Previous Section Back to Table of Contents Lords Hansard Home Page

Lord Sainsbury of Turville: My Lords, these amendments share a common theme with Amendment

15 Oct 2002 : Column 825

No. 94, except that Clause 129 is concerned not with a threshold for investigation but with the final finding by the Competition Commission of adverse effects on competition and any detrimental effects on customers arising from them.

There are two aspects to these findings: they are the formal record of the competition problems which the commission has found in its investigation, and they trigger the Competition Commission's duty to take remedial action.

It would not be right to limit the formal conclusions of the commission's economic analysis of the markets which it has investigated to setting out only those adverse effects or detrimental effects which the commission considers "significant". These are lengthy and detailed investigations, and the commission should reach formal conclusions on the existence of any adverse effects on competition, or detrimental effects on customers which it has found.

It has long been recognised that the published analysis provided by Competition Commission reports has an importance independent of any remedial action taken as a result of that analysis, and it would not be appropriate to blunt the sharpness of that analysis by excluding some of its conclusions by reference to some criterion of "significance".

With regard to remedial action, I agree that the commission should not intervene in markets without adequate justification. But we believe that the way the commission's duty to remedy is framed provides an adequate safeguard against excessive regulatory interference. The commission's remedies must be "reasonable and practicable". As the commission has recognised in its draft guidance on market investigations, a remedy cannot be reasonable if it is not proportionate to the magnitude of the adverse effects on competition or detrimental effects on customers that it addresses.

That means that it is possible for the commission to find that a particular adverse or detrimental effect is so negligible that no proportionate remedy can be found to address it—and so leave it unremedied. On the other hand, if a remedy can be found which is proportionate to some relatively minor adverse or detrimental effect, by virtue of being sufficiently unintrusive, and having a sufficiently low implementation cost, we think it right that the adverse or detrimental effect should be remedied. There is no need for "significance" to be included in either aspect and therefore no need for the amendments.

Lord Hunt of Wirral: My Lords, I thank my noble friend Lord Hodgson of Astley Abbotts for his supportive words. We are facing a difficult and slightly paradoxical situation where the Minister seeks to reassure us that there is no need to insert the word "significant" because the commission would go down this road only if there was a significant effect. Therefore, I ask myself—probably too simplistically—why "significant" cannot be inserted.

15 Oct 2002 : Column 826

However, the Minister has sought to reassure me about the proportionate effects and the proportionate situation which would govern the way that the commission would operate. I shall take time to reflect on what he has said. But I say once again that there are some strong views held outside this place that instead of implying the word "significant", it should be expressly on the face of the Bill. As I said, I shall take time to consider. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 101 to 103 not moved.]

Lord Sainsbury of Turville moved Amendment No. 104:

    Page 98, line 12, after "customers" insert "or future customers"

On Question, amendment agreed to.

[Amendment No. 105 not moved.]

Lord Sainsbury of Turville moved Amendment No. 106:

    Page 98, line 27, after "customers" insert "or future customers"

On Question, amendment agreed to.

Clause 133 [Duty to remedy adverse effects]:

10.30 p.m.

Lord Sainsbury of Turville moved Amendment No. 107:

    Page 101, line 12, leave out paragraph (a) and insert—

"(a) no detrimental effect on customers has resulted from the adverse effect on competition; and"

On Question, amendment agreed to.

Clause 135 [Intervention notices under section 134(1)]:

Lord Sainsbury of Turville moved Amendments Nos. 108 and 109:

    Page 102, line 23, at end insert—

    "(1A) Where the Secretary of State believes that it is or may be the case that two or more public interest considerations are relevant to the case, he may decide not to mention in the intervention notice such of those considerations as he considers appropriate."

    Page 103, line 16, at end insert—

    "(6) In subsection (5)(d) the reference to the acceptance of the undertaking concerned or the making of the order concerned shall, in a case where the enforcement action under section 142(2) involves the acceptance of a group of undertakings, the making of a group of orders or the acceptance and making of a group of undertakings and orders, be treated as a reference to the acceptance or making of the last undertaking or order in the group; but undertakings or orders which vary, supersede or revoke earlier undertakings or orders shall be disregarded for the purposes of subsections (4)(g) and (5)(d)."

On Question, amendments agreed to.

Clause 142 [Remedial action by Secretary of State]:

Lord Sainsbury of Turville moved Amendments Nos. 110 to 112:

    Page 107, line 11, at end insert "; and

(b) has published his decision within the period required by subsection (3) of that section."
Page 107, line 19, leave out "resulting" and insert "it has resulted from, or may be expected to result"

15 Oct 2002 : Column 827

    Page 107, line 41, leave out from beginning to second "and" in line 43 and insert "no detrimental effect on customers has resulted from the adverse effect on competition"

On Question, amendments agreed to.

