back to menuA Bill to update the regulatory regimes for the four Utilities (gas, electricity, water and telecommunications) is to be introduced "when parliamentary time permits". The Government’s proposals include several elements put forward by NfCG during the consultation process.
NfCG welcomes most of the Government’s proposals for the two energy markets. In line with the views of all the consumer organisations, they will require the regulator to give primacy to the interests of consumers in future. Large customers are included, but it is domestic and small business customers who are least able to bring their combined market power to bear, and who need the support of the Regulator to do so.
At the same time the government is not looking for more intensive regulation. The secondary emphasis in its proposals is for more flexible regulation which will serve consumers’ interests by encouraging even more competition, while at the same time giving businesses an incentive to invest. NfCG has always supported such an approach, but we recognise that the gas and electricity networks are likely to remain as inevitable monopolies. They can be exploited without very firm regulation, which has not always been evident in the past.
Clearer identification of these monopoly’ elements will result from the intention (included in NfCG’s suggestions) to separate the supply and the distribution requirements within the operating licences for the original Public Electricity Suppliers (PES). We took the view that a PES should hold two licences, for Distribution and for Supply. Its Supply licence should be identical with that offered to second-tier competitors from outside its PES area. The Government proposes to go further, and to require PESs to put their distribution and supply businesses into separate legal entities. No one person will be permitted to hold both licences, and the concept of a PES will cease to exist. This makes sense, because with legal separation it will be easier for the Regulator to make comparisons between the (surprisingly different) distribution costs which companies charge to suppliers using their monopoly of the networks.
The other side of this coin is that in most cases competition, rather than regulation, will determine supply prices. This will lie within the discretion of the Regulator, and it will begin by exempting Direct Debit contracts from "RPI-X" price controls. The assumption is that a negative discount (higher direct debit prices relative to payment by quarterly credit) would make no commercial sense. However, we have been conditioned to paying by direct debit. We need to remember that, although it is convenient, a discount of less than 2% favours the supplier (as NfCG has pointed out many times).
Changing the PES licence will remove the obligation on a PES to supply customers on tariff terms - in effect a general offer to customers. In future all supply will be on the basis of a contract, either express or deemed. This probably will not affect most of us, but new suppliers often include a threat to transfer customers to an unfavourable "deemed" contract if they fail to honour the terms of their "express" contract.
Most of these changes for electricity customers are already in place for gas customers, and in fact this is true for many of the other elements in the government’s proposals. They seem to work, so we are probably not much at risk.
The establishment of the combined Gas and Electricity Regulator, OFGEM (the Office of Gas and Electricity Markets) has already recognised the convergence within the energy industries (and the emphasis on competition). OFGEM’s Director General will probably be seen as "The Regulator", but in fact the regulating authority will in future consist of a board (chaired by the DG) rather than an individual.
A single, national, energy consumer council is also proposed, with a wider remit than the two existing councils. It will have two main roles, to act as an advocate for all gas and electricity customers, and to handle consumer complaints. Neither the degree of independence from the regulator nor the relationship with him is set out in these proposals for legislation.
There are many other elements in the government’s proposals, including safeguarding the interests of those who have difficulty in obtaining satisfactory energy supplies, energy efficiency, standards of performance and the handling of environmental issues, which have not been covered in this note. One environmental issue is of particular concern to NfCG, however. The legislation will amend the Electricity and Gas Acts to "allocate current PES statutory rights and obligations between suppliers and distributors as appropriate". The statutory rights include powers of compulsory purchase and the acquisition of wayleaves, and the regulator will specify their availability to licence holders.
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