Clause 32 - Objective of a relevant licensee nuclear company administration

Nuclear Energy (Financing) Bill – in a Public Bill Committee am 11:30 am ar 25 Tachwedd 2021.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Business, Energy and Industrial Strategy) 11:30, 25 Tachwedd 2021

I beg to move amendment 18, in clause 32, page 24, line 24, at end insert—

“(5A) In the event that a relevant licensee nuclear company cannot be rescued as a going concern, or if a transfer of the undertaking to a wholly owned subsidiary does not result in the establishment of a going concern, the Secretary of State must establish a Government-owned company into which the assets, liabilities and undertakings of the relevant licensee nuclear company may be transferred in order to allow electricity supply to be commenced or continued at the nuclear installation in respect of which the relevant nuclear licensee holds a nuclear licence.”

Where a failed company cannot be rescued as a going concern or successfully have its assets transferred to a subsidiary, this amendment would require the Government to establish a Government-owned company to allow operations to continue.

The amendment goes to the heart of this part of the Bill, which deals with a special administration regime for when a nuclear power plant cannot get to production levels—in other words, when the nuclear power plant is not completed at the point at which the company that is constructing it effectively goes bust—or is in production but the company that is responsible for the management and operation of it goes bust at that point. The special administration regime is put in place, as the Minister says, to protect the interests of the customer, in terms of the sums they have put into the whole arrangement through the counterparty. We discussed how that works in a previous sitting of the Committee.

We certainly welcome the setting out of the provision in part 3, because it is important in providing a backstop in case of failure, during either construction or production, of the company that is involved in doing it. That company will have gone through the process of designation, licence modification and so on, and is therefore deeply involved in the nuclear power station at that point. Although we welcome the provision, analysis of how the clause works suggests that there are potential deficiencies in the end outcome of the process that is set out. I say that partly because, as I am sure hon. Members will be interested to know, the clause is closely modelled on the special administration regime set out in the Energy Act 2011. Of course, the 2011 special administration regime is oddly pertinent this morning because of the collapse of Bulb Energy and the decision by the Secretary of State to invoke sections of the Energy Act to establish a special administration regime over and above the supply of last resort, which was previously the method used for assuring customers about their supply when energy companies went bust. On this occasion, the Energy Act has come to the rescue.

There are lots of questions about how the regime under the 2011 Act will work, but it is sufficient for us to note the closeness of the text and direction of part 3 of the Bill to sections 94 and 95 of the Energy Act. Hon. Members will have to take it on trust that the wording is so similar, but they are very welcome to go and look up the relevant piece of legislation. I have a copy in front of me, and if this were an undergraduate essay that I had to mark in a previous life, I would be immediately on the phone to the department to say that my student had been guilty of substantial plagiarism.

Of course, there is a substantial difference in the application of those two pieces of legislation. One is applied to a failed energy company, about which a number of things can be done fairly quickly, such as seeking to revive the failed energy company through a period of administration and then relaunching it at a later date, when circumstances have changed—in this instance, perhaps when the high fuel costs have abated and the company, with different set-ups, might be a going concern again. The options are to launch it as a going concern, to pass it on to other buyers—which is very possibly the case with Bulb Energy—or, as an extreme, to eventually close the company down and parcel out its customers to other companies. According to the 2011 legislation, there are a number of fairly obvious routes that end that period of administration.

That is not the case for a nuclear power station. It cannot be divided up; it is a huge, multibillion piece of investment on the books of the company, and in this case largely supported by its customers paying into the regulated asset base arrangement. The idea that a company might easily come along and say, “I know, we’ll take over the assets of this nuclear power station and run it ourselves” is a fairly unlikely proposition, as we have seen from events around the world. Nevertheless, the wording of the clause follows the 2011 wording closely enough to suggest that that would be relatively easy in the case of a nuclear power company failure.

