Key stories

NI Water faces data release inquiry

Northern Ireland Water (NI Water) has said it will co-operate fully with an investigation launched by the Northern Ireland Authority for Utility Regulation into how it released information on costs. In a two-stage investigation, the regulator will look at how NI Water managed communications on costs and tariffs between October 2007 and February 2008. In the second stage the regulator will look at whether or not NI Water breached its licence. Findings from the investigation are expected by the end of May. The move comes after it was revealed that NI Water is facing an estimated revenue shortfall of £20 million, which was discovered when the company was setting the tariff for non-domestic water users. Chief executive Katharine Bryan said the cash needed to make up the deficit would be found from the company’s own resources. A spokesman for NI Water said: “We have been carrying out our own review, which is nearing completion, and we will be briefing the minister, the Regional Development Committee and the regulator in due course.” Kathy McAuley, head of water at the Northern Ireland Consumer Council, said: “This investigation is essential if we are to inject much needed transparency into the process of how this reapportionment issue has occurred. 18 April 2008

ST guilty of fraud as Ofwat fines it £36m

Severn Trent Water became the first regulated utility to face prosecution by the Serious Fraud Office (SFO), on the same day that Ofwat said it was fining the company £35.8 million. The water company entered guilty pleas on Tuesday (8 April) at the City of London Magistrates’ Court on two out of three SFO charges relating to leakage data supplied to Ofwat in 2000-02. The SFO will not be pursuing a third charge pertaining to 2000. Due to the “serious nature” of the charges, the magistrates referred the case to the Central Criminal Court next month for sentencing. Separately, Ofwat proposed fining the beleaguered company 3 per cent of its turnover for deliberately misreporting customer service information (£34.7 million) and providing sub-standard service to customers (£1.1 million). The fine is the largest levied by Ofwat and proportionally higher than that recently imposed on Thames Water because the misreporting was deliberate and long term. James Perowne, chair of CCWater Central and Eastern, welcomed the penalty but expressed disappointment that Ofwat had chosen a fine, which will go to the Treasury rather than be returned to consumers. A spokesman for Severn Trent said the fine was part of a “journey to resolving legacy issues”. l Severn Trent last week said it expected pre-tax profit for its water and sewerage business to be up 10-12 per cent for the year ended 31 March. Last year, pre-tax profit was £413 million. The company confirmed that its losses as a result of last summer’s floods were £30-33 million, with £16 million recovered from insurance. 11 April 2008

Customer switches as Scots market opens

One customer switched water supplier on 1 April, the first day of competition in the Scottish business water market. Aquavitae was the market entrant to win the customer. Jeremy Atkinson, chief executive of market operator the Central Market Agency, said: “I know there are more customers in the pipeline.” Katherine Russell, director of corporate affairs at Scottish water regulator Wics, said: “The message is getting through to businesses. Now we expect the new market entrants to go out and tell customers what they can offer.” Russell said the market would be assessed on whether it delivered better service and innovation, not on the number of customers who switched, and for that competition was key. “Where would the incentive have been for a single vertically integrated company to innovate?” she asked. There is a widespread expectation that the model adopted in Scotland, with retail-only competition for 130,000 business premises and Scottish Water retaining a monopoly on supply and distribution, will be adopted by Ofwat in England and Wales. Wics chief executive Alan Sutherland has suggested that Business Stream could benefit in the long term from a joint venture with or even sale to the private sector to free it from the constraints of its public sector parent. “We are committed to continuing to own Business Stream,” said Scottish Water finance director Douglas Millican. “In the very long term a lot will depend on future opportunities.” 4 April 2008

NI Water 'can make up £8m shortfall'

Northern Ireland Water (NI Water) has said it hopes to meet a revenue shortfall for 2008/09, estimated at £18 million, from further efficiencies and increased borrowings.
Last week, NI Water chief executive Katharine Bryan told the Northern Ireland Government that no extra government money would be needed. However, she said it was too early to speculate about the potential impact on customers' bills.
The error was discovered when the company was setting the tariff for non-domestic customers in the province. NI Water said revenue projections were made using an old, less accurate tariff model and it was only when a new, more accurate system was applied that the discrepancy was discovered.
The company's proposals to deal with the funding gap are now with the Northern Ireland Authority for Utility Regulation and the Department for Regional Development. A spokeswoman for the regulator said it would decide on the proposals by May.
Bryan said: "This gap was nether a blunder nor a miscalculation by NI Water. We discovered the issue, we are tackling it and we are resolving it."
However, Northern Ireland's Consumer Council called NI Water "incompetent" and said customers should not have to pick up the cost of the shortfall.
Council chairman Steve Costello said: "NI Water's most basic business error could result in an extra £30 on the average household bill. Domestic customers are carrying an intolerable risk and the odds are stacked against them. NI Water makes a mistake and consumers are expected to pick up the tab; this can't be fair. 21 March 2008

Ministers may use act to help fuel poor

Government intervention on domestic electricity and gas prices and the possibility of some form of windfall tax on energy companies both loomed large this week as ministers considered measures to help alleviate fuel poverty to be announced in this week’s Budget Statement.
Details of the initiatives were still under fevered discussion in Whitehall as Utility Week went to press, the day before chancellor Alistair Darling’s first budget performance on Wednesday.
One strong contender was the first exercise of government reserve powers under the Utilities Act 2000, which allows the administration to control prices paid by disadvantaged customers. Sections 69 and 98 of this legislation allow ministers “to make schemes which have the effect of providing a cross-subsidy in favour of disadvantaged customers in relation to the charges they pay for their electricity or gas”.
The possibility of using this power to target prices paid by customers on prepayment meters surfaced as business secretary John Hutton signalled increasing pressure on Ofgem to do more to help poor or vulnerable customers facing fuel poverty.
On Monday, Hutton announced he would consult “shortly” on new guidance to the regulator. This, he told a London conference on regulation, would “stress our expectation that Ofgem will take a strong lead in co-ordinating activity to help low income and vulnerable consumers benefit from competitive markets, and particularly to facilitate switching among low income and vulnerable consumers, and so help tackle fuel poverty”.
Hutton said that if all customers switched to the best rate available to them, “up to 200,000 households would be taken out of fuel poverty”.
He also indicated he was unhappy about the prospect of a windfall tax, signalling fault lines in Whitehall over draconian action against energy companies.
Hutton said: “It is equally essential that energy companies can operate successfully and profitably. We need companies to invest with confidence in this vital sector. We would all be losers from a failing, loss-making energy sector.”
Hutton is under no illusions that energy companies are likely to mount a legal challenge to any proposal for a “windfall levy” or bid to bring in price controls. The generators are particularly annoyed about threats to tax them over their windfall from the free allocation of emission allowances under the European Union’s Emissions Trading Scheme.
The Association of Electricity Producers has made it clear that any such tax would prejudice billions of pounds of investment in new generating capacity.
Centrica, the parent of British Gas, the country’s biggest domestic energy company, has been particularly trenchant. Chief executive Sam Laidlaw said: “There is a worrying tendency towards short-term fiscal interventions, or now from some quarters, even price controls for some groups of customers. Such intervention is contrary to the operation of competitive markets, threatens to destabilise investor confidence and risks jeopardising construction of the critical power generation and gas supply infrastructure we need.” 14 March 2008

Coal generation hit as LCPD and ETS bite

The energy market is beginning to feel the effect of the Large Combustion Plant Directive (LCPD), according to Dorothy Thompson, chief executive of Drax Power. She said the combined effect of the LCPD and the European Union Emissions Trading Scheme (ETS) would be to reduce supply margins. Thompson said that even though coal margins were better than gas, generators were preferring gas. In January the LCPD came into effect, limiting the lifetimes of non-compliant coal plant. Thompson said that the generation market now was not just about the price of electricity, coal and gas, but also “carbon, NOx, SOx and the very different dispatch patterns of our competitors”. She added: “It has become a very complex equation.” Thompson said the ETS was limiting forward trades: “The market disappears into the mists at 2012 because there is no confidence about what will happen on carbon beyond that.” She said now that the European Commission had published proposals on Phase III of the ETS, Drax had “begun to see signs of interest”. Thompson warned that supply margins would tighten and that Phase III would “have a material impact on capacity”. She said auctioning allocations could drive early closures. At the same time, she said, both the equipment costs and lead times for building new plant had doubled. The “level of incentive needs to increase” to bring forward new projects, she said. Drax announced operating profit for the year to 31 December 2007 of £471 million, down from £658 million in 2006 due to outages and lower power sales. 7 March 2008

Anglian Water's Osprey to contest Scottish market

Osprey Water Services, part of Anglian Water Group, has applied to supply water services to Scottish business customers when the market opens in April. Osprey director David Cook said the company wanted to build “significant market share within two or three years”. He said it would focus on the industrial and commercial companies it works with in England, or who are served by Anglian’s Scottish wastewater services company Alpheus Environmental. Wics chief executive Alan Sutherland said: “We are delighted that a company with the backing of a major utility player such as the Anglian Water Group has submitted an application.” Elsewhere, Jeremy Hobbis, general manager of Severn Trent Select, said his company was keeping a watching brief on the Scottish market but that the existence of Scottish Water’s Business Stream company meant the cost of entering the market and winning market share would be high. If his company did enter the market, the “big decision” would be whether it was as Severn Trent or Severn Trent Select. A company might want to supply only large users, but under Scottish rules it would have to be ready to supply any askers. Albion Water also said it would like to enter the Scottish market, but managing director Jerry Bryan said he was tied up in long-running legal battles with Ofwat and Welsh Water. “I would like to be in Scotland but so many of our resources are committed to this appeal,” Bryan said. “It must be a huge embarrassment to Ofwat to be seen as ‘can’t do’ while Wics is just the reverse. 29 February 2008

