to the end of March this year. If there were an imbalance between collected VAT and uncollected VAT and VAT paid out, there would be an outstanding balance which would have to be transferred to one of the companies to which the whole of the Electricity Council is to be devolved. Perhaps the noble Earl can help me on that matter.
The Earl of Dundee
It may be of some help to the noble Lord if I tell him that the Electricity Council's liability will be transferred to the successor companies.
§ Lord Williams of Elvel
Perhaps the noble Earl will be kind enough to write to me on how this will be treated between the different successor companies.
§ Amendment, by leave, withdrawn.
§ Clause 63 agreed to.
§ Clause 64 [Transfer of property etc. of Scottish Boards]:
§ [Amendments Nos. 226ZF and 226ZG not moved.]
§ Clause 64 agreed to.
§ Clause 65 [Schemes under sections 63 and 64]:
§ [Amendment No. 226ZH not moved.]
Lord Williams of Elvel moved Amendment No. 226ZJ:
Page 49, line 13, leave out ("transferor") and insert ("Secretary of State").
§ The noble Lord said: Clause 65 deals with the operation of schemes under Sections 63 and 64 and this amendment seeks to ensure that it is the Secretary of State who should consider what supplemental, incidental and consequential provisions should be appropriate rather than the transferor. It seems to me odd to have a scheme which the Secretary of State has no power to change. I have made that point before in the earlier amendments that we discussed. I should be grateful if the noble Earl could comment, if he is to respond to this amendment. I beg to move.
The Earl of Dundee
I am grateful to the noble Lord for giving me the chance to discuss in a little detail the transfer scheme provisions of the Bill which are so fundamental to our privatisation 49 proposals. Indeed, it is by way of transfer schemes that the physical restructuring of the generation and transmission sides of the industry envisaged in our proposals will take place.
A transfer scheme is the legal means by which the assets of the CEGB, the Electricity Council and the Scottish boards are to be allocated to the successor companies. The assets may be allocated in a scheme by referring specifically to the assets in question—that is, by way of a list of assets under Clause 65(2)(a)—or by referring to a particular part of the undertaking of the existing bodies, such as the transmission division of the CEGB, under Clause 65(2)(b), or by a mixture of these. In addition, Clause 65(2) allows the transferor—for example, the body making the scheme—to make such "supplemental, incidental and consequential" provision as the transferor considers right.
The proposal of the noble Lord, Lord Williams, is that a scheme should make only such "supplemental, incidental and consequential provision" as the Secretary of State considers appropriate. Let me explain why we consider that such an amendment would not be helpful in this case.
Under Clauses 63 and 64 of the Bill, the CEGB, the Electricity Council and the Scottish boards are required to make a scheme for the division of their undertakings between the successor companies. As I have explained, Clause 65(2) indicates the manner in which the scheme can be made. It is fitting that initially it should be the relevant parts of the industry themselves that make the scheme since they are best placed to know the nature of their assets and liabilities and to allocate them accordingly. Once prepared the scheme is submitted to the Secretary of State for his approval under Clause 65(3).
There is thus a clear line of responsibility with the industry responsible for drafting the scheme in the first instance and the Secretary of State ultimately responsible for ensuring that the transfer scheme achieves the necessary allocation on an equitable basis and to the desired timescale. The amendment of the noble Lord would confuse that line of responsibility and would be inconsistent with the drafting of Clauses 63 and 64.
Given that the industry is responsible for making a scheme, it is surely right that it should have the job of making such "supplemental, incidental and consequential provisions" as might be necessary to make it effective. The industry bodies have the knowledge and understanding of their undertakings to enable them to decide on the additional provisions necessary as a consequence of the division of an undertaking or to assist the newly created undertakings to function independently.
I hope that in the light of these remarks the noble Lord may feel reassured on the point.
§ 5.30 p.m.
§ Lord Williams of Elvel
I am most grateful to the noble Earl. I take the point that he is making. Amendment No. 226B—which I shall not now be moving—taken together with the amendment to which I am now speaking, was designed to make sure that we shift the burden that is laid on the 50 Secretary of State under subsection (3) to subsection (2) and thus save a certain amount of space in the Bill. If the noble Earl considers that that is not the right way to do it, so be it. That is the way that parliamentary counsel work. I shall be very grateful if he will confirm that.
The Earl of Dundee
If we were to attempt to alter what we have here we should be going against the lines of communication to the Secretary of State that are laid down in the Bill at present. We would get the balance wrong with regard to the involvement of the Secretary of State.
§ Lord Williams of Elvel
The noble Earl has pointed out a difference between us. I believe that the Secretary of State should be intimately involved in the schemes as they are being developed and not just be passive at the end of the day in approving, disapproving or modifying a scheme. As I said on the earlier amendment that we discussed, he should be there discussing how the CEGB breaks up its business.
I understand that the Government do not take that view. It is a principle to which we shall wish to return at a later stage. In the meantime I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Campbell of Croy moved Amendment No. 226A:
Page 49, line 15, at end insert—
("(2A) Any transfer scheme shall oblige the companies nominated by the Secretary of State under section 64 above to establish their headquarters within their respective areas of supply or distribution.").
§ The noble Lord said: Amendment No. 226A stands in my name and in the names of other noble Lords and a noble Lady from Scotland who sit in different parts of the Committee. The amendment would require the head office of a new supplying company to be within its area of activity. The Ministers will have guessed that we have in mind the successors to the two Scottish boards, especially the North Board, which since its creation has had its head office in Edinburgh well to the south of its area. The amendment is inspired in my case by a lively curiosity concerning why that should have been so and what is likely in the future. It is exploratory and is not designed as a jewel to be added to the Bill.
§ Why should the successor to the North Board not have its head office in the North Board's area? There may have been an argument in the past for the head office being close to the Scottish Office in Edinburgh. Whichever of my noble friends replies to this debate may have something to say about that today. I remind the Committee that the Scottish Office has been responsible for electricity in Scotland, a situation which was not changed when the Department of Energy was created in 1974. Proximity to the Scottish Office has no doubt made it easy for officials, both of the Scottish Office and the board, to meet on a day-to-day basis. Surely there will be less need for that after privatisation.51
§ Each of the Scottish boards generates and distributes its electricity, in contrast to the situation in England and Wales. It means that they deal directly with their customers of all kinds. The North Board has substantial offices in its area carrying out central services; for example, at Elgin and Dingwall, I am not disputing that. It is the fact that the head office is not in its area, which causes surprise. It would be a good exercise in public relations by the new company if it decided on a new head office in the north. The consumers in its area would appreciate the move to be among them.
§ The present chairman and his predecessor have both been based in northern Scotland. Their homes have been there. I cannot foresee any personal convenience to others who may be concerned or involved in the future. I shall refer to earlier chairmen, starting with the first, Tom Johnston, the originator of the hydro-board concept. Having just been Secretary of State for Scotland, he no doubt would have wished in the early days to be close to the Scottish Office at the time when the new body and the new hydro schemes were starting. As a result, the large majority of hydro-electric generation in the United Kingdom is now in the North Board's area.
§ At the beginning of the Committee stage the noble Lord, Lord Williams of Elvel, and I had a brief exhange about pumped storage. This is a significant element in the North Board's area because it can produce extra electricity at peak times. However, it brings me to another former chairman, the first Lord Strathclyde, the grandfather of the stalwart Lord in Waiting who is now on our Government Front Bench, although not with us at the moment. Twenty-five years ago, as a junior Minister concerned with electricity in Scotland among other things, I was engaged in a tour of the schemes during a Recess. The chairman, the Lord Strathclyde of that day, was very enthusiastic about one of the pumped storage schemes then being constructed on and within Ben Cruachan. An artificial loch was being created on top of a power station in a cavern within the mountain. Ben Cruachan over the centuries has been sacred to the Clan Campbell and indeed has been its war cry in the past. Lord Strathclyde was determined that I should have the best possible view of the work that was proceeding and had especially prepared a bucket on wires which was to take me over the loch. The bucket was normally used for cement. The Scottish Office officials with me objected, but Lord Strathclyde knew about my disability and had looked after that. I would not have to walk or stand, but the Scottish Office officials still objected. I am afraid that I missed the opportunity of seeing the work from that special viewpoint. Later I found out that the Scottish Office officials had heard that the operator of the bucket machinery, for movement and tipping was a MacDonald. The temptation to tip a Campbell into the loch on his sacred mountain might have been too great to resist.
