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Lord Peston: My Lords, I thank the Minister for introducing this most interesting Bill. He is right about it being technical. I glanced through it during his speech and

6 Jun 1995 : Column 1271

wish to refer your Lordships to Schedule 2, paragraph 25, which is headed, "Gas meters and fittings not to be subject to distress". Sub-paragraph (2) states:


    "In the application of sub-paragraph (1) (a) above to Scotland, for the word 'distress' and the words 'in bankruptcy against' there shall be substituted respectively the word 'poinding' and the words 'for the sequestration of the estate of'".

I hope that in due course your Lordships will not be distressed by having to discuss such detail.

Perhaps I may make four general points at the outset and reassure the Minister by saying that I welcome the Bill, mainly on the ground that it enlarges the scope for competition, which must be to the advantage of most consumers. I use the word "most" advisedly because there is a question to which I must return; namely, whether "most" can be replaced by "all".

When the 1986 Act was debated, the central focus was for or against privatisation. The Government argued for a regulated private monopoly. The Opposition took the view that if the industry was to be a monopoly it should remain in public hands. However, some believed in the classical view that whether or not privatisation was good, it was vital that the newly privatised industry structure should be one of competition. The Government resisted that. The most that they were willing to allow was that competitors of British Gas could use its pipelines to supply large industrial users. Subsequently that was extended to smaller industrial users.

In essence, the Bill recognises the original error of setting up a private monopoly and seeks to rectify that. It is worth recalling that the previous director of Ofgas accused British Gas of anti-competitive practices and the Monopolies and Mergers Commission ruled that some of British Gas's practices operated against the public interest.

My second general point is to repeat that I recognise how technical the Bill is. Therefore, much of what I wish to say about it is best dealt with in Committee. This afternoon I shall indicate those areas of the Bill which are most in need of clarification and change.

Thirdly, it is difficult and probably futile to debate a subject like this without referring to general energy policy. But that is what we are obliged to do. Despite requests from all sides of your Lordships' House, no time has been found to debate the White Paper on nuclear power. That would have been the ideal context within which to place the future of the gas industry. Whether we are looking at the demand for coal, the scale of nuclear production, the use of gas for electricity generation, who will be the new entrants to the gas industry or for how long gas reserves will last, all those matters need to be considered if we are to take a rational view of this measure. But we shall not be able to do that.

Fourthly, the Bill raises important questions about the regulatory framework. Is it working well? Can it be made to work better? The questions which arise in that regard are to do with what is called regulatory capture and disclosure of information which should be in the public domain but which firms claim is commercially confidential. Of course, we must look also at the balance of the interests of shareholders and consumers.

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Now perhaps I may indicate some parts of the Bill which I consider to be the most important. On that, there is one further general point to be made. Much of the Bill amends the 1986 Act. One reason for that is the need to provide for the extension of competition. But it may be that the Bill has amended that Act for other reasons too and we shall need to pursue that.

I start with competition itself. The Bill refers to "effective competition". As an economist, I am not at all sure what the Government have in mind. I understand what competition is but I do not understand the expression "effective competition". I shall table an amendment to clarify the meaning of the word "effective".

In that connection, perhaps the Minister will be able to tell us whether he has had any indication of the number of potential new entrants in the long and short term and who they may be. There is an image that the competitors will be small relative to British Gas. Nothing could be more mistaken. I presume that some of the new entrants will be massive organisations; for example, the oil companies.

In another place the Minister was asked about the probity, financial and otherwise, of possible new entrants. He said that that would be dealt with by the director general. That may well be right, except for the lack of accountability of the director general. Since it is not obvious that the maintenance of supply can be guaranteed and the supplier of last resort function remains problematic, to say the least, we need further clarification of that. Again, in due course I shall table a probing amendment which will enable the Minister to say more about that.

I note in the Bill the repetition of the phrase that is in the 1986 Act:


    "to secure that, so far as it is economical to meet them, all reasonable demands in Great Britain for gas conveyed through pipes are met".

Again, apart from the question of interpreting what is meant by "economical" and "reasonable" together in the same sentence, we need to ask whether that condition has always been met in practice since privatisation and whether the wording is correct for the new competitive circumstances.

