HL Deb 16 May 1989 vol 507 cc1123-65

House again in Committee on Clause 3.

[Amendments Nos. 80 and 80A not moved.]

The Earl of Dundee moved Amendment No. 81: Page 3, line 23, leave out ("such persons") and insert ("persons authorised by licences to supply or transmit electricity").

The noble Earl said: In moving Amendment No. 81 I shall also speak to Amendment No. 83. Taking these two amendments together, the Government propose that the duty on the Secretary of State and the director to ensure that licensed electricity suppliers are efficient and economical in their operations be extended to cover transmission licensees also. The existing duty provides those regulating the industry with the power to include in the public electricity supply licence conditions designed to promote efficiency and economy, such as those governing economic purchasing, price control and prohibition of cross-subsidy. The transmission licence holder, the National Grid Company, will similarly be prevented by its licence from cross-subsidising one business activity from another.

The first amendment, Amendment No. 81, will make it clearer that the transmission licence may include the necessary condition. It also reinforces the power to include conditions relating to the grid code in the transmission licence. The grid code is a technical document covering the operating procedures and principles necessary for the efficient running of an integrated transmission system. As such, it can be seen as part and parcel of ensuring an efficient, co-ordinated and economical system of electricity transmission.

The second amendment, Amendment No. 83, is a consequential drafting amendment to take account of the fact that transmission licensees do not in fact supply electricity direct to consumers. I commend both these amendments to the Committee. I beg to move.

Lord Peston

I thank the noble Earl for the explanation of the amendment. I am bound to say that it turns out to mean a good deal more than I had worked out from looking at it. There are two questions which he might care to answer. Am I right in assuming that under the general rubric of "efficiency and economy" it is now the case that the generators, transmitters and what are called the suppliers are all, as it were, obliged to meet the efficiency and economy criteria under paragraph (b) to which he refers? As I understand it, that is the direction of the amendment. Perhaps the noble Earl will make that absolutely clear.

I believe that it may be convenient at this time to request clarification on another point, not necessarily for immediate answer. The words "supply" and "supplier" seem to be used in the Bill in two ways. I should welcome clarification in that respect; perhaps the noble Earl will write to me. In one sense the word "supply" used by the general public, or by lay people such as myself, would mean everything from the original generation of the electricity until the time that it reaches the customer. One might refer to that as the supply system. Sometimes the Bill refers to supply of electricity meaning the whole process from start to finish. However, supply also seems to have a very definite specific meaning: the last stage of the process—the process in which the area board engages. I have not had time to go through the Bill to ensure that the word "supply" is used consistently. I should like reassurance on that at some point. The Minister is quite right to emphasise the technical use of the word "supply". However, the word is often used in a more general way. It would be worth. while clarifying that point.

I was a little surprised to be told that the second amendment is simply consequential on the first. I thought that the replacement of "by them" to "to consumers" was not so much consequential as a clarification of what the Bill meant at that point. However, it leads me again to what I suppose is a typical economist's question: what is the precise meaning of the word "consumers" here? The word "consumer" has two meanings. One meaning would be the final consumers, householders, who buy the electricity in household terms; as it were, the consumers of the National Consumer Council. The term "consumer" is also used in economics for whoever demands the electricity. If firms demand electricity in their production process they would be referred to as consumers. I do not require an answer now but I should be interested to know in which sense the word "consumer" is being used here and elsewhere.

We have no objection to the amendment. Quite the contrary, we welcome it.

9 p.m.

The Earl of Dundee

I am grateful to the noble Lord for raising the various points. On the first point—whether the criterion of efficiency should apply to the generating companies as well as to the supply companies—the answer is that it does not apply to the generating companies. It concerns the supply companies. As a result of the amendment that I have moved—

Lord Williams of Elvel

Perhaps I may have clarification from the noble Earl. Does he mean therefore that generating companies are not required to be efficient?

The Earl of Dundee

No. I can assure the noble Lord that if he had a fear that we should do other than encourage the generating companies to be efficient, that is not the case. The position is simply that in this part of the Bill we address the supply companies and not the generating companies.

The noble Lord, Lord Peston, asked whether, when we talked about "supply", we referred to the last stage of supply or the whole range. He kindly said that I could write to him. I should prefer to do so.

On the second amendment to which I spoke, he said that it was a little more than drafting. I take his point. He makes a distinction about the two categories of consumers, whether domestic or the more general consumer. We intend that it should be all types of consumers—industrial and domestic.

Lord Williams of Elvel

I am sorry again to intervene. However, if the noble Earl cannot explain what the government amendment is about and wishes to write to my noble friend, should not the Government withdraw their amendment?

The Earl of Dundee

The answer to that is no.

On Question, amendment agreed to.

[Amendment No. 8 JA not moved.]

Viscount Hanworth moved Amendment No. 82: Page 3, line 24, after ("electricity") insert ("and heat").

The noble Viscount said: Amendments Nos. 82 and 84 go together. Amendment No. 84 is the key amendment. Combined heat and power once more raises the question of efficient use of energy. If one takes the waste heat from a power station—I am thinking of a coal-fired power station at the moment—one can raise efficiency from 38 per cent, to about 80 per cent, with only a small relative loss of electrical output.

There have been 10 schemes where cities wanted to use the waste heat from adjacent power stations to heat the cities. The Government provided a small grant for them to consider this possibility. Unfortunately to make it worth while with a large power station it means that one needs a large city. It means digging up a lot of roads and involves a long timescale. For that reason so far nothing of this nature has got off the ground. The Government have apparently refused to give any guarantee or any financial help to get at least a prototype scheme of this kind off the ground.

This great opportunity to use waste heat, saving coal, with all the environmental advantages, has not even started, whereas on the Continent—I think I am right in saying in Denmark—50 per cent, of the heating comes from combined heat and power and from the power stations.

We are given a tremendous opportunity with this privatisation. I foresee that there will be many small power stations. That makes it a very great deal easier to try to get a small scheme in operation. If they are run with gas turbines it is very simple because all one has to do is to have a heat exchanger which directly heats the water from the exhaust gases. Even if one has a combined plant which uses some of that heat to produce steam on another electric generator, one still has some left over which can be used for this purpose.

There are a number of cases where the waste heat could be used not for domestic but for industrial purposes. The trouble is matching the electricity generated and the heat output with the industrial requirements. On the other hand, if under the Bill better terms can be obtained from those who can supply electricity to the grid or locally, this kind of thing will become much more viable. It is one great potential contribution towards cutting out or saving power and saving heat and thereby cutting down the need for more and more power stations. I beg to move.

Baroness Hooper

I fully agree with the noble Viscount, Lord Hanworth, that heat generated with electricity is an important potential source of energy. I should like to add that this Government have done more than any other to promote energy efficiency in all its forms. The potential for combined heat and power, which can effectively utilise up to 85 per cent, of the fuel used, compared with 35 to 40 per cent, in conventional power stations, has long been recognised by the Government. This is why the Department of Energy has funded an extensive programme to establish the potential for CHP both on a city-wide and a local basis.

I should also like to dispel any uncertainties that the Committee may have about the impact of the primary duties of the Secretary of State and the Director General of Electricity Supply in Clause 3. They certainly do not disadvantage CHP operators as opposed to any other form of generating plant. The relevant duties imposed by Clause 3 are to promote competition in the generation and supply of electricity, to promote efficiency and economy on the part of licensees and to promote the efficient use of electricity supplied by them. There is therefore no duty to generate electricity efficiently as such, as was clarified by my noble friend in the discussion on previous amendments.

Indeed to have a specific duty on generation could have disadvantages for CHP plant since we are well aware that in operating such plants a balance needs to be struck between the electrical and heat output.

The noble Viscount referred to the fact that the Government are active in identifying the potential of CHP schemes and are helping to bring them to market. For example we made available £750,000 towards further studies in Leicester, Belfast and Edinburgh to examine the economic feasibility of CHP district heating schemes in those cities. But we do not believe it to be the role of government to subsidise uneconomic schemes. If there is a place for CHP—we very much believe that there is—it must pay its own way. The acid test of any successful CHP scheme must be its ability to attract private sector finance. To do this a scheme must be able to compete effectively with other forms of electricity generation, space heating and heating for industrial processes.

I do not share any pessimism about the future of CHP which is perhaps implied in the amendments. I do not believe that we need to subsidise or artificially to support CHP to enable it to realise its potential. Of the capacity planned by the major independent generators wanting to enter the market, over 1GW is accounted for by CHP. This represents a 50 per cent, increase on existing levels.

On Amendment No. 84, I also agree that heat co-generated with electricity is an important potential source of energy which should be utilised as far as possible. Clause 3 places a duty on the Secretary of State and the director to promote energy efficiency. We believe that in the privatised industry each licence holder will naturally control its own use of electricity scrupulously, as this will significantly affect cost and the ability to compete successfully. If a project to utilise the heat produced during the process of generating electricity is economic, it will be in the licence holder's interest to bring the scheme forward.

Our proposals will ensure that all private generators, including CHP, will have fair and equal access to the transmission and distribution systems and that the independent grid company will have every incentive to promote competition in generation. As well as the lead city schemes to which I have referred, on the industrial and commercial front the Energy Efficiency Office has been active in supporting and promoting CHP and novel applications for CHP under its energy efficiency demonstration scheme. To date, 21 projects have been supported. In addition to support for its technological aspects, we have also undertaken extensive research into the potential for CHP. Reports on the market potential for CHP in public, commercial and domestic buildings and in industry have been published in the last year.

In this context, I am pleased to point to a number of schemes which are being prepared for development without government subsidies. Included here are schemes at Leicester, Sheffield and Newcastle to which the noble Viscount referred. In addition, there is the widespread use of CHP in industrial processes, with around 2GW of such capacity already in place.

Our privatisation proposals are specifically designed to encourage competition in generation and to ensure that all economic sources of electricity supply will have fair access to the market. Thus, all generators, including CHP operators, will have fair and equal access to the transmission and distribution systems after privatisation. The new transmission company will have every incentive to promote competition in generation. We shall also ensure through licence conditions that terms for the use of the grid will be transparent, thereby allowing first time generators to compete on an equal footing with the two major generators being created from the CEGB.

I do not think it would be right to impose a duty on the Secretary of State and the director to promote a certain type of power plant designed both to generate electricity and utilise effectively any surplus heat produced in the process as suggested by Members of Committee. It would be quite wrong to require any industry to act uncommercially. I believe that our approach—of encouraging competition and leaving the consumers to make their own well informed decisions about whether to invest in energy efficient measures—is likely to produce the best results. It is not sensible to try to enforce energy efficiency by statute and regulation. Against this background, it is not necessary to seek to create a privileged position for CHP operators in the way that this amendment suggests. Given the encouragement that exists, to which I have referred, I trust that the noble Viscount will withdraw the amendment.