§ To establish a new head office in the North Board's area and give up premises in Edinburgh would be a good example of dispersal within Scotland to the Scottish regions, and dispersal of decision-making 52 too. I would add another point which is not as lighthearted as it may sound. Anything which helps to ease the parking problems in Edinburgh would also be a blessing. Noble Lords from Scotland will know what I am referring to. I beg to move.
§ Lady Saltoun of Abernethy
I do not believe that there is much I can usefully add to what the noble Lord, Lord Campbell of Croy, has said. This might appear to be a very small matter and rather trivial, but there is a great feeling in Scotland at present, and has been for a number of years, that those who control our destinies and our supplies are all too remote. To people in the North of Scotland Edinburgh is almost as remote as London. One cannot get at the boss. If something goes wrong one cannot go to the head man to complain, at least not without considerable difficulty. I do not know quite where the noble Lord envisages the office of the North of Scotland hydro board or its successor should be situated.
I can assure the noble Lord that parking problems are extremely acute in Aberdeen and Perth; I do not know about Dundee, but I suspect that they are as bad there. I do not know what can be done about that. For reasons of remoteness I should like to support the amendment.
§ 5.45 p.m.
§ Lord Carmichael of Kelvingrove
I also have my name to the amendment and am delighted to support it. There is a feeling in Scotland towards the North. People who live in other parts of Scotland feel that strongly. I found that as a junior Minister any time I was near the North of Scotland, especially Inverness, I made a point on my own of contacting the Highlands and Islands Development Board to visit it as a courtesy. I discovered that every other Scottish Minister quite independently had decided to do the same thing. We all had the feeling that somehow or other we should spread the decision-making process as widely as possible in Scotland. I found both junior and senior Ministers in different departments felt that they should do that. I believe that the HIDB has been a boon in many ways, psychologically as well as in purely practical terms.
I can add a little to the remark of noble Lord, Lord Campbell of Croy, that he could not understand why the SSEB, HIDB and the hydro board headquarters were in Edinburgh and not some other place. However, I know that when the Scottish gas board was set up—this is absolutely true—it was quite obvious that the headquarters should have been in Glasgow because the West of Scotland was by far the biggest supplier and consumer of gas. However the board made the decision to have the headquarters in Edinburgh by a vote, which was widely known, of three to five. It was quite apparent that three members of the five lived in Edinburgh and the other two lived elsewhere. Thus on a purely personal basis it was decided to have it in Edinburgh. The noble Lord, Lord Campbell of Croy, explained the problems at the beginning of the hydro board and it was important that it should be near the Scottish Office as it was to be administered by the 53 Scottish Office. It was all a great experiment in many ways. Thank goodness it was a great success as well.
However, we do not need that closeness now. We have information technology. People can contact head office in London, Edinburgh or anywhere else. They can contact the director, who presumably for a number of reasons will have an office in Edinburgh. If the headquarters of the hydro board is in Inverness or Aberdeen it can be in close contact with him using modern technological devices.
However, there is another point. If the director is in Edinburgh and the hydro board's headquarters is also in Edinburgh together with that of the South of Scotland Board, there is the meeting of a very inbred group of people all the time. However, if one group was coming down for occasional meetings or the director going to a headquarters meeting—I favour Inverness—that could give a slightly different slant on matters.
The noble Lady, Lady Saltoun of Abernethy, said that the Scots feel that London is less remote than Edinburgh. I can assure her that Glasgow people feel exactly the same in that respect. I believe it would be good for decision makers to be away from the cocktail party round one tends to find in major cities. It would be good for the area in which the new board was set up. It would certainly be good for Scotland and I could not see it doing anything other than saving money by being located elsewhere rather than cluttering up Edinburgh or Glasgow. I am sure that this is a worthwhile amendment and I hope the Minister will give it serious consideration.
I do not think we should be too happy just to receive assurances, unless the assurances are backed by something else. I do not doubt for a moment the word of the noble Minister and that he will not give an assurance with complete honesty. But I remind him that in the past few years Scotland was given an assurance about a rather important headquarters in Edinburgh. Once the deeds were signed the promises seemed to be torn up. We would want a slightly better assurance than we were given then, of which I am sure the Minister is aware. I am delighted to be able to support the amendment.
§ Lord Lloyd of Kilgerran
The Committee will note that there is a galaxy of Scottish talent associated with the amendment, including my noble friend Lord Mackie of Benshie. As a Welsh-speaking Celt I should like to speak in support of the amendment.
It deals with transfers under Section 64. However, it amends Section 65, which deals not only with transfers under the previous section, which are limited to Scotland, but also generally with transfers under Section 63. My ulterior motive for speaking is to ask about the position of transfers in Wales. Perhaps the Minister is unable to answer now but will do so hereafter. Would it not be proper that any transfer scheme should also apply to companies nominated by the Secretary of State in relation to Wales to establish their headquarters within the respective areas of supply and distribution in Wales?
The Duke of Atholl
I support the amendment, which has one good feature over many such amendments. It is that it does not stipulate the 54 exact place where the headquarters must be. When Parliament passed the Countryside Act for Scotland it stipulated that the headquarters of the Countryside Commission for Scotland must be in or near Perth. I have a shrewd idea that the commission found it difficult to obtain suitable property in the area because the moment anyone saw it approaching the price was immediately increased enormously. By not stipulating the exact place the amendment overcomes that difficulty and I hope that the Government will accept it.
§ Lord Somers
I also support the amendment. I was most struck by a comment made by the noble Lady, Lady Saltoun; namely, that one can never contact the head man of any organisation. That is most true, as I know from painful experience.
Further, if one's head office is in London, for example, but one is controlling a distant activity in the countryside, how can one take any interest or have any enthusiasm to ensure that it is working properly, that the staff are contented and that clients are receiving what they want? I believe that this is an excellent amendment.
§ Lord Kirkhill
I should have wished to attach my name to the amendment but my commitments to the Council of Europe are such that I did not expect to be present in Committee this afternoon. However, my arrangements altered and I am able to be here.
I wish to support the amendment. I also wish to remind the Committee once again that I was chairman of the hydro board between 1978 and 1982. I do not mention that fact for any egotistical reason but in order to point out that during my period in office I received almost as many letters from consumers in the area of the hydro board on this subject than on any other.
Although the amendment makes reference to boards in the plural—and properly so—we know that the South of Scotland Electricity Board is in Cathcart House in Glasgow. It is likely that the successor company will remain there. However, we know that the hydro board headquarters are at 16 Rothesay Terrace in Edinburgh and that its headquarters is outside the area of its territorial responsibility. Frankly, that is absurd.
There was a historical reason for that which was touched upon by the noble Lord, Lord Campbell of Croy. When Tom Johnston set up the hydro board in 1943 he made available a smallish room at the end of the ministerial corridor in St. Andrew's House, Edinburgh. As the hydro schemes began to develop and the planning increased, it was necessary to move from those premises, and so the hydro board moved to 16 Rothesay Terrace.
Today the board owns the whole of one side of the terrace and about half of the other side. That is entirely appropriate and I make no criticism because it is a devolved board structure. There are four area offices, in Perth, Dundee, Aberdeen and Elgin. There is also a communications office in Dingwall. However, the specialist branches—that is, high-tech engineering and professional administration—are to be found in Rothesay Terrace.
55 During my period as chairman the board discussed the question of headquarters location. Although there were those sympathetic to change, always the argument was that the professional advisers need to be close to the Scottish Office and that they need fairly rapid ease of communication with London, the Treasury and the Department of Energy. As the noble Lord, Lord Campbell of Croy, has said, although that is important when one is referring to a nationalised board, which is the present position, it is much less important for a successor company which will be in the private sector.
I do not believe that there is a case for the retention of a board's headquarters outside the area of its responsibility. The further argument which has been adduced previously and is still mentioned is that it is difficult to recruit the right level of professional support if one moves away from the delights of the most beautiful and magnificent city of Edinburgh. However, together with my noble friend Lord Carmichael, I believe that the vast hinterland of Scotland has its own delight and recompense for those who stay there. Anywhere in Scotland where there is a major population centre one has, comparatively speaking, ease of communication.
If the successor company to the hydro board were to decide to move within its area of responsibility I do not believe that it could be argued that that would be an unreasonable financial burden and on-cost imposed upon the successor company. The sale of Rothesay Terrace—that is all of one side and half of the other—which is a prime Edinburgh West End site, would provide to the successor company a most substantial profit, even after the expenses of relocation had been accounted for.
