HL Deb 29 March 2004 vol 659 cc1118-62

8.32 p.m.

Further consideration of amendments on Report resumed after Clause 109.

Baroness Miller of Chilthorne Domer moved Amendment No. 195C: After Clause 109, insert the following new clause—


Notwithstanding any statutory provision to the contrary, there are no numerical limits to the supply to domestic customers of—

  1. (a) the use of private wire in Combined Heat and Power generation or renewable energy systems; and
  2. (b) surplus power from public wires from local community sustainable energy systems."

The noble Baroness said: My Lords, in moving the amendment I shall speak also to Amendment No. 195D. The amendments seek to discover a little further than in Grand Committee why the Government feel they need to limit so strictly the community generation of power and the breaking down of barriers that that sector of power generation faces and to cover the issue of metering.

On the first issue it is perhaps unfortunate that the timing of the Bill's passage through your Lordships' House is in advance of two European sub-committees, one of which is examining climate change and the other issues related to Amendment No. 195C; the generation of power supplies by community organisations.

The sub-committee recently took evidence from Woking Borough Council about the difficulties it faced having brought in an innovative scheme to undertake the community generation of power, including combined heat and power, for the benefit of Woking residents. However, the council found that not only did it have to install a private wire system to supply its customers, but also that the use of the system was numerically strictly limited. When the report from the EU sub-committee is published, it will illustrate better than I can why the Government need to pay more attention to current restrictions and why they are detrimental to the Government's aims in this policy area. The first amendment therefore seeks to explore who benefits from the imposition of these strict, new limits.

The second amendment requires a wider explanation from the Government as to why they have not used the Bill to introduce the concept of net metering. In the wording of the amendment, I tried to explain that net metering involves both buying in from the National Grid and contributing to it, as one would with a micro-generation plant. Both activities should be at the same price. Currently, if you buy in from the National Grid that is set at one price, but generating and selling to the grid is at a severely disadvantaged price—several pence less per unit.

The effect is that individual householders have much less incentive to undertake more micro-generation. I appreciate that the renewables obligation will enable them to receive some cheque at the end of each year and that the Government grant aid for capital expenditure towards the purchase of items such as photovoltaics that would enable generation. Nevertheless, the fact that householders can sell into the grid only at such a reduced price must be a disincentive to taking responsibility for investing in and using renewable forms of energy. I should be glad to hear from the Government in whose interests are the restrictions and limitations that they have chosen to keep in place rather than using the Energy Bill to change the situation. I beg to move.

Lord Whitty

My Lords, on the second amendment, the Government have recently allowed small generators to be issued with renewable obligation certificates on the basis of their annual rather than monthly output. That helps anyone who has a small generator to gain a few ROCs every year. That will come into effect from 1 April and it will benefit householders, for instance, who have installed a photovoltaic frame in the roof of their house.

We have therefore taken some steps in trying to help, but simply to net off electricity ignores the fact that electricity is priced differently at different times of the day and that the way in which it would be calculated would not necessarily lead to a straightforward netting off. Indeed, it could lead to some distortion in the supply to the National Grid and the price paid to the small generator. The answer is not as simple as the amendment would suggest.

I understand that the first amendment, which is complex in its effect, is designed to help CHP. In relation to minimising the regulatory burden on small generators, we must ensure that the security of the system is not imperilled and we must also minimise the potential adverse effect on individual consumers. So when the noble Baroness asks in whose interests we act, it is in both of those interests—which, ultimately, is in the interests of consumers.

We undertook widespread public consultation on the class regimes for electricity exemptions until October 2001 and made significant changes. Although I understand that the balance may be argued about, it is a substantially better balance in that a private network operator may now distribute up to 2.5 megawatts of electricity to domestic customers, which may supply about 2,500 households, and an additional 1 megawatt may be provided where a generating station is embedded in the distribution system. Although the exemptions regime remains concerned with the security of the system and the protection of the consumer, that additional 1 megawatt for embedded generation is most likely to assist local CHP operations and will therefore benefit them as well.

The Government did not require, as some had recommended, that private networks provide all domestic customers with third party access—that is, access to the competitive market—but we took the view that the 2.5 megawatts, together with the 1 megawatt allowed for distribution from embedded generation, represented a level beyond which it would be inappropriate to deny access to that market. It is of course entirely open to any operator to supply a greater number of domestic customers, but it must do so, like any other domestic operator, under licence. Ofgem can then consider what licence conditions should apply.

However, the point that we reached in 2001, while maintaining security of supply and the interests of the consumer, provides some benefits to small generation and small CHP generation in particular. We are not convinced of the argument for going further than that at this stage.

Baroness Miller of Chilthorne Domer

My Lords, I thank the Minister for that reply and was certainly aware of the Government's move involving individual householders and the renewables obligation certificate, as I was in your Lordships' House leading from our Benches on the order last week. However, I still thank him for reminding the rest of the House about that move. Nevertheless, that is a welcome but small move that does not overcome the need for net metering. When the Government come to consider the issue more substantively, they will realise over the next few years that, if they are as truly interested in the outcome—that is, reducing carbon emissions to the atmosphere—as they say they are, they will increasingly find that individual households and communities acting together are the most powerful way to do so.

Therefore, although I shall not press the amendments this evening, because they have not yet come of age, if you like, because they have not garnered support from the Conservative Benches either, it is in the power of the individual and individual communities to affect our future. So it is with regret that I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 195D not moved]

8.45 p.m.

Lord Jenkin of Roding moved Amendment No. 196: Before Clause 110, insert the following new clause—




(1) For the purposes of promoting and developing the use of coal mine methane the Secretary of State shall within six months of the passing of this Act make regulations to establish a scheme, to be called a feed in tariff scheme, for the generation of electricity from coal mine methane.

(2) A feed in tariff scheme is a scheme whereby the Non-Fossil Purchasing Agency or such other body specified by regulations made pursuant to this section shall have a duty pursuant to those regulations to purchase electricity generated by means of coal mine methane.

(3) Regulations made pursuant to this section—

  1. (a) shall include provisions that specify any price or prices at which the Non-Fossil Purchasing Agency or any other body specified by regulations shall purchase electricity pursuant to this section;
  2. (b) may in particular specify any other body to which subsection (3) applies; and
  3. (c) may contain such incidental or supplemental provisions as in the opinion of the Secretary of State are necessary to enable the operation of the feed in tariff scheme.

(4) Regulations made under this section are subject to the negative resolution procedure.

(5) In this section "coal mine methane" means methane from abandoned coal mines."

The noble Lord said: My Lords, the amendment stands in my name and that of several noble Lords in different parts of the House. We have discussed coal mine methane on several occasions in the House and had a good debate in Grand Committee, but I fear that I must remind the House what we are on about.

Coal mine methane is a hazardous gas. It escapes into the atmosphere from active and disused coal mines. Those emissions are the responsibility of government, which took over the liability for abandoned mines from British Coal when it was privatised in 1994. From now on, I shall talk about emissions from abandoned coal mines.

Coal mine methane has a global warming potential 23 times greater than carbon dioxide. That is to say that you would need to trap 23 times more carbon dioxide for each tonne of methane. Therefore, capturing this waste gas for generation cuts its global warming potential by over 100 per cent and saves nine times more CO2e—that is, CO2 equivalent—per kilowatt hour than wind power. It is a clean, strategic source of energy with the potential to contribute up to 450 megawatts of generation capacity by 2010. That would be the equivalent of hundreds of wind turbines.

In Grand Committee we moved an amendment to accord renewable obligation status to coal mine methane, on the grounds that we have hundreds of years of coal availability in this country from abandoned mines. That has already been said in the debate today. We need to avoid the seepage of methane into the atmosphere. In Grand Committee I mentioned Arkwright, a village in Derbyshire, that had to be evacuated because it became uninhabitable as a result of methane leaking into the atmosphere. Our other argument was that, as the Germans have given RO status, we should do so too.

The essence of the Government's reply was that coal mine methane is not a renewable—if all the coal were to be dissolved by microbiotic action that that would be the end of it. They said that methane is not a clean fuel and there would be some emissions from generating power from it. They argued that it is not measurable, and I shall return to that point later.

The strongest argument that the noble Lord, Lord Whitty, put forward was a familiar one that we have already debated today—that if they got help it would undermine long-term renewables objectives. That is absurd. I dealt with that earlier and am not going to do so again.

They went on to say that the Germans are doing this differently. In Committee on 1 March, the noble Lord, Lord Whitty, said that the Germans, are doing it by means of a system which they refer to as a 'feed-in tariff, which results in favourable pricing of the methane connection into the system". Later, he said: The feed-in tariff is not state aid because effectively no money is foregone or provided to the coal mine methane sector. Therefore it does not fall foul of state obligations". When the noble Lord, Lord Williams of Elvel, listened to the argument, he interposed: I have listened very carefully to the debate and I feel that noble Lords opposite have a point. Why can we not do what the Germans do regardless of the renewables obligations?".—[Official Report, 1/3/04; col. GC 174.]

That is the question to which we return this evening. Amendment No. 196 is an effort to respond to the suggestion that the noble Lord, Lord Whitty, made on that occasion that we should do what we can in the way that Germans have to get round the issue of state aid provision.

Amendment No. 196 provides a power for the Government to make regulation for a scheme called a "feed-in tariff scheme". That is defined in subsection (2) thus: the Non-Fossil Purchasing Agency shall have a duty … to purchase electricity", from the coal mine methane operators.

So far that would follow the German model. However, I should offer an explanation of what is meant by a feed-in tariff: it sets the price at which a designated organisation is obliged—as we propose, by government regulation—to purchase electricity from a renewable or sustainable electricity generator. The purchaser could be the distribution network operator, the transportation grid operator or an independent agency. As I have already suggested, an example of the latter would be our own Non-Fossil Purchasing Agency (NFPA), which supervises the market in non-fossil fuel obligation contracts. The price at which the obligation would be exercised would encourage sustainable use of coal mine methane. It would be set for a fixed contract period, in order to be effective in building the industry and raising finance.

The Non-Fossil Purchasing Agency was set up to act as an agent through which electricity suppliers contracted collectively with renewables generators. It would be possible to have a separate coal mine methane purchasing agency, but we do not suggest that; we suggest that the existing body, the NFPA, should do that. The system would work in the same way as the German one does. The German experience is that creating a framework where a premium is paid for CMM capture allows private industry to build projects that mitigate huge amounts of methane. They do not require knowledge of the absolute quantities being emitted. The German Government have recognised that CMM emissions were a major global and local hazard, and that something had to be done about them.

During the debate on innovation, my noble friend Lady Byford referred to the other argument with which one has been faced. When she raised the issue, she was told by the noble Lord, Lord Sainsbury, that the amounts would be very small and therefore not worth doing. What are the facts? In 2003, member companies of the Association of Coal Mine Methane Operators captured 765,000 tonnes of CO2 equivalent—one divides that by 23 to get the tonnage of methane trapped. An equivalent 574 megawatts of wind turbines would be required to achieve the same output.

The noble Lord, Lord Sainsbury, was most woefully misinformed. I, and others, who have been meeting Ministers to discuss the subject for over two years, have formed the impression that, for reasons best known to themselves, Defra officials have steadfastly set themselves against any fresh support for CMM. In Grand Committee, they refused a renewables obligation. That is very well; we have moved on from that and taken the hint from what the noble Lord, Lord Whitty, said during the debate. We have opted for a variant of the German scheme and tabled an amendment that would introduce a feed-in tariff. It has worked well in Germany, and there is no reason why it would not work here using an adapted NFFO structure.

If all the effort expended by officials to prevent CMM development ever taking off in the UK could be put into finding a way of supporting the industry, surely a mechanism could be found. The methane is there; it is seeping into the atmosphere; it could be trapped, used and burnt to generate electricity. The idea that somehow one cannot give any more help to coal mine methane because it might frighten people off investing in wind power seems absolutely absurd. I beg to move.

