§ The Parliamentary Under-Secretary of State, Department of Energy (Baroness Hooper)
My Lords, I beg to move that this Bill be now read a second time.
The Electricity Bill is a major feature of the Government's legislative programme this Session. It provides for the restructuring and privatisation of the electricity supply industry throughout Great Britain and continues the Government's policies of returning state businesses to the private sector and of encouraging wider share ownership.
1152 This is a large privatisation, and I wish to emphasise that the proposals have been given ample and careful consideration. The manifesto on which the Government were returned to office two years ago made it clear that we would bring forward proposals for privatising the electricity industry. These proposals were set out in the Government's White Papers which your Lordships will remember debating on 20th May last year; and unusually for a Bill of this size and scope, the Bill now before us completed its progress through the other place without the need for a guillotine, so every clause was considered.
The Bill before your Lordships is therefore a carefully considered piece of legislation. It has been prepared in the light of extensive consultation with the industry, with employee and consumer representatives, with independent generators and with other interested parties, including environmental bodies. But in saying this I fully realise that your Lordships will, quite rightly, still wish to examine it with your customary care and thoroughness.
Most of the Bill's clauses and 16 schedules are common to England, Wales and Scotland. Five clauses and two schedules are, however, specific to Scotland and some Scottish provisions are included as parts of other clauses and schedules. My noble friend Lord Sanderson of Bowden will speak on the specifically Scottish aspects of the Bill when he winds up.
Before I turn to the Bill itself, I should like to draw your Lordships' attention to three features which seem to me to lie at the heart of the Government's proposals. First and foremost, our proposals will promote effective competition. They will promote competition in generation and supply, ending the public sector monopoly which exists at present. This of course means a downward pressure on costs and prices.
The second feature is the new deal for customers which we offer, and the third is the security of electricity supply which we shall ensure, not least through the measures we are taking to ensure diversity in supply.
By competition I do not simply mean competition between Power Gen and National Power, the two companies which will inherit the generating capacity of the Central Electricity Generating Board, and the two new Scottish companies. I have in mind exciting new opportunities which privatisation will open up for independent private generators, who, we firmly believe, will be attracted by the opportunities presented by privatisation for the more thermally efficient and environmentally cleaner forms of generation such as CHP and combined cycle gas turbines. Our proposals will give all types of generators new rights to put them on a fair footing with the successors to the CEGB and the area and Scottish boards. We already know of some 20 proposed independent power generation projects which would amount to 7 gigawatts of electricity.
But this is just the start. We know that the area boards are keen, just as their successors will be, to encourage new entrants into electricity generation. Our proposals will enable public electricity 1153 suppliers—the successors to the area and Scottish boards—to contract for supplies from a wide range of competing generators. They will, for instance, be able to contract for supplies from Power Gen or National Power, or from new private generators, or from Scotland or France, and they will be able to generate a certain proportion of their capacity requirements themselves. They will have to contract efficiently. If they do not, they will be penalised by the licensing regime through the price control mechanism.
Our proposals will oblige public electricity suppliers and the holders of a transmission licence to allow others to use their transmission networks on transparent and non-discriminatory terms, with the director settling any disputes. This will provide a favourable environment for direct contracting between large consumers and generators.
For the domestic customer, who will receive his electricity from the public electricity supply companies, the licensing arrangements will ensure that the benefits of greater competition in generation and supply are passed on to the final customer. Heavy users in particular will find it useful to be able to contract directly with generators of their own choice. This is in addition to the competition that electricity will have to face from other energy sources.
I know that many of your Lordships take a keen interest in European matters and will want to see these radical proposals in a European context. The fact is that the increased competition which our proposals will promote are blazing a trail towards the completion of the European internal energy market. At the moment, we are the only member of the European Community with statutory provisions relating to the common carriage of electricity, which are set out in the 1983 Energy Act. We are determined to go even further. As I have explained, our proposals will oblige public electricity suppliers and holders of transmission licences to allow others to use their networks on fair terms. There will also be greater price transparency as a result of our proposals.
As regards the customer, our Bill is truly a customers' charter. For the first time all owners or occupiers will have the right, by virtue of Clause 16, to require the public electricity supplier for their area to offer them a supply of electricity. At present only those individuals within 50 yards of a main can require a board to provide a supply.
For the first time, customers will be guaranteed compensation if their local electricity supply company fails to provide a decent service. The director will be able to lay down guaranteed standards of service for domestic customers after consulting consumer representatives and the industry. He will be able to set compensation levels, determine any disputes and enforce his decisions.
And for the first time in the industry, consumers' committees will be fully integrated into the director's offices and will report directly to him. They will have a major role to play in the new industry; for example, in helping the supply companies formulate codes of practice on the payment of bills and on the 1154 special needs of the elderly and the disabled, and in protecting customers' interests generally.
These are major and substantial improvements on present arrangements. This is why our proposals have been warmly welcomed both by the electricity consultative councils and the Electricity Consumers' Council. Most importantly, electricity supplies will continue to beas secure as ever. The licences require public electricity suppliers and the holders of transmission licences to meet the current planning standards relating to security of supply. Our proposals reinforce this by ensuring diversity in sources of supply.
This necessary diversity is ensured by a statutory obligation to be placed on each public electricity supply company to purchase a minimum amount of non-fossil fuelled generating capacity; that is, nuclear and renewables. The fossil fuel levy will ensure that the costs of meeting this obligation are borne on an equitable basis by all electricity consumers. The cost of diversity is already present in electricity prices under the present system. The levy will enable customers—again for the first time—to identify the cost of the diversity they enjoy.
The Government believe that nuclear power has an important role to play in contributing to diversity of supply. We were elected on a manifesto which included the two commitments to maintain the nuclear power programme and to privatise the electricity industry. Those two commitments are wholly compatible. To that end we decided that the CEGB should be split into two parts with one— National Power—large enough to maintain the infrastructure for effective nuclear generation and to finance the construction of new nuclear power stations. By combining nuclear generation with a large portfolio of conventional generation we have created a company with a strength and diversity which I am sure will be attractive to investors.
The Bill is in several respects a better Bill than that which was introduced into the other place last December. Perhaps I may give some examples. On the important question of safety, Clause 3 of the Bill now places a specific duty on the Secretary of State and on the director in relation to the protection of the public from dangers arising from the generation, transmission or supply of electricity. As regards the regulatory arrangements, Clause 25 now enables the director to take enforcement action when he believes a licence holder is likely to contravene a condition of his licence, and not just after the event. As to consumers, we have amended Schedule 14 to the Bill so that they will be able to continue to pay their bills at post offices if they so wish.
We intend to bring forward an amendment to Clause 32 to create a special privileged place for renewable sources of energy within the non-fossil fuel obligation. We propose to do this by setting special extra tranches of capacity within the obligation which can be filled only by renewable forms of energy. In that context, your Lordships will be aware that recently the Director General of Gas Supply and British Gas have agreed a new procedure for dealing with customers who have difficulty in paying their bills. In future, such customers will be given the opportunity to agree a payment method 1155 linked to their ability to pay and, ultimately, to choose a prepayment meter as an alternative to disconnection. My right honourable friend the Secretary of State has already announced that the public electricity supply licence will make provision for a similar procedure. We shall be announcing the details soon.
I should now like to turn to the detail of the Bill, and in particular to Part I. Clause 1 and Schedule 1 provide for the appointment of a Director General of Electricity Supply and the appointment of staff to the Office of Electricity Regulation. Clause 2 and Schedule 2 require the director to establish consumers' committees.
Clause 3 is a major clause. It sets out the duties to which the Secretary of State and the director must have regard in carrying out their functions under Part I of the Bill. These include duties to secure that all reasonable demands for electricity are satisfied; that all licence holders are able to finance the carrying on of their licensed activities; and to promote competition in the generation and supply of electricity. There are also duties to protect consumers' interests, to promote the efficient use of electricity supplied by licensed suppliers, and safety duties.
This clause gives the Secretary of State and the director a duty to secure the establishment and maintenance of machinery for promoting the health and safety of persons employed in the generation, or transmission or supply of electricity; and as I have already mentioned, a new duty to protect the public.
The Secretary of State and the director will need to have regard to those duties in granting licences and exemptions under Clauses 5 to 7. Copies of the draft licences have been published but it may be helpful if I touch briefly on some of the main features. They will give customers and generators the right to use the transmission and local distribution networks. They will ensure, through the price control mechanism, that public electricity suppliers who contract with higher cost generators will be penalised and that those who contract at a lower cost will be rewarded. They will regulate prices to all but the largest customers and ensure that there will be separate controls on charges for distribution and transmission, where natural monopolies will remain, at least for the foreseeable future.
The Bill and public electricity supply licence also provide for the promotion of efficiency in electricity use. These are important provisions which will be of particular interest to your Lordships. They impose a specific duty on the director and the Secretary of State, and public electricity suppliers will be required to provide guidance to their customers on the efficient use of electricity.
The public electricity supply licences require each licensee to provide, within three months of his licence coming into force, information on the efficient use of electricity. Licensees will be required to revise this information as necesary; and also to send information on energy efficiency prepared by the director to every customer, if so asked.
1156 Public electricity suppliers and holders of transmission licences will also have a number of specific statutory duties, which are set out in Clause 9. They will have the duty respectively to develop and maintain efficient, co-ordinated and economical systems of elecricity transmission and supply. The holder of a transmission licence will also have a duty to facilitate competition in the generation and supply of electricity.
Clauses 11 to 15 enable the director to modify licence conditions. He can do that by agreement with a licence holder or following a modification reference to the Monopolies and Mergers Commission. The director also has powers, under Clauses 25 to 28, to take swift and effective action if a licence condition or a statutory requirement imposed on a licence holder under Clauses 9 or 16 to 23 of the Bill is contravened or is likely to be contravened.
Clauses 16 to 24 and 29 to 31 and Schedules 6 and 7 set out the framework for the supply of electricity by public electricity suppliers. Taken together, those clauses and schedules represent a long overdue and highly necessary modernisation and codification of the law on electricity supply. No fewer than 19 whole Acts—the earliest going back to 1882—will be repealed.
A key clause in that group is Clause 29, which gives the Secretary of State powers to make regulations relating to safety. The Government are determined that the privatised industry should continue the excellent safety record achieved by the industry in the past.
The electricity supply regulations introduced last year were the first major revision for 50 years. They followed a two-year period of consultation and discussion with the electricity industry and with industry generally, along with the Institution of Electrical Engineers, consumer groups and the major trade associations. Those regulations therefore carry respect within the industry.
The industry also has an excellent record in the field of research and development—which, in its nuclear aspects, we had the opportunity to debate a little over a week ago—and the Government are confident that that will continue. All successful companies have an eye to their long-term future, and research must be a key to long-term success. The Department of Energy, supported by the Advisory Council on Research and Development, will continue to review the need for electricity R&D on a national scale and will advise the Secretary of State on the need for government contributions to supplement research carried on by the industry.
Clause 37 and Schedule 9 will require the industry to have regard to the desirability of preserving natural beauty, of conserving flora and fauna and of protecting buildings and other objects of architectural or historic interest. For the first time, that amenity obligation will apply to all parts of the industry—that is, generation, transmission and supply of electricity—including existing private generators and those persons who generate electricity for their own use.
I know that many noble Lords take a keen and close interest in environmental protection. I share 1157 that view and I am delighted to be able to say that, as far as concerns the environment, we have a very positive story to tell. I have recently had meetings with representatives of the Nature Conservancy Council, the Countryside Commission, the Council for the Protection of Rural England and Friends of the Earth, and I understand their concerns. I shall of course listen closely to what the noble Lords have to say today.
I have also asked the successor companies for some positive indications of what they intend to do on the environment front and I can assure noble Lords that the standards of environmental protection that the industry has to meet now will be enforced every bit as vigorously after privatisation as they are now. In the first place, the industry will continue to be subject to a wide range of environmental and safety legislation which applies to industry as a whole.
Her Majesty's Inspectorate of Pollution will continue to be responsible for controlling power station emissions. As now, all new coal-fired power stations with a capacity of 50 megawatts or over will need to incorporate technology to abate acid emissions as required by Her Majesty's Inspectorate of Pollution. The Government remain committed to reducing emissions from power stations. In accordance with the European Community's large combustion plant directive, the United Kingdom will reduce the level of sulphur dioxide emissions by existing large combustion plants by 60 per cent. on 1980 levels by the year 2003. The UK will also reduce nitrogen oxide emissions by 30 per cent. on 1980 levels by 1998. The combined costs of those programmes are likely to entail overall expenditure of some £2 billion.
In that context, perhaps I may remind noble Lords that earlier this year we debated regulations to implement, for energy projects, the 1985 European Community directive on environmental assessments. The regulations relate to applications made to the Secretary of State under the various Elecricity Acts for the construction or extension of power stations and the placing of overhead lines.
On the greenhouse effect, we acknowledge that more research needs to be carried out in that area. It is clear that the proposed non-fossil fuel obligation will go some way to help contain harmful carbon dioxide emissions. Nuclear stations and renewable energy sources emit little, if any, carbon dioxide. In addition privatisation is likely to bring new power station technology to the fore, utilising new combined cycle gas turbines and advanced coal combustion techniques which will help further to reduce acid emissions.
Clauses 38 to 40 of the Bill provide the statutory framework for the guaranteed standards scheme and enable the director to collect and publish comparative information about all public electricity suppliers. For the first time, consumers will be able to compare the performance of their local suppliers directly with all the others in the country. Clauses 43 and 44 provide for the investigation of complaints by the director and by consumers' committees. Each consumers' committee will have a duty, under 1158 Clause 49, to keep under review matters in its area relating to the supply of electricity and affecting electricity consumers.
Part II of the Bill provides for the reorganisation of the industry and for the necessary powers for those companies to be transferred to the private sector. These are similar to the parallel provisions in the Gas Act 1986 and the Telecommunications Act 1984. Part III of the Bill deals with a number of necessary miscellaneous and supplemental provisions dealing with important aspects such as safeguarding existing employee rights.
I should like to take this opportunity to pay tribute to all those who have worked and who continue to work in the electricity industry. The industry has behind it a long tradition of public service and of dedicated endeavour, which I know we all value highly. I am sure that those traditions will continue to flourish once the industry is in the private sector and responds to the new challenges and opportunities of that environment.
We believe that our proposals offer the nation tremendous benefits—benefits that will make the industry more responsive to customer needs, and benefits that will give employees and everyone else the opportunity to invest in a major British industry.
I have spoken at some length. Even so, I feel sure that I have not anticipated in detail all the aspects of the Bill that will be covered in the debate, to which I shall listen with great interest. I commend the Bill to your Lordships.
§ Moved, That the Bill be now read a second time.—(Baroness Hooper.)
§ 3.18 p.m.
§ Lord Williams of Elvel
My Lords, the House will be grateful to the noble Baroness for setting out some of the basic philosophy behind the Bill that we are to consider today, and for taking us through its main provisions. She did so with her usual courtesy and elegance, for which we are very grateful. I, in turn, shall try not to introduce too brutal a note too soon. Nevertheless, I must make it clear at the outset that we on these Benches believe not only that the philosophy behind the Bill is misconceived, but also, and perhaps more importantly, that its provisions in detail will turn out in the long term to be profoundly and perhaps even irrevocably damaging. The Government seem determined to persist in the conviction that generating and supplying electricity is exactly like making and selling Mars Bars. Given that absurd dogma, it is not surprising that they have produced a thoroughly bad Bill.
We shall of course point out, in what promises to be a fairly lengthy Committee stage, the particular fallacies that we see in the Bill, and try to fill the obvious gaps. This afternoon I shall confine myself to the basic principles that the noble Baroness has explained to us. To do any more in this rather complex Bill would weary your Lordships to the point of boredom, I fear. Similarly, to follow the noble Baroness, I shall not be talking about Scottish problems but shall leave that to my noble friend Lord Carmichael of Kelvingrove who will be winding up from these Benches. I shall only say that over 1159 the years we have become quite familiar with the Government's policy of turning publicly owned monopolies into privately owned monopolies and the pattern is followed yet again in the Scottish case. I am afraid it is depressing but it is fairly true to form.
In spite of what the noble Baroness said about the improvements made to the Bill in another place, it is my view that in discussion it became fairly clear that the Government's position on the Bill from the outset was one of almost total intransigence. There were no, or very few, concessions made—the noble Baroness scraped the bottom of the barrel to try to find some things which were inserted in another place. There was no flexibility shown.
I hope very much that the noble Baroness can be taken at her word when she says that she will listen very carefully to what is said in your Lordships' House. The Government should not always behave as though they have their backs to the wall—a kind of Custer's last stand. In the end, of course, Custer was overwhelmed by the opposition. While I am the last person to object to the Opposition overwhelming the Government, I believe that as a revising Chamber we need, if nothing else, rational discussion between the two sides, particularly in this House where, if I may say so—and I am not sure how to say this tactfully—the whipping is perhaps less strict than in another place and government supporters are perhaps less amenable to calls to blind party loyalty.
Nevertheless I must be realistic about the Government's position. I am afraid that in spite of what the noble Baroness said, I see no signs—other than on some fairly interesting issues which I shall come to in a minute—of the Government being receptive to reasoned argument. I shall therefore address myself to the generality of noble Lords opposite, above the head of the Government, as it were, in the expectation that with them at least we can have a reasoned and informed debate. I shall put to noble Lords opposite three questions about this Bill. They are questions which in my view, and I believe also in the view of the noble Baroness, go to the heart of the matter.
First, do they believe with us that the interests of the customer, be he or she domestic, commercial or industrial, are in this case of paramount concern? If so, can they seriously and conscientiously say that the Bill works to the benefit of the customer? Secondly, are they now convinced, again with us, that perhaps the major issue that is facing mankind is the future of the global environment? If so, can they in all honesty claim that the Bill as it stands will work to the benefit of that environment? Thirdly, would they be prepared to invest their own money—not somebody else's money but their own money—in any of the enterprises that will be spawned by this Bill? In other words, to use the rather crude expression current in City circles, when it comes to the point will they put their money where their mouth is?
Having put those questions I say to noble Lords quite openly that unless they can place their hands 1160 on their hearts and answer yes not just to one but to all three questions, they should not in all conscience and good faith support this Bill in its present form.
First of all let me take the case of the customer. I use the word "customer" advisedly since he or she may be a domestic householder or a major industry. So far as concerns the industrial customer, I think that the CBI has put the case on prices very well, expressing concern that the nuclear levy—the fossil fuel levy, to give it the correct terminology—will enable the costs of more expensive power to be passed straight through; and so it will. Even now electricity costs to British industry are moving up in the international league and they will move up further if privatisation goes ahead in its present form with nuclear power ring-fenced and subsidised by this special tax.
So far as concerns the security of supply, industry must be even more worried, since although the Bill attempts to lay the responsibility on what I call the area boards (and I hope that I shall be excused for that old expression) to maintain the supply, I think we all know that that will simply not work. At the end of the day the Government will have to take the responsibility into their own hands. It stands to reason, as the noble Lord, Lord Nelson of Stafford, said the other day on the Floor of this House. It is far too important to leave to 12 area boards. It will be the Secretary of State who will be in the dock. But by what process he arrives at the dock, as he undoubtedly will, is fraught with uncertainty; and uncertainty breeds unease.
So I am afraid that there is no joy for industrial and commercial customers in the Bill as it stands. Both on price and security of supply we believe that they will be worse off. What about the domestic consumer? I am afraid that the situation there is not much better. On all the evidence so far the domestic consumer in the short term can expect continued price rises designed to raise the return on assets prior to privatisation, and, if the precedents of British Telecom and British Gas are any guide at all, an aggressive policy of debt collection after privatisation. Your Lordships will remember that in the two years following the privatisation of British Gas the number of disconnections owing to unpaid bills rose by 25 per cent. With great respect to the civil servants in the Department of Energy, since the pricing formula in the licences is incomprehensible to anybody without a Master's degree in higher mathematics, I suspect that domestic prices, after privatisation, will rise inexorably too.
The Government's main claim—and the noble Baroness set this right up front—and indeed their justification for the whole Bill is that somehow or other (and I am not quite sure how) competition will have the effect of increasing efficiency and so exerting downward pressure on prices. Let us look at the competition argument. We are told that there will be competition in electricity generation between the two generating companies which will succeed the CEGB. There will also be competition at the low voltage distribution level with private generators being able to sell power to the public electricity suppliers—again I should like to call them the area boards, if the House will allow me—and area boards 1161 being able to commission their own generating capacity. On the other side there will be large customers being able to buy power direct from the main generating companies. In the middle stands the national grid which is responsible for high voltage transmission from the generating company to the area board.
The way in which all this is meant to work—and I ask noble Lords to bear with me during what may be a slightly tedious exposition—is apparently that the area boards will contract with individual generating sets in the two privatised generating companies for capacity and price—not the companies themselves, your Lordships will note, but the individual sets. The contracted power will be transmitted by the grid to the area boards which will distribute it. This process of pricing combined with the fact that the area boards will own the grid is meant to ensure sufficient capacity and least cost.
Clearly if that were the end of the story there might be some merit in it. But of course it is not the end of the story. In fact it is not even the beginning of it. What would happen if that system were allowed to operate freely? All area boards would rush to make contracts with the Drax station in Yorkshire which is able and will be able to produce cheaper power than any other station in England or Wales. But Drax is not able to supply all the requirements of England and Wales. What happens then? Is it the sharpest area board that will snap up the whole Drax production on day one, thus justifying the competitive principle that the race goes to the swiftest? No, that is not what will happen. What will happen is that the Government will decide how existing generating stations will be spread out among the 12 area boards, on contracts perhaps of five years' duration or more, we know not at the moment.
So much for the idea of competition resulting from direct contracts between area boards and generating stations. It comes down in the end to a government carve-up. Furthermore, if the nuclear industry is to be protected, it is a carve-up unrelated to least-cost generation. Even this might be all right over time, after the first, say, five years, if there were a mechanism whereby the grid could ensure that an area board received the power that it had contracted for at the price at which it was contracted from the station with which it had contracted. But there is no such mechanism. The grid is a system with a unitary nature. There is therefore no competition there. The grid will parcel it out in the best way it can. If there are severe outages in some of our major stations—as a result of we know not what—and if neither Scotland nor France can make up the shortfall, what happens then we do not know because the CEGB will no longer be in existence with its obligation to maintain supply. Those running the grids are well aware that they will be right in the middle of the firing line if anything goes wrong.
To conclude on this competitive environment, there is one further point that the noble Baroness brought up. The idea that small, privately owned generating stations—gas-fired turbines and suchlike, quite apart from the misuse of national resources involved—will make any difference to electricity prices seems to me plainly wrong. These small plants 1162 will price off the market leader and the market leader will be the grid. If they make a profit, if they are more efficient, they will collect their rewards with no benefit to the consumer.
Whatever the arguments about competition—and I understand that the noble Baroness has made them; I believe them to be bogus but they are nevertheless made—let us consider whether there will be any competition for the domestic consumer in the home. The answer is that there will not. As the noble Baroness said, it will be the old area board with which the domestic consumer will have to deal. In this case it will not be the old area board because it will be masquerading as a commercial enterprise without any restraint on its activity imposed by public ownership and community responsibility. There is no question, nor has there ever been, that the domestic consumer will be faced by other than a clear private monopoly.
So much, my Lords, for the whole competition argument. What we have seen is not a solution that brings in competition but a series of ra1her artificial arrangements more related to appearance than reality. Politicians may believe that this represents competition, but I know of nobody in the industry who believes in this mad construction.
If there is no benefit to the customer, can we say anything nice about the effects of the Bill on the environment? I am afraid that the answer is, no. In a week in which we are seeing a major and indeed welcome conference in Downing Street on the greenhouse effect, in which the head of the Government's own Energy Technology Support Unit is expected to tell the Prime Minister herself that half the cuts in carbon dioxide emissions will have to come from energy conservation programmes, we still have to record that the Government have resisted all efforts to introduce conservation clauses into the Bill.
The same attitude is shown on most environmental issues, ranging from global warming right through to protection of the countryside. We are told today —we read it in the evening newspaper—that there will be a "green" Bill in the next Session. The Government are quite plainly looking forward to external regulation. But why do we not have it in this Bill? Why should we not have pollution control as a policy of all companies which will be the result of this Bill? So far as concerns the Government, in this Bill—let us leave aside the "green" Bill—the world can blow up so long as they can sell off the electricity supply industry.
However, let us take the noble Baroness's third point: will the Government succeed in the sale? Will anybody in their right mind buy it at other than a knock-down price? Let us assume that millions of pounds have already been spent on valuing assets, reorganising accounting systems, estimating replacement values, drawing up contracts, writing prospectuses and so on. Knowing something of these matters, I can tell noble Lords that the final bill for accountants and lawyers will run into many millions of pounds.
But let us assume that all that is done. What do we have? First, we have the area boards. At first 1163 sight, they would seem to create no major problem. But there are two major problems about privatising area boards. The first is their investment in the national grid, which will be by far their biggest asset. Furthermore, the grid requires enormous sums of money over the next few years to replace equipment that is coming to the end of its technical life. How will the new shareholders enjoy that? Will they really believe that area board managers who have no experience in managing a grid at 400kV transmission can handle and manage this enormous investment? How will the area boards survive if, as the noble Baroness has explained, large customers opt out? What happens to South Wales Electricity if it loses all the major firms along the M4 corridor? I shall tell noble Lords what will happen. It will go broke. What happens then to the security of supply and investment in the national grid?
The situation is much worse when we look at the two generating companies. The prospectus for National Power should make really splendid reading—I look forward to reading it—with accounts drawn up on a replacement cost basis as well as historic cost basis, estimates of the cost of decommissioning the Magnox plants, together with the directors' assessment of what money will be available from the Government under Schedule 12 to help with those costs, a view from the directors as to whether or not the nuclear levy is contrary to Article 85 of the Treaty of Rome, and as of today an estimate, properly scrutinised by the auditors, of the cost of the measures apparently to be proposed in the new green Bill to cut down sulphur dioxide emissions.
