Amendments of section 4AA of the Gas Act 1986

I beg to move amendment 35, in clause 16, page 13, line 12, after ‘them’, insert ‘and gas storage for them’.

With this it will be convenient to discuss amendment 33, in clause 16, page 13, line 18, leave out ‘or’ and insert ‘,’.

Amendment 34, in clause 16, page 13, line 19, after ‘pipes’, insert ‘or gas storage’.

New clause 20—Provision of gas storage facilities—

‘(1) The Secretary of State may by regulations set a minimum requirement for an amount of gas to be secured for use by—

(a) suppliers of gas to domestic and business customers, and

(b) gas-fired generators of electricity.

(2) The Secretary of State may by regulations establish the eligibility of suppliers and generators for inclusion in the requirement.’.

It is a pleasure to serve under your chairmanship again this morning, Mr. Bayley, as we continue to make good progress in our consideration of the Bill.

The amendments link in to new clause 20. We were not sure whether the new clause would be successfully accepted into the Bill. Therefore, we tabled the amendments as back-up. Our preferred means is to amend the Bill through the new clause, which we will consider towards the end of our proceedings. However, it is appropriate to talk about the amendments at this stage. With that in mind, I hope that the Minister will be able to respond positively to the proposed ideas. I recognise that amendments 35, 33 and 34 are slightly awkward in their phrasing, but that is because we tried to find a way to build our proposal into the Bill in the event that the new clause is not agreed to.

Over the last couple of weeks, we have seen great pressure on gas supplies. We have come through it, but this is the third time that we have faced the issue in five  years. It is now four and a bit years since I began this job. One of the first statements I heard from the then Minister for Energy, the right hon. Member for Croydon, North (Malcolm Wicks), was that we were awash with gas, and in a few hours he was explaining why we had almost run out. That was back in the early winter of 2006. We had a further problem last winter, when we were down to, perhaps, three days’ gas storage, and we have seen some pressure on it in the last couple of weeks. Clearly, we do not want to overestimate that. We do not want to pretend that there was a crisis when there was not, but we are right to be aware of the pressures and challenges that exist. It is also reasonable to point out that part of the reason there was not a crisis on this occasion is demand destruction. Demand for gas has been significantly down due to the recession—down by 5 per cent. across the board, and by 15 per cent. among industrial and commercial users. Therefore, had this been a normal economic cycle without the recession, the pressure on gas would have been significantly greater.

We have to look at the implications of that for the future. We have been helped in these last couple of weeks by the ability to bring back on stream every element of coal-fired generation in the country. That will not be the case in a few years. We will reach a situation where a third of our coal plant will be closed down by 2016 at the latest, as a result of the large combustion plant directive, and most of the rest of the coal will be out of commission as a result of the industrial emissions directive, if it goes through, as planned, by 2023. We face a situation where we simply no longer have the ability to call on coal as back-up. We expect new gas generation capacity in the generating mix. I would be interested to hear from the Minister how she views that. The Government’s low-carbon transition plan talks about the role of gas in the mix falling from 40 per cent. or more today, down to just 29 per cent. in 2020. There are very few people outside her Department who believe that those figures are realistic. At the same time Ministers talk about the huge amount— 20 GW—of planned potential new generating capacity, of which 60 per cent. is actually gas. If that were to happen, it is inconceivable that we could meet the Government’s target, so it would be useful to know where the Government really think we are going to end up in this process.

It is also important to note that, during this period of pressure, a considerable amount of electricity, much of it gas-generated, was exported to France. The interconnector with France has often been working at capacity, with up to 2 GW sent to France at a time when our own industrial users of gas have been asked to close down their factories for a period because of the pressure on gas supplies. There have been a number of interruptions. It is against that background that we need to do more to secure the gas storage facilities in the country. We clearly have many more diverse sources of supply than has been the case historically.

The LNG facilities have come on stream at South Hook and elsewhere, and that is an important contribution, which we do not in any way underestimate. However, the evidence is that an LNG facility does not mean that the gas can always be used, because the nature of such facilities is that the gas will often set off around the world without a destination in mind and then go to  the highest bidders. In the early days of the new LNG facilities, much the gas was going to America. That has reduced due to the extent to which shale gas has been found there, and much of the gas was going to Japan because of the problems that they were having with their nuclear fleet. Only after those changes did we end up with more gas coming into the LNG facilities in the UK. Although such facilities make an important contribution, they cannot alone guarantee our security of gas supply.

There have also been new pipelines; for example, the Langeled pipeline to Norway is an extraordinarily important element. However, in the recent cold spell, we saw that it could not work at capacity because of structural and technical problems, so we were not getting as much gas through it as we needed to replenish our stocks. As a consequence, we ended up with four balancing alerts in one week. Large business users were asked if they would mind closing down, and there was a contractual basis for that to be done so it was a voluntary arrangement. Nevertheless, big British companies were asked to stop producing and manufacturing to conserve gas because of the pressure on supplies.

The hon. Gentleman may want to reconsider what he has just said, which was that businesses had to stop manufacturing. If he checks, he will find that most companies with interruptible contracts have back-up supplies and alternative fuel. For most, that is the only way that they would sensibly have taken on an interruptible contract. One would not expect manufacturing to cease.

I certainly accept that some of the companies concerned will have had alternative sources of supply, but that, inevitably, will be another form of hydrocarbon and is not good for our carbon emissions. I realise that that is a different point but there are consequences of such balancing alerts.

As we look further ahead, we see clear warnings. Last week, Alistair Buchanan, the very constructive and sensible head of Ofgem, warned the Financial Times that Britain’s gas markets faced a “cliff edge” in 2015-16, which could cause supplies to run short in the latter part of the decade. He focused on the security of gas supplies from places such as Turkmenistan. The amount that could come through to Europe and to Britain could be as little as one tenth or one fifth of what we assume is there.

Again, I should put it on the record that we do not accept that analysis. In fact, the number of countries from which we now have the option of getting supply has dramatically increased. We do not expect reliance on Turkmenistan.

I was not suggesting that there would be “reliance on Turkmenistan”, but there has been a significant assumption concerning the billions of cubic meters of gas that will be forthcoming from there. Alistair Buchanan’s point, which we have to take seriously, is that due to structural problems, delays in pipelines and other issues, we may not get anything like the amount of gas being forecast to come from Turkmenistan.  An important aspect of the work that Ofgem is doing through Project Discovery is about looking at the potential sources of supply, identifying where the pinch points might be, and seeing how realistic the sources are and to what extent we can truly rely on them.

Last week the Energy Intensive Users Group and the Engineering Employers Federation wrote to the Financial Times to express concern

“at the complacent nature of some of the comments about the UK’s energy supply”, and about gas and gas storage in particular. We have a challenge; I do not put it more strongly that that. We have seen three challenges in the past few years and we have to do much more to ensure the security of gas supply coming into the country, which means that we have to look more at the availability of gas storage.

We are critically short of gas storage for different reasons. In France, they have about 120 days of gas storage, but they are overwhelmingly dependent on gas imports. In Germany they have 100 days of gas storage. In the United Kingdom we have perhaps 16 days of gas storage at best. I realise that historically the North sea has been our gas storage facility, but as the gas from the North sea has started to be depleted and as we have become net importers of gas with all the problems that involves, we have not seen the sort of increase in gas storage that we need.

Does the hon. Gentleman not accept that the climate of this country, other than in the past month, is usually such that we do not quite need the same storage facilities as other countries in mainland Europe? Would not the knock-on effect be that we would waste money in storage and he would complain to the Government about doing that as well?

That is an extremely valid point. The point I would make is that we know what we are losing in terms of generation capacity in the next few years. We know that we lose a third of our coal, and we cannot replace that with coal with CCS in that time scale because the technology is not there, even though it is clearly being developed. We know that we are starting to lose our nuclear fleet and that all, bar Sizewell B, are due to close by the early 2020s. Some may get life extension, but that would be a bonus rather than something that we can count on. We can see a huge amount of plant coming out of use, and that will have to be made up by something else in the short term. New nuclear in time may fill it up, but in the short term it will not be able to do it. Therefore if new gas plant is to be built and we move from having perhaps 40 per cent. of our generating mix powered by gas to potentially 60 per cent., which some of the Ofgem scenarios anticipate, then 80 per cent. of our gas will be imported. So it is nothing to do with our climate, it is to do with the mix of generating plant that we have.