Clause 143 [Reversion of the matter to the Commission]:

Lord Sainsbury of Turville moved Amendments Nos. 113 to 115:

    Page 108, line 3, after "make" insert "and publish"

    Page 108, leave out line 8.

    Page 108, line 13 after "137" insert "(if still unpublished)"

On Question, amendments agreed to.

Clause 144 [Intervention notices under section 134(2)]:

Lord Sainsbury of Turville moved Amendment No. 116:

    Page 109, line 13, at end insert—

    "(1A) Where the Secretary of State believes that it is or may be the case that two or more public interest considerations are relevant to the case, he may decide not to mention in the intervention notice such of those considerations as he considers appropriate."

On Question, amendment agreed to.

Clause 148 [Specified considerations: Part 4]:

Lord Sainsbury of Turville moved Amendment No. 117:

    Page 111, line 15, leave out "adding to" and insert "specifying in this section a new consideration or"

On Question, amendment agreed to.

Clause 149 [Undertakings in lieu of market investigation references]:

Lord Sainsbury of Turville moved Amendment No. 118:

    Page 112, line 4, leave out paragraph (a) and insert—

"(a) no detrimental effect on customers has resulted from the adverse effect on competition"

On Question, amendment agreed to.

Clause 151 [Effect of undertakings under section 149]:

Lord Sainsbury of Turville moved Amendments Nos. 119 to 122:

    Page 113, line 38, after "undertaking" insert "or group of undertakings"

    Page 113, line 40, after "undertaking" insert "or group of undertakings"

    Page 114, line 1, leave out "the undertaking" and insert "any undertaking concerned"

    Page 114, line 4, leave out "the undertaking" and insert "any undertaking concerned"

On Question, amendments agreed to.

Lord Kingsland moved Amendment No. 123:

    Page 122, line 21, after "section" insert "and in sections (Regulations relating to appeals against decisions of sectoral regulators) and (Preliminary consultation on regulations),"

The noble Lord said: My Lords, I rise to move Amendment No. 123. As noble Lords know, the Bill contains some provisions which are specific to the activities of the utility sector.

The sector provides goods, services and facilities whose combined value accounts for about one-quarter of our gross domestic product. They are all heavily

15 Oct 2002 : Column 828

regulated under their own sectoral statutes by agencies which are Crown bodies: so in these industries there is effectively state control over prices, the quality of service and market conduct. There is one unique feature to the regulation of the utility sector, and that is the limited scope for appeal against regulatory decision.

Our amendments seek to remedy that situation by providing for more effective rights of appeal against the sectoral regulators. We believe that such mechanisms would encourage better decision-making by regulators because their decisions would be subject to the ultimate sanction of proper scrutiny on appeal. We also believe that this would improve the transparency and consistency of regulation and strengthen its accountability across the whole utility sector. In turn that would bring the sector more into line with the evolving principles of legal due process and fundamental fairness, improve both the credibility and legitimacy of regulatory decision-making and enhance investor confidence in the long-term stability of regulated industries.

Our concern is not about decisions that sectoral regulators may be entitled to take under their competition law powers; it is about the inadequate rights of appeal available to regulated companies against the much more extensive range of decisions taken by regulators acting under their sector-specific statutes. With only slight differences between the various industries, the current position is that challenges to such decisions or actions of a utility regulator can be mounted only in one of two ways: by forcing the referral of a disputed matter to the Competition Commission, on terms of reference drafted by the regulator alone; or via judicial review of the regulator's decision. It is increasingly clear that neither option is helpful to resolve disagreements between utility companies and their regulators.

In making that generalisation, perhaps I should make an exception for price control reviews. But even there, forcing a reference of a disputed price cap to the commission has come to be known among the industries as the "nuclear" option. That is because the aggrieved company must submit to a fresh examination by the commission of all the elements in the price cap—although many of those may not be in dispute with the regulator. Meanwhile, the introduction of collective licence modification procedures in gas and electricity has restricted the ability of those industries to have disputed issues examined by the Competition Commission.

On the other hand, judicial review can normally be used only to challenge regulators on limited grounds, such as misinterpretation of their legal powers or a failure to observe due process. It cannot be used to attack the substance of their decisions. Even challenge by way of judicial review is excluded in relation to some important types of regulatory action, such as enforcement proceedings, where sectoral statutes provide only for a so-called appeal on even narrower grounds. In most utility industries, the regulators also exercise quasi-judicial powers to determine customer-company disputes about terms of service, legislative

15 Oct 2002 : Column 829

powers to set standards of performance under virtually unchecked subordinate legislation and entrenched rights to modify parties' rights and obligations under a bewildering array of industry operating agreements and formal codes of practice.

