Annex 2
REGULATORY AND OTHER REFERENCES
1. The CC receives references relating to
issues in some regulated industries under the relevant regulatory
statutes. There are broadly six types:
Licence modification references and
references concerning non-licensable activities in the gas and
electricity sectors.
Price determination references.
Water merger references.
References under the Financial Services
and Markets Act 2000.
References under the Broadcasting
Act 1990.
Licence modification references
2. Each company regulated under the telecommunications,
gas, water and sewerage, electricity, postal communications, or
railways legislation or providing air traffic services has a formal
instrument setting out the terms of its operation, normally described
as a licence. An industry regulator may modify the conditions
of a company's licence if the company agrees to the changes. If
the company does not agree to a proposed modification and the
regulator nevertheless wishes to proceed, the regulator must refer
the matter to the CC. This is expressed as a question, generally,
whether any matter referred to in the reference may be expected
to operate against the public interest and if so, whether the
matter could be remedied by modifications to the licence. These
references can involve the price control applied to the company,
since some price controls are provided for in the licences.
3. The CC report must answer the questions
in the reference giving the CC's reasons for its conclusions together
with supporting evidence. If the CC makes an adverse public interest
finding, it must report on whether the adverse effects could be
remedied or prevented by modifications to a licence and, if so,
specify what those should be. Its report is to the relevant regulator.
4. If the CC finds that no matter operates
against the public interest, its decision is final. If the CC
makes an adverse public interest finding, the regulator must make
any changes to the licence which he considers necessary to remedy
or prevent the adverse effects identified by the CC. In doing
so, he must bear in mind, but is not bound by, the modifications
specified in the CC's report. Under the relevant statutes the
CC is required, following a regulatory report under the gas, electricity,
railways or postal services legislation, to decide whether the
regulator's proposals are adequate to remedy the adverse effects,
and if not, to exercise its power of veto and make the modification
itself.
5. The Secretary of State may, on application
by the regulator, make an order for certain non-licensable activities
in the gas and electricity sectors to become licensable. If an
objection is made by any person carrying on the activities or
if the regulator otherwise considers it appropriates he may make
a reference to the CC. The reference would specify the activities
concerned and the conditions which the regulator would expect
to be determined to be standard conditions for licences authorising
the undertaking of the activities specified in the reference and
any other conditions which he would expect to be included in such
licences. The question the CC will be required to answer in relation
to these references is whether the activities are not licensable
activities and whether they operate or may be expected to operate
against the public interest. If the CC makes an adverse public
interest finding, the CC will also specify modifications to the
conditions specified in the reference. Following the report the
regulator considers whether to make an application to the Secretary
of State to make an order.
Price determination references
6. In many regulated industries, the price
control is a key element of regulation. When that is the case,
some of the sector regulators review the charges made by the licensed
service supplier, generally at set periodic intervals. The mechanisms
for review vary between the regulated sectors but in general they
include a mechanism by which in the event of disagreement with
the regulator's determination the regulator may or must refer
the matter to the CC.
7. The CC sets out its findings in a report
to the regulator. The mechanisms following the CC's report vary.
For example, in the water and sewerage sector the CC's decision
is binding while in other sectors, the regulator must consider
what action to take and the CC has the power to veto the regulator's
proposed action and to take action itself.
Airport references
8. There are two types of inquiry under
the Airports Act 1986, applicable to designated airports under
section 34(1) and to non-designated airports under section 34(2).
Section 43(1) References: Designated Airports
9. The Civil Aviation Authority (CAA) imposes
conditions on designated airports (currently Heathrow, Gatwick,
Stansted and Manchester) regulating airport charges for a period
of five years and reviews the charges generally every five years.
Before it imposes any conditions or makes any modification to
any pre-existing conditions, the CAA must, unless the Secretary
of State otherwise directs, make a reference to the CC.
