APPENDIX 10
Memorandum submitted by National Grid
Plc
1. National Grid plc owns and operates the
high voltage electricity transmission system in England and Wales,
and operates the Scottish high voltage transmission system. National
Grid also owns and operates the gas transmission system in Britain
and distributes gas to approximately 11 million offices, schools
and homes in England. National Grid also has electricity and gas
assets in the US, where we operate in the New England and New
York States.
2. In addition, National Grid owns and operates
other energy infrastructure such as liquefied natural gas importation
facilities at Grain and the electricity interconnector with France.
National Grid owns around 20 million gas meters in Britain and
is at the forefront of gas and electricity smart metering competition.
3. National Grid is pleased to have the
opportunity to contribute to this debate. This submission will
focus specifically on the question on energy policy, and whether
there is a need to take better account of the environmental context
of energy provision through its regulation by the DTI, DEFRA and
Ofgem.
REGULATORY AND
GOVERNMENT POLICY
FRAMEWORK
4. As investors in capital intensive assets
that will be expected to serve users over asset lives of 40 years
or more, National Grid needs to ensure that the funding revenues
for our networks are secure over these long periods. Given the
political, economic and social importance of our infrastructure
Government has a strong interest in our activities. However, routine
Government intervention in networks and the wider energy arrangements
could bring significant investment risk, especially if perceptions
develop that the on-going need for assets is increasingly policy
specific, such as there only to facilitate renewables. The independence
of the energy Regulator, Ofgem, from Government is crucial to
establishing and maintaining investor confidence that revenues
will be forthcoming over the long-term so that investments can
be funded at reasonable cost. Independence of Ofgem from Government
is seen as credible when regulatory decisions are principally
based on economic considerations, especially where economic evidence
is made real by an active and efficient market framework. Policy
decision making by the Regulator should be restricted to circumstances
where fully functioning markets are not feasible. These principles
will ensure that investment to deliver a low-carbon economy can
be provided efficiently.
CLIMATE CHANGE
AND THE
INTERACTION BETWEEN
GOVERNMENT DEPARTMENTS
AND REGULATORS
5. There are, of course, areas where economic
decisions cannot be made in isolation by the market or by Regulators.
Environmental issues are an example of an area where Government
hasn't yet created fully functioning economic instruments to measure
and control environmental pollution. In these cases guidance from
Government to the Regulator is required, ideally in the form of
advice on the appropriate economic trade-offs that will be required
to ensure that the regulatory regime operates in a manner consistent
with Government policy. An example of this is that it will be
critical that Government provides sufficient advice to Ofgem on
the implementation of the proposed Climate Change Bill so that
the aims of the Bill are taken appropriately into account in any
relevant Ofgem decisions and carbon impacts are fully assessed.
DTI ENERGY GROUP
AND DEFRA MOVING
FORWARD
6. The recently published Energy White Paper
was explicit that both security of energy supply and the need
to address climate change at least cost were the twin aims of
the Government's energy policy. These are both extremely challenging
aims. Whilst the working relationship between DTI and DEFRA has
improved markedly in recent years, delivering both of these challenging
aims will require even better cross working between the two Departments.
National Grid's preference is that the energy Group of the DTI
and the environment side of DEFRA come together in one Department.
As the two Departments have different cultures and given that
the two aims of energy policy have equal prominence, it seems
sensible to create a new Department, rather than try to bolt it
onto one Department or the other. This would ensure there is a
clear focus and a holistic approach to energy and environmental
policy going forward.
May 2007
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