As the Minister has already outlined on the previous clause, the court would make an order to the nuclear company to go into administration, and

“the affairs, business and property of the company are to be managed by a person appointed by the court”— that is, an administrator. The objective, stated in this clause, is

“that electricity generation commences, or continues, at the nuclear installation in respect of which the relevant licensee nuclear company to which the administration relates holds a relevant licence”— that is, generation continues under administration—or “that it becomes unnecessary” through two means that are set out in the next subsection:

“the rescue as a going concern of the company” or transfers of that company that fall into the next subsection, whereby the company can be transferred to another company or two or more different companies.

As such, the path that would be followed in this instance is that an administration order would be made; the company would be kept running in the meantime; and the alternative outcomes would be that the company either becomes a going concern again as a result of administration, or is effectively sold to another company or two or more other companies. Failing that, this clause appears to suggest that that special administration continues forever. That is the conclusion one has to reach when reading these subsections.

The effect of administration continuing forever, of course, is that that nuclear company is in a half-world where it is operating as a ghost company. Nothing much can happen to it, other than it continuing to do basic things under the control of the administrator: it does not go anywhere, but merely functions, as opposed to not functioning. Of course, were that to happen, it would be a very substantial and continual drain on taxpayer resources, and indeed bill payer resources. As I read it, while that company is in administration, it would still be able to claim the payments during the production period under the RAB arrangement. As such, the public would be in the difficult position of funding under the RAB arrangements a company in administration that could not go anywhere, but that nevertheless was taking a substantial amount of the public purse and, in this instance, the bill payers’ money in order to sustain it. That appears to be a substantial flaw in this Bill, written as it is based closely on the 2011 Act in which this does not appear as a substantial flaw because the operation of the special administration regime, expensive though it is likely to be—as we see in the press today, in the case of Bulb Energy—is nevertheless of a different order and clearly of a much more finite duration.

Our amendment suggests that there needs to be an additional endgame possibility in the process that, under circumstances where the company has not revived as a going concern or been sold to another company, the Government are required to set up a new company to run that enterprise and allow it to operate properly as a nuclear production facility in the long term. It is not a complicated amendment; it effectively adds a bottom-line clause to the previous arrangements, which have been placed slightly slavishly into the Bill from the 2011 Act. We think that would be an improvement. It would place an absolute bottom-line block on the proceedings and, in the end, if all went wrong, and was not retrievable, would enable a route out to ensure that the plant operated properly in the bill payer’s interest.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change) 11:45, 25 Tachwedd 2021

It is a pleasure to serve under your chairmanship, Mr Gray. Some of the other Labour amendments that we supported when they went to a vote have been about cost controls and have tried to provide protections for the consumer. Despite what the hon. Member for Southampton, Test said, I do not think the amendment protects consumers or customers, although we are not sure that clause 33 in itself would not provide this option. The explanatory statement says:

“this amendment would require”— that is, compel—

“the Government to establish a Government-owned company to allow operations to continue”.

I am not sure of the benefits of compelling the Government to keep running a power station if a company goes bust and cannot be taken over as a going concern, because it is still loss-making and a transfer cannot be concluded. Why do we want to make it mandatory for the Government to take over a loss-making operation to continue to generate electricity?

It seems to me that in the event of such financial failure, the best value might be to shut the thing down and decommission it. Although the hon. Member for Southampton, Test said that this provides a final option—a final endgame—there is nothing on time scales here. The amendment does not say how long the Government would be expected to continue to run this loss-making power station to generate electricity. There is nothing that gives that certainty or end date. I think it actually places a burden on the Government and the consumers—the taxpayers. For that reason, it does not make sense to me. I do not think it achieves the ends it is supposed to.

I will quickly refer to new clause 5, which is in my name; I know we will debate it later.

