HL Deb 16 May 1989 vol 507 cc1044-117


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

My Lords, I beg to move that the House to do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Baroness Hooper).

On Question, Motion agreed to.

House in Committee accordingly.


[Amendment No. 61 not moved.]

Lord Shepherd moved Amendment No. 62: Before Clause 3, insert the following new clause:

The Secretary of State, shall, after consultation with the Director, require each of the public electricity suppliers to make and produce evidence to the Director showing that he has made such arrangements as will promote the efficient use of electricity and may direct any public electricity supplier to take specific action in this area and, if appropriate, may refuse or amend any application for tariff increases or major capital projects.").

The noble Lord said

I seek to move Amendment No. 62 with some degree of confidence that it should command support from all quarters of the Committee. I regret that I was not present on Thursday when there was a considerable debate on energy conservation. That was due to a long-term prior engagement.

The case for conservation and efficient use of energy is too well known to require any explanation from me this afternoon. But there is no doubt that end-use electricity efficiency can play a significant role in the conservation of energy. The amendment is very specific. It deals with the use of electricity; it is not involved with generation or transmission.

Sub-committee B of the European Communities Committee, of which I am chairman, has carried out a full inquiry into Community proposals in regard to energy efficiency and the part that it can play in reducing dependence upon imported oils. I move the amendment not as chairman of the committee, because that is the convention and I think that that would apply equally to other noble Lords who have put their names to the amendment. We do so in our personal capacity.

We took evidence from the Department of Energy, from the Commission, from manufacturers and trade associations and from many other witnesses. Based on the evidence, we produced a unanimous report that was published on 18th April. In paragraph 103 the committee records that clearer statutory guidance should be given to the electricity supply industry to ensure efficient electricity use; that the Bill as drafted is inadequate to ensure that; and that there is a need for a clearer statutory duty to promote energy efficiency.

The underlying reason behind the amendment is to be found in paragraph 83 of the Select Committee's report, which says that: The Committee agree with the [European] Commission that the more efficient use of electricity can reduce significantly both future investment in electrical power generation and the demand for primary energy … Substantial savings can be made". This possibility has not been widely appreciated in the electrical power system planning. That is the crux of the matter. More efficient use of electricity reduces energy demands, with all the consequential benefits that it has. Much evidence to support this claim was printed in the Select Committee's report.

The European Commission's figure is that a 10 per cent. improvement in efficiency between now and the year 2000 would eliminate the need for 40,000 megawatts of new power station capacity within the Community. Compelling evidence was produced showing that the widespread application of state of the art technologies by all classes of electricity consumers could significantly reduce the United Kingdom electricity demand. For example, the Association for the Conservation of Energy reported that in commercial lighting, industrial motors and domestic fridge-freezer areas alone a 90 per cent. take-up of best available technology would result in savings of up to 11 per cent. of the present Central Electricity Generating Board's demand. This improved efficiency would be equivalent to acquiring some six years of increased capacity according to the CEGB's growth forecast. In other words, the need for four or five new power stations, costing in total perhaps some £10 billion, could be postponed, with associated savings in the national fuel and import bills, plus environmental benefits.

Whatever the figure actually is, no one can doubt the real importance of greater efficiency of electricity use. The real question is, how can it be achieved? Two bodies have been mainly responsible for this in the past: the Electricity Council, representing the area boards, and the Energy Efficiency Office of the Department of Energy. Both have mounted successful promotional campaigns. But the Electricity Council will be abolished with privatisation and the budget of the EEO has recently been cut substantially. There is little to reassure us that the work of these two bodies can be continued. Who in fact will encourage research and development?

More important, however, is the question of whether promotion of electricity efficiency is enough in itself to ensure a greater take up. I firmly believe that it is not. That is because of the pattern of consumer choice. People just do not buy more efficient domestic appliances, for example, if they have to pay more initially in capital costs. In other words, the pay-back is too long.

In her speech on Thursday, the noble Baroness spoke of the need for information and advice. Yes, that is important and can develop public awareness. But I am sure that she is aware that the present information available to a customer in any of our big stores is either vague or unreliable and is often irrelevant. How is it possible to compare like with like if one is to make a choice? What we need, and what the committee felt was necessary, is for proper standards for these appliances to be agreed, and also the form of presentation. We suggested that the Government should look at the United States Appliance Energy Conservation Act of 1987. In paragraph 101 of the report we say that, Satisfactory standards and testing methods … should be worked out and … imposed on Community manufacturers". Again, according to the evidence to the committee, the same is true of industry. Some 61 per cent. of industrial electricity consumption is by electrical motors. Despite all the promotional efforts of the motor manufacturers and the EEO, purchases by the United Kingdom industry of energy efficient motors has achieved only 3 per cent. of electrical motor sales. In the United States the corresponding figure is 10 per cent. higher. We are still unfortunately an energy-illiterate nation.

While I recognise what the noble Baroness said on this subject last Thursday, I cannot accept her argument that: We [the Government] believe that decisions on the efficient use of electricity are for individual consumers to take".[Official Report, 11.5.89; col. 782.] The evidence indicates that there are reasons why consumers will not take such initiatives. I am not calling on the Government for subsidy. All I suggest is that the suppliers of electricity shall be required to promote efficient use by those whom they supply. The amendment will require the suppliers to show the director that they have taken steps to do so. It will also give the director powers to refuse or amend any application for tariff increases for major capital projects should he feel it necessary to do so. That may appear to be strong, but I cannot accept what the noble Baroness said, again on Thursday, that this is already covered in the Bill. The control to be exerted by the Government on electricity prices to promote the efficiency of the electricity supply industry will not necessarily extend to the promotion of efficiency of use of electricity by consumers. If every anticipated increase in electricity demand can be matched by an increase in new utility prime capacity, the more inefficient the use of electricity by the consumer the greater is the revenue of the suppliers, although they themselves may be highly efficient generating and distributing companies. I hope that the Committee will accept that, while the amendment may lay some duties upon the electricity industry, there is equally clear evidence that the industry and the utilities themselves can enhance their profitability through promoting the right measures in energy efficiency. The general duties that we have in the Bill may mean something or they may mean nothing. In my view, the situation calls for firm but fair powers. I suggest that those are provided in the amendment. I beg to move.

The Earl of Lauderdale

I too must apologise as I was not able to be present on Thursday. When I announced to the Chief Whip that it was impossible for me to be here on that day, he said, "Hurrah, you would cause trouble anyway". It will not come as a surprise to the Committee to hear me repeat what I have said many times before which is that I do not think that this is a good Bill. I think it is a bad Bill for the simple reason that I do not think that it will get us the extra generating capacity that we know we shall need by the end of the century.

I repeat that my main objection to the Bill is that the Department of Energy has consistently got it wrong as regards predictions of future energy requirements. The department will not admit that; it always blames someone else. The point now is that if, as the all-party committee concluded from an exhaustive study of a lot of elaborate and technical evidence, efficiency in use could be seriously promoted, the need for new generating capacity would be reduced substantially over the years. I am interested in this idea. I was of course a member of the committee—not that I did it any good. However, I was a member of the committee and I gladly added my name to this amendment following our considerations in the committee.

I hope that when my noble friend replies she will confirm whether what I am about to say is the case. It has been said to me that the matter is covered by the provisions of the various licences which are to be issued to enable public suppliers to supply. If that is the case, perhaps my noble friend can tell the Chamber where this requirement appears in the licences. I have gone through them and I cannot find it. However, I am slow on the uptake and my eyes are not very good. No doubt the requirement is there somewhere. However, even if the requirement is in the licences, it does not really meet the point. We need a statutory requirement. Licences can be changed very easily and the system of licences can be modified. I wish, with respect, to refer to the report of the all-party committee. The noble Lord, Lord Shepherd, also referred to it. Paragraph 91 states that the committee: regard it as essential that the electricity supply utilities continue to contribute to improvements in the efficiency of electricity use after privatisation". The committee further stated that it did not consider that the Bill as drafted met that requirement at all adequately. It states in paragraph 93: The Electricity Bill as currently drafted is inadequate to ensure that the privatised electricity industry will actively promote energy conservation as part of minimum cost planning. The Committee recommend that clearer statutory guidance should be given to the Electricity Supply Industry as to how it should ensure efficient use of electrical energy. The Director General of Electricity Supply should ensure that the industry abide by such obligations. The licensees too should have a statutory duty to promote efficiency". I stress that it is recommended that statutory guidance should be given to the electricity supply industry as regards efficient use of energy. The quotation shows that the committee also considered the subject of licencees. We are not likely to be appeased by being told that this matter is covered in the licences. We do not think that that is adequate. We are asking for proper statutory control. I hope that if my noble friend cannot give a positive answer today, she will at least be willing to take the matter back and look at it seriously. The proposition was put forward originally by an all-party committee. None of us in the committee differed on this matter. There was no argument over it. I hope that my noble friend will consider this amendment sympathetically. I know that she will consider it in a kindly way, but I hope that she will also consider it sympathetically.

Viscount Hanworth

I wish to speak briefly and very strongly in support of this amendment. We had a wide-ranging discussion on Amendment No. 9 which concerned the need to stress in the Bill the importance of efficiency of supply of electricity and energy conservation. All the Minister seemed to say in direct reply to the amendment was that the Government did not wish to stress those matters at the expense of other possibly equally important considerations; for example, consumer and environmental interests. I wish I had had time to count how many times these other considerations are mentioned in the Bill. I refer the Committee to Clause 3(1) as an example of that. Quite insufficient emphasis is laid on the efficiency of supply and energy conservation. I should have thought that although there is a distinction between the two—the Minister stressed that—for most purposes the latter covered both. Amendment No. 9 received a great deal of support from all sides of the Chamber. If the Government are sincere about energy conservation, as they seem to be in theory, they must realise that even if this amendment is pressed to a Division and lost, we shall come back with some other solution on the same lines. In my opinion, we are morally bound to do so.

3.15 p.m.

Baroness Gardner of Parkes

I think that there is a degree of confusion in some of the statements which have been made. On Second Reading I announced that I was a member of the London Electricity Board. I do not therefore feel obliged to declare that interest again, except just to put it on the record.

Statements have been made to the effect that teaching people to use their electricity economically will result in a reduction in the demand for energy. The speakers mean electrical energy presumably. The experience of the London Electricity Board is that that is not so. We as a board are very conscious of the need to teach people to conserve energy. We have carried out a major programme to just that end; we believe that the programme has been very successful. However, it has not resulted in an overall reduction in the demand for energy because the world is changing very fast.

Everyone now wants to work in an air-conditioned office. The supply of energy used to be a seasonal phenomenon which showed a great difference in demand between summer and winter. Now the summer fall-off in demand does not occur because people all wish to work in air-conditioned offices. That air-conditioning is operated by electricity. I believe that all boards presently are very conscious of the need to conserve energy resources and to encourage consumers to get value for money and to use their appliances wisely and well. I can certainly speak for the London Electricity Board in that regard.

Other speakers have said we should encourage people to buy new appliances which use less power than older ones. That is splendid. Everyone would love to sell more electrical appliances, but purchasers have to think of their pockets and what they can afford. Many people do not change over to a more efficient form of heating simply because of the capital outlay involved. That has already been referred to. However, to put in a statutory demand that the privatised boards follow this provision is not necessary because the industry is conscious of the need to conserve world resources of energy. I am confident that that will continue after privatisation.

Lord Kearton

I wish to support the amendment moved by the noble Lord, Lord Shepherd. I had the honour of serving under him on Sub-committee B. As he said, the report had the unanimous support of the committee.

I shall not repeat the cogent and powerful arguments made by the noble Lord, Lord Shepherd. I shall merely give some personal reasons why I so strongly support the amendment. I was connected with the power industry for approximately 40 years. For nearly 20 of those years I was chairman of the Electricity Supply Research Council. During almost all of that time we were concerned with matters of efficient energy production. It is true that during my time in the industry we set up the laboratory at Capenhurst, which was concerned with applications of electricity and more efficient use of electric energy. Nevertheless, overwhelmingly throughout the 40 years I was connected with the industry the interest was in more efficient generation.

It is obvious that the world has moved on and it is very much more important now that there should be efficient use of electricity. That would contribute to reducing atmospheric pollution, environmental hazards and the greenhouse effect. Everything is in favour of more efficient use of electricity. I believe that we should make it a statutory requirement, as proposed by the amendment, because only in that way shall we have the positive, committed action that the situation demands. I have great pleasure in supporting the amendment.

Lord Williams of Elvel

I spoke to this subject in relation to Amendment No. 9 and I do not wish to weary the Committee by repeating the arguments since we spent a long time on the subject. I fully support the recommendations of the all-party Select Committee.

Lord Peyton of Yeovil

The Government accept, in Clause 3(3)(b), the need to promote efficiency and economy in the industry. I cannot see immediately any reason why they should resist elevating that purpose to its proper place, as proposed in the amendment. I very much hope that my noble friend will agree to do so without hesitation.

I do not want to make a long speech on the subject, but I emphatically echo the words of the noble Lord, Lord Shepherd, in moving the amendment. I dissent from the idea which was expressed by my noble friend earlier in the Committee stage that this is an area in which decisions should be left to individual customers and that they should receive guidance from electricity distributors. Such guidance is poured out in unceasing quantities today through the post. I imagine that it is proposed that guidance would be received in the ordinary way accompanying bills. I venture the opinion to my noble friend that advice received with a bill is not particularly well timed, and therefore is more likely than on other occasions to meet with almost immediate rejection.

There are two questions which I should like to ask my noble friend. First, what in the Government's view could be achieved if energy was used more efficiently? Secondly, am I wrong in having the impression that the Government believe that energy demand is the mirror of economic growth? I do not believe that it is or should be. I hope that my noble friend will realise, both from the debate which we had the other day and the debate today, that this is a proposal which commands a wide measure of support from all sides of the Chamber.

Baroness Gardner of Parkes

As a number of questions have been asked of my noble friend, perhaps I may ask another. Is it true that if such a statutory imposition were placed on the electricity industry it would be unique as there are no similar constraints on the gas industry or any other energy producer? Would it be just to impose such a constraint on one industry only?

Lord Hughes

Following on from that question, perhaps I may ask the Minister whether she considers that the experience resulting from not having imposed such a constraint on British Gas or British Telecom is the best possible argument for making good the error in this case.

3.30 p.m.

Baroness Hooper

As the noble Lord, Lord Shepherd, said in introducing the amendment, we discussed the subject fairly fully in connection with a previous amendment. However, it is an important topic and there is still plenty to say. It was useful to hear the views of the Select Commmittee as the noble Lord explained them. In responding, perhaps I may therefore begin with a few general remarks and, for emphasis, reiterate some of the points which I made last week.

It is precisely because we believe the efficient use of electricity to be important that for the first time a statutory provision is introduced to promote efficiency in the electricity supply industry. Clause 3(3)(b) places a duty on the Secretary of State and the director, when exercising their functions under Part I of the Bill, to promote efficiency and economy on the part of persons licensed to supply electricity. It also places a similar duty on the Secretary of State and on the director to promote the efficient use of the electricity supplied.

Secondly, public electricity suppliers will be required by their licence to provide guidance to their customers on the efficient use of electricity. I can tell my noble friend Lord Lauderdale that the relevant condition is condition 18 of the draft public electricity supply licence, which requires each licensee to provide, within three months of his licence coming into force, information on the efficient use of electricity. This means that public electricity suppliers will be required to give advice to their customers about, for instance, insulation and efficient ways of using electricity. This licence condition requires public electricity suppliers to revise this information as necessary, and also to send to each customer a copy of any information on energy efficiency published by the director under Clause 46 if he asks them to do so.

I must emphasise that there is not a risk that it will be easy to alter the licence, a point whch I expect we shall discuss in relation to later clauses. This provision is included in licences because it is a detailed matter, not because it is not important. The licence condition follows from the general principle stated in Clause 3(3)(b). We maintain therefore that the provision is both in the Bill and in the licence.

It is for those reasons that we believe the provision to be appropriate and adequate to encourage energy efficiency. Since my noble friend Lady Gardner referred to British Gas, I should like to quote that example because British Gas is subject to similar statutory provision in accordance with condition 14 of its authorisation. British Gas undertakes significant expenditure, currently running at £3.4 million a year, on encouraging greater awareness of energy efficiency in the community through the provision of information and advice, particularly among low income groups; for example, the development of energy efficiency advisers in housing estates.

British Gas also works closely with appliance manufacturers in developing efficient new products and its current R&D budget for improving end use energy efficiency is about £5.3 million. In addition, British Gas's gas energy management awards are held annually in the regions with winners competing for national awards. The awards recognise the particular contribution of natural gas to the efficient use of energy as well as reflecting the wide range of applications for gas and the work of the technical consultancy service teams operating in British Gas regions. I therefore cannot agree that the statutory provision on British Gas has been inadequate.

I should add that the electricity supply industry already does a great deal to encourage energy efficiency. For example, it runs similar award schemes to the British Gas schemes and provides technical advice promoting the efficient use of electricity. That will continue after privatisation.

Attention has again been drawn to the Energy Efficiency Office. Although I responded on that front last week, I should like to add some more details about the future of the Energy Efficiency Office. For example, we have an energy efficiency marketing strategy which comprises a number of tightly targeted objectives. The objectives of the domestic programme are to promote energy efficiency measures to home owners who are moving or refurbishing and to increase awareness among small builders and heating engineers, encouraging them to motivate home owners.

The education programme is designed to encourage energy consciousness among school pupils and teachers by providing education materials. That will be done through an independent body, known as CREATE (the Centre for Research, Education and Training in Energy), which will encourage the promotion and co-ordination of energy studies in the curriculum.

The building programme's objective is to encourage the use of energy efficiency measures in the building or refurbishing of commercial, industrial and public sector buildings.

The industrial programme carries forward "The Heat is On Campaign". Its continuing objective is to ensure that penetration of the energy efficiency message and best practices in management and technological terms continues. The targeted sectors are: food, drink and tobacco production; paper and board; textile finishing; and fabric care.

In addition, the energy efficiency programme will continue to support the magazine, Energy Management, published by the department to convey news information to industrial and commercial energy users. The department's regional energy efficiency officers will also continue to deploy professional marketing support. So any suggestion that the Energy Efficiency Office is about to fold up is misleading.

Perhaps I may now return from those examples to the effect of our proposals. So far as concerns the generating side of the industry, the efficiency with which it uses fuel—its major cost after all—will significantly affect its operations and its ability to compete successfully. So increases in the efficiency of electricity generation can lead to huge energy savings. The increased competition which is central to the Government's proposals will provide a major incentive to the efficient use of fuel and that will also exert a downward pressure on prices.

These are, I believe, major steps forward in the promotion of efficiency of electricity use. I might just mention here that, when we come to consider Clause 3, we shall ask the House to approve a government amendment to extend the duties imposed on the Secretary of State and the director to promote efficiency and economy on the part of licensed transmitters of electricity.

The proposed new clause tabled by the noble Lords, Lord Shepherd and Lord Ezra, and my noble friend Lord Lauderdale is, as they have explained, a result of some of the findings of the Select Committee. However, perhaps I may clear up what appears to be a misunderstanding about the Bill implicit in the proposed new clause. The Secretary of State will not have the power under the Bill to approve tariff increases. Supply companies will have to comply with the price formulae in their licences and demonstrate that to the director.

Secondly, I question whether it is justifiable to give the Secretary of State such overriding and even Draconian powers over private companies. It is in the consumer's own interest to use electricity efficiently. Not only will our proposals ensure that consumers are fully informed by public electricity suppliers of the benefits of energy efficiency measures, but the new private companies will be using energy efficiency as a marketing tool in their competition with other forms of energy, as is already the case. I remind the Committee again that British Gas is spending some £8 million a year on promoting energy efficiency awareness and on R&D in that area.

Thirdly, the new clause specifically mentions approval of capital projects as some possible weapon with which the Secretary of State might encourage the industry to take specific action as regards the efficient use of electricity. The most substantial capital projects that the industry faces are on the generating side and generation will form only a subsidiary part of the public electricity supply companies business.

