HC Deb 27 July 1998 vol 317 cc52-4W
Gillian Merron

To ask the President of the Board of Trade what response the Government have made to representations received during the consultation period on the Green Paper on utility regulation. [52692]

Mrs. Beckett

The Government have received over 250 written representations on the Green Paper, and held discussions with a wide range of interested parties. These indicate strong support for the approach set out in the Green Paper.

In taking the Green Paper proposals forward, I have had three concerns: first, to create a long term, stable regulatory framework which looks ahead to the next decade, in a world where competition and convergence are growing, and multi-utility companies are emerging; second, to secure a fair deal for all consumers, including the disadvantaged; third, to create a climate in which regulated industries can innovate and improve efficiency, and so become increasingly competitive, by ensuring regulation is consistent, transparent and accountable.

Full details of our proposals for the new framework of regulation are set out in the Government response published today. We intend to introduce legislation to implement these proposals as soon as Parliamentary time permits.

We need a regulatory framework which will serve the interests of consumers not only now but over the next decade. Multi-utilities are already a reality. This development has the potential to offer new benefits for consumers. But it also presents new challenges for regulators. We will encourage the regulators to build on the multi-utilities study they prepared in response to the Green Paper. We look to the regulators to set out their priorities and timetable for dealing with the regulatory challenges related to multi-utilities. In addition, the Government will consider further whether legislation is needed to give regulators powers to transfer licences within a group structure to the company which exercises effective control of the regulated activity, and to allow or require joint decision-making for multi-utilities.

It is also vital that the regulation of gas and electricity reflects growing convergence in the market and encourages competition. We intend to merge OFFER and OFGAS under a single energy regulator, and to provide for separate licences for the supply and distribution of electricity. There will be further consultation in the autumn on the options for legislation to achieve this.

We need to ensure that the framework for each sector delivers clear benefits for consumers. We will introduce a new primary duty on regulators to protect the interests of consumers. We intend to establish independent consumer councils to promote the interests of all consumers, including the disadvantaged; and to give all regulators powers to impose monetary penalties if companies breach the service standards set by the regulators.

On the key issue of price regulation, we endorse the three principles set out in the Green Paper that regulators should distinguish between earned and unearned income, that companies should keep profits earned through efficiency savings, and that benefits should flow promptly to consumers when companies benefit from factors outside their control, or have deliberately misled the regulators. On price setting mechanisms, regulators should be able to retain RPI-X as the fundamental system of price regulation. But we look to the regulators to consider the exceptional circumstances where it may be appropriate to refine RPI-X to reflect these principles.

We intend to require regulators to co-operate in developing best practice in this area and to explain publicly how they have applied these three key principles.

On directors' pay, the Government's message is clear. It is not the Government's job to set the pay of utility company executives. However, the Government believe that there should be a clearer link between the prices utilities can charge their customers and the service standards they achieve. And they believe full information should be available on companies' performance in meeting service standards, and on the links between this performance and the remuneration of senior executives.

It is important that regulation takes account of the Government's social and environmental objectives, including energy efficiency. We intend to issue statutory guidance to the regulators on these, following full consultation, including consultation with Parliament.

We also welcome measures in hand by the energy regulators and companies to drive down costs and improve efficiency and choice in gas and electricity, which should benefit disadvantaged consumers. In addition, we are considering the case for further action through the regulatory system to assist disadvantaged energy consumers, such as requiring the distribution networks to make differential charges to supply companies in favour of pre-payment customers. We will act if market developments do not deliver a fair deal for all consumers.

We intend to introduce legislation to build confidence in regulation by making it open, accountable and consistent. For the energy sector and telecommunications, this will replace individual regulators with full time executive boards composed of a chairman and two others. It will give regulators a new duty to address matters of common interest in an open and accountable way. Regulators will be required to give reasons for key decisions, and to consult on and publish a code of practice so that their consultation and decision making processes are clearer. Regulators will have powers to publish information held by them on the utilities in the interest of consumers, subject to tests in line with the general principles set out in the Freedom of Information White Paper.

Further consultation is now required in some areas. We intend to get the detail right. But I am confident our proposed changes will create a truly modern regulatory framework, capable of serving consumers well and taking these industries successfully into the next millennium.

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