HL Deb 21 June 2000 vol 614 cc317-37

2B.—(1) Where any person takes a supply of electricity which is in the course of being conveyed by an electricity distributor, the distributor shall be entitled to recover from that person the value of the electricity so taken.

(2) Where—

  1. (a) any person at premises at which a connection has been restored in contravention of paragraph 3(1) takes a supply of electricity which has been conveyed to those premises by an electricity distributor; and
  2. (b) the supply is taken otherwise than in pursuance of a contract made with an authorised supplier, or of a contract deemed to have been made with an electricity supplier by virtue of paragraph 2A above or paragraph 4S (former tariff customers) of Schedule 7,
the distributor shall be entitled to recover from that person the value of the electricity so taken.

(3) Each electricity distributor shall make, and from time to time revise, a scheme providing for the manner in which, and the persons by whom, the quantity of electricity taken in such circumstances as are mentioned in sub-paragraph (1) or (2) is to be determined for the purposes of that sub-paragraph.

(4) Sub-paragraphs (9) and (10) of paragraph 2A shall apply in relation to a scheme under this paragraph as they apply in relation to a scheme under that paragraph.

(5) In this paragraph "value", in relation to any electricity taken in such circumstances as are mentioned in sub-paragraph (1) or (2), means the amount which, if the electricity had been taken in such circumstances as are mentioned in sub-paragraph (2) of paragraph 2A, could reasonably be expected to have been payable in respect of the electricity under a contract deemed to have been made by virtue of that sub-paragraph.").

The noble Lord said: In moving this amendment, I speak also to Amendments Nos. 201, 292, 299, 300, 303, 304, 312, 337, 338, 344, 346 and 347. This group includes Amendments Nos. 195 to 197, for which I imagine that the Opposition would prefer to put their case before I knock it down.

The government amendments deal with provisions for deemed contracts and the determination of disputes. The provisions for deemed contracts are included in Amendments Nos. 194, 299, 337 and 338, which introduce provisions into the Electricity Act for deemed contracts such as already exist in the Gas Act. They provide that where a supply is made to premises without an agreed contact being in place between a customer and a supplier, a contract shall be deemed to be in place with the appropriate supplier. An example of a case in which this is necessary is when someone moves into premises without previously having made a contract with a supplier. In addition, they provide a right to a distributor to recover the value of electricity illegally taken from a distribution system through the civil process of debt recovery. This reminds me of the bedsit days of my youth!

In addition, the Gas Act is amended to align it with the Electricity Act, in that the provisions which restrict deemed contracts to categories of customer whose demand is below a specified threshold are being repealed, making them applicable to all categories of customer.

Amendments Nos. 201, 292 and 300 relate to disputes determination. These amendments update the existing provisions of the Electricity Act, so that disputes determination by the authority applies to the statutory obligations on distributors to provide a connection. At present, it applies to statutory obligations to supply by a public electricity supplier, which are being repealed. In addition, they amend the Gas Act to align with the electricity provisions so that disputes determination applies to all customers not just domestic customers.

The consequential Amendments Nos. 303, 304, 312, 344 and 347 make some small, technical changes to the Bill, resulting from the abolition in the Electricity Act of the concept of "public electricity suppliers" and the separate definition of supplier and distributor. I beg to move.

Baroness Buscombe

I shall do battle on Amendment No. 195 and, in so doing, speak also to Amendments Nos. 196 and 197. Amendments Nos. 195 and 196 would provide electricity distributors with rights of access to meters in the case of an emergency.

Electricity suppliers will be responsible for providing meters at each point they supply and retrieving and processing the readings from them (described as "metering services" and "data services"). The supplier can appoint an agent to fulfil its responsibilities in respect of those services.

While distributors will retain ownership of the thousands of meters currently in place and must offer suppliers terms for the provision and operation of meters, they will not have any right of access to their meters. The powers to enter premises for access to meters will be given to suppliers who will be able to exercise those powers themselves or through persons appointed by them. A distributor could be appointed for this purpose, but a supplier will not have to accept the distributor's terms and will be able to select another party to provide metering services.

Where the supplier has not appointed the distributor as its agent for metering services, the distributor will not be able to deal with a faulty meter on the customer's premises. In that event a distributor will be able to disconnect the supply only in order to leave a safe situation, and ask the supplier—he would be in rather an unenviable position of explaining this to the customer—to arrange for its meter operator to deal with the meter; until this is done, the consumer will be without electricity. The amendments would enable distributors to enter premises in an emergency to inspect, repair and reinstall meters. In that way we believe that they are entirely practical.

The purpose of Amendment No. 197 is to clarify that the protection of electricity supply equipment from distress will pass to the successor of the company that installed that equipment. As presently drafted, Schedule 4 provides immunity from distress for equipment which is marked or branded with the name of an electricity company. As a result of the reforms in the electricity market, many of these assets will pass to different owners but remain in place for some time bearing the name of a predecessor in title. It is unclear whether the immunity from distress will pass to the successor company. The amendment deals with this point.

6.45 p.m.

Lord McIntosh of Haringey

I am grateful to the noble Baroness, Lady Buscombe, for her explanation of those amendments. I apologise for my flippant remarks at the beginning. The noble Baroness, Lady Buscombe, knows better than to take me seriously.

I turn to Amendments Nos. 195 and 196. At present, the distribution arm of public electricity suppliers owns most of the meters in the country. We intend that in future suppliers and not distributors should be responsible for providing customers with meters and related services. Suppliers will not have to own the meters or provide services themselves, but may procure them from specialist metering firms or, as the noble Baroness, Lady Buscombe, said, from distributors. This policy aims to increase competition in metering and also ensure that customers have a "one-stop shop"; that is, they deal with the supplier for everything, rather than having to deal with different people for different aspects of their electricity service.

Distributors will continue to be responsible for line and plant, and so it is right that they should have various rights of entry related to those, including emergency access. But there is no reason for them to have privileged access to meters, for which they are not responsible.

It is important to remember that this is not an issue of safety. Of course it is usually the distributor who needs entry in an emergency and we have made provision for this. But if the fault is with an electric heater or cooker, there are no additional rights of entry enforceable by court warrants to inspect or replace these items, and similarly it is not necessary for a faulty meter. It is irrelevant that the distributor might happen to own it.

