HL Deb 21 June 2000 vol 614 cc388-97

15B.—(1) In this section "last resort supplier" means a supplier required by or under that supplier's licence to supply electricity where circumstances have arisen which would entitle the Director to revoke or suspend the licence of another supplier otherwise than with the agreement of that other supplier.

(2) The Secretary of State may, in accordance with this section, modify the conditions of a particular licence granted under section 6(1)(c) and 6(2) where he considers it necessary or expedient to do so for the purpose of implementing, or facilitating the operation of, arrangements relating to last resort suppliers.

(3) The power to modify licence conditions under subsection (2) includes power to make incidental or consequential, or transitional, modifications.

(4) Before making modifications under this section the Secretary of State shall consult the holder of any licence being modified and such other persons as he considers appropriate.

(5) Any consultation undertaken by the Secretary of State before the commencement of this section shall he as effective, for the purposes of subsection (4), as if undertaken after; that commencement.

(6) The Secretary of State shall publish any modifications under this section in such manner as he considers appropriate.

(7) The power of the Secretary of State under this section may not he exercised after the end of the period of one year beginning with the commencement of this section."").

The noble Lord said: We have already discussed today in Committee that from time to time, and inevitably under the more competitive conditions that now exist, a supplier may fail and cease to trade and his licence must be suspended or revoked. Without some kind of special provision there is a risk that customers will be left without the supply of a vital fuel. As far as concerns gas, the Gas Act 1986 provides adequately for such a situation by ensuring that another supplier, or supplier of last resort, is appointed to take on the old supplier's customers. Those customers are deemed by the regulator (as the Act puts it) to have a contract with the supplier of last resort.

This very day in Committee the Government, through their amendments to Clause 31 and Schedule 4, have created a similar arrangement in the supply of electricity. However, there is a risk of failure of supplier before the relevant clauses of this Bill commence and the new licence arrangements come into force, which I believe—the Minister will correct me if I am wrong—will be the spring of 2001. With regard to gas customers, safeguards exist, but for a period there is uncertainty for electricity customers.

In electricity, the present arrangements allow for the regulator to nominate a supplier of last resort, but they depend on customers taking the initiative to sign up for supply with the second supplier or supplier of last resort. If they do not do so, they can be disconnected and the supplier of last resort could have problems claiming his proper charges. Hence the amendment would enable the Secretary of State to create interim licence arrangements and obligations based on deemed contracts. That would assist in situations of failure by the original supplier before the new standard licence arrangements can take effect under the Bill. The Secretary of State would have power to modify licences to create more robust supplier of last resort arrangements.

It is a modest amendment. It is time limited until new licence arrangements come into effect. I hope that the Government will look favourably upon it. I beg to move.

Lord McIntosh of Haringey

I well understand the point the noble Lord makes: that the supplier of last resort arrangements which we have already been debating should be expedited ahead of the implementation of other licensing aspects of the Bill.

We accept the importance of making arrangements for the appointment and financing of suppliers of last resort. That is why we have made provisions in the Bill—we discussed some of them today; the noble Lord referred to them—and draft standard licence conditions to replicate the arrangements which already exist in gas. As I am sure the noble Lord is aware from his position with Ofgem, we have consulted publicly on them.

We have had full competition in electricity supply for more than a year. If there had been an urgent requirement for licence conditions to establish arrangements for a supplier of last resort, the Director-General for Electricity Supply would have been able to use his existing powers under Section 11 of the Electricity Act to modify electricity licences in an appropriate way.

I accept that he could not have included a levy to recover the costs of the person appointed as supplier of last resort. But alternative arrangements could if necessary have been found to address that point pending passage of the Bill. As referred to in earlier discussion, the levy is a last resort of last resort of last resort.

In any case, the Government do not believe that the amendment will make any significant practical difference. So far as I am aware, we are all agreed on what the supplier of last resort measures should be. We intend to establish these, along with the other standard conditions of licences, as soon as possible. I hope that the noble Lord will not press the amendment.

Lord Borrie

I am grateful to the Minister. At this hour of the night I can do no more than read his remarks in Hansard and consider whether I need to pursue the matter; or whether, as he suggests, it is not essential, necessary or expedient to press it further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 68 [Help for disadvantaged groups of electricity customers]: On Question, Whether Clause 68 shall stand part of the Bill?

Lord Ezra

With debate on Clause 68 I should like to speak also to Clause 97. These two clauses deal with help for disadvantaged groups of electricity and gas consumers and therefore touch on the question of fuel poverty.

