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Lord Strathclyde: My Lords, I am grateful to the noble Baroness for having agreed to answer this Question. I still believe that it should have been volunteered as an oral Statement to both Houses of Parliament. However, will she accept that we on this side believe that such a commission should be statutory, set up by Parliament and open to scrutiny by this House? To whom will the commission be accountable and by what criteria will its success or otherwise be judged? Will she state clearly whether it is still government policy, as recommended by the

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Wakeham commission, to set up a statutory commission and, if so, when? In future, will this be the only route to nomination of Cross Benchers? Finally, will she say who will fix the number and proportion of Cross-Bench Peers? Will it be the commission or will it be the Prime Minister?

Baroness Jay of Paddington: My Lords, as the noble Lord will be aware from the extensive debates we have had on the subject of a statutory versus a non-statutory appointments commission, the Government have appointed this interim commission for the interim House of Lords. They have agreed in principle to accept the proposal of the noble Lord, Lord Wakeham, for a statutory commission for the permanently reformed, long-term arrangements for the House of Lords. This is a very important step in the process of delivering the Prime Minister's promise to give up his sole power of patronage. I would remind your Lordships that no previous Prime Minister has ever taken that step.

I also point out to your Lordships that the diversity of the membership ensures that all new independent Peers will be widely representative of our country. Except in cases of national security, which will be subject to the same vetting procedures as applied to the previous Peerage Scrutiny Committee, the nominations will be passed by the Prime Minister to Her Majesty the Queen for appointment. The numbers to be appointed will, as is customary, be agreed by the Prime Minister.

Lord Renton: My Lords, should not Scotland, Wales and Northern Ireland each be represented on the commission? I did not hear the names of anyone who could be identified in that way.

Baroness Jay of Paddington: My Lords, I apologise if I was somewhat unclear in my references to the individual members of the commission. As I said at the end of the Statement, biographical details of the members will be placed in the Library. However, all three places to which the noble Lord refers are represented. The noble Lord, Lord Stevenson, is a Scot, Ms Huston is a representative from Northern Ireland and Dame Deirdre Hine is from Wales.

Lord Craig of Radley: My Lords, is the Minister aware that I welcome the announcement by the Prime Minister of this Appointments Commission and, in particular, of the chairman, the noble Lord, Lord Stevenson of Coddenham. I welcome that on three counts: first, because he is a Member of your Lordships' House; secondly, because he is a Cross-Bencher; and, thirdly, because of his very wide experience in public and commercial life.

I wrote to the Prime Minister on 9th March--the noble Baroness is aware of my letter because I sent her a copy--suggesting that there should be a role for the Convenor in arrangements made with the Appointments Commission, about which we have just heard. I made that suggestion on two counts: first, because the Convenor is well placed to help the

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Appointments Commission in identifying career and other experience which would be of value to your Lordships' House; and, secondly, because independents are now becoming a more important element of your Lordships' House. Does she not believe that the Convenor, as the representative of the independents, should be recognised by the Appointments Commission in this way?

Baroness Jay of Paddington: My Lords, I am grateful to the noble and gallant Lord for welcoming the Appointments Commission and the people who will serve. As I am sure he will realise, it is open to any Member of your Lordships' House and, indeed, to a much wider group of people beyond the Houses of Parliament to make recommendations. That is one of the significant changes we are hoping to see taken forward by the new commission. I am sure that the noble Lord, Lord Stevenson, who, as the noble and gallant Lord, Lord Craig, pointed out, is himself a Cross-Bench Peer, will value enormously the advice, both formal and informal, which the noble and gallant Lord, Lord Craig, will undoubtedly give him.

Lord Rodgers of Quarry Bank: My Lords, from these Benches I welcome the announcement made by the noble Baroness of a commission of real quality and experience. The noble Baroness is right to say that there is a significant concession by the Prime Minister on the question of patronage. As she has made clear, there is a distinction between this commission and that proposed in chapter 13 of the report of the noble Lord, Lord Wakeham. However, can she undertake to consider carefully that, irrespective of how long it may take to make a major further change in the composition of this House, there is a great deal to be said for extending the remission of patronage by implementing at a very early date, ahead of other changes, chapter 13 of the report of the noble Lord, Lord Wakeham, and to make all the appointments to your Lordships' House the responsibility of an independent commission?

Baroness Jay of Paddington: My Lords, I am very grateful to the noble Lord, Lord Rodgers, for underlining what I said in my original Answer, which is to lay great stress on the quality of the individuals appointed to this commission. I agree with him that they form a very strong panel. They were chosen from a strong field of candidates, which, in itself, was very encouraging.