Baroness Miller of Chilthorne Domer

My Lords, in supporting the amendment, I speak on behalf of my noble friend Lord Ezra. Due to circumstances beyond his control, he is particularly sorry that he cannot be present to support the noble Lord. They have worked together for a long time on the issue.

The Government wish to reduce the amount of gases which go into the atmosphere contributing to climate change. The noble Lord, Lord Jenkin, has brought forward an amendment which should overcome those issues to which the Government objected in Grand Committee; namely, the fiscal incentives which were unacceptable to them. The amendment, therefore, is redrafted. We hope that it will achieve the outcome which noble Lords on all sides of the House seek and that the Government will accept it.

Lord Davies of Oldham

My Lords, the noble Lord thought that the Government might rely on some old arguments. It is not the function of the Report stage to reiterate arguments heard in Committee. I seek to follow the noble Lord on that. I shall produce only one old argument and two new ones. I shall also produce two negative arguments and one positive argument. I hope that the response will be sufficiently positive to encourage the noble Lord to withdraw the amendment.

First, on the new argument, we are in straight conflict with the noble Lord. We do not accept his illustration that the success of the German model is one we should follow. Germany's feed-in tariff scheme for renewable energy has recently been reviewed by its federal economic ministry's advisory council which concluded that the scheme was expensive to the economy as a whole, would be lacking in environmental benefits once the EU emissions trading scheme is operational, and that it should be abolished.

We made this point in Committee. The difference between the UK's support of renewable energy using the renewable obligation and the Germans' support of renewable energy via their market system reflects the fact that the German electricity market is far less liberalised than that of the UK. Therefore, its experience is not readily translatable to the scene here.

I put forward an older argument which the noble Lord, Lord Jenkin, with his usual prescience has foreseen. He knows that I shall argue that such a feed-in scheme would conflict with the principles and objectives behind the Government's energy White Paper which underpins the Bill. If we introduced such a scheme for methane, it would be contrary to the White Paper's principle at paragraph 1.21 that, we do not propose to set targets for the share of … electricity supply to be met from different fuels"; and, secondly, at paragraph 6.7 that, we will not intervene in the market except in extreme circumstances". A feed-in tariff for CMM would clearly conflict with both those principles.

Such a tariff would also be more expensive for consumers as there would be no incentive to drive down costs such as there would be with a market mechanism and, as a clear market intervention, it would diminish the efficiency of our liberalised electricity market. I give way to the noble Baroness who is stopping me in midstream.

Baroness Byford

My Lords, indeed I am and I am sorry for doing so. However, if the Government have decided in this case that they will not interfere with the market, how is it that the market is being interfered with as regards wind farms?

Lord Davies of Oldham

My Lords, they are not. The renewables obligations are there. We have a target which we want to see achieved. That is recognised. What is sought here is a feed-in mechanism, a direct interference with the market. That is a different concept.

Perhaps the noble Baroness would exercise a modicum of patience. I understand her eagerness to challenge me, but she challenged me as I was seeking to arrive at a rather more positive response to the proposals made by the noble Lord, Lord Jenkin. I should like a hearing on that front in the hope that the noble Lord and both Front Benches might think that we have made some progress. We have certainly looked long and hard at the way forward for coal mine methane.

As I have indicated, we do not accept the feed-in tariff, but we propose to set up a new scheme to encourage industry to control emissions of coal mine methane. I hope that our proposed solution will commend itself to the House. The new arrangement will be a competitive grant scheme to be administered by the Coal Authority. It will provide an incentive to the private sector to control coal mine methane emissions through a competitive bidding process, leaving them to decide on the most cost-effective means of control—whether it be through electricity generation or by flaring the methane. We are considering what level of funding would be required, to be dispersed over seven years, to control the majority of methane emissions from the existing sites where it is possible to control emissions.

That proposal is constructive, but it is at an early stage. In principle, it is considered to be the most effective means for controlling such emissions. It has the benefits that it would involve genuine competition with opportunities for industry participation; it is designed to reduce emissions cost effectively; it would fit with existing licensing constraints; and we could implement it fairly quickly.

I hear what the noble Lord said about the extent of methane emissions. Our recent study—overseen by a project board that included the DTI, Defra, the Coal Authority and representatives from the CMM industry—reached the conclusion that methane is not quite as significant as it is sometimes made out to be. It concluded that only some 52 kilotons of methane are vented every year that could be controlled. That amounts to around 2.5 per cent of total UK methane emissions.

Allowing for those sites that are already utilising methane, that falls to about 21 kilotons of uncontrolled emissions or 1 per cent of total methane emissions. Let us get some perspective on the scale of the issue; that is equivalent to just 0.07 per cent of the UK's total greenhouse gas emissions. I am grateful to the noble Baroness, Lady Miller, who, in her speech, emphasised the fact that our objective is how to reduce the emission of these noxious gases into the atmosphere. That is the scale of the problem.

I hope that it will be recognised that we fiercely contest the argument that we could follow easily the German example. We maintain that interference in the market is something to be avoided if we possibly can. We have a constructive proposal for addressing the issue. We share with all parts of the House a commitment to dealing with that problem. On that basis, I hope that the noble Lord will think that I have responded positively enough for him to consider that he has made good progress with his general representation on the matter and that he will feel able to withdraw his amendment.

9 p.m.

Lord Jenkin of Boding

My Lords, I am not sure how many Ministers the noble Lord, Lord Ezra, and I, and our colleagues, have met over the past three years, but it must be five or six. The noble Lord, Lord Davies of Oldham, is the first who has succeeded in offering any help to this industry. For that, one must express gratitude. I and, no doubt, the officers of the association will wish to study very carefully the words that he has used and to examine the figures that he has quoted. The noble Lord said that representatives of the association had taken part in this study, but I am not sure that they would necessarily endorse the figures that the noble Lord mentioned.

Nevertheless, it would be very churlish of me to say, "We fear the Greeks even when bearing gifts". In this case, I am not sure that that would be right. The noble Lord really has moved to respond to the case that has been made over the years, which was made quite forcefully in Grand Committee.

I express my gratitude to the Minister. Some progress has been made on this, and in these circumstances it would be wrong to press the amendment, as we had originally intended to do. We may want to return to the subject at Third Reading, when perhaps a little more will be known about the scheme that the noble Lord has announced this evening. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 111 [Power to modify licence conditions]:

Lord Gray of Contin moved Amendment No. 196A: Page 90, line 30, after "systems," insert— (aa) power to set an upper limit or a lower limit (or both) on the charges set by the holder of a transmission licence for the use of its system by persons authorised to generate or supply electricity under the 1989 Act; and

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 196B, 198A and 198B, which stand in my name and are grouped together. These amendments have been tabled as fall back amendments, in order to provide an opportunity for some further discussion on the highly controversial subject of transmission charges.

I took some comfort from a statement made by the noble Lord, Lord Davies of Oldham, when he responded to my amendment on this subject in Grand Committee on 12 February. Referring to figures that I produced to illustrate the extra cost to Scottish generators, he said: But the figures relate to the current and first proposals and I have no doubt that there will be great toing and froing over the figures". A little later, he said: I recognise that the figures are accurate but they will be under constant and ever-present negotiation over the next few months".—[Official Report, 12/2/04; cols. GC 573–74.]

I am happy to say that this is absolutely correct. The major generators in Scotland have been meeting together and also meeting with the relative agencies, in an attempt to agree the form of words for an amendment to which they could all subscribe. The prize would be substantially to close the very wide gap that presently exists between those generating in Scotland, who would be substantially disadvantaged by the proposed changing methodology for access to the transmission system, and those who are already part of that system in England and Wales, and who would fare very much better. Indeed, without exception, they will all pay less.

As I explained in Committee, all but two of those that are presently recompensed for using the system will actually receive more money. In sharp contrast, Scottish Hydro-Electric will face an increase from £5.44 per kilowatt to £20.69, or 380 per cent, while ScottishPower will rise from £2.45 per kilowatt to £11.28, or in percentage terms, an increase of 430 per cent. Clearly, this state of affairs cannot be allowed to prevail.

Based on Ofgem figures, the Government have said that if the current approach was adopted, generators overall in Scotland would see a net reduction in their payments of £5 million. This is because of the removal of interconnector charges and connection charges and the opportunity for Scottish generators to earn revenue from the provision of balancing services to NGC as the Great Britain system operator. However, this does not consider the impact on individual Scottish generators. I give one example only. The impact of the current proposals on British Energy's Scottish generation assets would be an increase in charges of approximately £11 million, or 56 per cent.

I do not wish to use this occasion to weary the House by going over the many details that I spelled out in Committee in support of my argument, but I feel that I must again make reference to the danger facing Peterhead power station in the north-east of Scotland. Peterhead enjoys the reputation of being one of the most efficient gas-fired power stations, not only in the United Kingdom but in Europe, and it will be crucial in coping with the closure of coal-fired stations and the intermittent nature of most sources of renewable energy.

Under the proposals, it would pay 20 per cent of all the charges levied on generators throughout the United Kingdom. If the proposals are accepted, Peterhead may well have to close, which would put the Government's renewables policy at serious risk.

I had hoped that the amendment being prepared by generators in Scotland would have been available by now. Regrettably, this is not so, although good progress is being made and it is possible that such an amendment may be available in time for Third Reading immediately after Easter. If not, it will have to be tabled in the House of Commons. I understand that the discussions have required a degree of compromise all round. I am very hopeful that a form of words will be tabled which will have the blessing of the Government as well as the generators. It is in everyone's interest that this matter is resolved soon.

I understand that NGC will be consulting on revised proposals shortly, including a dampening of the locational element of charges that will lessen the impact on Scottish generators. However, considerable uncertainty still remains over the structure of the GB charges. This is not acceptable at this late stage in the process and NGC must urgently provide fuller information so that the companies can assess the commercial impact of its proposals. I beg to move.

Baroness Carnegy of Lour

My Lords, I support my noble friend, as I did in Grand Committee. This is a serious issue and a resolution has to be found. I shall not, of course, repeat the figures my noble friend has set before the House but I shall remind the House and the Government of why this is so important.

When we discussed the point in Grand Committee, the noble Lord, Lord Davies, reminded us that the matter was still out for consultation. He quoted various figures, claiming that the costs to Scottish generators of the plans that the grid has at the moment were neutral. Scottish generators have obviously contested these figures—convincingly, it seems to me. I shall not repeat the arguments because the Minister knows them very well.

To add to his argument, the noble Lord, Lord Davies, said in Grand Committee that the Government considered that Scottish generators will receive considerable advantage from the arrangements the Government have in mind to help renewables generators in remote areas. I understand we will come to that in Amendment No. 217H. The Scottish generators point out that it may well have the reverse effect to that envisaged by the Government.

While, of course, anyone who is operating wind power—as the Scottish generators doubtless will be—will welcome that assistance, should it come, the amount of transmission lines which will be brought about by such generation will cost the generators a great deal. That extra expense in the transmission system will eventually reach the customers in increased costs. Does the noble Lord realise that a planning permission application has gone to the Scottish Executive for 300 windmills on the Isle of Lewis in the Outer Hebrides? They will supply 365,000 households, which is 1 per cent of total demand. There will be an enormous transmission cost attached to that electricity. The power from that island, which, as the noble Lord knows, is a long way out towards the Atlantic Ocean, will have to come across into Scotland and it will doubtless join the big line that is being set up from Beauly to Denny in Stirlingshire. That wind farm will add greatly to the cost of electricity in Scotland, even if the cost of the wind farm energy going into the system is reduced, as the amendment suggests. I am not sure why the Minister says that the Government will not intervene in the system as that is a big intervention. It is certainly one that those of us in Scotland will welcome.