That relates to the problem of whether all consumers will gain. It is alleged that in existing circumstances some high cost consumers are helped by cross-subsidisation, which is feasible given British Gas's monopoly power. I think that the Monopolies and Mergers Commission said that there would be some consumers who would lose as a result of this new measure. It states:


    "We recognise that, while introduction of competition may well result in a reduction in the overall level of prices, some groups may be worse off".

As noble Lords know, I have a rather low opinion of the Monopolies and Mergers Commission's activities in recent years, and some of its reports have been bizarre, to put the matter at its mildest. The Consumers' Association, which, like the other consumer organisations, supports the Bill, has written to a number of your Lordships saying that it will benefit all consumers. The National Consumer Council is a little more cautious. What is the Government's opinion? Is the Monopolies and Mergers Commission mistaken? Can we be assured that, without a shadow of doubt, all consumers will benefit?

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Furthermore, on consumer protection, noble Lords will have heard from the Gas Consumers Council. It says:


    "We believe strongly that the move to a competitive market should not require the relinquishing of major statutory principles inherent to consumer protection, particularly since the Gas Bill does not give the Director General an overt duty to secure effective choice for gas consumers".

That is an important matter to which I shall return in Committee.

A most important part of the 1986 Act was Section 17 on meter testing and stamping. I am sure that all noble Lords will have acquainted themselves with that section of the 1986 Act. That is replaced by paragraph 13 of Schedule 3 to the Bill. However, there appear to be important changes which involve the director general. Meter examiners are now to be members of his staff, whereas before they were appointed by the Secretary of State. Again, without prejudging whether that is in the interests of consumers, we need to examine carefully the new words.

That takes me on to:


    "the interests of those who are disabled or of pensionable age".

I am aware that that repeats what is in the 1986 Act and nothing that I say should be interpreted as being unsympathetic to those groups, as I approach both categories myself. However, I must ask why it applies only to them and not the poor in general.

En passant the noble Earl referred to those who have difficulty in paying their gas bills as being a responsibility, but I see nothing at all in the Bill which refers to that. Therefore, I should like clarification.

In that connection, we should note that all that the relevant powers that be—the Secretary of State and the director general—have to do is to "take into account". Why should they not be obliged to take into account any action by gas suppliers which are to the detriment of very poor people, especially in the light of my question of whether all consumers will gain? That is the view of the National Association of Citizens Advice Bureaux and I agree with it. Noble Lords will be aware of the existing code of practice which provides a number of important services free to the old and disabled. Will that code of practice continue? What is its statutory basis? Will it apply to all new entrants to the industry?

On pensionable age, we have the twin difficulties that at the moment the pension ages for men and women differ but in future, as the method of equalising, the age for women will be raised. When we are discussing couples and the question of pensionable ages arises, can we assume that the lower age will be relevant? When we equalise pensionable ages, which I favour—and in this case they are being raised—for that purpose, why should not the pensionable age for couples be deemed to be 60?

There is considerable interest in the environmental reference in the Act and the Bill. Again, we shall need to explore whether extra safeguards will be needed in the new commercially competitive environment. The Country Landowners' Association has written to many noble Lords on the environmental impact of the laying of new high pressure distribution pipes. Those fears are serious and we must address them.

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A similar point applies to safety. Gas is one of the most dangerous substances to be found in peoples' homes. I have been asking people what they think is the most dangerous substance in their homes. The list is enormous but gas is certainly on it. Therefore, there is certainly a public interest in ensuring safety. If appliances are installed poorly or are not well serviced, or if problems such as leakages are not dealt with promptly and efficiently, the danger is to neighbours as well as to the household immediately affected.

Although it is important not to discourage entry into this market, it is vital that all suppliers have the same obligations in regard to safety. In Committee we shall raise questions about so-called Corgi standards. The Gas Consumers Council has reported an increase in the number of complaints that have been made against registered installers. After the enactment of the Bill there is a danger that those problems will increase. We shall therefore need to look at a statutory foundation for standards of service in installation and repair.

The question of licences is largely a matter of detailed scrutiny but I should like to make some general points. The noble Earl has given us useful information about the progress that he has made. When will we have the details of the licences that will be offered? He stated that he hoped that we would have them during the passage of the Bill. Is it too much to hope that we could have the detailed forms so that we can debate them by means of amendments in Committee? We all agree that we cannot accept these licences sight unseen; they must be subject to parliamentary scrutiny.

