Energy Bill [HL]

My Lords, I am conscious that we are nearing the usual time for the Committee to adjourn so I will try to be brief. I just make a point by way of introduction. Nobody reading this amendment could have a clue what it was about. The reason for that is that it is a striking example of the Bill adopting the process of legislation by reference to earlier Bills. I am sorry my noble friend Lord Marland is not here. I have raised this matter with the Law Commission because the gas and electricity Acts are now virtually indecipherable; it is impossible to find one’s way around them. It is high time that there was a consolidation. Having said that, I will move on. The real problem that the amendment addresses is that one of the provisions of the Energy Act 2004 that is being applied to this Bill is Section 157. Section 157(2) established three grounds on which an energy supply company can be put into administration. One is that the company is unable to pay its debts. Another is that it would be just and equitable, under Section 124A of the Insolvency Act, to wind up the company in the public interest—for instance to stop fraud or criminal activity. The third ground—this is what the amendment is about—is that the court must be satisfied that the company is likely to be unable to pay its debts. The 2004 Act applied to network companies; this Bill would apply it to supply companies. My amendment would delete that third ground—of a company being likely to be unable to pay its debts—for administration as it would apply to supply companies. To put it in layman’s terms, this means that the petitioner for a special administration order must be able to convince the court that, while the company in question is currently quite solvent, it is at risk of becoming insolvent, perhaps because the scale of liabilities that it faces looks excessive in relation to the foreseeable value of its assets. How far ahead? It is a very uncertain test. The reason for the third test was that it enabled a company’s directors, who after all should have the best view of the likely future circumstances, to apply for insolvency administration. That cannot possibly apply here because the only people who can apply for administration under this Bill are the Minister or Ofgem. The directors cannot do so. There is another reason why the test should not apply here. Those who followed closely the tangled affairs of Railtrack in 2001 can recognise that it is open to political abuse. I do not propose to go into the long and tangled story, which was reported the other day in the Times, but it was the very looseness of test, which was in reality just a call by an accountant, that enabled the Government of the day to put Railtrack into special administration, even though the company was at the time solvent. It was only on the basis of cash flow projections over a lengthy future period that the Government could proceed. A test that requires that kind of assessment to be made is quite different from the other two tests. It is inherently inappropriate, particularly here where we are dealing with energy supply companies which are operating in volatile, competitive markets. It is made doubly inappropriate by the fact that the tests can be abused for political purposes. My amendment would simply remove that test altogether as it would apply to energy suppliers. My noble friend may have better ways of doing this, but I do not think that that test is appropriate in such a case as we have here, where only Ofgem or the Secretary of State—not the directors of a company—are able to use it and where it would be inherently very difficult to apply. I beg to move.