Examination of Witnesses (Questions 72-79)
MR STEVE
SMITH AND
MS SARAH
HARRISON
7 NOVEMBER 2006
Q72 Mr Chaytor: Good morning, Sarah and
Steve. I am taking the chair today in the absence of Tim Yeo,
the Chairman of our Committee who is in foreign parts. We are
a small but very select group of committee members this morning.
What we lack in quantity we will make up for, I hope, in quality.
Our sessions are fairly informal. You know our interest in Environmental
Impact Assessment. We have had one informal briefing seminar;
we have had one previous session with two witnesses; and this
session today which will be our final session. In the second half
of the meeting we will interview representatives of Friends of
the Earth and then move to writing our report. Welcome to the
Committee. We have received your memorandum which was short and
sweet compared to some memoranda we have received on this topic.
To a degree I felt slightly ambiguous because we were trying to
get a fairly specific view of whether people thought the RIA system
was working or not and you tended to sit on the fence. Could you
clarify the Ofgem view of RIAs in general; are you content with
the way it works; and do you think it does give adequate coverage
of sustainable development and environmental issues?
Ms Harrison: Thank you for inviting
us to come along today. Can I begin perhaps with a couple of introductory
remarks and to explain, for your benefit, what Steve and I do.
My responsibility at Ofgem with a corporate affairs brief is to
look after the way in which the organisation approaches its work
on Impact Assessment, and to make sure that we fulfil our section
5A duty to conduct Impact Assessment in respect of important decisions,
and I have a small Better Regulation Unit that is charged with
that. Steve will explain himself that his area of policy includes
the environmental team, and within that team we have some expertise
that particularly helps us in considering the environmental aspects
and elements of our policies and our processes. I think that the
particular issue on our view on RIAs is that, as an organisation,
we have now had a statutory duty to conduct RIAs since 2003. We
have in fact been doing that as part of our policy process since
the middle of 2003. We have conducted some 70-odd in the time
that we have been pursuing that. I think I very much agree with
some of the remarks, and conclusions if you like, the NAO draw
out of its briefing to the Committee. Basically its assessment
was that RIAs have some way to go, but as a basis we ought to
continue to invest in them rather than rather look to an alternative.
I think that is very much our view. Our own practice on the development
of RIAs really has evolved very much in the three years that we
have been conducting them. We see them as very valuable tool as
part of our policy development-making process. In respect of sustainable
development, in particular the ability of RIAs to accommodate
sustainable development, I think you have to look from our perspective
at least at the context of our duties and the statutory framework
in which we operate, because that drives some of the elements
we consider in developing our Impact Assessment. Our statutory
framework includes our principal duty to protect consumers present
and future; but it also encompasses duties in respect of economic
efficiency, in respect of the environment, in respect of the needs
of vulnerable customers, and indeed in respect of the achievement
of sustainable development. All of those things together combine
to support the consideration of sustainable development in our
policy and, therefore, translate directly into the Impact Assessment
process. I think that is a very important linkage in considering
the effectiveness of the IAs. The other comment we would make
about IAs, picking up again on the sentiment from the NAO briefing,
is that the real challenge is in respect of the rigour, if you
like, of the analysis and assessment that goes into initiating
and then developing the RIA. That is an area which for Ofgem as
an independent regulator whose stock in trade is independent analysis
of policy options, where consideration of proposals is very much
core to what we do. Therefore, I am not saying our practice is
perfect, but I think our practice is strong by reference perhaps
to other approaches that may be taken. It is something we will
continue to invest in.
Q73 Mr Chaytor: Could I just clarify
one specific point. Your duty under section 5 concerns Impact
Assessment—do you follow precisely the same model as the
Government's own Regulatory Impact Assessment, or is there a different
methodology? How do they relate—the Ofgem Impact Assessment
and the Government's regulatory practices; are they identical?
Ms Harrison: The statutory duty
is to undertake Impact Assessments in respect of important decisions,
and in particular also to consider environmental effects. We have
developed our own framework. We very much look to the Cabinet
Office and Better Regulation Executive's guidance. We also look
to the NAO's experience and comment as part of its scrutiny role.
We have developed our own framework; and essentially our framework
identifies the objectives of a policy, the issues for consideration;
the effects on competition; and then it also looks at the impacts,
be they environmental, be they distributional, or be they impacts
on health and safety. All those matters are related to our statutory
framework.
Q74 Mr Chaytor: Would it be possible
to send the Committee a copy of your framework so that we can
compare it with other models?
Ms Harrison: Yes, of course. We
have actually published our guidance on Impact Assessment, and
we will in fact, as an organisation, be reviewing it in the next
six to nine months to take account of a number of factors, not
least of which will be the report perhaps of this Committee.
