House of Lords - Explanatory Note
      
House of Lords
Session 1999-2000
Publications on the internet
Other Bills before Parliament
Arrangement of Clauses (Contents)

Utilities Bill


 

These notes refer to the Utilities Bill
as brought from the House of Commons on 20th April 2000 [HL Bill 58]

Utilities Bill

EXPLANATORY NOTES

INTRODUCTION

1. These explanatory notes relate to the Utilities Bill as brought from the House of Commons on 20th April 2000. They have been prepared by the Department of Trade and Industry in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

2. The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

SUMMARY AND BACKGROUND

3. The Government published a Green Paper, "A Fair Deal for Consumers - Modernising the Framework for Utility Regulation" (CM 3898) in March 1998, setting out a series of proposals for public consultation. In July 1998, the Government published a "Response to Consultation", summarising its conclusions in respect of those proposals. Two further consultation documents were published in Autumn 1998, one on establishing independent consumer councils; the other on the future of gas and electricity regulation. The Government published its response to consultation on the first document in April 1999, and on the second, in October 1999. Two changes to Government policy were announced by the Energy Minister on 27 July 1999 (Commons Hansard WA cols 306-307).

4. More recently, the Government has produced two further consultation documents. The first, published in February 2000, is preliminary draft statutory guidance on social and environmental matters. The second, published in March 2000, sets out the Government's initial thoughts on the classes of information which licensees and the regulatory Authority should be able to withhold from the new consumer council. In both cases, the deadline for comments is 31 May 2000.

5. Copies of all the documents referred to in paragraphs 3 and 4 can be accessed on the DTI website (http://www.dti/gov.uk/urt/ or by telephone 020 7215 5381)

6. The Bill was introduced into the House of Commons on 20 January covering the gas, electricity, telecommunications and water sectors. On 2 March 2000 the Secretary of State for Trade and Industry announced a decision to remove the water and telecommunications provisions from the Bill (Commons Hansard col. 555).

7. The Bill now covers the gas and electricity sectors in England, Scotland and Wales. It has a number of objectives. The Bill establishes a single Gas and Electricity Markets Authority ("the Authority"), in place of the twin posts of Director-General of Gas Supply and Director-General of Electricity Supply. It aims to achieve a fair balance between the interests of consumers and shareholders through changes to the Authority's duties, new powers for the Authority, and the establishment of an independent Gas and Electricity Consumer Council ("the Council"). It makes provision for the Authority to have regard to Government guidance on its social and environmental objectives. It makes provision to make regulation more transparent and predictable. The Bill also updates the regulatory regime for the gas and electricity sectors, by making legislative provision for the alignment, where appropriate, of gas and electricity regulation and the separation of electricity supply and distribution licensing, and by providing the necessary powers to underpin new electricity trading arrangements.

8. The main provisions of the Bill provide for:

Consumer provisions

  • a new principal objective for the Gas and Electricity Markets Authority to protect the interests of consumers, wherever appropriate, by promoting effective competition;

  • a requirement for the Authority, in performing its functions, to have regard to the interests of low income consumers, the chronically sick, the disabled, pensioners and consumers in rural areas;

  • powers for the Authority to impose financial penalties on companies for breaches of licence conditions and other specified statutory requirements;

  • the establishment of an independent Gas and Electricity Consumer Council with the job of seeking to resolve complaints, providing information of use to consumers, and advocating the interests of all consumers to the Authority, Government and others with an influence on regulation;

  • powers for the Council to publish utility information where this is in the interests of consumers and does not seriously or prejudicially affect persons to whom it relates;

  • a requirement for price-regulated gas and electricity utilities to disclose any links between directors' pay and customer service standards;

Gas and electricity regulation

  • legislation to underpin new electricity trading arrangements;

  • separate licensing of electricity supply and distribution, and the introduction of a bar on supply and distribution licences being held by the same legal person;

  • powers to adapt the licensing regime to changing market structures in future without additional primary legislation (by statutory instrument under affirmative resolution);

