UK electricity regulator sets new savings target for grid operator

By the OGJ Online Staff

HOUSTON, Feb. 5, 2002 — The UK’s grid operator has until Thursday to respond to regulators’ proposals to operate the electricity transmission more efficiently and economically.

The Office of the Gas and Electricity Markets or Ofgem set a target £460 million for the National Grid Co. to meet rather than an existing band. Compared with the present scheme, Ofgem said the company stands to gain greater financial rewards if it reduces costs below the target, but faces greater losses if costs are higher than the target.

Ofgem initially proposed the new incentive scheme based on two options, one with a target cost of £481 million, and the other with a target cost of £460 million. The two options also amended the potential rewards and the downside risk to sharpen the incentive further.

The target is part of a new program, which came into operation when the new electricity trading arrangements (NETA) were introduced in March 2001. It was set to expire in March 2002, but will be rolled over for 1 year to March 2003, with the adjustments.

Eileen Marshall, Ofgem’s managing director for competition and trading arrangements, said it was appropriate to extend the program with modifications because NGC still face uncertainties with regard to the costs and operation of the system under NETA.

“These proposals sharpen the existing incentives and should see further reductions in the costs of system operation over time to the benefit of customers, who ultimately pay these costs,” she said.

Ofgem also set new energy efficiency targets, which requires energy companies to improve the energy efficiency of customers’ homes. The regulator said the program could help gas and electricity customers save over £100 a year on their heating bills.

The targets apply to companies who have more than 15,000 customers and will apply from April 2002.

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