The other aspect, and this goes to the heart of the amendment, is that we are not saying that this should be Government spending. We do not advocate Government-funded strategic storage. We are saying that the companies that will be using gas either to burn it for generation or to supply it to domestic households must find a way of having certain amounts of gas storage which would be  specified by the Secretary of State. This is a buffer. It is a security of supply issue that we think is important in a challenging and changing world.

My hon. Friend is making a powerful argument. Those people who would appreciate extra storage capability in the UK would be those 100 companies that were told on 7 January that they would have their supplies cut, even if only for a short period, because of the type of contract they had. They would very much like this extra storage as would much of Britain now.

My hon. Friend makes an important additional point which is the nature of some of the contracts. What we have seen in many other countries is long-term contracts, significantly backed by Government. If there is a major event of a contract between the German Government and the Qatari Government, Chancellor Merkel is there in Qatar to sign it. Here those tend to be signed off by the British high commissioner or the ambassador without necessarily having the same degree of top-level Government support for long-term contracts. That is an important element that has to be addressed there too.

I note the point about climate. Does my hon. Friend agree with me about the suggestion that for the next 30 years Britain will be cooler, not warmer? My real point is about the ability to buy gas on longer-term contractual arrangements. Is not that where the importance of storage comes in as well in terms of purchasing price on the open market?

I absolutely agree with my hon. Friend on his latter point, but after the Met Office promised a barbecue summer and a mild winter I will not get involved in a discussion about where the climate is going. If the Met Office can get the forecast quite so wrong, my ability to project it for 20 years is perhaps without any basis in fact. I agree with my hon. Friend about long-term contracts. One of the advantages of gas storage which they have in Germany is that they are able to replenish their gas supplies in the summer when prices are cheaper and can maintain supply in the winter. When we are running short of gas in the winter, we end up importing it and paying the spot price which is massively higher. It has been calculated that it costs consumers about £1 billion more than it needs to because of the inability to buy sufficient quantities at the lower summer price to sell during the winter.

Has the hon. Gentleman factored in the cost of building gas storage? It is phenomenally expensive, and it is therefore no good just comparing the price of the gas that one might buy in the summer with the situation today. For the record, we have the best of relations with the Qatari Government, and if our Prime Minister has not been there to sign a contract that does not mean that we do not feel secure in the contracts we have with them. Finally, the hon. Gentleman  has posed frightening scenarios of how we might run out of everything because everything is closing down, but what calculation has he made of the contribution of renewables?

I totally understand the importance of a good relationship with the Qatari Government, and I understand what is happening there.

On pricing, of course there is a price and I will come to that, but the crucial issue is that there is a price for gas security but an even greater price for insecurity. In the past few years, we have come close to running out of gas and having to say on a more substantial scale that people will have to switch off their businesses. At that point it is not a question of back-up, but of simply saying that there is no gas left. That did not happen this winter, but it nearly happened last winter and three or four years ago. In those circumstances, had we gone that bit further, we would have been in a situation in which companies around the world looking to invest in Britain would have said, “Look, this country pretends to be a first-world nation but can’t even maintain the gas supplies to its businesses.” Insecurity has a massive national economic cost, and that is why additional investment is required, along with greater focus and drive.

I am sure that the Minister, when she responds, will highlight some of the plans in the National Grid’s statements to bring some of that forward. Of the most imminent plans, two were supposed to be confirmed for definite towards the end of last year but have not been so far. A whole range of the plans have not even put in for planning consent at this stage, and one of them has been turned down by the Secretary of State but is still on the list as a potential plant. There is, therefore, enormous doubt and questionability in the system.

On the Minister’s final point about renewables, of course we would factor in renewables, but what we have learned from the past week or so is that there will be a greater need for back-up for renewables. During the particularly cold spell a couple of weeks ago, the contribution of renewables to our electricity generation was low, at one fifth of 1 per cent., because the United Kingdom was in an area of sustained high pressure and the wind was blowing almost nowhere. Therefore, as we increase the extent of renewables in the mix—we share the Minister’s commitment to that—there has to be either battery power, pumped storage and hydrogen facilities to move the wind-generated power from where it is generated to where it is needed, or enormous back-up capability, which will still almost certainly be hydrocarbons and gas. The growth of renewables may create a greater requirement for gas—for a plant to be used not 24 hours a day but at times when demand is greatest, such as on those cold January days when the wind is not blowing and we have to keep the lights on.

Has the hon. Gentleman factored into his argument the difference between how the market works on the European mainland and in the UK? When the Business and Enterprise Committee, on which my friend the hon. Member for Northampton, South also served, looked at that issue, we were concerned that because the European market was not as liberalised as the UK one it was not reacting to market signals, in that when gas was expensive in the UK, gas was not  coming in from elsewhere in Europe. How will the hon. Gentleman’s amendment deal with that problem, given that he has mentioned the greater storage in continental Europe?

The hon. Gentleman brings us to an extremely important and relevant point. In January last year, when we were approaching our coldest winter for 18 years—as it was then—and were about to face a dispute between Russia and Ukraine and massive pressures on gas supplies elsewhere in Europe, particularly in central Europe, we were exporting 25 million cubic metres of gas a day though one of the interconnectors and importing 26 million cubic metres through the adjacent one. It may be hard to imagine that amount; it is the equivalent of 250 Albert halls’ worth of gas being pumped out of the United Kingdom every day, at a time when we were facing particular pressure. Because of the pricing structure in the market, gas was being pumped into the United Kingdom from Norway or through LNG facilities and then being pumped straight out again. The gas was not coming to serve UK consumers, but was simply being transited through.

One issue we have to address is when to trigger a stop on exports, as happens in France and other countries. When gas supplies fall below a certain point, they ask whether a stop should be triggered. Last year, we were down to three days’ gas supply in storage, yet that measure was still not triggered in the United Kingdom. That issue is not addressed in the amendment, but the hon. Gentleman is absolutely right that it should be focused on. The market was working perfectly, the molecules were following the money, but our gas security was put at risk. We do not believe that Governments can be neutral in such situations.

The purpose of the amendment and the new clause is for Government to take a more active role in how to secure more gas storage in Britain. They cannot be neutral about it. Some welcome and important changes were made in the last Energy Act, in 2008. We think that Government have to go a stage beyond that and say to people, “If you are a gas user, in terms of generation capacity, or a supplier of gas to domestic consumers, you need to be able to satisfy Ministers that you have access to sufficient storage during the winter. That could be that you run your own storage facility, own it, put the gas in it and know it is there for you. It could be that you contract somebody else to do that work on your behalf but, again, you have a contractual arrangement. Or it could be that there is a long-term contractual arrangement with a supplier who is robust and where there is no doubt about the security of those issues.” We think that sort of change is necessary to ensure we have the security of supply and the storage that we need to build.

There have been some changes but Lord Hunt, the Minister who speaks in the Lords, has said that, if all that is planned to be built in the next couple of years comes through, it will lead to just five hours’ more gas storage in the country. As we increasingly depend on imports, which have to come from a wider range of countries around the world, our view is that that is not adequate; more is required. We would like to use the Bill as an opportunity to give the Government the powers to make that happen.

It is a pleasure to work under your tutelage again, Mr. Bayley. I wish to echo some of the  points that have been made. One of the differences between the system in the UK and that in France and Germany is the absence of legislation. There is no legislation to ensure that we have the right levels of capacity. As my hon. Friend pointed out, our storage was the North sea. Since 2004, we have been a net importer of gas. An interesting fact concerning the last cold spell is that coal overtook gas as the major contributor of natural resources towards our power requirement. Although we are working to clean up coal—and this part of the Bill will get us there—we are a long way from ensuring that coal can take its correct place as part of the required energy mix. Until then, we rely on gas. I do not think the Minister should shy away from the importance of gas storage.

The issues about the cost of storage are relevant and how that is paid for is also important. That is where a timetable would make sense: for us to plan ahead to make sure that we have increasing storage capability, eventually to match that of our French and German counterparts. We are seeing changes in the gas scene and, with the development of the Nabucco and Langeled pipelines, important new assets are coming on to the market. The problem is that we are not able to buy gas when it is cheap and then use it, rather than buy it when it is expensive. That is the importance of energy security; to ensure that we are not again in the situation of having to tell companies, “Your gas supply will be turned off and you are going to have to use your back-up systems.” That is not good for the economy.

