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Energy Bill

I thank the noble Lord, Lord Redesdale, for his kind comments, and I am grateful for his support. It was with a certain diffidence that I tabled the amendment. I did so because of the considerable concern in this House, the other place and the wider industrial community about its subject matter; namely, the way that Ofgem is able to discharge its responsibilities at present. If the Government had been doing as much listening as they say they do, they would have picked this up and put it in the Bill. They did not have to look much further than the report by their own Sustainable Development Commission, Lost in Transmission? which was published last year. I am not sure that I agree with everything in that report, but there was a great deal of compelling argument concerning the way the Ofgem role is discharged at present. I emphasise at the beginning that this is criticism not of Ofgem but of the terms of reference within which it has to work. I suggest that, although there are many details, we keep this discussion at a relatively high level today. It is matter of what we want Ofgem to do and whether it is properly equipped to do it. Ofgem discharges many aspects of its remit completely satisfactorily. Where it falls down is on infrastructure. The important thing about infrastructure is that it has to be there before the elements that it is to support are built. If you are building a housing development, the first thing you do is put in the roads and the drains and then the houses follow afterwards. If we are building wind farms around the country, unless we make proper provision to get the electricity to where it is needed, a lot of this comes apart. I do not need to remind the Committee that the wind is around the coast and in the north-west, and electricity demand is in the centre and the south. We shall have a need for massive interconnectors from north to south. I do not want to repeat what I said in my Second Reading speech, but the challenging question is how these interconnectors, which are not going to be cheap, are to be facilitated. To give the Committee an example, let us say that it made sense to lay a cable from north to south down the length of the North Sea, to connect the offshore wind farms and the near-shore generation into it and to use that cable effectively as a mains to take the electricity where it is needed. It might be needed on the other side of the country, or possibly on both. Doing this at sea would have considerable advantages, in that the multitude of planning consents that are needed on land would be avoided. The important thing is that this would be a massive investment, at least in part ahead of the elements of the wind farms and so on that it was intended to support. Given the way in which Ofgem operates at the moment, it would have enormous difficulty in approving that expenditure for the national grid, because it would be the responsibility of the national grid to design it, and presumably it would then go out to tender for construction. I briefly remind noble Lords that Ofgem was set up in the early 1990s in the days of the liberalisation of energy markets in this country to ensure that there was plenty of competition and that the consumer got the best possible deal. Its principal remit—I emphasise principal—is, "““to protect the interests of consumers, present and future, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas conveyed through pipes and the generation, transmission, distribution or supply of electricity or the provisions or use of electricity interconnectors””." Over time, a variety of supplementary objectives has been added to that principal objective. In 2000, Ofgem was given social and environmental objectives. In 2004, sustainability was added. Today, Ofgem’s principal objective is as I quoted it. It also has 11 secondary objectives, and it can have guidance from Ministers. However, guidance is only guidance, and Ofgem has made it clear that it sticks to its principal objectives. I do not believe, and I believe that a lot of other people do not believe, that that original objective, even supplemented with those ancillaries, is appropriate for the situation in which we find ourselves today. Nor will the Government be able to achieve their climate change objectives unless we look much harder at this and provide Ofgem with a remit that gives it the freedom to make the investments that are necessary for the future. The amendment would not take away any of Ofgem’s powers, but it would fundamentally reshuffle its current responsibilities. It puts security of supply and sustainability at the top of the agenda. That is at the top of everyone’s agenda, frankly. We would all prefer our electricity to be a cheap as possible, but security of supply and sustainability need to be up top. The Government may reply that we cannot do anything about this yet because the regulation is being reviewed. The review may have finished now—I cannot quite remember—but there is one very important point to make that the Government might not have picked up on. I have spoken to a number of people in the industry and elsewhere who were invited to give their views as part of that review. More than half the number of people to whom I spoke said, ““We have not replied””, or, ““We have been very cautious””, because, ““We do not want to upset the regulator””. That is very important. It emphasises not only the enormous power that Ofgem is seen to wield at present but that people are concerned about how they will fare if they rock the boat. The output of that consultation needs to be taken with a serious health warning. The other concern, I am told, is that Ofgem is very worried about a broadening of the sphere of action under its present terms of reference, because it might be subject to judicial review from consumer organisations that say that by investing in the future Ofgem is not providing electricity or gas at the most competitive prices. Whether or not that is true, I do not know, but I am told that it is a genuine concern. The purpose of the amendment is not revolutionary but evolutionary. It is to tweak the remit of Ofgem and to be helpful to Ofgem and, I would have thought, to the Government, in meeting the objectives in the Climate Change Bill.