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Lord McIntosh of Haringey: I am most grateful to the noble Lord for writing to me with his proposal to amend the balancing and settlements code. I do not know whether Members of the Committee have seen that code; it is a terrifying document of incredible complexity about six or seven centimetres thick. The noble Lord has concerns about the effect of imbalance pricing on renewable and combined heat and power

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generators; in particular, those with an unpredictable output. The Government are consulting on the code and will consider the noble Lord's proposal carefully in that context along with other responses.

The consultation closes on 14th July and I am not in a position to give more than a preliminary reaction to the proposal. We are conscious of the concerns that have been raised, particularly in relation to unpredictable output. For that reason we have developed mechanisms for aggregation which will allow a licence-exempt generator to share the risk of imbalance with other generators, thereby reducing the overall risk to itself. We are confident that the mechanism is a practical one and that smaller generators will find it of significant benefit in minimising imbalance charges. We have consulted on raising the licence exemption threshold from 50 to 100 megawatts which will increase the number of generators for which the aggregation option is available.

The Government will make an announcement on the results of the consultation. We are determined that the new trading arrangements should correct the distortions in the current market arrangements identified in the 1998 White Paper. A significant distortion is the failure of the market properly to reward flexible plant. The new arrangements will ensure that it is properly rewarded. I should note that that includes renewable and combined heat and power plant. But it must follow that plant that lacks flexibility or predictability will be less well rewarded. The mechanism for achieving that is precisely the imbalance arrangements targeted by the noble Lord's proposal. Therefore, there are difficulties about the noble Lord's proposal to which this is only a first reaction. The noble Lord's proposal will be considered, together with others, very carefully. If we have more to discuss with the noble Lord we shall certainly seek an opportunity to do so.

Lord Ezra: I thank the noble Lord for his helpful response.

Clause 67, as amended, agreed to.

Lord Borrie moved Amendment No. 260:


    After Clause 67, insert the following new clause--

ARRANGEMENTS FOR SUPPLIERS OF LAST RESORT

(" .--(1) In this section "last resort supplier" means a supplier required by or under that supplier's licence to supply electricity where circumstances have arisen which would entitle the Director to revoke or suspend the licence of another supplier otherwise than with the agreement of that other supplier.
(2) The Secretary of State may by regulations make modifications of any enactment (including an enactment contained in this Act) for the purpose of implementing, or facilitating the operation of, arrangements relating to last resort suppliers.
(3) The power of the Secretary of State to make regulations under this section shall be exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.
(4) The power of the Secretary of State under subsection (2) may not be exercised after the end of the period of one year beginning with the commencement of that subsection.

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(5) After section 15A of the 1989 Act there is inserted--
"Licence modifications relating to arrangements for suppliers last resort.
15B.--(1) In this section "last resort supplier" means a supplier required by or under that supplier's licence to supply electricity where circumstances have arisen which would entitle the Director to revoke or suspend the licence of another supplier otherwise than with the agreement of that other supplier.
(2) The Secretary of State may, in accordance with this section, modify the conditions of a particular licence granted under section 6(1)(c) and 6(2) where he considers it necessary or expedient to do so for the purpose of implementing, or facilitating the operation of, arrangements relating to last resort suppliers.
(3) The power to modify licence conditions under subsection (2) includes power to make incidental or consequential, or transitional, modifications.
(4) Before making modifications under this section the Secretary of State shall consult the holder of any licence being modified and such other persons as he considers appropriate.
(5) Any consultation undertaken by the Secretary of State before the commencement of this section shall be as effective, for the purposes of subsection (4), as if undertaken after that commencement.
(6) The Secretary of State shall publish any modifications under this section in such manner as he considers appropriate.
(7) The power of the Secretary of State under this section may not be exercised after the end of the period of one year beginning with the commencement of this section."").

The noble Lord said: We have already discussed today in Committee that from time to time, and inevitably under the more competitive conditions that now exist, a supplier may fail and cease to trade and his licence must be suspended or revoked. Without some kind of special provision there is a risk that customers will be left without the supply of a vital fuel. As far as concerns gas, the Gas Act 1986 provides adequately for such a situation by ensuring that another supplier, or supplier of last resort, is appointed to take on the old supplier's customers. Those customers are deemed by the regulator (as the Act puts it) to have a contract with the supplier of last resort.

This very day in Committee the Government, through their amendments to Clause 31 and Schedule 4, have created a similar arrangement in the supply of electricity. However, there is a risk of failure of supplier before the relevant clauses of this Bill commence and the new licence arrangements come into force, which I believe--the Minister will correct me if I am wrong--will be the spring of 2001. With regard to gas customers, safeguards exist, but for a period there is uncertainty for electricity customers.

In electricity, the present arrangements allow for the regulator to nominate a supplier of last resort, but they depend on customers taking the initiative to sign up for supply with the second supplier or supplier of last resort. If they do not do so, they can be disconnected and the supplier of last resort could have problems claiming his proper charges. Hence the amendment would enable the Secretary of State to create interim licence arrangements and obligations based on deemed contracts. That would assist in situations of failure by the original supplier before the new standard licence arrangements can take effect under the Bill. The Secretary of State would have power to modify licences to create more robust supplier of last resort arrangements.

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It is a modest amendment. It is time limited until new licence arrangements come into effect. I hope that the Government will look favourably upon it. I beg to move.

Lord McIntosh of Haringey: I well understand the point the noble Lord makes: that the supplier of last resort arrangements which we have already been debating should be expedited ahead of the implementation of other licensing aspects of the Bill.

We accept the importance of making arrangements for the appointment and financing of suppliers of last resort. That is why we have made provisions in the Bill--we discussed some of them today; the noble Lord referred to them--and draft standard licence conditions to replicate the arrangements which already exist in gas. As I am sure the noble Lord is aware from his position with Ofgem, we have consulted publicly on them.

We have had full competition in electricity supply for more than a year. If there had been an urgent requirement for licence conditions to establish arrangements for a supplier of last resort, the Director-General for Electricity Supply would have been able to use his existing powers under Section 11 of the Electricity Act to modify electricity licences in an appropriate way.

I accept that he could not have included a levy to recover the costs of the person appointed as supplier of last resort. But alternative arrangements could if necessary have been found to address that point pending passage of the Bill. As referred to in earlier discussion, the levy is a last resort of last resort of last resort.

In any case, the Government do not believe that the amendment will make any significant practical difference. So far as I am aware, we are all agreed on what the supplier of last resort measures should be. We intend to establish these, along with the other standard conditions of licences, as soon as possible. I hope that the noble Lord will not press the amendment.

Lord Borrie: I am grateful to the Minister. At this hour of the night I can do no more than read his remarks in Hansard and consider whether I need to pursue the matter; or whether, as he suggests, it is not essential, necessary or expedient to press it further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 68 [Help for disadvantaged groups of electricity customers]:

On Question, Whether Clause 68 shall stand part of the Bill?


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