The noble Lord, Lord Shepherd, referred particularly to energy labelling of appliances and quoted some of the United States' examples. We believe that energy labelling of appliances is essentially a voluntary matter for manufacturers and retailers, but all electrical appliances without exception are marked with their rated electricity consumption; that is, their maximum rate of electricity use. That already happens. Energy consumption data for appliances must be treated with caution to avoid misleading impressions because differences in basic design of appliances are now small. Consequently, differences in energy consumption largely reflect size and facilities available rather than differences in energy efficiency. I realise that I made some of these remarks the other day. I shall repeat another point because I believe that it bears repeating. In this important area, there is no single solution that will guarantee the security of supply, which concerns my noble friend Lord Lauderdale and, at the same time, ameliorate the environmental consequences of our energy needs. We believe that we need a package of measures which would include energy efficiency as an important part of that package. I believe that that is what the Bill provides. I therefore regret that I cannot accept the noble Lord's amendment. I hope that he will find what I have said reassuring and will feel able to withdraw his amendment.

The Earl of Lauderdale

Perhaps my noble friend will just clear up one point. Did I understand her to say that condition 18 of the licence was the one that covers this matter?

Baroness Hooper


The Earl of Lauderdale

I do not know whether I have the right documents here, but I have a copy of the electricity generation licence that was placed—

Baroness Hooper

Perhaps I may interrupt my noble friend. This is the condition relating to the public electricity supply companies' licences. In this amendment we are not talking about generating licences.

Lord Peyton of Yeovil

I do not want to irritate my noble friend more than I can avoid, but perhaps she will briefly answer the two questions that I asked her. First, have the Government formed any estimate of the potential that could be achieved if energy were used more efficiently? Secondly, as regards energy demand, do the Government believe that energy demands always and relentlessly follows economic growth?

Baroness Hooper

I believe that those points were covered in some of my remarks and in our discussions last week. Certainly, we believe that energy consumption increases as a result of economic growth, but we can point—I do not have the figures at my fingertips—to the fact that, as a result of energy efficiency measures that have already been incorporated, consumption has not increased at the same rate as our economic growth. So there is clearly an area where we can take action, where we believe we are taking action and where we shall be capable of taking action. As to the potential that could be achieved, I think that that follows from my reply on that last point.

The Earl of Lauderdale

I am sorry to trouble my noble friend, but perhaps she will clarify the point about the licences. I obtained a copy of the electricity generating licence with explanatory notes, issued by the Department of Energy in January 1989. That has 13 conditions not 18. There is another licence draft—the second tier electricity supply licence. That has 10 conditions, not 18. The electricity transmission licence has 12 conditions. So I have difficulty in following what my noble friend said about condition 18. Perhaps I may make one other point with regard to my noble friend Lady Gardner of Parkes. Because the London Electricity Board has tried, but not yet been 100 per cent. successful in securing efficient electricity use, surely that is an argument for trying harder. The argument for trying harder is an argument for statutory provision.

I do not wish to weary my noble friend unduly nor indeed try the patience of the Committee. However, I ask my noble friend whether she cannot take another look at this matter. Perhaps some discussion may take place between now and the Report stage when we may consider it again. To turn it down holus-bolus is not in my view good enough.

Lord Renton

With great respect to my noble friend Lord Lauderdale, it seems to me that it is the mover and supporters of the amendment who need to take another look at this because it is perfectly clear that they and the Government have the same objectives. I shall come to that in the Bill in a moment. But it is just a question of whether those objectives are to be achieved by means of the provisions of the Bill or as stated in this amendment.

The Government's case is perfectly clear. It is in the Bill and confirmed by the very full speech made by my noble friend on the Front Bench. But reference has already been made to the starting point of this, which is in subsection (3) of Clause 3 which states that: the Secretary of State and the Director shall each have a duty to exercise the functions assigned or transferred to him by this Part in the manner which he considers is best calculated". Then there are set out the objects which are there immediately to be achieved. One of them is: to promote efficiency and economy on the part of such persons", that is, the people to whom the electricity is supplied: and the efficient use of electricity supplied by them". I should note in passing that the amendment refers only to supply and suppliers and users. It does not refer, as Clause 4(1) refers, to a person who generates electricity or transmits electricity, and both of those are technically different from the supply of electricity. So we are concerned mainly with supply. When we come to that and look at the very detailed and full provisions of those clauses of the Bill which refer to the licensing of supply—and they are mainly covered in Clauses 4 to 15 although there are other references which assist (I do not want to weary the Committee by going into those clauses in detail)—quite frankly one finds, as my noble friend Lady Hooper has said, that they meet the desires of those who have tabled this amendment. I very much hope that we will accept the view of the matter that my noble friend has expressed. Perhaps I may say that I do not always agree with the Government on this or any other Bill.

Lord Shepherd

The noble Baroness was quite right in her reply to the noble Lord, Lord Peyton, that demand does not necessarily flow immediately from growth. Energy savings have an effect. What she did not say was that the United Kingdom is low down in the league compared with other industrial countries such as Japan.

I do not despair of the noble Baroness; I despair of her department. The brief that she has been given is the brief that those officials who appeared before my committee produced when we had our inquiry. As a consequence of that and other evidence we reached the view that the Bill in itself was inadequate. We did not say that there were not provisions in the Bill that fulfilled our aims but we said that they were inadequate. I still take the view that they remain inadequate.

The noble Baroness spoke in glowing terms about the work of the EEO in the next few months. I have the highest regard for that office. Throughout our inquiry there was nothing but praise for it. The truth too is that none of the evidence that we received indicated nor any of the witnesses we heard could understand that, just because an office is successful and while there is still a long-term need in that direction, its capacity and ability to perform its task should be reduced. That is what the Government are doing.

The noble Lord, Lord Renton, said that there was nothing much between us and the Government in the Bill. I accept that. My only difficulty is that what is in the Bill is so vague and general that it can give very little assurance at least to those who have listened to the evidence as we have done. We must also recognise that the licences upon which the noble Baroness relies have never appeared on the Floor of this Chamber. Noble Lords have only to go to the Library to read them, but they have no relevance to any decision which this Committee would wish to make on the matter.

I do not say that any amendment moved from anywhere on the Back Benches is necessarily correctly and fully drafted. However, I believe that the intention of this amendment is clear. I should like to test the opinion of the Committee on this matter to see whether the amendment is agreed to. Then, if it is imperfect and requires readjustment within the Bill as a whole, I should be most willing to co-operate with the noble Baroness in that direction.

3.46 p.m.

On Question, Whether the said amendment (No. 62) shall be agreed to?

Their Lordships divided: Contents, 126; Not-Contents 114

Addington, L. Bruce of Donington, L.
Airedale, L. Buckmaster, V.
Allenby of Megiddo, V. Butterfield, L.
Amherst, E. Callaghan of Cardiff, L.
Attlee, E. Campbell of Eskan, L.
Aylestone, L. Carmichael of Kelvingrove, L.
Barnett, L.
Birk, B. Carter, L.
Blackstone, B. Cledwyn of Penrhos, L.
Blyth, L. Cocks of Hartcliffe, L.
Bonham-Carter, L. Craigavon, V.
Boston of Faversham, L. Dacre of Glanton, L.
Bottomley, L. Dainton, L.
Briginshaw, L. David, B.
Davies of Penrhys, L. Mackie of Benshie, L.
Dean of Beswick, L. McNair, L.
Denington, B. Mason of Barnsley, L.
Donaldson of Kingsbridge, L. Merrivale, L.
Donoughue, L. Milner of Leeds, L.
Dormand of Easington, L. Mishcon, L.
Elwyn-Jones, L. Molloy, L.
Ennals, L. Mulley, L.
Ewart-Biggs, B. Nicol, B.
Falkender, B. Northfield, L.
Falkland, V. Ogmore, L.
Flowers, L. Peston, L.
Foot, L. Peyton of Yeovil, L.
Galpern, L. Pitt of Hampstead, L.
Gladwyn, L. Ponsonby of Shulbrede, L. [Teller.]
Glenamara, L.
Graham of Edmonton, L. Porritt, L.
Greenhill of Harrow, L. Prys-Davies, L.
Grey, E. Rathcreedan, L.
Halsbury, E. Reilly, L.
Hampton, L. Ritchie of Dundee, L.
Hanworth, V. Robson of Kiddington, B.
Hatch of Lusby, L. Rochester, L.
Hayter, L. Rugby, L.
Hirshfield, L. Sainsbury, L.
Hood, V. St. Davids, V.
Houghton of Sowerby, L. Scanlon, L.
Howie of Troon, L. Seear, B.
Hughes, L. Sefton of Garston, L.
Hunt, L. Serota, B.
Hunter of Newington, L. Shepherd, L.
Hylton, L. Sherfield, L.
Hylton-Foster, B. Somers, L.
Jenkins of Hillhead, L. Soper, L.
Jenkins of Putney, L. Stallard, L.
John-Mackie, L. Stedman, B.
Kearton, L. Stewart of Fulham, L.
Kilbracken, L. Stoddart of Swindon, L.
Kinloss, Ly. Taylor of Blackburn, L.
Kirkhill, L. Taylor of Gryfe, L.
Lauderdale, E. Taylor of Mansfield,. L.
Leatherland, L. Thurlow, L.
Listowel, E. Tordoff, L. [Teller.]
Llewelyn-Davies of Hastoe, B. Turner of Camden, B.
Underhill, L.
Lloyd of Kilgerran, L. Wallace of Coslany, L.
Lockwood, B. Walston, L.
Longford, E. White, B.
Lovell-Davis, L. Williams of Elvel, L.
Macaulay of Bragar, L. Winstanley, L.
Mcintosh of Haringey, L.
Ailesbury, M. Denham, L. [Teller.]
Airey of Abingdon, B. Dundee, E.
Alexander of Tunis, E. Effingham, E.
Allerton, L. Elibank, L.
Arran, E. Ellenborough, L.
Balfour, E. Elles, B.
Belhaven and Stenton, L. Elliot of Harwood, B.
Beloff, L. Elliott of Morpeth, L.
Belstead, L. Erroll of Hale, L.
Bessborough, E. Faithfull, B.
Blatch, B. Foley, L.
Boyd-Carpenter, L. Fraser of Carmyllie, L.
Brabazon of Tara, L. Fraser of Kilmorack, L.
Braye, B. Gainford, L.
Brougham and Vaux, L. Gardner of Parkes, B.
Butterworth, L. Gisborough, L.
Campbell of Alloway, L. Glenarthur, L.
Campbell of Croy, L. Gray of Contin, L.
Carnegy of Lour, B. Gridley, L.
Carnock, L. Grimston of Westbury, L.
Cathcart, E. Hailsham of Saint Marylebone, L
Colnbrook, L.
Constantine of Stanmore, L. Harmar-Nicholls, L.
Cottesloe, L. Harvington, L.
Crathorne, L. Henley, L.
Crickhowell, L. Hesketh, L.
Cullen of Ashbourne, L. Hives, L.
Davidson, V. [Teller.] Hooper, B.
Johnston of Rockport, L. Platt of Writtle, B.
Knutsford, V. Pym, L.
Limerick, E. Rankeillour, L.
Long, V. Reigate, L.
Lurgan, L. Renton, L.
McApline of Moffat, L. Rippon of Hexham, L.
Mackay of Clashfern, L. Rochdale, V.
Macleod of Borve, B. Rodney, L.
Margadale, L. St. Germans, E.
Marley, L. Saltoun of Abernethy, Ly.
Maude of Stratford-upon-Avon, L. Sanderson of Bowden, L.
Shannon, E.
Mersey, V. Sharples, B.
Middleton, L. Skelmersdale, L.
Monk Bretton, L. Slim, V.
Montagu of Beaulieu, L. Stodart of Leaston, L.
Montgomery of Alamein, V. Strange, B.
Morris, L. Strathclyde, L.
Mottistone, L. Strathspey, L.
Munster, E. Sudeley, L.
Murton of Lindisfarne, L. Swansea, L.
Nelson, E. Terrington, L.
Nelson of Stafford, L. Teviot, L.
Norrie, L. Thomas of Gwydir, L.
Northesk, E. Thomas of Swynnerton, L.
Nugent of Guildford, L. Trafford, L.
Oppenheim-Barnes, B. Trumpington, B.
Orkney, E. Vaux of Harrowden, L.
Oxfuird, V. Weir, V.
Pender, L. Wolfson, L.

Resolved in the affirmative, and amendment agreed to accordingly.

3.55 p.m.

Clause 3 [General duties of Secretary of State and Director]:

Lord Peyton of Yeovil moved Amendment No. 63: Page 2, line 36, leave out ("The Secretary of State and").

The noble Lord said: This series of amendments is designed to be helpful. As we continue our way through the Bill, my sympathy for whoever takes on the mantle of Director General of Electricity Supply becomes greater by the day. When he is appointed, he will have exceedingly heavy duties to perform. They are set out reasonably clearly in the Bill and indeed in the clause that we are now discussing. The director general will be appointed by the Secretary of State. He will be answerable to the Secretary of State for the efficient performance of his duties.

I wonder whether he will be assisted in the efficient performance of those duties by the fact that they are shared with the Secretary of State instead of his merely being answerable to the Secretary of State for their efficient performance. I cannot help feeling that shared duties of this kind will help no one and could very easily lead to conflict.

I very much hope that the Government will not brush this amendment aside, as they sometimes give the impression of doing, indicating that the arguments are quite light and of little consequence, that they have done a great deal of preparatory work, and that they are wholly convinced that they are right. I believe that the Government would lose nothing in accepting this very simple, clear and helpful amendment. I beg to move.

Baroness Hooper

I hope I am correct in thinking that in moving Amendment No. 63 the noble Lord was speaking also to the grouping which includes Amendments Nos. 64 and 65.

Lord Peyton of Yeovil

Indeed, I mentioned the series of amendments.

Baroness Hooper

I appreciate that in moving these amendments my noble friend Lord Peyton of Yeovil wishes to alter the division of regulatory work between the director and the Secretary of State, by placing a greater proportion on the director. At the same time he aims to reduce the director's independence from the Secretary of State.

The issue of how the various regulatory tasks should be divided between the Secretary of State and the director is complicated. The problem is one of striking the correct balance. My right honourable friend the Secretary of State is answerable to Parliament for his actions, and there may be arguments that he should therefore be directly involved in all or most regulatory decisions. Equally, one could argue that the Secretary of State cannot reasonably be expected to develop the detailed expertise and knowledge of the industry which the director will be expected to acquire. I believe that this is the position being put forward by my noble friend in attempting to place more of the burden on the director.

I believe that we have succeeded in achieving the right balance in Clause 3 of the Bill. Much of the initial regulatory structure reflects the policies put forward by the Government in the White Paper, and it is sensible that these should be carried out by the Secretary of State. Most of the detailed day-to-day regulation will not have any political imperative behind it, and it is proper that the director should carry out this work. Other areas require a combination of the Secretary of State's accountability and the director's expertise, and the Bill already provides that one of them should act after explicitly consulting the other.

On the duties imposed by this Bill, it could cause major complications if the Secretary of State and the director did not have the same duties. It makes better sense for them both to be required to take the same range of matters into account when exercising their functions, which are essentially complementary.

We have already debated Clause 1, dealing with the appointment and possible removal of the director by the Secretary of State. It is important that the director should have sufficient scope to act independently in carrying out his functions under this Bill, guided in particular by his duties under this clause. He should not have to look over his shoulder towards the Secretary of State all the time, but at the same time it is right that he should report his actions to the Secretary of State as the Bill requires, particularly under Clause 48. This indicates the necessary relationships between the two without prejudicing the director's independence. We are therefore building on the experience of gas and telecommunications in making these provisions. Therefore for these reasons I ask my noble friend to reconsider his amendment.

The Earl of Lauderdale

My instinct is to support my noble friend Lord Peyton in this amendment because the regulation of the electricity supply industry is much more complicated than that of telecommunications and gas. Gas has remained a unitary system, whereas this will be broken into a thousand pieces. The regulator is the public's safeguard, on the one hand, and the Government's safeguard, on the other, to ensure that the system runs properly. I believe that the absolute independence of the regulator is critical to ensure public respect for his functions. For that reason, it is most important that his functions should be operated separately from those of the Secretary of State, to whom he will still be responsible and through him to Parliament. The functions should be his own; otherwise the public will not respect him. If he is to be treated as a government stooge, that surely is not what anybody wants. I hope that my noble friend the Minister may be willing to take a further look at this amendment on the basis of establishing public respect for the independence of the regulator.

4 p.m.

Lord Williams of Elvel

I hope very much that the noble Baroness will consider what the noble Lord, Lord Peyton, and the noble Earl, Lord Lauderdale, have said. As the noble Earl pointed out and we and many noble Lords in all parts of the Chamber pointed out on the first day of the Committee, the complexity of running this organisation as it is about to develop is absolutely enormous. There is a major question to which we shall come in the next amendment concerning who at the end of the day bears the responsibility. We believe that it should be quite clearly the Secretary of State who bears the responsibility and the director should be answerable to him. We support the remarks made by the noble Baroness's noble friends and we hope that she will listen to them carefully.

Lord Peyton of Yeovil

My noble friend seems to have missed at least part of the point that I was seeking to make; I am sure that it is my fault. I have no strong views as to which duties should be placed on the Secretary of State and which on the director general. I am merely suggesting that the director general has a herculean task confronting him. I do not believe that it will be made easier for him by the fact that a large number of the duties, particularly those laid down in this clause, are to be shared with the Secretary of State. I believe it is quite sufficient for the director general to be answerable to the Secretary of State who appoints him.

For the life of me I cannot see the objection to the simple proposition, and nor has my noble friend removed from my mind the real danger that if both are setting out to perform the same duties one of two things could happen: both could ignore it or there could be a conflict between them. I hope that my noble friend will agree to look at this point again and not just to say that there is nothing in any of the views which have come from behind her.

Baroness Hooper

I have listened very carefully to the views expressed by my noble friends. I recognise that my noble friend Lord Peyton feels that the task of the director is extremely complex and that he seeks to restructure the relationship between the Secretary of State and the director. But I should like to emphasise that, although the duties are joint, the functions will be separately exercised. I should not like my noble friend Lord Lauderdale to think that they will both be doing the same thing. The independence of the director emerged as an extremely important point in the debate that we had last week on his role concerning consumers. I do not believe it was properly appreciated that the director would need to remain independent in order to carry out that role adequately, and that goes for the other functions as well.

I ask my noble friend to reconsider his amendment and to consider withdrawing it, because we believe that the delicate balance which is necessary in this relationship is adequately finely tuned in the Bill.

Lord Taylor of Gryfe

Like the noble Lord, Lord Peyton, I feel that the Minister should perhaps look at this. This is not a party matter or a matter of principle. It is a matter concerning the structure of a very large industrial organisation in which responsibilities must be clearly defined. In the circumstances I should have thought that the noble Lord is trying to be helpful to the Government in seeking to have a clear definition of these responsibilities such as we should demand in any public company of this kind. I hope that the Minister will respond.

Lord Peyton of Yeovil

I am grateful to the noble Lord, Lord Taylor, for his accurate paraphrasing of my position. I am most disappointed by this attitude which always persists. It costs nothing for the Government to say that they will have another look at something to see whether they have it wrong or whether there is something in the views which have been expressed. In the circumstances I should like to take the opinion of the Committee.

Baroness Hooper

In view of the pleas expressed from all sides of the Chamber—although I see no real possibility of changing our views, because in our view my noble friend's amendment drives a coach and horses through the Government's proposals—I am prepared to take it back, to look at it again and to read the comments that have been made. However, that must be an agreement without commitment.

Lord Peyton of Yeovil

If I may make this rejoinder, if this modest amendment is really such as to drive a coach and horses through the whole fabric of the Government's proposals, they must be even more flimsy than I suspected. It is not my intention to be churlish. My noble friend has gone a very small step of the way, but I hope that if I withdraw the amendment she will understand that there are considerable anxieties about the Bill and they are not laid to rest by the reiterated statement from the Front Bench: "We are right and you are wrong". I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 64 and 65 not moved.]

Lord Williams of Elvel moved Amendment No. 66: Page 2, line 38, leave out ("he considers").

The noble Lord said: For the convenience of the Committee, I shall also speak to Amendments Nos. 67 and 80. These amendments are designed to solve the problem of who at the end of the day is responsible for the security of supply of electricity.