Moreover, it is anti-competitive. It would retain a link between supply and distribution which runs against the thrust of the Bill in separating the two. Also, specialist metering firms, which may also provide meters to suppliers for use by consumers, do not directly get these rights, so why should we skew the competitive playing field against them?

Of course, both specialist firms and distributors can benefit from a supplier's right of entry in relation to meters if they are authorised by the supplier, for example when the supplier has sub-contracted its metering requirements. But the responsibility for how those rights are exercised should remain with the supplier who has the responsibility.

I turn to Amendment No. 197. The current drafting in Schedule 4 states that if electrical plant lines or meters are marked sufficiently to indicate an electricity company as the owner, they cannot be treated as part of the landlord's property or be seized if, say, the landlord goes bankrupt. I think that it was the issues of seizure and distress that the noble Baroness, Lady Buscombe, was most concerned about.

The drafting does not say that the name of the company which owns the relevant equipment must be marked, only that the mark should be sufficient to indicate that some electricity supplier or distributor is the owner. This seems sufficient to cover the case which might lie behind the amendment; namely, when equipment is marked with the name of a company which might no longer exist, for example a public electricity supplier, where ownership has passed to a successor supplier or distributor. Therefore I do not believe that this amendment is necessary.

On Question, amendment agreed to.

[Amendments Nos. 195 to 197 not moved]

Schedule 4, as amended, agreed to.

Clause 83 [The gas code]:

Baroness Buscombe moved Amendment No. 198: Page 81, line 18, at end insert— ("( ) In paragraph 12 (failure to notify connection or disconnection of service pipe). in sub-paragraph (1) after "meter" in both places where it occurs there is inserted "or gas device". ( ) In paragraph 13 (Failure to notify disconnection of meter)—

  1. (a) in sub-paragraphs (1) to (3) after "meter" in each place where it occurs there is inserted "or gas device", and
  2. (b) after sub-paragraph (4) there is inserted—
(5) In this paragraph and in paragraph 12, "gas device" means any device other than a meter forming part of' or used in conjunction with the metering installation at any premises."").

The noble Baroness said: In moving Amendment No. 198, I wish to speak also to Amendments Nos. 199 and 200. These three amendments are technical amendments to clarify the legal uncertainty in the current provisions of the gas code in the Gas Act. They complement the authority's current activities in bringing greater competition in meter ownership in the gas market and in the carrying out of meter installation and maintenance activities. Encouraging competition in these areas will bring down prices for the benefit of consumers.

Amendment No. 198 seeks to amend paragraphs 12 and 13 of the schedule. The two sub-paragraphs require persons carrying out work which involves removing a meter or connecting a meter to a service pipe to inform the supplier and the gas transporter concerned. The information in question is specified in regulations under paragraph 12. However, in any metering installation, there are other fittings than purely the meter and service pipe. In a domestic installation there will be a small pressure regulator and connecting pipes. For larger industrial and commercial installations there may also be pressure and temperature controls apparatus.

In the new competitive environment it may be the case that different parties will own the meter and other parts of the apparatus. This amendment ensures that if work is carried out to any part of the metering installation other than the meter the same information is given to the supplier and transporter in respect of that work as is currently given in respect of work involving the meter alone. This enables the supplier and transporter to ensure that their records of ownership and work carried out are kept up to date and helps to ensure the overall safe operation of the metering installation.

Amendment No. 200 seeks to remove a barrier to the free transfer of title in meters when installed in consumers' premises. A failure to attend to this is likely to discourage new meter owners and so reduce the scope for competition in the market.

The issue is that ownership in items such as gas meters can normally be transferred by what is known as "delivery"—that is, a physical or symbolic handing over of the meters—if at the relevant time they are in the possession of the party seeking to sell them. This is, however, not the case if at the relevant time they are in the possession of a third party, such as the hirer or consumer. In such a case, in order to transfer title the consent of the party in possession of the goods would be required. This is a considerable barrier to the transfer of title. Amendment No. 199 makes that consent unnecessary without changing the terms of the hiring agreement.

The third amendment seeks to amend paragraph 29 of Schedule 2B. This paragraph provides that meters and gas fittings of gas transporters and suppliers, provided that they are marked with a sufficient mark indicating the owner, are not liable to be seized by creditors of the consumer in recovering debts, and are also not deemed to be the landlord's fixtures. The latter provision is of particular importance as otherwise the common law could deem the ownership in the meter to pass from the gas transporter to the owner of the property as soon as the meter was fixed to the property. I beg to move.

Lord McIntosh of Haringey

I hope that I can reassure the noble Baroness, Lady Buscombe, that these amendments are not necessary.

Amendment No. 198 would have the effect that a notice should be given if a "device" which is not a gas meter but "forms part of it" or is used "in conjunction with it" is to be disconnected. The present drafting would require such notice to be given only if the meter is to be disconnected. The amendment is unnecessary and also far too broad. It is unnecessary because if the device is part of the meter, disconnecting the device would automatically entail disconnecting the meter, thus triggering the existing notice provisions.

The other part of the definition of "device" relates to something that is not part of the meter but used in conjunction with it. If it does not simply mean something that is necessary to the operation of the meter, how far does it go? A gas cooker is used in conjunction with a meter in some sense. Any reasonable interpretation of the word "meter" already covers what needs to be covered, and does not extend to cookers and the like. So the amendment is not only unnecessary but goes too far.

Amendment No. 199 is also unnecessary and would have effects which extend far beyond the provisions of the gas code, with which these amendments are concerned. The current wording of the gas code says that any gas "fittings" owned by gas transporters or suppliers cannot be treated as landlord's fixtures and cannot be subject to distress or taken in bankruptcy or other court proceedings. Amendment No. 199 seeks to extend this to cover fittings owned by anyone other than the consumer.

The term "fittings" is defined by Section 48 of the Gas Act to include pipes and meters, and also apparatus and appliances for use by consumers for heating, lighting and other purposes. In other words, it covers both pipes and such things as cookers. Gas pipes are unlikely to be owned by anyone other than a transporter, supplier or the owner of the premises. So the amendment would be unlikely to have any effect in that regard.

