Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (Questions 254-259)




  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 regulation.

  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 step.

  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 regime.
  (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.

Lord Acton

  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."

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