Electricity Supplier Payments (Amendment) Regulations 2018

Lord Grantchester Excerpts

Tuesday 27th March 2018 Lords Chamber

[Lord Grantchester (Lab)]

I thank the Minister for his introduction to the order before your Lordships’ House today. He has set out the details very well, in that the order amends the rates for the operational costs levy for the next three financial years in the contract for difference regime and the rates for the settlement costs levy also for the next three financial years in the capacity market. These costs are borne by electricity suppliers who pass them on to their customers through their bills. These costs are levied to cover the operational and administrative charges borne by the CfD counterparty, the Low Carbon Contracts Company that operates the ESO regulations, and the Electricity Settlements Company that is responsible for the operation of the capacity market.

As the Minister said, these costs have previously been calculated on an annual basis. As both these operations have been successfully running for a few years and have become predictably regular, it makes sense to convert these from annual to three-year periods. The Minister is also correct to point out that both the capacity market and the CfDs have been a success in bringing forward reduced bids at the various auctions, resulting in lower costs to consumers. Against this, it must be acknowledged that both companies are now managing increased market complexity with a greatly increased number of participants that is reflected in the increased rates in the order today.

Discussions on the order in the other place focused on these costs, the not insignificant amount that is translated on to consumer bills and the enormous cost inflation—an increase of some 700% in the operational budgets of the ESC since 2014. Mercifully, we need not rehearse those discussions today. The Minister in the other place was able to clarify that, in the case of the ESC, the number of participants increased from 46 to 447, providing initially from 0.6 gigawatts of capacity to 55 gigawatts. It was interesting that, while operational costs as part of the whole scheme should reduce from 1.6% last year to 0.6% in 2020, this is against a forecast of a fall in gross electricity demand of some 2% over the same period, meaning levy rates increase. I hope that all that makes sense to the uninitiated.

What was not discussed in the other place was that, in relation to the LCCC in the CfD market, the budgetary increase was principally due to the inclusion of a provision set aside for disputes. Paragraph 8.4 of the Explanatory Memorandum explains that the Government will keep this contingency under review but that the LCCC must have sufficient funds to defend a dispute.

My questions to the Minister revolve around disputes. What do these disputes tend to be about; what have been the past costs in the operation of the CfDs; and has any dispute resulted in a court case and, where appropriate, involved the recovery of losses, with costs being borne by the loser? These points have not been explained—perhaps the Minister could explain them now. I phoned the department this morning and I am very grateful to Fiona Reynolds for discussing the issue with me; I trust she has been able to advise the Minister. Finally, are these disputes to be categorised more as queries, challenges or appeals against decisions, and what has been the experience from past years, such that a regularity can now be transposed into a budgetary contingency? While the order can be approved today, this would be interesting to understand.

[Baroness Featherstone (LD)]

My Lords, capacity markets and contracts for difference have been a roaring success and came in during the coalition years when Ed Davey was Secretary of State—we would expect no less. The regulations will pass today, but it is absolutely right to question any rise in cost, particularly when a small proportion of it is passed on to the consumer. It is always important to keep an eye on costs and particularly when renewing a contract with an entity that is effectively the sole supplier in the field, thus making competition on pricing an impossibility—there is no one competing, so they get more.

Having read the debate in the other place, the rationale given for the steep rise in costs to the Low Carbon Contracts Company and the Electricity Settlements Company since commencement, is basically the expansion of the number of providers, as the noble Lord, Lord Grantchester, mentioned, from 46 to 447—which, of course, is a good thing—as well as the need to cover disputes. I too am very interested in the information on exactly what those disputes are and look forward to reading that in due course. We need to remain vigilant that all costs are properly scrutinised.

I could not help but note that the Minister in another place, Claire Perry, in order to assuage any concerns over the creeping inflation of costs beyond what they should be, said:

“I am always keen to run the calculator over these companies’ calculations. As the Minister ultimately responsible, I will continue to do so”.—[Official Report, Commons, Delegated Legislation Committee, 19/3/18; col. 8.]


I am impressed with the Minister’s personal intervention in this mission and trust that her background in banking and finance mean that her use of a calculator is unimpeachable—but I hope there are some accountants keeping an eye on this too. I simply wish to reiterate that companies in receipt of large sums of public money need strict monitoring. On the basis that this will happen, I am content that the regulations should pass.