Select Committee on Northern Ireland Affairs Sixth Special Report



APPENDIX III

OFREG RESPONSE

Letter to the Clerk of the Committee from the Director General of Electricity Supply for Northern Ireland

I would like to thank the Committee for the opportunity to respond to the recommendations in the Second Report which relate to me directly. My response follows the order of recommendations as published on page xxi of the Report.

Conclusion (d)

Ofreg has commissioned studies to develop suitable network performance measures which will be used in the remaining years of the current price control and more specifically for the next price control, which will link network performance (and hence quality of supply) with network related expenditure (both capital and operational). These output measures will help determine the level of expenditure required over the next price control period to achieve the desired quality of supply.

In the course of the 2002 review process, Ofreg will examine detailed submissions from the company in relation to their expected requirements over the five years 2002-2007 for capital and operational expenditure. If Ofreg deem that capex estimates from NIE for the new control period are such that they include a re-submission for projects not carried out in the existing control period, then the expenditure for such projects will be disallowed, i.e. the price control process will explicitly disallow further funding for projects which were not carried out due to inefficiency by the company in allocating its resources—unless of course the money was allocated to another project of a demonstrably higher priority.

Operational expenditure by the company faces similar scrutiny, with a "bottom up" approach being used to derive appropriate levels of operational expenditure. Evidence from the previous control period will inform the decisions taken with regard to the appropriate levels of expenditure in the following period, and efficiencies will immediately be passed on to customers by a one-off reduction in allowed revenues (a "P0" drop) followed by ongoing annual reductions under RPI-X methodology.

It should be acknowledged that the quality of economic decision making in NIE appears to be improving no doubt, in part at least, because of the pressures which come from regulatory accountability and parliamentary scrutiny.

Conclusion (f)

Ofreg will survey the views of customers as part of the price control process, and customer views on quality of service and willingness to pay for quality will be taken into account in price control decision making in relation to capital spend. It should be noted that customers' views were however ignored by the MMC when it set the current price control and I will be happy, should it be necessary, at the appropriate time to make your Committee's views known to the Competition Commission.

Conclusion (g)

I welcome the Committee's support for my proposal that cost-benefit evidence should be provided by NIE to support efficiency claims of any capex priority changes during a price control period.

Conclusion (h)

I welcome the Committee's support for my assurance that reducing prices to consumers in Northern Ireland can be achieved alongside improving quality of supply, and I can confirm that NIE will be entitled to such revenues as can be demonstrated to be necessary to maintain and improve their network.

Conclusion (k)

I have completed my report into lessons to be learned from Christmas 1998 storm and will forward copies to the Committee prior to publication.

I look forward to the Committee publishing a Special Report of responses to their recommendations.

Douglas McIldoon
27 October 1999


 
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