In raising the following aspect of an obligation to supply, I declare an interest, which is that I live in a block of flats. Will an obligation to supply apply to households or to premises? Will there be an obligation to supply each individual flat owner, or is the obligation to supply the whole block? That is not a trivial matter.

All those matters relate to amendments to Section 10 of the 1968 Act which is contained in Schedule 3 to the Bill. I shall reflect on what the noble Earl has said, but it appears that there is no statutory obligation to supply individual customers. We shall look at that more carefully at a later stage.

The subject of licences leads on to the role of the regulator. Regulating a private monopoly involves different considerations from regulating a competitive industry, albeit one in which competition will be less than straightforward. I cannot believe that the new job will be any easier. I add in parenthesis that I have no intention today of discussing the pay of the regulator, although in my view all regulators need careful scrutiny, especially the one or two who perform their jobs in a less than satisfactory manner.

I shall take the opportunity at the next stage of the Bill of putting down amendments to clarify the role of the regulator, especially in regard to answerability to consumers, shareholders and the public. There is an element of arbitrariness in the scope of the regulator which should be examined. Can the Minister confirm that in the Bill the Secretary of State appears to be giving himself new powers akin to those of the regulator? That matter should also be examined in detail.

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I move now to the area of transparency. Competition must be based on full information if it is to work properly: that is one of the oldest propositions of economics. As Adam Smith emphasised, firms intrinsically hate competition and find every reason under the sun not to compete and to justify secrecy. The Government have fallen for that nonsense on more than one occasion. Consumer protection requires that full information is available to everyone as to the prices charged by all firms and the terms and conditions on which supply is made available.

The current example of Which? magazine offers a useful comparison of best buys in telephone services. I am sure that the Consumers' Association and Which? will do the same good job in relation to gas. But we cannot rely on such an organisation, excellent though it is, to perform a job which is essentially one for the public sector and for government. There must be no secret contract and no small print. That is a matter of law and something which should not be left to market forces. The National Consumer Council suggests that the responsibility for providing consumer information enabling national choice to be made should lie either with Ofgas or the Gas Consumer Council. That is worth pursuing further. As the Gas Consumers' Council asserted, nothing in the Bill should lower the degree of consumer protection that is already enshrined in statute.

As the noble Earl stated, before the changes envisaged in the Bill come into force there should be some pilot exercises. Can the Minister tell us later this evening the details of those studies? What is their purpose? Will they be published? If problems are discovered, how will that effect the legislation, the licences or the regulation? Parliament in general and your Lordships in particular, I am sure, would wish to be informed of those studies in order to be able to comment on them.

I have tried throughout my speech to be constructive. If there is to be a widening of competition it must serve the intended purpose of lowering prices and improving services to consumers. For firms to make money out of those circumstances is incidental to the main aim and is not the primary objective. The Bill does not go far enough to help the consumer but we can improve upon that situation. Having said that, I should like to reassure the Minister that, subject to those remarks, the Bill is welcome.

3.45 p.m.

Lord Ezra: My Lords, I wish at the outset to declare an interest. I have been in competition with the gas industry in one way or another since 1947. While I was in the coal industry I fought hard to build up coal's share in the markets in which gas had penetrated. More recently, I have been involved in competition within the gas market as chairman of an independent gas supply company. Over the decades, therefore, I have gained considerable knowledge of the gas industry from the outside, and I agree with the tribute that was made by the noble Earl to the enormous technological progress that has been achieved by the gas industry in the long period in which I have been involved in competing with it.

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When I started, coal was exclusively used as their feed stock; then they moved to oil; then they moved to liquefied natural gas that was imported from Algeria, and finally to natural gas that was obtained from the North Sea. The most outstanding achievement was the way in which all the gas appliances were changed throughout the country. We should pay tribute to that great industrial achievement in this country.

Creating competition within the markets for gas has taken many years. That is the object of the Bill and something that from these Benches we fully support. It was intended to be introduced by the Oil and Gas (Enterprise) Act in 1982. That Act gave free access to gas pipelines. However, there was one snag. No one could get hold of any gas because British Gas bought it all. The situation continued after the Gas Act 1986 which confirmed the monopolistic position of British Gas. The only change was to a private monopoly. I recall the debates during the passing of that legislation. I was one of those who raised the question of competition. I received the answer that there was competition with other fuels. When I argued that many consumers, particularly the smaller ones, were locked into gas I was told that nonetheless there was freedom of choice.

