Select Committee on Public Accounts Fourth Report


3  The physical structure of the gas networks

30. The Health and Safety Executive (HSE) has primary enforcement responsibility for gas safety. Ofgem's role, as the economic regulator, is to ensure that the network owners can finance the maintenance and extension of the networks.[36] It has a statutory responsibility to consult the HSE about gas safety issues. The two bodies have established a Memorandum of Understanding which sets out the arrangements for co-operation and the exchange of information.[37]

Safety

31. Each network owner is required to prepare a safety case, showing how it is safely managing the conveyance of gas. The safety case has to be accepted by HSE before gas can be transported. In response to the announcement of the sale, HSE reappraised its safety case processes to ensure that they addressed the risks of a fragmented industry structure. This reappraisal led HSE to strengthen the importance of human factors, such as relevant experience, and introduce an enhanced programme of audits to ensure that new owners comply with their obligations.[38]

32. Ofgem collects data from the network owners on the number and duration of non-contractual interruptions. As of June 2006, there had been six unplanned interruptions to the supply of gas since the sales.[39]

33. There are some 23,000 reported leaks a year from iron pipes that were installed prior to 1997.[40] Cast iron pipes were used to transport gas until the 1970s when they were replaced by ductile iron pipes. These were found to fail unpredictably due to corrosion and were subsequently replaced by polyethylene, a robust but flexible type of plastic.

34. HSE has approved an accelerated programme for the annual replacement of iron pipes, which requires all pipes designated 'at risk' to be replaced within 30 years. 'At risk' pipes are those within 30 metres of buildings. The mains replacement programme amounts to 102,000 kilometres of pipes and covers 39% of the network (Figure 3).[41]


Figure 3: Length of mains to be replaced under HSE's programme
NGG NGNSGN WWU
2005/06EoE LonNW WMNoE ScotSoE W&WTOTAL
HSE Enforcement Policy Mains (km) 16,91910,742 13,15210,267 16,3906,802 18,1889,409 101,869

(38%)

Total Mains Population (km) 46,50421,916 33,49621,575 35,50023,972 47,54631,990 262,499

Source: NAO

35. The accelerated mains replacement programme was introduced at the 2002 price review and costs £430 million per annum. The purchasers were aware of these commitments at the time of the sales and will be responsible for meeting their assigned obligations. They will be required to set out their procedures for implementing the replacement programme, including the prioritisation of high risk works.[42]

Funding

36. While the HSE enforces safety measures, Ofgem must ensure that the price control does not prejudice the ability of companies to comply with the HSE's requirements.[43] Ofgem therefore reviews the owners' funding and maintenance programmes when setting the price control. For example, the price control will be adjusted to enable network operators to fund the accelerated mains replacement programme.[44]

37. Ofgem fulfils its obligations by developing a close working relationship with HSE, and draws on their data. It also holds discussions with companies on the quality of assets and hires engineering consultants to carry out inspections.[45] The performance framework seeks to incentivise better customer service, which includes safety. A key measure is the number of gas leaks and Ofgem expects to see a downward trend over the next five years.[46]

38. The new owners funded their purchase largely through borrowing. As a result, they are heavily indebted. Ofgem's view was that the level of debt was not a relevant regulatory issue. However, it is possible that debt-laden companies may be less able to meet new investment requirements, such as extending gas networks to rural areas they do not currently serve, and replacing 'at-risk' iron gas pipes with more robust plastic pipes. Ofgem has undertaken a research programme to consider these financial issues. [47]

Extensions to the gas networks

  1. Using gas to provide heating has traditionally resulted in lower energy bills for domestic consumers. It is therefore important that the regulatory regime does not prevent network owners from extending the networks wherever appropriate. Prior to the sale, National Grid had an agreed a programme for extending the network. The sales are expected to have a neutral impact on the number of extensions.[48] Ofgem intends to re-consider this issue at the next price control and will issue a consultation on the subject.[49]



36   C&AG's Report, para 6.2 Back

37   Ev 16-18 Back

38   C&AG's Report, para 6.3 Back

39   Ev 17 Back

40   Q97 Back

41   Q117; Ev 17-18 Back

42   Q122; Ev 17-18 Back

43   Q103 Back

44   Qq 106-108 Back

45   Qq 112, 134 Back

46   Q102; Ev 17-18 Back

47   C&AG's Report, para 5.13 Back

48   C&AG's Report, para 6.11 Back

49   Q113 Back


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2007
Prepared 11 January 2007