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("( ) The power in subsection (1)(b) may be exercised both before the coming into force of section 61 and afterwards.").


    Page 66, line 19, at end insert--


("but while subsections (3) and (4) of section 32 of the 1989 Act remain in force an order may not provide for anything which would be an offence under section 32(3) to be treated as a relevant requirement").


    Page 66, line 25, leave out ("as saved by an order under this section") and insert ("made before the coming into force of section 61 of this Act").


    Page 66, line 30, at end insert--


    ("( ) An order under this section may make different provision for different areas.").

On Question, amendments agreed to.

Clause 66, as amended, agreed to.

Clause 67 [Modification of licences: electricity trading arrangements]:

Lord McIntosh of Haringey moved Amendment No. 257:


    Page 66, line 35, leave out ("1989 Act") and insert ("Electricity Act 1989").

The noble Lord said: In moving Amendment No. 257, I shall speak at the same time to Amendments Nos. 259 and 351. Once it has been spoken to, I shall respond also to Amendment No. 258 which is grouped with these amendments.

The government amendments are technical amendments necessary to provide that Clause 67 commences at Royal Assent. Clause 67 gives the Secretary of State powers to change electricity licences

21 Jun 2000 : Column 384

in order to implement the new electricity trading arrangements in England and Wales. Commencement at Royal Assent is essential so that the powers can be used in time to bring the new trading arrangements into effect in the autumn. The planned start date for the new arrangements is 21st November. I beg to move.

Lord Kingsland: I shall speak to Amendment No. 258, which has a simple text. It replaces the expression,


    "where he considers it necessary or expedient",

with the expression,


    "to the extent that it is necessary".

Clause 67 is a very important clause. It gives the Secretary of State wide powers to modify licences. The circumstances in which he can do so are said to be,


    "where he considers it necessary or expedient".

What exactly is meant by "expedient"? I can understand when the Secretary of State might think it necessary to make modifications. But, strictly speaking, we ought to read into the expression "necessary or expedient", "necessary or unnecessary but expedient". So we are told that there are circumstances where it is unnecessary to make modifications, but nevertheless it is expedient.

As a good Conservative, I have always been brought up to believe that if it is not necessary to do something, it is necessary not to do it. So I do not recognise circumstances in which it is unnecessary to do something but nevertheless expedient. Would the Minister kindly like to speculate on what "expedient" might mean in the context of this important clause?

Lord McIntosh of Haringey: My starting-point for responding to this amendment is, I hope, the common ground that we are both in favour of the new electricity trading arrangements. The noble Lord nods. That is very helpful. I am grateful for the way in which the noble Lord has spoken to his amendment.

However, I do not see how the amendment is consistent with support for the reforms. Its aim is to narrow the scope of the powers under Clause 67. But the provision has been carefully drafted precisely to ensure that we have the scope to introduce the new arrangements without giving the Secretary of State overweening powers in other areas.

What the amendment would do is put at risk the timely interpretation of the new arrangements by opening the possibility of new lines of legal attack on the use of the powers.

Exercise of the powers is bound to be a matter of judgment, and the judgment has to be that of the Secretary of State. The clause as drafted makes that entirely clear. By removing the reference to the Secretary of State, the amendment would remove that clarity. By substituting "necessary" for "necessary or expedient", the amendment invites challenge as to what lies on which side of the boundary between the two adjectives.

21 Jun 2000 : Column 385

I shall not take up the challenge of the noble Lord, Lord Kingsland, to define "expedient or necessary". The whole point about the provision as drafted is that it is for the Secretary of State to decide what is expedient and necessary, and he is subject in the end to the provisions of administrative law.

I hope that the amendment does not reflect a fear that somehow the Government will decide to use the powers for some purpose other than introducing the new trading arrangements. That would be completely unfounded. In the cause of avoiding the possibility of legal challenge to the new trading arrangements, I hope that the noble Lord will not press his amendment.

Lord Kingsland: Before the noble Lord sits down, I entirely accept that it is necessary to include a clause of this kind in the Bill for the purposes which the Minister has clearly outlined. However, that is not the issue. The issue is: to what extent should the Secretary of State's power be constrained on the face of the Bill?

If one holds a licence, one is likely to have acquired it by spending a sum of money; and to have spent a great deal more to comply with its terms. If the Secretary of State suddenly says, "Even though you have acquired this licence, I now have to change the terms on which it was acquired", one is entitled to know as clearly as possible how widely he can cast his changes.

My worry about "expedient" is that it is an expression that is almost not susceptible of judicial review. A licence is economically, if not in law, tantamount to an item of property, albeit constrained by a term of years.

10.45 p.m.

Lord McIntosh of Haringey: I do not think that that is the case. I oppose the amendment on the primary ground that it would remove the phrase,


    "where [the Secretary of State] considers it necessary".

But I will think about the "necessary or expedient" issue, without any commitment, between now and Report.

Lord Kingsland : I am much obliged to the Minister.

On Question, amendment agreed to.

[Amendment No. 258 not moved.]

Lord McIntosh of Haringey moved Amendment No. 259:


    Page 67, line 25, leave out ("commencement of this section"") and insert ("passing of the Utilities Act 2000."


(2) This section shall come into force on the passing of this Act.").

On Question, amendment agreed to.

On Question, Whether Clause 67, as amended, shall stand part of the Bill?

Lord Ezra: The clause gives the Secretary of State powers to make licence modifications relating to the

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new electricity trading arrangements. The reason why my noble friend Lady Sharp of Guildford and I have indicated our intention to oppose the Question that Clause 67 stand part of the Bill is to draw attention to the serious problems which the smaller generators are likely to face, particularly involving renewables and combined heat and power, as a result of the proposed balancing and settlement code, which forms a crucial part of the new electricity trading arrangements.

The present arrangements under the electricity pool provide a relatively benign environment for smaller companies. They place few demands on participants in terms of fulfilment of the existing levels of activity. For example, a wind generator expecting to produce a level of output that in the event it could not provide would not be penalised in the pool for non-delivery.

However, NETA introduces an entirely different trading philosophy. In future participants would be expected to enter into prior contracts for the physical delivery of electricity, and they would be penalised to the extent that they could not produce all the electricity committed under their contract, or if they produced an excess amount. The operator would receive a low price for excesses--this is called the system sell price--and pay a high price to buy back shortfalls, known as the system buy price.

Given that it is virtually impossible for, say, a wind farm to predict its output, it cannot safely contract in advance to sell it. It is therefore seriously exposed to the penalties under NETA. Larger companies, with their much larger scale of operations, can reduce these risks very substantially.

The question is how, if at all, NETA's objective can be preserved for the bulk of operators, particularly the large ones, with some mitigation for the smaller ones, particularly those producing renewables and operating CHP, which cannot, by the very nature of their business, forecast accurately their production.

I have written to the Minister about this, and have made a suggestion, which is that for specified generators, which would include those based on renewables and CHP, there would be a third price, to be known as the system average price--the average of the buy and the sell prices. It would not remove all the difficulties which smaller operators would face but it would reduce them substantially. I have indicated to the noble Lord how it might be done. The proposal would not involve an amendment to the Bill but would be part of the settlements code. I have provided the Minister with some wording and indicated where it might be inserted into the code. I should be glad to know whether the noble Lord is prepared to consider that proposition.


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