UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1752ii

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

SCOTTISH AFFAIRS COMMITTEE

A ROBUST GRID FOR 21ST CENTURY SCOTLAND

WEDNESDAY 8 FEBRUARY 2012

ALAN BROADBENT, VICKY KELSALL, MARK MATHIESON, FRANK MITCHELL and PAUL SMITH

RACHEL FLETCHER, HANNAH NIXON and JEREMY SAINSBURY

Evidence heard in Public

Questions 99 - 274

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Oral Evidence

Taken before the Scottish Affairs Committee

on Wednesday 8 February 2012

Members present:

Mr Alan Reid (Chair)

Fiona Bruce

Jim McGovern

Iain McKenzie

David Mowat

Pamela Nash

Lindsay Roy

Examination of Witnesses

Witnesses: Alan Broadbent, Head of Engineering, Networks, Scottish & Southern Energy, Vicky Kelsall, Customer Service Director, ScottishPower Energy Networks, Mark Mathieson, Managing Director, Networks, Scottish & Southern Energy, Frank Mitchell, CEO, ScottishPower Energy Networks, and Paul Smith, Director of Operations, Energy Networks Association, gave evidence.

Q99 Chair: Thank you all very much for coming. I apologise for being late-I am afraid that the Committee’s earlier session overran-but we very much appreciate your coming along to this Scottish Affairs Committee inquiry into the robustness of the grid in Scotland.

Perhaps you can start by introducing yourselves, starting on my left with Mr Smith.

Paul Smith: Good afternoon everybody. Thank you very much for this invitation. My name is Paul Smith, and I am director of operations for the Energy Networks Association. The people on my left are members of our organisation, and we look after the transmission and networks businesses that supply electricity to the UK.

Vicky Kelsall: I am Vicky Kelsall, customer service director for ScottishPower Energy Networks.

Frank Mitchell: Frank Mitchell, CEO of ScottishPower Energy Networks.

Mark Mathieson: Good afternoon. I am Mark Mathieson, and I am managing director of networks at SSE.

Alan Broadbent: Good afternoon. I am Alan Broadbent, head of engineering at SSE Power Distribution.

Q100 Chair: Thanks very much for coming. As you know, we decided to have this inquiry after the loss of the network to a large part of Scotland at the start of the year. I will direct my first questions to ScottishPower and Scottish and Southern. Perhaps you could tell us the reason for our losing power. I know there was a storm, but why were your networks not able to stand up to that storm?

Frank Mitchell: The weather we saw in the January event was extreme. A huge part of the mainland was hit by that weather, and we were not the only infrastructure that was damaged. Buildings, transport and lots of aspects of infrastructure were damaged. We experienced a huge amount of faults on our networks-more than 1,100 were put in our evidence-the vast majority of which were caused by debris, such as trees, et cetera, being driven onto our lines and having to be cleared. That was the largest reason. We did, however, see debris, such as roofs from adjacent buildings, flying into substations, so a lot of it was airborne material, which caused the vast majority of the damage to our infrastructure that needed to be repaired.

Mark Mathieson: I would add that it is about understanding the weather. The weather was unprecedented. If you look at the period from the first week of December through to the first week of January, there were the strongest winds recorded since 1974 and it was the fourth wettest December to January, which meant that a lot of the ground was saturated and a lot of tree roots and foundations were weakened. Certainly, we have never seen anything like that. In that four-week period, we saw five exceptional events on the network. To put that in perspective, we would normally average three a year, but within a four-week period, we saw five.

The wind speeds were unprecedented, and the other thing, certainly in the January storm, was the low-level wind speeds-the wind speeds you see at sea level. They are not our sites-they are other people’s sites-but Port Ellen recorded wind speeds of 97 mph, the highest ever recorded there; Machrihanish near Campbeltown was 92 mph, which, again, is the highest wind speed since 1998. So the weather was unprecedented.

Q101 Chair: Do you plan your network so that it can stand up to events like that, or are you saying that we just have to accept that when such weather events happen there will be disruption?

Mark Mathieson: When you look at network investment, we are regulated by Ofgem, and one of the things that Ofgem looks at is value for money for customers and the willingness of customers to pay for resilience.

If you look at our evidence, you will see that network performance has improved. You will see that the number of faults has come down and the fault rates are very good. What you are dealing with here is the residual effects of the extremes of weather. The debate at every price control review is, "How much resilience do you build into your network? At what cost to the customers? Are customers actually willing to pay for that?"

Q102 Chair: Who determines how much investment gets put into the network?

Mark Mathieson: That is an interesting question, because we are just about to go into the negotiations on the next price control review, and I would describe the process as worth while. We will pool together business plans to see where we think investment needs to be. That will include our historical performance in terms of cost. We will negotiate with Ofgem, which will go out to survey customer groups and get a feeling for their willingness to pay. Ofgem will also look to set our whole income, based on value for money for customers and their willingness to pay. I think it is important to point out that the average customer will pay about £100 a year for these networks.

Q103 Chair: Is that cost spread throughout all customers in the UK?

Mark Mathieson: In hydro, it is slightly different. It is recognised that hydro is a unique patch: we cover 25% of the UK landmass in our territory-basically, our patch is everything north of the Tay and the Clyde-but we have only 2% of the population, so it is a unique territory.

If you take this year’s income, we are recovering £300 million. That has in it a £50 million subsidy from the rest of the UK for the remoteness of our networks, but that £50 million is spread among the UK customers. The rest of the money is spread across the customers in the area.

Q104 Lindsay Roy: You mentioned that this had been the worst set of storms since 1998. Was the level of damage and destruction worse than 1998, the same, or not as bad?

Mark Mathieson: We have seen another storm in 2005 that hit further up in our patch-I do not know if you remember the hurricanes that hit the Western Isles. The one thing that I would say is that this time round I believe that the network suffered less damage. One of the things we are seeing, with the level of investment that we are putting in, is that wind speeds are having to be higher before we start seeing the successive damage. The other thing that we are seeing is that we cleared these events up much quicker than we ever did.

Q105 Lindsay Roy: So there was more damage in 2011-12, than there was in 1998?

Mark Mathieson: No, I think there was more damage back in 1998, but the wind speeds before you start seeing the damage are at a much higher level.

Frank Mitchell: Mr Roy, in the ScottishPower evidence, on page 5 and 6, we gave some charts to try and compare the ’98 event, which was a similar scale of weather as far as the Met Office was concerned. We thought it was very similar as well, what happened then and the areas it hit, because it is was widespread across the areas we serve. On the level of faults, and on the response time and the customers affected-on all those measures, they have improved against the ’98 measures. That was through investment, through network automation, through putting other specifications in, and also through increased specifications around the clearance of trees where we think some of the worst weather appears.

Chair, you asked whether we are complacent with the resilience of our network. We are not. We will continually review where we think the worst weather is going to hit our worst circuits, and we look to target those with investment going forward incrementally. We look at the measures we take just now that we know are successful, because we can measure them on a circuit basis: on automation, on improved specification on the overhead lines, and on the ability to also try to make wider tree clearances to try and stop the debris. Where we see a real, tangible improvement in the quality of supply, we will target them. We will review what happened this time, and we will look at the worst circuits affected and try to target them with a similar strategy.

Q106 Lindsay Roy: So, since 1998, you have put in resilience and greater robustness-is that what you are saying?

Frank Mitchell: Correct.

Q107 Jim McGovern: We heard evidence about this-I think it was two weeks ago. Some of it was quite horrendous and, in my view, unacceptable. People were left without heating, lighting and, in some cases, water. I am sure that everybody on the panel will be aware of the old adage, "Hope for the best, but prepare for the worst." Were you prepared, or were you caught unawares, completely on the hop? That is the way it sounds to me.

Frank Mitchell: I like to think we were prepared. We had a view that we were entering into an amber storm. In our evidence, we tried to model some of the various storm levels that we experienced through what we were expecting to come through. What we actually saw shortly before the storm hit was the Met Office changing that to a red status. We had already mobilised some 350 fuel staff to come in.

Q108 Jim McGovern: I am sorry to interrupt, but you will need to treat me, at least, as if I know nothing. When you speak about amber storms, what is that?

Frank Mitchell: Certainly. The Met Office has a national criteria for informing people about weather warnings and, if there is evidence, it moves up. I think it goes from green, yellow, amber, to red, with red being the most severe storm or weather conditions. They have that related to snow and other weather-related issues as well. Red is the most severe weather to expect. We planned ahead of the new year break, because we saw what we thought was going to be a reasonable, not severe, storm, because that is what the forecast was telling us. We mobilised 350 staff-more than we would normally expect for a normal storm we had experienced-to be in on the morning of the storm. When we saw the change in status, we mobilised another 500 staff to come in over the next 24 hours to make sure we got on the front foot.

We continually operate and challenge ourselves on our emergency procedures. We do scenario planning and practice those to try to ensure that we get it right, but I think that we probably expected slightly less of a storm than what we received. But I think that we reacted quickly to it. Putting that to one side, there were still a number of customers off for a significant amount of time. Just to clarify your data, we mentioned 600. That was the number of people off on the Saturday. Only-I say only-100 customers were off for those four nights. The other 500 was a storm that happened the following day, which came along and impacted on us. I think the reaction-what we did in investment, what we did in automation-was really demonstrable compared with the previous storm. But we can always improve. There is no doubt about that. We are looking to improve going forward.

Q109 Chair: In terms of your decisions about making investment in the grid or refurbishment of the grid, where is the incentive on you to do that? Mr Mathieson referred to a £50 million subsidy from the rest of the UK. But the other £300 million: is that all money that you have to put in yourselves?

Mark Mathieson: No, the rest of the £250 million will come from customers who are effectively on that network. The way we recover that is that the supply companies will pay us for the use of that network. So that comes from customers. Customers pay that.

Q110 Chair: So effectively the customers in each of your areas-other than the £50 million subsidy from the rest of UK-will pay for any refurbishment or investment costs?

Mark Mathieson: Yes.

Frank Mitchell: Over a longer period than the five years we do it in. We depreciate these and we get the cash flows for that over, typically now, a 20-year period; but in transmission that has been extended recently, moving out towards 40 years as well. So we do not try to recoup that money within a short period, just to clarify that.

Q111 Chair: How do you decide where your priorities are for investment or refurbishment and how do you decide how much to put in?

Mark Mathieson: In our price control review, we have effectively a contract with the regulator that has been negotiated. That is a very detailed contract. It will have your operating costs and what your plans are for investment. We have to deliver for that a series of outputs. Also, there are incentive schemes to improve fault rates and fault response and those are symmetrical. So if you beat the targets that you have been given by Ofgem-those are based on your historic performance-you perform well, but equally you can be penalised if you are under those targets. So the one thing we are always doing is looking to invest in our networks to improve the fault performance. Certainly in the evidence we have given, you will see that there is about a 40% or 50% benefit over the last 10 years from that investment.

Q112 Chair: But just to take one example, we heard evidence at the previous session that on Islay there were a lot of problems. In particular your company had written a letter to customers on Islay, which you copied to me, saying that refurbishment work would be done last year. I believe that refurbishment work did not happen. Can you confirm that it did not happen and tell us why the decision was taken not to proceed?

Mark Mathieson: Alan has the detail about Islay. But one thing I would say is that I am disappointed about what our customers on Islay suffered and sincerely apologise for that. Islay is bit of a unique case and something that is quite similar to our patch in the west of Scotland. Islay is fed off a 123 km overhead line, a really long line all the way from Lochgilphead. I think Alan has the detail as to the fault performance and our investment there.

Alan Broadbent: As Mark says, we absolutely accept that the fault performance over the last 18 months on Islay was not acceptable. It was largely caused by a submarine cable failing from Jura to Islay. Islay is fed via two separate submarine cables and one of them failed. Over a period of 18 months, there had been a number of faults which we would have hoped to avoid in the normal course of events. You are absolutely right. We were due to do some refurbishment there and those resources were put elsewhere-

Q113 Chair: Why?