Fuel poverty affects some 4 million to 5 million households out of a total of 22 million. It is, therefore, a major problem. It arises from a combination of inadequate housing and low incomes. The Government have taken a number of measures to improve energy efficiency at the lower end of the housing spectrum. The new home energy efficiency scheme aims to insulate 250,000 houses a year.

The energy efficiency standards and performance scheme, which is dealt with in the Bill, will add further to energy efficiency, especially in low income households. But, as stated in the latest report of the Royal Commission on Environmental Pollution, to which much reference has been made today, there is a pressing need for a further expansion of government programmes for raising energy efficiency and increasing warmth in low income homes. At the present rate, it would take some 20 years to deal with the problem, assuming that it gets no larger. We need to have an objective of dealing with the problem in not more than five years.

While much needed home energy improvement has been carried out, the low income aspect of fuel poverty also needs to be dealt with. All pensioner households are now entitled to £150 fuel payment each winter. While that is helpful, something more fundamental is required. At Second Reading I referred to the law recently introduced in France to provide disadvantaged consumers with specially low-priced fuel. I was advised by the Minister that that was not possible in Britain.

However, I believe that there is another way of achieving this result. TXU, which was formerly Eastern Electricity, has produced an imaginative scheme for assisting pensioners and persons on income support. This is known as the "Staywarm" scheme and has been piloted in the Barnsley area, where it has been estimated that some 300,000 people are in receipt of income support.

The basis of the scheme is to guarantee to those who sign up gas and electricity at the lowest price in the area. An estimate would be made of their likely annual requirements based on the size of the house and the numbers in the family. A weekly payment would be calculated and would be paid irrespective of the amount of fuel actually used. Thus, if there were a really hard winter there would be no need for these low income households to deprive themselves of warmth. They could use as much as was necessary to keep them warm and pay no more for it.

TXU estimates that such a scheme could save users approximately £120 on the typical energy cost of £500 a year and there would be a guarantee of warmth whatever the weather. They consider that they can achieve this desirable result through reducing the debt risk as a result of regular payments.

At a meeting which I had with them, they advised me that the prices charged under the scheme could be still further reduced if the DSS could be persuaded to deduct the weekly payment from benefit and transmit it to the company. That would eliminate all risk of bad debt and substantially reduce the costs of the operation, generating savings which TXU would be ready to pass straight on to the user.

It seems to me that this is a very imaginative scheme which needs to be encouraged. There is a way in which the DSS, without adding any government expenditure, could help. TXU realises that other supply companies would want to follow the same scheme in other parts of the country and it is quite prepared to accept the competition. Therefore, I suggest that the scheme should receive serious consideration in order to overcome the problem of households on low incomes freezing in winter.

11 p.m.

Lord McIntosh of Haringey

Once again, the noble Lord, Lord Ezra, has approached the Committee stage in a constructive way. He has expressed general support for Clause 68 and therefore I shall not embark on a general defence of it. The noble Lord advocated a particular project, the TXU "Staywarm" tariff and made a suggestion about it and it is that to which I shall respond.

It is correct that it is an innovative approach both to energy retailing and to providing assistance to the fuel poor with their energy costs by offering them a very low tariff. The pilot of the "Staywarm" scheme was launched on 17th May by Helen Liddell, the Minister for Energy and Competitiveness in Europe, and therefore our involvement with it is well established.

Because the noble Lord has done so, I shall not set out the details of the scheme, except in so far as the payment is concerned. Ideally, customers will pay by direct debit but a weekly or fortnightly cash facility will be available via post offices. The pilot, which is taking place in Yorkshire in an area between Leeds and Sheffield, is intended to find out what are the best methods for attracting customers.

The noble Lord, Lord Ezra, now suggests that there should be direct payment by the DSS in developing the new scheme. The problem which we have not resolved at present is that that would involve considerable manual processing by the Department of Social Security. There is a DSS scheme called Fuel Direct, which presently is used as a last resort for benefit claimants who are in need of protection against disconnection or court action. It is available only to people who receive income support and jobseeker's allowance (income-based).

Fuel Direct is a manual addition to the benefits payments system. If it, or direct payment to TXU Staywarm, were to become a standard feature, it would involve substantial costs to the DSS, particularly in new computer systems. The DSS would also be obliged to make the facility available to others. Clearly, it could not be for TXU's exclusive use.

