The Trade and Industry
Committee has agreed to the following Report:-
INTRODUCTION
1. In January 1996 we agreed
informally that an inquiry into the regulation of the privatised
energy industries which come within our scope would be desirable.
Energy regulation was a major area which we had not yet looked
at, and we felt that after a number of years in operation the
system should have settled down sufficiently for a review to be
appropriate. The inquiry was formally agreed in July 1996.
2. In parallel to this inquiry,
we have been conducting one on the progress of the planned liberalisation
of the low volume end of the electricity supply market in 1998,
and some of the evidence we received is relevant to both inquiries.
3. The energy regulatory
system in Northern Ireland differs from that which applies on
the mainland and we have not considered it in our Report. We
were, nonetheless, grateful to the Director General for Electricity
Supply for Northern Ireland for his written evidence.
4. The gas and electricity
industries are now "converging, both in terms of offers to
customers and in up-stream linkages through gas-fired generation"[1]
and, as the former Energy Minister reminded us "if you make
a decision which affects one of the sources of energy supply ...
you actually displace another sector of energy supply".[2]
It therefore seemed appropriate to consider them together.
5. We set ourselves as terms
of reference:
"To examine the
regulatory regime for the electricity and gas industries, with
particular reference to:
The statutory duties
of the regulators, including the weight given by the statutes
to different considerations and the extent to which the regulators
have freedom of action;
The accountability of
the electricity and gas regulators, their consultation procedures
and the transparency of their decision-making;
The regulatory implications
of the creation of companies combining electricity, gas and water
interests;
The division of responsibilities
and co-operation between the electricity and gas regulators;
The relationship between
regulation in Scotland and in England and Wales;
The resources and expertise
available to the regulators;
The methods used by the
electricity and gas regulators, including RPI-X price caps, and
whether there are better alternatives;
Whether regulatory panels
would be more satisfactory than individuals;
The effectiveness of
the electricity and gas regulators in achieving the objectives
set for them."
6. We received 95 memoranda,
and took oral evidence on 11 occasions from the following:
British Gas plc (twice);
Amerada Hess Gas Ltd; United Gas Company Ltd; PowerGen; National
Grid Company plc (NGC); South Western Electricity plc (SWEB);
The Rt. Hon. Tim Eggar, MP, former Minister for Energy, Department
of Trade and Industry (DTI); Enron Capital and Trade Resources;
Gas Consumers Council (GCC); Energy Intensive Users Group (EIUG);
Electricity Consumers' Committees' Chairmen's Group (ECCCG); Public
Utility Reform Group (PURGe); UK Round Table on Sustainable Development;
Association for the Conservation of Energy; Professor Catherine
Waddams, Director, Centre for Management under Regulation, Warwick
University; Ms Aileen McHarg, Bristol University; Director General
of Telecommunications; Eastern Group plc; ScottishPower; Director
General of Water Services; Director General of Gas Supply (DGGS);
Director General of Electricity Supply (DGES); Lord Fraser, Minister
for Energy, DTI.
We are grateful to all our witnesses,
particularly to the Directors General of Water Services and of
Telecommunications whom we asked to give written and oral evidence
even though the Office of Water Services (OFWAT) falls within
the remit of the Environment Committee and we had excluded the
Office of Telecommunications (OFTEL) from our inquiry. Our thanks
are also due to our Specialist Advisers, Professor John Chesshire
(Science Policy Research Unit), Mr Michael Stoppard (Oxford Institute
for Energy Studies) and Mr Peter Vass (Centre for the study of
Regulated Industries).
7. In the course of our
inquiry we travelled to the United States of America, visiting
Washington, New York and Boston. We were privileged to meet a
great many people with an interest in the generation, transmission,
distribution, supply and regulation of energy. We are very grateful
to all the experts who found time to meet us and to the staff
of the Diplomatic Service who set up the meetings. A list of
meetings is appended to this report.
8. The inquiry was in some
ways remarkable for the predictability of the evidence. Regulated
monopolies protested that they had been harshly treated; consumer
groups complained that the consumer had not gained enough; large
industrial undertakings complained that their interests had not
been sufficiently taken into account; trades unions protested
that their members had lost out; and environmental pressure groups
complained that the environment was not being adequately protected.
Enron wrote: "One need only read the daily newspapers to
discern the level of dissatisfaction that all of the stakeholders
- shareholders, consumers, regulated entities and other market
participants - have with the regulatory process".[3]
9. A further notable feature
of the evidence has been the recurrent theme which we touch on
several times in this report, that the system did not work well
at the beginning of the new regime but is now improving.
1 Mem. p.54. Back
2 Q.269. Back
3 Ev. p.82. Back
