David Morris MP wrote to OFGEM following the decision by Electricity North West not to pay compensation to those people in the Lancaster district who were effected by power outages in December. As OFGEM are the regulator Electricity North West reports to they have the final say on decisions which are made by Electricity North West. David Morris MP received the following response from Water White Associate Director in External Relations.
Thank you for your email of 25 January about the decisions taken by Electricity North West (‘ENWL’) in respect of payments under the Electricity (Standards of Performance) Regulations 2015 (the ‘Guaranteed Standards’).
Guaranteed Standards
The Guaranteed Standards set out the minimum service levels that electricity distributors (‘DNOs’) are required to provide; where they fail to meet these minimum standards, customers may be entitled to payment of a prescribed sum. The Guaranteed Standards cover a range of scenarios, including long-duration interruptions, and encourage DNOs to restore electricity supplies as quickly and as safely as possible. Payments are (except in specified extreme circumstances) funded by the DNO’s shareholders, acting as a further incentive to ensure minimum service levels are provided. Where a payment is due, it is not intended to compensate for loss caused by failure of supply, but instead recognises the inconvenience of a power cut.
As you noted, ENWL have indicated that Storm Desmond is a Category 2 event. A storm is classed as ‘Category 2’ when the number of faults at higher voltages is 13 or more times the daily average. Given the impact such a storm has on the network, and the challenges the networks face in restoring supply in such situations, customers must have been off supply for a minimum of 48 continuous hours to be eligible for a payment under the Guaranteed Standards. A DNO may choose to use generators temporarily to restore supply while they repair their network, thus minimising the disruption to customers. There may be further short interruptions while the generators are removed; however, the use of generators means customers are not without power for prolonged periods.
We have also put in place the Interruptions Incentive Scheme (IIS), which is a financial incentive on DNOs to minimise the number and duration of power cuts across their network. The combination of the IIS and the Guaranteed Standards drives the DNOs to ensure the impact of a loss of supply are minimised. Since the introduction of the IIS in 2002, the number of customers interrupted has reduced by 35 percent and the length of interruptions has reduced (on average) by 50 percent.
Website information
You mentioned that documentation on ENWL’s website stated that customers would be paid after 12 hours of no supply. We have contacted ENWL to clarify the information that was made available to customers over the course of the storms, and believe there may have been some confusion between the normal and severe weather standards. Under normal weather conditions, customers are entitled to a payment after 12 continuous hours of no supply; for severe weather, that time increases to 24 hours for a category 1 storm or 48 hours for a category 2 storm. The information that ENWL have provided to us shows that their website displayed details about both the normal and severe weather standards; while this may have led to a degree of uncertainty around which standard was applicable, we are satisfied that the information displayed was correct.
Customers on generators
You refer to a ‘contract that ENWL adhere to’ that is ‘signed off by yourselves’. I am assuming you are referring to the Guaranteed Standards – these are regulations made by the Gas and Electricity Markets Authority with the consent of the Secretary of State, which are given effect as a statutory instrument. As I mentioned above, the Guaranteed Standards set out the service levels that DNOs must provide in a range of circumstances, and when customers may be eligible for a payment.
With regard to the treatment of customers who are connected to temporary generators, we recognise that temporary generation may mean that customers cannot use their normal amount of power; however, customers are, at least, provided with some form of power when the alternative is to be without. These customers do not suffer the same level of inconvenience, as measured by the Guaranteed Standards, as those who are entirely without power.
I understand your desire to see an amendment to the Guaranteed Standards, including a payment being triggered following 24 hours without mains power (and a sliding scale applied for temporary generation). However, while such a rule could lead to customers receiving payments in conditions equivalent to those in December 2015, these payments would ultimately have to be paid for somehow. In situations such as this, where we do not consider that it would be practical for the networks to guarantee restoration more quickly, we do not consider it appropriate for their shareholders to bear the cost. Equally we do not consider that it would be appropriate for other customers to bear the cost through an increase in their network charges. So I am afraid that we do not consider that it would be appropriate to make such a change.
We have, however, made changes to the Guaranteed Standards for RIIO-ED1 (the electricity distribution price control for 2015-2023), reducing the threshold time for a loss of supply during normal weather conditions from 18 hours to 12 hours, more than doubling the payments during storms (from £27 to £70) and increasing the maximum payment from £216 to £700 per customer. Before making these changes we consulted widely with stakeholders who broadly supported the changes.
Thank you for brining your concerns and questions to our attention. I hope that my response is helpful to you and your constituents.
Speaking in Response to the Letter David Morris MP said:
‘I am pleased that OFGEM have taken the concerns of my constituents seriously and have provided a full and detailed assessment of all the issues that they have raised. I am especially pleased that OFGEM have conducted an investigation into the concerns raised that people felt that Electricity North West had not informed them of the compensation criteria, and have been able to confirm that confusion arose knowing the difference between normal and severe weather classifications, but that the information provided on their website was correct and accurate information. It is disappointing that OFGEM do not think that it is feasible in the future to review standards to pay compensation after 24 hours and also compensate for people who are on generator power on a sliding scale. Having said that it is a positive step by Electricity North West to invest £1.5 million pounds , from the £70 pounds a year they get from customers, to make further improvements to the substation, adding storeys among other measures to protect the substation further from flooding and storms in the future.’