National Grid could be forced to split to avoid conflicts of interest under the government’s proposed electricity market reform (EMR).
Ofgem last week said government plans to hand the company the job of running a capacity mechanism and other proposed market reforms could create conflicts of interest. “Legal unbundling of certain businesses and ownership unbundling are possibilities,” the regulator warned in an open letter.
“National Grid may have an incentive to make EMR choices that involve it in significant expenditure,” Ofgem said. The regulator warned that the company could exploit better access to information under the EMR in competitive markets. For example, information on the need for new low-carbon plant at a given location could be used by National Grid’s carbon capture and sequestration business.
A Grid spokesman said: “We will work closely with , Ofgem and industry to address potential conflicts of interest.”
Ofgem said most of the potential conflicts arose from the same elements of EMR that would create beneficial synergies for the industry and its customers.
The regulator said other options to mitigate conflicts of interest included ring-fencing parts of National Grid’s business; adding incentives that make “societal benefits” in its interests; and scrutiny of its advice to government.
The Commons’ Energy and Climate Change Select Committee in January heard in evidence from Simon Skillings, director of consultancy Trilemma UK, that there was no need to force National Grid to divest. But he warned that the company’s advice to government could gravitate to “easy answers in line with previous practice”.
This article first appeared in Utility Week’s print edition of 16 March 2012.
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