The argument put forward by the noble Lord, Lord Campbell of Croy, is compelling. Surely the measure of support which appears to be emerging from all sides of the Committee cannot be ignored. I am sure that other Members will wish to contribute to the debate. We await the noble Lord's reply with considerable interest and shall withhold further criticism until we have heard what the Minister has to say.
§ 6 P.m.
§ Lord Gray of Contin
Very briefly I should like to add my voice in support of this amendment. As one who represented a seat on the North of Scotland Hydro-Electric Board area for some 13 years, I can certainly confirm everything that the noble Lord, Lord Kirkhill, has said. I am particularly glad that the name of my noble friend Lord Campbell of Croy was the first name and therefore that he was first to speak to the amendment because his contribution clearly outlined the history.
I should not wish to become involved in any dispute between the Campbells and the MacDonalds but I believe that this is one issue on which they would certainly be united. During my years at Ross and Cromarty I was frequently approached by constituents on this very issue. It was a particularly thorny problem. They were always irritated by the fact that the North of Scotland Hydro-Electric 56 Board, despite the vastness of its geographical area, should have its headquarters in Edinburgh.
Throughout the years one of the principal reasons which the people in the board area suspected for the headquarters not moving into their area was that there was very strong resistance from the permament employees at head office who had their children at Edinburgh schools and who did not want to move out because they would then be deprived of the excellent private education available in Edinburgh. That may be so, but it was not a reason acceptable to my constituents and nor is it acceptable to the vast majority of people in the Highlands of Scotland, which probably forms the largest part of the geographical area.
There is now no excuse at all for a company setting up in that area not to have its headquarters within the area which it supplies. We have about four or five cities, all of which can supply the necessities of life and the best quality of life; namely, the office accommodation, the schools and the general requirements needed for headquarters.
I believe that this is a reasonable time to consider the matter, because those of us who have been asking the board to move its headquarters for so many years have always met with a negative answer from Ministers of both persuasions. Indeed I often wrote to the former chairman, the noble Lord, Lord Kirkhill, and I always received a courteous but unsuccessful reply. I believe that this is a very good idea. We all know that the Government can write into the articles of association whatever they choose, and it may not be advisable to go as far as that. However, I hope that my noble friend who is to reply will give it very serious consideration, particularly in view of the wide party representation, if I can put it that way, from those who have contributed to this debate; in other words, wide representation party-wise on a non-party matter. This is non-political and I hope that the Minister will treat it in that way and do his best to be helpful.
§ Lord Taylor of Gryfe
Perhaps I may add my voice to the unanimous chorus which supports the amendment. At least it is unanimous until the Minister speaks and I hope that he will not ignore the very considerable support which is evident. In this connection I must apologise to the noble Lord, Lord Campbell of Croy. I missed the beginning of his speech because I was upstairs watching the last European election result which was declared. I observed there a Scottish Nationalist marching with pipers to declare that she had succeeded in winning the only non-Labour Party seat in the whole of Scotland. Every other seat had been won by the Labour Party and only that seat in the Highlands was won by the Scottish Nationalists.
That indicates a feeling abroad in Scotland that the Highlands are important and that Highlanders have something to say for themselves. I believe that the Government have suffered in Scotland because they have ignored the feelings of the people there on a number of issues. I hope that they will not continue to do so on this issue because it is a sort of symbol of what people want in Scotland. I am sure that the 57 Minister is sensitive enough to accept that feeling and to translate it into acceptance of this amendment.
§ Baroness Gardner of Parkes
Having listened to this most interesting debate, it seems to have been exclusively a Scottish issue. However, as I read the words, I am not so sure that it applies only to Scotland. Perhaps the Minister could tell us whether it involves any other bodies and whether it will apply to any areas other than Scotland. I shall be very interested to know what is the situation because I believe that we have considered this matter purely from a Scottish point of view during the debate.
§ The Minister of State, Scottish Office (Lord Sanderson of Bowden)
I should like to thank all Members of the Committee and particularly my noble friend Lord Campbell of Croy for bringing forward this amendment. It gives us an opportunity to consider what the noble Lord, Lord Taylor of Gryfe, rightly said is something which concerns very many people in Scotland.
Before I deal with Scotland perhaps I may answer the noble Lord, Lord Lloyd of Kilgerran. As I understand it, in England and Wales area board headquarters are in the area of each company's operation. The headquarters of the South Wales Electricity Board is in Cardiff and as far as I am aware there are no plans to change that. The headquarters of MANWEB is in Chester, but that covers Merseyside as well as North Wales. Perhaps the noble Lord can deduce from that that is not as politically sensitive as the subject I am about to deal with.
I should like to start by paying tribute to Scottish Office officials for the way in which they dealt with the situation in which my noble friend Lord Campbell of Croy found himself in that they did not wish to tip a future Scottish Secretary out of a bucket.
This has been a most interesting debate which has focused upon a matter which has received recurring attention in Scotland over the past 45 years or so. When the Act to set up the hydro board was being put through Parliament under the stewardship of the late Tom Johnston even then the question of the location of the board's headquarters was being raised. I know that Tom Johnston took the view then that the hydro board was an all-Scottish venture, the primary intention of which was to promote Highland interests. He had no doubt that appropriate office or offices would be installed in the Highland area, and for his part, so long as the registered office of the board was in Scotland, he would be quite pleased. I register these points now with the intention of returning to them later.
Since the establishment of the board, successive Secretaries of State have taken the view that the location of its headquarters is entirely a matter for the board. The Secretary of State can give no formal direction on this and, under the statutory arrangements which have governed the operations of the board, any move would not be subject to the Secretary of State's approval. The board's policy has been one of maximum delegation of responsibility 58 to local management to a much greater degree than is the practice in the elecricity supply industry as a whole. I am sure that my noble friend Lord Campbell of Croy, who has been Secretary of State for Scotland, will recognise that this is an accurate statement of the legal position.
The extent to which the board's policy has been successful can be gauged by reference to its staffing numbers and I believe that the noble Lord, Lord Kirkhill, mentioned that. At 31st March 1989 the board employed just under 4,000 staff, and of those just over 300 were employed in the head office in Edinburgh. In other words, only 8 per cent. of the board's total staff were employed at the head office in March of this year. As an indication of the extent to which headquarters' functions have been devolved, the Committee will wish to note that these figures were almost matched by the number and percentage of staff engaged in headquarters functions within the board's area. Therefore, there is clear evidence that Tom Johnston's original intention has been met without statutory requirement. So why do we need a statutory provision now, just as everyone is in the throes of making arrangements for privatisation?
If it is in the interests of the companies to locate within their areas of operation as public electricity suppliers, they will do so. Those interests are not only financial but are also commercial and operational. They relate also to the ability to recruit and retain staff and their ability to relate to the wider GB market for electricity in the interests of their customers and shareholders. Noble Lords will understand that, given its responsibility for the Highlands and Islands, I would have some sympathy with the suggestion that in time the head office of the successor company to the hydro board should be located within its area of operation as a public electricity supplier. However, if that were against its commercial and operational interests and could adversely affect electricity prices for consumers, I could not support it.
My interests in this matter are identical to those of the electricity consumer in the north of Scotland to whom the Government have demonstrated their commitment by preserving common tariffs in the area. In my view it is entirely consistent with that commitment that any move of the head office of the successor company to the hydro board should be left as a matter for the new company to decide upon after a full appraisal of the economic and other factors involved has been undertaken. It is the prerogative of any company to remain free to review and choose the location of its headquarters on its own intitiative. The Scottish successor companies should be no different in that regard.
I have to say to noble Lords who have moved the amendment that the technical effect of the amendment would be to allow the north and south companies to locate their head offices anywhere in Great Britain and to leave obscure the position of the Scottish nuclear company, a fact to which my noble friend Lady Gardner of Parkes referred. The term "area of supply" used in the amendment could be taken to include England and Wales if the north and south companies were supplying south of the 59 Border as second tier suppliers. That would mean both companies would be specifically allowed in statute to move their headquarters outwith Scotland. I am sure that noble Lords did not intend that that should be the effect of the amendment. I shall be asking my noble friend to withdraw it.
It may help if I place on record that the policy of the hydro board is to keep this matter under periodic review. I do not have to remind the noble Lord, Lord Kirkhill, about the matter. We believe that this is something to which the new north company may wish to turn in due course. But we also believe it would be entirely wrong to attempt by legislation or other means to compel this or any other company to move its head office. Throughout the debate the issue has been well highlighted and has been drawn to the attention of consumers, potential investors and members and employees of the hydro board.
