Energy Bill

Lord Grantchester Excerpts

Tuesday 9th July 2013 Grand Committee

[Lord Jenkin of Roding]

My Lords, I would like to add a few words to what my noble friend Lord Howell has said. I congratulate the noble Viscount, Lord Hanworth, on his imagination which allowed him to stray into paths that upset even so stalwart a Labour supporter as his noble friend. The privatisation programme was hugely successful. I was responsible for launching the first one—the privatisation of British Telecom. If you talk to the people who use that company and work for it, they will tell you that the whole picture has been utterly transformed. There have been a number of others, so I do not agree with his general strictures on privatisation.

The other important thing that it is necessary to bear in mind is that a great many industries and bodies have been transferred from the public to the private sector. I cannot think of a single transfer that was at the time supported by the Labour Party or a single one that has been reversed by the Labour Party when in government—not one. Having opposed those transfers, Labour accepted every single one. I suspect that this will not be any different.

There is an interesting note in the House of Lords briefing pack. Incidentally, it is interesting that it still uses the previous numbers of the clauses and has not caught up with the Bill as published in this House. Its report on reactions to the proposed sale, which may well have influenced the wider remarks of the noble Lord, Lord O’Neill, noted that Scotland on Sunday,

“did not perceive this to be especially controversial”.

The pack describes, as the noble Viscount did, what the GPSS originally was; it continues:

“The GPSS has been expanded and restructured over several decades and today includes some 2,500km of cross-country pipelines, storage depots, pumping stations and other facilities”.

It then quotes an energy specialist, Murdo MacLean at Pinsent Masons:

“These measures will be of particular interest to utilities or other investors”.

I agree very strongly with the noble Lord, Lord O’Neill. Of course, it would have to be properly regulated. I have no doubt that Ofgem would be the appropriate regulator, but we are not at that stage yet. If we accept this clause, we simply give the Government the power to go down that path.

In another report—and this may be what stimulated the noble Viscount—the RMT union opposed the sale, saying:

“Bob Crow of the RMT said that plans to increase the capacity of oil storage at Portishead were a ‘classic fattening up exercise’ in advance”.

I do not accuse the noble Viscount of having had a brief from Bob Crow but he certainly reflected what Bob Crow might have said about this clause. We need to take that all with a considerable pinch of salt.

My view is that this is a sensible clause. There is no particular reason why the Government should own this network if it can be sold, if the capital can be raised, and if it is properly regulated. I repeat that I totally agree with the noble Lord, Lord O’Neill, on that. It seems an entirely proper and appropriate thing for the Government to do, and I hope that the clause will stand part of the Bill.

[Lord Grantchester]

I am grateful to my noble friend Lord Hanworth for probing the case for Clause 113 and the supplementary thoughts of my noble friend Lord O’Neill. The Bill’s Explanatory Notes are not helpful in this regard, merely pointing out that the Secretary of State is being provided with the power to sell, lease or transfer the GPSS,

“or any part of it and transfer any right or liability relating to the system or any part of it, subject to such conditions, if any, as he considers appropriate”.

What more could he ask for? This brings to mind the film “The Firm”, which noble Lords may remember concerned a young lawyer—Tom Cruise—discovering the dark side of providing legal services to clients. At one point, the firm’s team is considering whether there is something suspicious going on. The firm’s adviser replies,

“I get paid to be suspicious when I’ve got nothing to be suspicious about”.

The Opposition are not paid to be suspicious but we are tasked with trying to unlock what there is to worry about when the Government decide to take, upfront, all sorts of powers to transfer assets and to be able to do so however they wish.

This clause was also brought up in Committee in another place, yet the Government have not thought it appropriate to bring forward any constraining amendments to relieve any suspicions, clarify any conditionality on any transfer or explain under what possible scenarios they might wish to undertake any change to the status quo. Furthermore, the Government are not providing any further information, other than that further work is under way.

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[The Deputy Chairman of Committees (Lord Geddes)]

The noble Lord, Lord Grantchester, was in full flow, and perhaps he would now like to resume.

[Lord Grantchester]

The Government are not providing any further information other than that further work is under way to update the initial value-for-money analysis undertaken last year and that Defence Ministers will be asked to decide whether to invite bids for the GPSS on the basis of that work. I welcome the presence of the Defence Minister to provide clarity to the Committee.

Given that this Bill will have completed its passage through Parliament by that stage, will the Minister tell the Committee today by what means Parliament will be able to assess the analysis and ask for certainties beyond the bland assurances already provided by the Minister of State in the other place, Mr Greg Barker, to my honourable friend Luciana Berger? It is recognised that a sale contract would be a private matter and not wholly for Parliament. No doubt the Public Accounts Committee may also scrutinise any sale. However, nothing in the clause deals with the contractual nature or goes beyond any theoretical possibility. Will the Government explain why they want to sell and whether they may limit the sale or lease to the use of the pipeline and retain the fabric or even vice versa? Any transfer would want to pass over as many liabilities as possible while retaining as many benefits. Is there any comfort in Clause 113 providing that it must be for valuable consideration? I presume that the Minister can qualify this as positive valuable consideration and will exclude negative valuable consideration—that is, someone is paid to take it away or it is part of a larger transaction as an uncosted supplement. Will the Minister also clarify what conditions the Government consider appropriate when asking this Committee to acquiesce to this power?

