Memorandum by Sir Derek Morris, Chairman,
1. This note and its annexes describe the
functions of the Competition Commission (CC) in relation to the
regulated sector, set out the CC's work on references in the regulated
sector over the last five years and address questions 5 to 8 posed
by the Committee on which the CC's statutory responsibilities
and its experience enable it to make a contribution.
2. The CC is one of several bodies with
competition and regulatory responsibilities under UK law. It is
an independent public body established by the Competition Act
1998 and superseded the Monopolies and Mergers Commission (MMC)
on 1 April 1999. The CC consists of members, who are supported
by staff. The Chairman of the CC, himself a member, selects members
for inquiry groups; and also chairs the Council (its board) which
includes the Deputy Chairmen and the Chief Executive and two non-executive
CC members appointed to the Council.
3. All members are appointed by the Secretary
of State for Trade and Industry for an eight-year term following
an open competition. Members are appointed for their individual
experience, ability, and diversity of background, not as representatives
of particular organisations, interests or political parties. There
are usually around 50 CC members, and except for the Chairman,
they work part-time. The Chief Executive (and Secretary) is the
Accounting Officer for the CC and heads the staff.
4. The CC's task is to conduct in-depth
mergers (both anticipated and completed);
markets (the law currently provides
for monopoly inquiries but the Enterprise Act 2002 from 20 June
2003 substitutes market inquiries for monopoly inquiries(see
paragraph 5)); and
the economic regulation, including
price regulation, of the major regulated industries (regulatory
5. The CC has no power to conduct inquiries
on its own initiative.
Every inquiry the CC undertakes is
in response to a reference made to it by another authority: usually
by the Office of Fair Trading (OFT) or Ministers, but in certain
circumstances by the Secretary of State, or by the regulators
under sector-specific legislative provisions relating to regulated
In future the CC may receive market references from the OFT or
from sector regulators having concurrent powers
if they have
reasonable grounds for suspecting that any
feature, or combination of features, of a market in the United
Kingdom for goods and services prevents, restricts or distorts
competition in connection with the supply or acquisition of any
goods and services in the United Kingdom or a part of the United
6. For regulatory inquiries, the CC's decisions
answer those questions specified in the reference and those required
by the relevant legislation; the Act makes no substantive change
to the way these references are considered. Its decisions are
published in a report.
7. Annex 1 lists the types of inquiry which
the CC undertakes, their statutory basis, and the body which refers
8. 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
Price determination references;
Water merger references;
References under the Financial Services
and Markets Act 2000; and
References under the Broadcasting
Annex 2 describes how each of these types is
handled by the CC.
9. Since 1985 the CC and its predecessor
the MMC have reported on 43 references involving regulated industries.
Annex 3 gives brief details of the last 10 references over the
five years March 1998 to March 2003 (including for the sake of
completeness one "normal"" gas industry merger
which is not a regulatory reference).
5. To what extent are regulators both
prosecutors and juries on an issue; what rights of appeal are
there against decisions made by regulators?
10. When a regulator first investigates
an issue, and decides that action must be taken, he discharges
the functions assigned to him by the relevant statute. In an investigation
by the regulator, to talk of the regulator being prosecutor and
jury is neither entirely accurate nor wholly inaccurate. The regulator
normally has a statutory duty to act if he thinks that certain
criteria are found to exist. Notably however the regulator has
normally been unable simply to impose a decision (often a licence
modification) on a regulated company or sector. As Annex 2 shows,
the pattern is for statutes to provide for parties who may be
aggrieved by a regulator's proposal to regulate to require the
regulator to refer that proposal to the CC for investigation.
That investigation is not a judicial process. Rather, the investigation
takes the form of a close examination over a number of months
of the issues that arise in a case. The CC will seek new evidence
as well as review what was available at the time of the regulator's
decision. In such an investigation, the regulator is neither prosecutor
nor juryman. He is simply a person, albeit a very important person,
from whom the CC takes evidence. Of course the CC may prefer the
views of the regulator to those of the other parties, but there
is no presumption that the regulator is correct. The group of
members undertaking the inquiry bring to it relevant business
expertise, commercial experience or academic achievement in a
relevant field and are supported by a staff team of economists,
accountants, lawyers and business advisers. Their decision may
very well be, and often is, different from that sought either
by the regulator or the regulated. In this respect the determinations
of the CC differ from those of a court.
11. If the subject of a regulatory decision
has no statutory right of appeal it may choose to exercise its
right to seek judicial review in the High Court of that decision.
Any party aggrieved by the CC' s decisions in its report may also
seek judicial review in the High Court.