In addition, prospective investors will want to know about material contracts, such as those with the area boards and the grid and, to cap it all, every single piece of information will have to be provided under Section 47 of the Financial Services Act 1986, which makes it a criminal offence to make a misleading statement, whether deliberately or not, the penalty for the offence being a maximum of seven years in prison. I am worried that our already overcrowded prisons may be receiving a new intake in the future.
At the beginning of my speech I asked three questions of noble Lords opposite about the Bill. Will it work in favour of the consumer? Will it benefit the environment? Will anybody invest in the industry at a fair price? I have no doubt, and I believe that there are many noble Lords opposite who agree with me, that the answer is a resounding "No". I invite them to join with us in amending the Bill to make it less of a disaster area. Let us do it together. However, amending the Bill can never make it a good Bill. No Bill based on the Mars bar syndrome can be a good Bill, and I would be failing in my duty if I did not point out again that we on these Benches are irrevocably and irreconcilably opposed to it on principle.
I invite the noble Baroness, with the best will in the world and in the friendliest possible spirit, to take away her Bill and to put it in the wastepaper basket, where it properly belongs.
§ 3.40 p.m.
§ Lord Ezra
My Lords, before joining in the fray, I should like to declare an interest. I am involved in companies whose objective is the promotion of energy efficiency and they are also involved in schemes of combined heat and power. As the noble Baroness said in introducing the measure, this is the largest privatisation scheme we have had so far and it may be the largest we shall ever have. As she rightly anticipated, many questions will have to be asked in this House, even though the Bill has already been through the other place in some detail. The noble Lord, Lord Williams, has referred to some questions. I shall come back to some of those and add a few more.
I should like to start by reminding your Lordships of what is happening. Our electricity supply industry is being changed from being a totally integrated system—which, over the years, as the noble Baroness rightly said, has been operated with considerable efficiency and security—into a system where a number of separate parts will be created and their relationship will be on a changing contractual basis. Instead of the totally integrated system we had and still have, this will be entirely new territory. Because electricity is of such vital importance and ranks with water as being one of the essential ingredients of life as we know it now, with a change of this magnitude coming about I think it is essential that Parliament and this House of Parliament should look with extreme care at this measure which takes on historical proportions because of the size and importance of the industry it deals with.
I should like to start with prices, because prices are of great concern to all consumers of electricity; indeed all those who live in this country. It is a vital matter. The first thing that people want to know is what will happen to the price. The price of electricity in what appears to have been the run-up to this measure has not been very satisfactory. In 1988–89 we had a 9 per cent. increase and in 1989–90 we have a 6 per cent. increase. Who knows whether there will be others before the measure takes effect. What is particularly galling is that during that period, the element which creates the major cost in electricity distribution: namely, the primary energy input, has gone down in price, certainly on the fossil fuel side. That should normally have been reflected in a reduction in price, but instead there have been increases. As I understand it, the increases have been due to the fact that a larger rate of return is felt to be necessary.
Will this concept of a larger rate of return continue under the privatised system? Will that come into this very complex price formula, which the noble Lord, Lord Williams, referred to? It is a difficult formula to understand even for those who have been familiar with the energy industry. That is one factor that people are concerned about; the rate of return.
Another factor will be the extent of the new investment required because sooner or later that is bound to be reflected in prices. Before that matures and brings benefits, there will be the cost of raising the money. There seems to have been a slight degree of confusion concerning new investment. Various 1165 figures have been mentioned. The last figure that I can recall is the equivalent of £30 billion by the end of this century. Perhaps the noble Lord in winding up will be able to tell us what the position is. But whatever it is it will be a large sum, partly required for new generating capacity and partly to update the grid. We ought to know what that is and what price increases we can expect to pay for it.
On top of that there is another factor: the cost of privatisation and, perhaps more importantly, the cost of the reorganisation which privatisation will bring about. There have already been rumours in some of these leaked documents from one of the big companies being set up that these costs could be extensive.
All those factors add up to fairly severe pressures for upward movements in prices, some of which, it might be argued, would have come about anyway because there would have to be new investment, but some of which are peculiar to this measure.
On the other side of the coin, there is the pressure which will be exerted through the director general, the regulator, to increase efficiency. He will obviously be doing his best to do that. What we want to know is what the balance is to be over the next few years. Will the balance be that on the whole the factors making for the upward pressures in prices will pull them up? Or will the counter pressure of increasing efficiency counteract that to a large degree and even bring prices down? That is something which we should like to know about and I presume that it will certainly have to be mentioned in the prospectus.
Next there is security, because the one thing that is absolutely vital about an electricity supply industry is that it must be secure. It must be secure not only to meet normal needs, but to meet abnormal situations. On the whole, as I believe your Lordships will agree, the electricity industry of Britain has been extremely good at maintaining the security of the system, even in the most difficult situations. Indeed it has been recognised the world over for it. I remember when some years ago they were having "brown outs" as they are called in the United States—for a period the city of New York was blotted out—and we were all saying happily, lighted and warmed by our electricity system here, "It could not happen here". What we must ask is: could it happen here under the new arrangements?—because the responsibility for security will be shifted from a single integrated operator, which has developed high technology in dealing with such problems, to 12 separate companies and a grid company. Presumably among them they will share this responsibility. That is a much more difficult concept to visualise. On the face of it, there seem to be some risks inherent in this arrangement. We shall need a good deal of reassurance that the new arrangements will maintain the very high standards of security we have had in the past.
There is a related problem to worry us. It partly arises from competition and it partly raises the question of security and has been referred to by the noble Lord, Lord Williams. It is that the very large consumers of electricity will be free to shop around. Today they might be doing their business with 1166 company X, and tomorrow they might decide that they can do it better with company Y. They will therefore shift around a large amount of business in one go which will have considerable impact on the operations of the companies concerned. That could have all kinds of repercussions on the domestic market, on prices, but above all on security. What will be done with the contracts entered into for the supply of electricity which will then be substantially surplus to needs because these people have gone elsewhere? Will there be some mechanism for transferring a contract at a lower price that the second company has negotiated with this large user? These are matters of some concern because of the impact that they could have both on security and on the market.
We then come to the question of competition. I have already declared my interest. I am among those who are hoping to negotiate a private generating supply based on CHP and I should like to know where we stand. We have done a great deal of work. I am talking of two consortia; one in Leicester and one in Sheffield, in which the local authority and other bodies are involved. We have prepared schemes which we believe are attractive and both the electricity companies concerned have talked to us in positive terms. However, we must now wait until the long drawn-out, somewhat arduous and difficult negotiations have taken place between the 12 companies and the two main generating companies. Until they are in place nothing else can happen.
As we understand it, the contracts arc likely to last for approximately five years and maybe more. It could be that only at the end of that five-year period will the small private generators come on to the scene. It is important that we should know because some of us have geared ourselves up for getting in on the act from day one. We have been excited by the prospect. We have thought hard about issues such as the CHP schemes which could make use of the waste heat, and so forth. But we have been somewhat delayed and are now concerned about the future delays which may occur until the initial contractual network is in place.
Obviously that will affect the speed at which competition develops over a wide area. It could be that for the first five years the competition will be between the two main suppliers and that little else will come into the picture. If that is so we should like to be informed; if not we should like reassurance in the other direction.
That leads to the question of competition in primary energy. A number of issues are involved, including that relating to the nuclear component. I agree that we should have a nuclear component and I am in favour of that. However, it so happens that at the moment nuclear energy is far more costly than other forms. It might be argued, for example, that at this stage we should not add to that cost with new nuclear stations. Instead we should continue our research and development capability and bide our time until the nuclear position becomes more competitive.
Whatever the answer, we are faced with a difficult situation because of the increase in the cost of nuclear on the one hand and, the diminution in the 1167 cost of fossil fuels on the other. The Government have devised the proposal which was explained most clearly by the noble Baroness.
I am a little doubtful about including nuclear in one of the big generating companies. It will complicate its task and our view of its task. As the noble Lord, Lord Williams, graphically pointed out, it will make drawing up the prospectus difficult. At this early stage in the debate, and before we reach the Committee stage, I suggest that there is a great deal to be said for a proposition which was introduced in the other place. It is that the nuclear component should be separated off and another company formed. That is being done in Scotland where there will be a separate nuclear company with the other two companies as shareholders. Even that proposition would be better here than would mixing up the nuclear component with the fossil fuel generation of one of the two companies. It would then be easier for all to understand what is happening. I hope that we shall pursue that matter as we reach the Committee stage.
I was interested to hear what was said by the noble Baroness about the renewable content in the arrangement: that a special proportion of the arrangement will be reserved for renewables. However, I am worried about one issue. I understand that renewables will not be introduced into the special measure unless the projects are either completed or committed by the end of this year. That would make life very difficult because a number of the projects are at an early stage. There has in the past been doubt about the role that renewables can play in the energy content of this country. If it is correct that in order to qualify for the special arrangements renewable projects must be in place or at an advanced stage by the end of the year, the nature of the arrangement would be limited.
I should like to turn to coal, an industry with which I had a close association for many years. I hope that as a result of the negotiations which are now taking place a continuing substantial place will be found for indigenous coal. I do not say that for emotional reasons, although I feel a little emotion for it. The reasons are down to earth. Overdue dependence on imported coal could be a risky process because only about 3 per cent. of the world's coal moves in international trade. It is totally unlike oil where the bulk produced is traded and therefore there are compensating movements in that vast trade. However, in the case of coal that is marginal and it is totally dependent on what happens in the country in which it is produced. If there is a shortage of coal, for example in Australia, or there are strikes the marginal element which is exported will immediately suffer. If there is a sudden and massive change in the rate of exchange coal will be immediately affected, as it will if there is a substantial change in freight rates.
There are many uncertainties about imported coal, with which I was once familiar. I hope that on grounds of security and continuity, quite apart from the social implications, we shall be seriously concerned if there is not a substantial coal contract in the new arrangements. I have been informed that 1168 British Coal has bent over backwards to make a competitive contract related to the RPI. It will include an element to compete with coal from anywhere else. The corporation is trying very hard and I hope that there will be a positive response.
I should like to share the views expressed by the noble Lord, Lord Williams, about efficiency, conservation and environmental questions. I believe that the contents of the Bill should be sharpened up in those respects. There are plenty of good intentions but I believe that it needs to go further. For example, the question of energy efficiency in use is barely touched upon. There is an obligation to stimulate it and an intention on the part of the companies to provide guidance to consumers. However, that does not go nearly far enough. The fact is that we live in an age where it is of vital importance, not only on economic grounds but on wider ecological grounds, that we make the best use of energy in order to diminish effects on the atmosphere while retaining more in the pocket.
Those of us involved in energy conservation are concerned that even the work which is now being carried out by the Electricity Council will disappear because the council will disappear. Therefore, I believe that we should return to consider that area most seriously. We should make it part of the obligations of all concerned positively to promote the more efficient energy in use. I need hardly remind noble Lords, many of whom have studied the matter closely, that in many states of the USA the regulator does not agree to new investments in power generation until he has been assured that every effort has been made by the utility company to promote a corresponding amount of energy efficiency. That is written into the licensing rules and I believe that we should make similar provisions.
As regards the environment, there is a need for a code of practice setting out more clearly the obligations and not simply for repeating previous legislation.
In conclusion, this is a substantial and far-reaching measure. What is happening is that a major basic industry, upon which we all depend, is at one and the same time being restructured and privatised. It might perhaps have been more prudent to carry the restructuring first and tried it out for a while before privatising the industry. But these two steps are being taken together. That being so, I think that we should look at the issues extremely carefully, according to our old tradition in this House.
We must consider objectively, and with due deliberation, what are the changes which need to be made in order to make this measure more acceptable. It must be acceptable not only within the framework of a competitive society but also within the framework of a society which cares for those who are in financial difficulty and which avoids undue disconnections, to which the noble Lord, Lord Williams, referred. But, above all, it must pay full regard to the environmental issues which face our generation.
§ 4.1 p.m.
§ Lord Carver
My Lords, I intervene to speak on the Second Reading of this Bill as a member of 1169 your Lordships' Select Committee on Science and Technology. The sub-committee, of which I was a member, last year studied research and development in nuclear power under the chairmanship of the noble Lord, Lord Nelson of Stafford. Our report was published just before Christmas of last year. The Government's response to that report was received just before it was debated in this House as recently as 14th April. Neither that response, nor the noble Baroness's reply to the debate removed some of the concerns of the committee about the effect on research and development into the country's longer-term energy needs of the privatisation of the electricity supply industry, which this Bill proposes to bring into effect.
Unfortunately, the noble Lord, Lord Nelson of Stafford, is at present abroad and unable personally to express today the concern to which he drew attention on 14th April. However, I know that what I have to say has his full support. I am also concerned because the same sub-committee, of which I am now chairman, is this year studying certain aspects of the greenhouse effect, to which this Bill has a direct relevance. Both of those studies are very much concerned with the long-term future of our energy supplies: their adequacy; their security—to which the noble Lord, Lord Ezra, has so forcefully drawn our attention—their safety; their availability at a reasonable price to industrial and domestic users; their competitiveness in a Europe without frontiers (which one assumes will be without energy frontiers) and their effect on the environment.
The first of the conclusions of our report on research and development in nuclear power said:The present abundance of energy is unlikely to last. There is no adequate alternative to fossil fuels other than nuclear energy. The United Kingdom must therefore retain the capability to develop and expand its nuclear power industry, in the most cost-effective way, taking full account of public concern over the impact of the nuclear programme on health and on the environment, where possible in collaboration with agencies in other countries".We expressed ourselves generally satisfied that the research and development basis needed to support the continued use of existing nuclear power stations and the planned pressurised water reactor programme, was likely to be adequate, as was the R&D needed to support health and safety aspects. We also accepted that it was not yet clear that the fast breeder reactor would be an economically viable successor, although it is the only real alternative to an advanced PWR. The price and availability of uranium would be the critical factor on that issue.
The Government, however, plan to close down the prototype fast reactor at Dounreay in 1994, rejecting our advice that it should continue in action as long as it will be useful to the European fast reactor design. In their response to our report, the Government refuse to pick up any of the bill towards the latter, to which at present the National Nuclear Corporation and the CEGB contribute something between £6 million and £7 million a year. They intend to leave it to, in their words,potential customers in the electricity supply industry and to other interested parties (such as potential manufacturers of fast reactor components)".1170 But, in that part of their response dealing with long-term R&D following privatisation, the Government said:The various components of the privatised ESI can be expected to scrutinise their R&D programmes carefully in the light of their corporate strategies. As with any other organisation, it will be up to the privatised companies to ensure that their R&D needs are met. The Government would expect them to focus on near market research, on operational research and on research that is particularly applicable to them as commercial companies. It would then be for the Government, as at present, to undertake any necessary research which may have longer term national implications. If the privatised ESI decides not to do work which the CEGB is currently doing for national interest rather than commercial reasons, then it will be for the Department (of Energy) to assess the long-term implications and decide whether or not to fund the work".I listened most carefully to what the noble Baroness said on the subject, in her introduction to the Bill, when she referred to Clauses 36 and 37. I am afraid that I could not detect anything more encouraging other than a pious expression of hope that the private sector would undertake the necessary R&D. I suggest that that is a quite negative and unsatisfactory attitude. In the debate on 14th April, I described it as an Asquithian one; that is, one of wait and see. I suggest that that is no way in which to deal with such an important matter as the long-term future of our energy supplies.
That long-term future will have to take account of the greenhouse effect. Even if that effect did not exist, there would have been great uncertainty about future energy needs and how they should be met. There are great uncertainties about the greenhouse effect: about the current concentrations of the gases which cause it, and even more about how they may develop; about the climatic changes, global and regional, which they may cause and about the effect of those on sea and land and on all forms of life, human, animal and plant, in or on both.
However, there is enough international scientific agreement now to indicate that radical measures will have to be taken on a global basis to reduce the emission of these gases, notably carbon dioxide, to which the production of energy contributes so much. International and regional agreements will have to be concluded and enforced to give effect to them, and governments will have to be the agents. Those measures may involve such things as increasing the use of non-fossil-fuel-based forms of energy production; of reducing CO2 emissions by fossil-fuel-based systems—for instance, switching more to natural gas—and, perhaps most important of all, energy conservation.
A move in that direction will require a strong research and development effort, well directed on a long-term basis, if it is to be done effectively. It will almost certainly mean forcing the electricity supply industry to adopt systems which will increase the cost of supply, apart from the research and development cost involved: systems, which in the pursuit of free market economic competition, they would reject. Energy conservation is clearly not attractive to an industry trying to sell energy, however eloquently government appeals for it may be phrased, and however pious the expressions of hope may be that such a need will be met.
1171 The Central Electricity Generating Board had a statutory duty, which it has taken very seriously, to meet the country's needs for electricity, balancing the needs of consumers of different kinds, of the long against the short-term, of economy against effect on the environment, both present and future. In attempting to retain some of those central functions while splitting generation from distribution, and splitting both up into privatised firms, this long and complicated Bill seems to me to attempt to apply a much higher degree of Whitehall control than is now exercised by the Department of Energy over the CEGB. There is very little likelihood of it being effective in seeing that the necessary research and development is done to ensure either the security and efficiency of our future supply of electricity or that its effect on the environment is not harmful and meets the obligations which we are likely to have to assume in order to counter the greenhouse effect.
When someone with my background talks about national security he is assumed to be referring to the armed forces. I can think of no factor more important to national security than the future of our energy supplies and their effect on the environment. I fear that this Bill will do neither any good.
§ 4.10 p.m.
§ Lord Diamond
My Lords, in thanking the noble Baroness for her introduction to this Bill I hope she will not regard that as the conventional start to a speech, as is regular in your Lordships' House; it is due to the fact that I have listened to the noble Baroness on many occasions and I have always been impressed by her courtesy and her clarity. I look forward for a long time to having the opportunity of saying so. I can only hope that what I am about to say does not do her too much harm.
I am delighted to follow the noble and gallant Lord, Lord Carver, with every word of whose speech I agreed for the reasons which I will give when I come to that part of my comments. The noble Baroness made it clear that the Government have given great and careful thought to the needs of the electricity supply industry and have, perhaps not surprisingly, come to the conclusion that the industry ought to be privatised in its entirety. I say not surprisingly, because that is wholly in line with the Government's ideology.
We on these Benches do not approach the matter in that way. We regard every issue of privatisation versus continuation in the public sector as being a matter worthy of separate examination. We shall therefore reach a conclusion based on the facts of each case. As regards electricity, we certainly do not regard it as a natural monopoly like water—certainly not. We think that there is no reason in principle against transfer to the private sector of those parts of the electricity supply industry where there is natural competition and where the national interest does not forbid it. Subject to those two qualifications we believe that it is open to the Government to endeavour to demonstrate that their particular brew is capable of reaching those parts which perhaps others do not.
1172 However, there is at least one area where the criteria to which I have referred are not satisfied. I refer to the nuclear generation of electricity in England and Wales. My noble friend Lord Taylor of Gryfe will be speaking from his vastly greater knowledge and close experience of nuclear generation in Scotland. For England and Wales, however, huge questions arise immediately one starts to consider the matter. Here I repeat my gratitude to the noble and gallant Lord, Lord Carver, for having spoken so strongly in this respect.
If one thinks of the different types of nuclear generation and the problems that are involved in selecting which type it should be; if one thinks of the safety issues involved in nuclear generation; if one thinks, as has been explained at some length, of the problems arising out of the necessary long-term nuclear research and development activities, the expenditure and who is to bear the cost; if one thinks of the huge costs involved in de-commissioning this somewhat quickly obsolescent plant; if one thinks of the many problems associated with, and very much in the public domain, the disposal of nuclear waste; if one thinks of the extent to which it is safe and secure for this country to rely on filling any gap in our nuclear generated electricity from France—if one thinks of all those problems and realises how very much national interests are involved, how deeply they are involved, and for what a long period ahead as far as one can see they are involved, we are certainly not satisfied that in regard to England and Wales the Government have reached the right answer.
The Government cannot claim to have done that, either, under the heading of competition. The Government do not offer any solution to the problem of competition in nuclear generation. They have merely transferred—allocated—the whole of nuclear generation in England and Wales to the already too big, big G. Therefore, on this issue, I am asking the Government again to have second thoughts. I say "again" because, of course, we reached a stage in water privatisation where the Government decided they ought to have second thoughts. They took back the Bill they had in mind and postponed presentation of it. They gave much further thought to the issues involved where national interest seemed to be the dominant factor.
The Government came up with a solution. They proposed the National Water Authority—a public body within the structure of a privatised industry. That is a parallel and a reinforcement of my argument that the Government should seriously consider removing from the Bill the privatisation proposals for nuclear generation and instead provide for control by a public body. One already has to hand the example of the AEA. If the Government are not prepared to do that, perhaps they will at least provide for joint control by a body which is both public and private; the mixture which has worked so well in many areas and to which the Government have given their approval on many occasions.
I am sure that that is a reasonable request. It helps the Bill. It certainly does not detract from the Bill's possibilities and it would remove anxieties which 1173 are generally felt throughout the nation about issues which should not be left to market forces to decide.
That is my main request to the Government. However, just as this combined private and public enterprise might fill the bill here—though I would much prefer a government-appointed controlling body—similarly, with the national grid where the Government have provided a solution of 12 area bodies (as I shall continue to call them because we all understand what we mean by that) the Government should think again.
It is all very well saying that we have here 12 different area bodies that will naturally compete. It is true that they will represent different areas, but their interests are not different; they are common. I share the anxiety that has been expressed in many quarters that it will not be long before we see a nice cosy arrangement being made to overcome the awkwardnesses of competition at their level. I am not speaking of a government majority shareholding, but there should be a government presence which need be only of the order of about 10 per cent. There should be a government presence within the councils and the decision-making bodies of the 12 area boards as regards the making of their decisions concerning the national grid so that there will not be collusion between them in order to avoid the Government's intentions under the structure that they have provided in this Bill.
There are only two other issues to which I wish to refer because so many excellent points have already been made. The first concerns the environment. With the Government in their present frame of mind—we were reminded only a short time ago about the conference that is to take place at No. 10 in the very near future—and with the Bill providing a broad separation of the responsibilities of the provider and the polluter, in theory at all events there should be a better chance of enforcing—not providing—the protection of the environment that we all seek. I am not sure that I expressed myself with sufficient clarity. I was referring to the separation of the functions of the protector on the one hand and the polluter on the other.
The second matter I wish to refer to is that of energy efficiency. There is much more to be done than has been provided for in the Bill in order to secure greater efficiency, energy saving and the examination of alternative sources of supply. It is very easy to talk about the possibility of using North Sea gas to provide electricity generation. But we all know that North Sea gas is not an endless source of supply. We must look much further ahead and examine much more carefully all practical possibilities of achieving these ends, not excluding the most recent experiments with test tubes in cool kitchens. I remind myself that the word "cool" not only describes the temperature in the kitchen, but it also describes fairly accurately our approach to this Bill.
§ 4.23 p.m.
§ Lord Beaverbrook
My Lords, last week your Lordships debated at Second Reading, the government's proposals for water privatisation. A number of your Lordships took us back through the 1174 past three or four hundred years to try to show why water should remain in the public sector. At least as regards electricity, which we are debating today, it is almost impossible to return to the years before the turn of the century.
The electricity industry is exclusively a child of the 20th century. It has affected every single one of our citizens and it has changed the life of this country more than any other invention or industrialisation. When looking at our electricity industry today, it is difficult to see why we have taken so long to return it to the private sector. After all, it has never been in intensive financial care, unlike steel or the Rover Group. It has a record of low-key but competent management. On the whole it has efficiently provided what we want; namely, reliable power at reasonable cost, and it has done so even while being forced to subsidise the coal industry.
Of course, government involvement was needed during the evolution of the industry. The Electricity (Supply) Act 1926 set up the national grid and now that is a vital component of this country's infrastructure. It allowed a reduction in surplus generating capacity in the early 1930s from 80 per cent. to 15 per cent. That is a prime example of beneficial interference by government. Then we had the nationalising Electricity Act 1947. At that time reorganisation at regional level was needed, but sadly, political dogma dictated the way in which the government brought this about.
Nevertheless, as a country, we find ourselves today with an electricity industry organised on at least a rational basis. But it is an industry with shackles. It is a good, old-fashioned utility structure interfered with by Ministers, civil servants, quangos and by Treasury cash limits. Electricity simply cannot move forward to face the challenge of the next century unless we return it to the management to manage, and to succeed or fail by the results that they produce. That will take place in an atmosphere, for the first time, of competition, rather than of monopoly power. I cannot and have never been able to understand any politician, Minister or any administration past or present who say that they want governments to run business. Experience has shown that to be both commercially disastrous and politically suicidal.
So privatisation is the track that we must now take if we are to have an electricity industry going on to its next stage, and one that makes use of the new technologies that are surely coming along, such as automatic switching meters, line data transmission and all manner of innovations, some of which are not yet even contemplated. Could, for example, the telecommunications industry really have responded to the huge growth we now see unless it was able to react to consumer demands? That was only possible without a stifling bureaucracy and the financial contraints of state ownership.
I firmly believe that countries who do not free their utilities from the shackles of state ownership will be left with a sorry legacy of unresponsive, unmodernised, over bureaucrated and under-capitalised monuments to the sorry era of nationalisation that has so blighted the mid-20th century. This country has moved from being the sick man of world 1175 economies in the 1960s and 1970s. We now proudly take our place again in the top league. This Government's policy of returning business to its management and shareholders has fully contributed to that renaissance. The Bill we are discussing today will enable another step in that process, the result of which is now a huge benefit to all our citizens, irrespective of whether they consume electricity, work in electriciy or whether they are going to invest in electricity.
§ 4.28 p.m.
