HC Deb 04 December 2002 vol 395 cc290-6WH 12.30 pm
Mr. Barry Gardiner (Brent, North)

There is a joke currently doing the rounds in one of the synagogues in my constituency: what is the difference between a Rottweiler and a Jewish mother? The answer is that the Rottweiler eventually lets go. I do not know whether I more closely resemble a Rottweiler or a Jewish mother—[Interruption.]

Mr. Joe Benton (in the Chair)

Order. Would hon. Members leaving the Chamber please do so quietly?

Mr. Gardiner

Thank you, Mr. Benton.

For more than four years, I have refused to let go of the issue of regulation of the gas industry, in particular the risk posed to public safety by the actions and failures of Transco. I am confident that, in preparing a response to the debate, the officials of my hon. Friend the Minister for Energy and Construction will have taken the prudent step of checking whether any questions remain unanswered following my Adjournment debates in June 1998 and July 1999. They may even have checked my examination of the Office of Gas and Electricity Markets regulator at the Public Accounts Committee hearing three years ago. Let me start, however, with those easy questions to which the Minister will no doubt have the answer.

Before the establishment of Transco in 1994, British Gas responded to more than 99.9 per cent. of uncontrolled gas escapes in one hour. The response rate varied during the following five years, but dropped to as low as 92 per cent at one time. Given that there were more than 1 million calls each year to attend uncontrolled escapes, that means that, in some years, 80,000 uncontrolled escapes were not responded to within the target response time. Can the Minister tell us the current target rate and the actual percentage for attendance at uncontrolled escapes within one hour? Furthermore, can he assure the House that nothing has been done to modify the smell of gas so that the incidence of emergency call-outs, rather than the incidence of leaks, is reduced?

In Feburary 1999, in response to repeated representations by, and on behalf of, my constituent, Mr. Andrew Duffield, Ofgem took the unprecedented step of making an order against Transco. The background to that order is as follows. The Gas Act 1986, as amended in 1995, introduced competition into the business of connecting premises to the mains gas network. Before that, the market had been a monopoly controlled by British Gas Transco. In January 1997, my constituent, who had been a senior engineering manager at Transco, left to set up a specialist gas connection company known as EGS, which competes directly against Transco for business under the Gas Act. However, Transco is charged with custodianship of the gas mains network and all competitors such as EGS must apply to Transco for a quotation for the final connection to the mains when laying the pipe system for any new scheme or development.

Until it has obtained that costing for the final connection from Transco, EGS cannot provide its customer with an accurate quotation for the total cost of the work. Clearly, if Transco were to abuse its position and delay the provision of that information or inflate the price of final connection, it could make EGS look inefficient and expensive by comparison with its own connections team, competing for the same business. For that reason, Transco has a statutory obligation not to abuse its position as final connector to the mains. Transco broke that statutory obligation four years ago. I am sorry to tell the Minister that it continues to break it now, and that there have been unacceptable delays in Transco's quotations for connections, that there has been overcharging and that Transco's behaviour is anti-competitive". Those words are not mine; or, at least, not mine alone. I use them to refer to the current anti-competitive practices adopted by Transco against EGS. They are taken directly from a decision document issued by the Office of Gas Supply when it investigated Transco's behaviour four years ago. It concluded: There is a likelihood of continuing breaches, if action is not taken". Most damningly, it stated that information provided by Transco in the course of the investigation has proved to be untrue". Hon. Members must always seek to use most carefully the privilege that speaking in the House gives, and must not make reckless statements under the protection that they are afforded. I therefore assure you, Mr. Benton, that I do not lightly say that those speaking on Transco's behalf were found then to be liars, and that Transco was found to be acting illegally and anti-competitively to try to bully a small competitor out of business. Transco has not changed: it is still acting illegally and anti-competitively, and it is still lying and bullying.