It was due to the intervention of Sir James Mackinnon, the first director general of Ofgas that competition was introduced into the industrial and commercial gas markets. It took a reference to the Monopolies and Mergers Commission in 1988 and to the Office of Fair Trading in 1991 for that situation to be brought about. Approximately 52 per cent. of the total gas market is now open to competition and over half of that percentage is supplied by independent operators.

The Bill is concerned with the opening up of the remaining 48 per cent. of the market which is represented by domestic consumers. If, as is proposed, the market is fully opened up by 1998, it will have taken 16 years to achieve full scale competition in the gas market, involving three separate pieces of legislation, two references to the Monopolies and Mergers Commission and one to the Office of Fair trading. At last we are getting there.

In spite of the present criticisms, British Gas provides a good service to domestic consumers. I happen to be one myself. Since December 1986 domestic gas prices, excluding the effect of VAT, have fallen by 22½ per cent. in real terms. The supply is reliable, there is a good back-up service, and safety is given absolute priority. Further, elderly and infirm customers are specially cared for and provision is made for those who have difficulty in meeting their bills. So it is fair to ask whether the new arrangements proposed in the Bill will improve on that or, at the very least, not in any way weaken this already good service provided to customers.

There is at present a common price for domestic gas throughout the country. Price freedom is henceforth to be allowed. The noble Lord, Lord Peston, referred to that point. But I believe that we should ask what the impact of that will be on those consumers furthest placed from the points of supply and taking only small quantities. The Minister gave us an assurance about preventing "cherry picking", but can he give an indication of the range of prices likely to be anticipated under the new regime?

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Service is a vital ingredient and is of relatively much more importance to domestic than to industrial consumers. Can the present high level of service clearly given by British Gas be assured when the market opens up? Above all, as mentioned by the noble Lord, Lord Peston, will the elderly, the infirm and those having difficulty meeting their bills be treated at least as well as they are at present?

British Gas has a good record of dealing with safety problems, to which the Minister and the noble Lord referred. TransCo, the transportation arm of British Gas as now reorganised, will retain responsibility for dealing with gas leaks and other risks. But the consequent repairs, after the risk has been dealt with, will be a matter for the consumer to sort out with private sector operators. How will that compare with the present situation when British Gas can deal with the whole matter at one go, thus avoiding consumers being deprived of gas supplies for a period, which could be serious if it occurs in winter? Prices, service and safety represent essential issues. Domestic consumers who have been used to high standards under the regime of British Gas will need to be reassured under the new regime.

In that connection, I must say that I was disturbed to note that, in Clause 1 of the Bill, protecting the interests of consumers of gas is given a secondary priority. That is surely a matter of prime importance. I would welcome the views of the Minister as to why it has been given such a secondary priority. A further duty which has also been accorded a lower priority is the promotion of efficiency in the use of gas. I find that extraordinary in the Government's oft-repeated commitment to improve the environment and diminish harmful emissions. Indeed, the Minister referred to the importance that the Government attach to energy efficiency which he thought could be promoted by competition, but why has that been made a secondary duty in the Bill?

A welcome feature of the Bill is the retention of the Gas Consumers Council. It has proved itself to be a worthy champion of the domestic gas consumer. It is regrettable that the Government have refused similar arrangements for other privatised fuel industries.

I turn now to the licensing arrangements. The draft transportation, supply and shipper licences have been issued, although they may be changed. We are told that the revised version of the supply licence, for example, will be available to us in sufficient time for us to debate it at later stages. Those licences fill many of the gaps left open in the Bill. However, it could be argued that too much has been put into the licences and too little into the Bill. That continues a recent trend in legislation to minimise what is in Acts of Parliament and to maximise what is left to discretion. It means that changes on quite major issues can be made without parliamentary scrutiny. That is an issue which will undoubtedly be raised as the Bill goes through its other stages in the House.

As a result of the Bill, and in particular the granting of licences, Ofgas will have its powers substantially enlarged. Therefore, it is of increasing importance that it should operate in an open and accountable manner. Indeed, I believe that consideration should be given to an appeals procedure.