Defra spells out service company vision

Water and wastewater companies could become “water service companies” in the future, providing goods and services that reduce water use as well as supplying water. At the same time, they could face increased uncertainty in the form of time-limited abstraction licences, innovative tariffs and greater competition throughout their businesses. This long-term vision of a more responsive and competitive water industry was set out in Future Water, the long-awaited water strategy published by the Department for Environment, Food and Rural Affairs (Defra) last week. The strategy also set out plans to reduce water demand (see story, facing page), improve water quality and manage flooding (see box, below). The Defra report acknowledged that vertically integrated water companies had been supported by successive governments, but it signalled possible changes to that structure. It welcomed proposals by regulator Ofwat that companies separate their accounts and said firms could go further and demerge parts of their business “within the current economic framework”. Defra also promised to carry out its own independent review of water competition, examining “contestability in all aspects of the supply chain”. On water sources, Defra said there was a “genuine case for all abstraction licences to be given a time limit”. This could be done in 2012-17 during the third period of the River Basin Management Planning being carried out under the Water Framework Directive. Time-limited abstraction would make better use of water, redistribute historical allocations of water resources, and allow new entrants to gain access to water supplies. Future Water also considered how to reduce pollution in water. It said farmers and water companies should work together to reduce agricultural pollution and promised to publish its plans to extend nitrate-vulnerable zones and other restrictions soon. The government would also consult on specific action on phosphates, including plans to phase them out of domestic washing powders. Domestic laundry is the cause of 5-10 per cent of phosphate pollution. It announced a re-examination of the so-called “Mogden formula” for trade effluents, saying it could “sharpen incentives and the application of the polluter-pays principle”. The strategy was largely in step with water industry proposals, especially on plans to clarify drainage and flooding responsibilities and give water companies more information about sewer connections. The document’s “twin-track” approach to water supply, balancing new infrastructure with increased efficiency, also fitted with the agenda of the water industry, which had asked for a clear framework for investment. Water UK chief executive Pamela Taylor said ministers “have reached many of the right conclusions.” She said water companies had major responsibilities for managing water, but “other groups, including consumers, should be able to play their part and the new strategy points clearly in that direction”. Controls on diffuse pollution were also welcomed by the National Farmers’ Union (NFU). It said it was “delighted” that water companies would be able to work with farmers to reduce diffuse water pollution. “This can be far more effective than traditional end-of-pipe treatment ,” said NFU president Peter Kendall. The Environment Agency said the strategy was “welcome and timely” in highlighting surface water management, flooding and efficiency. The agency is due later this year to publish its water resources strategy for England and Wales for the period to 2050.

Water customers are meanwhile likely to see their dedicated champion CCWater disappear, to be merged into the National Consumer Council, as is about to happen with Energywatch. Defra said it would consult on that change, which would also see complaints handled by Consumer Direct. It plans to publish new regulations in April to raise compensation for sewer flooding and will direct Ofwat to review its guaranteed service standards regularly. 15 February 2008

Government revives renewable heat plans

Proposals for a renewable heat obligation, previously condemned by the government as unworkable, could be back on the table. The plan was part of a broad call for evidence on heat published last week by the Department for Business, Enterprise and Regulatory Reform. Also proposed was an extended obligation on energy suppliers that would replace the Carbon Emissions Reduction Target and ensure that heating was addressed along with energy efficiency. The call for evidence covered both carbon dioxide emissions arising from heat and opportunities to use renewable heat sources, bringing together strands of work that were previously spread across several government departments. Richard Cockburn, a partner in the energy group at lawyers Shepherd and Wedderburn, said it was good news that the government was finally taking a co-ordinated view on energy. “What will be telling is who takes the lead after this,” he said. Cockburn warned that the department that took the lead should aim for “light touch” regulation to reduce costs. He said the current regulatory regime was attractive to developers “because there isn’t one”, but customers wanted regulatory protection. There would be “a strong debate between the two sides” while developing a regime. Meanwhile, a report on heat prepared for the Scottish Government has recommended that it prohibit sending waste biomass to landfill so it can be used to produce heat or power. The report, from the Forum for Renewable Energy Development in Scotland, also recommended a review of financial support. 8 February 2008

Tories push for waste disposal terms in Bill

The Conservative Party wants the government’s Energy Bill amended so that no new nuclear plant can begin operating until the business secretary has approved a waste programme and the location for the proposed site of a long-term radioactive waste repository. If passed, such a measure would add to the potential for further delays to the earliest date that new nuclear generation could be contributing to the UK energy supply mix. Shadow energy minister Charles Hendry MP signalled the amendment when he spoke during last week’s second Commons reading of the bill. He complained that the government’s current proposals, set out in the legislation and in the Nuclear White Paper, lacked clarity “about what is expected and what it [the industry] will have to pay”. Energy minister Malcolm Wicks insisted that in February the government would be in a position to consult on two sets of draft guidance that would set out what an approved, funded decommissioning programme would look like and how the fixed costs of building a geological disposal facility would be attributed to new-build reactor operators. He also said a cost-modelling exercise was being undertaken to estimate waste management and decommissioning costs. Earlier, business secretary John Hutton said the bill stipulated that every nuclear operator had to have a costed technical plan for each new station’s waste and decommissioning impact. “The bill makes it a criminal offence to operate new nuclear power stations without having an approved programme in place. Failure to comply with the programme will also be a criminal offence,” he told MPs. 1 February 2008

BE closes down four reactors till autumn

British Energy has announced that four of its ageing nuclear reactors will remain closed until the autumn to allow repairs to be carried out. The four reactors, at Hartlepool and Heysham, have been shut since October last year, when faults were found in their boiler closure units. Now the nuclear generator said it had worked out a way to repair the boiler closures. The final repair plan will require approval from the Nuclear Installations Inspectorate, but a British Energy spokeswoman said it had been “working with the regulator from day one” on setting up the repair programme. The spokeswoman said that at this stage, the company was aiming to return all the reactors to full power, and that they would be repaired and restarted in a phased programme that should see them all back in operation by the end of the year. British Energy assessed the cost of repairing the units at £70 million. Replacement power and other trading costs could be a further £90 million, analysts suggested. The four reactors, each rated at 660MW, represent around one-quarter of British Energy’s full capacity. However, the company is already running at more than 1GW below full capacity because of boiler tube cracking at four other reactors at Hinkley Point and Hunterston. Those reactors are being operated at 60 per cent of capacity and British Energy is still assessing whether their power level can be raised to 70 per cent. 25 January 2008

Hutton announces big offshore expansion

Major reform of the support mechanism for renewable generation and firm proposals for a cost-effective offshore electricity transmission regime were highlighted in the government’s Energy Bill, published last week. The main elements of the reforms to the Renewables Obligation involve: targeting support via a banding system to encourage more investment in technologies that are further from commercial deployment (including offshore wind and tidal) while reducing the level of support for more established technologies such as co-firing; changing the obligation to one where suppliers must present a specified number of Renewables Obligation Certificates (Rocs) rather than supply a specified percentage of renewable electricity; grandfathering the rights of established generators to claim 1Roc for each MWh; clarifying how plants that use both fossil fuel and renewable sources can claim Rocs for the proportion of electricity generated from the renewable source. Ministers hope that the new proposals, which will require secondary legislation, will help triple the amount of electricity supplied by renewables by 2015. The new offshore transmission regime will require that transmission assets be owned and operated by a separate licensed entity, not the generator. It will also extend National Grid’s role as the onshore transmission system operator offshore and introduce a competitive tender process for determining to whom the Gas and Electricity Markets Authority will grant a transmission licence. The new regime is expected to go live at the end of 2008, with the first competitive tenders run during 2009. Licence conditions will ensure there are safeguards to prevent offshore connections affecting the resilience of the onshore grid. The Renewable Energy Association criticised what it called “the paucity of new measures in the bill” and called for a feed-in tariff to help small-scale renewables, including heat production, and changes to the remit of the energy regulator. It is tabling amendments covering both issues. As signalled by last year’s Energy White Paper, the legislation creates a new regulatory framework designed for offshore gas storage and offshore liquefied natural gas projects. The storage provisions will also cover the offshore storage of carbon dioxide for disposal in carbon capture and storage (CCS) schemes. This includes creating a new licence for these activities and asserting the UK’s sovereign rights over certain territorial waters. The Planning Reform Bill is streamlining the consenting processes for onshore gas infrastructure projects. Ministers have also used the bill to strengthen the existing statutory decommissioning scheme for offshore wind and marine energy installations. The new provisions in the Bill will: enable the secretary of state (SoS) to issue a decommissioning notice to an associate company of the developer; protect the taxpayer by ensuring the costs of decommissioning can be met by an associate where the developer does not have the financial resources; allow the SoS to approve a decommissioning plan where the associate has the financial resources, even if the developer does not; safeguard funds set aside for decommissioning and ensure they are not lost during insolvency; provide the SoS with the powers to require information from developers and associated companies to assess their financial capacity to meet decommissioning obligations. In addition, the Energy Bill sets out what ministers believe is a comprehensive and adaptable legal basis for licensing carbon storage. These provisions have been welcomed by the Carbon Capture and Storage Association (CCSA). CCSA chief executive Jeff Chapman said: “By taking an early lead in the regulation of CCS, the UK is in a position positively to influence the development of the regulation of CCS in Europe and elsewhere.” The bill asserts the UK’s rights to store carbon dioxide beneath the UK sea bed and extends relevant existing offshore legislation (related to decommissioning of oil and gas installations) to facilities for carbon storage. Storage of carbon onshore will require the amendment of existing European Union directives. The provisions in the bill have been drafted wide enough to enable the UK to adopt EU legislation should it be forthcoming. Without the proposed regulatory regime, the UK’s planned CCS demonstration project would not be able to climb off the drawing board. 18 January 2008

