Examination of witnesses (Questions 40
- 59)
MONDAY 8 FEBRUARY 1999
DR PATRICK
HAREN, MR
HARRY MCCRACKEN,
MR COLIN
FALLON and MR
OWEN MCQUADE
40. Can I move on to compensation payments.
Can you tell us for the record about your compensation payments
and your goodwill payments?
(Mr Fallon) Chairman, in a situation such as we
had over Boxing Day, the normal guaranteed standard payments which
are payable under the agreement with the Regulator do not apply
and that is because of the severe weather exemption. What we did
was we put in a regime of compensation payments which amount to
a total of £115 for customers who are off supply more than
24 hours and that includes a figure of £50 which is intended
to part-way compensate for the loss of freezer contents, but I
would stress that these are goodwill payments. We do not consider
that we should cover the full loss in this situation and, indeed,
it is very difficult to make any payment which will replace the
hardship that customers will have in a situation like this. Customers
who were off supply from Boxing Day and remained off supply at
seven o'clock on the thirtieth were offered a hot meal payment
of £20 per head. Finally, on the thirty-first we repeated
that for customers who were still off supply at seven o'clock
and we added to that a figure of £40 which was intended as
a bed and breakfast allowance for each adult and £20 for
each child in the household and from the thirty-first onwards,
if there was anyone still off supply after that period then they
were entitled to a similar payment for the subsequent evening.
41. Thank you very much. How do these payments
compare with payments being made by your counterparts in the Republic
of Ireland and Scotland?
(Mr Fallon) These payments compare very favourably
with the Republic of Ireland as they are not making any payments
at all. As far as Scotland is concerned, I believe that they are
following a pattern which is similar to the guaranteed standard
that applies in England and Wales. We take a different line, which
is to say that we regarded 24 hours as being a period where significant
hardship occurred for all customers at that point and so we made
a fixed payment, whereas in Scotland they made a scaled payment
of a basic amount, I am not sure what the amount was, but it was
the standard payment for a period up to 24 hours and then they
incremented it for each 12 hours thereafter. Broadly speaking
the package benefits the total mass of customers in Northern Ireland
to the same extent as if we had applied a standard payment, but
that is not including the bed and breakfast allowances which are
over and above that.
42. You may be aware that the Committee
has received a letter from a resident of Dungannon which highlights
the extent of the inconvenience that they suffered. There is some
concern expressed in this letter where they say, "So you
can imagine how upset, angry and frustrated we had become. I am
also deeply offended by their `goodwill payment'. I am being offered
the same `goodwill' as someone whose power was restored after
24 hours!! Do the decision makers in NIE realise that we (1) hadn't
a proper meal for five days; (2) hadn't a shower or bath for 5
days; (3) couldn't do any washing; (4) couldn't clean or vacuum
our home—I could go on and on." Do you think it is
fair that the structure that you have put in place in respect
of compensation does not make a distinction between, say, someone
that has been out for four days as opposed to someone who has
been out for 24 hours and one minute?
(Mr Fallon) Chairman, as I said, we looked at
a set of payments which we thought were pretty fair under the
circumstances and they reflect the fact that hardship was applied
to all customers from after about 24 hours. In addition to that,
we discussed these payments with the Northern Ireland Consumer
Committee for Electricity and they are on record as saying that
they found the payments to be a "fair package". I think
the distinction that I would make between ourselves and any other
Regional Electricity company in GB is that we are making the payments
automatically, so we are making payments to every customer who
is affected without the need for them to claim. I would also say
that our payments include £50 for freezer contents and that
is a sum of money which perhaps does not cover freezer contents,
but people should be insured for these. It certainly should cover
their excess. Again that is something that, as far as I am aware,
is not being applied any place else in the British Isles. We think
it is a very fair package of payments and the overall cost to
Northern Ireland Electricity will exceed the cost of making the
equivalent guaranteed standards payments.
Mr Donaldson
43. Could you clarify for us what the rates
of payment are laid down in your customer standards for qualifying
periods of non-supply?
(Mr Fallon) I stress again that the customer standards
do not apply in this instance. The basic payment for a customer
off for 24 hours is £40. That is then incremented at the
rate of £20 for each 12 hours thereafter and there are no
payments included for freezer contents. Also, the payment is not
automatic and it would require customers to claim to receive the
payment.
