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5 Dec 2001 : Column 116WH

Gas Network

12.29 pm

Gareth Thomas (Clwyd, West): I am pleased to have the opportunity to present a debate on a subject that is of interest not only to Wales, but to many people throughout the United Kingdom. I am also pleased to see the Under-Secretary of State for Trade and Industry, the hon. Member for Welwyn Hatfield (Miss Johnson), in the Chamber. I hope that she can respond positively to some of the issues that I raise.

There are approximately 25 million households in the United Kingdom, 5 million of which—that is, 20 per cent—are not currently connected to the gas network. It is a large network that has been developed over a long time to a high engineering standard, but it needs to be expanded. Many of the households to which I have referred are fuel poor according to the definition adopted by the Government in their strategy for tackling fuel poverty. In other words, those households spend more than 10 per cent. of their income on energy to maintain an adequate standard of warmth. Many of those households are in rural communities. Moreover, many of them are close to a gas main. That is a cause of frustration.

In fact, Transco has estimated that no fewer than 1,300 communities with more than 150 households have no gas, but are within 2 km of the gas network. To use the jargon, they are infill communities. Gas is being supplied by gas transporters to new developments where there is competition. However, there is a problem with getting gas transporters to pipe gas into the communities that the network has not so far reached. Many of the communities to which I have referred are in my constituency, which is quite rural. I refer to Llysfaen, Betws yn Rhos and Gellifor in the community of Llangynhafal.

Mr. John Lloyd Roberts, the clerk to the Llangynhafal community council, recently wrote to me, and I shall quote briefly from his letter because it crystallises the frustration felt by many of my constituents. It states:

Mr. Roberts makes the point that prior to the de-regulation of the gas industry,

He goes on:

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The community council has asked me to pursue the issue and to see what can be done to improve the regulatory framework.

The industry is highly regulated, and the system should be made more conducive gas transporters extending the network not just to rural communities but communities on the edges of towns. There seems to be a fair measure of consensus that the network should be extended, although it would be entirely unrealistic to expect all communities throughout the United Kingdom to be connected to gas.

Energywatch, the successor to the old gas and electricity community councils, accepts that there is a strong case for the gas network to be extended. The regulator, Ofgem—the Office of Gas and Electricity Markets—accepts that there is a problem, which has prompted it to embark on a consultation process in relation to amendments to the arcanely titled Gas (Connection Charges) Regulations 2001. Those regulations are important if not crucial to the problem. In its letter to consultees on 21 August 2001, Ofgem said:

The Lattice Group, the parent company of Transco, which operates the national gas network, agrees. Mr. Richard Grant, head of environmental affairs in that organisation, noted:

I am sure that the Minister will have no trouble in agreeing, as a basic principle, that that is also part of the Government's agenda for tackling fuel poverty—I refer to the fuel poverty strategy document, which was published in November.

The Minister will know that the industry has been involved in a working group chaired by the Department of Trade and Industry and involving the Department for Environment, Food and Rural Affairs and other organisations, which was set up to consider the issue. I understand that an initial report has been presented to the Department. Will the Minister say when that final report will be published and how the Government propose to proceed?

Ofgem has also referred to the social action plan—which forms part of the parameters laid down by Government—that governs the role of the regulators. The Government have referred to the need to bear in mind some main objectives when dealing with regulation of the electricity and gas industry. One of those was to tackle poverty and social exclusion in order to improve the health of the population overall. The Government do seem to be concerned, and I acknowledge the progress that they have made in tackling fuel poverty to date. They accept that vulnerable customers should not be at risk of suffering adverse effects from the operation of competitive markets.

In a way, the debate encapsulates a classic problem. The Government believe in opening up markets and the virtue of competition, because that is in the overall interests of most consumers, including poorer families

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and low-income households. The price of gas and electricity has gone down as a result. There are occasions, however, when the Government must intervene in the market to deal with distortions that have occurred and are occurring. The subject of this debate is a classic example of that.

