2000 Chapter 27

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These notes refer to the Utilities Act 2000 which received Royal Assent on 28th July 2000 (c.27)

Utilities Act 2000

EXPLANATORY NOTES

INTRODUCTION

1. These explanatory notes relate to the Utilities Act which received Royal Assent on 28 July 2000. They have been prepared by the Department of Trade and Industry in order to assist the reader in understanding the Act. They do not form part of the Act and have not been endorsed by Parliament.

2. The notes need to be read in conjunction with the Act. They are not, and are not meant to be, a comprehensive description of the Act. So where a section or part of a section does not seem to require any explanation or comment, none is given.

SUMMARY AND BACKGROUND

3. The Government published a Green Paper, "A Fair Deal for Consumers - Modernising the Framework for Utility Regulation" (CM 3898) in March 1998, setting out a series of proposals for reforms to the system of regulation of the utility industries. In July 1998, the Government published a "Response to Consultation", summarising its conclusions in respect of those proposals. More detailed consultation took place subsequently, principally on the proposals for establishing independent consumer councils for the utility sectors, and on the future of gas and electricity regulation. Copies of these documents can be accessed on the DTI website (http://www.dti.gov.uk/urt/).

4. The Act gives effect to the Government's final proposals for the gas and electricity sectors in England, Scotland and Wales. It does not extend to Northern Ireland. The Act has a number of purposes. It establishes a single Gas and Electricity Markets Authority ("the Authority"), in place of the twin posts of Director-General of Gas Supply and Director-General of Electricity Supply. It aims to achieve a fair balance between the interests of consumers and shareholders by setting new duties and powers for the Authority and establishing an independent Gas and Electricity Consumer Council ("the Council"). It contains provisions to enable the gas and electricity sectors to make an appropriate contribution to the Government's social and environmental objectives. It contains provisions to make regulation more transparent and predictable. The Act also updates the regulatory regime for the gas and electricity sectors to take account of and to facilitate further competition, and to reflect increasing convergence between the two sectors. It provides the powers needed to bring in new electricity trading arrangements.

5. The main provisions of the Act provide for:

Consumer provisions

• a new principal objective for the Gas and Electricity Markets Authority to protect the interests of consumers, wherever appropriate, by promoting effective competition;

• a requirement for the Authority, in performing its functions, to have regard to the interests of low income consumers, the chronically sick, the disabled, pensioners and consumers in rural areas;

• powers for the Authority to impose financial penalties on utility companies for breaches of licence conditions and other specified statutory requirements;

• the establishment of an independent Gas and Electricity Consumer Council with the job of seeking to resolve complaints, providing information of use to consumers, and advocating the interests of all consumers to the regulatory authorities, Government, utility companies and anyone else whose activities can affect the interests of consumers;

• powers for the Council to publish utility information where this is in the interests of consumers and does not seriously and prejudicially affect persons to whom it relates;

• a requirement for price-regulated gas and electricity utilities to disclose any links between directors' pay and customer service standards;

Gas and electricity regulation

• legislation to underpin new electricity trading arrangements;

• separate licensing of electricity supply and distribution, and the introduction of a bar on supply and distribution licences being held by the same legal person;

• powers to adapt the licensing regime to changing market structures in future without additional primary legislation (by statutory instrument under affirmative resolution);

• alignment where appropriate of the licensing and regulatory systems for gas and electricity (for example by introducing the concept of standard conditions for electricity licences);

• new "collective" licence modification procedures enabling the Authority to modify standard licence conditions without a Competition Commission reference even if some utility companies disagree;

Wider social and environmental objectives

• a duty on the Authority, in the exercise of its statutory functions, to have regard to guidance issued by the Secretary of State on the social and environmental objectives relevant to the gas and electricity sector;

• new powers for the Secretary of State to make regulations to promote energy efficiency, the generation of electricity from renewable sources, and to provide for a cross-subsidy for the benefit of disadvantaged consumers;

