Examination of Witness(Questions 70-79)|
WEDNESDAY 12 FEBRUARY 2003
70. Professor Littlechild, thank you very much
for being with us today. Thank you also for your helpful paper.
It is both concise and robust in its approach. Is there anything
you would like to say to us before we put some questions to you
or are you content with what is in your paper?
(Professor Littlechild) I am content
with that. Thank you.
71. If I could begin with your paper, you mention
the increased obligation for a regulator to consult with others.
You doubt whether there is a demand for more consultation than
is already carried out. Could you say a little more about how
consultation with stakeholders is actually conducted? In the light
of your paper, given the point you make, could the quality of
decision-making be maintained, say, if the extent of consultation
(Professor Littlechild) In the early
days of regulation it was probably fair to say that people felt
they had not been consulted enough and, when they were consulted,
they were not given sufficient information on which to form judgments.
Over time, however, I think that regulators responded to that
and increased the number and the depth of the consultations: to
the extent where, certainly in the last year or two I was there,
people were saying, "We've got quite enough on our plates
at the moment". I gather that, since then, they are saying
there is even more. I do not see a lot of scope for reducing the
extent of the consultation. I think that regulators themselves
are very conscious of both the pros and cons of consultation.
They hear from the people they consult with, who may be saying,
"There's too much", but they have also heard from people
who say, "And we want this much". If they see any opportunity
to reduce it, they will do. As long as the people who are consulted
have the option of saying, "Thanks very much, but I don't
have anything to say on this", it need not involve them in
a great deal of cost. The only area where you might argue there
is a substantial burden is where the recipients of the consultation
are required to reply and required to provide information. Typically,
that is with a price control. It is always the case, everywhere
in the world, that the regulators say, "We need all this
information" and the companies say, "Surely you don't?
You don't use it". That is not specific to Britain at this
time; it is an ongoing thing. It is conceivable that there are
circumstancesand I alluded to them towards the end of my
paperin which you could have an arrangement whereby people
were not so concerned with the amount of information they had
and were willing to do deals. However, as long as you have pressure
on the regulator to treat all companies explicitly uniformly or
on a fair and similar basis, and to explain to others what he
or she is doing, then I think that you will need, broadly speaking,
the sort of amount of information that is provided at the moment.
Baroness Gould of Potternewton
72. I wonder if I might turn to page 3 of your
memorandum, Professor Littlechild, under "Reordered duties
of the regulator" and turn to the third paragraph, which
relates to the interests of the consumers and the investors. You
make the point that there now seems to have been compromise, "...by
making the promotion of the interests of consumers the primary
duty". One of the things I am particularly concerned about
is making sure that the consumer feels satisfied in the service
that they are getting. I wonder, therefore, if you could perhaps
elaborate a little more on that and particularly on the point
about being "both prosecutor and judge"? Do you really
believe that a regulatory body can be effective in looking after
the interests of the consumer? Have we now made it too complicated?
The fact that we have the sorts of things like, in these terms,
Energywatch and so ondoes that make it more difficult to
look after the consumer or not?
(Professor Littlechild) I am not sure
how significant this is as a practical point, because I have not
myself had experience of working under that regime and I have
not heard a lot of criticism of it. I simply make the point that
there has been a change there and that, whereas the regulator
initially was required to promote competition and take account
of the interests of the customers as well, now the interests of
the customers have come first. The question is can the regulator
then fairly balance these two interests. I would not suggest any
further changes now, simply because I do not think it is helpful
to keep making continual changes. My impression is that all the
regulators are very conscious of the interests of the customers.
They see competition as being in the interests of the customers
but they also recognise that in other circumstances competition
is not enough. I think that they have the interests of customers
very firmly in mind. Whether this change has made a practical
difference is too soon to say and probably too soon for me to
say, but I do not have any fears at the moment that the interests
of customers are being compromised.
73. Do you think the customer might be assisted
by having a body like Energywatch, in order to be able to challenge
the role of the regulator, which they could not do previously?
(Professor Littlechild) They could do
so previously, in the sense that the consumer committees could
challenge and, I might say, did so. However, you are correct:
they have a different explicit statutory duty from that which
the committees had. I think that one of the consequences of making
them independent is that they want to be seen to be independent
and to stand out. There may be questions later on the pros and
cons of this arrangement. I am not saying that in itself is a
bad thing. I think that does make, or is capable of making, the
consumer interest much more explicit. The regulator then has to
decide more explicitly between the voice of the customers and
what he considers to be the balance of his duties.
74. Perhaps I may pursue that as a supplementary.
I was not sure from your paper whetheras a consequence
of the Utilities Act, where the regulator's principal duty is
now to the customer and yet you have these independent bodies
which have the same prioritythe implication was that the
Utilities Act would probably reduce the influence of those bodies,
because it was now the regulator who was taking a greater role
in saying, "I know what is in the interests of the consumer".
(Professor Littlechild) No, that was
not my suggestion. I do not think the influence of the regulators
will be reduced as a result of this.
75. I was thinking that the consumer bodies
might be because the regulator is strengthened, as the person
who decides what is in the interests of the customer.
(Professor Littlechild) I think that
it is a puzzle, to be honest. There has obviously been a desire
to put the interests of customers even more explicitly to the
fore but, by pushing two bodies forward, I think that it does
create more of a question than there was before and that was part
of what I was pointing to. However, I would not have thought that,
by that fact, it reduces the influence of these two bodies.
