House of Lords - Explanatory Note
Utilities Bill - continued          House of Lords

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Clauses 88 - 93: Gas performance standards

156. The commentary on these clauses is provided alongside the equivalent provisions for electricity (paragraphs 106 - 111 above).

Clauses 94 - 95: Enforcement of obligations of gas licence holders

157. The commentary on these clauses is provided above alongside the equivalent provisions for electricity (paragraphs 112 - 119 above).

Clause 96: Remuneration and service standards

158. The commentary on this clause is provided alongside the equivalent provisions for electricity (paragraphs 120 - 124 above).

Clauses 97 - 101: Miscellaneous

159. The commentary on clauses 97-98 is provided alongside the equivalent provisions for electricity (paragraphs 131 - 132 above).

160. Clause 99: Exercise of power to make regulations. This clause amends the 1986 Act so that regulations made by the Authority under Part I of that Act are not subject to Parliamentary approval. This is in line with the principle of arm's length regulation by the regulatory authority and aligns the procedure with that which currently applies in the 1989 Act.

161. Clause 100: Standards of gas quality. The present regulatory regime does not provide for the regulation of gas quality issues which do not have a significant safety aspect but which may nevertheless have a substantial impact on consumers. The clause will address this gap by conferring on the Authority a power to make regulations regulating the quality of gas which may be conveyed by gas transporters to premises or to pipeline systems operated by other gas transporters in relation to pressure and purity, and other standards with respect to the properties, condition and composition of gas so conveyed.

162. The Authority's exercise of this power is to be subject to the consent of the Secretary of State. The Authority is to be required to consult such persons and organisations as it considers appropriate before making any regulations.

163. The Health and Safety Executive has, and will retain, a power to regulate gas quality insofar as safety may be affected. The new power for the Authority will ensure that there is no regulatory gap in relation to non-safety issues of gas quality. The duty on the Authority to consult the Health and Safety Executive on safety matters should ensure that, where a gas quality issue has both safety and non-safety aspects, the issue is identified and addressed by the appropriate body.

164. The commentary on clause 101 is provided alongside the equivalent clause for electricity (paragraphs 136 - 138 above).


Clause 102: Miscellaneous

165. Clause 102: Specialist Panel members of the Competition Commission. This clause provides for the abolition of the Competition Commission's electricity panel and its replacement with a specialist gas and electricity panel. The Secretary of State will be responsible for appointing at least six specialist members of the Competition Commission for the purpose of the Commission's functions in relation to gas and electricity licence modification references or references relating to licensable activities. The chairman of the Commission will be obliged to select one or more of these specialist members to serve on any group carrying out such functions.

     Clauses 103 - 107: Supplementary

166. Clause 104 makes provision for Parliament to fund expenditure resulting from changes introduced by the Bill. Clause 105 and Schedules 6, 7 and 8 deal with consequential amendments, transitional provisions, savings and repeals. Clause 106 gives the Secretary of State the power to make any necessary transitional provisions and savings.


167. Changes introduced by the Bill will increase public expenditure in the short term. The key short term costs, some of which have already been incurred, are: OFGEM's expenditure on preparations for the introduction of new electricity trading arrangements (estimated at £27.7m over the two year period from 1999 - 2001); the costs of merging OFFER and OFGAS to form OFGEM (estimated at £14.6m over the same period); and the costs of abolishing the existing consumer arrangements and establishing the Gas and Electricity Consumer Council.

168. In the longer term, the costs of running OFGEM are likely to fall because a number of the consumer related activities of the regulator will, in future, be undertaken by the Council, in particular the responsibility for handling consumer complaints. In addition, the merger of OFFER and OFGAS should, in time, produce running-cost savings. However, the total cost of the regulatory system, taking OFGEM and the Council together, will increase. Total additional running costs, attributable to changes introduced by the Bill are currently estimated at £1.3m - £1.6m per year, once transitional and short term costs have been met.

169. There will be minor additional costs for central Government departments, arising principally from the need to recruit a larger number of office holders to serve with the regulatory Authority.

170. The projected increases in public expenditure will not generally affect public borrowing because the costs will be recovered in full from licence fees. These fees are treated as negative public expenditure for control purposes. There will, therefore, be no increase in the Government's preferred measure of public expenditure ("Total Managed Expenditure").