But when it comes to items such as cookers, the effect of the amendment would be that if the cooker was owned by, say, a gas appliances company which was providing it under a hire purchase agreement, it could not be seized—not even by the company which provided it. Equally, a gas appliance belonging to a landlord would be deemed not to be a landlord's fixture, notwithstanding that it was fixed or fastened to the premises. These are odd effects to seek to achieve.

The purpose of the existing provision is simply to protect the property of gas transporters and suppliers. The amendment does not seem to benefit them and has the perverse consequences to which I have referred.

Amendment No. 200 is also unnecessary, as well as being too broad. It would apply to all gas meters, including meters owned by the customer himself. But even if it were tighter than that, it is unnecessary. This is because the consent of consumers is not necessary to transfer ownership of meters or fittings owned by suppliers or transporters. For the sale of a gas meter which is in a consumer's premises, Section 29(4) of the Sale of Goods Act 1979 would simply require an acknowledgement by the consumer that the meter or fitting is held on behalf of the buyer rather than the seller, and this would constitute delivery of the goods by the seller. The contract that the consumer signs with the supplier could simply say that such acknowledgement will be deemed to have been given in the event of a sale of a meter, or, alternatively, that the payment of a bill on which the change of ownership is mentioned constitutes delivery.

The Sale of Goods Act requires there to be a "delivery" of the goods by the seller, whether actual or constructive. This amendment would mean that the seller of a gas meter would have no way of making "delivery" of the meter to the buyer, and some alternative method would have to be prescribed. It would also mean that the position in respect of gas meters differed from that in respect of electricity meters.

The gas code has been around for a number of years. The first two amendments simply cast doubt on generally accepted interpretations of terms to the detriment of every other place where they are used. I hope that the noble Baroness will not press these amendments.

Baroness Buscombe

I have listened with great care to what the Minister said. I simply cannot agree with him that these amendments are either unnecessary or too broad—not least because we have developed these proposals very much in consultation with the gas industry, which is deeply concerned about these issues. With great respect, we are not satisfied with the Minister's response and I should like to test the opinion of the Committee.

6.56 p.m.

On Question, Whether the said amendment (No. 198) shall be agreed to?

Their Lordships divided: Contents, 44; Not-Contents, 114.

Division No. 2
Anelay of St Johns, B. Jopling, L.
Astor of Hever, L. [Teller] Kingsland, L.
Attlee, E. Knight of Collingtree, B.
Blatch, B. Laird, L.
Brougham and Vaux, L. Lamont of Lerwick, L.
Buscombe, B. Lucas, L.
Carnegy of Lour, B. Lyell, L.
Crathorne, L. Mackay of Ardbrecknish, L.
Dean of Harptree, L. Marlesford, L.
Dixon-Smith, L. Naseby, L,
Dundee, E. Northesk, E. [Teller]
Ferrers, E. Oxfuird, V.
Fookes, B. Reay, L.
Freeman, L. Renton, L.
Gardner of Parkes, B. Roberts of Conwy, L.
Geddes, L. Rogan, L.
Glentoran, L. Seccombe, B.
Hanham, B. Skidelsky, L.
Henley, L. Stodart of Leaston, L.
Higgins, L. Strathclyde, L.
Howe, E. Thomas of Gwydir, L.
Jenkin of Roding, L. Wakeham, L.
Acton, L. Christopher, L.
Addington, L. Clarke of Hampstead, L.
Ahmed, L. Cohen of Pimlico, B.
Alli, L. Currie of Marylebone, L.
Amos, B. David, B.
Andrews, B. Davies of Coity, L.
Archer of Sandwell, L. Davies of Oldham, L.
Bach, L. Desai, L.
Barnett, L. Dholakia, L.
Bassam of Brighton, L. Dixon, L.
Beaumont of Whitley, L. Donoughue, L.
Berkeley, L. Dormand of Easington, L.
Blackstone, B. Dubs, L.
Blease, L. Elder, L.
Borrie, L. Evans of Parkside, L.
Bragg, L. Ezra, L.
Brennan, L. Falconer of Thoroton, L.
Brett, L. Falkland, V.
Brooke of Alverthorpe, L. Farrington of Ribbleton, B.
Brookman, L. Faulkner of Worcester, L.
Burlison, L. [Teller] Filkin, L.
Carter, L. [Teller] Fyfe of Fairfield, L.
Gale, B. MacKenzie of Culkein, L.
Gibson of Market Rasen, B. Mackenzie of Framwellgate, L.
Gladwin of Clee, L. Massey of Darwen, B.
Goldsmith, L. Merlyn-Rees, L.
Goodhart, L. Miller of Chilthorne Domer, B
Goudie, B. Mitchell, L.
Gould of Potternewton, B. Morris of Castle Morris, L.
Graham of Edmonton, L. Newby, L.
Grenfell, L. Nicol, B.
Hardy of Wath, L. Patel of Blackburn, L.
Harris of Greenwich, L. Phillips of Sudbury, L.
Harris of Haringey, L. Pitkeathley, B.
Harris of Richmond, B. Ramsay of Cartvale, B.
Harrison, L. Razzall, L.
Hayman, B. Rendell of Babergh, B.
Hilton of Eggardon, B. Sawyer, L.
Hollis of Heigham, B. Scotland of Asthal, B.
Howells of St. Davids, B. Serota, B.
Howie of Troon, L. Sharp of Guildford, B.
Hoyle, L. Simon, V.
Hughes of Woodside, L. Stone of Blackheath, L.
Irvine of Lairg, L. (Lord Chancellor) Symons of Vernham Dean, B.
Taverne, L.
Islwyn, L. Tomlinson, L.
Tope, L.
Jenkins of Putney, L. Uddin, B.
King of West Bromwich, L. Wallace of Saltaire, L.
Kirkhill, L. Walmsley, B.
Layard, L. Warner, L.
Lea of Crondall, L. Warwick of Undercliffe, B.
Lipsey, L. Whitaker, B.
Lockwood, B. Whitty, L.
Lofthouse of Pontefract, L. Wilkins, B.
Macdonald of Tradeston, L. Williamson of Horton, L.
McIntosh of Haringey, L. Woolmer of Leeds, L.
McIntosh of Hudnall, B. Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

7.6 p.m.