  • alignment where appropriate of the licensing and regulatory systems for gas and electricity (for example by introducing the concept of standard conditions for electricity licences);

  • new "collective" licence modification procedures enabling the Authority to modify standard licence conditions without a Competition Commission reference even if some companies disagree;

Wider social and environmental objectives

  • a duty on the Authority, in the exercise of its statutory functions, to have regard to guidance issued by the Secretary of State on the social and environmental objectives relevant to the gas and electricity sector;

  • new powers for the Secretary of State to make regulations to promote energy efficiency, the generation of electricity from renewable sources, and to provide for a cross-subsidy for the benefit of disadvantaged consumers;

Regulatory institutions and procedures

  • the replacement of the individual gas and electricity regulators with a single regulatory Authority of at least three members appointed by the Secretary of State;

  • a requirement for the Authority to give reasons for certain key decisions and to publish and consult on its forward work programmes;

  • powers for the Competition Commission to veto licence modifications developed by the Authority following a reference if, in its opinion, they do not remedy or prevent the adverse effects identified by the Commission in its report on the reference and, thereafter, to make the licence modifications; and

  • the establishment of a single, specialist gas and electricity panel of the Competition Commission, one or more of whose members will be selected to serve on relevant reference enquiries.

9. The statutory framework for gas and electricity regulation is laid down principally by the Gas Act 1986 (as amended inter alia by the Gas Act 1995), and the Electricity Act 1989. The provisions set out above are to be given effect, in the main, through amendments to these Acts.

10. The Government intends to bring forward amendments later in the passage of the Bill to give effect to the following proposals set out in the Government's policy documents (paragraph 3 above):

  • provision for transfer schemes for public electricity suppliers who are required to transfer their supply or distribution business to another company;

  • deemed contracts for electricity supply; and

  • provisions for the determination of disputes between licensees and consumers by the Authority.

OVERVIEW OF THE BILL

11. The Bill consists of six parts -

Part I - New Regulatory Arrangements

Part II - Objectives of Regulation of Gas and Electricity

Part III - Functions of the Gas and Electricity Consumer Council

Part IV - Amendment of the Electricity Act 1989

Part V - Amendment of the Gas Act 1986

Part VI - Miscellaneous and Supplementary

COMMENTARY ON CLAUSES

12. The Bill generally treats gas and electricity separately, although a number of provisions are similar for both sectors. Where this is the case the commentary covers the gas and the equivalent electricity clauses together. Subsequent references to these clauses refer back to the substantive commentary.

PART I: NEW REGULATORY ARRANGEMENTS

Clauses 1 - 8 and Schedules 1 - 3: New Regulatory Arrangements

13. These clauses and the Schedules establish the regulatory authority (to be called the Gas and Electricity Markets Authority), and the consumer council (to be called the Gas and Electricity Consumer Council), and provide for the drawing up of a memorandum between the two bodies to ensure effective co-operation between them.

14. Clause 1 and Schedule 1 provide for the establishment of the Authority. The Authority takes the place of the existing offices of the Director General of Gas Supply and the Director General of Electricity Supply. These offices are, in consequence, abolished. The Authority will be a body corporate and will comprise a chairman and at least two other members. The members of the Authority will be appointed by the Secretary of State, who will be required to consult the chairman in respect of the appointment of the other members. As a Non-Ministerial Government Department, the Authority will be a Crown body and the Authority's staff will be civil servants.

15. Schedule 1 sets out detailed provisions for the appointment and terms and conditions of members of the Authority. It also sets out provisions relating to the staff and procedures of the Authority. Provision for the financing of the Authority is contained in clause 104.

16. Clause 2 and Schedule 2 provide for the abolition of the existing consumer bodies (the Gas Consumers Council and the Electricity Consumer Committees) and the establishment of a single, independent Gas and Electricity Consumer Council. The Council will be a body corporate. Its members will be appointed by the Secretary of State. The Bill does not lay down any limit on the number or qualifications of members, except that the Secretary of State must have regard to the desirability of appointing one or more persons who are or have been disabled, or have experience of work with disabled people. Members, other than the Chairman, will be appointed following consultation with the Chairman of the Council. The Council will not be a Crown body, but a Non-Departmental Public Body. The Council's staff will not be civil servants.

