INTRODUCTION

  The Electricity Association is the trade association which represents the major electricity generation, transmission, distribution and supply companies in the UK. Our members have dealings with the Environment Agency across a range of its activities including, in particular, the IPC regime, water abstraction licensing, regulating radioactive substances and waste management.

  The electricity industry supports the principal aim in establishing the Agency as a one stop shop integrating a range of regulatory activities, and notes that significant efforts have been made towards more consultation on the Agency's overall policies and plans. We recognise that the Agency has succeeded in making progress, in particular in raising general awareness, in waste management and in the management of water resources. We also recognise that there were inevitable difficulties in the early years establishing a body which was bringing together previously separate organisations with different cultures, boundaries and types of duties.

  Nevertheless, our members' experiences of the Agency have raised certain issues relating to the principles of the way the Agency is operating in practice and which we therefore consider appropriate to this Inquiry. These relate to:

—  the Agency effectively seeking to set, rather than simply implementing, national policy;

—  regional variations in implementation;

—  the lack of a more risk based approach in targeting its efforts, and

—  the lack of transparency in its charging regimes.

  and these issues are discused in more detail below.

NATIONAL POLICY

  In 1996, HMIP had agreed a programme of emissions targets with the fossil fuel generators in England and Wales aimed at reducing the total emissions of sulphur dioxide (SO2) and nitrogen oxides (NOx) from coal and oil fired power stations. This agreement introduced a very positive approach from the regulator in that generators were set limits for individual stations within a company total limit, which recognised the greater flexibility of station operation needed for the competitive generating market. The agreement established targets up to 2005 for SO2 and to 2001 for NOx.

  In January 1998, the now Environment Agency, which had incorporated the former HMIP, proposed a revised series of targets which would have accelerated the reduction programme agreed less than two years previously. This raised several concerns including:

—  why the Agency had chosen to review the electricity industry's IPC licences in less than two years while it was falling behind in its nominal four-year cycle of reviews for all IPC licences;

—  how industry is meant to plan long term investment with such short term regulatory change (electricity industry projects typically have five year planning horizons, with installations designed to operate for 25 years and more);

—  the Agency's justification for the proposals that there had been a significant change in the generating market when that change was itself partly in response to the HMIP targets.

  In particular, there was also the issue of whether the Agency's proposals reflected Government policy at this time.

  In December 1996 the Government had published the UK strategy Reducing National Emissions of Sulphur Dioxide which considered the UK's likely emissions through to 2010, relative to its international commitments on reducing emissions under both EU and UNECE agreements. The electricity industry had been a key consideration in that strategy and the paper had concluded that the existing (ie HMIP 1996) target reductions to 2005 meant that the Government Strategy was well on course, and that no additional measures were likely to be necessary before then.

  At this time, the Government had also already announced that it was reviewing the electricity generating market in view of concerns over the future of the UK coal industry; the review later resulted in the Energy White Paper Conclusions of the Review of Energy Sources for Power Generation which led to the current "moratorium" on new gas generation and the reform of the electricity trading arrangements. At the time therefore, the Agency's proposals would have predetermined the direction of the generating mix, pre-empting any decisions arising from the Government's review.

  Eventually the Agency's proposals have been reconsidered, in particular due to the White Paper, but the exercise has nevertheless involved both the Environment Agency and the electricity generators in a significant expenditure of time and effort. The management decision to initiate these proposals, which were clearly out of step with the Government's published Sulphur Strategy and pre-empting its review of policy for the UK coal sector, was ill-considered and a questionable deployment of the Agency's already stretched resources.

REGIONAL IMPLEMENTATION

  Another issue where the electricity industry has reservations about the functioning of the Environment Agency is that implementation can vary between regions, arising particularly from its responsibilities on Waste Management. When our members covering different regions have asked local inspectors for advice on certain activities, that advice has not always been consistent making it difficult to implement actions on a company wide or national basis. This has tended to occur due to the wording of certain legislation where the interpretation of the relevant requirements is unclear in relation to particular operations, materials or plant. Our experience has also been that such issues have centred on fulfilling the appropriate administrative procedures rather than on the actual activities and their risks for the environment.

