Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 100-119)

OFFICE OF GAS AND ELECTRICITY MARKETS

MONDAY 8 MAY 2006

  Q100  Mr Davidson: So there is going to be an unsteady trend then there will be a variable trend, but there will be a discernible trend which will be getting things better and fewer leaks.

  Mr Gray: I would expect so, but there is a difference between electricity distribution and gas distribution.

  Q101  Mr Davidson: I am not asking you about electricity distribution: I am not interested in knowing the difference.

  Mr Gray: I was just drawing an analogy.

  Q102  Mr Davidson: I am asking you about gas leaks. Can I just be clear that what you are saying to me is that you would anticipate that over a period, if we come back to this in five years' time, there will be a steady trend with variations indicating a decline in the number of gas leaks?

  Mr Gray: Yes.

  Q103  Mr Davidson: Fine. We actually accept a yes. A yes is entirely satisfactory, indeed that will possibly come up at your trial in due course. May I just ask, in terms of the other health and safety indicators that you have, that you are working on with the HSE, firstly whether you could just give me an indication of how many there are and secondly whether or not you would similarly expect a trend in the appropriate direction, upwards or downwards, depending whichever is safer?

  Mr Gray: Health and safety is very much the responsibility of the Health and Safety Executive. As well as us having to approve the sale and the Secretary of State for Trade and Industry having to approve it, the third party which has to is the HSE. They lead on safety initiatives. It is not our territory, except to the extent that obviously we have to make sure that nothing we do in the price controls prejudices the ability of the companies to do what the HSE wants them to do. However, it is not our job to enforce measures on safety. It is our job to make sure the companies have the money to be able to do what the HSE calls for.

  Q104  Mr Davidson: Well that is interesting. So if we saw an increase in lack of safety and it was reasonable to assume that the companies were pursuing financial strategies which resulted in less money being spent on safety measures and there was therefore an increase in those numbers, are you saying in those circumstances you would be absolutely powerless?

  Mr Gray: I should imagine that the Health and Safety Executive would want to know from us whether we thought we had done anything which was imposing that pattern of behaviour on the companies. If there were any evidence of that, we would change it. Then it is very much for the Health and Safety Executive to set the targets.

  Q105  Mr Davidson: Let me be clear. If the companies find themselves in a position where the number of health and safety breaches is increasing, a plausible defence for them is to say that they cannot afford to do it because you are squeezing them too tightly.

  Mr Gray: Yes, they might say that.

  Q106  Mr Davidson: Presumably you have taken all that into account. It seems to me that would be the first refuge of somebody who wanted to increase their profits in some way by simply arguing that they were being squeezed so tightly that they could not afford to maintain the service.

  Mr Gray: The industry blames all sorts of things on us of that sort, but in the end they have quite strict legal and licence obligations to maintain satisfactory levels of performance. If they were breaching those licence obligations, then either they would be in breach of something the HSE had imposed and they would take action on it or, if it were a breach of the licence for which we were responsible, we should take enforcement action on that.

  Q107  Mr Davidson: I take it you could reassure us that you would not fall for that one, if they simply argued that you were being far too tight on them financially and that was why the number of accidents was going up.

  Mr Gray: In all regulated businesses there is always a discussion around the service required out of these companies. One of the services required is a very great focus on safety.

  Q108  Mr Davidson: In terms of the service you require, I notice that in the bad old days it was going to take 51 years to replace all the at-risk pipes, and that is down in paragraph 6.4, and now in the bright new dawn it is going to take 30 years to replace all the pipes at risk. If my house were one of the ones which were not going to be dealt with until 29 years and a bit from now, I am not sure I should regard that as all that much of an improvement, would you?

  Mr Gray: That arrangement whereby the pipes were to be replaced was one which was agreed between HSE and Transco as it was then. Our role in it was simply to ensure that the industry has sufficient funds to make sure that it could replace the pipes on the agreed timescale. We took action in the last price control review.

