Previous Section Back to Table of Contents Lords Hansard Home Page


Lord Ezra: My Lords, I thank the Minister for that detailed response. I also express my appreciation for the meeting we had the other day. I am a little puzzled, however, at his response to the particular point raised by the noble Baroness, Lady Miller, when he said that public ownership—I refer also to the remarks that he made in Committee—was indistinguishable from administration. If that is so, there can be no objection to my amendment. If the Minister says that effectively administration means that the assets would be in public ownership, that is fine. I refer to the wording of my amendment in which "administration" is used. Therefore, I am a little puzzled by the Minister's comment.

Lord Sainsbury of Turville: My Lords, I hope that I can clarify the situation. The point I was making was that public administration and public ownership do not constitute the same situation. I should perhaps have made clearer that public ownership will take place only after a process of administration. We do not think it likely that anyone would come forward at the administrative stage to buy the company. Therefore, there is not—as I believe the noble Baroness implied—some sinister agenda of circumstances in which we would take the company into public ownership where it had not been through the process of administration. That was the only point I was trying to make.

Lord Ezra: My Lords, it does seem therefore that the wording of the amendment would not restrict the

3 Apr 2003 : Column 1418

Government in that situation. If what the Minister mentioned is all part and parcel of the administration process, it would be covered. I am still worried about leaving this matter absolutely open-ended. If the situation should change so dramatically that neither of the two solutions now being proposed were to be able to operate, I think that the whole matter should be presented once again to Parliament.

I should like to reflect on what the Minister said and consider whether some further amendment should be proposed at the next stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Jenkin of Roding moved Amendment No. 2:


    Page 1, line 13, at end insert—


"(1A) The aggregate of the expenditure incurred by the Secretary of State under subsection (1)(a) shall not exceed the sum of 700 million or such greater sum not exceeding 1,000 million as the Secretary of State may provide by order."

The noble Lord said: My Lords, in moving Amendment No. 2, which stands in the names of the noble Baroness, Lady Miller, the noble Lord, Lord Ezra, and myself, I suggest that the House might also discuss Amendments Nos. 3, 4 and 5. I say straight away that these are probing amendments. I do not intend to seek to persuade the House to go into the Lobbies in their support.

In Amendment No. 2 we have attempted to include some figures to constitute the upper limit of what the Government might spend in two alternative circumstances. The first alternative is that the restructuring works and therefore the company remains in being and the Government's operational support is a temporary phenomenon, as I believe they intend. By the end of the period of the restructuring the company would be solvent and able to meet its liabilities. The second alternative is that the restructuring does not work and the company has to go into administration. There should be some limit—obviously this would constitute a much greater sum—on what the Government would be obliged to spend in order to keep the power stations operating in administration.

The noble Lord may well ask—as, indeed, he did at our meeting—whether the figures are carefully worked out. I have to say that of course they are not. The first figure in the proposed new subsection (1A) is based on the original support of 650 million with a margin—it is 700 million—but with the power to increase that sum to 1,000 million if the situation demanded. The sum of money would have to be approved by an order in Parliament.

Much more at large are the figures for the expenditure in the case of the administration not succeeding. In the proposed new subsection (1B) we suggest a sum,


    "of 2,000 million or such greater sum not exceeding 2,500 million as the Secretary of State may provide by order".

One must look at the background of why this situation has arisen. I shall not repeat what I said on Second Reading or in Committee.

3 Apr 2003 : Column 1419

As the Minister said, clearly managerial mistakes were made by British Energy in the way it conducted its business. However, the underlying cause of what brought the company low was the operation of the new electricity trading arrangement (NETA) as applied by the regulator Ofgem. As the Government have frequently boasted, the wholesale price of electricity has been reduced by 40 per cent. At Second Reading the Minister explained that British Energy fell foul of that as it does not have a retail arm. Many of the other energy producers have a retail distribution business as well and can reimburse themselves for their generating losses by making sure that their retail customers make up the loss in the price. There have been very few significant reductions in price certainly as regards domestic retail customers.