Alan Broadbent: Because a priority came up elsewhere which we felt was higher at that point. In hindsight perhaps that was a mistake. What we would say is that this particular storm was not what kept Islay off for that period. They would have been off whatever because the storm was so ferocious. But we have learnt from the 18 months. We have plans in place now. There are people on Islay working on the lines at the moment. One of the big issues was trees on Jura. There is a long string of trees through there on a private estate. We are cutting 2 km of trees with the owners at the moment to make sure that they do not impact on the line and we have plans for the subsea cable, which normally sits on the sea bed and can be eroded and therefore can fault. We have plans to subsea drill, at a cost of probably £2 million to £4 million, to put down more secure cable into Islay.

Islay has a power station at Bowmore. During that period when the cable had failed, it was operating on the power station at Bowmore. It is not as reliable as the mains cable from the mainland, and we did see more faults because of that as well.

Q114 Chair: Other than reputational damage, is there any incentive for you not to allow situations like that to arise?

Alan Broadbent: Our policy is to try to match the east coast performance, which is where you have Aberdeen, Dundee and all the rest of it, with the west coast performance, and, indeed, to try to match the performance with the rest of the UK, if not better it.

Q115 Chair: What I am trying to get at: other than damage to your reputation, are there any penalties, which the regulator might impose on you, for all these failings?

Alan Broadbent: As Mark said, there is a symmetrical incentive there, and you do feel there will be penalties on you if you actually fail that.

Q116 Chair: So have penalties been imposed on you for Islay?

Alan Broadbent: Not specifically for Islay, because they take the generality of things. They look at Hydro or Southern Electric in its entirety and ask, "How has your performance been?" over a particular year, or "Have you outperformed what we asked you to do?" During the last price control period, over five years, we consistently outperformed that; we-Southern Electric and Hydro-were the two most successful DNOs for doing that. So we have got a good track record, but we put our hands up and say, "We accept that Islay wasn’t good enough. We are putting steps in place to sort that out."

Q117 Chair: You mentioned trees-I think this question probably goes to both companies-but what is the policy regarding trees near lines, to make sure that trees do not bring lines down?

Alan Broadbent: There are two separate policies. One is if trees are very near, within three metres, and could touch the line, or if a branch could come off and touch the line. That was not what happened during any of the storms through December and January; it was mature trees, of 100 to 150 feet, coming down through lines. If there had been transmission lines there and pylons, the lines would still have come down because those big trees had come down. Normally, you get faults through the trees being within three metres, so we do invest in that.

We also have a separate fund that we invest in resilience. We spend money on resilience by trying to get trees outwith falling distance from the lines. We have been investing in that this year and last year. This year, it is going to be about £1.5 million of spending on that. We are going to be upping that going forward, in order to remove the large mature trees from the lines, although, quite ironically, that is only one of the problems. Our lines have been there since the 1950s and ’60s and, obviously, forests came along after that. We got rides through the area where the lines are and, generally speaking, at that point the trees were well away. They have obviously grown and are now impacting on our lines if they come over. But for the most part, for the past 20 or 30 years, they have actually protected our lines. If you stand in these rides during high winds, you won’t feel the wind, because the trees protect them. But these storms were quite unusual. They brought down very large mature trees, and it is very difficult to legislate for that.

That is what happened on this occasion, but we are upping our spend on vegetation management-we are talking about £40 million in the north, while SHEPD in the south is spending more than that, because it has a deciduous tree problem, which actually can be more difficult. Most of our problems are conifers. The other thing, as a reminder, is that as well as winds, it was very, very wet in December. A conifer, with very shallow roots, if it gets hit by very high winds will come over. That was the problem we had. And that creates problems of access.

Q118 Chair: What is the legislation regarding your rights of access? And where do landowners’ responsibilities come in, given that you mentioned the landowner on Jura?

Alan Broadbent: Our lines are secured on wayleaves, which is just a contract with the landowner. In Forestry Commission territory, we have a master wayleave with the Forestry Commission and we have negotiated lines through those particular territories.

One of the things to bear in mind as well is that there is an amenity position. No one particularly wants to see forests going over hills on the west coast of Scotland, or anywhere else, with a large ride through it-of maybe 1,500 metres, with straight lines-and, because of that, and you may have seen it yourselves, the Forestry Commission zigzags areas to try and take that away. In terms of amenity, no one is desperately keen to allow us to cut trees back to the sorts of areas that we want, so we have to negotiate with the Forestry Commission. We spoke to it immediately after the storm, and it was very, very supportive of our position after the storm. Private landowners are more difficult, because they are spread all over our patch, and we have got to deal with them individually.

Q119 Chair: Do you have rights, or do you need to negotiate with them?

Alan Broadbent: We can negotiate with them, but they start with the rights, and we have to negotiate a contract that allows us to do work on their land. Largely, the rights are all with them. But to be fair, most people, when they see the effects of storms like this, actually understand the position and allow us more access than previously. But we have not had a storm like this, really, for quite some time and sometimes it takes something like this for people to realise that these things can actually happen.

Frank Mitchell: Going back to the beginning of your chain of questions, Chair, we have, as well as what Mark said about the approach to it, also mentioned in our evidence, PAS 55, an international standard for asset management. That is independently audited to make sure that how we look at our assets, how we assess their health indices and how we assess the view about the impact of having improving fault rates is done under an international approach that is recognised as best practice. That is at the heart of engineering assessment that we then form into a financial business case, together with our customers and our stakeholders, that we want to take forward.

We have two policies on tree management. We have cuts for safety, where we try to make sure that in a three-year managed cycle we cut to make sure we are at least 3 metres away, including potential growth, because we have had incidents in the past in our industry where people have climbed trees and been in contact with overhead lines. So first of all it’s safety. Then we have a second standard, which we have also put in our evidence to help and aid the committee, which is much broader, about cut for resilience. To the points made earlier on, these have to be negotiated. People do not like-outwith and forget about storms-us coming and taking large parts of the woodland away. It is something that we have to negotiate, going through.

But targeting 10% of our network by 2015 and having this resilient cut in it, that is something we are leading the industry on from a point of view of the amount that we are going to have in the end. We are planning to go further than that, obviously, next time.

Q120 David Mowat: Following up on that point, is there any difference between the two companies, as far as you know, in terms of preventive maintenance policies? Do you both know what each other does? Do you spend similar amounts and are the policies broadly similar in terms of preventive maintenance?

Frank Mitchell: I expect we work under the same standards overall within the industry, because there are industry standards there anyway.

Q121 David Mowat: For example, you were quoting in your answer there, 3 metres, tree distances, and all the rest of it. Can I ask, your colleagues, would they meet the same-

Mark Mathieson: It is industry standards, yes.

Q122 David Mowat: So there is no ambiguity. In this respect, then, there is no difference in the fact that you have different ownerships and that you are different companies.

Frank Mitchell: I think, to be fair, on those standards that is correct, but there may be aspects, not just for ourselves and SSE, but across different companies, of how they deploy technology-automation; how they target that; and how do they look and assess where that best impact is going to be? That is down to capability and judgment within each company and there may be differences of approaches, across, how they deploy some of that technology.

Q123 David Mowat: Just a quick follow-up, then. In your joint judgments, did you perceive any differential performance between your two organisations in this batch of storms that occurred?

Mark Mathieson: I think both organisations performed admirably. The staff in our organisations, you know, also-

Q124 David Mowat: So you do not think your organisation did better than his and he does not think that his organisation did better than yours.

Q125 Chair: We will come on to the response to the storm later. I think we are trying to deal with maintenance of the grid at this moment, okay?

You are bursting to say something, so-

Frank Mitchell: I was going to say one thing just to aid the Committee. One thing you should know is that, in our industry, we share resource. We help each other in storms. We co-operate. We do not like to be competing. We understand we have all got the same issues and that sometimes we are at the hands of the weather, so on the ground, operationally, we are co-operating with each other to support each other with resources-and making sure we are doing the best we can with each other. So we do share resources across all the companies in the distribution network organisations.

Q126 Chair: We will come on to the response later. I just want to deal with the maintenance of the grid. Sorry, Mr Smith.

Paul Smith: It is just worth pointing out, following up on what Frank mentioned there, that as an industry we have a great history of working together. We have an emergency planning forum, for instance, where we pull together ideas that are shared across the industry and make sure that that benefit is made across the industry.

We are also in the really good position where we have a set of model distribution safety rules across the industry, which enables the passage of people, one company to the next, to work safely under similar rules, so that also enables us to support the industry-our different members at different times. That is through an agreement called NEWSAC, which has been in place for many decades and has worked very effectively. It is a resilient approach and has been found to work for many years.

Q127 Chair: Again, moving to the two power companies, I do not know if you read the evidence that was submitted to the Committee from the Institution of Engineering and Technology. They suggested improvements, such as rebuilding light construction HV lines to a heavier standard-essentially stouter wood poles or heavier steel work-and low-voltage extensive rebuilding using area-bundled conductor in areas surrounded by trees, which is a fully insulated cable and less likely to fall due to tree contact. For detecting potential falls, they suggested fly-past photography using helicopters or ultrasonic mapping of wood poles to detect internal rot. Are these things that you do or would you have plans to?

All witnesses: Yes.

Q128 Chair: You do all that? Okay. Good. One question that was put to us was that, particularly in exposed areas, such as the power line down to Portnahaven in Islay, which obviously suffered a lot of power cuts, exposed lines like that should be put underground. Have you considered that at all?

Mark Mathieson: There are two things you need to look at: a cost aspect of undergrounding and a performance aspect. Just putting a line underground does not mean that it does not fault. Interestingly, although it might fault less, repair times are much longer. As you can imagine, driving down a road and looking at an overhead line you can see the fault and you can repair it very quickly. With an underground cable you have to use equipment and you have to try to get allocation. Even then, you have to find that fault, which is done by listening for noise at breakdown, for detecting gases that are given off. That is very difficult over long, long lengths of underground cable.

Then you are looking at the cost. The cost of lower voltage lines is probably getting on for five or six times the cost of overhead lines, and that is not taking into consideration the fact that on our west coast we have a lot of peat and rock, both of which cause issues with the cable. Peat causes ground movement that can cause faults in cable, and trying to put cable over rock becomes very expensive.

Chair: Have any other members of the Committee got questions on maintenance of the grid, or shall we move on to the next topic?

Q129 Lindsay Roy: You mentioned already the emergency planning forum and the collaboration. Can you explain how that operates and the nature of the decisions that you have made?

Frank Mitchell: Certainly. I will begin from ScottishPower’s point of view. I will ask Vicky to go through the detail because she helps to run that and liaises with all the various agencies, so she can give you a bit more detail. We have been running emergency action centres as an industry and as a company for some time. We always look to improve on it. We have specific roles that are assigned under certain emergencies to certain members of staff, to help us assimilate the size of the damage and make sure we are supporting front-line staff to get equipment and permits to allow them to work safely. At the same time, we have key staff dedicated to making sure we understand the impact on customers so we can best inform customers. I will ask Vicky to go through some of the detail including the stakeholder management and government.

Vicky Kelsall: On an annual basis, all of the emergency planning officers in Scotland are invited into our Kirkintilloch office, which is where the operational control centre is run in Scotland. At that time, we talk through any investment that has taken place in the year and any aspects of planning where we can work together. In terms of the storm this time we have sent twice-daily reports through to the emergency planning officers, but we recognised that the postal codes on there were only partial codes, which makes it quite difficult to home in on specific places. That is certainly true in Scotland, where postal codes can often cover quite a large area and trying to home in on individual premises is difficult. We recognise that. What we did during the storm was to have dedicated customer liaison officers in place with a direct dial number, so that we could talk about the individual properties that we wanted to home in on. In March we will have a large upgrade to our system, where we will be able to have the full postal code right down to an individual premise level. We have also recruited a business continuity and resilience manager, who has continual contact with emergency planning officers. I certainly go to SGoRR meetings, as does the resilience manager. We are always considered, as a utility, as a tier 2 responder, but certainly over the past 12 months we have been invited along to a lot more meetings and scenario tests, and that is something we wish to continue.

