---

Energy Bill

I do not want in any sense to criticise the noble Lord, Lord Oxburgh, because not only is he is extremely knowledgeable about these matters but he is pursuing an issue of transcendent importance to the future energy of this country. I just question whether, as a matter of interpretation—it will be interesting to know what advice parliamentary counsel has given to the Minister on this—the words that he is seeking to include in the Bill add anything to what is in the Utilities Act 2000. Although I will not read it all out, I have here the section of the Electricity Act amended by the 2000 Act. The definition in the clause says, "““‘consumers’ includes both existing and future consumers””." With the greatest respect to the noble Lord, I would have hoped that, given the urgency of the case that he has argued—he and I were both interviewed by the author of an article in the Times last Monday—he would have included something a little more specific. The noble Lord’s amendment somehow infers that the priority will be raised. I am not at all clear—no doubt the Minister who has had long discussions with the noble Lord, Lord Oxburgh, on this will be able to explain—how this inference of raising the priority of the future will be achieved. I will be interested to hear the Minister's response to that. The point is clear to me that both in another place and in Grand Committee in this House there was much concern about the way that the role and functions of Ofgem—the regulator in the energy industry—are being discharged at present in the context of the huge challenges faced by the industry, which the noble Lord, Lord Oxburgh, outlined in stark detail, and of the huge investments that are necessary to develop and secure our energy infrastructure for both existing and future consumers. One has to say that there could hardly be a more important subject for this House to debate. Among the things discussed in the earlier proceedings were amendments to the Gas and Electricity Acts that sought to make Ofgem's remit, as the proponent said, more fit for purpose. The amendments sought to align Ofgem’s statutory role and duties more closely with the new energy policy objectives of carbon reduction and security of supply. Quite apart from the views of Ofgem on that—of which I am well aware because I discussed the matter with the noble Lord, Lord Mogg, and members of his staff at Ofgem—I am also aware that the industry has mixed views on what was proposed about the desirability of changing Ofgem's remit at the present time. As I understand it, the industry believes that while some such change may well be inevitable and right, it should take place only under some future legislative arrangement following wide public and political debate and consultation. The concern is that introducing amendments under this Energy Bill without that wide consultation would undermine—and I will return to this issue—the regulatory stability that is essential to support the innovation and investment needed to deliver national carbon emission and supply security goals. I understand that there is a great deal of force in the contention that regulatory certainty is a precondition for investor confidence. Almost every clause in the Bill is designed in one way or another to facilitate and support long-term UK investment in a wide range of energy infrastructure. We should therefore be slow to do anything in this House that could impair that purpose. However, as the ongoing crisis in the financial markets has demonstrated, it is the job of government to see that the regulators are ahead of the curve, not behind it. Accordingly, the new clauses introduced by Amendments Nos. 30 and 31 standing in my name would ensure that the Government—any Government—are able to do that job properly in relation to the future regulation of the energy industry. If agreed to, the amendments would enable the Government to be more likely to ensure what they are currently unable to ensure, namely that electricity and gas regulation is carried on in a way that conforms more closely to national energy policy objectives. At present, under the relevant gas and electricity legislation, the Government are able to issue guidance to Ofgem about the ““making by”” Ofgem, "““of a contribution towards the attainment of any social or environmental policies set out … in the guidance””." That is in the 2000 Act. The idea of that is to enable Ministers to put Ofgem in a position to consider and give due weight to all the various social and environmental policies that may be relevant to the performance of its statutory functions. I have heard Ministers, and indeed leaders in Ofgem itself, argue that the best way of ensuring that energy regulation is carried on with a view to delivering longer-term energy policy objectives is for the Government to provide more explicit guidance to Ofgem on such social and environmental issues; indeed, earlier this year, as the noble Lord, Lord Hunt of Kings Heath, will be aware, what is now the Department of Energy and Climate Change published draft guidance for public consultation that was expressly designed for that purpose. The consultation period has recently ended, and I will expect the Minister, when he replies to the debate, to tell the House when he expects to publish the responses to the consultation, and when we may expect the fruits of that exercise to be announced. Before I turn to the substance of the new clauses in Amendments Nos. 30 and 31, I want to make it clear that I will abandon Amendment No. 32, which I do not intend to press. That provision would have empowered Ministers to give ““directions”” to Ofgem, in certain circumstances, on how to fulfil its functions. On reflection, it is clear that that would have a number of serious objections—not least because it would give Ministers altogether too much power to intervene in the day-to-day work of Ofgem, and also because it would undermine the independence of the regulator, to which we all attach great importance. Both those reasons seem to me to have a great deal of weight. So what is left? Amendment No. 30 would require Ministers to give guidance—I emphasise that word—to Ofgem on the exercise of its regulatory functions under the relevant statutes. The key point is that the guidance is to be given with a view to ensuring that Ofgem carries out those functions in a way that is most likely to contribute to the dual objective of a system of energy supply that is both secure and sustainable—I take the words of the opening speech of the noble Lord, Lord Oxburgh, himself. Without express provision for this, there is a risk that Ofgem could lead the energy industry in a direction that is not consistent with these overriding national policy objectives. The approach in my amendments builds on the existing legislation, which, as I have said, requires the Government to give guidance to Ofgem on social and environmental policies, but does so by spelling out a more explicit set of priorities for the guidance. If I have a criticism of the amendment of the noble Lord, Lord Oxburgh, it is that it is not specific enough. It rests entirely upon the inference that this guidance will somehow be the result of adding the words that he wants. At the same time, in my amendment, the guidance can include any general or specific proposals that the Government themselves consider relevant to the national objectives, as well as giving an indicative timetable for achieving them. All this is entirely consistent with the constitutional principle that the Government, not the regulator, should have the major role in setting the priorities and, ultimately, the decisive role in setting this country's energy policy. The proposed new clause in Amendment No. 31 simply mirrors the parliamentary, procedural, and consultative requirements that at the moment apply to the existing guidance—but with the sensible addition that it now includes the Scottish and Welsh Ministers and the new Committee on Climate Change in the list of the statutory consultees whose views must be sought before the guidance is issued. Importantly, as in the existing legislation, if either House of Parliament resolves against the guidance, it cannot be issued. The proposed new clause in Amendment No. 30 is the substantive one, and starts from the premise shared by just about everyone that regulatory stability is critical to long-term investor confidence. However, it aims also to take account of two other very important realities. First, the Government now have long-range energy policy objectives, including fighting climate change, that go well beyond the normal regulatory timeframe. Secondly, some mechanism is needed to ensure that energy regulation takes full and proper account of those objectives while still preserving the essential operational independence that a regulator such as Ofgem is entitled to expect. However, it does not leave these objectives to be inferred or implied, which was the burden of the speech of the noble Lord, Lord Oxburgh, but it indicates quite clearly what the objectives are that the guidance must embrace. Short of primary legislation, the Government have no means of delivering national energy policy objectives without Ofgem's full and continuing co-operation. These proposed new clauses aim to underpin the ability of government to secure, and indeed to rely upon, such co-operation. I emphasise that, as a matter of law, any new guidance issued under these clauses would not override the primary objectives of Ofgem, which must always remain to promote competition, encourage investment and safeguard the interests of consumers both existing and future; that has always been its primary objective and must remain so. That takes us back full circle to where my comments began. I hope that noble Lords will feel able, on reflection, to support these proposed new clauses as being able to achieve what the noble Lord, Lord Oxburgh, has so graphically spelt out to the House what he wants to see, but to do so in a more specific and targeted manner.