9.15 p.m.

Viscount Hanworth

I thank the Minister for that long and useful reply. I was trying to point out that, in respect of large power stations, one needs to obtain a prototype. Once that is off the ground others will follow. That is where some guarantee or help from the Government would be useful because it is difficult to obtain finance on the long-term basis required.

Equally, I believe that some kind of provision could be put in the Bill. However, I do not believe that the wording is right. I should like to modify it and to put in a provision that is a reminder of the possibility. To get something off the ground may require, for example, the help of the director. I am not therefore totally happy that a provision along these lines may not be required. Nevertheless, I gladly withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Dundee moved Amendment No. 83: Page 3, line 24, leave out ("by them") and insert ("to consumers").

On Question, amendment agreed to.

[Amendments Nos. 84 and 85 not moved.]

[Amendment No. 86 had been withdrawn from the Marshalled List.]

[Amendment No. 87 not moved.]

Lord Williams of Elvel moved Amendment No. 88: Page 3, line 29, at end insert— ("(3A) In performing his duty under subsection (3)(b) above, the Director shall require that before any Licence Holder applies for planning permission for the construction of new plant over 50Mw electrical capacity in aggregate, it must be demonstrated that the Licence Holder has examined all reasonable energy demand management alternatives on an equal basis with the proposed energy supply option, and that new energy supply is the most efficient and economical option available overall. If the Director is satisfed that the proposed new supply is more efficient and economical than energy demand management alternatives, then he will issue a Certificate allowing the Licence Holder to seek planning permission. If the Director is not satisfied under the terms of this subsection, then he will withhold the issue of a Certificate thereby preventing the Licence Holder from proceeding.").

The noble Lord said: We embark here on the question of efficiency in generation. As the noble Earl pointed out, government amendments have led us to efficiency in transmission and an amendment accepted by the Committee earlier today pointed to efficiency at the point of use. However, as yet we have not had anything concerned with efficiency in generation.

The amendment seeks to ensure that those who wish to generate electricity above a certain capacity (with which I shall not bother Members) have examined all reasonable energy demand management alternatives on an equal basis with the proposed energy supply option. It also seeks to ensure that the new energy supply is the most efficient and economical option available overall. I shall concentrate in what I have to say on that second proposition which is known in the United States as the least cost option

We believe that there is substantial benefit to be gained from generators, before they can satisfy the director, studying what will be the various costs of the different methods of generating electricity. On the assumption, and if it is proved, that energy conservation and increased energy efficiency do not lead to the proposed generating station being superfluous, they should at least ask themselves whether what they are doing is the least cost option.

There have been many pieces of evidence submitted, not least to the European Communities Committee Sub-committee B, referred to by my noble friend Lord Shepherd earlier this afternoon, and indeed to the House of Commons Select Committee, that the UK seriously lags behind internationally in studying energy efficiency in generation. Indeed, it is argued by a study sponsored by the European Community in the North-West of" England that by implementing readily available energy efficiency measures, increase in energy demand can be limited to 3 per cent, by the year 2000. I cite that as a figure. A similar study is at present being completed in the North-East of England, and I believe that that will be presented fairly shortly to the European energy conference or, indeed, it may have already been presented.

In the generation of electricity either we move to a high cost system, which is essentially, in spite of what the noble Lord, Lord Trafford, may or may not have said earlier, high cost generation of electricity, or we move to low cost generation of electricity. We wish to know in which direction the Government are moving. Do we wish to go to a system which would enable us to evaluate all the different methods before the director decides whether he can pass it for planning permission, do we wish to go to a system which enables the director to decide that system X is more efficient than system Y in cost terms, or do we wish to go to a protected system where the non-fossil fuel quota is increased from 20 per cent., 30 per cent, or whatever it may be and as consumers we have to pay the price?

Therefore, this amendment attempts to raise the whole question of where we are going in efficiency of generation. It is in putting the question in that form that I beg to move the amendment.

Lord Trafford

I am somewhat unhappy about this amendment for two reasons. First, what company would not look at all the options of how it was to proceed in a major investment, particularly the necessity of such an investment, before making plans to proceed? Secondly, if it were making plans to proceed, it would clearly prefer, other things being equal, a low cost to a high cost production.

Lord Williams of Elvel

Perhaps I may—

Lord Trafford

Perhaps the noble Lord will let me finish. Thirdly, the assumption here is that unless a whole series of probably non-economic reasons—and they may be social or environmental—are put forward, it is assumed that any company would not consider those matters. I am querying the necessity for this amendment at all because it strongly suggests to me that the noble Lord is saying to a large extent that he would expect people operating those companies to be short-sighted and incompetent.

Lord Williams of Elvel

I am glad that the noble Lord puts his question in that form, because I believe that in some respects they may well be so. Which company would not look to low cost? I tried to copy down the question when the noble Lord did not allow me to intervene. The answer is probably National Power and possibly Power Gen, if I may put that in a direct manner, because they are constrained by other provisions in the Bill which stop them from doing that. They may be constrained by the non-fossil fuel quota, for a start; and they may well be constrained by other policies relating to coal imports, and so on. Therefore, there is no pressure because there is no competitive pressure between the two major power generators. Whatever the Government may argue, I simply do not accept that there is competitive pressure. In my view they will not be constrained to the lowest cost option.

Lord Trafford

Assuming that the noble Lord is right in what he said about various constaints, there is no option, anyway. In fact, that is the point that the noble Lord is making. All these constraints will force the companies to choose one way or the other, irrespective of the economic circumstances. Therefore, it is not a question of low-cost or high-cost, but a question of, "If there are no constraints, I must choose X". It is Hobson's choice. My whole argument about the amendment is that if these reasons are true and assuming what the noble Lord said is accurate, it is unnecessary. On the other hand, if what the noble Lord said is not accurate, it is irrelevant.

Lord Williams of Elvel

The noble Lord is quite wrong. Given that there are constraints, and given that there is no competition, it is up to the regulatory authority to ensure the benefits of the competition that would have existed if there had been any competition at all.

Lord Hylton

Regarding the amendment, I draw attention to Schedule 12 of the Bill. This schedule, which we have not yet reached, gives the Secretary of State the power to make outright grants for three listed categories in connection with nuclear fuel, radioactive waste and the decommissioning of nuclear power stations. The schedule empowers the Secretary of State to make loans—again, in connection with nuclear generation—at any rate of interest which he may with the approval of the Treasury direct. The schedule then goes on to allow him to give guarantees.

It is precisely on those aspects, which give carte blanche permission to the Secretary of State to do whatever he likes, that we need this alternative demand management analysis. I hope that the Government will respond to that point.

Perhaps I should say to the noble Lord, Lord Williams of Elvel, that I am not sure that his amendment is quite right. I say that for this reason. Those who will be in the business of generating may not be those who are in a position by one means or another to manipulate or adjust the level of demand. The noble Lord is hitting an important point, but I am not entirely sure whether he has the right vehicle for applying this demand management analysis. I hope that we shall have a full reply from the Minister.

Lord Williams of Elvel

I apologise to the noble Baroness for intervening again but perhaps I may respond to the noble Lord, Lord Hylton. The last part of the first paragraph of my amendment uses the words "available overall", so it is the director who has to take a broad view, not simply on the specific proposals but of the overall situation. I think that covers the point.

9.30 p.m.

Baroness Hooper

The Government are committed to increased and sustained energy efficiency including sensible demand management. Perhaps I should also refer to the fact, as the noble Lord, Lord Williams, is no doubt aware, that electricity demand is growing and is likely to continue to do so in all major industrialised countries as consumers install new electrical processes and equipment. The major international organisations such as the IEA and the European Commission therefore forecast continuing growth in electricity demand even after taking account of prospective efficiency gains. Therefore, new plant is likely to be a necessary option in the future. If I may say so, I do not believe that the somewhat bureaucratic measure that is being suggested is necessary.

As a result of the new structure which the Bill brings about, the electricity industry will be subject to full commercial pressures. The noble Lord is well aware of what "full commercial pressures" means. In the light of this, generators will not build power stations if there is no market for the electricity. Our proposals will mean that energy efficiency decisions taken by consumers will prevent unnecessary power stations being built.

In the privatised industry each licence holder will very naturally scrupulously control its own use of electricity and fuel. As my noble friend Lord Trafford said, that will significantly affect their costs and their ability to compete sucessfully. I believe that they will automatically ask themselves what is going to be the least cost for themselves without the imposition of a statutory requirement.

The increased competition which is central to the Government's proposals will provide a major incentive to the efficient use of fuel. In addition to that, condition 5 of the public electricity supply licence will oblige public electricity supply licence holders to purchase electricity from the most economical sources available to them. Under our proposals, for the first time public electricity suppliers will be able to choose between contracting for more generating capacity and selling energy efficiency measures. Up to now the area boards—as the noble Lord himself prefers to call them—have had little choice but to accept the capacity provided by the CEGB. In future, public electricity suppliers will be able to choose energy efficiency instead, and they will be able to choose their suppliers not only from the two successor companies to the CEGB, National Power and Power Gen, but from the other competing generators.

In that context perhaps I should say that the non-fossil fuel obligation is an obligation on the supply companies not on the generators, so the supply companies will look not only to Power Gen and National Power for that source to fulfil their obligation but to other generators as well, although it goes without saying that in the initial phase at least they will be looking very largely to National Power and the nuclear component.

Perhaps I may make a final reference to the least cost planning in the United States. I believe that we touched on this in our discussion last week. I should point out that although this is a method which is used in three states in the United States it has actually been attacked there on two grounds, the grounds of uncertainty and fairness. So the fact that it operates in some parts of the United States is not necessarily a recommendation.

For those reasons, I believe that the amendment is unnecessary and I trust that the noble and learned Lord will feel able to withdraw it.

Lord Williams of Elvel

I am grateful, as always, to the noble Baroness for her courteous reply. We have a major divide here about whether or not there will be effective competition in generation. If there is effective competition in generation, all the noble Baroness has said will probably turn out to be right. I and her noble friend Lord Peyton and others

believe that there is no, and will be no, effective competition in generation. On any estimates, National Power and Power Gen will have 90 per cent, of the generating market in England and Wales for a long time hence. I do not believe that all this will occur in the way that the noble Baroness insists. However, she insists on her point and I insist on my point. I can see that we shall get no further. We shall come back to this at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.45 p.m.

Viscount Hanworth moved Amendment No. 89: Page 3, line 30, after ("subsection") insert ("(3)(a)(i), (3)(a)(ii) and").

