Energy Bill
Debate between Lord O'Neill of Clackmannan and Lord Roper
Lord O'Neill of Clackmannan
I remember the birth of the 1989 legislation. At that time, due to what were deemed to be the fundamentals of competition, generation was split from distribution in England and Wales. In Scotland, the companies were vertically integrated. Throughout the 1990s it became a kind of adventure playground for takeovers. We are where we are now in large measure because a number of interested foreign companies, usually American, took over the distribution companies; they subsequently sold them and they were picked up by various people at different times. So we have six players, which by and large are vertically integrated, as well as Centrica.
A lot of wise words are being spoken about competition but I am not sure if these amendments go far enough. As soon as a company becomes big enough to be a threat or to be of interest to the large players, the oligopolists of the present structure, they are gobbled up. We have seen this fairly recently with the takeover of Ecotricity, a very interesting, predominantly Irish company that engages in renewable generation. I am not sure that these amendments are going to make an awful lot of difference.
When we go further and look at the break-up of the vertically integrated companies, there is the likelihood of the two remaining companies being taken over by other foreign players that have money that they wish to expend in the United Kingdom. Therefore, I am very sceptical about how we are going to achieve anything meaningful in the way of competition.
We have at the moment six players—seven if you include First Utility, but that is rather special because it is exclusively in the retail market—and by and large they do the same as each other. They confuse the tariffs, introduce difficult pricing schemes that we do not always understand—
Lord Roper
Does the noble Lord agree that because First Utility is only a supplier, it considers itself at a serious disadvantage against those that are vertically integrated and therefore have some compensation from their activities in the supply and generating fields?
Lord O'Neill of Clackmannan
I could not agree more with the noble Lord. The point that I am trying to make is that, while First Utility has had very dramatic growth—I have spoken to some of its senior executives, who paint a very interesting picture—I am not quite sure what the life expectancy of the organisation would be if the main shareholders were given an offer that they could not refuse by one of the big six. I do not think that there is really anything in the competition legislation of the United Kingdom or within the powers of the Secretary of State to do anything about that. That is why I am a wee bit sceptical about us jumping up and down and waving our arms on this issue because somehow there is something intrinsically attractive in a new form of competition. I am not sure whether it will be any different from what we had post-1989 and defy the laws of economic or financial gravity that have been applying in the intervening period.
While I wish my colleagues well in promoting the amendment, I am not very optimistic. In five years’ time, we might well be debating the same issue and trying to secure a greater degree of competition because of the inexorability of the forces that have been at work. I am not overdramatising it or going into neo-Marxist stuff. I am merely making the point that the six main players, who are big and who are not always as nice as they appear, certainly like competition as it is and do not seem to want anything else, and I am not sure whether many of the ambitions of this Bill will actually change the status quo that much.
There are other options, which are not on the table, and I will not waste the Committee’s time discussing them this afternoon. However, we have to be perhaps a wee bit more realistic than we are. In the light of past experience, even if British companies did not want to take over some of these smaller successful players, I am sure that there would be international players, who would have a bit of financial elbow room. They might even come in to see how a competitive market works, as the Americans did in the 1990s—they thought they were going to have liberalised markets in the United States, as the Germans thought they might have liberalised markets. In fact, what they have is a market with a number of players, but each of them is a regional monopoly. Therefore, when we talk about competition, we have to be quite clear that Britain is the exception as a competitive and liberalised market, not the rule, as far as energy utilities world wide are concerned.
Energy Bill
Debate between Lord O'Neill of Clackmannan and Lord Roper
Lord O'Neill of Clackmannan
I have some sympathy with the remarks that have been made, which sets me at variance with my noble friend. When I was chairing the Trade and Industry Select Committee in the late 1990s, we went to Dounreay, which has been the subject of many investigations and problems. Had other colleagues been here, I am sure they would have be able to embellish this far more than I can. At Dounreay, there had quite clearly been a failure to scrutinise the safety arrangements on the part of what was then the Nuclear Installations Inspectorate. It is fair to say that that part of the inspectorate had pretty well gone native. Dounreay is in a very isolated part of the UK. You cannot go very much further north without getting wet. It is natural that everybody was living and working together, playing golf on the same golf courses, probably drinking in the same pubs and what have you. They came together.
An independent report had to be carried out. It was carried out and, as the Select Committee, we wanted to see it. We were told by the DTI Minister at the time, who I think was John Battle, that it would not be appropriate for a Select Committee to see it. The DTI was the sponsoring ministry. The Nuclear Installations Inspectorate was in those days, as it is now, sponsored by the equivalent of the DWP. It took the Secretary of State for Scotland, who had environmental responsibility for the area, to step in and say, “Publish and be damned”, so we got access to the report. In fact, it was not anything like as damning as people had anticipated, but it was essential that it was produced.
There is a danger in establishing this umbilical link between the sponsoring department and the functions. We have seen it in agriculture and food safety in the past. And we have taken strenuous steps to correct it, but there are still problems. In my experience, the nature of the nuclear industry is such that it is a secretive industry. It grew out of the production of weapons-grade material for nuclear weapons. While it is now under commercial control in a number of respects, it nevertheless still has a culture of understandable secrecy, partly because of what would be regarded as security but also because it is so damn dangerous. The truth is that because of the way in which in the industry is handled, the dangers are minimal.
The culture of the industry is determined not only by security but by safety. At times, there is a sense in which the industry is covering its own back as well as trying to protect people. That is natural. Even today nuclear installations are for the most part in relatively isolated, secluded areas. It is common knowledge that Sellafield was chosen during the war because it was most unlikely that German bombers would ever be able to find the place because it is shrouded in mist and it is likely to be raining all the time, hence the Lake District. In those days, it was just a weapons store.
The industry has a security culture and a culture that is understandably and correctly preoccupied with safety, but it is also at times unduly linked to matters of secrecy where safety can be jeopardised. In my limited experience, I confronted a situation where there had been regrettable failures at Dounreay, which have now been corrected. The report on that was nothing like as condemnatory as people thought it would be but there was reluctance to have it published. It took an independent agency, the Scottish Office, and the late Donald Dewar as Secretary of State—who made it quite clear that he saw no reason why we should not have access to it—for us to get the report. I remember that we got a faxed copy of it as we got off the plane in Caithness. The clerk had summarised it by the time we got to Dounreay and we were able to make use of it when we were questioning officials.
There is a danger in creating too close a link between the ministry and this function. It is important that we discuss it and have it aired but I would like to think that we do not go any further with it because there are too many examples of departments looking after their own too carefully. The ONR took a long time to come about. It should really have been in the previous Energy Bill but in those days the DWP and DECC were arm wrestling over it. It was a turf war. The compromise was that they would let it go as long as they had a control over it. The DWP conceded a bit and held a bit and we just have to accept that that is the way in which the matter was agreed. For the reasons I have given, it would be desirable for us to leave it to the DWP rather than having a sponsoring department that might take an overprotective view of what could be at stake here, which could be very serious.
Lord Roper
My Lords, when I heard the noble Lord, Lord Whitty, introduce this amendment I had a good deal of sympathy with it. It seemed strange that we should be losing contact with something of such importance but having heard the last three speeches, I see the strength of the points made by my noble friends Lord Jenkin and Lord Deben and by the noble Lord, Lord O’Neill. I hope that on this occasion the noble Lord, Lord Whitty, will think carefully about this amendment.