Examination of Witnesses (Questions 254-259)|
WEDNESDAY 9 APRIL 2003
254. Mr Armour and Mr Love, welcome to the meeting
of the Committee this afternoon, which is being recorded. We are
most grateful to you for being with us, and equally we are grateful
for the paper that was put in, which has been extremely helpful,
and clearly we would like to pursue with you the points that you
embodied within that. Before we get underway, could I invite you
just to introduce yourselves, primarily for the record, say who
you are and your position, so we are clear on that? Mr Armour,
would you like to start?
(Mr Armour) Thank you. My name is Robert
Armour. I am Secretary of British Energy. On my left, David Love,
Head of Regulation. British Energy, as you know, is primarily
the nuclear generator in the UK, and as such is fairly heavily
regulated. We are regulated commercially by the Financial Services
Authority (FSA) and Ofgem, in terms of the environment by the
Environment Agency and Scottish Environment Protection Agency
(SEPA) in terms of safety by the Nuclear Installations Inspectorate
(NII) and the Health and Safety Executive (HSE) and in terms of
security by the Office for Civil Nuclear Security (OCNS). So we
feel we are reasonably qualified to talk about the effects of
255. Indeed; fine, thank you very much indeed.
Before we put questions based on the paper, are there any opening
points you would like to draw to the Committee's attention?
(Mr Armour) I think, only that, as a company, we believe
that regulation is important. Our licence to operate, and the
public takes a great deal of heart from the fact, as a nuclear
operator, we are regulated and scrutinised by a variety of bodies.
The issue for us is the proportionality of the regulation, and
indeed we contributed evidence to the Better Regulation Task Force
and the Trade and Industry Select Committee on many of the same
points that we are putting forward today.
256. Thank you very much indeed. Yes, it was
clear from the paper there is no principled objection to regulation,
it is the way in which actually it operates; and really some of
the points you draw out in the paper I think we would like to
pursue with you, where clearly you perceive there are pinch-points,
there are problems in the process itself, and I suspect most of
the questions will focus on Ofgem. If I could start by looking
at one of the problems you identify, which is the appeals mechanism.
The principal method of appeal is through judicial review, which
clearly is perhaps a heavy-handed way of dealing with it, and
expensive and slow. Now you would like to see a change in the
method of appeals, for some mechanism where the merits of decisions
could be appealed; you refer to the Financial Services Markets
Tribunal, and you refer to what is being provided for in the Communications
Bill. Could I invite you then to flesh out the sort of appeals
process you would like to see, actually how will it operate?
(Mr Armour) In some of the areas where we are regulated,
at this point in time, we find ourselves with no appeals mechanism,
as such, we can seek judicial review. Judicial review to us is
a sledgehammer, it creates an uphill struggle on the part of the
regulated body to prove that the regulator was completely unreasonable
or stark raving mad, it makes it a difficult process coming from
the regulated body. If one goes back to the human rights legislation,
the basic principle is that there should be some sort of appeal
on the merits, rather than whether it was totally unreasonable,
and that is why we have sought that. We sought it in the case
of the utilities legislation, at the time of the Utilities Bill
going in, and indeed I think we take some heart from both the
Better Regulation Task Force suggesting that this was appropriate,
and then only last week the Trade and Industry Committee saying
it thought an appeals mechanism would be sensible in any forthcoming
Energy Act. Do you want to expand on that, David?
(Mr Love) Yes. I think it goes to the heart of one
of the Better Regulation Task Force's main principles, which is
accountability, and we think the correct accountability is to
an independent third party body to hear appeals on their merits.
I think there is a debate to be had about ensuring that the triggers
that are available to seek an appeal do not actually get in the
way of, are not used to frustrate, genuine, proper decisions that
should be put through, and I think there needs to be a proper
debate about that. And we welcome the statement from the DTI that
they are going to be consulting separately on appeals within the
energy market against the kind of code change decisions which
are the ones that are really important to us at the moment.
(Mr Armour) And the position there has moved backwards,
to some extent, in recent years. A couple of years ago, we took
a case, effectively, we ended up at the Competition Commission;
effectively, that was a challenge on the merits. We find now that,
with the codification, that right to go to the Competition Commission
on these issues is no longer there for us, so, effectively, our
only right is judicial review, and I think that is a retrograde
257. So, from your point of view, the position
actually is getting somewhat worse, rather than improving?
(Mr Armour) Yes.
258. So did you have in mind something like
the Competition Appeals Tribunal body that would be appropriate
for considering the merits?
(Mr Love) Whether it was the Competition Appeals Tribunal
specifically or perhaps a specific kind of body constituted for
the sector such as an energy tribunal of some kind, like you have
got in telecoms, like you have got under the financial services
(Mr Armour) There is an affinity between the issues
in gas and electricity, but whether you have something specific
for that, or whether you have just a general competition body,
we are open-minded about, it is just the fact that you have some
sort of recourse to test it. The same goes for some of our other
regulators, in a sense, although, in practice, we have not felt
the need to exercise these in the past. But as a general principle
it should be open to us in other cases, as an appropriate check
to focus the regulator's mind before they make regulations.
Chairman: Thank you very much.
259. I would like to ask about the proposal
for a select committee, which you talk about in paragraphs 17
and 24: "Given the importance and size of the utility sectors
subject to economic regulation, we support the Electricity Association's
(EA) proposal for the creation of a specific cross-sectoral Select
Committee for Regulatory Accountability (SCRA) to carry out this
function." I wonder, first of all, has the Electricity Association,
or anybody else, been advocating this for some time, and, secondly,
is this the first time you have specifically blessed this, or
have you all been talking about this for years?
(Mr Love) I think it is the first time it has actually
crystallised as a suggestion. I think there has been I would not
say concern but, just looking at the current parliamentary scrutiny,
which is more kind of ad hoc, by the House of Commons Trade
and Industry Committee, primarily, perhaps the feeling that there
needs to be a body that looks at regulation across the piece and
looks particularly perhaps at utility regulation. There are a
lot of similarities between the energy markets, telecoms, perhaps
rail, perhaps water as well, where you could try to establish
best practice, and a committee that could say, "Right, that
particular regulator's doing that particularly well, and we think
that should be promulgated through other utility regulators."