Members of the Committee may remember that when we debated the disposal of radioactive waste the noble Lord, Lord Nelson of Stafford, said quite clearly—and many Members agreed with him—that if the lights went out it would not be the public electricity suppliers (alias the area boards) which would be responsible but the Secretary of State whose head would be on the block. I believe that to be absolutely true. If it is true, it is sensible that the legislation should reflect that position.

At the moment—that is, before privatisation and while the Bill is before this Chamber—the responsibility for the security of supply of electricity in England and Wales rests with the Central Electricity Generating Board. It is clear that there can be no security of supply without security of generation. I follow the point made by the noble Lord, Lord Renton, on the first day of Committee in drawing a distinction between supply and generation. There can be no security of supply without security of generation. Clearly any supplier who does not have the electricity to supply cannot assure security. Therefore at the moment the CEGB in England and Wales has that responsibility and it has fulfilled it adequately for long periods

Assuming that the Bill is enacted in its present form we shall see the CEGB broken up and other generators—perhaps private generators, industrial companies and area boards—coming into the business of generating electricity. Therefore there will be no single authority for England and Wales which will be responsible for generation. Therefore there can be no onus on anybody to supply electricity on a continuing basis; in other words, to ensure the security of generation.

The Government seek to lay the responsibility on what are known at present as the area boards and will become public electricity suppliers. We believe that there are two reasons why that arrangement will not work. The first is that area boards—and I persist in calling them that for ease of reference rather than using the clumsy expression "public electricity suppliers"—have no expertise at present in calculating the demand for electricity in their area. They have never done so and at the moment there is no evidence to show that they are capable of doing so.

If Members of the Committee care to visit various installations of the Central Electricity Generating Board, including the national control centre, they will find a great deal of scepticism about whether the area boards are capable of estimating electricity demand in their area, let alone estimating what may be happening in two or three years, or the effect of private generation or industrial customer opting out of the area boards' service. Therefore there: is a doubt about whether there is a capacity in the area boards' system, leaving outside that doubt the question of whether it will be an integrated system in the sense that we now have it.

The second reason we believe that area boards should not be left with the responsibility arises because of the responsibility of the national grid. The national grid is quite aware of the system which it must operate post-privatisation. If Members of the Committee care to visit the national control centre at Bankside they will be told in no uncertain terms that the grid will believe it to be its responsibility to make sure that it can satisfy the demand for electricity and can supply electricity to area boards, whatever area boards may do or say in the future. So it will be second guessing the area boards; and, in my view, quite rightly.

If in practice it is to be the grid which will assure the security of supply and the grid is owned by the area boards, them, to use an American expression, "Where does the buck stop?". It appears to us to be important that the buck should stop with the Secretary of State.

At a later stage of the Bill we shall be advancing amendments concerning the ownership of the grid and other pieces of the complex puzzle which the Government have put before us. I shall not anticipate those amendments. I simply wish to put forward the argument that the real responsibility for security of supply is with the Secretary of State. That is the case in England and Wales and also in Scotland. I do not believe that it is right for legislation to be framed which will remove that responsibility from the Government.

I recognise that my amendments as drafted are not necessarily perfect. I am not a draftsman, as I have said, and there may be imperfections. However, I hope that the thrust of the amendments is absolutely clear. It is that at the end of the day the Government must bear the responsibility for supplying demands for electricity. I beg to move.

4.15 p.m.

The Earl of Lauderdale

Is the noble Lord moving the two amendments and can we discuss them both?

Lord Williams of Elvel

I thought I had made it clear that I was speaking to Amendments Nos. 66, 67 and 80.

Baroness Hooper

The grouping list which I have also includes Amendment No. 78.

Lord Williams of Elvel

Yes; the noble Baroness is right. It was the object of certain negotiations which took place this morning. Amendment No. 78 relates to a somewhat different point. Nevertheless, it eliminates the judgment from the Secretary of State by leaving out the words "he considers".

Viscount Hanworth

I cannot see how the area boards can possibly be completely responsible for the continuity of supply. They must rely on the grid. The only other alternative would be for them to have their own power stations. If they did so there would be bound to be a duplication and an unnecessary number of power stations. Furthermore, in doing so they would have to raise capital from the City which they may or may not require.

The Government must come to terms with the issue. Are they going to say that the area boards will have a contract with the grid to supply them up to a certain amount and therefore shift the responsibility contractually on to the grid? That is the only way in which I can see it occurring. Please may we know the answer?

Lord Renton

The four amendments deal with separate points. I do not complain about their being grouped together because it may save a little time and effort. However, it means that one must deal with them separately when addressing Members about them.

Amendment No. 66 leaves out the words "he considers". I agree that as an old lawyer I am becoming a little rusty. However, subject to correction, I believe that that provision could have the effect of opening up judicial review whenever there was a complaint—however small, great, difficult or technical—about the matters referred to in Clause 3(1).

Some Members of the Committee may believe that the time of the courts and the expense of litigation should be incurred in examining all such issues and that we should pass the buck to the judiciary. I do not happen to feel that way. I think it is right that the Secretary of State should have the responsibility and be answerable to Parliament for exercising it in respect of these matters.

The next amendment seeks to delete the word "reasonable" from the subsection (1 )(a) which would make it read: to secure that all demands for electricity are satisfied"; that would mean however unreasonable those demands were. I really do not believe that on reflection the noble Lord, Lord Williams, would wish to press that to a Division. I hope that he will hear me out before he interrupts. One could multiply the examples when a demand might be unreasonable, especially if it were expected to be met at very short notice.

Let us take, for example, somebody living on a remote island who, for his own domestic purposes, has a low-voltage cable running under the sea to connect him to the supply on the mainland. Let us suppose that he suddenly says, "I am going to convert my small island into a major leisure resort. I demand. that, forthwith", whatever that may mean, "I am given a high voltage supply to this island". That may cost a vast amount of money; it may not be feasible because of wind and tide and may simply be unreasonable.

Lord Williams of Elvel

Perhaps I may save the time of the Committee and the noble Lord. He is arguing like the distinguished lawyer that he is. I am not a draftsman. As I said in my introduction, I do not wish to press these amendments as amendments to the Bill. If he likes to take Amendment No. 80, he will see that the principle is firmly stated. I am arguing the principle and not necessarily that the words of the amendment are, in their true form, ones which I would wish to press.

Lord Renton

I am relieved to hear that that is so but in that case I wonder why we are having this sort of debate.

Lord Williams of Elvel

With great respect, we are having this debate in order to establish why the Government believe that the responsibility for security of supply should not rest with the Secretary of State.

Lord Renton

One could discuss that on clause stand part, and that is a very compendious way of doing it.

Perhaps I may just quickly refer to Amendment No. 68 on safeguarding the interests of consumers. There are all sorts of provisions in the Bill which do that. I do not believe that the Government will have any difficulty in satisfying the noble Lord on that point. On making supply the sole responsibility of the Secretary of State, the noble Viscount, Lord Hanworth, has already dealt with that and has pointed out that we should be rather careful about how we regard the responsibility for supply.

The Earl of Lauderdale

Security of supply is an absolutely key issue. When we read in the Bill that that is to be limited by the word "reasonable", goodness knows how that word could be interpreted. There may be a case where thanks to the follies of this Bill, we are short of generating capacity, it is expensive to import from France and in a hot summer a paternal government invites people to turn off their air conditioning because it is unreasonable, despite the heat of the summer, to overload the system. That is what we should avoid.

The system must be absolutely reponsible for the security of supply. The Government have qualified it in this extraordinary way. I do not know what "reasonable" means. I doubt whether the lawyers do, although my noble friend is a very reasonable man himself. I find great sympathy with this group of amendments, particularly as regards the terrifying word "reasonable" because that cuts into the absolute security of the supply, which we must have.

The Earl of Dundee

With the leave of the Committee, I shall also speak to Amendments Nos. 67, 78 and 80. The wording at the beginning of subsections (1) and (3) of Clause 3 places on the Secretary of State and the director a duty to exercise his functions under Part I of the Bill in the manner which he considers best calculated to secure the general duties which follow. The noble Lord wishes to remove the words "he considers" from these subsections.

I hesitate to say to the noble Lord, Lord Williams, that the wording at the beginning of subsections (1) and (3) of Clause 3 is well precedented. We had discussions on whether it was a good thing that matters should be well precedented on the last Committee day but I believe that the noble Lord would agree, if there is good reason for the precedent, that there is no point in removing it. It is identical to the wording in Section 4 of the Gas Act 1986, to the wording in Section 3 of the Telecommunications Act 1986 and is similar to the wording in Section 2 of the Fair Trading Act 1973. As far as I am aware, this language has not given rise to problems of interpretation, nor has it brought into question the way in which Secretaries of State and directors have carried out their duties.

I am also hesitant about embarking on a debate on semantics. However, it seems to me that the present wording accurately conveys what will happen in practice; namely, that the Secretary of State and the director, in exercising their functions under Part I of the Bill, will each have to consider how these functions can be exercised to fulfil their general duties set out in subsections (1) and (2).

It may be that the noble Lord is concerned lest the present wording allows the Secretary of State and the director too much latitude in interpreting their duties. If this is the anxiety, perhaps I can set these fears to rest by pointing out that persistent or significant failure by the director to act i n accordance with his duties might constitute misbehaviour, which is one of the grounds in subsection (3) of Clause 1 which would enable the Secretary of State to remove a director from office. Indeed, failure by the Secretary of State and the director to act in accordance with a reasonable interpretation of the opening passages to subsections (1) and (3) could lead to their acts being challenged by way of an application for judicial review.

I hope that in the light of my remarks in regard to the first amendment, the noble Lord will feel reassured.

The second amendment, Amendment No. 67, seeks to leave out the word "reasonable" in Clause 3 at line 39. Subsection (l)(a) of Clause 3 requires the Secretary of State and the director to exercise their functions in the manner each considers best calculated to secure that all reasonable demands for a supply of electricity are satisfied.

Under Clause 16 of this Bill, all owners or occupiers will, for the first time, benefit from the same right to require the public electricity supplier for their area to give them a supply of electricity. At present only those within 50 yards of a main can require an area board to provide a supply.

This will mean that the public electricity supply companies will be obliged to meet all requests on reasonable terms, if it is technically practical. Any dispute over the terms offered can be referred to the Director General of Electricity Supply for a determination which will be final and binding. If the director decides that a breach of the obligation to supply has occurred, he will be able to make an order requiring the company to comply with the obligation, and to take proceedings to enforce that order if necessary. All these provisions are important and the new measures will benefit consumers greatly.

The noble Lord's amendment wishes to delete the word "reasonable" in subsection (1)(a) of Clause 3. I believe it is more "reasonable" to retain it. I am sure the noble Lord would be the first to acknowledge that it would be impossible to require a public electricity supplier to supply electricity when external circumstances prevented him from doing so. For instance, when we had the hurricane in October 1987 which devastated so much of the South East, considerable damage was done to the boards' transmission and supply lines. Many consumers were cut off, in many cases for several days, and in some cases for several weeks. But we know of the tremendous efforts made by the boards to get consumers' supply back on as quickly as possible. If this amendment were to be passed the Secretary of State and the director might be held to have failed to secure that all demands for electricity are satisfied even though to do so would be beyond the powers of man. Therefore, I ask the noble Lord to look again at his amendment.

I come now to the amendment which the noble Lord, Lord Williams addressed first. While I certainly agree with the noble Lord that the Secretary of State should play an important role vis-à-vis the continuity of electricity supply, I do not think it is right that he should discharge this role to the complete exclusion of the Director General of Electricity Supply.

The Director General of Electricity Supply, who will head the Office of Electricity Regulation, will have a statutory duty under this clause and this subsection of the Bill to protect consumers' interests. In carrying out this role he will monitor the whole spectrum of activities associated with electricity generation, transmission and supply. This will include not only prices and other terms of supply but also the promotion of the efficient use of electricity and the quality of electricity supply services provided. I believe it is wholly right that the director in exercising his duty to protect consumers' interests should also monitor the continuity of supply. Consumers can only benefit from such a measure and I am sure the noble Lord does not wish to erode in any way the benefits which consumers will gain as a result of the provisions of our Bill.

This amendment would undermine the specific roles rightly accorded to the director in relation to the continuity of supply. Under the licences the director is responsible for, among other things, ensuring that public electricity suppliers have proper forward plans for contracting adequate capacity. He is also responsible under the Bill for implementing standards of performance to be achieved by public electricity suppliers and—perhaps most fundamentally—for ensuring that public electricity suppliers meet their basic obligation to supply. The director has powers under Clause 25 of the Bill to ensure that these licence conditions and statutory requirements are fully met by licence holders.

As I have already said, I agree with the noble Lord that the Secretary of State should play a role—indeed, a pivotal role—in ensuring that security of supply should be maintained. However, as I have mentioned, I cannot agree that the director should play no part in this, given his general duty to protect consumer interests. Moreover, the Bill as presently drafted places a duty on the Secretary of State and the director to protect the consumers' interests in respect of the continuity of supply. I am sure the noble Lord will appreciate that there is a noticeable difference in nuance between the word "duty" in the Bill and the phrase "sole responsibility for" in the amendment. I venture to say that I believe the Bill has got the balance right in the drafting of this clause and I should not be happy to see this balance eroded as a consequence of this amendment.

4.30 p.m.

Viscount Hood

My noble friend Lord Lauderdale has already said that supply is basic to the requirements of the Bill. I entirely agree that the Secretary of State cannot be made solely responsible for the continuity of supply. That initially must rest with the area companies, which will contract with generating companies to supply power. However, I ask the Minister what will happen if, for reasons of finance or otherwise, the area companies are unable to secure from privately owned generating companies the power that they require.

Lord Howie of Troon

The Minister used the word "nuance" towards the end of his reply. That is perfectly correct. It is clearly difficult to impose an absolute duty to supply, important though that might be, on all occasions. The noble Lord, Lord Renton, referred to people in distant places and the difficulty of supply them, but something could be done marginally using windmills, diesel generators, and so on. Surely it is not impossible to deal with those situations. In any case, they ought to be considered.

The thought struck me that perhaps the Minister could nudge himself a little towards my noble friend. The word "reasonable" is, we know, difficult to define and in a sense provides a field day for lawyers. Would it not improve matters a little if we replaced the notion of something being reasonable with the notion of something being not unreasonable? I do not want to sound as though I am pin-pricking, but there is a nuance, a difference, because the onus of proving that something is reasonable is very difficult but it is different, in essence—and perhaps better from my noble friend's point of view—from proving that something is not unreasonable.

A movement by the Government in that direction would be welcome. It is not my business, speaking off the cuff, to try to rewrite my noble friend's amendment or the Government's response to it, but there is some merit in what I say. The difference between reasonable and not unreasonable may be minute to a lawyer but it is distinct to a layman.

The Earl of Dundee

In response to the noble Lord, Lord Howie of Troon, I should be loath to find that the Government were in the position that if they did not budge on the question of reasonable they were to be considered unreasonable.

I remember the interesting debates on the Copyright, Designs and Patents Bill, in which the noble Lord, Lord Howie, played a useful part, when we had this kind of debate. However, everybody—I shall not say reasonable men—is more or less agreed on what reasonable means. As I said in my earlier remarks, if we deleted the word "reasonable" in this case we would get into the likely difficulty in the case of a catastrophe where there would be objections if electricity is not supplied and the Secretary of State and the director would be said to be failing in their duties.

Lord Howie of Troon

Before the Minister leaves that point, I remind him that on the copyright Bill, to which he alluded a moment ago, the great difference between the debates then and the debates now, and on other Bills in the more recent past, is that throughout the debates on the copyright Bill the Government Front Bench, including the noble Earl, was extremely reasonable. The Front Bench then listened to reason and came back with reasoned amendments based on the arguments put forward. The Front Bench seems to have slipped back from that happy condition of 12 or 18 months ago.

The noble Earl enjoyed the debates on the copyright Bill as much as we did on this side of the Committee. If he were to approach this Bill in the same reasonable manner in which he approached the copyright Bill we would arrive at some sort of consensus which would be of advantage to the Committee and, no doubt, to the nation in the long run.

The Earl of Lauderdale

Perhaps I may ask my reasonable noble friend to be not unreasonable.

The Earl of Dundee

I thank my noble friend Lord Lauderdale. I am grateful also to the noble Lord, Lord Howie, for being so kind about our procedures on the copyright Bill. I hope that by the time we reach the end of this Committee stage he will feel, if not from his point of view at all times, that in the majority of cases the Government have been as reasonable as they can.

In response to my noble friend Lord Hood, who asked about insufficiency of supply, I can say that the area boards can generate for themselves in the unlikely event that there might not be enough willing generators.

Baroness Seear

The noble Earl said that it would be impossible to accept the amendment because there could be some ghastly catastrophe so that it would not be possible to supply electricity. Is it not possible to insert a saving clause about acts of God intervening or a matter which could not be foretold? That would be a let-out and would provide an excuse if the whole system blew up and it was not possible to provide electricity. We are not referring to such eventualities but to these maddening interruptions of supply which are not an act of God but just the result of, as was said on another occasion, the inactivity of the Government.

Lord Harmar-Nicholls

Before my noble friend answers that point, the example given by my noble friend Lord Renton is certainly not an act of God. He referred to the man on a lonely island who does not want the great power, who decides to turn the place into a leisure centre and who could demand, irrespective of the effect it would have on costs for the area, to get it. There is no act of God there. It is the act of an individual who wants to improve his financial position in the world. I think that in answering the noble Baroness the Minister should take into account what my noble friend has said.

Lord Trafford

Before my noble friend rises to make another comment, is not the Committee itself being a little unreasonable? The term "reasonable" is frequently used in legislation. It was used in the housing legislation, in the Legal Aid Bill and in the Gas Bill. It has been used constantly, and everybody knows what it means even if it is difficult to define. The noble Lord, Lord Howie, asked why we should not use a phrase with a different nuance, that is "not unreasonable". Unfortunately, that is not logical. If something is not reasonable, it is unreasonable. If it is not unreasonable, it is reasonable. There is no way round that sort of semantic proposition. It is not the same as saying, "not less than" because "not less than" could mean two things: more than or the same. That is not so with "reasonable".

We have heard examples of how the suggestion that a connection and a supply must be reasonable could be abused. We do not really expect that it should be abused, but we know that there are people who would use every loophole of legislation, one of the reasons being, perhaps, to make a profit. I can well foresee how the leisure island off the west coast of the Hebrides that my noble friend Lord Renton envisaged could be a very profitable undertaking if the electricity had to be supplied, reasonably or unreasonably; but there are other situations in which one could get into quite a turmoil.

The word "reasonable" has been used constantly with regard to housing, rent and legal aid. Incidentally, if the noble Lord, Lord Howie, or the noble and learned Lord, Lord Williams, wants to study this matter, the phrase "fair and reasonable" resulted in a considerable number of judicial and legal interventions as to what that meant when we were discussing lawyers' fees. Of course, there were different views as to what was reasonable, as might be expected; but let us say that the discussion was not unreasonable. So if the noble Lord wishes to study the meaning of the phrase in terms of legislation, it could be found there.

However, it seems to me that we are not going to get very much beyond leaving it as it is without inviting a great deal of confusion for the courts, for the utility companies, and indeed for the Government.

Viscount Hanworth

I raised a question as to how the area boards could be responsible for supply. I suggested that they would have a contract with the grid or one of the national power generators. But that may break down. If they are to cover themselves completely they would have to have their own stations, and possibly considerable duplication. Could the Minister say what is the intention of the Bill concerning that situation?

Lord Hughes

I have just been warning my noble friend that he may not regard this intervention as helpful, but I was once a member of the North of Scotland Hydro-Electric Board. We had a request, sponsored by the late Sir David Robertson, for the supply to somebody who was in such a remote district that it would be ruinously expensive to the board. The finance director of the board offered a solution which he thought would be reasonable: he said "Let us buy him a bungalow in Inverness which already has electricity".

Lord Williams of Elvel

I do not know whether the noble Earl wishes to say any more, but we have had quite a long debate on the subject. I would argue that there are two points which are outstanding. I am not concerned about whether the Secretary of State and the director should be open to judicial review or not. I am quite happy that if we leave out "he considers" that should lay them open to judicial review. I think that is perfectly reasonable, but I leave that aside.