44. In terms of the goodwill payments, again
you are saying that those are automatic payments, what steps are
you taking to seek out customers in receipt of those goodwill
payments rather than relying on them to contact you? What is the
methodology being adopted for that?
(Mr Fallon) Chairman, we are endeavouring to pay
all customers who are affected automatically and we do that by
relating them to the lines that we had off supply, looking at
the period in excess of 24 hours, the customers who are connected
to that line and making the automatic payments to them. There
will be instances where we miss customers, perhaps instances where
the time off supply has not been recorded properly or there may
be instances where customers were reconnected but had low voltage.
In these circumstances, we are communicating with customers through
their electricity bills and if they have not had a payment on
their electricity bill then they should contact us. When they
contact us we are dealing with that immediately. If a customer
contacts us with an electricity bill in front of them, about to
make a payment to their electricity bill and thinks that they
are entitled to a goodwill payment then what we are inviting them
to do is not to pay their electricity bill and we will credit
the bill. They should see the amount credited on their next bill.
We are endeavouring to take all the steps possible to make this
as easy as possible for customers and that is another reason for
making it a single payment rather than a staged payment. Although
Mr Salter read out one particular letter in connection with this,
in general this is not causing a major problem for customers.
We have now made over 40,000 credits to electricity bills and
we are dealing daily with customer enquiries. If customers are
calling us and saying that they are not happy with the credit
to their bill we are arranging to make a credit refund to them.
Most customers seem to be satisfied with the response that they
are getting.
Mr McWalter
45. I would like to endorse the commendation
Mr Salter made to your staff for the enormous amount of work they
did on 26th and 27th December under very difficult circumstances.
Although there are some quibbles about the amounts of money you
are making available under the compensation scheme, I think I
would like to commend you for the way you are making it. I think
that is a very good example for other boards in the United Kingdom
to follow. One of the issues that came up in the correspondence
we have had which was from the Consumer Committee was that very
few customers have got battery powered radios. I would have thought
that it would be sensible for all of your customers to have battery
powered radios given this record, would it not? And maybe you
might give them all a cheap battery powered radio with advice
on where they can get information from so that, if this sort of
thing occurs again, all your customers would have some access
to an information system which does not depend upon the mains.
(Mr Fallon) Chairman, I think we can assume from
the amount of comment we have had from customers requesting information
on local radios that it is a fair proportion of them that do already
have battery radios. As far as getting communication to customers
in future is concerned, obviously when supplies are off in most
households the telephone is the one remaining access that customers
have for getting through to us and certainly we would prefer to
make the investment, as we are doing, in our telephone services
to improve the level of response when customers try to call us
on telephones.
46. I was suggesting that you make better
use of the radio. Your comment that most customers have got these
radios is inconsistent with the Northern Ireland Consumer Committee
for Electricity who wrote to us on 22 January and said, "Very
few customers appear to have battery powered radios". They
were also very worried about the use of radios which they had
suggested you might use after the 1997 crisis and you simply made
very little use of it in 1998 either. If they are right then perhaps
you need to address the fact that a radio system is a much better
way of telling people what is going on because the phone system
largely failed and, in fact, was responsible really for the enormous
anger which people felt about NIE and maybe part of your compensation
might be to think about letting everybody have a £10 radio
so they could get in contact with you. You are dismissing that
idea, are you?
(Mr Fallon) I am not sure whether we or the Consumers
Committee give any definitive figures on the use of battery powered
radios in Northern Ireland, and perhaps a starting point would
be to find out exactly how many people have battery powered radios.
Obviously it would be a very useful thing for anyone to have in
the event of a future circumstance like Boxing Day. As I said
earlier, we did not make as good use of local radio as we could
have. Part of the difficulty there would be in getting local radio
and the national Northern Ireland radio channels to take any information
that we give to them. We intend to explore that with them and
get them to take information that we have available as a public
service announcement so that it can be distributed in future to
those people that do have battery radios.
