Select Committee on Northern Ireland Affairs Minutes of Evidence


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 pressed—namely 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 storms—an outcome that is impossible to prove in the absence of an effective counter factual—the 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.


  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.

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