Staywarm offers assistance to a wide range of low-income households, many of whom are on benefits which are not paid by the Benefits Agency and would not be included in the Fuel Direct payment arrangements. Ofgem has a specific working group as part of its follow-up to the Social Action Plan whose remit is to consider whether and how Fuel Direct might be simplified and extended. That work will feed into the ministerial group on fuel poverty, which includes a DSS Minister.

I suggest that the additional evidence given by the noble Lord, Lord Ezra, in his suggestions should be fed into that ministerial group. I shall undertake for that to be done in the hope that the difficulties that I have outlined can be overcome at some point in the future.

Lord Ezra

I thank the noble Lord for his positive response that my suggestion will be taken forward. With that, I beg leave to withdraw the Motion.

Clause 68 agreed to.

Clause 97 [Help for disadvantaged groups of gas customers]:

[Amendments Nos. 261 and 262 not moved.]

Clause 97 agreed to.

Clause 69 [Energy efficiency requirements for electricity distributors and suppliers]:

Lord McIntosh of Haringey moved Amendments Nos. 263 and 264: Page 69, line 20, leave out ("specified in or determined") and insert ("to be determined by the Authority"). Page 69, line 28, leave out from beginning to ("must") in line 29 and insert ("Where the Secretary of State specifies in an order under this section an overall energy efficiency target in relation to electricity distributors and electricity suppliers on whom obligations are imposed under the order, the Authority shall determine energy efficiency targets under the order in the manner it considers best calculated to result in the achievement of the overall energy efficiency target so specified. (3A) The energy efficiency targets determined by the Authority for the purposes of an order under this section").

On Question, amendments agreed to.

Clause 69, as amended, agreed to.

Clause 98 [Energy efficiency requirements for gas transporters and suppliers]:

Lord McIntosh of Haringey moved Amendments Nos. 265 and 266: Page 103, line 21, leave out ("specified in or determined") and insert ("to be determined by the Authority"). Page 103, line 29, leave out from beginning to ("must") in line 30 and insert ("Where the Secretary of State specifies in an order under this section an overall energy efficiency target in relation to gas transporters and gas suppliers on whom obligations are imposed under the order, the Authority shall determine energy efficiency targets under the order in the manner it considers best calculated to result in the achievement of the overall energy efficiency target so specified. (3A) The energy efficiency targets determined by the Authority for the purposes of an order under this section").

On Question, amendments agreed to.

Clause 98, as amended, agreed to.

Clauses 70 and 71 agreed to.

Clause 72 [Maximum prices for reselling electricity]:

[Amendments Nos. 266A and 266B not moved.]

Clause 72 agreed to.

[Amendments Nos. 267 and 267A not moved.]

Clause 101 agreed to.

[Amendment No. 268 not moved.]

Clause 75 [Gas transporters]:

[Amendments Nos. 269 to 273 not moved.]

Clause 75 agreed to.

Clause 76 [Restriction on use of certain pipe-lines for providing a supply of gas]:

Baroness Buscombe moved Amendment No. 274: Page 74, line 34, at end insert ("having regard to any guidelines drawn up by the Authority from time to time in consultation with gas transporters and to the provisions of section 7(8)(b)").

The noble Baroness said: The aim of Amendments Nos. 274 and 275 is to clarify the provisions of Section 10 of the Gas Act 1986, which applies to the laying of pipes by owners or occupiers of premises. That area of the gas connections market has become known in the industry as the self-lay market, providing consumers with an alternative to the gas transporters supplying and laying the pipes. Gas transporters are required to connect such pipes to their system, provided that they are satisfied that the pipe laid is fit for the purpose.

Section 10(6) of the Gas Act 1986 provides a swift transfer mechanism for the ownership of the pipe and rights and liabilities relating to it by vesting the pipe in the transporter at the time of connection. That reduces the costs involved in otherwise transferring legal ownership.

In many cases, the owner or occupier will not lay the pipe himself, but will engage a self-lay contractor. The aim of the amendments is to make it clear that the vesting provisions apply equally to a pipe laid by a self-lay contractor on behalf of the owner or occupier. I beg to move.

Lord McIntosh of Haringey

I am grateful to the noble Baroness, Lady Buscombe, for restricting my speaking notes on this group, but I should say a word about the purpose of Clauses 75, 76 and 77. I shall try to do so without referring to the amendments that have not been moved.