Ofgem's social action plan goes on to say that it has to identify barriers to disadvantaged customers who participate in a competitive market, and that it would like to develop policy initiatives to allow such people greater access. I would be interested in what the Minister has to say on how we deal with fuel poverty overall. Gas has a part to play. It is a cleaner fuel, so it has an environmental advantage, and it is cheaper. A lot of people in my constituency have to buy oil, including me. It is messy and tends to be more expensive. Gas is an all-round option that many people would like to have.

I accept that the extension of the network requires the Government to deal with the structure of the industry and amend the regulations within which it operates. The current structure of the gas industry, which was brought about by the Gas Act 1986, as amended by the Utilities Act 2000 and other legislation, separates the function of gas supply from that of providing gas infrastructure such as pipes and pressure units. A company cannot hold a licence for two functions such as supply and transportation.

Before the 1986 Act, the old British Gas was an integrated business able to provide all gas services to its customers, including gas connections, supply and transportation. Many people fail to understand that. There is some confusion about titles and the new structure of the industry, although it has been in operation for some time. Transco, Lattice, Centrica and British Gas, not to mention other gas transporters, have a problem on their hands. I do not advocate that we go back to the old regime, but it is fair to say that it was able to recover the capital costs of extending the network in other sectors of its gas business, which was primarily based on the supply of gas. It is generally accepted that British Gas under the old regime provided a substantial cross-subsidy for the installation and extension of the network. However, we live in a different climate, and I accept the need for competition.

A gas transporter—a GT—is obliged to provide gas infrastructure to premises only where it is economical to do so. Of course, there is a 23 m rule whereby if someone lives within 23 m of a gas main, the GT has to connect him or her up to the mains. When the GTs determine the charges that they must apply, they are guided by the Gas (Connection Charges) Regulations, especially regulations 2(a) and 2(e). To make those extensions economically feasible, GTs have to recover the full cost of the mains installed within five years. That period is stipulated by the regulations, and the rule is inflexible and causes difficulties. It is clearly hampering the extension of the network to infill areas. It means that people like those living in Gellifor find the costs charged by GTs prohibitively expensive.

I would like to mention one other interesting aspect of the regulatory framework, which is condition 6 of the standard gas transporter's licence. It allows a GT to recover the costs of extending the network directly from the shipper, so that the shipper can recover it in due course from customers by billing them. The cost often does not appear on the bill. For many, that is a more

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palatable and straightforward way to proceed. I know that Ofgem will examine condition 6 of the GT licence, but I would like to know whether the Government have any views. I suspect that we will have to extend the prescribed period. That would help, but we may have to go further. We may have to introduce innovative projects to deal with fuel poverty and examine the licensing regime and conditions.

The Minister knows what I am looking for. First, I want the Government to acknowledge that there is a problem. Secondly, I want them to do something about it. Thirdly, I want them to publish the findings of the working party to which I have referred. Do they accept the case that I have made for greater flexibility? In broader terms, do they accept that relaxing the regulatory framework will help them to pursue their broader agenda of tackling social exclusion and fuel poverty, as well as ensuring that rural communities feel part of our wider community?

12.45 pm

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson) : I congratulate my hon. Friend the Member for Clwyd, West (Gareth Thomas) on securing this debate. He has raised a matter of general concern, not only to his constituents but to many people without access to mains gas.

In response to my hon. Friend about our acknowledgement of the problem, we certainly agree that around 4.5 million British households—roughly 20 per cent. of the total according to my figures, which may be slightly different from his—do not have access to mains gas. Some of them would be able to take up a connection if they wished, but most would not.

Those households do not have access to what is seen as the cheapest and most convenient conventional fuel. I agree with my hon. Friend about that, although it could be said that there have been times when gas was not the cheapest alternative. There are other factors that determine the relative costs of fuels from time to time, such as the environment, which my hon. Friend mentioned, and convenience.