Regulatory institutions and procedures

• the replacement (mentioned earlier) of the individual gas and electricity regulators with an Authority of at least three members appointed by the Secretary of State;

• a requirement for the Authority to give reasons for key decisions and to publish and consult on its forward work programmes;

• powers for the Competition Commission to veto licence modifications developed by the Authority following a reference if, in its opinion, they do not remedy or prevent the adverse effects identified by the Commission in its report on the reference and, thereafter, to make the licence modifications; and

• the establishment of a single, specialist gas and electricity panel of the Competition Commission, one or more of whose members will be selected to serve on relevant reference enquiries.

6. The statutory framework for gas and electricity regulation is laid down principally by the Gas Act 1986 (as amended, inter alia, by the Gas Act 1995), and the Electricity Act 1989. The provisions set out above are given effect, in the main, through amendments to these Acts which are referred to throughout this document as, respectively, "the 1986 Act" and "the 1989 Act".

OVERVIEW OF THE ACT

7. The Act is in six parts -

Part I - New Regulatory Arrangements

Part II - Objectives of Regulation of Gas and Electricity

Part III - Functions of the Council

Part IV - Amendment of the Electricity Act 1989

Part V - Amendment of the Gas Act 1986

Part VI - Miscellaneous and Supplementary

COMMENTARY ON SECTIONS

8. The Act generally treats gas and electricity separately, although a significant number of the provisions are similar for both sectors. Where this is the case the commentary covers the gas and the equivalent electricity sections together at the point where they first appear in the Act. Subsequent references to these sections refer back to the substantive commentary - they do not repeat it.

PART I: NEW REGULATORY ARRANGEMENTS

Sections 1 - 8 and Schedules 1 - 3: New Regulatory Arrangements

9. These sections and the schedules establish the Gas and Electricity Markets Authority, and the Gas and Electricity Consumer Council, and provide for the drawing up of a memorandum between the two bodies to ensure effective co-operation between them.

10. Section 1 and Schedule 1 establish the Authority. The Authority takes the place of the existing offices of the Director General of Gas Supply and the Director General of Electricity Supply. These offices are, in consequence, abolished. The Authority will be a body corporate and will comprise a chairman and at least two other members appointed by the Secretary of State, who will be required to consult the chairman in respect of the appointment of the other members. As a Non-Ministerial Government Department, the Authority will be a Crown body and its staff will be civil servants.

11. Schedule 1 sets out detailed provisions for the appointment and terms and conditions of members of the Authority. It also sets out provisions relating to the staff and procedures of the Authority. Provision for the financing of the Authority is contained in section 107.

12. Section 2 and Schedule 2 abolish the existing consumer bodies (the Gas Consumers' Council and the electricity consumers' committees) and establish the Gas and Electricity Consumer Council. The Council will be a body corporate. Its members will be appointed by the Secretary of State. The Act does not lay down any limit on the number or qualifications of members, except that the Secretary of State must have regard to the desirability of appointing one or more persons who are or have been disabled, or have experience of work with disabled people. Members, other than the chairman, will be appointed following consultation with the chairman of the Council. The Council will not be a Crown body, and its staff will not be civil servants. It will have the status of a Non-Departmental Public Body.

13. Schedule 2 sets out detailed provisions for the appointment and terms and conditions of members of the Council. It also sets out provisions affecting the staff of the Council, and about financial and procedural matters. Paragraph 5(3) of Schedule 2 and paragraph 44 of Schedule 6 secure that staff of the Council are eligible to be members of the Principal Civil Service Pension Scheme even though they will not be Civil Servants.