47. My general interest here is with the
capacity of the system to withstand harsh conditions and I note
that in their letter, in response to your document, Ofreg say
that your report is short in analysis and in the relationship
between the age of the network and the vulnerability to storm
damage. I am told you have not seen this yet. It is a letter dated
5th February. Ofreg say that there is not an analysis about the
age of the network and the vulnerability to storm damage and that
comes out particularly on the issue of the poles. You say you
have got 400,000 poles. I think it would be very useful to see
what age they are as that will allow us to assess your culpability
for these events because although you pointed out that there were
certain levels of investment that were lower in the early 1980s
than in the late 1990s, the margin does not look that great when
you bear in mind that a lot of the fabric of the system was 20
years old in the early 1980s and is hence pushing 40 years old
now. It does seem to me that the levels of investment that one
would have expected in the 1990s would have been far higher than
they have been and that it would have been culpable management
to have deferred £100 million-worth of investment. I would
like to see, Chair, some assessment of the age of the poles, the
number that they are thinking of replacing, the effect of the
promise given earlier to my comrade Mr Salter that there was going
to be a move down from the 40 year decommissioning to 30-35 year
decommissioning, whatever it is and the impact of that on your
programme because without that data we cannot see whether you
have let the fabric of the system degenerate far more than is
consistent with good management.
(Mr McCracken) At the risk of repeating some of
the ground that we have already covered in relation to investment——
48. Pardon me, I do not want you to do that.
I heard all of that. I want to know what is happening about the
poles.
(Mr McCracken) I think your last remark in relation
to allowing the fabric of the system to deteriorate directly relates
to the earlier evidence that I gave. If I do not need to repeat
it, I will not do so. The fact of the matter is that the substantial
under-investment that we found in the earlier years was one that
we addressed almost immediately post-privatisation with this refurbishment
programme. We are not going to replace any poles because they
are 30 years old. We are going to replace poles because we judge
them to be deteriorating to such an extent that they need to be
replaced because they would not withstand this sort of weather
condition if we met it in the future. We determine whether or
not poles need removing by foot patrolling the network and assessing
the damage of each pole on the network. We do have records of
that. We believe those records are good, and those records would
be used now in this pole replacement programme that we are about
to enter into. This pole replacement programme is over and above
the pole replacement programme that is a normal part of the refurbishment
programme. As we go down a line and refurbish it we replace practically
all the poles down that line. We are going to do 1,000 kilometres
of overhead line in relation to this parallel programme and we
have paid particular attention to our 33,000 volt network, because
that is a crucial network in relation to experiencing damage and
resulting in loss of supplies to large numbers of customers. In
relation to the programme that we have in place and the fact that
we have decided to look at that programme again, I have to go
back and say that, in relation to whatever it is that you have
as evidence from Ofreg, Ofreg were the group that we sat across
the table from in negotiating what the capital programme was at
the last price control and Ofreg's view was that we did not need
to refurbish 1,500 kilometres of line per annum. Our view was
that we needed to do more and the MMC ended up in the middle.
I reiterate that up until this point everyone has thought that
the programme that we have had to date—apart from ourselves
who tried to make it larger—has been a perfectly adequate
programme. We have come through this event, we have learned a
lot in relation to the ability of the network to withstand this
sort of damage and we have formed a view as to what would be the
solution to addressing those problems.
49. Are you saying the people responsible
for the under-investment in the end were Ofreg, the MMC and, of
course, God for inflicting the storm on you?
(Mr McCracken) The under-investment I think we
have already tried to deal with in relation to what categories
of expenditure were avoided in that first regulatory period. Those
categories of expenditure that we have mentioned were ones that
we looked at and decided at that time could be deferred. That
was thoroughly assessed at the MMC. In relation to the amount
of money in the first price control that Mr McGrady referred to,
the MMC decided the customers had paid that and that was some
£25 million the customers paid to finance that £100
million of investment. The MMC decided that £7 million out
of that £25 million should be clawed back for customers.
So the MMC in reaching that decision had decided that the vast
majority of that deferred or avoided spend was one that the company
should be credited with. Similarly, as we look forward into this
price control period, customers are receiving a benefit of some
£50 million as a result of the deferment of that expenditure.
50. The second thing I glean from your remarks
is that if I asked you how many of your poles were over 35 years
old you would not know.