The provisions will end the geographical exclusivity of gas transportation licences, which was an important, if technical policy. I shall explain geographical exclusivity and its effects in a moment, but first I shall summarise the Government's two-fold motivation for the policy: to reduce barriers to entry, thus increasing competition and driving down prices to the benefit of consumers; and to assist with compliance with the European Union gas directive.

Public gas transporter—PGT—licences are currently geographically exclusive. Under Section 7(2)(a) of the Gas Act 1986, any given area may be within the authorised area of only one PGT and only that PGT may convey gas through pipes to premises in that area. In other words, we have a series of local monopolies. The main purpose of Clause 75, which has been agreed to, is to end geographical exclusivity by removing the requirement that PGT licences may not include areas that are specified in the licences of other PGTs.

It is no surprise that transporters object to that policy. It will increase competition for them and we hope that it will reduce the prices they can charge. Incumbent monopolies do not like that sort of thing but the Government want consumers to benefit from increased competition.

Amendments Nos. 274 and 275 seek to amend Clause 76 which concerns the transitional issue of how to deal with pipes laid by transporters outside their authorised areas in the past. At present, gas transporters may have other transporters' pipes passing through their authorised areas in order to get gas to the other side. Such "pass-through" pipes cannot currently be used by their owners to give a supply of gas to premises.

Now that Clause 75 will end exclusivity of authorised areas, the pass-through pipe could conceivably become a threat to the incumbent transporter. We feel that this could be unfair. Clause 76 therefore provides that the consent of the first transporter is required if a pass-through pipe which was built before the abolition of geographical exclusivity is to be used for giving a supply. If the first transporter refuses consent or fails to give it, the authority may intervene and override that refusal.

As a general rule, we are trying to place broad duties on the authority but then not be too prescriptive about how it carries them out. Therefore we have not put on the face of the Bill detailed considerations about when to override a refusal to give consent. Amendment No. 274 would change that, reverting to the highly specific tests currently found in subsection (8)(b) of Section 7 of the Gas Act to which the noble Baroness, Lady Buscombe, referred. The clause as drafted is flexible enough to allow the authority to respond to changing circumstances. If the amendment were to be accepted, that flexibility would disappear.

Amendment No. 75 relates to Clause 77. That deals with some of the consequences of the abolition of geographical exclusivity. It covers the procedures to be followed when one transporter wishes to lay pipes within 23 metres of another transporter's pipes and inserts a new version of what is known as the 23-metre rule into Section 22A of the Gas Act.

Clause 77 provides important safeguards to deal with the consequences of the removal of geographical exclusivity, which Amendment No. 275 would remove, leaving in place the current provisions of Section 7, which are inappropriate to deal with overlapping authorised areas. I am afraid that the Government cannot accept those amendments.

11.15 p.m.

Baroness Buscombe

I thank the Minister for his response. There is no question that this area is causing great concern in the industry. I shall read carefully in Hansard what the noble Lord said and we may consider returning to this on Report. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 76 agreed to.

Clause 77 [Construction of pipe-lines by gas transporters]:

[Amendment No. 275 not moved.]

Clause 77 agreed to.

Clause 78 agreed to.

Clause 79 [Gas transporters' duty to make a connection]:

Baroness Buscombe moved Amendment No. 276: Page 76, line 8, at end insert— ("( )In subsection (1)(b) after "premises" there is inserted "or by a person other than the transporter acting on behalf of the owner or occupier".").

The noble Baroness said: In moving this amendment, I shall speak also to Amendments Nos. 277 to 280. The amendments seek to clarify certain consequences of subsections (4) and (5) of Clause 79 which were inserted as amendments in Committee in another place.

Once the pipe is connected, the gas transporter will take over all responsibilities for the maintenance and subsequent renewal of the pipe. It will also take over responsibility, subject to any indemnity it may reasonably require, for any remedial reinstatement of the highway, should that be needed.

The amendments do not seek to alter that situation. However, gas transporters enjoy certain powers which are not available to private individuals when excavating streets. In particular, planning permission to lay the pipe is deemed to be granted and gas transporters do not need to obtain individual streetwork licences to break open the street, lay the pipe and retain it in the street.

These amendments seek to clarify that, once the transporters have connected the pipe, any issues over whether planning permission or a street works licence should have been obtained or complied with by the owner or occupier will cease to affect the transporter, but will not affect the ability of the planning authority or the highway authority to take action against the owner or occupier.

This provision avoids the need for long-term indemnities from the owner or occupier or contractors which would otherwise inhibit competition in the laying of surface pipes. I beg to move.

