Examination of Witnesses (Questions 480-485)|
TUESDAY 20 NOVEMBER 2001
Sir Robert Smith
480. This morning, the Minister did say they
were under an obligation and they were going to come forward.
Will it be an improvementwell, I suppose it depends on
what they come forward withbut, on the whole, do you see
the environment and the social responsibilities coming on to Ofgem
might, in the long run, reduce some of these conflicts, in the
sense that they will all come through the regulator, working to
those targets, as well as the price target?
(Mr Lescoeur) Yes; and I think that also
maybe it is our industry's point of view that, whatever regulation
you have, it has to be predictable; and the problem of putting
under stress the regulator to arbitrate between different and
conflicting objectives could result in a not very stable, in the
long term, unpredictable condition. And it is a worry for a very
capital-intensive industry, because it increases the cost of capital.
481. It has to be said that the new regulator,
to the extent he is new after these years in office now, he came
in against a backdrop of fairly light regulation, which resulted
in you guys having rather large profits, and we, as consumers,
paying rather more than we are paying now for the electricity
we receive, and there was a clear imperative imposed upon him
that he had to get prices down to levels that were deemed to be
not unreasonable. Are you saying that he has perhaps been overzealous
in his downward pressure on prices?
(Mr Armour) The regulator has a duty to encourage
competition in the market.
482. He also has a responsibility to the consumer,
and that has been elevated in the hierarchy of priorities as a
consequence of the Utilities Act.
(Mr Armour) But the consequence of the market you
have at present is that electricity prices are, with the exception
of the Renewables Obligation, below the cost under which new investment
would be encouraged into the industry, and I think you have heard
that previously. So that, in the longer term, that is not necessarily
a sustainable position; now that is something the market will
correct. But the second aspect is, if you take the environmental
aspects, you are paying for these one way or another; whether
you are paying for these through your electricity bill, or whether
you are paying for them through the Health Service, or whether
you are paying for them in some other way, these costs are real
and the impacts on society are real. So taking them into account,
in the way that you approach regulation, does seem a sensible
Chairman: We are having Lord Haskins in for
a chat, and I am not sure if it is a public session or a private
one, but we are having him in for some guidance, and we will have
the regulator in as well, and we will seek to raise some of these
issues with him; but, at the present moment, the only people who
seem to be complaining about the way the regulator is working
is the people who are being regulated, everybody else is quite
happy. I do not get many people coming to my constituency saying,
`I'm so worried about the long-term energy supply situation in
the UK that I'm prepared to pay more for my electricity bills.'
And certainly I would not want to put words in the mouth of the
Chemical Industries Association, but the Association did not say
to us that they were prepared to pay far higher bills in order
to establish security of supply this afternoon. So I just warn
you that maybe the bubble in which you are living may not be quite
as convenient outwith it as it is within.
483. In your document, you say that energy policies
are developed and implemented by a wide range of players, there
is insufficient co-ordination between Departments at the level
of national government. And you go to great lengths of putting
all the agencies together. What more should be done to co-ordinate
policy with other levels of government, do you have any ideas
what should be done?
(Dr Porter) It is true, of course, that we are regulated
not only by Ofgem but a variety of other regulatory agencies,
both in England and Wales and in Scotland; and that can lead to
some policy conflicts, from time to time, and perhaps to some
duplication and overlap. I think all we are saying at the present
time is that we support what many other witnesses have said, the
desire for joined-up government, if you like, and consistent policy.
There have been suggestions of single agencies, a strategic energy
agency, or whatever you might like to call it; we certainly would
not go that far at the present time. We do not have an Association
policy on that particular issue, other than to say that we would
like to seeand perhaps the PIU report will encourage thisan
informed public debate on this issue, in order to see what a good
solution might be to improving the present, if you like, disparity
of regulatory bodies.
484. But you do say that you would like to see
at least one department, a specific department, charged with overall
(Dr Porter) We put that forward as a possibility.
I think there was a subjunctive in there. All I am reiterating
there is that we would like to see this examined as an option,
we are not necessarily suggesting that that is the answer.
485. But would we not be reinventing the Department
of Energy, as it was?
(Dr Porter) Not necessarily, no.
Chairman: Thanks very much, gentlemen. I am
conscious of the hour, and I realise some of you have travelled
some considerable distance to be here tonight. Thank you very
much. If we have any other matters to return to, we will do it
by letter, and thanks very much for your time and your trouble.