The noble Viscount said: The Bill requires that the Secretary of State and the director, shall take into account, in particular, the interests of those who are disabled or of pensionable age".

But this applies only to subsection (3)(a)(i) which covers prices charged and the other terms of supply. This amendment extends the obligation to the continuity of supply and the quality of electricity supply services provided. I cannot see why this has not already been done but no doubt the noble Baroness will be able to tell us. I beg to move.

Lord Williams of Elvel

It may be for the convenience of the Committee if I speak also to Amendments Nos. 90, 90A and 91. I support the noble Viscount in his amendment. Our Amendments Nos. 90 and 90A are broadly along the same lines. At present the clause requires the Secretary of State and the director to take into account when carrying out their duties the interests of the disabled and those of pensionable age. This subsection and subsection (2) clearly recognise that utility pricing problems cannot be reduced to the simple measure of maximising efficiency. We have had a good deal of discussion of efficiency but this is not the end of the story. It is particularly important in regard to this Bill that electricity for space and water heating is disproportionately the fuel of the disadvantaged in society. We all know that not only those of pensionable age but also disadvantaged people regard electricity as a major means of existence. It would be inappropriate to omit reference to those who are disadvantaged through ways other than disablement or being of pensionable age. In our view "disadvantaged" can mean people who are ill or people who may be living on their own. It can mean all kinds of things of which the welfare considerations of the Bill should take account.

The heating systems used by low income households are not a product of consumer choice. In many ways they are a product of public policy. For example, much of the UK's rented housing is still provided by public authorities. Therefore tenants are not able of their own volition to switch fuels in response to whatever economic signals may be put out.

I believe that this is a matter to which the Government would do well to pay attention. It is not only elderly and disabled people who are vulnerable to utility prices; indeed, low income families with several children would be similarly vulnerable. Therefore if this clause could be extended to include wording based on the articles of association of the National Consumer Council, we on this side of the Committee would welcome such a move.

Baroness Hooper

Of course the Government are concerned about pensioners and disabled people. Nevertheless, the provisions in the Bill place a duty upon the Secretary of State or the director to take into account those interests in promoting the interests of consumers in respect of the quality of the electricity supply services provided. We have already touched upon what that may involve in terms of the types of meter which are offered. But, notwithstanding our concern in that area, and because of the provision which has already been made, it does not seem right to extend the duty to cover continuity of supply. Without vast expenditure on providing extra mains, it would be impossible to offer next-door neighbours different arrangements for continuity of supply.

The duty of the Secretary of State and the director to protect consumers' interests in respect of continuity of supply should extend equally to all electricity consumers who continue to enjoy the current high standards of security. Similarly, the special arrangements for vulnerable premises—for example, hospitals—will continue. We believe that all consumers have a right to expect their supplies to be provided efficiently and continuously so far as is possible.

So far as concerns the need to avoid disconnections, ample provision is made for those having difficulty in meeting bills in the two licence conditions on this subject. The first requires licence holders to provide a code of practice and the second, which we shall be introducing shortly, requires the licence holder to operate an agreed method for dealing with customers in default. Those conditions will protect the interests of the elderly and the disabled, just as they will other customers.

I believe that in saying this I have covered the amendments in the group. I trust therefore that the noble Viscount will consider that sufficient argument and will feel able to withdraw his amendment.

Viscount Hanworth

I have heard the arguments and although I am not wholly convinced, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 90 to 91 not moved.]

Clause 3, as amended, agreed to.

Lord Sherfield moved Amendment No. 92: After Clause 3, insert the following new clause:

("Research and Development.

The Secretary of State shall have a duty to secure the provision of such research and development as may be necessary to guarantee the long-term supply of electricity to the nation.").

The noble Lord said: I rise to move the amendment standing in my name on the Marshalled List. The noble Lords, Lord Nelson of Stafford and Lord Gregson, and the noble Viscount, Lord Caldecote, are also associated with this proposal. I need not detain the Committee for long as the issue of research and development in the electricity industry was raised by many speakers on Second Reading, notably by the noble and gallant Lord, Lord Carver. He spoke on behalf of the sub-committee of the Select Committee on Science and Technology of this House which is currently inquiring into certain aspects of what is universally now known as the greenhouse effect.

I put down this amendment after discussion in the Select Committee and I move it in the absence of the noble Lord, Lord Nelson of Stafford. Other speakers, including the noble Earl, Lord Lauderdale, and the noble Lord, Lord Shepherd, also spoke about research and development on Second Reading. They were answered by the noble Lord, Lord Sanderson of Bowden, when he wound up. He concluded by saying that the Government's intention would be to ensure that the long-term research and development that they considered to be necessary in the national interest would be carried out. The purpose of the amendment is to introduce the essence of that assurance into the Bill. I do not doubt the bona fides of the noble Lord's assurances, but this is a long-range measure. Assurances from a Front Bench tend to fade into oblivion, particularly when Ministers change.

There are two aspects to research and development in this industry; that which is needed to sustain the safe operation of existing plant, and the longer term development of future plant, notably, improved PWRs, fast reactors, fusion and other energy-producing systems, non-renewable and renewable.

Secondly, there are the environmental effects of the various means of power generation. There is widespread concern over the question of long-term and strategic research and development in both those areas.

In evidence to your Lordships' Select Committee last year the CEGB made it clear that, with the reorganisation of the industry, resources hitherto devoted to research and development were bound to diminish. The noble Lord, Lord Marshall of Goring, was asked who would be responsible for long-term research and development after privatisation. He replied: In my opinion that must be the Government. At the present time the CEGB has the national obligation to supply, and it is our responsibility to plan and implement the supply of electricity in England and Wales, now and in the future. That will not be our responsibility in the future when it must be either with the Government or collectively with the Distribution Boards".

The National Coal Corporation told us only last week: The research institutions of the nationalised energy industries have been the natural place for much research into the environmental consequences of energy production and use. Because of this, the government has in the past not needed to consider separate funding for such research in the general national interest. However, with the privatisation of these industries, shorter term commercial pressures will result in a curtailment of this fundamental environmental research. It is therefore essential that separate government funding is made available to these institutions so that their expertise and experience is not dissipated and so that the environment policies and actions of the government are backed-up by thorough and well-directed research".

That message is equally applicable to the electricity supply industry.

The Government's record in supporting long term research and development has up to the present time been patchy and far from distinguished. If things continue as they are, on present form any contribution to long-term research and development of the electricity industry is likely not only to be too little but to be too late after the experienced research teams have been dispersed or have moved elsewhere.

Finally, it would be extraordinary if in a Bill of this range, reorganising an industry of this importance, there were no reference to research and development. Even the Water Bill manages to include a clause about research and development in that industry. I and my colleagues on the Select Committee consider that the Bill should include a similar clause. I beg to move.

Viscount Weir

I wish to commend the amendment most strongly. For many years the CEGB in particular has supported an excellent research and development programme. It has done so through its own laboratory facilities, through support for such projects as the fast reactor programme and through direct collaboration with equipment makers. The projects that have been supported have been both worthwhile and well chosen. According to its last accounts the CEGB spent something like £200 million in that area. Work on reducing the emission of oxides and nitrogen through better burner design of boilers is only one example of what it has done. Work in supporting fluidised bed combustion is another.

Overall, the CEGB's programme has been very directly in the national interest in three specific ways. First, it made better equipment available to the generating industry and by improving reliability and efficiency benefited the consumer. Secondly, it has been of great value to British equipment makers, particularly in helping them to compete more effectively abroad. Thirdly, it has kept Britain's place in longer term developments in the power field.

It is perfectly understandable that the CEGB should now take the view that when it is divided into two independent companies after privatisation, it will be unreasonable to expect the board on its own to continue to carry the research and development burden, particularly for longer term projects, as it has done entirely itself in the past. Its reluctance is justified by the fact that the two companies will not only have to compete with each other but also compete with new entrants to the industry which will not bear such costs.

I do not think it justified that nationally we should accept the consequences of such commercial decisions when one such consequence will most certainly be to leave gaping holes in the overall research programme. It is futile to suggest that market forces will automatically produce some sensible and economic response to the situation. At the very best, there would be a considerable lapse of time before the electricity industry settled down into its new structure and, for example, co-operative arrangements for research and development within the industry, such as those that exist today within the United States, could be established.

It is essential therefore that for a considerable period—and I suggest that in practice this could be not less than five years—an obligation should remain on the Secretary of State to fill the gap which would otherwise be left. For many years now the electricity industry has enjoyed the combination of co-operation between the users and the equipment suppliers and competition between those suppliers for the users' business. A very important expression of that co-operation and common interest has been in the fields of research and development. This has not in any way been something collusive and cosy, to the detriment of the public interest—quite the contrary. In fact I think it is the right and natural way for matters to be in the industry.

If we look at France, Germany or Japan, we see excellent examples of such co-operation being reflected in a most efficient electricity supply industry in those countries and in the very successful exports of electrical equipment from them. In all those countries the electricity utilities strongly and directly support research and development by the equipment suppliers. I believe therefore that we must do everything possible to preserve arrangements of this kind in the field of research and development for the future health of both sides of the industry. I find it very difficult to imagine the Committee giving other than the broadest and the most enthusiastic support to this measure.

Finally, the broad scope of this amendment is by its very nature commendable, as it invites the Government to make constructive, sensible and detailed proposals to deal with so obvious a deficiency and omission in the Bill. Therefore, I look forward to hearing just what constructive proposals the noble Baroness, Lady Hooper, may have in mind.

Viscount Hanworth

I strongly support the amendment. Most of the major points have already been made. However, I do not believe for one moment that long-term research will look after itself without promotion. Firms do not, except in a small way, look far enough ahead for that. I also wonder what the relationship as regards research will be between the two major power generation companies. They will obviously agree to a certain degree to share results. But unless someone looks at this matter rather carefully, the best results will not be achieved. Someone needs to co-ordinate this matter.

Perhaps I ought to know, but what on earth is being done about nuclear research? How does that come into the picture? If the Minister feels, as I and many other Members of the Committee here tonight feel, that something should be done, what does she think about my proposal in Amendment No. 93, which is grouped with this amendment?

The Earl of Lauderdale

I do not join in this debate as an expert in research or with any comprehension of science. However, we are faced with a long-term proposition. The first effects of this Bill, if it becomes an Act, as I am afraid it will, will probably not be noticed by the public for five years, or perhaps longer. In the meantime those who are responsible and those whose heads should be on the block will have disappeared over the hill. The Department of Energy may well have disappeared altogether and been swallowed up in the DTI. The Secretary of State concerned may well be in another job. Those responsible will disappear and escape the axe which is due to them.