(Mr McCracken) If I could refer you to page 13
of our review report. We know the age of our assets and that is
why we are able to formulate table 7. In relation to an earlier
question about what proportion and what age the poles were that
were damaged, that table gives an overall global picture of total
damage, but within that there will be a more detailed table which
deals with poles alone and another table that deals with conductors,
stirrups and binders etcetera. Quite clearly we are able to pinpoint
out of the damaged equipment what age each item was.
51. So you would know and you would be able
to furnish us with that information if we asked for it?
(Mr McCracken) Yes, we have age data on all the
assets on the system.
52. Thank you. The table said "age
of damaged overhead line component" which obviously in a
sense is a pole and because it is in the ground it seemed to me
possible not to be included within that. In the end you are proposing
an enhanced programme of refurbishment beyond that which the MMC
thought was reasonable for you. What will this cost?
(Mr McCracken) I think the additional refurbishment
programme will cost £24 million over three years.
53. How much is it going to cost you in
this compensation package which you are giving to customers as
a result of the events of the latter part of last year?
(Mr McCracken) I think our best estimate of that
is approximately £5.5 million.
54. Bearing in mind that clearly you do
not want that to happen again, is the investment that you are
going to produce likely to enhance the security of supplies?
(Mr McCracken) Chairman, obviously the additional
investment package that we are recommending after our review is
one that we feel strongly will address a number of the problems
that we experienced as a result of this storm. There was not any
real new knowledge that came out of this. We understood back in
1994 what the remedy was to an under-performing rural network,
and that is what gave birth to the original refurbishment programme.
What has happened now is, having come through this event, we are
saying we just need more of this and that is what the recommendations
in this report are saying.
55. I am certainly not saying it, but the
letter from Ofreg goes well beyond the £24 million that you
talk about. It says in the five-year period after privatisation,
while expenditure was at £243 million, which was barely above
the amount in the previous five years, customers actually paid
electricity bills which would be calculated on the basis that
expenditure would be £339.4 million. So the customers have
paid for a large amount of investment which appears not to have
been carried out. Do you have plans for a much more substantial
regime, particularly involving what you called "undergrounding"?
I notice that that word does not seem to appear in your report
at all, although you might be able to point to my omission. It
would appear that a much more extensive use of underground provision
would actually get around many of these difficulties.
(Mr McCracken) It is absolutely fundamental to
proper regulation that companies are given the right incentives
in relation to customer expenditure. In fact, the company has
an incentive to make greater investments because that quite naturally
grows the asset base and if you grow asset base in a regulated
company you can actually increase the profitability of that company
because it is allowed a return on that asset base. The fact of
the matter is that incentives should work in a way that incentivises
the management of the company not to spend, not to make investments
if those investments cannot be very rigorously shown to be to
the benefit of customers and that is the way incentive regulation
should work. That should be acknowledged by Ofreg. I am not sure
why it is not. The only issue at question here is out of that
original capital programme, could and should more money have been
diverted from the expenditure which did not need to take place
towards a refurbishment programme? This was purely a rural network
problem we faced. There were half a million customers in Northern
Ireland who did not experience any loss of supply as a result
of this storm and they were all the customers on the urban network.
The issue is about how to prioritise investment out of a total
capital programme which allows the customer the maximum benefit
at the least cost and the refurbishment programme does that. At
the risk of repeating myself at the third or fourth time, can
I say that up until this point in time we have all thought that
that was a very substantial programme, substantial by any measure
now in terms of investment per customer etcetera, etcetera. We
have a fairly sizable undergrounding programme in a lot of the
provincial towns in Northern Ireland. There is undergrounding
of the LV network where it is clearly shown that undergrounding
in that part of the network is one that will provide benefits
in relation to greater reliability to customers. The company took
a policy decision two years ago not to overhead any new LV, so
all new low voltage construction for the last two or two and a
half years has been undergrounded.
56. You said that you were saying things
for the third or fourth time. I think I will repeat for the third
or fourth time as well that many people would regard the level
of investment that you made as utterly insufficient given the
age of the system that you were seeking to operate, but that is
clearly going to be a cause of conflict between us and no doubt
you will see more of that in our report.