[Amendments Nos. 199 and 200 not moved.]

Clause 83 agreed to.

Clause 51 agreed to.

Schedule 5 [Electricity metering]:

Lord McIntosh of Haringey moved Amendment No. 201: Page 120, line 19, after (""provided";") insert— ("(bb) after sub-paragraph (2) there is inserted— (2A) Section 23 of this Act shall apply in relation to any dispute arising under this paragraph between an electricity supplier and a customer.";").

On Question, amendment agreed to.

Schedule 5, as amended, agreed to.

Clause 52 agreed to.

Clauses 88, 53, 89, 54, 90, 55, 91 and 56 agreed to.

Clause 92 [Information with respect to levels of performance]:

[Amendment No. 202 not moved.]

Clause 92 agreed to.

Clause 57 agreed to.

Clause 93 [Information to be given to customers]:

[Amendment No. 203 not moved.]

Clause 93 agreed to.

Clause 58 [Financial penalties]:

Lord Kingsland moved Amendment No. 204: Page 55, line 29, at beginning insert ("and that compliance by the licence holder cannot be secured by other means,").

The noble Lord said: Clauses 58 and 94 introduce a power for the authority to impose financial penalties of, such amount as is reasonable in all the circumstances of the case". on any licence holder that, (a) has contravened or is contravening any relevant condition or requirement: or (b) has failed or is failing to achieve any standard of performance prescribed under", the relevant Acts.

The authority is obliged, prior to imposing a penalty, to give notice of its intentions to do so, and to set out the acts or omissions by the licence holder which have resulted in the contravention or failure, together with the relevant condition, requirement or standard of performance. In the event that the authority, having considered any objections or representations made by the licence holder in question, proceeds with the penalty, the authority must give at least 42 days' notice of payment.

The authority is required, for example, by virtue of the proposed Section 30B, to prepare and publish a statement of policy with respect to the imposition of penalties and the determination of their amounts and undertake such consultation as it deems appropriate when preparing or revising the statement.

Proposed Section 30C provides certain time limits on the imposition of penalties where no final or provisional order has been made in relation to a contravention or failure. The authority may not impose a penalty in respect of the contravention or failure unless the notice relating to the penalty was served on the licence holder within 12 months from the time of the contravention or failure. Where a final or provisional order has been made, the notice must be served within three months from the confirmation of the provisional order or the making of the final order or, when the provisional order is not confirmed, within six months from the making of the provisional order.

An aggrieved licence holder may make an application to the court, which shall have the power to quash the penalty, substitute a lesser amount or substitute alternative dates for payment. The grounds on which the court may exercise its powers are only on the basis that the imposition of the penalty was not within the powers of the authority under, say, the proposed Section 30A; that the requirements of, say, proposed Section 30A have not been complied with; or that the date by which the penalty is to be paid is unreasonable.

The Opposition's view is that this is an enormous concentration of power in the authority. The authority is already empowered to determine and impose licence conditions and standards of service; Clauses 58 and 94 add the power to levy a fine. The limitations which circumscribe a court's ability to intervene in an abuse of this power leave the power exercisable without proper supervision. In the case of the authority, the powers of the "legislature", the "executive" and the "judiciary" are combined in one board with only one full-time member, and all its members are unelected. That is constitutionally unsound, especially in an activity where penalties are imposed.

The Minister is well aware of the Opposition's view that the use of these powers is likely to introduce conflict, most obviously with the European Convention on Human Rights. The Clause 58 and Clause 74 procedures, which authorise the imposition by the regulator of potentially unlimited penalties on licence holders with a wide swathe of obligations, clearly constitutes the determination of a civil right or obligation within the meaning of Article 6 of the convention. The procedure may also constitute the determination of a criminal charge within Article 6.

Since the procedure determines a civil obligation, Clauses 58 and 94 ought to offer a fair and public hearing before an independent and impartial tribunal. These clauses do not do so. The authority which determines whether to impose a penalty is not independent of the executive and, in any event, there is no provision for an oral hearing. As the Minister is aware, it is the Opposition's view that the right of appeal provided by Section 27E is a narrowly confined right and not a proper right of appeal, which at best offers similar grounds of review to those available on an application for judicial review. As such, it cannot operate to cure the deficiencies in the procedure before the authority.

The powers granted by Clauses 58 to 94 also lead to multiple exposure by licence holders. The licence holder is likely to be exposed to penalties both under the Competition Act 1998 and under Clauses 58 and 94. Whereas the Competition Act provides a clear framework determining the levels of fines that will be imposed, Clauses 58 and 94 have no such structure. There may also arise an obligation to make compensation payments to customers where they have failed to achieve a certain standard of performance.

Our amendments to these clauses seek to do the following. Amendment No. 204 relating to the electricity industry and Amendment No. 217 relating to the gas industry require the authority to be satisfied that compliance cannot be secured by other means before it imposes a penalty under the new Section 27A for electricity or 30A for gas.

Amendment No. 205 for electricity and Amendment No. 218 for gas insert a defence into what is otherwise an offence of strict liability—that is to say, a defence that says that if there was no intention or recklessness and the licence holder took all reasonable steps to avoid the alleged contravention or failure to act, there should be no penalty imposed.

This matter was debated in Committee in another place. If the Minister looks at columns 556 and 557 of Hansard, he will see that at one point in her contribution the Minister appeared to be suggesting that there should be no penalty where the contravention was genuinely inadvertent; but there are other parts of her contribution which suggest the

opposite. If it really is the Government's intention that no penalty should be imposed where the breach was truly inadvertent, I suggest, with the greatest possible respect to the Minister, that that intention should be on the face of the Bill.

Amendments Nos. 210 to 214 with respect to electricity and Amendments Nos. 223 to 227 with respect to gas remove from the Bill the references to the expression "application procedure" and replace them with references to the rights of appeal under the new Sections 49B and 38B which the Opposition are trying to insert.

