§ Mr. ThurnhamTo ask the Secretary of State for Energy what estimate he has made of the likely impact of privatisation on electricity prices; and if he will make a statement.
§ Mr. Wakeham[pursuant to his reply, 18 December 1989, c. 1–3]: As previously announced, the average 692W increase in electricity prices for all customers will be less than 6 per cent. this year. The Government have now agreed the controls on future price increases that will apply to the area electricity supply companies.
For customers taking less than 1 MW, the final price will increase by an average of some 9 per cent. this year. The price controls agreed should prevent any further real increase to these customers until April 1993.
Customers taking more than 1 MW are able to seek competing bids for supply. To allow time for these customers to negotiate contracts, the electricity industry has agreed to offer them a price freeze in real terms for one year. However, many of these customers will experience real reductions in price this year.
These controls apply to the final price paid by customers. But in future the price will be made up of a number of different elements: the price for generating electricity in power stations; the charge for transmitting it across the national grid; the price for distributing it over the area electricity companies' local networks; the area supply company's margin; and the fossil fuel levy. The area supply companies have a monopoly on distribution and the National Grid Company has a monopoly on transmission. Their charges therefore need to be separately regulated within the overall controls on final prices to customers. Transmission and distribution respectively make up about 10 per cent. and 20 per cent. of the final price to customers.
The price control applying to the National Grid Company will prevent its prices from rising by faster than the RPI. Increases in charges for transmission will therefore be held at or below the rate of inflation.
The price control applying to the 12 area supply companies will prevent the charges for distribution from rising by more than RPI + X, where X ranges between the different companies from 0 to 2.5, with a weighted average of 1.1, as follows:
RPI Eastern Electricity +0.25 East Midlands Electricity +1.25 LEB +0 MANWEB +2.50 MEB +1.15 Northern Electric +1.55 NORWEB +1.40 Southern Electric +0.65 SEEB +0.75 South Wales Electricity +2.50 SWEB +2.25 Yorkshire Electricity +1.30 Within the overall cap on final prices, charges for distribution may therefore rise on average by just 1.1 percentage point faster than inflation. This will allow investment of some £5 billion to be made in the capital-intensive distribution network to ensure the high standards of security are maintained. The area supply companies' price control will also prevent their supply margins from rising faster than inflation.
Altogether, this package will protect the smaller customer from real price increases, and enable larger customers to benefit from competition. Within the overall price controls, the area supply companies and National Grid Company will be able to charge a price that enables them to finance the investment required.