Electricity Regulator Publishes Final Price Control Proposals for NIE's Power Procurement Business

Published: 26 July 2002

Consultation opened on 26 July 2002. Consultation closed 23 August 2002.

Summary

The Director General of Electricity Supply for Northern Ireland today issued a consultation paper in relation to his final price control proposals for NIE’s Power Procurement Business (PPB).

The Director General of Electricity Supply for Northern Ireland today issued a consultation paper in relation to his final price control proposals for NIE’s Power Procurement Business (PPB).

The proposals outlined in this paper adopt an incentive based approach to the price control of the PPB. The effect of the proposals will be to modify the revenue profile that applies to the business, with the intention of allowing PPB to earn revenues from sales into commercial markets. This new regulatory period is an important transitional phase for PPB as Northern Ireland moves to develop a more liberalised generation market.

These price control proposals open the opportunity for PPB, through incentives which align customer and shareholder interests, of increasing profits whilst adding value for Northern Ireland customers. The approach will ensure, in broad terms, that the interests of PPB and the interests of customers in terms of contract management and most efficient use of resources are aligned.

Copies of the consultation paper are available from: Orla Mullan, Ofreg, Brookmount Buildings, 42 Fountain Street, Belfast BT1 5EE. Telephone: 02890 311575; Fax: 02890 311740; e-mail orla.mullan@ofregni.gov.uk. The paper can also be accessed on this website by clicking on this link “Consultation Paper”.

Comments on issues contained in the paper should be sent to Orla Mullan at Ofreg by Friday 23 August 2002.

Notes for Editors (PPB Price Control)

The Final Proposals paper adopts an incentive based approach to the price control of NIE’s Power Procurement Business (PPB) which aligns customer and shareholder interests. The price control period is from April 2002 – March 2005.

The PPB was set up at privatisation in 1992 as a separate regulated business under NIE’s combined Transmission and Public Electricity Supply licences.

PPB’s original role was to act as a single buyer for the purchase of wholesale electricity in Northern Ireland and to sell this electricity to licenced suppliers (including NIE’s own Supply Business) at a published and regulated tariff, the Bulk Supply Tariff (BST).

PPB’s role has and will change significantly as a result of changing market structures and European Directives. PPB must change from being a single buyer of wholesale power to a market participant and energy wholesaler.

PPB’s own costs are recovered through an allowance per unit sold at the BST (i.e. sales to the non-liberalised element of the NI market) and an allowance per unit sold at non-BST (i.e. sales to eligible customers).
PPB’s own running costs have largely remained constant in real terms since the first price control period.

Further liberalisation of the market over time will most likely cause sales from BST to fall. However these final price control proposals incentivise PPB to earn additional revenue outside the non-liberalised element of the NI market and hence reward its ability to add value for these customers. The potential exists for PPB to maximise the possible return from its generation contracts by selling its capacity into the market at its best possible price. Any contribution over and above fuel price should add value for non-liberalised customers.

Under this price control, PPB will take on an enhanced role in the encouragement of more renewable electricity development by acting as a purchaser of the last resort for independent (non-NFFO) renewable output. This will add certainty to the renewable market and encourage the commercial development of renewables. It is envisaged that a bi-lateral renewables market should develop, such that customers and Renewable Independent Power Producers (RIPPs) should contract independently. Any energy produced and not sold by RIPPs would be purchased at a fixed price by PPB (based on a percentage of the market price of renewable energy).

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