17. Schedule 2 sets out detailed provisions for the appointment and terms and conditions of members of the Council. It also sets out provisions affecting the staff of the Council, and about financial and procedural matters. Paragraph 5(3) of Schedule 2 and paragraph 37 of Schedule 6 secure that staff of the Council are eligible to be members of the Principal Civil Service Pension Scheme even though they will not be Civil Servants.

18. Clause 3 and Schedule 3 provide for the transfer of the functions of the Director-General of Gas Supply and the Director-General of Electricity Supply to the Authority (except any functions transferred to the Council by virtue of other provisions in the Bill). The clause also transfers the property, rights and liabilities of the Gas Consumers Council (GCC) to the new Council. In addition, the clauses and the Schedule give the Secretary of State powers to make schemes to transfer the property, rights and liabilities of the Directors to either the Council or Authority as appropriate. Paragraph 9 of Schedule 3 ensures that there is no break in the continuity of employment of staff transferring to the Council from either the GCC or the Office of Gas and Electricity Markets (OFGEM).

19. Clause 4 requires the Authority and the Council to consult on draft "forward work programmes", and then to publish the final versions. The forward work programmes are intended to contain a description of the non-routine projects which the bodies plan to undertake during the year and their associated objectives, together with an estimate of overall expenditure.

20. Clause 5 requires the Authority to make an annual report to the Secretary of State which is to be laid before each House of Parliament. The clause identifies what should be included in the report. The equivalent provision for the Council is provided at paragraph 6 of Schedule 2.

21. Clause 6 enables the Authority to publish information and advice which it thinks would promote the interests of consumers, although it must have regard to the need to avoid, so far practicable, serious and prejudicial effects. It must consult any individual or body to whom advice or information relates before publishing any information.

22. Clause 7 requires the Council and the Authority to draw up a memorandum setting out the arrangements for co-operation between them. The detailed contents of the memorandum are for the parties to agree. Examples of the ground that might be covered in the document include the arrangements for:

  • consultation between the parties, for example, on forward work programmes and the co-ordination of work on consumer-related issues;

  • the co-ordination of information required from the utility companies; and

  • establishing a common understanding of the tests for the disclosure of information.

23. Clause 8 provides powers for the Authority to modify licence conditions to permit the recovery of the ongoing costs of the Council, and to recover the Secretary of State's costs arising from the establishment of both the Authority and the Council. The Authority is required to consult licence holders before using these powers, but modifications can be made without a reference to the Competition Commission. These special powers to modify licences are time-limited to two years from the commencement of the section. The Secretary of State may issue directions to the Authority on the inclusion of payment conditions in licences. This power of direction is intended to safeguard the independence of the Council from the Authority on budgetary matters.

PART II: OBJECTIVES OF REGULATION OF GAS AND ELECTRICITY

Clauses 9 - 12 and 13 - 16: General duties under the Gas Act 1986 and the Electricity Act 1989

24. These clauses set out changes to the general duties contained in the Gas Act 1986 ("the 1986 Act") and the Electricity Act 1989 ("the 1989 Act"). For the purposes of these clauses, references in these notes to the Authority should be read, unless otherwise stated, to include also a reference to the Secretary of State to whom these clauses apply equally.

25. Clauses 9 and 13: Objectives and duties under the 1986 Act and the 1989 Act. These clauses replace the regulators' existing general duties which affect the manner in which they exercise their functions under the 1986 Act and the 1989 Act respectively. The clauses give the Authority a principal objective, in carrying out its functions in either sector, to protect the interests of consumers, wherever appropriate through promoting effective competition. The Authority will have a primary duty to carry out its functions in such a way as is best calculated to further the principal objective.