Q130 Lindsay Roy: Can we just be clear? Does the emergency planning forum meet several times a year?

Vicky Kelsall: Yes.

Q131 Lindsay Roy: And it’s about scenario planning.

Vicky Kelsall: It covers a whole host of-

Q132 Lindsay Roy: What key lessons have you learnt from the most recent events, and the meetings you’ve had recently?

Vicky Kelsall: We learn from every event. We have commenced a panel of inquiry, which we do after any significant event within the organisation.

Q133 Lindsay Roy: Has that been jointly, with the two organisations?

Vicky Kelsall: This currently is for ScottishPower Energy Networks. The panel of inquiry looks at all aspects of everything we have done, and I can provide a copy of the terms of reference if you would like that.

Lindsay Roy: That would be helpful.

Vicky Kelsall: Basically, we will look at the whole range of aspects of the event that took place, and from that drive lessons learnt. There is always something to learn. I can’t sit here and say that everything ran perfectly-

Q134 Lindsay Roy: Can you give us some examples of things that have been picked up so far, and recommendations for the future?

Vicky Kelsall: The big one, I think, was the identification of vulnerable customers and being able to have meaningful conversations directly with local authorities about individual customers, as opposed to communities. We did spend a lot of time having to talk through individual customers, whereas the flow of information from our systems could have cut down the timeline and have allowed action to be taken, as opposed to having to have long conversations about it before the action could be taken as you get down to the root of the issue.

Q135 Lindsay Roy: So, instead of just the normal emergency planning forum, you have had what I suppose we could call a storm review, more recently. How many times has it met?

Vicky Kelsall: Internally?

Lindsay Roy: Most recently.

Vicky Kelsall: We have actually been out to three or four local authorities since 3 January, in terms of completing lessons learnt. That is also a way for us to get information to feed into our panel of inquiry. It is not just an internal mechanism; we go out to all stakeholders.

Q136 Lindsay Roy: When do you envisage that report being produced, in terms of lessons learnt?

Vicky Kelsall: The full document will be available at the beginning of March.

Q137 Lindsay Roy: When it becomes available, can a copy be sent to the Committee?

Frank Mitchell: Certainly. It will be a big document, so we will summarise it as well and give you the summary. If there is any more information you require we are happy to supply it, but I think that the summary will capture all the main lessons. We will also put the summary document on our internet for any stakeholders to review and comment on.

Lindsay Roy: So there will openness and transparency about the whole procedure. Thanks.

Q138 Mr McKenzie: You mentioned your vulnerable customers. Are you saying that you are now in a position to identify those customers?

Vicky Kelsall: No, we are in a position to identify our vulnerable customers. It is the mechanism of sending information from our system out to the local planning officers. In the way in which the information is drawn from the system, it does not pull the full postal codes through.

Q139 Mr McKenzie: So does it just pull out a locale, and not go down to a specific house?

Vicky Kelsall: With our internal information we were able to access customer data, because we do it on an individual basis, but in terms of trying to provide all the information twice a day to each of the local authorities, we have bespoke reports that are already built in the system and they only go to a partial postcode level. Internally, we were able to remain in contact with our vulnerable customers, but it was a very manual process, and the new system in March will also allow us to streamline that process.

Q140 Chair: This might be a question more for Scottish and Southern, bearing in mind that you are operating in a lot of remote areas. Some of the evidence we got was that your staff who were out repairing the faults seemed to have difficultly communicating back to headquarters because the Vodafone network was down. The evidence that we had from Clachan was that you were only able to use Vodafone, and that the O2 network was working but you were not able to use it. Is that correct?

Mark Mathieson: That would be correct. Just as with your mobile phone, you’re tied to a single operator in the UK. Communications in certain places in our patch were difficult because the Vodafone network was down. It is important to say that as a contingency and back-up we have a private mobile radio system. We are just about to renew that system-I think about £4 million was spent on it-to give us better coverage in the north and west of Scotland.

Part of what happens when you lose coverage of the Vodafone network, and the reason it is difficult to get information back, is that our guys know where they can get through on the private mobile radio. They probably communicated with us from that spot and then perhaps travelled another 20 minutes to the fault. You are not in contact with them when they are on site but only once they come back to a spot where they can get through. It was difficult in some areas.

Q141 Chair: Could you not get a system in place, perhaps via satellite, whereby they could communicate back no matter where they are?

Mark Mathieson: Satellite, interestingly, is not always that reliable. We have tried satellite in the past as an alternative, and it is not always that reliable. When the skies are heavy with cloud, you will struggle to communicate with a satellite phone, which is the exact time we need it. That is why we have chosen to invest in a private mobile radio again.

Q142 Chair: And will that lead to improvements the next time this happens?

Mark Mathieson: It will give us better coverage than we have at this moment in time. As I say, that is a contingency. We primarily use mobile phones, but we use a private mobile radio as our contingency and back-up.

Q143 Chair: Paragraph 36 of the evidence from the Institution of Engineering and Technology mentions self-healing networks. Have you implemented that technology or are you intending to?

Mark Mathieson: We have. I will pass that on to Alan because he probably knows more of the detail. It is something that we are investigating. I think that a lot of the stuff we do in terms of networks in the UK leads the world, but we are not that good at communicating it. Self-healing networks are something that we are doing. We are talking about automation devices that see the fault, isolate the faulty section, and restore service to others. It is fair to say that, like most companies in the UK, we have fully deployed the initial generation of that technology and we are now looking at the second generation.

Q144 Chair: Again, in evidence from Clachan, the local community seemed to be of the opinion that about 280 houses were cut off because of a fault in a loop that served two or three houses. Is that correct?

Alan Broadbent: It is not, no. I was involved in that fault, and I spoke to some of the people involved. What customers, quite rightly, do not see or understand fully, is that the local network is a low-voltage network that in the west coast usually takes power via overhead lines into your house. There is then the 11,000 volt network that takes power from a primary substation into the house. Typically, in the west coast, for example in Islay, that can be 130 km away. There is then the 33 kV system that in the west coast of Scotland tends to run along what are called radials. It just runs, and there is nothing connected at the end. If that was in the east coast of Scotland there would be something connected on the end because there are lots of lines in close proximity. The self-healing aspect comes in because if you have a fault on one line, you can automatically switch around and get power in from the other side. That is not generally available in the west coast of Scotland, and if you can’t do that, you can’t self-heal.

In Clachan there were three separate faults-a low-voltage fault, an 11 kV fault, and multiple 33 kV faults. Because they did not see our linesmen around at any point, people felt that we weren’t working on it. We usually concentrate on the highest voltage first, because by doing that you generally get most people back on, which seems sensible. We were therefore working on the 33 kV faults and on the 11 kV fault, and because we had so many people in parallel, we repaired the low-voltage system to those houses in Clachan. The trouble was, however, that people thought that because we had repaired the system, that would immediately put the power back on. It did not, because we were still trying to repair other faults. It was extraordinarily unfortunate that that happened. We tried to explain about it, but I accept that people do not necessarily understand the problems that we face during these storms. That was what happened in Clachan-there were probably four, five or six different faults .

Q145 Chair: Some of the evidence we are getting is that once the electricity fails, we have become so dependent on it that, for example, shops cannot function, cash registers cannot function, petrol pumps cannot function. Have you given any thought to providing generators for shops and filling stations in remote communities in situations like this?

Alan Broadbent: I have been answering a number of letters, as you might imagine, from customers. I do that on a personal basis, because it is very important. It actually kind of marks out our strategy for the future. I think it should be community-based and people in our company believe it should be community-based. In a number of places, such as Cumbrae in Bute and Lismore, for instance, we are speaking actively to customers and talking about putting generators in.

We are also talking, surprisingly perhaps, about having the local postman or whoever being able to switch on our network. These people live on islands, and it is not always possible for us to have staff on the island. A local postman, authorised by us, can switch around our network and get the people back on, and can go to the generator that we have provided and switch a generator back on and get people on. As Mark said earlier, the challenges in hydro are quite different from the challenges in most other companies, and we have to think of innovative solutions to it. That is the sort of way that we have done it in the past, and in the future we are going to continue to do it.

Q146 Chair: In terms of providing meals, I know that you organised some hot food vans in Rothesay, Lochgilphead and Dunoon. The ones in Rothesay were certainly essential. One of the complaints that we have had in evidence is that people were out in the villages without any hot food or any means to cook hot food, but in towns such as Dunoon and Lochgilphead the electricity was on. There did not seem to be any point in these vans being in the towns-where people got to a town, they could go to a hot food shop. Why did these vans not go out to the villages where the problem was?

Mark Mathieson: Yes, I heard that complaint as well. It is something that we can co-ordinate better in the future. The one thing I would say is that we first applied the catering vans on Skye in the storm that we had in 2005. They were very popular and they went down very well. The one thing we discovered during that is that you have absolutely got to put the van in a location and word of mouth gets round that that is where the van is and they were very well supported. You cannot have the van moving about, because then you just end up with people chasing the van and not knowing where it is. Location is important, and we picked locations that we thought were best and that would be able to be found, but I take the point that, going forward, there could probably be better co-ordination of where those vans go. The other thing that we did was that, where people were not near a van, we offered to pick up hotel accommodation and to pay for hot food through hotels as well.

Q147 Chair: But the hotels in Argyll were all full up with your own workers.

Mark Mathieson: Yes, they were, but we could provide people with food.

Alan Broadbent: May I pick up on that point? It is a point well made-I accept that-although, as Mark says, people might be chasing the van. What we did in Rothesay was that we had a minivan that went with the van, and we told our people on Rothesay where the vulnerable customers were. We went out in the minivan and took them to the van, or we took meals to the people and provided hot water. That is a learning point. We should use that approach in any other vans that we use in the future. I think that would address your point, Mr Reid.

Chair: We will now move on to communications.

Q148 Pamela Nash: First, I would like to say that a lot of my questions would have been directed at Vicky to ask about the postcode situation, so I am delighted at the announcement that you made in your earlier evidence. That was certainly an issue in my constituency, where we are trying to access your vulnerable customers, but we cannot because the postcode area was too large to find those people.

To come back to Iain’s point about how you identify your vulnerable customers, could you expand on that? I am interested in how you do that and what information you use to find them?

Vicky Kelsall: Certainly. Almost two years ago, we had only 24,000 customers on our priority services register, and that includes both electrically dependent customers with disabilities and customers over the age of 60. Obviously, with a nearly 3.5 million base, that did not seem quite right. We have done an awful lot of work over the past 18 months to two years. We now have 126,000 customers on the database. We invested 18 months ago in a new customer management system, which allows us to hold a flag that shows the customer is vulnerable. However, when we have a fault, what happens is that we have to go into the customer management system individually and source the customers based on the incident number that has occurred-we generate an incident number, sorry, when we have a fault. So, the only way that we can access our records is purely manually, which is why we had a dedicated team of eight people just working with our vulnerable customers.

The new system that comes in in March will save us so much time and give us so much information. At the moment with our system, when a customer phones, we will register the fact that they have no supply. We then have to go into our customer management system to see whether they are vulnerable and tag the two together. Our new system is integrated with our customer management system, so as soon as that call comes through, the agent who picks up the call has a little vulnerability flag on that account, and that will really help.

Q149 Pamela Nash: To be clear, are customers identifying themselves either as vulnerable customers or as being in one of the categories that you term as vulnerable, or do you find out from sharing information with, for instance, local government?

