Memorandum by the Electricity Association
THE ACCOUNTABILITY OF REGULATORS TO CITIZENS
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
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.