Hutton announces big offshore expansion

The government plans to open a new competition for leases to build and operate offshore windfarms under which a further 25GW of the UK’s power could be generated by offshore wind. Energy secretary John Hutton said the expansion would make a “major contribution” towards meeting new European Commission targets to generate 20 per cent of Europe’s energy from renewable sources. Utility Week understands the government has formally offered a UK target of 15 per cent. Some 8GW of power is being developed after two previous offshore wind licensing rounds. The government published plans for a Strategic Siting Assessment (SSA) for the upcoming round. It planned to announce the competitive process and commercial terms for Round 3 in early 2008. Hutton said his department would “shortly” publish its response to a consultation on the connections regime for offshore projects. Jonathon Johns, head of renewable energy at Ernst & Young, said £50 billion would be needed for the new round. Key to its success would be the ability to source turbines and construction capability, both in short supply. Andy Duff, chief executive of RWE Npower, said the plans were an “extremely ambitious commitment to wind energy”. He said the Renewables Obligation (RO) had been instrumental in developing wind power and added: “We are looking for cross-party support for the RO to continue as the main piece of policy to drive offshore wind.” The draft SSA also covered new oil and gas exploration and offshore gas storage, which the government said would “inform” plans to store carbon dioxide. 14 December 2007

Ofgem gets tough on capital

The energy regulator’s final price control proposals for the UK’s eight gas distribution networks (GDNs), announced this week, look set to leave the sector with the lowest allowed returns of any UK network business. Ofgem has proposed a 4.3 per cent post-tax real cost of capital, which it said was in line with the Competition Commission’s recent stance on BAA. Observers said there had probably been enough changes to the proposals since September to head off an appeal by the GDNs to the Competition Commission. The four companies involved are National Grid Gas, Northern Gas Networks, Wales & West Utilities, and Scotia Gas Networks. They have until 7 January to respond. One industry insider told Utility Week there was little stomach for an appeal. The last thing investors wanted was regulatory uncertainty. Monday’s proposals would let GDNs invest more than £1 billion a year in the networks, which Ofgem said was 36 per cent more than under the previous regime. Ofgem accepted that GDNs faced costs that were rising faster than inflation, but it expected productivity improvements to cut operating expenditure by 2.5 per cent a year. The difference between the regulator’s proposals and the GDNs’ forecasts remained significant: 8 per cent for operating and replacement expenditure and 13 per cent for capital expenditure. This is the first time Ofgem has been able to formulate price controls after comparing multiple gas networks. National Grid Gas, which owns four networks, has not performed strongly against Ofgem’s current benchmarks, which combine capital and operating expenditure. The company’s West Midlands network came top but the others were fifth, sixth and seventh. Household bills look set to rise by £2 a year in real terms. Carole Pitkeathley, head of regulatory affairs at Energywatch, said the added costs overshadowed Ofgem’s announcements on green targets, increased investment and incentives for operators. 7 December 2007

BE secures new-build connections

British Energy has secured transmission connection agreements with National Grid that would enable it to develop new nuclear power plants at four sites. The country’s biggest nuclear company applied for additional export capacity of 1,650MW for three sites (Bradwell, Sizewell and Dungeness) and 3,330MW for Hinkley Point. “These sites have been chosen because they are in the area of greatest need,” a spokeswoman said. She added: “They are the first wave of what we anticipate.” The connections could be available from 2016 and would require transmission upgrades at all four sites. A National Grid spokesman said the cost would depend on other changes in generating capacity, but would be “likely to be in the low single figure billions”. British Energy has been inviting interested parties to talk to it about new-build and said it was “flexible” about how and when the sites might be developed, and about reactor design. “We are not saying we will build four stations, but we wanted to make sure we were taking all the necessary steps to facilitate new-build,” said a British Energy spokeswoman. The company also released the results of an engineering study that dismissed fears that rises in sea level could threaten new-build at its coastal sites. 30 November 2007

Suppliers profit from obsolete surcharge

An independent network operator has accused four of the big six energy suppliers of overcharging customers by making them pay an unjustified surcharge for using independent gas networks. GTC managing director Clive Linsdell told Utility Week that a cost-reflective surcharge originally introduced ten years ago was still being levied by EDF Energy, Eon, Npower and ScottishPower, even though it no longer applied. Consumer watchdog Energywatch had blamed independent gas transporters (IGTs) for the higher costs borne by users of independent networks, but Linsdell refuted the charge. “At the outset of the gas connections market in 1996, IGTs were allowed to charge suppliers more for use of our networks,” he said. “Suppliers passed these extra costs on to their customers in the form of an IGT surcharge of around £40 a year for a typical household.” However, Ofgem has since abolished the premium transport charge for networks built after 2003 and has begun phasing out higher charges for networks built before that date. This year, with Ofgem’s support, the IGTs also introduced a unified network code, which largely eliminated another historic reason for the charge. “We now feel that the suppliers’ economic and moral justification for charging customers on IGT networks more money has gone,” said Linsdell. “We have approached Ofgem and pointed out that there are one million customers on these networks, so the suppliers are making £25 million a year from this surcharge.” British Gas and Scottish and Southern Energy do not impose an IGT surcharge. 23 November 2007

Troubled BE reactors ‘offline indefinitely’

British Energy has warned that two of its power stations affected by technical problems will remain out of service for the rest of the winter. The UK’s nuclear generating company already has two of its twin-reactor stations operating at low power. The two twin-reactor stations – Heysham and Hartlepool – were shut down indefinitely on 22 October when corrosion was found in wire windings at Hartlepool. Similar corrosion was later found at Heysham. British Energy said inspections would take until the end of the year and it would take some time before a programme of work for repairing the reactors and returning them to service could be developed. A spokesman put the cost of lost revenue at £14.14 million a week. The cost of inspections and replacement power totalled £50 million, he said. British Energy chief executive Bill Coley said the problem would “significantly impact the remainder of the financial year”. Output for the six months to 30 September was 30.77TWh, the company said, down from 31.9TWh for the same period the previous year. However, net profit was up at £247 million, compared with £229 million the previous year, because of higher electricity prices. Realised price was £38.4 per MWh, 8 per cent higher than in the previous year. Hinkley Point B and Hunterston B remain at 60 per cent capacity as a result of a long-term boiler-cracking problem. British Energy said it still planned to increase their power levels to 70 per cent in the next financial year. Both were still candidates for life extension, the company said, and a decision would be taken by March 2008. 16 November 2007

Nuclear decision will delay Energy Bill

Ministers have yet to take key decisions on the content of the government’s long-awaited Energy Bill, promised in Tuesday’s Queen’s Speech. The speech signalled four separate bills affecting the utilities sector. Publication of the bill setting out the energy measures is not now expected until the turn of the year, a spokesman for the Department for Business, Enterprise and Regulatory Reform (Berr) told Utility Week. The main cause of the delay is that the government has not yet decided on a possible new nuclear programme. However, it has emerged that the content of two of the other bills – planning reform and climate change – has been largely drafted, so the relevant legislation can be published next week. The former will set out detailed proposals for a new planning regime for infrastructure projects such as reservoirs, power stations and energy transmission schemes. The latter will create for the first time a legal framework to reduce carbon dioxide emissions, underpinned by a system of regular “carbon budgets”. This bill will also establish the new obligation on energy suppliers to promote energy efficiency, known as the Carbon Emissions Reduction Target. This is the successor to the Energy Efficiency Commitment. In addition, the bill will establish a mandatory UK emissions trading scheme that will cover water firms, retail chains, universities and some local authorities. This cap and trade scheme will be known as the Carbon Reduction Commitment and is due to start in 2009. The Energy Bill is designed to implement the legislative aspects of the Energy White Paper and will have to set out how operators of any new nuclear stations would accumulate funds to meet the cost of decommissioning and their full share of waste management costs. The bill will also put legislation into place covering: carbon capture and storage; offshore gas supply infrastructure; the new-look, banded, Renewables Obligation; powers to allow Ofgem to run the offshore transmission licensing regime more effectively. It will include improvements to offshore oil and gas licensing as well as the statutory decommissioning provision for offshore energy installations. At this stage it is unclear whether the bill will include specific measures on fuel poverty. The Queen’s Speech also committed the government to produce a draft Marine Bill that will set out a marine planning system covering, among other things, offshore renewable energy projects. Green groups and companies involved in offshore energy voiced frustration that a full Marine Bill may not now surface until the end of the decade, prolonging conflict over competing interests such as marine conservation and energy resources. 9 November 2007

Insets set to restrict incumbents’ growth

Inset appointments will be an increasing threat for incumbent water companies over the next few years, Ernst & Young client service director Richard Laikin has predicted. The warning came as Ofwat announced a proposal to grant Independent Water Network Limited (IWNL) a second inset to supply water to a development of 5,100 homes and 51 businesses in Anglian Water’s supply area in Northamptonshire. Last week, IWNL was granted an inset to supply a 950-home site in Anglian’s catchment area. IWNL’s parent, Inexus group, has promised to charge its customers 5 per cent less per cubic metre of water supplied than Anglian Water. It also plans to install electricity, gas and telecoms connections at both sites and wants to develop the multi-utility model at a further six sites in England. Laikin said “one stop shop” deals similar to that offered by Inexus would increase as a result of population growth. “Population growth will drive the need for new housing,” he said. “We will begin to see a new generation of independent companies competing to provide services to these new developments.” He warned that as more companies won bids to build networks in housing developments, potential growth for existing water companies would be restricted. He also said that water companies might start to compete outside their current supply areas. Last week, a committee that advises the government on housing warned that 250,000 more homes than the number set in government targets would be needed by 2020 to address high house prices across southeast, southwest and eastern England. 2 November 2007

