The costs - which will have to be met by consumers - have been blamed on the contract with a company that manages the computer system which sets wholesale electricity prices and calculates settlements. The 35 regional electricity companies are tied into the agreement for 30 years, and they believe it does not offer them value for money.
The Electricity Pool, which represents the regional electricity companies, confirmed yesterday that it is re- negotiating the contract, which originally included no penalty clauses for poor performance, or service level agreements. There are no fixed charging arrangements or limits to fees.
After privatisation, the electricity companies were obliged to pay a central computer company for managing the systems which fix prices and settlements. The agreement can only be ended if more than three-quarters of pool members agree to finish it, and it is necessary to prove either gross incompetence or fraud. Margaret Thompson, chief executive of the pool, said yesterday: 'We're certainly looking at having performance
The company, a wholly-owned subsidiary of the National Grid Company, has recently changed its name to Energy Settlements and Information Systems (ESIS).
Shortly before privatisation it was decided by the Government and the electricity companies that the National Grid Company would administrate the settlement system which fixes prices every day and computes how much each company must pay for electricity. Part of these responsibilities is to process data collected from the meters of individual
The Government insisted that a division of the National Grid Company would also take responsibility for running the complex settlements computer system. This company is ESIS. There was no competition - the Government would not allow a formal tender for this lucrative contract. This decision was in breach of European Community tendering rules by which the UK is legally bound.
ESIS, as a privatised company, is able to trade with clients outside the British electricity industry. It recently announced its intention to seek foreign contracts. From its contract with the Electricity Pool, it has been making a profit of pounds 2m for the past three years.
Members of the pool have long been concerned about the lack of competition and the decision not to have a proper tender. They believe that the contract is generating unnecessarily extravagant administration costs, estimated as high as pounds 30m annually. This figure includes the expenses of developing new software; operating the computers; running certain accountancy functions; and managing the collection of information from meters. On average however, according to sources within the pool, the electricity companies are spending as much as pounds 15m a year on unnecessary administration costs. ESIS employs 106 staff in offices in Nottingham and London, and 40 consultants based in London. Mrs Thompson confirmed that the cost of running the ESIS contract is passed directly by the electricity companies to the consumer.
It is a condition of their licence that pool members use ESIS. They are not allowed to choose a different supplier.
One source said: 'You are looking at a system which does not benefit the consumer at all, which was the child of a very hasty privatisation. Things could have been done very differently.'
Flawed projects, page 21