(Dr Haren) If I could try to touch again on that
issue as I understand it because I understand the difficulty and
in terms of dealing with these issues, I would ask the Committee
to understand that the issues are extremely complex. They were
issues which were debated during a six month inquiry by the MMC
into our price control for the current five-year period. They
are issues which have been studied by consultants from Ofreg,
by engineering consultants given a remit by the MMC to try and
understand what is an appropriate level of investment in certain
categories of investment and what is it that is best from a customer
point of view, reconciling the tension between quality and reliability
and price and that is the function of that price control discussion.
If I could try to state just a couple of facts which might help
to penetrate some of that complexity. There are within the MMC
report in this area of capital expenditure something like 17 categories
of capital expenditure listed. Each of those categories of expenditure
were subject to scrutiny and discussion. Each of those categories
of expenditure broadly speaking was contested by Ofreg within
the MMC price control where they had a particular view of what
capital expenditure should be and we were offering a programme
which we thought was appropriate from a customer viewpoint. Let
me make it quite clear that in terms of the responsibility that
we believe we have, we believe that that responsibility extends
to absolutely all of our constituency, which extends extensively
into the remit that we have from customers to manage what is ultimately
a customer resource because once we make investment in the system,
that is ultimately an investment that is going to be paid for
by the customer and we have no hesitation about the responsibility
that we have and the need to manage that responsibility against
this tension of good value for money, of price to be paid and
of quality and reliability to be delivered. There are 17 categories
of expenditure which would have been the subject of discussion
within the MMC price control. One of those categories of expenditure
relates to the overhead refurbishment programme on 11kV networks
which, as Mr McCracken has indicated, was an area which we felt
was particularly effective from the point of view of making a
return in quality and reliability terms. We proposed at the MMC
that we should have a programme which was in line with the programme
that we had previously been conducting during the first price
control period and that that programme should run at the level
of 1,750 kilometres per annum and that was not a facile suggestion,
it was a studied suggestion in terms of returns to the customer,
value for money. Ofreg's position going into that discussion was
that an appropriate level of investment would be 1,200 kilometres.
The difference between 1,200 and 1,750 is very substantial in
terms of the impact on rural networks. The MMC conducted their
own study. They said that in the light of the information they
had from their study, in the light of the tension that they saw
in the price equation, their preference would be to remit at 1,500
kilometre per annum on 11kV networks and that would be built into
the price control as part of the capital expenditure allowances.
So at one level it is complex and at another there are not very
many mysteries in relation to this. This was an area that was
discussed. There was a contest as to what was an appropriate level.
We came out with a certain level which we felt was broadly satisfactory
in the sense that we have to go in and listen to what is the representation
of the public interest consideration. We have to listen to what
it is that other people are saying about what they believe to
be in the interests of customers, and we came out of that MMC
price control with a programme which is 1,500 kilometres per year.
What we have said in this report is that, in the light again of
the impact on rural networks of this type of storm, we believe
that we should move that programme up again. We are not saying
that we should double it. We are saying that we should move it
up again towards the 1,750 kilometres per annum of refurbishment.
We are seeing increases next year to 1,750 and then 2,000 in the
remaining two years. We have also said we believe as we go into
the next price control we will be arguing to sustain the level
of refurbishment at that level. We are conscious of what the arguments
and counter-arguments are. There is not an A to Z of engineering
and scientific analysis which tells anybody exactly what that
programme should be. All you can do is to make judgments on the
basis of the best information available to you and the best understanding
of what the system is that you are dealing with and how that system
impacts upon quality and reliability of supply at a customer level.
That is my attempt to try and deal with the question in as straightforward
a way as I can and on as factual a basis as I can. If I can refer
you on another question which you had, to page 33 of our review,
section 8.3.1, where you will see the third paragraph in the section
which says, "In order to improve the resilience of the LV
network to storm conditions, we propose to accelerate our long-term
programme of replacing overhead lines and under-eave wiring in
urban areas. We will also extend this programme to include some
of the open wire systems on the outskirts of urban areas. These
will be principally replaced by underground cabling ..."
That is where we have tried to address and capture the issue of
undergrounding of low voltage networks, which was a separate issue
from this issue of refurbishment and investment in refurbishment
programmes.