On the noble Lord's second point, as I said in my original reply to the noble Lord, Lord Strathclyde, the Government accepted in principle that the proposal of the noble Lord, Lord Wakeham, on the statutory commission for membership of your Lordships' House should very much form part of the final reform of your Lordships' House, or the next part of the reform. However, the noble Lord will also be aware that I have said on many occasions that the Government do not

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believe it appropriate to give a commitment to cherry-pick individual recommendations of the Royal Commission.

Lady Saltoun of Abernethy: My Lords, does the noble Lord, Lord Stevenson, live in Scotland?

Baroness Jay of Paddington: My Lords, I am afraid that the noble Lady may have private and personal information on the noble Lord's residence which I do not have. However, I believe that he would be distressed not to be described as a Scot.

Earl Ferrers: My Lords, perhaps I may ask the noble Baroness two short questions. First, with regard to future membership of the House of Lords, I believe that she said that new Peers would be drawn from a whole variety of different people. How can she say that when the Appointments Commission, which is responsible for appointing people, is supposed to be totally independent? Secondly, if I heard her correctly, she said that the chairman would be the noble Lord, Lord Stevenson of Coddenham, and that the other three people were all ladies. Is that not an example of gross sexism? Is the noble Baroness saying that out of the tremendous field of people who applied, no man was suitable to be chosen?

Baroness Jay of Paddington: My Lords, I suspect that it is a tribute to the quality of those people who applied. I have no doubt that the appointments were made on the absolute and clear understanding of equal opportunities policy, which is always pursued by the Commissioner for Public Appointments. With regard to the noble Earl's first point, in making the comments about drawing from a wider group than might customarily be the case in terms of membership of your Lordships' House, I was simply quoting from the terms of reference for the commission.

The Earl of Onslow: My Lords, will the noble Baroness give an undertaking that if the Appointments Commission puts someone forward, the Prime Minister will not veto it?

Baroness Jay of Paddington: Yes, my Lords. I said that in my previous reply.

Utilities Bill

3.48 p.m.

Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time. I shall set out the key objectives and provisions of the Bill in a moment. However, before doing so, I wish to explain briefly the position regarding telecommunications and water.

During consideration of the Bill in another place, the provisions relating to telecommunications and water were removed from the Bill in response to representations from industry. In the case of telecoms, they will be taken forward in the broader context of the

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White Paper on reform of communications regulation, which the Department of Trade and Industry will be bringing forward later this year. In the case of water, they will be carried forward in a draft water Bill which the Department of Environment, Transport and the Regions intends to publish later this year. In this way, Parliament will be able to consider the proposed changes to the regulatory regime for water, alongside other proposals resulting from the review of competition in that sector.

The Bill that we are considering today remains a substantial and important piece of legislation. It delivers for the energy sector the key proposals to emerge from our review of utility regulation. It has five key objectives, with which I shall deal in turn: first, to secure a fair deal for all consumers, including the disadvantaged; secondly, to facilitate more effective competition in the energy sector, particularly in the generation and supply of electricity; thirdly, to modernise the regulatory framework for the next decade, while building in flexibility to accommodate future developments; fourthly, to ensure that the gas and electricity sectors contribute to environmental objectives; and, fifthly, to provide a more consistent, transparent and predictable regulatory framework.

Before I deal with each of those points in turn, I apologise in advance for the awkward structure of the Bill. The structure arises because the Bill amends two separate Acts, the Gas Act 1986 and the Electricity Act 1989. This means, as will become apparent as I proceed, that two clauses are needed for each change that is made. The good news is that the Bill is about half as long as it looks, because many of the amendments are common to both gas and electricity.

I return to the five main subjects and I deal first with consumers. This Bill contains a package of measures aimed at putting the interests of consumers at the heart of utility regulation. We refer in this respect to all consumers, large and small, business and domestic, including the disadvantaged.

The framework of regulatory duties that we inherited from the previous government put the interests of shareholders first. This Bill puts the balance right. The Bill replaces the individual energy regulator with the gas and electricity markets authority. Clauses 9 and 13 of the Bill give this new regulatory authority a principal objective of protecting the interests of consumers, wherever appropriate, by effective competition.

Competition is the best way of serving consumer interests. But there are areas where it is not yet an effective discipline and areas where, even though effective competition is developing fast, there is still work to be done to ensure minimum standards of service and build consumer confidence.

Provisions in Parts I and III of the Bill establish an independent gas and electricity consumer council and provide it with its functions. This new body replaces the existing Gas Consumers Council and the Electricity Consumers Committees. It will be a powerful consumer champion, operating independently of the regulator. It

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will have the job of investigating and seeking to resolve complaints against utility companies, passing on to the authority any matters that raise licence enforcement issues. It will provide a single point of contact for consumers, ending the uncertainty about who consumers should turn to for assistance with a complaint or for information and advice on how to get the best out of competitive markets.

