Security of supply
26. The first-mentioned
duty of each regulator is the maintenance of supply sufficient
to meet all reasonable demands (see para 21). When considering
the argument that the regulators have not done enough to protect
consumers, or that consumer protection should be made a primary
duty (see para 31), it should not be forgotten that security of
supply is fundamentally in the consumer's interests.[25]
Security of supply of essential services is an emotive subject,
and one in respect of which the public may demand lower risk than
the companies or the Directors General believe is economically
justified.[26]
27. Security of supply can
be considered both in terms of meeting current need and in relation
to energy supplies in the long term. In this respect, as in others,
the evidence was predictable given the vantage point of the respondent.
PowerGen complained that OFFER's encouragement of "atomistic
competition" would draw in small players who could not necessarily
be assumed to have reliable plant.[27]
The Energy Advisory Panel raised a number of questions about
the implications for security of supply of the post-privatisation
regime, but without reaching any conclusions.[28]
The British Association of Colliery Managers complained that
security of supply in electricity was being endangered in the
short term because insufficient maintenance staff were retained
to cope with abnormal circumstances such as the very severe weather
of 1995-96[29]
and in the long term because the encouragement of gas-fuelled
generation at the expense of coal-fired generation would lead
to the early run-down of indigenous gas supplies and possible
future reliance on gas supplies which, even if as abundant as
OFGAS's evidence suggest, are nonetheless likely to be drawn from
politically unstable areas such as the Middle East and Russia.[30]
The Electricity Supply Trade Union Council (ESTUC) feared a "potential
for massive and catastrophic combined failure"[31]
of both gas and electricity systems. They pointed out the possible
harmful consequences of the convergence of the gas and electricity
markets: power stations on interruptible gas contracts might have
their supply interrupted at times of high demand; increasing opportunities
for arbitrage might encourage "generators ... to sell on
their gas, rather than generate electricity with it, or prefer
to generate rather than meet gas supply contracts;" and there
are "significant physical feedback loops" in that, for
instance, "the gas that is burnt to produce electricity is
pumped to the generating station by electricity".[32]
28. Other evidence, and
certain published statistics, painted a more encouraging picture.
OFFER's statistics indicate reducing problems with interruptions
in supply[33]
and the regulators themselves were sanguine about security, both
in the short and in the longer term. Professor Littlechild responded
to the NGC's suggestion that new entrants in the industry might
not have such high safety and security standards: "I do not
think there is any evidence or any reason to suggest that the
smaller players in the industry have been any less concerned about
safety and reliability than the larger players. These are all
established players elsewhere".[34]
He also told us that "the security of supply for the country
as a whole is becoming less of a problem than it was ... Ten years
ago, the sources of supply were extremely heavily concentrated
in two fuels, nuclear and coal, and for different reasons there
were uncertainties associated with both of those ... both these
fuels have become less uncertain ... and there has been a growth
in gas, so these three fuels each now account for moderately sized
proportion of the total ... it is more balanced now ... than it
was in the past".[35]
He felt that sufficient new plant was being constructed to ensure
supply electricity for the future.[36]
Ms Spottiswoode, asked about short-term security, told us that
security of supply was better this winter than last despite harsh
weather conditions.[37]
29. Lord Fraser told us
that "on 7th January of this year there was a new record
demand of some 49,800 MW ... what is very interesting to me is
that actually on that date there was something like 56,300 MW
of plant available ... that was really quite a comfortable level
of margin".[38]
The evidence does not appear to support the suggestion that the
gas or electricity systems are more likely to collapse now than
they were under nationalisation, but the situation should be kept
under careful review given the increasing convergence of the two
industries.
25 Mem. p.24. Back
26 Mem.
p.93. Back
27 Ev.
p.31. Back
28 Mem.
p.118. Back
29 Mem.
p.83. Back
30 QQ.869,
870. Back
31 Mem.
p.93. Back
32 Mem.
p.92. Back
33 Report
on Distribution and Transmission System Performance
OFFER, 1995/96. Back
34 Q.989. Back
35 QQ.1044,
1045. Back
36 Q.985. Back
37 Q.972. Back
38 Q.1192. Back