This is a very serious matter. Even now I do not feel that the Government appreciate what they are tampering with. This Bill has come from the House of Commons. It was well debated there and there was no guillotine. It is up to us to do the best we can to salvage what is left of the wreckage. The Government are wrecking the electricity supply industry and we must try to save what we can. That is the context in which I warmly support the amendment of the noble Lord, Lord Sherfield. I hope that if he does not receive a satisfactory reply from the Front Bench he will test the opinion of the Chamber. I say that very firmly.

This matter was raised at some length in a debate on research that took place not many weeks ago. We received no answer whatever. I raised the matter again on the Second Reading debate on this Bill. I was promised an answer, but I received no answer whatever. As a layman, I am concerned that the decision to cut research funding for the fast reactor is disastrous in itself. I think that the decision to pull out of fusion research—some people say it can be done by so-called cold fusion in a test tube but that theory has been exploded—and to cut funding for research because it will take 45 years to produce results is mistaken. That is no reason for doing so; it is a very good reason for investing in research. If we are interested in the future of our country we should not be snipping and snapping at our research like peeling a banana.

I said to my noble friend when she was appointed that I thought that she had an awful row to hoe. I sympathised with her on being landed with this job. I think the department has not given her the support which Parliament expects to be given to a Minister; otherwise we should not have such a muddled Bill. However, I should not be surprised if she tells us that the Government are consulting ACORD—the Advisory Committee on Research and Development—and are awaiting its judgment. We have been told over and over again that this Bill has the support of the industry. Who are the people who have been consulted? Those they nominated themselves, the people appointed to ACORD as government nominees. We know very well how the government of the day can lean on the most honourable people and get the answers they want.

Therefore, if we are told that the Government are awaiting ACORD's judgment I do not believe that that is good enough. I believe that ACORD's judgment will be much influenced by a vote in this Chamber. Unless my noble friend comes forward with a satisfactory reply, I hope that the amendment will be pressed to a Division.

I do not like to speak in these terms but those of us who have listened to today's debate have been very disappointed at the hardness and rigidity of the Government. I am reminded of an occasion many years ago when we debated in this Chamber, day and night, the Bill to take us into the Common Market. The Government made it clear then that they would not accept any amendment, even to put the language right, even to put in a comma or the word "that" which was necessary for the Bill to make sense. I remember a former Lord Chancellor rising and saying "Only a sense of public duty brings me to my feet at twenty minutes to midnight on 8th August". I feel rather like that tonight. It is not 8th August yet, but if the Government continue to be as obstinate as they have been today this Committee stage will go on and on. Those of us who feel seriously about the matter will continue to press it, not because we have any animosity towards the Government but because the policy is wrong and the Government are not listening.

I implore my noble friend not to take too harshly the words I have said after dinner. However, this is a serious matter; it is very serious indeed. We are talking about our grandchildren's future and the position of this country in 20, 30 or 40 years' time. It is not a trivial matter. Merely to say, as has been said hitherto, "We are waiting for the advice of ACORD" is not good enough. We want a vote in this Chamber to support the motion and to make it clear to ACORD how this Committee feels. There are noble Lords present who know about research and who are eminent in the subject. I am just a layman. I have said my say. I hope that my noble friend will not take it amiss or personally, but I feel very strongly on the matter, as she knows.

10 p.m.

Lord Trafford

I too feel very strongly about the matter. As I recall 8th August is better known in history as the black day of the German army, as described by Ludendorf. It was the day it began its retreat. I believe this is a very important question. I am deeply concerned that we manage to maintain levels of research and development.

I say again, as I have said in previous debates on research and development, that there are two types of research and two types of development, one good and one bad in each case. Therefore, I am always anxious about blanket endorsements of any particular policy procedure or requirement. Of course it would be very nice, as every director of every research outfit would agree, to have only good research. That is not always possible to foretell; nor is it always capable of achievement. To a certain extent one has to put one's bread upon the waters.

Although I hope that my noble friend on the Front Bench will look at the matter sympathetically and perhaps review the wording or the terms of the proposal, I must put in a caveat. It is like the question of investment, if I may use that analogy. Investment is utterly useless if it merely wastes money, produces nothing and is simply money down the drain; but it is still classified as investment. On the other hand, if a much smaller sum of money produces a much better return, that is a much better investment. That is common sense, but the same is true of research and development.

Opinions are always expressed strongly on research and development. There is a strong research element in the House. However, despite the strong opinions expressed, I believe that one must remember that selection is also part of the essence. I hope that my noble friend will look at the matter sympathetically. I am sure that she is aware of the importance of research and development, but I hope that she has that slight hesitation with regard to a blanket endorsement of such a proposal as is contained in the wording.

Lord Williams of Elvel

As has frequently happened with regard to other amendments, the debate on this amendment has taken place on the opposite side of the Chamber. This is the first opportunity that I have had to speak to the amendment.

I believe that the noble Lord, Lord Trafford, is wrong in his criticism of the drafting of the amendment. I believe that the noble Lord, Lord Sherfield, has put it absolutely right and that the Secretary of State should, have a duty to secure the provision of such research and development as may be necessary". Clearly, the Secretary of State must choose so that he is not simply throwing money all over the place. The noble Lord, Lord Trafford, said that he was sympathetic to the thrust of the amendment, while entering a caveat. I believe that noble Lords opposite—indeed, the noble Lord, Lord Sherfield, and everyone who has spoken—are sympathetic to the amendment.

I cannot do better than the noble Viscount, Lord Weir. He made a most powerful speech in support of the amendment. The fact that we were both born in the same year—1933—only goes to show that 1933 was a vintage year for speakers. I cannot do better than the noble Viscount because he said exactly what needed to be said in the Chamber in the most forceful terms possible. If the noble Earl, Lord Lauderdale, wishes to encourage the noble Lord, Lord Sherfield, to divide the Committee, he can be assured that the slender troops that we have at our disposal will be at the disposal of the noble Lord, Lord Sherfield. However, I must point out that it is late at night and that we want to move on with the Bill. I very much hope that we can reserve this battle for another day when we have read what the noble Baroness will say in response.

The Earl of Halsbury

I am currently the prisoner of the Cardiff Bay Barrage Bill and am therefore unable to take part in all the procedures in the Chamber. In rising to speak after the noble Lord, Lord Williams of Elvel, I should say that, if my noble friend, along with the noble Earl, Lord Lauderdale, chooses to divide the Committee, I shall follow them into the Division Lobby.

Baroness Hooper

I do, of course, look sympathetically at this question. The Government share the view of all noble Lords who have contributed to the discussion about the importance of research and development, particularly in the energy sector. However, I cannot agree with my noble friend Lord Lauderdale that he received an inadequate reply from my noble friend Lord Sanderson of Bowden at Second Reading.

However, research and the introduction of new technology are, we believe, the key to the efficient production of goods that customers want to buy. In the energy sector, where most sources of fuel are not limitless, research is therefore most important in order to ensure that energy can be provided to customers efficiently and at least cost over a long timescale.

Perhaps I may first explain the Government's approach to the question of research and development in the private sector. We do not believe that it is right to take an interventionist approach to research and development, as I have had the opportunity to say many times. Nevertheless it is no accident that successful companies both here and abroad are those which invest a considerable effort in R&D. To take an example from within the energy sector which will be familiar to many Members of the Committee, the oil companies that are active in the North Sea are spending close on £100 million a year on research and development on new offshore technology. The Government wish to encourage that, but we believe that it will not be possible to do so by taking over the reins and deciding what research and development is to be undertaken. If they were to do so companies might well stop investing in R&D and would lose the ability to pick winners themselves for the future.

In this connection I am minded to recall the discussions we had this time last year during the passage of the Education Bill when arguments against overdirection from government on research and development were rife. They seem to be completely at odds with some of the arguments that have been advanced today.

Much concern has been expressed about environmental research and the greenhouse effect in particular. The Committee may have seen the announcement of the noble Lord, Lord Marshall of Goring, which has already been quoted in this debate. Many Members may also have seen the announcement made by the CEGB on the day of the Second Reading of the Bill to the effect that it was launching a £1.5 million research programme into the greenhouse effect. I should like to quote Dr. Chester, the CEGB's Environment Director, who said: It is vital that we put research into higher gear to get uncertainties reduced. There will be hard decisions and hard investments to be made and those making them should have the benefit of the best that science can provide". He also added that National Power and Power Gen would continue most of the board's environmental work in a joint venture. I believe that this demonstrates a responsible commitment to research and development, as we would expect from such major companies.

For its part the Department of Energy is involved in supporting scientific work on the greenhouse effect under the wider international framework of the Intergovernmental Panel on Climate Change. The department's existing R&D programmes in renewables and energy efficiency will of course continue to provide valuable information and support for the introduction of new technologies which can help reduce carbon dioxide emissions; while the non-fossil fuel obligation, as well as ensuring a continuing role for nuclear power in the generation system, will also provide a new impetus for renewables.

There has also been the suggestion that the privatised industry will concentrate wholly on short-term research. I believe that it would be extremely short-sighted of it to do so in an industry where the lead times for the construction of plant are long and long-term decisions need to be taken about fuel supply and likely demand changes. A long-term view of the future has to be taken. If the oil companies that I mentioned earlier are prepared to demonstrate their faith in the future through their long-term R&D, I see absolutely no reason why the privatised electricity industry should show any less confidence.

Lord Dean of Beswick

Perhaps the Minister will give way at this point. How would she respond to the point made by the noble Viscount, Lord Weir, regarding the question of exports? He is someone else who has worked in the past in the power plant industry. Are the Government not aware that if they get it wrong they may mortally wound our capacity to export power plant abroad with all the appalling consequences that that will have on the balance of payments in our manufacturing industry which, as the Minister knows, is already very adverse?

Baroness Hooper

I hope to be able to demonstrate that the Government have no intention of getting it wrong.

The Earl of Lauderdale

My noble friend referred to oil companies and I should declare an interest in that I am a director of a French oil company, Elf Aquitaine. We spend a lot of money on research. But this is not long-range research of the kind envisaged by the movers of this amendment. This is research which provides ways of improving what is called enhanced oil recovery, and so on. We have spent a lot of money. It is not research for 20 or 40 years ahead. I believe that we are talking about the very long-term research into such things as fast reactors—which is fairly short term, speaking relatively—and fusion. That is quite different. There is no analogy between what the oil company is doing in the North Sea and what we are talking about.

10.15 p.m.

Baroness Hooper

I shall not quibble with my noble friend about this, although I believe that the oil industry is looking far into the future, and indeed the export market as well, in the research that it is developing. However, since my noble friend also referred earlier in somewhat slighting terms to ACORD, I must fulful his prophecy by saying that he may be interested to hear that last week ACORD considered the electricity supply industry's R&D programme in order to advise the Secretary of State about the implications of the changes that are taking place. ACORD concluded that while it would take some time for the full implications of privatisation for R&D to work through, the industry's proposals demonstrated the seriousness of its commitment to undertake R&D and its acknowledgement of the contribution that R&D can make to ensure the future health of the companies concerned.

