Regulation of offshore electricity transmission

DTI/Ofgem consultation (PDF, 64 pages) on the regulation of offshore electricity transmission infrastructure. The document briefly discusses two options, price control regulation and a licensed merchant approach. A comfort letter from Ofgem dated December 2004 promises not to expropriate assets unduly and finds significant benefits in the merchant approach (no price controls).

Under price control regulation the offshore network operators would recover regulated revenues from a system operator, presumably NGC, in a similar way as the Scottish transmission networks. There is some discussion of the structure of offshore transmission charges in the document, including raising the possibility of explicit subsidies from onshore users to offshore users akin to the new form of the hydro benefit.

The document asserts that a licensed merchant approach is the minimum regulation compatible with EC directives. It would leave charging arrangements and financing to private arrangements between infrastructure owners and offshore generators. There is some discussion of possible tenders for licenses but it seems unlikely to be pursued.

The review of regulatory precedents does not consider the precedent of offshore gas infrastructure beyond half a sentence saying it is merchant, and the document does not analyse the likely obligations of offshore infrastructure operators under the Competition Act 1998 and Article 82.

For further information or advice please contact Franck Latrémolière.

Filed under DTI/BERR, Electricity, Ofgem, Price controls.

Reckon LLP is an economics consultancy with expertise in data analysis, economic regulation and competition law.

About Reckon