Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence

Memorandum by the Department of the Environment, Transport & the Regions (DWB 35)



  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.


  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.


  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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