Select Committee on Northern Ireland Affairs Minutes of Evidence


Letter from the Clerk of the Committee to the Northern Ireland Office and the Response of the Director-General of Electricity Supply for Northern Ireland

  I note from the recent Departmental Report that the Director General of Electricity Supply has been set a performance target of reducing the average cost per household of electricity to consumers in Northern Ireland to £253 per annum by 2002. I should be grateful to receive, as soon as possible, some clarification of this target, as set out below:

    —  When was the target set; by whom; and how was the figure of £253 determined?

    —  Whether the figure of £253 is a cash figure, a figure expressed in March 1999 price terms, or a figure based in any other price terms?

    —  What assumptions, if any, have been made about the relative contributions to achieving this objective from reductions in generation costs, transmission and distribution costs and supply costs respectively?

    —  Whether this objective is intended to be met in advance of, or as a result of, the April 2002 revision of the NIE price control.

28 April 1999


  I am responding to the Northern Ireland Affairs Committee questions concerning the performance target of reducing the average cost per household of electricity to consumers in Northern Ireland to £253 per annum by 2002. In order to clarify this target I will answer the questions in turn in the order in which they were contained in the letter:

    —  I set the target in September 1998 in my capacity as Director General. The figure of £253 net of VAT was a target set for the annual domestic electricity bill in Northern Ireland at 2002 and was based on the average annual bill charged to the average GB customer on the standard domestic electricity tariff in 1998-99.

    —  The target was therefore in 1998-99 pounds.

    —  I chose the GB average bill as a target as I felt a reduction in the NI domestic bill to this level could be largely achieved through the renegotiation of the electricity generation contracts at the two main power stations (Kilroot and Ballylumford) as these two power stations would be contracted to the franchise market. Currently, a reduction of around £60 would be required to bring the NI and GB domestic bills into line. This year the NI bill is £297. The proposals on the table at the moment from the generators for restructuring their contracts, and my consultant's modelling of these, suggest that there may be a reduction of up to £27 available from generation contract renegotiation. At the time of setting the target I also expected a further reduction of £6 per annum in the domestic bill from the implementation of my original NIE price control for its Transmission and Distribution Business, which was at the time the subject of an appeal by NIE in the courts. I have lost this appeal and the MMC price control is now in force. My calculation also assumed that the Government would use the £40 million available to reduce electricity prices to buy down the generator contracts. While industrial customers would be the main beneficiary, there would be a benefit to domestic customers of about 1 per cent, or £3, per annum.

    —  My assumption therefore would be that the main contribution to achieving this target would and still will, come from renegotiation of the generator contracts. I do not expect any further contribution to achieving this target to come from reductions in transmission, distribution or supply costs. I therefore intended that this target should be largely achieved and met in advance of the April 2002 revision of the NIE price control. In my view, the contribution of the 2002 price control will be to close the T&D gap which will then exist because of the 2000 Distribution price control in England and Wales. I do not regard the figure I have set for reductions in generation costs as particularly ambitious. The detailed calculation is set out in the annex.


  NI average domestic customer's bill in 1999-2000 is estimated to be £297 for the average consumption of 3300 Kwhs.

  This bill is made up of:
Supply£ 17

  The average cost of generation is therefore 4.9p.

  In real terms T&D charges fall by 2 per cent per annum and Supply by 2 per cent.

  The target of £253 therefore is arrived at as follows:
--£ 7T&D 2% real reduction for 3 years
--£ 1Supply 2% real reduction for 3 years
--£ 3Benefit of £40m
--£ 6Assumed benefit of DGES price control
--£ 27Reduction of 0.82p in generator costs or 18%

  The bill would be thus

  The 1998-99 GB bill was

  The achievable lower cost of generation in the NI figure is because in 1998-99 the GB domestic customer did not receive the lowest possible cost generation.

7 May 1999

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