Finally, Amendment No. 215 regarding electricity and Amendment No. 228 regarding gas insert new Sect ion 27G into the Electricity Act and new Section 30G into the Gas Act, requiring the authority to keep under review licence conditions which will give rise to penalties if breached. If they are insufficiently clear, in our view the authority must take appropriate steps to amend or revoke them. I beg to move.

7.15 p.m.

Lord Borrie

It may be helpful to the Committee if I speak at this point to Amendments Nos. 206 and 219 standing in my name and that of my noble friend Lord Currie of Marylebone. The amendments form part of the group that we are discussing.

Our amendments propose to introduce an upper limit on the financial penalties envisaged in Clauses 58 and 94. The Liberal Democrat Front Bench has amendments covering similar ground, and will no doubt wish to speak to them. At present the only limitation on the penalty that may be imposed is—this phrase has been quoted many times today—that it should be, reasonable in all the circumstances of the case". The lack of any upper limit is a matter of concern, because it may cause some unease, even some alarm among licensees because, apart from the phrase that I have just quoted, the amount of the penalty seems unlimited.

The amendments represent one option for addressing the point by imposing an upper limit similar to that to be found in the Competition Act, passed as recently as 1998. On Second Reading of this Bill on 4th May, my noble friend the Minister said, as reported at col. 1175 of Hansard, that that Act was different, because it was based on European law, which is true, and that there was no reason to follow that. But in my view the Competition Act is an interesting, perhaps valid, precedent. There is a degree of overlap in the malpractices covered by that Act and by the Bill, and the gas and electricity regulator and the new authority created by the Bill have concurrent powers with those of the Director-General of Fair Trading to enforce the Competition Act.

Indeed, in March this year the Director-General of Fair Trading and the specific industry regulators, including the Office of Gas and Electricity Markets—the immediate predecessor of the new authority to be created by the Bill—published guidance, which I have in my hand. It is only eight pages long. It helpfully elucidates for anyone interested the factors that those regulators would take into account in assessing penalties under the Competition Act within the 10 per cent turnover maximum that that Act provides. In that guidance the regulator stated that the twin objectives of policy would be to reflect in the imposition of any penalty the seriousness of any infringement and to ensure that the threat of penalties would deter undertakings from breaking the law.

It seems to me that when the new authority created by the Bill publishes, as the Bill requires it to do, its statement of policy on penalties, it is very likely to state very similar objectives; namely, to reflect the seriousness of the offence and the need to "incentivise" compliance and to use penalties as deterrents to malpractice.

The new authority may also have regard to the experience of the European Commission over not just a few months of the Competition Act 1998, which came into effect only in March this year, but over 30 years, with that maximum penalty of 10 per cent of turnover. That experience demonstrates that in determining penalties the European Commission has—I summarise, of course—taken account, on the one hand, of the length and gravity of infringement, the behaviour of the parties and the profits that may have been made out of unlawful behaviour, and, on the other hand, of such mitigating factors as a cooperative attitude towards the investigations.

Financial penalties under the Competition Act or under the Bill will need to reflect a very wide range of different circumstances, so the size of penalties in particular cases will vary considerably. But I rather doubt that any penalty would be above 10 per cent of turnover, because I doubt whether above 10 per cent of turnover could feasibly be, reasonable in all the circumstances of the case". There might be a perception by the public, licensees and the industry generally that without a top limit the authority newly created by the Bill would have an unduly large amount of power and be unduly arbitrary, even though we may think differently. Therefore, as a matter of perception, it may be as well if, as with the Competition Act 1998, we insert into the Bill such a maximum as we suggest in the amendments, or such other maximum as the Government think appropriate.

Baroness Sharp of Guildford

I rise to speak to Amendments Nos. 207 and 222, which are part of the group of amendments currently before the Committee.

As the noble Lord, Lord Borrie, pointed out, our amendments are very similar to those that he and the noble Lord, Lord Currie of Marylebone, have put forward; they are twin amendments on the same issue. The main difference is that their amendments specify not only that there shall he a penalty cap of 10 per cent of an undertaking's turnover, but also that the turnover shall be that not only of the undertaking itself, but also of its affiliated and related undertakings. In this respect, the amendments of the noble Lords are probably preferable to ours, because they are more specific and make it clear that it should be the broader, rather than the narrower undertaking.

I should like to say a few words about the amendment and very much support the noble Lord's line of thinking, because, as he made clear, the purpose is to provide a cap on fines. The current terminology in Clause 58 is very open ended. It talks of, a penalty of such amount as is reasonable in all the circumstances of the case". That was the point that the noble Lord, Lord Kingsland, made when explaining the purpose of the Opposition's amendments.

When discussing the issue in Committee in the other place, the Minister of State for Energy and Competitiveness in Europe argued that the term "reasonable" was well recognised in English law and gave the authority more flexibility. I accept that, but it totally misses the point of the amendment, the purpose of which is not to suggest that all penalties should be set at 10 per cent of turnover, but that that should be the maximum penalty imposed.

I take on board the fact that the authority has published its policy for assessing and imposing penalties and will review it and, in the process of review, consult very widely. As the noble Lord, Lord Borrie, pointed out, at present it is minded to have the 10 per cent limit, but in the measure as it stands no limit is imposed. That seems to me to be unreasonable in the circumstances of the case.

The issue is one about which gas and electricity undertakings are extremely concerned. The CBI, the Electricity Association and Powergen have all expressed a wish to see a cap of some sort imposed. Powergen, indeed, has raised the possibility of being exposed to a multiple risk of penalties simultaneously from different sources—from the Office of Fair Trading and the regulator at the same time. That is probably over the top. Nevertheless, it argues that such regulatory risk translates itself into higher borrowing rates which, given the capital-intensive nature of the industry, have a knock-on effect on capital expenditure.

As the noble Lord, Lord Borrie, made clear, the regulator has concurrent powers with the Director-General of Fair Trading. We on these Benches believe that the Competition Act 1998 provides a good precedent. That considered penalty, which is imposed on a company that has abused its position of power in relation to customers and suppliers, was debated at length in the context of that legislation. It seems to us to provide a very good precedent for this Bill.

7.30 p.m.