New questions about Thames Tideway cost

The Consumer Council for Water (CCWater) has raised new concerns about the cost of the Thames Tideway Tunnel, designed to relieve sewer overflows into the Thames. The consumer watchdog said customers were “not willing or able to pay” for the project. Its research showed that customers thought £13-14 extra on annual bills was reasonable to fund the 30km tunnel. This was “way off” the current estimate that the tunnel would add £37 to annual bills. The tunnel will intercept sewage discharges from as far upriver as Hammersmith and transfer them to the sewage treatment works at Beckton. CCWater warned that “costs could spiral”. It said that low income customers would be hit hardest and in its view more of the cost should come from shareholders or subsidy. The warning came as a group of London councils met to discuss the scheme. The London Councils group was broadly supportive of the project but also had concerns about affordability. They agreed to work with CCWater to mitigate a potential “slide into water poverty for substantial numbers of Londoners”. The councils were also concerned about the “significant risk” in project delivery. They said that “seven months down the line, there is still no agreement on a suitable mechanism to fund the design/development stage of the project” and noted that the project timetable had already slipped. The councils said risk could be reduced if planning applications, which must be made in 12 boroughs, could be modelled on the Olympics, sharing expertise or using a “lead authority”. 26 October 2007

Teesside review may back sale or upgrade

Teesside Power, owner of the UK’s largest combined cycle gas turbine, has appointed banker Rothschild to review options for the plant. The review could recommend that the 1,875MW unit be put up for sale or upgraded.
After 15 years of operation the plant’s contractual relationships are coming to an end, a spokeswoman said, so it was timely to carry out a strategic review. A change of ownership would be one option, she said.
Goldman Sachs currently holds 30 per cent of the equity in the plant, and Cargill “holds an interest in” 70 per cent. That “interest” dates back to when Cargill and Goldman Sachs took over the plant after the previous owner, Enron, went bankrupt. The bankruptcy was “complex and still unwinding” the spokes­woman said, but it would not present a barrier to a sale.
The plant was originally built as a joint venture between Enron, ICI (owner of the neighbouring Wilton industrial site) and local electricity companies. The plant still supplies process steam to the Wilton site, which is now managed by Sembcorp. The spokeswoman said the company “did not recognise” estimates that the plant would be worth £200-300 million. “We believe that is low,” she said, pointing out that the plant was valued at $1.2 billion when completed in 1993. Among the options for Teesside is a major upgrade that would see the turbine replaced to improve plant efficiency. The company is already preparing a planning application for the upgrade that it aims to submit before the end of the year if it is supported by the Rothschild review. 19 October 2007

Southern Water sold for more than £4 billion

Southern Water has been sold for £4.2 billion to Greensands Investment Limited, a consortium of infrastructure investors, following months of heated bidding since the Royal Bank of Scotland announced its intention to sell the water company in June. JP Morgan Asset Management will have the biggest stake in the company (32 per cent shareholding). It shares Southern Water with Challenger Infrastructure Fund (27 per cent shareholding), UBS AG (18 per cent shareholding), seven Australasian superannuation funds advised by Access Capital Advisers (18 per cent shareholding), Hermes (4 per cent shareholding) and Paceweald, advised by Consensus Business Group (1 per cent shareholding). The sale is expected to be completed by next week. The deal represents a premium of around 25 per cent to the group’s regulated assets. Last year, Macquarie paid around a 23 per cent premium for Thames Water. Elaine Coverley, an analyst at Brewin Dolphin said observers would be surprised: “We had expected the water company to go for a smaller premium because the sale is very close to the next price review and there are currently problems in the credit market.” However, she said the acquisition reflected a healthy interest in the water sector and predicted another sale soon: “There is still a lot of infrastructure money out there. Goldman Sachs and the other unsuccessfully bidders for Southern Water are likely to look elsewhere.” She named Kelda and Severn Trent as the next likely takeover targets: “Their share price has risen since the Southern sale was announced,” she said. 12 October 2007

Grid predicts easier gas supply for winter

Gas supplies should be easier this winter than last because of investment in new pipelines and other infrastructure, including the inauguration of Ormen Lange, National Grid has said. Ormen Lange will provide a dedicated field feeding the Langeled pipeline to the UK, a major factor behind the more optimistic assessment of energy security this winter. The Norwegian gas is coming on stream just as increased reverse flow capacity through the UK-Belgium interconnector became available, as of Monday. National Grid’s latest winter outlook report said supply should be boosted by the end of the winter with the completion of new pipelines across south Wales. It is already up by more than 70 million cubic metres of gas a day on last year. The new pipes will allow liquefied natural gas to be imported through terminals nearing completion at Milford Haven. However, Ofgem said the UK was still vulnerable to fluctuations in global energy prices and could feel the pinch if cold weather in Europe reduced continental imports. There could also be a knock-on effect if there were further wrangles between Gazprom and countries such as Ukraine. At this juncture, National Grid did not expect that there would any need for demand-side response in the event of a severe winter in respect of power supplies. However, it acknowledged uncertainty over generation capacity in the second half of the winter once the Large Combustion Plant Directive regime affecting coal burn took effect in 2008. The Met Office is expecting this winter to be noticeably colder than last year, which was the warmest since 1914. 5 October 2007

EA calls for new duty on climate change

The Environment Agency is calling on the government to include an amendment to the Climate Change Bill, now in parliament, that would require utilities to “climate change proof” their infrastructure. Some risk planning is already required under the Civil Contingencies Act. Now the agency wants utilities and other infrastructure such as roads and telecoms to have a duty to meet government-set minimum standards for floods and drought. Operators would bear the cost of upgrades and recover it through bills. David Rooke, head of flood risk management at the Environment Agency, said the recent floods “highlighted that there is a different approach to infrastructure risk among infrastructure companies. Each is making its own judgment on what risk it is prepared to take”. But he said as well as business risk, “a bigger, wider risk for the country as a whole” had to be considered. The Energy Networks Association (ENA) and Water UK both said the change would duplicate an existing duty. The key was accurate and consistent data on flood profiles that would enable the risk to be assessed. Water UK said many of the causes of flooding, such as flood plain development, were out of utilities’ control, and warned that countrywide standards could be costly. The ENA said the issue would be examined in a new task group on substation resilience, set up at the request of the government. It would report in spring on the risk assessment process, the societal impact of flooding and the cost of control measures. It would also consider whether new legislation or industry guidance would be the best response. 28 September 2007

Generators unhappy with offshore regime

The wind generation industry has voiced concern that a proposed competitive regime for connecting offshore projects to the network has “lost its way”. The British Wind Energy Association (BWEA), responding to a joint Ofgem/government consultation, said the proposed competitive system had become “more complicated and lengthier than desired”. It said it was concerned about whether it would attract bidders for the work. Companies responding to the consultation had concerns over risk allocation, short tendering “windows” and the fixed 20-year contract period, as well as heavy-handed regulation. Scottish and Southern Energy also said that proposed changes to the onshore regime could significantly affect the offshore market, The BWEA said its members were “far from unified” on the proposed regime and many had stressed that they would “make it work” rather than introduce more delays by revising the framework. 21 September 2007

Phoenix crackdown over gas theft scam

Phoenix Gas has announced that it will prosecute customers who it finds have tampered with their electronic gas meters in a bid to cheat on their energy bills.
However, the Northern Ireland gas supplier said it would not to go to court if customers came forward voluntarily to admit a practice that the company fears is putting lives at risk. Phoenix Gas has revealed that about 1,000 Belfast households a year are involved in what it regards as theft. Progressive Unionist Party leader Dawn Purvis has warned that many families, struggling with rising energy bills, are paying to have their meters “fixed”. Purvis said families had become victims of “unscrupulous people” who offered to “tamper” with meters for about £60 with the promise of “unlimited” energy supplies. Phoenix Gas has estimated that the practice involves less than 1 per cent of its customer base and believes it is mainly confined to small pockets of households in east, west and north Belfast.
David Strahan, general manager of Phoenix Supply, said meter tampering was “a dangerous and highly irresponsible activity”. He said: “This is not an activity that people can get away with. Evidence of tampering is traceable and visible both on the internal and external meter as well as from Phoenix’s computerised billing system, which can see the changes in gas usage.”
He said the company was inviting customers to come forward if they believed their meters may have been tampered with. Those who did would have to pay for the gas used, “but we will not instigate criminal proceedings”, he pledged. 14 September 2007

Legal threat as green power row hots up

Environmental and green energy groups this week said they would take the government to court if it gave way to pressure from property companies who want ministers to ditch support for a planning policy that requires developers to use on-site renewables. Utility Week understands that a legal challenge under the Energy Act 2004 is under consideration and that ministers in the department of Communities and Local Government (CLG) are the most likely target. That department is at the centre of a storm after media speculation that planning and housing minister Yvette Cooper was likely to weaken or drop government backing for a planning requirement that a “significant proportion of the energy supply of substantial new development is gained on-site and renewable and/or from a decentralised, renewable or low carbon energy supply”. This stipulation is included in current government planning policy guidance and is known as the Merton Rule, after the London borough that first formulated a condition. Both the British Property Federation and the Home Builders Federation are campaigning against the regulation, which they claim is too prescriptive, inflexible and unrealistic in terms of commercially available technology. The Sustainable Energy Partnership, which represents all the major environmental and fuel poverty organisations and the relevant trade bodies, has urged the government to stand firm. A CLG spokesman has denied ministers will drop support for the rule and insisted that councils will be required to set tougher targets for renewable energy. 7 September 2007

25 firms explore joint carbon capture plan

Engineering consultancy Amec is to carry out a feasibility study into a ground-breaking proposal to collect carbon dioxide from a cluster of power stations and industrial facilities in Yorkshire and Humberside for storage in depleted gas fields in the southern North Sea. A group of 25 organisations and companies are involved in the project including ConocoPhillips, BP, Centrica, Eon, Drax and the heavy chemical industry in the region. The £100,000 study is due to be completed early next year. It is being overseen by regional development agency Yorkshire Forward, which wants to propose the project as a candidate for the government’s carbon capture and storage “competition”. Final details of the competition are due later this year with an announcement on how much public money will be available scheduled early in 2008. Yorkshire Forward spokesman Stephen Brown told Utility Week the 24-week study would “get a handle on costs”. He said the joint bid for the CCS competition was an example of “joined-up thinking” by the region. Yorkshire Forward estimates that 60 million tonnes of carbon could be collected from existing and planned plant based on the rivers Aire and Humber. That figure could go up significantly if the pipeline network was extended to industries and power stations along the river Trent. At this stage the development agency has not firmed up ideas on who would own the infrastructure, but Brown said the network should be “open source” and not dedicated to particular plants. He said emissions trading could help fund the scheme. 10 August 2007