The two major points in the debate seem to me to revolve first around the word "reasonable" in terms of reasonable demands for electricity; and secondly to revolve around the role of the Secretary of State. The difference between ourselves and the Government on the word "reasonable" is that we do not quite understand what it means in spite of the explanation of the noble Lord, Lord Trafford, that it is used in legislation frequently. I should have thought that some better formulation would be more appropriate; but I simply leave that on the table because I join with the noble Earl, Lord Lauderdale, in thinking that "reasonable demands" gives a let-out, which is unsatisfactory.

Secondly, on the role of the Secretary of State, the difference between the noble Earl and myself is that he regards the Secretary of State has having a pivotal role, and that he should monitor and do other things of that nature. I regard the Secretary of State as being ultimately responsible. He should be ultimately responsible for the security and continuity of supply.

However, we have had a long discussion on the subject. Many noble Lords have contributed, and I am most grateful. We shall obviously read carefully what the noble Earl has said, think about it and decide whether we shall come back at a later stage. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 67 not moved.]

4.45 p.m.

Viscount Hanworth moved Amendment No. 68: Page 2, line 39, at end insert—("( ) to safeguard the interests of consumers;").

The noble Viscount said: I think it might be convenient if I speak to Amendments Nos. 68 and 69, which I can do fairly briefly.

Baroness Hooper

I am sorry to interrupt the noble Viscount, the grouping which I understood was agreed on this is Amendments Nos. 68, 80A and 81A.

Viscount Hanworth

I realise that, and perhaps that prevents my speaking on the other one, but the point is much the same.

Clause 3(1) states: The Secretary of State and the Director shall each have a duty…(a) to secure that all reasonable demands for electricity are satisfied; (b) to secure that licence holders are able to finance the carrying on of the activities which they are authorised by their licences to carry on; and (c) subject to subsection (2) below to promote competition in the generation and supply of electricity". My amendment adds to those safeguards the interests of consumers.

I shall just add (although I cannot speak to both but nevertheless I will do so to this extent) that Amendment No. 69 promotes environmental protection and enhancement in the same paragraph. I beg to move.

Lord Williams of Elvel

I too shall speak to Amendments Nos. 68, 80A and 81 A. Perhaps I may concentrate on Amendments Nos. 80A and 81A which are amendments in my name.

We must understand that electricity suppliers do not simply offer electricity; it is not just a question of supplying electricity. There are services which are very closely associated with electricity supply such as meter reading and billing. In fact, those services could quite easily be contracted out. There is no reason at all why future area boards should not contract out such services. For instance, gas and electric meters could be read by the same organisation, as they are in France. That is a perfectly reasonable and sensible way to go about things.

The third type of service is incidental to the main business of supplying electricity, that is repairing appliances or selling appliances. Those services are not statutory monopolies and in such cases the area boards or public electricity suppliers will be in competition with other organisations. They will have to compete in the market in the normal way. However, Clause 3(3) restricts the director general to considering matters to do with the quality of the electricity services provided. We appreciate the logical case for this in the context of the Bill, but we want to know what control there will be on future public electricity suppliers in those services which are not directly related to or are not precisely electricity services. When the noble Baroness comes to respond to the amendment perhaps she will define for me exactly what an electricity service is. That is part of the problem.

Amendment No. 81A is similar to Amendment No. 80A. I do not wish to dwell on it. This is all part of the business of trying to ensure that the director general is responsible for services which are rendered to the consumer. That is why it is grouped with Amendment No. 68, standing in the names of the noble Lord, Lord Ezra, and the noble Viscount, Lord Hanworth. They come together as a package. It is in that spirit that I wish to support both the noble Viscount and the need for our amendments along the same lines.

Baroness Hooper

These three amendments concern consumer interests and these are important duties. Perhaps I may deal first with Amendment No. 68, which was moved by the noble Viscount, Lord Hanworth. Clause 3( 1 )(a) requires the Secretary of State and the director to exercise their functions in the manner which each considers to be best calculated to protect the interests of consumers of electricity supplied by persons authorised by licences to supply electricity. They do this in three respects: first, in respect of the prices charged for electricity consumed by them and the terms on which the electricity is supplied; secondly, in respect of the continuity of the supply; and thirdly, in respect of the quality of the electricity supply services provided to them.

These are important duties. They will enable the Secretary of State and the director to include in supply licences provisions about the prices charged by suppliers to their consumers and about the terms and conditions under which they supply their consumers. As concerns continuity of supply, under Clause 16 for the first time all owners or occupiers will benefit from the same right to require the public supplier for their area to give them a supply of electricity. At present, as noble Lords will know, only those within 50 yards of the main can require their area board to provide a supply. This will mean that the public electricity suppliers will be obliged to meet all requests on reasonable terms if it is technically practicable.

If the director decided that a breach of the obligation to supply had occurred, he would be able to make an order requiring the company to comply with the obligation and to take proceedings to enforce that order if necessary. As regards the quality of the supply services provided, this means matters such as easy-to-read meters. The Committee will notice that Clause 3(4) provides a new safeguard for the elderly and the disabled by placing a specific duty on the director to consider particularly their needs in respect of the quality of electricity supply services provided. This is further reinforced by condition 16 in the draft public electricity supply licence which requires the licensee to produce a new code of practice specifically aimed at the elderly and disabled.

The code of practice will cover special services available to these groups, including such matters as the use of special controls for electrical appliances and meters. In preparing this code of practice the public electricity supplier will have to consult the appropriate consumers' committee and must then submit it to the director for approval. The director will be able to call for review of the code and its operation by the licensee. I hope that this shows that the Government are determined to protect consumers' interests after privatisation. In many respects the Bill marks a new beginning for consumer protection in the electricity industry.

Perhaps I may turn to the amendments proposed by the noble Lord, Lord Williams. I should like to explain a little further his point about the quality of electricity services. As he said, this relates to matters such as responses to customer complaints, metering, meter reading services, the placement of equipment, efficient maintenance of the system and the provision of adequate supplies of token dispensers. As such it probably covers a considerable number of the services about which the noble Lord is concerned.

As the Committee will be aware, the imposition of this duty under Clause 3 is not all that the Government are doing to protect the interests of consumers. Under Clause 38 the director will put into effect the Government's radical new proposals to provide domestic customers with compensation if the public electricity suppliers do not meet certain standards of performance in the provision of electricity supply services. This will be supplemented by standards of overall performance which the suppliers will be expected to meet in areas of supply service where the payment of compensation is perhaps not appropriate. I am sure that we shall be debating these clauses in more detail when we come to them. However, I can assure the Committee that they add up to an important new package of rights to protect the position of the consumer in the privatised industry.

Even in relation to Amendment No. 81 A, I cannot go further than that except to say that in discharging their functions under Clause 3 and elsewhere in the Bill the Secretary of State and the director will be fully aware of their responsibility to promote efficiency and economy in all areas of the industry's activities. On this basis I trust that the Committee will feel that we have aired this matter adequately and that the noble Viscount will feel able to withdraw the amendment.

Viscount Hanworth

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Viscount Hanworth moved Amendment No. 69: Page 2, line 39, at end insert— ( " ( ) to promote environmental protection and enhancement;").

The noble Viscount said: I have already mentioned this amendment. It seeks to make one more addition to the duties of the Secretary of State and the director which I read out in moving the previous amendment. It adds a requirement to promote environmental protection and enhancement. I beg to move.

Lord Williams of Elvel

I believe that we shall have a more substantial debate on Amendment No. 75, which stands in the name of the noble Lord, Lord Renton, and so I shall reserve my comments on the environment for that amendment.

Lord Renton

That is very courteous of the noble Lord. I am perfectly happy that we should have our main debate on Amendment No. 75.

Viscount Hanworth

In that case, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Viscount Hanworth moved Amendment No. 70: Page 2, line 40, leave out from ("are") to ("and") in line 42 and insert ("technically and financially competent to comply with the terms of the operating licences").

The noble Viscount said: The rewording of the Bill would add to the requirement that a licence holder should be financially viable, that he should have technical competence, which seems a reasonable thing to require. I beg to move.

Lord Williams of Elvel

I should like to support the noble Viscount in his Amendment No. 70. For the convenience of the Committee perhaps I may also speak to Amendment No. 71, which stands in my name. I think that these amendments are self-explanatory. It is of vital importance that public electricity suppliers are not only technically and financially competent, but also that they do not involve themselves in financial techniques which are dubious in order to keep themselves alive.

On Second Reading I mentioned the possibility that there would be a number of area boards—as I persist in calling them—which would get into financial trouble, should their industrial customers opt out on a large scale. I think that I cited the instance of the South Wales Electricity Board which relies in large measure for its profits on the industrial customers of South Wales.

If a public electricity supplier, now privatised, suffers the penalties associated with contracting out by industrial customers, then one can see it struggling to keep alive. It is that struggle to keep alive which we are interested in in these amendments. We very much hope that such suppliers would not be allowed to engage in some of the rather dubious practices in which other companies have been engaged; for example, sale and lease-back, leverage buy-outs, over-indebtedness and other such practices which we have seen over the past few years.

Therefore the point of the two amendments is broadly the same. My amendment is exploratory and I should like to receive some comfort from the noble Baroness that the director will be keeping an eye on the financial competence and indeed the financial propriety of the companies under his supervision.

5 p.m.

Baroness Hooper

Clause 3(1 )(b) is well precedented. There are in fact similar provisions in the Gas Act and in the Telecommunications Act. As regards Amendment No. 70, the noble Viscount, Lord Hanworth, was concerned lest cowboys should receive licences. I should also be concerned if I thought that that was a real danger. However, I do not really think that it is.

The duties of the Secretary of State and of the director under Clause 3(3)(a), to protect the interests of consumers", in respect of "the continuity of supply" and, the quality of the electricity supply services", will also mean that only technically competent people will be licensed in the first place. The present wording of the clause will allow the director to check the financial credentials of a potential new entrant and to bear in mind that entrant's future viability.

I believe that the present wording meets the need to ensure competence. Therefore in that case I believe that the amendment is really not necessary. Moreover, I think in part that responds to the point raised by the noble Lord, Lord Williams of Elvel, especially as regards Amendment No. 71.I say that because the duty under Clause 3(1 )(b) means that in exercising their functions the Secretary of State and the director must take ino account the ability of the licence-holders to finance the activities that they are

licensed to carry on. Obviously reliance on unsound money or on dubious financial techniques would not be evidence of such ability, but very much the reverse. Therefore the licence would not be issued in the first place.

Lord Williams of Elvel

I understand that that may be the case in the issuance of the licence. However, what happens if during the currency of the licence a public electricity supplier engages in one of the little tricks which I have described? Does the licence then fall, or is it revoked? What happens under such circumstances?

Baroness Hooper

For the reasons which I have given, I believe that the actual or potential insolvency of a licensed successor company is of the remotest possibility. However, in the case that the contingency should arise, then of course normal insolvency law would apply as it would to previously privatised industries such as British Telecom and British Gas.

Lord Williams of Elvel

With all due respect to the noble Baroness, I am not talking about insolvency—although we could get to that subject. I am talking about the position between total financial health and insolvency. There is a large grey area there whereby companies may wish to finance themselves, or attempt to try to get themselves out of a financial hole, by the use of dubious financial techniques which are fairly well known by people who operate in this business.

I wonder whether the director—perhaps the noble Baroness will guide me on this point—has any power to vary the licence, or revoke the licence, should he discover that a public electricity supplier has got itself not into an insolvency situation but into a situation where it is of dubious financial status.

Lord Taylor of Gryfe

I wonder whether we are perhaps moving into an entirely different area here. I should have thought that some of the anxieties expressed by the noble Lord, Lord Williams of Elvel, are covered by existing oversight under the Financial Services Act 1986, under the provisions of the Office of Fair Trading and other organisations which take a lively interest in dubious financial transactions.

I wonder just how one might incorporate the phrase "dubious financial transactions" in this Bill. It is a very difficult phrase. I should have thought that the existing provisions protecting shareholders, for example, might be applied in respect of any company where there is a dubious financial transaction and that the board of the new organisation would be held responsible.

Baroness Hooper

1 am most grateful to the noble Lord, Lord Taylor of Gryfe, because there are of course general external safeguards which would apply equally to the public electricity supply companies. However, in addition the director will monitor the company's behaviour; indeed, that is one of his duties. If necessary he could take the company, for example, to the Monopolies and Mergers Commisson or to some other external body as may be appropriate.

Lord Peston

Perhaps I may intervene here for just a moment. I should remind the noble Baroness that the amendment is actually about financing techniques; it is not about some of the other matters which she has just mentioned. Further, I wonder whether she would like to take this opportunity to clarify more generally the issue of licences. I thought earlier, when the noble Earl, Lord Lauderdale, said that the licences could be easily changed, that I heard the noble Baroness say that that was not the case and that they would be very hard to change. Perhaps she will confirm what I think I heard her say.

An interesting question on licences, which relates to my noble friend's amendment, is that, as I understand it, any of the privatised companies will eventually become ordinary companies in the market and may be bought by other interested people. However, what is not clear is whether by buying the company one also buys the licence; in other words, whether the licence in some sense belongs to the company.

I had intended to raise that question at a later stage; but I think that this might be a convenient heading under which to raise the issue. What does one get when one receives a licence? This is not unrelated to the dubious financing techniques question because, without being as critical as some of us are of some aspects of private enterprise, one occasionally comes across companies the behaviour of which is dubious. It is not inconceivable that a company, the behaviour of which is dubious, might care to bid for one of the electricity companies. It would be interesting to know if such a company were to bid successfully for one of the electricity companies whether it would receive a licence and whether in such circumstances there is no control left.

The amendment is by no means as minor as it might seem. Moreover, I do not think that the issue is necessarily covered by existing legislation. I should certainly like to know the Government's answer to that question. I have joined the debate now, although I intended to raise the matter later in connection with one or two other amendments, because I believe that the answer would be worth knowing at this stage.

Baroness Hooper

I recognise the point of the suggestion made by the noble Lord, Lord Peston, that we should start dealing now with matters which we would naturally be dealing with at a later stage of our discussions on the Bill. However, if it is agreeable to Members of the Committee, I should prefer to leave such detailed discussion until that time.

Perhaps I should say that it will certainly not be easy to change the licences, as I said earlier to my noble friend Lord Lauderdale in relation to a different point. The point of submitting the matter to the Monopolies and Mergers Commission, for example, would be to obtain a new licence condition preventing the company from adopting unsound financial techniques. That is the safeguard that is built in. These are to be plcs with all the duties and obligations that that means. In view of the director's ability to monitor the way that a company is operating, there will be plenty of scope for remedial action to be taken without disadvantage to the consumers and the customers.

Viscount Hanworth

I am not completely satisfied with the answer that has been given. Nevertheless, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 71 not moved.]

Lord Williams of Elvel moved Amendment No. 72: Page 2, line 43, after ("promote") insert ("reasonable").

The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 76 and 77. Amendment No. 72 seeks to introduce a measure of qualification into the general duty to encourage competition or to "promote competition" in the words of the Bill. Amendments Nos. 76 and 77 have a different formulation but seek in one way or another to ensure that the duties spelt out in Clause 3(3) to protect the interests of consumers rank pari passu with the duties in subsection (1).

We accept that the Government have set out to promote competition as an objective. Whether we believe that the Government will succeed is another matter. We accept however that that is the objective. But it seems to us that it is unnecessary and undesirable to give competition, and the objective of promoting competition, an overriding place above the interests of the consumer.

The Bill places duties on the Secretary of State and the director general to protect public safety, to protect the consumers' interests and to ensure the continuation of health and safety advisory machinery which has played an important role. Those duties are welcome. Nevertheless, as the Bill stands, they can conflict with the duty to promote competition. It is the duty to promote competition which will override the secondary duties under subsection (3). That is different from Section 4(2) of the Gas Act which gives competition and public safety equal emphasis.

Amendments Nos. 76 and 77, whichever formulation is used, achieve exactly that and put the Bill on the same footing as the Gas Act. We believe that that is the right way to proceed. I hope that the Government will feel sympathetic towards the proposal. As the Bill stands, there is an anomaly which we should like to see corrected. I beg to move.

5.15 p.m.

Baroness Hooper

In relation to Amendment No. 72, I should explain how our proposals will encourage competition in generation and supply. By competition in generation, I am not talking merely about the competition between National Power and Power Gen, the two companies which will inherit the generating capacity of the CEGB. Our proposals will open up exciting new opportunities for independent private generators and will give all types of generator new rights to put them on an equal footing with the successors to the CEGB and the area boards. There are already nearly 20 proposed independent power-generation projects which will amount to some seven gigawatts of electricity. Our proposals will enable public electricity suppliers to attract supplies from a wide range of competing generators; for instance, they will be able to contract for supplies from Power Gen, National Power, new private generators, Scotland or France, and they will be able to generate some electricity for themselves. They will have to generate efficiently or be penalised by the licensing regime through the price control mechanism.

Our proposals will oblige public electricity suppliers and the National Grid Company to allow others to use their networks on transparent and non-discriminatory terms, with the director settling any disputes. That again will help newcomers to the generating field. The licensing arrangements will ensure that the domestic customer receives the benefits of greater competition in generation and supply and the downward pressure on costs which that will exert. Heavy users, in particular, will find it useful to be able to contract directly with generators of their own choice.

On Amendments Nos. 76 and 77, I can assure the Committee that the Government have in mind the protection of consumers' interests, the promotion of the efficient use of electricity, the protection of public safety and the health and safety of those working in the industry, which is why the duties contained in subsection (3) are a central feature of the Bill and establish the framework for the operation of the relevant provisions in Part I by the Secretary of State and the director.

I dispute the suggestion made by the noble Lord, Lord Williams, that those matters are in some way subsidiary. As to consumers, Clause 3 gives the director general the statutory duty to protect their interests in carrying out his functions under the Bill; and in enforcing licence conditions the director must have regard to their interests.

On the efficient use of electricity, public electricity suppliers will be required by their licences to provide guidance to their customers on the efficient use of electricity, a matter which has already been discussed. That is supplemented by Condition 18 of the public electricity supply licence. On safety, the Clause 3 duty to protect the public from dangers arising from the generation, transmission and supply of electricity will apply to economic regulation as well as to all the other functions of the Secretary of State and the director under Part I. It will ensure that the director and Secretary of State will bear in mind the need for public safety at all times.

We are also determined that the industry's excellent safety record should be maintained. Licence holders and those operating under exemptions will have to act in accordance with the same regime that has resulted in the current high standards of safety in the industry.

There should therefore be no doubt about our determination in the legislation to protect consumers, the efficient use of electricity, the safety of the public and those working in the industry. I cannot therefore see the justification for the amendment moved by the noble Lord.

Lord Williams of Elvel

I am sorry that the Minister cannot see the justification for my amendments. I believe that the layman, although perhaps not the lawyer—the noble Baroness may be right—would say that the duties spelt out in Clause 3(3) are clearly subordinate to the duties spelt out in subsection (1). I shall read carefully what the Minister has said. She seemed to be implying that the duties were not subordinate, but they seem to us to be subordinate. If it is necessary we will return to the point at a later stage in the Bill. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 73 had been withdrawn from the Marshalled List.]

Lord Campbell of Croy moved Amendment No. 74: Page 3, line 6, leave out ("any") and insert ("the area defined as the North of Scotland district in the Electricity (Scotland) Act 1979 as amended by the Variation Order 1981 and in any other").

The noble Lord said: Clause 3(2) enables the Government by order—subordinate legislation—to ensure that common tariffs are applied throughout a designated area. The Government have made it clear that the present North of Scotland Hydro-Electric Board is intended for that treatment. In particular, in their White Paper the Government said that they considered that the successor company to the North Board should be required to maintain the policy. My amendment would carry that intention into the Bill rather than relying on a subsequent order. It is being asked in Northern Scotland why that is not stated categorically in the Bill. For more than 30 years I have had my home in Northern Scotland and I have business interests there, but I should make clear that my interests would not benefit because they are not in a remote part of the North Board's area.