Lord Currie of Marylebone

I rise briefly to speak to the amendments in my name and that of my noble friend Lord Borrie. In practice, this ceiling on fines will not make any difference to the penalty actually levied, but it will make a difference to perceptions, as my noble friend so clearly indicated. I just flag up one important area in addition to those mentioned by my noble friend: overseas investment. The British utilities sector, in particular electricity and gas, has benefited from inward investment. Such decisions are often made on the basis of relatively simple checklists, and the warning sign of no limit on penal fines can easily deter inward investors. I believe that that would be detrimental to the sector and the economy. Therefore, I support the amendment.

Lord McIntosh of Haringey

All these amendments are concerned with financial penalties and enforcement but they cover a number of different topics within that broad heading. I should like to speak first to the government amendments and then respond to the other amendments which have been moved or spoken to.

I turn first to government Amendments Nos. 208, 209, 216, 221, 222, 229, 230 and 231. Amendments Nos. 209, 216, 222 and 229, which form a group, are tabled in response to a concern raised during Second Reading by my noble friends Lord Borrie and Lord Currie. The concern was that the limit of 12 months for the imposition of a financial penalty from the date of contravention, where no enforcement action had been taken, would leave too little time for investigation of alleged malpractice and could provide a company being investigated with a view to the imposition of a financial penalty with an incentive to drag its feet in supplying information so as to avoid a penalty altogether.

The Government have listened to that concern and take it very seriously. It is crucial that the financial penalties powers operate effectively. It is equally important that companies can operate in the knowledge that there will be some kind of statute of limitation on the authority's ability to probe past events. It is a matter of striking the right balance. That is why the Government have tabled amendments to Clauses 58 and 94. The amendments apply to situations where no enforcement order has been issued; that is, where the authority becomes aware of an alleged contravention in the past and wishes to investigate it with a view to imposing a financial penalty. The amendments make no change where an enforcement order has been issued in relation to the contravention. Clearly, in that case the authority will already have carried out its investigation and will have enough information to decide whether a penalty is justified.

The effect of Amendments Nos. 209 and 222 is, therefore, to provide two separate triggers for the power to impose a financial penalty. First, as at present, the authority will be able to impose a financial penalty if within 12 months of the contravention it has issued a notice stating its intention to do so. Alternatively—this is the new point—it will also be able to impose a penalty so long as, within 12 months of the alleged contravention, it has issued a notice under Section 28(2) of the Electricity Act, or Section 38(1) of the Gas Act, requiring information from the licence holder for the purpose of exercising its enforcement functions (including the power to impose financial penalties) where it appears to the regulator that a licence holder may be contravening, or has contravened, a licence condition or other relevant obligation.

The amendment removes any incentive for companies to drag their feet in providing information to the authority. It does not alter the financial penalties provisions in any other way. In particular, it does not widen the scope of the powers, but is simply intended to ensure that the authority has long enough to investigate any alleged contravention and, where appropriate, impose a reasonable financial penalty in cases where 12 months is insufficient to gather enough information about the contravention.

Amendments Nos. 216 and 229 are effectively consequential on Amendments Nos. 209 and 222. They extend the scope of the powers to require information. Therefore, they apply to the financial penalties provisions and to information requested in relation to alleged contraventions of individual standards of performance, as well as contraventions of relevant conditions and requirements. This is to ensure that the scope of the relevant information provisions matches that of the financial penalties provisions.

The other government amendments to which I should like to speak are technical and consequential. Amendments Nos. 208 and 221 replace a reference to commencement of a subsection with a more accurate reference to commencement of a section of the Utilities Act 2000. Amendments Nos. 230 and 231 flow from amendments made to the Gas and Electricity Acts by Clauses 59 and 95, which relate to licence enforcement rather than financial penalties. Those amendments are designed to ensure consistency with the existing enforcement provisions. They have the effect that, where the authority decides to use its new discretion not to make an enforcement order, it will be required to give notice to the licence holder and publish a notice setting out its decision, in the same way as it would where it was precluded by its duties from taking enforcement action.

I turn to the various other amendments that have been moved or spoken to. Amendments Nos. 204 and 217 seek to insert into the financial penalties provisions a requirement that the imposition of a penalty must be essential to secure compliance. This would seem to rule out the imposition of penalties for contravention of licence conditions, standards of performance and other statutory requirements where the licensee had—possibly under pressure—desisted before the proposed penalty was imposed. I remind the Committee what we are trying to achieve by introducing the powers to impose financial penalties. The crucial point to note is that under the current enforcement system the regulator is always one step behind the company. There is little to prevent a company breaching its obligations, provided it is not caught, and as a result the level of protection afforded to consumers is very poor. These amendments would reintroduce those weaknesses just as we have sought to eliminate them. They would reproduce some of the weaknesses in the financial penalties provisions inserted into the Gas Act by the party opposite.

At present, the regulator is under a duty to "make orders" to secure compliance with licence conditions and specified statutory obligations. The regulator must issue an order, subject to certain exceptions, if it appears to him that a supplier is contravening, or is likely to contravene, a licence condition or a specified statutory requirement. The key point about the existing enforcement regime is that it applies only to current and likely future breaches of obligations. This means that a company which is breaching its obligations but which ceases to do so when challenged cannot face further action, regardless of how long the contravention has been continuing or the harm it has done to consumers or competitors.

If subsequently the company contravenes the same licence condition, the regulator is compelled to start enforcement action again. Every time a company is challenged, it has only to desist from the act or omission to avoid the consequences of noncompliance. The regulator is left chasing shadows. Under the Gas Act 1986, as amended, the regulator may impose a financial penalty on a licence holder of such amount as is reasonable in all the circumstances (which is the standard phrase) for contravention of licence conditions and other statutory obligations. However, the penalty can be imposed only as part of a final order aimed at securing compliance (as in the words of the opposition amendments). It therefore relates only to current and likely future breaches and suffers from the same flaw as the enforcement order process within which it is couched: and it provides little or no real deterrent. That is why it is necessary to introduce powers to impose penalties for past as well as current breaches of obligations. That means that the authority is able to ensure compliance on an ongoing basis and to deter future breaches rather than being left one step behind.

