Concerns raised Treasury will pocket surplus nuclear funding

Labour has expressed fears that the Treasury will pocket sums, due to collected off energy suppliers to pay for the new nuclear plants, and then clawed back because the projects are performing better than expected financially.

The concerns were raised on Thursday (25 November) as the House of Commons Grand Committee held its final session of detailed scrutiny of the new legislation allowing the regulated asset base (RAB) model to be applied to nuclear projects.

Under the legislation, energy suppliers will be obliged to make RAB payments for new nuclear power plants, according to their overall share of the power market.

The plant’s developer would then be allowed to receive income from the project before it has started to operate, within a ceiling set out in the RAB contract.

If the nuclear project consistently generates more revenue than allowed under the RAB contract, a portion of those sums can be reimbursed to the supply company and thence to consumers.

The government is proposing that these clawed back funds should be channelled through a consolidated fund run by the Treasury.

Alan Whitehead, shadow energy minister, tabled an amendment to the legislation stipulating that the reimbursed funds should not be paid into the consolidated fund unless there is no alternative.

He said: “When the decision is made about what to do with the money, the Treasury nicks it. That is not right and it is not what should be done. As we have established, if there are surpluses in those funds, they should certainly be returned to the supplier and the supplier should make sure that they are returned to the customer.

“The customer is at the heart of the process as they are funding it through their bills. They are not paying free money into the Treasury but paying into the process on a reasonable basis of allowed costs. If those allowed costs prove to be more than is required, the least they should reasonably expect is to get their money back.”

Whitehead was backed up by his front bench colleague, shadow climate change minister Matthew Pennycook.

He said: “The changes in total nominal amounts that are likely to happen from year to year in the scale of that capital value could mean that we have large fluctuations in the amounts being collected by the counterparty.

“A company’s revenue from power sales might exceed the allowed revenue. There is a chance that we could see large mismatches and, therefore, lots of funds being stored up in the counterparty.

“It is therefore really important that we ensure that the Treasury cannot in any circumstances, unless it has exhausted all other options, take part of the funds that may sit with the counterparty for relatively brief periods. The Treasury could decide to take sizeable amounts, and it is important that they flow back to suppliers and, ultimately, to customers.”

Outlining how the RAB process will work, energy minister Greg Hands told the committee that the arrangements would “essentially” resemble how Contracts for Difference work under the Energy Act 2013.

The consolidated fund powers would have “limited but important” uses, such as when the Low Carbon Contracts Company received a loan during the pandemic, he said: “Consumer funds should not generally go into government accounts.”

Whitehead also called for the legislation to be tightened up to ensure that suppliers should not be able to hold onto reimbursed RAB cash but return it to customers as rapidly as possible.

He said: “If the electricity supply company is getting that money back again, then as night follows day, the company should give that money back to the customers and not just hold it in its bank account.”