14. Section 3 and Schedule 3 provide for the transfer of the functions of the Director-General of Gas Supply and the Director-General of Electricity Supply to the Authority. The section also transfers the property, rights and liabilities of the Gas Consumers' Council (GCC) to the new Council. In addition, the section and the schedule give the Secretary of State powers to make schemes to transfer the property, rights and liabilities of the Directors-General to either the Council or the Authority as appropriate. Paragraph 9 of Schedule 3 ensures that there is no break in the continuity of employment of staff transferring to the Council from either the GCC or the Office of Gas and Electricity Markets (OFGEM).

15. Section 4 requires the Authority and the Council to consult on draft "forward work programmes", and then to publish the final versions. The forward work programmes must contain a description of the non-routine projects which the bodies plan to undertake during the year and their associated objectives, together with an estimate of overall expenditure. The Authority and Council could include additional information in their forward work programmes.

16. Section 5 requires the Authority to make an annual report to the Secretary of State which is to be laid before each House of Parliament. The section identifies what should be included in the report. The equivalent provision for the Council is provided at paragraph 6 of Schedule 2.

17. Section 6 enables the Authority to publish information and advice which it thinks would promote the interests of consumers, although it must have regard to the need to avoid - so far as is practicable - serious and prejudicial effects. It must consult any individual or body to whom advice or information relates before publishing any information.

18. Section 7 requires the Council and the Authority to draw up a memorandum setting out the arrangements for co-operation between them. The memorandum is to be sent to the Secretary of State who will lay the document before Parliament. The detailed contents of the memorandum are for the parties to agree, and can be amended over time. However, examples of the ground that might be covered in the document include the arrangements for:

• consultation between the parties, for example, on forward work programmes and the co-ordination of work on consumer-related issues;

• the co-ordination of requests for information from the utility companies to avoid unnecessary duplication; and

• establishing a common understanding of the tests for the disclosure of information.

19. Section 8 gives the Authority powers to modify licence conditions to ensure the recovery of the ongoing costs of the Authority and the Council, and to recover any costs (including preparatory costs) incurred by the Secretary of State in setting up the new bodies. Modifications can be made without a reference to the Competition Commission, but the Authority is required to consult licence holders before using these powers. There is provision to permit the Directors-General, the Secretary of State, or all three, to undertake this consultation in advance of the establishment of the Authority. These powers to modify payment conditions in licences are time-limited to two years from the date of commencement of the section. The section gives the Secretary of State a power to issue directions to the Authority on the inclusion of payment conditions in licences relating to the expenses of the Council, and the expenses of the Secretary of State in relation to the establishment of the Authority and the Council. This power of direction is intended to safeguard the financial independence of the Council from the Authority by ensuring that the maintenance of appropriate payment conditions in licences is not exclusively a matter for the Authority.

PART II: OBJECTIVES OF REGULATION OF GAS AND ELECTRICITY

Sections 9 - 12 and 13 - 16: General duties under the Gas Act 1986 and the Electricity Act 1989

20. These sections set out changes to the general duties contained in the 1986 Act and the 1989 Act. For the purposes of these sections, references in these notes to the Authority should be read, unless otherwise stated, to include also a reference to the Secretary of State to whom these sections apply equally.

21. Sections 9 and 13: Objectives and duties under the 1986 Act and the 1989 Act. These sections replace the existing general duties of the Directors-General which affect the manner in which they exercise their functions under the 1986 Act and the 1989 Act respectively. The sections give the Authority a principal objective, in carrying out its functions in either sector, to protect the interests of consumers, wherever appropriate by promoting effective competition. The Authority will have a primary duty to carry out its functions in the way best calculated to further the principal objective.

22. This duty to further the principal objective incorporates the matters which form the regulators' existing primary duties. The Authority must have regard to the need to secure that all reasonable demands for the relevant utility are met. In the case of gas, this duty applies to the extent that it is economically feasible for demand to be met. Likewise, the Authority must recognise that, to the extent that the utilities legislation places obligations on utility companies (whether directly, through licence conditions or otherwise), such companies must be able to finance those obligations.