12. The Committee will be aware that there
are proposals in the Communications Bill currently before Parliament
(clauses 187 and 188, Bill print 53/2) to assign jurisdiction
over full appeals on merits against certain decisions by the new
regulator OFCOM to the Competition Appeal Tribunal (CAT) except
that price control matters must be referred by the Tribunal to
the CC for determination. This is because a continuing role for
the CC is widely recognised as important to ensure consistency
of price controls across the regulated sector and the CC's methods
and experience, evidenced by its professional staff, enable it
to apply sound and consistent economic principles. The cases that
the CC has reported on during the last five years (Annex 3) and
earlier make it well placed to continue to do so. Thereafter the
CAT must decide that price control matter in accordance with the
CC's determination except that on a challenge to the CC by the
parties to the appeal it may apply normal judicial review principles
and set the decision aside on judicial review grounds.
13. The availability of these various appeal
provisions means that even if regulators can be represented as
prosecutors and juries, expert and efficient review is available
from the CC, the High Court or the CAT.
14. The CC has noted the arguments put forward
in Professor Prosser's memorandum for a right of appeal on merits
on a defined dispute between a regulator and a regulated enterprise
to a judicial body, the CAT being his favoured option, and allowing
rights of appeal to interested third parties instead of providing
for a reference to the CC which can result in a substantial expenditure
of money, management costs and delay. Such a change would be a
policy matter for government and require extensive statutory amendment
but the following remarks may prove helpful to the Committee.
15. The question of scope for a fast track
procedure has been discussed several times previously. The CC
is ideally suited to a fast track procedure. It is an expert body
with experience of deciding issues in regulatory disputes. Its
members and staff are well versed in the issues which arise in
such disputes. The parties to such disputes, and their advisers,
are familiar with the CC's approach to regulatory issues. The
CC has relative freedom in the procedures it adopts, and the timetable
it sets, for the resolution of a dispute. All these factors tend
to demonstrate the suitability of the CC to act as a fast track
appeal body. Of course, in the past the CC's role has been that
of a wide-ranging investigator because of the terms of the references
made to it. But a different and additional set of statutory obligations
to perform a fast track procedure is one that CC would welcome.
16. If it were thought right as a matter
of policy to provide third parties with sufficient interest with
the right to put a reference to the CC, that is something that
the flexibility of CC's procedures could easily accommodate.
17. As to whether the CAT would be an appropriate
body to take over such "appeals", the Committee should
be aware that in other contexts, as already explained (CC's decisions
on mergers, markets and OFCOM price control appeals), the CAT
already acts as the body of judicial review for many CC decisions.
It would not therefore seem appropriateindeed it would
create confusion about the CAT's rolefor the CAT to decide,
on full appeal, matters which are analogous to matters currently
investigated by the CC. Indeed it should be noted that it was
to preserve consistency in price regulation matters, which make
up the bulk of regulatory references to the CC, that the CC is
being required to hear appeals on price control matters under
the Communications Bill.
18. In summary, if fast track appeals were
to be made to CC, it would be able to deal with them. The advantages
such appeals would be heard quickly;
CC members with appropriate expertise,
supported by a cadre of well-qualified professional staff (including
economists, accountants, business advisers and lawyers) are well
placed to reach decisions on often complex regulatory issues;
consistency of approach to common
issues in the regulatory sector such as price control and the
cost of capital would be maintained; and
the CAT or the High Court would be
available for judicial review of the CC's decisions.
6. How are regulators held to account
by Parliament; what other accountability do regulators have to
auditors, Government departments or other public bodies?
7. How are regulators accountable to
those whom they regulate; what is the impact of regulation on
the economy; how transparent are their methods of working?
8. How are regulators accountable to
the public other than through Parliament; what opportunities do
the public have to express particular concerns to regulators;
how do regulatory bodies relate to their associated consumer watchdogs?
19. These questions have to be addressed
in the context that within a policy framework set by government
the law has established regulators independent of government and
assigned to them certain statutory duties. The CC provides a mechanism
to review some important decisions on receiving a reference. The
work of the CC assists the accountability of regulators in a number
of ways. First, the availability of its powers to review regulators'
decisions may influence them to reach those decisions with care
and full regard to all the evidence and all the relevant factors.
Secondly the range of matters and the views and interests of various
parties which CC typically considers when conducting its investigations
and writing its reports exposes those decisions to wider scrutiny.
Thirdly, insofar as CC decisions do provide economic precedents
or benchmarks which go wider than the industry to which they relate,
they make it easier for other bodies to judge regulated industries'
performance and can be said to contribute to stability in the
1 May 2003
3 The sectors concerned are airports, air traffic
services, financial services, electricity, gas, postal services,
railways, telecommunications and water. Back
The Director General of Telecommunications, the Gas and Electricity
Markets Authority, the Director General of Water Services, the
Northern Ireland Authority for Energy Regulation, the Rail Regulator
and the Civil Aviation Authority. Back
Enterprise Act 2002 section 131(1). Back