Memorandum by the Department of the Environment,
Transport & the Regions (DWB 35)
WATER ADVISORY PANEL
BACKGROUND
1. In its Green Paper of March 1998 "A
Fair Deal For Consumers—Modernising the Framework for Utility
Regulation" the Government set out its wish to reconsider
the suitability of conferring considerable power on single regulators
as the most effective means by which regulatory offices could
perform their duties. The Paper invited views on the following
three alternatives, with the aim of introducing stronger checks
and balances within the regulatory offices and a stronger element
of accountability:
(a) the appointment of a statutory advisory
group to support each sectoral regulator;
(b) the replacement of each regulator with
small executive boards;
(c ) the replacement of individual regulators
with small commissions.
2. In July 1999 the Government announced
that for the water sector it had been decided to retain a single
regulator to be supported by an advisory panel appointed by Ministers.
Unlike the telecommunications and energy sectors, where the decision
was taken to replace individual sectoral regulators with executive
boards, the water sector was less complex with far fewer regulated
companies. In these circumstances, it was considered that a single
economic regulator would provide more regulatory certainty, clearer
accountability and speedier decision-making. The proposed advisory
panel would help provide appropriate checks and balances. In addition,
the water sector has two other regulators: the Environment Agency
and the Drinking Water Inspectorate—which also help provide
balance.
3. The Director General already makes use
of the services of an informal panel of expert business advisors.
The panel is appointed by and advises the Director General on
his decisions. The proposed Water Advisory Panel would formalise
the Director General's use of expert advisors, and extend their
area of expertise, while the appointment of the members by Ministers
would strengthen the panel's independence.
MEMBERSHIP
4. The Panel's members would be appointed
by the Secretary of State after consulting the Director General
and the National Assembly for Wales. The appointment process would
be undertaken in accordance with the principles of openness and
transparency established by the Committee on Standards in Public
Life. Appointments would be for not more than five years, although
members could be reappointed and could be dismissed in circumstances
of incapacity or misbehaviour. Remuneration and expenses, determined
by the Secretary of State, would be met from OFWAT'S budget, and
hence from charges. The Director General would be responsible
for providing all necessary information and assistance to the
Panel to enable it to fulfil its remit.
5. The Bill leaves the size and composition
of the Panel to the Secretary of State to determine in order to
enable it to be changed, if necessary, in the light of experience
of the Panel's effectiveness and of developments in the industry.
The Secretary of State will want to consider the membership nearer
the time of appointment. However, it is envisaged that the Panel
would include members with financial and economic expertise, with
knowledge and experience of relevant environmental issues, and
with an understanding of customers' perspectives. Panel members
would be appointed in a personal capacity in the light of their
expertise and experience, rather than as representatives of particular
interest groups.
ROLE
6. Primarily, it would be for the Director
General to agree with the Panel the working arrangements. He would
be expected to refer appropriate matters to the Panel for advice.
Matters where advice from the Panel might be sought could include
significant issues in relation to Periodic Price Reviews, decisions
in respect of the structure of the industry, and decisions with
general environmental or customer implications. If the Secretary
of State (or the National Assembly for Wales in respect of matters
relating to undertakers whose area is wholly or mainly in Wales)
considered it necessary he could, following consultation with
the Director, require the Director to seek the Panel's advice
on specific issues. The Director General would be required to
consider the Panel's advice, but would not be obliged to follow
it.
7. The Panel would not have any new interventionist
role or powers and its remit would be limited to providing advice
on matters on which its advice was sought. It is likely that the
Panel would be classified as an advisory Non Departmental Public
Body (NDPB).
8. It is envisaged that the Panel's advice
would be made public once the Director General had made his decision
and where there were no problems with commercial confidentiality.
The Director General's Annual Report is already used to report
on the general issues taken into account in reaching regulatory
decisions. In addition, the Director General publishes specific
reports containing information relating to major regulatory decisions,
such as the Periodic Review. The Panel's advice in respect of
such matters could appropriately be included in both the Director
General's Annual Report and in other reports on specific issues.
February 2001
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