§ Lord Shepherd
My Lords, as one who has been involved in the public sector, I entirely agree with the noble Lord, Lord Beaverbrook, when he said that Ministers are birds of passage and that civil servants brought up in the narrow confines of Whitehall are not the very best for the running of industry. Yet we have a Bill commended by the noble Lord and which comes from that exact province. It has all the weaknesses that I believe the noble Lord has in mind. I believe that the noble Baroness was quite right in her fulsome praise of the electricity industry, both of those who work in it at board level and of those who work in the supply and distribution of electricity.
The industry has had its difficulties and it has made mistakes. I believe that those mistakes are sufficiently well known without having to be examined this afternoon. But they are all mistakes in the planning procedures within the industry, and both the board and the departments had to take some responsibility where mistakes were made. To my mind, the Government make their greatest mistake in not maintaining and retaining the very strengths of the industry.
The present daily operation of the Central Electricity Generating Board ensures that at any time there is enough reliable generating plant capacity connected to the transmission system to meet the forecast load. The actual power output from all the generating stations is determined continuously by computers throughout each day using sophisticated, mathematical calculations so as to minimise the cost of electricity supplied to the area boards. Such methods of cost minimisation used by the board are based on the overall system optimisation rather than, as proposed in the Bill, on individual contracts. The problem has been the subject of much research throughout the world and similar techniques are used, without exception, by all electricity supply utilities. Any departure from this total system approach produces more expensive electricity. This can be scientifically verified.
Thus, given the plant that is available, the board in its present integrated form can produce the cheapest possible electricity. The system operators through the national and local computer control centres have always ensured that supply and demand are matched by observation of best market prices. In effect the natural economic centre, or spot price market place, for the buying and selling of electricial power exists in the present day operation of system dispatch. By removing this normal function from the proposed grid company, which will be financially neutral, the 1176 Government have abandoned the benefits which flow from the operation of free market forces.
The claim that merit order dispatch will still be observed to produce the lowest cost electricity to the consumer is not true. The present system of cost merit order will be replaced by a price merit order system, the operation of which is to be governed by a generator pool subject to the behaviour of a gaming mechanism. Arbitrary and complex rules are proposed in the electricity supply licences for the successors to the area boards to regulate charges for the supply and distribution of electricity. When tariffs are to be formulated and promulgated for a year ahead, the distribution companies must account for variables in these rules, the values of which can be estimated only approximately or will be imposed by the Government.
In this respect it is worth noting the comment made by a former chairman of an area board, Mr. R. Peddie. In the Electrical Review of 21st March this year he said:It is obvious that the working and regulation of the electricity supply industry will become more opaque and incomprehensible to all but a minority of large customers".He went on to argue that, with the complexity of the industry plus the political pressures, even the most saintly polymath director general of regulation will be bound to make bad economic decisions from time to time. He concluded:Surely some form of appeals procedure to an independent body is needed".But the Bill makes no provision for independent arbitration on general tariffs.
The assumption in the Bill that any customer can obtain power from any specific generating source at all times is not, and never has been, technically possible. Faults occur daily on the electricity supply system, some causing loss of income to manufacturers and loss of information to computer operators. Liability and recompense is presently the concern of the area boards. With several hundred fauls per day and 2 million customers, the liabilities of the constituent companies will have to be defined at the start if the privatised industry is not to become a scene of much litigation. This need is particularly true of the grid company where faults have the most impact and liabilities are consequently the greatest. In tems of liability, electricity supply is a grey rather than, as the Government appear to believe, a black and white industry.
It can also be argued that the creaming off of the most economic production sources by consumers having the most purchasing power would result in the inequitable treatment of less powerful consumers, including domestic consumers, for whom electricity prices would be influenced by the production costs of less economic sources. Another aspect of the system of contracts concerns the independence of the grid supply company. The grid company has to decide on the choice of generators in the pool around the margins of demand not covered by the contract. With the grid company owned by the distribution companies, which are themselves to become generators, the need for independence of operation needs special emphasis 1177 lest influences by the owners or buyers work to the disadvantage of the generating companies and consumers. It would have been a far better Bill if the grid company had been established as a separate company in its own right.
The contracts to supply electrical energy from non-fossil sources, which include nuclear and imported electricity, will have another consequence. At present most renewable forms of electricity generation are not available in amounts sufficient to displace the contracted capacity of any nuclear power station. Furthermore the form of a contract to cover the charging of the unpredictable and variable nature of some renewable supplies is unclear. The minimum quota which the distribution companies will have to purchase will tend to bind the companies to take the maximum nuclear capacity available. They will thus be shielded from competition. With cheap electricity being available from France, the net effect will be to freeze renewable energy sources out of the non-fossil quota.
§ Baroness Hooper
My Lords, I should perhaps have intervened earlier when the noble Lord, Lord Ezra, referred to the position of renewables in the non-fossil fuel obligation. I made the point that we propose to bring forward an amendment following the announcement by my right honourable friend the Secretary of State that there would be a safeguarded position for renewables within the non-fossil fuel obligation. That covers the noble Lord's point.
§ Lord Shepherd
My Lords, that is certainly a step forward. However, we shall need to see the proposals and how and to what extent they will provide motivation within this field.
Perhaps I may say a few words about research. The Bill makes no mention so far as I can see of the need to continue research despite a recent five-year audit by the CEGB showing the cost effectiveness in this area. I do not know whether the Minister when he comes to reply will be able to say anything about the Marchwood laboratories which we understand will be either run down or closed. This is the centre of the research.
At present there is a statutory requirement for the electricity industry to do research, but this will disappear with the privatisation Bill as it now stands. The electricity supply industry is a major, probably the biggest, contributor, as we all know, to environmental pollution in the form of carbon and sulphur dioxides which are connected with the greenhouse effect and acid rain. Apart from these areas, continued research is needed also into the problems of safety and reliability. What plans do the Government have to promote research work in general in this industry and into environmental but non-commercial problems of general concern in particular?
There is much, too, that needs to be said in regard to conservation and efficiency. Time is pressing, but I hope that by the time the House goes into Committee on this Bill the report of my committee, sub-committee B, will be available. In it we make criticisms not only of the commission but also of the Government, particularly about the energy 1178 efficiency office which they are introducing in their capital spend. We wish to see far greater steps taken in this area.
It is worth remembering that other countries, the United States and Sweden, are taking special steps to ensure that investments in energy saving measures receive the same assessment as investments in new plant capacity. Like the noble Lord, Lord Ezra, I do not hold in much regard the importation of cheap coal or what appears to be cheap coal. This would of course have short-term effects within our own coal industry and once pits are closed it is very difficult to reopen them. The size of the market is in fact very small. I think it is something of the order of 140 million tonnes per year, and if this country were to move into large-scale purchases of this present cheap coal from overseas, prices would rise dramatically.
This Bill needs to be examined with the utmost rigour and care, but it will need, too, a new approach by the Government. The noble Baroness took a very responsible attitude today and treated the House as it ought to be treated; very much different from her colleagues in another place. I hope that with her and her noble colleagues this House will be able to make some significant improvements in this Bill, because this industry requires it.
§ 4.43 p.m.
§ The Earl of Lauderdale
My Lords, like other speakers this afternoon I must begin by congratulating my noble friend the Minister who opened the debate with such clarity and with all the grace we have come to expect from her. We look forward to collaboration with her in improving this Bill as it goes along, and we hope that what is said today will not, in the words of the noble Lord, Lord Williams, seem too brutal. But I think she knows that there are some relatively unpalatable things on the way.
With nearly 30 speakers on the list, I have no intention of dotting i's and crossing t's of things already said. But the speech of the day this afternoon has surely been that from the noble and gallant Lord, Lord Carver—he is not in his place at the moment—with his sincere and cogently argued plea about research and development. We have, of course, heard the reference of the noble Baroness to Government consultation with the Advisory Committee on R&D— —ACORD—and, if I may say so in the nicest possible way, that is a familiar genuflection of the sort we have had many times before. I implore the Government to take very seriously indeed the words of the noble and gallant Lord, Lord Carver, bearing in mind that the story is going around—I cannot vouch for it—that a decision to slash research on fusion, because it is 30 or 40 years away, has in fact been taken with very little top-level scientific consultation.
My noble friend Lord Beaverbrook just now said that surely it is not the Government's job to run business. Certainly not. But surely it is the Government's job to run defence and, as the noble and gallant Lord, Lord Carver, said so cogently, nothing is more important to our national security than the safety of our power supply.
1179 Electricity planning and pricing is at the heart of industrial costs and is therefore a critical factor in Britain's place in the world. The question that I have been asking myself as the White Paper came along—there has been much discussion on the subject—and as one had a chance to read the Bill, is this: Has the Department of Energy got it wrong again? I say "again" because it is only five years ago that it scoffed—and I repeat "scoffed"—at the forecast in this House that unless something radical was done soon there would be a shortfall of electricity generating capacity by the end of the century. What did we see when this Parliament opened 18 months ago but an immediate and almost panic—at any rate, urgent—declaration by the Secretary of State for Energy that we now needed 15 gigawatts of new capacity by the end of the century, a prospect which had hitherto been denied. Has the department now got it wrong again?
I was glad to hear the noble Baroness say that the companies that are, as it were, nibbling at the prospect of coming into this business, some 20 of them added together, reckon to produce about half the shortfall—7 gigawatts—while the plans of the Central Electricity Generating Board, as we now know it, are intended to provide the rest. I hope all that happens.
But how far will this Bill advance the matter? It splits generation from transmission; it dismembers a highly co-ordinated organic command system; it replaces the cost link between demand and supply with one based not only on price but on contract price—all this to the astonishment of the world, not least of those parts of the United States where the regional industrial economy is in some ways comparable with that of Great Britain. As the energy Select Committee in another place declared:The Government should explain why the vertical integration is preferred in Scotland but not in England and Wales".The committee went on to say that they were,concerned how far economic logic played any part in this choice".This is an enabling Bill. The nitty-gritty is hidden away in complex licensing provisions. But the real problem always is how to reconcile absolute security of supply on the one hand with cheapness of supply on the other. Officially we are told—this is the prevailing philosophy, with which in principle I agree, but I do not think it applies in this case—that market forces and competition provide the answer. In fact, as I read this Bill, the key questions are not solved at all; they are shelved. They are shelved onto the head of a regulator whose job of squaring the circle is about as promising as an invitation to invent perpetual motion.
Only a cumbersone bureaucracy can manage this fragmented system, and I take two headings in particular. First, there is the regulator. His staff are to regulate 12 public energy suppliers—what for convenience we have hitherto called the regional boards—plus the grid company. That is 13 enterprises to start with. They have also to monitor the supply contracts of two large and a score of small generators. In addition they have to hearken to 12 regional consumer committees. It is quite a task and 1180 would test the patience of Job. On the experience of Ofgas and Oftel—I think that their experience is instructive and in some respects commendable—the proposed staffing level of 115 looks wildly optimistic.
On the supply side, the noble Lord, Lord Williams of Elvel, mentioned that the formula RPI minus x plus y whereby prices are to be determined is incomprehensible, certainly to the layman. I have looked at it, and it is 12 lines of algebra. I am sure that clever people will understand it and I am sure that the clever people on the Front Bench will understand it. I do not, but never mind, I am not a mathematician and I am rather slow on the uptake.
Whatever is said about competition forcing price close to cost—we are told that competition will force down price as near to cost as is humanly possible—a merit order system on private investment and contracts must mean "take or pay" deals for not less than 70 per cent. of the output of private generating companies.
These will be under an obligation both to their shareholders and to the sources of their loan finance. I argue that the sums needed to make company investment attractive can only be greater than those needed in the public sector just to meet the unavoidable costs of keeping reserve capacity on call. Supply pools with a complicated settlement system are planned. The extra cost of these has been put at £250 million a year by none other than Mr. Frank Ledger, former member of the CEGB board and now Production Director-designate of National Power. He knows what he is talking about.
Some 20 consortia are said to be eager to come into generation. We are told that together they offer to provide about 7 GW, half the shortfall of capacity with which we are confronted. Will they not find five-or even seven-year supply contracts much less cosy to fund than an offtake backed by state guarantee?
So far as I am concerned, it all adds up to the sorry conclusion that, while privatisation—I want to see privatisation and I believe that it has brought great benefits elsewhere—is a desirable aim in itself, this is not the way to do it. Higher prices must result. I am sorry to conclude that the Department of Energy has got it wrong again.
§ 4.53 p.m.
§ Lord Kirkhill
My Lords, I wish to discuss the Bill briefly as it applies and relates to Scotland. If I have an interest to declare, it is of a retrospective character, in that I was at one time chairman of the North of Scotland Hydroelectric Board.
I start from the proposition that, whatever the merit of a private power industry may be, it is in marked contrast to the public service nature of the product. Unlike the noble Lord, Lord Diamond, I think that the electricity supply industry is as much a natural monopoly as the water industry. In my view, that latter industry is about to be radically altered by the present Administration, which I regard to be of an extreme and doctrinaire character.
If I may speak in the context of the Scottish dimension, the usual free market principles so much 1181 admired by the present Administration are, the Administration judge, inadequate to meet the needs of the electricity generation transmission and distribution. Hence, I assume, the retention by the Secretary of State for Scotland of very wide powers to direct, for example, the operations of the power stations so far as concerns the use of fuel stocks and the levels at which these are to be sustained.
However, the most important person after the industry is privatised will be the Director General of Electricity Supply. We are told that in Scotland he will have a deputy. Let us consider what he is asked to do. He is to grant licences, enforce their conditions, fix maximum prices and prescribe individual standards of service. Perhaps the Minister will tell the House when he replies what he thinks the phrase "standards of service" should embrace. The director general is to determine standards of overall performance and more generally exercise his discretion,in a way best calculated to protect the interests of consumers in respect of prices, terms, continuity of supply and quality of supply services".That is a heavy regulatory schedule.
He is additionally to establish and control two consumer committees, which I readily concede is likely to be an improvement on the present position. In my experience the existing boards certainly listen to their consultative councils. A council is attached to each board. However, I believe that they only rarely act on the advice offered to them by the councils. In fairness to the Government's position I believe that there is a firm-up in terms of consumers' interest at that point in the Bill. Nevertheless, as I have attempted to point out, the director general's regulatory responsibilities are heavily bureaucratic in nature. I acknowledge that the same could be said about the present role of the Secretary of State for Scotland. However, as I see it, the significant difference is in the public accountability which results from the elected nature of his office.
As I indicated in opening, I am opposed to the basic principle of the Bill. Given that such amendments as may subsequently be carried in your Lordships' House are unlikely to threaten the basic integrity of the legislation proposed, I welcome the fact that in the private sector in Scotland there will continue to be two separate all-purpose boards. The arrangements suggested for ownership of the nuclear company seem reasonable—that is, if one accepts the proposition that the nuclear interest should be retained within the private sector framework. There is a compelling argument the other way that the nuclear input should be removed and retained in the public sector. Nevertheless, in the framework of the Bill that we have to discuss, the arrangement of separation of nuclear from the two boards or their successor companies appears to be reasonable, as indeed is the proposed cancellation of the joint generating account.
It is obvious that suitable arrangements will be made by the successor companies to sell to England the undoubted excess capacity that they can expect to have available. It should be a profitable form of export for them and may help to prevent—this may be a pious hope—in the future the worst excesses 1182 of the immediate past; namely, the recent totally unjustified price hike of something over 8 per cent. to the domestic consumer in Scotland, fuelled, one fears, by the boards' need to look as though they might just be of interest to an intending investor. Incidentally, when the Minister replies I should be interested to know whether the two boards are to be offered into the private sector on a historic cost or a current cost accounting basis. That is a point worthy of more detailed consideration.
Undoubtedly it is worth keeping in mind that the basic structure of the Scottish industry remains virtually unchanged other than there is the separation of nuclear and the creation of a different nuclear company; and that the present arrangement of the two vertically integrated suppliers is being preserved, with a new contractual arrangement replacing the existing joint generating account. By contrast, there is, and there will be, a significant undercapacity continuing in England and Wales. The overcapacity in Scotland at the moment can be of the order of 100 per cent on occasion, so that there is a great excess of capacity in Scotland. There is at the moment, and there will continue to be post-privatisation, undercapacity in England and Wales. That of course poses certain problems. It clearly gives the Scottish boards an effective monopoly; but it would seem unlikely that any private generator would wish to engage in activity on the Scottish scene. If I have misinterpreted that position, perhaps the Minsiter will correct me when he replies.
The position would seem to be: overcapacity in Scotland; undercapacity in England; a complete monopoly in Scotland, because a private generator will not dare to enter the fray; and the Scottish boards selling merrily south to England at prices favourable to themselves. It then of course touches upon the position outlined by the noble Earl, Lord Lauderdale, who talked about price and whether the price is truly competitive. One has one's reservations.
It is important to note that it appears that the Secretary of State for Scotland—after an initial refusal—will hold a golden share. That is important because it will at least prevent the worst kind of financial and commercial predator activity in the early days of privatisation. We must of course keep in mind that the SSEB as it presently is, and as its successor company will be, is a large organisation and that in the future it will prowl around—one can be certain of that—the much smaller hydro-electric board. The hydro-electric board has had a unique experience of providing electricity to the more remote areas of our country. The area which it presently embraces, and which its successor company will embrace, takes up about a quarter of Britain's land mass, although only about 2 per cent. of Britain's population. One can see in the future, five or six years on when the golden share will have expired and the Secretary of State's consequent influence will have diminished, a predator stalking the SSEB, looking most dangerously at whatever future company the hydro board proves to be. I hope that is not too demonic a scenario to paint. It is at least a possibility. It is one to which your Lordships should give consideration during the Bill's passage.
1183 I have said all that I wish to say on Second Reading about the Scottish position. More detailed points may be raised by my noble friend Lord Carmichael of Kelvingrove. What is certain—I echo the words of my noble friend Lord Shepherd—is that the Bill will require to be examined carefully. It requires substantial amendment. Because of our conviction we must oppose from this side of the House the basic principle which underlies the Bill.
§ 5.6 p.m.
§ Baroness Gardner of Parkes
My Lords, I thank my noble friend for introducing the Bill so clearly. I must begin by declaring an interest, because I am a member of the London Electricity Board. I have served for nearly five years in that capacity. However, my financial interest will not be a long continuing one, because I am sorry to have to say that when the board is privatised I shall no longer be part of it.
I listened with great interest to the noble Lord, Lord Williams of Elvel. I disagreed completely with his anxiety that we are going to see a rash of price increases and an aggressive debt collection policy. He implied that electricity was not safe with the area boards. I must comment on that point and tell your Lordships a little of how successfully area boards do their job now. I cannot see that there will be much change in that position, because 11 of the people involved in the 12 present area boards will run the new plc. They have already been nominated for those posts. The 12th member will not be nominated, because in the North-East area we have had a retirement on age grounds. I believe that a new chairman is already in position.
I consider that plc status will be a good thing. There are three areas upon which I should like to touch—the environment, consumer affairs (customer care as we know it at the other end of the business) and the research aspect. On the environment, the London board is unique in having most of its supply underground. That is unusual, but it is expensive. I know that many people in the country would like to have supply lines which are not visible. It is a matter of cost. I understand that the possibility of going underground is always considered in the country provided that part of the cost is borne by the consumer, and provided that British Telecom is prepared to go underground in the same area at the same time. There is no point in moving one service down.
Underground works mean that the surface can be restored to a good standard. Those of your Lordships who know Devonshire Square in the City will probably have seen what a successful job has been done there. A major new substation has been built without damage to the environment. In fact, there has been considerable enhancement of the area. My Australian accent makes saying "enhancement" difficult.
There is now another area in London where a new substation is needed and plans are already under way to build it totally underground and to restore the upper area at the end of the work. The electricity 1184 board will contribute £1 million to the improvement of the area by the local council. I think that that is a good environmental record. I remind noble Lords also about the 1987 storm, when major efforts were made by the boards, particularly in areas of outstanding natural beauty, to restore the trees and the countryside. Thousands, in fact some area boards say a quarter of a million new trees—no one is quite sure how many but they are checking—were planted at the time. That was fascinating.
The London Electricity Board does more than just care about the environment, it also cares about the community. It has an award system called "Brightening up London" whereby every year awards are given. There are five different categories, one for people helping the elderly. When I heard the words "Brightening up London", I imagined that it was because we were turning on the lights, but that is not so. The phrase is used in the sense of brightening up the lives of the people of London. The award winners this year included a woman who was running a scheme for disabled guides; another who had started a help group for relatives of sufferers from Alzheimer's disease. All the other winners were in equally impressive categories. My area board takes the attitude that it is a caring part of the community and intends to go on in that way.
The noble Lord, Lord Kirkhill, mentioned that although people consulted the local consultative council, they acted upon what happened. Again, while I do not know about the Scottish system, I think there has gradually been a change in London, even in the time that I have been here. As a result of discussions with our consultative council, we have now produced valuable documentation. The document I am holding is called London Electricity Collection Policy Guidelines, and another is the Customer Service Manual. The Collection Policy Guidelines would answer all the anxieties which the noble Lord, Lord Wiliams of Elvel, expressed. Nothing could be better than the way in which people are encouraged to approach their problems if they have difficulty in paying their electricity bills. The first point is that they must notify the electricity board that they have difficulty. Unless boards know that people are in difficulty they just think that the customer is trying to escape payment. Naturally, no one can afford to allow bad debts to accumulate without good reason. But where there is good reason, then a means of payment is added in, so that gradually people can pay off the existing debt and at the same time pay for their present supply.
That can be done in a number of ways. One way which is important and has proved extremely helpful in the London area is to use budget meters. These are meters which use a rechargeable key. The people who have to buy their electricity use the keys, instead of the old pre-payment meters which are being phased out. Where meters exist they are allowed to keep them; but no more of those types of meter are being installed. There have always been great problems, not only of outsiders breaking them open and stealing the money, but frequently of people themselves breaking the meters open because at some time, for some reason, they have had cause to look for money.
1185 Under the new scheme there is no money, there is no risk to the man who used to go around and collect money from the meters, there is no risk to the customers that they do not know how much is there. There is a little key which people recharge at the local electricity board and which will only operate on their meter. It is different from the cards which people can use as a saleable asset, and a person given money to help with his heating—particularly an elderly person—might find it misused. All that has been the outcome of research which will be continuing at Capenhurst, the main research centre which we use. It is a most impressive development and there are now 50,000 of these meters in use.
As regards the Customer Service Manual, everyone has heard before about how they will be paid by their electricity board if the board's workmen fail to arrive to carry out the work they promised to do. It is important that people should understand that these solutions exist. Noble Lords might ask, "If everything is so good now, why will this Bill make it any better?" I shall give just one reason. At present there is a large element of costs imposed—80 per cent. The London Electricity Board is an industry with a turnover of £1,000 million a year. The noble Lord, Lord Williams, said that he did not think that the present people were capable of running big business, but they are already doing so and they will continue to run the industry efficiently in that way.
I believe that 80 per cent. of the costs are non-controllable costs imposed on the local area boards. They can do nothing about them. Only 20 per cent. of the costs are within the boards' own control. Under the new system with the privatisation arrangements, the boards will have much greater control of their own destiny. Because of that, I believe that they will be able to negotiate more favourable contracts. To build new stations will probably take at least 18 months, so we might not see the full benefits of competitive policy for anything up to five years. We cannot expect to see these changes overnight, but I believe we shall see them eventually and will see competition producing reduced prices for the consumers. That must be in their interests. I noted that the noble Lord, Lord Kirkhill, mentioned an 8 per cent. price increase in Scotland this year, but we have had only a 6 per cent. increase in London.
With regard to research, as I said, we are retaining it and the research establishment at Capenhurst will be continued. It has made important contributions to the success of the industry in the distribution and energy utilisation areas. Individual boards have been prepared to invest. As I mentioned those keys, I should say that the rechargeable keys were a joint development between the research body and the London Electricity Board.
However, there are other matters involved, such as the mains-borne signalling. That can only be used in an underground system. Instead of the man having to come round to read the meter, he will be able to read it and send signals to one's late night storage heaters or any type of off-peak appliances over the mains. That will be a great saving and convenience. The boards are developing a meter reading system now whereby a van will be able to drive up a street 1186 with the engineer reading all the meters in that street without needing to find people at home or to knock on doors.
I should also speak up in favour of the combined heat and power scheme. I say this not in my LEB connection but under my former GLC connection, where we had exactly that at Edmonton. The waste was burned and we were able at that time to sell the electricity to the national grid, originally at an appalling price. I remember some years ago speaking on an amendment here to a Bill which gave boards the right to obtain a good price for their power. But in environmental and research terms space for burying rubbish is becoming harder to find and less desirable. It must be a good thing for us not only to be able to dispose of our waste but, at the same time, to have the benefit of the power. As my noble friend the Minister said, there will be protection for the environment in terms of the emissions that are allowed from these stations.
Noble Lords may be tempted by other speakers here, or by amendments as they come forward, to tighten the regulatory pressures because it is popular and fashionable to condemn electricity boards as mindless and uncaring. But to their credit their performance in all the areas I have mentioned has been caring and wise.
The body that replaces the present system must preserve the best of what we have. A careful balance needs to be drawn between the protection of the customer, the needs of the shareholder and the pressures on companies to improve performance. As the Bill enters this House, it meets that balance reasonably well. I urge your Lordships to ensure that the Bill emerges from this House with that balance maintained.
§ 5.20 p.m.
§ Baroness Ewart-Biggs
My Lords, 1 wish to join with other speakers who have thanked the noble Baroness, Lady Hooper, for the very attractive way in which she presented the Bill. That makes me that much sorrier that the content of what she said received so very little support from previous speakers. I believe that only the noble Lord, Lord Beaverbrook, and the noble Baroness, Lady Gardner of Parkes, supported the Minister, although much of what the noble Baroness, Lady Gardner of Parkes, said was in support of what is happening now. That made me rather sorry. However, the noble Baroness, Lady Gardner of Parkes, herself admitted that many changes were necessary.