I understand the strong feelings that have been expressed. I understand that the relevance of being near the Scottish Office is very much less than it was before and that communications have improved. I understand too my noble friend's arguments about dispersal. I am also aware, of what the noble Lord, Lord Carmichael of Kelvingrove, said about the headquarters of another company and the problems of assurances. I have looked at this matter. I have looked at the possibility of a requirement in the memorandum and articles of association. However, I feel that it would not be appropriate to write a matter of this kind into memoranda and articles of association.
However, I should like to see, along with the company, whether there is anything we can do, outwith putting this on the face of the Bill, in regard to a flotation prospectus. After all, it is a matter—this is where privatisation comes in—in which shareholders will have an interest. At the end of the day shareholders will, I hope, at any rate in all good companies, be able to influence the board and chairman. I should like to discuss this possibility with the chairman of the board concerned, without commitment, and to return to the matter at Report stage. In the meantime, I ask my noble friend whether he is prepared to withdraw the amendment.
§ 6.15 p.m.
Lord Campbell of Croy
I am grateful for the support which has been given to the amendment by all speakers during this debate. I am very glad that my noble friend Lord Sanderson said that he proposes without commitment to discuss the situation with the new company in due course.
As I hinted earlier, it would be the best possible start for a new company in this situation for it to decide upon a headquarters in the area. It would be an extremely good public relations move as regards its consumers. As the noble Lord, Lord Kirkhill, pointed out, the question of costs would not be an objection because selling property in Edinburgh would probably mean that there would be a surplus.
I made clear that the amendment was exploratory in nature. It has had the intended effect of enabling 60 this matter to be discussed. For those who may think that considerable time has been taken at Committee stage in talking about this point, I hope that it is clear that this is an issue which has caused much irritation over the years in northern Scotland and has produced sheaves of correspondence for Ministers and chairmen of the boards. Therefore it has been well worth while for this matter to have an airing today.
I hope that the message is clear and will get through to the new company in due course. The complication of getting an amendment like this right, and getting the wording right, is very great. It may not be right to place a restriction on one of the new companies which would not be appropriate to the others; for example, where their areas are very small in comparison and where there may be good reason for the headquarters being outside the area. The opinion of consumers in the north board's area has been strongly stated during this debate and I hope that the message will come through clearly at the right moment later on. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 226B to 227A not moved.]
§ Clause 65 agreed to.
§ Clause 66 agreed to.
§ Schedule 10 [Transfers under sections 63 and 64]:
Lord Williams of Elvel moved Amendment No. 227B:
Page 107, line 46, after ("a") insert ("clearly").
§ The noble Lord said: This amendment stands in the name of myself and my noble friend Lord Peston. I should like to explain the nature of the amendments that I have tabled to Schedule 10. These are clarificatory and, to a certain extent, drafting amendments. I hope that the Committee will agree that I may move Amendment No. 227B and then not move the rest of my amendments but speak on schedule stand part and simply go through them so that the Minister will have an opportunity to respond to what are relatively minor amendments. Amendment No. 227B asks that the specification of the part should be clearly indicated in some form or another. I beg to move.
§ Lord Sanderson of Bowden
I am grateful to the noble Lord, Lord Williams of Elvel, for speaking to Amendment No. 227B and for dealing with Schedule 10. Before we immerse ourselves in any detail, perhaps I may clarify the situation relative to Schedule 10.
There are three broad steps which we have clearly in mind. The first step is to be found in Clauses 62, 63 and 64. These concern the transfer of property, and so on, of the area boards (Clause 62), the CEGB and the Electricity Council (Clause 63), and the Scottish boards (Clause 64) to their respective successor companies. The CEGB and the Scottish boards will each have more than one successor company, while the Electricity Council will cease to exist. These bodies are therefore obliged under Clauses 63 and 64 to prepare transfer schemes for 61 the allocation of their businesses to their successor companies.
The second step is to be found in Clause 65. This clause states what form a transfer scheme may take; that is, how it may be drafted. That clause defines the main powers of the Secretary of State in relation to transfer schemes. The third step is to be found in Clause 66 and Schedule 10, to which Clause 66 gives effect. Schedule 10 is essentially concerned with what might be called tidying-up provisions. In this connection I draw the attention of the noble Lord to the heading of Clause 66, which refers to supplementary provisions. I suggest that the key words are just those; namely, "supplementary provisions". The main job of defining the purpose of the transfer scheme, what form it may take and the role of the Secretary of State, has already been done in Clauses 63, 64 and 65.
In answer to the noble Lord regarding Amendment No. 227B, the key to that amendment, as I understand it, is inserting the word "clearly" in front of "specified". That implies that there could be a contradiction in terms because on the plain meaning of the word something that is "specified" is something that is mentioned in detail. When there is detail, there should be clarity. The language of the Bill requires that a transfer scheme should define with precision any part of the transferor's undertaking. I can assure the Committee that the Secretary of State will scrutinise very closely any transfer scheme in this form to ensure that the specified part is fully defined before he gives the scheme his approval. I look forward to hearing what the noble Lord wishes to say on clause stand part. I hope in the light of that important explanation of the purpose of Schedule 10 that he will consider withdrawing Amendment No. 227B.
§ Lord Williams of Elvel
I am most grateful to the noble Lord. That is a very clear explanation of the purpose of Schedule 10. I shall speak to that on the Question whether the schedule shall be agreed to. In the meantime, I beg leave to withdraw Amendment No. 227B.
§ Amendment, by leave, withdrawn.
§ The Deputy Chairman of Committees (Lord Airedale)
I understand that none of the further amendments to Schedule 10 is to be moved. Therefore the question is that Schedule 10 as printed be the 10th Schedule to the Bill.
Lord Williams of Elvel had given notice of his intention to move Amendment No. 227C:
Page 107, line 46, leave out from ("undertaking") to end of line 47.
§ The noble Lord said: Perhaps I may go through one or two of the drafting points that Members of the Committee will recognise in some of my amendments. We have already dealt with "clearly" and "clearly specified". Dealing with paragraph 1(2), I am not entirely happy with the expression "as may be appropriate". I hope the noble Lord will be able to justify it. Neither am I entirely happy as regards the last two sentences of subparagraph (3).62
Moving on from there, in subparagraph (5)(a),
whether on the transfer date, transferee A or transferee B appears to be in greater need",
the "apparence" should be determined by the Secretary of State rather than left in the air as it is. That is also true of the next few lines in which the same expression appears. It also appears in subparagraph (5)(b). Those three points that I make should be taken together.
The next point concerns what is marked, as I understand it, as "main paragraph 2" which is at line 31 on page 108 of the Bill as printed. I hope that the noble Lord is following me. I am glad to have support from the Benches on my right that they can follow even though the noble Lord opposite cannot. As regards paragraph 2(2) I am a little concerned about the second line. It states:
each of the other transferees (`transferee B')"—
presumably "transferees" is plural and therefore it should be "transferees B, C, D" or any other. "B" is a singular person.
I now move to subparagraph (4) at the top of page 109. I am a little concerned about the procedure that it should be a question of the transferees representing to the Secretary of State rather than the Secretary of State deciding for himself. I believe that the omission of the words at the beginning of the subparagraph and also of the words "without such a representation" might benefit the schedule in drafting. On paragraph 3(3) I now come to a point of greater substance than those I have been referring to hitherto. In my view, it should read,
The employee or his representative".
The employee should be entitled to appoint a representative who can argue on his behalf. Turning to paragraph 4, which deals with,
Variation of transfers by agreement",
I wish the Government to consider the insertion of the new clause shown on the Marshalled List which is tabled as Amendment No. 227U. I believe that adds a valuable feature to the schedule. Paragraph 5(1) refers to
Right to production of documents of title".
I believe that "documents of title" would apply not only to,
any land or other property",
but any other asset. In my amendment I indicated that. I shall be grateful if the noble Lord can speak to that point. As regards paragraph 6 I am a little unclear what it adds up to. I hope the noble Lord can help me on that. Other than that, I do not believe that I have any comments on Schedule 10. I shall be most grateful if the noble Lord can answer my points.
§ Lord Lloyd of Kilgerran
We are all very grateful to the noble Lord, Lord Williams of Elvel, for his attempt to shorten the proceedings and for clarifying the situation. Perhaps I may ask him or the Minister about two matters. One of the amendments relates to Schedule 10 paragraph 1(1) on page 107 at the bottom. It is Amendment No. 227C which says,leave out from ('undertaking') to end of line 47".The noble Lord, Lord Williams of Elvel, wishes to leave out that, whatever happens before, 63shall not apply to any such rights or liabilities under a contract of employment".It immediately comes to mind to consider what can come under contracts of employment. It is inevitable that it will be said that I should refer to intellectual property rights at this stage and whether it is intended that a contract of employment regarding an employee, referring to his rights as regards his inventions, is included in that. I believe that the noble Lord, Lord Williams, wishes to remove that from being transferred.