The policy which has been operated by the North Board, and which I hope will continue in future, has evened out the price of electricity over the whole area. It is especially helpful to outlying, sparsely populated areas on the mainland and to the islands in the north. The majority of consumers in the area of the North Board, including myself, have been prepared to make this collective small contribution to our fellow consumers resident in difficult and remote areas.

I can see straightaway one reason why the Government may not favour putting this in the Bill, although they have stated quite clearly that it is their intention. I shall explain that, but my amendment is merely probing because I hope to hear an absolute assurance from the Government today. I also wish to test whether the objection which I have in mind is the one that weighs with the Government.

The difficulty, as I see it, is that the question might be raised as to whether the Bill becomes hybrid if the amendment were passed. The boundary of the North Board's area could be described as somewhat arbitrary. It runs across the middle of Scotland. A consumer resident either a short distance north of that border, or south of it, might claim that he was being discriminated against in a public Bill. Even if this developed into no more than an argument about hybridity, it could cause considerable delay. The Bill might be referred to the examiners. If they pronounced it hybrid, there would be very little chance of a Bill of this size passing through Parliament in one Session. The procedure of private legislation would be applied to the relevant parts of the Bill and that would be bound to consume much time.

There is nothing wrong with hybrid Bills, but governments do not expect Bills which they have introduced as public Bills to be transformed into hybrid Bills during the course of their passage through Parliament, because that causes major delay. When a Bill must clearly combine public Bill procedure and private Bill procedure, it is introduced as a hybrid Bill, such as, for example, the Channel Tunnel Bill. Permission is normally granted, where necessary, for the proceedings to extend beyond one single Session of Parliament. Therefore I understand the reluctance of the Government to put these words into the Bill. I ask my noble friend whether that is a reason—perhaps the principal reason—for not including the North Board area in the Bill. I understand that the Government are already persuaded of the need for the common tariff system to be continued in the North Board's area. As I mentioned, the White Paper confirmed this and they have made public statements to that effect since then. I hope to hear my noble friend repeat those statements today.

However, I must remind the Government that in 1980 the North Board proposed that there should be an 11 per cent. surcharge in areas where there was diesel generation. That proposal was dropped after a considerable outcry. Of course, diesel generation was more expensive than being on the grid and that was the reason for the proposals in 1980.

Since then, some of those areas have been linked to the grid and diesel has only been kept in reserve. The Western Isles are expected to be on the grid by 1991. That still leaves one important area served only by diesel; that is, the Shetland Isles. That area is more at risk and more concerned than any other about future tariffs. I therefore look for an assurance by the Government that the order will be laid before Parliament and that a surcharge of the kind which was proposed in 1980 should not be proposed while the order is in operation.

This brings me to the question: for how long will the system last? Will the first order be for only a period of five years? That is what is rumoured.

Another point which I heard of only today is this. I must quickly say that I have been in some confusion after a delay in my arrival. When my plane from Inverness was over Manchester we were informed that there was a fire in the control tower at Heathrow; aircraft were landing at the rate of only one in ten minutes. Fortunately, we were one of those which came in fairly quickly. As a result, I have only just been opening a letter from the CBI as I have been sitting here. It raises a point applying to my amendment, which is this. Will the proposed order apply only to tariff customers or will it also cover big industrial concerns which consume large quantities of electricity? If the latter is the case, they might not be able to reach special agreements with generators or public electricity suppliers.

I assume that subsection (2) does not apply to tariff customers because I note that the term "tariff customers" appears in line 4 on page 3 of the Bill. I do not know for certain and I should like my noble friend to pronounce on the matter and, I hope, be able to reassure the CBI if I am right. I beg to move the amendment.

Lord Carmichael of Kelvingrove

I think that we should be grateful to the noble Lord, Lord Campbell of Croy, for introducing the amendment. The Minister will be aware of the special place that the Hydro-Electric Board has in the minds of the people of Scotland because it has directly and indirectly brought a great deal of benefit to the Highlands. I looked up the order referred to by the noble Lord, Lord Campbell of Croy, which defined the North of Scotland Hydro-Electric Board. It made me slightly uneasy as to why it had been omitted from the original definition. Although it is not written in tablets of stone, the very fact that there was a variation order in 1980–81 shows that a variation order can still be put through both Houses at any time.

I agree with the noble Lord that it would be reassuring if we could be given an explanation by the Minister as to why the point had been omitted and specifically why the words, premises in any area in Scotland", were put in, or whether there will be a variation in the definition of the Hydro Board. Certainly at this point I am inclined to support the noble Lord, Lord Campbell of Croy.

Lord Taylor of Gryfe

I share the apprehensions of the noble Lord, Lord Campbell of Croy, in respect of the discharging of the public service obligation of the Hydro Board in a new set-up in which there is a plc to which shareholders subscribe and from which they expect the maximum return on their investment. It would help those of us who have a deep concern for Scotland and its welfare if the Minister were able to give us some assurance that the Government recognise public sector obligations and that these would be taken on board in the new legislation.

5.30 p.m.

Lord Hughes

At this stage I also wish to support the amendment proposed by the noble Lord, Lord Campbell of Croy. I only add the words "at this stage" because the noble Lord, Lord Campbell of Croy, said the provision would be dealt with by order. I looked at the words at the top of page 3 of the Bill, but I could not find a reference to an order. I presume that there is a reference in some other part of the Bill. Clause 25, for instance, mentions order-making powers. I do not know whether that is the reference I have missed. Either that or I have—

Lord Campbell of Croy

I am grateful to the noble Lord for giving way. Line 6 of page 3 states: specified in an order made by the Secretary of State".

Lord Hughes

Is that stated on page 3?

Lord Campbell of Croy

Yes, it is.

Lord Hughes

I am sorry. That takes care of my first point. The only other thing I wish to mention is that the noble Lord said he would be willing to accept an order rather than have his provision inserted in the Bill. He said that if it were inserted in the Bill there would be a danger that the Bill would be made hybrid, and that would result in delay. I have a feeling that I am not the only Member of the Committee who would regard such a consequence as being totally desirable.

Lady Saltoun of Abernethy

If the Bill is not at risk of a crippling attack of hybridity in consequence of the acceptance of the amendment of the noble Lord, Lord Campbell of Croy, I believe that the reassurance it would give to consumers in the present hydro board area would be very helpful in view of the present political climate in Scotland.

Baroness Carnegy of Lour

I wish to endorse what my noble friend Lord Campbell of Croy and many other Members of the Committee have said. Those of us who live in the area of the North of Scotland Hydro-Electric Board accept that, although we live in an area where the generation of electricity is advantageous to consumers, we do pay a little more in the more advantaged areas of the north of Scotland than those who live in the outlying areas, in order that they should be able to pay the same. Obviously, they would pay more, if we paid less.

We all want to know why the area is not specified in the Bill. We want to know about the five-year period that has been mentioned. Does that mean that a longstanding commitment or a five-year commitment is involved? I remind my noble friend that the hydro-electric board area is not an even area at all. It is very uneven as regards the advantages given there. Some places are very remote while others are not particularly remote. However, we shall all be customers of the one all-purpose company, so this is a particularly crucial matter for people who live in our particular area.

Lord Kirkhill

I intervene to remind some Members of the Committee that I was chairman of the Hydro Board between 1978 and 1982. Therefore, I stand arraigned and fully culpable for an attempt, on behalf of the board, to impose in 1980 a diesel island area surcharge. On Second Reading I made it clear that I was opposed to the basic ethos which lies behind this Bill. I do not support the proposition that we should turn what is at present a public monopoly into what will virtually become a private monopoly. I regard that kind of public policy-making as entirely politically mischievous. I am quite opposed to the Government on that major point.

Having said that, and having at the time been chairman of the Hydro Board when the previous Government were in power—that government had, relatively speaking, the same basic philosophy here—I must tell the Chamber that the reasoning behind the board's attempted imposition of the then diesel island area surcharge was an attempt to keep within very narrowly defined cash limits imposed upon it centrally. At the same time the board sought to develop underground cabling to the more remote islands, as it did then, has done and is doing. It was hoped eventually to do away with the need to burn diesel at the more remote locations. That was the reasoning behind all that was attempted about 1980, but which of course did not take place.

Although I certainly wish to hear what the noble Lord, Lord Sanderson of Bowden, will say, my view is that it would be unlikely that the successor company to the board would face quite the same problem. As regards that point, I am rather optimistic that it would fulfil its obligation.

The Minister of State, Scottish Office (Lord Sanderson of Bowden)

This has been a most useful debate. I shall perhaps take a little longer to reply to it than the Committee may expect. I wish to cover this matter rather fully because it is a crucial part of the privatisation of the Scottish electricity industry.

It may be helpful, in replying to my noble friend Lord Campbell of Croy, if I explain some of the background to subsection (2)(a) to Clause 3 of the Bill and the proposed amendment. My right honourable friend the Secretary of State for Scotland made it clear in his White Paper Privatisation of the Scottish Electricity Industry the Government's view that the successor company to the hydro board should be required to maintain the policy of applying common tariffs throughout the north of Scotland area. If I may refer the Committee to page 146 of the Bill, it will see that the whole of the Electricity (Scotland) Act 1979, to which this amendment refers, will be repealed, and with it the North of Scotland Hydro-Electric Board (Variation of District) Order 1981, by the enactment of the Bill now before us. I think this answers the point made by the noble Lord, Lord Carmichael of Kelvingrove. Our intention is that the statutory framework governing the operations of the privatised companies should be by reference to this Bill and not to miscellaneous parts of earlier legislation.

We intend to promote an order under the terms of subsection (2)(a) of Clause 3 which will set out the area of the north of Scotland. Our view is that the definition of the north of Scotland area is best dealt with in subordinate legislation under this Bill. I shall now explain why. The wording of Clause 3(2)(a) refers to Scotland, rather than to the north of Scotland. That is for three reasons. First, my right honourable friend's area of jurisdiction is Scotland. Secondly, although it is the Government's policy that the common tariffs policy should operate in the area currently served by the hydro board, we have to preserve some degree of flexibility for any future changes in the boundary between the two Scottish companies. For instance, it might be deemed sensible by the two companies, if a future housing or commercial development straddled their boundary, to seek to have the boundary altered. Clearly, subordinate legislation would be the best vehicle for achieving such a change and we believe that such legislation would be best promoted under the terms of the Bill now before us.

Thirdly, the licence issued to the hydro board's successor will contain a licence condition specifying further how the licensee's power to fix tariffs under Clause 18 of the Bill should be exercised to implement the requirement and the factors to be taken into account. The authority for such a condition is contained in Clause 7(1 )(a) of the Bill. I hope that the Committee will understand why we have deemed it appropriate that the starting point for all the legislative provisions which will require the maintenance of common tariffs in the north of Scotland should be this legislation now before us.

I am sure there is no disagreement between us over the Government's policy for the north of Scotland. Any differences seem to me to relate simply to the method of achieving the implementation of that policy. I have explained to the Committee the reasons why the Bill is drafted as it is and why we wish to adhere to the provisions as they now stand. Whether or not this or any other piece of legislation would be hybrid if it were drafted in a different way is not a matter on which I can advise the Committee.

I have explained to the Committee why this part of the Bill should be drafted in this way. I know that my noble friend Lord Campbell of Croy has put forward the amendment with the very best of intentions. Perhaps I may explain to other Members who may be concerned that the special social clause relating to the Hydro Board area is of long standing. It is something which I think all of us who come from Scotland understand. However, I think that I should also place on record that one of the main reasons for it, and why we support it, is the geographical nature of the Highlands and Islands and the very important fact that 48 per cent. of the electric power used in the area comes from hydro-electricity as opposed to a very small amount in the South of Scotland Electricity Board's area.

Various other matters have been mentioned. My noble friend raised the question of tariffs for larger consumers. A company will, like any other company, be able to enter into special arrangements or contracts with any customer if the cost of supply justifies such an agreement. It will therefore always be open to the customer to seek better terms than the tariff if his demand justifies it. Geography, however, will not be a relevant factor in justifying such a special agreement; factors such as load duration and interruptibility will.

The noble Lord, Lord Kirkhill, who I recognise knows a great deal about the Hydro Board's activities in the north of Scotland, pointed to a very important matter concerning surcharges. Common tariffs means exactly that, common tariffs. I should also like to answer the points made by my noble friends Lady Carnegy of Lour and Lord Campbell of Croy: there are no proposals to limit the period of the order.

I hope that, with that explanation and also with an assurance, since I have responsibility for the Highlands and Islands, that there is no question of singling out Shetland for expensive electricity and that the social clause, the common tariff, will apply there just as anywhere else, even though diesel power is used my noble friend will consider withdrawing his amendment.

Lord Hughes

When I spoke earlier I indicated a certain reservation. I should like to say now that what the noble Lord, Lord Sanderson of Bowden, has just said is totally satisfactory. It reassures me completely and it will be a delight to have it on the record.

Lord Campbell of Croy

I am very glad that the noble Lord who has just spoken agrees with my assessment of what the Minister has said in reply. I am grateful to all those who have taken part in this short debate for their comments and for their support for the principle of common tariffs in the area of the North Board. As I said at the beginning, my purpose is simply to probe and to receive a statement from the Government, which we have had.

I am grateful particularly to the noble Lord, Lord Kirkhill, for taking part in the debate as a distinguished former chairman of the North Board and for his comments. When I spoke about the remoter areas of the mainland of northern Scotland and the islands, I pointed out that there have been changes since he was chairman of the board and that many of the areas which used diesel generation have been or will soon be connected with the grid. However, that still leaves for some time to come some very important islands which are ai: a distance from the mainland and which will still be dependent on diesel generation.

I am grateful to my noble friend Lord Sanderson. He has confirmed that it is the Government's intention to designate the area of the North Board by order and to continue the common tariff policy without a time limit. I understand his point that the boundary, which I described as a somewhat arbitrary boundary, between the North and South Boards may need adjusting.

I did not expect my noble friend to decide today whether the Bill might or might not be hybrid if these words were added. That is always a technical matter which takes a long time to resolve. However, I conclude that the Government are aware of my point that the mere raising of the question of hybridity causes a great deal of time to be expended. I remember that I was much involved with the Aircraft and Shipbuilding Bill which was eventually found to be hybrid. If I remember rightly the examiners took between six and eight weeks during which the Bill was out of action, being considered by officials and lawyers with no parliamentarians involved at all. It is the time-consuming element which is of concern if the question of hybridity comes up.

I am grateful to my noble friend for his reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

5.45 p.m.

Lord Renton moved Amendment No. 75: Page 3, line 12, at end insert— ("( ) The Secretary of State and the Director shall also each have a duty to exercise these functions in a manner best calculated to preserve, protect and enhance the environment and to that effect shall place on all licence holders a duty— (a) to achieve target improvements, which shall be set annually, in the efficient use of energy; and (b) to achieve target reductions, which shall be set annually, in pollution.").

The noble Lord said: The proposed new subsection would become subsection (3)(a) of Clause 3. The Committee will see that it places upon the Secretary of State and the director a duty to exercise their functions under that clause in a manner best calculated to preserve, protect and enhance the environment and to that effect to place on all licence holders—that is, all those involved in generation, transmission or supply of electricity—a duty to achieve target improvements, to be set annually, in the efficient use of energy, and to achieve target reductions, also to be set annually, in pollution.

I must make it clear that 1 regard this amendment as a peg on which to hang a further discussion on what I hope are largely agreed matters of great importance in this Bill and to probe the Government's intentions as to the matters mentioned in the amendment. Perhaps I may say that I am deeply grateful to noble Lords opposite who enabled us to have a general debate on this amendment by not moving their own amendments a short while ago. I think that that is very helpful.

I have to confess that my amendment could be technically improved. I have often said that about other people's amendments so I had better say it about my own. I do not intend to divide the Committee on the amendment but I think that we can have a very useful exchange of views, and I am anxious to learn what my noble friend has to say.

First, may I remind the Committee of the various ways in which the activities of the electricity industry can impinge upon the environment, and sometimes damage it. The first is physically. There are high voltage lines, and we have become accustomed to them right across the country. Overhead power lines are vastly expensive and often physically impossible to place underground. There is not much, quite frankly, that we can do about them in my opinion; others may have a different view.

Then there are the low voltage lines which can be put underground without much difficulty or expense in most places. There are towns and villages in this country festooned with low voltage lines even after all these years. I think that the electricity industry and its users could have done more to put them underground. 1 hope that they will do so in future.

That brings me to the third physical impingement on the environment, and that is the building of power stations, large transformers and so on. Of course we have our planning procedures. We have frequently very considerable public controversy about the building of power stations, and it is right that we should have elaborate scrutiny of the effect upon the environment every time that it is intended to build a new power station.

Then we come to those matters in which there can be damage to the environment of a less obviously physical kind. Of course, it is physical damage in the strict sense. I refer to atmospheric pollution which causes acid rain, or can do so. The greenhouse effect contributes and helps to damage the ozone layer. Those are issues of which everyone is at last becoming conscious, especially the Prime Minister. We have the clean air Acts and the Control of Pollution Act. Those are to remain on the statute book and there is no need for this Bill to repeat much of their contents. But I, my noble friend and the noble Lord who tabled the amendment feel that there is scope for having targets of reduced pollution. I shall deal with that matter in more detail later.

Another form of potential damage to the environment is through atomic accidents of the Chernobyl and Three Mile Island kind. Mercifully—touch wood—we have been spared major accidents of that kind in this country, although we did suffer from the effects of Chernobyl. One has only to ask the farmers in north Wales, south-west Scotland and so on. So that is something that we need to bear in mind. Then there is the question of disposal of atomic waste. That is somewhat separate, but these matters taken together surely mean this: that, in passing through Parliament a major Bill on the reorganisation of electricity supply, we should take stock in a serious way of the problems that are involved and that potentially threaten the environment.

I wonder whether I may be marginally reminiscent. In 1957, I had the responsibility, with the late Reginald Maudling, of piloting the 1957 Act which established the area boards—which I am glad to say are being retained—through another place. At the Report stage in the House of Commons—I think as a result of pressure from the CPRE—I moved an amendment which became Section 37 of the 1957 Act. It was simply headed, "Preservation of amenity". It was the first attempt on the part of Parliament to impose on a particular industry a duty to preserve the environment. I am happy to say—and it is a very strange coincidence—that in Clause 37 of the Bill we find these words: The provisions of Schedule 9 to this Act (which relate to the preservation of amenity and fisheries) shall have effect".

When we turn to the ninth schedule on page 106, we find that paragraph 1 of the schedule repeats in almost exact words Section 37 of the 1957 Act. So, at any rate, to that extent, the Government are not going backwards. They go on to elaborate what are the "relevant proposals" referred to in the previous paragraph. They refer to, the construction or extension of a generating station of a capacity not less than 10 megawatts"—

of course, it would be a fairly small station if less— or such other capacity as the Secretary of State may by order specify".

The schedule refers to, the installation (whether above or below ground) of an electric line

and to, the execution of any other works for or in connection with the transmission or supply of electricity".

So far so good. But the matter is not given very great prominence in the Bill. Of course, there is a view among lawyers that all clauses are equal wherever they come. However, we do not regard schedules as being equal with clauses. I must say that I should have preferred, had I been responsible for the Bill, to see Schedule 9 as a main clause in the Bill. However, the great thing is that the Government are alive to this matter to the extent—some may think the limited extent—expressed in Schedule 9. But, as I say, we want it probed further. My noble friend Lord Norrie has studied the technical factors, especially in pollution, more closely than I have done. I hope that he will add to what I have had to say and do so quite soon.

Perhaps I may now come to the question of targets. No one really knows how far the Government are going or how far they have the will to go unless they make a decision in advance. I think that in present times amid all the anxiety that exists about atmospheric pollution and when scientifically it is possible to measure the nature and the degree of pollution, it should at least be possible—I do not necessarily say that this should be written into the Bill—for the Government to have an intention and an aim in order to ensure that there is real progress in the matter.

Looking at paragraph (a) of Amendment No. 75, I see that it refers to all licence holders having a duty, to achieve target improvements, which shall be set annually, in the efficient use of energy".