To reduce the risk, we cannot have an over-dependency on one area or resource, and we need to be able to identify and react to potential shifts in global energy requirements. That means recognising where the gas comes from and what would happen if those taps were tweaked or turned off. We have had illustrations of that in Russia and the consequent repercussions right across Europe. It is all very well saying that we can get our gas from Qatar, Norway or Russia, but if there is a sudden change in the dynamics and a dearth of gas across Europe, all countries will be looking after themselves and we are last in the queue—we are at the end of the stream. Ensuring that we can weather a storm in which there is a shortage of gas is therefore critical.

I echo my hon. Friend’s opening remarks and ask the Minister seriously to consider the amendments. We must change the amount of time we have to provide gas to our customers, particularly as all the gas stations will remain online until 2030 and all the other stations, whether they be nuclear or coal, will have expired by then. Gas is very much part of our energy mix. In fact, it is currently the senior part and will remain so for many years to come. That is why the amendments are important.

This is something of a reprise of a debate that we had on the Floor of the House last week during the Conservative Opposition’s Supply day. I am not going to go over all that ground again, although it is important that we debate the issue in Committee. I believe that new clause 20 has significantly more merit than the amendments. The new clause proposes that there should be a minimum requirement for an amount of gas to be secured for use both by suppliers of gas to domestic and business customers and by gas-fired generators. However, it begs the question: how does one  define “secured”? We can secure gas both by supply in this country and by contract for supply from outside. Although the new clause is entitled “Provision of gas storage facilities”, I am not sure that it does exactly what it says on the can.

When we table Opposition amendments the first time around, we usually do it to see what the technical objections and substantive arguments are. There is an argument for a new clause—I would be happy to work with others before Report on this—that imposes an obligation on the Secretary of State to require suppliers to either have or plan for enough storage in the UK. The substantive argument that we could face significant problems down the track is valid, because of the declining natural supply of gas from the North sea. It will last a long time and will not go away, and we are still going to use it and it is important, but we have to take account of the fact that it is in decline.

I want to make a substantive point about the way in which the amendments would work. We will have the clause 16 stand part debate shortly. It is not a significant clause, because the obligations that it puts on Ofgem are more window-dressing than substance. Moreover, the amendments are not significant either. They seek to add the words “gas storage”, but clause 16 already proposes that Ofgem should have a new duty and states:

“Those interests of existing and future consumers are their interests taken as a whole, including—

(a) their interests in the reduction of gas-supply emissions of targeted greenhouse gases; and—” this is the important one—

“(b) their interests in the security of the supply of gas to them.”

That encompasses what the hon. Member for Wealden is arguing for without the need for an amendment. We will hear what the Minister has to say, but I anticipate that that will be her response.

My second point follows from last Wednesday’s debate. I was quite assertive, or aggressive, to the hon. Member for Tunbridge Wells (Greg Clark) because I believe that the argument he made to the press on the issue—a perfectly proper issue to raise in the press—was phrased to suggest an imminent risk of people losing their supplier. The Conservative press release was headed:

“Only eight days worth of gas left in storage”.

In it, the hon. Member for Tunbridge Wells said:

“When will the Government understand we need more storage capacity and the ability to get gas to consumers so nobody has to face the possibility of going without gas during cold snaps like this one?”

The intention must have been to cause concern or alarm and it certainly had that effect, as I reported to the House last week. It was a bit mischievous, to put it gently, to pray in aid the estimable Alistair Buchanan—we will no doubt discuss him later, in the context of other Ofgem responsibilities—because, as reported in the Financial Times, his concern about the “cliff edge”, and those were his words, was about 2015-16, not about now. Nothing I have read from Ofgem this month about the cold spell and our supplies in December and January has suggested that there is a threat to our security—nothing.

I am grateful to the hon. Gentleman for giving way, although I think that he is making a bit of a meal of the issue and digressing a bit from the Bill. Temperatures dropped hugely to minus 22°. It was an unprecedented cold snap, which necessitated an increase in gas requirements of more than 28 per cent. The first step, the first port of call that gas companies have to take is to limit the supply to those with interruptible contracts, which suggests that we are heading towards running out of gas. Gas companies would not do that if they did not think that they had to start taking precautions. The precautions they took were enough to guarantee domestic supply for those who obviously need it to weather the worst of the weather. I urge the hon. Gentleman to proceed with caution, because I think he is being a bit mischievous. The remarks were made simply to underline the fact that we need more storage in this country, which I think has now been accepted by the Government.

The arguments from objective commentators—not from politicians—were about the issues for the UK in 2015-16 and beyond. I do not think that the hon. Gentleman would find any objective commentator—National Grid, Ofgem or others—who in the last month said that we were at risk of not having sufficient gas supply for the UK need.

It was a first step—a precaution.

But the burden of the Conservative song over recent weeks has been to suggest that we are running out of gas. That was the implication. Of course, using up some of the gas storage means that there is less storage, but as the hon. Member for Wealden has fairly put it today, we have significant connections through the recently established interconnectors with Norway and the Netherlands. Norway is the most significant contributor. The interconnectors have worked almost without interruption since they were set up. There was one technical hitch in the supply from Norway—that is correct—but we have liquefied petroleum gas supplies coming into Milford Haven and the Isle of Grain, which we did not have 10 years ago. We also have our indigenous supplies from the North sea. The hon. Member for Wealden is right to say that when demand is greater—we had record demand—we turn to alternative suppliers such as the coal industry.

Order. May I remind all members of the Committee that we are debating whether the law should be changed to make further provision for the storage of gas, rather than debating comments made by Members in the last week or so? I hope we will focus on the content of the amendment.

I am happy to do so. I was arguably distracted by the hon. Member for Bournemouth, East.

The hon. Gentleman referred to the quote I attributed to Alistair Buchanan in the Financial Times. I specifically referred to 2015-16. If we can see a pressure point now, five years out, does it not make sense for us to react to it now and put the gas storage in place so that if there is a pressure point within that time  scale we have taken steps well in advance to prepare for it? I did not use the quote to suggest that it related to the problems of the last week or so, but simply to say that it enhances the case for taking sensible preparatory steps at this point.

The hon. Gentleman knows that I agree with that proposition. I have never dissented from the fact that we need proper long-term planning for our energy security. It is hugely important. As it happens, the UK is relatively well placed, as is Europe. The hon. Gentleman will have read that the International Energy Agency think-tank made an announcement this month, repeating its assessment that the “gas glut” was likely to grow up to 2015. It then said:

“Europe is geographically well placed to secure gas supplies from a variety of external sources.”

The reality is that because of our indigenous supplies, our connections already in place, our contracts in place, our new use of liquid petroleum gas and our plans for the future, we are well placed. But, yes, we need to plan to make sure that we have security.

I hope we will realise that no alarm bell was sounded by Ofgem or by National Grid over the last few weeks. The companies that had their supplies interrupted because they had an interruptible contract, which meant that they knew the risk, had, as the Minister of State suggested, alternative supplies available. They planned against the knowledge that they might have a reduction in contract. No domestic supplies were curtailed and therefore we got through a very difficult period relatively comfortably.

We may have more difficult winter periods in the next few days if today’s forecast was accurate. Weather forecasts are less believed nowadays. The hon. Member for Wealden is on the right track with a variant of new clause 20 as the way forward. I do not think that we need to tinker with clause 16 in the way that is suggested because that point is covered if it needs to be covered. No doubt we will hear the Minister’s response to all these things any second now.

I want to make a few brief points. I have a lot of sympathy with what the hon. Member for Wealden is trying to do with new clause 20, although I am not sure that it will achieve what he sets out to do. He talks about a minimum requirement for the amount of gas to be secured. He does not say that it has to be by storage. I am sure that many will argue that the long-term contracts in place for LPG and others are securing the supply. He mentioned the contract that Germany had entered into with Qatar as part of its energy security.