Photo of James Gray James Gray Ceidwadwyr, North Wiltshire

I would rather we did not debate it now, unless it is relevant to clause 32.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change)

New clause 5 does relate to clause 32. I will refer to it just briefly. All I would say is that the new clause sets out considerations that would need to be addressed before anyone contemplated taking over a nuclear power station. I will return to that when we debate the new clause.

I have concerns about clauses 32 and 33, when considered together with clause 41. We will return to this, but clause 41 possibly gives the Secretary of State an open-ended blank cheque to do what he wants to keep a power station operational; I dare say that ensuring security of supply will be the excuse given.

The hon. Member for Southampton, Test, referred to the provisions relating to the special administration regime under the Energy Act 2011, which have now been applied to Bulb Energy. It would be good if the Minister could enlighten us on how those provisions will operate with regard to Bulb Energy, and how the similar provisions in clause 32 would operate if they had to be used. Also, will he commit to reviewing how the special administration regime operates in the Bulb Energy scenario, and to making improvements to the Bill, if they are required, following that process?

Photo of Greg Hands Greg Hands The Minister of State, Department for Business, Energy and Industrial Strategy

I thank hon. Members for their speeches for and against amendment 18. I remind the Committee that a relevant licensee nuclear company, or RLNC, is one that has had its licence modified under part 1, clause 6(1) of the Bill and has entered into a revenue collection contract. An RLNC administration order is made by the court in relation to an RLNC and directs that, while it is in force, the company is to be managed by a person appointed by the court. That is defined in part 3, clause 31(1), which we have just debated.

Amendment 18 addresses the course of action that the Government must take if an RLNC administration order is in force, but an RLNC cannot be rescued or a transfer envisaged by clause 32(4) effected, namely a transfer of the undertaking of the RLNC to a subsidiary that results in a going concern. The amendment seeks to ensure that, in this scenario, the plant will commence or continue electricity generation under public ownership. The amendment would require the Secretary of State to move the assets, liabilities and undertakings of the RLNC to a Government-owned company, even if a transfer envisaged by clause 32(3) to one or more companies would achieve the objective of the administration order. The amendment would put in place a new process. Although the amendment does not address who must make the assessment that the objective cannot be achieved by the means specified, it appears to limit the available options before the power plant is moved into public ownership.

First, obviously, I thank the hon. Members for Southampton, Test, and for Greenwich and Woolwich for their clear desire to ensure that a nuclear power station will commence or continue the generation of electricity—on the face of it, that seems a very reasonable objective—and for recognising that the special administration provisions add a valuable layer of protection in this area. Ultimately, that is why they are in the Bill. However, I do not consider it necessary to place a statutory requirement on the Government to take ownership of a plant in the unlikely event that a special administration fails in its objectives, because the provisions for the energy transfer scheme, applied by clause 33, already serve this purpose. The amendment may even inadvertently lengthen the period of an RLNC administration order, as one assumes that the Government-owned company would, for example, need to apply for a new nuclear site licence.

In the unlikely circumstance where rescue cannot be achieved and it is unnecessary for the administration order to remain in place, the Secretary of State—or the authority, Ofgem, with the consent of the Secretary of State—may apply to bring the administration order to an end. Once the administration has ended, the Secretary of State may prepare a nuclear transfer scheme, which would bring the plant under the control of a public body, or, for example, the Nuclear Decommissioning Authority. In such a scenario, it is envisaged that the plant would then be decommissioned and cleaned up. However, the Government would still retain the option to move the power plant into public ownership and, if deemed in the best interests of consumers and taxpayers, commence or continue the operation of the plant.

Let me say in response to comments made by the hon. Member for Kilmarnock and Loudoun that there may be circumstances in which discontinuing the project and having it safely decommissioned is in the best interests of both consumers and taxpayers. That will ultimately be down to a value-for-money process that asks: what is the best deal here for consumers and taxpayers? The Office for Nuclear Regulation may have shut down the plant for safety reasons; there may have been an environmental or security incident, or maybe something else happened that meant that trying to make that plant commence or continue to generate electricity was not in the interests of consumers or taxpayers. It is important, then, that the Secretary of State retains discretion to act in whatever way will achieve the best outcome for consumers and taxpayers during the insolvency of a relevant licensee nuclear company.

