Transco Price Control Review

HL Deb 03 June 1996 vol 572 cc1080-1

2.48 p.m.

Lord Wyatt of Weeford asked Her Majesty's Government:

What is their reaction to the initial proposals of the Director-General of Ofgas with regard to the 1997 price control review.

Lord Fraser of Carmyllie

My Lords, the Transco price control review is a matter for the independent regulator, the Director-General of Gas Supply, and for British Gas plc.

Lord Wyatt of Weeford

My Lords, first, let me declare an interest in being the unfortunate owner of a few British Gas shares, which have dropped sharply in value as a result of the activities of the Ofgas regulator. Does the Minister agree that it was an extraordinary action to take in view of the fact that she has overturned the 1993 recommendations of the Monopolies and Mergers Commission on accounting matters and has thereby halved the value of Transco, which will result in a loss of many hundreds of millions of pounds in profits? Is he aware that, of the privatised utilities, poor Sid has had the worst deal in value for shares, having not even kept pace with the FT index? Does he agree that someone ought to speak to the Ofgas regulator and clear her mind of a few old cobwebs?

Lord Fraser of Carmyllie

My Lords, I am sure that the noble Lord appreciates that what is on the table at the moment is a set of proposals from the regulator of Ofgas. One of the aspects is the valuation of the assets, which is important in determining the appreciation in the price formula thereafter. That is a matter for discussion first of all between Ofgas and British Gas, as I indicated. If they cannot reach an agreement, there will be a reference to the Monopolies and Mergers Commission—not, I should emphasise, by the President of the Board of Trade, but because that follows from what is contained within the legislation. Then it will be a matter for the Monopolies and Mergers Commission, if that is necessary. Clearly, one hopes that the matter can be resolved before then.

Lord Peston

My Lords, does the noble and learned Lord agree that, whatever else one does about the Director-General of Ofgas—who is a first-rate person in this field anxiety as to whether shares go up or down cannot possibly be a criterion one can apply in this case? As I understand it, it is the nature of the stock market that shares can go up or down and one has to take one's chances. In what sense is it reasonable to argue that it was an improper act on the part of the Director-General of Ofgas simply because some people lost money? In the free market people lose money all the time, and that is the whole point of regulation, is it not?

Lord Fraser of Carmyllie

My Lords, the regulator is under a statutory duty to ensure that decisions on the price formula strike a proper balance between the interests concerned. The director-general has a duty to exercise her function in the manner best calculated to protect the interests of the consumers. However, she also has a balancing duty to ensure that regulated companies are able to finance their licensed activities. There is probably a more legitimate interest in that than simply looking to whether the price on the Stock Exchange moves up or down. It is the matter of financing that is important.

Lord Marsh

My Lords, perhaps I too may declare an interest. Should not one be more optimistic than my noble friend Lord Wyatt in this matter? Looking on the bright side, this has provided a warning to those potential investors in Railtrack.

Lord Fraser of Carmyllie

My Lords, I cannot agree with the noble Lord's proposition, which I am sure does not come as any surprise to him. This is a matter which must be recognised as a set of proposals put forward by Ofgas. If British Gas does not agree to what is being proposed, the next stage will be for the matter to go before the Monopolies and Mergers Commission.

Lord Wyatt of Weeford

My Lords, does the noble and learned Lord agree that, as competition is extending fast, not only in gas but in other privatised utilities, the regulator should be done away with? The whole thing should be left to the free market rather than being operated by a regulator who does not understand the business concerned.

Lord Fraser of Carmyllie

My Lords, I am not sure that I agree with the noble Lord's last proposition. However, I agree that effective competition is the best possible protection for consumers and it should ultimately remove the need for price regulation. In respect of gas transportation, which is the subject of the current gas review, it is in effect a natural monopoly and is therefore likely to continue to require price regulation in the longer term.