There are a lot of problems. I mentioned in an intervention my concerns about the way the interconnector works and the difference between the liberal market in the UK and the less liberal market on the continent. That is an important point. Continental energy systems work very differently from ours. If we are to have new gas storage and security of supply for consumers in the UK we will have to go an awful lot further and look at re-jigging the UK market completely so that we could prevent the export of gas from the UK, a point to which the hon. Gentleman alluded.

The whole point of the interconnector is that it is supposed to react to market signals. It should be bringing gas from the continent to the UK to enhance our security when the price is high and there is demand for  gas. That is simply not happening to a significant degree at the moment because of the way the market works on the continent. If we are to do as the proposal suggests, it seems to me that we have to work with our European partners to change the market on the continent to a more liberal one, or make the UK market less liberal, to ensure that we do not have that problem, which is exacerbated by most of our energy companies now being offshoots of the large European energy companies. Some would argue that they have a feeling for their home market more than indigenous companies might.

To build new storage capacity would place an enormous cost on the energy companies, which would inevitably be passed on to the consumer. They have been piling cost upon cost on to the consumer and will reach a limit at which the consumer will rebel. That has to be borne in mind. I have sympathy with the hon. Gentleman’s cause, but I am not convinced that the proposal will achieve what he is setting out to do.

As always, Mr. Bayley, it is a pleasure to serve under your direction. I will try to deal with a couple of the issues raised before I make my main pitch regarding the amendments and the new clause.

The hon. Members for Angus and for North Southwark and Bermondsey both made measured speeches in response to the amendments, illustrating some of the complexity in trying to determine whether we have sufficient and safe supplies of gas. The Conservative party has tried to raise alarm over those issues, quite wrongly in our view. The facts do not bear out the arguments that the Conservatives have been making.

The hon. Member for Bournemouth, East said that interruptible contracts were not good for the economy. It is obviously the view of companies who voluntarily take interruptible contracts—nobody is forcing them to do so—that it is good economics. If a company gets as much as 10 per cent. off energy bills for a decade, one interruption probably makes very good financial sense. That is the situation in which they find themselves. There were, of course, no forced cut-offs but only contractual arrangements, freely entered into and undertaken according to the clear financial preferences of the companies involved. There was never a threat to domestic consumers and no one external to Government ever suggested that was the case during that period. I stress that alarm was raised completely wrongly in our view.

The hon. Gentleman also raised the question of Russian gas and, of course, the UK takes virtually no—or very little—Russian gas.

The Minister is right that we take very little—about 3 per cent. of Russian gas ends up here—but I am trying to illustrate that Europe is very much one village and relies heavily on Russian gas. If the taps are turned off, it will affect the price of gas and its distribution, and that will have repercussions. I do not know how severe they might be, but there would certainly be repercussions on the gas supply to the UK. If the Minister denies that, I do not think she is taking the matter as seriously as she should.

The second point the Minister raised was about interruptible contracts. They are a reflection of the system that developed in the UK, with the North sea oil  supply acting as our huge reserve. Times have now moved on and we do not have the storage capacity of France or Germany. Rather than look back and keep contemplating what happened in the last cold snap, we are saying that we should use the Bill as a vehicle to improve our storage capability by 2015, when the situation may get worse. Let us be prepared for that longer cold snap because, had the last one been two or three more days, the businesses that grabbed contracts because they were cheaper would have suffered because they would not have been able to keep their alternative power supplies going.

The only business that I saw on record clearly said that it had two weeks’ supply of alternative fuel and did not in any sense feel at risk. When I come to my major points, I think that the hon. Gentleman will see that he is looking to one single solution and that the market is much more complex. There are many solutions to the gas supply problem, which I hope to describe in a moment.

The Conservatives have also made much of their statement that there were only eight days’ gas left. There has been a failure to understand what gas storage means. Saying that there are only eight days’ gas left implies that no other gas was coming into the country. [Interruption.] But that is the implication, that there is eight days’ gas left. [Interruption.] No, if the lay person on the street was told eight days’ gas was left they would believe that all gas supplies would run out in eight days. That is a common-sense interpretation. Those who, sophisticatedly of course, know much better should not put out simplistic statements that clearly lead the lay person to believe that they would have only eight days’ gas left.

If the Minister goes back and looks at the press release at the time, she will see that it was made absolutely clear that that was not the case. Therefore the statement that we put out, which was a beacon of clarity, did not say that. Others may have interpreted it, or it may suit the Minister to interpret it, in that way, but that is not what we said at the time.

Order. Before the Minister continues may I give some guidance to the Committee? I think that we have probably heard enough about whether the press statement of a week or two ago was alarmist. It is, of course, relevant to debate whether there are sufficient gas reserves. That is what the amendment is about, and I hope that the Committee will focus on that from now on.

Thank you, Mr. Bayley, for that guidance. I think that you, I and the hon. Gentleman all know that in politics it is the headline that matters and not the content of the press release.

Will the Minister give way?

Let me just describe the facts and I will then happily give way. During the difficult period—the cold snap—overall storage was about two-thirds full and, had the cold weather gone on, that would have  enabled a contribution at the level that was being made from gas storage to continue for over seven weeks. The gas storage facility does not have to replace all the gas being used because gas is still flowing from everywhere. The storage makes a contribution, which at that level would have been able to continue for seven weeks. The reality, for the record, is that that is what we have in the most extreme circumstances that we have faced in a long time.

Putting it simplistically for the man in the street—as the hon. Lady said—surely we should be asking, “Do we have less gas storage than other countries? If we do, do we have sufficient or should we have more?” To ensure that we have more, the change should be made to the Bill.

I am sorry to tell the hon. Lady that she is entirely wrong. That is not the question. When I come to my main contribution, I hope that she will understand the points I make then.

The Government have intimated on a number of occasions that we need more gas storage. Is the Minister now arguing otherwise? She sounds complacent about the issue, but perhaps she will tell me that we shall move on to talk about the need for more gas storage. If so, I am happy with her remarks in that respect.

I can assure the hon. Gentleman that I will come on to talk about more gas storage, but it is so important to understand that the point raised by the hon. Member for St. Albans is clearly about how adequate our supply of gas is, which is not the same as saying, “How adequate is our storage of gas?” Those are not the same thing, and I seek to make that point.

Let me say again how extreme the situation was. The previous record demand was in 2003 and was for 449 million cubic metres per day. On 7 January this year it was 454 million cubic metres per day and on 8 January it was 468 million cubic metres per day. We were dealing with unprecedented demand over those few days. What we have to ask ourselves, and what the person in the street wants to know, is, given unprecedented demand in unprecedented cold weather, did our gas supply stand up to the test? It did.

Amendments 33 to 35 and new clause 20 all relate to the debate that we have just had on gas storage. I must acknowledge that the hon. Member for Wealden has clearly said that the preference is for accepting new clause 20 rather than the amendments, but, for the record, I shall speak to the amendments. They expand clause 16 to make it explicit that when Ofgem is carrying out its principal objective of protecting consumer interests, those interests include the need for gas storage. The clarifications to Ofgem’s principal objective that clause 16 will implement will, without amendment, put beyond doubt that the interests of consumers include ensuring secure gas supplies. That is the point that the hon. Member for North Southwark and Bermondsey made.

I agree with the hon. Member for Wealden that gas storage is an important element of security of gas supply, but it is just one element. What is really important to consumers and businesses is that Britain has secure gas supplies, and that can be achieved in a number of  ways, not just through gas storage. Clause 16 will comprehensively cover those interests, whereas the amendments focus on just one element. Gas storage is specifically encompassed by the phrase

“commercial activities connected with, the...supply of gas” in new subsection (1B) in clause 16(3). Amendments 33 to 35 are, therefore, superfluous.

The aim of new clause 20 is to allow the Secretary of State to set a minimum requirement for an amount of gas to be secured for use by the suppliers of domestic and business customers and gas-fired power generators. It would also allow the Secretary of State to specify which customers and/or generators would benefit from that secure supply. I do not believe that the power is necessary.

The UK’s market arrangements have been tested rigorously during the recent cold weather. The market delivered secure supplies even though demand for gas reached record highs at the same time as four major losses of supply from Norwegian fields due to technical difficulties.

Does the Minister accept that the thinking driving the amendments and the new clause is not problems of the past week or so but the challenges of the future? If 80 per cent. of our gas is going to be imported by 2020, that fundamentally changes the need for gas storage in this country. The proposals are about driving forward that necessary change, so it is wrong to tie them to the recent challenges.