171. The Bill gives the Authority, and thus OFGEM, new tasks and responsibilities which will create upward pressure on manpower. The separation of the activities of electricity supply and distribution, the implementation of the new electricity trading arrangements, and the work involved in merging OFFER and OFGAS and establishing the Council, for example, will all have short term manpower implications.

172. The upward pressure on manpower will be offset, in part, by the transfer of OFGEM's responsibilities for handling unresolved consumer complaints against electricity companies to the Council. It is estimated that about 100 - 140 staff are currently employed by OFGEM on activities and functions of the type that will, in future, be undertaken by the Council. The manpower requirements of the Council will depend on final decisions to be taken on its organisational structure. The Council will be classified as a non-departmental public body, and its staff will not, therefore, be civil servants.

173. The table below sets out the current best estimate of the public service manpower requirements of the new bodies to be created by the Bill, and compares these with the position at the end of 1998. The projected increase in the overall manpower requirement is not solely attributable to changes being brought about through the Bill. For example, the increase in the OFGEM figure is attributable, in part, to the continuing development of competitive gas and electricity markets, and a decision to develop and make greater use of in-house advice, in preference to external consultants.

OrganisationManpower at 31 December 1998Estimated manpower at 31 December 2000
OFFER/OFGAS (pre-merger)402-
OFGEM -380 - 420
Gas Consumers Council110-
Gas and Electricity Consumer Council-200 - 240
TOTAL512580 - 660


174. A full Regulatory Impact Assessment (RIA) of the costs and benefits that the Bill would have (which has been updated, inter alia, to reflect changes to the Bill since it was introduced into the House of Commons) is available to the public from:

          Department of Trade and Industry
          Utilities Review Team
          Room 647
          1 Victoria Street
          London SW1H 0ET

          Tel: 0171-215 5381

It is also available at

175. The RIA shows that changes being introduced by the Bill will have both direct and indirect cost implications for companies in the gas and electricity sector. The most significant direct compliance costs will arise from implementation of the new electricity trading arrangements. It is estimated that these reforms will involve combined one-off set up costs for the industry of up to £581m - costs which will be recovered over time from the supply industry. Annual recurring costs for each major participant in the generation market are estimated at £1m. There will also be compliance costs arising from the legal separation of electricity supply and distribution which will entail companies in some internal re-organisation. The level of costs incurred by individual PESs will hinge on the extent to which they have already organised themselves internally into separate supply and distribution branches. Many have already done so.

176. There may be compliance costs arising from the use by Ministers of the powers to make regulations to promote energy efficiency, and the generation of electricity from renewable sources, and the power, if it is used, to raise a cross-subsidy in favour of disadvantaged groups of customers. The extent of the costs for business will depend on how the powers are used. The Government is committed to ensuring that a separate RIA is prepared on each occasion where Government proposes to use the new powers.

177. The other reforms being introduced as part of the Bill will not generally have direct compliance costs for companies. However, companies will have to bear a share, through higher licence fees, of changes which are expected to increase the overall cost of the regulatory system. In the short term, these will be the costs associated with the establishment of the Council, the merger of OFFER and OFGAS and the introduction of the new electricity trading arrangements. In the longer term, the main additional cost to be borne by companies will be the extra cost of running the Council compared to the existing consumer arrangements. These extra costs have been estimated as being in the region of £1m - £1.3m per annum but are subject to change in the light of decisions to be taken on the size and organisational structure of the Council. Companies will also have to meet the cost of regulatory reforms designed to improve the transparency, consistency and predictability of regulation. These will be small. They are expected to amount to an additional £0.3m per year.


178. The Bill will be brought into force on a day or days appointed by commencement order. It is intended that the various provisions will be brought into force as soon as possible once the necessary preparatory measures have been taken. In particular, it is intended that provisions relating to the introduction of the new electricity trading arrangements should be commenced on Royal Assent.


179. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement before second reading about the compatibility of the provisions of the Bill with the Convention rights (as defined in section 1 of that Act). Lord McIntosh of Haringey has made the following statement:

In my view, the provisions of the Utilities Bill are compatible with the Convention rights.

HL Bill 58-EN 2 52/3

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Prepared: 25 April 2000