The noble Lord indicated that there was a lot of toing and froing between the generators and the Grid about this, which my noble friend also mentioned, and we hope that there will be a good outcome. But so far, there is no sign of one. Something has to be done to make sure that Scotland is not landed with very much more expensive electricity than other countries. Noble Lords may remember that in Committee, the noble Lord, Lord Tombs, described what it felt like when he was working for Scottish generators and went to negotiate in London. It was suggested to the people in London that they might meet in Scotland on one occasion. They said that Glasgow was a very long way away. The noble Lord pointed out that he came from Glasgow to London, the same distance as they would have to go from London to Glasgow. That is what it feels like negotiating in London.

This Parliament exists for all the people of the United Kingdom—all the electricity users. As this negotiation goes on, the case of the south-east dominates the thinking. Surely this Parliament has the duty to provide a fallback provision in the Bill, to enable the Secretary of State to ensure fairness across the United Kingdom, whether by these amendments or by one that my noble friend may move later. This amendment is simply a fallback provision, a temporary measure available to the Secretary of State to cap or make transitional adjustments to what Scottish generators are required to pay and thus to what Scottish customers are required to pay. If the Government do not do something in this House, I think that they will have a difficult time in another place. I support my noble friend's amendment.

Baroness Byford

My Lords, I rise to speak to this amendment briefly. I am very grateful to my noble friend Lord Gray of Contin for explaining very clearly the reasons why he has brought this amendment back again. For anyone who was not in Committee, the figures he gave, and the way that it will affect Scottish power, must be mind-boggling. To go from £5.44 per kilowatt to £20.69 is a huge increase. The one thing that my noble friend has asked for is some form of certainty. If I understand him correctly, the position is that the individual companies do not know where they are going and it is part of the problem. My noble friend Lady Carnegy of Lour clearly supports this amendment and suggested that the Government's Amendment No. 217H may make matters worse.

I should be very grateful if, when he replies, the Minister could reflect that particular issue. Otherwise, we shall not have the benefit of Amendment No. 217H until we reach it—when we need to be able to consider it in the light of this amendment. Perhaps the Minister could touch on it, if not in detail then with a broad brush, because I believe that my noble friends have raised important issues.

Lord Davies of Oldham

My Lords, in returning to this important debate, I am grateful to noble Lords. Of course we understand the concerns which underlie the amendments, and the way in which noble Lords have spoken to them with considerable emphasis.

I have some difficulty with regard to Amendment No. 217H. Part of the difficulty is that cold water has already been poured on that constructive concession. On the other hand, the noble Baroness herself was looking forward to it with slightly more optimism. It is quite difficult for me to talk about an amendment which is not part of this group. I would be in great danger of ruling myself out of order—save to say that what we intend is to take on board the particular problems of specific areas in a limited way.

I reject the overall arguments with regard to the Scottish position. While understanding where the arguments come from, we would seek to show just how we are involved in continuing discussions to resolve some of the issues.

Baroness Carnegy of Lour

My Lords, I am sorry to interrupt, but I want to make it plain that I mentioned the oncoming amendment only because the noble Lord used it as part of his argument when we were discussing these amendments last time.

The Scottish generators very much took issue with that. I mentioned it only for that reason. The noble Lord need not talk about that amendment at this point. They used it as part of the argument, so I thought that I should include it as my noble friend had not.

Lord Davies of Oldham

My Lords, the noble Baroness is being more than kind in saying that I do not need to respond to it. She certainly raised the issue first. However, she will recognise that it was also raised with considerable force from the Front Bench, and I was seeking to respond to the duality of the representation. It is difficult for me to do so with regard to that amendment, except to trail the obvious point that we have accepted that there are difficulties in this area. The difficulties are sufficient to indicate that, in due course, we will be making a concession in that limited respect, while at the same time seeking to meet the main thrust of the noble Lord in moving the amendment.

We think that the Scottish industry will gain and will lose, as we have indicated in Committee. After all, BETTA operates on behalf of the whole of the United Kingdom, brings the benefits of the market across the whole of the United Kingdom, and customers stand to gain from that competitive market. Nevertheless, we recognise that there are specific issues with regard to the Scottish position.

The noble Lord was generous enough to indicate that there are very intensive, ongoing discussions on these issues. We are by no means at the end of the road and, at this point in time, I am not expressing anything in the way of categoric responses—refutations of the positions which he has adopted—save in the most general terms, which he will recognise that we defend.

BETTA is a package of reform. Some elements will result in higher costs to the Scottish generators, as the noble Lord has been articulate in emphasising. Others, such as lower connection costs and the abolition of interconnector charges, will result in lower costs.

The particular issue of Peterhead was mentioned. If an issue arose regarding guaranteeing local security of supply, the National Grid would need to enter into a contract with Peterhead. Perhaps other solutions could be found in the short term.

We would expect such specific localised issues—when I say "local" I do not want to be disparaging, because I recognise how significant such issues are to the community—which are different from the more general position in Scotland, to be recognised. That point is well taken. I want that to be accepted as an earnest of our seriousness about having discussions that cover the particular issues facing Scotland.

Noble Lords will recognise that the National Grid has been concerned in the consultation process to work out ways in which some of these issues can be tackled without infringing the broad principles on which BETTA is to be established. It is a nationwide market that will bring advantages to the whole of the country and all of the countries within the United Kingdom.

Particularly in relation to Amendments Nos. 197A, 198A and 198B, I understand the argument about giving generators time to adjust to the increases in the transmission charge. At first glance that seems a very reasonable argument, which the noble Lord made with his usual reasonableness. However, that would discriminate against generators elsewhere and in England and Wales who would be competing in the same market. It just would not be fair for Scottish generators to receive the benefits of the national market of BETTA on day one but not pay the full costs. That would also delay Scottish consumers receiving the full benefits of BETTA.

In Grand Committee we discussed just how severe those costs would be. As I sought to emphasise, and I do not resile from this position at all, while there may be acute difficulties in particular areas, the broad perspective facing Scotland is a fine balance of gains and losses. It is the noble Lord's right to emphasise the areas where there are clear losses. As he will recognise, my task is to defend BETTA's overall value in bringing universal benefits to which Scots will have access on an equal basis.

In Grand Committee I disputed the noble Lord's figures, and I wrote to him to do the same. He produced some fairly devastating figures of his own. I hope he will recognise that, in arguing the general case, I am basing it on the best estimates of cost for Scottish consumers and generators. The whole purpose of BETTA, after all, is to bring the substantive benefits of competition to the whole of the nation.

I hope that the noble Lord will recognise that we do not have a fixed position. Substantial consultation continues and will have a changing outcome in terms of the costs to be borne. I certainly am showing a commitment to the necessary flexibility, with which we can deal more properly in our later consideration of the Bill, about specific generators in Scotland and specific local problems. I hope that he will feel that he has once again articulated a very important area of concern, which has obliged the Government to respond by engaging in continuous consultation and negotiation in a situation that remains flexible.

Lord Gray of Contin

My Lords, I thank my noble friend Lady Carnegy of Lour for her remarks in support of my amendment. I also thank the noble Baroness, Lady Byford, for her help from the Front Bench. The Government can be in no doubt that we are fighting on a united front on this matter, but I also thank the Minister for the very courteous way in which, as always, he responded. The debate we have had on this group of amendments has been very useful because I am glad that the Minister confirmed that minds are not yet closed and that discussions are still taking place. It is to be hoped that, in due course, either at Third Reading or in another place, an amendment to which all parties can subscribe will be made to the Bill. I am most grateful to the Minister for what he said. It would be churlish to force this to a Division and in the mean time I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn

[Amendment No. 196B not moved.]

Baroness Miller of Hendon moved Amendment No. 196C: Page 91, line 8, leave out "that subsection comes into force" and insert "this Act is passed

The noble Baroness said: My Lords, I would like to move Amendment No. 196C and speak to Amendments Nos. 197ZA, 198C, 203B and 208CA. They are all in identical terms and each seeks to alter the time limits in the sections to which they relate, from a period commencing with the date when the relevant subsection comes into force—whenever that may be—to a specific defined date; namely, to a specified date after the Act is passed. In each case, we have not proposed any alteration to the commencement period from that proposed by the Government. In the cases of Clauses 111, 114, 116 and 145, that is 18 months; and in the case of Clause 152, that is three months.

Each of the clauses that we propose should be amended sets a limit on the time by which the Secretary of State can exercise the powers granted by that clause. Clauses 111 and 114 relate to the implementation of the new electricity trading and transmission arrangements by the modification of licences. Clause 116 is a power to give directions to Ofgem in relation to the grant or refusal of transmission licences.

Clause 145 is a very wide power to modify or amend standard gas and electricity licences. Clause 152 relates to the modification of standard licences in relation to appeals from decisions of Ofgem, where the time limit of the Secretary of State to decide whether he wants any such modifications proposed by the Government is three months.

We certainly do not argue with the limitation of the period in which the Secretary of State must exercise his powers under the respective clauses. We accept the length of the periods proposed by the Government. Our disagreement is only with the date from which that power should run. The Government, in each case, say that it should be from some unspecified date when the appropriate subsection comes into force, whereas we propose that the time should begin to run from the passing of the Act.

Under the Government's proposals, these closely connected provisions need not even come into effect on the same date, because Clause 169(2) enables the Secretary of State to make different commencement orders for different parts of the Act. The five sections grant very important powers to the Secretary of State, and we do not quarrel with these. Nor do we disagree with the necessity provided for in these sections for adequate prior consultation before the powers are exercised by the Secretary of State.

What we do not agree with is the fact that the Bill sets no clear date by which the wide-ranging executive power to implement the BETTA programme, or to modify licences relating to energy administration, or relating to appeals from Ofgem, must be exercised.

The Bill will introduce a major overhaul of the power industry. Certainty is therefore what is required by those involved. I point out that the approach of the Government in the case of the BETTA programme is inconsistent with that adopted for what was called the new electricity trading arrangements (NETA) in the Utilities Act 2000, where time began to run with the commencement of the Act.

The Bill has had a very long gestation period, beginning even before the White Paper, possibly even with the drafting of what became the Utilities Act 2000. The Minister may very well tell us that he expects the Secretary of State to set the machinery in motion on day one after the Bill is passed, and I sincerely hope so. However, there is absolutely no reason why the exercise of the Secretary of State's powers under the clauses should extend beyond a very generous 18 months, or in one case three months, from the passing of the Bill.

The amendments will concentrate the Secretary of State's mind on bringing certainty to the power industry, which is very necessary. I beg to move.

Lord Whitty

My Lords, I understand the noble Baroness's arguments but, in practice, it would not be a sensible approach to shift the starting point for the time limit. As she said, the implementation of BETTA requires the use of a range of powers to change licence conditions. It makes sense for those to be timelimited—everyone accepts that—but only from the period that the commencement to use the powers starts. If, for example, a technical problem is found immediately prior to implementation, commencement would not begin until that had been sorted out. If the clock were already ticking, that could set back the whole BETTA project if the matters could not be resolved before the time expired.

The noble Baroness asks why the provision is different from those under the Utilities Act. With this provision, we are of course bringing in a new regime, which could introduce greater complications, some of which we discussed on the previous amendment. By bringing the whole Scottish system into the English system, greater complications could arise in the technical drafting of regulations. I therefore think it sensible that the commencement date start from when the regulations are introduced.

Amendments Nos. 203B and 208CA deal with the special administration regime. Clearly we would expect to bring that regime in as soon as possible after Royal Assent, but we need to retain the flexibility to deal with any consequences of the introduction of BETTA, in respect of special administration and appeals. For those practical reasons, I hope that the noble Baroness will not press the amendment.