The hon. Gentleman makes his point but the unprecedented weather and demand is extremely relevant. Did the market prove effective in those circumstances? It did. He said that 80 per cent. of our gas is predicted to be imported by 2020. The Government are taking steps towards, and industry is responding well to, more indigenous gas production. We cannot take that figure as absolute, because more gas fields are being exploited and there is more reserve than perhaps people anticipated. It may become more and more worth while to get gas out of the sea.

We have seen the market in action. National Grid issued four gas balancing alerts—

The Minister just said that we have seen the market in action, yet she has not given us any indication of how much more money we have to pay to maintain the supplies. She said that gas storage is very expensive, but there was no understanding in that statement of the difference between the cost of gas storage and the amount that we might save if we were able to buy in the longer term. Before making that statement, the Minister clearly had an understanding of that difference. What is it?

The hon. Gentleman would not expect me to have those figures at my fingertips. I make the point again that to build gas storage is enormously expensive. We are therefore both right to say that, if the argument changes and gas storage becomes the best way forward and the other things that I will address are considered to be less effective, the comparison has to be made. I remind him that the unprecedented demand that we have recently seen is a once-in-a-decade demand.  There is therefore a major issue as to how much money should be invested in gas storage to deal with an unusual situation where, as I will go on to maintain, the market responded. It has been argued that people may have paid more money, but that is not certain.

The comparison needs to be made. I do not have the figures at my fingertips, but our officials have looked into the issue and our argument is that gas storage alone is not the answer to everything. It will be part of the answer, but we will resist the new clause because we do not think that it is the way forward.

I have lots of memories of snow during my childhood. Would my hon. Friend care to note that, while it may be unusual in this decade, I remember house supplies being cut off on the Conservative party’s watch after it decided to close down the pits?

We are all very grateful to my hon. Friend for that intervention. I am sure that Mr. Bayley does not wish me to wax lyrical about the days of the three-day week, but many of us will remember them and we do not wish to learn lessons from some members of the Committee.

I must press the Minister further. I remind her of the winter of discontent, but let us not go there. [Interruption.]

Order. I am not going to have a winter of discontent. We are not debating the degree to which gas was the cause of the three-day week, but whether this country needs to legislate for more gas storage. The Minister was explaining her case.

May I press the Minister on the price issue? She made a fair argument about the relationship between the cost of the storage and the price of gas. In order to make that statement, the Minister must have an idea of the relative prices. I understand that she does not have them at her fingertips, but would she be kind enough—she intimated that officials have done work on this—to write to us with those figures? They are an important factor in her argument.

I am more than happy to do whatever I can to help the hon. Gentleman. However, I ask him from a common-sense point of view to realise that the proposal is for an obligation to build gas storage, no matter what the price, for the whole year round, even in years in which none of the events under discussion might ever occur. Given that such events only rarely occur, that huge investment would be dead money for most of the year.

Will the Minister give way?

I will give way, but we might need to make a little progress.

It was on a point of clarification. The new clause does not say “build gas storage”, although some of us would like eventually to wander down that route. It encourages the Secretary of State to ensure that there is a minimum requirement. That could still be achieved by gas companies owning a rig or a natural  refinery, or by venturing into other agreements with organisations to ensure a guarantee of supply and avoiding the need to have gas storage here in the UK. That is why it was written in this way.

Perhaps the hon. Gentleman would like to invite his Front-Bench spokesman to provide greater clarity on this point.

It is in the new clause.

Yes, but I heard the speech as well. My understanding, and I stand to be corrected and I would welcome an intervention, is that we are talking about gas storage facilities—

It was drafted specifically in this way

Let me seek clarification from the hon. Gentleman’s Front-Bench spokesman. If we are talking about market mechanisms we are talking about something quite different. We have market mechanisms and it is very difficult to understand how one would place an obligation on a company to enter into a market mechanism.

I hope I can provide that clarification. The new clause talks about an amount of gas to be secured. I said in my opening comments that that could be a company owning and running its own storage facility. It could involve its contracting the storage out to another organisation, or it could be done through long-term contractual arrangements where those were seen to be sufficiently robust. There are energy companies in this country that are looking to buy their own gas fields internationally, so they know they will always have that available and could use the existing pipeline structure to provide that. That should be taken into account in handling. It is not purely storage in the United Kingdom; it is allowing the Secretary of State to say, “We want access to be provided by a number of means”, but to be satisfied that they are in place.

I am grateful to the hon. Gentleman for his clarification. I think he weakens his case and makes the difficulties for companies even greater. It would be extraordinarily difficult for the Secretary of State to make such a requirement of companies, which would then appear to be interfering entirely in commercial contractual arrangements. That would be incredibly difficult. We have to deal with the fact that it can be physical storage and look at that issue. Perhaps the hon. Gentleman will reflect further on what he actually means by suggesting that the Secretary of State could impose on companies the need to enter into particular types of contract. Who would police that? Who would decide whether their long-term contract was sufficiently long term or secure, and so on? This is very difficult territory.

Let me return to my overall argument about the nature of the existing market and why we have confidence in that. I was about to say that National Grid issued four gas balancing alerts earlier this month signalling  that it needed the market to bring forward more gas in response to the record demand. The market did exactly that. This serves to demonstrate the robustness of the regulatory framework we already have in place, within which the market delivers secure gas supplies. This includes sharp financial incentives to ensure gas shippers provide sufficient gas to meet customer demand; clear market information; and price flexibility.

The current gas market arrangements have attracted unprecedented investment in the UK gas import capacity over the last decade, leading to a fivefold expansion. This is my first significant point, to which the Opposition have not given sufficient weight. I know the hon. Member for Wealden mentioned it, but we now have oversized import capacity that is equivalent to 125 per cent. of the UK’s current gas demand—about 100 billion cubic metres. That new capacity includes the Langeled pipeline, the Tampen Link offshore pipeline linking the UK and Norway, the Balgzand Bacton pipeline between the UK and the Netherlands that has been built and upgraded, the interconnector between the UK and Belgium that has also been upgraded, the major new LNG facility at Milford Haven and the expansion of the Isle of Grain LNG import terminal.

We have not needed as much gas storage capacity as other EU member states. In addition to our significant import capacity, we have had and continue to have supply-level flexibility on our doorstep. The North sea fields still meet some 50 per cent. of our gas demand on an average winter’s day, and even during this period of high demand they have produced about a third of the country’s supply.

We do, however, recognise that as the indigenous gas supplies decline we need to have robust arrangements in place to ensure continued energy security. Part of our response is our commitment to diverse energy supplies, by increasing our level of renewables, encouraging new nuclear build and supporting the development of cleaner fossil fuels, alongside our commitment to improving energy efficiency. Nevertheless, gas will continue to be an integral part of our energy mix, and we are taking steps to address the risks associated with falling UK output.

We have taken action to maximise the remaining indigenous resources by providing new tax allowances to support the development of particularly challenging oil and gas fields, and by setting up a new taskforce to explore the development options for gas infrastructure west of Shetland. We have also encouraged more gas storage projects to come forward. We reformed the planning regime, which is widely believed to have been one of the most significant obstacles to new storage projects being completed, or completed on time. In Budget 2009 we confirmed that bought-in cushion gas was eligible for tax relief, and that should benefit some storage projects. New projects are coming forward, such as the Aldbrough facility in East Yorkshire, which started commercial operation last summer. We also recently approved a project in the Irish sea, which would add new capacity equal to approximately 30 per cent. of current UK storage capacity. In total, there are 22 gas storage projects at various stages of development in the UK, which, if they all came forward, would provide sufficient storage capacity to meet some 20 per cent. of current demand by 2020.

The recent cold weather has tested our capabilities to the limit, and those capabilities have responded.

What does the 20 per cent. mean in terms of days added to our existing 14 or 15 days’ storage? What are the projection and the time frame?

I am being offered advice, which I am trying to understand. I will check, and give the hon. Gentleman a precise answer. I think we both understand what 20 per cent. means—it is one fifth—but I want to be sure about how we express it. There is constant mention of number of days and, as I have tried to make clear, if we simply took a number of days, it would mean that that was equivalent to all the gas supply we could conceivably need. We do not draw on storage to replace all gas supply but to contribute to it, so the number of days can be expressed but the figure is not entirely meaningful. The hon. Gentleman should therefore beware of asking for information that does not add greater clarity.

