Examination of Witnesses (Questions 260-279)|
WEDNESDAY 9 APRIL 2003
260. So, in other words, you are saying it would
be a select committee that would deal with regulation in all sorts
(Mr Love) I think what we had in mind was perhaps
a select committee that would be looking at utility regulation
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
(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
(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
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
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
(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
(Mr Love) Absolutely; yes.
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.
(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.