House of Commons - Explanatory Note
Utilities Bill - continued          House of Commons

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Clauses 113 - 117: Functions of the Consumer Council

161. These clauses are similar to the equivalent clauses for the Gas and Electricity Consumer Council. The commentary on these is provided above. Clause 117 gives the Council powers to investigate matters affecting the interests of consumers which it does not have a duty to investigate. This clause requires the Council to consult the director, the Secretary of State and the National Assembly for Wales before embarking on an investigation. This is intended to ensure that the Council does not duplicate the work of other regulators.

Clauses 118 and 119: Enforcement of obligations of water companies

162. Clause 118 confers powers on the relevant enforcement authority to impose financial penalties for contraventions of appointment conditions, statutory and other requirements and failure to achieve standards of performance prescribed under section 38(2) or 95(2) of the 1991 Act. The powers correspond to those conferred on the energy and telecoms regulators.

163. The relevant enforcement authority currently has a duty to make an enforcement order in relation to a likely future contravention of a condition of appointment or statutory or other requirement where a contravention has already taken place. Clause 119 requires the enforcement authority to act wherever there is a likely future contravention (whether or not a contravention has previously occurred) in line with the existing duties in the gas and electricity sectors.

Clause 120: Remuneration and service standards

164. Clause 120 is similar to the provisions for the electricity and gas sector, except that the different structure of the water industry means that it requires disclosure of links between directors' remuneration and service standards attained in connection with statutory functions. The detailed commentary is provided alongside the equivalent provisions for gas and electricity.

Clause 121 - 125: Miscellaneous

165. Clause 121: Reasons for decisions under the 1991 Act. This clause requires the Director, the Secretary of State and the National Assembly for Wales to give reasons for certain of the key decisions that each of them take. In other respects, this clause is similar to the equivalent clauses for the gas and electricity sectors, except that in the water sector, the duty applies to the director rather than to an Authority. The decisions caught by this obligation are those taken pursuant to the statutory powers specified in the clause.

166. Clause 122 ensures that the division of functions between the Secretary of State and the National Assembly for Wales made by the transfer of functions order continues to apply in relation to the listed provisions of the Water Industry Act 1991 even though they are amended by the Bill.

167. Clause 123 provides that references to the 1991 Act are to the Water Industry Act 1991 and that (like the 1991 Act) Part III applies to England and Wales .


Clause 124: Commission's functions under utilities legislation

168. Clause 124: Specialist Panel members of the Competition Commission. This clause provides for the abolition of the Competition Commission's three sector-specific utility panels (for electricity, telecommunications and water), and their replacement with a single, cross-utility group. The Secretary of State will be responsible for appointing eight or more specialist members of the Competition Commission for the purpose of the Commission's functions in relation to licence modification references made under the utility legislation. The chairman of the Commission will be obliged to select one or more of these specialist members to serve on any group carrying out such functions.

169. Clause 125: Determination references under s12 of the Water Industry Act 1991. This clause ensures that the same procedures apply to references to the Competition Commission under section 12 (concerning determinations under conditions of appointment) as apply to references to the Commission in relation to proposals to modify conditions of appointment.

Clauses 126 - 130: Modification by Commission of licences following reports

170. These clauses relate to licence modification references made under the utilities legislation. They require the Competition Commission to review the regulator's proposals to modify licences following the Commission's report on a reference. If it appears to the Commission that the proposed modifications are not requisite for the purpose of remedying or preventing the adverse effects specified in its report, the Commission is empowered to substitute its own licence modifications which are requisite for that purpose. These clauses set out procedures for the notification by the Commission of its intention to substitute its own modifications and for consultation on the modifications themselves.


Clauses 131 - 134: Supplementary

171. Clause 131 makes provision for Parliament to fund expenditure resulting from changes introduced by the Bill. Clause 132 and Schedules 5, 6 and 7 deal with consequential amendments, transitional provisions, savings and repeals. Clause 133 gives the Secretary of State the power to make any necessary transitional provisions and savings.