It will work effectively with the authority through a memorandum of understanding and will seek constructive links with local consumer advice bodies, such as trading standards offices and citizens' advice bureaux. The council will have strong rights of access to the information that it needs from the authority and from the utilities in order to carry out its functions effectively. It will have powers to publish information in the consumer interest. Finally, the council is being set up to act as a powerful advocate for consumers, providing advice to regulators, government, companies, and others with an influence on the regulatory system about consumer needs and interests.

An influential consumer council, advising customers and championing their interests, will have an important part to play in eliminating the causes of complaints at source and in driving standards up and prices down. But consumers must also be confident that minimum standards of service will be maintained, even when they switch suppliers. Clauses 58 and 94--and this is an example of the "two clause one subject" to which I referred--fill an important gap in the regulator's powers. They give the authority a power to impose financial penalties for past and continuing breaches of licence conditions, standards of performance and other obligations. It is a reform which is long overdue. It is not good enough that companies can get away with simply promising to do better in the future. For the first time, the authority will have an effective tool for ensuring that companies comply with their obligations. It will be properly equipped to tackle company failures, such as persistent malpractice in doorstep selling tactics.

These are tough new powers and they are meant to be, but companies that play fair with consumers and meet their obligations have nothing to fear. The powers will be used in a transparent way. There will be proper due process, and companies will be able to challenge in the courts both the imposition and the amount of a penalty.

As regards directors' pay, Clauses 60 and 96 include measures to encourage gas and electricity companies to link directors' pay with the achievement of customer service standards. This will be achieved by requiring price-regulated gas and electricity companies to publish the links, if any, between directors' pay and service levels achieved. Regulation will not gain widespread credibility if consumers see directors of monopoly and dominant companies awarding themselves high salaries where service is inadequate. This is more than naming and shaming. There are real incentives for directors to give customer service standards the priority that they deserve. We have already urged the regulator to take into account the levels of consumer service and satisfaction when

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setting new price caps. The new powers to impose financial penalties will focus minds still further. Companies will see it as in their interests to link directors' pay with service standards.

We have said consistently that we want to ensure that the economic benefits of competition in gas and electricity are spread fairly among everyone. We have also said that tackling fuel poverty is a high priority for this Government. We take it very seriously. The benefits of competition should be enjoyed by the many, not just the few, not just big business and not just those able to pay by direct debit.

The Government are taking action on a number of fronts to tackle fuel poverty. The Budget, for example, made changes to increase winter fuel allowance and to apply reductions in VAT to home insulation and heating systems. The energy regulator, at the Government's behest, is carrying forward a social action plan to give vulnerable groups more choice and to make it easier for consumers to pay their bills and avoid debt. The Bill, however, makes a significant contribution in its own right to setting a framework for combating fuel poverty and social exclusion.

First, Clauses 9 and 13 of the Bill impose on the authority a duty to take into consideration the interest of low-income consumers alongside other disadvantaged or vulnerable groups. By referring to disadvantaged groups in this way, the Bill does not require the authority to discriminate in their favour, but we are ensuring that the authority must always bear in mind the interests of those groups in exercising its functions.

Secondly, Clauses 10 and 14 place the authority under a duty to have regard to statutory guidance issued by Ministers on their social objectives for the gas and electricity sector. Draft guidance is currently out to consultation.

Thirdly, the new powers in the Bill to set energy efficiency targets will have benefits for the fuel poor. Energy efficiency measures are aimed primarily at environmental objectives but they can have significant benefits for the disadvantaged, if focused on them, by reducing their energy costs and enhancing their comfort and well-being.

Finally, the Bill backs this up by giving Ministers reserved powers, in Clauses 68 and 97, to create schemes which would have the effect of cross-subsidising disadvantaged consumers to reduce the charges that they pay for gas and electricity. The powers might be used, for example, to reduce price differentials between pre-payment meter and frequent cash payment scheme rates, and rates for other consumers who use cheaper payment methods. The power would be used only in the event that other avenues for tackling fuel poverty which are being taken forward by the regulator and the industry fail to deliver a satisfactory outcome. But it does underline our determination to deliver a fair deal for all.

My second main theme is competition. I have said that competition is the best means of serving the interests of consumers. Regulation is sometimes

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necessary, but it is second best. The Government's record in driving forward competition in gas and electricity supply speaks for itself.

When we took office, competition in energy was not adequately developed. Indeed there were questions about whether competition in electricity would happen at all. We now have a full roll-out of competition in gas and electricity supply. There are about 210 gas licences and about 160 electricity licences.