Q75 Joan Walley: Can I just press
you a bit further on that. You have given us a description of
how you apply this but what I do not understand—given the
comment that you made that you noted "the criticisms made
that including an assessment of sustainability impacts in Government
IAs has not been as successful as it might in driving change across
government"—is whether or not it is the way that it
is applied, or whether or not it is the actual form of sustainable
development not being at the heart of the Impact Assessment in
the first place?
Ms Harrison: Two points on that.
First of all, I think there are the challenges about the way in
which IAs are fulfilled, and at the heart of what our operational
Impact Assessment approach is about is trying to give the fullest
and most thorough analysis of the policy options available; and
it is the commitment, if you like, to undertake that full and
thorough analysis which is key to making it work well within the
existing framework. Secondly, in terms of the framework going
forward, we ourselves are looking at our own framework for Impact
Assessments. In particular we will be asking ourselves the question,
"Can we improve the way in which we consider sustainable
development issues at the moment?" As I outlined, we have
a requirement to look at distributional effects, to look at economic
effects and to look at environmental effects; it is a question
for us to consider where we can improve our practice in the way
in which we very specifically take account of sustainability issues.
Q76 Joan Walley: Do you think as
things stand at the moment with the Regulatory Impact Assessment
that Government does, that that pays the accounts to sustainable
development that should really be there?
Ms Harrison: I am best qualified
really to comment on our own approach. I do think there are some
differences between the approach that we pursue and perhaps those
that other Whitehall departments pursue. The point I am making
is that one of reasons for that is that our approach is really
driven by a detailed statutory framework and set of duties which
specifically points us towards all the elements of sustainability.
My comments are really in particular about our own approach.
Q77 Joan Walley: Would you say that
what you do is more likely to result in sustainable development
than the Government approach?
Ms Harrison: I am saying that
our approach specifically asks us to look at the elements of policy
and how that impacts upon our duties; and those duties in the
round contribute to sustainable development. Our approach is quite
targeted in that respect. It can be improved but it is quite targeted.
Mr Smith: The problem is, being
candid, with the RIA template, if you push it, and say, "It
must have a section where there is sustainable development",
it will only be as good as the effort and energy that is put into
doing that assessment. Being candid, part of my role in Ofgem
(I have the environmental brief) is to challenge colleagues at
board level and say, "Have you really thought about the sustainable
issues here?" and to be a champion for that. The actual analysis
you have to do under sustainability is very hard and it is difficult.
I think you need not just the requirement in the IA itself to
do it, but you need the commitment from senior people, whether
it is a Government department or Ofgem or whoever, to do that.
I do not think people are unwilling but it is the section they
come to and think "Gosh this is actually really difficult",
and it does not lend itself as well to the financial analysis
you do in the other sections of the IA. I think it is all about
the commitment you get from whoever is producing the document
to do what would be the hardest part. Certainly in Ofgem there
is no lack of enthusiasm; but in many of the policy issues we
deal with it is the most difficult part to actually work out what
the sustainability aspects of the proposal are.
Q78 Dr Turner: Sustainability is
a recent addition to Ofgem's framework of responsibilities. Prior
to that I think it is fair to say that a much more potent driver
for Ofgem was security of supply. Having the RIA mechanism in
existence, how does that actually help you in a) developing the
sustainable development agenda as far as Ofgem is concerned; and
b) also continuing this security of supply? Or is it perhaps a
hindrance? Are RIAs truly relevant to what you are doing? Do they
help, or do they not?
Mr Smith: I think they do help
because it is an important discipline and it is a way of making
you think about something you are going to do, your policy, from
a range of different angles. I do not think we see a big conflict
between security of supply and sustainability; because in some
senses it really just points to the cost of achieving anything.
If you look at the generation sector, you can have security of
supply with any series of generation technologies, it is just
that sustainability may push you to more expensive generation
technologies. I do not think we see any conflict between the two.
I think the IAs are a helpful way for any policy of really focussing
the mind to say you can rush to thinking this is the answer, but
then you have not thought through all of the different aspects,
including impact on sustainability. I think it is just a useful
tool to make people think as they are developing policy across
all the different dimensions.
Q79 Dr Turner: Could you be more
specific about the system in terms of driving sustainable development?
Mr Smith: I can give you some
recent examples. For example, we are in the middle of price controls
on the network companies, and there was an issue that came up
as the network companies use SF6, which is a very nasty greenhouse
gas, very potent; and through that framework of IA analysis we
said, "Hang on a minute, there is an issue here". It
led to us to propose actually having an incentive on the companies
to manage and, hopefully, reduce any leakages of this from the
system. There is an example of where the framework drives you.
Normally you would be thinking about efficiency and costs and
the usual things you do under price control, but here you actually
stop, take a step sideways and say, "There's something where
we could make a positive difference".
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