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Earl Ferrers moved Amendment No. 147:


Page 55, line 42, at end insert:
("( ) In subsection (4) of that section, after the words "function of the Director" there shall be inserted the words "or the Secretary of State."").

The noble Earl said: I spoke to the amendment with Amendment No. 67. I beg to move.

On Question, amendment agreed to.

8.45 p.m.

The Earl of Caithness moved Amendment No. 148:


Page 55, line 42, at end insert:
("( ) After subsection (2) of that section there shall be inserted the following subsection—
"(2A) When taking any decision or action in the exercise of the functions assigned to him by or under this Act, the Director shall specify to persons materially affected the reasons for that decision or action in sufficient detail to enable such persons to plan for the future with a reasonable degree of assurance; and this subsection shall be construed to cover decisions to take no action."").

The noble Earl said: Throughout our discussion of the Bill it has been clear that the role and functions of the gas industry regulator are greatly increased. Moreover, the regulator is given wide discretion to decide a range of issues, in many cases with no need to consult Ministers

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and with no requirement to give reasons for decisions, even to those directly affected. Some of those powers are no doubt necessary to provide the flexibility and timely decision-making required in a competitive market. For that reason they are supported. However, a balance needs to be struck. I put it to my noble friend that the Bill has not got it right yet.

My amendment seeks to balance the increases in discretionary decision-making powers with a duty to give reasons in sufficient detail to enable persons materially affected to plan for the future with a degree of assurance. As well as providing a more open system it would also introduce an element of continuity and consistency in decision-making.

Before looking at the effect of the amendment it is worth reminding ourselves of a few of the new powers being transferred to the regulator to demonstrate the need for some checks and balances. The responsibility for granting the licences passes to the regulator, together with a power to attach conditions to those licences. The regulator is also given powers to make regulations—for example, statutory instruments—subject only to negative resolution. The regulator is able to initiate prosecutions, a function previously reserved for the Secretary of State and the Director of Public Prosecutions. There is also a new power for the regulator not only to impose fines but also to decide their level.

Those are a few but, I believe, sufficient examples to make the point that powers have been increased. My amendment seeks to make sure that they do not go completely unchecked. I am supported by the fact that the Government have recognised in the past that the uncertainty created by the regulatory regime could have a discouraging effect on those thinking of entering the new market. I do not believe that that is a situation that my noble friends on the Front Bench want. It is not what I want. Indeed, all the comments of my noble friend Lord Ferrers indicate that that is the case. My noble friend Lord Inglewood said a moment ago in connection with Amendment No. 141 that customers would not benefit from competition as much as they should. If we do not get competition into the market they will not receive the benefits that are available.

I am encouraged by that well-known and well-respected Act, the Railways Act 1993. I remember it quite well. We saw a need there to make some provision in legislation. I draw my noble friend's attention to Section 4(1) (d) which requires the Secretary of State and the regulator to promote competition in the provision of railway services. That is exactly the same point as I am trying to make now. However, I do not find a similar subsection in this Bill.

I believe that my amendment would reassure all players that regulatory decisions will not be arbitrary, will not be unreasonably inconsistent over time, and will ensure that explanations of decisions would be given. The wording of the amendment also recognises that consumers and their representatives, as well as industry participants, have a legitimate interest in reasonable transparency and consistency of regulatory decision-making.

In passing, it would not be fair if I did not stress that the current regulator publishes a considerable amount of information. That is to be welcomed. However, it should

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not be left to the personal discretion of the regulator. I recall that a previous regulator did not behave in such a way, and often delivered a fait accompli with little explanation. I believe that this piece of transparency will help to promote the market that my noble friends so much want to see. I beg to move.

Lord Peston: This is an extremely important amendment, and one which the noble Earl, Lord Caithness, has put clearly and cogently. I keep referring to what the Bill does as an experiment. It is an experiment in regulated competition. The new entrants, and for that matter British Gas in situ, are faced with big enough risks without also having to cope with regulatory risk. We have seen in other regulated industries that occasionally some regulators' decisions have appeared to be capricious and not to have been thought through. In my judgment on at least one occasion a regulator has managed to damage the firms, the consumer and the taxpayer. That is intolerable, even if we say that in regulation it is still early days.

It seems to me that the new entrants to this market and British Gas will have enough problems without also having to invest in staff who will have to predict what the regulator is likely to do. I hope that the Government will accept the amendment. In all my years in this Chamber I have never been able to work out what determines whether or not an amendment is accepted. Certainly, its correctness seems to have no bearing. If the Government cannot accept the amendment I hope that at the very least the noble Earl will say that the matter is so important that he will come back with an amendment of his own which covers exactly the same ground.

