HOUSE OF COMMONS
Fourth Standing Committee on Statutory Instruments, &c.
DRAFT ELECTRICITY (RATEABLE VALUES) (AMENDMENT) ORDER 1991
26 March 1991
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The Committee consisted of the following Members:
Chairman: SIR ANTHONY MEYER
Allason, Mr. Rupert (Torbay)
Body, Sir Richard (Holland with Boston)
Clay, Mr. Bob (Sunderland, North)
Cousins, Mr. Jim (Newcastle-upon-Tyne,Central)
Cran, Mr. James (Beverley)
Cunliffe, Mr. Lawrence (Leigh)
Dykes, Mr. Hugh (Harrow, East)
Evans, Mr. John (St. Helens, North)
Gill, Mr. Christopher (Ludlow)
Harris, Mr. David (St. Ives)
Hinchliffe, Mr. David (Wakefield)
Hughes, Mr. Simon (Southwark and Bermondsey)
Illsley, Mr. Eric (Barnsley, Central)
Key, Mr. Robert (Parliamentary Under-Secretary of State for the Environment)
Kirkhope, Mr. Timothy (Leeds North-East)
Morrison, Sir Charles, (Devizes)
O'Brien, Mr. William (Normanton)
Peacock, Mrs. Elizabeth (Batley and Spen)
Shepherd, Mr. Colin (Hereford)
Mr. C. A. Shaw, Committee Clerk.2 3 Fourth Standing Committee on Statutory Instruments, &c. Tuesday 26 March 1991
[SIR ANTHONY MEYER in the Chair]
The Parliamentary Under-Secretary of State for the Environment (Mr. Robert Key): I beg to move, That the Committee has considered the draft Electricity Industry (Rateable Values) (Amendment) Order 1991. The order makes two small technical changes to the working of the prescibed rates assessment of the electricity generating industry. It corrects minor flaws in the existing orders dealing with independent electricity generators and the three generating companies formed from the Central Electricity Generating Board. In the 1990 revaluation of non-domestic property, a number of utility industries with large networks of property received prescribed assessments. That carried on a practice, started in the 1950s, commonly known as formula rating. Although one purpose of that activity— apportioning rateable value to individual rating authorities—disappeared when the uniform business rate was introduced, resource limitations did not permit certain utilities to be assessed by valuation officers in the usual way. With Parliament's approval, we made nine rateable values orders as part of the 1990 revaluation to prescribe the values of the gas, electricity, port, canals, railways, telecommunications and water industries. Article 2 of the order amends the way in which the prescription of rateable value applies to independent generators which burn refuse as their energy source or are part of a combined heat and power plant. To ensure that all generators had a level playing field of rateable value at the 1990 revaluation, we assessed independent generators using a prescribed method derived from the aggregate value of the CEGB successors. We applied it to power stations using renewable sources of energy and fossil fuels and to combined heat and power plants. But it transpires that the provisions dealing with refuse—burning stations and combined heat and power do not achieve our desired objective. Article 2 will ensure that all refuse burners that are primarily in the business of generating electricity and all sites that are principally used for combined heat and power stations will be subject to a prescribed assessment if they have a generating capacity of more than 500 kilowatts. Article 3 of the order corrects a fault in the annual updating factor used to adjust the prescribed values of the three generating successors to CEGB—National Power, PowerGen and Nuclear Electric. The updating factor adjusts the prescribed assessment which applies to their operational property to take account of changes in the occupation of property. The adjustment is made by reference to changes in generating capacity. At present, the formula takes account of aggregate changes in capacity in England and Wales and applies the resulting increase or decrease to the rateable values in the two countries separately. That double-counts the effect of the factor in a 4 way which we did not intend. Article 3 corrects that by ensuring that separate updating calculations are made for England and Wales. Before drafting the order, we consulted the ratepayers who would be affected by it. They raised no objection to what is contained in it. Therefore I commend the order to the Committee.