One thing has changed, however—Ofgem, the regulator. In 1999, it was never dynamic or proactive in its enforcement of the regulations, or in its interpretation of them. Now it is positively spineless, failing to act when there is a clear track history of anticompetitive behaviour, and seeking to hide behind any legalistic cover, rather than perform its duties to regulate the market properly and to stamp out anticompetitive behaviour. Worse than that, it has maintained a stunning silence since 24 April this year over fundamental issues of public safety. If Ofgem is the guardian of the gas industry, I ask the Minister, "Quis custodiet custodes?"—who will regulate the regulator?

I have made some serious allegations, and I must now back them up. On 7 November 2001, Transco wrote to EGS with calculations purporting to show its performance in response to EGS's connection inquiries during September 2001. That was the result of the order made against Transco in 1999. That order required Transco to introduce a scheme of liability payments that were payable whenever Transco failed to meet its own published standard response times to requests for connection quotations, or where it supplied false information.

Hon. Members may find it strange that Transco is charged with monitoring its own compliance. They may find it even stranger that attachment 2, paragraph 7, subsection (ii) of the order provides that If, before the expiry of five working days from the submission of the claim the quotation is adjusted by Transco so that the reason why it was thought to be excessive has been addressed to the reasonable satisfaction of the person who submitted the claim, no compensation shall be payable by Transco". The effect of that provision is to provide a perverse incentive to Transco to continue overcharging, secure in the knowledge that if it is challenged, it has five days in which to amend the price to the proper level before any penalty or compensation becomes payable to its victim.

So much for the robustness of the order. On the basis of that order Transco wrote to EGS, explaining that of the 43 quotations that EGS had requested in September 2001, 34 had been provided within Transco's agreed time and price standards. As a result of its 79 per cent. compliance, and in accordance with the order, it offered EGS compensation of £790.

That was a pretty normal month—or so Transco thought. In fact, EGS had long suspected that Transco was substantially overestimating its own performance. Put more accurately, it was substantially underestimating its service failures; hence, it was substantially under-compensating EGS. Despite repeatedly challenging Transco on that point, EGS was not able to persuade it to deal with the problem. During September 2001, therefore, EGS took the highly unusual step of logging and analysing all its dealings with the company. I need hardly mention that it was an extremely costly exercise.

EGS's analysis showed that there had been 47 quotations, not 43, during that September, and that only 57 per cent. rather than the 79 per cent. claimed by Transco had been provided within Transco's agreed time and price standards. The analysis showed that Transco had failed to record four quotations for which compensation was due to be paid, and that Transco had stated that a further seven quotations had met the standards when they had not and should have generated substantial compensation.

Transco now accepts that EGS's analysis was substantially correct and that almost twice as much compensation as it first offered is in fact due. EGS has extensively documented similar failings and passed them to Ofgem. Ofgem accepts that Transco has over-quoted by 78 per cent. at a development called La Formair; by 900 per cent. at Ossington buildings; and by a staggering 1,683 per cent. at Pennyfan road.

Given the scale of overcharging, and given that it was precisely to stop such anti-competitive practice that Ofgem put the order in place against Transco three years ago, it seems reasonable to expect Ofgem to take positive enforcement action against Transco. In its response of 2 October to EGS's complaints, however, Ofgem concludes that Transco is not in breach of the 1999 order. Again, it tries to hide behind a legalistic loophole. It states: The 1999 Order was made in relation to Transco's connections operations. The 1999 Order was made following a finding that Transco was in breach of Section 9(2)(a) of the Act and standard condition 11 of its licence condition 4D". It goes on: Transco has introduced the systems and compensation schemes provided for in the 1999 Order. In each case, the scheme introduced covered at least those matters set out in attachments to the 1999 Order. Ofgem does not consider that on a strict interpretation the 1999 Order requires Transco to update or amend the schemes made to comply with the 1999 Order. Ofgem's conclusion that there had been no breach of the order is based on the fact that the order required Transco merely to introduce systems and compensation schemes. Ofgem's position is that those systems have been set up, that that is therefore the end of the matter, and accordingly that there is no breach. It cannot be sensible to interpret the order as meaning that, as long as a system is set up, it does not matter whether Transco in fact operates that system or the schemes, or whether such systems or schemes work at all. On that basis, Transco would not fall foul of the order in circumstances where none of its quotations within a given month is within standard. The order must be construed against the factual background that gave rise to its making in 1999 and of the mischief that it was designed to prevent.