  Q109  Mr Davidson: This is the "It's nothing to do with me guv" effect, is it?

  Mr Gray: It is very much to do with us in the sense that we have to make sure they have the money.

  Q110  Mr Davidson: Are you happy then with a position where these pipes which are potentially dangerous only have to be replaced within 30 years?

  Mr Gray: It is not our responsibility to judge the period over which it should be done.

  Q111  Mr Davidson: That is the "It's nothing to do with me guv" effect, is it?

  Mr Gray: It is just a question of who is responsible for what in this kind of situation. It is not our responsibility to set the safety measures.

  Q112  Mr Davidson: You have accepted a position where the HSE and the companies have settled on 30 years and you have taken the view that is not something you would intervene in or express a comment on, you just take that as a given. Is that correct? We will settle for a yes.

  Mr Buchanan: Yes. The HSE have set that parameter and we have a very close working relationship with them.

  Q113  Mr Davidson: Fine. I just want to be clear about who is responsible for that. May I turn now to the question in paragraph 6.11 of extensions to the gas network? I wonder whether or not this is all somebody else's fault as well. I should have anticipated that there would be some pressure under any new regime to improve the extension of the gas network beyond that which was there before, rather than simply leaving it as it was previously. The fact that it indicates here "... expected to have a neutral impact on the number of extensions" indicates to me that there is an opportunity missed. Is that fair?

  Mr Buchanan: You may regard this as good news: this is something we are going to be addressing and there will be a consultation paper out shortly as part of the price review we are doing. This is almost a classic example of what you can do in a corporate transaction or what you can do when it is your turn. Our turn is in the price reviews and we are going out to consultation on some of the issues which should potentially be looked at with regard to the extension of the gas networks.

  Q114  Mr Davidson: What position will you take going into this? You do not walk into this with no idea whatsoever.

  Mr Buchanan: That is a very good point. Our opening position is largely covered by what is called section 4A of the 1986 Gas Act, which says that we have to look at situations where it is reasonably economic and therefore we shall have to make a judgment in the light of the consultations as to whether it is reasonably economic. One of the examples on which we may get feedback is that there is a ten-metre free rule, but if you are more than 23 metres away from a gas main you lose that. Is that fair? Should we revisit that? Those are the kinds of things we want to revisit in the consultation and should welcome your views on this.

  Q115  Mr Davidson: A consultation like that is likely to be dominated by those who would gain by the extension.

  Mr Buchanan: As regulators we are pretty cynical as to where people are coming from. May I give you comfort that we are cynical?

  Q116  Mr Davidson: I just wonder whether my urban constituents would be yet again forced to subsidise farmers, who in my view already get far too much. Is that a fair way of seeing how the thing could progress?

  Mr Buchanan: At the moment I do not want to prejudge it because we are opening up the issue for discussion. I very much welcome your views on it.

  Q117  Mr Williams: This question of leaks and replacement of pipes. The 23,000 leaks a year, most of which are minor, represent over 60 a day, which is a surprisingly large number. When you think of the number of customers, if it is all tiny household leaks, it could be seen in a different perspective. Looking at paragraph 6.4, a point is made that over a five-year period to 2001 an average of 1,840 kilometres a year of at-risk pipe were replaced, that is 1,150 miles. Let us stick to miles—I am not metricated. You were replacing 1,150 miles a year of at-risk pipe, which means that if it were going to take 51 years that would be 58,000 miles of pipe at risk. If we look at paragraph 6.2 and turn the kilometres back into miles there, that means that one third of the existing network is regarded as at risk. That is staggering, is it not?

  Mr Buchanan: It is very serious quite clearly.

  Q118  Mr Williams: Not just serious, but very serious.

  Mr Buchanan: Yes, very serious.

  Q119  Mr Williams: What now is intended is that you replace within 30 years, but in 30 years it would mean you would have to replace at the rate of 2,000 miles a year. Right?

  Mr Buchanan: Yes.


 
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