Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 480-485)



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 improvement—well, I suppose it depends on what they come forward with—but, 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 overall view.

  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.

Dr Kumar

  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 see—and perhaps the PIU report will encourage this—an 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 responsibility?
  (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. Thank you.

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