Lord Jenkin of Roding

My Lords, the Minister did not acknowledge my noble friend's central argument, which was that the provisions generate significant uncertainty for the industry, as it is affected by all the clauses. Can he say anything that might help the industry to recognise exactly how the powers will be used and when, to use his phrase, the clock will start ticking?

Lord Whitty

My Lords, the uncertainty and its resolution relate to the drafting of the regulations and their precise details. My argument is not that an industry does not need certainty as rapidly as possible; clearly it does. However, if we start the clock ticking immediately on Royal Assent and if the drafting of the regulations, which will of course have to be quite widely consulted on, leads to greater complexities and then time runs out, that will be doing the opposite of creating certainty. We would have been consulting on regulations, 99 per cent of which people might agree with, but which for one technical reason could not go ahead on the date that the legislation would by then have proposed.

The danger of that is greater in relation to BETTA than it was in relation to NETA. I was going to say that that was because of the Scots, but noble Lords know what I mean. We are bringing two regimes together, whereas previously we were simply modifying the regime under a new structure and regulator. It does not help the certainty issue to give a closing date—a deadline—that may be before the sensible time that it takes to finalise the regulations.

Baroness Miller of Hendon

My Lords, I thank my noble friend for repeating what I tried to say about certainty being the essence of what was needed for the power industry. It is hopeless when there is no certainty. I understand exactly what the Minister is saying; he need not look so worried, because I will certainly not divide the House.

It is absolutely imperative in my opinion, however, that the Government settle down and get everything done as quickly as possible. That is the issue. The trouble with leaving matters to unspecified dates until regulations are introduced is that that could be at Christmas, spring next year or whenever. The truth is that had the Government been willing to accept such an amendment easily, which I what I had hoped for, that would have concentrated their minds to make progress with the consultation and the regulations and then be able to complete the job. However, in view of what the Minister has said, I want it on the record that we feel that it is unfair that the industry should be uncertain. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 114 [New standard conditions for transmission licences]:

Lord Davies of Oldham moved Amendment No. 197: Page 92. line 26, leave out from "under" to end of line 27 and insert "Part 1 of the 1989 Act, or ( ) under this Act,

The noble Lord said: My Lords, in moving the amendment I shall also speak to Amendments Nos. 201 and 203. They are designed to refer to all of the provisions that allow for modification of standard licence conditions and are simply the correction of a small drafting error. They ensure that standard conditions, on an ongoing basis, include modifications under both the Electricity Act and the Energy Bill. Accordingly, I hope that the House will support these small drafting amendments that seek to improve consistency in the Bill. I beg to move.

On Question, amendment agreed to.

[Amendment No. 197ZA not moved.]

Schedule 17 [Conversion of existing transmission licences: licensing scheme]:

[Amendment No. 197A not moved.]

Lord Davies of Oldham moved Amendment No. 198: Page 211, line 6, leave out "desirable" and insert "to be necessary or expedient

The noble Lord said: My Lords, never let it be said that we are not a listening Government when sensible arguments are put at any stage of a Bill. We listened to the significant representations that were made. They were not unduly protracted, but were made with considerable force and argued that we should make a change because noble Lords were concerned that the power in this paragraph would provide for the tearing up of, any agreement or code that the Secretary of State thinks it desirable".—[Official Report, 24/2/04; col. GC 72.]

That would be a terrifying power and is not one that we have ever intended. We indicated in our response that the power was restricted to a narrow purpose—that is, when a change is needed to an agreement or codes as a consequence of changes to a transmission licence for the purpose of BETTA.

However, it was clear that there was great anxiety in Committee over this issue and we were pressed to come back with a different form of wording. As ever, we have considered those representations with the greatest of care and have tabled an amendment that brings the language in line with the drafting in the other clauses relating to BETTA—that is to say, from a "desirable" test to a "necessary or expedient" test. Noble Lords will recognise how enormously grateful I am for the advice that was proffered on that last occasion. I beg to move.

Lord Jenkin of Boding

My Lords, at the risk plagiarism, may I tell the Minister I am enormously grateful to the concession he has made and it greatly improves the Bill? It makes the whole Grand Committee procedure worth while.

On Question, amendment agreed to.

[Amendments Nos. 198A and 198B not moved.]:

Clause 116 [Grant of transmission licences]:

[Amendment No. 198C not moved.]

Schedule 18 [Property arrangements schemes]

Lord Davies of Oldham moved Amendment No. 199: Page 217, line 10, leave out paragraphs 21 and 22.

The noble Lord said: My Lords, the amendment again fulfils a promise that we made in Committee. Considerable criticism was made of the contents of paragraphs 21 and 22 in schedule 18. This amendment removes them. I beg to move.

On Question, amendment agreed to.

9.45 p.m.

Lord Woolmer of Leeds moved Amendment No. 200: After Clause 121, insert the following new clause—

"Exemption of nuclear and large scale hydroelectricitygeneration from climate change levy


  1. (1) The Climate Change Levy (General) Regulations 2001 (S.I. 2001/838) are amended as follows.
  2. (2) In regulation 47(1), leave out "provided that it is not electricity generated from a large hydro generating station".
  3. 1137
  4. (3) In regulation 47(2)—
    1. (a) in the definition of "generator", leave out "except in the definition of "hydro generating station" below,"
    2. (b) in the definition of "hydro generating station", leave out "other than stations driven by tidal flows, waves, ocean currents or geothermal sources",
    3. (c) leave out the definition of "large hydro generating station",
    4. (d) in the definition of "renewable sources"—
      1. (i) leave out "or nuclear fuel" and insert",",
      2. (ii) at end insert "and also includes nuclear fuel".
  5. (4) Nothing in this section affects the power of the Commissioners of Customs and Excise to make or amend regulations under section 30 (climate change levy) of and Schedule 6 (climate change levy) to the Finance Act 2000 (c. 17)."

The noble Lord said: My Lords, at this late hour I shall be brief. First, I give the apologies of my noble friend Lord Lea of Crondall who has sat through much of three days of Report stage and unfortunately as we reached this amendment was unable to be with us. I extend on his behalf apologies for absence.

Her Majesty's Government are firmly committed to a national goal of a 20 per cent reduction in carbon dioxide emissions by 2010. I am sure that we wish them well in that ambition. However, as well as being a tax on energy, the climate change levy, introduced in April 2001, is, I presume, intended to contribute towards reducing carbon dioxide and other greenhouse gases. There is common agreement that nuclear power for electricity generation results in no carbon emissions or other greenhouse gases. The same goes for hydroelectricity.

Common sense appears to be that nuclear power for electricity generation should not have to pay the climate change levy; yet it does. A quarter of all climate change levy revenue is collected from nuclear power-generated electricity. I welcome the fact that high quality combined heat and power from coal is given a dispensation for the levy. That seems to show a welcome flexibility. I hope that the Government can extend not only flexibility but good sense to the nuclear industry and nuclear power.

I support the Government's efforts to back wind power as an energy source with low greenhouse gas emissions. It will be an expensive option with significant issues surrounding reliability and back-up capacity, but that may be a price worth paying to achieve low-carbon technology. The Government would be correct to back wind power as a major source of low emissions energy. Figures published recently by the Royal Academy of Engineering demonstrate that offshore wind power varies between two and three times the cost of new nuclear plant.

Most objective commentators are clear in their conclusions. If the UK is to achieve its Kyoto commitments, we need a significant nuclear contribution. There is some inconsistency in the way in which the emissions trading scheme will differentially impact against carbon dioxide producers, yet the climate change levy appears to discriminate against an important industry that can contribute to reducing carbon dioxide emissions in our climate.

Exempting from the climate change levy electricity generation for nuclear power and large-scale hydroelectricity can make a significant contribution to reducing greenhouse gases. It would bring consistency in the Government's approach to the use of the weapons of the climate change levy and the emissions trading standards. I beg to move.

Lord Jenkin of Roding

My Lords, I was happy to add my name to the amendment in the name of the noble Lord, Lord Woolmer of Leeds, and his colleagues. I too regret the absence of the noble Lord, Lord Lea of Crondall. He brings to these debates a mordant wit, which would serve us well on this occasion. One needs a considerable sense of humour to recognise that what the Treasury—it was a Treasury introduction—called a climate change levy was not actually anything of the sort.

To the ordinary man in the street—I say this with great respect to the noble Lord, Lord Woolmer, who moved the amendment with charm and modesty—the Treasury naming the tax the climate change levy gave the public the view that it was an important step in our efforts to achieve our Kyoto targets for the reduction of greenhouse gases. But it is not. Otherwise, why should there be no dispensation for large-scale hydro, which produces no carbon dioxide, or for nuclear power, which also produces no carbon dioxide? To paraphrase the Treasury, it is an energy tax with a dispensation for renewables as defined.

That was not the impression given to the public when it was introduced: it was thought that the tax was specifically directed to help achieve our Kyoto targets. It is very much like Humpty-Dumpty—I make words mean what I want them to mean. I am not sure whether Humpty-Dumpty might have been the metaphor over the door of Alastair Campbell.

The noble Lord, Lord Woolmer, made clear that it is plain dotty to call something a climate change levy and to make the firms—the customers—pay the levy, even though they are buying electricity from generators who generate no carbon dioxide. It is totally and utterly illogical and it is high time that it was put right.

I am one of those who was persuaded by the report of the Royal Society a year or two ago that we need a carbon tax. I know that that is not everyone's favourite dish, but it would make a great deal more sense than the so-called climate change levy because it is nothing of the sort.

For those reasons, I was happy to add my name to the amendment. It is an attempt to make sense out of what was a very misleading instrument when it was introduced by the Treasury in 2000. It is an economic instrument which can work in diametrically opposite directions. It may have played its part in driving British Energy to the wall—after all, anyone who bought nuclear power from British Energy had to pay the climate change levy. Why should people choose that rather than go for some of the other sources, on which they might pay less?

The Government have committed themselves to a strange and tortuous business. The amendment is an extraordinarily valuable effort to try to make some sense of it because manifestly it is a nonsense.

Baroness Miller of Chilthorne Domer

My Lords, we on these Benches would welcome a carbon tax. However, we do not support the amendment because, although rightly it calls for us to debate the issue, it perpetuates the mechanism that the Government have put in place. Perhaps in Committee we should have proposed a carbon tax as a way of achieving the outcomes. Nevertheless, there is an emphasis on the inadequacy of the current mechanism.

Lord Gray of Contin

My Lords, I support the amendment for all the reasons enunciated by the noble Lord, Lord Woolmer of Leeds, and my noble friend Lord Jenkin of Roding. Living as I do in the Highlands of Scotland, and having represented a Highland seat in another place for 13 years, I had a great deal to do with the North of Scotland Hydroelectric Board, as it used to be, over many years. Hydroelectricity and nuclear power have played a significant role in the development of the Highlands of Scotland. The hydroelectricity schemes constructed in the post-war years not only provided useful employment but also ensured electricity for domestic use to some of the most remote parts of the country. Furthermore, by such methods power was and is provided for both domestic and individual purposes in its cleanest form. An important part in helping the Government to achieve their Kyoto obligations is also ensured by the clean methods used by those generators.

For a long time I have resented the fact that nuclear power has been penalised most unfairly by being subjected to climate change levy. It is totally absurd that those who generate electricity by the most pollution-free methods should have such an imposition thrust upon them.

Finally, and while on the subject of hydroelectricity, can the Minister confirm that over the next five years Scottish Hydro-Electric will lose its subsidy and the Government will replace it with a levy on all consumers in the area, which will cost those consumers £270 million? I appreciate that I am shooting from the hip. I do not expect the Minister to give me an answer to that tonight; but perhaps in due course he could write to me to confirm whether those figures—which are causing a lot of concern in that part of the country—are correct.

The hour is getting late and I do not wish to take up more of the House's time. I support the amendment wholeheartedly.