It is relevant to the ability to purchase gas at the best possible price.

On that point I have no dispute with the hon. Gentleman—I agree with him. We expect a fourfold increase in our gas storage capacity.

Is the point the hon. Gentleman is making, which might give a wrong impression, similar to saying there is five days’ supply of fresh milk in the shops? That might make people think we were going to run out of fresh milk in five days.

My hon. Friend is correct. There is a difference between the understanding that we have in the Committee, and what the person in the street might think if it was suggested that milk or gas could run out.

Oh no, a milk crisis as well!

Yes, we are getting into very difficult headlines.

I am trying to make it clear to the Committee that the actions we have taken to increase import capacity have delivered and the actions we have taken to increase gas storage capacity are already having an impact. The introduction of the kind of requirement envisaged by the new clause would be very likely to have a detrimental impact on the flexibility of the British market and to increase costs to consumers. That would particularly be so if the new clause required a certain level of gas to be secured, irrespective of costs or market conditions. That is why I made the point to the hon. Member for Northampton, South that the proposal prompts the question, would the obligation exist regardless of the cost and the impact on the market and consumers?

Guaranteed stores of gas would weaken the incentive for gas shippers to respond to market signals. There would be less drive to reduce gas consumption when demand was high and power generation switches from gas to other fuels, such as coal. That facility is an  important strength of the British gas market, which other European gas markets do not have, and it leads to lower gas prices overall.

If the powers set out in the new clause were used to impose an obligation on gas shippers, they would effectively require them to contract to hold a certain amount of gas, which would have cost implications for consumers of gas and electricity. For example, gas prices would have been higher recently if market participants had not been able to take advantage of competitively priced LNG, which has dropped in price recently due to falls in world demand for gas. Those facts go to the heart of the points made from the Opposition Front Bench and by the hon. Member for Northampton, South. What are the implications? What are the effects on prices? Which best advantages the customer? Frankly, the situation cannot be predetermined. We have a sufficiently robust market that is properly regulated, and which comes forward and meets our needs, as we have recently seen.

The licensed gas shippers already have a strong financial incentive to balance their portfolios. There is a range of balancing tools on the supply side to which they have access: imported flows by pipeline, LNG by tanker, and storage. The shipper can purchase gas from the most economically attractive source, enabling consumers to benefit from the lowest prices.

I recognise that the new clause is only an enabling power. Even so, it could create regulatory uncertainty in the market, which could reduce investment in new infrastructure and increase costs to consumers, either through taxes or higher gas prices. The Government take security of both gas and electricity supplies very seriously. We keep the issue under constant review, working closely with National Grid and Ofgem, through its Project Discovery, and are committed to taking appropriate action to maintain our current high levels of energy security. For those reasons, I believe that the new clause is unnecessary and, worse, that it could have an adverse impact on the security of our gas supplies and the cost of gas to consumers.

You heard it here first: the prediction of the Amber Valley milk crisis, due to hit by the weekend, when the children of Amber Valley will be forced to switch to alcopops instead of their daily “pinta”, if they have not already done so.

We have had a very interesting and important debate on gas storage. I am very grateful that the Committee has had the opportunity to discuss the matter in some depth. The fundamental point is that we are trying to look ahead at the challenges that the country might face in the next decade, and to move beyond a debate about what has happened in the last fortnight. The Minister talked about some of the other sources of supply that might come into the mix. Realistically, however, on the time scale we are talking about, they are of very little benefit. New nuclear cannot come into play before 2017-18 at the earliest. On the massive roll-out of renewables, the offshore wind change that the Government has planned will be toward the end of that decade rather than in the early and middle part. We know that our coal plant is significantly coming out of commission in the middle of this decade and therefore the likelihood is that, if we are to keep the lights on and generate the  necessary power, gas will have to play a more important part. If we move to a world, as Ofgem predicts in part of its Project Discovery work, in which by 2020 80 per cent. of our gas will be imported, then we have to take steps now to ensure that we have the storage facilities for that eventuality.

The Minister used some fairly obscure arguments to try to make her case. She said, on security, that the amount of money needed could make storage a bad investment because it will not be needed most of the time. In all issues of national security one pays money in the hope that one will never actually need it, but one knows that it is there in extremis. The same argument could be made about Trident, I imagine. Indeed, the hon. Lady probably made that argument about Trident in a different life.

But they stopped making it.

They have indeed stopped making that argument. But there is a very strong case for saying that some investment is necessary to protect us against moments of extreme need and extreme danger.

Surely the hon. Gentleman needs to acknowledge two things. First, there are many other ways—and I cannot imagine that my arguments sounded so obscure—of bringing gas into the country when we are under pressure. We have demonstrated how many investments we have made; in fact, we have 125 per cent. capacity in terms of imports. Secondly, we are, as I indicated, already seeing more gas storage planned and coming on stream. It is a question of, “What more does the hon. Gentleman want?”

If we look further ahead, we see that it is quite possible to have an environment where more gas facilities will have been built internationally than there are the molecules available to power them, and therefore gas will be rationed by price. The energy facilities will be working at full capacity only if we are prepared to pay top dollar—if we are prepared to pay more than the other countries in the world who might be bidding for that gas at the same time. A year or so ago that was not the case. The Americans and the Japanese were prepared to pay more for that gas and therefore those facilities were lying idle for significant periods. That is not the case now, but it was the case. Therefore, price will become a rationing factor. If one wants to smooth out those price fluctuations, having gas storage is an important way of doing it, as my hon. Friend the Member for Northampton, South emphasised.

The Minister also made the point that if there is more gas storage, then there is less incentive to switch from gas to other fuels. I think that is a rather perverse approach. One wants to ensure that if people want to use gas, the gas is available. Therefore, having a greater Government approach to delivering that will be important. Critically, we have not tried to impose a single solution. We have not said that everybody who wants to use gas in generation must have their own storage. We think that is much too prescriptive. We want to allow the market to deliver the right solution. A significant energy company in this country is actively looking to buy its own gas field internationally and then use the existing  pipeline infrastructure to make sure that it has all the gas that it needs at any time. It would be peculiar to say that it must also have a gas storage facility in the United Kingdom when it has invested to that degree to try to ensure securities of supply.

What we seek to do through the amendment is give the Secretary of State the ability to assess, company by company, the arrangements that they have in place. We also want to make sure that, as we approach a period in which gas is going to be more important to the United Kingdom, either as a basic fuel or as a back-up fuel as renewables come on stream to a greater extent, we can be comfortable that the gas storage exists.

The Minister talks about 22 projects at various stages of development, but many of those have not even submitted planning applications. Those that have do not have the funding; they have not agreed on the partners to take them forward. Those that we assumed would be in their final stages according to National Grid’s 10-year statement—we expected to have that in place by the end of last year—have still not done it. There is a significant amount of uncertainty, and we are trying to provide greater security.

I am finding this difficult to follow. Why would the hon. Gentleman not believe that the commercial interests of the companies and the development that they clearly want would not go ahead? It is entirely in their interests to be able to supply their own markets and customers with the energy that they need. What will the Secretary of State have to do to the companies to make them behave in a way that differs from their own commercial interests?

If we look at what happened early last year when the Russia-Ukraine dispute was building up, we see that German gas storage, even though it was pumping out an enormous amount of gas to its neighbours who simply did not have the storage, was substantially full at the end of that period and was almost at the same levels at which it started. Ours, in the meantime, has been massively depleted, because we had a different and much more liberal regime that allowed it to be exported at will according to where the demand was. The market worked, but our national security was compromised.

What we are saying is that, as we inevitably become more dependent on gas imports, we need to do more to protect the consumer against such external shocks. We cannot predict where they will come from, but there is a high likelihood that there will be future shocks. We are not talking about the Government owning and running the gas storage themselves, but they have a leadership role to ensure that it is put in place.

The difference between us is that we believe that what is necessary will come on stream; the companies have made it evident that that is the case. The hon. Gentleman refers to the difficulties in mainland Europe, but the UK did not fall into difficulties. We were able to continue with our suppliers and were not in the position that he suggests.