§ Lord Williams of Elvel
Perhaps I may help the noble Lord on my amendment. It was to clarify what was included here. It was not meant to be leaving out anything; it is a clarification amendment.
§ Lord Lloyd of Kilgerran
I am grateful to the noble Lord. My intervention is intended merely to clarify the position particularly as regards intellectual property rights. The next matter concerning the theme of mine is Amendment No. 227V which relates to page 110 dealing with,Right to production of documents of title".According to the amendment of the noble Lord, Lord Williams of Elvel, at page 110, line 18, after the word "property" he wishes to insert "or any other asset". It seems to me that that phrase, if construed in the generalities of the Bill, might include certain intellectual property rights. By way of clarification I wonder whether the assets concerned should exclude intellectual property rights.
It may be helpful to the Minister to know that in the course of trying to understand what is being transferred under the previous clauses of this Bill, I have been under the impression that intellectual property rights have so far not come under consideration. It may be that the insertion of the words, "or any other asset", will bring us into the exotic area of intellectual property rights, which may be worth millions of pounds.
§ 6.30 p.m.
§ Lord Williams of Elvel
The noble Lord and I did not soldier through the Copyright, Designs and Patents Act without appreciating together the importance, on which the noble Lord previously insisted during the passage of the Patents Act 1977, of the value of intellectual property. This point is new to me and I am grateful to him for drawing my attention to it. He is right in saying that intellectual property is not considered in the Bill. If the noble Lord, Lord Sanderson of Bowden, can help us on this matter, I am sure that we shall be very grateful.
§ Lord Lloyd of Kilgerran
I should apologise for not telling the Minister in advance about the point I was going to raise. Therefore it may be more convenient for him if he writes to me later about the matter.
§ Lord Sanderson of Bowden
In agreeing to group together these various amendments, I hope that the noble Lord, Lord Williams of Elvel, will bear with me as I go through what I think to be the points of 64 most concern to him. The noble Lord, Lord Lloyd of Kilgerran, asked whether in regard to Amendment No. 227C a contract of employment provision concerns intellectual property. An employee's intellectual property rights under his contract of employment will continue in force against his new employer. The only change in the terms of the contract of employment will be the name of the employer.
The noble Lord, Lord Williams, raised several points. Perhaps I may say at the outset that I shall read Hansard and look through the noble Lord's questions. If I do not cover everything in my reply I shall certainly write to him.
Amendment No. 227F seek to leave out the words "may be appropriate" and insert,the Secretary of State may order".Just as it is inappropriate for these items to be covered in the initial scheme, so it would be inappropriate for the Secretary of State to have to make an order for every ancillary division of property rights and liabilities. He will have approved the allocation effected by the transfer schemes, and that will establish the main form and the great majority of the detail of the reorganisation of the industry, apart from the area boards. Minor adjustments thereafter will not affect the main shape of what the Secretary of State has approved and can be left to the industry.
In Amendments Nos. 227K, 227L and 227M the noble Lord asks that after "appears" there should be inserted the words, "to the Secretary of State". The amendment implies that it would be preferable for the Secretary of State rather than the industry itself to decide which party is in greater need of the security afforded by the land, or which party is likely to make the greater use of the land or to be more affected by the right or liability. I am afraid that I must disagree. The industry is by far the best placed to know in detail the extent to which a particular asset is required by one part of the industry as opposed to another. In most cases the technical nature of the operations will make such a decision clear-cut. It is therefore appropriate that, just as the industry will have the initial responsibility for making its transfer scheme, which is after all of far greater significance than any adjustments to Schedule 10, so it should decide the allocation and arrangements for dealing with the type of situation which I have described. Sub-paragraph (4) of paragraph 2 of the schedule nevertheless provides a safety mechanism whereby the Secretary of State shall determine a disputed matter if representations are made to him by one of the companies.
In Amendment No. 227P the noble Lord seeks to alter a definition from "transferee B" to "transferee B, C, D etc". I must tell the noble Lord that I found this amendment puzzling. Paragraph 2(1) of Schedule 10 attaches the label "transferee A" to the transferee of the specified part of the transferor's undertaking and the label "transferee B" to each of the other transferees. These labels are then used in the rest of paragraph 2. The noble Lord's amendment would change the label for each of the other transferees to "transferee B, C, D etc". If this 65 amendment were made the subsequent references in paragraph 2 to transferee B would be meaningless.
Noble Lords may be concerned about the fact that the label "transferee B" is attached to more than one person. I can assure the Committee that this does not matter; wherever the label "transferee B" appears in paragraph 2 one simply translates it back to "each of the other transferees". This makes perfect sense and, if I may say so, I think that on this occasion the draftsman has indeed got it right.
Amendment No. 227R would remove references to representations. The noble Lord may consider that this improves the drafting by removing unnecessary words. While I have some sympathy with that intention, in the present case the existing drafting states the two possiblities with admirable clarity and with no possibility of misunderstanding. I shall look again at what the noble Lord has said in relation to that amendment and see whether I have given him as full an explanation as he is entitled to.
Amendment No. 227S deals with employees or their representatives. This is an important matter. I have to say that the amendment is unnecessary for two reasons. My first reason is founded in common sense. This provision of Schedule 10 refers to an employee—and certain others—applying to the Secretary of State. How is this to be done? It will be done almost certainly in writing. The Bill is silent on the point, but is it conceivable that an employee who was concerned about something as important as the identity of his future employer would make is application otherwise than in writing? And if we are considering applications in writing, is it to be suggested that the Secretary of State would be likely to reject an application because if came from a trade union, a firm of solicitors, or any other proxy, rather than from the individual employee himself?
Clearly, the Secretary of State would want to be reasonably satisfied that the application was genuine. Subject to that, I think he would be most ill-advised to deny an application merely because it came from somebody acting on behalf of the employee. It is common sense that this kind of thing is frequently handled by agents of some description on behalf of the principals.
My second reason is also grounded in common sense but with a touch of legal analysis added. This Bill contains numerous provisions about the things to be done by certain people in certain circumstances. For example, Clause 6(3) requires an applicant for a licence to publish his application. I have no doubt that the actions mentioned in these and many other provisions would be lawfully done if done by a representative of the person mentioned as well as if done by that person. But I would begin to doubt that proposition if the Committtee were to accept this amendment and add the reference to representatives to paragraph 3 of Schedule 10. I hope that that explanation will satisfy the noble Lord that we take his amendment extremely seriously on that point. However, we feel that it is unnecessary.
Under Amendment No. 227U the noble Lord seeks to insert the words:The Secretary of State may request the transferor and the transferee to enter into an agreement under (2) above".66 Under Clauses 63 and 64 the CEGB, the Electricity Council and the Scottish boards are required to make a scheme for the division of their undertakings between the successor companies. It is appropriate that it should be relevant parts of the industry which make the schemes, since they are best placed to know the nature of the assets and liabilities.
Perhaps I may draw the attention of the Committee to the side note for Clause 66. Schedule 10 is there, in other words, to permit fine tuning; to enable detail to be added where it is lacking; and to enable fine adjustments to be made. It is the industry bodies which have to implement the transfer schemes: that is why paragraph 4 of Schedule 10 provides the initiative to do so.
The noble Lord, Lord Lloyd of Kilgerran, and the noble Lord, Lord Williams of Elvel, spoke to Amendment No. 227V, which reads:after ("property") insert ("or any other asset")".We believe that this amendment is unnecessary. It might be of assistance to Members of the Committee if I were to explain briefly the purpose of paragraph 5. Its main use will arise in the case of unregistered land, where one set of title deeds covers property part of which is allocated to one transferee and part to another. Only one of the transferees can keep the title deeds, but if the other transferee wishes to sell part of the land allocated to him he will need to produce the title deeds to the purchaser. Paragraph 5, which adapts the law relating to ordinary conveyancing transactions, provides for that situation.
I turn now to the question of the word "asset" contained in Amendment No. 227V. Indeed, I believe this issue was also raised by the noble Lord, Lord Lloyd of Kilgerran. The inclusion of the word cannot be right because the paragraph is aimed at land and the expression, "any land or other property", provides a complete description of what is covered by the wording.
