Select Committee on Constitution Minutes of Evidence

Memorandum by the Electricity Association


  The Electricity Association (EA) welcomes the Constitution Committee's decision to conduct an inquiry into the accountability of regulators, their scrutiny by Parliament, their accessibility to the pubic and their responsibility to the citizen. The EA believes that these issues have significant implications for the effective functioning of the British economy.

  We are pleased to contribute our evidence to the enquiry on behalf of the electricity supply industry. As such, our submission will focus on the position and activities of the Gas and Electricity Markets Authority (GEMA) and its executive arm the Office of Gas and Electricity Markets (Ofgem).

  We have attached a paper that responds to each of your questions more fully, however, there are a number of key points with regard to public, legal and financial accountability that we bring to your immediate attention.


  There are currently a number of layers of political oversight of Ofgem's activities (eg Treasury, National Audit Office, Public Accounts Committee, Select Committee on Trade and Industry, and the Better Regulation Taskforce). However, it is our view that this fragmented approach results in a lack of institutional ownership of the task of measuring Ofgem's effectiveness. Ofgem does not measure its own effectiveness in any robust way, and has often not published regulatory impact assessments of its major projects.

  All utility regulation is complex and difficult and in view of the economic and social significance of these industries it is important that there should be some focussed and co-ordinated mechanism, preferably at Parliamentary level, for assessing regulatory effectiveness both within and across sectors.

  The EA believes that this co-ordinated approach may be achieved through a cross-sectoral Select Committee for Regulatory Accountability, dedicated to the purpose and with the remit from Parliament to monitor the interface between government policy and regulatory practice.


  Whilst it is desirable for regulators to be independent of Government, the weakening of accountability that this potentially produces together with the diverse range of functions exercised by bodies such as Ofgem, imply that there is a strong case for a more effective framework of legal accountability for utility regulators. We therefore welcome the government's decision in its Energy White Paper to consult on whether it would be appropriate to provide for appeals against Ofgem's decisions on certain industry code modifications. We believe that this limited provision for appeals is both necessary and desirable.

  However, even taking this limited appeal provision into account, Ofgem is immune to legal challenge (except via judicial review) in almost all of its key decisions. Much has already been written about these issues, notably in the joint OXERA/Norton Rose study of June 2002 (of which the EA, TRANSCO and Water UK were co-sponsors) and we do not duplicate the arguments here. However, as discussed in the attached evidence, we consider that the current arrangements for scrutiny of Ofgem's decisions by way of legal challenge are so deficient that a more wide ranging and rigorous framework for appeals must be considered.


  Ofgem's costs (and those of GEMA) are ultimately borne by the general body of gas and electricity customers. While these costs have stabilised to some extent in recent years, they increased at a rate well in excess of the rate of inflation in each year of the previous decade. At present there is no direct incentive on Ofgem to reduce its costs as it has no duty to publish annual accounts and its service delivery agreement with the Treasury does not tackle the issue of reducing the real costs of regulation. The EA believe that the framework for financial accountability lacks transparency and the incentive to operate efficiently and, therefore should be revisited.

  In conclusion, the EA believes that there are significant weaknesses in all areas of the regulatory accountability of Ofgem and GEMA. However, as suggested above and in our attached evidence, remedies are available to rectify such concerns. These include a rigorous framework of appeals, a cross-sectoral Select Committee on Regulatory Accountability and improved financial transparency and monitoring.

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