HL Deb 09 November 1989 vol 512 cc978-87

5.5 p.m.

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

My Lords, with the leave of the House I shall now repeat a Statement made in another place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows:

"With permission, Mr. Speaker, I wish to make a Statement about the future of the electricity supply industry in Scotland.

"The House has heard earlier today the Statement by my right honourable friend the Secretary of State for Energy describing the continuing uncertainties over the costs and longer-term liabilities associated with nuclear power. These uncertainties are also relevant to the Government's proposals for the privatisation of the electricity supply industry in Scotland. I have therefore reassessed my plans for the restructuring and privatisation of the Scottish industry and wish to inform the House of my conclusions.

"Honourable Members will be aware of the important role that nuclear power plays in the Scottish system —the AGR stations at Torness and Hunterston B represent 25 per cent. of the generating capacity held by the Scottish Boards. Hunterston A Magnox station is now approaching the end of its useful life and is scheduled for closure in the near future. The SSEB's nuclear stations have an excellent record of safe performance, and I commend the management and staff of the board for their achievement in constructing and operating them.

"Despite this successful operational performance, the Government have had to examine carefully the future cost uncertainties associated with the nuclear operations in Scotland as elsewhere in the United Kingdom. After close consultation with the industry, and our financial advisers, we have concluded that the full flotation could not be successfully achieved without wide-ranging and unequivocal indemnity from Government for future cost escalations. We do not consider that it would be in the public interest to confer such indemnity and have therefore decided that the nuclear enterprise in Scotland should remain in the public sector.

"We had already proposed that the nuclear assets would be held by a separate company, Scottish Nuclear Ltd. This company will now remain publicly owned and will be responsible for the continued safe operation of the stations. The staff presently engaged in nuclear matters will be employed by the new company, thus ensuring the retention of the essential expertise required to maintain safe and efficient operation of the stations for the continuing benefit of Scottish consumers. The company will enter into contracts for the sale of its output with the Scottish supply companies —Scottish Power and Hydro Electric. It is certainly our intention that Scottish consumers should continue to benefit from the large investment in nuclear capacity.

"Also, the industry north and south of the Border has been investigating the economic case for upgrading the capcity of the interconnector between Scotland and England. There is a further opportunity which we must now explore to export Scottish output to England and Wales, thus contributing to the diversity of supplies there and maximising the overall economic use of these major assets to the benefit of all concerned.

"The greater proportion of the Scottish industry will be privatised. This will consist of two highly successful transmission, distribution and supply businesses with strong local identities and a modern and diverse portfolio of generating stations. They will own around 75 per cent. of generating capacity and employ 14,000 of the total 16,000 staff in the Scottish Electricity industry. It is our intention to prepare these companies for privatisation within the current Parliament, and my department is assessing with our professional advisers and in consultation with the industry the detailed implications of the Government's decision to withhold the nuclear assets from the sale.

"There will need to be detailed discussions with regard to the proper relationship of the nuclear company with the other parts of the industry. These will be made easier by our previous decision to place all of the nuclear assets in a separate company. I shall wish to ensure that the revised arrangements have no adverse effects on the economy and efficiency of operation of the industry in Scotland and that there will be no adverse implications for tariffs as a result of these changes.

"It will be central to our plans to safeguard the position of the existing staff engaged in the nuclear company. In particular, their pension rights will be protected. The Government will also ensure that these staff will be able to benefit from the flotation of the other parts of the industry. We shall be discussing the detailed implementation of these proposals with the management and the trade unions. The Scottish nuclear company can look forward to a successful and productive future, working in close co-operation with the other electricity companies in Scotland.

"I believe that a proper and carefully balanced mixture of private and public ownership will achieve our objectives and be of real benefit to electricity consumers. The nuclear enterprise will continue to play an important role in delivering a safe, reliable and competitively priced supply of electricity to the people of Scotland for many years to come. Scottish Power and Hydro-Electric will flourish in the private sector and deliver an improved service to their customers in the new environment".

My Lords, that concludes the Statement.

Lord Carmichael of Kelvingrove

My Lords, I should like to thank the Minister for his courtesy in reading the Statement to the House and for making sure that the staff will be looked after in the new set-up. I am sure that they will be grateful for the assurances. There are many questions to be asked, some of which have been asked in regard to the earlier Statement. One or two questions apply specifically to Scotland.

With great respect to the Leader of the House, I think that in future many constitutional lawyers will pore over this Statement, particularly as it applies to Scotland. As the noble Lord, Lord Diamond, asked, would the Bill not have had at least a whiff of hybridity had it been brought in earlier: There is always the temptation to say, "I told you so." It is not I who told you so. I and many other people have quoted the chairman of the SSEB. He said quite clearly last December that if the current arrangements in the Bill stood, his company would be totally unsaleable. It has taken a long time for the Government to listen to somebody they should have listened to on behalf of the industry.