10. A quinquennial review reference has
two parts:
(a) It requires the CC to investigate and
report on the maximum airport charges that the airport operator
can levy for the next five-year period in the form of recommendations
to the CAA, which are not binding; and
(b) The CC is required to determine whether
the airport operator has, at any time during the five-year period
since the previous reference, pursued a course of conduct which
relates to airport charges, the operation of the airport, or the
subcontracting or licensing of operations on the airport, which
has operated or might be expected to operate against the public
interest.
11. If the CC finds that a course of conduct
is against the public interest, the CAA must impose appropriate
conditions to remedy or prevent the adverse effects the CC has
identified. In doing so the CAA must bear in mind, but is not
bound by, the conditions or modifications specified in the report.
Section 43(2) References: Non-designated Airports
12. The CAA may wish to impose conditions
on a non-designated airport or modify the terms of any existing
conditions to remedy or prevent the adverse effects of certain
anti-competitive conduct on the part of the airport operator in
relation to its business. If the airport operator does not agree
to the proposed modification, the CAA may refer the matter to
the CC.
13. The CC must decide whether the airport
operator has pursued the course of conduct referred to by the
CAA, whether the course of conduct may be expected to operate
against the public interest and, if so, whether the adverse effects
could be remedied or prevented by imposing or modifying conditions
in the licence.
14. Where the CC makes an adverse public
interest finding, the CAA must impose a condition or modify any
existing condition already in force to remedy the adverse effects
identified by the CC. In doing so it must bear in mind, but is
not bound by, the conditions or modifications specified in the
CC's report.
The Financial Services and Markets Act 2000
15. The CC has two roles under the Financial
Services and Markets Act 2000 (FSMA). The first concerns the rules,
guidance and statements of principle made or given by the Financial
Services Authority (FSA) and the second relates to the regulatory
provisions and practices of recognised investment exchanges and
recognised clearing houses. The OFT is responsible for keeping,
under review in the first case, the FSA's rules etc. and in the
second case, the regulatory provisions and practices of the recognised
bodies. [6]
In both cases it must make a report if it considers that one or
more rules etc or one or more regulatory provisions and practices
have a significantly adverse effect on competition: it may also
make a report if it considers that there is no such effect on
competition.
16. Any report made by the OFT must be sent
to the CC. The CC must investigate the subject matter of the OFT's
report. If that report concluded that there was a significant
adverse effect on competition and the OFT has asked the CC to
consider the report, the CC must make its own report unless it
considers, giving reasons, that no useful purpose would be served
by a report. If the CC does make a report and concludes that there
is an adverse effect on competition, it must also state whether
it considers that the effect is justified and if not, state what
action the Treasury ought to direct the FSA to take. The Treasury
will then consider whether to direct to the FSA to take action.
References under the Broadcasting Act 1990[7]
17. The Independent Television Commission
(ITC) has to refer to the OFT any arrangements in relation to,
or modifications of, licence conditions, the code giving guidance
as to the rules to be observed for programmes included in the
licensed services of appeals for donations, and rules in relation
to licensed services.
18. The OFT has to consider and report on
whether the arrangements proposed satisfy the competition test
set out in Schedule 4 to the Broadcasting Act. Where the arrangements
do not satisfy the competition test, the report must specify modifications
in order to satisfy that test.
19. Where the OFT report has concluded that
the arrangements do not satisfy the competition test and has specified
the modifications required in order to satisfy the competition
test, a reference may be made by the ITC or the holder of a Channel
3 licence to the CC to investigate and report on:
(a) whether the arrangements or any particular
provision of the arrangements satisfy the competition test; and/or:
(b) whether the modifications specified in
the report, or any particular modification specified, should be
incorporated in the arrangements in order to satisfy the competition
test.
Any modification proposed by the CC in its report
or any affirmation by the CC of any modification proposed by the
OFT must be incorporated as specified.
6 Sections 160 and 304 FSMA. Back
7
The Communications Bill currently (April 2003) before Parliament
is expected to alter these provisions. Back
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