23. In determining the "interests of consumers" for the purpose of the principal objective, the Authority is entitled to take into account the interests of any group or class of consumer. However, the Authority must always have regard to the interests of consumers:

• who are disabled or chronically sick;

• who are of pensionable age;

• with low incomes; or

• who live in rural areas.

• Identifying groups of consumers in this way, however, does not oblige the Authority to give these consumers preferential treatment.

24. As well as protecting the interests of existing consumers, the Authority is required to protect the interests of those who will be consumers in the future.

25. The Authority's principal objective under the 1986 Act (as amended) relates to consumers of gas. However, in carrying out its statutory functions, the Authority will be entitled to have regard to the interests of consumers of electricity. Similarly, the Authority's principal objective under the 1989 Act (as amended) relates to consumers of electricity but, in carrying out its statutory functions, the Authority will be entitled to have regard to the interests of consumers of gas. The Authority will also be empowered, in exercising any function in relation to gas and electricity, to have regard to any interests of consumers in relation to telecommunications services, or water and sewerage services, which are affected by the carrying out of that function.

26. To the extent that it is consistent with furthering its principal objective, the Authority should carry out its functions in relation to gas and electricity in the manner best calculated:

• to promote efficiency and economy on the part of gas companies and electricity companies (other than electricity generators);

• to promote the efficient use of gas and electricity;

• to secure a diverse and viable long-term energy supply; and

• to protect the public from dangers arising from the conveyance or use of gas and dangers arising from the generation, transmission, distribution and supply of electricity,

• while having regard to the effect on the environment of connected activities.

27. Sections 10 and 14: Guidance on social and environmental matters in relation to gas and electricity. These sections require the Secretary of State to issue, from time to time, statutory guidance to the Authority. The guidance will set out the Government's social and environmental objectives and suggest ways in which the Authority might contribute to these objectives. The guidance will enable the Authority to make an appropriate contribution to the Government's sustainable development agenda. The intention is that such guidance would be of a long-term nature, not subject to frequent changes.

28. The Authority must have regard to this social and environmental guidance when discharging its statutory functions. Where the Authority has separate functions related to social and environmental matters, for instance in respect of the elderly, disabled and energy efficiency, the guidance may be used to indicate the Secretary of State's views on the exercise of the functions.

29. These sections also set out the procedures which the Secretary of State must follow in issuing the guidance. They stipulate that:

• the Secretary of State must consult the Authority, the Council, licence holders and anybody else he thinks appropriate before issuing guidance; and

• the guidance can only be issued 40 days after a draft has been put before both Houses and no motion has been carried against it.

30. Sections 11 and 15: Health and safety in relation to gas and electricity. These sections require the Authority to consult the Health and Safety Commission in any case where it appears to the Authority that its decision may have implications for gas and electricity safety, whether in relation to members of the public or persons employed in connection with the relevant industries. In the case of electricity, the Secretary of State may also require the Authority to consult him about particular safety matters. The Authority is under a duty to take account of any advice offered by the relevant health and safety body. This duty applies even if the Authority has not sought advice but it is offered at the instigation of the relevant health and safety body. These sections replace section 4A of the 1986 Act and section 3(3)(d) and (e) of the 1989 Act.

31. Responsibility for advising Ministers and regulatory bodies on health and safety rests primarily with the Health and Safety Commission. The Engineering Inspectorate of the Department of Trade and Industry also has certain duties in respect of safety in relation to electricity. Responsibility for the actual enforcement of legislation rests with the Health and Safety Executive, the Department of Trade and Industry and with local authorities. These sections do not affect that position.