Vicky Kelsall: We source information from a number of routes. Local government does not tend to give us vulnerable information because of data protection rules. We have tried and not really succeeded in that area. The majority of our information comes from industry flows, so supply companies will identify vulnerable customers, and that is sent via a flow through to the distribution network operators. We have a responsibility to ensure that our records are updated with that information.

However, during the storms, we recognised, first, that customers will have gone off supply this time who have not had to contact us before and therefore, we may not know they were vulnerable. Everybody in the call centre had pro formas that they could complete to register that customers were identifying themselves as vulnerable. That was then passed into our back-office function and they were added into the run with all the other vulnerable customers that we were dealing with. During the storms, we identified about 700 additional vulnerable customers.

The other thing we recognise is that the longer an event goes on, everybody becomes vulnerable. When you have been off supply for two days-it does not matter whether you have a disability or if you are over 60-you are in a vulnerable position. You do not have any food in the fridge or freezer any more, and if you do, you can’t cook it. By the end of day two, we had 950 customers who were still off supply, and they were then all treated as vulnerable customers, in exactly the same way. They got telephone calls every three hours from our dedicated team, and it was the only way at the time that we felt we could deal with that. Certainly, in March-hopefully we will not have another storm like that during or after we have had the new system put in-once we have that system, a lot of this, we will be able to automate.

Q150 Pamela Nash: Is the customer management system comparable with the system you have, Alan?

Alan Broadbent: We have a different system from ScottishPower, although we do use the industry standard priority services register. We have always thought that because of that, we needed to work very closely with the local authorities involved, because they tended to know different vulnerable customers from us. You are absolutely right; our customers have to declare themselves to us as part of that scheme.

I was recently at a debrief at Argyll and Bute council on 31 January, where we debriefed on the storm, and we were talking about that very issue. I used to think the same as Vicky-that there were data protection issues around that-but I was told by a chap from the Scottish Government that he did not think there were and we could actually share a single vulnerable persons register. That would probably be the biggest single learning point that could come out of this; if we could share a register, work in partnership with the local authorities and other people who could actually help these customers, work in tandem and do the best we absolutely can for them. At the moment, it is slightly disjointed. We need to get that better and work on that for the future. We will be following that up and sharing it, not only with ScottishPower, but through the ENA with the rest of the UK DNOs.

Q151 Pamela Nash: Is there anything you would like to add, Paul?

Paul Smith: I just want to support that, because anything that enables us to bring together more information more easily would be a great advantage. The ENA facilitates a lot of things in this area, and, as Alan has mentioned, we could certainly help with that, but it needs a different view of things to enable that to happen. There are obviously things in place, such as the Data Protection Act, which prevent information from flowing as easily as it could.

Q152 Pamela Nash: Do you think that that should be done at Scottish Government level or at local government level?

Paul Smith: I do not think that it really matters, so long as the information is available.

Vicky Kelsall: Absolutely. I think that we can probably tackle it in both ways, to be honest. At the moment, the best that we have is that we provide a postal code and the local authority advises whether there is vulnerability within the postal code. That is easier when you have one-off faults. If we know that we have a vulnerable customer and the supply will be off for more than five hours, our escalation process is to automatically contact the local authority. We were at East Lothian council last week having a very similar conversation to what Alan has just recounted. Hopefully we will be able to tackle that issue.

Frank Mitchell: It seems to me as though there is maybe a common guidance that could be given to local authorities about the Data Protection Act, because people are very nervous about it. If there was common guidance, which allowed access to that information, that would be really helpful.

Vicky Kelsall: It can only be used for the greater good, can’t it?

Q153 Pamela Nash: Thank you for that. In the written evidence that we have had looking at SSE, we had a customer who described information that they received from the call centre as confusing and contradictory. Also, in my experience in my area with Scottish Power, my constituents have also had that complaint. I was given an emergency line to pass on to constituents, and that turned out to be another answerphone machine message. There is a lot of experience of this. I am not pointing fingers at anyone in particular; it is across the board. What analysis would each of you make about how accurate the information was that you were able to provide to your customers in that period? How did you provide that information and how could you improve it?

Mark Mathieson: I will pick that up for SSE and I will let Alan go into the details of how we do it. One of the things we talked about before was the communication with site and the information coming back. Where we could get the information and the information that we are used to, we were able to give very good information to customers and we had a lot of compliments saying that the information was good and that they were kept well informed. There was another side of it where we were struggling to speak to our staff in the field. I recognise that some of the information that we were providing was not what we would want to provide. Alan has got the detail on how we organised ourselves.

Alan Broadbent: Mark is absolutely right. The biggest single issue for any power company is that, if you have multiple faults on circuits and access is difficult, you cannot predict when someone will be back on supply. This was part of what happened in that particular situation. There is more that we can try to do about that. We can look at storms in general and put in place certain rules, which might establish whether, in this particular area, if there is a storm, we can give this information and generally speaking, whether the power will be off for one day or two days. That is what customers like: they want to know whether they are off for a day or off for two days.

We need to be able to give them that information and we need to be smarter to be able to do it. In the west coast of Scotland, there are particular challenges because of communications, but, elsewhere, the communications are fine and we should be able to do it. We are working hard to be able to do it, because I acknowledge that there were challenges during the storm. I would also say, the same as Mark, that you generally only hear about the customers who had problems. We have lots of customers who got good information and who understood what was going on. We accept the challenge there and we need to improve on that and find ways to improve in that situation.

Q154 Pamela Nash: It is not just what the information contained. How did you distribute that information in a scenario where people had no electricity and telephone lines were down?

Alan Broadbent: Again, that was very challenging. The same as ScottishPower, we did call out to customers, and much of the time we did manage to get customers, but more and more customers are calling in on mobile phones, and, as Mr Reid said, unless they are on O2 on Argyll, you would not necessarily have got them in that situation. That was very challenging. I did watch the previous evidence, and the lady from Argyll and Bute talked about word of mouth. That is very powerful in the west coast and in the north. Provided that we can get information through to opinion-formers or powerful stakeholders there, that arrangement will work very well.

Our shops are a focal point in many of these islands. Last week, myself and a colleague met the chap who manages all the shops. We talked about how they can do more and how they can mirror what happened on Rothesay, because Senga did a power of good for that island and a lot of people appreciate what she did. She charged her phone, which actually was working, in her car, because her house was off, and she got information from us and told people how things were. She told people the hot food vans were coming. She went to individual customers and spoke to them and gave them food. We need to do that on a community basis through all of our shops. At the moment, we do not have a database within my part of the business that shows us who is in those shops, what the telephone numbers are, and how to communicate. We will get that. We will find a way through the PMR system-the new system that we are bringing in-to put fixed base stations there, so we will get through and tell the shops and that sort of information can get out to the wider community by word of mouth. It is a bit different in the west coast, because you have widely spread communities, and it is quite difficult to do that.

As a final aside, which is meant to be serious, we got what is called a licence to innovate after the storm from one of our people who asked whether we could provide the police with loudhailers, so that if we give them the information, they can go around and tell people. Perhaps, that is something that could actually be done, because the police are keen to help in these situations, but we have to provide them with good information, so that they go out and speak to customers. Again, we can do that through the local authorities and the police.

Q155 Pamela Nash: The problem with relying on word of mouth, which may get to many customers, is that you are missing out some of the most vulnerable housebound customers, who need that support.

Alan Broadbent: That goes back to the point about working with the local authority. If we get a single register that is the same for Hydro or ScottishPower and the local authorities, we can work with the local authorities. Argyll and Bute are desperately keen to go out and speak to those very vulnerable customers that you are speaking about. We did struggle to tell them over time, for the reasons that Vicky has said. They can help us to do that, because in a situation such as this it is about partnership. It is not just about the power companies. It is partnership in association with everyone else to get the best for the whole community.

Sitting suspended for a Division in the House.

On resuming-

Q156 Pamela Nash: I have a couple of questions, but I appreciate that we are really short on time, so I will try to combine them into one. Before the vote, we were discussing involvement with local government. What involvement does each of you have with emergency planning procedures in local government? Also, in your evidence, it was identified that we had eight months of fault activity in four weeks, and you referred to that earlier. How did you meet the demands on your staff during that high-impact activity-not just in relation to repairs, but looking at the calls that ScottishPower took at that time? How did you manage that sudden influx of work?

Paul Smith: On the emergency planning position, there is a national group called E3C, which our members are members of-so is DECC and Ofgem. That group is there for the sole purpose of identifying emergency planning procedures in organisations and in the electricity industry, which is obviously part of the critical national infrastructure.

Q157 Pamela Nash: For the entire UK?

Paul Smith: Yes. That then drops down to what is called the emergency planning forum, which members of each of our member organisations attend. The information that drops out of E3C goes into the emergency planning forum and is taken back to our members’ companies, so that they can disseminate it and use it as necessary in their organisations.

Frank Mitchell: As has already been said, we are working in that context. We also have a Scottish element through the Scottish Government. I sit on the Resilience Advisory Board for Scotland, advising the Minister about the approach. Vicky can go through some of the sub-groups that sit off that and the work that we do. Local authorities are represented on those groups all the way through the planning. They can go through that detail.

I want to comment on the scale of what happened and how we reacted. We invest heavily in technology that allows us to try to make sure we can give all our customers an answer on the phone. People are often frustrated if they can’t speak to an individual, but we would need to have a call centre with thousands of people to handle manually the number of calls we get on day one. We have to have technology that we can deploy. We have deployed technology that allows us to make sure that every customer gets through and has our best estimate of what we think will happen. Typically, with a storm of this size, we get about 80% of that right, because on day one, 80% tend to get a good clear message.

After that, we assess the level of damage through the switching to give an updated estimate to that other 20%. Typically, our approach is to patrol the main lines and restore them. Customers may have received a message that they will be on at 6 o’clock the next day. The vast majority will be, but some may not, because we might find another fault down a long spur, which might be many kilometres long, that the linesmen did not find when they were out doing their initial patrols. So you do get some frustrated customers who are expecting to come on but then don’t. They tend to be at the tail end of some of the more difficult faults at the far end of the network, as you’re trying to restore as many customers as quickly as you can.

Back to the call handling-Vicky will comment on this as well-the one thing we did well on was that we picked up that customers wanted to speak to somebody human rather than listen to a message. Some customers did, but not all. Most customers were satisfied by that. We saw that the queue length was building up. We then extended the queue length to allow customers to wait to speak to somebody, rather than saying to them, "There’s nobody available."

Before we did that, we had an issue very early on where just under 200 were not able to get through out of the whole total. After they heard the message telling them what was happening, they wanted to speak to somebody. We reacted quickly to make sure we could extend the queue length to allow people to talk to individuals. Vicky, did you want to go through some of the detail of the call handling and the emergency planning that goes on with local authorities?

Q158 Pamela Nash: Before you answer that, I want to go back to before the vote, when we were discussing how you managed to contact customers who didn’t have phone lines at the time. Can you reflect on ScottishPower’s experience with that?

Vicky Kelsall: We didn’t experience significant issues with not being able to contact customers. I can only assume that that’s partly because the telephony network and masts were not impacted as they were on some of the island communication streams. We hold multiple telephone numbers for customers.

On day one of the storm, 3 January-we would ordinarily take about 1,500 calls a day; that is a normal working day for us-we were taking 4,000 calls an hour within the first half-day. At that time, we were also able to trap telephone numbers, which was really good for us. When customers hear a message, we have the telephone number that identifies them and links them. They have to identify who they are and their address, and we can link the two together. We were able to collect even more telephone numbers. It was certainly not drawn to our attention. We attended calls, and we recognise some of the issues that were taking place in some of the more remote locations, but we were not aware of such issues within the territory of ScottishPower energy networks.

