United Kingdom
Electricity Prices
9.1 The Office of Gas and Electricity Markets (OFGEM) has announced final proposals for electricity prices in the UK which will offer on average a reduction of £15 per year for customers on a standard domestic tariff. The new price controls will come into force on 1 April 2000 and most of this reduction is accounted for by the distribution proposals, where OFGEM has evaluated efficiency improvements as feasible due to the monopoly market. The price proposals represent a culmination of an 18 month consultation process and companies have been asked to respond to say whether they, in principle, accept the new controls. Where the new controls are not acceptable, a company can be referred to the Competition Commission. Since the introduction of competition into the domestic electricity supply market, more than three million customers have switched to a new supplier and OFGEM have stated that provided the momentum of competition in the supply market is maintained, these supply price controls will be the last for electricity and will come to an end in 2002. The monopoly distribution and transmission businesses will be continued to be regulated. (OFGEM News Release, 2 December 1999)
9.2 The Office of Gas and Electricity Markets has published a consultation document, "The Transmission Price Control Review of the National Grid Company (NGC) from 2001: Initial Consultation Document". The National Grid Company owns and operates the network of high-voltage electricity transmission lines and associated equipment in England and Wales (the National Grid) and the present price control is due to expire at the end of March 2001. In the consultation paper, OFGEM is seeking views on a number of issues including: the form and structure of the next price control; the duration of the control; the impact of new electricity trading arrangements on NGC's business and the interaction between the price control and the transmission services incentive schemes. A further document is expected in March on initial responses from this consultation paper and initial proposals for a new price control will be published in the summer. (OFGEM News Release, 14 December 1999)
Electricity - Competition
9.3 OFGEM has published a consultation document of its Corporate Plan for 2000/2001. Its five priorities are: social and environmental action; competition in wholesale markets; price controls; competition and industrial structure and establishing OFGEM by combining the offices of gas and electricity supplies. OFGEM is focusing on tackling fuel poverty and regulating and introducing competition to lower prices for customers. OFGEM will also be maintaining important price control work in those parts of the market where competition is neither feasible nor effective. (OFGEM News Release, 24 November 1999)
Utilities
9.4 The Queen's Speech of 17 November 1999 included a Utilities Regulation Bill. The Bill will give utility regulators a primary duty to protect consumer interests. Regulators will be given powers to impose fines for breaches of licence requirements and regulators must give reasons for key decisions. Each utility sector is to have an independent consumer council created, to be given the role of investigating complaints and helping consumers. Ministers will be given further powers to regulate to promote greater energy efficiency. (The Queen's Speech, 17 November 1999)
Climate Change Levy
9.5 The pre-Budget 1999 report contained a concession by the Government over the proposed climate change levy, in response to the intensity of opposition to the tax. The proposed annual revenue from the tax is to be reduced from £1.75 billion to around £1 billion from its implementation date of April 2001. An 80% discount is to be offered to energy intensive sectors to maintain competitiveness and all revenues raised will be recycled to business through a 0.3% point reduction in employers' NIC, thereby maintaining the neutrality of the levy for the private sector. Energy products which serve a dual purpose as a fuel and a feedstock within the same process, as well as the electricity used in electrolytic processes similar to chlor-akali production and primary aluminium smelting are to be exempt from the levy. By pressing ahead with the proposed tax, albeit in a reduced form, the Government is confirming its commitment to reducing greenhouse emissions under the Kyoto Protocol. (HM Treasury News Release, 9 November 1999)
9.6 Draft legislation for the implementation of the climate change levy has been issued for consultation by the Government. The legislation is to be finalised in time for the Finance Bill which will be published after the 2000 Budget. The draft does not yet include provisions to exempt renewable energy supplies and is to be read as a working draft. (HM Customs and Excise Technical Briefing No.3, 26 November 1999)
9.7 The House of Commons Trade and Industry Committee has published its eleventh special report on "Government Observations on the Ninth Report from the Trade and Industry Committee (Session 1998-99) on the Impact on Industry of the Proposed Climate Change Levy". The Trade and Industry Committee is required to examine the expenditure, administration and policy of the Department of Trade and Industry. The Government's response to the Committee's ninth report on the Impact on Industry of the Climate Change Levy, published as an Appendix to the eleventh special report, has been agreed to by the Trade and Industry Committee. The Government agreed with the Committee that one of the aims of the climate change levy is to encourage small and medium sized enterprises, many of whom are likely to be too small to be involved in emissions trading, to use energy more efficiently. The Government also reinforced its commitment to securing the opportunity for UK business to participate in emissions trading and believes that the climate change levy and emissions trading should be viewed as potentially complementary approaches rather than alternatives. The Trade and Industry Committee agrees with this Government policy. The Committee will continue to scrutinise Government policy, as required. (SO, October 1999)
Fuel Duty
9.8 The pre-Budget 1999 report has cancelled the fuel duty escalator, which automatically increases fuel duties by 6% over inflation. Fuel duties are to be decided upon Budget by Budget enabling the Government's economic and social objectives as well as environmental commitments to be taken into account. The Chancellor also stated that any revenues from any real-terms increases in fuel duties will, in the future, be directed into a fund for improving public transport and modernising the road network. (HM Treasury News Release, 9 November 1999)