We have a long list of speakers, most of whom have very specialised knowledge. I wish only to make a few very brief remarks in order to highlight the way in which some of the proposals will affect the domestic consumer. But, first, it is interesting to note how the general public have reacted to the news of the privatisation of a service which is so very central to their everyday lives. It is interesting to see that the opinion polls have shown strong evidence of very little public support for this measure. The latest poll findings suggest that about 70 per cent. of those questioned oppose the privatisation. A recent Gallup poll showed that not only were people 1187 opposed to the plans for the privatisation, but that 70 per cent. of those questioned said that they would probably not buy shares in the privatisation of the electricity supply industry. That makes a mockery of the Government's objective of spreading share ownership.
One wonders why there is a lack of confidence in this privatisation. Perhaps an overall reason is that people are aware of a fact, which is generally accepted here and overseas, that our publicly-owned electricity industry is considered an outstanding success. Everyone has heard people say that it is the envy of many countries in Europe. Those countries wonder why we are making this change.
However, there are other aspects of the proposals which are of particular concern to the public. One anxiety concerns whether competition will exist. The public are worried about whether prices will rise or stay the same. They are also worried about how their interests will be represented in a privatised company. My noble friend Lord Williams of Elvel made it very clear that there can be no competition at the point of consumption. Indeed, the Bill allows for only a limited degree of competition at the generation level. So the consumer has rightly sensed that this Bill has nothing to do with competition.
The consumer also wonders about prices, and whether they will rise. It is a fact that over the five years to March 1988, electricity prices fell by 17 per cent. in real terms. Unfortunately, it is also a fact that since privatisation of the industry was first mooted, there have been price increases of 9 per cent. in April 1988 and up to 10 per cent. for large users in April 1989. We face the possibility of a further substantial increase in 1990 prior to privatisation. Furthermore, a fossil fuel levy—a nuclear tax—is to be paid by all consumers of electricity without any provision for measures to encourage improved performance in the nuclear sector, which would lead to lower costs and prices.
So, the consumer wonders what will happen to prices. He fears the worst. There have been estimates that a monthly electricity bill may well increase by up to 20 per cent. by 1990. Naturally, for all kinds of reasons the poorer families and pensioners will be hit hardest by higher electricity charges. Low income households spend a much larger proportion of their income on fuel than better off families, because low income families tend to live in poorly insulated houses. Low income families also generally have less choice of heating systems and fuel. They often use a non-economic type of heating system and do not have the resources to convert it into amore cost-effective system. Those who are not in full-time work spend more time at home and therefore use more heating there than people in full-time work who benefit from heating in offices.
Changes in the Department of Social Security's benefit system since April have meant that problems of fuel poverty have been exacerbated by cuts in housing benefit and the removal of single payments and draught proofing grants. This all leads me to my main point which concerns disconnections. The disconnection of an electricity supply can and does cause severe hardship to families who find 1188 themselves unable to pay their bills. It is impossible for those of us who have never experienced the loss of such a central commodity as electricity to imagine a situation where suddenly we do not have any heating, where we have no refrigeration for our food, and where candles, which are a danger to small children, must be used.
The penalty of disconnection is a very serious matter. I know that the National Consumer Council welcomes the Government's undertaking to provide similar protection for customers of electricity as the safeguard that was negotiated by the Director General of British Gas for the customers of British Gas, following privatisation. I think the noble Baroness, Lady Hooper, mentioned that fact in her speech. However, the consumer bodies feel that we should not only go as far as British Gas went post-privatisation, but we should go one step further. The consumer bodies feel we should improve the situation by using this Bill to place public electricity suppliers in the same position as other commercial undertakings who supply goods or services on credit. However, those bodies feel we should take into account the electricity suppliers' special status as monopoly suppliers.
A legal obligation to supply tariff customers, but not necessarily on credit terms, would achieve that objective and ensure that those who are truly unable to pay off a previous debt are guaranteed continuing access to an electricity supply. After all, if someone does not pay the milkman for delivering his milk, it does not mean that person cannot have any more milk. Such a person can go and buy milk from another source. However, the suppliers of fuel are in a completely different position because they can remove the supply and the people affected cannot obtain a supply elsewhere.
As matters stand at present, the National Right to Fuel Campaign, among others, is very worried that the number of disconnections will rise. The example of what happened to gas consumers after privatisation has already been mentioned. It is difficult to forget that in 1988 as many as 48,000 households were disconnected from a gas supply. That rate is still 22 per cent. higher than the rate of disconnections when gas was initially privatised. To prevent the same thing happening to electricity users, the National Right to Fuel Campaign and many other agencies, including the National Consumer Council, Age Concern, and the Child Poverty Action Group, believe that the new electricity suppliers should have a duty to provide a supply which is not interrupted when a customer gets into debt.
Those bodies fully accept that the electricity consumed must be paid for, but they believe that customers should have the right to choose the method of payment and the type of meter which would best prevent them getting into debt and risking disconnection. The noble Baroness, Lady Gardner of Parkes, talked about prepayment meters which are operated either with a key or tokens, but not with money. I understand that at present they are available only to people who are already in debt. We should like to see the meters available as a preventive measure. They would allow people on very small incomes to budget and decide how best to meet their bills.
§ Baroness Gardner of Parkes
My Lords, I am sorry to interrupt but I feel that I must take up this point. Those keys are not available only to people who are already in debt. They are available whenever there is cause to change the meter. Whenever anyone requests a pre-payment meter, it is a budget meter which is provided. I must read to the noble Baroness an extract from the Collection Policy Guidelines under the heading "Arrangments to Pay" because she has just said that somebody would not be refused milk if they tried to buy it somewhere else:If the payment arrangement needs resolving over a longer term, appropriate arrangements can be made covering both the debt and the on-going supply. We will take financial and other circumstances into account when making an arrangement. All arrangements made must be kept or we may not be able to offer another one".Without doubt arrangements exist whereby people can have an on-going supply and be helped to meet a debt which they have accumulated.
§ Baroness Ewart-Biggs
My Lords, I am very grateful to the noble Baroness for explaining that point. However, it is not the position as it has been explained to me by the National Campaign for the Right to Fuel. It has said that people are not allowed a pre-payment meter on request but that such meters are provided only if the electricity supplier is willing to do so. We should like to see a provision in the Bill allowing people to have such meters and for any dispute between the supplier and the customer to be settled by the regulator.
The problem is that many people whose supply is disconnected have had no verbal contact with the supplier before disconnection. In many cases they are hard pressed, single mothers who never open the door but keep the hatches down. For that reason it would be very useful for them to have such meters, which would safeguard them from being disconnected.
There are other points to be raised about consumer representation. There is a concern, shared by many of the consumer bodies, that the Bill does not give the proposed customers' committees adequate powers of redress. I see that the noble Baroness, Lady Oppenheim-Barnes, is to speak in the debate. I have no doubt that she, from her position as Chairman of the NCC, will present that concern very strongly.
I should like to end with a few remarks regarding the quality of service to the customer. My noble friend Lord Kirkhill has already spoken on this point. I know that consumer bodies welcome the provision in the Bill to enable minimum quality standards to be set and for consumers to receive compensation if those standards are not met. To be adequate those standards must cover the quality of the electricity supply itself as well as incidental service quality such as punctuality of service calls and the time taken to answer letters. The consumer bodies believe that comprehensive quality standards should cover the following criteria: the continuity of supply; voltage stability; frequency stability; response time to requests for new supply; notice periods for planned interruptions of supply; and frequency and duration of planned interruptions. It is not clear whether or not any of the above will be included in the service quality guarantee scheme.
1190 From what I have said I do not believe that it is surprising that there are so many people among the general public who are concerned and who oppose the privatisation of electricity. As my noble friend Lord Williams has said, we on these Benches agree with those people and believe that there is no need for privatisation. The electricity supply industry is efficient. It serves a social and economic purpose. Competition will not be introduced as a result of the legislation, and the Bill is wrong in principle and will probably be wrong in practice. We on these Benches very much hope that there will be a vigorous debate at Committee stage and that many changes will be made to the Bill.
§ 5.35 p.m.
§ Lord Ferrier
My Lords, while thanking my noble friend for her skilful and comprehensible speech in recommendation of the proposals in this massive piece of legislation, I shall not for many minutes deter your Lordships from supporting the Motion which I hope will be successful at the end of the day. After all, the Bill has had a good laundering in the other place.
I am reminded that 40 years ago, al the invitation of the Government of India, I was involved in the drafting of the new Government of India's Electricity Act. I should like to place on record an instance of the friendly co-operation that existed when that great change of command took place in 1948.
I only wish that on this occasion my noble friend had been able to declare that these proposals would reduce the cost of electricity to the ordinary consumer. It is rather cold comfort that it is only hoped to prevent the costs of energy from rising further although the proportion of nuclear generation increases. (I need hardly say that I am leaving out a lot of what I had written because it has already been said.)
As my noble friend said in her speech, one must recognise the contribution the Bill will make to environmental improvement, which is to be welcomed.
The unexpected changes of climate that we have experienced in the last few weeks, particularly in the last few days, with their extraordinary variations, make one realise the uncertainties which lie ahead.
As an electricity consumer there are two specific, peripheral points I wish to make. First, as an electricity consumer in southern Scotland I am one of those who has complained that southern Scotland has recently had to bear the brunt of the early costs of the Torness power station—which, however, as time has gone by, has been shown to be a resounding success. Nevertheless, I wonder whether the noble Lord who is to reply can say whether the Bill provides for any adjustment to compensate those who have carried the burden of the formative years of that great power station. It was not required to meet Scotland's electricity needs; it was built to remove the stranglehold on fuel production which was at that time held by the coal industry.
The high costs from massive interest charges were out of all proportion to the proceeds of the sale to the public of the power fed into the grid. Those 1191 proceeds are now being realised, but nevertheless it has been an expensive business. It has had two disadvantages: it has discouraged the use of electricity because of its high price, and it has annoyed those noisy people in Scotland who object to everything which is done by government and who make things difficult for Scotland. However, that is quite another matter.
Just as I should have liked to have seen an indication of lower charges for energy in the future, I am a little surprised that there is no reference to another factor in the future development of the business: namely, the conservation of energy. That has been mentioned in the debate. One appreciates that the responsibility for conservation and saving electricity, rather than increasing consumption, will lie with the retailers. They will be the individual controllers and will control distribution either through their tariff structure or equipment, or through other methods.
As noble Lords have said, there is a great deal of Committee work to be done on the Bill. We must face the fact that, if the Bill is to go forward as we hope, it will require a great deal of consideration.
That brings me to my second point which is to inquire about the extent to which the promoters envisage the employment of off-peak tariffs and modern methods of energy saving, such as night storage heating and other up-to-date devices which can ease the burden on the ordinary domestic consumer or, as he has been called, the customer. I am thinking of my old friend "granny up the glen" and "granny in the high-rise flats". In these cold winds, the night storage heater is a very advantageous, electricity-conserving device.
I want to know whether the Department of Energy takes account of the R&D experience of designers of off-peak operations. I admit that the points that I have made in respect of off-peak heating, the costs of Torness and the initial costs of nuclear energy construction reflect on the energy with which the director general and his minions on the distribution side will have to exercise their authority. The undertaking is vast. As the noble Lord, Lord Ezra, said, the matter is one of great complexity. Energy may be the name of the department, but it will also be the "name of the game". Some risk is inherent in the developments, as has been emphasised by the risks in the developments following the negotiations in India of which I spoke. Of course, there is a risk, but the undertaking is so vast that it is easy to shoot down practically anything. Some of it has been shot down and will be shot down. It is our business to make energy the name of the game.
The other day, the noble Earl, Lord Halsbury, said something that reminded me of an old military handbook called Cavalry Section-leading which contained the phrase:to do nothing is to do something definitely wrong".I think that we must rely on the Department of Energy not to do nothing and to see to it that the distributors do not do nothing and make the Bill work. We intend to make the Bill work. The object of this and subsequent debates is to see that it is 1192 made to work. We are anxious that no time should be lost in getting on with the vast amount of work that is necessary in order to make it work. The noble Lord, Lord Diamond, pointed out how much energy was required. I hope that all noble Lords will support this side of the House in pushing the Bill forward to its designed end.
§ 5.45 p.m.
§ Lord Taylor of Gryfe
My Lords, I too should like to join the chorus of congratulation to the Minister on her presentation of the Bill. I am just about to pay the noble Lady a compliment but I am not sure that I have her attention. I was about to say that I wished to join the chorus of congratulation to the Minister on her presentation to the House of this complex Bill. Her real problems will start when we examine the detail of the Bill in the Committee stage.
As my noble friend Lord Diamond said, our reaction on these Benches to the Bill is like the weather—somewhat cool. I was delighted that the Minister reassured some of her critics in the fields of consumer and environmental protection when she made her opening remarks. No doubt, when we examine the Bill in detail in due course, we shall be able to see how those professions of concern are translated into the legislation.
I have been much impressed this afternoon by the devastating criticisms that have been offered in connection with the Bill. I am a great admirer of the noble Lord, Lord Williams of Elvel, and the reasonable way in which he presents his case. I have rarely heard him in better form than this afternoon. Similarly, I admired greatly, with their knowledge of the subject, the contributions of the noble Earl, Lord Lauderdale, and of the noble Lord, Lord Ezra, both of whom have a lifetime of experience in this field. I thought that their contributions were significant and added to my doubts about the worthiness of this piece of legislation.
I have grave doubts on two points. First, there is an assumption of efficiency gains. It is purely an assumption. In any large organisation, efficiency is achieved by two means; namely, getting one's structure and management right. I have no doubt that the experts in the industry will continue to manage this new privatised industry and to give their expert guidance and advice.
However, I am not sure whether the structure of the industry and the powers of the director are such as to make for an efficient organisation. I think that any business consultant looking at the industry would condemn it in those terms. Indeed, I wondered who would buy it. I am sure that, if one reads in the Bill about the overweening powers of the director and one looks at the breakdown of the industry into its various sections, it will not appeal greatly to potential investors, unless—as has happened so often in the various privatisation exercises—the national assets are sold off at a throw-away value. That is my feeling. The Government's record in privatisation, albeit with their expert advisers, is not a happy one. I believe that it would be sad for us, the owners of this great industry, to see our assets transferred to private ownership at inadequate values.
1193 Another point that worries me about this legislation is that, although we talk a great deal about competition being introduced into the industry, it does nothing to improve choice at the point of consumption. The consumer is given no choice. Therefore the claim for its competitive nature is not fully realised.
I should like to say a few words about the Scottish situation, with which I am reasonably familiar. Today is a sad day in Scotland. There are only three deep-mined pits in Scotland and it was announced yesterday that two of them were to be closed, leaving only one deep mine. The only pit that survives is Longannet and that has only been possible because of the intervention of the Secretary of State for Scotland to ensure that the South of Scotland Electricity Board continued for a further three years its contract to take 2 million tonnes of coal. That was achieved by the intervention of the Secretary of State for Scotland while these two industries were arguing in the courts.
However, it is quite obvious to me that, if this Bill is passed and with privatisation comes the complete freedom of these organisations to buy where they like, there will be immense dangers for the coal industry in this country. I suspect that there will be very little left of the coal industry while people take a short-term view on cheap imports or take a gamble on the price of oil or gas. There is a very important public interest in this regard and it would be a very unwise country that allowed one of its great natural resources to die on the altar of privatisation of the electricity industry.
As has been mentioned by the noble Lord, Lord Kirkhill, who has more experience than I have in this field, there are two organisations in Scotland: the Hydro Board, which was originally set up in order to exploit the hydro capacity of the Highlands and which serves a very large area of Scotland though it has a small consumer base; and the South of Scotland Electricity Board, which is the supplier of the large industrial areas. Under the new arrangements, particularly in the nuclear section, they are to have an integrated operation.
I know that it is a heresy in Scotland but in regard to the future structure of the industry I think that a greater degree of integration of the Hydro Board and the SSEB is probably called for. I believe that we are paying too high a price for old loyalties. In the course of this Bill I think we should look very seriously at the possibility of a combined holding company for Scottish electricity.
It is interesting—and this is important in the Bill—that in England the costs of nuclear power will be much greater than the costs of the fossil fuels. In fact there will be a very substantial difference. For that reason the Government have built a protective fence around the nuclear industry. One will have to pay a levy to keep the expensive nuclear business expanding. So one builds a protective fence around a future nuclear industry but no protective fence around the coal industry, and the consumer will be required ultimately to pay for expensive nuclear production.
1194 In England it is assumed that the cost of nuclear power will be 5p per unit whereas the cost of fossil fuel production in England is 3.5p per unit. So we have coal production at 3.5p per unit and nuclear production at 5p per unit. Presumably the distributive organisations will pay the fossil fuel price and 1.5p per unit will be found from the levy which will be carried by the consumer.
It is interesting to see that in Scotland, with the AGR production of nuclear power, the cost per unit of nuclear fuel is 1.6p per unit. In England it is 5p per unit and in Scotland it is 1.6p per unit. In Scotland the nuclear capacity is around 60 per cent., so that Scotland has a large export surplus available. I should be glad to have reassurance from the Minister—in fact it has been acknowledged by the Secretary of State for Scotland—that the export of cheap nuclear power from Scotland will come within the non-fossil obligation percentage in England.
It would be very interesting to hear the Minister tell us a little about the pricing arrangements for the nuclear fuel exported from Scotland to assist the proposed 20 per cent. non-fossil fuel base in England. Will it perhaps be the case that the Scottish industry will have a negative levy? Obviously if the industry in England is to carry a levy (the difference between 3.5p and 5p) and Scotland is producing nuclear power at 1.6p per unit, it would be interesting to hear just how the pricing arrangement is to be set up. If favourable pricing arrangements were made in the Scottish case, it might enable some of the fossil fuel pits which are mined in Scotland to be carried, making them economic and maintaining employment. Perhaps the Minister would tell us a little about that matter.
As I have said, we shall examine the detailed arrangements with great interest. We are extremely critical of certain provisions of the Bill.
§ 5.57 p.m.
§ The Earl of Swinton
My Lords, I am certainly not opposed to privatisation in principle nor in fact to this particular Bill. However, I think that this Bill will need a little ironing out in Committee and later on. There are three points that I should like to make very quickly but only in passing because I understand that my noble friend Lord Stanley of Alderley will mention them, although they have not yet been raised. These points are the rather strict powers of compulsory purchase, which I think are to be put in the Bill; the question of way leaves, which are not mentioned but which have stood the test of time well; and differential charging in rural areas.
This evening I should like to speak, albeit briefly, on one subject; namely, the environmental concern arising out of the Bill. My noble friend spoke on that subject in her excellent introductory speech and it was mentioned briefly by the noble Lords, Lord Williams of Elvel and Lord Ezra. I feel that this Bill represents a great opportunity wasted. It strikes me as very ironic that the privatisation of both the water supply industry and the electricity supply industry should be going through this House in tandem, as it were. Whereas one of the major provisions of the water privatisation Bill is designed to clean up the pollution in our rivers, this Bill does little or nothing, 1195 to clean up what I think I can safely say has been one of Britain's biggest polluters—the electricity supply industry. Whereas the Government are doing much to help protect the environment with the Water Bill—I know that many noble Lords would say that it is not enough, because I have read the speeches on Second Reading of that Bill and it is clear that many people think they can do better—in fact there is pitifully little on offer in this particular Bill.
The Countryside Commission—perhaps I should declare an interest as a member—the Nature Conservancy Council and English Heritage, three of the Government's own environmental advisers, are bitterly disappointed that their advice on this legislation has been largely disregarded. It would be no exaggeration to say that this view is supported by every conservation group in the country. The Countryside Commission and the NCC explained their environmental concern to the Department of Energy last year. I make this point. These are the Government's own advisers. They are not what my noble friend Lord Onslow might describe as a bunch of bearded eco-freaks, but they are the Government's official advisers on environmental matters. They made some modest proposals for incorporation in this legislation last year. When the Bill was published, virtually none of these proposals was adopted.
My noble friend Lady Hooper made a certain play about Schedule 9 to this Bill. In fact Schedule 9 could provide a golden opportunity to reflect public and political awareness of the environment. All it does at the moment is to repeat, virtually word for word, Section 37 of the Electricity Act 1957 which placed amenity obligations on a publicly owned industry. I submit that it has not been particularly successful. That was over 30 years ago. In that time it would be fair to say that public awareness of the countryside, its conservation and enhancement, has increased. I should like to see Schedule 9 tightened to impose duties on the industry, the director general and the Secretary of State, to further the conservation and enhancement of the landscape, including its natural beauty, its flora and fauna, and the protection of buildings of archaeological, architectural and historic interest.
There should also be a duty to promote energy conservation measures. There should be a statutory code of environmental conservation practice, drafted in consultation with the Government's environmental advisers, which would promote desirable practices in such matters as the protection and enhancement of the environment, the planning of new generating stations and transmission lines, the undergrounding of low voltage cables in sensitive areas, landscaping and screening generally, and avoidance of sites of ecological or archaeological interest.
In case I am accused of being too parochial in speaking for England, I am quite sure that the Historic Buildings Council for Wales would welcome these proposals. In view of the fact that my noble friend Lord Sanderson will wind up, I can assure him that the Countryside Commission for Scotland 1196 could come up with some very useful suggestions on how to redraft Schedule 9 for inclusion north of the Border.
I was encouraged that my noble friend Lady Hooper said that she was willing to consider further environmental matters. I hope she meant what she said; I am sure that she did. I implore both my noble friends to take these matters on board during the passage of the Bill. I submit that they are modest matters. They are not expensive and they should not deter potential investors. If the Government desire to improve the environment of this lovely country, here is a wonderful opportunity to show their sincerity.
§ 6.4 p.m.
§ Lord Stoddart of Swindon
My Lords, like other noble Lords I should like to congratulate the noble Baroness, Lady Hooper, on the manner in which she presented the Bill. However, the attractive wrapping concealed a nasty doctrinaire Bill which will do nothing to deal with the desperate financial and economic problems that the Government face at the present time. In my view, the Bill is an insult to the people working in the industry, past and present, who have given of their skill and energy to build what is acknowledged worldwide as the most efficient and reliable electricity supply system in the world. Perhaps I ought to declare an interest in Clause 99 of the Bill since I am a member of the electricity supply industry superannuation fund.
The Government have little support for their Bill among the general public. In my view they have much less support among employees in the electricity supply industry who are fearful not only for their jobs but also for the future of their industry and for the consumers whom it serves. The conversion of the industry from the pre-war hotch-potch of private companies and municipal undertakings to the present first class integrated and much envied system, is a tribute to the staff. What is now proposed—although it will not work, as my noble friend Lord Williams pointed out—is a return to those conditions which, before the war, failed to supply the people of this country with a decent, integrated electricity supply system. Indeed, I cannot understand what the Government are talking about when they refer to competition. There can be no competition if the Government have decided, as they have, that there will be a single price throughout the country. That is what the grid system entails. Before the war there were differing prices up and down the country, ranging from sixpence per unit to one penny per unit. At least if the Government retain the centralised grid system, I hope that it will ensure that the people in the north of Scotland will pay the same price per unit as the people in the south of England. I hope that we shall have that assurance, because if we do not there will be big trouble in the remote areas of this country, and in particular north of the Border.
So far as I can see, there is no other reason for this Bill than sheer ideology. There is no other reason why the Government should break up this great industry. Indeed, the Government do not even need the money to bribe the electorate and finance a 1197 pre-election tax cutting bonanza. They already have sufficient money to do that. The reason for the Bill can be based only on sheer ideology. The dedicated, highly qualified staff of the electricity supply industry are used to being taken into management's confidence and consulted about a wide range of issues, not only health and safety—as proposed under this legislation—but also on welfare and efficiency. Do I understand from this Bill that the staff will no longer be involved in matters of efficiency? During my time in the industry, through the consultative procedure, the discussion of efficiency was a very important matter indeed and enabled the staff at local, regional and indeed national level to make their contribution to the wellbeing of the industry. I can see nothing in this Bill that will enable the staff, or give the staff the right, to do so in the future. At Committee stage we shall be examining this aspect. That aspect and the contribution of the staff through that machinery has helped to make the industry what it is: one of the greatest supply industries in the world.
However, the other question that we are entitled to ask at this stage is whether the privatisation of other energy industries has been highly successful. Is British Gas under privatisation any more efficient than it was under public ownership? Are prices cheaper than they were under public ownership? They are not; they have gone up. Do customers get a better deal? They do not; in my experience they get a worse deal. Is the industry more accountable to the people? It is a long time since we have seen the chairman of the board talking to Members of Parliament as he used to when the industry was under public ownership. He does not come along these days.
As far as we can see, the experience so far of an industry that has been de-nationalised, privatised, has not necessarily been good—except perhaps for the chairman and board members. It has not even been all that good for shareholders. We hear about the shareholding democracy and accountability to shareholders. But the fact is that it costs the normal shareholder in British Gas far more to travel to a meeting of shareholders than he receives in dividends, so there is not much accountability there either.
British Petroleum was completely sold off. How has that helped the motorist or anybody else for that matter? Is BP helping to keep down energy costs in this country? Of course it is not. Under private ownership it is forcing them up so that it can make more profit for the shareholders. The experience we have had so far in privatisation has not been very good for the consumer, has it?
This is the wrong Bill at the wrong time. We have heard a good deal this afternoon about the greenhouse effect. We have heard about the need to conserve energy so that we can deal with the greenhouse effect. The matter has become urgent. Yet here we are breaking up the industry so that we shall be unable as a country, as a community, to ensure that the industry burns fossil fuels more efficiently and gradually replaces them by renewable energy and conservation. Those are the two elements which are so important. Conservation could ensure 1198 that we did not need a new power station, whether it be nuclear or fossil fuel, for many years yet. That is something which I hope the Government will concentrate on: but de-nationalising, privatising, the electricity supply industry makes the job even more difficult. It is no good the Government, on the one hand, greening themselves and, on the other hand, blackening themselves by throwing away powers which they presently have to deal with the green policy.
