Select Committee on Trade and Industry First Report


REGULATORY OBJECTIVES

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


 
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Prepared 18 March 1997