Finally, the Minister might be tempted to say that the Government do not yet know all the appropriate conditionality pertaining to any transfer. Will the noble Lord look at the suggestion by my noble friend Lord O’Neill and come forward with an amendment to bring regulation to the situation or to introduce any sale or transfer to Parliament when there is clarity around the circumstances which the Minister is happy to explain and promote when the time comes?

[The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)]

My Lords, to date the clauses that are included within this Bill to enable the sale of the Government pipeline and storage system have received relatively little attention. Indeed, they were barely mentioned on Second Reading. This is why I welcome the clause stand part debate tabled by the noble Viscount, Lord Hanworth, as it provides an opportunity for us properly to scrutinise the proposals.

Clause 113 is crucial because it allows for the sale or lease of the GPSS or a part of it. At the current time, the rights to operate and maintain the GPSS and to access land for this purpose are personal to the Secretary of State for Defence. This clause allows the Secretary of State for Defence to transfer these rights, thereby enabling the system to be sold or leased. A decision on sale or lease will be made once further analysis has been undertaken and we have engaged with the market. The clause also allows the transfer of liabilities.

Having explained the intent of this clause, I would like to address a number of concerns that were raised in the other place relating to the sale of the GPSS so that I may demonstrate what progress has been made in these matters.

First, the strategic importance of the GPSS was raised, including the need for it to provide assured fuel supply to certain sites. Through the work conducted to date, we are confident that we will be able to put a contract in place to meet the continuing requirements of the Ministry of Defence and the United States visiting forces, which will offer the appropriate level of protection, including priority access when necessary. Similarly, the potential impact of sale on commercial customers has been raised. The Department of Energy and Climate Change and the Department for Transport have jointly reviewed the implications of a sale of the GPSS on the market, including access and charging, and concluded that while it transports a significant proportion of fuel to the major airports, existing regulatory provisions, particularly the Pipe-Lines Act 1962, are sufficient and no further regulation is required.

On physical security, I reassure noble Lords that we do not believe that the sale will make the GPSS any more vulnerable to terrorist attack than other equivalent infrastructure operated by the private sector, such as the electricity and gas distribution networks, particularly since the pipeline and storage tanks are predominantly built underground to make the system less vulnerable. Officials at the Oil and Pipelines Agency regularly discuss, with appropriate external organisations, measures to best protect the GPSS, including from the risk of cyberattack. We would expect a purchaser to continue these measures post-sale.

Questions were also raised regarding the impact on safety and the environment following the sale of the GPSS. Any owner has an inherent interest in running the system in a safe manner and would need to comply with the same legislation and regulations as the Oil and Pipelines Agency does at present, such as the regulations under the Environmental Protection Act 1990 and the Pipelines Safety Regulations 1996. Therefore, it is not believed that a sale would have any adverse impact in these areas.

Lastly, and quite rightly, the value for money of a sale has been raised. A final decision on sale is dependent on being able to strike the right deal with the private sector, and value for money is a key consideration. Work is ongoing to update the initial value-for-money analysis that was undertaken in 2011 and which underpinned the impact assessment published alongside these clauses. To refine these financial figures, we have appointed external advisers to undertake a forensic examination of the GPSS costs and revenues, including any potential liabilities associated with the ongoing operation of the system. This work will inform a final decision on sale, which we aim to make by the end of this year.

I shall do my best to answer any concerns or questions that were asked. The noble Viscount, Lord Hanworth, and the noble Lord, Lord O’Neill, were concerned that the GPSS would be seen as a monopoly. The GPSS does not supply Heathrow, Gatwick and Manchester directly—this is done via third-party pipelines. The GPSS provides direct to Stansted, and the DECC and DfT have looked at regulation and concluded that none is required. The GPSS has to compete with other privately owned pipelines.

The noble Viscount was concerned at the foreign ownership issue. Any buyer would need to be deemed competent to operate the GPSS in a safe manner and to be a UK-registered company. We are considering what other criteria any purchaser would need to meet, including restrictions on foreign ownership, and the options for posing these restrictions before any onward sale.

The noble Viscount and the noble Lord, Lord O’Neill, asked whether there would be any regulation of the GPSS post-sale to protect customers. The DECC and DfT have reviewed the implications of the GPSS sale on the market, including access and charging, and concluded that, while it transports a significant proportion of fuel to major airports, existing regulatory provisions, particular under the Pipe-Lines Act 1962, are sufficient and no further regulation is required.