There is another matter—the provision of renewable sources of energy. One of the most important sources of renewable energy would be through tidal barrages, like the Severn Barrage for example. The cost will be £7,000 million. Do the Government imagine that private enterprise, a privately owned industry, will be able to provide such a scheme as that without assistance from public funds? We shall be interested during the Committee stage to know exactly what the Government are doing about renewable sources of energy.
However, my time is running out. Before I sit down I want to ask my noble friend on the Front Bench what the Labour Party policy is in relation to re-nationalising the industry when a Labour Government takes office? I am not seeking to rock the boat, but I understand that the Labour Party—of which I have been a member for many years—is saying that when it comes to office it will take water and telecommunications back into public ownership, but there is no mention of electricity. I want to remind my noble friends that electricity is just as important a service as water or telecommunications. Indeed, make no mistake about it: without electricity one cannot pump the water or get rid of the sewage in a modern society.
It is no good saying that we shall tinker with the control mechanism. There is a very good case—I do not have time to deploy it fully—for a Labour Government to take the electricity supply industry back into public ownership, hook, line and sinker, although not necessarily organised in the same way as it is at present.
In conclusion, I must repeat that I believe this to be a bad Bill, introduced for the wrong reasons at the wrong time. My only hope is that during the Committee stage we shall be able to improve it beyond all recognition.
§ 6.16 p.m.
§ Viscount Weir
My Lords, I start by declaring several interests—as the chairman of one company which manufactures equipment for power stations, as a director of another major electrical company and as president of BEAMA, the trade association which represents this country's manufacturers of electrical equipment. By the way, those manufacturers employ 400,000 people and they have a turnover of £25 billion.
It is almost a year now since your Lordships debated the White Paper on privatising electricity. Those who were present on that occasion will recall that almost every speech made on that day was generally critical. But among that criticism many sensible and helpful points were made. It is a matter 1199 of acute discouragement and disappointment therefore to find that now the Bill has come before your Lordships' House almost all of that constructive criticism has apparently been rejected and the basic proposals are still before us in their original and unsatisfactory form.
Of course your Lordships will have a chance of trying to improve the Bill by amendment, but that can be of only limited use if the basic fabric is not sound. It is like my tailor. When I bring in for repair some tattered garment that is long past its life expectancy, he admits he can do something here and there, but the expression on his face clearly indicates that the end result will still be a disgrace to the trade.
It is not just the basic proposals in the Bill which are misguided. The implications for those affected and the consequences of timing have not been properly thought out and planned. That is equally serious, and if your Lordships think that I am trying to make some wild and unsubstantiated criticism, let me try to spell out some of those effects. Let us first take the distribution companies, as the area boards will become. I had the pleasure of dining with most of their chairmen the other night. My host headed one of the boards which wants to take advantage of its right to build up to 15 per cent. of its generating capacity itself. He said he was sure that that policy would be economic, but unfortunately he could not say how economic. Therefore, how can he plan and choose between major capital investment on the one hand and purchasing power from generators on the other?
Let us now take the case of large private sector consumers which wish to make bulk purchase contracts. If I understood correctly, some months ago ICI was quoted as saying that the uncertainties were such that there was no basis on which it could make such contracts. On the other side of the coin are those companies in the private sector which could generate substantial amounts of power, in some cases easily and cheaply, by expanding existing facilities. I spoke to someone in that happy position a week or two ago. He heads a famous oil company. He could proceed very quickly. He mentioned being able to put in place some 500 megawatts. He cannot move either because he does not have the basis on which to make a proper assessment of capital investment or to negotiate a contract.
Let us now look at the poor CEGB which these days appears to be treated with scant sympathy. Early in 1988, on the occasion of the BEAMA dinner in Birmingham, my right honourable friend the Secretary of State for Energy specifically stated that privatisation would not affect the investment programme in generating plant, which included three major coal-fired stations. The CEGB placed design contracts on the main equipment makers. They in turn heavily committed their technical resources to those contracts. But my right honourable friend has subsequently told my trade association that, unfortunately, he cannot confirm his original commitment to the coal-fired programme because the decision to build those stations will now depend on the contracts which are negotiated between the generating companies which succeed the CEGB and the distribution companies.
1200 But the uncertainty which exists because of the way in which the issue has been handled by the Department of Energy makes it impossible to make such contracts. Therefore, no decisions can be taken on construction. I consider it inexcusable to create what can be only described as a vicious circle of uncertainty. Two of the root causes of that uncertainty were the failure to appoint the regulator at the outset and to set up a clear framework of rules at the earliest possible moment. Surely it was obvious that if that was not done the present confusion would result.
To say that, given time, it will sort itself out and that critics such as I are simply being impatient is not an adequate or acceptable reply to the criticism. Time is not on our side. There is a large body of serious opinion which believes that we shall face a supply gap in the 1990s. We are talking of very large serious investment projects which take a long time to design and construct and, incidentally, where planning permission does not come exactly overnight.
I now turn to the long-suffering equipment makers. As I remarked earlier, some of them have already wasted much scarce technical effort on coal-fired plants which now appear unlikely to be built. In addition, the public procurement directive from Brussels will apply to the power generation industry at just about the time of privatisation. Our home market, which will then be the only one active in Europe, will therefore be opened to European competitors at just that moment.
In issues of trade and competition we hear talk about level playing fields. However, I am afraid that our equipment industry will find itself playing uphill and against the wind. We see little if any chance of penetrating the French or Italian power industry with our exports. Their electricity supply will remain nationalised and they will look after their national manufacturing interests. The Germans will find ways of doing exactly the same, and that is the reality.
Our manufacturers are also unhappy about future arrangements for research and development. My trade association sought, but failed to find, any comfort in that matter from the Department of Energy. Clearly the CEGB—which will become a national power—feels that in the new competitive environment it cannot afford to finance long-term research and development projects. Commercially that may be correct but nationally I ask whether it is not another matter.
In case some noble Lords think that I am just another manufacturer whingeing about competition and complaining about losing public support, I remind them that the electrical equipment industry is a massive exporter. We export over £10 billion worth of products. In looking at our parlous balance of trade we see that the country needs every pound of those exports. Successful exporting needs a stable home market and at least the level of support for research which our competitors enjoy. If the electricity industry is reorganised so that manufacturers no longer have those benefits, the consequences will be obvious.
Finally, competition is the essential hallmark which is supposed to be stamped on every good 1201 privatisation scheme. Unfortunately, in this case the contortions needed to introduce it in an industry with a strong natural element of monopoly have been such as to produce the complicated and unnaturally constructed creature which we see before us in the Bill.
One or two aspects of competition are worth mentioning. First, we should remember that the degree of true and real competition in electricity generation must logically depend more on the amount of capacity which there is in excess of demand and on the pattern of ownership of capacity generally than on any other factor. We should also remember that in the end excess capacity is a national cost.
Secondly, I suggest that, curiously, perhaps one of the most important aspects of competition has had little mention in public debate and none directly in the Bill. It was touched upon earlier in the debate by the noble Lord, Lord Taylor of Gryfe. It is the price at which the generating companies will be sold to the public. In other countries quoted utility companies are usually in the category of investment which is considered safe and has a modest growth in turnover and an attractive dividend yield. They usually have a fairly high level of debt, as fixed interest bonds are the most sensible way of funding long-term capital investment.
When our generating companies are sold off therefore it is certain that they must be marketed at an attractive dividend yield; and to make the issue sure to succeed their price will need to be seen to be cheap. To do so means that the value of their existing capital assets must be heavily discounted. In the case of national power, further discount will in practice be needed to compensate for its nuclear involvement. That is not an issue which will appeal to private investors.
The question then is simply whether these newcomers into power generation have any real chance of competing on a large scale with entrenched generating companies, the assets of which have been heavily and artificially written down to meet the realities of the stock market. That is an important question and one which goes right to the root of competition and to the principles of privatisation. Having put that question, I shall sit down.
§ 6.30 p.m.
§ Lord Hatch of Lusby
My Lords, like my noble friend Lord Stoddart of Swindon I oppose the Bill in principle. Electricity, like water, telecommunications, coal and railways is part of the commanding heights of our economy they should be owned and managed by the national community. So far as concerns the Bill itself, I listened carefully to the opening speech made by the noble Baroness, Lady Hooper. She made a particular point—indeed, I was glad that she did—on the environmental issue. It is on that issue alone that I wish to speak tonight. I shall complement what was said by the noble Earl, Lord Swinton, and by my noble friend Lord Stoddart of Swindon.
The noble Baroness made many attractive noises about her desire that the Bill should help to make 1202 the environment clean. Indeed, she seemed to count upon the use of nuclear power for that purpose, and later referred to the diversity contained in the Bill—a diversity which seems to me to be rather artificial, especially following the remarks made by the noble Lord, Lord Taylor of Gryfe—with a protective fence around the nuclear industry. I wonder whether she has studied the evidence as to whether nuclear energy is environmentally clean. Further, I wonder whether she has studied the evidence given to the energy committee of another place by Bill Keepin and Gregory Kats of the Rocky Mountain Institute published in Energy Policy No. 16 on 6thDecember 1988. In that evidence the whole argument that nuclear energy is environmentally clean is directly challenged.
The noble Baroness talked about a positive story concerning nuclear energy. She then went on to say that the Government were going to ask the companies to carry out certain actions and that they would continue the present policy. She gave figures for their hoped for reduction in sulphur dioxide by the year 2003 and nitrate dioxide by 1998. They were all hopes. However, if they were sincere hopes surely they should have been included in the Bill. But they should not have been included as hopes; they should have been included as specific targets which had to be met.
The noble Baroness spoke about the greenhouse effect and said that there should be more research. I believe that some kind of research will be carried out tomorrow at No. 10 Downing Street. I have not been invited to attend and I do not know whether any other noble Lords have been invited. But, more important than that, none of the specialist environmental organisations in this country has been invited. I understand that one environmentalist is coming from the United States; but none of our own organisations, which have been advised by top scientists, has been invited to the seminar.
It is not enough for the Government to hold seminars or international conferences; there is action here in Britain which the Government could have taken, can take and, indeed, will be able to take in the future. It is upon that action that this country will be judged as to its sincerity in the colossal issue which faces us between now and the end of the century, so far as concerns the world environment. No steps have been taken to reduce Britain's carbon dioxide emissions, which have a direct bearing on the greenhouse effect. Indeed, the Central Electricity Generating Board has told Members of Parliament that it expects an increase of 25 per cent. in those emissions over the next 15 years.
The electricity supply industry is mainly responsible for environmental pollution in this country. Indeed, 233 million tonnes of carbon dioxide are produced by the industry thus adding to the greenhouse effect. Moreover, 2.8 million tonnes of sulphur dioxide, which contributes to acid rain, are produced by the industry; 809,000 tonnes of nitrogen oxide, which contributes both to acid rain and to the greehouse effect, are produced by the industry. Further—and I hope the noble Baroness will take careful note of this fact—the electricity supply industry also produces about 27,500 cubic metres of 1203 radioactive waste every year, including the waste produced by reprocessing of spent fuel. But, on top of that, must be added the waste which will come from the decommissioning of plants after shut-down.
At the current level of carbon doxide and other greenhouse gas emissions, global temperatures are set to rise by 1.5 degrees centigrade to 4.5 degrees centigrade over the next 50 to 60 years. That is within the lifetime of present generations. We know that that may well cause—indeed, it is almost certain to cause—climatic changes and rises in sea levels. The electricity industry contributes 39 per cent. of British carbon dioxide emissions. It contributes 73 percent. of sulphur dioxide and 35 per cent. of nitrogen dioxide emissions in addition to that which is produced by the so-called "fuel cycle industries" which produce 90 per cent. of the radioactive waste of this country.
I ask: what are the Government doing in order to put their environmental rhetoric into practice? So far as concerns the Bill, they are doing virtually nothing; nor are they doing anything in their own governmental policies. They are in fact dismantling the energy conservation programme. I wonder whether noble Lords will remember—perhaps the noble Baroness will—that three years ago in 1986 this year was put forward as environmental conservation year. Indeed, a special unit was set up. However, I understand that the unit has now been halved, both as regards its budget and its personnel.
Let me turn to one particular issue in this field. What I would like to see in the Bill—if we must have such a Bill—are two main factors: the first is energy efficiency and energy conservation and the second is the introduction of specific targets for reduction in pollution. Those two central factors could be in the Bill if the Government so wish. However, the Government have shown that they are not sincere in their professions of concern for the environment.
Let us take the one issue of wave power. Wave power research at a serious level on the connection between wave power and electricity was started in 1976. In 1982 it was abandoned and £17 million in research written off. Norway continued and began to export its technology in wave power. I not only admit but welcome the fact that in March of this year the junior energy Minister pledged £250,000 for a turbine and generator in the Hebrides—a small half-step back from the retreat that the Government have made.
I also congratulate and thank the Minister for her Statement on 6th April that the Government will finance a study of shoreline wave energy sources. I fully admit that that is another step in the right direction—a very small step. However, why has that not been included in the Bill? Why is it not included in the energy efficiency and energy conservation that apparently has to compete with protected nuclear power? Why have the Government not said that such alternatives will be a part of our energy efforts within the Electricity Bill?
The European Commission estimates that all the Common Market countries could gain 85 per cent. of the electricity they use from wave power and that 1204 Britain could obtain from wave power all the average demand on the Central Electricity Generating Board. I have given only one example as there is no time to give the many others—insulation and so on—but that is the kind of energy conservation which is vital for the preservation of our globe and for the efficient provision of the electricity needs of this country. However, all these alternatives have to compete with the protected nuclear industry which, as I have briefly shown, itself contributes to the destruction of the environment.
It is only a day or so ago since the National Audit Office reported that British Nuclear Fuels is less accountable to Parliament than other government-owned bodies. It is also less accountable to local opinion. I come back to the point I made to the noble Baroness in a debate we had about 10 days ago on the disposal of nuclear waste and to the issue of Wylfa. Her answer did not totally satisfy me, though I fully accept that she replied at short notice. Now we learn that it is planned to build a second reactor at Wylfa; this time a PWR—a type not known for efficiency or safety.
In that debate I quoted the incident which occurred at Wylfa in July 1984 when there was an earthquake. The Secretary of State for Energy was not backward in congratulating the Soviet Union on closing down a nuclear power station after the earthquake in Armenia. As I said in the previous debate, in July 1984 there was an earthquake recorded at 5.4 on the Richter scale with its epicentre 30 miles south of Wylfa. I know that there is grave public concern in that area at the building of yet another nuclear power station. If that is the kind of consequence that the Government expect from this Bill there will be a great deal of local opposition in many parts of the country, but particularly where new nuclear power stations are being built.
My noble friends Lord Williams and Lord Stoddart have both said that this is a bad Bill. It is a bad Bill in principle and in practice but it will be our job during the Committee stage to set off on a policy of damage limitation and to take the opportunity which we will have of including environmental protection within the Bill. I am glad to hear that noble Lords on the Government side of the House have expressed agreement and I hope they will show their sincerity by voting with us in Committee.
If the Government are serious about saving the environment and constructing an energy policy, which so far has been lamentably absent, they will put into the Bill environmental imperatives, not rhetoric, sweet words or hopes. They will put into the Bill the demands that are now coming more and more from the people of this country who are looking ahead to the kind of environment in which we and our children will have to live.
§ 6.47 p.m.
§ Viscount Hood
My Lords, I add my congratulations to the Minister for dealing so clearly with this most complicated Bill. I cannot say that I agree with all of the Bill but I start with some brief comments on the non-fossil fuel policy with which I fully agree. It seems to me that this is wholly 1205 justified on the argument of diversification. Looking back to the coal strike, the possibility of this country keeping the lights on without nuclear power would have been small.
However, added to that now are the arguments for the environment and the increasing concern about the greenhouse effect, where nuclear power has such a clear advantage. One must think of the next 30 to 35 years, which is the life of a power station. I do not think that the renewables will play any very significant part in that period. There must be research and development in looking ahead, of course, but the renewables have a long way to go.
Wind and tide are the most probable sources of energy. While wind is probably economic, or beginning to be, the concept of 250 square miles of windmills in the areas of this country which need a generating capacity—essentially the south—constitute an environmental problem of colossal magnitude. Tide is a vast proposition. The Severn barrage is, I am told, ideal but it is so large that it is difficult to contemplate it in the context of privatised power. I believe that that must be delayed indefinitely in the structure of the present Bill. Having said all that, we are left with nuclear power. I am delighted to see that the Government are going ahead as fast as planning permissions will permit to create this important addition of 10 to 15 gigawatts to our generating capacity.
I now turn briefly to what I think is the main action and problem in the Bill; namely, the break-up of the CEGB into three components. In the first place that involves the transfer of security of power to the hands of 12 area boards, none of which at the outset will have any generating capacity, or, in the foreseeable future, can have very little. They will have to enter into contracts to achieve their power. The question arises on which comment has already been made, notably by my noble friend Lord Weir, whether that capacity will be available. No doubt the private enterprises are studying the matter. They will need to have something that is bankable. It does not matter exactly what bank or what form of borrowing is attempted; but it has to be bankable.
It involves three factors; namely, a fair price, a long-term contract and the load. The load is a difficult prospect. The Government are rightly committed to the nuclear programme, and presumably it will have the base load of the generating system as it does today. The nuclear stations will operate day in and day out, year in and year out, as they do at the moment. That leaves the remainder of the generating capacity to meet the remainder of the load. There are many complications in the method by which power will be sold and bought under the Bill. One matter that is certain is that fundamentally the merit order will continue. The merit order depends on the human beings in this country, who are not going to be changed in their methods and ways of living by this Bill. They use a great deal more power in the evening than at other times of the day. They also use a good deal more power in winter than they do in summer.
I do not see how the private enterprises will get the assurance of load which is fundamental to their 1206 willingness to make the very large capital investments that are involved. If that is not so, there will be a lack of security of power, not today but in the 1990s or thereafter. Events so far are not particularly encouraging. My noble friend Lord Weir referred to the Fawley contract which was stopped, apparently, because assurances as regards load could not be given. There may also have been environmental objections. Nevertheless, that station is not being built. I shall be very interested if my noble friend the Minister can comment on this general area which gives me great concern.
My conclusion is that the argument for competition which is fundamental to the Bill does not justify the risks that are being taken in breaking up the CEGB. I believe that there are solutions to this problem. Even at this late stage I suggest that the CEGB should be kept together but put into the generating companies. They can be privatised, collectively owning the CEGB, which should remain an entity and able to carry out research and enter into the kind of long-term contracts that are so urgently necessary. That is a variation of some suggestions made by the noble Lord, Lord Ezra. It would be possible to have the security of power and the long-term research that we also want consistent with privatisation.
§ 6.54 p.m.
§ Lord Stanley of Alderley
My Lords, my concerns about this Bill are almost identical to those concerning the Water Bill and relate to two main points. First, compensation for land taken by the public liability companies must be at a realistic value and not at the existing use value which, apart from being unjust, will encourage the electricity plcs to develop on green field sites. I believe that they will be encouraged and forced to do so by their shareholders.
Secondly, the charges for services must not discriminate against rural consumers. The answer given in another place by Mr. Michael Spicer on behalf of the Government was not satisfactory. This latter point is where I part company with the Government. Their policies are geared to market forces. That is all right for many things, but not for a service such as electricity. This philosophy inevitably means that the richer and more prosperous areas do well, while the improverished and usually rural areas struggle. We are in danger of losing that very quality that exists there, that our town cousins look and come for.
I want this Bill to ensure that essential services such as electricity and water are provided to the rural areas at no greater charge than to what I call the urban easy-to-service areas. The noble Lord, Lord Stoddart of Swindon, suggested that such a control on electricity charges was in the Bill. When he replies I ask my noble friend on the Front Bench to say that it is. I cannot find it.
§ 6.56 p.m.
§ Lord Macaulay of Bragar
My Lords, at the outset of my contribution to this debate perhaps I may say that it is unfortunate that those of us with a Scottish interest in the privatisation of electricity will have 1207 to wait until the last speech to be given by the noble Lord, Lord Sanderson, for the ministerial viewpoint on Scotland to be presented to the House. It means that those of us with a particularly Scottish interest are to some extent speaking in a vacuum, not knowing what the current ministerial viewpoint is for Scotland because it may not necessarily be the same as it was at the time when the White Paper was produced.
Much of what I was going to say has already been said by my noble friend Lord Kirkhill and I do not intend to repeat it. Neither do I intend at this stage to go into the details and the minutiae of the Bill. I merely concur with all my noble friends on this side of the House who have condemned this Bill in the various ways in which that has been done. I believe that it was my noble friend Lord Williams of Elvel who suggested that it should be taken away and disposed of. That was a very practical suggestion. Perhaps the Government may take serious heed of that suggestion because this Bill can be seen to be a contradiction in terms when its stated objective is considered against its content.
It is said that the Bill is aiming to achieve privatisation and to take away the heavy hand of state interference from the industry. But does it give the new companies the freedom of the market place to make their own way and to stand or fall on their own efforts and decisions, including in particular the financial ones? It certainly does not. Basically, that is because there is no real market place within which the companies can operate in competition. In another way this Bill creates the stranglehold of an interventionist triumvirate; namely, the Secretaries of State for Energy and for Scotland, the director general and his proposed deputy in Scotland and the Treasury, each with their own powers and duties. The Government call this a regulatory régime. How can that be reconciled with the principle of freedom which is inherent in the concept of privatisation?
The truth of the matter is that by imposing that regulatory regime the Bill récognises the false nature of this so-called act of privatisation. The success of the companies proposed will each be like that of a dog allowed out for a walk, but only on a lead with its master and with no freedom to run about. The Bill is flawed in principle and its structure speaks for itself. This public utility cannot be left to the market forces so admired by Her Majesty's Government and must be supervised on behalf of the most important person; namely, the consumer. For that purpose it should be left in the hands of the state. Grandiose titles like "Director General of Electricity Supply" scarcely have the ring of freedom for the industry. When the actual position of the director general is examined, one sees that he is relegated more to the rank of a private than that of a general, because he will always have the commander in chief, the Secretary of State, supervising his activities. Indeed the Scottish deputy director general will have to answer to two Secretaries of State—the Secretary of State for Energy and the Secretary of State for Scotland.
In fairness to the Bill, it does achieve an objective. The objective which it achieves is the plundering of 1208 a public utility, and in particular the nuclear element of it. The Government propose to hand it over to the private sector, probably without any real financial risk to the successor companies. As one reads the Bill, if all goes wrong due to changing and unforeseen circumstances, the taxpayer will foot the Bill. There is no logical reason for the Bill. If it is said to be carrying out an election pledge, perhaps the House could be reminded that, while election pledges are important, they are not sacrosanct and should take into account changing circumstances. It may be said that the Bill is marginally necessary for England and Wales but it has little or no relevance to the Scottish position. Its application to Scotland is merely another reflection of the Government's obsession with what I might call back-to-back legislation. This philosophy lay behind the review of legal services, on which the House held a full debate not so long ago. Because vast changes are proposed for the English legal system, the Government say that the Scottish system must be reviewed, whether or not that is necessary. The philosophy appears to be that if it is good for one part of the country, it must be imposed on the rest of the country.
As regards Scotland, the Government are in the Bill prescribing to a healthy patient. At the end of the day that medicine itself may make the patient ill when basically there is nothing wrong with him. In the White Paper it is recognised by the Government that Scotland is in a unique position because of its geographical location, because of the distribution of population and because of its ready access to power, especially nuclear and water power, not to mention wind and air power. That gives Scotland a uniqueness which is readily recognised by the Government but is not reflected by the application of the Bill to Scotland.
It is said by the Government that there is a significant surplus of energy in Scotland and that no new power stations will be required before the end of the century. What on earth are we doing by covering and restructuring the Scottish electricity industry? When the noble Lord, Lord Sanderson, comes to reply, perhaps he will be good enough to tell the House where the competition will be in Scotland. Has research been done in Scotland to identify areas in which competition will occur as a result of the Bill? I have my suspicions that no such research has been done and that the noble Lord will struggle to name any place where there will be immediate competition for the generation of electricity. Will he also say whether extra customers are expected for this new service, and if so, from where will they come? Most important of all, can he name firms or give numbers of firms at this stage, waiting in the wings to join in the competition?
There is no demand or need for privatisation of the electricity industry in Scotland. Such alterations as may be required could be done by restructuring the present industry. It would also be instructive if the Government could give chapter and verse as to representations received by them prior to the publication of the White Paper, not after the publication of the White Paper when people are forced into consultation. What representations were received before the White Paper was published from 1209 producers, and consumers of energy in Scotland and from the workforce in the electricity industry?
Was there a demand for privatisation as the only answer to problems in the industry? No industry is without its problems from time to time. What consultations took place with the Scottish boards before the White Paper was produced? There is a world of a difference between consulting once a decision to privatise has been made and a general consultation to identify existing problems in the industry in order to try to rectify them. Now the boards can only make the best of a bad job in this respect.
It is accepted by the Government that in Scotland there is a high standard of service at reasonable cost. If that is so, why is privatisation so urgently necessary to achieve in Scotland higher standards, greater efficiency and greater job satisfaction? Is this a formula produced by the boards in consultation? Is it a demand from the workers, the unions or the customers? Are the present boards, the workers in the industry and the customers fretting and waiting for the Bill to become law so that they can see a revolutionised electricity industry in Scotland? The answer to that question, I suspect, is again in the negative.
I find intriguing the question of job satisfaction. Job satisfaction is an element founded upon by the Government as being a justification for privatisation. I regard the approach to job satisfaction in the electricity industry as an insult to the diligent workers and engineers who in all weathers and at all hours, especially in terrible winter conditions, turn out with a degree of dedication, courage and application which probably surpasses that of any other industry in the country. I have had the benefit of that service in the Hebrides. At three o'clock in the morning, with a blizzard blowing, an engineer has turned out to try to put the power back on. The noble Lord, Lord Sanderson, may have had a similar experience on his Hebridean journeys when he has ventured there during the winter months. How will the Bill give that type of worker greater job satisfaction? Will he be a better and more eager worker merely because his industry is privatised and because he holds a few shares in it? This is a nonsensical political platitude which demonstrates the obsession of the Government with privatisation of anything that might generate profit.
