Simple. Flexible. Confidence-inspiring. That’s what energy utilities want regulation to be. So says James Smith, the Department of Energy and Climate Change’s (Decc’s) private sector champion for the Energy Red Tape Challenge (see box).
Smith has been in the energy industry all his career, including a stint as chair of Shell UK and his current role as chair of the Carbon Trust. He says he agreed to Decc’s request to champion the Red Tape Challenge in energy because he knows how important it is to get regulation right.
“It’s not about regulation or no regulation,” says Smith. “It’s about good regulation versus bad regulation. I believe if you can get regulation right, good things follow. Things like more satisfied customers and more competition.” He says his champion role gives him “a foot in both camps”. “I recognise that energy markets need to be regulated, but also that industry wants it to be the best regulation possible,” he says.
There were around 100 respondents in the energy stream, who made around 220 suggestions. About one-third of these can be viewed online (http://www.redtapechallenge.cabinetoffice.gov.uk/themehome/energy/) while the remaining two-thirds were privately emailed to Decc. Smith says he was “delighted” with the level of response and confirms that sector organisations of all sorts and sizes participated, including many utilities.
The process rather than the principle of regulation has emerged as a key utility concern. Company responses show commitment to the aims of regulatory policy – delivering secure, affordable, low carbon supplies – and largely accept the need for market reform to secure multi-billion pound investment in new assets. But respondents clearly felt the means to achieve the ends
needed work.
“What do utilities want? Simplicity, confidence,” says Smith. “By which they mean good regulation consistent for the long term and freedom to innovate. They want to make sure the new regime is as simple as possible. They want to contain the amount of primary legislation. They want it made crystal clear exactly what needs to be complied with. They want to avoid overlap and have realistic time frames. And they want to ensure there is scope for challenge.”
Supporting these conclusions are pleas for more concise regulatory documents; a suggestion that information supplied by utilities be aggregated into a central database rather than remain specific to a particular regulation (because this means companies often have to supply the same information multiple times); and calls for more outcome-focused regulation so that companies can innovate without having every move scrutinised. Government and regulators are already starting to move in this direction.
Aside from process improvement, the Red Tape Challenge has identified specific sore points. There are few surprises, and again, the government is already acting on many issues that surfaced.
Smith says planning is a major theme, with planning regulations widely considered “cumbersome, time-consuming, costly and could be streamlined”. David Tate, for example, posts on the Red Tape Challenge site: “The Planning Act 2008 needs a complete rethink due to its attempt to be a process to suit all infrastructure, however large, complex, small or simple the project is. The new process will completely stifle and restrict the development of new infrastructure within the UK, until a common sense approach is adopted.”
Bryan Norris adds: “The UK is a laughing stock around the world as our infrastructure is crumbling around us and vital renewable power is delayed or blocked on spurious, subjective and unquantifiable issues such as cumulative impact and visual harm.”
The CRC Energy Efficiency Scheme is another source of recurrent concern. Smith says it is widely seen as too complex and there are calls for government to take into account how it interacts with other levies, such as the Climate Change Levy. Hugh Conway comments on “the number of man-hours spent on administration, with numbers of 130 and 150 man-days frequently being quoted”. He adds: “An examination of the Environment Agency website would tend to bear this out where we find the following: there are 40 guidance documents containing 867 pages of guidance. There are 14 ‘useful links’ to other organisations providing information on the scheme. There is a section on ‘frequently asked questions’ with 15 topics and 98 questions. All of this for a single tax scheme.”
Among other themes that emerge in the challenge include: Electricity Market Reform, where energy-intensive industries urge the government not to put too great a burden on them; how the transition will be managed from existing supplier obligations the Carbon Emissions Reduction Target and the Community Energy Saving Programme to the new Energy Company Obligation; market entry concerns from smaller sector players such as renewables technology firms; and water companies calling for the removal of barriers to them producing more renewable energy from sewage sludge.
So what happens now? And how much chance do respondents have of getting their wishes? Smith says a team within Decc is collating responses and will distil views for internal circulation and specifically to ministers and the secretary of state. Keep/scrap/modify proposals are likely to be made in late spring or early summer. Any proposed changes will then go through the usual consultation procedures before final decisions are taken.
Smith stresses that at this stage he can only provide a mid-term report and that it is difficult to be precise, but he says he expects modifications to take centre stage. “Some spring cleaning has been done already, with some regulations scrapped. More scrapping can be done – for example, out-of-date old mining regulations. But in the main, changes are likely to be mostly made through modification.”
Water companies can have their say on red tape from 16 February, when the water sector slot opens.
What is the Red Tape Challenge?
The government says it is determined to cut back some of the 21,000 regulations in operation in the country, and to that end is part way through its Red Tape Challenge – an invitation for anyone and everyone to let the government know “which regulations are working and which are not; what should be scrapped, what should be saved and what should be simplified”. Respondents can either email their thoughts privately or post them on a dedicated website (http://www.redtapechallenge.cabinetoffice.gov.uk/home/index/).
Aside from general regulations, each industry sector has been earmarked a slot to vent its spleen and the government has vowed: “All burdensome regulations will go unless departments can justify why they are needed.” The energy sector’s slot ran from 25 November to 6 January. Under the microscope were nearly 300 regulations, grouped into six categories: gas and electricity supply; offshore infrastructure; onshore infrastructure; coal industry; energy efficiency; and energy security and nuclear.
Formally, the scope of the challenge excluded tax-and-spend measures such as the Renewables Obligation and activities solely in Ofgem’s remit such as licence conditions, but Decc welcomed comments on these and said it would take them forward through other channels.