I am trying to cover each of the points. In terms of the point that you made earlier regarding issues with customers trying to get through, 196 customers were force-disconnected, which basically means that there weren’t enough lines open. The system does a calculation: we have so many customers in the queue and so many people to answer the phone, therefore it’s going to take longer than 20 minutes. We had a 20-minute parameter on our telephone lines. We force-disconnected 196 calls and immediately opened that line to say, "If customers want to speak to us, they can speak to us, but there will be a wait," and we updated our messaging accordingly.

On day one of the storm, we took 52,000 calls. In the whole nine-month period from 1 April to 31 December, we had only taken 370,000 calls. The way that our phone calls came in, 20% of the call volume came in over a three-day period. As I said, only 196 of those customers were force-disconnected. Granted, customers will have had extended times in the queue, but they will have been answered. They were not force-disconnected from the queue at that time.

Frank Mitchell: And Vicky, they would already have heard the message about what the best estimate was of the time they had to wait.

Vicky Kelsall: Yes, and we keep taking a view, so if any updates come in-if we have any clarification information-customers who have already entered the telephone queue don’t miss out on that information. Every 20 seconds, there is a refresh, and customers are presented with the most up-to-date information if there’s a change. We don’t keep giving them the same information; only if there is a change, they will be given that updated information within the queue. Customers then decide whether they are happy with the information that they have been given or whether they will hold on the line to speak to us.

In terms of emergency planning, Frank works on an advisory basis. I also sit on groups and interact with the resilience groups, certainly with SGoRR. The business continuity and resilience manager also attends those groups. We have zone leaders within our operations business and connections business, who will also go to some of the foundation seminars set up through SGoRR, so that we ensure that we are going through scenario tests with all of our peers across the emergency planning groups.

Q159 Mr McKenzie: I am interested in the initial contact with your customers and how you advise on the duration of interruption to service. Do you say initially, "We see it as being longer than four hours"? You obviously do not tell them it could be days. At which point, do you update your information?

Vicky Kelsall: In this instance, because it was such a short, sharp shock to our network, by 10.30 on 3 January we had already updated our messaging to say that supplies would not be restored until 6 pm on 4 January. We had already made that decision. The messaging actually said, "We will attempt to work on the network to restore as many supplies as possible, but supplies are not likely to be restored until 6 pm on 4 January," which was the next day. That was because of the severity. At the peak time, we had 70,000 customers off supply, so we recognised immediately that it was not something that we would be able to work on and restore supplies within a default three to four hours, or even within that working day.

Certainly, the weather was still such that it wasn’t safe initially for us to be going out and having lines restored. One of the areas that I am personally disappointed with and where we could have done better was on 4 January. I was late in saying, "Customers, we advised you that you would be back on supply today, but it is going to be more extensive than that." It took going out on to the network and looking to see the damage that had been caused. We then had a better idea. In hindsight, I would have liked to have been able to do that a lot earlier than we did.

Q160 David Mowat: The thing that we are grappling with is whether or not what happened was a terrible storm and some very isolated incidents, which, in all fairness, nothing anyone could have been done to prevent, or whether there is a pattern of poor service, which is the evidence that we have taken from people previously. We talked about preventative maintenance and that you follow the guidelines that Ofgem does, and you all have a similar process. How much discretion do you have? If you decided that you needed to do more maintenance on these lines, is that something that you could do, or will it have to be agreed with the regulator? It would cause a price increase and all that goes with that, because you are a totally regulated entity effectively, so the customers would pay. Is that what would happen?

Frank Mitchell: I can answer for us. I have a couple of points to raise. There is never any dispute over safety. If we need to maintain something for safety reasons, we go ahead and do it.

Q161 David Mowat: Yes, and 70,000 people being out of electricity is a safety issue.

Frank Mitchell: On safety from the point of view of people who may be at risk, we would have assets out within the network that the public can come into contact with, so safety is a priority. As for people off supply, we continually monitor where we think the investment should go. If it were substantially different from what we have agreed upfront with the regulator, we will make a case to say that we want to divert funds to a bigger priority. That is the rationale behind such a discussion.

On the overall maintenance and spend, on our overhead line network in the Scottish area, we spend about £20 million a year on tree-cutting management and inspection and maintenance. We do it on a priority risk basis.

Q162 David Mowat: Let me ask the question a different way. The other way of determining whether or not there is a systematic problem-or a one-off event-is the frequency of your failing to meet the guaranteed standards. How often has that happened in the past couple of years?

Frank Mitchell: I will let Vicky detail that because different guarantee standards apply for different services. A different way to look at the quality of supply is that there are measurements called CI and CML, which are in the statistics. As with SSE, in the last 10 years there has been substantial improvement by at least 30% overall. I think also we have tried to tuck it into a way to see what it means for the average customer. Some 10 years ago an average customer in our area would have experienced an outage for two hours every two years. Today, that same experience is that a customer will experience an outage for one and a half hours every three years-a continuing improving quality of supply.

Q163 David Mowat: That is an important point for me. Just let me repeat it, so I understand it. You are saying that you have got statistics that say that in the last decade the reliability for the average customer has got better across your network.

Frank Mitchell: Correct.

Chair: Time is running out, so we need to move on to compensation now.

Q164 Fiona Bruce: I would like to ask you about compensation. I will roll all my questions into two. First, what are the procedures for compensation claims? How are they communicated? How quickly are residents and businesses compensated? Can we just set aside the amount, because I want to ask you about that in the next question?

Frank Mitchell: Why don’t I ask Vicky to go through what we do? We try to proactively, rather than waiting for customers to contact us, but I will let Vicky take you through the details of that.

Vicky Kelsall: The process is normally that customers would claim compensation. However, we have written out to all customers that were impacted for greater than 48 hours during 3 to 7 January, and we have set up a storm bureau, so that there is a dedicated telephone line that comes into a dedicated team of people. The reason that we send a letter is to confirm what name customers want the cheque to be made payable to. Also, any customers that we are reimbursing for meals, that has been done separately, so as customers are handing receipts, we have been reimbursing for any hot meals that have happened. So we treat the two things quite separately. The storm bureau is open Monday to Friday, but we have also got an online form that customers can also complete on our website.

Q165 Fiona Bruce: So if someone makes a claim, how quickly would they be paid?

Vicky Kelsall: As soon as we have the details in from customers then cheques are run within 10 days of that date. So we have had 500 customers so far confirm who they wish the cheques to be made payable to.

Q166 Fiona Bruce: Thank you. Turning to the amounts, could you clarify what amounts are paid, whether you think they are an accurate reflection of the losses that are sustained, and also, in particular, many residents on Islay felt that the amount offered to them was not satisfactory. Would you like to comment on that?

Mark Mathieson: I will answer the other question, because that’s her area. The compensation kicks in after 48 hours. It is part of our licence conditions. It is set by the regulator and the price control review. In setting it, you have to bear in mind that it has been set against investment plans, cost to customer and willingness to pay. I think what I would like to get across is we take about £100-that is what we charge a customer per year for running this network.

There are exemptions to the guaranteed standards and Highlands and Islands have an exemption in exceptional events, and that is all done to recognise that it is an expensive area and it is already subsidised. We recognised at SSE that our customers have had a pretty torrid time over the last four weeks. We want to do the right things by our customers. So we have decided that any customer that was off for over 48 hours in that area, we will pay £75.

Again, as we have said before, we recognise that the supply in Islay-we are not satisfied with it, so we have doubled that for our customers on Islay. The one thing that we would have to-

Q167 Chair: You say you doubled the compensation for the customers on Islay, but you are also refusing claims by customers on Islay for the likes of loss of goods-fridges and freezers. If you have admitted, as you have earlier, your own failings and you have apologised for not maintaining the Islay grid properly, why will you not then accept that you are responsible for all the damage caused, if it was caused by your failings-not maintaining the Islay grid properly?

Mark Mathieson: I think the one thing that the compensation does is compensate customers that are off over 48 hours in the storm. One of the things that we do not do as an industry that you have identified is pay for consequential loss. It comes back to the debate. What investment do we want in the grid for resilience? Is that affordable? Are customers willing to pay? What is the compensation on the back of that when customers are off? We feel that £150 payment is very generous against that criteria.

Q168 Chair: Even though you have admitted that it was your failings that led to the problem arising in the first place.

Mark Mathieson: I think what we said was that we are disappointed with the performance of Islay for a number of different reasons. That is why we recognised it and doubled that compensation against the backdrop that we are exempt in relation to compensation in this area. That is something on which we have gone above and beyond.

Q169 Pamela Nash: I appreciate that you do not cover my area, but £150 is not a lot to a family. It might be just to cover lost food in a freezer, but I put to you that if we are talking about individual claims, sometimes it can be of considerably higher expense than that. For instance, I have a constituent who lost a tank of tropical fish. That has great emotional attachment but also great expense, which I expect is much more than £150.

Mark Mathieson: We completely understand that, but we are investing in our networks in relation to those plans, the money that we get and what we charge customers. £100 a year is the money that we get to invest and operate that network. Against that backdrop, that compensation is fair. If we are talking about a different system-for example, more resilience on our networks or more compensation-we are in a different ballgame as to what these networks will cost customers. That is the debate.

Q170 David Mowat: That is an important point. Because you are regulated, presumably the compensation just goes back into higher prices in the next settlement, or does it affect your shareholders?

Mark Mathieson: It affects us. It comes off our revenue.

Q171 David Mowat: So it does not go into the regulatory settlement?

Mark Mathieson: No.

Q172 David Mowat: So it reduces the margin that Ofgem gives you in compensation?

Mark Mathieson: Yes.

Q173 Chair: To pursue that, is it right that it is SSE power division that is paying that compensation? Is that correct?

Mark Mathieson: Yes.

Q174 Chair: Presumably, you then charge the company that is selling the electricity to the customer. How is your charge to that company worked out?

Mark Mathieson: It is worked out on a unit basis. So it is all based on the number of units that the customer uses. It does not matter who the supplier is on my patch. If its customers use a set number of units, the supplier will pay me that tariff.

Q175 Chair: But how do you work out the tariff?

Mark Mathieson: We have our income set on a five-year basis by Ofgem. That shows the very high level. We split that over the number of units.

Q176 Chair: That is set by Ofgem. So if you pay out more compensation, what you are saying is that it is you that takes the loss.

Mark Mathieson: Yes.

Q177 Chair: If you do more work on the network and spend more on refurbishment, it is you that carries the loss.

Mark Mathieson: We carry that as well, yes.

Q178 Chair: So there is no incentive on you to maintain your network.

Mark Mathieson: I think there is, because if you look on the other side, there are output measures and we can be penalised at the end of the price control review if we do not carry out the work we say we will carry out.

Q179 Chair: But how do you measure refurbishing the network?

Mark Mathieson: It is measured and it is quite detailed. How much work we have actually done is looked at in terms of the health of the network, what we have done and how we have maintained it. The other thing I would say is that these networks have been invested in well. The investment story is a good one. Investment has gone up and will go up again.

Q180 Chair: As you are aware, even in the good weather, there have been failings in Islay. Do you get penalised by Ofgem for those failings?

Mark Mathieson: We get penalised overall-not on Islay or an area specifically.

Q181 Chair: Every time the power fails somewhere, do you get penalised?

Mark Mathieson: No.

Q182 Chair: So how is the level of the penalty worked out?

Mark Mathieson: We are set targets in terms of our supply interruptions or supply quality. If we fall below that target, we will be penalised. SSE has a good record. Hydroelectric has got a very good record.

Q183 Chair: You are saying that you have met the targets over the whole network.

Mark Mathieson: Over the whole network.

Q184 Chair: So the formula does not take into account the fact that one particular community has suffered a large number of interruptions.