Perhaps when he comes to reply the noble Lord will tell the House on what research this whole project is based. No mention is made in the White Paper of the sources of research. It would be interesting to know what research was done. It would be helpful if before the Committee stage the Government could publish details of the research that was carried out before the White Paper was written. It would also be useful to know what factual basis there is for the view that there will be—I note the words used by the Government in anticipation; it is not that "there might be"—greater efficiency and downward pressure on prices. On what is that based, or is it an expression of hope and anticipation rather than being based on fact?
Privatisation is not necessary for the Scottish electricity industry. The Bill should not apply to 1210 Scotland. However, if the Government are determined to apply the Bill to Scotland we shall have to make the best of it in Committee and get on with the job of impoving it.
The final structure of the Bill will be one which gives a privatised industry a clean financial start and underwrites it against unexpected or unusual circumstances in the future. That does not reflect the ethos of the market place, in which risk allied to judgment and the input of private money with the aim of making profit prevail.
Private industry will reap the profit while it can, but in the end, because of the nature and importance of the industry, the Government have to keep a finger in the pie and control what the new companies are doing. They know that they have to do that. This Government in presenting this Bill are behaving like a heavily blinkered horse which is only allowed to see ahead in the race towards the winning post and is compelled to ignore the events round about it, particularly when it is bumped by other horses. I suspect that this Bill has indeed suffered a few bumps from some unexpected quarters in the course of this debate.
This Government should have the courage to take the blinkers off now, take this Bill away, reassess the whole issue of privatisation and let the nation keep and improve these valuable national assets.
§ Lord Ferrier
My Lords, before the noble Lord sits down, I think it fair to say that much of what he has said about Scotland is not altogether acceptable to all Scotsmen. We shall hear what the noble Lord, Lord Sanderson, has to say when the lime comes and again at the Committee stage when we come to Schedule 9.
§ 7.10 p.m.
§ Baroness Oppenheim-Barnes
My Lords, I must first declare my interest as chairman of the National Consumer Council. Consumers of goods and services when dealing with monopoly suppliers are at a great disadvantage. When they are dealing with monopoply suppliers of essential utilities, suppliers of their basic needs, the disadvantage is even greater. But worst of all is the position of the captive consumer dealing with a monopoly supplier of his essential needs in the public sector.
I must say that listening to some of the expressions of affection for public sector monopolies by some noble Lords opposite one could be forgiven for thinking that they represented some kind of consumer paradise. I submit with respect that that is not the case. In my experience in consumer affairs over the past 15 years, the greatest area of consumer dissatisfaction has been with the services, standards and prices of the public sector monopoly utilities.
They represent a system which is rigid and inflexible; a sort of public ownership that has never delivered the benefits expected or wanted. Forty years have been spent defending nationalised industries that closed down railway lines to rural communities, charged prohibitive collection charges for essential services and cut off consumers who could not pay inflated bills. Those are not my words. 1211 They are a paraphrased quotation from Mr. John Edmonds, general secretary of the boilermakers' union at last year's Trades Union Congress, and he was right.
Consumers have been treated in the past often with contempt by such industries. I could relate to your Lordships' House a number of horror stories, but time will not permit on this occasion. Every time a price increase has been announced in the electricity industry—this was before privatisation was mooted—their spokesmen have been rushed regularly on to television and radio, where they have intoned over and over again that cost increases would have to be passed on to consumers in price increases. What nonsense! If any company subject to the rigours of full competition were to adopt attitudes like that, it would soon be out of business because competition simply would not allow it to pass on the full costs.
So public sector monopoly utilities, together with their sponsoring departments and Ministers, are in an intrinsically "corrupt" relationship. I intend no personal offence to noble Lords who are past chairmen of nationalised industries, nor to those who have been their Ministers; it is simply the nature of the beast. Together these industries, with their Ministers and their sponsoring departments under successive governments—I do not seek to score any political points—have taken account of everything before the consumer interest: regional considerations, employment considerations, the industries' own interests, the money considerations of the government of the day; yes and, of course, political considerations, too. All have come first.
That is why I welcome on behalf of consumers the privatisation of electricity, providing as it does a fresh start, a clean sheet on which we can rewrite the rules; however—and here a word of caution—taking account of the problems, the pitfalls and a multitude of requirements for these captive and sorely tried consumers.
Nobody should expect an overnight transformation, as they have done perhaps in the past in previous privatisations, I believe mistakenly. Years of inefficiency and abuse of monopoly power cannot be wiped out overnight. But correctly tackled privatisation should benefit consumers, provided—and it is an important proviso—the regulation is adequate, competition is encouraged where it is practical to do so and access for complaint and compensation is available and accessible.
In this Electricity Bill, my right honourable friend the Secretary of State for Energy has gone to immense trouble to take account of the consumer interest. The first and most important benefit to consumers among others is the installation of the Director General of Electricity Supply, the regulator, with a formula for determining a price structure that fully compensates for the missing competition factor by taking account of all cost elements in relation to efficiency and to the consumer interest as well as to the industry's investment requirements and return on capital. This will inevitably be a formula which is very complicated and variable and subject to 1212 ongoing negotiations, as it should be. Because the competition is theoretical, such a formula must be very carefully constructed.
But why look into the crystal when we can read the book? The precedents set in those industries already privatised so far as prices are concerned have been very good for consumers. The price increases in both British Gas and British Telecom have after privatisation been a mere fraction of what they were when those industries were in the public sector. Indeed after privatisation in the case of British Telecom there was a price freeze for over a year, and in British Gas a price reduction in one year of over 4 per cent. So much then for the scaremongering that we have had about price increases and profiteering.
However, just as important as price regulation is the basic structure of consumer protection. Here again this privatisation offers a fresh start, an opportunity to provide electricity consumers with the protection, redress and compensation that they have not had before; also, an opportunity to learn from the successes and the omissions of part privatisations.
Again, my right honourable friend the Secretary of State for Energy has been sensitive to consumer needs. He has responded to my council's representations by creating in this Bill the 12 consumer committees at regional level to represent consumers' interests with their regional electricity companies, with powers to compensate customers for inadequate standards, including, hopefully, interruption of supply. Hopefully, too, they will be able to resolve disputes with the local distribution companies or, if not in that way, through the regulator.
I particularly welcome the announcement of my noble friend the Minister this afternoon that there will be a new, more sensitive attitude towards disconnection policies similar to that in British Gas. But no doubt we shall want to improve it even further. So far so good. However, if we have a look at what followed the privatisation of British Gas and of BT, we can learn a great deal from their successes and failures. As I have already shown, the regulators, Mr. McKinnon and Sir Bryan Carsberg, have performed very well for consumers so far as prices are concerned. But the structure for general consumer protection and performance has been more successful in British Gas than in British Telecom, although neither is directly comparable either with each other or with electricity.
In the case of British Gas, in addition to the regulator and 12 small regional gas consumer council offices, there is a national Gas Consumers' Council administered not by the sponsoring industry's department but by the DTI; a council which, until her recent retirement, flourished under the brilliant leadership of Sheila Black, to whom I should like to pay tribute, and I am confident that it will continue to flourish under its excellent new chairman.
It has had provided for it by the DTI a superb information retrieval system at national level. This has permitted it to keep closely in touch with the regions, to analyse and to compare performance and thus formulate and influence national policy through the regulator, who has successfully negotiated a 1213 number of benefits for consumers and has had a successful reference to the Monopolies and Mergers Commission. Together they have been able to set new standards on the basis of analysis and research of customers' needs. When something goes wrong their system tells them what has happened, where it has happened, why it has happened, how often it has happened and the sort of customer to whom it has happened. This gives crucial opportunity for prompt and effective action through the regulator.
The British Telecom picture is not so rosy because there is a vacuum in the structure. The regulator has done a good job on prices and has negotiated better standards and compensation. However, as he recently admitted to me in a letter, he is not satisfied with the operation of the sub-structure for dealing with consumer complaints and redress and, I may add, neither am I. Oftel needs to be much more visible, accessible, responsive and effective in dealing with complaints at regional level. This is precisely the vacuum that my right honourable friend the Secretary of State for Energy has filled in the Bill with the regional consumer committees.
We have learnt valuable lessons from the privatisation of these two industries. Their customers are better off. However, at the National Consumer Council we are concerned that in the consumer protection structure proposed in the Bill there is, despite the welcome regional consumer committees, a need for a national body that would to some extent replicate the role of the national Gas Consumers Council. With the best will in the world, the regional committees will be dealing only with their own regional electricity companies, whose customers are in turn dealing with monopoly suppliers. They will not be able to compare standards of service between the 12 companies or between themselves and other committees. Even if the regional committees are given 12 separate information retrieval systems, which will be very expensive, this will not produce a national picture. The regulator certainly will not have the time, resources or facilities to monitor the results across the whole country. Above all, local committees will not be able to advise the regulator on national policy as the Gas Consumers Council does. There is even the possibility of cosy local relationships developing between the committees and their companies. At the appropriate stage therefore I hope to move an amendment in your Lordships' House to remedy this.
Another matter about which the National Consumer Council is concerned is the allocation of staff and resources to the regulator. Although by comparison with British Gas and British Telecom the proposals in the Bill appear to be adequate and even generous, the electricity industry regulator will, if he is to do his job properly, have more than 12 times as much work to do as the regulators of British Gas and British Telecom.
I understand that the Secrectary of State has not yet appointed the new Director General of Electricity Supply. I do not want to make the job of finding an appointee more difficult, but the fact remains that this regulator will have his work cut out. He will be negotiating prices with 12 different electricity 1214 companies, not one, as will British Gas and British Telecom. On top of that he will be dealing with the two generating companies and monitoring their competition activities.
The regional company chairmen will inevitably confer about their costs and the price increases that they will be seeking, and no doubt they will reach a number of agreements. It is essential therefore, if the regulator is to avoid an across-the-board institutionalised cost-plus formula, that he should consider each price application absolutely separately, applying different criteria to each of the 12 companies, where appropriate. Indeed, this is one of the excellent reasons for having 12 different companies, as the Secretary of State has recognised. However, with respect, he must also recognise the size and scope of the task that he is setting the regulator and must provide him with adequate staff, resources and backup.
I apologise for detaining your Lordships' House for so long but there is nothing so perfect that it is not capable of improvement. I warmly welcome the Bill, which, subject to a few modest amendments, ought to benefit consumers, improve efficiency, raise standards, maintain safety and provide abetter service at a fairer price.
§ 7.25 p.m.
§ Lord Lovell-Davis
My Lords, I have never believed that out-and-out competition is the best basis for a national energy policy. During my time as a junior Minister in the Department of Energy, I advocated, as government spokesman on energy in your Lordships' House, an integrated energy policy. In those days, the mid-1970s, I seem to remember that there was a good deal of agreement on all sides of the House that an integrated policy, balancing one source of supply with another, was the sensible approach to our energy needs. The reasons were, and I think remain, clear. We were, and still are, dealing with finite resources. We conceived it a s the proper role of government to secure the appropriate, efficient, reasonably priced and safe production and distribution of energy while at the same time conserving and not wasting the vital supplies of coal, gas and oil on which our whole economy, society and very civilisation depend.
The Labour Government therefore exercised a regulatory role in the overall energy programme. When the North Sea provided its unexpected but timely benefits, we created the British National Oil Corporation in order to be at the sharp end of a new and little understood industry and to make sure that neither were we ripped off by the huge multi-national oil companies nor were our precious assets going to be ruthlessly expended in the pursuit of profit.
In the short time available to it the Government tried to set down the foundations of an integrated, forward-looking energy policy. We were and still are in an excellent position to get our energy equation right. The oil is still flowing, though how long it will continue to do so remains somewhat obscure to those outside the industry. Natural gas continues to fuel our industries and homes and, above all, we know that vast quantities of coal lie beneath the 1215 United Kingdom. The imperative of the nuclear option presses less heavily on us than on other less well endowed countries such as France.
The Labour Government recognised the paramount importance in today's world of the efficient use of energy and the need for conservation and the avoidance of waste. With that in mind as an essential arm of an energy programme which would serve the country well in the short and long term, an energy conservation programme was put in place. It proved instantly successful and popular with commerce and industry. It limited energy demand and, incidentally, saved the country hundreds of millions of pounds on our balance of payments.
Noble Lords might think that by and large it was a fair enough inheritance to hand on to a new government, something which, if not perfectly developed, was on the right lines for as secure a future as one could hope to achieve in terms of energy supply. The gas, oil and electricity elements of the programme were operating efficiently. The coal industry, facing immense challenges, needed particular care. Coal represents our greatest single energy resource. A rational and caring inheritor would not have chosen to inflict possibly irreversible damage on the coal industry or make it a battle-ground over which to fight out political dogma. However, someone such as myself who did not accept that energy policy was simply to be an expression of political intent but was to provide the best service to society, was to be disappointed, not to say appalled, by subsequent events.
The idea of an integrated energy policy was thrown out of the window. Market forces, the extraordinary shibboleth of the Government, were to be the driving force. I believe that we shall one day look back with a sense of disbelief that anyone could have seriously proclaimed that as the answer to the problems posed by such a complex society as this. Break up and privatisation were the order of the day. No matter that it has been performing efficiently and well, the Government are now about to take the electricity industry out of the public ownership which has served the country so well for generations and privatise it. No wonder that the chairman of the Select Committee on Energy of another place, Sir Ian Lloyd, said on Second Reading:My verdict is that there will be many unforeseen consequences and I should not like to predict their character or their influence on the outcome".—[Official Report, Commons, 12/12/88; col. 708.In that chaotic situation, is it surprising that the question of the extent of, or need for, future nuclear generation, with all its attendant problems of safety, efficiency and the cost of decommissioning, is constantly in our minds? To quote the chairman of the Select Committee again, he likens the Bill to aslipway to launch the post-1990 electricity supply industry, but, I am not sure that we know much about the shape, speed or efficiency of the ship. I have several fundamental reservations about the Bill".—[Official Report, Commons, 12/12/88; col. 708]I, like other noble Lords, ask where energy conservation will come into all this. Are me seriously to believe that private contractors will advise their customers to consume less of their particular source 1216 of energy when competition and profitability are the name of the game? The Secretary of State, defending his decision to cut the budget for energy conservation by almost half this year, and over half by next year, said this weekend that the Government were not in the business of bribing industry to save its own money. That remark is breathtaking in its lack of perception of the essential need, which is to preserve the nation's energy resources, but at least I suppose that it has the merit of alerting us to the attitude to conservation most likely to be adopted by energy suppliers.
I sometimes wonder whether the Government are right in the head when they come to consider energy matters. They no more seem to know what they are doing than does their Minister for Local Government, Mr. John Selwyn Gummer, whose thinking seems to be as woolly as the clothes that he advises people to wear. Apparently, he heats only the downstairs of his home which, unless he uses a great deal of fuel, must give him the worst of both worlds—upstairs and downstairs—as he seems to have overlooked the fact that hot air rises.
This is an unnecessary Bill. All one can say about it is that it fits naturally into an idealogical framework and, as such it is short-sighted, likely to prove wasteful of our natural resources, and unlikely to lead to great efficiency, the extension of consumer choice or stable fuel prices. It is also unlikely to have an easy passage through your Lordships' House, which has always taken a broader, more prudent and more far-sighted view of this vitally important subject, when it examines the Bill in greater detail in Committee.
§ 7.34 p.m.
§ Lord Norrie
My Lords, like my noble friend Lord Swinton, I believe that the electricity supply industry is potentally Britain's biggest polluter. The Bill gives us an ideal opportunity to introduce safeguards which will reduce the adverse environmental impact of electricity supply and use. We are told that over a period of 12 months, the electricity supply industry generates 233 million tonnes of carbon dioxide, which adds to the greenhouse effect; 2.8 million tonnes of sulphur dioxide, which is the prime constituent of acid rain; and 809,000 tonnes of nitrogen oxides which create acid rain and contribute to the greenhouse effect.
I am afraid that that is not all. The industry also produces about 27,500 cubic metres of radioactive waste every year. Nonetheless, nuclear power for the provision of electricity has great environmental advantages, provided that the reactors are safe; that proper financial provisions are made for the eventual dismantlement; and that the radioactive waste generated is disposed of safely.
All three of those advantages are possible; but whether or not the industry is doing its best to clean itself up, it could be described as dirty, with a massive potential for harm, not only to every man, woman and child in Britain, to our buildings and our countryside, but also to our international reputation. That is why the Bill desperately needs safeguards written into it. By safeguards, I mean measures 1217 which will protect the consumer and which are designed significantly to reduce the environmental impact of electricity supply and use. Yet, as drafted, the Bill appears to do little to resolve the problem of the greenhouse effect, which will be exacerbated by future industrial pollution and nor does it make adequate provision for the protection of the environment.
I am sure that the Government will wish to remedy those defects. I hope therefore that my noble friend Lady Hooper will come forward with the amendments necessary or accept some amendments which I am sure will be tabled.
I shall now deal with the form in which the Bill should be amended; and I should like briefly to refer to two of the crucial ingredients of the improvement that I seek. First, there must be full consultation on developments which would be environmentally damaging. The CEGB is now well used to that. Through the setting up of its environmental development panel, chaired by Sir William Wilkinson of the Nature Conservancy Council, incorporating senior executives of the CEGB as well as distinguished outsiders representing interests such as the Countryside Commission, the CEGB has demonstrated that it is now fully sympathetic. However, we must not merely assume that that sympathy will be inherited by the successor bodies. Future decisions could fall into the hands of those who feel no such obligations and who decide only to swim with the tide of commercial pressures.
Secondly—this applies to the distribution companies and is something which my noble friend Lord Swinton mentioned—we must embark upon a programme for the undergrounding of low voltage lines in sensitive areas such as village conservation areas, national parks and other environmentally protected landscapes. I emphasise low voltage. We all know that with present technology the grid cannot be undergrounded.
At present, some of the area boards, such as Yorkshire and the South Western board, have a programme of undergrounding, and very effective it is, even though more could be done. Other boards do little or nothing. It is entirely reasonable for distributor companies to be required to set aside each year modest sums, perhaps as little as a quarter of 1 per cent. of their annual sales of electricity, to be spent on a programme of undergrounding.
Such an allocation would produce sufficient money to finance such a programme, but it would neither eat into profit in any noticeable way nor justify a measurable increase in the charges to consumers. The funds would ideally be spent county by county, in consultation with local authorities and conservation bodies, both statutory, such as the Countryside Commission, and voluntary, such as the CPRE.
In wishing electricity privatisation well, I should like to ensure that its opponents cannot, on doctrinal grounds, make use of the environmental argument as a means of taking the electricity supply industry back into public ownership. Privatisation of the electricity industry will result in the industry's biggest reform to date. To leave environmental 1218 protection to accident or whim would be to leave things to chance and to miss a golden opportunity to set the industry's house in order.
§ 7.40 p.m.
§ Lord Dean of Beswick
My Lords, the Bill is very lengthy and detailed, and I shall not deal with its main thrust. The amount of opposition has been expressed more than adequately by previous speakers, not least from behind the Minister. It is a long time since I have known a Bill which was supposed to epitomise the Government's thinking receive such adverse comments from prominent Back-benchers on the Government side.
For part of my speech I was going to address myself to the adverse effects of the Bill on our manufacturing industries, bearing in mind the appalling balance of payments deficit. I worked in the electricity supply industry on the manufacturing side, making turbines at Eggborough and Thorpe Marsh, so I know a little about it. I am concerned at the adverse effects that the Bill might have on the manufacturing side of the electrical supply industry. But that subject was more than covered. by the noble Viscount, Lord Weir, in an interesting and obviously well briefed and knowledgeable speech. I do not think I could improve on that one iota.
However, nobody as yet has talked about the social consequences of the exercise. There will be social consequences and we, as a nation, ought to be more than a little ashamed of them. The noble Lord, Lord Taylor of Gryfe, referred briefly in his speech to what has happened in east Scotland. After tomorrow there will be only one pit in existence in Scotland. The Government have got it tragically wrong in assuming that the price of coal at the pithead is the real price in terms of the cost to the community. It is the market price all right, but I have figures here which I shall no doubt deploy during the Committee stage. They show that some of our pits which have closed down might have been saved if they had received the underpinning from our own Government that their competitors received from their governments. Coal is substantially subsidised when it comes into this country; those producers are not selling the coal at the price covering the mining cost. The Government's concern, and one of the biggest conflicts, is that the Colombian Government is going in for such activities.
A few weeks ago I put a Question to the Minister regarding the financial terms on which coal was being imported into this country. I put down a Question for Written Answer in order to get a reply concerning the last five years. I shall not read the Answer because the figures are pretty similar for the last five years. I am not picking the worst, but last year in cash terms—and these figures are from the Inland Revenue—we imported £427 million worth of coal. If only people were aware that part of our balance of payments deficit was because we were paying nearly half a billion pounds to import coal which we can dig here.
The noble Lord, Lord Taylor of Gryfe, referred to Scotland, but the Welsh coalfields have been savaged, communities discarded and almost sent to 1219 the wall. The noble Baroness said to me in her Answer that one of the reasons was that much of the coal being bought abroad was coking coal. I am not a mining expert but I understand that a number of pits in South Wales specialised in coking coal.
Was the price for the coal at the pithead the real price to the community of what has taken place? I suggest that since there is already a half billion pound deficit from the closures in our trading account, if the Bill goes through it will escalate dramatically and the present situation will pale into insignificance. The noble Viscount, Lord Weir, made the point about the manufacturing side, but I know of engineering companies which manufactured mining equipment such as electric motors, which have gone out of existence because the Government are determined that the market price at the pithead should be charged for the coal and the social consequences should be ignored. So much for the repeated statements of various Ministers that the Government have faith in British coal.
I have mentioned Scotland and Wales. In my own county, Lancashire, where I live, there is very little mining left. The North-East also has been made almost completely into a desert after the mining that used to take place in Durham. We should ask ourselves whether we as a nation have a right to destroy communities which have lived off coal and served the country well through history. We should just listen to the tape of the maiden speech of the late Lord Stockton—Mr. Harold Macmillan—to see what he said about the miners' contribution to the country.
Since 8th March 1985 noble Lords may be aware that under the Government's present system 76 colleries have closed. I come from a big city. There is one pit in Manchester, so the city lived off a variety of industry. But anybody who knows the mining areas in the hinterlands, where the pit communities are, knows that when the pit is closed, it is all right talking about Toyota and various companies coming in, but they do not replace the pit in terms of the value to the community.
I have some figures of the costs in a report used by the NUM. They show the effects on the coal industry of imports of 30 million tonnes in terms of displacement: lump sum redundancy payments for 47,000 miners, £1,160 million; annual cost of unemployment benefit etc. for 79,000 miners and workers in other industries related to mining, £559 million; written-off colliery investment, £2 billion; annual balance of payments cost of 30 million tonne imports, £1,050 million; investment cost of three superports, to bring in the coal, £300 million. Then we have an interesting figure in terms of everybody, not just the mining communities: increased electricity prices quoted at 15 per cent. over two years—and that is not unrealistic with what has been happening to electricity prices over the last two or three years—£1.7 billion. Nobody has yet referred to these costs. But where will they come from in the community?
The report gives costs over three years: unemployment costs, £2.8 billion; investment costs for ports, 1220 which I have mentioned before, £300 million; electricity price increases—and nobody denies that this will happen—£3.4 billion. The total is £6.5 billion.
Has this exercise been thought through? Where is the money to come from? South Wales shows some signs of recovery with a variety of industries, but it will never make up the loss in the number of jobs. I know that pits were closed under the Labour government, and some of those closures might have been a mistake. All I am saying is this. Is the cost of bringing the coal to the top the only measure by which we should determine whether or not a pit should close? There is terrible misery and social deprivation in those areas with no sign of recovery, even with the inception of Japanese investment. That investment does not make up for the loss.
Where I was born and bred in Manchester there was a large pit called the Bradford Pit which employed 3,500 men. Just after the war it was modernised at a cost of £3.75 million. The pit produced very good quality coal. It was closed at the same time as one of the big collieries in Lancashire which was situated on what we called the East Lancashire Road.
The two pits were very similar in their design. The coal from both was of a high quality, but it was not offered at the right price at the time as it had to compete with cheap oil. If the situation of today, with dear coal prices, had occurred then, those pits would have been viable. However, they are no longer available and 3,500 to 4,000 jobs were lost. Those jobs included school-leavers' posts. The area where the pits were situated is now an industrial desert.
I do not think that I can do anything about that situation as this side of your Lordships' House does not have the voting strength to do anything. However, I am not prepared to sit quietly by and watch the continued butchery of communities which have lived off coal historically and could still deliver the goods if competition were fair. I am not prepared to watch them go to the wall because of the Government's philosophy. I believe these points will be made much more forcibly during the later passage of the Bill.
I was interested to hear the noble Baroness, Lady Oppenheim-Barnes, talk about the setting up of a regulatory body as a safeguard for customers. I believe that is a good idea, but I must say—I do not intend this as any reflection upon the noble Baroness—that I would not trust the Government to appoint anyone to that body who would be critical of this legislation. All the mileage of this Government shows that anyone who is appointed to such a body will be someone who supports what the Government are doing. I vouch to suggest that if such a person is appointed from your Lordships' House, it will not be from this side of the House or from the Benches to my right, or perhaps not even from the Benches to my left. The person who is appointed will be a party hack of the Government's so he will carry out the Government's business. Justice must not only be done; it must be seen to be done.
1221 Many Cabinet Ministers who have retired have come to your Lordships' House and often positions have been found for them on bodies. That is a very nice situation if one is involved in it. But the Government never consider for appointment anyone who is opposed to their policies so that an impartial approach and a fair deal could be made on behalf of the consumer.
I have tried to make a plea on behalf of the coal industry. Having full regard to what happened four years ago, I think it is about time the Government literally buried the hatchet in their war against the mining communities, because to fair minded people that is what they appear to be involved in. It appears that the Government intend that Britain's mining industry shall be damaged to such an extent that it will never become a strong force again. If one considers the social consequences of that course, it is an appalling indictment of politics if we are supposed to be one nation.
