Select Committee on Trade and Industry First Report


THE ROLE OF THE REGULATOR

Duties

  20. Each regulator has statutory duties laid down in the legislation which provided for the privatisation of the industry or in amending legislation. Most of these duties are shared with the Secretary of State.

  21. The duties of the energy regulators are very similar. The original 1986 Gas Act ordered the DGGS and the Secretary of State primarily "to secure that those licensed to supply gas through pipes satisfy, as far as it is economical to do so, all reasonable demands for gas in Great Britain" and without prejudice to the generality of this provision, to secure that they are able to finance the provision of gas supply services.[13] Subject to these duties, the DGGS is to exercise his or her functions in such a way as to encourage consumer protection, promotion of efficiency and economy in supply and use, protection of the public from danger and the enabling of competition in supply of large customers. Under the 1995 Gas Act the duties were extended to include the securing of effective competition in the carrying out of licensed activities and the considerations extended to effects on the environment. There is also a special duty to take into account the needs of the old, disabled and chronically sick. By the terms of Section 3 of the Electricity Act 1989, the DGES and the Secretary of State are required primarily "to secure that all reasonable demands for electricity are met" and "that licence-holders are able to finance the carrying on of the activities for which they are licensed" and, subject to provisions regarding discriminatory pricing, to promote competition in generation and supply. Relevant considerations are quality of supply, the promotion of efficiency and economy, the promotion of research and development, protection of the public from danger, promotion of the health and safety of the industry's employees and the effect on the physical environment and the needs of the old and disabled and those in rural areas.

  22. While the Secretary of State and the regulators have similar statutory duties in respect of energy regulation, the DTI were not in doubt about the division of responsibility. "The broad distinction is that the Government is responsible for preparing the legislation and other instruments which establish the regulatory framework and for appointing the regulator, while the regulator is responsible for carrying on the business of regulation within that framework".[14] The regulators were equally clear.[15] Some witnesses were less sure about the distinction, fearing ministerial interference in regulatory decisions, particularly since, as Enron and ICI pointed out,[16] a DTI representative attends meetings between the Office of Gas Supply (OFGAS) and the regulated companies. The Energy Intensive Users Group (EIUG) complained that the relationship between Government and the regulators is now clouded.[17] The NGC called for greater clarity between the roles of the Secretary of State and the regulator "if only to safeguard the regulator from undue ministerial influence,"[18] but they produced no evidence that such influence was exerted.

  23. Apart from the possibility that he might exercise pressure on the regulators, the Secretary of State may issue general directions to them. OFFER told us that these directions might cover considerations to which the DGES should have regard in ordering his priorities in keeping under review, and collecting information about, the electricity industry in Great Britain and elsewhere; and considerations to which the DGES should have particular regard in exercising any of his functions.[19] The DTI were at pains to point out that "this does not affect the regulators' independence ... They must still make their own decisions independently".[20] No such directions have ever been issued.

  24. While there was widespread agreement that the freedom of the regulators from political control was necessary,[21] some witnesses felt that the Government should issue more guidance on policy matters. The Electricity Association said "whilst it is recognised that some discretion is clearly advantageous in helping to take complex and contentious issues forward, a clearer policy framework from Ministers would help to resolve the situation that regulators may use their discretion to promote differing agendas".[22] Aileen McHarg also felt that "it is undesirable that an unelected regulator should have complete freedom to determine his own policy priorities. This gap is best bridged by an obligation on Ministers to issue guidance from time to time setting out the relative weights to be given to various policy considerations".[23]

Functions

  25. The legislation allocates not only duties but also functions. The functions of the regulators include "the grant of licences; the giving of directions, approvals etc within the terms of licences; enforcing compliance with the conditions of licences; and proposing changes to the conditions of licences". The Secretary of State's functions are to appoint the regulator, to make the initial determination of the standard conditions of gas licences or grant the general authority for electricity; to decide whether or not to exercise a veto over agreed licence modifications and certain Monopolies and Mergers Commission's (MMC) references by the regulator; and to perform numerous subsidiary functions including in relation to statutory instruments, land, emergencies and security of supply.[24]


13  Gas Act 1986, Section 4. Back

14  Ev. p.320. Back

15  Ev. p.244, 271. Back

16  Ev. pp.82, 119. Back

17  Ev. p.111. Back

18  Ev. p.42. Back

19  Ev. pp.271-272. Back

20  Ev. p.320. Back

21  eg. Mem. p.47. Back

22  Mem. p.84. See also Mem. p.33. Back

23  Ev. p.173. Back

24  Ev. p.320. Back


 
previous page contents next page
House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1997
Prepared 18 March 1997