Lord McIntosh of Haringey

Am I right in thinking that the noble Baroness was speaking only to Amendments Nos. 276 and 280 or was she speaking to the whole group—the ones in between?

Baroness Boscombe

I apologise to the Minister. I was speaking to Amendments Nos. 276, 277, 278, 279 and 280.

Lord McIntosh of Haringey

I am grateful. Amendments Nos. 276, 278 and 279 all cover the same ground, and I am afraid that they are all completely unnecessary. The current drafting of the Gas Act differentiates between pipes laid by a transporter and pipes laid by the owner or occupier of premises. It would be absurd to interpret the existing words as meaning that the householder has physically to dig the hole and lay the pipes with his own hands. That would be to deny the vast majority of people—that is to say those who are not gas pipeline experts—the opportunity to exercise the right in subsection (1)(b) of section 10 of the Gas Act to have a pipe laid by them connected to a transporter's main. And of course making this obvious interpretation explicit here would call into doubt any other instances which were not amended in the same way.

Amendment No. 277 would be ineffectual. In summary, the amendment means that anyone who asks to be connected to the gas main could be asked by the transportation company for an indemnity in case the transporter lays the connecting pipe badly and it leaks, leading to an explosion which destroys the building next door. It is obvious that such a requirement would not be reasonable; indeed, nobody could reasonably demand an indemnity in respect of work he carries out himself. The amendment makes no substantive change to the clause.

In order to explain why that is the case, I have to explain the existing provision in Clause 79. At present there are two ways for someone to get his premises connected to a gas main. The first is to request a gas transporter to lay appropriate pipes and make the connection, which transporters are required to do by subsection (2)(a) of section 10 of the Gas Act, if the premises are within 23 metres of an existing main.

The second is for the owner of the premises to arrange to have pipes laid and then require the transporter simply to connect these new pipes to the main. These pipes are known as "self-lay" pipes, and the transporter's duty to connect them is covered by subsection (2)(b). Currently, once these pipes are connected to the gas main, all rights in them vest in the transporter. In the past, certain self-lay operators have not properly reinstated the ground they have dug up in order to lay the pipe. Some transporters have refused to repair or maintain the reinstatement, as they say that only the rights in the pipe are vested in them, and not the liabilities.

We felt that local authorities and similar bodies should not be in any doubt as to which company to chase up in circumstances where the pipe has been laid badly. Licensed gas transporters have to have systems in place for dealing with repairs to their pipes, and so it is simpler for local authorities to go straight to the transporter and not to be bounced between various people. So subsections (4) and (5) of Clause 79 have the effect that liabilities as well as rights vest in the transporter on connection of self-lay pipes.

However, it is very unfair to transporters, simply to load them up with all sorts of liabilities which are beyond their control; so subsection (2) of Clause 79 inserts a new subsection (3A) into Section 10 of the Gas Act, allowing transporters to insist that self-lay operators sign a contract containing reasonable indemnities in respect of any faults connected with the laying of the pipe.

So now local authorities will know who to approach—namely, the transporter—and the transporter will be protected by contracts; and if the self-lay operator refuses to accept reasonable terms, the transporter can simply refuse to connect the new pipes to the mains. The gas and electricity markets authority will determine any disputes as to what is reasonable.

I turn to Amendment No. 280. We want local authorities not to have to chase between different people. It is therefore our policy that the transporter takes on the liabilities with reasonable indemnities. The situation should be no different when a self-lay operator fails to obtain, say, a streetworks licence. The local authority should be able to go straight to the transporter, which should have protected itself with appropriate due diligence and contractual indemnities.

A failure by a self-lay operator to obtain or comply with permissions not required by transporters would have no impact on the transporter in respect of any criminal liability, which would remain with the self-layer. Any civil liabilities would be covered by indemnities. Since transporters could maintain and operate the pipes under their statutory powers, no streetworks licence would be necessary for them and they would not acquire a duty to pay ongoing fees for such a licence.

The amendment is too detailed. It relates to an issue which arises rarely, if at all, and for which a perfectly sensible solution already exists in the ability of transporters to impose reasonable terms indemnifying themselves.

Baroness Buscombe

I thank the Minister for his response to the amendments. Obviously, I am disappointed. However, I shall read carefully in Hansard what he has said. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 277 to 280 not moved.]

Clause 79 agreed to.

Clauses 99 and 100 agreed to.

Clause 102 agreed to.

Lord McIntosh of Haringey moved Amendment No. 281:

After Clause 102, insert the following new clause—