26. This duty to further the principal objective incorporates the matters which form the regulators' existing primary duties. The Authority must have regard to the need to secure that all reasonable demands for the relevant utility are met. In the case of gas, this duty applies to the extent that it is economically feasible for demand to be met. Likewise, the Authority must recognise that, to the extent that the utilities legislation places obligations on utility companies (whether directly, through licence conditions or otherwise), such companies must be able to finance those obligations.

27. In determining the "interests of consumers" for the purpose of the principal objective, the Authority is entitled to take into account the interests of any group or class of consumer. However, the Authority must always have regard to the interests of consumers:

  • who are disabled or chronically sick;

  • who are of pensionable age;

  • with low incomes; or

  • who live in rural areas.

     Identifying groups of consumers in this way, however, does not oblige the Authority to give these consumers preferential treatment.

28. As well as the interests of existing consumers, the Authority is required to take account of the interests of those who will be consumers in the future.

29. The Authority's principal objective under the 1986 Act (as amended) relates to consumers of gas. However, in carrying out its statutory functions, the Authority will be entitled to have regard to the interests of consumers of electricity. Similarly, the Authority's principal objective under the 1989 Act (as amended) relates to consumers of electricity but, in carrying out its statutory functions, the Authority will be entitled to have regard to the interests of consumers of gas. The Authority will also be empowered, in exercising any function in relation to gas and electricity, to have regard to the interests of consumers of telecommunications, water, and sewerage services which are affected by the carrying out of that function.

30. To the extent that it is consistent with furthering its principal objective, the Authority should carry out its functions in relation to gas and electricity in the manner best calculated:

  • to promote efficiency and economy on the part of gas companies and electricity companies (other than electricity generators);

  • to promote the efficient use of gas and electricity; and

  • to protect the public from dangers arising from the conveyance or use of gas and dangers arising from the generation, transmission, distribution and supply of electricity,

  • while having regard to the effect on the environment of such activities.

31. Clauses 10 and 14: Guidance on social and environmental matters in relation to gas and electricity. These clauses require the Secretary of State to issue, from time to time, statutory guidance to the Authority. The guidance will set out the Government's social and environmental objectives and suggest ways in which the Authority might contribute to these objectives. The guidance will enable the Authority to make an appropriate contribution to the Government's sustainable development agenda. The intention is that such guidance would be of a long-term nature, not subject to frequent changes.

32. The Authority must have regard to this social and environmental guidance when discharging its statutory functions. Where duties on the Authority related to social and environmental matters already exist, for instance in respect of the elderly, disabled and energy efficiency these will be retained and the guidance may be used to indicate Ministers' views on the interpretation of these duties.

33. These clauses also set out the procedures which the Secretary of State must follow in issuing the guidance. They stipulate that:

  • the Secretary of State must consult the Authority, the Council, licence holders and anybody else he thinks appropriate before issuing guidance; and

  • the guidance can only be issued 40 days after a draft has been put before both Houses and no motion has been carried against it.

34. Clauses 11 and 15: Health and safety in relation to gas and electricity. Under existing legislation the Directors General for Gas and Electricity Supply are under different obligations in respect of health and safety in the industries they regulate. These clauses are designed to simplify the duties in the Gas and Electricity Acts and to bring them into line.

35. Responsibility for advising Ministers and regulatory bodies on health and safety rests primarily with the Health and Safety Commission. The Engineering Inspectorate of the Department of Trade and Industry also has certain duties in respect of safety in relation to electricity. (Responsibility for enforcement of legislation rests with the Health and Safety Executive, the Department of Trade and Industry and with local authorities.) These clauses do not affect that position: the Authority will be an economic regulator and will not be responsible for regulating health and safety issues. However, decisions taken by an economic regulator may have health and safety implications need to be taken into account where necessary.

36. The clauses therefore require the Authority to consult the Health and Safety Commission in any case where it appears to the Authority that its decision may have implications for gas and electricity safety, whether in relation to members of the public or persons employed in connection with the relevant industries. In the case of electricity, the Secretary of State may also require the Authority to consult him about particular safety matters. The Authority is under a duty to take account of any advice offered by the relevant health and safety body. This duty applies even if the Authority has not sought advice but it is offered at the instigation of the relevant health and safety body.