Mark Mathieson: It just takes into account overall. But obviously if you are ignoring parts of your network and just investing in others, that impacts you overall. So you have to get the right investment over all your network.

Q185 Jim McGovern: I think everyone would agree that there is a difference between compensation and reimbursement. I could give you an example. I have a flat here in London. If you open the fridge on any given day, you would probably find a pint of milk and maybe a tub of butter and that would be about it. But I would get the same compensation as someone living in Islay who had one of those deep trunk freezers with perhaps £400 of food in it. You would not reimburse the person who had lost the £400-worth of food.

Mark Mathieson: In that scenario we put customers towards their own insurance companies.

Q186 Chair: For a small business that could be an awful lot of money.

Mark Mathieson: I come back to the point of what we are running here. We are keeping networks at prices that customers can afford. It is for an average customer £100 a year. If we are talking about more resilient networks and high levels of compensation, those have to be paid for.

Q187 Jim McGovern: So is the company struggling to such an extent it cannot reimburse? What were the profits last year, for example?

Mark Mathieson: These businesses are regulated networks and the profit is regulated. The profit in hydroelectric was £64 million for this network.

Q188 Chair: What does that mean to a shareholder in terms of return on investment?

Mark Mathieson: A return is set by the regulator that works out at 4%.

Chair: So your shareholders get 4% return.

Q189 Jim McGovern: So your clients have no valid claim for losing more than £400 of food.

Mark Mathieson: We refer them to their insurer for that.

Q190 Mr McKenzie: In the market, probably £150 is an average family’s weekly spend in a shop. Is that the sort of scenario you are talking about recompensing?

Frank Mitchell: May I, from a ScottishPower point of view, add our approach to this? We want to focus on the customers who are most impacted, and they are vulnerable customers. While we have guidelines that are good and balance the overall propensity that people think is right in this area. They have been reviewed and will be continually reviewed for the next price review, I am sure.

We tend to focus on the customers worst affected, so that is why we tend to look at accommodation and hot food and giving people access to restaurants for those worst affected. For our vulnerable customers we set no limit. We look at what is reasonable for our vulnerable customers, giving the care they might need during that period, and we do that on a case-by-case basis. We don’t set a limit. Now they are over and above any criteria set. We tend to focus our approach to those worst affected and our vulnerable customers. That is where we think the priority is to address.

As we have just discussed, part of the issue we see is the variety of consequential damage between fish, somebody who has a pint of milk and somebody who has a loaded freezer. It is difficult for us to understand and grapple with to carry that risk. That is why people need to make those decisions about what the consequence of no energy is for them, and whether it worth covering that on house insurance. We are not equipped to grapple with that huge variety from a consequential loss point of view.

Q191 Jim McGovern: Your organisation does not operate a one-size-fits-all policy, whereas Mr Mathieson’s organisation does seek to.

Frank Mitchell: Let me be clear. We work with the guaranteed standard payments for storms in category 2, but over and above that we offer accommodation, hot food for customers worst affected, and we deal with vulnerable customers on a case-by-case basis. We don’t have any set rules. We look for those vulnerable customers to see what we need to give them the care they need through the duration of the outage.

Q192 Chair: We need to be wrapping up. One point finally for Scottish and Southern Energy. We have discussed the aftermath of the storm, but as you know and as we have in evidence, on Islay the power cuts come even on sunny days. You were aware that that line needed refurbishment. You did not do it last year as originally promised. Can you tell me at what level in the company that decision was taken?

Alan Broadbent: It was at operational level. We have a 12-year cycle of refurbishing the lines in the north of Scotland, which has been very successful over the past 12 years.

Q193 Chair: You knew that the line needed refurbishment; you promised to do it; you didn’t do it. Who took that decision and why?

Alan Broadbent: It was tactical, as I say. It was in that programmes team that does the refurbishment of the lines. It was partly to do with the resources they actually had to do it and partly to do with the fact that something else came up that was more important.

Q194 Chair: What else came up?

Alan Broadbent: Can I just say that the average fault rate-

Q195 Chair: I asked a question: what else came up?

Alan Broadbent: I couldn’t tell you specifically.

Q196 Chair: Could you write to us and tell us?

Alan Broadbent: I would have to get back to you on that.

Q197 Chair: What improvements have you made in your procedures to ensure that a situation like this does not happen again, where the lights go off regularly on sunny days?

Alan Broadbent: In terms of Islay we have a number of things in place, not least the new submarine cable. We will probably have spent £10 million on submarine cables to Islay. A lot of tree cutting is being done at the moment on Jura and on the mainland. We are doing a lot of refurbishment on those lines as we speak. We are planning to put in underground cable, despite what Mark said earlier, but it is not to replace the overhead lines. It is to split the network in two because the particular feeder that you are talking about is 120 km long. We find that if we can put in a cable about 13 km long we can split it in two and halve the effect on each side of that. That has a big effect.

Q198 Chair: And specifically on the line that goes to Portnahaven and Port Wemyss.

Alan Broadbent: That is the one I am talking about. That is 130 km long.

We operate an on-average approach. As you are well aware, on average, some people will be worse off and some will be better off. We aim to have everybody coming towards that average. Unfortunately, in the case of Islay, they were well above that average. We are doing what we can at the moment to bring them down to what is an acceptable level of performance.

Chair: Unless there are any other burning questions, thank you all very much for coming. I apologise again for the late start and even later finish. We appreciate very much you coming.

Examination of Witnesses

Witnesses: Rachel Fletcher, Acting Senior Partner, Smarter Grids and Governance: Distribution, Ofgem, Hannah Nixon, Acting Senior Partner, Transmission, Ofgem, and Jeremy Sainsbury, Chairman, Scottish Renewables, gave evidence.

Q199 Chair: Thank you all very much for coming, and may I apologise for the long delay? It has just been one of those days where there is one thing after another, but we very much appreciate you coming. Perhaps you could start off by introducing yourselves. I will start from the left again with Mr Sainsbury.

Jeremy Sainsbury: I am Jeremy Sainsbury, chairman of the Scottish Renewables forum.

Hannah Nixon: Hannah Nixon, senior partner for transmission at Ofgem.

Rachel Fletcher: Rachel Fletcher, senior partner for distribution at Ofgem.

Chair: Thank you. David, you wanted to start off.

Q200 David Mowat: Thank you, Chairman. My question is for Mr Sainsbury, and it is in respect of your written evidence, in which you talk about the implications for the grid of a strategy that is based more on renewables than it has been in the past. Could you just outline what you see that as being?

Jeremy Sainsbury: Renewables are usually located in areas that are away from population, whereas the normal central grid has been built and developed over a very centralised network around population, which means that the investment that is being done for renewables should assist the grid in being a firmer and better supply for consumers in the future as a result of that renewable investment.

Q201 David Mowat: That is because, you are saying, the work you would have to do anyway for the renewables will as a consequence mean the grid is better.

Jeremy Sainsbury: Yes. It brings the high-voltage network closer to the end consumer and the low-voltage side. The last round of major investment was the large coal-fired power stations, the large gas-fired power stations and nuclear, based around the central belt of Scotland. What we are now doing is developing projects out in the rural areas.

Q202 David Mowat: I understand that. Is there an implied subsidy in respect of that?

Jeremy Sainsbury: No.

Q203 David Mowat: If the coal and the nuclear are placed where the people are, the transmission issue is less. If the wind is in Orkney, the Hebrides or wherever, and you have to take that power back to Glasgow, are the costs associated with that in the feed-in tariff?

Jeremy Sainsbury: The transmission network use of system charge reflects the cost of where you locate your generation.

Q204 David Mowat: You pay extra for that anyway, so there is no subsidy. Is it an additional cost to renewables, then?

Jeremy Sainsbury: Correct.

Q205 David Mowat: So a renewables contractor, if you like, would have to take that into account when deciding where to locate its renewable?

Jeremy Sainsbury: Yes.

Q206 David Mowat: He would have to pay the distribution companies more for that?

Jeremy Sainsbury: Distribution and transmission, yes.

Q207 David Mowat: How big a disincentive for renewables is that payment?

Jeremy Sainsbury: It can be considerable. At the moment, before the revision of the model-the model is being revised at the moment-the costs in the north of Scotland are some £22 per kilowatt per annum, compared with a southern generator that may be compensated £5, so there could be a £27 differential between what a northern generator and what a southern generator pays to access the transmission network. That is per kilowatt per annum, so for a typical wind farm with a 2 MW machine we are talking about £27,000 per MW, £54,000 per annum, difference in what it costs for that generator to be connected in the north of Scotland compared with the south of England.

Q208 David Mowat: The question in my mind, to which you may not have the answer, is whether, when you see comparisons of the costing of different types of renewable, they take account of the transmission costs.

Jeremy Sainsbury: No, the renewables obligation is blind. Effectively, the developer has to take the view that he can afford the grid quotation given to him by the distribution network operator and the annual fees and that he can still make a return on that investment. If he does not, he won’t do the project.

Q209 David Mowat: One of the issues that has come up is that, as you put more electrical switching equipment to more remote places, it is more vulnerable to wind, rain and the elements generally in terms of maintenance and all the rest of it. Is that an issue that has yet to unravel, or am I wrong?

Jeremy Sainsbury: If you are putting more robust network out there, which is what is happening, it cannot be anything but good for network security and stability.

Q210 David Mowat: So that isn’t an issue as far as you are concerned?

Jeremy Sainsbury:The type of equipment you install makes a difference to the longevity of the overall system, but that is largely down to the network operator and the generator working together to decide what needs to be done.

Q211 David Mowat: This is my last question on this theme. These power places do not directly benefit nearby communities because the power has to come into the network to be balanced; it can’t just be, as it were, given to them because of its intermittent nature, I guess.

Jeremy Sainsbury: It depends on the generator. Obviously, renewables take several forms.

Q212 David Mowat: I am thinking of wind.

Jeremy Sainsbury: If it is an onshore wind farm, most of those that are installed are not synchronous machines-in other words, if the main grid is cut off, they can no longer operate. They need the main grid to hold their frequency and to be a stable power producer.

Q213 David Mowat: That is why they have to be switched off sometimes.

Jeremy Sainsbury: Correct. That would be a reason. There is no black start facility, as it is known. Having said that, a wind generator can be facilitated to be a black start. It can be a synchronous machine, and it could run islanded, as they call it-in this case literally, potentially. So it is not something that it can’t do; it just costs more for that to be done. Generally, the grid has not required it of wind generators to date, so they remain induction machines, as they are called-in other words, they need to be induced by a live grid to go online.

Q214 David Mowat: So the stories that we hear of the payments that have been made when wind farms are switched off and all the rest of it are due to bottlenecks on the transmission grid, which is what would need to be fixed to prevent it happening?

Jeremy Sainsbury: Yes. To allow renewables to come on, because there has been relatively slow investment in the main grid network to transport the power, Ofgem, the Government and DECC have decided to allow something that they call "connect and manage". That means that you can connect projects when you know grid is coming but has not yet arrived. That enables a relatively efficient set of investments, because when you are trying to connect, say, 100 projects to a new piece of grid, if you wait until the grid comes along, you cannot suddenly build those projects; it is sitting there and waiting around for a while. We have a system in which some of those projects connect beforehand, because the grid itself only needs to be constrained in extreme circumstances, so constraints should not be terribly regular items. Once the grid comes along, that entirely secure system is in place.

Connect and manage means that when you get very high wind speeds-in this instance, the grid was a lot less available than it would normally be, there was a lot less capacity-a number of generators were constrained, which was completely out with what you would call the normal operating parameters. They were constrained even though the wind speeds were high, and they would normally have been generating high output.

Q215 David Mowat: Just to be clear about your first answer, if an island community gets a wind farm near to it, a by-product benefit is that it will have a more resilient network, because the wind farm will require a more resilient network. That will work for that community utilising the grid as well.