While noting that there was uncertainty about the future of longer term research, members of ACORD from the private sector pointed to the longer term elements in their own programmes and warned against too ready an assumption that all long-term work would be dropped.

The council advised that the department should monitor the situation carefully over the next few years. Members from the electricity industry made helpful offers of assistance as to how the department might set about this monitoring task, and ACORD will itself be involved in this process.

In the light of this, I believe that I can reassure Members of the Committee that the department will continue to receive well-informed advice about what R&D will be undertaken in the industry and what gaps, if any, would be appropriate for Government funding.

In seeking to put a specific duty on the Secretary of State, the amendment is not entirely necessary, not only because of the practice of successive governments, but also because such a general duty for the Secretary of State already exists in statute. The Ministry of Fuel and Power Act 1945 already charges him with the general duty of, securing the effective and co-ordinated development of coal, petroleum and other Minerals and of promoting economy and efficiency in the supply, distribution, use and consumption of fuel and power, whether produced in Great Britain or not". This duty, taken with the powers to support R&D under the Science and Technology Act 1965, already I believe achieves much of the situation that the noble Lord's amendment is seeking to cover.

In brief therefore I believe that the Secretary of State already has a general duty to ensure adequate co-ordination in this area; that the present administrative arrangements— —

The Earl of Lauderdale

I am sorry to trouble my noble friend. The Secretary of State has a duty to co-ordinate. What about the funding? We have read recently that the funding of the fast reactor research will be slashed; and that of future research even more so. The Secretary of State may have the duty; but how does he exercise it? We are worried about the money and the provision for 10, 20 or 30 years ahead.

Baroness Hooper

My noble friend has made perfectly clear what his major worry is. However, perhaps I may continue. We believe that there is no reason why the present arrangements should not continue to work well in the future after privatisation. In this sense therefore there is nothing between the Government and those who have sponsored this amendment.

We also have certain difficulties with the wording of the proposed amendment. We believe that it could lead to confused lines of responsibility. Under the Bill as drafted, the responsibility for ensuring secure electricity supplies devolves squarely and unambiguously on the supply companies. By imposing on the Secretary of State a specific duty in relation to security of electricity supplies, the amendment would confuse this responsibility in an undesirable way. More generally the amendment would give the privatised electricity companies an undesirable signal that they need not concern themselves with long-term research because ultimately the Government would always be there to pick up that tab.

I have dealt fully with this question because it is important. I recognise that it preoccupies many noble Lords on all sides of the Committee. As I have said, the Government consider it to be an important area. In introducing the amendment the noble Lord, Lord Sherfield, made the point that there is no reference to research in the Bill. Perhaps on that basis and as a result of the strength of views that have been expressed on this matter, we could consider the promotion of research and development further to see whether a possible government amendment could be brought forward at the Report stage that would acknowledge the concerns of those who have expressed themselves on the subject this evening, while avoiding the difficulties in drafting to which I have referred.

I trust that on that basis the noble Lord will feel able to withdraw his amendment.

Lord Williams of Elvel

Before the noble Lord, Lord Sherfield, decides what to do with his amendment can I probe what the noble Baroness has just said? Is she giving us some form of undertaking that the Government will come back with an amendment on Report?

Baroness Hooper

What I have said is that the Government will consider the question to see whether a government amendment could be brought forward at the Report stage. I believe that we should be able to do that in consultation with the proposers of the amendment. We hope that we may be able to satisfy their concerns and to overcome the difficulties in drafting that this amendment has suggested to us.

Lord Williams of Elvel

Can we take that as a definite undertaking that that will happen?

Baroness Hooper

In the usual way on these occasions, I make that comment without commitment but in reading what I have said I believe the noble Lord will be able to draw the necessary conclusion.

Lord Sherfield

I should first like to thank all those who have spoken in this debate for the support which they have given to the amendment. The noble Baroness said that there was really nothing between us and the Government, but there is something important between us because she is saying that she does not think an amendment is necessary and we consider that it is essential. I agree very much with what the noble Lord, Lord Williams of Elvel, said about the interpretation of the clause. Of course there is a difference between good research and bad research and between good development and bad development, but it is up to the Secretary of State to select what is good and to reject what is bad. That is the whole point of giving him a duty to secure the provision of R&D.

We all know it is quite clear that, whatever the privatised industry can do, there will be serious gaps both in the research on energy supply and research on the environmental issues. All I suggest is that the Secretary of State should have the duty to identify those gaps and fill them. He need not intervene in the industry; he will watch it and fill the gaps. It is essential that there should be a provision in the Bill which places that duty upon him.

Perhaps it is characteristic of the atmosphere which surrounds the question of research and development that we should be debating this highly important subject at 10.30 p.m. It is typical! The noble Baroness has not given an undertaking, but she has given at least an indication that on Report she will bring forward an amendment which will meet the universal, unanimous opinion of Members who have stayed up here in order to discuss the issue. I hope that she will take account of that.

I and my colleagues will study what she has said. I wish to make it quite clear that if on Report she does not bring forward an amendment my colleagues and I will do so. We shall then test the opinion of the House if we are not satisfied. On that understanding I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 93 not moved.]

Clause 4 [Prohibition on unlicensed supply etc.]

Lord Peston moved Amendment No. 9 3A: Page 3, line 44, after ("electricity") insert ("in the United Kingdom").

The noble Lord said: I should like to speak to Amendments Nos. 93A and 93B. It may well be that if the noble Baroness can clarify the relevant questions, they are not required. I believe that in the first place we must hear the talking about electricity generated in the United Kingdom. In my view the clause is ambiguous because it appears to suggest that imported electricity from, say, France, for which the person does not have a licence in this country could somehow be illegal. I should like a reassurance that that is not the case.

That relates to another matter where we referred to the licence in the second amendment at the top of page 4. Again there is the question of making certain that no illegality will arise in respect of electricity generated outside this country but imported into it. I ask the Minister for reassurance on that matter. Perhaps implicitly the Bill always refers to the United Kingdom without having to clarify that, but it is a minor source of worry.

Can the noble Baroness also say whether this is the appropriate place to raise another question concerning the United Kingdom? Some Members read in the weekend press of an obligation, with which we shall deal later in the Bill, concerning the use of nuclear power and a basic minimum nuclear power requirement. It was suggested in the Sunday Times that imported French electricity made by its nuclear power stations would somehow meet our nuclear condition. I find it impossible to believe that the Bill will allow that.

If it is not appropriate to deal with the issue at this stage I shall accept that and give notice that it will be raised at a later stage. However, if it is appropriate, I ask what the 20 per cent, condition means. I mention the matter now because it comes within the general rubric of the United Kingdom. I should like reassurance about whether at this stage we need to clarify the United Kingdom. Also I am giving notice that we may need to raise the United Kingdom question again. I beg to move.

10.30 p.m.

Baroness Hooper

I must confess some puzzlement concerning the purpose of the noble Lord's amendment. If its purpose is to bring the provisions of Clause 4 of the Bill into effect throughout the United Kingdom, this amendment does not achieve that. The amendment would apparently make it an offence to generate electricity in Northern Ireland without a licence or exemption. However, it does not attempt to make it an offence to transmit or supply electricity in Northern Ireland without a licence or exemption.

This Bill is designed to restructure the electricity supply industry in Great Britain, and not that of Northern Ireland. Indeed Clause 108 of the Bill makes it clear that the provisions of Clause 4 do not extend to Northern Ireland.

Lord Peston

My Lords, I apologise to the noble Baroness. I do not have the slightest interest in Northern Ireland. I meant Great Britain rather than the United Kingdom. The point I made in my remarks is the one that I should like to be addressed. I shall try to show an interest in Northern Ireland on another occasion but that is not what I have in mind at this moment.

Baroness Hooper

Perhaps I may turn to Amendment No. 93B. This is not an xenophobic Bill. Foreign companies may, for example, apply for these licences. It is, however, totally contrary to accepted principles of international law for the legislature of one state, or for some authority within that state, to say what conduct is or is not to be a criminal offence in another state, which would be the effect of Amendment No. 93B. That appears to make it possible for persons to generate, transmit or supply electricity if licensed to do so by another member state of the EC.

Once the Bill has been passed into law it will be for my right honourable friend the Secretary of State, or the director, to grant these licences and not anyone else—unless of course Parliament should at some future time enact otherwise.

To answer the question on the non-fossil fuel obligation and the possibility of French or other imports counting towards it, since they are nuclear, Clause 32 explicitly provides for imports in subsection (8). Therefore, it is intended that imports, if they are from nuclear or renewable sources, should count towards the non-fossil fuel obligation.

Lord Peston

I thank the noble Baroness. I am amazed by that last answer and I shall come back to that on Clause 32.

I realise that the two amendments I have before me are so appallingly defective that they have misled the noble Baroness almost as much as they have misled me. I am still somewhat at a loss as to how to obtain an answer to my question but I shall table some amendments on Report to clarify the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 93B not moved.]

Lord Peston moved Amendment No. 93C: Page 4, line 3, at end insert ("or unless where he makes no use of an electric line owned by a public electric supplier or the transmission company").

The noble Lord said: Perhaps I can deal with this amendment as briefly. The clause as drafted seems somewhat peculiar and I gather that a number of producers or generators of electricity are rather worried about it. Let us take the case of a business with its own power station or generating station which restricts the output of that station to the business itself and its subsidiaries, but those subsidiaries are not on site, so in order to get the generated electricity to a different site transmission lines are required. All that takes place within the business itself and there is no attempt to sell to any other business or to transmit or supply, within the meaning of the Bill, to other operations. Nonetheless, in essence the clause seems to suggest that a business behaving in that way would require a licence. One is puzzled by that because it is hard to believe that the Government want that to happen. It seems somewhat bureaucratic for what in the end is a straightforward procedure, if I have a small power station and use it to generate electricity for my operations in more than one place I cannot see why anyone would want to involve me with licensing because it has nothing to do with the intent of the Bill.

We have therefore tabled the amendment—I gather others have thought along the same lines—with a view to obtaining clarification from the noble Baroness. If the Government have this wrong they might like to consider changing the Bill. There is no urgency but we should like to get the problem on the record and understood. I beg to move.

Baroness Hooper

I trust that I am right in thinking that in proposing Amendment No. 93C the noble Lord was also speaking to Amendments Nos. 97, 98 and 100.

Lord Peston

I should have been but was not; but I was in the technical sense.