There is another point that is interesting from the Scottish point of view, partly because of the size of the industry. The Minister now believes that the nuclear industry and the non-nuclear industry can, with different controls —one nationalised and one non-nationalised —live happily together. However, the Minister in another place said very clearly that there was no possibility of trying to run the two industries unless they were under private enterprise and that therefore there was no room for the mixture as suggested.

I believe that the Minister is inaccurate when he says that AGRs represent only 25 per cent. of the generating capacity in Scotland. He knows that 60 per cent. Of all electricity sold in Scotland comes from nuclear capacity. The noble Lord must know that the chairman of the SSEB said at the beginning of the year that this was the jewel in the crown of the electricity supply industry in Scotland. The Minister must also be aware of the agitation expressed in the Scottish newspapers. All the newspapers are questioning this matter and saying that the whole thing is a mess.

Many questions could be asked, but the only one I should like to ask specifically is this. In Scotland, where there is a high generation of nuclear power, how will the price be set? Will it be merely a matter of marginal costs or will there be some way of determining how the price will be applied to the private industry? In particular, what will be the position of pump storage? It is only a small part, but a very important part, of the Scottish electricity industry. A great deal of the benefit of pump storage comes from superfluous nuclear power at off-peak periods. This is a subject that demands a full and wide debate in the next Session.

Lord Ezra

My Lords, I am grateful to the noble Lord for reading out the Statement. As someone who has been familiar with the Scottish electricity industry over many years, I should like to say that I fully concur with the tribute paid to that industry in the Statement. I was always under the impression that the AGRs in Scotland had been operating very successfully. Therefore, while I was not surprised that the decision had been reached by the Government to remove the nuclear stations from the English and Welsh electricity industry, I had not come to the same conclusion about Scotland. Perhaps the noble Lord can explain why that decision was reached.

The Scottish industry has been very efficient and very successful. For that reason I applaud the proposal that perhaps the interconnector between Scotland and England and Wales could be extended. That would be in the interests of competition.

I should like to make a final point which refers back to the debate on the previous Statement. It is indicated in the Statement that the Government feel that a proper combination of public and private ownership of electricity generation is the right solution. I agree with that comment, but that is not the proposition that was initially before us. Therefore it still raises the question of whether we spend a long time debating a Bill which subsequently was fundamentally changed withcut considering what the consequential effects could be. It raises the question in Scotland and England of whether, without the nuclear stations, the composition of the fossil fuel companies under privatisation is correct and whether those might not be somewhat adjusted consequentially.

Lord Sanderson of Bowden

My Lords, I am grateful to the noble Lord, Lord Carmichael, and the noble Lord, Lord Ezra, for their comments. With regard to the latter point raised by the noble Lord, Lord Ezra, we have had a fair debate on the constitutional aspects and I do not propose to labour that point in my reply. I should like to take up the other points which have been raised.

The noble Lord, Lord Carmichael, said that Mr. Miller, the chairman of the SSEB, had given advice to the Government. I am happy to tell the noble Lord that Mr. Miller, who is still the chairman of that company, has issued a statement today. It says: SSEB regret the Government's decision not to include nuclear stations in the electricity privatisation —although we accept that in the light of the withdrawal of the England and Wales stations, the decision was inevitable". That leads on to the point made by the noble Lord, Lord Ezra. As the noble Lord will know, with his knowledge of the City, there is now such major uncertainty in the minds of the investors that it would not have been possible to proceed with our arrangements north of the Border. The advisers to the Secretary of State were unanimous in that conclusion.

The noble Lord, Lord Carmichael, raised the question of capacity. The figure given in the Statement is correct. However, I ought to elaborate on that matter. The latest figures we have are for October 1989. They include the percentage of the various elements of the Scottish generation. They are: coal and slurry generation, 45 per cent.; nuclear, 25 per cent.; steam and pump storage, 7 per cent.; hydro-electric, 12 per cent.; and diesel, gas, turbine and wind, 1 per cent.

The noble Lord will understand that the percentage of nuclear is still at a lowish figure compared with the 60 per cent. to which it is intended that it should rise. Therefore, it is absolutely essential that the arrangements that will apply as far as concerns the publicly owned nuclear company will be the subject of contracts and that the tarriff continuity will be retained. The price will be set by contract subject to the tariffs being no higher than would have been the case under the previous proposals.

I hope that I have answered the major concerns of noble Lords.