Mr. William O'Brien (Normanton): Plainly, we do not oppose the rating principle of the combined heat and power generators and the stations that house them. Compared with electricity generation, the assessment of the rateable values of combined heat and power is more complicated. the rateable values of CHP units are, as the Minister said, to be based on the size of the generator in the power house. There will be greater emphasis on combined heat and power. Several organisations will be involved, including local authorities. Trial schemes are taking place, involving both local authorities and the private sector, to develop combined heat and power units. The process could be more complicated than we expect. Indeed, the Minister pointed out that the 1990 Statutory Instrument included combined heat and power, wave power and other means of generating electricity in the rateable value scheme. We are here this morning because a technical difficulty developed and a Statutory Instrument was needed to correct it. We should ensure that the base for rateable values for these units is correct. The Minister referred to units for generating power and said that if that were their prime function their rateable value assessment would be made accordingly. We need to know how the prime function of combined heat and power units will be assessed. Will they supply heat and the generation of power be secondary because they are small units? If we find that a shift from the prime function of these services is made, and that electricity is the secondary function, how will such a system be rated? Will it be rated as a boiler house and not as a power house where heat is the first call upon the unit and generating electricity secondary? When we are judging rateable values it is important to assess the position in the first instance. Will a unit be judged as supplying heat because it was built for that prime purpose? What will happen if a small generator is included to supply power for domestic use? We are told in the Statutory Instrument that rateable values will be assessed on the megowatt output produced and the Minister said that the minimum was 500 megowatts and that there well be the benchmark in arriving at proper rateable values. Indeed, in Statutory Instrument No. 804 of 1990 the matter of combined heat and power was referred to and we are now told that that has to be changed for technical reasons. If the possibility exists that the prime function of the combined heat and power unit can be heat generation and not power, how will that affect the rateable value of a hereditament using the stated capacity? In that circumstance, the heating provision will be primary and generating power secondary. Has that been thought through and, if so, what is the feeling on that issue?
Mr. Key: I am grateful to the hon. Member for Normanton (Mr. O'Brien) for raising those important issues. We have thought about that carefully and consulted the industy. We were aware in 1989 of the problems surrounding the industry. The prime function is not a 5 problem. It does not matter whether electricity or steam is the main function of combined heat and power; it is whatever is in the formula rating system. It is important to recognise that there are problems. For instance, some hereditaments are used to extract fuel and to generate electricity, and the whole site will pass the test that its prime purpose is generation. But that is a separate issue from this order. The Committee should bear in mind that this is an interim solution to the problem. Ministers have always said that they intend to return to conventional asessments in the 1995 revaluation. Until that time, it is important for us to consult the industry and continue with the arrangement first devised in the 1950s for the sake of stability of the rating system. The Government intend to return to conventional assessment in 1995. I hope that that reassures the hon. Gentleman.
Mr. O'Brien: We know that the Government are considering revaluation in 1995 and that any necessary corrections can be made then. Information may be available in the Library or the Department of the Environment to allow hon. Members to know the Government's thinking on this matter. Will there by a shift in the basis of rating from power generation to heat production, or will another formula be used for the rating valuation of the units? Those of us with an interest in the energy supply industry are aware that the service is growing and that more smaller stations will generate power and heat. We have referred to refuse-burning units, but we want to know about coal-burning units when the prime 6 function would be to supply heat in city centres and so on. Is information available to help us to understand the Government's thinking and to enable us to make a judgment and to give advice, before the assessment takes place, on the position of local authorities and perhaps private undertakings? We should like as much detail as possible on those matters.
Mr. Key: I believe that I can help the hon. Gentleman. It is legitimate to argue that the new and environmentally-friendly technology of refuse-burning for the generation of steam or electricity should be favoured. We have discussed with the industry the need for a level playing field with no advantage other than the de minimis rule for bringing it into the system. I have referred to the way in which we intend to proceed and I shall write to the hon. Gentleman to give him details of when the matter was discussed in the past, including debates on Statutory Instruments, and any other information that may be helpful in furthering a constructive debate on the matter.
Mr. O'Brien: I would appreciate that.
Question put and agreed to.
Resolved, That the Committee has considered the draft Electricity Industry (Rateable Values) (Amendment) Order 1991.—[Mr. Key.]
Committee rose at twenty-two minutes to Eleven o'clock.
THE FOLLOWING MEMBERS ATTENDED THE COMMITTEE:
Sir Anthony Meyer (Chairman)
Morrison, Sir Charles