Baroness Hooper

Starting with Amendment No. 93C, I should explain that the electricity licences do two things. They enable suitable obligations to be placed on licensees; for example, to ensure that their operations are carried out in accordance with appropriate technical standards. These obligations are vital, regardless of who owns the lines through which the electricity is sent. But licences also confer certain rights, as appropriate, which make it possible for the licence holder to carry on his business; for example, the right to break streets to lay lines. These powers are in turn reflected in the licence obligations to allow others to share use of a system built with the benefits of those rights.

It is of course only right that those who intend to play a major role in the generation, transmission or supply of electricity should be subject to the conditions of a licence and should therefore operate under the overall scrutiny of the director. However, the Government recognise that licences are not appropriate for those who will play a minor role in the electricity industry. We intend, for example, that under Clause 5 of the Bill those who generate on site for their own consumption and those who generate less than 50 megawatts will be exempt from the requirement to hold a licence, though if they choose to hold a licence which carries with it certain advantages, one might say, they can opt to do so.

As regards the other amendments in the group, it is our current intention to exempt from licensing persons without at least one generating station with a capacity of 50 megawatts or more; those who supply electricity at a low level (less than 0–5 megawatts); and those involved in the resale of electricity purchased from a licensed supplier, such as landlords supplying tenants. We are at present considering these exemption criteria and will be consulting those likely to be affected. We will refine these criteria as necessary in the light of these consultations.

I cannot see how the proposed wording will materially change the clause as drafted, so with those explanations I hope that the noble Lord will feel able to withdraw his amendment.

Lord Macaulay of Bragar

Before the noble Baroness sits down perhaps I may say a few words on Amendments Nos. 97, 98 and 100, to which she has just replied. The object of these three amendments is to remove the phrase, persons of a particular class", and substitute for it the phrase, specified categories or groups of persons". The reason for tabling the amendments is that it is difficult to understand what is meant in the context of the Bill by the phrase, persons of a particular class". It may be said that it is rather a tinkering amendment and it is a distinction without a difference, but in interpretation of statutes the words ought to be given their normal and ordinary meaning, and it is difficult to see what a particular class of person might be in the context of the Bill. To give it its ordinary meaning, it refers to status in society. Quite clearly, that is not what is intended and what is behind the Bill. A group of Members of the Committee could be of a particular class in that sense. Thre is no definition of the words "particular class" in the general interpretation Clause 106, and that is probably because they are incapable of definition. It is for that reason that the new phraseology is suggested to the Government as being perhaps a tidying up amendment.

The word "particular" in front of "class" makes it even more difficult. I had a look at the Oxford English Dictionary today to see whether I could make any sense of this. I found that two pages of that dictionary are devoted to the meaning and derivation of the word "class". Initially it says: A division or order of society according to status; a rank or grade of society". Or alternatively: The system of such divisions of society; rank (esp. high rank), caste". Quite clearly, that would never apply to the Electricity Bill whatever else it might apply to.

Then we come to the leading sense according to the dictionary. It is defined in the following terms A number of individuals (persons or things) possessing common attributes, and grouped together under a general or 'class' name; a kind, sort, division". So there we have a sort of circular definition which does not take us anywhere. I suggest that that does not make it any clearer.

I would ask the noble Baroness at least to consider rephrasing that part of the Bill.

Baroness Hooper

I can assure the noble Lord that reference to persons of a particular class does not refer in any way to social status but to the small operators that I referred to in my reply. It could be said that "specified groups of persons" might be rather difficult to interpret, so I trust that he will be able to withdraw the amendment.

Lord Peston

I thank the noble Baroness generally. I shall read carefully her answer to the first amendment because I think that it is an important matter and we may come back to it.

I am more persuaded by our wording on the remaining amendments than the noble Baroness is, but at this stage I do not feel that it would be helpful to press the point. So with your Lordships' permission, I beg leave to withdraw Amendment No. 93C.

Amendment, by leave, withdrawn.

[Amendments Nos. 94 to 94B not moved.]

Clause 4 agreed to.

Clause 5 [Exemptions from section 4.]

[Amendments Nos. 95 to 100 not moved.]

Clause 5 agreed to.

Lord Stanley of Alderley moved Amendment No. 100 A: After Clause 5, insert the following new clause; ("Small scale and novel techniques of generation. .—(1) In the exercise of their duties and powers under sections 3 and 5 of this Act, the Secretary of State and the Director shall have regard to the desirability of encouraging

  1. (a) the generation of electricity by small scale generators, and
  2. (b) research into novel techniques of generating electricity
(2) For the purposes of this section the Secretary of State may by scheme provide for the making of grants of amounts determined in such manner as may be provided for by or under the scheme towards expenditure incurred or to be incurred by persons for the purpose of establishing small scale electricity generating capacity and associated systems for transmission and supply, and for research into novel techniques of generation. (3) Any scheme under subsection (2) above may make different provision for different circumstances, and shall be made by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.").

The noble Lord said: This is a probing amendment to discover the Government's view on small-scale generation of power by such methods as bio-mass, hyro-electricity and, indeed, windmills. I realise that such matters have been discussed in passing on previous amendments, but Clause 5 gives the Secretary of State power to exempt small-scale producers of power, if I can call them that, from having to be licensed.

That is certainly welcome, as are the provisions in Clause 3 to provide all reasonable—a word about which we have had some debate—demands for electricity and to promote competition. I believe that encouragement of small scale producers of electricity would further the aims in Clause 3. However, if they are to survive and prosper, particularly against heavily subsidised nuclear power, I suggest that they need to be similarly helped. Hence I have tabled this amendment in which I suggest, first, that the Secretary of State should have a duty to encourage the generation of electricity by these small scale generators and that he should encourage and promote research into such methods; and, secondly, that the Secretary of State should be empowered to make grants towards this research and also towards individual producers of this power. There are substantial government grants to nuclear producers, so to be fair, surely these small scale producers should be helped and similarly encouraged. Thirdly, I believe that, if these small scale producers are to contribute, some guarantee should be given that any surplus power produced will be purchased at the price paid to nuclear producers and that they should be allowed to feed this power into the national grid.

My noble friends Lord Renton and Lord Norrie mentioned the importance of trying to find environmentally acceptable methods of generating electricity. I suggest that these small units, particularly wind power, could be just that. I beg to move.

10.45 p.m.

Lord Peston

From these Benches we think that this is a sensible amendment and that it is also very much in line with the stated policy of the Government. We have seen in the past the Government showing an interest in this kind of development. Therefore the only issue is the usual one, on which we shall no doubt hear from the noble Baroness, as to whether it should be in the Bill. We believe that this is precisely the kind of clause that ought to be in the Bill. It would act as an encouragement. What seems to cause us to differ throughout the discussion on this legislation is that we should like to see certain encouraging things in the Bill whereas the Government seem to keep saying that there is no point in putting them in the Bill as they will encourage them anyway. We look forward to hearing whatever variant of those answers the Government put forward. Broadly, we feel convinced that this is something of which the Government must be in favour.

Lord Renton

Of course we are all in favour of encouraging these things but I do not think that the object of legislation is to encourage. It is to make enforceable laws. I very much doubt whether this clause would be enforceable if it were added to the Bill. As to the Secretary of State having power to help, I very much doubt whether it is necessary. I should have thought that he may have a discretion to help under other legislation. If it is for a business purpose the ordinary allowances against tax would enable the cost of these experiments to be met. Even when they go beyond the scope of experiment, help may possibly be given. However, having said that, I think it is an excellent idea but I doubt seriously whether it should be the subject of legislation.

Baroness Hooper

As I have already agreed to take back a previous amendment on research and development, perhaps I need not deal with the general question of research that arises on this amendment. As to the other limb of the amendment regarding support for the smaller private generators, the prospects for small scale electricity projects are not quite as unpromising as to require grants of the kind the amendment suggests.

There are already a great number of small scale independent generation projects. The Department of Energy is aware of around 300 projects totalling more than 1,000 megawatts. There may well be many others of which we are not aware. Other forms of small scale generation include of course renewable forms of energy such as landfill gas. Here too there is an enormous potential. At present we know of more than 20 projects totalling some 25 megawatts. By 1991 it is estimated that the number of projects will almost double and total capacity could be over 40MW. Upward of 200MW could be generated from such sources by the year 2000. The market is therefore already flourishing, and there is significant potential upon which to build. But the Government are also helping in their own way.

Members of the Committee will also recall, in respect of renewables generally, that the Government announced their intention to create through the 1990s new tranches of capacity (up to 600MW) within the non-fossil fuel obligation which will be reserved exclusively for renewable sources of energy. That is a real commitment to the future development of renewable sources of electricity generation, and is one which I envisage can considerably help small generators.

Moreover, my department is already helping to support R&D into new generating techniques. Prominent among these is the major programme of research and development where we are funding into the more promising renewable energy technologies. Over £190 million at 1989 prices has already been invested; and, over the next three years, a further £50 million is likely to be spent. Most of that expenditure is concentrated on electricity generation.

Looking at the longer term, the Government's strategy for renewables, published last year as Energy Paper 55, identified that at least £360 million worth R&D will be necessary during the 1990s, the cost being shared between the Government and industry. This strategy was developed in partnership with industry and the generating boards and emphasises that an effective programme of R&D involving the private sector can be drawn up without recourse to a legislative framework. I am confident therefore that the approach put forward in Energy Paper 55 will meet most of the concerns of the proposers of this amendment.

I trust on that basis that my noble friend will agree with my other noble friend Lord Renton that this amendment is not really necessary.

Lord Stanley of Alderley

I am not sure that I was entirely satisfied with my noble friend's a reply. For instance, she did not reply to the question regarding surplus power. She did not say, if I produce surplus power, whether it will go into the grid.

I should also point out to her that in the past I am sorry to say that the Central Electricity Generating Board has been especially—I was going to say unpleasant, but I do not think that that is the right word—discriminating in dealing with surplus power. Indeed it is a powerful monopoly issue and one which I believe needs addressing.

I agree with the noble Lord, Lord Peston, in that I see no reason for not encouraging these techniques; indeed, why cannot we encourage them? In my view they should be encouraged. This was a probing amendment and I shall read what my noble friend said. As I said, I do not think that I was very happy with her reply and I may well return to the matter on Report. However, in the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Licences authorising supply etc.]:

[Amendments Nos. 101 to 108 not moved.]

The Earl of Dundee moved Amendment No. 109: Page 6, line 14, at end insert— ("(11) Any sums received by the Secretary of State or the Director under this section shall be paid into the Consolidated Fund.").

