Examination of Witnesses (Questions 680-685)|
TUESDAY 4 DECEMBER 2001
680. You are not looking for a change in your
statutory, if they are indeed statutory, requirements for a one
in 20 peak winter day or the one in 50 severe winter weather?
(Mr Bolt) That remains as part of the obligations
which we are required to meet. What we are saying is that that
is not enough. We have to add other things on top of that.
681. You are not proposing to change that. You
are proposing to have output requirements agreed between yourselves,
Ofgem and presumably suppliers and other stakeholders for the
process, but in a form which is able to be changed on an annual
(Mr Bolt) Yes.
682. What would be the key time frame for you?
Is it the annual review, is it the ten year plan or is it in fact
really the three-year rolling review because that is the sort
of time frame on which the investment primarily has to be determined?
(Mr Bolt) In very broad terms, the lead time for additional
capacity in the national transmission system is about three years.
There are some things we can do more quickly, but investment in
pipe or new compressors with planning permission issues and things
like that is a three-year process. What we do as required by our
licence is carry out an annual review of that plan on a rolling
ten-year basis. We are proposing to enhance that in two ways:
one is to put into the consultation process more information such
as costed options as to how we could develop the network, as information
to shippers and producers. The other part is having some longer-term
auctions as a way of providing additional information to us. All
of that will feed into an improvedwe hopeten-year
investment plan which we shall publish each year.
683. Do I gather that you are looking effectively
for an additional investment activity which is more or less double
what would otherwise be required to meet the statutory obligations,
rather like £600 million referred to here to meet the statutory
requirement and something like £600 million on top of that
to meet the output requirements you could foresee?
(Mr Bolt) Ofgem has already said as part of the price
review settlement which was announced a month or so ago that they
have accepted the case for additional investments to provide some
flexibility over and above the one in 20 winter peak, but they
disallowed additional investment of about £200 million which
we had suggested to provide extra resilience in the network. As
we go forward, looking at the need to accommodate additional imports
in the network, we can see the potential for the current £1
billion programme over the next five years being significantly
enhanced. What we want to be clear about is whether that will
be allowed in future prices, because if it is needed to meet consumer
requirements, we are ready to get on with that investment, but
we need to make sure that the regulatory framework is going to
reflect that in places over the life of the investment which will
be 20, 30, 40 years.
684. Does that mean overall a shift away from
RPI-X or does it just mean for the specific investment needs associated
with meeting those additional output requirements something like
an RPI-X+Y, a further addition over and above what would otherwise
be a continuing pressure for cost saving?
(Mr Bolt) It is a development of RPI-X rather than
a replacement of it.
(Mr Wybrew) RPI-X has done an excellent job in driving
operational efficiency, in our case over 15 years. It has done
a pretty good job of ensuring the utilisation of existing assets
over 15 years. The jury is out on whether it really will serve
the best purpose in looking ahead at a new cycle of investment,
which is clearly required as the industry looks to imports and
a changing set of supply patterns. That is where the debate involving
Ofgem and ourselves and the rest of the industry sits, around
that key question.
685. You mentioned the regulatory constraints
on development of the infrastructure from your perspective, but
I am interested in your view in relation to a situation in my
constituency. In your opinion, is it holding back potential for
companies to expand significantly? I am thinking particularly
of my area of West Wales where we have major multinational companies
who have been frustrated by this. I just wondered what you might
have to say on that issue.
(Mr Wybrew) There is no doubt that one of the problemsthere
have been many advantages but one of the disadvantagesof
the liberalised market, is that it has stalled when it has come
to finding a consistent basis on which to extend the network.
The liberalised market does not tolerate cross-subsidy as a basic
principle and it does not allow suppliers to capture consumers
for a prolonged period in order to recover their investment to
get the gas to them. We have done quite a lot of pioneering work
and we can expect it to bear fruit, not only in looking at the
economic benefits of extending the network but also costing on
a consistent basis, and there are well established techniques
now for doing this, the social and the environmental benefits.
A working party has been going on on this very subject. The need
to press on in this area is referred to in the Government's fuel
poverty strategy. We are hopeful, not through an extrapolation
of the liberalised market, but by finding other mechanisms, to
confront this particular problem. We are hopeful that we can first
of all establish on a consistent basis the case for extending
the network and then to find the mechanisms for implementing it.
Chairman: Thank you very much, that has been
very helpful. If you feel there is anything you would like to
send to us in addition to what you have given us, then please
do so. Thank you very much for your evidence.