37. These clauses replace section 4A of the Gas Act 1986 and section 3(3)(d) and (e) of the Electricity Act 1989.

38. Clauses 12 and 16: Exceptions from the general duties under the 1986 and 1989 Acts. Clauses 12 and 16 between them have four effects. First, they provide that the principal objective and general duties in clauses 9 and 13 do not apply to the Secretary of State in relation to the issuing by him of guidance on social and environmental matters under clauses 10 and 14. Second, they provide that none of the duties in clauses 9 and 11 and 13 to 15 apply to the Authority's functions relating to the determination of disputes and concurrent functions under competition legislation. Third, they provide that the duties in clauses 13 to 15 do not apply to the Secretary of State when he is considering whether to grant consents for the construction of generating stations or for the installation of overhead power lines. Fourth, they make it clear that to the extent that the Authority or the Secretary of State is obliged by any legislation (including EU obligations) to perform specific duties, none of the duties in clauses 9 to 11 or 13 to 15 can be taken to detract from such obligations.

PART III: FUNCTIONS OF THE GAS AND ELECTRICITY CONSUMER COUNCIL

Clauses 17 - 26 and Schedule 2 (paragraphs 10 - 14): Functions of the Gas and Electricity Consumer Council

39. Clauses 17 - 26 set out the main functions of the Council, which are: to keep itself informed of consumer matters and the views of consumers throughout Great Britain; to provide advice and information to regulatory authorities, Government, companies and anyone else whose activities may affect the interests of consumers; to seek to resolve specific complaints from consumers; to provide information and advice to consumers; and to publish information in the interests of consumers. The clauses also give the Council power to carry out investigations, and set out the arrangements for the exchange of information between the Authority and the Council, and the arrangements for giving the Council rights of access to information from the Authority and companies.

40. Clause 17 states that the term "consumers" includes existing and future consumers, and defines "the interests of consumers" and "consumer matter" for the purposes of clarifying the functions of the Council. The definitions used are closely aligned with the definitions used in relation to the Authority's general duties. In considering the interests of consumers, the Council is required to have regard to the interests of four categories of disadvantaged consumers - the disabled or chronically sick, pensioners, individuals with low incomes and individuals living in rural areas. The clause clarifies, however, that this does not mean that the council cannot have regard to the interests of other types of consumer. These categories of disadvantaged consumers are the same as those referred to in the clause setting out the Authority's objective and duties.

41. Clause 18 gives the Council the function of obtaining and keeping under review information about consumer matters and the views of consumers in different areas of Great Britain. To assist it in this task, the Council is required to establish one or more committees for both Wales and Scotland, and has powers to establish one or more similar committees for England. The clause also requires the Council to maintain at least one office in each of England, Wales and Scotland at which consumers may apply for information. In addition, the clause gives the Council the right to be sent any statutory notices which the Authority is required to publish under the 1986 and 1989 Acts.

42. Schedule 2 (paragraphs 10 - 14) set out the procedures for establishing and appointing regional committees of the Council. These procedures include a requirement for the Council to obtain the Secretary of State's approval for the establishment or abolition of a regional committee, or the alteration of the areas for which a committee is established. The Council is also required to consult publicly on any proposals it has for establishing or abolishing a regional committee or altering the areas for which a regional committee is established. Schedule 7 (paragraph 6), however, disapplies the obligation to consult for any regional committee established within two months of the relevant provision coming into force. The Council has responsibility for appointing members of regional (and other) committees, but must consult the Secretary of State before appointing a chairman to a regional committee. Chairmen and members of the regional committees can receive remuneration and allowances. A regional or other committee does not have to include a member of the Council, but Council members are not precluded from serving on any committee.

43. Clause 19 gives the Council the function of giving advice and information to Ministers, regulatory authorities, licence holders and to any other body whose activities may affect the interests of consumers. The range of other bodies could include local authorities, religious organisations and trade unions. It could also make its case in the media. The clause restricts the disclosure of information by the Council in pursuit of this function when this may have serious and prejudicial consequences for persons to whom it relates.