At first sight, someone may ask: what on earth has that to do with damage to the environment? It does have something to do with it. I say that for this reason. If the demand for electricity goes on increasing—as we were assured by my noble friend Lord Peyton of Yeovil earlier that it will—it means producing more electricity by one means or another, more power stations and more hydro-electric power, although I do not raise much hope of getting much more of that because our rainfall is so variable. In Scotland we get terrible dry seasons sometimes. But unless, with the ever increasing demand, energy is produced as efficiently as it can be, we shall need more power stations than would otherwise be the case.

There is also the question, which we should not ignore, of alternative forms of energy that are non-pollution producing, as a way—sometimes locally, sometimes on a small scale—of producing electricity. So I say that there might very well be target improvements in the efficient use of energy. Technically I believe that that is possible, but I do not wish to dwell further on the point. I hope that I have said enough in a rather long speech, for which I ask the Committee's forgiveness, to initiate this debate which I hope will be of great interest. I beg to move.

6 p.m.

Lord Norrie

The debate on this amendment could, if I dare risk a small pun, prove to be one of the more illuminating that this Chamber will have during the passage of the Electricity Bill. I hope that the Minister will take the opportunity provided to give us a clearer indication of the Government's thinking on the environmental issues raised by the Bill.

At present the Bill only mentions the environment in Clause 37, with the details relegated to Schedule 9 and tucked away in the operational detail, at a stage when all the strategic decisions about the direction and purpose of the industry have been, in effect, already taken. It is in Clause 3 that we find the overall strategic duties of the electricity supply industry, and it is thus in Clause 3 that we should expect to see the environment take its proper place as one of the industry's major priorities.

I hope that the Minister will explain to the Committee why the environment is not mentioned in Clause 3.I entirely accept that we do not want to be put into a regulatory straitjacket—experience in the United States has perhaps gone further than we would like to see here, allowing as it has the unreasonable influence of militant minority groups to disrupt the supply of electricity to the community. Nevertheless, the environment is of vital importance and must be recognised as such in the legislation.

Let us now consider the contrast with the Water Bill. There the environment occupies a much more prominent place in the legislation and we have been labouring in recent days to improve its importance yet further. The Water Bill, we are told, is an environmental Bill, and therefore we should not be surprised that the environment figures prominently and regularly in its clauses. In many respects the Bills are quite different, not least because the water authorities own unusually large amounts of land. But I submit that electricity is or ought to be an environmental Bill too. The issues and problems that it raises may be different but they are no less serious. The electricity supply industry is potentially the biggest polluter of all and has a major impact on our environment. It, too, needs to be run on environmentally sound principles.

The challenges are many and varied. Perhaps the most worrying, because we do not have adequate solutions to them, are the emissions of polluting gases. Each year the electricity supply industry emits 233 million tonnes of carbon dioxide, which add to the greenhouse effect, 2.8 million tonnes of sulphur dioxide and 809,000 tonnes of nitrogen oxides which are the prime constituents of acid rain. The Government must surely recognise public concern about acid rain. Go into any school and children just 10 years old will tell you about it. If we are careless with the necessary legal protection, those same children will have to live with the consequences of our neglect.

Unless this Bill can be seen to address these problems the Government will have a hard public relations job convincing the country that they are treating them as seriously as they deserve. We cannot go on creating environmental problems without helping to provide a framework for solving them. Let us take just one example: global warming from the greenhouse effect. Experts have suggested that we might see temperature rises of between 1.5 degrees C and 4.5 degrees C over the next 50 years. This would drastically change our country, our economy and the kind of food we could grow. It would change our lives. We have to act now if we are to avoid creating insoluble problems for ourselves and future generations.

The Water Bill places on every participant in the industry a duty to further conservation. This brings the environment right up front in the water industry's activities. Everything the water companies do must be measured against that duty. The Bill is designed to shape future decision-making and practice in the industry.

Many people argue that, although the principle is right, the obligation does not go far enough. The Water Bill, quite rightly in my mind, builds it in at the beginning. But the Electricity Bill is different. First the decisions will be made and then measures will be taken to make their impact less unacceptable. That is crisis management.

Environmental conflicts in electrical power generation are well known. Indeed there are conflicts each time that the CEGB proposes to build a major power station, whether coal-fired, as at Fawley B, or nuclear, as at Hinkley C. Consider the flue-gas desulphurisation programme, designed to reduce sulphur dioxide emissions from coal-fired stations. Each 1,800 megawatt power station requires 300,000 tonnes of limestone; and produces nearly half a million tonnes of gypsum, which has to be disposed of somehow. An industry which takes its environmental duties seriously would try to minimise those problems from the outset, through energy conservation and by using cleaner and more efficient methods of power generation. Trying to reduce acid rain and the greenhouse effect as an afterthought using "clean-up" technology is not an acceptable option.

The Water Bill provides for a code of practice to guide the industry's operation. No such code of practice is to be found in the Electricity Bill. We must be assured that the privatised companies which emerge as a result of the Bill will adhere to the codes of behaviour and good practice which have been associated with the CEGB.

The absence of references to the environment in the governing clause of this Bill is very worrying. Nonetheless, my profound belief—and I speak as a committed environmentalist—is that safe nuclear power (and it can be safe) is of huge environmental benefit. That is why I deplore, on environmental grounds, the Labour Party's announcement in its New Policy Review that a Labour government would build no nuclear power stations—indeed it would not even complete Sizewell and would decommission most existing nuclear power stations by the end of the century.

In the past we have been guilty, through lack of forethought, of allowing our beautiful countryside to be scarred and spoilt by the uncontrolled headlong advance of technology. As the noble Lord, Lord Renton, said, we are all too familiar with the ugly sight of electricity wires strewn across our landscape, disfiguring our towns and villages. The Bill should deal with measures and funding for undergrounding; I emphasise that we are only talking about low voltage lines—those draped between wooden poles and not the pylons of the major distribution network. I do not accept that the undergrounding of those low voltage lines is prohibitively expensive. It is not. At present the cost of undergrounding the high voltage lines of the national grid is expensive, given the current state of technology. That should change. Some areas, like Yorkshire, have already shown signs of positive action and I believe that the Bill should indicate that the resources must be found for undergrounding. After all, the power distribution companies are well aware that the cost of good environmental practice such as undergrounding is tax allowable. That is a very practical incentive.

Over the past 30 years environmental demands in Britain have greatly increased and the fact that an ugly wire-scape was acceptable a generation ago does not mean that it should be tolerated today or in the future. I do not accept the Minister's disappointing and sweeping view at Second Reading that cost rules out all undergrounding.

Finally, in considering the wider aspects of the Bill, it is in my view essential that the Minister should find a way of ensuring that responsible specialist bodies such as the Nature Conservancy Council and the Countryside Commission, as well as all those in the voluntary sector are notified and indeed consulted well in advance about projects and activities affecting the environment. I have to say that I was equally disappointed by the reply given to me at Second Reading on these points.

The amendment proposed by my noble friend Lord Renton would, I believe, help provide a solution, in a way which would help the industry itself to respond to the challenges of tomorrow. I know that the Minister has had meetings with representatives of a number of environmental bodies, including the Government's own advisers on these matters—the Nature Conservancy Council and Countryside Commission—and representatives of the voluntary bodies, the Council for the Protection of Rural England and Friends of the Earth. They have all impressed on the Minister the need for environmental improvements to the Bill.

I hope that this probing amendment will give the opportunity for the Minister to tell us what she has in mind to improve the Bill in this vital area of public concern, thus demonstrating the Government's true commitment to conservation of our countryside. How much better that would be than waiting until the problems become so serious that we have to impose drastic rearguard action on the industry from outside. By that stage, it may well be too late. Instead, let us learn from the past and protect the future.

Lord Hatch of Lusby

I very much welcome this amendment and thank the noble Lord, Lord Renton, for putting it down and for giving us the opportunity yet again to debate the question of the environment. It is also a great and very rare pleasure to be able to agree with almost everything that he said in his opening speech. I shall refer to one reservation later.

I was pleased that the noble Lord mentioned the question of power lines and pylons across the countryside. The Committee may remember that last Thursday night my noble friend Lord Peston from the Front Bench declared himself to be a completely urbanised man with very little knowledge of the countryside. He suggested that most of the knowledge of the countryside came from the other side of the House. I dispute that. I put in a plea for Members on this side of the Chamber who have been brought up in and still live in the country. For many years now they have suffered from the eyesores of the pylons and the power lines that ruin the beauty of much of our countryside. In addition to the points raised by the noble Lord, I refer also to the low power lines above ground in villages. I hope to hear some prospects for the future in the noble Baroness's reply.

However, she will not be surprised to know that I am not satisfied with the answers, or non-answers, that she has given to points that I have raised from Second Reading onwards. The noble Lord, Lord Norrie, repeated some of the points when giving the figures regarding the pollution of the atmosphere, the greenhouse effect, and the ozone layer. I should like to ask the noble Baroness whether she can accept this amendment or something in the style of this amendment. If she cannot accept that it is to be laid as a duty on the Secretary of State and the director to be responsible for active policy in protecting and developing the environmental issue, who will have that responsibility? If it is not to be the Secretary of State and the director, and the industry is to be passed into private hands, whose responsibility will it be?

The amendment states that: The Secretary of State and the Director shall also each have a duty to exercise these functions in a manner best calculated to preserve, protect and enhance the environment and to that effect shall place on all licence holders", these two target requirements. I suggest that if the Government disagree with the amendment, they have the responsibility to say who will do so. Who will develop those alternative sources of energy that we know are environmentally non-polluting which will help to preserve the environment? Who will be responsible for developing wave power, wind power and solar energy? If it is not be the Secretary of State and the director, whose responsibility will it be? This aspect has been gravely neglected until now, as I have several times drawn to the attention of the noble Baroness.

I repeat my question; I believe that this is the fourth time. If the Government are seriously concerned about the greenhouse effect, the impact of energy production on the environment and on the atmosphere, what is the answer of the noble Baroness to the fact that I have stated at least four times: that all present research shows that energy conservation is seven times as effective as atomic energy production in preserving the environment. If that is the case—and I do not believe that the noble Baroness can argue this fact because it comes from one of the leading institutes in the world—who will be responsible for energy conservation, energy efficiency, and for cutting down the use of unnecessary energy?

The noble Baroness told me last week, in answer to a similar question, that this should be left to the consumer. It cannot be left to the consumer. Are we going to leave the question of the greenhouse effect and the ozone layer to the consumer? Do government have no responsibility? Do they not feel any responsibility" They have been saying that they do. They have been holding seminars and conferences. If they are serious, the Government will take this opportunity that the noble Lord, Lord Renton, has given them to write into the Bill that the responsibility lies with the Secretary of State and the director to develop research into alternative energy supplies. It lies with them to develop research, knowledge and education in energy conservation.

I disagree with one matter that I think was hinted at by the noble Lord, Lord Renton, and was certainly stated by the noble Lord, Lord Nome: that the solution to the toxic emissions that are producing the greenhouse effect by the use of fossil fuels is an increase in the production of nuclear energy. I do not believe that. Nor do I believe that that argument can be sustained by any rational scientific evidence. Whenever I have tackled the noble Baroness on the issue of nuclear energy, her answer has always been, "We believe in a variety of solutions to this problem". However, in this Bill nuclear energy is given 20 per cent. protection. The production of nuclear energy contributes to the greenhouse effect; but it does much more. It greatly increases the pollution of our environment.

When we see, as we have done over the past few days, that apparently now there is a policy of going into the market to import nuclear waste for reprocessing in this country, when we see the international market developing in the international transport of nuclear waste to third world countries such as Morocco, I say to the noble Baroness: this answer is not enough. When she tells us that there is a variety of solutions, we need to know whether the Secretary of State and the director will be told in this Bill that they have certain targets to lay down; that they have targets for annual improvements in the effective, efficient use of energy; and that they have targets for the reduction in pollution. If that can be put into the Bill, whether in those words or others, it will give comfort and assurance to many people in this country who are concerned about the effect of the Bill on the environment as a whole, with regard to the greenhouse effect, on the ozone layer and so on.

Lord Renton

I am grateful to the noble Lord for giving way. I am trying to follow his argument, but he must realise—does he not—that atomic energy does not produce carbon dioxide or sulphur dioxide, which are the two main causes of damage to the ozone layer.

Noble Lords

The greenhouse effect.

Lord Renton

I am sorry. If there is no increase in the greenhouse effect caused directly by atomic energy, is the noble Lord saying that it is simply the heat generated in the atmosphere by atomic power stations which causes the greenhouse effect? Atomic energy stations do not produce acid rain and do not attack the ozone layer because they do not cause carbom dioxide or sulphur dioxide to be emitted. Why is it that he says that atomic power stations have no advantage compared with fossil fuels?

Lord Hatch of Lusby

If I said that, it was a mistake, but I do not think I did. It was certainly a false impression, I an not suggesting for one moment that the production of electricity by atomic energy contributes anything like as much to the greenhouse effect as the burning of fossil fuels, unless they are desulphurised. I do not put forward that case for a moment. But it is wrong to suggest that the production of electricity by atomic energy has no effect. I am not saying that it does not have a much lesser effect than the burning of fossil fuels, again without desulphurisation. But it has some effect, even if only minimal. But added to that must be the great danger to our environment from the pollution caused by nuclear waste and the disposal of nuclear waste.

I suggest that there is a further danger from the building of atomic energy stations which the noble Lord himself mentioned as a danger which fortunately we have not come up against in the same way as the Soviet Union has at Chernobyl. It is a danger, and the noble Lord will remember the fire at Windscale and the accident that preceded it.

He will also remember that there was a dangerous earthquake very near the first Wylfa power station in 1984. He will know no doubt that Wylfa was built on a fault and that the second Wylfa is likely to be built on that fault too. I would not dispute that. It may be a very long chance, but Chernobyl was a long chance. All these things are long chances.

I am making the case that if the Government are concerned with the prevention of pollution and with the danger of atomic accidents but still want to increase the supply of electricity and to reduce the demand for electricity, which can go hand in hand, the most positive and constructive way to do that is through energy conservation, which has been downgraded. It has been lumped into this 20 per cent. without any targets and without any specific instructions to the Secretary of State or the director general. I suggest that the amendment gives the Government the opportunity of assuring those who are concerned about the environment. I hope that they will be able to accept this or something along the same lines.

Lord Trafford

I wish to comment on two points that have been made. The first is that I entirely agree with my noble friend Lord Renton that it is important for this to be included in the Bill. It is a significant fact and an important part of the general way in which we live in this country that this matter should be given due consideration.

The problem is that in talking about the environment I am often concerned that we leave something of reality behind. It is easy to talk about greenhouse effects, ozone layers, acid rain and so forth, but one must remember that the most immediate environment that most people have in terms of electricity is the financial environment: that is to say, paying the bill, the costs, the price. It is not only the capacity of these various types of power stations to control the production of the various pollution agents—we had good examples of them just now; it is that the cost is ultimately transmitted to the consumer. Therefore it is not just the capacity that we may have or shall instruct to be delivered; it is also the timescale and the price, because they matter so much to the individual.

The environmental dilemma has been addressed by two noble Lords, and it is simply that most environmentalists until recently have also been against the use of nuclear power and the building of nuclear power stations. On the other hand, we have to recognise, as has been conceded this evening, that nuclar power stations on the whole contribute least to this type of difficulty, though they have their own difficulties. There is the problem that has been mentioned of the final disposition of toxic waste.

My view of safety is that I am much more concerned with the regulations for French nuclear power stations than I am with British ones. The prevailing wind is south-west in this country. Along the north French coast, with great international co-operation, 14 nuclear power stations have been built. Should there be an accident under French auspices, it is not so much the French as the British who would receive the consequent fall-out. I have always thought it strange that people are more concerned with what we are doing about our nuclear power stations, which are less likely to cause trouble, than what happens with French power stations. However, that is by the way to this amendment.

It seems to me that one has to have a balance. I think the Government's balance of 20 per cent. is a bit low. I should have liked to have seen a higher protection level for nuclear power over the next 20 or 30 years. There are two reasons for saying that, as well as the environmental reason. The second is that it is an ultimate preserver of natural resources: one is not consuming an ultimate consumable agent such as oil. It is arguable that our coal reserves are long enough ahead not to have to be a concern, but the problem there is twofold: first, it becomes ultimately equally costly and, secondly, it becomes very expensive to remove the 230 million tonnes of carbon dioxide that is pumped into the air. Therefore in itself nuclear power becomes much more economically viable in those terms than it would if one did not have to be concerned about the pollution.

It is therefore a question of balance—balance between what one might wish to see in the environment. It is a balance of the capacity of our industry to avoid pollution. It is a balance of the problems of disposal of nuclear waste as opposed to atomic energy's least immediately environmental problems, and it is a balance in relation to the price to the consumer. I forecast that most people will be extremely concerned with the price to the consumer because to a great extent that is the factor which affects the personal environment in which people live.

If you are on a finely balanced budget, as is often the case in rural areas—passé the noble Lord, Lord Peston, because it occurs outside the suburbs—you are very dependent upon electrical supplies. In those circumstances price makes a considerable difference to the type and quality of life that you lead.

All those matters are a balance. I do not believe that the Government have necessarily got the balance wrong in any way. But I support in some measure and in some way—not necessarily along the lines of exactly these words—the inclusion of the importance of environmental protection in the Bill.

6.30 p.m.

Lord Hatch of Lusby

Will the noble Lord answer one question arising from his speech? When talking about the concern for price does he claim that the production of electricity by nuclear power is cheap and cheaper than other methods? If he does I must point out that the claim has been widely questioned.

Lord Trafford

No, I did not say that. I carefully said that only in circumstances where one must make big changes in coal-fired power stations, where it were difficult to obtain the coal, or where there were transport costs and those costs rise, would they approach that of nuclear power. In other words, nuclear power is at present much more expensive to produce unit for unit. I was making that point and was not trying to suggest that it was cheaper; nor would it be in the immediate future.

Lord Hunt

I should like to say a few words in support of the amendment of the noble Lord, Lord Renton. Such is my concern about the matter that last year, during the White Paper stage which preceded the Bill, I tabled a Starred Question on 7th July. I asked the Government: Whether they intend to embody the environmental responsibilities currently held by the CEGB under Section 37 of the 1957 Electricity Act".—[Official Report 7/7/88; col. 391.] I received a totally positive response from the noble Viscount, Lord Davidson. I have not checked the 1957 Act but the noble Lord, Lord Renton, has assured Members that the wording of Schedule 9 is very similar in terms to that in the Act.

My point is obvious but perhaps it needs stressing again and again. It is that over the past 32 years the pressures on our natural environment have increased tremendously. I now recognise and totally acknowledge the fact that the wording of Section 37 of the 1957 Act, which is now contained in Schedule 9, is no longer adequate to meet the protection which our natural environment deserves and demands. We are not talking only of pollution and the greenhouse effect but about our landscape. We are talking about environmentally sensitive areas of scientific and historical importance. We are talking about the quarrying of high-grade limestone in order to produce the material to cleanse the flues of power stations.

There is no doubt in my mind that the wording of the noble Lord's amendment goes much further than stating merely that the industry has a responsibility to have regard to the desirability of preserving and it shall take into account any effect and so forth. Such words are not good enough. I support the strong and firm duty which the noble Lord, Lord Renton, proposes should be placed on the industry.

Lord Peyton of Yeovil

I should like to register my support for my noble friend's amendment. We have it on the highest authority from within the Government that the environment is regarded as being of major importance. It is unchallenged that the electricity supply industry is a major source of pollution. Sometimes the comments of Ministers in another place give the impression that they look for energy conservation simply through the control of emission and by advising people to restrict their use. That gives me the impression that the Government have not reached the root of the matter.

At some time during the debate can my noble friend say whether the Government have asked themselves the question: by now much is it possible to reduce demand and at the same time sustain the service? Some people have suggested that very substantial savings are available in that way. I should like to know the Government's view about that issue.

In contrast with the place enjoyed by the environment in the Bill, that assigned to competition is most prominent indeed. Although in most contexts I regard competition as being an important factor, I believe that in the context of the electricity supply industry not only is it a great deal less important than the environment but it will be very difficult to achieve. Much of the talk about competition in the industry is a "will of the wisp". Even if the Government do not agree with the precise words put forward in my noble friend's amendment, I hope that they will agree to include a provision in the Bill with at least the same prominence as that enjoyed by competition. It is not particularly attractive in this context.