Let us have a further reassessment: we were down to just three or four days’ worth of gas storage left in this country, because so much gas had  been shipped out at a time of national pressure approaching what was the coldest winter for 18 years. There were real difficulties that needed to be assessed.

The amendment would be a precautionary measure. We are entering more difficult periods, because we will be less able to depend on our own sources of supply. Supplies will come from a range of different countries and we recognise that there will be agreements in place on those contracts. Nevertheless, we are moving toward a greater period of uncertainty. What the Government need to address most is the role they truly expect gas to play. Their low-carbon transition plan states that the role of gas is declining from 40 per cent. of generation capacity to less than 30 per cent. As part of its Project Discovery, however, Ofgem stated that it could possibly be double that amount. In other words, 60 per cent. rather than 30 per cent. of our electricity generation could come from gas. That makes a critical difference to the amount of gas that we will be importing and to the need for storage in this country.

I have indicated that we do not plan to press the amendment to a vote and that we will withdraw it. I am keen, however, to work with the Liberal Democrats to see whether we can return with an amendment on Report. The fundamental issue, which is of greatest importance, is that this is not just about what is happening now. We are moving into a more difficult period, when we are going to be more import-dependent. Government need greater powers to secure the necessary storage and other long-term contracts, in order to ensure that consumers do not run out or face significant price spikes, which happens in times of shortage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

I beg to move amendment 12, in clause 16, page 13, line 14, leave out ‘or the Authority (as the case may be)’.

With this it will be convenient to discuss the following:

Amendment 13, in clause 16, page 13, line 22, leave out ‘or the Authority’.

Amendment 14, in clause 17, page 14, line 23, leave out ‘or the Authority (as the case may be)’.

Amendment 15, in clause 17, page 14, line 31, leave out ‘or the Authority’.

Mr. Bayley, I hope we can move with greater speed through this part of the Bill. The amendments seek greater clarity about what is intended. Our view is that there should be a clear distinction between the role of the Secretary of State and the Government, which is to set policy, and the role of the regulator, which is to regulate within that policy framework. I seek clarification from the Minister on where that boundary lies. We are seeing some changes, which we understand. We discussed them during the course of the Energy Act 2008, when the Government resolutely refused to go down this route, in spite of much encouragement and temptation. We need to be clear where the balance of decision making applies. Clause 16(3)(1A) says:

“Those interests of existing and future consumers are their interests taken as a whole, including—

(a) their interests in the reduction of gas-supply emissions of targeted greenhouse gases; and

(b) their interests in the security of the supply of gas to them.”

The issue that arises from that is clearly that the interest of consumers is the primary duty of Ofgem. It is not clear who decides the relative importance to be put on security of supply or low carbon. The phrasing of the Bill says that Ofgem can decide on that relative balance. By deleting the word “authority” in a number of these areas, the amendments would make it clear that the Secretary of State has that primacy. Policy making is at the heart at the role of Government and we are keen to see that with greater clarity.

That is no reflection on Ofgem; the work that Ofgem has been doing on Project Discovery has been of immense importance to the nation in understanding the challenges and options that are open to us. It would be helpful to have greater clarity from the Minister as to where the primacy of power will lie.

Clauses 16 and 17 clarify Ofgem’s principal objective by setting out that the interests of current and future consumers include their interests in reducing greenhouse gases and in security of gas and electricity supply. Those interests need to be considered by the regulator when it is undertaking its functions in regulating gas and electricity markets. It is worth noting that clauses 16 and 17 do not give Ofgem any new powers. The effect of amendment 12 would be that, in cases where Ofgem is carrying out its functions in regulating the gas market, it would be for the Secretary of State to decide how it could carry out its functions and what would further the principal objective. In other words, Ofgem would no longer have discretion to consider how best to regulate gas markets in order to further its principal objective. Amendment 14 would have the same effect with respect to Ofgem’s functions as regulator of the electricity markets. Amendments 13 and 15 are consequential on amendments 12 and 14.

The amendments would have the impact of undermining the current system of independent regulation of the gas and electricity markets. Ofgem would need to refer every decision it made to the Secretary of State to test whether the Secretary of State thought the decision was the best way to further its principal objective. Undermining regulatory independence in that way would reduce regulatory certainty and risk investment at a time when it is needed.

The reason for the references in clauses 16 and 17 to

“the Secretary of State or the Authority” is that they amend the Gas Act 1986 and the Electricity Act 1989. Those Acts give both Ofgem and the Secretary of State powers to act in regulating the gas and electricity markets. We intend each to carry out its functions in the way that is best calculated to meet the principal objective of protecting the interests of current and future consumers, including their interests in reducing greenhouse gases and ensuring security of gas and electricity supply.

The amendments would have a detrimental effect on the operation of the regulatory framework. I hope that that I have indicated to the hon. Member for Wealden that it is very clear that the Secretary of State, as always, sets the policy and the regulator’s principal duties are in statute. Within that, the regulator must have independence, and the proposed new subsections bring clarity to the principal duty.

May I take the Minister back to clause 16(3), which introduces the issues of reduction of emissions and security of supply? It does not give them relative weight and does not suggest that the Secretary of State will give further guidance on the relative weight. Therefore, it will be for Ofgem to decide.

That has to be the case, but, obviously, policy constantly develops on security of supply and emission reductions to tackle climate change, so there will always be a dialogue and a policy framework within which Ofgem will act. However, when it comes to deciding on a particular course of action, as the independent regulator, it will have to weigh up the balance between the two issues. It is impossible to say that more weight should be given to one or the other because the circumstances in which Ofgem has to perform that balancing act cannot be predicted. To fix the balance between the two in stone would be to shackle the regulator. I agree with the hon. Gentleman that that may seem somewhat unsatisfactory, but I do not think that we can expect to go further. It is important that we have introduced the clarification of the principal role of Ofgem, not least because current consumers may not benefit directly, or may even suffer some degree of disbenefit, if it became necessary to take a course of action that could impose an additional burden on them to serve the interests of future consumers.

It is a complex matter. Ofgem will have to make difficult decisions and there will be conflicts in doing that. Through the Bill, we seek to indicate to Ofgem that both issues will have to be weighed in the balance.

There are different pressures in trying to achieve different objectives. For example, there is the Climate Change Act 2008 and the legally binding requirement to reduce our carbon emissions by 80 per cent. by 2050. The Government could decide that climate change needed more emphasis than energy security, because that was the world in which we lived and they felt comfortable about security of supply. The proposed new subsection appears to give Ofgem the ability to reach a different conclusion, and Ofgem would decide the pricing structure. Therefore, we could have conflict because the independent regulator decided the balance but the Government, in policy terms, reached a different conclusion. Will the Minister explain how that will work in practice?

The issue is difficult, and I may not be able to entirely satisfy the hon. Gentleman. When it comes to policy decisions—setting overall strategy for climate change, for example—the Government will obviously set the policy framework, and it will be for them to decide all the issues in an overarching way. Ofgem will, however, need to strike a balance when there are competing courses of action. We have set Ofgem the clearly difficult task of weighing up the issues and determining what is in the consumer’s interests. We are aiming for more clarity because we know from past experience that at times Ofgem has perhaps not entirely fulfilled the role it has been set.

Does not that make it difficult for the businesses concerned? They seek to abide by the rules and provide a pricing structure that meets what  they believe to be Government policies and priorities, and if they put extra effort into gas security because they are following this debate, they could be told that their pricing structures are unfair to consumers because Ofgem has reached a different conclusion and reckons that low-carbon issues will be more important than the security of supply. I am concerned about what happens in businesses that are trying to make the right investment decisions but might see a conflict developing between the Government’s priorities for low carbon and security and those set out by Ofgem, which are independent and would appear to have equal validity.

I cannot dispute the hon. Gentleman’s intellectual argument. In practice, of course, there is a continuous dialogue between the Government and Ofgem, Ofgem and companies, and companies and the Government. We are entering a new world in every respect, and I foresee that it will be that constant dialogue between all the parties that will enable us to get the best result from the legislation. The Bill attempts to draw out the fact that there are conflicting pressures, and to say to the regulator that it must take account of them and make the best possible decisions in the interests of the consumer. I cannot give the hon. Gentleman further comfort on that issue.