§ 7.54 p.m.
§ Lord Gray of Contin
My Lords, I am tempted to follow the noble Lord, Lord Dean of Beswick, as regards some of his remarks, but I shall save my comments until we debate the privatisation of the mining industry in this House on some future occasion. I, for one, look forward to that very much indeed. I agree with the noble Lord that miners are genuinely interested in their industry. I believe they would have a very much better future than they appear to have at the moment if the mining industry were privatised.
I shall start my remarks, somewhat unusually, by offering congratulations to our colleagues in another place. The amount of dedication which they showed in their scrutiny of the Bill deserves comment. All too often we hear in this House of Bills which are sent here having been guillotined and insufficiently examined. I understand that our colleagues at the other end of the corridor spent somewhere in the region of 160 hours scrutinising the Bill. That scrutiny has been carried out in an extremely sensible way. They picked out the parts which they considered to be most important and spent considerable time on them. That is an example of what can be done when an intelligent examination is made and there is co-operation among all sides of the House.
The industry has also shown great sense in the way it has prepared itself for privatisation of the electricity supply. What disappoints me slightly is the attitude of the electricity unions, which have a splendid record of dedication and responsible leadership. Unlike many of their colleagues in other industries who so often concentrate their arguments on production rather than productivity and on producers rather than consumers, the electricity unions have always appreciated that consumption is the end product of production. Having accepted such a realistic appraisal of the situation, it seems surprising that they have not so far been more enthusiastic about the enormous potential which these proposals offer and about the opportunity which each and every one of them will have for participation and investment in their own industry.
1222 The electricity supply industry employs some 146,000 persons in Britain and has a power station capacity of 62,000 megawatts. However, responsibility for generation of power has been dominated by the CEGB, which has enjoyed a virtual monopoly. When my right honourable friend announced that the industry was to be turned over to the private sector, he indicated six principles which the Government had in mind and on which their plans had been based. Those principles have been incorporated into the Bill. I do not propose to go over each one in detail tonight.
The CEGB is to be broken up. That is probably the most important decision of all. There were of course a number of options open to the Government, but it is very difficult to see how any real competition could have been created if the CEGB had continued to occupy the position of pre-eminence afforded to it in the past.
The creation of National Power, Power Gen and the national grid company, together with private sector company status for the 12 area boards and the selling off of the Scottish boards, along with the creation of a nuclear power company n Scotland, form a series of proposals which make more sense the more one studies them. They seem to me to have real relevance to the first principle that decisions about the supply of electricity should be determined by the needs of consumers. The new supply companies will be able to purchase electricity from a variety of generators. They can purchase it from two new generating companies, from Scotland, from France or from new private suppliers or they can generate it themselves. Thus the move from a producer orientated public sector monopoly to a series of customer orientated private sector companies will be achieved.
I am particularly pleased about the opportunity which this legislation now offers to private generators, because the 1983 Act was effectively frustrated by the size and power of the CEGB. The Act simply did not achieve what we had hoped it would. It is significant that there are already more than a dozen potential generators who have taken new heart from these proposals. More will follow, for they will have the option of generating for the grid or generating directly for a contract customer. The regulatory system will allow them to use the wires of the grid company and the area suppliers on a non-discriminatory basis, so customers, especially large ones, will have some choice over who generates their electricity.
I have heard some apprehension expressed about the new grid company and the merit order system. Indeed, my noble friend Lord Lauderdale has discussed this subject with me, and my noble friend Lord Hood raised the matter in his speech this evening. This is a technical and complicated subject, but it seems to me that the national grid company, as holder of the transmission licence, will effectively carry out the grid control operation as we understand it. But there will be some differences. It will be owned by the 12 new supply companies. It will be completely divorced from generation, and that I welcome. It will ensure that demand at any moment is met from those power stations which offer the most cheaply priced electricity.
1223 The electricity supplier will contract with a generator for capacity and energy and with the national grid company for conveyance of the electricity on wires. All the various contracts will then be pooled in a distributors' pool run by the national grid company. The grid company is then in a position to call on those contracts with the lowest rates to meet demand on a half-hour by half-hour basis. The pooling system thus optimises the use of plant that is on the system at any time. I emphasise that that is my understanding of how the grid system will work. If I have misunderstood the situation I have no doubt that my noble friend who is to wind up will correct me. I give way to the noble Earl.
§ The Earl of Lauderdale
My Lords, the point which I should like to raise is that the power will be pulled in on a half-hourly basis, but it will be pulled in on the basis of price rather than of cost. Surely the price has to take account of shareholders' remuneration and so on and is bound to be more than cost.
§ Lord Gray of Contin
My Lords, that is a matter on which we shall have to wait and see. But I believe that the principle is right. When the contract is made the cost is assessed by the generator and the supplier. The grid will then be able to call in the most attractive price. But my noble friend may wish to comment further. Certainly I shall give way.
§ Lord Williams of Elvel
My Lords, I hope that the noble Lord who is to wind up for the Government will correct the noble Lord on what he thinks is the job of the grid.
§ Lord Gray of Contin
My Lords, I can only give my understanding of the situation. If that is not correct I trust that my noble friend will correct me.
In operating the merit order system the grid company will need to be able to direct power stations, which will affect power flows on the transmission system. Even smaller stations could be significant depending on their location and proximity to other power stations. The Government's objective is to preserve the benefit of merit order dispatch while allowing the competition and incentive of the contract principle.
It may well be that in the future there will be more rather than fewer small power stations. That may not appeal to my noble friend Lord Weir. The potential of links with combined heat and power schemes may emerge. As the Magnox reactors come to the end of their useful lives they will have to be replaced, whether by stations of similar size or by larger or smaller stations remains to be seen. However, I hope that decisions will be taken on a more satisfactory basis than those which have resulted from the interaction of government and the CEGB. Indeed, the CEGB's part in such exercises has been savaged by Mr. Alex Henney, the economist, in his paper Privatising Power: How to Restructure the Electricity Supply Industry 1987. Nevertheless, I do not condemn the CEGB out of hand. It has achieved much and full credit should be given for its successes.
1224 However, the decision-making process on power station building has left much to be desired. As a result our nuclear industry has also suffered from all the chopping and changing of policy as government after government have leaned upon the CEGB, which must take its share of the blame as one of the principal participants in those discussions. I very much welcome the Government's commitment to the nuclear industry outlined in the Bill, for surely here we have far and away the cleanest form of power generation. We have an industry with a splendid safety record, together with standards acknowledged worldwide to be of the highest quality. The Greens and the conservationists should change their slogan. They should be saying, "Nuclear power—yes, please".
The Scottish boards face privatisation with great confidence. I was astounded to hear the comments of some noble Lords this afternoon. My researches show that the Scottish boards believe that they will be much sought after when flotation takes place. I am sure that they are right. There are some reservations about the Scottish scene which will no doubt be explored in Committee. However, basically the industry is well prepared to meet the challenge of joining Scotland's major companies in the private sector.
The Bill points the way forward for the electricity industry to lasting prosperity. The removal of Treasury control will allow investment decisions to be made on their merits and without political constraint. The introduction of competition will have a downward effect on prices in the longer term. The emphasis on consumer rights, so well described and spoken to by my noble friend Lady Oppenheim-Barnes, and value for money means a good deal for the domestic customer.
My noble friend mentioned the reduction in gas prices since privatisation of the gas industry, despite rumour-mongering. There is no reason why the same should not be the case in due course with electricity. There is plenty of opportunity for competition in generation, and also between various fuels. That will work through to the customer, whether domestic or industrial. Together with the incentive created by the new freedom already enjoyed by so many other liberated industries, that will allow electricity to take its place in providing a variety of very attractive companies which will attract investment from individuals and institutions alike.
There are no long faces at the National Freight Corporation any longer. Workers in British Gas, British Telcom, Britoil, British Aerospace, Enterprise Oil, Jaguar and Rolls-Royce and a host of other companies now removed from government control are not campaigning for renationalisation. Clause 4 is disowned even by the Labour Party, despite the fact that my old friend the noble Lord, Lord Stoddart, has asked his Front Bench to renationalise. I do not believe that he will have very much encouragement from them on that point.
§ Lord Williams of Elvel
My Lords, I am grateful to the noble Lord. Can he say who has advised him on the speech that he is at present making? Can he 1225 possibly tell us whether he really believes, as a former Minister in the Department of Energy, that what he has said about electricity supply still holds?
§ Lord Gray of Contin
My Lords, I think that that remark is hardly worthy of the noble Lord. Nobody has advised me on what I have said. I have spoken because I believe in this legislation. I shall do all I can to assist in putting it through. I do not know who is advising the noble Lord, but I think that he had better get another adviser
As I was saying, Clause 4 is disowned, even by the Labour Party, but perhaps we shall be told tonight that it is to be resurrected. Those new companies which will be created, along with all the others enjoying the freedom of the private sector, will realise that the way forward is powered by the vigour of enterprise. I hear not a murmur from those directly involved in the companies that have been returned or sent to the private sector for any return to the frustrations and dreariness of subsidised state subsidiaries. I wish the Bill well.
§ 8.10 p.m.
§ Viscount Hanworth
My Lords, I must first apologise to the House that I was not here at the beginning of the debate. The reason was that I was on a Private Bills Committee.
I am afraid that there is almost nothing that the noble Lord, Lord Gray of Contin, said with which I agree, but, as I shall make what is for me a longish speech, I think that I had better leave it at that. Some of the points made by the noble Lord will no doubt be answered in my speech.
Many of us have been bitterly opposed to privatising the industry. It works well and will now be dismembered. Any conceivable improvement in efficiency will take years to achieve after a prolonged period of adjustment. Many people will agree with me on that point.
In their White Paper, the Government enunciated six principles. They are nothing more than pious hopes. The only public justification for privatisation seems to be that consumers will benefit and that their interests will be paramount. Quite frankly, that is rubbish. In my view, the Government are misguided, but they are not complete fools. I suggest therefore that the reasons for privatisation have nothing to do with the consumers' interests; the real reasons are quite otherwise.
First, the capital assets of the sale will be useful to the Government and can go to fund other important liabilities, but one must now ask what they propose to do with their present enormous budget surplus. There are many areas where financial help is needed and is not forthcoming. Is the surplus just to be used as a bonanza before the next election?
Secondly, power stations will no longer be forced to buy a high proportion of British coal, so leading to the partial demise of our coal industry. The Government are using privatisation to get them off that particular hook—a hook from which they could have disentangled themselves at any time.
Thirdly, if new power stations can be financed by the City, it greatly reduces the public sector borrow- 1226 ing requirement (PSBR). Is that so important if people could be persuaded to invest more in attractive government bonds rather than spend their money and increase inflation?
Fourthly, there is the hope that, by splitting the industry, it may reduce the potential power of the unions to bring the country to its knees. The Government may well be wrong in that philosophy because the electricity industry has unions with a history of responsible and effective representation of all their members' interests. The Government could worsen the situation by fragmenting the unions' commitment to the national interest and replacing it with a commitment to the companies' interests.
Fifthly, privatisation has become a dogma certainly as bad as the Labour Government's previous ideas on nationalisation. The Conservatives appear to believe that privatisation without normal competition is a good recipe. They seem to have forgotten about the unacceptable face of capitalism, or at least to think that it can be controlled well by a regulatory authority.
We talk about democracy which, to most people, means that the Government should pay some attention to people's wishes and not override them when it is not necessary to do so. Privatisation of water and electricity is very unpopular indeed. The noble and learned Lord, Lord Hailsham, seems to be right about the danger of elected dictatorships.
Why do we have to endure this destabilising swing of the pendulum from one extreme to the other, currently that of privatising anything that can trade? Perhaps it is that, if there is sufficient privatisation now, no Labour Government could ever reverse it to any great degree.
I am worried about the regulatory authority which must try to strike a balance between commercial interests and those of the consumer. It will often be a Solomon's judgment and, if the consumers' interests are paramount, as the Minister said, there will be little room for free enterprise. The industry will be very much like that which has developed in the United States, where private companies are severely restricted by federal and state intervention. The regulatory authority will need a high proportion of top level staff who can be trusted to make decisions on their own initiative, not the usual bureaucratic hierarchy.
I very much fear that the statutory powers given to the authority could lead to endless litigation with the delays that seem inherent in our present legal system. It could be a charter for barristers, but not for consumers.
Before I deal with the Bill itself, I must make some general remarks. I repeat that useful competition between generating stations can be only a minor factor because a large transfer of power between distant areas results in unacceptable losses and in destabilising the grid. Competition from small stations would have been possible for several years past, if only the terms for accepting their output had been more favourable. Why did not the Government step in and make them so?
I very much doubt whether it will be possible to balance the use of power stations on a merit basis, 1227 with the contractual obligations to large consumers and area boards, without expensive over-capacity, no doubt justified on grounds of competition. Most certainly, that straitjacket could lead to blackout as it did in New York. The noble Lord, Lord Nelson, so aptly remarked that, after privatisation, the long-term security of supply would be in the hands of everybody and nobody. I say that it is a recipe for government intervention and disaster.
I think that there will be privately financed small power stations of up to 300 megawatts. They are likely to use natural gas and some may employ a combined cycle giving efficiencies of up to 45 per cent. In the longer term, they might try to exploit combined heat and power for providing urban populations with hot water. All that is a good thing, but I do not believe that it can be a substitute for larger power stations in the 1,000-2,000 megawatt class. One or two of those might be built in strategic areas with private capital, but, unless long-term guarantees for treatment as base load stations are given, I believe that the City would find such an investment too expensive and risky.
All that means that it will be difficult to ensure that our generating capacity remains adequate. Time for the construction of new power stations is running out. Mr. John Baker, the chief executive designate of the National Power Company, has been quoted as saying that, as his company will no longer have any statutory obligation to supply electricity, his shareholders will require him to put profit before security of supply. To ensure that the lights stay on now that the obligation to supply has been transferred to the distribution companies, I am afraid that government intervention will have to continue probably as much or even more than it did before.
Competition as such between the new area boards or within them is impossible, and their charges to the public will be controlled by an enormously complicated formula and by the regulatory authority. I suppose that to a limited extent they may be able to sharpen up on the terms on which they draw bulk supplies from the generating companies, but the gain, I believe, will be very small indeed. I dislike the idea of the area boards diversifying into areas wholly unconnected with their primary function, and they seem to want to do just that. Already prices for electricity have been raised by 16 per cent. primarily to make the privatisation sale more attractive. It has been estimated that the cost of privatisation will be £1 billion overall, or at least a very substantial sum, with a further increase in electricity charges on average putting about £30 on consumers' bills.
We are to retain a proportion of nuclear generating capacity. I foresee that it will be difficult to privatise it under the National Power umbrella without the Government making many stipulations and giving guarantees. I do not think that in the present climate private finance will be forthcoming for new nuclear stations, except on the most disadvantageous terms. I also wonder what will happen about decommissioning and the necessary longer-term research for that and for fast reactors.
1228 For all those reasons I urge the Government to form another generating company covering the nuclear field with initially 100 per cent. ownership of shares by the Government. On 24th March 1988the Minister, Mr. Peter Morrison, said:I agree that the record of research and development in the industry must be maintained as we look to the future. I would go even further than that and say that it needs to be improved, if that is possible".—[Official Report, Commons, 24/3/88; col. 627.]There are at present three major CEGB research laboratories employing over 2,000 people and with a turnover of more than £162 million. Once again the Minister's statement would seem just a pious hope unless the Government are prepared to intervene on their behalf. I foresee a rapid decline in the amount of research carried out within the industry as short-term commercial considerations dictate the terms on which short and long-term projects are determined as viable.
I am gravely concerned with the CEGB's decision to allocate the Marchwood Engineering Laboratories to Power Gen rather than National Power. The laboratories are just outside Southampton. Apart from having extensive test facilities, they employ over 400 people. Power Gen, the much smaller of the two organisations, needs comparatively few research staff and has said that it will close Marchwood completely in about three years' time. That was decided without consultation with the unions involved or consideration for the effect on the staff. It seems that the decision to give Marchwood to Power Gen was almost solely just to provide a balance of assets in the split-up of the CEGB. That decision ought to be reversed, and it is not too late to do so.
To summarise what I have said, there is absolutely no justification for the privatisation of this industry. The chances even in the future of reducing the cost of electricity are, in almost everybody's view except that of the Government's supporters, remote in the extreme and any other benefits seem even more remote. Today, we are faced with an ever-increasing amount of legislation unthought-out in detail at the behest of the elected dictatorship who are even more dogmatic than their predecessors. This is in a so-called democratic society. In the words of last Saturday's popular television programme "Yes, Minister": "If you must do this damned silly thing, don't do it in this damned silly way".
§ 8.24 p.m.
§ Lord Carmichael of Kelvingrove
My Lords, we have had a very long debate and I hope that I can be relatively brief. These Benches, and I in particular, are waiting for Scottish answers. That means that I am at a disadvantage. My noble friend Lord Macaulay, who spoke earlier, also made that point. Like other noble Lords, I should pay tribute to the noble Baroness, Lady Hooper, for her speech. The tributes paid to her were very proper. This is a dreadful Bill to defend and she made the best of a bad case. She did what she could, as did her advisers and writers, but one cannot sell bad goods to intelligent people. During the debate I made a note of the tenor of the speeches from the other side. The noble Baroness should not take my figures too much to 1229 heart as it was not her fault. However, from the 11 noble Lords who spoke from the Back Benches, the score was five in favour, three against and three very very doubtful.
In opening the case against the Bill for this side, we saw how unenthusiastic were some noble Lords on the Government Benches. My noble friend Lord Williams said that the effect of the Bill in Scotland would be dealt with by me. I hope to deal with some of the points mainly in an inquisitorial manner because we need many answers—answers which were not even forthcoming from the other place. Had my noble friend Lord Williams been dealing with the Scottish as well as the English side he would have been able to make an even more devastating case than he did. I think he tore the Bill to pieces very successfully. The Bill will not receive the same treatment in this House as it received in the other place because there is a rather better balance maintained in our discussions and the speeches from the other side show perhaps more openmindedness on this subject than is shown in the other place.
There is a fundamental difference between Scotland and England and Wales. We believed that there should be a separate Scottish Bill. The reason that there was not a Scottish Bill was considered by many people in Scotland, and certainly by the media to be because the Government were afraid to put another separate Scottish Bill through the other place. The difficulty of trying to man a committee must be manifest to everyone when for Scotland there is a total of 10 Members, including Ministers, on the other side. So the Bill was tagged on to an English Bill as the result of parliamentary expediency.
But even within the Bill as it stands the Scottish element has been blurred. The regulator is a key figure in the efficient provision of electricity to all consumers. But there is no separate Scottish regulator. Scotland will be only a branch office of the United Kingdom and will have a deputy. My noble friend Lord Macaulay of Bragar made the point that the UK regulator will have two masters: he must answer to the Secretary of State for Scotland and the Secretary of State for Energy. This is not a small chauvinistic point, although I realise that sometimes the Scots are blamed in Parliament for being chauvinistic (and maybe we have good reasons to be so). Scotland has a large surplus of energy which will continue until at least the end of the century and perhaps for a good bit beyond. We are also fortunate in Scotland in having a very varied range of sources of energy and electrical power and a joint generating agreement between the North of Scotland Hydro-Electric Board and the SSEB.
I refer to paragraph 21 of the White Paper, which states that there is scope for,plant and fuel use in order to produce electricity at the cheapest prices available and to maintain security of supply".I believe that the two boards of Scotland have been able to do this extremely well until now.
What assurances can we have that when the two boards are privatised some new owners will not try to find ways within the rules laid down by the regulator to make a quick profit? For instance, SSEB could buy out North of Scotland Hydro Board. The 1230 Minister shakes his head. I shall be glad to have the assurance on how tightly the rules will be applied. However, if the rules are applied as tightly as that, we have the difficulty of working out how the shareholders will make a profit from the deal.
I believe that the Scottish White Paper on which this Bill is based is a beautifully written document in which the writers do their best to satisfy a nonsense commission given to them by their Ministers. In trying to squeeze a competitive element. into the Bill, the writers came up with what I consider to be a gem of an expression. I believe that it has been quoted already. I quote from paragraph 31 of the White Paper:Of most importance will be the potential for yardstick competition, or competition by comparison, by which means the customer of one company will be able to compare the prices and service they receive with those received by the customers of the other company. Shareholders will also be able to compare the performance of the companies and draw appropriate conclusions".Again, we are all mystified. What an individual consumer or even a small commercial consumer can do about his costs quite baffles me. Obviously the big giants can come along. The Minister may be able to say something later about the aluminium plant which may be able to do a very special deal. But there is no possibility of the ordinary consumer having any independent ability to dictate the costs at which he will buy his power. There is no choice. With regard to telephones, if one has paid an initial fee to Mercury one can switch from one company to the other. But there is no possibility of doing that here. It was suggested that there might be two sources into one's house, but I think that is quite ridiculous.
However, in paragraph 32 of the White Paper the previous paragraphs are qualified when it stresses that there is an,inherent element of natural monopoly in transmission and distributionof electricity. In the same paragraph, it states that the director general will be charged with ensuring,a satisfactory degree of transparency in the cost structure".I should like to deal for a few minutes with the question of the degree of transparency in the cost structure. The Minister will be aware that there was an exchange in the other place between my honourable friend the Member for Garscadden and the Secretary of State for Scotland on the statements of Mr. Donald Miller, the SSEB chairman. There was also an exchange of letters that I am sure the Minister will have seen. I understand that Mr. Miller is likely to be the chairman designate of the new set up in the southern board.
In the annual report of 1987–88, the trading profit of the SSEB was £13 million but it then became a loss of £70 million because of the cost of transferring Chapelcross to Cumbria. The Minister will be familiar with this. The cost of the nuclear station totally took away any profit that was there. Mr. Donald Miller said that Clause 88 must be fully implemented and all the extra costs of nuclear stations and BNFL processing charges written off or the company will be unsaleable. Mr. Miller is quoted as saying that these assurances,will have to be signed and sealed before one writes a prospectus —otherwise it will not be worth writing".1231 The Minister will know of that exchange and how unsatisfactory we found the replies of the Secretary of State. I hope that the Minister will be able to help us on this. His reply will be very carefully scrutinised because the words were quite unequivocal: if we do not have the agreement signed and sealed before the prospectus is written it will not be worth writing. I should like the Minister to answer the point.
There are one or two other questions. If there is to be privatisation we want the Scottish board to be able to sell direct to English area boards. The Bill suggests that all the Scottish output should go in bulk to the grid. I have heard on the grapevine that this point may now have been conceded. I shall be very pleased if that is so, and the Scottish surplus could be sold in competition with all the English generating boards.
We are concerned with a purely Scottish matter regarding conservation. It has been very widely discussed. We are concerned about the interconnector between Scotland and England and the question of who pays for it and when it will be built. Here I believe that there is a considerable element of conservation because a new line parallel to the existing line, in particular down the west coast, I am sure would meet a great deal of opposition. We should like to know whether the Minister has any confidence in the likelihood of this interconnector being, built, the estimated cost and the likely timescale of it. Will it be 275 kilovolts or 400 kilovolts?
I hope that the questions that I have asked the Minister will help to make the Committee stage more intelligible and more understandable. But from what we have heard in the debate today the Minister will be aware that it will be a fairly rough Committee. I hope that after the discussion on the Bill in another place and the debate today—and I refer especially to the speeches of noble Lords on the Back Benches —we shall be able to push at a slightly more open door than my colleagues were able to do in another place.
§ 8.39 p.m.
§ The Minister of State, Scottish Office (Lord Sanderson of Bowden)
My Lords, we have had a most interesting and very wide-ranging debate on this Electricity Bill. I should like to thank all those who have taken part in it. Like my noble friend Lord Gray of Contin, I am gratified that this Bill was not guillotined in another place. It has therefore received many hours of scrutiny there. I am sure that it will receive the same here.
Perhaps I should begin by saying that I was very impressed by what my noble friend Lord Beaverbrook said. His words were that this Government do not want to run businesses. That is not our philosophy. Businesses should run their own businesses. I cannot think of a better way to start this debate as we proceed to privatise the electricity industry.
In one way or another this Bill impinges upon the lives of every man, woman and child in Great Britain. This Bill will affect every person in the 1232 nation. I should like to start with some asn the Scottish situation as that is my responsibility, although later I shall try to address myself to some of the wider issues that have been raised in the debate.
There are three specific features peculiar to the electricity supply industry in Scotland. First, Scotland has a diversity of resources for electricity generation unrivalled in any other part of Great Britain—oil, coal, hydro and nuclear are in abundance. That is unique to those of us who live north of the Border. In passing, I say to the noble Lord, Lord Macaulay of Bragar, who I am glad will be taking part in the further proceedings on the Bill, that on this side of the House we try to keep the promises we make at elections. Therefore we have brought forward the Bill.
Secondly, we have a surplus capacity available for export through the development of the interconnector—as the noble Lord, Lord Carmichael, has said—to help meet the demands for electricity in other parts of Great Britain. Thirdly, Scotland has a substantial nuclear capacity. About 60 per cent. of Scotland's electricity requirements will be provided by the nuclear part of the industry when Torness power station comes fully on stream. Output from Torness is currently over 1,360 megawatts, almost up to its design maximum. That is a sincere tribute to the South of Scotland Electricity Board.
In view of that, we decided that vertical intergration of electricity transmission and distribution was what we would prefer to put forward in the Bill. We did not believe that it was appropriate to divide transmission and generation. We decided on two companies rather than one, with the creation of a nuclear company jointly owned 75 per cent. and 25 per cent. by the two proposed plcs. I was glad that, although he objected in principle to the fact that the industry was being privatised, the noble Lord, Lord Kirkhill, thought that this was the best way forward. Unlike the noble Lord, Lord Carmichael, he was pleased to see the cancellation of the joint generating agreement.