Lord Whitty

My Lords, I do not want to enter the argument about the nuclear contribution to the energy policy at this stage and I will not do so. However, a number of the comments that have been made prompt me to reinforce a point that I was going to make more gently.

Noble Lords seem to be advocating a substantial change in the tax base, from a climate change levy to a carbon tax levy. That is not appropriate for this Bill; it would be a finance Bill provision, as would the technical change in exemptions from present forms of taxation. That would probably be ruled out of order in another place.

Nevertheless, we are debating them here, and I will deal with the substantive point because I think noble Lords are being disingenuous.

Lord Gray of Contin

My Lords, the Minister must realise that we are not in another place—we are in the House of Lords. My comments were perfectly in order.

Lord Whitty

My Lords, I did not suggest anything different. All I said was that if we want this piece of legislation to survive then we have to take account of the position in another place as well.

The point of the renewables levy exemption is to encourage new forms of renewable energy to come forward—such as solar, wind and tidal power—which have the potential to become competitive with other forms of electricity generation as their technology advances. They need help to get to that stage.

In the case of large-scale hydroelectric power—as in the case of nuclear energy—the technologies are already known and developed. They are already able to compete on a level playing field with the carbon-based or fossil fuel-based energy sectors. They are not disadvantaged relative to other forms of nonrenewable generation. If we were to exempt nuclear power from this, far from ending a discrimination against nuclear power we would be providing discrimination in favour of it.

Whatever the average citizen's view of nuclear power, I doubt whether the noble Lord would find much popular support for that. Exempting nuclear power would not help us meet our Kyoto undertakings; it would not provide a sufficient incentive to bring any new sources of nuclear power into the reckoning; and there are other issues of environmental impact involved.

The essential point is to bring forward new technologies, not to exempt old ones, whatever their merits or otherwise. There are different views on that matter around this House.

10 p.m.

Lord Dixon-Smith

My Lords, I am fascinated. Is the Minister saying that when new technologies such as wind power become established and part of the scenery they will then become eligible to pay the climate change levy? That seems the implication of his remarks. I am sure that the wind industry would be interested to know that.

Lord Whitty

My Lords, no doubt the structure of taxation will change over time. At present, the point of the climate change levy is, first, to tax the use of energy in general, and, secondly, to bring forward new carbon-free technologies. Those new technologies require some additional help; the nuclear industry and the hydroelectric industry do not. For those reasons, they are not exempt. That logic would be completely destroyed by the noble Lord's amendment.

Lord Woolmer of Leeds

My Lords, the Minister speaks about arrangements that may well have been the Government's intention, but the public are genuinely baffled by a climate change levy that appears to be intended to help to reduce carbon dioxide emissions but discriminates against one of the major contributors to clean technology as regards emissions.

The nuclear issue will not go away; it is a major, important contributor to achieving the Kyoto targets. Members may not be able to say that in the other place, but if we cannot say that frankly in this Chamber, we do a disservice. Virtually no independent commentators deny that nuclear power is a major contributor to achieving Kyoto targets. I sincerely believe that eventually some government of this country will recognise that. I shall support the other attempts to generate power. As many noble Lords know, I chair the Regional Energy Forum, which involves private industry in Yorkshire and Humber. I work month in and month out to try to support new technologies, but that does not blind me to the fact that they alone will not be sufficient.

Obviously, I am disappointed that the Minister felt that we could treat this only as a money item. It has been a useful debate just to remind the House that the issues still exist. However, we have gone as far as we can today. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 123 [Standard conditions for electricity interconnectors]:

Lord Whitty moved Amendment No. 201: Page 96, line 21, at end insert "or under this Act

On Question, amendment agreed to.

Clause 124 [Consequential amendments of the 1989 Act]

Lord Davies of Oldham moved Amendment No. 202: Page 96, line 40, leave out subsection (3).

The noble Lord said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 221 and 223. Section 11A of the Electricity Act 1989 sets out the procedure for modifying standard electricity licences. In particular, there is a mechanism by which, if Ofgem proposes a modification to a standard electricity licence condition, a certain percentage of licensees must object, otherwise the amendment proposed by Ofgem will be made.

"Relevant licence holder" is defined in Section 11A(10). To be a relevant licence holder you must hold a licence of the type to be modified, and the condition to be modified must be switched on in your licence. At present, Section 11 A refers only to the switching off under Section 33(2) of the Utilities Act. However, there are other ways in which a licence condition may be switched off; for example, Clauses 123 and 114 provide for that. I understand from Ofgem that the terms of a licence may also provide for certain conditions to be switched off. As there are numerous ways to switch off licence conditions, it seems sensible to amend the definition of "relevant licence holder" so that it simply refers to the fact that, if a condition is not in effect, a licensee is not entitled to vote. Our intention is simply to tidy up the drafting of who is a relevant licence holder. I beg to move.

On Question, amendment agreed to.

Clause 127 [Standard conditions for gas interconnectors]:

Lord Whitty moved Amendment No. 203: Page 99, line 41, at end insert "or under this Act

On Question, amendment agreed to.

Clause 133 [Applications for energy administration orders]:

[Amendment No. 203A had been withdrawn from the Marshalled List.]

Baroness Miller of Hendon moved Amendment No. 203AA:

Page 103, line 40, at end insert—

"(1A) Subject to subsection (1B) below, before making (or proposing to make) an application in relation to any company under this section, or consenting (or proposing to consent) to such an application by GEMA, the Secretary of State must—

  1. (a) have consulted the directors of that company, and
  2. (b) be satisfied that there is no reasonable prospect that the company would otherwise be able to avoid going into administration or insolvent liquidation within the meaning of section 214 of the 1986 Act.

(1B) Subsection (1A) does not apply—

  1. (a) if a certificate of the kind mentioned in section 134(3) is to be provided to the court in relation to the application;
  2. (b) in a case where notice has been given to the Secretary of State under one or more of sections 137 to 141 of a relevant procedure and he considers that the procedure is reasonably likely to come into effect, so far as is necessary to enable him to make an application (or consent to one by GEMA) under this section before the expiry of the notice; or
  3. (c) so far as is necessary in any other circumstance where the Secretary of State is satisfied that no step open to him or GEMA, other than his making or consenting to an application under this section without delay, would prevent the immediate cessation (or promptly remedy the cessation) by the company of the activities authorised by its relevant licence.

(1C) For the purposes of subsection (1B), a relevant procedure is one which, by virtue of any of sections 137 to 141, can only be implemented after giving notice of 14 days to the Secretary of State and GEMA, but the enforcement of security over property is only a relevant procedure where the property in question is operationally necessary for the continuity of electricity or gas supply to at least 100,000 premises."

The noble Baroness said: My Lords, the amendment is a revised version of the proposals made in Grand Committee. It is intended to meet the Government's objections. We are pursuing the principle behind the amendment because there is a major potential problem which needs to be remedied. The aim of the amendment is to prevent the premature appointment of energy administrators. It does so by ensuring that there is proper consultation with the directors of the protected company before such a drastic step is taken.

It is agreed on all sides that the Secretary of State should satisfy himself that there is no reasonable prospect that the company can avoid going into administration or insolvent liquidation before making the application for the order. That will normally involve consultation with the company.

The Government put two arguments against this modest and sensible requirement, both equally unsustainable. First, they suggested that if an application to appoint an energy administrator proved to be mistaken or unnecessary in the event, it could easily be withdrawn. That view indicates a total lack of understanding of what happens in the real world of commerce. The intervention of the Secretary of State will unquestionably have a serious effect on the company's credit ratings and the willingness of other concerns to trade with it. It could precipitate insolvency even if the company were solvent at the time the application was made. The need for consultation with the directors is to prevent an ill judged and damaging application.

The Government's other objection was that there could be reasons of urgency for making the application. Attractive as that argument is on the face of it, it is entirely specious because Clauses 137 to 141 provide for a series of restrictions on the making of compulsory and voluntary winding-up orders, on the making of administration orders, on the appointment of administrators by creditors and, lastly, on the enforcement of securities. Each of those clauses puts the procedure on hold for 14 days, which gives the Secretary of State more than adequate time to consult and reflect on the situation.

However, to meet that objection, our new subsection (c) provides that in cases of extreme emergency the restrictions can be overridden by the Secretary of State. The amendment gives a clear and unambiguous signal that energy administration will be used only when it is truly the last resort. The amendment as drafted does not restrict that purpose. I urge the Government to accept the amendment. I beg to move.

Lord Jenkin of Roding

My Lords, I reinforce what my noble friend said about the need to live in the real world. I well remember the occasion, because I was at Buckingham Palace at the time, when the news came through that Mr Maxwell had thrown himself off his yacht and was presumed drowned. At that time, I was a non-executive chairman of a company which supplied paper to the Daily Mirror. Within minutes we had put the Daily Mirror on a cash-with-order basis. There was no other way we could ensure that we were going to be paid. That lasted until eventually we were able to resume normal relations. That is what happens. If that were done by one supplier, I have no doubt it would have been done in relation to a great many other people who were concerned with the Maxwell empire. Indeed, one knows what happened to the pensioners.

Therefore, one has to recognise that if any event triggers a collapse of confidence in a company, the results are instantaneous and cataclysmic. As drafted, the Bill does not recognise that. The amendment goes a long way to meet the concerns which have been voiced.

I do not deny that at some stage a government may have to step in, as indeed they did with British Energy. As I said in Grand Committee, I think that on the whole that was handled pretty well. However, there needs to be very careful consideration and consultation before that drastic step is taken; otherwise the consequences could be incalculable.

Lord Whitty

My Lords, I understand the concern that is being expressed here about this power. The Secretary of State should not seek a special administration order until she is absolutely clear that that is necessary, which would normally involve talking to the directors of the company concerned and others.

We also have to live in the real world in the reverse situation where there is such an urgent situation and a need to act and supplies could be cut off were no action to be taken. The Secretary of State surely would be under at least a political and moral duty—we would need to use these powers to make it a legal duty—to act to install a special administration order in those circumstances.

I recognise that the noble Baroness has sought to meet those circumstances with her three exclusions, which relate, first, to public interest; secondly, to alternative insolvency procedures being under way; and, thirdly, to what she described as the urgency situation. But the amendment does not quite read that way. In any case, if the presumption is that the Secretary of State does not have those powers, acting in extreme emergency situations would be inhibited by the amendment.

Having said that, I appreciate that the noble Baroness has tried to meet my earlier objections. I also appreciate that the Secretary of State would need, in almost all circumstances but not quite all, to have gone through the procedure set down in this amendment in relation to the directors of the supplier concerned. For the sake of security of supply and the industrial and household consumers dependent on that supply, we must allow the Secretary of State the powers to act in the very special and extreme circumstances that this provision is intended to address.

Baroness Miller of Hendon

My Lords, despite the fact that the Minister speaks very nicely and says that he understands it all, in my opinion he does not understand the crucial point of this amendment, which is important. He is wrong in what he says, but at this time of night I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.


Clause 135 [Energy administrators]:

[Amendment No. 203AB not moved.]

Clause 145 [Modifications of particular or standard conditions]:

[Amendment No. 203B not moved.]

[Amendment No. 203BA not moved.]

Clause 149 [Appeals to the Competition Commission]

Lord Kingsland moved Amendment No. 203C: Page 115, line 12, leave out "whose interests are materially affected by it" and insert "with a sufficient interest in that decision

The noble Lord said: My Lords, in moving Amendment No. 203C, I shall speak also to a number of other amendments. I hope that your Lordships will forgive me if I begin with Amendment No. 208.

In Grand Committee, the noble Lord, Lord Triesman, said that it was the intent of the Government to create a "tailored approach" to rights of appeal. As I understood him, he meant that the Bill was designed to establish a right of appeal that was something less than a full re-hearing but more than judicial review.