As someone who in many ways now accepts regulation as the path to dealing with what were the public utilities, I cannot emphasise too strongly that we must look very carefully at what regulators do. We must learn from past experience. Regulators are meant to help; they are not meant to impose costs with no recognisable benefit. I support the amendment most strongly.

Lord Ezra: I, too, should like to support the amendment so ably moved by the noble Earl, Lord Caithness. He is absolutely right in saying that under the proposed legislation the discretionary powers of the regulator are enormously increased. The decisions taken could substantially affect those who are either operating in the market or who wish to come into the market. In my Second Reading speech I drew attention to the need for greater transparency in the activities of the regulator; and, indeed, I even said that attention should be given to some sort of appeals procedure in certain circumstances. The need for transparency is something that applies right through the Bill—that is, as regards transparency in conditions, in prices and in the actions of the regulator. I hope that we may hear from the Minister in this instance that he agrees with his noble friend.

Lord Skelmersdale: Unless my noble friend should think that this is a tripartite cabal, perhaps I may say that that is most certainly not the case. I do not find such a very ably drafted and moved amendment extreme in the least. After all, the director can still act as before. The only difference is that the amendment would make him or her say why. I should like such a consideration to apply not only to the gas regulator but to all regulators.

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Lord Cochrane of Cults: I rise to speak with a degree of diffidence because we are now dealing with matters which are somewhat outside my main field of interest in the gas industry. However, I must point out that I am possibly the only person in the Chamber who, as chairman or director of a company, was threatened with prosecution by the then director for complaining that he exercised his powers in a disgracefully arbitrary manner. Eventually a letter conceded that perhaps I had a point, although it did so grudgingly.

However, to pick up a point made by the noble Lord, Lord Ezra, I believe that there must be an obvious route of appeal. When I complained bitterly about that director's appalling behaviour—and Members of the Committee will note that I use the word "his"—I was told, "Well you can have a judicial appeal". At that time we had 141 customers and the minimum charge at that time for such an appeal was, according to my lawyers, about £15,000 in this country and somewhat less on the other side of Hadrian's Wall. The point is that, if we are to establish generalised competition in the industry, some of the suppliers will be small. They cannot afford to be treated in such a way. Indeed, it would be disgraceful, underhand and would inhibit competition and initiative. For that reason, I support the amendment in general terms.

Earl Ferrers: The noble Lord, Lord Peston, expressed bewilderment as to the reasons why any amendment would or would not be acceptable to the Government. However, I should tell the noble Lord that there is one fairly good reason; namely, that they are always acceptable to the Government if they are good amendments. Therefore, I would certainly be only too willing to consider and, if possible, accept any amendment which is a good one.

However, I must agree with the noble Lord that what we are discussing is, up to a point, an experiment. The noble Lord is quite right in that respect. I do not believe that anyone has a monopoly of wisdom in such matters. When my noble friend Lord Caithness moves such an amendment, obviously one takes it most seriously. Of course, the amendment is most attractive in principle. We all believe in regulation being as open as possible. However, despite what my noble friend said, I believe that regulators are, on the whole, responsible people.

The noble Lord, Lord Ezra, said that the discretionary powers of regulators are being increased. Of course, the noble Lord is quite right. That has been done for a purpose; namely, that it is important not to let suppliers and others tread all over consumers. Therefore, in order to prevent that from happening we give the regulators some fairly hefty powers. I do not believe that that is wrong, provided that the regulator carries out his powers in the correct way.

As my noble friend Lord Caithness said, there is a balance to be struck. No one can say that the balance is absolutely right. Indeed, my noble friend believes that the balance is too far the other way. I actually think that the amendment would tilt the balance too far in favour of the regulated company. It would allow regulated companies to hire hosts of lawyers to cross-examine the director with the aim, I believe, of forcing her to give statements which

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would tie her hands in the future. I do not believe that that would be in the public interest. That is why I believe that we have the balance right.

As I said, no one has a monopoly of wisdom in the matter. Indeed, some Members of the Committee might think that it goes too far in one direction. However, we believe that we have got it about right. My noble friend Lord Cochrane said that there should be an appeals procedure. But, of course, one could go on having appeals. One says that there ought to be a commercial market; so a regulator is set up in order to ensure that those involved with commerce do not ride roughshod over consumers. But then one says, "If that happens, then we must have an appeal procedure". One can go on and on in that respect.

In fact, my noble friend Lord Cochrane gave the answer that I would have given him. He said that if people are concerned that the director has gone over the top—to use a colloquialism—there is always the possibility of going to judicial review if it is thought that the director has not exercised her powers correctly. I do not believe that that is an unreasonable course to take. However, I shall certainly reflect upon what has been said. I should like to be able to tell my noble friend that he has a simply smashing amendment and that I would love to accept it. However, I cannot say that because it would not be quite right for me to do so. But, as I said, I shall certainly consider what has been said.


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