Lord Jenkin of Roding
Main Page: Lord Jenkin of Roding (Conservative - Life peer)Energy Bill [HL]
Lord Jenkin of Roding Excerpts
Lord Oxburgh
My Lords, I, too, have substantial sympathy with the amendment. Before one starts talking too much about juggernauts, it is worth placing on record that we had to have our domestic electricity meter changed a month ago. From the time the man who was doing the work came through the door to the time he left was about 12 minutes. It is a quick and easy operation, certainly so far as electricity meters are concerned.
However, an important point has been missed. By and large, the electricity companies have a poor understanding of their customers simply because they have no way of disaggregating their demand. With a better understanding of why, how and when loads peak in particular areas, which they do not have at the moment, a significant indirect benefit should be possible for consumers, which would be reflected in reduced electricity charges, because we may well be able to run the electricity system with a lower generating capacity than at present because of our limited understanding.
Lord Jenkin of Roding
My Lords, one matter which is not dealt with in the amendment—I do not know what my noble friend’s reaction to this will be—is the question of the training of the technicians whose job it will be to install the new smart meters. Some noble Lords may recollect that I pursued this issue over the past year or two with the previous Government. I was informed that the sector skills council which dealt with this—the Energy and Utility Sector Skills Council—had applied for the necessary financial support to enable it to lay out a training programme for smart meter installers, only to be told that that could not be done under the then system, which I hope is in the process of being changed. I raised the matter with the previous Government and the noble Lord, Lord Hunt of Kings Heath, who undertook to look seriously at it, and I have pursued it with other Ministers in the present Government.
Attention needs to be given to this matter because, as a number of speakers have said, if people are going to go into consumers’ houses it is important that they are properly trained to do the work. If eventually, as I have heard said, we are going to have combined gas and electricity meters—but perhaps not at the first stage—that will require a considerable new approach to training.
I have supported the smart meter programme from the beginning and have had some representations—not pressure; that would be the wrong word—made to me that it is a con trick in favour of electricity suppliers and distributors. I do not for one moment accept that argument. As speakers on all sides of the House have said, if it is properly handled and people are given all the information that they should have, which is very important, this could be of real value to consumers. The noble Lord, Lord Whitty, was wise to say that he did not really expect the Government at this stage to accept the amendment but, at some stage, something of this kind will be needed and I hope that it will cover the training of technicians as well as the other matters set out in the amendment.
Lord Grantchester
My Lords, it is clear that smart meters will play an important part in identifying energy usage to consumers and highlighting the impact of energy efficiency measures in the home. Consumer confidence in their operation is crucial.
The noble Baroness, Lady Northover, dealt comprehensively on Report with the intentions behind the amendments and gave a full account of the work her department was doing with the industry and in the discussions regarding a code of practice. It is important that the Government show leadership in this area. The House looks forward to receiving the noble Baroness’s department’s conclusions on this process, as there will clearly be a need for further work to develop the benefits and underline the importance of consumer engagement.
It is important that there is a strong programme on the management of the operation of smart meters, and we support my noble friend’s call that the department reports to Parliament on the measurement of the benefits they will bring to enable full accountability to take place.
Lord Jenkin of Roding
“(2A) In the application of section 157(2), for paragraph (b) substitute—
“(b) that the company is likely to be unable to pay its debts and that the directors of the company have consented on that basis to the making of the order; or”.”
Lord Jenkin of Roding
My Lords, I raised this issue in Grand Committee and briefly on Report when my noble friend Lady Northover was kind enough to say:
“I think the best way to take this forward is by consultation. If he would like to discuss the details with officials, we could see what, if anything, needs to be addressed”.—[Official Report, 2/3/11; col. 1163.]
With the help of her officials, I did just that. I had a very interesting telephone conversation and subsequently a paper from a very helpful lady, Dawn Armstrong, in the Department of Energy and Climate Change. Briefly, the issue concerns the power of the Government to put an energy supplier into special administration. It is built on extending the powers in Section 157(2) of the Energy Act 2004 as adapted and applied by Clause 93. Section 157 is headed “Powers of Court” and subsection (2) states:
“The court may make an energy administration order in relation to a company only if it is satisfied— (a) that the company is unable to pay its debts; (b)—
and these are the critical words that I am unhappy with—
“that it is likely to be unable to pay its debts”.
Then there is a third ground on which it might be appropriate to wind the company up in the public interest. The Insolvency Act, on which these words were originally based, included the words,
“likely to become unable to pay its debts”,
but in those circumstances it was only on an application by the directors of the company. Under Clause 93, it is a power of the Secretary of State, or of Ofgem with the consent of the Secretary of State, to apply to put a company into what is called special administration under this Act.