More precisely, the noble Lord said that the purpose of the Bill was to require the Competition Commission, as the body hearing appeals, to adopt the same approach as would, for example, the Court of Appeal in hearing an appeal against a decision of a lower court".—[Official Report, 1/3/04; col. GC 162.]

We believe that the Government have met that undertaking in their amendment at Report stage. The amendment clearly entitles the Competition Commission to re-assess the factual basis on which weights were accorded, and then compared, by Ofgem, and then to make its own independent assessment.

Your Lordships will be relieved to know that I shall turn now to the other amendments in the group in the order in which they are set out. As your Lordships will recall, Amendments Nos. 203C and 203D aim to ensure that persons with a "sufficient interest" in the relevant decision will be entitled to appeal against it rather than only those persons who are "materially affected" by the decision.

The test of sufficient interest has been elaborated by case law and has, on the whole, been interpreted generously. When we raised this issue in Grand Committee, the noble Lord, Lord Triesman, said that he found it difficult to imagine what additional parties we would hope to enable to appeal under a more generous test of eligibility. But our concern was actually the reverse of that. Our concern was that, on the test of material effect, there was no guarantee that all of the parties to an industry code would be equally entitled to appeal in relation to a particular Ofgem decision.

After all, a decision may be perceived as thoroughly bad in principle by those with a sufficient interest in it, even though it might not materially affect them in the accepted sense of these words. On the test used by the Bill as it stands, they would not be able to appeal against any such decision that they believed was wrong and should be challenged. This cannot be right.

The legal implications of using the material effect test are also unclear. But for these provisions in the Bill, those parties with a sufficient interest in a decision would be entitled to bring an action for judicial review. Will they still have that right? In other words, if they fail the material effect test to bring an appeal to the Competition Commission, can they go to court and show, instead, that they, none the less, pass the easier test of sufficient interest, entitling them to judicial review? To create the potential for two legal processes that operate in parallel in relation to exactly the same decisions simply cannot be sensible.

Alternatively, will the legal effect of the Bill be, though without any express intention to this effect, that the rights of those with sufficient interest are ousted by the existence of an alternative remedy from which they have been excluded? Might the courts decline judicial review on the basis that Parliament has provided an alternative that it has not seen fit to make available to the sufficient interest applicant? I have not seen any justification for thus disfranchising members of the industry in relation to their existing rights to a review. On the contrary, the stated intention of the appeals provisions in the Bill is to enhance rather than to diminish those rights.

As a matter of law, I do not believe that it can be clear how the courts would approach these questions. There is little precedent to guide us. Neither of the two possible options seems in any way attractive. The use of a novel material interest test in the Bill creates more problems than it can possibly solve. We believe strongly that it should be replaced by the concept of sufficient interest, with which the industry and the courts are already familiar.

By contrast, the amendments proposed by the noble Lord, Lord Whitty—Amendments Nos. 204, 206, and 207—give me reason to thank him very much indeed for reflecting further on the 10-day limit in the Bill and seeing fit to extend it to 15 days. We would have preferred 20 days; but we recognise that the Government have given ground in this area in a way that is sensible, and we are content with a solution that is thought to be the optimum one.

Amendment No. 205A seeks to replicate a deletion that the Government intend to make in Schedule 22 and is an amendment that the noble Lord, Lord Whitty, has made in Amendment No. 205. The Government rightly want to leave out paragraph 1(12). We agree with that. Under some of the earlier provisions of paragraph 1, an authorised member of the Competition Commission, not the commission itself, is able to decide whether to grant permission to bring an appeal, and if so, whether that permission is to be subject to conditions. Such conditions, as I understand it, can be substantive as well as procedural.

Sub-paragraph (12) would give the authorised member a third discretion entitling him to modify subsequently those conditions, in such a manner as he thinks fit".

It is wholly unclear why this provision is required or why it should be drafted in such wide and unfettered terms. That is presumably why the Government now seek to delete it.

However, the same formula, providing for the same third layer of discretion, is also to be found at sub-paragraph (10) of paragraph 2 of the schedule in relation to the power of an authorised member to direct that party to be added to appeals. Having given the direction that a party can be added to an appeal and attach conditions, which may be substantive or procedural, to the direction, the member can subsequently return to the matter and modify the conditions, in such a manner as he thinks fit".

The same objections apply to this sub-paragraph as to the sub-paragraph which the Government have so wisely sought to delete. In my submission, the Government should follow their own analysis to its logical conclusion and delete both provisions. Our amendment would achieve this. I beg to move.

Lord Whitty

My Lords, I am grateful to the noble Lord, Lord Kingsland, for not only welcoming all of our amendments in this section but also for speaking to them more clearly and more adequately than my text was likely to do. I endorse everything he said on that. Moreover, as to the point he made on Amendment No. 205A, I agree that it follows the same logic as that in Amendment No. 205 and would delete an unnecessarily wide power in rather undefined circumstances. I will therefore accept his Amendment No. 205A.

That is as far as the good news goes. I cannot accept Amendments Nos. 203C and 203D. They relate to the difference between "materially affected" and "sufficient interest". The whole point of opposing previously the dilution implicit in the change of description is that we should have appeals only from those who are materially affected by this. More than 200 code modifications are made in a year and the possibility of having a flood of appeals from people who are not very directly affected by the change is one that we would wish to avoid.

Moreover, during the consultation last year, the vast majority of correspondents were also concerned about that. Some of the major companies involved have made plain that they believe the current balance is right and that they would not wish to weaken the test. There seems no real justification for allowing appeals from people who are less than materially affected, which is the import of the noble Lord's redrafting.

As to his point about those who had sufficient interest but did not pass the materially affected hurdle and whether they would still have recourse to judicial review, the answer is that they would provided that they could satisfy the usual tests for such a claim. So there is no exclusion of those whom the noble Lord wishes to bring into the main appeals process from going for judicial review. We believe that that is a sufficient safeguard for them. To accept the noble Lord's amendment would widen the scope for others to appeal and I hope that he will not pursue it.

Lord Kingsland

My Lords, I am most grateful to the noble Lord for his endorsement of a number of our amendments. It would be churlish of me to make too much fuss about Amendments Nos. 203C and 203D, particularly as the noble Lord also accepts that those with a sufficient interest would still have recourse to judicial review.

Nevertheless, between now and Third Reading I would like to reflect on what he has said. I hope that, if I bring this amendment back at Third Reading—and it would be the only amendment in my area that I would bring back—he will not think the worse of me for doing so. I understand his point of view but my initial thinking is that my amendment would be better enshrined in the Bill. I shall go away, think about his 200 potential complainants, and make an assessment before we table our amendments in a few days' time. Meanwhile, I beg leave to withdraw Amendment No. 203C, although I think we will come to an amendment later in this group that I shall move.

Amendment, by leave, withdrawn.

[Amendment No. 203D not moved.]

Schedule 22 [Procedure for appeals under section 149]:

Lord Whitty moved Amendments Nos. 204 and 205: Page 239, line 2, leave out "ten" and insert "fifteen Page 239, line 30, leave out sub-paragraph (12).

On Question, amendments agreed to.

Lord Kingsland moved Amendment No. 205A: Page 240, line 41, leave out sub-paragraph (10).

On Question, amendment agreed to.

Lord Whitty moved Amendments Nos. 206 and 207: Page 241, line 29, leave out "twenty" and insert "fifteen Page 241, line 33, leave out "twenty" and insert "fifteen

On Question, amendments agreed to.

Clause 151 [Determination of appeals]:

Lord Whitty moved Amendment No. 208: Page 116, line 25, at end insert— ( ) that GEMA failed to give the appropriate weight to one or more of those matters or purposes:

On Question, amendment agreed to.

[Amendment No. 208ZA had been withdrawn from the Marshalled List.]

Clause 152 [Modifications of standard conditions for funding appeals]:

Lord Whitty moved Amendments Nos. 208A to 208C:

Page 117, line 20, after "so" insert— (a)

Page 117, line 21, leave out "he may make" and insert "or (b) in relation to references to the Competition Commission under section 24 of the Gas Act 1986 (c. 44) or section 12 of the 1989 Act (modification references), he may make licence modifications falling within subsection (1A).

(1A) Those licence modifications are—" Page 117, line 27, at end insert— ( ) Where the standard conditions of gas or electricity licences contain provision authorising the imposition of licence charges in respect of costs incurred by the Competition Commission in connection with a reference mentioned in subsection (1)(b)—

  1. (a) the Competition Commission shall have power, on such a reference, to give directions to GEMA about the manner in which the Competition Commission's costs in connection with that reference are to be recovered by means of such charges; and
  2. (b) GEMA must comply with any such directions."

On Question, amendments agreed to.

[Amendment No. 208CA not moved.]

Lord Whitty moved Amendment No. 208D: Transpose Clause 152 to after Clause 153.

On Question, amendment agreed to.

Lord Davies of Oldham moved Amendment No. 209: After Clause 153, insert the following new clause—

"DUTY TO HAVE REGARD TO BEST REGULATORY PRACTICE In each of section 4AA of the Gas Act 1986 and section 3A of the 1989 Act (principal objective and general duties), after subsection (5) insert— (5A) In carrying out their respective functions under this Part in accordance with the preceding provisions of this section the Secretary of State and the Authority must each have regard to—

  1. (a) the principles under which regulatory activities should be transparent, accountable, proportionate, consistent and targeted only at cases in which action is needed; and
  2. (b) any other principles appearing to him or, as the case may be, it to represent the best regulatory practice.""

The noble Lord said: On behalf of my noble friend, I beg to move Amendment No. 209 and to speak briefly to Amendment No. 209ZZA. The government amendment formalises in statute the commitment that Ofgem has already made to be guided by the principles of best regulatory practice. It follows similar provisions placed on Ofcom and Ofwat in the Communications Act 2003 and the Water Industry Act 1991 respectively, ensuring consistency among regulators.

We oppose the amendment in the name of the noble Lord, Lord Jenkin. The proposal is to use amendments to the Gas Act 1986 and the Electricity Act 1989 as a means of changing the terms of the Petroleum Act 1998. We do not think that this is the right way to proceed. The Petroleum Act covers regulation of the offshore oil and gas industry. This industry is not covered by the Gas Act or the Electricity Act and it is regulated by the Secretary of State and not by Ofgem. That is why we are pressing the government amendment. We hope that the noble Lord will feel able to withdraw his amendment.

10.30 p.m.

Lord Jenkin of Roding moved, as an amendment to Amendment No. 209, Amendment No. 209ZZA: Line 12, at end insert— ( ) The provisions of subsection (5A) shall apply to the functions of the Secretary of State exercised under section 3 of the Petroleum Act 1998 (c. 17) (licences to search and bore for and get petroleum)."

The noble Lord said: My Lords, that is very impertinent. I find it a very strange proceeding that the Minister should reply to my amendment before I have even said a single word about it. That may be in his brief but, even though it is half-past ten at night, I think that I am entitled to the courtesy of being able to make my case and then he can answer it if he does not like it.

The case is a very short one. When we debated the question of additional powers for Ofgem to secure information from offshore generators, we had two amendments. One was for electricity and one was for gas. The noble Lord, Lord Davies of Oldham, said that the electricity one was unnecessary because it was already in the Act and Ofgem already had that power. However, he then went on, for over two columns, to explain why it was quite impossible that Ofgem should have the power to get information about offshore gas. The reason was what he has just said: that offshore gas is regulated by the department.

We then came to the amendment, which related to principles of best regulatory practice, where all was sweetness and light. The amendment was moved and the noble Lord, Lord Triesman, said, it gives me particular pleasure to say that we are happy to consider this amendment".—[Official Report, 2/3/04; col. GC 204.]

