Scottish Affairs Committee - A Robust Grid for 21st Century ScotlandSupplementary written evidence submitted by Ofgem

FOLLOW UP TO OFGEM’S SELECT COMMITTEE ORAL EVIDENCE SESSION
(8 FEBRUARY 2012)

During our recent evidence session on the Committee’s inquiry into a “Robust Grid for Scotland for the 21st Century” we undertook to come back to you with further information.

Please find these answers attached as an annex to this letter. In some cases the information you requested will not be ready until later in the year, however we will of course ensure that we keep you informed as and when the information becomes available.

I thought it would also be useful to set out here further information relating to our next electricity distribution price control, RIIO ED1, which will run from 2015 to 2023, as it has particular relevance for rural communities in Scotland.

As part of RIIO ED1, all Distribution Network Operators (DNOs) will be required to conduct extensive engagement with the communities they transport electricity to. Ofgem will be reviewing whether the views of stakeholders are properly represented in the companies’ plans. In addition we will ensure that we factor our own stakeholder engagement into our work on RIIO ED1, seeking a wide range of views and opinions across the country, including rural communities. And we will be evaluating the effectiveness of the “Worst Served Customer Scheme” and consulting on any possible amendments to this initiative.

We will also consult on the application of the Severe Weather Guaranteed Standards to the Highlands and Islands and on the level of compensation provided to customers when the standards are breached.

We will explore whether it is possible for the DNOs to provide a greater sub-regional picture of network performance levels and, if successful, we will consider how best to provide this information to customers. We are happy to come back to the Committee on this in order to keep you informed of what progress is made in this area.

In regard to the specific exceptional weather claims made by Scottish Hydro, we will produce our report into this by August this year. This report will set out clearly the factors that we have taken into account in reaching our decision. We are happy to send a copy of draft direction to the Committee and keep you informed of any progress on this.

Finally, having looked at the written evidence submitted to the inquiry we would also like to clarify Ofgem’s position on a number of points raised by Scottish Renewables in its written evidence to the Committee, and have included these clarifications in Annex B.

Annex A

SUPPLEMENTARY ANSWERS TO THE SCOTTISH AFFAIRS SELECT COMMITTEE EVIDENCE SESSION WEDNESDAY 8 FEBRUARY 2012

Q219—Chair: Can you give us a figure? How would your formula translate into, say the number of minutes that an average consumer could expect to lose power for in any one year?

Answer: CIs are the number of customers whose supplies have been interrupted per 100 customers per year over all incidents, where an interruption of supply lasts for three minutes or longer, excluding re-interruptions to the supply of customers.

CMLs are the duration of interruptions to supply per year measured by the average customer minutes lost per customer, per year, where an interruption of supply to customer(s) lasts three minutes or longer.

So with a target of 77 CI in DR5, an average customer in Hydro could expect to be off supply three times in four years, and for each of these they will be off for 1 hour and 15 minutes.

SSE HYDRO TARGETS FROM 2005–06 TO 2014–15

	2005–06	2006–07	2007–08	2008–09	2009–10	2010–11	2011–12	2012–13	2013–14	2014–15
CI	96.2	95.8	95.5	95.2	94.9	77.0	77.0	77.0	77.0	77.0
CML	95.9	94.9	93.9	93	92	75.1	75.1	75.1	75.1	75.1

EXAMPLE OF ALL HV INTERRUPTIONS ON ISLAY FOR 2010–11
(Number of customers on Islay 2,572)

		Number of Customers Interrupted	Total Customer Minutes Lost	Cost to Hydro due to HV Interruptions in Islay for 2010–11
Number of Interruptions	43	15,928	1,330,989	£334,021
Under frequency events	4	10,285	713,525	£186,137
Total	47	26,213	2,044,514	£520,158

Q247 and 248: In your most recent performance reports, what are the most notable achievements and failings for Scottish and Southern, and for Scottish Power?

Answer:

PERFORMANCE AGAINST OFGEM INCENTIVE SCHEMES FOR 2010–11—ACHIEVEMENTS AND FAILINGS

£million	IIS (Interruptions Incentives Scheme)	Telephony (Aimed at ensuring good customer response on the phone	Discretionary Reward Scheme	Losses Incentive*
SPD	£6.13m reward	£0.77m	£0	−
SSEH	− £0.40m penalty	£0	£0	−

*Please note that the Losses Incentive data has not been finalised yet.

In addition, we will submit the 2010–11 Electricity Distribution Annual Report when finalised. We expect this to be in late March–early April. The 2009–10 annual report can be found via this website
http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=539&refer=Networks/ElecDist/PriceCntrls/DPCR5.