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In an operation as complex as the opening up of the domestic market for gas, it is right that there should be pilot exercises. We are very pleased that the Government have decided on that procedure. We have been told that such exercises will take place in 1996 and 1997. However, it is a matter of concern that neither the DTI nor Ofgas propose to issue reports on the conclusions to be drawn from the pilot operations. That was particularly requested by the Trade and Industry Committee of another place in its report of 23rd November 1994. The committee recommended that,


    "the DTI and Ofgas should set out how they propose to monitor the impact of the limited competition during the transitional period, what arrangements there will be for consultation and parliamentary scrutiny, and what criteria they will use to assess the success of competition in the pilot areas. Provision should be made for reports to the House on experience in the pilot areas before further steps are taken".

That seems to me to be an eminently sensible proposition which, however, the Government appear to have rejected in debates in another place and in their answer to the Select Committee's report. It would be helpful if the noble Earl could comment on the situation. Further, can the Minister also indicate whether there could be a delay in introducing the first pilot scheme due to disagreements over the Network Code—a very complex arrangement—which was referred to in this morning's edition of the Financial Times?

There is one further aspect that I should like to touch upon briefly; namely, that of the assignation of rights and liabilities which is contained within Schedule 5 to the Bill. Paragraph 2 of the schedule, as currently drafted, would permit British Gas to assign contracts, without counter-party assent, to an affiliate. That has raised concerns with some of the gas producers who are parties to those contracts. I can see merits on both sides of the argument. On the one hand, companies which have invested significant sums of money against the security of their gas contracts are troubled if the contracts are assigned to a subsidiary without the financial strength of the parent; on the other hand, conditions in the market have radically changed and some discussion and flexibility may be needed.

The assignment of those contracts to a subsidiary does not seem to me to give British Gas an easy option to repudiate them. It would be a very serious step for a company like British Gas to walk away from a subsidiary. I am sure that that is not in the company's mind. It is clearly an important issue and I shall be interested to hear the noble Earl's views on the subject.

The Bill represents the conclusion of the long process of opening up the gas market to competition with which, as I indicated, we on this side of the House agree. British Gas generally provides a good service to its domestic consumers and has kept prices under control. It is essential that the standards set by British Gas, particularly in its treatment of its consumers who are elderly, infirm or on low incomes, are maintained at least at the present level, if not improved upon. More emphasis needs to be given in the Bill to the duty to protect the interests of consumers and to promote energy efficiency. In my opinion, a better balance needs to be struck between what

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is contained in the proposed licences and the Bill itself. I am sure that these issues will be covered at subsequent stages of our debate.

4 p.m.

The Earl of Caithness: My Lords, first I should like to declare none of my interests. I have no shares in British Gas or gas companies, nor do my children. I am not paid by gas companies, although I admit that I have asked for briefing from some and received unsolicited briefing from others. I have even received unsolicited briefing from a company that appears to have changed its name following some pretty bad publicity. I sometimes wish that we could do the same!

The unease that I feel over this Bill is concerned with its principle. It affects a company that is already in the private sector. Therefore, the share price will be affected. I do not like any government to do that, and that is why I declare an interest in having no shares. It is the principle that I dislike. It is detrimental to the share price, and that is bad. I fully approve of the objectives of the Bill. As my noble friend the Minister has said, it will give consumers choice. I am all for consumers having choice. I may benefit from it in London, but I certainly will not benefit in the country. The greater competition that the Bill will offer is undoubtedly good for the industry and for us.

I believe that we must bear in mind two forms of competition. So far my noble friend the Minister and the noble Lords, Lord Peston and Lord Ezra, have concentrated on competition within the United Kingdom. I wish to touch on that matter and also competition worldwide. So far as competition within the United Kingdom is concerned, there must be a level playing field. (I know that my noble friend the Minister loves expressions like that.) At the moment, there is not the transparency that the noble Lord, Lord Ezra, mentioned. We need that transparency so that consumers can make a rational choice. The noble Lord, Lord Peston, mentioned the Which? report on telephones. We need to have that information, not in a magazine, but clearly presented. It means that each company needs to have information about the others so that there are no hidden costs, and one company is not forced to disclose its prices and others do not. That is wrong, and we must not allow that to happen in the competitive domestic market.