Amendment No. 209 is a perfectly honourable fulfilment of that pledge. However, we are still left with the position that the Government are very happy to impose best regulatory practice on Ofgem as a regulator but, where they have proudly said that they will not have Ofgem interfering with offshore gas because that is regulated by the department, I understand that he is not prepared to have the best regulatory practice applied to the department. Why ever not? If he says, as he did in the debate about the powers of Ofgem, that the department was regulating offshore gas and therefore it was quite wrong that the powers should go to Ofgem, then why on earth is the department not subject to the best regulatory practice?

The amendment which I have put down would achieve precisely that. I hope that the Minister will give it rather more thought than he appears to have done so far. What is good enough for the goose is also good enough for the gander. If the noble Lord, Lord Davies, does not like the description of a gander, I am sure that I could find another metaphor. It is regulation that matters, not who does it. I hope that this amendment may prove in the end to be acceptable. I beg to move.

Baroness Byford

My Lords, I rise briefly to support my noble friend Lord Jenkin. It does seem very strange that a certain set of rules applies to Ofgem and a different set of rules applies to the department.

The noble Lord, Lord Davies, may have slightly misunderstood and may have spoken in advance inadvertently. I am sure he meant no discourtesy, but I would like him to clarify the point that has been raised because it is clearly unfair, and would be seen to be unfair by people having to operate it outside the Chamber.

Lord Davies of Oldham

My Lords, I apologise for having presumed too much. The noble Lord, Lord Jenkin, has quite rightly deployed his case, which deserves an answer. We were seeking to be positive with our amendment, and I thought that it would be to the benefit of the House that I indicated the likely Government position with regard to the amendment grouped with the amendment that I was moving. I quite understand that the noble Lord thought that I was pre-empting an argument, which he then deployed with his usual force and accuracy.

The point I sought to emphasise was that this seems to be the wrong Bill to carry the amendments that the noble Lord has identified. We would be prepared to consider such an amendment if it were in the form of an amendment to the Petroleum Act, which I think was the burden of his argument about the regulatory regime that is necessary. However, we did not and do not think that it is appropriate in the way that it is presently tabled.

I was merely seeking to identify that, while at the same time, with the Government amendment, fulfilling a commitment we had made earlier in the debate on the Bill. It is therefore on that basis that I commend the government amendment.

Lord Jenkin of Roding

My Lords, I heard what the Minister said. As he said that he is prepared to introduce an amendment to the Petroleum Act, it would be silly of me to press this amendment to the Bill. I beg leave to withdraw the amendment.

Amendment No. 209ZZA, as an amendment to Amendment No. 209, by leave, withdrawn.

On Question, Amendment No. 209 agreed to.

Baroness Miller of Hendon moved Amendment No. 209ZA: After Clause 154, insert the following new clause—


In section 25 of the 1989 Act (orders for securing compliance), in the definition of "relevant requirement" in subsection (8), for "32C" substitute "32D".

(2) After section 32C of the 1989 Act, insert— 32D Prevention and remedying of default in compliance with sections 32 to 32C

(1) An order under section 32 may provide that an electricity supplier must pay such a sum to the Authority, corresponding to the supply of a given amount of electricity by the supplier in a particular period, as may be—

  1. (a) estimated by the Authority as necessary to make good in aggregate any unrecovered default in the payments referred to in section 32C(1) by other suppliers in previous periods; and
  2. (b) notified by the Authority to the supplier not less than eight months before the start of that period.

(2) Any sums received under subscription (1) shall be paid by the Authority to electricity suppliers in accordance with a system of allocation specified in the order.

(3) The system of allocation specified in the order may provide for payments to specified categories of electricity supplier only.

(4) The order may also make provision—

  1. (a) requiring an electricity supplier periodically during a period to deposit with the Authority evidence of the kind described in section 32(3) or payments under section 32C, in either case estimated by the supplier as representing the proportion specified in the order of the amounts attributable to so much of the period as has elapsed;
  2. (b) enabling account to be taken by the supplier, in preparing its estimate under paragraph (a), of the likely level of payments to be due to it under subsection 32C(3) in relation to any evidence deposited;
  3. (c) requiring the supplier to comply with a request from the Authority to disclose the basis of its estimate under paragraph (a) at the time and in the manner required by the Authority and, if the Authority is not satisfied as to the reasonableness of the supplier's estimate, enabling the Authority to direct the supplier to use an estimate provided by the Authority;
  4. (d) for the payment by the Authority of interest due to the supplier in consequence of any sums deposited by the supplier under paragraph (a); and
  5. (e) enabling the Authority to accept such other forms of security as may be described in the order in substitution for all or part of the evidence or payment required under paragraph (a), and to determine the acceptability of any such security proposed by a supplier.

(5) Different proportions may be specified under subsection (4)(a) in relation to different stages within the period.

(6) Where the Secretary of State is satisfied that it would be proportionate and cost effective to do so, the order may also make provision—

  1. (a) as to the form and extent of any further measures which a supplier is to take for the purpose of securing payment to the Authority of sums which may become payable for the purposes of section 32C(1); and
  2. (b) enabling the Authority to determine the acceptability of any measures which a supplier proposes to take or has taken for that purpose.

(7) This section is without prejudice to the enforcement powers available to the Authority in relation to any provision of section 32 to 32D that is a relevant requirement within the meaning of section 25(8)."

The noble Baroness said: My Lords, this is a long and complex amendment, dealing with a very difficult but important problem. So although it is rather late at night, I shall have to move it. However, I shall try to keep my remarks to the minimum of the general principles involved and not to the itemised details.

The problem, which was in any case an incident waiting to happen, was highlighted by the financial failure of TXU UK to pay its huge renewables obligations. This default distorted the market by creating a very large shortfall in the fund. Those adversely affected had no means to control, or even to assess, the financial risk to which they were exposed. What is happening now is that the market is itself pricing a credit risk into the ROC price. This in turn means that some of the money consumers are paying for electricity is not used for that purpose. It is being used instead as insurance against future risks That is an inefficient use of the money and will undermine the objective of bringing renewables into the power equation.

One suggestion made by the Minister during our discussions was offsetting buy-out payments against ROC liabilities. Another suggestion was the surcharging of late payments. I also understood that the Government would be bringing forward a scheme to allow for reconciliation of the ROC fund more frequently than annually to reduce the credit risk. So far as they go, they are of some help, especially when it is only a case of delayed payments, but they have little or no effect on an actual insolvency, when the money is lost and gone for ever. It was very interesting to hear what the noble Lord said when speaking to Amendment No. 190B.

There are in fact two practical ways to resolve the problem. One is for there to be a form of securitisation whereby those who are liable to provide money to the fund have to be bonded or give some other form of security. Plan "B" is to create a mutual fund, rather in the form of the one operated by travel businesses or the Law Society's compensation fund. Either route will involve some cost that will, inevitably, be passed on to customers.

Different participants in the industry have differing opinions as to which of these two methods is to be preferred, and some even favour a combination of the two. As the cost of the two will, as I have already pointed out, be passed on in the end to the customer, whether the private household or industry, it is up to the Government to produce a solution to the problem caused by the existence of ROCs. It is against that background that this amendment has been drafted.

The Government often complain that amendments are "too prescriptive"—although of course I know that the Minister could not possibly say that about this one, which offers complete flexibility. It enables the Government to consult on the appropriate response to this admittedly difficult issue. It provides a number of options, the desirability of which can be assessed over the coming months. I am given to understand that the amendment has broad support within the industry, although, as I said, with differing views on whether one or both options should be adopted.

I have already mentioned the adverse effect on the renewables market caused by the TXU default. There is the possibility—indeed, I would submit the distinct likelihood—that this could occur again, more than once, in the future, and even on a bigger scale. The silver lining to the TXU default is that it occurred at a time when this Bill was on the legislative stocks, and the Government do not have to find parliamentary time to secure a remedy to a major problem. To do nothing, as is the current situation in the absence of remedial proposals from the Government, is not an option, because the loss caused by a default will inevitably find its way down the chain to the ultimate consumer.

The measures proposed in this amendment create a rational, and as I said, a truly flexible framework to underpin the Government's policy on renewables. I beg to move.

Lord Whitty

My Lords, the noble Baroness is addressing a difficult and complex situation with quite a complex and difficult amendment. I understand the motivation for it but it does not resolve the issue. It is headed "prevention and remedying", but I am not sure that prevention is possible by legislative means. The remedy here would not be an easy one to fit in with the rest of the policy. Indeed the obligation on the rest of the suppliers to meet the shortfall would eventually be paid for by the consumers. As the noble Baroness was right to acknowledge, Amendment No. 190B and other amendments indicated how we deal with the short-term shortfall. The question of insolvency being borne by the other suppliers and the way in which the noble Baroness sets out Ofgem to correct that would lead to enormous complications. For example, the amendment requires Ofgem to estimate the degree of shortfall and therefore the degree of cost on the other suppliers eight months in advance of the period—that will lead to very substantial disputes about the amounts both post-facto and pre-facto—if that is the word. Clearly estimation in these circumstances, as in the TXU case, as proven, are somewhat difficult in the early stages of the knock-on effects of the bankruptcy.

The effects of this would be therefore to increase uncertainty rather than to decrease uncertainty, certainly for the suppliers. Even if proved effective, the effect would be to require electricity suppliers to make regular payments to cover their share after renewables obligation, or to make payments in accordance with directions from Ofgem. The cost of that would inevitably fall on the consumers.

While this is a difficult area, I do not think that giving these powers to Ofgem to recover the money would make the imposition on the individual alternative suppliers fall in this way; it would not help the security nor certainty of the situation. I therefore could not accept these amendments. The amendments that we tabled earlier go some way to meeting most shortfalls, but I recognise that there is still a problem on an insolvency situation. To operate in this way would not help that situation. It certainly would not help to avoid that situation.

Baroness Miller of Hendon

My Lords, while I will consider very carefully what the Minister said—and clearly I will have to come back to it—I do say that there is a problem here that has to be solved. It is not for the Opposition to keep coming up with alternatives, it is for the Government to get a grip on this position, to consult and do what is necessary. I put forward a much firmer amendment in Committee, where I again argued two alternatives. The noble Lord, Lord Davies of Oldham, the Minister concerned, said how fair I was when I argued it both ways at once—if it is possible to do that.

In this case we took more advice from the suppliers and it is my understanding that the industry would be happy with either of these, or a combination of both, but they are not absolutely confirmed in their minds as to which one they want. It is for the Government, not for us, not to simply say that it is too complicated and cannot be done. I have said that I will consider it and no doubt come back at Third Reading, but in the mean time if the Government are not happy with my doing that, then I suggest that they get a move on and do something themselves. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 209ZB not moved.]

Lord Whitty moved Amendment No. 209A After Clause 155, insert the following new clause—


(1) In Schedule 2B to the Gas Act 1986 (c. 44) (which sets out the gas code), for paragraph 6A substitute—

"6A (1) A pre-payment meter installed by an authorised supplier through which a consumer takes his supply of gas shall not be used to recover a sum unless—

  1. (a) the sum is owed to an authorised supplier in respect of the supply of gas to the premises on which the meter is installed or in respect of the provision of the meter; or
  2. (b) the recovery of the sum in that manner is permitted by both—
    1. (i) regulations made by the Authority; and
    2. (ii) an agreement falling within subparagraph (2) below between the consumer and the person to whom the sum is owed.

(2) An agreement falls within this sub-paragraph if—

  1. (a) the person to whom the sum is owed is a person who is authorised by regulations made by the Authority to enter into agreements falling within this sub-paragraph;
  2. (b) the agreement permits that person to use the meter in question to recover such sums as may be specified in or determined under the agreement; and
  3. (c) the agreement complies with the requirements specified for the purposes of this sub-paragraph by regulations made by the Authority.

