Select Committee on Constitution Minutes of Evidence

Examination of Witnesses (Questions 260-279)



  260. So, in other words, you are saying it would be a select committee that would deal with regulation in all sorts of fields?
  (Mr Love) I think what we had in mind was perhaps a select committee that would be looking at utility regulation specifically.

  261. I am rather confused. What have you just said, before that?
  (Mr Love) Rather than just energy regulation, or rather than regulation that went into perhaps financial services, and so on.
  (Mr Armour) And water as well.

  262. It would be a major task, would it not?
  (Mr Love) It would.

  263. I am not saying it would not be a very useful task.
  (Mr Armour) We have seen a growth of regulation and the power of regulators over recent years. We have debated amongst ourselves whether it would be do you have a very broad commission, with a very wide remit, or do you take it into more sector-specific areas, so that there is greater expertise, and there are pros and cons from understanding the area, as against encouraging best practice across regulators. One of the categories we thought, you know, there are commercial regulators and there are technical regulators, so there are different categories. Ultimately, it is a question of judgment, we thought a broad area was utilities. We tend to be regulated for very good reasons, and partly for their history, and there is an affinity, in terms of are they dealing with customers or the issues that come before them, or the monopoly issues, that makes it a sensible grouping; but you could make it a wider one that just said "We will have a review of regulators." Really, these other ideas have been proposed in the past, including looking at some sort of basis of holding regulators to account, whether it is publicly or getting some way that regulated industries can say "This regulator is doing a good job; that regulator isn't as efficient, as quick, as responsive, as others." It is very difficult, it is very difficult, as individual companies, to do that; we thought at one time that the CBI might be useful, almost to publish a survey result of what we all thought of our regulators, anonymously, on the basis that publicity is a useful way of doing it. This we thought was a reasonable compromise.

Lord Acton: I think it is a very important and interesting idea.


  264. Could I put a supplementary to you, based on what Lord Acton has said, and it picks up perhaps on your last point there, because you were indicating obviously there is some discussion as to what the committee could cover, whether it is a joint committee, or a Lords committee, or whatever, in terms of breadth, but then there is a question of what it does. Now, in terms of the paper, I have a slight concern that one might be expecting almost too much of a committee of Parliament, I am acting slightly as a devil's advocate here, and I wonder what you would see its primary role as being, would it be essentially to shed light on what is happening, actually to act as a spotlight, or do you envisage it being somewhat more than that?
  (Mr Love) I think, primarily, to conduct regular reviews of the work of the regulators, to ensure that the good work that is coming out of places like the Better Regulation Task Force and the National Audit Office, that conduct these kinds of inquiries, that actually it is being promulgated across the regulatory regime.
  (Mr Armour) But not for specific cases; that will be effectively the appeals mechanism. So this is more a broad remit, trying to encourage, to move people along, and learn from across the pack.

Lord Jauncey of Tullichettle

  265. Mr Love, can I take you to your letter of 31 March and the second paragraph. You said a moment ago, or referred to, being regulated by Ofgem; was that right?
  (Mr Love) I did, but that is kind of shorthand. Ofgem is, if you like, the administrative office of the Gas and Electricity Markets Authority.

  266. What I should be very glad if you would help me with, as an ignoramus in these matters, is, first of all, what exactly does the Authority do, and what does Ofgem do which the Authority does not?
  (Mr Love) I think this is the point I was making. Ofgem's powers, they are a creature of statute, as Callum McCarthy would tell you if you had him here. Their powers are set out in the Electricity Act, and the Authority, the Gas and Electricity Markets Authority, is the body that has those powers. Their executive office is Ofgem, it is the Office of Gas and Electricity Markets.
  (Mr Armour) Effectively, it is a subsidiary, shall we say, Ofgem.

  267. So that the Authority is a creature of statute?
  (Mr Love) The Authority is a creature of statute, it has members appointed by the Minister.

  268. And it sets up Ofgem to do the executive work on its behalf, is that right?
  (Mr Love) Yes. Ofgem acts in an executive role for the Authority, correct.

  269. So it is a hand of the Authority?
  (Mr Love) It is the hand of the Authority. Our day-to-day dealings are with the staff of Ofgem, which has about 300 staff. I think there are eleven people on the Authority.

  270. If you look at the matter analytically, it is the Authority which is the statutory regulator; is that right?
  (Mr Love) Absolutely; yes.

Lord Elton

  271. Could you tell me, what are the usual grounds on which you would wish to appeal the requirement of a regulator? Can you typify what sorts of things you would want to go to the regulator with, to the appeal body with?
  (Mr Love) A decision of the regulator, that we would want to appeal?

  272. Well that is a very general statement; is it about pricing, or about quality, or about practicalities?
  (Mr Love) We do not have regulated prices, we operate in a fully competitive, wholesale market.

  273. So?
  (Mr Love) But the charges that we pay, for things like access to the National Grid, for the use of the National Grid's infrastructure, are regulated by Ofgem, and a lot of the decisions that Ofgem make impact on our cost base.

  274. Right; and you have said, or implied, that the appeal body should watch over a wide variety of sectors, not just the utility sector, is that right?
  (Mr Love) No. I do not think that was what we were implying. I think the select committee that we were proposing was something that would take this broad overview of the utility regulation. The appeals body would be a separate body from that, it would not be a committee of Parliament.

  275. Forgive me, if I should know this already, but how would it be constituted?
  (Mr Love) Just like the appeals body is under the Financial Services and Markets Act.

  276. And how would you secure that it was better qualified to arrive at the decisions which the regulator had arrived at than the regulator itself? Just knocking on another door is not good enough, is it?
  (Mr Armour) It is the whole question of who regulates the regulator, and in previous incarnations we had the right of appeal to the Competition Commission, who I think are recognised as being sufficiently expert in economic areas to give a judgment as to whether they think the proposal put forward by the regulator is either effective and proportional in meeting the deficiency that he looks at or is appropriate in terms of cost and benefit.

  277. In your letter of the 31st, you referred to a whole string of people who regulate you, but your remarks so far have been directed in one direction only; what you are proposing, would that help you with the Health and Safety regulation?
  (Mr Armour) To some extent, I think, we have tried to say that we thought you were looking more at commercial regulation than, shall we say, technical regulation. I think the issue of whether there is an appropriate check and balance is appropriate to all regulators; however, from a regulated industry point of view, the approach you take does tend to vary. The courts are much more willing, I think, to consider economic questions than they are safety and security questions, and much less likely to second-guess matters of safety and security.

  278. We are not talking about the courts, are we, we are talking about a new creature?
  (Mr Armour) Or indeed any appeals mechanism. In the case of the Nuclear Installations Inspectorate, we have an appeal to the HSE (the Health and Safety Executive), who oversee the NII. Now, in strict terms, that probably does not qualify, in terms of human rights legislation, as being entirely independent. It is straight up the line, but, in reality, it gives you a qualified means of appeal. In many cases, as I say, a company, in looking at whether it will take an appeal to the regulator, of any sort, thinks long and hard about it; it is very reluctant to do that, because it does impact on public confidence, it impacts on your regulatory relationship. And it thinks even harder when it comes to something that is a safety or a security matter, shall we say, than a commercial matter, which is a legitimate debating point.

  279. Yes, I have perhaps blurred the edges, but it is a useful background for us to see the extent to which you are not free agents. But the remit as you are sitting here is directed at the commercial as opposed to the technical side?
  (Mr Love) Correct, yes.

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