I stress to the Committee that the likelihood of those scenarios is, of course, very remote, as indeed is the likelihood of a nuclear administrator ever being appointed. I thank the Opposition for their forward thinking and consideration of what would happen in such a scenario, but I hope that I have assured the Committee that it would not be sensible to tie the hands of the Government in such a way that they had to commit further taxpayer money to a project without being able to balance that against the merits of doing so. The amendment would create an automatic process, but the Bill provides sufficient flexibility to allow the Government to pursue the option that the amendment provides for if they consider such a decision to be in the best interests of consumers and taxpayers. I therefore ask the hon. Member for Southampton, Test, to withdraw the amendment.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Business, Energy and Industrial Strategy)

I thank the Minister for his consideration of the processes by which a power plant might need to be rescued and/or decommissioned and/or discontinued. I think he will recognise, however, that the circumstances in which he says ministerial discretion would need to be exercised are an unlikely part of an unlikely scenario of an unlikely future.

The Minister gave the example of an accident, or something else, closing the plant down, so that it would have to be decommissioned and could no longer produce power. That would need to be done anyway, even if the company was placed in Government hands, so I do not think that those circumstances affect the path I have set out relating to Government interest in a plant that could not be bought out of administration because it was a going concern, or because it had been sold to another company—unless the Minister has it in mind that the sale of a nuclear company to another company would be done on a peppercorn basis, in which case the nuclear plant would lose all the value that the bill payer had invested in it.

In any event—this is what concerns me about the intervention by the hon. Member for Kilmarnock and Loudoun—the whole purpose of the RAB model is to produce a working nuclear plant that was invested in up front by members of the public and bill payers. That plant would then produce power as a reward for that up-front investment. If we easily closed a plant down because it was insolvent, we would be overthrowing the whole purpose of the RAB scheme, which is for the public to get something back, and we would be back to the instance that we talked about early on in Committee.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy and Climate Change)

The hon. Gentleman is right about the purpose of the RAB model, but would the unlikely event of insolvency not just confirm the failure of the RAB scheme? We should not keep throwing good money after bad in the event of such a failure.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Business, Energy and Industrial Strategy)

The hon. Member is right that in the event of an utter catastrophe, where the nuclear core does not work, the concrete casings are seriously deficient and the whole thing has to be closed down, we are in a scenario—this was sort of suggested by the Minister—where it would not be viable to continue the project. However, where it is in principle possible, electric power production in the plant should continue, because billions of pounds of customer payments will have been invested in the plant.

With amendment 18, I am suggesting that there are more ways to ensure that than are set out in clause 32; one way is to take the plant into public ownership, and operate it on that basis. The alternative is that, under those fairly unlikely circumstances—and I agree that they are unlikely—we could end up with a situation like that in South Carolina, which we discussed earlier in Committee, and which the Minister had a lot of information on. The outcome in South Carolina was that a power plant was simply abandoned—not because it was particularly deficient, but because it could not be funded. The public lost all the money they had put into the plant. We want to avoid that in all circumstances, and the amendment ensures that we do.

The Minister is by now fairly well apprised, I hope, of the amendment’s intentions. I hope that, despite what he has said, he will give careful consideration to whether the clause is as robust as it might be. We do not propose pushing the amendment to a Division, but we have put on record what we think about the shortcomings of the clause. I hope the Minister will take our concerns seriously, and will either give the matter consideration later in the Bill’s passage, or strengthen the special administration regime subsequently. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of James Gray James Gray Ceidwadwyr, North Wiltshire

We have had a substantial debate on clause 32 already, so I will put the question on it.

Clause 32 ordered to stand part of the Bill.