Jeremy Sainsbury: It should do. It certainly gives that opportunity.

Q216 Chair: Turning to Ofgem, could you tell us what key performance indicators you use when assessing the performance of the distribution companies?

Rachel Fletcher: There is quite a large number of them. At the moment, as has already been alluded to, we have the interruptions incentive in place. As part of that, we are measuring customer interruptions and customer minutes lost annually. Those data drive the incentive mechanisms that were discussed in the previous session.

Q217 Chair: How are those data collected?

Rachel Fletcher: We get the data from the companies themselves.

Q218 Chair: I have heard cases of customers having disputed the company’s data. Is there any way of resolving that?

Rachel Fletcher: We have the right to audit the data and we do that. In past years, we have worked consistently with the companies to point out issues with their systems and discrepancies between our audit and the figures they give us. That has led to a steady improvement in the reporting of customer interruptions and minutes lost.

Q219 Chair: Can you give us a figure? How would your formula translate into, say, the number of minutes that an average consumer could expect to lose power for in any one year?

Rachel Fletcher: Yes. We have various targets in place; these are set for each company based on historical performance, but also on industry performance. Those with historically poor levels of service are not allowed to continue at those levels. Sorry, I am just looking for my figures for targets rather than performance.

Q220 Chair: You can send them to us.

Rachel Fletcher: I am very happy to do that. That is only one of the key performance indicators. We also have indicators around how quickly and effectively companies manage customer calls to them. Again, as the last session showed, there can be times when there are very high volumes of customers calling in to a distribution company, and it is obviously very important that customers get a swift service. We have key performance indicators for how quickly companies respond in that service, as well as overall customer satisfaction with how calls are handled.

Q221 Chair: Are companies fined? How do you enforce performance indicators?

Rachel Fletcher: It is all set out as part of the price control settlement process. As part of the contract that we have with the companies, they agree to their targets and to the penalty or reward rates. It is then a question of turning the handle with the data that we receive every year to calculate the penalty or reward that the company is due. That then gets automatically deducted from the revenues that they are allowed by Ofgem to recover from customers, so customers in areas that have had a poorly performing distribution company will have some degree of recompense for that through having overall lower bills than they would have had.

Q222 Chair: But that would operate over the whole company’s area. It would not necessarily lead to direct compensation to any area that was affected.

Rachel Fletcher: Absolutely. That is where the guaranteed standards come in, so the interruptions incentive and the telephony incentive, as I have mentioned, are overall, area-wide incentive schemes. The guaranteed standards are the guarantee to each and every customer on the network, and that is where the penalties come in for interruptions that breach certain limits.

Q223 Chair: Are there exclusions for the companies for bad weather events?

Rachel Fletcher: Yes. If there has been severe weather, they can put a claim in to us. They can set out their view of how that should impact both the interruption incentive scheme and any liabilities they have under guaranteed standards.

Q224 Chair: Are the rules different in different parts of the country?

Rachel Fletcher: The rules differ in the Highlands and Islands to the extent that Hydro does not have any obligations to pay guaranteed standards when there is a severe weather event.

Q225 Chair: Why is the Highlands and Islands different?

Rachel Fletcher: It has always been seen as a special case because of the difficulty of restoring customers over such a sparsely populated part of the country, but it is a part of the guaranteed standards on which we are always asking people for their views and keeping them under review. The last time we consulted on the guaranteed standards, we actually brought in new arrangements to give more protection for customers in Highlands and Islands than they had had historically.

Q226 Chair: When will the next consultation and review be?

Rachel Fletcher: As part of the next price control review, which we actually just started this week, we will be consulting again. Indeed, that will be an opportunity not just to look at the treatment of Highlands and Islands, but to revisit issues that have been mentioned today about the level of compensation to customers whose supply is interrupted for long periods of time.

Q227 Chair: It seems obvious that if cables are corroded and have not been maintained properly, the time that they will blow down will be during a bad weather event. Does the bad weather exclusion not simply allow companies to evade their responsibilities?

Rachel Fletcher: If there really had been a failure to look after the network, we would be seeing evidence outside severe weather events. There are all sorts of weather events-

Q228 Chair: We all know that if we do not maintain our house, it is during the storm that the damage happens. It does not happen on a nice sunny day. Does the bad weather exclusion not allow the company to evade responsibility?

Rachel Fletcher: We are monitoring their interruptions every day of every year, regardless of the weather, and we have other output measures, which have been alluded to. Every asset on their network is accorded a health indicator, which is also being monitored and reported on.

Q229 Chair: How is that monitored?

Rachel Fletcher: That is monitored through the companies submitting information to us about the condition of their assets.

Q230 Chair: How often do they have to inspect their distribution network?

Rachel Fletcher: There are no specific requirements for frequency of inspection that we place on them, but there are very detailed arrangements in place about how they will allocate a health indicator to each of their assets on their networks.

Q231 Chair: To give an example, we heard Scottish and Southern apologising earlier for failings on Islay. Was the state of that network ever reported to you?

Rachel Fletcher: No, to my knowledge we had not received any concerns or complaints from customers on that part of the network until just after the storms.

Q232 Chair: Are you relying on customers to report it to you, or is there any responsibility on the power network to report the state of the network?

Rachel Fletcher: They will report from the current price control, which started in April 2010. We have just had the first year’s information under the new arrangements. That is when the company reports to us on its view of the health of all of its assets.

Q233 Chair: So the Islay situation should be included in this next report.

Rachel Fletcher: The situation of all of its assets is in the report we received from it a couple of months ago. It will not necessarily single out and show you what the condition is in any particular area of the network. It will be more about what percentage of a particular category of asset is in good health or is getting to the point where it needs to be replaced.

Q234 Chair: Do you think it would be a good idea that as well as giving a percentage of the assets, you should be asking them to say where the assets that need repair are?

Rachel Fletcher: We are always looking at how we ask the companies to present data to us and we are always thinking about how we can present that data back to interested parties. We will certainly take away and consider whether in the reporting on asset health we could build up more of a geographic picture, which might be of interest to stakeholders.

Q235 Chair: How do you incentivise the companies to spend money wisely? Am I right in saying that they agree with you that the amount of money that they will spend-sorry, can you maybe explain how the system works in terms of investment?

Rachel Fletcher: We agree a baseline with the companies of allowed revenues that they can have over the price control period.

Q236 Chair: And that money comes from where?

Rachel Fletcher: From the customers. It is through the distribution element.

Q237 Chair: And it is the customers in their particular area?

Rachel Fletcher: That is right. It is only in their area, with the exception, as was explained earlier, of hydro, where there is a degree of national subsidy. That aside, every customer is paying for the distribution network and its performance in their area only.

Q238 Chair: In these discussions, how do you reach a decision on how much should be spent?

Rachel Fletcher: It is a combination of things, but one is that we have our own engineering and other expertise looking at the plans that the companies have for their assets and trying to get a view on the extent to which those plans stack up and seem appropriate, given the information that we have about how the network is performing. We also do benchmarking analysis and we are fortunate enough at the moment to have six different owners of distribution networks around Great Britain, which affords us an opportunity to compare the costs and the plans that the different companies are making.

Another very important part of what we do involves stakeholder consultation and understanding the extent to which the companies have engaged with stakeholders, including local communities, about what they would like and what improvements and issues that want to see addressed. If you like, one of the checks and balances in our process is the role of stakeholders. We need to ensure that the company’s plans are properly responding to stakeholder interests and are taking those into account.

Q239 Chair: On the compensation issue, we heard earlier that fixed amounts are paid according to the length of time that the customer has been without electricity, but, to use Jim’s phrase, "no restitution" is paid to people or businesses that lose stock in a freezer, for example. If a customer complains that a power company was not maintaining their particular distribution network properly, even after it had been reported to the power company, do you have any powers to intervene and compel the power company to carry out specific repairs or to pay restitution to customers after the event?

Rachel Fletcher: We do not have powers to ask them to undertake a specific piece of work. I think that if we felt that there had been a really serious failing in the responsibilities of the network companies to provide a well-functioning network, which is a very strong and important obligation on them, if we felt that there were such serious failings, we might look to take enforcement action against the company or, in extremis, even to consider stripping it of its licence. We have got some very strong and effective powers if there were a serious indication that the company was not fulfilling its overall legal responsibilities.

Q240 Chair: If the consumers in a particular geographic area-a small area within a company’s network-felt that their particular area was not getting the proper attention that it deserved, and if they complained to you, you do have powers to investigate.

Rachel Fletcher: We do. Our course of action, first up, is likely to be to try and convene a meeting between the network company and the community, with ourselves there. There are numerous examples of us doing so.

Chair: Thanks. I think that was all my questions. Jim?

Q241 Jim McGovern: I have a couple of questions.

According to your own data, Scottish and Southern Energy and Hydro each achieved its target on customer interruptions and customer minutes lost during the period 2005 to 2009. We as a Committee have received evidence that seems to suggest a significant increase in interruptions in Islay in particular in the past 18 months. Do you have more up-to-date figures that either contradict or bear that out?

Rachel Fletcher: The figures for 2010-11 actually show that Hydro failed to meet its target for interruptions. Indeed, it was penalised under the interruptions scheme in that particular year, so there is some link with the kind of anecdotal evidence that you are referring to. I am afraid that I cannot tell you whether what has driven the dip in their performance in 2010-11 is due to Islay or to something else, but there is something there.

Q242 Jim McGovern: When you say it has been penalised, what was the penalty?

Rachel Fletcher: The automatic penalty for failing that target last year was £400,000.

Q243 Jim McGovern: As an aside, I have to agree with the Chair that the fact that the Highlands and Islands are exempt-and to say that it is historical and has always been that way-is not really acceptable. I would think that because the region is exempt probably means that it gets a less efficient service than it deserves. Do you have a comment on that?

Rachel Fletcher: As I said, we did consult on this in 2009, and that is why we looked to put guaranteed standards in place for Highlands and Islands. But at that time, the consultation that we ran and the analysis we did suggested that it was not appropriate to introduce guaranteed standards for Highlands and Islands during exceptional weather events. However, as I said, that is something that we will continue to keep under review.

Q244 Jim McGovern: Do you know if community councils disagree with you? Obviously, I think, the local MP would disagree with you. When you said that there was a consultation and it was felt that it was inappropriate, how was that decision reached?

Rachel Fletcher: A range of factors, but including quite a lot on willingness to pay-work that we undertook during the last price control review. This is a factor that we have to take into account. Clearly, putting in place higher standards will impact on the overall cost to customers, and that is something we have to continue to balance.

Q245 Jim McGovern: Presumably, that cost would be spread throughout Scotland.

Rachel Fletcher: It would be spread throughout the Hydro region.

Q246 Jim McGovern: Would it not mean that people on islands were paying more than people on the mainland?

Rachel Fletcher: No, it would be spread across Hydro.

Hannah Nixon: Picking up on your consumer engagement point, it is worth saying that we have put in place a new regulatory framework going forward, which places much more emphasis on stakeholder engagement, particularly by the network companies. All the network companies that have rolled this out for transmission and for gas distribution already are expected to engage fully with all their stakeholders to really understand what their consumers want. That is something we would expect the electricity distribution companies to pick up.

Q247 Jim McGovern: Thank you. In your most recent performance reports, what are the most notable achievements and failings for Scottish and Southern, and for ScottishPower?

Rachel Fletcher: That is something we will have to get back to you on. We are actually just looking at all the data for 2010-11 and compiling that. I have already alluded to the penalty and the failing under the interruptions incentive for Scottish Hydro, which I would be surprised-it would not occur as a notable deviation from what we have seen in the past. In terms of achievements, however, I am not yet in a position to comment on that.

Q248Jim McGovern: But you can forward that information to the Committee.

Rachel Fletcher: Absolutely, yes. We can do that.