Consumers are increasingly taking advantage of the choice that is now available. In October 1998, 16 per cent of domestic gas consumers were supplied by companies other than Centrica. At the end of December 1999 that figure had risen to 27 per cent, or 5.3 million domestic consumers. For electricity, customers have been switching at the rate of about 100,000 a week since last summer. By December, 3.7 million domestic consumers had switched supplier. It is an impressive record, but we can go further.

The Utilities Bill takes important new steps to secure more effective competition in energy markets, particularly in electricity generation and supply. In particular, the current electricity pool is fundamentally flawed. It is a price-setting mechanism, not a market. There is no buyer participation. The result is that market power is in the hands of the generators. The system is not transparent. It distorts the market to the disadvantage of flexible plant, including coal-fired plant. There is inadequate regulatory oversight of the pool's operations. It has had 10 years to address its shortcomings but has failed to do so. Consumers have suffered from unnecessarily high electricity prices for too long.

Clause 67 of the Bill gives the Government powers necessary to implement the new electricity trading arrangements in England and Wales. Under the new arrangements, the current electricity pool will be replaced with a new trading system based on a series of bilateral markets designed to encourage competition and remove current market distortions. It will increase competition and drive down electricity prices. It will remove the distortions present in the pool and level the playing field for generators and suppliers. It involves buyers directly in setting prices; and it will introduce better governance arrangements and proper regulatory oversight.

The new system will complete the reform of the electricity market, allowing the lifting of the stricter consents policy for gas-fired power stations.

The result will be a more competitive market working to the benefit of consumers. We have consistently said that we anticipate that the package of reforms for the electricity sector will result in reductions of 10 per cent or more in wholesale electricity prices. There is strong evidence from the markets that reductions are already being achieved in anticipation of the new arrangements. Forward market prices are down some 20 to 25 per cent in real terms. That is a big prize. The wholesale electricity market for the UK is estimated at £8.5 billion. A

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10 per cent reduction means ongoing annual savings for consumers of £850 million. That means lower prices for domestic consumers, and lower input prices for UK business.

The Government intend to exercise the powers so as to enable the new trading arrangements to be brought into effect in the autumn of this year. We are determined to ensure that consumers, domestic and industrial, benefit sooner rather than later from these essential reforms.

Provisions in Part IV of the Bill will also stimulate further and more effective competition and choice in electricity supply. They do that by separating supply, which is competitive, from electricity distribution, which is a monopoly. Separating supply and distribution will facilitate further restructuring of the electricity industry where that is commercially sensible, subject to the normal provisions of competition law. It will also remove the existing distinctions between public electricity suppliers and other suppliers, thereby ensuring a fair market for all electricity supply companies.

This Government have already pushed ahead vigorously with competition in gas and electricity supply. We are taking further steps, through the Bill, to introduce effective competition into the wholesale electricity market. In addition, we introduced a Competition Bill into this Government's first parliamentary Session, following years during which the Opposition talked about the reform of competition but did nothing about it. The powers in the Competition Act came into force on 1st March this year. From that date, the energy regulator and the other regulators took on strong new powers to tackle anti-competitive behaviour in their sectors.

My third main theme is the regulatory framework which is part of the Government's programme of reform and modernisation. The privatisation of British Gas took place 14 years ago; electricity 11 years ago. The existing Gas and Electricity Acts need to be modernised to take account of market developments such as increasing competition, the dramatic increase in the number of licensees, and the convergence of gas and electricity markets.

Having brought regulation up to date, we must ensure that it is flexible enough to accommodate and encourage future market development while not compromising regulatory certainty and predictability. The Bill provides for the alignment of the regulatory systems for gas and electricity under a single regulatory authority--the gas and electricity markets authority--recognising that energy markets have converged.

Clauses 34 and 81 streamline the process of modifying gas and electricity licences so that the authority no longer needs the individual consent of all licensees to a change to standard licence conditions. It will be able to proceed if it secures the consent of a significant majority. With hundreds of licensees, collective licence modification procedures are vital to allow the regulator to deal effectively with necessary licence changes, and to adapt to changes in the market.

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My fourth theme is environmental provisions. This Bill is primarily about economic regulation but, at the start of this century, we cannot ignore environmental concerns. The energy utilities have a big impact on the environment. So they have a big part to play in the achievement of our environmental objectives--particularly those for energy efficiency and the control of greenhouse gases.

The Bill contains provisions to ensure that the energy sector contributes to those objectives. It puts an end to the confusion we inherited from the previous government about the respective responsibilities of Ministers and regulators for environmental matters.

