TISC PN 05 0405


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PN 5 of Session 2004-05


Publication of Report

The Electricity Distribution Networks: Lessons from the storms of October 2002 and Future investment in the networks

The Trade and Industry Committee today published its Report into the electricity distribution networks: lessons from the storms of October 2002 and future investment in the networks.

In 2003, the Committee took evidence on the lessons to be learnt from the power cuts following the strong winds in October 2002. At about the same time, the industry regulator, Ofgem, was starting work on the price controls to be imposed on the 14 distribution network companies which would determine the maximum amount those companies could spend on maintaining and replacing the infrastructure. Ofgem's review is now complete.

This Report brings together the related issues of future expenditure on the distribution networks and whether and how the network companies are prepared for dealing with disruption to the electricity supply when events beyond their control, such as severe storms, occur.

The Committee considered that the electricity companies and the public sector bodies responsible for the industry-Ofgem, the DTI and energywatch-have worked hard to draw the correct lessons from the October 2002 storms and to implement appropriate changes to practice. It commended in particular the work of the Network Resilience Working Group in achieving a consensus on what needed to be done and driving forward implementation. The Committee concluded that the distribution companies are now significantly better prepared to deal with the aftermath of severe weather than they were in October 2002.

The Committee argued that electricity distribution companies need sufficient revenue to replace ageing infrastructure, maintain the network adequately, and invest in improved quality of service and in the new construction needed to accommodate renewable generation. The Committee stated that it was increasingly confident that Ofgem will address all these requirements in its approach to the price control process. Although Ofgem has not gone as far or as fast as the Committee would wish in terms of capital expenditure allowances, the regulator's proposals for the 2005-10 period still represent a marked improvement on previous price control determinations- and, given a history of previous under-investment by companies, Ofgem's caution is understandable. The Committee concludes that it is now for the companies to prove that they can use their capital expenditure allowances effectively.

The Committee was less happy about the continued regulatory pressure on operational expenditure. While there may still be efficiencies to be gained by the companies, the Committee suggested that the electricity companies may have to make real cuts in the amount and quality of maintenance of their networks if such pressure continues.

Martin O'Neill MP, Chairman of the Committee said:

"We are pleased that the electricity distribution companies appear to have learned the correct lessons from the October 2002 power cuts.  Their new procedures have been tested by a couple of incidents of severe weather since October 2002, and there was a marked improvement in the companies' response.  We commend the way in which the industry, the regulator and the Department of Trade and Industry worked together to achieve this.

"On the new price control regime, Ofgem has shown a refreshing willingness to listen to the views of the companies and to try to achieve a compromise that is fair to them and to the consumer. Our ageing electricity network needs substantial investment to replace equipment. Although the regulator has not gone quite as far as we would wish in allowing extra capital expenditure, Ofgem's final proposals in November still represent a promising start to what will be a long-term reconstruction programme. 

"We are less happy about the continued squeeze on operational expenditure, such as maintenance. We recognise that consumers are unhappy about recent increases in electricity bills, which stemmed from rises in generating costs; but we are aware that, in several recent major incidents, power cuts were caused either directly or in a contributory way by maintenance problems. We believe that customers would be willing to pay a little extra to reduce the incidence of such power cuts."

13 December 2004        ENDS