172. The Bill will have a small effect on public expenditure. The cost of running the regulatory offices is likely to fall because a number of the regulators' consumer functions, in particular the responsibility for handling consumer complaints, will transfer to the new consumer councils. In addition, the merger of OFFER and OFGAS should result in running-cost savings in the longer term. However, the total cost of the regulatory system, taking the regulators and the new consumer councils together, will increase. Total additional running costs are estimated to be in the range of £4m - £5.2m. One-off implementation costs, arising principally from the establishment of the independent councils will be in the range £3.2m - 7.7m. The cost of consolidating OFFER and OFGAS as the Office of Gas and Electricity Markets (OFGEM) has been estimated at £16m. In addition there will be minor costs for central Government departments, arising principally from the need to recruit a larger number of office holders to serve with the new regulatory authorities and the consumer councils.

173. Changes to the regulatory framework, taken with the establishment of the new independent consumer councils will increase public expenditure. However, the increase will not generally affect public borrowing because, in most cases, the costs will be recovered in full from licence fees. These fees are treated as negative public expenditure for control purposes. There will, therefore, be no increase in the Government's preferred measure of public expenditure ("Total Managed Expenditure"). Full cost recovery may not be possible in respect of the telecommunications consumer council because the EC telecoms licensing Directive restricts the range of costs which may appropriately be funded through licence fees. Any shortfall in funding will be met from general taxation.


174. The Bill is likely to result in a small reduction in civil service numbers. Staff in the regulatory offices are civil servants. A number of those who are currently responsible for consumer issues are likely to transfer to the independent consumer councils when consumer-related tasks such as complaints handling are transferred to the new councils. The councils will be classified as non-departmental public bodies, and staff will not, therefore, be civil servants. In overall terms, however, there is likely to be a small increase in public service manpower reflecting the increased emphasis being given to the protection of the consumer interest.


175. A full Regulatory Impact Assessment (RIA) of the costs and benefits that the Bill would have is available to the public from:

     Department of Trade and Industry

     Utilities Bill Team

     Room 647

     1 Victoria Street

     London SW1H 0ET

     Tel: 0171-215 5381

176. The RIA shows that the cross-utility reforms being introduced as part of the Bill will not generally have any direct compliance costs for the utilities. However, utility companies will have to bear a share, through higher licence fees, of any increase in costs incurred by the regulators arising from the reforms designed to improve the transparency, consistency, predictability and accountability of regulation. Total recurring costs for the three regulatory authorities combined, are estimated to be in the region of £1.0m - £1.2m. Non-recurring costs will be in the region of £0.2m. The companies will also have to bear a share (again through higher licence fees) of the increased costs arising from the establishment of independent consumer councils. The net additional recurring costs (after taking account of offsetting savings in the regulatory offices) are estimated to be in the region of £3m - £4m per annum, with non-recurring set up costs estimated at between £3m and £7.5m.

177. Some of the changes to regulation governing the gas and electricity sectors will carry a direct compliance cost burden for companies in those sectors. The most significant costs will arise from implementation of the new electricity trading arrangements. It is estimated that these reforms will involve combined one-off set up costs for the industry of up to £581m - costs which will be recovered over time from the supply industry. Annual recurring costs for each major participant in the generation market are estimated at £1m. There will also be compliance costs arising from the legal separation of electricity supply and distribution which will entail companies in some internal re-organisation. The level of costs incurred by individual PESs will hinge on the extent to which they have already organised themselves internally into separate supply and distribution branches. Many have already done so.

178. There may be compliance costs arising from the use by Ministers in the energy sector, of powers to make regulations to promote energy efficiency, and the generation of electricity from renewable sources, and the reserve power to raise a cross-subsidy in favour of disadvantaged groups of customers. The extent of the costs for business will depend on how the power is used. The Government is committed to ensuring that a separate RIA is prepared each time the new powers are used.


179. The Bill will be brought into force on a day or days appointed by commencement order. It is intended that the various provisions will be brought into force as soon as possible once the necessary preparatory measures have been taken. In particular, it is intended that provisions relating to the introduction of the new electricity trading arrangements should be commenced on Royal Assent.


180. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement before second reading about the compatibility of the provisions of the Bill with the Convention rights (as defined in section 1 of that Act). Stephen Byers, the Secretary of State for Trade and Industry, has made the following statement:

In my view, the provisions of the Utilities Bill are compatible with the Convention rights.

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Prepared: 25 January 2000