Where now for NIE's Power Procurement Business?

Electricity Regulator, Douglas McIldoon, today released a consultation paper seeking views on the future of NIE’s Power Procurement Business (PPB).

NIE’s Power Procurement Business was established at the time of privatisation of the electricity industry to carry out two functions. The larger function was to control the dispatch of power stations and to control the flow of electricity on to the wires.

The second function was to act as the sole purchaser of all electricity traded in Northern Ireland and the monopoly seller of all traded electricity. This function required the Power Procurement Business to be the counter-party to all the generator contracts agreed before NIE was itself floated as well as the Non Fossil Fuel Obligation contracts which DED (now DETI), has required NIE to sign since privatisation.

Commenting, Douglas McIldoon said that the PPB has played an important role in seeking to mitigate the damage done to customers by the overpriced generator contracts but he suggested that its role has been hampered by the ambiguity of its position, seeking both to serve the interests of customers and the commercial interests of NIE.

Referring to the impact of the EC’s Internal Market in Electricity directive he said:

“The IME Directive and the changing market provide new challenges and opportunities for the PPB. One option would be to allow it to wither away. That would be to miss the opportunity of developing the PPB as an instrument for driving - in the public interest - competitive pressure and technological efficiency into the market place. Since the PPB will be needed in some shape or form while the generator contracts last it would be wise to explore this option fully. The difficulties which have been experienced in the much larger market in England and Wales in creating a genuinely competitive market show that Northern Ireland would be foolish to discard any instrument which encourages real competition.

There are, however, questions which need to be addressed as to the longer term status and structure of the PPB and its relationship with the TSO and other industry players. “

Questions posed in the consultation paper include:

Should the PPB be tasked with stimulating the competitive market?

Should the PPB become independent or remain inside Viridian?
What incentives would be appropriate for the PPB?
Copies of the consultation paper “The Power Procurement Business – Its Functions and Future” are available from OFREG, Brookmount Buildings, 42 Fountain Street, Belfast, BT1 5EE, Tel. 02890 311575, fax. 02890 311740.

View Paper

Notes for Editors

The IME Directive required the liberalisation of the electricity market. Starting in 1999, 26% of customers had the right to choose their own supplier. This was to rise to 35% by 2003. Northern Ireland will however achieve 35% market opening by 1 April 2001, together with full liberalisation for renewables. With few large users this means customers with 680 Megawatt hours of annual demand will have access to the competitive market. The Directive, together with earlier rules liberalising trade in Combined Heat and Power plants (CHP) and renewables, broke the monopoly of the Power Procurement Manager.
The IME Directive also required the TSO part of the Power Procurement Business to become a separate entity and independent in management terms. With potentially many players in the energy market the TSO has to be both neutral and seen to be neutral in dealings with suppliers, generators and the T&D business.
The dispatch of electricity from power stations and the control of the flow of electricity on the wires will now be performed by the Transmission System Operator (TSO). This creates the opportunity to reassess how the other roles of the PPB should be carried out.
With market opening under the EC’s Internal Market in Electricity directive, the PPB remains the monopoly supplier to the “franchise” market – or smaller customer market. Over time the amount of capacity which the PPB has under contract with the power stations will fall. The conditions of these contracts may also be improved for customers in the event of further market opening.
While the PPB will retain the monopoly on electricity supply to the franchise market – it will increasingly find itself playing a new role – that of enabling competition to work in the eligible market. This should be a benefit to all consumers.
The actions of the PPB could be influential in setting electricity prices in the franchise and eligible markets and the company will be encouraged to play an active role in areas in which it has not been previously involved in order to make the opening of the market a success for all customers.
Because the PPB will remain a supplier of last resort, its price, the Bulk Supply Tariff (BST), will become the ceiling price at which suppliers in the eligible market will pay. Therefore the lower it sets the BST, the lower will be prices for all customers. The PPB is required to set the BST at the lowest level possible.
The PPB may also influence prices by publishing the levels of its spare capacity allowing Independent Power Producers (IPPs) to bid for its output and offsetting any more expensive generation. Also, If the PPB can sell output outside Northern Ireland the extra revenue attained can be used to lower the prices to Northern Ireland customers in the following year.

For further information or to arrange an interview with Douglas McIldoon, please contact Nick Carson on 02891 275965 or 07711 482807