Gas and Electricity Regulation
9.9 "The Future of Gas and Electricity Regulation - the Government's Proposals for Legislation" has been published following a consultation exercise that commenced in October 1998 with the main aim of improved service and lower bills for UK consumers. The proposals should create a more flexible framework for regulation, giving regulators greater discretion to respond quickly and appropriately to changing circumstances. The regulatory framework should promote competition by aligning the regulatory regimes and a framework for encouraging renewable electricity generation and energy efficiency is proposed. The 1998 consultation paper, together with these legislative proposals, is intended to recognise the changes in gas and electricity markets that have taken place in recent years (increasing competition within and convergence between, the two energy markets) ensuring sufficient flexibility to adapt to future changes without the need for further primary legislation. (DTI, October 1999)
9.10 The DTI has also published draft assessments of the regulatory, environmental and equal treatment impacts of the conclusions of the Utilities Review, published on the same day as the Government's Proposals for Legislation, as above. When the Utilities Bill is introduced, it will contain a final version of the regulatory, environmental and equal treatment appraisals and the Government decided to publish these appraisals in draft form now, so that those who will be affected can comment before they are finalised. The draft appraisals anticipate significant downward pressure on prices, arising principally from the reform of electricity trading arrangements. They also identify environmental benefits through the proposed statutory environmental guidance to regulators, the powers to oblige fuel companies to achieve energy savings and to support fuel generation from renewable sources. The existing duties on regulators to have regard to the interests of various categories of potentially disadvantaged consumers will be extended to include low-income consumers. This consultation, together with the above paper, should conclude the Government's review of the utilities. (DTI News Release, 13 October 1999)
Electricity Licences
9.11 Proposed amendments to the electricity generation and supply licensing exemption regime have been put forward in a consultation paper by the Department of Trade and Industry's, Energy Utilities Directorate. Generally, operators of a generation plant, transmission and distribution networks and suppliers should normally be licensed. Exemptions apply to smaller operators who do not use public wires, whose influence on the network is relatively limited or who do not provide widespread services to end-use customers. In light of the introduction of the Utilities Bill aimed at facilitating competition in generation and supply, it is proposed to reform the exemption regime to include combined heat and power and renewable generating plants. It is hoped that this might encourage operators of local combined heat and power schemes to supply power to neighbouring areas. The proposed changes are not intended to allow exemption for any "significant players" (i.e. those holding larger plants with an aggregate capacity of 500 MW or more). (DTI, November 1999)
Electricity - Networks
9.12 In a further consultation paper, the Department of Trade and Industry is seeking industry views on a number of proposals relating to network access, management and charging. The aims of these proposed changes are to ensure that there is a properly level playing field for embedded generation, in particular renewables and combined heat and power, so that developers and operators of environmentally friendly embedded plant are able to compete fairly with traditional operators and that in the longer term, embedded generation may provide a far larger proportion of total generation. Proposals include: possible measures for ensuring that distribution companies compare embedded generation on an equitable and transparent basis, possible measures for ensuring that distribution companies are incentivised to have regard to the possibility of obtaining security services from embedded generators, possible arrangements for ensuring that the National Grid Company has regard to the use of embedded generators for the provision of ancillary services and the need to revise the distribution network planning document, "Engineering Recommendation P2/5". (DTI News Release, 25 November 1999)
Energy Efficiency
9.13 "Energy Efficiency: Standards of Performance 2000 to 2002 - Initial Decisions" has been published by OFGEM, the Office of Gas and Electricity Markets, following the consultation exercise in July 1999 on energy efficiency. OFGEM reported an excellent response to this consultation in terms of content and volume and the consultation process is hoped to be finalised shortly with the publishing of the new Energy Efficiency Standards of Performance (SOP 3). This initial document concerns those decisions already taken allowing the remainder of the consultation process to focus on outstanding issues. There has been wide support for new Standards on social and environmental grounds with respondents emphasising the potentially significant role of Standards in helping to tackle fuel poverty. Respondents have also supported new Standards in terms of their contribution to reducing carbon dioxide and other emissions in line with the Government's climate change objectives. Response to proposals for setting new Standards for a period of two years from 1 April 2000 have supported this and OFGEM has stated in this document that SOP 3 will indeed run for a fixed two year period from 1 April 2000 to 31 March 2002. SOP 3 will apply to all gas and electricity suppliers and the indicative costs in meeting SOP 3 per customer supplied should be the same for gas and electricity. (OFGEM, October 1999)
9.14 The Government has followed up the November 1999 Pre-Budget Report with a consultation paper on proposed energy efficiency measures and low-carbon technology to be introduced under the climate change levy regime. £50 million per year was allocated to fund energy efficiency schemes under the Pre-Budget Report, together with an additional £100 million in enhanced first-year capital allowances. The consultation paper seeks views on which technologies might qualify for enhanced capital allowances and on the role of renewables. (DETR, December 1999)