Even where companies mount an appeal, regulators have been unwilling to accept the decisions of the appellate body. For example, during its most recent price control review, the Office of Water Services, the water industry regulator, consulted companies on a financial concept known as "broad equivalence". Put simply, that means aligning the allowance for accounting depreciation in a water company's price limits with the projected profile of its maintenance spending.

The industry opposed that approach, and two companies forced a reference of Ofwat's proposals to the Competition Commission. The commission rejected the proposals on the grounds that Ofwat had no good case for using the broad equivalence approach—not just for the two companies but in principle. However, Ofwat would not then apply that finding to all the other companies on which it had imposed the methodology, although the impact of doing so would have been materially favourable to their price limits.

In a similar vein, three years ago the Northern Ireland electricity service had to go all the way to the Court of Appeal to force its regulator to accept the findings of a public interest report by the Competition Commission about the prices that its network businesses could charge. More recently, the Office of Gas and Electricity Markets, the mainland electricity and gas regulator, also tried to ignore a finding by the commission that the public interest did not require a so-called market abuse licence condition to be inserted into generation licences. That campaign was stopped in its tracks only because the Secretary of State was unwilling to help Ofgem to impose that condition.

That last incident also revealed an unsatisfactory state of affairs concerning the cost of regulatory reference to the Competition Commission. After the commission had rejected the case for a market abuse licence condition, Ofgem sought to impose all of the costs of the commission's inquiry on the two referred generating companies—although they had roundly defeated Ofgem and although the issues involved in the reference were clearly of general relevance to the industry as a whole.

On any reasonable view of the matter, such action would have been perverse. But this was only a particularly acute example of a significant defect in the current position. For, whichever industry is involved, the regulator, besides being a party to the proceedings, also has discretion over how to allocate the costs of the reference. This approach is fundamentally flawed. It is unfair to referred companies, and it also makes the method of allocation that will be used, in any particular case, wholly unpredictable.

It seems quite wrong for such critically important industries to be regulated by agencies that are effectively able to operate in their own cause as

15 Oct 2002 : Column 830

policeman, prosecutor, judge, and jury. This almost seamless mingling of functions within one executive body appears to deny the industries the right to have their obligations determined by an independent and impartial tribunal.

I am aware that the Minister for Competition, Consumers and Markets in the DTI has already informed the Electricity Association in her letter of 22nd September that,

    "it is simply not practicable to regard the Enterprise Bill as a potential vehicle for any legislation on this matter".

I find that impossible to believe. After all, the only direct legal effect of these amendments is to provide a regulation-making power that the Government could exercise at any appropriate time after consulting extensively with all relevant stakeholders in the utility sector.

In brief, deficiencies in the present regulatory treatment of the utility sector could be remedied, while also taking account of actual or potential inconsistencies between individual regulatory regimes, so as to achieve an optimal outcome for all relevant interests.

Some important procedural issues are raised here. Under the amendments, very thorough public consultation and parliamentary scrutiny are necessary before the Government are permitted to make any regulations at all. This process is set out in three proposed new clauses—Clauses 163B to 163D—which specify detailed requirements for consultation on any proposals to make regulations, the contents of the proposals document to be laid before Parliament, and the nature and duration of the process for parliamentary consideration.

The procedure to be followed under these clauses is closely modelled on that laid down in Sections 4 to 8 of the Regulatory Reform Act 2001—an Act passed by the Government. It includes provision for a published cost-benefit analysis of the effect of any proposed regulations—in other words, the Government's proposals would be subject to a formal impact assessment of the kind that the sectoral regulators persistently fail to provide for their own pet projects.

The House can, therefore, see that, in addition to specifying a robust consultation process, these special requirements are also designed to afford a substantially greater degree of parliamentary scrutiny than that which ordinary affirmative resolution orders usually receive. On this side of the House, we regard such a procedure as an essential safeguard, since, under the empowering clause, the Government would be able to amend, extend, or, indeed, repeal any relevant piece of regulated utility legislation in order to achieve the purpose of the appeals regulations.

These amendments are specifically supported by the energy and water industries, and have wider general support from other great utility industries that are equally concerned about the limitations and injustices of the existing system. We believe that a better structured appeals regime will provide the right checks and balances between regulators' discretion and companies' interests. It would deliver optimal

15 Oct 2002 : Column 831

incentives on both sides and would also address growing inconsistencies between the appeals framework in the utility sector and that in other sectors. I beg to move.

10.45 p.m.

Lord Sainsbury of Turville: My Lords, I congratulate noble Lords on a brilliant and ferocious attack on the legislation produced by previous Conservative governments. The noble Lord made many telling points about the weaknesses in that legislation.

Next Section Back to Table of Contents Lords Hansard Home Page