And the nominations (one) for running everything are…

We’re going to get two days for the Report stage of the Energy Bill, apparently; and then the third reading in the Commons will be after the new Parliament – hence the design of the Energy Bill as a carry-over measure.  Rather running up against time, one might think for all the new measures and machinery to be winched into place, especially since the measure has to make its way through the Lords and back to the Commons in the new session.

But there are some things we should perhaps not worry about in terms of timing, because they have been decided upon already. It will, yes, be difficult to get the timing right for the run in from Renewable Obligation to Contracts for Difference for low carbon; and for higher carbon generation, difficult to sort out how and how quickly the capacity payment auctions will take place and with what amount of funding support. And, of course, there may be decapacity payments to consider, if the promised amendments to the Bill on demand-side reduction do indeed materialise during report stage.

We will, no doubt concentrate, as most report stages in bills do, on the big ticket issues, like in this case demand reduction, and decarbonisation targets, and perhaps emissions performance standards.  But some things, I should think will not occupy much ink on amendment books at that point because – well, as I have said, they’ve been decided upon already.  Much of the structure of the new arrangements for electricity markets is just there already and whether we think it ought to be or not will simply not be debated by Parliament. Like what, I hear you ask? Well, one such pre-decision is about who is going to run all this that we will be debating at third reading. Who is going to manage all these CFDs, payments in and payments out? Who is going to structure and manage capacity auctions and ensure that those who win get paid?

This rather important part of the whole thing has already been decided upon, without coming anywhere near the Energy Bill. It will be the National Grid. You may have missed this decision, since it was -er -just announced some time ago, and whenever the Bill mentions ‘the system operator’ what it means is the National Grid. I must say, that since it seems de rigueur to have a tendering system in place for everything,  and indeed, for the Energy Act itself to prescribe auctioning as a sure way of getting value for the CfDs and capacity payments we are giving out, for the body prospectively running it all  to just emerge upon the scene seems a bit perverse, but there you are: this is how it is to be done.

Now you might say to yourself, but wait a minute, isn’t the National Grid a company, with shareholders, annual reports, profits to be made, businesses to expand and so on, not wholly without interest in the proceedings it will preside over? Say, for example (as we are promised) interconnectors become eligible for capacity payments. Wouldn’t a company with a 50% stake in one of the country’s most important interconnectors have a bit of an interest in what happens at that point? Or perhaps what happens on demand side response and reduction when it has a substantial interest in smart meter manufacture and installation? I don’t know the answer to these questions, except to say that the Government has assured everyone that the National Grid will have some jolly good ‘Chinese walls’ set up to prevent any kind of inappropriateness developing. We’re not sure, mind you, just how National Grid will get paid for their work in being ‘the system operator’. The present suggestion, rehearsed briefly in the Bill’s committee stage, is that National Grid will get perhaps an overall fee for doing the work.  If they can gain additional profit from doing the work more cheaply than estimated, then good for them: they keep the fee. No temptation to breach those Chinese walls in pursuit of that happy outcome, because of course they will be jolly strong, let’s be clear. You might think that, at least a company embarking on such a crucial endeavour, and one that will demand the utmost rigour and fairness in its execution might be required to divest itself of interests where there might be a perceived or actual conflict of interest arising. To do that wouldn’t affect overseas operations (such as National Grids extensive US interests) but no: that won’t be necessary because …well, see above about Chinese walls.

Now I’m not being quite fair about the linkage to the Energy Bill the decision about who is going to run most of its provisions has. The Government has introduced some clauses in the final version of the Bill (chapter five) which gives the Secretary of State the power to award the system operator sobriquet to someone or something else if he decides that ‘it appears…that the national system operator has been failing to carry out its EMR functions in an efficient and effective manner.’ If this is what the Secretary of State thinks, then he may give National Grid (oops, sorry, ‘the system operator’) six months notice subject to consultation (unless, and I kid you not, he decides in another clause, not to consult because it is ‘inexpedient’).  At that point , of course he has to find, or construct someone else to do the job. So that’s all right then.  You might think that, since National Grid can be magicked into place as the future system operator by fiat, it can, in future be magicked out without a chapter in a Bill but apparently now  that isn’t the case.

I’m sure things will go very well, and the fairness and robustness that the new market and underwriting arrangements need will work to everyone’s satisfaction, and the Chinese walls will be well – very Chinese and very thick – but it does seem rather at odds with all other provisions of the Bill that the key question of who runs everything should be decided and set in place in such an unaccountable and potentially compromising way. It would be rather good if we could debate all this at report stage, but we probably won’t – in fact almost certainly won’t – because among other things, it has already been decided.

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2 thoughts on “And the nominations (one) for running everything are…

  1. I was asked by a journalist my reaction when National Grid was announced, without competition, to be the system operator. It was simple enough to be summed up in three words : Buy More Shares.

  2. The National Grid is key to UK energy in many areas and as long as profit maximisation is not at the expense of its key service provision, then carry on.

    Keep highlighting these areas Alan as many of the keys area do suffer political avoidance tactics. Transparency is always key and the lack of it, and the Truth, can bring down the mighty.

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