Ms Armstrong sent me an extremely helpful note, much of which I accept. For the benefit of what I hope will eventually be a debate in another place on this subject, I shall read part of it out. She wrote:
“Administration under the Insolvency Act 1986 is a business rescue procedure, with the survival of the company as its primary objective. If entry to administration were only available to a company that could not pay its debts at the date of commencement, the rescue of viable businesses might be jeopardised. For this reason, administration can also be entered when a company is likely to become unable to pay its debts. The clauses in the Energy Bill on special administration follow these principles. The energy supply company administrator’s primary objective is to rescue the company as a going concern. Therefore these provisions apply the same tests for insolvency as the Insolvency Act”.
She used the words “the same tests”. Yes, they are the same tests, but not by the same process. That is basis of the anxiety. I accept that there is a need for a process. There is no question about that. When you have a large energy supply company supplying millions of customers and it seems unlikely to meet its obligations, obviously the authorities must step in and do something about it.
The second point made in the paper, which I had perhaps not entirely appreciated, was that this applies only to supply companies and would not affect the generating part if it were in a separate company in the group. I am not sure that I wholly understand that because it is difficult to imagine a supply company unable to pay its debts if the company is otherwise solvent, but that point might need to be taken.
The third point made in the paper is that it is a court process and not just a peremptory decision made by the Secretary of State or by Ofgem. It is a decision to take the matter to the court and for the court to decide. I will return to that in a moment. My noble friend Lord Marland wrote to me on this matter. He wrote:
“Of course The Secretary of State and Ofgem would no doubt want to discuss any application for an energy supply company administration order with company directors in advance. And directors will be able to contest the application in court. However, enshrining a duty to consult directors in the legislation could lead to delay and it is important that the Secretary of State has the flexibility to act quickly”.
I think that my noble friend might have misunderstood the purport of my amendment. I should thus like to make four points about that, and no doubt my noble friend Lady Northover will be able to reply. First, in my discussion with her official, she made the point that she thought that very few of the energy suppliers were worried about this. Since then I have made inquiries and have been told that the energy suppliers are solidly behind this amendment. I have had letters from two or three of them to confirm that point. It is not true to suggest that this is somehow only a minority concern. The industry’s points of opposition to the special administration threshold—because that is what we are talking about—are vigorously maintained.
Secondly, the official’s note is a perfectly adequate summary of the principles of the special administration regime. It also properly acknowledges that this regime does not disapply the provisions of existing insolvency law. However, it does not seem to acknowledge that the test for putting an energy supply company into special administration is set at a very low threshold: that is, lower than the threshold at which Ofgem can revoke a company’s licence under the licensing provisions. If a licence is revoked, the practical effect is to put the company into special administration. It is certainly, in at least one crucial respect of its business, the inability of the directors to carry it on.
I made further inquiries about the licence. Is it different or does it cover broadly the same process? Ofgem can revoke an energy supplier’s licence on a number of grounds, including if the company has committed an offence while making its original application or if it has failed to comply with a final enforcement order in respect of a breach of a condition or something of that sort.
However, the ground that is relevant to this amendment is that which applies when the company is in financial difficulty. In that event, Ofgem can revoke the company’s licence if the company is unable to pay it debts. There is no permission or discretion to revoke the licence if the company is likely to be unable to pay its debts. Why is it necessary, therefore, to put this provision about,
“likely to be unable to pay its debts”,
into the administration procedure under this Bill when it does not exist under the licensing provision?
More than that, the licensing provision sets out clearly what the court needs to be satisfied with before it withdraws the licence. The company is not to be deemed to be unable to pay its debts unless at least one written demand by a creditor for a sum of more than £100,000 has remained unpaid for at least three weeks. Nor is the company to be deemed to be unable to pay its debts even if such a written demand is outstanding, provided that the company is contesting it in good faith and with due recourse to all appropriate legal process. That seems to be quite different from what we are being asked to legislate in Clause 93. This power of the Secretary of State to go to the court and apply for a special licence is questionable. The contrast between that power in the Bill and the power to revoke a licence seems very stark. In the power to revoke a licence, there is no reference to the company being unlikely to be able to pay its debts, and the definition of what constitutes an inability to pay its debts is detailed and specific. Neither of these applies to the provision in the Bill. That point was not made during the earlier debates.
The third point, which I did make, was that we have had practical experience of the use of the power to put a company into administration if it is deemed to be unlikely to pay its debts. That happened in the case of Railtrack. There was an accountant’s report, which was all that was necessary, to suggest that Railtrack was going to be unable to pay its debts, so off went the Government to the court, and we all know the history after that. This has been widely commented on. It was not, even at the time, entirely bona fide. A political objective was being sought. It is that kind of thing that is causing concern and uncertainty in the industry.