The Lord Bishop of Worcester

I should like to make two comments of a general nature. The environmental issues have been well rehearsed in this Chamber and in the press and figures of great importance have been quoted this afternoon. There is no need to add to that. However, I should like to see the noble Lord's amendment placed on the face of the Bill thereby firmly placing on the government of the day the duty to control these matters and to do all in their power to ensure that the environment is enhanced and protected.

Many Members of the Committee may believe that good government is least government and that to have a government which constantly interferes in the activities of the nation is not to be commended. Nevertheless, surely it is the duty of the Government to articulate and enforce those issues to which we collectively subscribe and collectively wish to have protected.

We do that in the matter of order and law. We do not expect a government to withdraw from the scene when matters of order and law arise; we expect them to be strong and to intervene. Therefore, when faced with a matter so important as environmental pollution, I wish to encourage the Government to see it as part of the duty of any government worldwide.

My second point is that the protection, good stewardship and enhancement of our environment—for an ugly environment brutalises those who live in it—is a moral issue just as much as the protection of the family or the promotion of good sexual ethics in the nation. This is a moral issue. The protection of our environment in such a way that it can be handed on intact and indeed possibly enhanced to those who come after is something which we should all want to see. As I say, it is a moral issue on which we want the Government to take a quite definite stance. Therefore, I shall vote for this amendment if the opportunity arises.

Lord Hylton

This is a very important amendment and I welcome it. I should like to mention three points which have not yet been touched on of which we should be aware.

The first is the heating of the air from existing power stations by means of their cooling towers. Every time I come to your Lordships' House by train, I pass Didcot power station which is belching great clouds of steam straight into the air.

The next point is the losses of electricity which take place during transmission from the point at which they are generated to the point at which they are consumed. I know that those are not as great as they used to be but are still very substantial.

The third point concerns the efficiency of consumption of electricity wherever it is used. We already know that something can be done about not heating the air by means of combining the generation of electricity with the use of waste heat, and plants are doing that very effectively. If electricity could be generated closer to the point of use, there would be less transmission loss.

Finally, on the point of efficiency of consumption, we know that every year a large amount of electricity is used simply for space heating. Therefore, insulation is essential. There are also such devices as low energy bulbs and efficient appliances which make the best possible use of the power they consume, not to speak of the proper use of waste heat from such processes as refrigeration and cooking.

All those pointers fall within the terms of the amendment and to my mind they are very much more to be desired than a massive increase in investment in nuclear power. Therefore, I hope that the Government are sensitive to these issues and, even if they cannot accept the exact wording of the amendment, will feel that something can be written into the Bill which is better than that which we have at present.

Lord Williams of Elvel

I intend to speak very briefly because I understand from the weekend press that the noble Baroness may be helpful on this matter. The weekend press may be wrong but I look forward to her response.

I also understand that there is a rumour about that the Central Electricity Generating Board has produced a paper on environmental issues which we may be in a position to see at some future stage. We look forward to the publication of that with eager anticipation.

Furthermore, I should perhaps declare an interest, however disappointing it may be to my noble friend Lord Peston, as president of the Council for the Protection of Rural Wales. There seems to me to be three levels at which one can deal with the environment and I accept much of what many Members of the Committee have said. There are what I call the life and death issues such as Chernobyl, the greenhouse effect and the ozone layer. It is clear that there must be a duty on the Secretary of State and the director to cope with those in a sensible manner. That must be right up front.

There are then what I call the serious but not life and death issues; for example, where you put open cast coal, where you put pylons and undergrounding, as referred to by the noble Lord, Lord Norrie. I am less convinced that the Secretary of State and the director should try to achieve targets on those issues although my mind is open.

There are then what I call the bread and butter issues on environment; for example, litter and messing up the coastline which, as the right reverend Prelate the Bishop of Worcester rightly said, makes life extremely difficult and sometimes intolerable for people who live in those conditions.

Therefore, I support the general thrust of the amendment of the noble Lord, Lord Renton. Taking up his invitation, I am bound to say that I do not agree entirely with his wording but I shall not pursue the matter lest I be accused of trying to get my own back for some of the criticisms which he has brought forward on my amendments. However, I believe that it is right to have a duty imposed on the Secretary of State and the director similar in nature, kind and importance to the other duties imposed on the Secretary of State and the director in the Bill as it is now drafted.

6.45 p.m.

Baroness Hooper

This has been an interesting exchange of views and I am grateful to my noble friend Lord Renton for having prompted it by his, as he admitted, probing amendment. There is no disagreement about the objective of seeking to protect the environment to the maximum extent which is reasonably practical when electricity developments are undertaken. The difference, such as it is, is about the approach and method.

The starting point is important. We are not starting from the position that the electricity industry has neglected the environment. On the contrary, anyone who has looked into the matter must be impressed by the action taken by the CEGB to minimise the impact of power stations on the environment and to create offsetting benefits. Area boards have also taken action to lessen the visual impact of electricity lines and equipment in areas where that was particularly important.

In relation to undergrounding, I have some examples of the amount of money which has been spent and the action taken. For example, during the period from 1st April to 31st March 1989 the South Wales board installed 600 kilometres of underground cable and over the same period 329 kilometres of overhead cable was erected, but a total of 394 kilometres was dismantled. The Yorkshire board has replaced much of the overhead line near Kirk Smeaton village with underground cable. The total cost of the work was £39,000 of which approximately one-third was for amenity. I could quote other examples from other area board areas. However, there can be no doubt that in their efforts to avoid spoiling the environment, area boards incur quite significant sums within the overall costs of their operational schemes but they believe that that is a valuable contribution to good environmental practice.

Last year the CEGB published, as a contribution to the European Year of the Environment, a document on its environmental achievements. Among other things, that illustrated the action taken at power stations to create nature reserves, nature trails, field centres and facilities for bird-watching, It also described the creative conservation measures which the board intended to take at proposed new power stations. The successor companies to the CEGB including the National Grid Company will inherit that serious and constructive attitude to the effects of the industry on the environment. 01 course, that attitude reflects the importance which is attached nowadays to ways of promoting and conserving the environment.

One manifestation of that importance is the number of environmental statutes which bear on an industry such as electricity, although not exclusively so. There are no fewer than 15 Acts of Parliament ranging from the Clean Air Act 1956 to the Food and Environmental Protection Act 1985 which control and regulate the impact which the activities of the electricity industry and other industries have on the environment.

Added to those are some 14 European Community directives, including the control stemming from the agreement in the European Community on the large combustion plant directive. Under that the United Kingdom will reduce the level of sulphur dioxide emissions from large combustion plants by 60 per cent. on 1980 levels by the year 2003 and will reduce nitrogen oxide emissions by 30 per cent. by 1998. Compliance with the directive will of course be ensured by Her Majesty's Inspectorate of Pollution, but action has already been taken to implement that directive.

Given this array of legislative constraints, it is obvious that the amenity provision referred to in Clause 37 and spelt out in Schedule 9 of the Bill is not the only safeguard for the environment. Nevertheless, that amenity duty is important. It is true that it is couched in the same terms as the duty imposed on the electricity industry by the Electricity Act 1957, with which my noble friend Lord Renton was associated, but that does not and should not in any way belittle its importance and influence. For example, those Members of the Committee who have had an opportunity to study the environmental statement which the CEGB recently produced to accompany its application for a PWR power station at Wylfa may have seen that the Board specifically refers to the amenity duty in the 1957 Act as part of the statutory background to the statement. Therefore, the amenity duty which currently applies only to the nationalised industry will in future apply to all licensees and not just to the successor companies of the present electricity industry.

Comparisons have also been drawn between this Bill's treatment of environmental matters and that of the Water Bill. There are good reasons for the difference. The water industry has the potential for environmental effects over far greater areas of the country than electricity and much more potential for positive additions to the environmental scene and for recreational opportunities. The water industry is, in effect, the guardian of areas of great natural beauty, whereas the main impact of the electricity industry on the environment is much more in relation to pollution. As I have enumerated, there are many safeguards and a great deal of legislative prescription in that area.

The Government therefore take the view that, together with the array of legislation which I have mentioned, the main safeguards against electricity developments having an unacceptable effect on the environment are contained in our detailed planning procedures. These ensure wide consultation with those affected or those who have an interest. These procedures are now buttressed by the various regulations made earlier this year to implement the European Community directive on the assessment of the effects of projects on the environment.

The regulations, which will be up-dated as appropriate to reflect the new consent requirements following the passage of this Bill, require an environmental assessment to be prepared in the case of proposed power stations with a capacity of 300 megawatts or more. They give the Secretary of State discretion to require an environmental statement in other cases too, and the Government have explained that they intend to adopt a serious and responsible attitude in deciding when environmental statements are required.

One of the results of the policy of privatising the electricity industry has been an upsurge of interest in smaller types of power stations. These are likely to have a less adverse effect on the environment than large stations. They will certainly be visually less obstrusive, and by the use of gas to a greater extent as a fuel they will be less polluting in their effect.

In the light of the controls and developments I have described, I believe that the Government have no reason to feel at all apologetic about their approach to electricity and the environment, or indeed the industry itself. On the contrary, this is an industry which has become subject to an increasing number of constraints, culminating most recently in the European agreement to reduce emissions of sulphur dioxide and nitrogen oxide and the Government's regulations on environmental assessment to which I have referred.

After privatisation the effects of the industry on the environment will continue to be closely controlled by all the regulation and legislation which apply to industry across the board. However, despite our confidence in this, the Government have given careful consideration to the views which have been expressed to us by various bodies such as the Nature Conservancy Council, the Countryside Commission, the Council for the Protection of Rural England and Friends of the Earth. We intend to introduce some amendments at a later stage which I shall attempt to outline as a small package now.

One of the concerns expressed is the desirability of early notification to or consultation with bodies with statutory environmental responsibilities when electricity developments, particularly major ones, are in prospect. The Government therefore propose to introduce an amendment which will allow regulations to be made under Schedule 8 of the Bill to provide that an application for consent under Clauses 35 and 36 shall be notified to the Nature Conservancy Council if it relates to sites of special scientific interest or national nature reserves. Secondly, we shall look at Schedule 8 to see whether an amendment is needed to make clear that the conditions attached to deemed planning permission may include environmental conditions. Thirdly, when the environmental assessment regulations are to be remade after the passage of the Bill, which we hope will be successful, a regulation will be included providing for notice to be given to and consultation with statutory environmental bodies where an environmental assessment is, or is to be, submitted with an application for consent under Clauses 35 and 36. Further, the Government will ensure that licence documents include a reference to the amenity clause in Schedule 9 of the Bill. This will underline to licensees this particular obligation.

There is a further development to which the noble Lord, Lord Williams, referred, which I believe will be of general interest. Concern has been expressed about whether the privatised companies will of their own volition continue to take as responsible an attitude to the environment as that taken by the public sector electricity industry, to which I referred. I do not think there are good grounds for that apprehension. After all, it will be in the interests of the companies in building up their independent identities to demonstrate concern for the environment. Nevertheless, we have had discussions with the CEGB about what reassurance might be provided, and I am pleased to say that the designated chief executives of the three successor companies to the CEGB have today issued a joint statement of environmental policy. This will emphasise the commitment of the successor companies to the maintenance of high standards of environmental care. It will list the specific ways in which National Power, Power Gen and the National Grid Company will ensure responsible and progressive application of the duties of environmental care. These will include consultation and liaison with environmental authorities and the preparation of environmental guidelines. The area boards, for their part, are also preparing statements of environmental policy.

I hope that these proposals and developments will be seen as proof of the Government's wish to be helpful even though we are confident, as I said, that existing arrangements which apply across the board to industry will ensure adequate control over the industry's effect on the environment.

Turning to the precise amendment tabled by my noble friend, this would impose two burdens on the Secretary of State and the director: first, to exercise their functions in a manner best calculated to preserve, protect and enhance the environment and, secondly, to require them to place a duty on all licence holders requiring them to set targets on an annual basis as regards improvements in the efficient use of energy and reductions in pollution. This second duty would be a statutory duty unique to the electricity supply industry. It would be a duty which would apply to all licence holders irrespective of the size of their operations. I really do not see how this would be appropriate, and perhaps I can try to explain why.

The Government are already doing a great deal to encourage targeting of energy use on a voluntary basis. This is the monitoring and targeting programme of the Energy Efficiency Office. The purpose of that programme is to promote better energy management by helping sectoral bodies to develop pilot energy management systems in the major sectors of energy use. These monitoring and targeting systems allow companies to find out where expenditure on energy is going, to understand what factors make the energy usage change, and to set targets to achieve savings. It is a way of treating energy as a manageable resource rather than as a fixed overhead.

The Energy Efficiency Office is financing the development of M&T systems in 40 industrial sectors. In 18 of those sectors the system has been developed and promoted. Work is continuing in the other sectors. The overall programme objective is to achieve a take-up of M&T by 1,000 sites by the end of 1990. The implementation of M&T is expected to lead to annual savings of over £300 million for a government expenditure of £9 million. We believe that the M&T programme is an object lesson in securing value for money from public expenditure, and it demonstrates the value of proceeding through voluntary co-operation rather than by statute. This is an approach we shall be following in the Energy Efficiency Office's major new programme Best Practice.

The amendment proposed by my noble friends relates to improvements by all licence holders in the efficient use of energy. As I have said before, under our proposals for the very first time the efficiency with which the electricity industry uses fuel will significantly affect its costs and its ability to compete successfully. The increased competition which is central to the Government's proposals will provide a major incentive to the efficient use of fuel.

Our proposals will also promote the efficient use of electricity by consumers under Clause 3(3)(b) which we have in fact already discussed in some detail.

As I have already dealt with many environmental issues, as regards the targeting on pollution I would simply reiterate that the Government are already committed to reducing emissions from power stations on the basis of the targets agreed in the European Community last summer.

I would also say that in addition to the energy efficiency programme the Government are ensuring, through the non-fossil fuel obligation, that nuclear power will continue to make a contribution to limiting emissions of CO2.In supporting R&D into renewables, as well as in the proposals to provide a special place for renewables within the non-fossil fuel obligation, the Government are certainly doing a considerable amount to encourage that form of energy which we believe to have an important contribution to make in relation to environmental concerns.

There is one general point which I should like to repeat before I conclude. The standards of environmental protection which the electricity industry has to meet now will be enforced every bit as vigorously after privatisation as they are now. Those environmental standards need not be reiterated in this Bill. They will be covered in existing legislation already on the statute books which regulates the impact of the electricity industry and that of other industries on the environment.

I hope that in the light of what I have said my noble friends—who indeed indicated that they would not be pressing this amendment—will feel able to withdraw it. I hope that we shall then all have the opportunity to consider further what has been said in the course of this debate.

Baroness Nicol

Before the noble Lord withdraws his amendment, perhaps I may ask the noble Baroness whether we are to understand from her reply that the Energy Efficiency Office is expected to continue? And can we be sure that it is going to continue with realistic funding? We have no grounds for optimism from what has happened to it this year. Can she say whether that has been considered, and can she give us some proper report on what she is expecting to happen?

Lord Hatch of Lusby

In order to avoid the noble Baroness getting up and down, perhaps I may add a question. She said at the end of her speech that the Government are doing many things to assist the development of renewable resources. She did not tell us any of the things that they are doing. Is it not the case that government funding for such activity has been cut?

Who is going to take responsibility for that when the industry is passed over into private hands? Does she really believe that the objective of making profits is going to help in the development of renewable resources? Is it not much more likely that when there is this so-called competition within the electricity industry, there will be corners cut, rather than investment in the longer term non-profit making activities that are helpful to the environment and are non-polluting? Perhaps the noble Baroness will answer this question along with the previous one from my noble friend.

Baroness Hooper

I am delighted to confirm once again that there is absolutely no intention of doing away with the Energy Efficiency Office. It does a very valuable job and we are very concerned in ensuring in every way possible that it does an effective job, not only a cost effective job.

The Energy Efficiency Office's budget for 1989–90 will be £15 million, and at the height of the energy efficiency campaign in 1986–87 the expenditure reached £24.5 million. The reduction will be in two main areas in relation to direct subsidies. It now seems inappropriate to subsidise consumers to do what is clearly in their own interest. For example, because of the widespread appreciation of the benefits of energy surveys the survey scheme was closed to new applicants last June.

The other main area will concern general advertising. I believe that general awareness of energy efficiency is now high, as comments in the course of this debate have indicated. It is therefore appropriate to reduce levels of general advertising. But the campaign is certainly continuing in terms of the "best practice" campaign in respect of marketing strategy—which I will not go over again but to which I referred in some detail earlier—and in relation to the work of the regional energy efficiency offices.

So far as concerns the renewables programme, I am happy to tell the noble Lord, Lord Hatch, that government funding for R&D into renewables has in fact increased. This is an on-going programme. We shall be discussing research and development generally later on, and of course we shall be discussing renewables in the context of the non-fossil fuel obligation later in the Bill, but I can assure the noble Lord that renewables are receiving considerable support from the Government not only in R&D but also in the encouragement which the additional tranches to the non-fossil fuel obligation will give to producers and potential producers.

Lord Renton

We have had, as I am sure the whole Committee will agree, a most valuable debate. We have been virtually unanimous about what needs to be done to protect the environment and the other matters that were mentioned. The differences between us as to how these matters are to be achieved do not appear to be very serious. Perhaps I may say how grateful I am to all those noble Lords who have taken part and how especially grateful I am, as I am sure is the whole Committee, to my noble friend Lady Hooper for a very full and, if I may say so, impressive and helpful reply.

My noble friend has assured us that standards will be enforced at least as vigorously as under existing legislation. They have been so far. She has pointed out that the purely visual, strictly physical features of the threats to the environment are already covered by a mass of legislation as well as by what appears in the Bill. She has reminded us, as I attempted to do, that on pollution we are bound, and the electricity industry will be bound, by the Clean Air Acts, the Control of Pollution Act and other measures.

My noble friend has assured us that all licensees will be bound by what is aimed at in the Bill without the need to set specific targets. I must confess that I was convinced by what she said about targets. They can sometimes be misleading. We should not assume that it is right to impose them upon all and sundry whatever the circumstances. Targets have their limitations. We shall of course note with great interest the amendments—it seems as though they will be rather numerous—that she will table for the Report stage. We shall also wish to study her detailed speech carefully.

My noble friend has given convincing reasons for not accepting the amendment. I was rather relieved to hear the noble Lord, Lord Williams of Elvel, agree with me that my amendment was far from perfect. That being so, and with gratitude to all concerned, and living in hope that the debate will lead to further preservation of the environment, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 76 not moved.]

Viscount Hanworthmoved Amendment No. 77: Page 3, line 13, leave out ("Subject to subsections (1) and (2) above,").

The noble Viscount said: The object of the amendment is twofold. I wish to ensure that the duty to promote competition in the generation and supply of electricity is given due weight but does not have priority over the duty to protect the interests of the consumers of electricity. Secondly, I wish to ensure that the duties of promoting competition in the generation and supply of electricity and of securing the financial integrity of the companies cannot take priority or be used as an excuse for failing to protect the public from dangers arising from the generation, transmission or supply of electricity through the provisions of Clause 3(3)(c). My aim is also to secure the establishment and maintenance of machinery for promoting the health and safety of persons employed in the generation, transmission or supply of electricity through the provisions of Clause 3(3)(d). I beg to move.

Baroness Hooper

I was under the impression that we had discussed this amendment earlier with Amendments Nos. 72 and 76.1 outlined at that time the Government's view that the provisions of the Bill on the efficient use of electricity and on safety cover the problem which the noble Viscount seeks further to cover. In the light of the remarks made earlier I hope that the noble Viscount will feel able to withdraw the amendment.

Viscount Hanworth

I apologise to the Committee for not noticing that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 78 not moved.]

7.15 p.m.

Lord Pestonmoved Amendment No. 79: Page 3, line 20, after ("charged") insert ("in accordance with Schedule (Pricing formula) to this Act").