Of course, everybody is worried about financial penalties. However, if companies do not contravene their licence conditions, no financial penalty will ever be imposed. I hope that that will always be the case. However, if the authority is to have these powers it must have the necessary tools to enforce them in all the conditions to which I have referred. To do anything else would be unfair to consumers.

Amendments Nos. 205 and 218 provide a defence for the licence holder against the imposition of financial penalties where the licence holder can prove that the contravention did not occur as a result of intentional or reckless behaviour, or where the licence holder took all reasonable steps to avoid the contravention or failure.

It has a similar effect to Section 36(3) of the Competition Act 1998 which provides that a penalty can be imposed only for breaching the prohibitions where the breach has occurred intentionally or negligently. Frankly, it is of no interest at all to the consumers, those who are on the receiving end of contraventions of licence conditions and statutory obligations, and failures to meet standards of performance, whether those contraventions occurred intentionally or recklessly, or whether they were down to other factors—particularly when the consumers concerned cannot move to another service provider, as is the case where the electricity transmission and distribution companies, and gas transporters, are concerned. The fact is that utility companies provide vital services to industry and the public. The onus should be on the utility companies to strive to fulfil their obligations, and to overcome whatever difficulties they face in doing so. They should be making strenuous efforts to play by the rules they accepted when they entered the sector and to adhere to their obligations.

Restricting financial penalties to cases of reckless or intentional contraventions, or cases where insufficient effort has been made to remedy the contravention, would send the wrong signals about the importance of these services and would risk omitting some serious contraventions from the scope of financial penalties. The amendments also ignore the nature of the powers we are providing. I stress that the authority will have a power, not a duty, to impose financial penalties. It will not be compelled to do so.

When speaking about reasonableness, the noble Lord, Lord Kingsland, said that in Committee in another place Mrs Liddell appeared to suggest that there was no penalty if the contravention were inadvertent. She was explaining the point that the penalty has to be reasonable in all the circumstances. The fact of culpability—that is, where on the scale the inadvertence or negligence of the operator lies—is relevant to the amount of the penalty. The court is able to review whether the penalty is reasonable.

On the noble Lord's point about multiple jeopardy, the Government do not accept that the powers to impose financial penalties will cause multiple jeopardy. It is important to remember that the financial penalty has to be reasonable in all the circumstances of the case. Any financial penalty would have to take into account compensation paid to customers or penalties imposed under the Competition Act in respect of the same conduct. Any penalty which did not take proper account of those issues would in itself be unreasonable.

I turn to Amendments Nos. 206, 207, 219 and 220 to which the noble Lord, Lord Borrie, the noble Baroness, Lady Sharp, and the noble Lord, Lord Currie, spoke. There are minor variations in the formulation used in the two sets of amendments, as the noble Baroness pointed out, but they seek the same thing. The Government still take the view that what matters is the explicit requirement that the penalty must be reasonable. I think that the noble Lord, Lord Currie, veered in that direction. We have taken the view that a specific limit of this kind is not necessary.

A penalty could indeed be very large, but only if the breach in question had been sufficiently serious, and had done enough harm, to warrant a large penalty. On the other hand, a minor contravention could not attract a penalty of anything like 10 per cent of turnover.

There will be transparency in the arrangements. The authority will have to consult on and publish a statement of policy with regard to the imposition of penalties; and to have regard to that statement when it imposes a penalty. And, of course, companies will be able to challenge both the imposition and the amount of any penalty in the courts. The Government believe that those factors represent genuine constraints on the level of any penalty and a genuine protection for licence holders.

We take the view that a specific upper limit on financial penalties is not strictly necessary. Penalties are limited to that which is reasonable, and that is a genuine constraint. However, I have listened to the concerns expressed by those who have spoken in the debate. I recognise that some points have been made in favour of a limit. I recognise that there is persistent pressure for such a limit from the industry; and that even consumer bodies are not unanimous about our current proposals. I can see that there are issues here which merit serious consideration. I certainly agree that I shall consider the matter before the next stage.

Finally, I turn to the group of amendments starting with Amendment No. 210 relating to the statutory right of review which is available under the Utilities Bill in relation to the imposition of financial penalties. These would have the effect, as did the group of amendments starting with Amendment No. 180, of replacing that right of review with a right of appeal to the High Court on grounds set out in proposed new Section 49B of the Electricity Act and Section 38B of the Gas Act as proposed by Amendments Nos. 183 and 188 respectively. It would provide for appeal to the High Court, or in Scotland the Court of Session, on the imposition and amount of a financial penalty and the payment scheduled for that penalty. The grounds for appeal would be material error as to the facts, material procedural error, an error of law or some other material illegality including unreasonableness or lack of proportionality. But the Government believe that the provision in the Bill for companies to challenge the imposition and amount of a financial penalty and the payment schedule for that penalty in the courts are entirely appropriate to the financial penalties provisions. I set out my arguments to that in response to Amendment No. 180.

The Bill allows companies to apply to the High Court to challenge the decisions of the authority in relation to the imposition of a penalty. The High Court is clearly an independent tribunal for the purpose of Article 6 of the European Convention on Human Rights. Clauses 58 and 94 therefore comply with the European Convention on Human Rights in accordance with a number of decisions of the European Court of Human Rights, most notably the Bryan case. These cases take a composite approach looking to a combination of initial regulatory procedures and subsequent rights of appeal in order to ascertain Article 6 compliance.

I shall try to avoid repeating the other arguments which I used in a lengthy speech in response to Amendment No. 180. I hope that these arguments will persuade noble Lords not to press the amendments.

7.45 p.m.

Lord Kingsland

I listened with interest to the introduction of his amendment by the noble Lord, Lord Borrie, and to the Minister's response. Superficially, a cap on penalties would be an improvement to the Bill. However, from the way the noble Lord, Lord Borrie, formulated his amendment, it is clear that he intends to include not only the company but also an aggregated turnover measure of any affiliate or related undertaking.

If one considers the financial scale today of some of these utility companies, and the international complexity of their ownership, 10 per cent of the total turnover of some groups could involve a massive figure. I do not say that, on behalf of the Opposition, I would not be prepared to entertain a limit. However, with respect to the noble Lord, Lord Borrie, the provision needs more careful shaping.