I know that the noble Lord, Lord Taylor of Gryfe, holds a different view concerning the number of companies that there should be north of the Border after privatisation. I am sure that he will return to this subject. But it was felt by those of us who are responsible at the Scottish Office that this was the best way forward for Scotland, and it received a welcome north of the Border, as I am sure he will realise.
It has been suggested that there should have been separate legislation. The noble Lord, Lord Carmichael, mentioned that. We do not accept it, as he will no doubt not be surprised to hear. There are many matters common to Great Britain as a whole, such as regulations, supply obligations and safety requirements. I do not need to remind him that in 1947, 561 electricity undertakers throughout Great Britain were nationalised in a single Bill by his party.
The noble Lord, Lord Macaulay of Bragar, asked about consultations. As my noble friend Lady Hooper has already said, the Bill was prepared in 1233 the light of extensive consultation with the industry, with employee and consumer representatives, with independent generators and with other interested parties, including environmental bodies.
The noble Lord, Lord Ezra, asked about the costs of privatisation. It is too early to make an estimate of the likely total cost of privatisation in the electricity supply industry. It will depend on market conditions at the time of flotation. The experience on previous privatisations has shown them to have an outstanding record of value for money. That is all I can say on that at this stage.
The noble Lord, Lord Taylor of Gryfe, asked about Scottish exports contributing to the non-fossil obligation in England. I shall return to that point when I deal with nuclear matters later, although it is very much a Scottish point. The structure of the industry in Scotland, as noble Lords will notice, is vertical integration. We feel that it has proven success in Scotland and it best suits the Scottish circumstances. Vertical integration has particular attractions in serving sparsely populated areas where additional costs can be accommodated within the cost structure of the whole industry.
Although the new companies will operate within a Great Britain regulatory regime, which I shall talk about in a minute, privatisation will transfer important elements of control from Whitehall to Scotland. I find it strange that some noble Lords opposite find that not to be in the best interests of Scotland. I thought that their party was particularly interested in returning some control to Scotland, and so I am glad that the Government are doing that in this case. It will bring about the creation of major new Scottish companies, provide a major boost to the Scottish private sector and create an important opportunity for the employees of Scottish institutions and the Scottish public to acquire a major stake of ownership in one of its most vital industries. Here I pay tribute to all those employees in the industry.
To answer the noble Lord, Lord Kirkhill, as he knows, special provisions in the Bill will allow for common tariffs to be maintained in the north of Scotland to cater for the unique geographic circumstances of that area and the availability of low cost hydro power. He also asked whether the boards would be floated on historic or current cost bases. The boards currently provide both types of information. The successor companies will decide the accounting basis for their main accounts, but they will in any case be required by their licences to produce current cost accounting information for the purposes of regulation. Both types of data will be provided in the flotation documentation.
The noble Lord also asked me about the golden share and its expiry. Scottish golden shares will be held without limit of time. There is no question of the hydro board being vulnerable therefore to takeover.
§ Lord Kirkhill
My Lords, I apologise for interrupting the Minister as he gets into his stride. I would normally restrain myself. But I want to ask him just one further point, as I do not quite follow his reply 1234 to me. Are the boards to be offered to the private sector upon the basis of current cost accounting or on an historic cost basis?
§ Lord Sanderson of Bowden
My Lords, I have given the factual situation. What I would rather do at this stage is to consider this matter and to write to the noble Lord so that he will know very soon how this is to be proceeded with. At this stage it is difficult to know what the answer is. I should like to confirm the point on the golden share that he mentioned, which I believe will give him much comfort.
Whether this will be a good thing for Scotland or not—the noble Lord, Lord Macaulay of Bragar, and other noble Lords seem to think that it would not be good for Scotland—I do not think I need to go into at this stage because it will crop up during the course of the Bill. However, as the noble Lord is a Highlander, I should like to point out to him that the news from British Alcan over the last week has been quite encouraging. This may turn out to be an excellent example of the way in which privatisation is creating the conditions in which there is a genuine potential for competition in electricity supply and in which companies, especially intensive energy users, will be able to consider a range of options for meeting their electricity needs.
The regulator will prevent abuse of any monopoly position. The Scottish electricity industry will be directly involved in the wider Great Britain market for generation. I could also be exposed to the wider yardstick of competitive pressures through the regulatory regime, which will seek to maximise incentives for cost efficiency through the industry and will encourage competition in generation among the existing companies within the wider British market. Fair and open access to the system will mean that competition from independent generators emerges spontaneously. There is a great deal of interest in knowing how this will operate, particularly north of the Border.
As has already been said, the regulatory regime will be supervised throughout Great Britain by the Director General of Electricity Supply, appointed jointly by the Secretaries of State for Energy and Scotland and will operate mainly through a system of licences. The director will have an office in Scotland and will be responsible to my right honourable friend the Secretary of State for Scotland in relation to the Scottish industry. The director general, supported by the deputy director for Scotland (who will be appointed by him) will be able to take account of the Scottish companies' place within the GB system and at the same time allow for the distinctive characteristics of the Scottish industry. The director will be able to draw comparisons on performance and efficiency across the whole UK industry and will also be able to ensure that trading across the inter-connector—which is an important part of the whole operation, as the noble Lord, Lord Carmichael, indicated—between England and Scotland is carried out fairly and that there is no cross subsidy of one activity by another.
My noble friends Lord Lauderdale and Lady Oppenheim-Barnes asked whether the staff would 1235 be sufficient to cope with the regulation. I believe that my noble friend Lord Lauderdale has misread the explanatory memorandum to the Bill. The figure of 115 is an estimate of the net increase in public sector posts which may arise from the setting up of the new organisation. It does not include, for example, the fact that over 80 people are currently working with the existing electricity consultative councils or that there are nearly 30 staff of the electricity meter examining service who will be part of the new organisation. That makes a total of approximately 220. Offer will have sufficient staff and resources for the important task it must carry out in England, Wales and Scotland.
§ Lord Williams of Elvel
My Lords, I am sorry to interrupt. Can the noble Lord say whether among the staff of the regulator will be people who understand the price formula in the licences? If not, can the noble Lord explain to the House what it means?
§ Lord Sanderson of Bowden
My Lords, it is fair to say to the noble Lord, Lord Williams, that the importance that we attach to the regulator and his staff is such that they will understand the formula in carrying out their duties. I should be surprised if the noble Lord, who is extremely intelligent, has not yet understood, but, if not, I am sure that he will do so by the time the Bill has passed through this House.
Our proposal will give the electricity consumer an important opportunity to invest in the new companies and consumers' interests will be catered for in other ways. I was pleased to hear my noble friend Lady Oppenheim-Barnes welcome the Bill on behalf of the Consumer Council. The regulatory regime is carefully designed to offer improved and comprehensive safeguards to consumers. They will benefit from increased competition and downward commercial pressures on costs. Those words have already been used by members of the Opposition Front Bench.
Our proposals mark a completely new beginning for the protection of the electricity consumer in Great Britain. The intention is to change the industry from a producer-centred monopoly into a service industry oriented towards the customer with additional new rights for the consumer. I was glad that the noble Lord, Lord Kirkhill, welcomed the fact that consumer committees would be improved. I take note of what was said by my noble friend Lady Oppenheim-Barnes about the subject. We shall look at the matter most carefully and no doubt return to it at a later stage. I was also pleased to hear my noble friend Lady Gardner of Parkes say that a careful balance had appeared in respect of consumers.
However, I was a little less happy about some of the remarks which emanated from the noble Baroness, Lady Ewart-Biggs. As regards the elderly and disabled, I should like to draw her attention to our proposals in Clause 3(4). They provide a new safeguard for the elderly and disabled by placing a specific duty on the director to consider in particular their needs in respect of the quality of electricity services provided by licensees. That is further 1236 reinforced by Condition 16 of the draft public electricity supply licence. It requires the licensee to produce a new code of practice aimed specifically at the elderly and disabled. The code of practice will cover special services available to those groups, including such matters as the use of special controls for electrical appliances and meters, the placement of meters for convenient access and advice on the use of electricity.
As regards the code of practice on payment of bills, there are further safeguards associated with the production of the code. The licensee must consult the appropriate consumer committee in the preparation of the code and he must submit it to the director for approval. The director will be able to call for a review of the code and its operation by the licensee.
I turn to deal with the point which the noble Baroness, Lady Ewart-Biggs, made about those who are having difficulty with the payment of bills. We take that matter most seriously in the passage of the Bill. Payment arrangements set out in the current code of practice on payment of bills provide a flexible way of helping those who have difficulty in paying bills. They include the installation of pre-payment meters where safe and practical. There are also special arrangements to avoid disconnection of the elderly during the winter months. The existence of the code is one reason why disconnections are declining so dramatically. The total number of disconnections during the 12 months ending February 1989 was 77,000. That is the lowest figure for any 12-month period since 1976. It is almost 15 per cent. lower than the previous 12-month period.
In order to ensure that that approach will continue after privatisation we are including in the draft electricity supply licence a requirement to produce such a code together with important new safeguards. I hope that in the light of that answer the noble Baroness will understand that we take her points most seriously.
I turn to the financial aspects which have been raised particularly in relation to prices. The subject was raised by many noble Lords during the course of the debate. Complaints have been made that prices to consumers will rise during the run-up to privatisation and afterwards. Examples were given by some noble Lords. The recently announced increases—and I refer to the Scottish boards—which are somewhat larger than last year have been used to justify that claim. In determining tariffs the industry must take account of a range of factors including cost structure and the need to make adequate returns on assets employed. The tariff increase in Scotland in 1988–89 was 7.75 per cent. from 1st April 1988. It was significantly lower than that in England and Wales, which ranged from 7 per cent. to 12 per cent. during the same year. The recently announced tariff increases in Scotland for this year were 8 per cent. from 1st April 1989. They are slightly higher than those in England and Wales, where they range from 6 per cent. to 7.5 per cent. However, they are still less than last year's average increase south of the Border.
The tariff increase in Scotland is greater this year than last principally because of the effects of higher 1237 rates of inflation on operating costs generally. But they also reflect higher than anticipated fuel costs for both nuclear and coal. Even with that latest increase in tariffs in Scotland, the rates are 9 per cent. lower in real terms than in 1982–83. I believe that to be most significant. I know that it is known by most noble Lords opposite—particularly by the noble Lord, Lord Stoddart of Swindon—but I should like to mention the fact that during the last Labour Government they rose 20 per cent. in real terms.
Primarily tariffs are a matter for the board to decide. In determining the level it must take into account a complex range of financial and operational factors, including financial targets agreed with the Government. The financial target for 1989–90 is 2.7 per cent. It is set jointly to reflect the board's shared responsibility for nuclear generation. It holds the target at broadly the same level as it has been for the past two years. The financial target for the electricity supply industry in England and Wales is 4.75 per cent. for 1989–90.
Questions were asked about price increases. There is no reason why tariffs should increase as a consequence of privatisation. The privatisation of the two companies will lead to increased efficiency through competition in the broadest sense. Private sector disciplines will produce downward pressure on the costs which go into consumer electricity bills, whatever noble Lords say. Where a monopoly will remain, prices to the consumer will be subject to strict and fair regulations.
The noble Lord, Lord Ezra, spoke a great deal about prices. I have indicated that prices will be controlled in the privatised industry. At this stage I shall not go deeply into the formula of how the regulator arrives at x, y, the yardstick cost or whatever. I believe that this is a matter which we can debate at greater length when we come to the Committee stage of the Bill. However, I must say to the noble Lord, Lord Williams of Elvel—who asked why we wanted to privatise the industry as if it were a matter of Mars bars—that I happen to think the company which produces Mars bars is a profitable company. Indeed, the product does give extra energy.
I should just like to make the point that the Bill marks a completely new beginning for consumer protection in the UK. At its heart is a set of measures which, as I have said before, are designed to turn the industry from a producer-centred monopoly. Moreover, I have no doubt that our proposals, which have been warmly welcomed by the area electricity consultative councils and the Electricity Consumers Council, will be noted. I also noted what my noble friend Lord Gray of Contin said on that issue.
I should like briefly to mention the non-fossil fuel obligation and the point made to me by the noble Lord, Lord Taylor of Gryfe. It is not intended that the non-fossil fuel obligation and the associated fossil fuel levy will apply in Scotland for the foreseeable future because of the high level of non-fossil fuelled generating capacity already available there from nuclear and hydro power. Exports from Scotland will however be capable of being counted towards the obligation on the supply companies in England and Wales. The fossil levy will apply to the Scottish 1238 companies in the narrow circumstances where they supply electricity generated from fossil fuel direct to large consumers in England and Wales.
I turn now to the nuclear situation in Scotland which is most important. It is one of great significance in the Scottish context, as I have already said, especially in relation to Torness. The financial provisions in the Bill provide the means to create the capital structure appropriate to the new companies. In answer to the question raised by my noble friend Lord Ferrier, I should say that we shall be replacing one type of debt with a combination of debt and equity geared to market requirements. It is much too early to give an indication of the detailed figures involved. But capital restructuring is a well-established business practice and we shall be aiming to ensure the maximum proceeds from the sale.
I refer to a point which I think was raised by the noble Viscount, Lord Hanworth. I believe that the matter has also been reported in the press recently. It concerns the opinion of Mr. Banham of the CBI. I am aware of the views of the CBI on the matter of disposal of nuclear assets. The confederation wants nuclear industry in the public sector and later for it to become a new competitive force in the private sector. However, we believe that our proposals will encourage the development of the next generation of nuclear stations from the outset by freeing the whole industry from the constraints of state control. In our view that is a sensible way forward and that to retain part of the industry in the public sector would not be a good idea. I am aware that the matter will be debated at greater length in the future and, if time permitted, I would give your Lordships a longer answer. However, I fear that time is pressing and we shall have to wait until the next stage of the proceedings on the Bill.
So far as concerns coal, I should like to point out the fact that it is my estimation—and I have good reason to believe this—that since 1979 we, as a government, have spent about £1 billion a year on the coal industry. That is quite a significant amount of money. To those who seem to say that the Government are walking away from their commitments to the coal industry, I suggest that they should check first the facts of the matter.
Noble Lords will know, in connection with the Scottish situation, that the chairman of the SSEB and British Coal have agreed to negotiate on the basis of a five-year deal under which the SSEB would purchase 2 millon tonnes of coal per annum subject to the conclusion, in respect of the fourth and fifth years, of a satisfactory contract with the electricity supply industry in England and Wales for exports of electricity over the inter-connector amounting to 600 megawatts.
Although the previous arrangements ended on 31st March, negotiations are continuing between the SSEB and British Coal, especially on the question of price. In the meantime, the SSEB has confirmed that it will continue to take supplies from British Coal at the rate of 2 million tonnes per annum; and British Coal has confirmed that it will continue to supply at that rate.
1239 I am well aware of the disappointing news about the closure of Bilston Glen, which I think was referred to by the noble Lord, Lord Dean of Beswick. Despite some improvement in the earlier part of this year, costs remain at more than twice target levels. The Government are naturally disappointed at that outcome but, of course, that decision is for British Coal. I understand that only a small proportion of the output from Bilston Glen has been destined for electricity generation, the bulk of it being for industrial and domestic users. Nevertheless, the Bilston Glen announcement makes it all the more important for British Coal to secure a satisfactory agreement with the SSEB which will ensure the future of Longannet. The viability of the Scottish coal industry remains dependent upon the future improvement in production costs. I know that the noble Lord, Lord Taylor of Gryfe, places a lot of weight on the future of open-cast mining. Indeed, I have heard him speak many times in this House on the subject.
I turn now to the issue of the environment. I understand the strength of feelings about the protection of the environment. Moreover, the Government share that concern. Perhaps I may say to my noble friend Lord Swinton that the amenity provision in Schedule 9 to the Bill does not stand on its own so far as concerns our commitment to the environment. I listened very carefully to what he said. The amenity duty is most important, and in future it will apply to all licensees and not just to the successor companies of the present electricity industry.
I am sure that the matter of the environment, and all that goes with it, will be debated at greater length during the passage of the Bill through this House. At this stage, all I should like to say—as my noble friend Lady Hooper has already spoken about the environment and the importance we attach to it—is that we shall come back to the matter in greater detail. However, I should like to give my noble friend the assurance that the Government are certainly listening most carefully to what he and other noble Lords have said in this respect.
§ Lord Hatch of Lusby
My Lords, perhaps I may intervene for just a moment. I realise that time is pressing, but surely the Minister is aware that questions on the environment have been raised by Members from both sides of the House. Indeed, they were very crucial questions regarding the global future. Can he therefore just encapsulate the Government's policy, their attitude and their philosophy towards that issue so as to help us in the later stages of the proceedings on the Bill?
Do the Government believe that the profit motive of private companies is more likely to promote progressive environmental policies than the safeguarding of the public interest which has to be promoted by a government?
§ The Earl of Swinton
My Lords, before my noble friend replies to that intervention, he was answering a question of mine. We all have to live in the same environment and certain Members of this House have to live in the same environment as other Members. Perhaps we prefer not to.
§ Lord Sanderson of Bowden
My Lords, I am grateful to both noble Lords for their interventions. For one I thank my noble friend and for the other I was just about to mention the noble Lord, Lord Hatch, in my reply.
However, the environment is an immense subject and I know that we shall take a great deal of time on it. In the course of the Bill it will become clearer and clearer that the Government take their environmental responsibilities extremely seriously. I hope that the noble Lord, Lord Hatch of Lusby, will not press me further at this stage, though I appreciate his concern just as much as everyone else's concern on this matter.
I should like to deal with one issue raised by the noble Lord, Lord Hatch, concerning reductions in SO2 emissions. It is not necessary to provide in the Bill for reductions in sulphur dioxide emissions. The Government have signed the EC large combustion plant directive and compliance will be overseen by Her Majesty's Inspectorate of Pollution under the powers of the Secretary of State for the Environment. That was mentioned by my noble friend Lady Hooper in her opening speech.
Many noble Lords spoke about what might loosely be termed global warming. In this respect I should like to bring your Lordships up to date on government thinking. The generation of electricity in this country is currently responsible for approximately one-third of our CO2 emissions. Overall, the UK itself emits some 3 per cent. of global CO2, which in turn contributes around 1.5 per cent. to the global greenhouse effect. It is clear from these figures that any unilateral action by the UK would have only a limited effect on the global problem and that properly co-ordinated international action will provide the best means of tackling it. CO2 abatement can be achieved by switching to fuels which contain less carbon—for example, from coal to natural gas—by using non-fossil fuel energy sources like nuclear, hydro-electric and other renewable energy technologies, and by increased energy efficiency. The Government are, of course, encouraging such sources.
I turn now to research and development, mentioned by many noble Lords including the noble Lord, Lord Shepherd, the noble and gallant Lord, Lord Carver, and my noble friend Lord Lauderdale. The Government's role in electricity research, post-privatisation, will be determined in the light of the industry's R&D programme and the Government's existing policy on R&D as set out in the Annual Review of Government Funded Research and Development. The Government acknowledge that the industry may decide not to undertake long-term research that is not of a near market nature. After privatisation, as now, it will be for the Government to decide whether the national interest in research is such as to justify the Government themselves funding it. ACORD will be considering the industry's intentions for R&D post privatisation in May of this year and will be advising the Secretary of State for Energy on the implications for the Government's role. The Government's intention will be to ensure that the long-term R&D they consider to be necessary in the national interest is indeed carried out.
1241 The noble Viscount, Lord Hanworth, and the noble Lord, Lord Shepherd, referred to the closure of Marchwood. The closure would have occurred regardless of which successor company it had been allocated to. Essential nuclear research will not be prejudiced. It will be completed or transferred elsewhere before the Marchwood site is closed.
The noble Lord, Lord Ezra, and the noble Viscount, Lord Weir, referred to capital investment and the difficulties of having those companies involved with privatisation. We are shifting the obligation to supply from the CEGB to the area boards. The latter will now decide from a position closer to the consumer what power supply contracts they need. It will inevitably take a little time to make that assessment and to negotiate the contracts that will underpin the reorganised industry's operations. Delays to power station ordering will be kept to a minimum by the demanding timetable to which the industry is working. Noble Lords should remember also that the new structure will create openings for supplies of new generating technologies which I am sure British companies will be well placed to meet. The noble Viscount, Lord Weir, is not present to hear that, but I have no doubt that he will return at later stages in the Bill when we shall benefit from his expert knowledge on matters of electricity plant.
Energy efficiency and least cost planning have been mentioned. Least cost planning would involve the electricity supplier or regulator deciding that a particular conservation measure was preferable to contracting for electricity. Such a planning process takes decisions away from customers and, as such, runs counter to our objectives. It is only relevant in cases of heavily regulated monopolies as seen in parts of the United States. The Government's view is that, in general, customers can and should decide which energy efficiency measures are appropriate, should pay for the measures and should receive the benefit of any savings. This makes decisions more relevant to the customers' needs and wishes as well as ensuring that the best efficiency measures are chosen.
I turn briefly to the matter raised in relation to the grid and merit order dispatch. At present the CEGB's merit order system determines on a daily basis which power stations will run. Throughout the day supply and demand are balanced minute by minute ensuring that demand is met at the lowest cost consistent with keeping the system secure. During the day some stations may be rescheduled, but this is to accommodate changes in technical circumstances or unexpected changes in demand. The power station cost data used to calculate the least cost option remains the same thoughout the day.
In future there will continue to be a merit order system balancing supply and demand on a minute-by-minute basis so as to meet demand at lowest cost consistent with the system security. Power stations will bid in prices rather than cost but in other ways the new and old systems will be very similar. One major difference will be the payment arrangements for power supplies. Each half hour the amount owed by suppliers to generators with whom they have 1242 contracted will be calculated. This is the so-called settlement procedure but it should not be confused with the merit order dispatch.
The noble Lord, Lord Williams of Elvel, wondered how the area boards would be able to cope with the grid because they do not know much about it. The grid will be run by the people who run it now. The grid will be transferred to the area boards with those CEGB employees who operate it, and the structure of the grid company will ensure that it will be run on an independent basis.
§ Lord Williams of Elvel
My Lords, can the noble Lord tell me how the board of directors of the national grid company will be composed?
§ Lord Williams of Elvel
My Lords, perhaps I may tell the noble Lord. It will be composed of representatives of the area boards who are shareholders.
§ Lord Sanderson of Bowden
My Lords, that is as may be. As I understand it, the regulations that will be applicable to the grid company wall mean that it is a stand-alone company. Therefore by regulation it will be able to take an independent view of how its operations should proceed. The noble Lord, Lord Taylor of Gryfe, said that the degree of regulation may mean that the Government may sell the industry at too low a price. I believe that was a matter raised by my noble friend Lord Weir.
Obviously, the level of proceeds could be higher if the interests of the consumer were neglected. The system of regulation that we are introducing is aimed at protecting the consumers' interests while at the same time allowing the industry to make reasonable returns. Nevertheless, having established the regulatory framework, the Government will be aiming to achieve full value for all parts of the industry. We owe it to the taxpayer so to do.
The noble Lord, Lord Williams, asked some of my noble friends behind the Front Bench whether they would invest in the companies and whether it would be worth their while to do so. I remind the noble Lord that we as taxpayers at present own the industries concerned. The noble Lord, Lord. Stoddart of Swindon, spoke about the involvement of the staff. The staff shall be able to play a real part as shareholders in a way that they cannot do now. The management have made it clear that they regard the maintenance of good industrial relations as absolutely crucial to the success of the successor companies.
My noble friend Lord Norrie asked about the planning procedures. The Government take the view that, taken together with the arrray of legislation that has been mentioned, the main safeguards against electricity developments having an unacceptable effect on the environment are those in our detailed planning procedures. They ensure wide consultation with those affected or those who have an interest. These procedures are now buttressed by regulations which will be made to implement the European 1243 Council directive on the assessment of the effects of projects on the environment. He also asked about cables and whether they should be buried under ground. If required to make an environmental statement for an overhead line, one of the matters which the developer must address in his statement is the possible impact on the countryside.
Undergrounding cables is very costly and that is well understood. It also takes longer and so is correspondingly more expensive to locate and to rectify any subsequent faults along an underground cable. In some places, and especially agricultural areas, undergrounding is unsatisfactory but that is something we look at most closely. As I have said, the planning procedures are the control mechanism both before and after the Bill has been passed.
My noble friend Lord Stanley of Alderley asked about rural prices. We are not requiring public electricity suppliers to introduce differential tariffs, merely allowing the possibility of the development some time in the future. That is no different from the position which applies in England and Wales under the existing law. Our proposals merely clarify the position. I remind noble Lords that the area board chairmen in England and Wales and the chairman of the South of Scotland Electricity Board have given the assurance that they expect to maintain common tariffs for domestic consumers for five years after privatisation.
I have tried to deal as succinctly as possible with as many points as I could that were raised during the course of the debate. I conclude by saying that as a result of the privatisation programme so far, the performance of the privatised companies in terms of profits, efficiency and service to the public have been transformed. The sale of the electricity industry will be a major undertaking and there should be no doubt about that. Privatisation is not only transforming the economy and replacing inefficient loss-making state monoliths with competitive profitable companies; it is also transforming society by enabling, as I said in answer to the noble Lord, Lord Macaulay of Bragar, the British people and indeed the Scottish people to become a nation of shareholders. Perhaps that is not fully appreciated.
The noble Lord, Lord Williams of Elvel, said that this is a bad Bill. I have to disagree with him. I think it is an exceptionally good Bill. It was in our manifesto and we are carrying out our commitments and our promises. It will benefit employees of the electricity industry because it will give them freedom of opportunity which they have not enjoyed since nationalisation. It will benefit all of us as customers by giving us, I hope, the rewards of competition. I am an optimist in this regard. I look forward to listening to what noble Lords say at the various stages of the Bill. I am especially interested in the discussions that will take place on Scotland. I know that my noble friend Lady Hooper will deal most effectively with the matters relating to England and Wales. I commend the Bill to the House.
§ On Question, Bill read a second time, and committed to a Committee of the Whole House.