Clauses 61 to 66 give Ministers powers to set obligations on electricity supply companies for the supply of electricity from renewable sources. The Government will use those powers to meet our target of 10 per cent of electricity from renewable sources by 2010, subject to the cost to consumers being acceptable.

Clauses 69 and 98 provide powers for Ministers to impose obligations on gas and electricity companies to achieve specified energy savings targets--targets which are to be achieved through activities to improve efficiency in the use of energy by consumers. On 9th March, my right honourable friend the Secretary of State for the Environment, Transport and the Regions launched consultation on the use of those powers. He is proposing an obligation which would result in savings of about 750,000 tonnes of carbon a year.

Clauses 10 and 14 place the authority under a duty to consider statutory guidance issued by Ministers on environmental objectives relevant to the gas and electricity sectors.

These are important provisions. Guidance will ensure that the authority is alert to the Government's environmental objectives, thereby ensuring that regulation makes a proper contribution to the attainment of those objectives. At the same time, they maintain the principle that the authority operates at arm's length from government on matters of economic regulation.

My fifth and final theme is consistent, predictable and transparent regulation. Our extensive consultation revealed that we can do much to build confidence and stability into regulation through a more predictable, consistent and transparent regulatory framework. Improving regulatory procedures does not catch the eye, but it is vital in securing better decisions, more widely accepted decisions, and regulatory stability over time.

Our willingness to engage in improving regulatory procedures has been welcomed by consumers and companies alike. The Bill requires the authority to publish and consult on its forward work programme, and give reasons for key decisions.

Clauses 38 and 82 strengthen the position of the Competition Commission as an effective appeals body when disputed licence conditions are referred to it by

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the authority. In that way, companies will have greater certainty that the commission's findings will be properly implemented.

The rapid development of competitive energy markets has made the task of regulating those sectors increasingly complex. The interests of hundreds of licensees have to be considered and balanced. Decisions in that context are best undertaken by a regulatory authority. Therefore, Clause 1 of the Bill will replace the individual energy regulator with a regulatory authority, the gas and electricity markets authority, to which I have referred. Regulatory decisions will no longer be the responsibility of one individual. They will be less dependent on the personality of a single regulator. The whole process will provide for greater continuity, reducing the jolts every time a new regulator is appointed.

To conclude, the proposals in the Bill have been the subject of wide consultation. They are forward looking, and they are seen by the regulator, consumer groups, regulated companies and others as sensible, balanced and fair. The Bill establishes a modern regulatory framework which is stable, fair to all consumers and in which the respective roles of Ministers and the regulator are clear. It will ensure that the gas and electricity sectors make a contribution commensurate with their importance to the achievement of the Government's environmental objectives.

The Bill provides a framework that will ensure a fair balance between the needs of consumers and the legitimate interests of companies. The Bill will promote high quality services for consumers, exert downward pressure on prices and will promote further and more effective competition in the gas and electricity sectors. It is good for the environment, good for consumers, good for the utilities and good for competition. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Lord McIntosh of Haringey.)

4.10 p.m.

Baroness Buscombe: My Lords, I am grateful to the Minister for his introduction to this Bill, at least, to what is left of it. This was to be, as the Secretary of State said in another place, a "flagship" Bill,

    "part of that agenda of modernisation and reform".--[Official Report, Commons, 31/1/00; col. 782.]

This so-called "modernisation" is proving to be a very risky business. The Secretary of State referred to the "current ramshackle legislation". What we have now is a diminished, disappointing, ramshackle Bill.

However, at least it serves one real purpose: it exposes this Government's dilemma between the desire to try and show that they support business and understand the needs of consumers, with the fact that they cannot bring themselves to accept that competition, unshackled by expensive regulations, together with consumer choice--as opposed to consumer protection--is the best way to serve the customer.

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Indeed, the Second Reading of the Bill in another place--when it was a whole Bill--was very enlightening. It confirmed the continuing, deep-seated rift between the New Labour hierarchy and what I call "Real Labour". While the principal objective for the regulators set out in the Bill is,

    "to protect the interests of consumers",

Members on the Government Benches in another place exposed their will to respond to this priority by articulating their blanket distrust for the private sector and by lamenting privatisation, with the resultant belief that those operating in the private sector must be penalised and compromised with increased bureaucracy and regulation.

Perhaps in their willingness to serve their leader, the Prime Minister, they had not forgotten his contribution to the Second Reading of the Electricity Bill in 1988. As the then honourable Member for Sedgefield said,

    "We are proud that we took the industry into public ownership. When we come to power it will be reinstated as a public service for the people of this country, and will not be run for private profit".--[Official Report, Commons, 12/12/88; col. 689.]

