HL Deb 11 July 2003 vol 651 cc575-8

11.8 a.m.

Lord Davies of Oldham

rose to move, That the draft order laid before the House on 12th June be approved [23rd Report from the Joint Committee].

The noble Lord said: My Lords, the Utilities Act 2000 modified the Electricity Act 1989 and the Gas Act 1986 to provide a matching process for the modification of standard conditions of gas and electricity licences in each Act. In order to commence the procedure for a licence modification using that process, the Gas and Electricity Markets Authority must first issue a notification stating what modification it proposes; its reasons for the proposal; and the effects. A period of not less than 28 days must be allowed for relevant licensees to register objections to the proposal. Any objections registered within the period must be considered by the authority.

If objections are registered, the authority may proceed to make the modification only under Section 11A(6)(b) of the Electricity Act 1989 or Section 23(7)(b) of the Gas Act 1986 if the proportion of relevant licensees who object to the modification and the proportion of relevant licensees weighted according to market share are less than the percentages prescribed by the order.

The purpose of the draft order that we are considering today is to prescribe those percentages and to determine how objections are to be weighted according to market share for each licence type. The percentages prescribed by this draft order for gas and electricity licensees are 20 per cent for the proportion of relevant licensees and 20 per cent for the proportion of relevant licensees weighted according to market share. That will permit sensible evolution of the standard licence conditions, but safeguard the position of licensees who may object to any particular proposal. The draft order also proposes measures to weight market share for each type of licence.

For electricity suppliers, it is proposed that market share should be defined by the number of metering points registered to each supplier; for electricity distributors, it is the number of metering points registered to all suppliers on the licensee's network. The measure for generators takes the average weekly registered capacity for each licensee in each four-week period for the preceding 12 months.

In the gas market, the market share for a supplier should be taken as the total number of consumers contracted to the supplier at the relevant time; for each gas shipper, it is the aggregated daily average of input and off-take on the national transmission system; and for gas transporters, it is the total volume of gas conveyed to the premises of consumers during the preceding 12-month period.

The key reference date for the measures is the day on which the authority issues the notification of a proposal to make a modification of a licence condition. The periods for calculation of the market shares have been proposed on the basis of the availability of data to the authority. We have taken care to use data that are reasonably available wherever possible, to avoid imposing any additional burdens on licensees to produce extra information for the exercise.

I am pleased to note that Ofgem issued a consultation paper on 3rd July that seeks views on its proposed guidance on the procedure. The consultation invites views on the procedures to be followed by Ofgem; the way in which relevant licensees may register their objection; how Ofgem proposes to calculate the market share; and proposals on how Ofgem should verify and publish the results of any voting process.

An important objective is to ensure that there is no undue delay in announcing the result of the process following the end of the period allowed for objections to be registered. Delay would mean uncertainty for licensees, which they would not welcome. That means that the data for market share determination must be collected for a period earlier than the notification period, otherwise there could he a delay of many weeks before the results of the process could be made known.

I hope that noble Lords will appreciate and support the balance that has been struck here. Of course, the process is not entirely new. A similar procedure has been in existence for gas licences, but the Utilities Act 2000 extended it to electricity as well as to gas licences. The procedure will provide a simpler approach to the modification of licences in the particular circumstances where there is widespread support for a measure. It will also ensure that changes that command widespread support are reflected in all licences, maintaining a level playing field for licensees. I commend the order to the House.

Moved, That the draft order laid before the House on 12th June be approved [23rd Report from the Joint Committee].—(Lord Davies of Oldham.)

Baroness Miller of Hendon

My Lords, I thank the Minister for his explanation of the order. It is a highly technical one, dealing with a highly technical subject. My honourable friend the Member for Blaby, told the 4th Standing Committee on Delegated Legislation in the other place that both he and his Oxford graduate researcher, didn't really understand the bureaucratic jargon and gobbledegook", which is why I am most grateful to the Minister for explaining it so well. I cannot tell your Lordships with what relief I read those words in the Commons Hansard, and realised that it was not just me being obtuse.

