Select Committee on Public Accounts Minutes of Evidence


Examination of Witnesses (Questions 120-139)

OFFICE OF GAS AND ELECTRICITY MARKETS

MONDAY 8 MAY 2006

  Q120  Mr Williams: Double the previous. Were the companies aware of this when they took on the four sold-off areas?

  Mr Buchanan: Yes.

  Mr Gray: Yes, they were aware of the arrangement.

  Q121  Mr Williams: Which were they aware of? The earlier set of figures or were they aware of the doubling?

  Mr Gray: They were aware of the new arrangements. The 1,150 miles a year was the performance before the 2001 price review. The accelerated replacement was introduced at that price review with funding to allow the companies to do it.

  Q122  Mr Williams: What estimate of annual cost is there to replace 2,000 miles a year?

  Mr Gray: The mains replacement programme, which is part of the expenditure the companies undertake, which is specifically to do with this, runs at about £430 million per annum in the current five-year period. That is one of the largest bits of expenditure.

  Q123  Mr Williams: That is £430 million a year to replace pipes.

  Mr Gray: Yes.

  Q124  Mr Williams: That is over the whole network, not just the four.

  Mr Gray: That is over all eight DNs.

  Q125  Mr Williams: So the four who purchased got approximately half of that to pay.

  Mr Gray: Yes.

  Q126  Mr Williams: That cost is obviously going to go to the consumer, is it not?

  Mr Gray: Yes.

  Q127  Mr Williams: It is quite a considerable sum. How much of it is in urban areas? If we have 58,000 miles of pipe at risk, how much is in the urban areas where it is very expensive?

  Mr Gray: I should guess—and I should be guessing because I do not have the data—that probably the large majority of it would be in urban areas because those are the areas where the system is overridingly post-war cast iron pipes.

  Q128  Mr Williams: We have three types of pipe: there is the original cast iron pipe which was used from the beginning of the last century and which, understandably, is subject to corrosion, but there is a degree of predictability about it. Earth shifting is a different matter. Then, in 1970 you moved to this ductile iron pipe. Were you using that to replace the old?

  Mr Gray: You keep saying "you": it is the industry.

  Q129  Mr Williams: You embody the industry for us today.

  Mr Gray: We embody consumers actually.

  Q130  Mr Williams: Yes, you are supposed to be looking after the interests of consumers. It says here that the safety of consumers is a major consideration. I would have thought that physical safety must be a predominant consideration. If we look at footnote 35 we find that the ductile iron pipe was introduced in 1970, but this now presents a different type of problem, does it not? According to this, it fails unpredictably. How much of it is down there and do you have to dig it all up again?

  Mr Buchanan: The best thing is for us to get that data for you in the breakdown of cast iron/ductile iron pipes.

  Q131  Mr Williams: In terms of priorities, has it meant there is a shift in priority? From the 1970s on you have been putting in this new type of piping. Do you now have to say, because it is unpredictable... I assume a lot of it will be in areas where there are new housing estates, so following the housing explosion—excuse the rather inappropriate phrase at the moment—since 1970, a major part of this ductile unpredictably volatile pipe will be in new housing estates.

  Mr Buchanan: Yes.

  Q132  Mr Williams: Have you stopped using it?

  Mr Buchanan: It is a great question and the HSE clearly set the parameters, but the important thing here is that we do represent the consumers we do not represent the companies.

  Q133  Mr Williams: Have they stopped using it?

  Mr Buchanan: We do interface on this. The companies have a primary responsibility to make sure that the pipes are protected and that they have the appropriate assets in place. If we were to set a price review which in their view was thoroughly irresponsible, they would go to the Competition Commission; they would have to.

  Q134  Mr Williams: Coming back to the fact that you are looking after consumers' interests, we understand that, but if you are not asking the questions I am asking, it seems to me there are some important questions you should have asked. So it is not unreasonable to ask you which is the greater priority, replacing the newer ductile unpredictable iron pipes which are substantially in new urban areas, or replacing the old cast iron pipes?

  Mr Buchanan: It is a very reasonable question. To give you some kind of comfort, through the price control discussions we have—so for the price reviews this year it is largely with National Grid, Scottish Power and Scottish Hydro—we have regular discussions on the quality of the assets, we hire engineer consultants to go out and look at the quality of the assets, we have intense negotiations with the companies on the quality of the assets.

  Q135  Mr Williams: This is waffle. You are missing the point.

  Mr Buchanan: We have their asset register. We will then negotiate with them, effectively on the back of the advice of the engineers and the HSE—

  Q136  Mr Williams: I am sorry, but you are misunderstanding the question. The question is not what you are negotiating about. The question is: since consumer safety is your priority, what attention are you paying to the new and more dangerous problem of a pipe having been used for new developments which is actually more volatile and unpredictable than previous piping? You are not able to tell me what priority there is now in replacing pipes, whether you are still concentrating on the post-1900 stuff up to 1970 or whether you have had to switch to replacing the new and using the third type, the plastic pipe, to replace it.

  Mr Buchanan: Quite clearly our primary responsibility is as an economic regulator and we look to the specialists at the HSE with their primary duty, but also, when we are in a price review, to the specialist engineering consultants. In answer to the questions you ask, I want to give you some confidence that we do ask them but the degree of responsibility—

  Q137  Mr Williams: But you do not remember the answers.

  Mr Buchanan: I can give you an example right now. We are going through the electricity transmission price review and we are analysing the underground cables, we are analysing the quality of the overhead wires and we have engineering specialists to help us do that. I want to give you some comfort that it is not just ignored.

  Q138  Mr Williams: I should like you to look at the questions I have asked. I may consider putting in some written questions to refine them.

  Mr Buchanan: We should welcome that and we shall try to give you some answers.

  Q139 Mr Williams: I should like a full report from you for us to embody in our Report on this issue of safety, the extent of it, the location particularly, since a lot of the new stuff will be in urban areas and so on. I shall probably put together a set of questions and pass them in, but read what I have said in my questions.

  Mr Buchanan: Yes.

  Chairman: That concludes our meeting. Just to sum up, the Report estimates that there are potential savings for the consumer of £1.2 billion between 2008 and 2023. Some of us will not be here in 2023, so we hope you make more progress before then. Thank you very much.





 
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