Lord Holme of Cheltenham
76. Very much in the same area, I am very struck
by the page that Baroness Gould was referring to and the following
page, about this question of the clarity of the objectives and
the hierarchy of the objectives of the regulator. It is perfectly
possible to say that the primary objective is to promote competition,
of which one of the benefits will be to the consumer, or it is
possible to say that you have to protect the consumer by competition
and such other means as are necessary. Those are actually rather
different sets of arguments and they reflect the intent of the
Government and Parliament in entrusting you with certain responsibilities.
The point you make on the page, "Developments in Government
policy", of the subsequent accretion of extra objectivessocial,
environmental and othersbeing laid on the regulator, is
that, instead of having a clear primary thrust, the regulator
potentially finds him or herself, with or without a board, trying
to mediate between a whole lot of goods and to arrive at the judgment
of Solomon between them as to what is the right course. To be
a bit theoretical rather than specifically talking about energy,
how much do you think it is incumbent on Government and therefore
on Parliament to try and clarify, in a relatively minimalist way,
what it is the regulator is to do? It seems to me that the more
other Government policy requirements are laid on the regulator,
the more you are putting the regulator in the position of being
a ministerof basically having to plot a path between all
sorts of good things and to try to find out what is acceptable
to all sorts of stakeholders. Does that not potentially diminish
the defensible judgment and clarity of the judgments of the regulator?
It is put rather theoretically, but I think you know what I am
(Professor Littlechild) It might diminish
them to a degree, but I do not think I would stress that too much.
It seems to me that even in the initial situation there were three
primary duties and there were others. However you phrase them,
it seems to me that these things will have to be balanced and
judgments will be exercised. It is true that if the promotion
of competition is put there explicitly as a duty in itself, it
is, I would say, a stronger guide than something that says, "and
by competition where appropriate", because in the latter
case you are introducing more judgment as to whether it is appropriate,
whether it is effective and so on. I myself thought that the first
set of duties was clearer, but I would not want to say that with
the second set of duties you introduce a degree of subjectivity
or balancing that was not there in the first place.
77. Perhaps I may press you on that. Are all
duties equal? Because ministers or Parliament want all good things,
they put everything to the regulator and say, "You have to
do all these things"and I am talking theoretically"here
is a long list of things you have to worry about". You do
not think that there is any duty on Government and Parliament
to try to think their way through, to the point where the regulator
has at least a sense of priority or hierarchy within objectives,
rather than potentially an area in which all objectives are equal?
(Professor Littlechild) I do think that
but I think that is, in principle and for the most partand
probably in practiceprovided for, certainly by the first
set of Acts. The first set of Acts said, "These are the three
primary duties. Subject to these, take all these other considerations
into account". The Utilities Act has changed the format somewhat,
but there are probably three hierarchies now. I think that is
as far as you can reasonably expect legislation to go. If it tried
to be more specific, you would end up in the situation of trying
to foresee what the specific situations werewhich I do
not think is practicable.
78. A final question then. If, over time, the
tendency of all governments is to load more responsibilities and
more political concerns onto the regulator, do you think that
there is a case from time to time, in a formal way, to revisit
the objectives of the regulator and say, "It's time for a
clean-up or a re-simplification"?
(Professor Littlechild) I think that
could be. As you say, governments are always inclined to say,
"Oh, this must be importantand thisand this".
They tend to grow and grow and there is never any incentive or
any pressure to say, "We don't need this", "We
don't need that". You will alienate so many people by doing
that. You are right, therefore. The only qualification I would
make is that there is a limit to how often you want to be changing
this legislation. If it can be done at the same time as something
else that has to be done, then it may be sensible.
Earl of Mar and Kellie
79. Continuing on this subject of the supremacy
of the consumer interest, I would ask you to do two things for
me. Could you characterise the consumer interest and also explain
how that might interface with the fact that the less polluting
forms of generation seem to be being priced off the market? My
final question about that would be, is that sort of issue beyond
the regulator? Is that something which the Government should attend
(Professor Littlechild) Tough questions.
On the first one, I think it fair to say that environmental issues
were not a significant factor during most of the time that I was
regulator, with two qualifications, I suppose. One is that there
was provision for investment in renewables and that was basically
the Government's decision, and understood to be so. Secondly,
I myself took a particular interest in whether there should be
some undergrounding of lines; but I found that there was not a
great deal of interest in it, surprisingly. I could not really
generate any support for a move in that direction so I thought,
"When it does become an issue, my successor will deal with
it". So I would not claim to be an expert on the environmental
issue. Basically, in that early context I interpreted the interest
of customers as being price and quality of service. We therefore
wanted to get the best price we could, consistent with getting
steadily improving quality of service. The big issue for us was
what is the trade-off between the two. I do not say that we came
to any easy answers on that, but we were constantly asking ourselves
would customers rather spend more, have more investment in the
network and improve the quality of service, or would they rather
have a cheaper and less efficient service that was subject to
outages a bit more frequently? That was the issue. In terms of
the environment, as I say, I think that there is a limited extent
to which a regulator might say, "Surely customers would be
prepared to pay a little extra to have some of these lines undergrounded?",
where you are not talking about large sums of money. However,
once you begin to considerfor example, if you underground
the transmission network you are talking 10 to 20 times the cost
of that transmissionthat sort of magnitude, I do not think
a regulator would be justified in pressing that. For the most
part, you have to look to Government on the environmental trade-offparticularly
since that is quite controversial, as we know.