32. Sections 12 and 16: Exceptions from the general duties under the 1986 and 1989 Acts. Sections 12 and 16 between them have four effects:

• the principal objective and general duties in sections 9 and 13 do not apply to the Secretary of State in relation to the issuing by him of guidance on social and environmental matters under sections 10 and 14;

• none of the duties in sections 9 to 11 and 13 to 15 apply to the Authority's functions relating to the determination of disputes and concurrent functions under competition legislation;

• the duties in sections 13 to 15 do not apply to the Secretary of State when he is considering whether to grant consents for the construction of generating stations or for the installation of overhead power lines; and

• to the extent that the Authority or the Secretary of State is obliged by any legislation (including EU obligations) to perform specific duties, none of the duties in sections 9 to 11 or 13 to 15 can be taken to detract from such obligations.

PART III: FUNCTIONS OF THE COUNCIL

Sections 17 - 27 and Schedule 2 (paragraphs 10 - 14): Functions of the Gas and Electricity Consumer Council

33. Sections 17 - 27 set out the main functions of the Council, which are: to keep itself informed of consumer matters and the views of consumers throughout Great Britain; to provide advice and information to regulatory authorities, Government, utility companies and anyone else whose activities may affect the interests of consumers; and to seek to resolve specific complaints from consumers; to provide information and advice to consumers; and to publish information in the interests of consumers. The sections also give the Council power to carry out investigations, and set out the Council's rights of access to information from the Authority and utility companies, and the reciprocal rights of access of the Authority to information from the Council.

34. Section 17 states that the term "consumers" includes existing and future consumers, and defines "the interests of consumers" and "consumer matter" for the purposes of clarifying the functions of the Council. The definitions used are closely aligned with the definitions used in relation to the Authority's general duties. In considering the interests of consumers, the Council is required to have regard to the interests of four categories of disadvantaged consumers - the disabled or chronically sick, pensioners, individuals with low incomes and individuals living in rural areas. The section clarifies, however, that this does not mean that the Council cannot have regard to the interests of other types of consumer. These categories of disadvantaged consumers are the same as those referred to in the sections setting out the Authority's objective and duties.

35. Section 18 gives the Council the function of obtaining and keeping under review information about consumer matters and the views of consumers in different areas of Great Britain. To assist it in this task, the Council is required to establish one or more committees for both Wales and Scotland, and has powers to establish one or more similar committees for England. The section also requires the Council to maintain at least one office in each of England, Wales and Scotland at which consumers may apply for information. In addition, the section gives the Council the right to be sent any statutory notices which the Authority is required to publish under the 1986 and 1989 Acts.

36. Schedule 2 (paragraphs 10 - 14) set out the procedures for establishing and appointing regional committees of the Council. These procedures include a requirement for the Council to obtain the Secretary of State's approval for the establishment or abolition of a regional committee, or the alteration of the areas for which a committee is established. The Council is also required to consult publicly on any proposals it has for establishing or abolishing a regional committee or altering the areas for which a regional committee is established. A transitional provision in Schedule 7 (paragraph 25), however, disapplies the obligation to consult for any regional committee established within two months of section 18(2) coming into force. The Council has responsibility for appointing members of regional (and other) committees, but must consult the Secretary of State before appointing a chairman to a regional committee. A regional or other committee does not have to include a member of the Council, but nor are Council members precluded from serving on any committee. The Council has a power to pay the Chairmen and members of regional and other committees such remuneration and allowances as the Secretary of State may determine.

37. Section 19 gives the Council the function of giving advice and information to Government, regulatory authorities, utility companies and to any other body whose activities may affect the interests of consumers. The range of other bodies could include local authorities, religious organisations and trade unions. It may also make its case in the media. In carrying out the function under this section, the Council is subject to restrictions on disclosing information when this has serious and prejudicial consequences for persons to whom it relates.

38. Section 20 gives the Council the function of providing information about consumer matters to gas and electricity consumers. This function is concerned solely with information which is already publicly available. Consumers often face practical obstacles in making informed decisions about offers from utility companies because the relevant information is located in a variety of places, often in differing forms, so that comparison is difficult. The intention is that the Council should bring this information together, and make it available (both on its own initiative, and on request) in forms which will be useful to consumers.