44. Clause 20 gives the Council the function of providing information about consumer matters to gas and electricity consumers. This function is concerned solely with information which is already publicly available. Consumers often face practical obstacles in making informed decisions about offers from utility companies because the relevant information is located in a variety of places, often in differing forms, so that comparison is difficult. The intention is that the Council should bring together this information, and make it available (both on its own initiative, and on request) in forms which will be useful to consumers.

45. In addition to the general function of providing information, the clause gives the Council a specific duty to publish sets of statistics on:

  • licence-holders' performance against the standards of performance, if any, that the Authority or the Secretary of State has prescribed; and

  • complaints made against licence-holders (whether made to the licence-holders, the Authority, or the Council) and the handling of those complaints.

46. The Council will have discretion over the form and frequency of its publication of these statistics. The current requirement on the gas and electricity regulators to publish similar information will cease to have effect.

47. Clause 21 equips the Council with general powers to publish information where it thinks that this will be in the consumer interest. This will enable it to publish material ranging from informal advice to individuals or groups to more formal reports available to anyone who is interested. The Council will be able to publish previously undisclosed information without the consent of the person or persons to whom it relates, provided publication will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons and to consider any opinion offered by the Authority before deciding whether to publish the information.

48. Clause 22 sets out the circumstances in which the Council should seek to help resolve consumer complaints against companies about regulated matters. The Council must inform the Authority of all complaints which appear to raise licence enforcement issues, unless it thinks the Authority already knows of the matter. The Memorandum of Understanding between the Council and the Authority is expected to cover the inter-relationship between the Council and the Authority, including procedures for handling complaints. The Council will have powers to obtain information relevant to a complaint from the company concerned in order to facilitate the process of seeking to resolve the complaint in a satisfactory manner. The Council does not have the power to impose a settlement between the parties in any complaint. The Council is however required to advise the consumer if he has a right to refer a dispute to the Authority for resolution.

49. Clause 23 gives the Council the scope to carry out investigations which go wider than the narrowly defined function of trying to resolve specific complaints. Investigations undertaken may range from simple fact-finding telephone calls to in-depth research on a particular matter leading to the publication of a formal report. Where the Council produces a report based on an investigation it will be able to send the report to particular persons or bodies, without formally publishing it.

50. Clause 24 gives the Council rights to obtain information it needs to carry out its functions from the Authority, and licensees, subject to certain conditions. The intention is that the Council should approach the Authority first, where it is seeking company information which the Authority might already have, so as to minimise the risk of duplicate or similar requests being made to licensees. The Authority and licence-holders have to provide the information as soon as reasonably practicable and in the form the Council wants. The Council is required to have regard to the desirability of minimising the compliance burden for the Authority and the licence-holders. The clause gives the Secretary of State a power to make regulations setting out the categories of information which the Authority or a licensee may refuse to provide when the Council requests it.

51. The clause also provides the means of resolving disputes between companies and the Council over information requests. The Council can refer company refusals to supply information to the Authority, who will adjudicate on whether the licensee is entitled to withhold the information. Finally, the clause requires the Authority, on request, to give reasons for any refusal to supply information to the Council. It is also entitled, in the event of a disagreement between the Council and a company, to the reasons why the Authority has declined to require the company to supply the information requested.

52. Clause 25 empowers the Council to publish the reasons that the Authority gives for refusing to supply, or for its decision on whether a company must supply, any information requested by the Council, provided that those to whom the information relates have consented, or it is already in the public domain, or it will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons, and to consider the opinion of the Authority, before deciding whether to publish the reasons.

53. Clause 26 requires the Council to supply to the Authority any information the latter wants for the exercise of its functions. The Secretary of State may make regulations describing information which need not be supplied. The Authority is entitled to reasons from the Council for a refusal to provide the information requested. The Authority may publish the reasons, subject to the need to exclude information whose publication might cause serious and prejudicial effects to persons to whom it relates.

 
contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search Page enquiries index

© Parliamentary copyright 2000
Prepared: 25 April 2000