If the Bill includes a limit, there will be a tendency for the penalising authority to aim at that target. If the target is 10 per cent on a large utility company which is owned, perhaps, by an American corporate entity, the turnover could be in billions of pounds of which 10 per cent would be a vast figure. I say that in order to encourage debate on the matter rather than to agree or disagree on the issue. I believe that it is a good idea to consider the matter further and to return to it at Report stage.

The Minister has encouraged me to reflect on two other matters. The first is the question of intention. It is a subject over which he ranged widely in the Financial Services and Markets Act. We contend that, if an act by a licensee is done neither intentionally nor recklessly nor negligently, that act should not attract a penalty; the act has been done innocently. The Minister said that that may be unfair to the consumer. One the other hand, to penalise a licensee in those circumstances may be very unfair to the licensee.

In my submission, in those circumstances, the proper approach of the Government is to be as fair as possible to both parties. The Opposition can see no rational reason in such circumstances for being unfair to a licensee. If the penalty-attracting offence is inadvertent, imposing a penalty will never be a deterrent, so why impose it? Who are the Government intending to impress by imposing it? I ask the Minister to reflect on that between now and the Report stage.

The final point to which I want to refer is the question of reasonableness. I was interested to hear the remarks made by the noble Baroness, Lady Sharp. "Reasonable in all the circumstances" is the test in the Bill. But the test in law, the test for an authority acting outside or beyond its authority, requires an action to be so unreasonable that no reasonable person would ever entertain it. So we have the difficulty of two contrasting tests of reasonableness: first, the test of reasonableness in the Bill, which is reasonable in all the circumstances; and, secondly, the test that a court will apply in order to intervene, which is so unreasonable that no reasonable person would entertain it.

What is so lacking in the Bill is some mechanism whereby a common definition of reasonableness can be achieved so that the court will inevitably intervene if the authority has not acted reasonably in all the circumstances. That is the legislative challenge which the noble Lord faces. He is so good at meeting challenges, I am sure that by the Report stage he will have met that challenge on the face of the Bill. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 205 not moved.]

Lord Borrie had given notice of his intention to move Amendment No. 206: Page 56, line 39, at end insert— ("(6A) No penalty imposed by the Authority under this section may exceed 10% of the aggregate turnover of the licence holder and any affiliate or related undertaking of the licence holder (determined in accordance with such provisions as may be specified in an order made by the Secretary of State). (6B) In this section— affiliate" means any holding company (which has the meaning set out in sections 736, 736A and 736B of the Companies Act 1985) of the licence holder, any subsidiary (which has the meaning set out in sections 736, 736A and 736B of the Companies Act 1985) of the licence holder or any subsidiary of a holding company of the licence holder: and related undertaking" means any undertaking (which has the meaning set out in section 259 of the Companies Act 1985) in which the licence holder has a participating interest (which has the meaning set out in section 260 of the Companies Act I985)."").

The noble Lord said: I want to thank the noble Lord, Lord Kingsland, for his questioning but helpful comments and to thank my noble friend the Minister for his considerate response.

[Amendment No. 206 not moved.]

[Amendment No. 207 not moved.]

Lord McIntosh of Haringey moved Amendments Nos. 208 and 209: Page 56, line 45, leave out ("that subsection") and insert ("section 58 of the Utilities Act 2000"). Page 57, line 18, leave out from ("failure") to end of line 21 and insert ("later than the end of the period of 12 months from the time of the contravention or failure, unless before the end of that period—

  1. (a) the notice under section 27A(2) relating to the penalty is served on the licence holder under section 27A(6), or
  2. (b) a notice relating to the contravention or failure is served on the licence holder under section 28(2).").

On Question, amendments agreed to.

[Amendments Nos. 210 to 215 not moved.]

Lord McIntosh of Haringey moved Amendment No. 216: Page 59, line 20, at end insert— ("( ) In section 28(1) of the 1989 Act (power to require information, etc.), for the words from "the Director" in the first place they appear, to "42B below" there is substituted "the Authority that a licence holder—

  1. (a) may be contravening, or may have contravened, any relevant condition or requirement; or
  2. 337
  3. (b) may be failing, or may have failed, to achieve any standard of performance prescribed under section 39 or 39A,
the Authority may, for any purpose connected with such of its functions under section 25 or 27A to 27F".").

On Question, amendment agreed to.

Clause 58, as amended, agreed to.

Clause 94 [Financial penalties]:

[Amendments Nos. 217 to 220 not moved.]

Lord McIntosh of Haringey moved Amendments Nos. 221 and 222: Page 96. line 9. leave out ("that subsection") and insert ("section 94 of the Utilities Act 2000"). Page 96, line 30, leave out from ("failure") to end of line 33 and insert ("later than the end of the period of 12 months from the time of the contravention or failure, unless before the end of that period—

  1. (a) the notice under section 30A(2) relating to the penalty is served on the licence holder under section 30A(6), or
  2. (b) a notice relating to the contravention or failure is served on the licence holder under section 38(1).").

On Question, amendments agreed to.

[Amendments Nos. 223 to 228 not moved.]

Lord McIntosh of Haringey moved Amendment No. 229: Page 99, line 2, at end insert— ("( ) In section 38(1) of the 1986 Act (power to require information, etc.) —

  1. (a) for "Director" in each place where it appears, there is substituted "Authority",
  2. (b) after "requirement" there is inserted "or may be failing, or may have failed, to achieve any standard of performance prescribed under section 33A or 33AA,";
  3. (c) for the words from "his functions" to "signed by him" there is substituted "its functions under section 28 or 30A to 30F in relation to that matter, by notice in writing";
  4. (d) for "him" there is substituted "it".").

On Question, amendment agreed to.

Clause 94, as amended, agreed to.

Clause 59 [Licence enforcement]:

Lord McIntosh of Haringey moved Amendment No. 230: Page 59, line 28, leave out ("and (4)") and insert (", (4) and (6)").

On Question, amendment agreed to.

Clause 59, as amended, agreed to.

Baroness Amos

I beg to move that the House do now resume. In moving the Motion, I suggest that the Committee stage begin again not before 8.55 p.m.

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

House resumed.