The Transco connections investigations document from Ofgas, which accompanied the original order in February 1999, stated that the order was made because of Transco's appalling performance in relation to connections. The document states: The responses to the consultation confirmed the findings of the investigation that there have been unacceptable delays in Transco's quotations for connections, that there has been overcharging, and that Transco's behaviour is anti-competitive in effect. It added that the proposed order should have the effect of securing compliance". In its interpretation of the order, Transco has patently failed to secure compliance.

Even if that were the sum total of my complaint against Transco, I am sure that the Minister would take it seriously. However, it is not. On 24 April this year, EGS sat down with Miss Karen Briggen of Ofgem and explained not simply the problems of anti-competitive behaviour but fundamental problems affecting public safety. Transco is required to notify EGS of the pressure of the connection valves that it uses. As hon. Members will appreciate, it is absolutely vital that the correct pressure of those valves is notified to EGS. They can be high, medium or low-level pressure valves.

Problems have arisen when Transco notifies EGS that a pressure valve at the connection point to the system is at a different pressure to the true one. I know of three cases in the past two weeks involving incorrect notification, and I will refer them to the Minister so that they can be investigated. Problems were found at the IMEX Spaces business centre, unit 77, Station lane, Birtley, County Durham; at plot B, Twelvetrees crescent, Bromley-by-Bow; and at the Academy of Light at Whitburn moor in Sunderland.

On each occasion, EGS was notified that there was a low-pressure connection valve connecting to the mains network when in fact all three valves were of medium pressure. If an incorrect valve is fitted at that point, it may function for a while before eventually having a catastrophic failure. The consequences of such failure are clear.

On 24 April, EGS outlined to Ofgem other problems that it had experienced. All self-lay providers must give Transco a copy of the as-laid drawings showing the new mains network that Transco then adopts. However, Transco's system of recording digitised plans is a catastrophic list of errors. On one particular development—the Brook Street business park in Tipton—six months after Transco was contracted to lay a service pipe, it provided a digital version of the plans that EGS had submitted to Transco. Half the network that EGS had laid was not shown on Transco's digitised plans. The other half bore little relation to that which had actually been laid. EGS gave Transco a further copy of the plans so that it could adapt its plans and get it right. Still later, that had not happened.

Mr. Joe Benton (in the Chair)

Order. I remind the hon. Gentleman that the debate is to conclude at 1 o'clock, and there will not be much time for the Minister to reply.

Mr. Gardiner

I appreciate your guidance, Mr. Benton. I am just bringing my remarks to a close. However, it is absolutely critical that the Minister should appreciate that this is not simply a commercial spat between two companies. This is a grave issue of public safety. If Transco does not properly record the as-laid drawings, cases will occur such as that at Larkhall in Lanarkshire, in which a family was tragically killed. It is suspected that the drawing that covered the part of the network responsible incorrectly showed a pipe of cast iron as being made of polyurethane.

I shall not go into the details of the case; the Minister will know that it is subject to a court case that is yet to be heard, so it would be improper for me to do so. However, I believe that a family of four was killed in that explosion as a direct result of the sort of incompetence that Transco is showing in the recording of the gas mains system. It is vital that Ofgem, as the regulator of the industry, takes firm and swift action to put Transco's house in order.

12.51 pm
The Minister for Energy and Construction (Mr. Brian Wilson)

I congratulate my hon. Friend the Member for Brent, North (Mr. Gardiner) on securing the debate. He has pursued the matter tenaciously and acquired a lot of information on it. On this occasion, it is quite useful that he took up more time than I will because, as he will appreciate, I cannot give a detailed response to many of the issues that he raised.