Q252, 253 & 254: How do you ensure that consumers are getting value for money? Here we have a monopoly that spends an agreed amount of money then passes it on to the customer. How do you ensure they are delivering value for money? Are those agreements and outcomes in the public domain? Would they be on your website?

Answer:

Link to website for DPCR5 Final Proposals:
http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=346&refer=Networks/ElecDist/PriceCntrls/DPCR5.

We have also published a handbook on implementing the RIIO framework for price controls. This is a link to the document:
http://www.ofgem.gov.uk/Networks/rpix20/ConsultDocs/Documents1/RIIO%20handbook.pdf.

Q268 and 269: How detailed will the report (into the exceptional weather event) be?

Answer:

This report will set out each event that has been claimed for by a company for that year, and whether its has met the relevant criteria and thresholds under the Severe Weather Exceptional Event process. The report will contain information on the date of the incident, the cause of the event, and the impact on the company’s performance that we deem to have been caused by the severe weather event. The report will also contain the company’s final CI and CML performance figures, adjusted for the exceptional event(s).

The Severe Weather Exceptional Events Process

To satisfy the verification process, Ofgem follow the requirements set out in the licence in verifying whether an event is exceptional or not. This is a factual review of the DNOs’ exceptional event claims.

Ofgem checks that the cause (eg wind and gales) and mains equipment involved (eg overhead lines) codes are valid for the particular event being looked at, and that the threshold has been met.

Each DNO has a severe weather threshold in their licence based on the number of high voltage and above faults that occur during a 24 hour period. These have been set for DPCR5, based on eight times the mean daily fault rate for incidents at high voltage and above. For an event to be considered as an exceptional severe weather event, the number of higher voltage faults has to at least reach this threshold during a 24 hour window from the start of the event.

The amount of customers off supply and the length of their interruptions between the start and end time of the event will provide Ofgem with the data necessary (CI and CML) for the Directions required under the licence.

Annex B

CLARIFICATION OF OFGEM’S POSITION ON POINTS RAISED BY SCOTTISH RENEWABLES IN ITS WRITTEN EVIDENCE TO THE COMMITTEE

HVDC Bootstraps

We agree that subsea HVDC bootstraps running down the east and west coasts have the potential to provide a cost effective solution to providing additional capacity for bulk power transfer from north to south. As well as the subsea cables being less susceptible to weather related damage than onshore overhead lines, this approach can also improve the timeliness of delivery. Onshore projects have to consider a wider range of issues for design and planning, and some of these considerations are less extensive for subsea projects. Therefore, subsea cables are generally likely to be delivered more quickly than onshore equivalents. This can allow greater overall savings in constraints, and hence help to offset the anticipated higher costs of construction. Therefore, this approach is appropriate in some cases.

The Western HVDC bootstrap will be the first such link to be built in Great Britain. It will provide c.2GW of additional capacity on the circuits between Scotland and England and it is expected to cost around £1 billion. We are currently in the final stages of assessing the requests for construction funding. The two transmission companies involved in this project (National Grid Electricity Transmission and SP Transmission) plan to let construction contracts this month, with the intention of completing the link by 2015–16.

Ofgem’s Role in Approving Transmission Investment

Scottish Renewables makes reference to our role in approving transmission investment which they suggest can sometimes be lengthy and might impact on the timing of investment. Under the RIIO-T1 price control for transmission we will use a proportionate approach to assessment. We will conduct assessments of individual investments if this is warranted, eg by the cost.

Where we do assess an individual project, as for the Western HVDC bootstrap mentioned above, we do not consider that our processes act as a barrier or as a delay to timely and efficient investment. Our processes typically run in parallel to other work being conducted by the transmission companies, such as finalising the technical designs, gaining necessary consents and planning permissions, and running the procurement process. For individual investment projects of this magnitude we think that it is appropriate that we do seek to clearly establish that the investment is required and that it is being planned and delivered economically and efficiently in order to ensure that the interests of existing and future consumers are protected.

Transmission Use of System Charges

Scottish Renewables also make reference to the impact of transmission use of system charges on renewable generators connecting to the grid. We are currently reviewing these charges as part of Project TransmiT. We issued a consultation in December 2011 outlining our suggested way forward. If implemented, this could result in substantial reductions (relative to the existing arrangements) in the charges that apply in the North of Scotland and the Scottish islands, for renewable and other plants that do not generate continuously. Project TransmiT aims to ensure that the transmission charging regime plays its role in ensuring that the government’s environmental targets are met at value for money to consumers whilst maintaining security and quality of supply.

16 February 2012