My Lords, to some extent, we started discussing the issue of fair competition in the debate on Amendment 52. I certainly welcomed the comments from the Minister in her response, but I think that this issue, which is designed to require the big six generators—those who own both generating and retailing—to separate, is probably separate from all the other discussions about pricing, who gets what, guarantees and everything else. However, unless we achieve the separation, I do not believe that we will get fair competition.
My reason for saying that is that I believe we will have higher costs, a lack of transparency, which one can widen out to cover a lot of things, and added risk for the independents in selling to the retail market. I am sure we have heard it before but when the big six, according to Ofgem, are producing something like 72% of the generating capacity and a percentage in the high-90s of the domestic retail, it is quite a challenge, as my noble friend Lord O’Neill mentioned earlier. He also mentioned that there is a similar experience in Germany, with the three major suppliers inhibiting competition, and the comments that I get from Germany indicate that there are similar high prices and a lack of choice.
I find it very interesting that on the railways—I declare an interest as chairman of the Rail Freight Group and I am on the board of the European Rail Freight Association, which is an association of small, independent operators—we are finding exactly the same problem. At the moment, the European Commission is trying to drive what it calls the “fourth railway package” through Parliament and the Council, and Germany is again opposing any attempt to remove vertical integration, which Germany has at the moment. It has got to the stage where the Commission has accused the German Government of allowing the infrastructure manager to make a profit on its access charges and transfer the profit up to the holding company and down to its own train operating company. In effect, independents who want to run trains on a line are paying an access charge, an element of which—the profits—may well be going to subsidise their competitor. The two parties to it in electricity are different, but I suggest that it is the same problem. It is resulting in a loss of competition because the smaller operators get swallowed up by the bigger ones, which happens in France as well, and it is difficult to know what can be done without insisting upon this total separation.
4 pm
The political pressure from the German Government was exemplified earlier this year when the chairman of Deutsche Bahn went to the Chancellor, Angela Merkel, and said, “If you don’t sort this out, I shall resign”. So she phoned the President of the European Commission, Mr Barroso, and said, “You’d better change the draft legislation otherwise we will do this, that and the other”, and he was forced to do this. This is the power of big industry. It is exactly the same in the electricity industry: the companies are big and powerful. On top of that, a new entrant coming in—whether big or small, foreign or British—is going to have a job selling its power to the retailers, the big six. That is a big risk, which I believe is going to dissuade new entrants.
How can independents—large, small, renewables, biomass or whatever—get in in a fair manner so that they can raise the finance they need with some better comfort, not just with regard to the revenue they will receive from selling their electricity but in terms of the trouble they may have in selling it? I understand that independent companies cannot always sell their electricity, regardless of price, to the big six unless the big six cannot produce it themselves. Total separation is a prerequisite for a fully functioning market, with all the
other changes that are proposed, so that the majority of generators participate on a fair and transparent basis.
Other noble Lords have mentioned the Which? report, which we got yesterday and which I thought was really supportive of this amendment. It suggests that the consumer will not benefit unless there is this separation and a good volume of trading in the market, and that the level of competition, which is widely recognised as being too low at the moment, needs to increase.
Ministers will say that there is no need to change and that the industry is happy. Well, it would be, wouldn’t it? The same thing happens in France and Germany. Ministers and the regulators are advised by the industry, with people seconded mainly from the big companies because they have the resources to supply people. However independent these people may seem to be, their advice will naturally go in a particular direction, and the small companies cannot provide anybody because they cannot afford to. What is great on the railway side is that this little organisation, ERFA, is supporting the Commission and the Commission is supporting liberalisation, as are the British Government. However, we still have the big beasts around Europe saying, “We can’t have any change”. It really is not a way forward.
The power of big business is huge, but if the Government really want to protect the interests of consumers and at the same time encourage new entrants to come in in a fair and profitable manner, there has to be transparency in competition, which I believe can come only if there is total separation. People will complain that it is all very difficult, but it can be done and I believe that everything would work very well if it were done. However, I suspect that more things will be needed in the future to achieve it. The Government could bring forward further amendments on this. I hope that they will look at this amendment seriously because I do not think that this big switch will really happen without such divestment. I beg to move.