Utilities join Defra in flooding spotlight

Environment secretary Hilary Benn has signalled that the resilience of utility infrastructure will come under the spotlight in a review of the flooding seen in June and July. But as the threat of further floods receded, the government’s own response to earlier reports calling for a clearer allocation of flood responsibilities came under question. Benn said that recent events had made “very clear… just how vulnerable is the eco-system of utility services”. He said last week’s floods would be examined in a review initially announced on 12 July following events in northeast England in early June. The review was due to be completed before the end of the year and Benn said it would have an independent chair. It will examine how the scale and impact of flooding can be predicted, prevented or mitigated. “Looking at what arrangements are in place in future to ensure that utilities can be protected from this kind of an event will be an important part of the review,” Benn said. Welcoming the review, a Water UK spokesman said he hoped it would look at long-term clarification of roles and responsibilities as well as the immediate aftermath of the flooding. He said that at the moment “responsibility is held by a number of bodies. Steps have been taken to clarify that, but more are necessary”. The Department for Environment, Food and Rural Affairs (Defra) defended itself against suggestions that it had dragged its feet in responding to a 2004 select committee report that recommended the Environment Agency take strategic responsibility for flood protection. Defra said that work to define the Environment Agency’s strategic role was part of its long-term strategy, Making Space for Water, published in March 2005. “We are on track with that work, and measures such as long-term change to the urban fabric and infrastructure will be established when work is complete,” said a Defra spokeswoman. Former environment minister Elliot Morley complained that the government had told utility companies that they must make key installations flood-proof or move them to higher ground. The Department for Business, Enterprise and Regulatory Reform said it had asked electricity firms to provide information about substations at risk after the Carlisle floods in 2005. The department said: “We will be writing to electricity companies shortly to ask them to update their information… in order to reassess the national position.” Energy minister Malcolm Wicks said: “The energy industry, along with other utilities, has challenges ahead if floods like these become more common.” A spokesman for the Energy Networks Association said the industry was looking at long-term scenarios and assessing the resilience of the network in preparation for the next price review. He said the network had been designed for “one in 100 year” events. Water UK said water companies built treatment works to specifications that “include ensuring water treatment works are resilient to flooding”. 27 July 2007

New links blocked by planning delays

National Grid warned Parliament this week that planning delays were a major barrier for the UK as it grappled with climate change and security of supply. The warning, endorsed by Centrica, was voiced by Nicola Pitts, National Grid head of UK and European Union public affairs, when she was questioned by a subcommittee of the Lords Select Committee on the European Union. She claimed proposals for new transmission lines were facing increased opposition. “Pylons are even more of a problem than windfarms,” she said. Pitts’ comments came as National Grid, Centrica and Gaz de France gave their views on the progress of the EU single market and the latest round of politicking over ownership unbundling. Centrica Energy managing director Jake Ulrich said forced ownership unbundling would be unnecessary if national regulators were strong and states implemented existing directives. The witnesses largely agreed that stricter and more independent national regulators and harmonised rules would help free bottlenecks and reduce the power of incumbents. The Gaz de France team, led by Bernard Brelle, deputy vice president of its strategy division, claimed ownership unbundling was unnecessary and risked weakening the negotiating position of European gas companies looking outside Europe for supplies. However, he supported pan-EU regulation to address cross-border issues and ten-year investment plans for networks, as well as better co-operation between network operators on a regional basis. He also backed “second generation legal unbundling” based on guidelines set out by European regulators’ group ERGEG. 20 July 2007

Appeal ruling blow for Ofgem

Ofgem has been forced to go back to the drawing board over its plans for reforming the gas offtake regime following a Competition Commission ruling this week. On Tuesday the watchdog quashed a decision by the regulator to approve modifications to the present arrangements. National Grid Gas had proposed the changes but they were opposed by many in the sector, including major customers and generators. Eon UK challenged the regulator’s decision to direct modifications to the Uniform Network Code, which would have changed the offtake regime for the UK’s high-pressure National Transmission System. The resulting appeal was the first over a decision by the energy regulator on a modification to a gas or electricity code heard by the Commission under the Energy Act 2004. Although the commission rejected many of Eon’s grounds for appeal, the panel that handled the case voiced concern about the reform of flexible capacity and questioned the cost-benefit analysis carried out by the regulator. British Gas Trading was given permission to join Eon in its appeal and both companies put forward alternative modifications to the one proposed by National Grid. However, the commission panel, chaired by Dame Barbara Mills QC, did not back either of the alternatives. Ofgem said it would consider carefully all the points in the 63-page judgement before deciding “appropriate” next steps. The Association of Electricity Producers (AEP) welcomed the ruling. AEP chief executive David Porter said Ofgem’s preferred modification would have imposed costs but little benefit for the power companies. Unresolved at this stage is how the costs of the hearing, which will exceed £250,000, will be apportioned. 13 July 2007

New environmental regulator needed for NI

The new administration in Northern Ireland is under pressure to establish an independent environment regulator on the lines of the agencies operating in England and Wales and in Scotland. The recommendation came from a government-commissioned panel chaired by Tom Burke, a former government environmental adviser and now a visiting professor at Imperial College and University College, London. The panel proposed that the province should establish an independent environmental protection agency responsible for pollution prevention and control, waste management, protection of species and habitats, and sustainable water management. It would also take the lead on compliance with the Water Framework Directive. Like the mainland UK agencies, it would be a non-departmental public body with duties and functions set out in law. Creating such an organisation would mean transferring responsibility for environmental regulation from the Environment and Heritage Service of the NI Department of the Environment. The panel said any delay “would expose Northern Ireland to serious financial and environmental risks and deny its people significant opportunities to achieve a high-quality environment”. Politically there is support for an independent green regulator but the Democratic Unionist Party has reservations. A spokesperson for the NI DoE said environment minister Arlene Foster had an open mind on the subject. “The minister is currently considering the report and each of its recommendations and will be consulting with other stakeholders and her Executive colleagues before making any final decisions.” 6 July 2007

Subsidies vital for CCS

Both short and long-term commercial incentives are vital to kick-start the deployment of carbon capture and storage (CCS) schemes under the North Sea, a high-level British and Norwegian working group has concluded. UK energy minister Peter Truscott has been quoted as saying that “CCS may initially need to be supported by state aid up to 100 per cent”. A DTI spokesman said “CCS will require significant amounts of funding and we will be seeking state aid approval”. It is estimated that carbon from large point sources like power plants could be captured and stored for €35-65 per tonne. A progress report published last week by the North Sea Basin task force, which has officials from the UK and Norway, highlighted the need for incentives, as well as recognition of CCS for carbon credits under the EU Emissions Trading Scheme and the so-called joint implementation measures under the Kyoto Protocol. The task force also identified some of the key principles of any licensing and regulatory regime for undersea storage sites. It stressed that “the development of new legislation is likely to be required to address certain novel aspects of CCS (such as the long-term nature of the activities and for storage of carbon dioxide in sub-sea geological formations when not integrated with petroleum activities)”. Theoretically such a regime would need to cover a site-selection process lasting up to five years, the operation of a storage site for perhaps 35 years and its closure thereafter. Alongside financial incentives, the group said that agreement on the creation of a long-term liability regime would be crucial to the development of CCS. It also suggested that membership of the group might be widened to other North Sea states. 29 June 2007

Green light for Thames desalination

An offer by Thames Water to power its controversial desalination plant, proposed for Beckton in East London, using renewable energy has convinced ministers to grant it planning permission. Two secretaries of state, David Miliband at the Department for Environment, Food and Rural Affairs and Ruth Kelly, at the department of Communities and Local Government, announced last Friday that they were minded to grant planning permission for the plant, following a two-month public inquiry in late summer last year. London mayor Ken Livingstone, who prompted the public inquiry when he refused planning permission for the plant, described the decision as a “misguided and retrograde step” and said he would be seeking legal grounds to challenge it. Livingstone complained that the plant was desalinating water to replace that lost through leakage. But while the secretaries of state said the level of leakage in London was “unacceptable”, they agreed with the planning inspector that there was “no realistic alternative” to the desalination plant “as an essential part of a twin-track strategy”. It said Thames Water’s demand-side measures followed industry best practice. Thames offered to increase the renewable energy used to power the plant from 10 to 100 per cent in February, after the company was sold by Germany’s RWE. “Now we have new owners and things have changed markedly. There is a new emphasis on sustainability,” said a spokeswoman. Thames Water now has two weeks to sign an operating agreement with the Environment Agency and an abstraction agreement that will set the plant’s terms of operation. Parties have six weeks to challenge the decision. If the mayor decided not to challenge it, the plant could be in operation in two years, Thames Water said. 22 June 2007

Errors cost CE Electric £7.6m

Power distribution company CE Electric has had its revenue allowances cut by Ofgem to the tune of £7.6 million over the next three years because of serious misreporting of quality of service data by its two UK district network operator subsidiaries. That penalty was set last week by the regulator. It included £5.5 million to correct the financial impact of the errors in reporting and a further £2.1 million in compensation to customers. Following an investigation, Ofgem found that Northern Electric Distribution Ltd (NEDL) and Yorkshire Electricity Distribution Ltd (YEDL) had breached a condition of their electricity distribution licences. This required the network operators to provide information on the quality of aspects of their service. Under the terms of their licences, distribution network operators receive revenue rewards, or suffer penalties, according to whether they meet specific service quality standards. Ofgem made it clear that the penalties for the companies would have been tougher had they not volunteered the information about misreporting and had they not been so thorough in their internal investigations and subsequent administrative changes. CE Electric could have been penalised with a fine of up to 10 per cent of its annual turnover as a result of the licence breaches. Ofgem chief executive Alistair Buchanan said: “These were serious breaches. Had CE not come forward to admit its misreporting, taken the action it did and co-operated with Ofgem’s investigation, our sanctions could have been considerably heavier.” CE provided inaccurate information to the regulator on its number and duration of interruptions and the quality of telephone response. 15 June 2007