I turn to the statutory position, which is of concern to my hon. Friend. Without losing him and myself in a snow storm of detail, it may be helpful if I first say a little about regulation and what it has and has not delivered. Connections to the gas network are governed by a range of primary and secondary legislation, and in particular by the Gas Act 1986. Companies are obliged to connect within 23 m of an existing main. The energy regulator, Ofgem, is required to encourage reasonable requests for connection where it is economically feasible.

As a result of the range of legislation, and most recently the Utilities Act 2000, the provision of connections is now fully competitive. My hon. Friend espouses the values of competition. As I am, among other things, the Minister for competition, I must encourage him to get behind the notion that competition benefits consumers and has done so tremendously. I am sure that competition is the way forward.

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Communities and individuals are no longer forced to use Transco, but may access one of the dozen independent gas transporters. That relates to my hon. Friend's point about Mr. Lloyd Roberts's letter, to which I will return later. Consumers may also use self-lay companies. As a result of competition, 70 to 75 per cent. of connections to new housing developments are now carried out by companies other than Transco.

There is a lot of competition in the area, and it is working. However, competition alone cannot deliver connections to the bulk of communities and households outside the network—or rather, it can, but the costs involved in providing connections are often beyond what households are prepared to pay. That in turn means that potential take-up is not high enough to make it worth while for the transporter to make the connection.

In the past, a monopoly, did not have to respond to costs, or it could spread them across its operations. Now, in charging householders for connections, Transco must reflect the cost of doing so in order to avoid abuse of its dominant position—none of the independent transporters can afford to subsidise connections. That point relates to research undertaken by Mr. Lloyd Roberts into the options and various fees quoted in the constituency case cited by my hon. Friend. That has led to concerns about lack of access to mains gas and the cost of connection to it being raised on behalf of two sets of people—although the two may overlap. The first is of those communities that wish to be connected but who find the cost prohibitive. The second is the fuel poor. It has been argued that lack of access to the network keeps households in fuel poverty by denying them access to the cheapest, most efficient fuel.

I turn to a couple of specific points raised my hon. Friend about regulation. Ofgem is consulting on changes to the Gas (Connection Charges) Regulations 2001. Although change of the type proposed by Ofgem to encourage the taking up of new connections would help, the Government believe that the change would have only a marginal impact on the problems that we are discussing. The regulator's duty to help people on low incomes does not override its primary duty to protect the interests of all consumers. The balance is ultimately a matter for the regulator. As my hon. Friend is aware, the regulator is independent of the Government.

I turn to work done by the gas network group and the report mentioned by my hon. Friend. As he acknowledged, the Government are particularly concerned to address issues surrounding social exclusion and disadvantage. The fuel-poverty strategy, which was published recently, reflects that concern. That is why when drafting the strategy we gave a commitment that we would work with Ofgem to ensure that, whenever possible, the gas network provided the widest viable coverage and the fullest viable capacity.

Rather than have an introverted debate between the DTI and Ofgem, we decided to establish a working group to consider the issues surrounding the network in the context of fuel poverty. The group, which met for the first time in May, therefore included representatives of the Government, the regulator, the gas transportation and supply industries, consumer bodies and organisations with an interest in energy efficiency. My hon. Friend the Minister for Industry and Energy,

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received its report last month, and it will be published shortly on the DTI's website. We expect it to be published before Christmas.

I shall not discuss the findings of the report, because it is yet to be published, but the statistical information available to the group suggested that, for the 900,000 English fuel-poor households without gas, the provision of gas central heating and, where practical, loft and cavity wall insulation could remove between 600,000 and 700,000 people from fuel poverty. A similar impact would be likely in Wales and in Scotland. However, the report notes that similar results appear to be obtainable from insulation and central heating systems used in conjunction with other fuels, so there is a variety of approaches to tackling fuel poverty.

