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  Energy Service Group
     

A Briefing from UNISON Scotland Energy Service Group
March 2003

Draft BETTA Bill

The UK government has published a draft bill setting out their proposals for British Electricity Trading and Transmission Arrangements (BETTA). This is essentially an extension of the English system (NETA) to Scotland, which at present has a separate wholesale market for electricity. This reflects the historically integrated structure of the electricity industry in Scotland. BETTA was originally to be introduced in April 2004 by the energy regulator Ofgem through regulation. However, it was then recognised that these changes require primary legislation. The Trade and Industry Select Committee are currently considering the draft bill. This briefing sets out UNISON Scotland's view of the draft legislation.

BETTA

This legislation will create a single UK body to operate the high-voltage electricity transmission system. In England and Wales this currently run by National Grid Transco. In Scotland ScottishPower and Scottish & Southern Energy run the transmission system. An England/Scotland interconnector joins the two systems.

Ofgem claims that a UK system will enable more competitors to enter Scottish wholesale and retail markets, allow Scottish generators access to a wider British market and give renewable generators greater choice of suppliers. They also claim that it should mean a £20 per year fall in Scottish electricity bills.

Regulatory Context

Any proposal to extend the English trading system to Scotland has to be seen in the context of the current regulatory system and its impact on suppliers and customers. There is little if any evidence to support Ofgem's view that NETA has been a success. Smaller producers, who again Ofgem claim will benefit in Scotland, have been the main losers. As the Association of Electricity Producers put it, "Giving them a bigger market is fine, but it would be silly to inflict on them the problems that occurred with NETA in England and Wales".

NETA hasn't been much fun for the larger producers either. It has depressed the generating market to the extent that no one is investing in new or upgraded plant. British Energy's problems have been well publicised and other companies have been selling off or mothballing capacity. New generating capacity cannot simply be built overnight. If there is no incentive to invest, a California style shut down becomes a real possibility.

For consumers the claimed savings are very modest and in no way guaranteed. Consumers working their way through the shambles of the current energy retail market are rightly sceptical.

We already have a competitive market in Scotland closely linked to NETA. This means wholesale prices are essentially the same both sides of the border. It is distribution, transmission and metering costs that account for any difference in price and that is due to geographic and demographic factors. BETTA will have no real impact on these issues.

In the real world, customers in Scotland (as in the rest of the UK) regularly switch suppliers. Despite this ‘competition' most customers wish they hadn't bothered. Even a cursory glance at the complaints received by Energywatch show that customers are not impressed. UNISON members deal with thousands of calls every day from confused customers. These customers are bombarded with a bewildering array of marketing ploys and often end up unsure who is providing their energy and without a bill for months. All of these systems and the regulatory empire developed by Ofgem is costing a fortune. Money that would be better spent on Scotland's crumbling utility infrastructure.

And there are other losers. Disadvantaged customers have been abandoned as all the companies seek to cherry pick the affluent direct debit paying customer. Competitive markets do little for fuel poverty. Thirteen years after privatisation fuel poverty still affects one in three Scottish households.

The Scottish economy is also a loser. Three of Scotland's top six companies are in the energy business. They have been forced to incur huge costs separating their businesses into ever smaller (and uneconomic) units, all the name of competition ideology. Thousands of jobs have gone and Scottish companies are pouring investment overseas. The only real gainers have been the logo designers and the sign writers!

BETTA & Markets

Whilst Ofgem focuses on the allegedly dominant position of Scottish electricity companies, in the real UK market there is the inevitable consolidation into a smaller number of larger suppliers. Everyone is forced to seek economies of scale to pay for marketing initiatives and to cut the costs of generation, and distribution. Scottish companies attempting to gain scale are faced with unfair competition from European companies who operate in protected home markets. These companies can afford to pay high prices for customers and generating capacity when it comes on the market. As a consequence the UK energy market is rapidly being taken over by German, French and Italian companies.

 

BETTA & Renewable Transmission

A key element of government energy policy as set out in the recent White Paper is the encouragement of generation from renewable sources. Many of the best sites for renewable energy are in Scotland and we already have a better record and more exacting (although not very realistic) Scottish Executive targets on this issue. One of the major difficulties with these targets is the limited transmission capacity.

Probably the only strong argument in favour of BETTA is that the cost of strengthening the transmission network would be shared across the UK, thus encouraging the development of renewable capacity. However, we question if this will be the case in the long term. Ofgem is driven by an objective to constantly extend competition. Therefore they will seek to introduce location pricing which encourages the siting of generating capacity close to the demand i.e. in English conurbations. This can already be seen with their consultation over zonal transmission loss and their similar proposals for gas distribution. The ‘postage stamp' approach to electricity transmission, sensible though it may be, has no place in the mantra of competition.

BETTA & Staff

The draft bill has extensive provisions relating to property arrangements. However, the impact on staff is not mentioned. There is a small number of staff involved in electricity settlements in Scotland and those who administer the separate transmission arrangements. As these functions are to be handed over to English companies there should be statutory protection arrangements for the staff concerned.

Conclusion

UNISON Scotland believes that there is no evidence to suggest that the extension of NETA to Scotland will benefit anyone. By constantly changing the system, the failure of the current regulatory approach is being masked. BETTA is largely an irrelevance in the context of the shambles that is the so-called competitive energy market. That is the issue that urgently needs to be addressed. We believe UNISON's policy A Scottish Energy Strategy shows a truly ‘better' way ahead.

For further information contact:

Dave Watson, Scottish Organiser (Utilities), UNISON House, 14 West Campbell Street, Glasgow G2 6RX

Tel. 0845 355 0845 email d.watson@unison.co.uk or visit the energy section of the UNISON Scotland website: www.unison-scotland.org.uk.

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