MPs critical of plan to create single electricity market

Key elements of the Government's plans for creating a UK-wide electricity trading market were questioned yesterday by an influential committee of MPs.

Martin O'Neil, chairman of the Labour-dominated Trade and Industry Select Committee said it was essential that lessons were learnt from the botched introduction of new trading arrangements in England and Wales which have been blamed for the near-collapse of a number of generators.

Ministers are keen that the new British trading system is operated by National Grid Transco, which already owns and operates the transmission system in England and Wales.

But the MPs say that it is "essential" that the new system operator acts independently not only of generators and suppliers but also of the owners of the transmission network.

The committee also makes plain its unhappiness with plans by the industry regulator, Ofgem, to introduce a "zonal system" that would penalise generators the further away they were from the ultimate users of their power.

Ofgem and the Government believe this will encourage more generating capacity to be built closer to where it is used, reducing the amount of electricity lost in transmission down the wires.

But Scottish generators fear that this will make some of their traditional generating capacity uneconomic by adding up to £50m a year to costs. They are also concerned that it will hamper the development in Scotland of renewable forms of energy such as wind power, which are essential if the Government is to meet its environmental targets for cutting greenhouse gas emissions. The committee's report says that Scottish generators should be treated equally, irrespective of their location in Britain.

Charles Berry, ScottishPower's executive UK director, welcomed the report, saying: "We think it is logical to have a unified British market going forward so long as it is built on a level playing field."

Ofgem also welcomed the report and urged the Government to find parliamentary time for the necessary legislation, saying the new trading arrangements would bring Scottish consumers into line with those in the rest of Britain and save them an average of £20 a year.