NIE Price Control Review provides opportunity for imaginative proposals

18 April 2000

The process of reviewing and setting the next Price Control on NIE’s Transmission and Distribution business is an opportunity to put the industry on a new course which will deliver better value to customers and increase Northern Ireland’s competitiveness while still allowing shareholders an appropriate return on their investment - DOUGLAS MCILDOON

The cost of transmitting and distributing electricity is, after generation, the largest item on the electricity bill. New price controls on the NIE’s Transmission and Distribution (T&D) business, which is a natural monopoly, are due to come into effect in 2002.

Speaking following the publication of his first consultation paper on the subject, Douglas McIldoon said that the preparation for the next T&D Price Control needed to begin now.

“Last year Northern Ireland’s bill for transmitting and distributing electricity was £155 million or about 30 percent of the total. For domestic customers, the T&D element of the bill is 40 percent. Analysis carried out by OFREG indicates that the price differential for T&D between Northern Ireland and Great Britain has increased at least threefold since privatisation despite a faster rate of growth in electricity demand here,” said Mr McIldoon.

“The T&D Price Review Process allows electricity customers to make known the balance which they would like to see between lower prices, a more reliable supply of electricity and more concern about environmental matters. I will be encouraging a widespread public debate on these issues.”

Mr McIldoon also suggested that the review process presented NIE with the opportunity to come forward with solutions to the disadvantages faced by customers in Northern Ireland;

“I am much more interested in outcomes than in imposing any particular solution to our problems. If NIE has proposals which will really solve the problems that we face, I will be strongly inclined to accept them. As such it is largely up to NIE to decide how this price control review should be conducted,” he said.

Notes

NIE’s first control was set by Government at privatisation. The second was set by the Monopolies and Mergers Commission in 1997. The Director General’s attempt to go beyond the MMC price control was stopped by the courts.
NIE’s prices for T&D have increasingly diverged from the average for GB and from the comparator regions of GB i.e. those more rural and hence higher cost regions of England and Wales which are used as comparators with NIE.
In 1992, the cost of transmitting and distributing a kilowatt hour of electricity cost 0.291 more in Northern Ireland than in England and Wales. By 1999/2000 this had increased to 0.481. In the same period the more rural English regions had reduced their gap with the GB average from 0.326 to 0.289p.
Regional electricity companies in England and Wales were privatised in 1989 and had price reviews in 1994/95 and new price controls come into effect on 1 April 2000.
NIE’s other regulated businesses – Supply and Power Procurement (PPB) are due to have new price controls in 2002. NIE and Ofreg have agreed in principle to extend and amend the existing Supply price control until 2005. A consultation paper on the PPB price controls will be issued shortly
This consultation exercise also seeks to find out what customers really want from NIE i.e. is it lower prices or better service or a greater emphasis on the environment and because some of the issues were raised in stark form by the supply interruptions in the 1998 Boxing Day storm, the report on the Boxing Day storms is being published at the same time as the T&D consultation paper.