Finally, the noble Lord, Lord Williams, asked whether we could leave out paragraph 6 at page 110—Amendment No. 227W. As I have already explained, Clause 65 provides that the scheme may define the property to be allocated to a particular company by referring to all the property, rights and liabilities comprised in a specified part of the transferor's undertaking. For example, the scheme may say that all the property, rights and liabilities comprised in the National Grid division will go to the National Grid company. If the National Grid company subsequently wanted to sell some land, it would need to be able to demonstrate to a purchaser that that land had indeed been transferred to it, since a purchaser would not know what had been comprised in the National Grid division. The key point here is that paragraph 6 provides a mechanism, through a system of certificates of title, for a transferee to be able to demonstrate to a purchaser that land has been transferred to him by the scheme.
As I say, I shall look carefully at Hansard to see what has been asked of me by the noble Lord, Lord Williams. I have tried to answer most of the points he made. The last point I should like to make concerns intellectual property rights generally. The existing 67 statutory bodies' intellectually property—that is, copyright, patents, know-how, trademarks, and so on—is part of the property, rights and liabilities of those bodies and will pass to the successor companies.
§ 6.45 p.m.
§ Lord Williams of Elvel
I am most grateful to the noble Lord for that comprehensive review of Schedule 10. Perhaps he would kindly write to me—and send a copy to the noble Lord, Lord Lloyd of Kilgerran—indicating what happens to employees who have an interest in patents when these are vested in successor companies?
§ Lord Lloyd of Kilgerran
I am grateful to the Minister for his reply. I note that, as regards the question of contracts of employment and intellectual property rights, he has said that all that will happen is that there will be a new name in relation to the contract. I must enter a caveat at this stage: contracts relating to an employee involving intellectual property rights may also involve rights for exploitation of the invention involving the particular expertise of Mr. X or the firm X. Dealing with this issue is not a simple matter. However, I shall consider what the noble Lord says in his written reply to see whether something can be done in the future.
The sub-heading of Schedule 10 also worries me. It reads:Allocation of property, rights and liabilities: general".One is left trying to construe what is meant by "property". If the noble Lord will consider saying that all the matters we are discussing today relate only to rights in land and property of that nature—for example, houses, factories and other such buildings—then the position would be clearer. However, if the word "property" is to include, in its generality, intellectual property rights some difficulties may arise. It is a matter for clarification. I must say that I am most grateful for the tolerance and courtesy which has been extended to me by the noble Lord at this late hour.
§ [Amendment No. 227C not moved.]
§ [Amendments Nos. 227O to 227X not moved.]
§ Schedule 10 agreed to.
§ Clause 67 [Initial Government holding in the companies]:
§ [Amendment No. 227Y not moved.]
Lord Peyton of Yeovil moved Amendment No. 228:
Page 50, line 20, at end insert ("and in any case shall in no event dispose of securities or any rights to securities initially allotted to him in pursuance of this section in relation to a company designated in section 63(1)(b) above").
§ The noble Lord said: In moving Amendment No. 228 I should like to speak also to Amendments Nos. 229, 230, 231 and 232. The purpose of these 68 amendments is to give the Government a choice as to how they handle the National Grid Company; they set out alternative ways of dealing with the company. Under one of the amendments they could retain the ownership for themselves, or, alternatively, as I should prefer, a new company could be set up which would be owned 20 per cent. by the Government 40 per cent. by the generating companies and 40 per cent. by the distributors—the successors of the area boards.
§ The whole purpose of the Bill is to promote competition. With that purpose in mind the legislation sets about the dismemberment of the CEGB monopoly. However, what is odd is that in attacking one monoply it should almost by accident strengthen another. I say that because, so far as concerns most customers, area boards or their successors will have a monopoly. Indeed, few of us will have a choice as to which area board we draw supplies from. Therefore, in the view of most people, each distributor will have a monopoly over a large number of its customers.
§ It seems to me that the effect of the Bill is to reinforce and strengthen the monopolies of the distributing companies. The arrangements made under the Bill are not all that easy to follow. As I understand it, the area boards will own the National Grid company through a holding company. They will have no part or voice in the operation of the National Grid. It will be operated by the same people who do the job now according to a merit order. The merit order will be based on the same principles as at present.
§ Ostensibly the privileges of owning the National Grid will be very limited indeed. We are informed by one of the available documents—I think it was the reply by the Government to the Select Committee—that the distributors will have the right to approve annually the medium term plan. I suppose that could be a useful exercise. However, it seems to me that it could easily be a very empty privilege if that were the end of the story.
§ I ask my noble friend what rights will the holding company have when it comes to the appointment of future chairmen and directors of the operating company of the National Grid? Further, what rights or powers will the holding company have over the research and development programme of the National Grid and what powers will it have over the prices to be charged by the National Grid company for its transmission services? Finally, what voice, if any, will it have in capital investments?
§ To those questions I add another: if the distributors, through the holding company which they own, have no control over the appointments, research and development, or prices and capital investment, then who will have such control? Surely it is unthinkable that a powerful instrument like the National Grid should be left in isolation, answerable to no one.
§ If the distributors have the powers which I suspect will go to them—almost by force of gravity because there is nowhere else for them to go—then they will enjoy a strong position. Their already powerful position vis-à-vis their customers will be considerably 69 strengthened. I suspect that before very long they will find themselves not only the owners but the controllers of the National Grid. To that must be added the fact that they are already the owners of the lower voltage network.
§ If the distributors do not have the powers which I have suggested will become theirs almost in the course of nature, the National Grid company will be in a strong position as a really powerful, independent middle man, answerable to no one. In effect it will dictate to the industry. Not only will the National Grid have its present powers and not only will it continue to control the grid, but it will also act, so we are told, as a clearing house for contracts and payments. All contracts made between the generators and the distributors will have to be deposited for clearance with the National Grid. The National Grid will be the only body which will know who has consumed what quantities of energy and it will presumably send in the bills. So the National Grid company will be sitting in the middle.
§ I wish to know who will be in effective control of it. It would be objectionable if the distributors came to be in control of the company and it would be equally a matter of objection if it were left out on a limb on its own, to do whatever it wished.
§ There is another point. I mentioned that the National Grid company would have the role of a clearing house. I have been unable to put my hands on any document which explains what will be a complicated system of contracts and payments. I have been told—rumour has reached me—that one is in preparation within the industry. I very much wish to inquire of my noble friend how long she anticipates the period of gestation will be. When can we expect to see a clear summary of how the system of contracts, payments and regulations will work together? Certainly I hope that it will be before the Report stage. I do not believe that such a document is currently available.
§ I repeat, the likely consequences of the Bill will be either to enhance unacceptably the monopolies of the distributing company—I hope that I shall not be told that there is no question of any distributing company having a monopoly; of course they have—or that the National Grid will find itself in the position of a powerful middle man, answerable to none. If I judge that my noble friend's answer is somewhere in between, that answer will taste of fudge and is one which I should find very difficult to accept. I beg to move.
§ 7 p.m.
§ Lord Peston
These are very technical matters. They are also quite fundamental to the electricity industry and we are indebted to the noble Lord, Lord Peyton, for raising them. Needless to say, I do not entirely agree with everything the noble Lord has said on this matter, in particular when he considers—as he did at the outset—the alternative possibilities for the National Grid. The one possibility of retaining the ownership of the National Grid company in the public sector seems to me obviously to be the right thing to do; just as to the noble Lord it is obviously not the right thing to do.
70 However, in a spirit of a degree of compromise, let me add that, in arguing that this is a public sector matter, I wish to argue that control of the company should be a public sector matter. In many ways I do not care how much of the private operation is owned, as long as the grid is run essentially in the public interest. That takes us to the whole point of the merit order and similar matters.
Noble Lords opposite have been obliged somewhat to denigrate the publicly owned electricity industry of the country in order to justify privatising it. But one of its great triumphs has been all the work it has done on merit order; it has been quite superlative work in terms of modern techniques of control. It is work that, to my knowledge, is envied by most of the other generating and transmission systems throughout the rest of the world. Over the approximately 20 years during which we have developed our grid system those who have worked in the industry have made major contributions to operating economics. Apropos of the contribution of the noble Lord, Lord Lloyd of Kilgerran, on an earlier amendment, it seems to me that there is a great deal of intellectual property involved here and one wonders to some extent who might now be deemed to be its owner.
