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United Kingdom

INVESTIGATION CALLED FOR INTO UTILITY CONFLICT OF INTERESTS

England, Scotland and Wales are now questioning the degree of objectivity in decisions made by Britain's regional electricity companies (RECs) regarding connection of wind plant to the grid. The reason is the dual role of the utilities. Any bid for a contract from a wind developer must contain a quote from a REC to connect the scheme to the grid. Background material for such applications will naturally contain confidential project details. Supplying the utilities, who are competing wind power developers, with this material is now giving rise to concern.

The dual roles of Britain's electricity utilities in proposing their own wind projects for NFFO contracts as well as quoting for linking competitor's projects to the grid should be investigated, states a group of Welsh Members of Parliament (MPs). They have asked the electricity regulator, Stephen Littlechild, to look into this area of potential conflict of interest between their grid connection business and their renewable energy development companies.

The recommendation is contained in the report of the Welsh Affairs Committee. During its recent inquiry into wind power (see page 35), the committee cast its eye over the activities of the regional electricity companies (RECs) and identified potential for abuse of privileged information.

To bid for a renewable contract under the competitive NFFO process, wind developers must obtain quotes from the RECs to connect their schemes to the grid. While one part of the REC is dealing with these connection charges, another division is often also involved in wind development. Since grid connection costs are a major factor in determining the viability of wind farms, this dual role is a cause for concern by UK renewable energy developers.

The report states that although the two Welsh electricity utilities emphasised that there is an arm's length division between the generation business and the REC itself, the committee was not convinced this was so. "In neither case did the generation company have its own employees and we did not gain the impression that the Chinese wall between the two was very solid," write the MPs. The report points out that the REC could find itself open to allegations of giving preferential treatment to its own generation business. The committee also echoes concerns by some that the RECs could influence the pace of wind farm development by adjusting the level of grid connection costs. It calls on Littlechild to investigate the RECs' procedures for dealing with applications to connect renewable schemes and also to look into their dual roles as renewable developers and controllers of the grid.

Wind energy developers agree with the committee's analysis of the problem. "We are expected to believe the Chinese wall is working and that no one on each side of that wall has any knowledge of what the other side is doing. That is quite a lot to ask," comments one. The Association of Independent Electricity Producers (AIEP) believes it is high time this issue was investigated. Ever since NFFO was introduced the association has been concerned about the Chinese wall arrangements in the RECs, says David Porter from the AIEP. "Some RECs take the division of generation, distribution and supply very seriously. I am sorry to say that our members' experience is that others are less careful. I have been told of one REC where the generation business is only a couple of desks away from the parent company business," he says. "The Welsh Affairs Committee is quite on the ball as far this is concerned. It is an issue that OFFER [Office of Electricity Regulation] ought to be taking a very close interest in." He points out that AIEP had called for an examination of the issue as long ago as January 1992 in its policy document, Renewable Energy and the NFFO.

Indeed, the issue has also been brought to OFFER's attention by at least one renewables developer who has written to the regulator. However, OFFER refuses to comment on the matter saying only: "We are considering the report and will report back to the committee in due course."

Suspicions about the role of the utilities in current NFFO arrangements do not end here. Some developers point out that in Scotland the same problem exists as in England and Wales. However, because of the vertically integrated nature of the two utilities north of the border -- Scottish Power and Hydro-Electric -- the division between the generation side of their business and the distribution side is less clear. But some fear that it is likely to be even closer than in the RECs which have only relatively recently begun to develop their own generating capability.

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