My last point is that my noble friend’s letter, which I referred to a moment ago, raises the idea that I am trying to enshrine a statutory duty to consult directors. He says it would cause delay. In the circumstances that we are considering, a week or two’s delay does not seem very important. However, my amendment does not impose a duty to consult. It says that the court can make a special administration order only if it is satisfied that the company is likely to be unable to pay its debts and that the directors of the company have accepted that to be case and have consented to the order on that basis. To put it bluntly, the directors will have their day in court and that is how it should be. This amendment provides the beginnings of a safeguard against the situation that Railtrack was put in whereby special administration was imposed on the company simply on the say-so of an accountant’s report.
I entirely accept, as I said a few moments ago, that the authorities need to have the power to help a company to carry on its business if it is in difficulties for the protection of both the business and its consumers and, as my noble friend said, to spill over into other companies. A rescue package might have to be mounted, but I contend that this must be done in a way that does not sow uncertainty and raise the risks for investors and their suppliers. My evidence that that is the fear that the industry has at the moment is strong. The amendment seeks to enshrine a safeguard in the Bill to avoid that. I beg to move.
Baroness Northover
My Lords, we are grateful to my noble friend for raising this important issue, which enables us to clarify further and to put the arrangements on the record. We understand that there might be concerns that the tests for insolvency set out in these provisions appear to be rather wide, but they are statutory tests for insolvency as set out in the Insolvency Act 1986. As my noble friend has indicated, it is also a matter of balancing the interests of the companies, consumers and the public interest.
Administration under the Insolvency Act 1986 is a business rescue procedure, with the survival of the company as its primary objective. If entry to administration were available only to a company that could not pay its debts at the date of commencement, the rescue of viable businesses might be jeopardised. For this reason, administration can also be entered when a company is likely to become unable to pay its debts, which was the focus of what my noble friend said.
The clauses on special administration in the Bill follow these principles. When seeking to bring an energy supply company administration to an end, the administrator’s primary objective will be to rescue the company as a going concern. Therefore, these provisions apply the same tests for insolvency as the Insolvency Act. My noble friend argued that the process is different. As he has already picked up, the Secretary of State and Ofgem will no doubt want to discuss with the company’s directors in advance any application for an energy supply company administration order. However, enshrining in the legislation a duty to consult directors could lead to delay. This is significant; the Secretary of State needs flexibility to act quickly if the company’s position poses a threat to the rest of the market. That is extremely important to remember in this case.
The amendment would require the court to apply a stricter test for insolvency when considering applications for energy supply company administration than it does for applications for ordinary administration. It is therefore conceivable that an application by the Secretary of State for an energy supply company administration order could be dismissed, while an application for ordinary administration by a creditor of the company could succeed. This could lead to the very situation that the provisions in the Bill are intended to address.
The fact that a court process is required provides an important safeguard for companies, as the directors of the company have the opportunity to contest the order in court. They will no doubt use the kind of material that my noble friend has just mentioned.
My noble friend mentioned Railtrack. In October 2001, the High Court granted a railway administration order in relation to Railtrack. When granting the administration order, Mr Justice Lightman said:
“This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential”.
If my noble friend would like, I can fill him in at another time on the reason for that judgment being made. The company was put into administration to ensure that the railway network continued to operate and was properly maintained and managed, and that it was done in the public interest.
I make it absolutely clear that it is intended that the Secretary of State would apply for an energy supply company administration order only as a last resort and to prevent the risk of financial failure spreading to other companies. It is important to balance duties to the public with the rights of the companies. Energy supply is vital to the public and to the economy. It is therefore very important that this matter is looked at in the context of the public interest. The balance must be right. What we have seen recently in the banking industry, for example, shows how important it is to be very careful in this area.
I hope, therefore, that I have sufficiently reassured my noble friend and that he will now withdraw his amendment.
Lord Jenkin of Roding
I am extremely grateful to my noble friend Lady Northover for the care with which she has replied to this amendment. I have no doubt whatever that the industry will wish to study very carefully what she has just said. I have entirely accepted the case, and I think the industry accepts the case, that there is a need for the authorities to intervene. Our problem is that that might happen when the companies’ assets and liabilities appear to be in balance but someone has thought it unlikely that they will be unable to pay their debts in the future. This seems to me and to others to be an uncertain test. It would behove the Government to try to find some alternative form of words that would allay the undoubted feeling of insecurity and unnecessary risk that the companies are running under the process of the Bill.
However, as I made clear last week to my noble friend Lord Marland, it is not my intention to divide the House on this amendment but to make sure that the arguments are on the record and can be referred to in another place if that appears to Members of another place to be appropriate. Having said that, I beg leave to withdraw the amendment.