The merit order problem consists of two kinds of things. Given the existing capacity of the system, the merit order is simply a way of deciding which power stations will be operated. In its simplest terms, the system which will be operated most efficiently is where stations which have low marginal costs are used ahead of those which have high marginal costs. It is a very simple principle: one's place in the merit order is essentially measured by one's marginal costs. There are obvious exceptions to that as for various reasons occasionally some stations have to be taken out of use: refurbishment, repair and maintenance.
Leaving that on one side, the obvious example is nuclear power which has very low marginal operating costs; it will be used on base load almost all the time. Other kinds of stations which have high marginal costs but lower capital costs will be used occasionally to meet peak demands and so forth. So the principle of merit order is very straightforward, given existing capacity.
The matter becomes complicated when one tries to take an investment decision. The difficulty is, that, given any station one may build, one does not know what will happen unless one can predict where it will appear in the merit order. The great technical problem is that one cannot predict entirely where it will appear in the merit order because that itself will depend on which other stations will be built in due course. Certainly in my younger days when I grappled with these problems there was nothing more calculated to produce a headache than the question of whether one invested in a station which depended on its place in the merit order. That in turn depended on other investment decisions, which in turn then depended on whether the station was built in the first place and other considerations.
The great triumph of the industry is that it has developed computer models which enable it to examine and simulate these problems and to get very close to what one might call the overall optimisation 71 of the system, including the investment decision. I had hoped that any privatised industry would set up a grid company that would solve that problem. It seems to me that the issue that the noble Lord, Lord Peyton of Yeovil, puts before us is a question of whether in order to privatise the industry—that may have other benefits; I shall not go over the great debate about that again this evening—the Government are sacrificing the efficiency gains that we obtain from a properly operated merit order system. In asking that question, let me follow the lead given by the noble Lord, Lord Peyton, and in particular refer to investment decisions. The industry, as privatised, no longer undertakes the commitment that someone building a new power station undertakes on the basis of a view taken on its position in the merit order. The people who make a decision about the new power stations are not also running the grid system or the transmission system.
The other complication, as I understand the Bill, is that anyone can build a new power station, do a deal with the area boards and obtain some commitment to using that station's electricity, even though overall it may not correctly be used in a merit order, if we were able to get to grips with that merit order. Therefore, it seems to me that, whatever else the Bill does—I repeat that I do not wish to get involved in the reasons for privatisation—it places in peril the efficient decision-making process that already exists for investment.
I wish to say, following that, that within the merit order system as it currently operates, what is basic is that the system will operate according to marginal cost, and, as it were, price or returns to the individual stations is itself a residual. As I understand the Bill—as the Committee knows, I always take care to emphasise that I may not understand the Bill—merit order or transmission decisions from now on will not be taken on the basis of marginal cost but on the basis of price, as somehow already determined. I must say that intellectually I simply cannot see that as a possible solution. One cannot determine price unless one has in the first place determined efficiency. As regards economics, the idea that one can do that the other way round is simply wrong. However, on more than one occasion the Government have claimed that they can solve this problem.
That leads me to one of the central questions of the noble Lord, Lord Peyton, which is to ask how the grid will operate from now on. Are there any documents that the Government can show us which reveal how the grid will operate and also demonstrate that it operates optimally? I have waited until precisely this time to get involved in those matters. I had hoped that appropriate documentation would be forthcoming. Such documentation may exist. However, I understand that the noble Lord, Lord Peyton, has not seen it, and I can only say that I have not seen any documentation which suggests that the system can work efficiently in the sense in which it is working efficiently at this time.
To add research and development to all this, as the noble Lord, Lord Peyton, does, complicates matters 72 further still, because essentially the returns to research and development all have to be traced through the merit order system and through the grid and other systems. Again it is not obvious who will carry out that analysis and who will take the relevant decisions. The Committee will be aware that to an economist like me this subject is one on which I could detain the Committee for hours and hours, as it absolutely fascinates me. However, I concede to the interest of the Chamber in other matters like agriculture, and I shall not pursue these matters further.
However, the fact that I do not pursue them does not mean that they are unimportant. It certainly does not mean that the Government have no obligation to answer the kind of questions which have been raised. This is not an issue where one can say that when privatisation has taken place and the system is operating everything will be all right. In this case I would argue that the Government have no grounds for believing that the system will work efficiently unless they have sorted some of these matters out beforehand or can direct our attention to work which has been done which shows that these matters have been sorted out.
§ Lord Trafford
I wish to ask the noble Lord one question. He said there was no other system upon which this matter could be operated except that of marginal cost, on which it has been operated. Will he explain to me why he thinks that it could not be operated on any other cost system? Part of the reason for the provision is the high basic cost of nuclear stations. Will the noble Lord explain to me why he makes that statement, when there are other cost bases on which to operate?
§ Lord Peston
The noble Lord puts me in some difficulty because I simply have to tell him that he is mistaken. There is no other correct way of solving a problem of this kind other than on the basis of marginal cost. One also has to consider the investment side, the capital costs and the relevant discount rate. In addition one has to make allowances for risk. However, I must tell the noble Lord that cost in this case means marginal cost. There is no other correct way of doing it.
However, if I may put the matter differently and slightly modify my remarks, I should say that either the whole of economics is wrong or marginal cost is the only correct way of dealing with this matter. The great error is to try to undertake this matter either on the basis of something called accounting cost, which would be wrong, or on the basis of price, which, I repeat, should follow from the correct analysis of cost and should not precede it. However, I am aware that the Committee is in no mood to discuss fundamental economics at this point. Therefore, I have to proceed with a series of statements rather than give a lecture on micro-economics.
§ Viscount Hood
I wish to support the amendment without necessarily supporting the solution to the amendment. This is a very obscure area. The Government must give us more information as to 73 how things will work. The essence of competition is to find new investors willing to build power stations. As far as I can judge, the only way they can do that under the formula which is being produced is if a large amount of the capital cost is paid for by the regional companies as some kind of fixed cost, leaving the payment for power as marginal cost, as the noble Lord opposite has just said. Will investors be prepared to act in this way? If they are not, the whole factor of competition, which is the basis of the Bill, falls apart. That is why we need and are entitled to a clearer, simple statement on this subject.
§ Baroness Gardner of Parkes
The amendments to this clause are quite important. That is why, in spite of the wishes of Members of the Committee to go to dinner or move on to the next business, we cannot afford not to discuss the amendments. There are several points in the speech of my noble friend Lord Peyton that I did not quite understand. One concerned who would follow the presently appointed board. Surely, once something is privatised, automatically it will be entirely within the power of the new privatised body to decide who follows afterwards. The shareholders will have the right to decide that.
§ Lord Peyton of Yeovil
The point is that the operating company will be wholly owned by the holding company, which is owned by the distributors. It is not unnatural that the Minister has appointed the first chairman and the first board, but it would be very surprising if the holding company were not interested in influencing subsequent appointments when it has been set up.
§ Baroness Gardner of Parkes
Even in respect of the present appointment all the distribution companies were very keen that David Jefferies should be appointed. I think that he emerged as the natural candidate. As time progresses and when it is his turn to retire I believe that someone from the industry will emerge in the same way. The appointment requires not only a very good business sense; it also requires highly technical knowledge.
The National Grid company is very well set out in the Bill. It should be appreciated that it has an essential role and a pivotal position within the privatised electricity supply industry. It is important to have a formal guarantee of its independence and integrity. I believe that that is guaranteed by the way it is structured and the membership of its holding company. Those serving in the holding company will be barred from serving on the board of the National Grid company. That two-tier arrangement, whereby all the shareholders of the holding company will come from the supply side of the industry and will watch over policy decisions, will ensure that they have an interest in ensuring the continuity of supply at the cheapest price. However, they will not be in a position to interfere with the day-to-day management. That is surely where the decisions must be made.
The distribution companies' only opportunity to influence the National Grid company's activities will be as shareholders of the holding company. They 74 will be entitled to receive and approve annually the medium-term plan, as the noble Lord Lord Peston, mentioned including the projected capital expenditure and consequential borrowing requirements. The holding company can thus scrutinise individual items of expenditure proposed by the National Grid company but may not veto any item in the business plan which is required to enable the National Grid company to meet its obligations under the Electricity Act and the transmission licence.
The arrangement is intended to ensure sensible examination of the National Grid company's investment and borrowing proposals while preventing shareholders —the supply companies—from inhibiting the local or short-term ends necessary for investment in the transmission system. Those provisions are all incorporated in the draft memorandum and articles of association of the NGC and of the holding company. They guarantee its independence, irrespective of the identity of the shareholders or the size of their holdings.