The noble Earl said: Under Clause 6 fees may be charged for applications for licences or extensions of licences. It has always been the Government's view that licence fees generally would be paid into the Consolidated Fund. The Bill already provides for other moneys, such as the essentially annual licence fees specified in licences, and for fees charged for the inspection of the director's register of licences and licence exemptions, to be paid into the Consolidated Fund.

However, as presently drafted, Clause 6 does not contain the necessary provision. I therefore invite the Committee to accept this technical amendment, which corrects this oversight.

On Question, amendment agreed to.

On Question, Whether Clause 6, as amended, shall stand part of the Bill?

Lord Peston

I wish to reiterate the point that I have made several times this evening. It is our view that licences, and all that goes with them, are central to the Bill, and those issues have not been thought through fully. On an earlier amendment we tried to persuade the Government to think again about the licences and all those matters. I am looking forward to hearing the noble Baroness answer a number of questions I asked about the licences and the price regulation scheme.

All that is required at this stage is to underline our unhappiness with this part of the Bill and our slight astonishment that the Government are happy with it because if the clause is as important as we think it is, what it does and why it does it should be transparently clear. That is why I felt the need to intervene on the clause stand part.

Clause 6, as amended, agreed to.

Clause 7 [Conditions of licences: general]:

[Amendments Nos. 110 and 110A not moved.]

The Deputy Chairman of Committees (Lord Murton of Lindisfarne)

If Amendment No. 111 is agreed to I cannot call Amendment No. 112.

The Earl of Dundee moved Amendment No. 111: Page 6, line 16, leave out ("generation, transmission or supply of electricity") and insert ("activities authorised by the licence").

The noble Earl said: With the leave of the Committee I shall speak also to Amendment No. 114. Amendment No. Ill is a drafting amendment to ensure that the style adopted in subsection (l)(a) conforms with that adopted in Clause 3(3)(d). Amendment No. 114 is necessary to take account of particular circumstances arising in regard to the transmission licensee—the National Grid Company.

The CEGB's assets in the Anglo-French interconnector will be transferred to the National Grid Company. Those assets are in part outside the territorial limits of the United Kingdom. We wish to make it clear that for the purpose of this provision they should be seen as part of the transmission system over which it is intended that third parties can seek agreement for use of the system. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 112 to 113 not moved.]

Baroness Oppenheim-Barnes moved Amendment No. 113A: Page 6, line 23, at end insert— ("( ) Without prejudice to the generality of paragraph (b) of subsection (1) above, conditions included in a licence by virtue of that paragraph—

  1. (a) may require the licence holder to render payment to a customer where standards set under section 38 fail to be met; or
  2. (b) may require the licence holder to render payment to the grantor where standards set under section 39 fail to be met; or
  3. (c) may require the licence holder to forego part or all of any price increase allowable under another condition of the licence where standards set under section 39 fail to be met.").

The noble Baroness said: The amendment is a minor probing amendment. I hope that my noble friend the Minister will be able to enlarge upon what his right honourable friend the Secretary of State said on Second Reading with regard to compensation for consumers, which is introduced in Clause 38. This is a dress rehearsal for Clause 38. My right honourable friend said that compensation would be available to consumers in the case of broken appointments and things of that nature. I should like to know how much wider that compensation is likely to go and whether it is likely to apply in cases of interruption of supply, for whatever reason.

I am sure that my noble friend the Minister will agree that consumers can suffer a great deal from the interruption of supply other than mere inconvenience. If it is in the interests of the industry to maintain high standards, it should have to pay compensation when the supply is interrupted, whether or not that is due to negligence.

In 1984, a similar amendment was moved during the passage of the Telecommunications Bill in the other place. The Government then said that there should be no necessity for such an amendment and that it was inappropriate. Subsequently, the regulator of British Telecom negotiated successfully and consumers of British Telecom now have this. I hope therefore that my noble friend will give a sympathetic and informative reply. I beg to move.

11 p.m.

Lord Glenarthur

My noble friend's amendment gives me the opportunity to explain the relationship between Clauses 38 and 39 and the licences. I hope that that will help her in a sense with what she described as a dress rehearsal for those two clauses. Clause 38 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 general indicators of overall performance which the suppliers will be expected to meet in areas of supply service where the payment of compensation is not appropriate. These statutory provisions are reflected in condition 17 of the public electricity supply licence which will require the holder to conduct its licensed business in a way best calculated to achieve the standards set by the director pursuant to Clauses 38 and 39.

Clause 7(b), to which my noble friend's amendment refers, concerns the payment by the public electricity suppliers of a licence fee to cover the director's costs. If my noble friend's amendment were to be accepted, that would mean that the payment of compensation to a customer, if the standards set under Clause 38 are not met, would be placed in a second licence condition. I hope that my noble friend will realise that this is not necessary. The public electricity supplier will already be required to pay compensation under the regulations made by Clause 38 which the director will make to that effect. I think this is clear from Clause 38(b) which provides that an order for compensation made by the director is enforceable as if it were a county court judgment or the Scottish equivalent. There is therefore no need to repeat this obligation in the licence.

The second part of my noble friend's amendment would involve the payment of a sum to the grantor of the licence—that is, to the Secretary of State or the director, if the standards under Clause 39 are not met. But the standards to be set under Clause 39 are intended to cover only those aspects of a company's performance where it would be inappropriate or impractical to pay compensation to the consumer on an individual basis. Of course it will be for the director to decide on the actual standards to be set, but a standard under Clause 39 could perhaps cover areas of performance such as dealing with, for example, written inquiries within a set number of days which the company might be expected to achieve 100 per cent, of the time. I hope my noble friend will accept that it would be impractical to compensate customers on an individual basis for a failure to meet such a standard. It would be doubly inappropriate, I believe, for such a measure to be included in the clause in this way.

Instead, under Clause 40, the director will publish information annually on the way in which the public electricity suppliers have met both sets of standards. This will have two results: the suppliers will wish to match or beat the performance of the other companies, and for the first time, the consumers will have the information they need to compare their local suppliers directly with all the others in the country, enabling them to put pressure on their supplier to improve its performance.

The third part of my noble friend's amendment would enable a price increase allowed under another licence condition to be reduced in part or whole if the standards under Clause 39 were not met. But the price formula of RPI-X+Y is designed to put pressure on the suppliers to increase their efficiency in the supply of electricity. It would not be acceptable for a public electricity supplier to be constrained by the price control formula in the supply of electricity and then be subject to a penalty for failure to meet standards for quality of service. These are quite separate areas of regulation. One, the prices charged by suppliers, is quite properly to be subject to rigorous control by the director, via the formula. The other, guaranteed standards, is provided for separately in Clauses 38 and 39. Of course the additional costs of paying compensation under Clause 38 will not be allowed to be passed through to the customer; so it will always be in the supplier's interests to meet the standards.

As for guaranteed standards cover for the security of supply, the standards under Clause 38 can cover the security of supply, and it is up to the director whether they will. However, I undertake to convey the views of my noble friend, with which I have considerable sympathy, to the director when he is appointed because there is certainly no reason why what my noble friend wishes should not be the case. In a nutshell, I suggest to my noble friend that where she seeks to amend is probably the wrong place. If she wishes to amend anywhere, Clause 38 or 39 would be better. But it is unnecessary and, to some extent, marginally misconceived. However, I understand the spirit with which my noble friend has moved the amendment.

Lord Peston

I had not intended to intervene, but I am a trifle unhappy about the reply of the noble Lord as regards paragraph (c). I believe that the anxiety of the noble Baroness is that a firm, subject to the price regulation formula but anxious to maximise profits, will place quality of service in danger. As I understand it, the amendment is saying that if that were to happen and if the quality of service were to decline, the obvious place to penalise the offending body would be in connection with price. That is how the amendment reads at least. It makes perfectly good sense to me. The argument that the penalty, as it were, should be kept separate from the price regulation does not appear to me to hold water. I heard the Minister say that he would convey the views of the noble Baroness to his right honourable friend—

Lord Glenarthur

I will convey them to the director.

Lord Peston

I beg the Committee's pardon. The Minister will convey the views of his noble friend to the director. But perhaps he may care to inform also his right honourable friend, who, I am sure, takes an interest in our proceedings at all times, that the idea particularly behind paragraph (c) of the amendment is one that is certainly worth considering if quality of service is important. I know we all believe it is important.

Baroness Oppenheim-Barnes

I thank my noble friend for his extremely helpful answer. I hope he will answer a final question. Does he agree that when we discuss the standards in Clause 38, we should consider compensation for interruption of supply?

Lord Glenarthur

We may be able to consider that when we come to Clause 38, although I am not anticipating the debate we may have on that clause at this particular juncture.

Baroness Oppenheim-Barnes

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 111B and 113C not moved.]

The Earl of Dundee moved Amendment No. 114: Page 6, line 26, leave out from ("agreements") to ("for") in line 27 and insert ("with other persons for the use of any electric lines and electrical plant of his (wherever situated and whether or not used for the purpose of carrying on the activities authorised by the licence)").

On Question, amendment agreed to.

[Amendment No. 114A not moved.]

The Earl of Dundee moved Amendments Nos. 115 and 116: Page 6, leave out lines 31 and 32 and insert ("Conditions included in a licence by virtue of subsection (l)(a) above"). Page 6, line 42, at end insert— ("(3A) Conditions included in a licence by virtue of subsection (l)(a) above may—

  1. (a) instead of specifying or describing any contracts or agreements to which they apply, refer to contracts or agreements designated (whether before or after the imposition of the conditions) by the Secretary of State or the Director; and
  2. (b) instead of containing any provisions which fall to be made, refer to provisions set out in documents so designated and direct that those provisions shall have such effect as may be specified in the conditions.").

The noble Earl said: I beg to move Amendments Nos. 115 and 116 en bloc.

On Question, amendments agreed to.

[Amendment No. 116A not moved.]

Clause 7, as amended, agreed to.

Clause 8 [Conditions for funding certain companies engaged in nuclear generation in Scotland]:

Lord Sanderson of Bowden moved Amendment No. 117: Page 7, line 7, after ("applies") insert (", comes to apply or has at any time applied").

The noble Lord said: In moving Amendment No. 117 I wish to speak also to Amendments Nos. 118, 119, 120 and 121. Following privatisation, the nuclear stations in Scotland will be owned and operated by Scottish Nuclear Limited (SNL), which is to be owned by the two electricity companies in proportion to their relative size. SNL will be the nuclear site licensee and as such will be responsible for decommissioning the stations and disposing of nuclear waste once generation has ceased.

As things stand, SNL, as a subsidiary company of South company or related company to North company, would be unable to obtain funds from its parents without their agreement. While it is expected that the parents would agree, the Government recognise that it is prudent to ensure that there is a direct route to enforce the long-term liabilities against them. Accordingly, Clause 8 as currently worded will enable a licence condition to be included in the licences granted to the two electricity companies as successors to the Scottish boards to ensure that funds are made available to meet those long-term liabilities. I beg to move.