  In these instances, additional guidance from the Agency on a national basis, or from the DETR, would be needed. However, particularly where UK legislation was transposed from European directives, the possibility of legal challenge to the interpretation has led both the Department and the Agency to avoid developing clarifying guidance. Without a test case, the situation is left to continue. Clearly in such circumstances, industry does not wish to impose excess costs on itself by assuming the most onerous interpretation, but equally it wishes to avoid risking prosecution arising from failings in the regulatory structure. There needs to be greater liaison between the Agency and the DETR when the need for better guidance becomes apparent.

RISK BASED REGULATION

  We consider that the Environment Agency should adopt a more risk based approach to environmental regulation, in order to target its resources most efficiently. For some time, the Agency has been developing its OPRA (Operator Performance Risk Appraisal) system but this is not yet up and running. This aims to assess which operations present a higher risk to the environment, rather than simply those with the highest emissions, based on the nature of the process and whether the operator uses an environmental management system such as ISO 14001 and EMAS. The Agency could then adjust the level of regulatory effort to the level of environmental risk.

  We consider that this should be taken further to reflect the actual performance of the operator. For example, power stations clearly produce significant levels of emissions, including SO2 and NOx. However, the electricity generators have consistently achieved reductions in these well ahead of the targets set in their authorisations and a risk based approach should also reflect this accordingly. The 1998 proposals by the Agency described earlier would have sent inappropriate messages to other sectors of industry, ie that investing early under an agreed programme of environmental improvement results in the Agency seeking to take those savings and tighten targets further, discouraging responsible early action.

FEES AND CHARGES

  One of the aims of a unitary regulator was to generate greater efficiency. For example, the Agency's plan for 1997-98 referred to the Agency restructuring, improving efficiency and reducing staff in order to reduce Agency costs. However, its 1998-99 plan showed actual staff numbers to have grown and proposed charges for IPC and Radioactive Substances to increase by inflation plus 5 per cent and for Discharges and Water Abstraction by inflation plus 2 per cent. For 1998-99, Agency charges for regulating IPC increased by 14.5 per cent and for 1999-2000 by 14.8 per cent.

  Recently the Agency has issued a consultation paper on an interim charging scheme for the introductory period of the new Pollution Prevention and Control regime, which implements the European IPPC Directive. The proposed charges to industry are based on an Agency cost of £1,215 per man-day. This compares to charges of around £600 per day by the Scottish Environment Protection Agency (SEPA) and around £750 by the Health and Safety Executive (HSE) and is significantly higher than industry would pay for most consultancy services.

  This failure to deliver greater efficiency and cost reduction is particularly resonant for an electricity industry whose other regulator (OFGEM) restricts increases in the industry's own charges to less than inflation, the well-known RPI minus X formula.

  While the Agency does publish accounts in its annual corporate plan, these are not sufficiently detailed to understand how costs are attributed to IPC or other activities relating to the industrial sector and to justify the charges that are set. The Electricity Association considers that there should be greater transparency in the Agency's funding and in the charges made to industry for regulating environmental licences.

CONCLUSION

  In its published strategies and plans, the Environment Agency cites the four values it has adopted for itself, as follows.

  "being open and consulting others about our work"

  The Agency has consulted on its plans and on many issues and been open in communicating the results, but the mechanisms and criteria by which the decisions were made have been less apparent. A way forward would be a system where it is clear where accountability lies and which ensures the decision process is transparent and seen to be robust and fair.

  "basing our decisions on sound science and research"

  While sound science has been one of the factors taken into account, other factors such as local or national interests also appear to play a significant part, for example the refusal for a power station to burn petroleum coke where local interests appeared to take precedence. The Agency should, of course, consider the views of all parties and require the necessary measures which address genuine local concerns but the science should be the basis for the decision.

  "valuing and developing our employees"

  We have no comment on this.

  "being efficient and business like in all we do"

  The submission has already indicated our concerns about the need for avoiding bureaucracy, movng to a risk-based approach and the delivery of cost-effective regulation. The Agency should be committed to a process of internal rationalisation and integration, to improve internal communications and provide consistency of approach and internal standards. In order to achieve the business efficiency which the Agency desires, it should look at improving commercial understanding of "excessive cost" and consider recruitment of people experienced in industry and commerce to positions of influence to support its technical capability.

October 1999