It is also important that the companies which stand to make a good reward within the gas business also suffer the same risk. One cannot have one lot of companies subject to a different risk from another lot of companies. The playing field must be level for consumers and the companies. We in this country are extremely good at opening up our market to competition. As a result of this Bill, state-owned companies will come into our market when there is not the remotest chance of our getting into their home markets. That point needs to be borne in mind.

That takes me logically to the next step: worldwide competition. I do not believe that we realise just how lucky we are in this country to have a company of the stature of British Gas. Whatever has been said recently—I make no judgment upon whether it is true or false—we have a world-class company with world-class people. It is

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a world leader and is a huge asset to UK Limited. Here, I put on my old Foreign Office hat. When travelling in the Far East, in particular, I was struck by how immensely important it was for any British company that wished to do business overseas, particularly in that market, to have a strong home base and to be able to provide exactly the same services in the countries in which it wished to do business as it proved it could offer at home. I believe that we must always have that in the back of our minds when we look to divest the monopoly situation from British Gas. We need to leave the company with the right amount of infrastructure in this country so that it can legitimately go abroad and say that what it has done in the United Kingdom can work in that particular market, too. Without that added strength the marketing opportunities for British Gas will be reduced; this in itself will be detrimental to UK Limited. I am sure that none of your Lordships wish that to happen.

I turn to the pipeline situation and TransCo. This is a unique operation. One is considering something like 160,000 miles of pipeline, which is about six-and-a-half times around the world. That is a fundamental base on which British Gas can sell its expertise worldwide. I believe that the Bill has it about right, and I do not wish to see any change.

So far as I am concerned, one other point in the Bill deserves brief mention at this stage I refer to the existing gas contracts which have been mentioned by the noble Lord, Lord Ezra. He is right to say that there are arguments both for and against a change. However, some of the briefing that I have received tends to put the companies that wish to seek a change in the Bill in the position of having their cake and eating it. Any of us would like to be in a position where our risk was severely limited by a guarantee but we would be open to take whatever rewards were available. I return to my original point about a level playing field. All of the companies must face the same risks and rewards. So far as existing gas contracts are concerned, I support what is in the Bill, in Schedule 5, Part II.

Having expressed my unease, I reassure my noble friend the Minister that I support the Bill. I hope that this House gives it a fair and speedy wind on to the statute book, and that we as consumers will benefit from it but that we as UK Limited do not deprive ourselves of any benefit either.

4.7 p.m.

Lord Wade of Chorlton: My Lords, like other noble Lords, I approve of the Bill. I support anything that improves the opportunity for new businesses to develop and offer wider services. Both my noble friend Lord Caithness and the noble Lord, Lord Ezra, said that British Gas had proved itself to be a most successful company and had brought great wealth and opportunity to Britain. It is the fifteenth largest company in Europe. It is the leading gas company in the world. Britain is looked upon more and more as the leader in the development of new technology in all aspects of energy.

I declare an interest. I am president of the Combined Heat and Power Association. We have a considerable interest in seeing a reduction in gas prices. There has been

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a reduction in industrial gas prices by over a third during the time that British Gas has been in operation. That has brought enormous opportunities as well as technology improvements. I believe that that same improvement and reduction in prices will continue as the Bill comes into operation and many more companies come into the business.

The noble Lord, Lord Peston, said that what should first be considered was an energy policy. I would have thought that, as the Government's energy sectors had improved, and new Bills introduced and approaches developed over the past few years, that was exactly what we had. What we will have as a result of this Bill is a further step towards the development of energy service industries. At one time, one dealt with large monopoly companies which sold one energy source. Slowly, we have companies that are involved in a whole range of energy activities. Following this Bill, the next stage is the development of companies that will not provide actual energy sources but heating or hot water as a general commodity to meet a requirement for the wellbeing of one's home or business. In a sense, we are evolving an energy policy that will create a whole range of forceful, independent, high-tech companies that can provide to the customer a whole range of services that he wants. I believe that that is the right approach. Those companies will be competitive and will be encouraged to come into the industry with new ideas and opportunities. As a result, all consumers will benefit.

The noble Lord, Lord Peston, also said that the purpose of the Bill would be to reduce prices and not produce profits. I believe that that is what he said. If he did not do so, I apologise.


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