Before turning to the fuel-poverty strategy, I shall say a little more about gas versus other fuels. The installation of appropriate insulation and heating measures could significantly reduce fuel poverty, but it is striking that the key to removing households from fuel poverty may not lie exclusively with access to a particular fuel, but in the combination of the insulation measures and central heating. Gas is certainly more convenient and is at present cheaper than other fuels, but some of those other fuels, including fuel oil and solid fuel, appear to come close in providing affordable warmth.

Indeed, the Scottish Executive's central heating programme took the view that when use of gas is unfeasible, fuel oil and solid fuel represent valuable alternatives, and that may prove to be the case in communities in England and Wales. The Welsh Assembly is piloting a programme that uses disabled facilities grants and HEES— home energy efficiency scheme—funding to provide oil-fired central heating with insulation measures as part of adaptation work.

As for the fuel-poverty strategy, I explained that the drive to consider issues surrounding the network arose within the context of the Government's work on fuel poverty. We are committed to tackling social exclusion in all its forms. Fuel poverty is one aspect of social exclusion and it creates great hardship in the lives of the 4 million households in the United Kingdom that are affected by it. That is why we published last month our fuel poverty strategy, which was agreed with the devolved Administrations in Scotland, Wales, and Northern Ireland. Our joint objective is to remove from fuel poverty by 2010 all vulnerable households—that is, those containing pensioners, small children, the disabled, or people with a long-term illness who are at risk of ill-health from cold homes.

Our latest analysis suggests that the number of fuel-poor households has fallen in the past few years, from about 5.5 million in 1996 to 4 million. That confirms that our policies of improving incomes and maintaining downward pressure on prices are working. The figures are based on modelling of changes in incomes and energy prices alone, and do not take account of improvements in housing energy efficiency over that time, so the real figure could be slightly lower. Whatever

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the real number, however, there are still too many such households. The strategy sets a framework for taking the work forward. It is only the start of the process, and we stand ready to review and revise policies in the light of practical experience in the delivery of measures.

Gareth Thomas : I agree with a large part of what the Minister has said, but will the Government reconsider, with a view to amending, the regulations within which the gas industry must operate?

Miss Johnson : As I explained, there are clear parameters within which the framework functions, and we have no specific proposals to reconsider that. We are watching for the outcomes of our policies within the framework. Much work must still be done in response to the strategy and to the report, which will be published shortly. We need to consider the action identified in that report, and how we might progress from it.

The range of measures in the strategy is aimed at materially helping all fuel-poor households, irrespective of whether they are connected to the network. The fuel-poverty strategy sets out in some detail the position for Wales. The long-term answer to fuel poverty lies in improved energy efficiency in housing. That is a devolved matter, and responsibility for housing improvement and energy efficiency lies with the National Assembly for Wales. There is at present no direct estimate of the numbers of fuel-poor households in Wales, but the National Assembly will work to determine the extent and distribution of the problem.

A currently used indication of the level of fuel poverty is the number of households eligible for assistance under the Welsh home energy efficiency scheme, based on the 1997-98 Welsh house condition survey, which suggested that about 220,000 households were eligible for assistance. The scheme is the main vehicle in Wales for reducing fuel poverty. The basic package comprises grant aid for insulation measures up to the value of £1,500 and an enhanced grant of up to £2,700, which covers new central heating as well, for households containing people over the age of 60, lone parents, the disabled, and long-term sick. The programme also covers conversion of coal-heating systems to gas firing.

Rural conditions were at the heart of my hon. Friend's debate. Difficulties with improving rural housing include lack of access to mains gas and the high incidence of solid walls in older properties. The Assembly has commissioned an examination of alternative fuels and insulation methods that could be used in hard-to-heat homes. The initial study will report early next year and is looking for proposals for practical pilot studies to evaluate the use of identified alternative heating fuels and insulation methods.

Much work is being done on the wider strategy, and the Assembly is in touch with all those involved, including the DTI and DEFRA—

Mr. Nicholas Winterton (in the Chair): Order. We have run out of time. We thank the Minister for her reply.

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