Southern Water for sale at £4bn

Southern Water has been put up for sale by the Royal Bank of Scotland (RBS) with a price tag estimated to be about £4 billion.
The company was bought by the private equity arm of RBS and Vivendi Environnement of France (then called Veolia) in 2003 for £2.05 billion. RBS bought out Vivendi in 2006.
RBS owns nearly 50 per cent of Southern but exercises effective control by agreement with the other shareholders, Perry Capital and DE Shaw, a US hedge fund. Deustche Bank has been retained to advise RBS on the sale.
The move comes two months after the Serious Fraud Office ended an investigation into allegations that Southern had misreported customer service performance figures. Ofwat continues to investigate the matter.
A RBS spokesman said: “RBS’s private equity arm typically owns an asset for three to five years. We have owned Southern Water for four years and reviewed the ownership.”
He added: “Our decision coincides with the healthy rearrangement of the water sector. Last year, Thames Water and Anglian Water commanded high prices.”
A consortium led by Macquarie bought Thames Water for £8 billion last October, Anglian Water was acquired by an Osprey-led consortium for £2.2 billion last November.
Last month, a KPMG report revealed that two-thirds of utilities said they were actively seeking acquisitions. Three-quarters expected international consolidation as the result of deregulation.
Pennon and Kelda, Yorkshire Water’s owners, have topped the market’s list of potential targets. 8 June 2007

Cost of NI bill delay could reach £265m

Anger over Northern Ireland Water’s (NIW) plans to put water meters for pensioners on hold and an estimated £265 million bill to defer water charges in the Province for three years dominated the committee for regional development’s second meeting on water reform last week. Ministers at Stormont have set aside £75 million to meet the cost of delaying water charges for a year. But Department of Regional Development regional secretary David Sterling said that costs would climb to £165 million in a second year, reaching £265 million after a three-year holdup. Committee chair Fred Cobain called on the devolved executive to delay the £75 million handout after NIW said it would delay installing water meters for pensioners until ministers at Stormont decided how water and sewerage services would be funded. The committee chair delivered a blow to NIW before the meeting by saying that 500 planned redundancies might be stalled for years if unions refused to co-operate. Committee members were also concerned that the entire land and asset base of the Water Service had been handed to NIW. Ministers worried that land currently in use could be sold later. Cobain said: “If you talk about closing sections down completely that is land which becomes free and while now the surplus is estimated at £20 million, after five years it could become £2 billion.” Meanwhile, regional development minister Conor Murphy has announced a review of water charging and the government-owned company. If the review, due in autumn, recommends a different model, it will require legislation to replace NIW which came into being in April. 1 June 200

Carbon cuts take centre stage

Ministers this week announced a series of measures to help the UK become a low carbon economy. Outlined in the Energy White Paper were proposals to simplify the market for distributed generation (both heat and power) by 2008, and by that date to also require new meters to have a real-time display. Domestic energy suppliers were set tough new targets for saving energy.
Also announced on Wednesday was a green light for plans for a mandatory carbon cap and trade scheme for companies operating in Britain and an amber light for a new-build nuclear programme, subject to a second round of public consultation.
As expected, the 300-page white paper confirmed that the Renewables Obligation would be banded to benefit offshore wind, wave, tidal and other emerging technologies. The cap on the amount of co-firing generation that qualifies for support will be removed.
The white paper also spelled out details of the competition to build what ministers claim will be the world’s first end-to-end carbon capture and storage plant. The intention is that a 300MW plant will be operational by 2014 and achieve carbon dioxide savings of 90 per cent.
Among a welter of initiatives, the Department of Trade and Industry promised to make consent decisions on large-scale energy projects within three months, pending the more radical reforms for handling major infrastructure schemes outlined in Monday’s Planning White Paper.
In addition, the DTI signalled that there would be legislation to allow natural gas to be stored under the sea bed and liquefied natural gas to be unloaded at sea.
Alongside the Energy White Paper the government has initiated a second round of consultation on nuclear power. It will run for 20 weeks and includes the government’s detailed justification for a new-build reactor programme and its thinking on site assessments for new plant.
Ministers have made it clear that they now believe it is in the public interest to give private companies the option of investing in new nuclear power stations. A separate “pre-licensing” process has been set in motion by the Health & Safety Executive.
Trade and industry secretary Alistair Darling promised parliament that the government would “triple the amount of electricity we get from renewables by 2015. We want to lead in the development of carbon capture and storage. And we will consult on the significant role that new nuclear power stations could play in cutting emissions and diversifying our supply”.
He said: “With the measures we are proposing across government on energy and the wider environment we can cut emissions by between 23-33 million tonnes of carbon by 2020, the equivalent of removing all the emissions that we get from every car, van and lorry on Britain’s roads today.” 25 May 2007

Planning commission ‘key to infrastructure’

The government this week was poised to propose a new planning regime for major infrastructure projects such as power stations, gas storage, energy networks and reservoirs. The proposals, which would require primary legislation, were due to be spelt out in a planning white paper scheduled for publication on Monday. An independent planning commission would be central to the new arrangements. It, rather than central or local government, would decide the fate of key infrastructure schemes. Under the new system, ministers would prepare national policy statements for particular kinds of infrastructure projects. Scheme promoters would develop their proposals and consult the public before making a formal submission to the commission, which would determine whether the scheme could go ahead. The new system will be welcomed by utilities but could face opposition from environmental groups and local authorities who will claim it could ride roughshod over local democratic rights. Last week the Confederation of British Industry (CBI) urged ministers to streamline the planning system to ensure key infrastructure projects were not hit by lengthy appeals and inquiries. But it stressed that the government’s “statements of need” must be designed carefully and include full and open consultation. It warned that if ministers got it wrong, the new planning system could be prone to “frequent and lengthy challenges”. John Cridland, CBI deputy director general, said: “The recent Greenpeace challenge on nuclear power is a prime example of how getting consultations wrong can slow the whole process down.” 18 May 2007

MP gets to the root of underground problem

An MP has begun a crusade to change the law governing who’s responsible for underground utilities under unadopted roads. Last week, John Mann, the backbench Labour MP for Bassetlaw, introduced a 10-minute rule bill that would force local authorities to resolve responsibilities for underground utilities before granting planning permission for new developments. His bill also contains new powers that would extend the remit of the Local Government Ombudsman to deliberate over disputes about who pays what when the undergrounded utility needed to be repaired. Mann has taken up the cudgels after experiencing at first hand in his constituency problems with new developments involving unadopted roads. He told the Commons there were often “unseen problems” for people who bought properties on unadopted roads “unaware that utilities such as water and sewerage pipes were running underneath”. If a problem was discovered with the utility, the householder was liable for the cost of repair. Mann also pointed out that water companies were responsible for all water leakages above and under the ground, “but only on adopted land. This is a further expense that residents must bear if they find that their road is not adopted by the council”. He complained that the existing law “had almost enticed developers to cut costs and force future residents, who are largely ignorant of the position until problems occur, to foot the bill”. Current estimates suggest there are more than 4,000 miles of unadopted roads in the UK. 11 May 2007

Pearson calls for charging rethink

Charging for water on the basis of the rateable value of homes is an unsustainable policy, environment minister Ian Pearson told an Institute of Public Policy Research seminar last week. He said we could not expect rateable value from the 1970s to be a sensible basis for charging customers in the 2030s. Initiating a debate on a revised National Water Strategy at the climate change and water seminar, Pearson called current water policy “tired and outdated”. He said a future strategy must incorporate metering, affordability, support for vulnerable groups and the importance of valuing water. He stressed again that climate change had to be at the heart of the revised National Water Strategy, which is due to be published by the Department for Environment, Food and Rural Affairs in the summer. At the seminar Pearson also said he supported Ofwat’s review of the methodology for setting leakage targets. “The current framework [for leakage targets] has neither the understanding nor the confidence of the public,” he said. The minister’s comments on rateable value prompted a strong reaction from the Conservative Party. It said the government had “covert” plans to link charges to property value, a claim that Pearson denied. 4 May 2007

Sepa may sue over Firth spill

The Scottish Environment Protection Agency (Sepa) is this week considering prosecuting Scottish Water for the massive sewage spill into the Firth of Forth last weekend. The agency said on Tuesday that monitoring showed water quality in the area was still meeting European standards for bathing water. But Colin Bayes, Sepa director of environmental protection and improvement, said: “If there is culpability, that may result in a report to the procurator fiscal. We have to consider that in any incident.” The sewage leak started last Friday after a pump failed at Seafield wastewater treatment works. A second standby pump was being repaired by Thames Water, which has run Seafield since 1999 as part of a 30-year private-finance initiative contract. The spill was halted on Monday by Thames engineers installing temporary pumps. By then, 100 million litres had poured into the firth estuary. A Scottish Water spokeswoman said an internal investigation would look at the contract with Thames, including issues of ownership and how the failure occurred. Thames Water is meeting with Scottish Water this week to discuss the incident. Edinburgh city leader Ewan Aitken said Edinburgh should follow the lead of Brighton, which built Europe’s largest stormwater storage tunnel under the seafront at a cost of £100 million. Plans for a similar tunnel for London were announced last month. Thames Water and Scottish Water are working with Edinburgh city council’s environmental health department and Sepa to monitor the estuary. The sewage leak also hit the political agenda ahead of Scottish elections next week. The Scottish National Party, the Scottish Greens and the Conservative Party all criticised Scottish Water and Thames Water for the spill. 27 April 2007

