Further Memorandum submitted by the Director
General of Electricity Supply for Northern Ireland
Further to the hearing of the Northern Ireland
Affairs Committee I am writing to you about the point about which
Mr McWalter pressednamely whether customers or shareholders
would pay for the costs that arise out of the storm damage.
I have had the benefit now of having read the
NIE evidence and of having had informal discussions on this with
senior NIE staff.
It seems to me that there is not a difference
between NIE and Ofreg in our understanding on this point. In so
far as the storm increased the company's costs, whether through
increased capital expenditure or compensation payments, the margin
between the company's allowed revenue and costs is reduced and
therefore its profits. In this sense there is no doubt that the
shareholders pay, though whether they do so in foregone dividends
is a matter for the company.
In the longer run, of course, if there is an
increase in capital expenditure above the level that might have
occurred but for the stormsan outcome that is impossible
to prove in the absence of an effective counter factualthe
customers would pay. In principle, I cannot see any objection
to that so long as they would be paying for a better quality system
than was previously thought to be required and not for any management
shortcoming exemplified by a short term profit maximising approach
to capital expenditure avoidance.
Your Committee will be aware that I have been
denied leave to appeal to the House of Lords on the MMC price
control. This means, short of re-opening the price control, there
is nothing that I can do to protect customers in Northern Ireland
from a price divergence in transmission and distribution changes
with GB which has only existed since privatisation. This divergence,
which is entirely unnecessary, is over 30 per cent now and will
probably be over 40 per cent when the new price controls in England
and Wales take effect in 2000.
Below is a copy of my press release.
ELECTRICITY REGULATORS DO NOT HAVE THE POWER
TO ADEQUATELY PROTECT CUSTOMERS
Statement by Douglas McIldoon, the Director
General of Electricity Supply for Northern Ireland, following
today's decision by the House of Lords to refuse him leave to
appeal against the recent High Court ruling upholding the MMC's
price control recommendations for NIE.
"The House of Lords has in effect decided
that I do not have the right to adjust the MMC's recommendations.
As a result, Northern Ireland customers will
continue to pay unnecessarily high charges for the transmission
and distribution of electricity. Northern Ireland is the only
region of the UK where the charges for distributing and transmitting
electricity are higher than they were in 1993.
Clearly, regulators do not have the power at
present to carry out the Government's requirement that their first
duty is to protect customers. To carry out this duty effectively,
a change in the law is required."
1. The cost of transmitting and distributing
electricity to the average domestic customer (3,300 kilowatt hours
per annum) in Northern Ireland in 1993 was £99. This year
it is £117. In England and Wales the cost in 1993 was £103
and this year it is £91.
2. According to figures published by the
Centre for Regulated Industries, annual returns to NIE shareholders
since privatisation have averaged 31 per cent.