The noble Lord, Lord O’Neill, was concerned that the sale might adversely impact on safety and the environment. Any owner has an inherent interest in running the system safely and there is no reason to believe that the sale will adversely impact on safety. Indeed, the OPA already has to comply with a number of safety regimes such as the Health and Safety at Work Act 1974, the Control of Major Accident Hazards Regulations 1999, regulations under the Environmental Protection Act 1990 and the Pipelines Safety Regulations 1996, which are overseen by the Health and Safety Executive and the Environment Agency. This will not change.

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[Lord Roper]

My Lords, Amendment 50G is tabled in my name and that of my noble friend Lord Teverson. This amendment is parallel to some discussions that we had during our previous day in Committee when we were considering a nuclear regulatory organisation and taking up references in the report of your Lordships’ Delegated Powers and Regulatory Reform Committee. Two paragraphs of the report discussed the possibilities of modifying licences under Clause 127(1) and orders about domestic supply contracts in Clause 127(10).

As the noble Lord, Lord Whitty, has made clear, this gives power to the Secretary of State to intervene in an area that until now has been the responsibility of the regulator. The argument put forward by the department in the memorandum that it sent to the Delegated Powers Committee was that there was no need for any form of parliamentary scrutiny because all that we are giving the Secretary of State power to do is something that could already be done by Ofgem. That needs to be examined rather more carefully, which was also the view of the Delegated Powers Committee. This is the single instance in the Bill when the Secretary of State is given power to modify the licences without parliamentary scrutiny; in each of the other six cases, the negative procedure is indicated. We have already seen the discussions. This is an area of considerable public and political interest. Therefore, if the Secretary of State is to intervene and in some sense override the position of the regulator, it appears to the Delegated Powers Committee that he ought to be answerable to Parliament and that, as in other cases under powers conferred elsewhere in the Bill, it should require the draft negative procedure. As on the previous occasion, we have not seen the reply from the department to the Delegated Powers Committee so we would like an assurance from the Minister about how she is going to reply to the report.

Clause 127(10) is a very complicated power to make orders about domestic supply contracts. Similarly, it seems surprising that this order-making power is subject to no parliamentary control. Although paragraph 358 of the memorandum that the department submitted to the Delegated Powers Committee explained why the definitions could not appropriately be included in the Bill, it did not really explain why there is no provision for parliamentary scrutiny. This amendment is put forward by my noble friend and me in order to give the Minister an opportunity to explain what the reaction of the department to the report of the Delegated Powers Committee is likely to be.

I tabled a request for a debate on clause stand part before I had had a chance to see the amendments tabled by the noble Lord, Lord Whitty. In view of the long discussions that we have had on them and on the amendments tabled by my noble friend Lady Maddock and me, I have no intention of pursuing that debate. I beg to move.

[Lord Grantchester]

My Lords, Amendment 50G would require the Secretary of State to present proposals to Parliament before making any changes to the terms of licence conditions under powers in Clause 127. However, while the Secretary of State is obliged to consult suppliers and Ofgem as well as any other person he thinks relevant, he is not obliged to present the proposals to Parliament for scrutiny. The Delegated Powers and Regulatory Reform Committee questioned the appropriateness of this in its report on the Bill, and drew attention to Clause 127(10). It stated:

“As is candidly acknowledged in paragraph 358 of the memorandum, the distinction between discretionary and principal terms ‘is central to the function of the clause’. It therefore seems to us surprising that the order-making power is subject to no Parliamentary control, and that paragraph 358 -while explaining why full definitions could not appropriately be included in the Bill - does not explain why there is no provision for Parliamentary scrutiny”.

Why do the Government deem it necessary to consult the industry and Ofgem but not Parliament or consumers?

Throughout the Committee’s scrutiny of the Bill, several noble Lords have highlighted the extensive enabling powers given to the Secretary of State. This fifth report of the Delegated Powers and Regulatory Reform Committee is also highly critical, rather uniquely for that committee, in stating that there is little provision in many chapters in the Bill,

“that does not involve the delegation of legislative powers”.

We offer our support to this amendment in order to ensure that any such order is given appropriate scrutiny by Parliament by the negative resolution procedure, as recommended by your Lordships’ Delegated Powers and Regulatory Reform Committee.

[Baroness Verma]

My Lords, I am extremely grateful to my noble friend Lord Roper for raising the issue in Amendment 50G that would make the use of powers set out in this clause subject to annulment resulting from a resolution of either House. Noble Lords will be aware that the Delegated Powers and Regulatory Reform Committee has recommended that the power of modification conferred by Clause 127(1) and the order-making powers in Clause 127(10) should require the draft negative procedure. We are looking at these recommendations, along with the others made by the committee, and will respond to it in due course. I therefore hope that my noble friend will withdraw the amendment.