Suppliers told to fund household monitors

Government ministers have surprised energy suppliers by revealing plans to require them to provide free “real-time electricity monitors” to every UK household. Environment secretary David Miliband and his counterpart at trade and industry Alistair Darling made the joint announcement last week, and the measure is expected to be included in the energy white paper due in May.
The visual display units would be made available with all new meters and to households that request one. The aim is to encourage households to reduce electricity consumption and it is suggested the scheme could cut annual carbon dioxide emissions by 400,000 tonnes by 2010.
“Electricity meters tend to be out of sight and out of mind,” said Miliband. “Visual display units can be put in a prominent place, for example the kitchen. They provide information on electricity use from moment to moment, helping cut unnecessary use.” But Energy Retail Association chief executive Duncan Sedgwick said the move was “not helpful”. "Display devices are no use in helping consumers work out where they are using energy,” he said. “We need proper smart meters for both gas and electricity.”
ScottishPower also backed smart meters and opposed the displays. “The proposal falls short of where the energy industry would like to be,” said a spokesman. “A cosmetic monitor display does not have the necessary functionality of an integrated meter and display unit, such as billing, load-shifting and differential pricing. The company added that if the £50-70 installation cost was charged to customers, it would encourage them to claw back the cost through energy saving. 20 April 2007

All-island market will be jointly regulated

The all-island single electricity market (SEM) for Ireland will be regulated by a committee composed of representatives of the utility regulators of Northern Ireland and the Republic of Ireland, and a third party to handle disputes resolution. Iain Osborne, chief executive of the Northern Ireland Authority for Utility Regulation, told Utility Week that a key role for the SEM committee would be to ensure the market was not dominated by Ireland’s state-owned incumbent power company ESB. “A major challenge will be to ensure the market power of ESB is gradually dissolved,” Osborne said. “We have measures to control that power but it is always better to have competition.” A second cross-border electricity interconnector planned to come into operation in 2012 will ease capacity restrictions. “We will run the SEM as an all-island market, but until the second interconnector is built there will have to be significant constraints payments, particularly to Northern Ireland generators who would like to serve demand in the republic but will be unable to do so,” said Osborne. It is expected that savings of about £10 million will be made in each of the first ten years of the SEM from improved operating efficiency, with bigger gains to come from the introduction of competition. Another challenge will be managing the SEM’s regime for renewables alongside Northern Ireland’s Renewables Obligation. “Wind generators will sell into the pool and get a capacity payment to support their fixed costs while the Renewables Obligation will continue in Northern Ireland,” said Osborne. 6 April 2007

Carbon capture funds flagged

Chancellor Gordon Brown used his swansong Budget last week to announce a competition to develop the UK’s first full-scale demonstration of carbon capture and storage (CCS). The initiative was welcomed by carbon capture sector, which had been growing impatient in the absence of clear signals of financial help for demonstration projects. At the last count there were at least eight UK power sector schemes at various stages of development waiting to climb off the drawing board. More details of the competition will be revealed in the energy white paper, due in May. The result will be known next year. Jeff Chapman, chief executive of the CCS Association, said his organisation was looking forward to working with the government “on the development of a suitable challenge fund to support this first project and eagerly awaited further support to encourage further commercial CCS projects”. In his Budget statement, Brown committed the government to offering as yet unspecified help to introduce energy-efficiency measures to all households. As part of that move, Brown confirmed that: all new zero-carbon homes that cost up to £500,000 will pay a reduced rate of stamp duty; an extra £6 million will be available under the Low Carbon Buildings Programme; and householders will not have to pay tax on sales of domestic micro-power generation. The chancellor also revealed in his statement that Caterpillar had joined BP, Shell, Eon UK, EDF Energy, Rolls-Royce and Scottish and Southern Energy in committing funds for The Energy Technologies Institute. This brings the total private sector commitment for the public/private initiative to £312.5 million. The offshore energy sector complained that Brown had failed to offer financial help for hard-pressed oil and gas producers. 30 March 2007

Marine plans regime mooted

Ministers have set out proposals for a new two-stage spatial planning system for marine areas around the coast. The proposals will mean that for the first time there will be a UK marine policy statement agreed by all UK government departments and the devolved administrations. After this agreed statement, there will be a series of marine plans that will consider current uses and activities – including offshore windfarms and oil and gas exploration and production – and “emerging and future marine uses technologies” such as carbon capture and storage in the sub-seabed, tidal and wave energy projects, gas storage and the new Marine Conservation Areas. The plans will cover a period of 20 to 25 years and will be subject to review and revision at least every six years. Crucially, they will also deal with coastal land-use proposals, including tidal barrages, plans for desalination plants, sewage disposal schemes and renewable energy connectors where they come ashore. Ministers propose to create a Maritime Management Organisation, which will assume much of the responsibility for marine planning and a number of existing government agencies and functions. New primary legislation will be required. The Department for Environment, Food and Rural Affairs, which is the lead on these issues, said a policy statement will be published within two years of a Marine Act being passed. Responsibility for the marine planning system will, in some territorial waters, be a matter for the devolved administrations, sometimes jointly with the UK government. Around the English coast, the UK government will be responsible. Plans will cover the area from mean high water springs to the fullest extent of the UK’s current marine jurisdiction – the UK continental shelf and fisheries limits – and will overlap with the current land-use planning system. At the same time, ministers are planning a streamlined licensing procedure for marine activities, although no changes are planned in respect of the existing oil and gas exploration and production regime. 23 March 2007

Binding targets set out in Climate Change Bill

Ministers this week unveiled the government’s blueprint for tackling climate change by publishing a Bill proposing binding targets, five-year “carbon budgets” and the powers to set up new or modified emissions trading schemes. The Climate Change Bill, published on Tuesday for pre-legislative scrutiny, is designed to help the UK move towards being a low-carbon economy. The Bill sets out a series of targets, including a 60 per cent reduction in carbon dioxide emissions by 2050 and a 26-32 per cent reduction by 2020. If the targets are missed, future governments could be taken to court. The measures, set out as Utility Week went to press, included plans for a new statutory body, the Committee on Climate Change, which will provide independent expert advice and guidance to the administration on achieving its targets and staying within its carbon budgets. A key feature of the proposed legislation is an enabling power to make it easier to implement new emissions trading schemes such as the proposed Energy Performance Commitment (EPC), a mandatory cap and trade initiative targeting medium and major electricity users like local authorities, major commercial developers, hotels and retail chains. The government has proposed that this would be achieved through secondary legislation, which would also allow ministers to consolidate and extend trading schemes more easily. The Bill contained proposals for a new system of legally binding five-year “carbon budgets” set at least 15 years ahead and designed to give greater clarity over the pathway to overriding targets. Ministers insisted this would help businesses and individuals invest in low-carbon technologies. Among a welter of issues that the government is now consulting on is the level of grandfathering or auctioning of future emissions allowances and what proportion of carbon credits can come from overseas projects. The draft regulatory assessment pointed out that purchasing one-third of the emissions credits from overseas could reduce the cost of meeting the 2050 target by 25 per cent. Environment secretary David Miliband insisted: ”With climate change we can’t just close our eyes and cross our fingers. We need to step up our action to tackle it, building on our progress so far. And time isn’t on our side.” Opposition parties welcomed the proposals but said carbon budgets should be set annually. Environmental campaigners want the 2050 target raised to 80 per cent, achieved by annual 3 per cent targets. Meanwhile, local authorities across the UK have launched their own independent Climate Change Commission to advise councils on how to reduce emissions and use the planning system to promote renewable energy and distributed generation. Energy economist professor John Chesshire will chair the commission, among whose members will be David Green, chief executive of the UK Business Council on Sustainable Energy, Philip Sellwood, chief executive of the Energy Saving Trust and former Ofgem director Virginia Graham. 16 March 2007

Ulster unites against charges

Sinn Fein has called on postal staff not to deliver water bills, due in April, to Northern Ireland customers. The call came ahead of the Northern Ireland Assembly election, which took place after Utility Week went to press. Speaking at the launch of the party’s campaign opposing water charges, Sinn Fein’s Mitchel McLaughlin said: “We are calling on the trade union movement, who have taken a very, very staunch stand on this issue, not to process the water bills until the politicians have had the opportunity to deal with the British government on this issue. “We are calling on the postal workers not to deliver the bills. Don’t put the onus on the householders who are most vulnerable to the debt recovery countermeasures the British government will introduce.” The Democratic Unionist Party (DUP) and the Green Party also focused on the controversial water charges as the Northern Ireland election entered its final stages. DUP leader Ian Paisley insisted the issue of water charges needed to be resolved in chancellor Gordon Brown’s economic package for a devolved government if there was to be any incentive to form a power-sharing administration. Deputy leader Peter Robinson criticised other political parties’ action on water charges: “The fundamental problem for many of the other parties on this issue has been that they were part of the original problem and given the stance that they are taking, they cannot be part of the solution.” The Green Party plans to challenge the new water charges in Europe on the grounds that they breach the European Water Framework Directive (WFD). “The government proposes to collect water charges based on the rateable value of homes when the WFD states that financial cost should be designed to encourage conservation,” a spokesman said. 9 March 2007

Sewerage firms to take on private drains

Confusion over private sewers was resolved last week when the Department for Environment, Food and Rural Affairs (Defra) announced that householders would no longer bear responsibility for private drains. The nine water and sewerage companies in England will take ownership of private sewers and lateral drains, which are currently the responsibility of the owners of the properties they serve. The government is planning a public consultation on how the transfer will be carried out and on ways to prevent new private sewers being installed. An estimated sewerage bill increase of between £3 and £11 will fund the transfer, said Defra. It said the move would “help address a lack of integrated management of the sewerage network as a whole, and provide greater efficiency of effort, environmental stewardship and expenditure”. Water UK agreed. It said the change would help streamline repairs and maintenance in the sewerage network. Water UK chief executive Pamela Taylor said: “The majority of private sewer owners do not realise they have responsibility for their sewers until something goes wrong, so the move to give water and sewerage companies responsibility will relieve consumers of an unwanted burden.” CCWater welcomed the move, but warned that Ofwat must keep a close eye on the cost to consumers. CCWater chair Dame Yve Buckland said: “We support the clarity and reassurance that the government’s decision gives to householders with private sewers. However, all water consumers will foot the bill, and will want to know the exact cost of transferring private sewers into water companies’ hands.” 2 March 2007