39. In addition to the general function of providing information, the section gives the Council a specific duty to publish sets of statistics on:

• licence-holders' performance against the standards of performance, if any, that the Authority or the Secretary of State has prescribed; and

• complaints made against licence-holders (whether made to the licence-holders, the Authority, or the Council) and the handling of those complaints.

40. The Council will have discretion over the form and frequency of its publication of these statistics. The current requirement on the gas and electricity regulators to publish similar information is repealed.

41. Section 21 equips the Council with general powers to publish information where it thinks that this will be in the consumer interest. This will enable it to publish material ranging from informal advice to individuals or groups to more formal reports available to anyone who is interested. The Council will be able to publish previously undisclosed information without the consent of the person or persons to whom it relates, provided publication will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons and to consider any opinion offered by the Authority before deciding whether to publish the information.

42. Section 22 sets out the circumstances in which the Council should seek to help resolve consumer complaints against utility companies about regulated matters. The Council will have powers to obtain information relevant to a complaint from the company concerned in order to facilitate the process of seeking to resolve the complaint in a satisfactory manner. The Council does not have the power to impose a settlement between the parties in any complaint, but is required to advise the consumer if he has a right to refer a dispute to the Authority for resolution. The Council must inform the Authority of all complaints which appear to raise licence enforcement issues, unless it thinks the Authority already knows of the matter. The Memorandum of Understanding between the Council and the Authority (see paragraph 18 above) is expected to cover the inter-relationship between the Council and the Authority, including procedures for handling and liaising on complaints.

43. Section 23 gives the Council the scope to carry out investigations which go wider than the narrowly defined function of trying to resolve specific complaints. Investigations undertaken may range from simple fact-finding telephone calls to in-depth research on a particular matter leading to the publication of a formal report. Where the Council produces a report based on an investigation it will be able to send the report, if it chooses, to particular persons or bodies, without formally publishing it.

44. Section 24 gives the Council rights to obtain information it needs to carry out its functions from the Authority, and licensees, subject to certain conditions. The intention is that the Council should approach the Authority first, where it is seeking utility company information which the Authority might already have, so as to minimise the risk of duplicate or similar requests being made to licensees. The Authority and licence-holders have to provide the information as soon as reasonably practicable and in the form the Council wants. The Council is required to have regard to the desirability of minimising the compliance burden for the Authority and the licence-holders. If the Authority does not provide information sought by the Council, it must give the Council its reasons if the Council wants them. If the licensee does not provide information sought, the Council may pursue the matter under section 27 (see paragraph 47 below).

45. Section 25 allows the Council to publish reasons that the Authority gives under section 24, provided that those to whom the information relates have consented, or it is already in the public domain, or it will not cause serious and prejudicial effects to those to whom it relates. The Council is obliged to consult such persons, and to consider the opinion of the Authority, before deciding whether to publish the reasons.

46. Section 26 requires the Council to supply to the Authority any information the latter wants for the exercise of its functions. The Authority is entitled to reasons from the Council for a refusal to provide the information requested. The Authority may publish the reasons, subject to the need to exclude information whose publication might cause serious and prejudicial effects to persons to whom it relates.

47. Section 27 gives the Secretary of State a power to make regulations setting out the categories of information which the Authority or a licensee may refuse to provide when the Council requests it, or which the Council may withhold from the Authority when the latter makes a request. The section also provides the means of resolving disputes between utility companies and the Council over information requests. The Council can refer a company's refusal to supply information for adjudication to a person appointed by regulations or, if there is no such appointment, to the Authority. The person appointed by the regulations (or the Authority) will determine whether the licence holder is entitled to withhold the information. The Authority or other adjudicator, if one is appointed, must give reasons for determinations to the parties involved, who may publish them as long as that is not likely to have serious and prejudicial effects for those to whom it relates. An adjudicator appointed by regulations may also be given the task of determining any disputes between the Council and the Authority about access to information.