In other words, "We will reinstate it as a proper public service under public control".

One of the many issues that the then opposition failed to appreciate was that, following privatisation, and thereby with the development of open competition, the consumer would benefit from real reductions in the cost of utilities as well as an increase in the quality of provision and service.

In fact, since 1989, electricity prices have fallen by 29 per cent in real terms and gas prices have fallen by 29 per cent in real terms. Indeed, I would like to talk about domestic telephone charges, which have plummeted by 50 per cent in real terms, but I presume that now I am not supposed to dwell on that latter success story.

In contrast, the Government's regulatory impact assessment makes it clear that the extra administrative costs of arrangements in the remaining parts of the Utilities Bill will add at least £5 million a year to the cost of regulation. Who will pay for that? At the end of the day, the consumer will pay.

We understand from the Secretary of State (at col. 788 of Commons Hansard) that "extensive and wide-ranging consultation" took place before the Bill was introduced. Yet half of it was dropped and 359 government amendments were tabled during its passage, with scant opportunity for consideration and consultation with the utilities industries. British Gas said of the new clauses,

    "They have been brought forward in a piecemeal way and have not been the subject of any"--

I repeat the word "any"--


That extraordinary situation has created enormous uncertainty, both for consumers and providers. In some cases, it has already had the effect of driving down share prices, which reduces the ability of the providers to invest and take a long-term view as capital intensive industries, such as utilities, have to do. As for

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the consumer, and with particular regard to those 16 million over the age of 65, we are considering the provision of essential services. So much for the "attainment of social policies", mentioned in Clauses 10(1) and 14(1) of the Bill.

Does the Government's handling of this Bill thus far mean that they are undecided about their policy for energy? Do the Government have a policy for energy? If they do, I, for one, am unaware of their intent. On the one hand, the Government have announced a £100 million lifeline for the coal industry; on the other hand, the announcing of the lifting of the moratorium on gas-fired power stations will provide further competition to the coal sector. What about renewable sources of energy? The most recent research shows that, since they came to power three years ago, the Government have invested less than £10 million in research into renewable energy sources. Are their hearts not in looking to the future? Whatever, their policy, that is far from clear having regard to their actions and the words in the Bill.

At this stage, perhaps I should make it clear that we support some aspects of the Bill. In short, we welcome the merging of the electricity and gas regulators into a new combined Ofgem, particularly since those sources of energy have started to supply each other's products. However, we are concerned that joining the two together should not double the cost of the combined authority. It is rather worrying to learn that three years ago Ofgem's predecessor authorities were spending a total of £29.8 million a year, while Ofgem's budget for 2000-01 is a rather staggering £64.5 million. That means that more costs will be passed on to the consumer.

We also welcome the new combined gas and electricity council. In addition, we support the separation of the licensing of the distribution and supply of electricity, which is something that we would have done to complement the growth in competition, as it further defines and limits the area which remains a natural monopoly. In practice, that move, in due course, should mean a reduction in the regulatory involvement in all those areas which are now competitive. Instead, however, we now have a Bill that will impose more regulation in the mistaken belief that that will benefit the consumer. Again, I refer to Clauses 10(1) and 14(1) which state:

    "The Secretary of State shall from time to time issue guidance about the making by the Authority of a contribution towards the attainment of any"--

I repeat the word "any"--

    "social or environmental policies set out or referred to in the guidance".

The guidance, of course, is very much hidden from view, by which I mean that it is not on the face of the Bill. I interpret that drafting as a completely open ticket for the Government--not an arm's-length, independent regulator--to pick up and run with any social and environmental pursuits into the future and place them, via the authority, at the door of the utilities companies for the latter to accept, develop, fund and implement.

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In fact, the Minister spoke about the importance of continuing an arm's-length situation for the regulator on matters of economic regulation, but I argue that most activities will have an economic impact. In principle, that sounds like an excellent idea and one that is kind to the consumer as well as being green. However, in practice we have grave doubts. We have looked at the repercussions of the Water Industry Act 1999, where, for example, so-called "guidance" has already required the banning of disconnections. In that instance, guess which bill is now paid last by the consumer, who knows his or her rights? Those repercussions demonstrate that the word "guidance", in practice, means "prescription".

Some of those environmental and social policies will be good. There is no doubt about that. However, if the private sector is now to be required to carry out the Government's social engineering for them, who will bear the cost in the end? It will be the consumer. Is this kind to the consumer?