Q249 Jim McGovern: Thank you. The other question was about incentives and disincentives, but I think that has been explored and you have probably answered it quite comprehensively. Lastly, do you believe that you have the necessary powers to ensure a high-quality service to all UK citizens?

Rachel Fletcher: Yes, I think we have the necessary powers to do that. We have reviewed, and continue to review, the way we use those powers in terms of setting the incentives and allowed revenue limits, but it is something we need to continue to keep under review.

Q250 Jim McGovern: So, you don’t think you need more powers to address localised problems.

Rachel Fletcher: I do not think we need more powers in that respect.

Q251 Chair: On that point, we heard evidence earlier from SSE that they were aware the grid on Islay needed refurbishment, but internally, they decided to give a priority elsewhere. We do not know where yet, but they are obviously going to write and tell us. Do these decisions by SSE ever become available to you or is that just a decision taken internally? Would you be aware that these decisions were being taken?

Rachel Fletcher: No, it would be unusual for us to be aware of very detailed decisions. What we do have visibility of, however, is the extent to which their planned expenditure is deviating from actual expenditure, and sometimes that might be down to a change in priorities over an investment scheme. It would then come to our attention that they might have deprioritised a large piece of work and reprioritised something else.

Q252 Chair: How do you ensure that consumers are getting value for money? Here, we have a monopoly that spends an agreed amount of money then passes it on to the customer. How do you ensure that they are delivering value for money?

Rachel Fletcher: This is really what the KPIs-or output measures, as we call them-are all about. It is about agreeing up-front with the company what outputs they are going to achieve for customers, in return for the amount of money they are allowed to recover from customers. It is then about reporting and getting data, so that we understand how they are measuring up against the output measures that they have agreed.

Q253 Chair: Are those agreements and outcomes in the public domain?

Rachel Fletcher: They absolutely are, yes.

Q254 Chair: Would they be on your website?

Rachel Fletcher: Yes. Our website itself could do with a bit of upgrading, so we would be happy to point you in the right direction.

Q255 Mr McKenzie: On the subject of data presentation by companies to yourselves, when they present that data to you and there is a clearly identified dip in performance, are they required to also identify why that dip in performance has taken place? Do you stipulate that they must, under continuous improvement, have a plan to see how they are going to overcome that in the coming year?

Rachel Fletcher: We visit the companies every year. Once we have their data submissions, teams from Ofgem spend sometimes several days with each of the companies going through those data submissions and getting a richer understanding of the underlying factors. That would be the point at which we begin to understand why performance might have dipped or fallen short of what was expected. That is how we engage with the companies on these things.

Q256 Mr McKenzie: Is the effect of the performance dip, which must be seen here, that it would be clearly identified to you what the outcome was?

Rachel Fletcher: That is a conversation that we would look to have with the company. There are all sorts of reasons why they may fail to meet their target.

Q257 Mr McKenzie: You would not come to that conclusion on your own; you would need to sit down with the company.

Rachel Fletcher: We may draw some of our own preliminary conclusions, looking at their data submission, but yes, then we would have more of a conversation with the company. It would be the nature of the failing or the dip which would determine whether we felt we would want to intervene and start requiring some kind of improvement plan. Where a company has fallen short of a target and is being penalised, I would like to think that the CEO of that company has a very strong incentive to be taking measures into his or her own hands and to ensure that their performance is improved.

It is another benefit of publicly reporting on performance that companies obviously take quite a lot of pride in coming top of our league tables or looking good across a range of performance indicators. I would like to think that our having to step in and require remedial action from the companies would be very far down the list of things that would be happening as a result of that kind of dip.

Q258 Chair: Given that 3 January will almost certainly be determined to be a severe weather event, and I presume the same for 6 December, are you then saying that none of the power cuts-the four-day power cuts-that happened will be recorded as a black mark against SSE, because they will claim severe weather event.

Rachel Fletcher: We know that they will claim severe weather event for those periods. We need to look very carefully at their claim to make sure that it properly meets our criteria for severe weather. It is not a free ride for them to get out of the interruptions incentive mechanism. We will look very carefully at their claim.

Q259 Chair: I think it is probably fairly obvious that 3 January was a severe weather event. How do you then measure the performance of the robustness of the grid to cope with severe weather if it does not count?

Rachel Fletcher: There is longer-term trend information that we have, as has been referred to.

Q260 Chair: Am I right in saying that all you have is failings in good weather? You do not actually record failings in bad weather. In terms of penalties, it is only failings in good weather that count.

Rachel Fletcher: A severe weather event is actually more than a deviation from good weather, so we have lots of shades of grey in between, where the resilience of the network is being tested.

Q261 Chair: The Committee’s inquiry is into how robust the grid is and how able to cope with the weather we get. Obviously, with climate change, there may be more severe weather events. Do you have any statistic or mechanism for measuring that?

Rachel Fletcher: Yes. As I said, we are measuring a number of outputs from the networks, including the underlying health of their assets. Actually, in terms of giving confidence in whether the companies are doing the right thing, that is best leading indicator, better than interruptions, which in a sense could be a lagging indicator of how well the company is maintaining their assets.

Q262 Chair: Can you give some examples?

Rachel Fletcher: The example, I suppose, is that a company could switch off. It wouldn’t do this, but in an extreme example, if it were to switch off any investment in its networks, you may not see interruptions performance drop drastically for quite some time afterwards. So that is the reason we have put quite a lot of focus on asset health measures, which are a much more accurate reflection of the extent to which the company is being a good steward of those assets and properly maintaining and investing in the network.

We are also measuring faults as well and those measures are irrespective of storms. Again, those fault measures have been alluded to by the companies already this afternoon as being a good indicator, again, of what is happening on the network.

Hannah Nixon: It is also worth saying that even if the company made a severe weather claim and we agreed with that-so effectively those minutes lost come out of the target, we would still be able to look at the underlying asset health to determine whether it was failing its underlying duty to maintain an efficient and economic network. If we felt it was, either in part or in whole, we would still be able to take enforcement action under the licence. So we are not just relying on that carve-out for the severe weather.

Q263 Pamela Nash: I just want to take a bit further what the Chair was saying. Obviously, we can accept that this was a severe weather event, but it is the response to it that has concerned us to the point of having this inquiry.

In the Islands and in the central belt, also, my area, there were homes that did not have power for four days. If that is acceptable-what you said, Hannah, was welcome. I want to go away from here clear that this will be taken into account and looked at, and that it will not be swept under the carpet because this was the result of a severe weather event. We are not just talking about that day; we are talking about four days later.

Hannah Nixon: Absolutely. One of the important things in our investigation, when we get their claim, is how long after that event it is appropriate for us to be, if you like, taking out interruptions from the interruption incentive. That will be an important part of our work.

Q264 Mr McKenzie: In the evidence that we have taken from the islanders, they have said that the interruption to supply goes beyond the severe weather and that there are continual interruptions to supply-in fact, down to a weekly basis, almost.

Rachel Fletcher: That’s right. I read that as well in the submissions. Those interruptions should be being picked up in the interruptions reporting and in the interruptions incentive and, indeed, if those interruptions go beyond 18 hours, they should also be triggering claims under the Guaranteed Standards, as well.

Q265 Chair: What is troubling me is that, the purpose of the Committee’s inquiry was to try to find out what could be done to stop the power going out for four days, as it did in some places, after a storm, bearing in mind that we are likely to get more of these storms. Have you any comfort for us, in that things will get better and either the grid will be more robust so that we will not have the problem the next time there is a storm like the one on 3 January, or that the lights will go back on more quickly? Is there any comfort you can offer us that things will get better?

Rachel Fletcher: The trends do show that things have got better, so the suite of incentives, which we have had in place-the interruptions incentive has been in place for some time now-really is delivering sustained improvements in overall network performance. Although I do understand the disappointment around the level of compensation under Guaranteed Standards, I think it is really worth emphasising that if a company is paying out £100 or £200 under the Guaranteed Standards to a customer, that is wiping out the revenue that the company has received from that customer and provides, again, a very strong incentive on the companies to think carefully, not just about their overall performance but how good they are at dealing with every individual’s security of supply.

Hannah Nixon: The other two bits of comfort we can give here as well is that we are looking at this. As we said, if we are not convinced that the companies did everything they could or they are not demonstrating that they are operating economically and efficiently, we can enforce. The other bit of comfort we can give is that under the new price control arrangements for transmission, with the enhanced stakeholder engagement, I mentioned earlier, we have seen Scottish Hydro in its transmission role engage with consumers on the islands that are transmission connected. Now Islay is not one of those, and they recognise that some consumers in their areas are worse affected by these outages than others because of the radial nature of those connections. So they have themselves put in their own price control-additional compensation payments where consumers are off for more than six hours. That is an area where we see the stakeholder engagement on a local community basis really benefiting in terms of what the networks are able to offer in future.

Q266 Chair: Have I got this right? There is a severe weather event and that was one cause of the failure, but if that severe weather event blew down a tree that was next to a network and that tree should have been cleared, obviously the severe weather event was part of the cause, but inadequate tree maintenance was also part of the cause. If it is a severe weather event do you just write the whole thing off or do you ask more questions about what the other causes were? It was a strong wind therefore we had these problems: I hope you don’t just let them off at that and you will probe more deeply and check up on tree maintenance and so on.

Rachel Fletcher: Absolutely. It is obviously a big issue in this area. We have already opened discussions with Hydro in particular around the interactions between tree maintenance and what happened during the storms.

Q267 Chair: Will you produce a report into the aftermath of this storm?

Rachel Fletcher: We will produce a report on our assessment of their exceptional event claim, which will be publicly available.

Q268 Chair: How detailed with that be? If you agree that it was an exceptional event is that full stop or do you look into more detail as to individual incidents within that exceptional event such as, was it trees that should have been maintained and were not that caused the problem?

Rachel Fletcher: We will look at a range of factors. As I said, the underlying performance of the network will be one of them.

Q269 Chair: So how detailed will the report be?

Rachel Fletcher: I can give you more detail on that perhaps a bit later. We do this for every exceptional weather event; we have to assess it and produce a report.

Q270 Chair: Are they on the web?

Rachel Fletcher: Yes. We have not yet set out our own terms of reference for our review of those particular claims so the approach that we are going to take has not yet been fully worked up.

Q271 Chair: Okay. Any other questions? Is there anything else you wanted to add?

Rachel Fletcher: I would just like to underline one thing, which has not come up. The companies did not mention it either. Again, in recognition within Ofgem of the difficulties that more rural communities quite often have with their power supply, we have put money aside as part of the current price control settlements. Each of the two Scottish companies have around £3 million that they can spend, should they wish to, in improving the service of communities that receive a lower quality electricity supply.

Q272 Chair: Where does that £3 million come from?

Rachel Fletcher: That is from allowed revenues recovered from customers.

Q273 Chair: Is that from the whole UK?

Rachel Fletcher: No, only from customers in their own patch. They are not obliged to spend it but, equally if they don’t, they have to pass it back to customers. This is a first for us. It is a new scheme that we put in place last year. It is another scheme when we were particularly interested to hear from communities in worse-served areas whether the scheme was working and what improvements and enhancements to it might be appropriate in the next price control period.

Q274 Chair: One other question: there is going to be improvements in the transmission network because of the renewables in various parts of Scotland. You have agreed with the companies’ improvements in the transmission networks. While that work is being done, will it lead to improvements in the distribution network as well, or is it purely in the transmission network?

Rachel Fletcher: There certainly is scope. I have seen a scheme in Wales where transmission reinforcement and extension are actually being used to improve the quality of supply to distribution-connected customers. So there certainly is scope for that to happen, where the distribution companies and the transmission companies actually put their heads together and take a joined-up approach.

Chair: Thank you very much for coming in again. Apologies for running so late, but we very much appreciate your coming.

Prepared 13th February 2012