The Earl of Halsbury

My Lords, it would not be right to repeat the generalities that I raised on the earlier Statement. However, I believe that it would be very helpful if the Government were to publish what the costs now are believed to be from various sources, not only in Scotland but in the UK, Belgium and France. The nuclear component in Belgium and France is more like 70 per cent. I do not know what provision those countries make for future decommissioning of stations or how much of it is financed privately and how much publicly. In France many factors are different, but the nuclear component is still 70 per cent.

Finally, what are the future prospects for Dounreay?

Lord Sanderson of Bowden

My Lords, I thank the noble Earl for his question. I shall visit Dounreay next week. I do not think that this Statement makes any difference to the earlier decisions of the Government on Dounreay as a PWR. This is obviously a matter that one will have to consider. However, my estimation is that it does not make any change at this stage.

Yes, the noble Lord is quite right. Various assumptions are made as to the costs of nuclear power. I should like to raise with my right honourable friend whether we can get to the bottom of this bottomless pit. There are clear differentiations to be made between the running costs of Torness, and so on, and the major problem —the capital costs and the decommissioning liabilities.

Lord Diamond

My Lords, I thank the noble Lord for repeating the Statement. Will he explain in more detail what will happen about the cost of electricity to the consumer in Scotland? Have we a final conclusion as to what the nuclear decommissioning costs, and therefore the total cost of nuclear electricity generation, will be? Will the consumer in Scotland have to pay the cost willy-nilly because it has been passed on by government fiat? Will the watchdog set up under the legislation have the same powers on government retained activities as it has on the commercial activities and thus protect the consumer?

Finally, I have not the slightest doubt that had there been a nationalisation measure which selected certain parts of the industry for nationalisation and excluded others, every single noble Lord on the other side of the House would be up in arms claiming that it was a hybrid matter which ought to be discussed in the appropriate way in order to protect those individuals who were not being treated on a par with everybody else in the country, as the law required. Does not the same consideration apply when we are in the reverse situation?

Lord Sanderson of Bowden

My Lords, I cannot elaborate beyond what was said by my noble friend the Leader of the House on this issue. At Second reading of the Electricity Bill the noble Lord was very voluble as to how he saw the future of the Bill. So far as my noble friend and I understand it, there is to be no change to the Electricity Act, as it now stands.

On prices, consumers must expect to pay their share of increased costs as and when they arise, as in the case of other sources of generation. However, we have powers under the Electricity Act 1989 —of which the noble Lord, Lord Diamond, is well aware —to avoid undue distortion arising from unanticipated back-end costs and increases. As to the true costs of nuclear power, scrutiny of the figures necessitated by privatisation has revealed that previous estimates of cost were too low and that further scrutiny was necessary. But, as our decision has made clear, some uncertainties remain. I believe that I should address the noble Lord with regard to the Scottish consumer. It is clearly stated that my right honourable friend the Secretary of State for Scotland realises that Scottish consumers must be protected and that tariffs will be so set.

Lord Stoddart of Swindon

My Lords, can the noble Lord clear up one matter? It arose from an answer to my noble friend. He appeared to suggest that the only reason why the Scottish nuclear industry was being hived off into a separate publicly-owned company was because the English nuclear power industry was being hived off. He appeared to be saying that it was all right in Scotland —they were making a profit there and everything was hunky-dory —and that the only reason for hiving off the industry in Scotland was because it had to be done in England.

Is the noble Lord saying that the nuclear industry in Scotland is so much more efficient than that in England that it would be highly profitable for the industry to be floated in Scotland and that people would buy the shares? If that is not what he is saying, what guarantee do we have from now on that this new publicly-owned company will not so arrange the information (if I may put it as kindly as that) as to give a false picture of viability and profitablity in comparison with coal? What guarantee do we have that such information will be more correct than it was under the previous publicly-owned boards?

Lord Sanderson of Bowden

My Lords, I thank the noble Lord, Lord Stoddart, for his questions. Obviously he knows a great deal about the matter. I believe that he was around at the time when his own administration not only consented to the construction of Torness but also to preliminary work.

The noble Lord asks whether the only reason that we are not going down the route of total privatisation of nuclear north of the Border is the fact that the City would not accept it because south of the Border it has been decided that it should not take place. The answer is no. There is no question that the uncertainty surrounding nuclear costs —in particular, decommissioning costs and so on —applies north of the Border just as it does south of the Border. I would only say to the noble Lord that at Torness we may be seeing a quite satisfactory situation with regard to the production of nuclear power. Therefore, considerations may be at a different level than when considering the situation south of the Border. I hope that I have made my point very clear.

On the arrangement of information to be disclosed, as it will be a public sector company Parliament will hold it wholly responsible.

Lord Mackie of Benshie

My Lords, during the course of the Bill and the preparations for it, the Minister and his right honourable colleagues were congratulated on the fact that they managed to hold the units together in Scotland —in the north of Scotland it was the hydro board, and in the south the electricity board —for privatisation, thereby causing the least possible disturbance to industry. While we did not agree with what they were doing it seemed an extremely good point.