57. I think much of that has been very helpful.
I think it would be helpful in some of the supportive material
if the case that was made for 1,750 kilometres was made available
to us so that we can assess the extent to which you have pushed
for that case. It has to be said that Ofreg would have been unlikely
to have allowed you to increase prices to consumers if it looked
as if you had been raising too much money off consumers under
the heading of provision for capital expenditure and then not
spending it. That is a matter which, in the end, we are going
to have to evaluate.
(Dr Haren) First of all, we can give you the references
very easily within the MMC report where all of these issues are
transacted. Perhaps I could add some additional thoughts in relation
to the underspend within the first price review period. I think
what we are trying to convey is that we recognise the importance
of capital expenditure and investment in the system to have a
good system. We also recognise the importance of proper management
of those capital investments such that the system is not over-invested,
so the customer is not paying more than they should be paying
to get a given level of quality and reliability of supply. Mr
McCracken mentioned the issue of incentives within price controls.
We are certainly responsible as the licensees for the system for
managing those capital investment programmes in the tightest possible
way, and there are a number of ways in which a capital investment
programme can be affected. At one level, I think the question
that we are being invited to address is that you just refuse to
make investment in the system. We did not make a refusal decision
which said, "No, we will just not invest very much in the
system even though there have been allowances within the capital
programme beyond the level at which we were spending-in the first
price review". There were a number of things that took place
in that programme which were again very extensively discussed
at the MMC. The first one is that you have a job to procure materials
at the tightest possible cost that you can as you make your investment.
The alternative to that is that you tarmac the car parks in order
to make sure that the capital investment occurs and you are not
incentivised to do that. What you have to do is to manage the
capital investment programmes as tightly as possible, and one
dimension of it is the way in which you procure materials. We
have worked extremely hard on the issue of procurement of materials
internationally, and from the very early stages of our privatisation
we were out to international procurement ahead of other electricity
companies. We were very much in parallel with what some of the
continental European utilities would be doing, looking at the
total supply availability from continental Europe and from eastern
European countries and trying to get the very best materials costs
that we could to reduce the price of components going into the
system, while still making sure that those components are meeting
an absolutely rigorous standard and going to be fit for the purpose.
There is another way in which investment can be changed in the
system and that is that you believe that you need a certain level
of investment to reinforce the system against new demand which
is being placed on the system. I think that is a question which
came up earlier, perhaps in relation to the capacity that you
have within the system and whether that was a problem during these
storms. You need a certain amount of capacity as new load growth
occurs in the system. We have had on the Northern Ireland system
a demand management incentive to customers which has enabled us
to reduce the level of transmission expenditure that we would
have otherwise incurred in order to meet the peak demands on the
system. We encourage customers to manage load off the system at
peak times, which gives a benefit in pricing terms to the customer
and gives a benefit to the system in terms of us having a lower
capital investment need. Then there are other areas, such as investment
in the transmission side, which could not take place because of
delayed planning decisions where we went for planning and had
an expectation that we would get planning within a certain timescale
and planning took much much longer than anybody would have anticipated
on the first day. Then I think there are the areas which Mr McCracken
touched upon, which were re-phasing or deferrals, when you looked
again at the system and said what has the load growth been, what
is it that we thought we needed to do, what is it that we think
we need to do now? In a dynamic way, you reorganize your investment
programme in order to give the best effect for the customer. This
area of the investment programme was executed in the first price
review and the appropriate investment programme to execute in
the second price review was the bread and butter of the MMC price
control. The MMC took full account of the explanations that we
gave for the deferrals, for the re-phasing, for the changes in
the investment need because of demand side management and all
of those were factored into the price control to give the effect
that Mr McCracken indicated, which is that the customer today
is paying less than they would otherwise have been paying if those
programmes had been executed within the first price control period.