On Question, amendment agreed to.

Lord Sanderson of Bowden moved Amendments Nos. 118 to 121 en bloc. Page 7, line 10, leave out ("which") and insert ("engaging in the operation of a nuclear generating station in Scotland while"). Page 7, line 11, leave out ("is"). Page 7, line 13, leave out ("is"). Page 7, leave out lines 15 and 16.

On Question, amendments agreed to.

Clause 8, as amended, agreed to.

Clause 9 [General duties of licence holders.]

[Amendments Nos. 122 to 125 not moved.]

Lord Peston moved Amendment No. 125A: Page 7, line 25, after ("co-ordinated") insert ("secure").

The noble Lord said: We are a trifle puzzled by the wording of Clause 9(2)(a) because it seems to us—and this is a point that has been made by many noble Lords on all sides of the Chamber—that while efficiency is important, co-ordination is important and an economical system is important, although I am not always convinced that the words have any meaning in this context, what the ordinary household or firm wants is a secure supply. In common parlance, the one thing they do not want to happen is for the lights to go out.

We are just a little taken aback that the word "secure" has not been included here. We do not want a lengthy debate at this late hour but should like to place on record our view that we should place a secure supply ahead of any other consideration. I should be willing to pay more for a service in which the lights definitely do not go out in preference to a cheaper service in which occasionally the lights do go out. I beg to move.

Lord Renton

In our language the word "secure" has several different meanings. I think a better word here would be "safe". One should always choose the word of Anglo-Saxon rather than of Latin origin, and the short word rather than the long word. "Safe" is therefore better than "secure".

Baroness Hooper

I certainly agree with the noble Lord, Lord Peston, that it is of vital importance that security of supply should be maintained. We believe that our proposals ensure that, because under the licence the director will already be responsible for, among other things, ensuring that 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 those conditions and statutory requirements are fully met by licence holders. I trust that that goes some way to reassuring the noble Lord.

11.15 p.m.

Lord Peston

I thank the noble Baroness. I am somewhat reassured but equally mystified because that answer would take a number of other items out of the Bill because the director has responsibilities for them. The point that I was making—given that one has written a sentence under Clause 9(2)(a)—is why it is not a better sentence. However, we can return to the matter on another occasion. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Viscount Hanworth moved Amendment No. 126: Page 7, line 28, at end insert ("; and (c) to consider and promote the utilisation of power plant which both generates electricity and utilises effectively its surplus heat.").

The noble Viscount said: I have spoken about combined heat and power at considerable length, as has the Minister. Here is another opportunity to insert the provision, to consider and promote the utilisation of power plant which both generates electricity and utilises effectively its surplus heat". I hope that the Minister might feel that this is a more suitable place for the provision to be inserted.

Baroness Hooper

As the noble Viscount said, we have been into the arguments on combined heat and power. I believe that the provisions of Clause 3 will ensure that energy efficiency, which will include in some cases CHP schemes, is properly taken into account. I must reiterate that we believe that it is quite wrong to require any industry to act uncommercially. Our approach of encouraging competition and leaving consumers to make their own well informed decisions is likely to produce the best results. I therefore regret that I cannot at this point accept the amendment of the noble Viscount.

Viscount Hanworth

I did not have much hope. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 9 shall stand part of the Bill?

Lord Peston

Clause 9 is the clause under which one would most properly discuss the whole question of the grid, merit order, optimising the generation of electricity and producing the optimum investment decision. It is my view—and, I believe, the view of my noble friends—that, if the industry were privatised in that way, it would simply be unable to optimise in the way that the nationalised industry does by the merit order system and the grid.

There was a small debate on the matter at Second Reading and noble Lords disagreed about that. At some point, I wish to try to demonstrate my view of the matter; namely, that an optimum solution to the power problem is not possible within the privatised system. However, it is clearly not appropriate to do so at this hour because it would take us a certain amount of time. I believe that, on behalf of my noble friend Lord Williams of Elvel and myself, we should place on record our doubts about whether a privatised industry in this particular form could possibly meet the optimisation standards that an integrated, nationalised industry could do. I simply give warning that I hope to be able to demonstrate that my view of the matter is correct and that the Government's view is incorrect; but that is all that I have to say at the moment.

Clause 9 agreed to.

Clause 10 agreed to.

Before Schedule 3: [Amendment No. 127 not moved.]

Schedule 3 [Compulsory acquisition of land etc. by licence holders]:

[Amendments Nos. 127A to 127F not moved.]

Lord Monk Bretton moved Amendment No. 128: Page 77, line 28, at beginning insert— ("With the exception of section 5 (3) of the Land Compensation Act 1961 (Special suitability … of the land for any purpose to which it could be applied only in pursuit of statutory powers, etc),").

The noble Lord said: I wish to move this amendment in the name of my noble friend Lord Stanley of Alderley. I shall be brief.

The effect of the amendment on compulsory purchase compensation would be to exclude the application of Section 5 (3) of the Land Compensation Act 1961 which states that compensation shall not take into account, The special suitability … of the land for any purpose … to which it could be applied only in pursuance of statutory powers". On 7th March the Department of the Environment issued a consultation paper very largely in response to the case which was made on the Channel Tunnel Bill in 1987. I welcome this consultation paper but I remain concerned, as does my noble friend, that it starts by affirming that no change will be made to the fundamental principle that compensation should be based on the value of the land disregarding any effect upon it of the proposal giving rise to the compulsory purchase. That is what it is about.

The first question that I should like to ask my noble friend is whether he thinks that this amendment is in the right Bill or whether I am about to be told that it is not. If it is in the right Bill, the next question to which I should like an answer is: is it acceptable in principle? If it is not acceptable in principle, I should not at this late hour wish to occupy the time of the Committee any longer because I think it would be preferable to argue the case on the Water Bill. If the case is successfully argued on the Water Bill, I would wish to leave the option open to introduce it again on this Bill at Report stage. I beg to move.

Lord Sanderson of Bowden

In answer to my noble friend, I think it is up to him to decide whether or not this amendment is suitable for bringing forward on this Bill. So far as the question of whether it is acceptable in principle, I think that when I have finished speaking he will understand that the answer from me is no.

The effect of the amendment would be to disapply Section 5(3) of the Land Compensation Act 1961 from the procedure in paragraph 14 of Schedule 3 of the Bill for assessing compensation on compulsory purchase. Section 5 of the 1961 Act says, in effect, that when assessing compensation account shall not be taken of the special suitability of the land for the purpose for which it is being compulsorily purchased if the land could only be applied for that purpose through the exercise of statutory powers.

I sympathise with my noble friend because this matter has been raised most forcefully by the Country Landowners' Association and the National Farmers' Union. We have looked very closely at it, as no doubt my noble friend has realised. However, I have to say that the Electricity Bill would broadly carry forward the provisions currently in the Electricity Act 1947.

The existing provisions for compensation on compulsory purchase are intended to give the landowner the value that he would have realised on the open market in the absence of the proposed scheme for which the land is being acquired. Compensation is therefore based on the market value of the land, taking account of any planning permission or "hope value" which attaches to it, except in so far as the actual or prospective development might have taken place apart from the scheme associated with the compulsory purchase.

The Government have carefully reviewed these provisions against the background of the concern expressed by my noble friend this evening about the powers of compulsory purchase that the privatised companies will have. Our view is that the market value of the land as assessed under the existing compensation provisions remains a fair measure of the loss to be compensated where any land is acquired compulsorily. I should point out that this general approach has been supported by the Royal Institution of Chartered Surveyors.

So in answering my noble friend, I am afraid that I give him cold comfort, but at least he understands where the Government stand in relation to the Electricity Bill.

Lord Monk Bretton

I thank my noble friend for that reply, cold comfort or no. I am afraid that it is cold comfort. I have pages of ammunition that I might have fired off at this stage but, as I said, I shall keep it for now. With that said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 3 agreed to.

Schedule 4 [Other powers etc. of licence holders]:

[Amendments Nos. 128A to 128K not moved.]

Schedule 4 agreed to.

Schedule 5 [Water rights for hydro-electric generating stations in Scotland]:

The Earl of Balfour moved Amendment No. 128L: Page 91, line 1, at end insert ("and (iv) the river purification authority.").

The noble Earl said: I am sure that those Members of the Committee who live in Scotland or have a connection with Scotland are well aware of the magnificent work that is being done by the river purification boards. It is for that reason that I think they should also be included in the list of people who are to be notified in the draft order.

These boards are connected with the flow of water. I am sure that my noble friend Lord Sanderson is aware of this situation in Scotland. I hope that he will at least seriously consider that river purification authorities should be added to this list. I beg to move.

Lord Macaulay of Bragar

Perhaps I may say that there is a degree of sympathy with the amendment on this side of the Chamber. It has our support.

Lord Sanderson of Bowden

On first looking at this amendment put forward by my noble friend it seems both logical and helpful. However, it is one that we feel to be unnecessary and I shall try to demonstrate why.

Paragraph 8 of Schedule 5 sets out the process of the notification of the various authorities and public undertakers of a draft order authorising a licensed generator to abstract, divert or use water as necessary for the purpose of constructing, extending or operating a hydro-electric generating station in Scotland.

As drafted, paragraph 8(b) of the schedule ensures that such notification is served on any affected river purification authority in the form of a notice which will include those details set out in paragraph 7. The Committee will see that they are already quite comprehensive. If my noble friend's amendment were to be accepted, it would place an obligation on the applicant to serve on the affected river purification authority both the notices above and also a copy of the draft order as specified for water authorities and regional, district and island councils in paragraph 8(a).

It may be argued that river purification authorities should be placed on a par with such authorities. However, our aim is to avoid placing an unnecessarily heavy and bureaucratic burden on applicants while ensuring adequate dissemination and publication of their proposals.

At page 91, paragraph 8(b) states: on the river purification authority within whose area the watercourse or loch affected is situated". I trust that with that information my noble friend will see fit to withdraw his amendment.

The Earl of Balfour

I am most grateful to my noble friend for his reply. I had missed those last few words. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Sanderson of Bowden moved Amendment No. 129: Page 91, line 7, leave out ("and").

The noble Lord said: This amendment is required to correct a minor drafting error which resulted from an amendment to paragraph 8(b) of Schedule 5 to the Bill during its passage through another place. The word "and" at this place in the paragraph is grammatically superfluous. I therefore commend this amendment to the Committee. I beg to move.

On Question, amendment agreed to.

Schedule 5, as amended, agreed to.

The Earl of Dundee

I beg to move that the House do now resume.

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

House resumed.