A major portion is now being hived off. Will this make a difference and disturb the more or less happy relationship that we had, and the continuity that was ensured, by keeping these two units together?

5.30 p.m.

Lord Sanderson of Bowden

My Lords, no. I firmly believe that the two privatised companies, which one must recognise cover not only a fair proportion of the generation, as I have shown by the figures, but also the transmission and distribution of electricity in Scotland, will be sizeable companies in their own right even in United Kingdom terms. We believe that, far from changing the plans which I remember the noble Lord, Lord Mackie of Benshie, welcomed particularly in relation to the Hydro Electric Board, we have viable companies for privatisation. I am happy to say that not only has the chairman of the SSEB been most co-operative under these difficult circumstances but so has the chairman of the Hydro Electric Board. Today he has issued a statement welcoming the decision.

I point to the words of the noble Lord, Lord Taylor of Gryfe, who is not present but who spoke on Second Reading. He said: I believe that it would be sad for us, the owners of this great industry, to see our assets transferred to private ownership at inadequate values". —[Official Report, 25/4/89; col. 1192.] I believe that the present arrangements will ensure that that does not happen.

Lord Peston

My Lords, I know that it is getting late and I for one cannot wait to return to the intellectual excitements of the Companies Bill. However, I have one further question. We know little about the new Company, Scottish Nuclear Limited. It has been invented by the Government, as it were, to help solve the problem which confronts them. We know nothing about the economic or financial regime under which it will operate. In order that we and people in Scotland may be enlightened as to what we shall have in the public sector will the Minister come back to your Lordships' House with a fuller statement explaining how the company will operate, its objectives, the way in which it will be constrained and so forth? I do not expect an answer tonight but I should like reassurance that we shall have an answer in due course.

Lord Sanderson of Bowden

My Lords, I shall pass on the noble Lord's comments to my right honourable friend. It is early days for Scottish Nuclear Limited. However, much of the groundwork has been done because the set-up of the company has taken place. The only difference will be the shareholding. The noble Lord is right to point out, as did my right honourable friend in his Statement, that it has a major bearing on the interconnector, the relationship with England and the economics which flow from that. Taking the spirit of the noble Lord's comments, I hope that I shall be able to give him further information. I shall be discussing the matter with my right honourable friend.

Lord Hatch of Lusby

My Lords, the Minister has repeated the misleading impression already given by the noble Lord the Leader of the House that only after scrutiny of the costs since the passing of the Bill have the Government discovered what they are. That is not the case. Throughout the passage of the Electricity Bill the Government were consistently given an approximation of the costs of nuclear energy; they constantly refuted them. A series of questions was asked in this House about the real costs of nuclear energy.

I draw the Minister's attention to the fact that, as recently as 10th October his noble friend Lord Trefgarne, who is sitting next but one to him, told the House specifically in answer to a Question of mine that AGRs were to be included in privatisation. That was a specific statement. What happened between 10th October and 8th November?

I return to the point which was made by the noble Lord, Lord Diamond, and which I made earlier. This is an issue in which apparently the Government interpret "privatisation" as meaning that you will sell off the profitable side of the industry and the taxpayer must bear the costs, which the Government do not know even now. The taxpayer will pay for the costs of decommissioning plus the production of nuclear energy, thus subsidising the privatisation. Is that what the Government mean when they talk about privatisation? I believe that we are due for an answer.

I should like to know specifically why it is that on 10th October one Minister tells me that AGRs will be included in the privatisation flotation and then on 8th November another Minister tells the House that they will be included in a new government-owned company?

Lord Sanderson of Bowden

My Lords, I was present on that occasion and I know that my noble friend sitting next to me told the noble Lord in no uncertain terms that negotiations and discussions were and have been taking place as recently as a few days ago. What is important, and what seems to have been recognised by all sides of the House, is that if the Government's attention is drawn to information showing that the situation is not what they once believed, they are entitled to come to this House with a decision which must be followed through.

The views held by the noble Lord on nuclear power are extremely well known. We heard about them ad infinitum during the course of the Bill through your Lordships' House. However, the Government believe that we should have a nuclear capacity within the range of what is available in generating electricity and many Members opposite agree with that view.

Lord Hatch of Lusby

My Lords, will the Minister answer my specific question about the statement made to me by the noble Lord, Lord Trefgarne on 10th October?

Lord Sanderson of Bowden

My Lords, I honestly believe that the noble Lord is splitting hairs because he is inferring that on 10th October the Government were responsible for a cover up. That is not so. What is relevant is that information has come to light as the procedure has carried on and this decision has been taken. I do not think that I can go further.