The noble Lord said: Considering the hour, I am in some difficulty about this amendment. The fact remains however that the subjects I wish to raise are at the heart of the Bill. I can think of no other matter that I wish to debate during the various days of the Committee stage more important than this. I do not know how long our discussion will take. However, as I regard this matter as the heart of the Bill I must warn noble Lords who are hungry that I have no intention of hurrying it.

The issues raised under the licences, and within the licences, under the price regulation scheme, are fundamental both to the economics of this industry as it will be privatised and to the financial viability of the industry in terms of the companies which end up owning it and running it. One of the problems for those of us interested in this matter is quite independent of politics. While some of us regard the privatistion of the industry as ludicrous, if the Government are pressing ahead the least one can do is to examine the matter carefully so that we end up with an Act that gives the eventual privatised owners, the pics, some chance of doing a proper job.

One of the difficulties I have is that the Bill tells us virtually nothing about the most important matters. It refers constantly to licences; but there is nothing of great substance in the Bill on licences. Except for my amendment there is nothing on the price regulation scheme. The logic is to proceed from the licences to the price regulation scheme. But prior to that one has another series of documents. The documents are explanatory notes, a draft licence and so on. They are produced by the Department of Energy. What these documents have in common is a sentence in black type which reads: These notes are intended to assist understanding of the draft licence but do not form part of it and have no formal standing".

One must then ask the question: what actually has formal standing?

As someone who has been interested in public affairs for a long time—I have been involved with Whitehall for 25 years—perhaps I may say that these are pretty well the most remarkable documents I have ever seen. When I was a junior economist in the Treasury a long time ago I remember preparing a paper which was to go to Ministers. It contained a formula. The people who looked after me asked me whether the formula had to go in. I was more obstinate then even than I am now. I said, "Yes, my formula must go in". They were horrified at the idea that a document going to Ministers would contain a formula. It was a discounted cash flow formula, as I was one of the first to think that discounted cash flow might apply to government matters. At the time, the predecessors of the Department of Energy, the old Ministry of Power, had not the slightest idea of what discounted cash flow or compound interest were. Indeed those at the ministry would faint at the mere mention of the expression "marginal cost".

So the department has come a long way in producing these documents. However, as I say, they are quite extraordinary. It was a grievous disappointment to me that the most extraordinary one of all relating to the public electicity supply licence was not available earlier to the noble Earl, Lord Lauderdale, who had the other ones but could not find condition 18 to which the noble Baroness referred. I did not join in at that point, although I was willing to confirm that there existed a document with condition 18 in it. As I say, it is quite an astonishing document. Moreover, if the Committee will forgive the subtle reference, it is even more exciting than any account I have seen of the fall of the Indian rupee. However, whether it assists anyone to understand the procedure is something which I do not know but certainly I have a great many questions to ask in this resepct.

Logically, prior to those questions, there is an enormous number of other questions which must be raised about licences. I shall raise only a few of them on this amendment in order to proceed speedily at this stage and will raise several others almost artificially on other amendments. We are going ahead with the licences and at least for some of us it is difficult to see in the first place what their statutory basis is. What is a licence? Licences are referred to in the Bill but they are always referred to without any detail as to what they are. Indeed, one can only understand what they are with the assistance of the explanatory notes.

The kind of questions which arise about licences are these. I should first like to know what is their statutory basis. For example, are they in the form of a contract? Can there be litigation on them? At the other extreme, does this Chamber have any rights to debate them when they are actually fully constructed for the companies? Further, what is the position of the other place in this respect?

I refer again to the noble Earl, Lord Lauderdale, and to a point which I have already made. He said that he thought that licences could easily be changed and that the system could be modified. However, the noble Baroness said that it would not be easy to alter the licences. Of course I am interested to know all about those aspects, whether easy or hard. I am also interested to know about the system of licences and about the whole issue of modification. For example, could a successor government by amending this legislation change the whole structure of licences? If they could do so, would it not follow that they could very much influence the financial viability of the pics which will one day own this industry? That is the first sort of question which I have to ask.

The second class of question is this. When will the licences be given? I have been trying to get some grip on the process. As I see it, if the Bill is enacted the assets of the industry will pass into the hands of the Secretary of State, who will then in a sense sell them to the private sector—at least, I think that that is what is supposed to happen. Subsequently the industry ends up in the form of various pics in the private sector. But do the people who buy into the industry get the licences beforehand, or are they in some sense guaranteed a licence? If they are guaranteed a licence, and if they can get a licence anyway, I am not quite clear what the whole process which we are going through here is all about. Alternatively, do they obtain the industry, in its different sections, so to speak, with the licensing process taking place afterwards? I can see obvious difficulties in that connection. For example, who would bid for an industry if they did not know for certain that they would receive a licence? Further, who would bid for an industry if they did not know the economic and financial nature of the licence which they would receive?

I return now to the point about the circumstances in which the licences could be revoked. This relates to my point about whether the licences are contracts and therefore could only be revoked if the conditions of the contract were not met or whether they could be revoked by a government passing such legislation. If a government could do so, surely that is some source of worry to those who would wish to acquire the industry.

There are different kinds of licences. We are discussing generating licences, transmission licences and supply licences. I shall return to the meaning of certain of those words in relation to a later amendment. I think that the Bill is somewhat ambiguous in its language. Indeed, the noble Baroness has at least one or two amendments which deal equally with clarifying the language. However, in considering those licences, I have a particular question relating to what I think could correctly be called "supply licences". Is it necessarily the case that the supply licences will correspond precisely to the area boards? There is obviously a one-to-one relationship between the existing area boards and the supply companies. I assume that they will correspond to a licence for each area board.

I am sorry to have to go over some of this ground again at great length, but this issue relates to the further question as to whether once you have a licence it in some sense belongs to you. Therefore if you were to sell the company to someone, presumably that person would get the licence—or, would the licence itself have to be renegotiated? That does not seem to me to be a minor matter. To put it bluntly, the thing which seems to be worth buying is the licence; that is what you want to have. If you do not own it in the full sense, it does not seem to me that you own very much at all.

I do not speak as an expert in any of these matters; I am genuinely asking questions because I should like to know the answers. I should add that I could easily be persuaded that some of the answers to these questions are not known. Indeed, I could easily be persuaded to wait for some of my answers. However, it does not seem to me to be possible that we could go ahead and pass this legislation without having that kind of explanation.

I turn now from the issue of licences to the price regulation formula. As someone who has certain political views but who has also devoted his life to economics, I think that I have some understanding of free market economics: I taught the subject; I was taught it and I can even claim a modicum of expertise in the matter. Of course I agree that teaching subjects does not necessarily go with having any expertise, but in my case it did for a while.

What is amazing about the price regulation formula is that we are presented with this set of privatisation proposals as an act of free market economics. We are told about competition—although I agree with the noble Lord, Lord Peyton, that competition for the most part in this connection is a will-o'-the-wisp—but what we are given here is the most extraordinary price regulation regime. The idea that that corresponds in any way to free market economics is simply absurd.

It is a tough regulatory regime which in the hands of the right person—we still do not know who that person will be, but there will be sucessors to that person just as one day there will be successors to this Government—could be used to do anything with the industry that that person wished. Indeed, there are those on this side of the Chamber who say that one would never have to renationalise the industry because we have here all that is needed to control it, and I must say that it seems to me that there is a great deal in that.

Therefore let us examine this formula, or rather let me ask some questions about it. I put this formula forward because there is no formula in the Bill. There is a formula in the explanatory notes, but the notes have no statutory basis. Therefore the only way one can ever arrive at discussing the formula is to put an amendment down which would at least put it in the Bill for the moment. There are many formulae. I did not want to bore Members of the Committee even more by putting all of them in. However, there is quite a good case for including all the notes of guidance and all the formulae.

I have put forward this formula which comes from the public electricity supply licence explanatory notes because it gives me the basis for asking a number of questions. However, let me say, before I go into detail, that in my view the price regulation part of this Bill is quite central.

I listened with enormous interest to the debate on the environment. I was struck by the fact that, with the possible exception of the noble Lord, Lord Trafford, that debate did not become involved in the price question, and yet the two are inseparable. Anything that one does in the environment must have consequences for the regulation, the pricing formula, and, for that matter, the profits of the industry and all that type of thing. Although in a way the environment seems exciting and the price formula and its control mechanism is boring economics, people who are interested in the environment are obliged to give some thought to such matters.

My first point on the pricing formula is directed to the officials. Their word processor must have superscripts on it as well as subscripts. Mine does. They have not shown a great deal of talent in their use of symbols and their arrangement of the variables. In particular, the variable Pst-1 in any serious piece of work should be Ps t-1.The t-1 relates to the time and the s defines the variables. I hope that when the officials go back to their machinery they will achieve that, because on all the programmes that I know it is just as easy to do superscript as it is to do subscript. As their objective is to make the matter comprehensible that is the least that they can do.

I should apologise. I do not know who does our printing, and I do not blame them, but the little ones and two are too large and they can be misleading. My main questions are on the economics of the matter, but they are not unrelated to finance. First, in a formula of this kind, if we take the variable Mst, we are discussing something called the maximum average charge per unit supplied in the relevant year. I take it that maximum means maximum. Obviously there is a sense in which one would hope that the industry would consider charging less than the maximum.

My next question concerns the variable Xs. In the documents of guidance that variable means a number to be decided. It is of course the essential efficiency factor. When will the essential efficiency factor become public knowledge? For example, a large essential efficiency factor—that number to be decided—could be set at such a level that it would bankrupt the companies concerned. On the other hand, if it is set at zero, it is not an efficiency factor. I am keen to know when it will be set; how will it be set; will it be set before the system starts up; will it be set by the director general or, in the first place, will it be set by the Secretary of State and then set by the director general in subsequent years? Since I am naive and uninstructed on all these matters I ask whether it will be a matter of negotiation. Will it be a matter of the director general saying, "We want this efficiency factor", and the industry coming back and saying, "You may want it, but there is no way that we can deliver it and survive, so we will offer the following". How will we get the efficiency factor into the system? It cannot be left at this stage as a number to be decided. At least, it can be left today but in due course it must be a number that we know about.

The next matter to which I come, which is an even greater confession of ignorance and lack of understanding, relates to the variables Pst-1 and Pst-2 I shall put the matter as bluntly as I can, and I hope that the Committee will forgive my ignorance. I do not see where the Pst-2 gets into the thing. I have some difficulty with that variable. I know that the system must have a start up which I should have thought would be Pst-1 and so I should like an explanation ofthat point. Again, what I have written in my notes is: where do the Ps come from? I assume that they die out of the system once it gets going, but again I could be entirely wrong.

Now we have another variable—Kst—which intrigues me. It is an important variable. It will be important to consumers who are looking for reassurance in this field. Essentially, as I understand it, K—again I should like an explanation—is a variable which deals with the possibility of over-charging. It seems to suggest that if the industry, having agreed a maximum price, somehow manages to generate more revenue than would correspond to that maximum price—which divided by the output would give the actual price—and ends up with too much money, it is clawed back via the K factor.

I am glad to see that the tradition of discounting cashflow survives in Whitehall because the Department of Energy does not claw back the over-charging; it says that implicitly the industry will have invested that revenue during the year and will have gained some interest on the over-charging and therefore the department will claw back the interest as well. I approve of that. It shows that the lessons of DCF have not been missed by the department. There are of course some obvious questions.

First, will the Government tell us what interest rate they are proposing to regard as the relevant rate of interest? Will it, for example, be the average rate of return on capital in the private sector, or will it be one of the many weighted average rates of return which in my younger days we used to invent in the Treasury? What will it be? How much will it be? What will the number be? Will it be set merely to get back what those people have earned or will there be a kind of penalty factor included as a way of teaching them, "Please do not over-charge because we will charge you a slightly higher rate of interest to warn you". Another question, the answer to which is presumably buried somewhere in the document is: who will get the money? Will it come back to the Treasury? The answer to that is surely that it should not because the over-charging of course belongs to the consumers. There should be a way of getting it back to the consumers.

Lord Lloyd of Kilgerran

I am grateful to the noble Lord for giving way. Perhaps I may join him for a moment in a confession of ignorance. I have been looking at Amendment No. 127 where the Kst comes in. I have tried to follow the formula. Is the Kst in the proposed amendment substantially the same as the Kst, in the papers or is it totally different? In other words, do we have to consider two Ksts later this evening?

Lord Peston

I hope that there is only one. Those questions must be answerable. I am aware that I am going on at great length. I intend to go on at great length because it was not I who delayed the earlier proceedings.

I come now to the Y formula which is the other adjustable formula. If I understand it correctly, the regulator is not anxious that costs should merely be passed through the system without any kind of thought. The regulator and the department rightly wish to put some pressure on the industry to be efficient and wish to have some "pressure" device to prevent costs being passed through. Essentially it produces a kind of rat race. It is one that I have seen in other aspects of public expenditure control. One is telling people that they can pass on some of their costs, but to the extent that their costs differ from the average, they will be somewhat penalised if their costs are above the average. There will therefore be some pressure to bring down the costs. If the average consists of everyone's costs, averaged, such pressure, good though it is when viewed from the consumer's point of view, generates a kind of rat race for the producers. I do not mind that so long as the producers are well aware that that is what they have bought. The essence of the matter is the weighted average. The department rightly says that R is a number between one and zero. One does not have to be a genius to know that R has to be a number between one and zero. The only thing we really want to know is, what number? Again, we need to know whether it is negotiable, and so on.

That brings me to the end of the questions I wish to raise at this moment. They are not all the matters that I wish to raise on the subject but I do not raise them in order to annoy Members of the Committee nor to keep them from dinner. I raise them because I believe that without the answers to these questions and without all this being made transparent, the Government cannot privatise the industry or expect it to run. I go back to my opening remark that these matters are at the heart of the whole Bill as far as I am concerned. I look forward with great interest to the answers to my questions. I beg to move.

Baroness Hooper

I regret that no other Members of the Committee are prepared to take part in this interesting duologue which is about to develop. I start my responses by thanking the noble Lord, Lord Peston, for his kind suggestion that, where matters of detail and complexity are so great, in order to respond adequately to them it would require a study of Hansard to see exactly what his questions are. That is the method by which we shall respond.

The noble Lord began his intervention by raising a number of general questions on the licences and I shall attempt to respond to them. He wished to know about the statutory basis of the licences. They are secondary legislation issued under Clause 6 of the Bill. He asked when they will be issued. The licences will come into force on the transfer date, which is provisionally 1st January 1990, when the companies become public limited companies but before they are privatised.

Lord Peston

Perhaps I may interrupt the noble Baroness so that I may understand that reply. Someone seeking to buy an area board will simultaneously negotiate the price plus the licence. Is that correct? If I wish to buy an area board, or whatever the boards will be called from now on, I shall simultaneously negotiate with the Government on the whole package, including the licence at that point, so that I get the licence when I get the company.

Baroness Hooper

The flotation arrangements for the company, which will come into force after the company has been formed and after the licence has been agreed, will take into account the fact that the company is in possession of the licence. That may help the noble Lord. It will be the transfer day. The noble Lord asked whether the licences were subject to litigation. Enforcement of licence conditions is described in Clauses 25 to 28 of the Bill. Basically the director issues enforcement orders.

Will these licences correspond to area boards on a one-to-one basis? That was another question that was asked. The answer is yes, the successor companies to the area boards will inherit the area boards' assets. They will be licensed on the same day as they receive the assets. That is what I partly covered previously.

Can the licences be revoked? Yes, they can, either after giving the notice described in Part 1 or for one of the reasons in Schedule 2 which the noble Lord may wish to study as it is quite a lengthy schedule. I hope that that covers most or all of the points which the noble Lord raised regarding licences.

Lord Peston

Perhaps then I may ask another question since it relates to an answer which may be coming. My point was that once the industry has been privatised it will be possible for someone else to take over a particular plc, as it is a plc and plcs can be taken over. I asked specifically whether they would then be taking over the licence with no problem whatever. Does the licence automatically go with the plc?

7.45 p.m.

Baroness Hooper

The licences cannot be transferred from one company to another. However, as the noble Lord said, a licensee might be the subject of a takeover bid. Such a proposed merger would be subject to normal takeover law and practices and could be referred to the Monopolies and Mergers Commission. So there is a control over the situation. The noble Lord shakes his head, just as I was shaking mine when he raised the questions on the formulae. Again, I reiterate that I shall take up his offer to write to him in some instances regarding matters which I may not be able to cover now since this is a complicated subject to someone like myself who does not speak the language of mathematics. I believe that to those who speak and understand the language of mathematics all is much clearer.

It may be helpful if I quickly summarise the formulae we are considering. The control applies to the maximum average price which a public electricity supplier may charge its regulated customers; that is to say, those under 10 megawatts. In an abbreviated form, it can be and has been described as an RPI-X+Y price control.

The RP1-X element covers the suppliers' own costs related to supply. This element will fall in real terms each year. The Y element covers other costs, including generation, J and W, with which I shall deal in a moment; the fossil levy is F which will be determined pursuant to regulations under Clause 33. Transmission, the T element, and distribution, U, will each be controlled by separate RPI-X controls.

Generation costs charged to customers will be a combination of the actual costs paid by the supplier, W, and the yardstick, J—in a sense the average—costs paid by all public electricity suppliers. The yardstick will encourage each supplier to purchase cheaply in an attempt to beat the yardstick and maximise profits. This will encourage all suppliers to take advantage of competition in generation. As they do so, this will in turn reduce average costs. Customers of efficient suppliers will also get a direct benefit from the reduction in actual costs.

The price control formula also includes an automatic correction factor, K, to deal with over or under-charging. This will be dealt with by changes to the following year's prices. The important point to note is that if a supplier over-charges, it will have to repay this in the following year with interest, including a penalty.

I accept that the formula in the licence condition may, at first sight, seem long, although not as long as the formula tabled by the noble Lord. This reflects the combination of regulation and competition and the fact that many costs will be outside a supplier's immediate control. The formula will promote competition and efficiency, putting downward pressure on prices, and will prevent abuse of any remaining effective monopolies.

Some elements of the price formula have still to be determined—that is one of the queries which the noble Lord, Lord Peston, raised—including the figures for X and r, the efficiency factors and the weight given to the yardstick generation costs. These will be fixed shortly before the transfer date, using the latest information available at the time. The precedents established in previous privatisations, in particular for British Telecom and British Gas, are that detailed regulation such as the price control formulae are contained within the licences rather than in the primary legislation. I recognise that the amendment of the noble Lord was a device to enable a discussion to take place.

These amendments have enabled us to discuss the price condition. I hope that, subject to receiving satisfactory answers to any of the detailed questions which the noble Lord raised in great quantity, he will feel able to withdraw his amendment.

Lord McIntosh of Haringey

I hope that the Committee will forgive me for intervening. I was fascinated by the noble Baroness's reference to other privatisation legislation. She will no doubt recall that the Water Bill is proceeding through this Chamber at the present time. There, all of this discussion about the formulae for price regulation has been put into a cupboard in the back corridor under the name of RPI plus X; in other words, none of the formulae to which the noble Baroness and my noble friend Lord Peston referred has been allowed out into the open. Has she discussed this matter with her noble, honourable and right honourable friends in the Department of the Environment? Can she explain why such a different approach is being taken here?

Baroness Hooper


Lord Peston

I thank the noble Baroness for her answer. It was never my intention to press this matter to a Division. The Committee could have passed through the Lobbies, formula by formula. However, I hope that when the noble Baroness reads my contribution in Hansard and sees the large number of other questions that I raised, she will provide answers to them. I am particularly keen to know what will happen to the overcharging money. I was in a state of shock horror when I realised that the Minister had said that if the industry undercharged it could get some of the money back. Being a rather tough person, I hope we can find a way round that.

I am of course aware of other legislation. I believe that in the case of this Bill the formulae are so important to the industry that it will be a pity, to say the least, if the whole thing goes through this Chamber without us knowing about them. As the noble Baroness said, we shall only obtain the formulae when the licences are issued. It is not entirely satisfactory that we should not have an opportunity at some stage to discuss such matters. Having said that, I thank the noble Baroness for her first attempt at an answer for which I am most indebted. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Dundee

The Committee may agree that we have reached the right moment to break in order to return to the subject in an hour's time at 8.55 p.m. I beg to move that the House do now resume.

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

House resumed.

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