I have one final word. We do not plan to press the amendments to a vote, but will the Minister further consider, before Report, whether greater clarification will be necessary so that in the event of a disagreement of relative importance between Ofgem and the Secretary of State, the views of the latter will carry primacy?

I am delighted to give the hon. Gentleman that undertaking. I assure him that I will look extremely carefully at all my responses in Committee, to see if I may do better on Report.

There are two interesting and important interrelated issues here. May I ask you, Mr. Bayley, to bear it in mind that the debate has been specifically about the constitutional interrelationship between the Secretary of State and Ofgem? There is the wider issue of the balance of duties, which is in the clause, and I would therefore be grateful if you allowed that to be discussed in a stand part debate so that I could limit my remarks now to the constitutional issue.

We can discuss such matters in a stand part debate.

I am grateful for that, Mr. Bayley. I am sympathetic to the amendments, as is the consumer organisation Which?, which would like the amendments to be more strongly worded. In its briefing, it argues that responsibility for enacting policy in the energy market should rest with the elected representative, the Secretary of State, thus ensuring democratic accountability. It is not currently clear that this is the case. It adds that the amendments would help avoid any confusion when considering the principal objective to promote consumer interest.

I will come back to the debate about the balance of interests. I understand the Minister’s point that in the existing Gas and Electricity Acts there is the dual responsibility. That is the way those two Acts are phrased. But when we come to the judgments about balancing consumer interests and competitiveness—low prices—and other issues like emission and climate change, the Secretary of State should be accountable because there would be the ability to influence those decisions as part of the political process.

Ofgem has its supporters and its critics, but it is a quango. It is at one step removed from accountability. It has moved pretty slowly, if not very slowly, on many of the issues in which consumers have had most interest. I do not think it is to be regarded overall as a friend of the consumer. It has been regarded generally as a friend of the industry. Therefore it would be better and more responsive if Ministers were accountable for these things rather than the regulatory authority.

I heard what the Minister said to the hon. Member for Wealden about reflecting on the debate. It is wise that we all step back and do that. But my instinct would be to say to the hon. Gentleman that we are right to pursue this on Report and to ask the Minister to think about the constitutional accountability. I think this is where the public would expect us to be able to hold Ministers to account and not to hear them say that it is a matter for the regulator and they will tell us next year what it thinks.

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

The same issue arises in this clause as in the next one. I will therefore make the arguments only once. As would be expected, I have looked at the original clauses in the Gas and Electricity Acts, as amended subsequently. So that those who follow our proceedings can understand what is happening, we need to see the effect of the proposed change. The current proposal is to take the Gas Act and quite significantly restructure the obligations. Section 4AA (1) states:

“The principal objective of the Secretary of State and the Gas and Electricity Markets Authority... in carrying out their respective functions under this Part is to protect the interests of consumers in relation to gas conveyed through pipes, wherever appropriate by promoting effective competition between persons engaged in, or in commercial activities connected with, the shipping, transportation or supply of gas so conveyed.”

So effective competition is the method. Subsection (2) states:

“The Secretary of State and the Authority shall carry out those functions in the manner which he or it considers is best calculated to further the principal objective, having regard to- the need to secure... all reasonable demands...”— so that is security of supply—

“and (b) the need to secure that licence holders are able to finance the activities.”— so that is to make sure that they are viable economic undertakings. It then continues about other duties. Subsection (3) states:

“(3) In performing that duty, the Secretary of State or the Authority shall have regard to the interests of-

(a) individuals who are disabled or chronically sick;

(b) individuals of pensionable age;

(c) individuals with low incomes; and

(d) individuals residing in rural areas; but that is not to be taken as implying that regard may not be had to the interests of other descriptions of consumer.”

It therefore points to categories of people who will be in the mind of the Secretary of State or the regulator. The central provision of the current Act is not significantly altered by the rest of the clause.

Subsection (2) shortens the principal objective to protecting the interests of consumers and does not get into a qualification or definition. Proposed new subsection (1A) then introduces a new proposal, which I welcome as far as it goes, although my comments are intended to explore how far it goes. It states:

“Those interests of existing and future consumers are their interests taken as a whole, including...in the reduction of gas-supply emissions of targeted greenhouse gases”, which is clearly an important consideration, given the climate council’s debate,

“and their interests in the security of the supply of gas to them”, which we have just debated. We then come to a third provision, which is set out in proposed new subsection (1B):

“The Secretary of State and the Authority shall carry out their respective functions under this Part in the manner which the Secretary of State or the Authority (as the case may be) considers is best calculated to further the principal objective”— the protection of consumers’ interests—

“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.”

If the Act is changed by the Bill, therefore, we will have a principal objective of protecting the interests of consumers, and I buy that, because it seems to be the right starting point. The clause then looks at how we define that objective, and we find that the definition includes issues relating to greenhouse gas emissions and security of supply. Proposed new subsection (1B) then talks about the principal objective being met

“wherever appropriate by promoting effective competition”.

This is a lawyers’ minefield, and if the issue were ever contested with Ofgem or the Minister, the question would be what comes first and what the hierarchy is. The protection of consumers is at the top, which is fine, but where does effective competition stand in relation to greenhouse gas emissions and security of supply?

My straightforward point to the Minister is that, having looked at this carefully—I have not paid for or taken counsel’s opinion to get an answer—I am not clear how Ofgem, the Secretary of State or their successors would balance these considerations. I would like us to put on record how the process would work, because this is an important issue. I am grateful that emissions and security of supply are included, because those are the right considerations, but I am not sure whether they have equal billing with competition or whether they are secondary to it when it comes to the crunch.

I hope that I have put the case clearly. It is right for us to look at the responsibilities of the Minister and Ofgem, and we need to know how the different considerations will be weighed up in this clause and in the following, comparable clause, which deals with electricity.

Clause 16 clarifies—that is our intention—the principal objective of the Gas and Electricity Markets Authority, or Ofgem, in relation to the regulation of the gas markets. The principal objective of Ofgem and the Secretary of State when exercising statutory functions relating to the regulation of the gas and electricity markets is to protect the interests of existing and future consumers. That objective relates only to the carrying out of the functions that Ofgem already has under legislation. That is an important point, and we are not giving Ofgem any new powers. In the context of the clause, those functions include the licensing of the gas network and market activities and ensuring the compliance of licence holders.

The principal objective will not be changed by the clause, but its meaning will be clarified in two ways. First, the clause will put it beyond doubt that the interests of consumers include the reduction of greenhouse gas emissions and ensuring energy security. That was implicit in the current legislation, given that consumers clearly have an interest in those issues. It was also explicit, but only to the extent that Ofgem already has secondary duties to have regard to aspects of the issues in carrying out its functions. What the present clause does is to make that assessment part of the principal objective, and therefore an integral part of identifying where consumer interests lie, rather than a subsidiary consideration.

I doubt whether, for the record, I can be more explicit than I have in making those remarks, but I shall reflect, as we have all agreed I should. If, on Report, or in any other way, such as by writing to hon. Members, I can say more, I shall do so. However, I believe that what I have said should make our meaning clear: it is to make the assessment part of the principal objective, and therefore an integral part of identifying where consumer interests lie, rather than a subsidiary consideration.

Secondly, Ofgem is currently required to protect the interests of consumers by promoting effective competition wherever that is appropriate, as the hon. Member for North Southwark and Bermondsey said. Although effective competition is fundamental to consumer protection, it may not always be sufficient in the energy markets and there are times when more immediate action, such as the enforcement of existing, or the urgent introduction of new consumer protection measures is required to safeguard consumers’ interests adequately. I think that the hon. Gentleman and I are both aware of circumstances in the recent past when Ofgem was effectively forced by public opinion and Government pressure to act, and to do things more quickly, because reliance on competition did not produce the required results. With issues such as prepayment meters we saw a need for it to take more robust and immediate action.

The clause makes it clear that Ofgem, before reaching a decision, must consider whether the interests of consumers would be better protected by other means alongside, or instead of, the promotion of competition. It does not give Ofgem any additional powers, but it clarifies the framework within which the regulator is expected to  carry out its functions. Given the importance of transparency and predictability in the energy market framework, we consider it right and proper to ensure that the basis for Ofgem’s decisions is clearly supported by primary legislation.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.