ASSEMBLY BUSINESS

Review of Electricity Policy - Terms of Reference

REVIEW PROPOSAL

Background


1. Following representations from Manufacturing Northern Ireland (MNI) regarding the high cost of electricity for large manufacturing companies, the Committee for Enterprise, Trade & Investment heard oral evidence from large Industrial & Commercial (I&C) electricity consumers about the problems and issues they face as a result of current electricity pricing policies.  The Committee believes that competitive energy pricing is essential to attract and retain the large manufacturing businesses which are essential to sustaining, rebalancing and growing the economy and for providing and sustaining employment.

2. The Chair and members met with the trade unions which represent the employees in Ballylumford Power Station and heard that there is potential for future problems relating to security of electricity supply as a result possible future reduction in generation capacity following changes to EU legislation, problems with the Moyle Interconnector and delays in constructing the North-South Interconnector.

3. The Committee was very concerned at the large increase in electricity prices announced by electricity suppliers, which come into effect from 1st July 2013.  Following the announcement, the Committee agreed to receive oral evidence from the Utility Regulator, Energia, Power NI and Airtricity to fully understand and scrutinise the reasons for the increase.  The Committee Chair also met with the Northern Ireland Independent Retail Trade Association and Pubs of Ulster to consider the impact of price increases on the retail and hospitality sectors.

4. Having established that there are considerable current and potential future problems relating to electricity pricing and security of supply, the Committee has agreed to undertake a review of policies relating to electricity pricing for domestic and commercial consumers and of policies and plans relating to security of supply.

Purpose of the Review

5. The purpose of the review is to:

  • Identify the reasons for recent electricity price increases and for wide fluctuations in electricity prices year-on-year;
  • Identify the reasons why large I&C consumers face significantly higher costs for electricity than their counterparts in other jurisdictions especially within the Single Electricity Market (SEM);
  • To explore the reasons for potential security of supply issues;
  • To consider options for addressing  the problems identified; and
  • To bring forward recommendations on how these problems can be resolved in the interests of consumers and the local economy.

Terms of Reference

6. The Committee will critically examine the legislation, the policies and the practices that are currently in place for electricity pricing.  The review will identify the key issues which result in fluctuations in electricity pricing and which result in large I&C consumers paying high prices for electricity.

7. The Committee will also further examine the reasons why and the extent to which security of supply may be a problem in the future.

8. Specifically, the Committee will:

  • Examine current legislation, policies and practices which are in place for electricity pricing in the regulated market;
  • Examine current legislation, policies and practices which are in place for electricity pricing in the unregulated market;
  • Assess the extent to which legislation, policies and practices are responsible for fluctuations in electricity pricing;
  • Assess the extent to which legislation, policies and practices are responsible for pricing for large I&C consumers;
  • Assess the reasons for price differences between the two jurisdictions in the Single Electricity Market;
  • Examine the causes for concern in relation to security of electricity supply;
  • Consider the impact of energy efficiency on energy bills and security of supply;
  • Consider the appropriateness of current legislation, policies and practices for domestic and business consumers;
  • Identify the actions to be taken by Government, the electricity industry and the Utility Regulator to address the problems identified; and
  • Report to the Assembly with findings, conclusions and recommendations on:
    • How legislation, policies and practices can be improved in order to provide the most appropriate pricing mechanisms for the benefit of consumers and the economy.
    • What needs to be done to address the security of supply issue.

Approach to the Review

9. The Committee has already taken oral evidence from:

  • The Utility Regulator
  • Energia
  • Power NI
  • Airtricity
  • System Operator of Northern Ireland (SONI)

10. The Committee will call for oral evidence from identified key stakeholders including (but not restricted to):

  • The Confederation of British Industry
  • The Consumer Council for Northern Ireland
  • The Single Electricity Market Operator (SEMO)
  • Invest Northern Ireland
  • The Department for Enterprise, Trade & Investment

11. The Committee will request or has received written briefings from:

  • Northern Ireland Independent Retail Trade Association and Pubs of Ulster
  • Ballylumford Power Station Trade Unions

12. The Committee will undertake visits, if considered necessary, to gain a practical understanding of the issues involved and the problems faced by key stakeholders.

13. Assembly Research and Information Services will be asked to undertake appropriate research to inform the Committee.  Initially, research will be undertaken into:

  • A breakdown of current elements in the electricity tariff by each individual charge including any legislative or policy reason for each element of the tariff.
  • How the final price of electricity paid by consumers is determined and the profit margins companies receive;
  • A comparison of electricity prices across the EU, with details of how prices are set/explanation of difference;
  • Detail of hedging methodologies used to establish wholesale costs; and
  • A review of existing literature/commentary on relevant electricity policy.

14. Those providing written evidence to the Committee will be asked to respond by 30th August 2013.  Oral evidence will be taken between 12th September and 3rd October 2013.  The Committee intends to report to the Assembly with findings, conclusions and recommendations by 25th October 2013.

Expected Outcomes

15. The expected key outcome of the review will be a report outlining the findings, conclusions and recommendations of the review.  It is also expected that the Inquiry Report will be debated in plenary session in the Assembly.

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