A further, glaring issue that we fought hard against in another place and which we shall oppose in your Lordships' House, is the limitless fines that the Bill will enable the authority to impose on the utilities companies. Again, who is the ultimate loser? It will be the consumer. Perhaps I may quote the shadow Secretary of State in another place when she articulated this point with clarity during the debates on Report:

    "The consequence will be a huge increase in the level of regulatory risk being faced by the industry. Higher regulatory risk means higher rewards for the provider of capital to the industry to compensate for the increased risk. That in turn translates into higher interest costs, which inevitably end up being passed on to the consumer".--[Official Report, Commons, 19.4.00; col. 1070.]

Can the Minister tell the House if that is really what the Government intend? How can the Government's stated priority--that is, to protect the interests of consumers--be achieved when they quite blatantly intend to increase regulation and government interference? Those moves are bound to destabilise the business climate and, ultimately, penalise the consumer.

The results of privatisation of the gas and electricity industries speak for themselves. The Minister has already said today that they have an impressive record. With the separation of licensing of the distribution and supply of electricity, we would have continued to see more competition, improved quality of service to the customer, and savings to the customer as a result of that competition.

In conclusion, perhaps there is some truth in what the then honourable Member for Sedgefield said back in 1988 during the Second Reading of the Electricity Bill when he talked about reinstating a public service under public control. It is for these Benches to remind us all--"us", the consumers--that the greatest loser under public control--the control of the Government--was the public.

4.21 p.m.

Lord Ezra: My Lords, I wish to declare a long and continuing interest in the energy sector which, at

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various stages, has covered coal, oil, gas, electricity, renewables and CHP. I cannot think of any others for the moment.

We on these Benches welcome the main thrust of the Bill and its principal provisions. In particular, we support the emphasis placed on the protection of the interests of consumers, especially those in difficult circumstances. Having actively participated in the debates on the privatisation of gas and electricity in the 1980s, and having closely followed all the changes that have occurred since, I consider that the wide-ranging review, of which this Bill is the outcome, has been appropriate and desirable. I am glad to note that many of the views expressed in the consultation period have been taken into account.

Our attitude to the Bill as it passes through its various stages will be to seek improvement to provisions which we basically support. I should like to start with Clauses 9 and 13, which set out the main objectives. In stating that,

    "The principal objective of the Secretary of State and the ... Authority in carrying out their respective functions ... is to protect the interests of consumers",

it is not made clear that this should be done on a sustainable basis. In view of the considerable importance attached by the Government to the concept of sustainability and their reference to this in the draft social and environmental guidance to the authority, it is surprising that an amendment to this effect should have been rejected in another place. I feel that there is a strong case for coming back to this matter.

As regards the same clause, I am concerned about the lesser importance given to the promotion of efficiency in the use of gas and electricity and to the protection of the public from the dangers arising from the supply of these fuels. I should have thought that both of these vital issues would rank in importance with the other objectives and should not be subsidiary to them.

I support the formation of a single regulatory authority--as does the noble Baroness, Lady Buscombe--to cover gas and electricity, in view of the growing inter-relationship between the two markets. Having had the opportunity of meeting Mr Callum McCarthy and his colleagues on a number of occasions, I am impressed with their determination to make a success of the new authority. The authority will of course have close relations with the Government, with the enterprises in the sector and with the new consumers' council. It is important that these inter-relationships should be clearly established and I believe that the Bill and supporting documentation go a long way towards doing this.

I have two points to raise. First, in putting so much emphasis on the interests of consumers, the Government may be giving the impression that they are lukewarm about the enterprises. I am sure that that is not so, but it needs to be demonstrated. A particular cause for concern is the power to be given to the authority to impose financial penalties, to which the noble Lord, Lord McIntosh, referred in his opening

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remarks. Obviously, some such power is necessary to reinforce the position of the authority. Indeed, it already exists in present legislation in relation to gas. What has raised concern is the fact that there is no limit to the amount of the financial penalties, as is the case in the Competition Act. A cap of some kind seems desirable. This is another matter to which I hope we shall return at later stages.

Secondly, both the authority and the consumers' council are given the right to obtain information from the enterprises. That is clearly desirable, otherwise they could not do their jobs effectively. However, it is important that there should be no duplication. If information is already available to the authority, it should supply it to the consumers' council. A more vexed question arises as to how this information will be used. Like other noble Lords, I have received briefing material from the Consumers' Association on the one hand and the CBI on the other, taking totally different views. The Consumers' Association is concerned that the council might be muzzled by the enterprises when it tries to publish what it considers to be relevant and important information, while the CBI is concerned about the commercial interests of its members. I do not believe that we have yet struck the right balance in the Bill on this issue and I hope that this is another matter to which we shall return.