However, thanks to both the Explanatory Notes provided by the department and the explanation given by the Minister in the committee of the other place, and indeed by the noble Lord today, I am able to echo the words of my honourable friend who said that, the order seems non-controversial".—[Official Report, Commons, 4th Standing Cttee on Delegated Legislation, 1/7/03; col. 5.] The purpose of this order is to ensure that the regulator can modify standard conditions in all licences without the need to deal with the individual licences one at a time. Following a consultation process, the Government decided that objections to any proposed conditions would have to constitute 20 per cent of the industries involved, following a very complex formula including weighting according to market share as well as by the number of objectors.

It is right to point out that British Gas, Transco and Powergen each have more than 20 per cent of the market. Does the Minister agree that this gives each of those concerns a veto over any proposed changes in the standard licences?

Subject to that one anxiety, we propose to follow the example of our colleagues in the other place and not oppose the making of this order.

Lord Ezra

My Lords, I, too, am grateful to the noble Lord for having explained so clearly this rather technical and complex proposition. I have two questions to ask him. First, are the calculations for the blocking minority generally acceptable to licence holders based on the responses to the consultation document? Was there not pressure to set the blocking minority at a lower figure than 20 per cent? Indeed, figures of 15 per cent or 10 per cent were mentioned. Why did the Government decide on the 20 per cent figure?

Secondly, what kind of modifications under the collective licence modifications procedure are likely to be proposed by Ofgem? Are these of a major nature? Are they likely to be frequent? If so, would that not introduce a disturbing element of uncertainty into the trade for gas and electricity? I would be obliged to the noble Lord if he could answer those questions.

Lord Davies of Oldham

My Lords, I am grateful to noble Lords for the response to the order, which has its technical aspects as the noble Baroness, Lady Miller, indicated. I have some sympathy with the views she expressed in terms of mastering the intricacies of the order. Let me see whether I can deal with the points that have been raised.

As the noble Baroness indicated, it would appear that licensees with a market share of more than 20 per cent have a veto on the issue, but the essence of the modification process is to permit necessary modifications only when there is a high degree of consensus. So, if a significant market player holding above 20 per cent objects, the authority would have to look at that matter again and choose another route. The whole concept behind the operation of the threshold is to guarantee that the major players are part of the consensus which gives effect to these provisions. I think, therefore, that the threshold is not too low. It raises the issue of veto but, on the other hand, the task is not manageable unless all major players are suitably on board with regard to the matter.

I recognise the point made by the noble Lord, Lord Ezra, about the blocking measure. As he knows only too well, so far as concerns gas it would have been lower. This common 20 per cent figure reflects both industries. Looking across the markets and seeing the degree of consolidation over recent years, it appears that we have the figure about right in terms of being fair should a number of licensees wish to object. If a significant share of licensees wish to object to the proposal, their objections must be taken into account. It is not necessary for a majority of licensees to object—whether by number or by market share—but a significant number or a significant player must object in order to frustrate any particular route chosen before there would be the necessity to adopt a different strategy altogether.

The noble Lord also asked me about the cut-off dates for consultation. As he will recognise, that is an issue of judgment again. He is right: the later the cut-off point, the more accurate the information will be and, therefore, the more accurately it will reflect the market. But, as I said in my introduction, we also need to give the industry the opportunity to respond in good time. We have specified in the order the necessary material that must be taken into account; we have a date for that somewhat in advance of the latest date to allow proper digestion of the implications by the industry for it adequately to respond. That is why that date has been chosen.

Lord Ezra

My Lords, I also asked what modifications Ofgem was likely to have in mind and how major and frequent they may be, because that could have a destabilising effect on trade.

Lord Davies of Oldham

My Lords, that question would require a substantial response to detail all possible objections; if I may, I shall attempt to syncopate and identify the main ones.

For gas suppliers, Ofgem will propose to remove the right to object for non-termination of contract, and to create a right to object on consumer response. For industrial and commercial suppliers, Ofgem will propose to remove the right to object for non-termination of contract and to create a right to object where that is in the contract with the customer.

Ofgem will propose that suppliers be obliged to participate in a new supply-point administration agreement to ensure that information about a meter is transferred efficiently between suppliers and their agents, thereby improving the customer transfer process. Ofgem envisages applying that to domestic suppliers, but would consider extending it to industrial and commercial suppliers in the light of consultation responses. Ofgem also proposes to limit the right of gas suppliers to block the right to object to a transfer for certain prepayment meter customers with an outstanding debt. The parallel change for electricity has just been agreed in the MRA process.

Those are the broad areas in which Ofgem may make modifications.

On Question, Motion agreed to.