HL Deb 09 December 2002 vol 642 cc8-10

2.58 p.m.

Baroness Miller of Hendon asked Her Majesty's Government:

Whether they are able to guarantee the continuity of electricity supplies following the collapse of an electricity supply company; and what support they plan to provide for companies currently running at a loss.

Lord McIntosh of Haringey

My Lords, under the Utilities Act 2000, the regulator has powers to nominate alternative suppliers to take over the supply to customers who were formerly supplied by licensed electricity or gas suppliers which have ceased trading. This does not in any way restrict the freedom of such customers to choose any other supplier of their choice.

Electricity supply is a commercial and competitive business. The financial position of such companies is a commercial matter for them and their financial backers.

Baroness Miller of Hendon

My Lords, I thank the Minister for his Answer. When there is a collapse such as that of TXU, what are his views about the domino effect on AES Drax, on Scottish and Southern Energy and on British Energy which has had to renegotiate the contract with BNFL, obviously with some detriment to BNFL? As it would appear that there is adequate spare capacity, can the Minister tell the House why we are still importing power from the highly subsidised French generators?

Lord McIntosh of Haringey

My Lords, as I said in my first Answer, it is not for us to comment on commercial matters affecting electricity supply companies. I can tell the noble Baroness that AES Drax has successfully severed all of its contracts with TXU, the company to which she referred. I should declare an interest as a customer who has been transferred from TXU to Powergen—although you would not notice it as the electricity comes through the same cables. There is no reason to suppose that there will be what the noble Baroness calls a "domino effect" on other electricity suppliers.

Lord Tanlaw

My Lords, can the Minister say whether or not the electricity companies which seem to be running into financial trouble will still maintain a quota of energy from alternative methods of electricity production such as windmills? Many farmers in the rural areas of Scotland are looking towards this as a possible new source of income. They do not want to be disappointed should the electricity companies go broke or be unable to deliver the income required.

Lord McIntosh of Haringey

My Lords, there are two parts to that question. First, I can assure the noble Lord, Lord Tanlaw, that even if other electricity suppliers go into administration—and, as I said. I do not see any reason why they should—it would not be the same as closure. For almost all electricity suppliers, current wholesale prices are above the level of their ongoing operational costs. As to the second part of the noble Lord's question, there is no change involved in the renewables obligation.

Lord Ezra

My Lords, does the noble Lord agree that if the financial difficulties that a number of power stations are presently encountering spread, it could have an impact on the security of supply of electricity? Is he aware that on 23rd November the National Grid announced that there was likely to be a marginal shortage of 2 per cent in the supply of electricity the next day? In effect, this was satisfactorily covered. However, does it not augur badly for the time when the weather could get worse, as, judging by the temperature both in the Chamber and outside, it already has?

Lord McIntosh of Haringey

Yes, my Lords, it is nice and cold and clear, is it not? We have a capacity of electricity generation of 65 gigawatts. As the estimated peak demand this winter is 55.3 gigawatts, that provides a margin of 17.5 per cent, which is very close to the margin we have had over a large number of years. In addition, 7.1 gigawatts are mothballed, many of which could be brought into operation fairly quickly. I have already said that I do not believe that there is any serious prospect of a domino effect bringing down other electricity suppliers. Although I understand the concerns of the noble Lord, Lord Ezra, we are well protected. The notification to which he referred has been made on a number of occasions in the past.

Lord Jenkin of Boding

My Lords, the Minister referred to the Utilities Act. Does he not recollect that the Government ultimately accepted my amendment that the regulator should have regard to the long-term security and diversity of supply? At the same time, the Minister referred to the "operational" costs. Most accountants would refer to those as "short-run marginal costs". Does it make sense to run an industry such as the electricity supply industry on the basis of prices that reflect short-run marginal costs?

Lord McIntosh of Haringey

My Lords, I did not claim that the industry was running on that basis. I simply referred to the fact that current wholesale prices of electricity are above the ongoing operational costs—or short term marginal costs, if you wish—and that therefore there is no particular reason to suppose that anyone else will go into administration, let alone into closure, which is not the same thing.

Lord Skelmersdale

My Lords, given the Minister's answer to the noble Lord, Lord Ezra, can he answer the second part of the question of my noble friend Lady Miller—that is, why are we still importing electricity from France?

Lord McIntosh of Haringey

My Lords, it is a matter of commercial judgment. If it is to our advantage to do so and the electricity is available, it is not our concern whether there is a subsidy in France.

Lord Marsh

My Lords, does the Minister agree that the answer is probably connected with the fact that there is a higher proportion of nuclear plant in France than there is in the United Kingdom?

Lord McIntosh of Haringey

No, my Lords, I do not think so.

Forward to