Like the noble Baroness, I fully support the creation of a combined and independent consumers' council. For years I have been pressing for the consumers' councils in the utilities sector to be given independent status, as was done in the original privatisation Acts only in the case of the Gas Consumers' Council. For that reason I am delighted that this principle has at long last been adopted. Having said that, I hope that the aim of the new council will be, wherever possible, to work with the enterprises rather than against them. Of course there could be instances where an adversarial situation is unavoidable, but I hope that those will be few and far between and that the aim of both the council and the enterprises would be to combine together to serve the best interests of consumers.

I had experience of this when I was in the coal industry. We had a strong Domestic Coal Consumers' Council, but to emphasise the need for close co-operation I was, as marketing director of the NCB at that time, a member of the council and tried to help it perform its task as effectively as possible.

I should like to mention a concern that has come to me about the proposed regional organisation of the council. There is to be a substantial reduction from the present spread of regional councils. While some degree of rationalisation is obviously desirable, in view of gas and electricity coming together, there is none the less a fear that what is now proposed will materially diminish the services which the council could make available to consumers on a regional and local basis. I have received representations from Yorkshire and the south-west on this, and apprehensions in the north-east were mentioned in debates in another place. We shall need to come back to this issue.

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It is eminently desirable, as proposed in the consultative documents, that the Government should provide the authority with social and environmental guidance. There have been areas, as the noble Lord, Lord McIntosh, stated, where, under existing legislation, the role of the regulators, particularly in relation to government in many areas, has remained uncertain. That is now clarified.

Under social objectives, the Government place particular importance on dealing with fuel poverty, an objective I fully support. It is estimated that there are still over 4 million households in fuel poverty; that is, where they have to spend more than 10 per cent of their income on energy. The introduction of the new Home Energy Efficiency Scheme will go some way to dealing with this long-lasting problem. But very much more action is required. I am glad that the authority has already issued its Social Action Plan, to which the noble Lord, Lord McIntosh, referred, for dealing with this, and has been encouraged by government to proceed vigorously with it. Have the Government considered what is happening to alleviate this problem abroad? A number of measures have been taken in France in the electricity law of 10th February, including the establishment of a social or reduced price for families in difficulty.

I am also glad to note the general intent of the environmental objectives. But I should like to raise certain issues in that connection. The Government accept the advantages of embedded generation; that is, generation within the local distribution network. They recognise that the main problem is access to the network on fair and transparent terms. That has been a real difficulty for small generators which cannot gain access to the network on a reasonable basis which would enable them to proceed with their business.

I understand that a working party under Ofgem is looking into this. Can we be assured that the Government will have the powers necessary to implement any appropriate recommendations which are likely to emerge after this Bill has been through its various stages? If micro CHP schemes, on which much technical work has been done, for introduction into domestic premises are to be encouraged--it would show considerable savings--net metering, which equates the prices of electricity into and out of the network and is widely practised in the United States and elsewhere, would be necessary, otherwise such projects could not go forward.

A big step forward in the promotion of energy efficiency is the transfer of the energy efficiency standards of performance (EESOP) from the regulator to the Government. The present EESOP goes up to the year 2002. The Government have proposed a further EESOP to cover the period up to 2005, which would put an obligation on gas and electricity suppliers to stimulate their customers to carry out energy-efficiency projects. A target would be set for each supplier. That is an important development and much to be welcomed. I hope that it can be supplemented by

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other measures, such as the widening use of energy audits to establish the energy efficiency of individual homes.

The Government have committed themselves to a target of 10 per cent of renewables by the year 2010 compared with a present level of between 2 and 3 per cent. I agree with the noble Baroness that so far progress in that direction has been fairly limited. There is also an intermediate target of 5 per cent to be achieved by 2003. That is an important commitment and it is surprising that the Government resisted an amendment in another place to put it on the face of the Bill. I feel that that is something to which we should return.

I declared at the start of my speech that I had an interest in combined heat and power. For many years I have been an advocate for this process of making use of the heat from power generation which would otherwise be wasted. There is a strong case for dealing with CHP on the same basis as renewable energy. There is also a case for mentioning clean coal technology, which came up at Question Time. The Government have recently committed themselves to providing the coal industry with an important measure of short-term aid, to which the noble Baroness referred. But the long term must be considered as well. If coal is to remain a major source of energy, it must be made more environmentally acceptable. Therefore, stronger support needs to be given to the development of clean coal technology, both for use in this country and, as was mentioned at Question Time earlier today, to be promoted abroad.

The preparations for introducing the new electricity trading arrangements, to which the noble Lord, Lord McIntosh, referred, are now well advanced. The Minister said that he expected those to be introduced in the autumn. Perhaps he can confirm later whether or not that will be so. There is some feeling that the arrangements could take a bit longer.

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