My hon. Friend made extremely serious charges, which is a legitimate use of such debates as long as the charges are backed up with hard and specific evidence. He has certainly set out to do that. I am sure that Ofgem, Transco and others will read what he has said with the greatest interest. For my part, I shall want an equally detailed rebuttal—or acceptance—of the charges that he has made and the actions that flowed from them.

The public safety issues are of great importance. If there are concerns on safety grounds, it is completely proper that they should be raised in Parliament. On the other hand, no one wants to start scare stories about the general nature of the gas infrastructure, because the subject can cause some alarm. We must get that balance right. It is important in such a case—my hon. Friend has been specific in the charges that he has made—that evidence is pinned down for every example given, particularly those that affect safety. I give him an assurance that that will be done, and that I will pursue the matter.

Much of what my hon. Friend said related to a company in his constituency, Exoteric Gas Solutions, and that company's complaints against Transco. For the benefit of other hon. Members, EGS is an engineering company that, among other activities, designs and installs, or oversees and procures the design and installation of gas pipes and arranges for connection to a local distribution zone owned and operated by Transco. I understand that the company recently moved into the metering market, and that it installs meters that are supplied by Transco and oversees meter installation. My hon. Friend has vigorously championed the company's cause for several years and I commend him for that. I recently corresponded with him in response to his latest concerns expressed in his letter dated 14 November. I have offered to meet him to discuss those concerns, along with a representative of the Office of Gas and Electricity Markets. I am sure that he will wish to take advantage of that meeting and to ensure that EGS's concerns are fully represented to Ofgem, preferably in advance of the meeting.

I understand that inspectors from the Health and Safety Executive's hazardous installations directorate have recently investigated a series of complaints made by Andrew Duffield of EGS to Ofgem on 8 July. The complaints concern six premises—I guess that they are the same ones to which my hon. Friend referred—and include a list of alleged deficiencies at each. I am told that Transco has taken corrective action and that HSE has sent Ofgem a detailed response to the complaints. Mr. Duffield has raised further unrelated safety issues with Ofgem, which will also be followed up by HSE.

The director general of HSE, Timothy Walker, wrote to Mr. Duffield as recently as 18 November emphasising the seriousness that HSE attaches to Transco's safe operation. The letter explained that a further inspection visit to examine Transco's record keeping for newly installed plant and to consider specific complaints about operating pressure errors would take place on 21 November. The visit did take place and, as a result, Transco has been asked to commission an independent audit of its systems to ensure that it better manages safety-related information in future. HSE has promised to write to Mr. Duffield to let him know the outcome of the meeting on 21 November. I hope that that illustrates the thorough and professional approach that we would all expect when safety complaints are made to the regulator. My hon. Friend might see that as evidence that what reaches us is taken seriously and acted upon.

I shall address briefly the day-to-day handling of safety responsibilities for gas transportation. The responsibilities rest with the gas transporter—in this case, Transco—but regulation is carried out by the Health and Safety Commission and the Health and Safety Executive. Ofgem's health and safety function is dealt with under section 4A of the Gas Act 1986, as amended. In order to meet those requirements, a memorandum of understanding has been agreed with HSC and HSE, which are responsible for the regulation of most of the risks to health and safety that arise from work activities in Britain, including the regulation of the gas supply network. Structures are in place to deal with safety issues, and Ofgem handles complaints. It recently reviewed all the complaints that were raised and how they were dealt with. My lion. Friend raised serious points about how Ofgem's complaint-handling procedures have operated and the effectiveness of its responses.

I do not want to pretend that what I am saying responds to the detail of my hon. Friend's speech, which was unusual in the sense that it was very specific and included serious charges. I have no doubt that he believes that he has evidence to back up the charges and that it is in the public interest for them to be investigated transparently to reveal the justification for what he said.