(3) The sums that regulations under this paragraph may permit the recovery of through a pre-payment meter include—

  1. (a) sums owed to a person other than an authorised supplier;
  2. (b) sums owed in respect of premises other than the premises on which the meter is installed;
  3. (c) sums owed in respect of matters other than the supply of gas.

(4) Before making regulations under this paragraph the Authority must consult—

  1. (a) the Council;
  2. (b) all authorised suppliers;
  3. (c) such other persons as the Authority considers appropriate.

(5) The approval of the Secretary of State is required for the making of regulations under this paragraph."

(2) In paragraph 12 of Schedule 7 to the 1989 Act (use of prepayment meters), for sub-paragraph (2) substitute—

"(2) A pre-payment meter installed by an authorised supplier through which a customer of such a supplier takes his supply of electricity shall not be used to recover a sum unless—

  1. (a) the sum is owed to an authorised supplier in respect of the supply of electricity to the premises on which the meter is installed or in respect of the provision of the meter; or
  2. (b) the recovery of the sum in that manner is permitted by both—
    1. (i) regulations; and
    2. (ii) an agreement falling within subparagraph (3) below between the customer and the person to whom the sum is owed.

(3) An agreement falls within this sub-paragraph if—

  1. (a) the person to whom the sum is owed is a person who is authorised by regulations to enter into agreements falling within this sub-paragraph;
  2. (b) the agreement permits that person to use the meter in question to recover such sums as may be specified in or determined under the agreement; and
  3. (c) the agreement complies with the requirements specified for the purposes of this sub-paragraph by regulations.

(4) The sums that regulations under this paragraph may permit the recovery of through a pre-payment meter include—

  1. (a) sums owed to a person other than an authorised supplier;
  2. (b) sums owed in respect of premises other than the premises on which the meter is installed;
  3. (c) sums owed in respect of matters other than the supply of electricity.

(5) Before making regulations under this paragraph the Authority must consult—

  1. (a) the Council;
  2. (b) all authorised suppliers;
  3. (c) such other persons as the Authority considers appropriate.""

The noble Lord said: My Lords, this amendment relates to pre-payment meters. We have indicated that we support in principle the terms of an amendment made by the noble Lord, Lord Jenkin. Although we have not entirely followed the terms of his suggestion, it meets the same issue; there are a number of safeguards built in—in particular Ofgem must consult Energywatch and the consumer must agree to any debt collection arrangement rather than it being imposed by the supplier. The amendment meets the main terms of what was suggested. Obviously, on the next amendment, I shall listen to what noble Lords suggest in terms of alternatives or elaborations, but I hope that they can accept the amendment in the mean time. I beg to move.

10.45 p.m.

Lord Jenkin of Roding moved, as an amendment to Amendment No. 209A, Amendment No. 209B: Leave out lines 27 to 33.

The noble Lord said: My Lords, I say straightaway that the Government have of course gone a long way to meet the requests made in Grand Committee. I tabled the amendments because I am ashamed to say that I did not understand proposed new paragraph 6A(3) of Schedule 2B to the Gas Act 1986 or proposed new paragraph 12(4) of Schedule 7 to the 1989 Act. They are drafted in what one has come to recognise as the somewhat convoluted way of parliamentary counsel. I hope that the Minister might be persuaded to explain in clear and simple language what they mean.

Amendment No. 209D tries to spell out, in clear and simple language, what we were being asked by the National Consumer Council, I think, before Grand Committee; namely, that suppliers, who have both pre-payment and normal credit-meter customers, are able to offer to the pre-payment customers the same packages for their supply as are offered to the normal credit customers. I am told that the Minister's amendment achieves that. I would be grateful for a clear statement from the Minister that that is indeed the purpose of his new clause, and that what I wish can be achieved, so that in future those who go for prepayment meters will not be disadvantaged by not being able to take up offers made to those who use credit-payment meters. That is the purpose of the amendment.

If the Minister can give us those clear undertakings, I hope that there will be no need for me to press the amendment. I beg to move.

Lord Whitty

My Lords, if the first two of the noble Lord's amendments were agreed to, it would reduce the flexibility required. As I understand it, proposed new paragraph 6A(2) of Schedule 2B to the Gas Act 1986 and proposed new paragraph 12(4) of Schedule 7 to the 1989 Act, which would be deleted, allow us to enable suppliers not to apply a differential between pre-payment and standard tariff, and therefore not to disadvantage pre-payment customers, or indeed vice versa. That is part of the intention of the wording of those two provisions. If it is not clear, it may be useful for us to spell that out in writing to the noble Lord, but it was certainly the intention of my amendment.

Lord Jenkin of Roding

My Lords, in the circumstances, it would be very helpful if the Minister could write to me. Then I could pass that on to Energywatch and others who have been concerned on the point, and it will be in the public domain. In the mean time, I beg leave to withdraw the amendment.

Amendment No. 209B, as an amendment to Amendment No. 209A, by leave, withdrawn.

[Amendments Nos. 209C and 209D, as amendments to Amendment No. 209A, not moved.]

On Question, amendment agreed to.

Lord Williams of Elvel moved Amendment No. 210: Before Clause 156, insert the following new clause—


In Schedule 8 to the 1989 Act (procedure for consents under sections 36 and 37 relating to the installation of generating stations and electric lines), after the words "the Secretary of State" on each occasion where they occur, is inserted "or, in the case of Wales, the National Assembly for Wales"."

The noble Lord said: My Lords, the amendment stands in my name and those of the noble Lord, Lord Livsey of Talgarth, and the noble Viscount, Lord Tenby. It may be for the convenience of the House if I also speak to Amendments Nos. 211 to 216, all of which are consequential on Amendment No. 210.

I shall deal quickly with the "minor" amendments we discussed in Grand Committee. This is a simple planning matter—when an inspector is appointed in Wales, the National Assembly for Wales should have the power to appoint that inspector. I made that case in Grand Committee and I hope that it stands. I received some encouraging noises from my noble friend in Grand Committee, but I hope that this evening I may receive more.

Amendment No. 210 is rather more than a planning matter, although it comes under planning legislation. This has nothing to do with wind farms, as such; it is to do with large generating stations. Sections 36 and 37 of the Electricity Act 1989, to which the amendment refers, deal respectively with "a generating station … [of] 50 megawatts" or greater installation capacity and high voltage overhead lines. Although I said that my amendment had nothing to do with wind farms—and I am not trying to persuade anyone that the National Assembly for Wales should take a view on wind farms—I am concerned with devolution. If the Government want devolution to Wales they have to wish the means for that. One of the means for devolution is to allow the National Assembly to take whatever decision it feels fit, without having to refer to Whitehall, on any generating station of large capacity or with high voltage overhead lines in Wales. That would seem to be a reasonable procedure.

I shall not go through the existing position, because it is late at night. However, I shall say quickly that if a large generating station is proposed in Wales and if the local authority in question approves it and is challenged, the National Assembly for Wales has no locus whatever. Therefore, it cannot call the application in, it is not a statutory consultee and it has no position. That is wrong and is contrary to the principle of devolution.

My noble friend made some encouraging noises in Grand Committee. I hope that the noises will be rather more encouraging this evening, because it is a matter that the Government should and, I hope will, support. It is not enough just to have a tripartite meeting of officials who might report towards the end of the year or in the Greek Calends. I hope that my noble friend will assure me that the matter is urgent, sensible and should be supported. I beg to move.

Baroness Miller of Hendon

My Lords, it is clear that the noble Lord, Lord Williams of Elvel, feels strongly about these matters and he moved his amendment well, although, as he said, not in too much depth at this time of night. It is an interesting idea, but we consider that, although he says he is concerned about devolution, the matter should be considered in the light of devolution generally and not specifically, as his amendment suggests. It should not be a by-product of another Bill—in other words, one has to deal with devolution properly. I understand that the Richards report will be published in the next few days, possibly before Third Reading. The noble Lord may then wish to say something. I do not know if that is the case, but I have set out our position.

Lord Davies of Oldham

My Lords, the noble Baroness has introduced an important consideration and I shall respond to my noble friend along those lines. I congratulate him, both for the force with which he presented this issue in Committee and the eloquent way with which he has moved the amendment. It is an important issue and he gave us plenty of warning about the depth of feeling, not only in Wales, but also that he has on the matter. He deserves a proper response from this Bench and I hope that he will consider it to be constructive.

The call from Wales on the issue has been heard. We are looking into the matter, but it is not something that we can decide overnight. The issue has to be dealt with in a considered way, as the noble Baroness, Lady Miller, made clear. I make no apology that some of the points I am making are the same that I made in Grand Committee, because they retain their relevance.

My noble friend is right that the great concern about these issues in Wales followed from the Cefn Croes onshore wind farm decision, which caused such concern that a working group has been set up to consider the crucial question of the handling of consent for power stations in Wales. I am at one with him when we emphasise that this is not just about wind farms but about power stations of a certain size in Wales. A working group of officials from the Wales Office, the National Assembly and the Department of Trade and Industry has completed much of the fact finding, including a visit to the Scottish Executive earlier this year to draw on their experience in exercising such powers.

I mentioned in Grand Committee that there is much to be learned from the Scottish experience because they have had to address themselves to these matters. There is already a perfectly valid vehicle to consider the case for change. The Assembly staff in the working group have asked about other powers the DTI exercises in respect of energy and infrastructure in Wales; for instance, gas infrastructure functions. The DTI is joint determiner of electricity and gas industry planning appeals.

I therefore do not think it makes sense to put forward piecemeal amendments to a problem that requires a package to be constructed to address these significant and wide-ranging issues. If legislative change is decided on, the Bill should not be the vehicle. A respectable mechanism exists for the transfer of functions under the Government of Wales Act, which is the proper way in which we would effect such a change. If for some reason that was not felt to be the appropriate vehicle—I am sure that it is—the working group could produce another recommendation.

The National Assembly is an important expression of Welsh concern about these issues. We respect its role. But it is not the only stakeholder with an interest. Other departments in Whitehall are concerned about the matter. The industry has great concerns and local planning authorities also have an interest. We cannot produce a piecemeal solution to a general problem.

I am grateful to my noble friend for having highlighted the issue. It needed to be aired against a background where we all recognised the concern in Wales on those issues. I want to reassure him that we have a mechanism for addressing those points. They are inevitably being pressed by all those in Wales concerned about the matter. I hope that he recognises that the Bill is not the vehicle for dealing with it, but having highlighted the matter he has advanced the cause that he has expressed in such an articulate fashion. I hope he will feel that he has made sufficient progress to withdraw his amendment.

Lord Williams of Elvel

My Lords, it is late at night. I do not want to press my noble friend. But it is a matter of considerable urgency, and I hope it will not be kicked into touch with a group of officials chuntering away and relying on existing legislation. It is an urgent problem in Wales. I hope that my noble friend will pass that message to my noble friend Lord Whitty and to other noble friends in different departments who may be involved in procedure.

In response to a question in the Welsh Assembly, tabled by Mr Nicholas Bourne, who happens to be the Leader of the Conservative Party in Wales and also one of my constituency Assembly Members, it was said by the person responsible that this was a matter for the UK Cabinet committee on devolution policy. I always took the view that it was a matter for Parliament and not necessarily for the Government to decide what they want to do. It is for Parliament to legislate in one form or another what happens and I hope that my noble friend will convey that message.

I raise the issue in the context of this Bill because, after all, we have been talking about amendments to the 1989 Act. I see no reason why there should not be an amendment to the 1989 Act if Parliament so wishes. I do not want to press the matter because it is late at night and we all want to go home. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 156 [Additional inspectors]

[Amendments Nos. 211 to 216 not moved.]

Lord Davies of Oldham

My Lords, I beg to move that further consideration on Report be now adjourned.

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

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