The issue of how to balance what was done in the first price period
as against prices today has been fully factored and fully taken
account of by the MMC. As we conduct discussions on these issues
with Ofreg we find that that understanding seems to escape Ofreg,
and the way in which they address these issues is to go back to
arguments which have been already very fully transacted, as we
understand them, within MMC and we believe that we ought to be
moving forward and looking at what are the investment needs of
the network now in the light of the best experience available
and we anticipate that there will be an element of discussion
which again will have to take place between ourselves and Ofreg
before we can convince them that the new levels of planned investment
are levels which are appropriate and, of course, it is necessary
for them to have available to them the best information that we
can provide to justify those programmes. What I would like to
say to this Committee is that we are not dealing here with some
kind of black magic and we are not dealing with people who are
keeping cards under the table. What we are trying to do is to
deal with this issue in as transparent a fashion as we can. We
dealt with it transparently at the MMC. It was very fully investigated
and discussed at the MMC and we came out of that MMC saying that
that is now the investment programme that we have available for
this portion and this category of assets and expenditure going
forward.
Chairman
58. The points I am going to put to you
now are ones for you to follow up in writing,[1]
I am not requiring a response at this juncture, but I am following
up on the questions from the exchange which you have just had
with Mr McWalter. This Committee is itself incapable of conducting
an analysis on the relationship between the age of the network
and the vulnerability to storm damage, but it quite clearly something
to which you have given time and attention. There is not much
of it in the report per se and it would be helpful to have
a note on your analysis of that relationship. I will remark absolutely
in passing and not in order to be provocative and say that the
expenditure which you did carry out during the period in question,
the £243 million to which Mr McGrady and Mr McWalter have
referred, is actually smaller than the figure that you would have
spent under the negotiations with Ofreg as well. There is still
a margin below the Ofreg figure quite apart from the much larger
figure under negotiation with the MMC. My second question on which
I would like, if possible, for you to come back on is in paragraph
8.3.2 of your report on page 34, immediately above table 12, where
you say, "Taken together, the full refurbishment programme
and the supplementary programme when extended into the next price
control period will ensure that the complete 33kV and 11kV networks
have been improved by one or other form of refurbishment within
the next six years." It would be helpful to us to know what
that would mean in terms of the amount of work you will have had
to have done on components, but perhaps more important, what the
implications would be for subsequent work once you had actually
brought it up to that state, because that is quite clearly a target
of your own. The third question, which again can be dealt with
in writing after the event, is to do with page 9 of your report,
figure 2, where you give the comparison for customer minutes lost
for electricity utilities. It is a figure you have quoted on a
number of occasions during the day. When you turn to the next
page where table 2 occurs, I infer that, partly because of the
asterisk, it is calculated in a different manner from figure 2
on the previous page. It would be quite helpful to know if there
is either an update of figure 2 by which we can compare NIE by
figure 2 calculations or, alternatively, whether there is an update
for other utilities which compares with the figures which appear
in table 2. How you handle it I will leave to you, but it would
be helpful so that we get away from comparing apples with pears.
My final question in this respect is very brief and this you could
answer verbally. To what extent do you rely on the goodwill of
landowners to carry out your projected increase in tree pruning?
Do you need any additional statutory powers in order to accomplish
your objectives?
(Mr McCracken) Under the wayleave agreements that
we have with landowners, which permits our equipment to be on
the land, we do have powers to maintain the line and that does
include tree pruning from above the line. The fact of the matter
is that those statutory powers probably in practice are not that
useful because, if you get to the depths of a relationship with
landowners such that you are having to enforce statutory powers,
then it becomes a very difficult relationship indeed and becomes
unworkable and very extensive tree pruning programmes, have indicated
up to 5,000 kilometres per annum on the basis that you are having
to rely on statutory powers to gain entry.
Mr McCabe
59. I have got two simple questions about
costs. I wonder if you could tell me what you estimate the total
cost to Northern Ireland Electricity has been of the storm and
what you estimate the total costs of the improvements in the wake
of the storm will be?
(Mr McCracken) I think the total cost of the storm
will probably run to something like £10 million. I have indicated
earlier that £5 to 5.5 million of that would be the goodwill
payments and the rest will be made up of materials and mainly
labour costs after that. The total cost of the programme that
we have in here—this is quite a short-term programme that
we have in here, we are not looking extremely far into the future—is
£24 million on the network and an additional £2 million
in call handling technology and advancing £12 million of
investment on trouble management systems and customer service
IT systems that were already planned.
1 For NIE's response, see Ev p. 28. Back
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