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

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