Some industrial customers are large enough to get the full benefit of the 40 per cent reduction. I am sure that the noble Lord will have seen the report from the Chemical Industries Association which stated that it was doing very well out of that situation, thank you very much. That rings a bit hollow when one recognises that what it is doing well out of is a system that has driven the biggest producer of electricity into serious financial difficulties. One wonders whether the chemical industry would feel the same about a price effect which drove some of its large companies into financial difficulties in circumstances where it could not perhaps expect the support which the Government have given in the situation we are discussing.

The point I want to make is that there is no sign yet of any let up in the downward price spiral of wholesale electricity prices. British Energy in its present state with the Government's support will have to continue to operate against the background of the extremely low prices it will obtain from its customers. As I said, it does not have a retail arm from which it can reimburse itself for those losses. The purpose of the amendments, therefore, is to ask the Government if they can now give the House some idea of what is likely to have to be spent over the next few years in order to support British Energy against the background of these extremely low prices, no doubt cheered on by trade associations such as the Chemical Industries Association.

Ofgem, the regulator, was put under an obligation by the Utilities Act 2000 to have regard to the long-term security and diversity of supply. Arguments have been put forward by Mr Callum McCarthy to the effect that one must not regard the possibility of British Energy encountering serious financial difficulties as in any sense his fault. In response, I said that it looks astonishingly different from the other end of the telescope. I do not believe that Mr McCarthy realised, while he was presiding over NETA and driving wholesale prices down, that the effect of that would have such a devastating impact on Britain's largest single electricity producer. Mr McCarthy sought to persuade me that he had regarded and given effect to the obligation. The House may remember that I tabled an amendment during the passage of the Utilities Bill in order to ensure that the chief executive

3 Apr 2003 : Column 1420

of Ofgem should have regard to the long-term security and diversity of supply. I must say that I found his argument quite extraordinarily unconvincing.

For the purposes of this clause in the Bill, the fact remains that that is the background against which British Energy must continue to operate, certainly in the months and quite possibly the years ahead. Given that, the Government should give the House some idea of what the Minister and perhaps the Treasury have pencilled in as their likely liabilities over the period. I recognise that in the first instance the sales of Canadian and American assets will have enabled the company to repay some of the loan made by the Government, but it is extremely unlikely whether, in the short term, British Energy will be able to run its business profitably at existing electricity prices, bearing in mind—we shall come to this later in our debates—the payments it has to make in order to finance its nuclear liabilities.

Please could we be told what the liability is likely to be? What is the sum? The Government must have some idea of what they will have to spend in order to preserve the viability of this company. Before I sit down, perhaps I may remark that I see that Mr McCarthy has been tipped as the next chief executive of the Financial Services Authority. All I can say to that is, God help the banks. I beg to move.

11.30 a.m.

Baroness Miller of Hendon: My Lords, it is clear from all that my noble friend Lord Jenkin has said that he is an expert in this field. I can add nothing to his remarks, other than to say that of course I wholeheartedly support them.

Lord Ezra: My Lords, the House is indebted to the noble Lord, Lord Jenkin, for reminding us so clearly of the reasons why we are in this situation and why the Government have had to step in to help British Energy. There can be not the slightest doubt that it is the way the market has operated through NETA which has brought about this situation, not only for British Energy but, as was mentioned earlier in our proceedings, for many other companies as well. The safety net has not been extended to them.

It is therefore of compelling importance that we should be told what corrective actions the Government will take as a result of market developments due to the operation of NETA, what those will amount to and what the Government have in mind. As the noble Lord, Lord Jenkin, said, he has tabled a probing amendment with suggested figures to the best that he could calculate. They may or may not be the figures that the Government have in mind, but it would be helpful if the Minister could offer some clarification. Whether that should appear on the face of the Bill is another matter, but we would certainly like to be informed of the Government's thinking.


Next Section Back to Table of Contents Lords Hansard Home Page