I could not understand from the speech of my noble friend Lord Peyton why he considered that the position would be any different after privatisation in terms of planning for supply of power and having the right load available at the time of need. The same demands will be made by the users of electricity whenever and however the system is operated.
The point that the noble Lord, Lord Peston, ignored in his merit order was the one major factor in electricity transmission, namely demand. Demand varies tremendously according to the weather.
§ Lord Peston
The noble Baroness ought at least to grant me the slight knowledge that the whole point of the merit order is that demand fluctuates. If demand did not fluctuate there would not be a merit order problem. She ought to realise that I am aware of that, if little else.
§ Baroness Gardner of Parkes
I accept that. I do not understand the noble Lord's jargon about "merit order". I am much more down to earth and appreciate that the weather is one of the biggest factors in determining electricity demand. Strangely enough, it becomes much more expensive when there is heavy weather involving a very high demand. Under the present conditions that immediately pushes up the cost of electricity considerably. If there is not enough usage it is uneconomic. To have medium usage is best, but if there is suddenly tremendously high demand it is necessary to bring in all those power stations which are uneconomic. In order to supply the peak demand one incurs high costs.
I believe that the National Grid company as presently structured and the board as proposed—I am not sure what stage that has reached—are very well informed about the electricity industry. They know all about how the system works. There will be the advantage that, instead of the supply companies dealing only with the CEGB and having very little control over costs—which is what I found difficult as a board member—there will be greater control 75 over costs. The new structure as presently proposed is a good one. For that reason I am not in favour of any of the amendments to Clause 67.
§ 7.15 p.m.
§ Baroness Hooper
I shall try to be as clear and simple as my noble friend Lord Hood requested. The effect of the amendments would be to strike against a fundamental commitment of the Government's White Paper. It would be in total opposition to our proposals for restructuring the industry.
Under Part II of the Bill, the Committee will know that we propose that the transmission company will move to the private sector under the joint ownership of the public supply companies, the successors to the area boards. The transmission company's shares will be owned, through a holding company, by the supply companies. There will be no government shareholding other than the special share.
It is an essential plank of our proposals for fostering competition that future responsibilities for the generation and the transmission of electricity should be entirely separate, and that is why we intend that the transmission company should move to the private sector under the joint ownership of the supply companies, which, under our proposals, have the duty to supply. We believe that if the generators could influence the terms for access to the grid and the way the National Grid company directs power stations, it would or could keep out competitors. That is why we cannot accept the amendment to give the generators a stake in the grid.
One of our fundamental aims has been to allow the area supply companies to choose who generates their electricity and to place them in the position where they can shop around for their cheapest supplies. The supply companies will of course be given the obligation to supply after privatisation. It will be in their interests to seek the cheapest sources of supply and encourage competition among generators. That will mean that it will be in their interests to ensure that the grid is operated in an open and transparent manner, which will encourage new generators to come into the market. As part of this, and as the Committee will know, the transmission licence will include conditions which will require the National Grid company to offer use of system terms to anyone wishing to have electricity conveyed over the grid. For these reasons, we believe that the area supply companies should own the grid.
In reality, the National Grid company will operate in a similar way to the CEGB's National Grid control and transmission division at present—directing power stations so as to meet demand at lowest cost and ensuring that the power flows on the system and the quality of supply remain within technically acceptable limits. But through its central role in scheduling and directing the operation of generating capacity connected to the grid it will have an integral part to play in the development of effective competition in the privatised industry.
The framework in which the transmission company must operate is clear and unequivocal. 76 There are of course duties and responsibilities governing its business set down in the Bill and in the draft licence. Further, the articles of association of the operating and holding companies set out the relationships between the two companies. These are important documents. They strike a fine balance, the result of which is an arm's length relationship with the owners, the supply companies. The documents ensure that the operating company will have the necessary freedom to meet the terms of its licence. As a result, the supply companies will view their shareholding primarily as an investment, not as a measure of control. Most importantly, the articles are protected from change by the special shareholder. That is why a large government shareholding as envisaged in Amendment No. 232 is unnecessary.
Some specific questions were asked and I shall try to respond to them. My noble friend Lord Peyton of Yeovil questioned the holding company's control over the operating company. As I said, the realationship is clearly set out in the articles of association of the two companies. The holding company has no control over expenditure required to fulfil the terms of the operating licence. It has a right of veto over expenditure on permitted business as set out in the licence but which could threaten the financial viability of the operating company. Otherwise, the holding company must give approval to the other expenditure by the operating company.
The appointment of directors is again provided for in the articles of association. The holding company is of course empowered to appoint directors, although the provisions in the articles focus on the power to appoint non-executive directors, provided that they do not comprise a majority of the board. The directors of the holding company will also have the right to dismiss directors of the grid operating company who fail in their responsibilities, but they must ensure that any action that they take does not conflict with their own company's articles of association which, inter alia, require them not to take action that would prevent the grid operating company from fulfilling the terms of its licence.
On the question of research and development, which has again been raised by my noble friend Lord Peyton, it will be for the operating company to decide what level and type of R&D it carries on in pursuit of licensed activities. But, again, the holding company will be able to apply the test of financial viability over R&D expenditure not required by the transmission licence.
On the question of settlement for practical reasons, the National Grid company will be the only body able to verify the amounts of power delivered to the system by the individual power stations connected to the grid and the amounts taken by supply companies and others at bulk supply points. The National Grid company is therefore the obvious choice to act as a clearing house for payments to generators by supply companies, and the transmission licence facilitates that. As to the extent of its involvement in the contractual arrangements, the National Grid company will have to be consulted about every power supply contract involving a 77 station whose output could affect power flows on the transmission system. It will have to confirm whether or not the system will be able to accommodate changes in power flows resulting from connection of the new station and advise on what work would be needed by the grid company for it to do so. The National Grid company will have to approve the specification of plant connected to the grid and all such generators will have to adhere to the terms of a grid code setting down operation standards. The prices for transmission will be regulated by the director under the provisions of the transmission licence.
Those are the arrangements to ensure that our aspirations for the transmission company set out in the White Paper are fully met. In summary, the area supply companies will have the clearest and best motivation to ensure that the grid operates to encourage new entrants into the industry. But at the same time cast-iron safeguards are being set in place to ensure that the grid can conduct its business independently and in an even-handed fashion. Those arrangements are underpinned by a timeless special share. I ask the Committee to agree that there is no need for any residual government holding in the transmission company.
I hope that that reassures my noble friend and others who have expressed concern and I accordingly invite my noble friend to withdraw his amendment.
§ The Earl of Lauderdale
I am sure that the Committee is grateful to my noble friend for the recitation that she has just given us which was of great interest, but of great complexity. I must tell the Committee—although it already knows—that I am pretty slow on the uptake. I am absolutely baffled by all this and am reminded of a former Minister of State at the Department of Energy, Lord Balogh, who is now, alas departed. When he was a university tutor, he was once approached by an economics student with a problem. They had an hour's discussion and, at the end, he asked the student whether he was any clearer in his mind. "No", said the student, "I'm just as confused as before, but at a higher intellectural level". I am afraid that that is how I feel.
I am sorry to press the point, but I should like to know, how shall we know if the thing goes wrong? In what sense is the whole show ultimately accountable to Parliament through the Government? Is the special shareholder in turn accountable to Parliament? How do we know? I do not expect to understand any more; it is beyond me. But how do we know whether it is working?
§ Lord Peyton of Yeovil
I should like to thank noble Lords who have taken part in this brief debate, whether from a sedentary position or standing up. At the same time, I should like to say that the only gratification that I feel—there is only a small measure of it—is that the amendment should have called forth from my noble friend on the Front Bench quite such a wealth of information which was not previously available to me and which, like my noble friend Lord Lauderdale, I shall need time to digest and examine.
78 Perhaps I may make one comment in passing. Legislation on important matters by means of the articles of association of a company not yet in being is hardly satisfactory. I cannot believe that it is commendable or acceptable to the Committee. In withdrawing the amendment, I am conscious of the importance of the matters raised. I must tell my noble friend that I intend to return to them at Report stage because I cannot believe that we have heard the answer to the basic question that I raised; namely, after a period of years, where will the power to control that vital part of the industry lie. It will either be with the National Grid company, which will have outgrown its holding company parent, or it will be with the distributors, in which case they will have immensely enhanced the very powerful degree of monopoly that they now have. On that basis, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
The Earl of Dundee
I think that this is an appropriate moment to break. I suggest that we do not return to this business until 8.30 p.m. I therefore beg to move that the House do now resume.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.