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Ofgem
Consultation Document on Future Electricity Wholesale Trading
Arrangments in Scotland
A
Response from UNISON Scotland
This paper sets out UNISON Scotland's response to the consultation
document issued by the Office of Gas and Electricity Markets (Ofgem)
on future electricity wholesale trading arrangements in Scotland.
The Ofgem proposals include
- Separation of supply and generation from distribution and transmission.
- Creating a single system operator for Scotland.
- Cuts in the price for transporting electricity
- Wider access to the interconnector between Scotland and England.
- Cuts in the regulated Scottish price for wholesale electricity
The key element of these proposals impose the English model, splitting
up Scotland's integrated electricity industry.
UNISON Scotland is opposed to general thrust of the Ofgem proposals.
We believe that the Regulator's proposals are short sighted and
will cause long term damage to the electricity industry in Scotland.
Power generation is a highly competitive business and an important
strategic industry for Scotland. The development of the interconnector
was a strategic investment by a Scottish company to allow the cost
effective export of Scottish electricity. If other companies in
England wish to develop similar facilities then they have the option
of making the business case for that investment. If the Regulator
continually intervenes in this way it will inevitably weaken the
case for similar strategic investment in the future.
UNISON Scotland can see no merit in an artificial separation of
the businesses as proposed by Ofgem. The Scottish model of an integrated
system has served Scotland well over many years and the Ofgem proposal
fails to make a convincing case for destroying this system. Ofgem
appears to have simply bowed to commercial pressure from England
to have a standard UK system. We believe this response strengthens
the case for statutory responsibility for electricity regulation
to be transferred from Westminster to the Scottish Parliament.
Splitting the businesses will result in an inevitable increase in
costs with no improvement in service to the customer. Essential
economies of scale will be lost. The management expertise gained
in operating as an integrated business has been a factor, particularly
in Scottish Power's world wide growth. A further example of how
the Regulator's proposals are damaging the Scottish economy.
The continued pressure on prices is forcing all the Scottish power
companies to take short term cost cutting measures at the expense
of long term investment. This approach adds to the short term thinking
which is endemic in the City's approach to British industry. Companies
will be forced to abandon large sections of their investment programme
and reduce services to customers. Services at the margins of the
business which are important to the community will be at particular
risk.
UNISON accepts that the power companies emphasis on shareholder
return does not assist the case against price cuts. However, it
is a business reality that companies cannot afford to ignore shareholder
return if they are to attract the necessary investment to grow the
business. Again the actions of the Regulator has an indirect effect
on the growth of the businesses and therefore the Scottish economy.
We are concerned that companies will increasingly be forced to look
overseas to achieve shareholder return. In the long term this will
result in a lack of focus on the Scottish end of the business.
The drive for price cuts also impacts on jobs within the industry.
Power companies generally have a good reputation in areas such as
training and development which are essential to the future of the
Scottish economy. There is very clear evidence that price pressure
has forced power companies in Scotland to reduce their investment
in these areas.
In conclusion UNISON believes these proposals are short sighted
and not in the best interests of customers, staff or the long term
progress of the Scottish economy. We would urge a serious rethinking
of the proposals and urge Ofgem to take a wider view of the impact
of their plans.
Dave Watson
Senior Regional Officer
UNISON Scotland
November 1999
Ofgem Consultation Document
Review of Scottish Trading Arrangements
 Energy
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