First shots fired in price war

The domestic energy price war has taken off in earnest with four of the big six suppliers announcing steps to cut bills. However, consumer champion Energywatch branded some of the new prices as “tokenism”. First-mover British Gas has been followed swiftly by Eon UK and RWE Npower, both of which spelled out their new tariffs. Scottish and Southern Energy has promised to “blow British Gas out of the water” but has not yet detailed its proposals, due to be announced by 12 March. Eon UK’s retail arm, Powergen, last week launched three so-called “guarantee” products that will be lower than British Gas standard prices until September 2008. RWE Npower responded by announcing that it would cut gas prices by 16 per cent from the start of May. Electricity prices will come down by 3 per cent at the same time. Meanwhile, British Gas has lowered its dual fuel Click Energy 2 online tariff by a further £4 a year on average. The tariff will be available from 12 March, but customers can sign up immediately. Adam Scorer, Energywatch’s director of campaigns, said: “The news that Npower is to follow British Gas with a double digit reduction in its gas prices has to be welcome.” But he added: “With Npower customers having to wait until May for bills to come down, this is little more than a distant promise of cheaper gas. The negligible cut in electricity price smacks of tokenism and may not persuade customers to stay with Npower.” Scorer went on: “Energy consumers wanted and expected a full blown price war, it appears that all they are getting are skirmishes. This promise of jam tomorrow suggests energy companies are failing to grasp that they need to provide their customers with better value if they are going to keep hold of them.” 23 February 2007

British Gas slashes tariffs as sector waits

A week after British Gas became the first major domestic energy retailer to announce price cuts, its five main competitors had failed to commit to the same, although Scottish and Southern Energy signalled that it would act by the time British Gas implemented its changes, due on 12 March. Industry observers have insisted that customers should expect a price war after British Gas’s decision to cut its standard tariffs for gas by 17 per cent and electricity by 11 per cent. The energy giant has also launched the UK’s largest social tariff, which will lower energy bills further for up to 75,000 customers defined by the government as vulnerable. Adam Scorer, Energywatch director of campaigns, said the move by British Gas would be “the first strike in a battle by all energy companies to lower prices and fight to attract new customers”. He added: “Other companies must follow quickly and consumers should once again be able to shop around and get big savings by switching energy supplier.” Ratings agency Fitch agreed the other major companies would cut prices but was not convinced a full-scale “war” was on the cards. “Fitch expects that the other five major retailers will cut prices in 2007 but they will adopt pricing policies to retain and improve margins rather than focus on gaining significant market share,” said Steve Durose, senior director of Fitch’s energy and utilities team. Ann Robinson, director of consumer policy at Uswitch.com, insisted: “We expect all other suppliers to swiftly follow suit as we see a price war set in. But whether British Gas will retain its crown as the cheapest for gas and dual fuel for long will be for other suppliers to decide.” 16 February 2007

Domestic CHP plans halted by high costs

BG Group has pulled the plug on its bid to develop a commercial domestic combined heat and power (CHP) unit. The group was due to go public on its decision this week when it reported its full-year results on Thursday. BG’s move means the closure of its wholly owned subsidiary Microgen Energy, with the loss of around 60 jobs. The staff were told of the group’s decision a few days ago. Industry insiders suggested that BG had invested about £40 million in the failed venture. The demise of Microgen, a market leader in the development of microCHP in the UK, will dent hopes that by 2020 thousands of British homes would have a “mini power station” in the kitchen, exporting surplus power to the grid and helping reduce greenhouse gas emissions. Government ministers had talked enthusiastically of the technology’s potential to help create a revolution in distributed generation. BG confirmed the closure of Microgen and the end of the group’s attempt to build a business on the back of a small-scale unit using a free piston Stirling engine. A BG spokesman refused to comment on the details, but Utility Week understands that the difficulty of getting the cost of the units to a commercial level was key to the decision, along with the failure to find a manufacturer prepared to make enough units to satisfy a mass market. Eon UK, which once talked of installing thousands of a similar design, Whisper Tech unit in the UK, has so far deployed about 200 microCHP units, mainly in social housing schemes in and around Manchester and Nottingham. It is hoping to sign a deal with a large European white goods manufacturer to roll out the technology. Dave Sowden, chief executive of the Micropower Council, said BG’s decision “was a setback, we can’t pretend otherwise”. However, he was adamant plenty of other companies were interested in the concept and pointed out that the Netherlands had a programme involving 10,000 units. 9 February 2007

Ofwat told to get tough on Thames

Ofwat chief executive Regina Finn was given an ultimatum by Parliament this week. Edward Leigh MP, chairman of the Commons Public Accounts Committee, told the incoming regulator: “If you can’t make an improvement [to the water service] in two years, we’ll want someone who can.” Leigh’s open threat to Finn’s position came at the end of a two-hour grilling of Ofwat’s senior management – including chairman Philip Fletcher – by the committee on Monday. MPs quizzed them about the recent report from the National Audit Office, which was uncomplimentary about Ofwat’s performance over leakage, water efficiency and its hand­ling of Thames Water. MPs queued up to criticise Ofwat’s “flabby” response to Thames’s six-year failure to meet leakage targets. The committee accused Ofwat of “handling Thames with kid gloves” and branded the regulator’s dealings with it as “a sorry saga of delay and lack of action”. Ian Wright MP said the water industry viewed the regulator as “a minor irritant that the water companies can ignore”. Austin Mitchell MP was incensed that Thames was profitable enough to be a takeover target and complained that when the company put up its prices, “you go along with it”. Finn pointed out that the regulator had only been given the power by Parliament to fine companies in 2006. Fletcher denied that Ofwat had done little or nothing to “police” Thames. He said the regulator had considered fining Thames several years running and last year required the company to replace 370km of water mains at shareholders’ expense. 2 February 2007

Scrap obligation, says Ofgem

The government should “rethink from first principles” the Renewables Obligation, its flagship subsidy for green energy, according to Ofgem. Responding to a Department of Trade and Industry consultation on whether the obligation should be “banded” to vary support for different technologies, Ofgem said the government should scrap the scheme altogether. The obligation was “very poor value for money”, Ofgem said, and there was little evidence that it was encouraging technology development. Major problems would have to be addressed in the obligation to make it a “viable and justifiable” use of customers’ money, Ofgem said. It claimed that in the first three years of its operation, generators had been over-subsidised by £740 million. It also said that when the electricity wholesale price was above £45/MWh, “nearly all of the subsidy is excess”. What is more, 70 per cent of the obligation subsidy had gone to mature technologies. The regulator was dismissive of the proposal to band the obligation to support new technologies. It said it would become a “quasi feed-in tariff” with the contradictory objectives of meeting targets quickly and developing new technology. It would divert organisations to “manage regulatory relationships… rather than market and cost performance”. The revised scheme could also be open to legal challenge. The Renewable Energy Association (REA) has in the past been heavily critical of the obligation, but commenting on Ofgem’s proposals said that to “tear up the obligation and start again with a policy that would work” would mean the government lost face. It said banding was “the most cowardly option” and the REA had “grave reservations” about the wisdom of making the change. 26 January 2007

Unbundling threat to Scots

Lawyers have warned that European Commission moves to break up vertically integrated incumbent energy companies could have serious consequences in Scotland, where both ScottishPower and Scottish and Southern Energy own power transmission as well as supply, generation and distribution businesses.
“If ‘full’ ownership unbundling were to go beyond the Scottish electricity model – the division of assets between various ring-fenced subsidiaries, controlled by strict licence conditions – this could have a serious impact north of the border,” said Catriona Munro, a partner in the competition team of the Scottish law firm Maclay Murray & Spens. A ScottishPower spokesman said the company was waiting to see the full details of the Commission’s proposals before responding.
Last week, Commission president Jose Barroso signalled a clear preference “for the option of ownership unbundling” when Brussels published its final report into of energy sector inquiry. However, most observers believe the Commission will settle for a model where the system operator function is carried out by an entity that is legally separate from the company that owns the wires, as the compromise remedy which ensures some unbundling takes place. Reaction in the UK to the Commission’s proposal was largely supportive, tempered by the acknowledgment that the Commission faced a stiff political fight to achieve its aspirations. Trade secretary Alistair Darling said “effective unbundling” was needed to ensure “the best deal for Europe’s energy consumers”. 19 January 2007

New regime for gas distribution network links

Ofgem has published its decisions on the long-term commercial and regulatory framework for connections to gas distribution networks (GDNs). The new arrangements will come into force in October this year and will be implemented via a modification to the GDNs’ gas transporter licences. The new regime is based on a contractual approach between so-called new entry points (which could be new gas storage facilities) and the relevant GDN. The GDN will be expected to offer terms for connections on a non-discriminatory basis and will be required to publish the main terms and conditions it agrees with entry points, subject to commercial confidentiality issues. Under this regime, entry points and GDNs will be able to request Ofgem to determine GDN entry arrangements where the terms of such an agreement cannot be reached or where a dispute arises over a variation of the terms of an existing entry agreement. Ofgem has also provided guidance on issues not covered by the licence condition. These include matters such as apportioning entry capacity, transportation charging arrangements and access to the wholesale market at the National Balancing Point (NBP). Meanwhile, National Grid’s latest demand forecasts signal an increase in annual and peak gas demand of 2 per cent per annum through to 2015. Its Ten Year Statement 2006, just published, has suggested that demand will fall in the short term in response to high energy prices, but grow from 2008 onwards, driven by falling energy prices and an increase in the Grid’s forecast of new gas-fired power generation towards the end of the ten-year period. In a related development, National Grid has forecast it will need to spend an average of £130 million a year over the next decade to upgrade its four gas distribution networks. 12 January 2007

 

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