BAN Waste Select Committee evidence

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Phase 1 Day 8 2001-10-29 Chris Mills (Newcastle City Council, Community and Housing Directorate, Capital Investment Manager)

report from minutes of Select Committee

(3) EVIDENCE ON BYKER COMBINED HEAT AND POWER STRATEGY:

Chris Mills, Capital Investment Manager, Newcastle City Council.

The Chairman welcomed Chris Mills and asked him to make his presentation following which a question and answer session would ensue.

Chris Mills outlined his past experience with the Byker heat and power project and his current role with the Newcastle City Council. He then outlined the historical sequence of events since 1985 of the development of the Byker district heating plant (as set out in his paper - circulated and attached to official minutes). He highlighted that following the completion of the network renewal programme planned for 2002, the issue of individual control for individual households was back on the agenda. A feasibility study was being commissioned to examine the most effective way of achieving and funding an individual and metered supply for all residents across the estate. Individual metering would help to ensure that households have control over heating and would of necessity be linked to measures to ensure all thermostats and controls were in full working order.

The following questions were raised:

(Q1) Figures for financial year 2000/2001 indicate that only 65% of the cost of the Byker district heating system (even excluding the costs of coal and gas because the burning of IBF is currently on hold) will be covered by its income whereas the Janet Street system (which is fuelled entirely by gas) will cover some 96% of its costs, despite tenants paying less in heating charges for equivalent dwellings on the Byker system. Does this not indicate that the Byker system is hugely expensive to run in comparison to other systems that generate heat from conventional means? (Geoff Stokle)

Chris Mills responded that the difficulty was that it was not really possible to compare the two systems because the outcome costs were based on entirely different accounting inputs. The Byker district heating system operated on a set of accounts that were based on historical costs including some of the early capital works. (This was not recommended as good practice by the AMA). However the Janet Street users were not paying for any historic costs (having installed a new boiler plant); so it was not comparing like with like in terms of user costs. He acknowledged however that there was the need for a standard accounting protocol from the Government to say what should be included in the accounting process. At the moment it had been left to the district auditors.

(Q2) The average annual energy consumption per household on the Byker system was about 40,000 kwh, whereas British Gas recently estimated that energy consumption (including cooking as well as heating) for its domestic customers was about 19,050 kwh. This indicates that the system overall was wasting huge amounts of energy. Would the Council not agree that users were paying high charges to offset the inefficiency of the system? Is that fair?

Chris Mills said that the advice that he had received from engineers was that Byker was not an inefficient district heating system. The plant had gone through the whole efficiency process with the Greenhouse Energy Efficiency Programme which was monitored by the Department of Environment and steps had been taken over the years to improve the system through new technologies and management systems. He would not accept that Byker was one third less efficient than other systems. Clearly the accounting shows higher costs but that was not because of the engineering but the deficiency of the plant/management system.

(Q3) What steps was the Council taking to reduce the amount of energy the system was wasting? (Carolyn Spencer)

Chris Mills reiterated that he could not accept that the overall plant wasted energy - the heating system was not inefficient. Within the individual houses however there were a number of issues like opening windows to relieve heat rather than adjusting the thermostat or turning off radiators. He emphasised that there would be continuous overhaul and updating of the system and that the district heating team would be contacting every household to detect any individual problems and respond to them. Byker was a major system dealing with some 1700 houses and schools and there were bound to be some individual problems to be rectified.

(Q4) If it were accepted that the system had been wasting energy for years, would users be compensated retrospectively by the Council for all the years they have been overcharged? (Nick Fray)

Chris Mills indicated that since 1985/86 the key decision regarding price was made to actually maintain the price of the 1986 figure - there had been no price increase since then which contrasted starkly with every other fuel utility over that period. The price may have been high in 1986 but now for a 24-hour 7-day-week heat and hot water (unlimited) it was not expensive and there was no question of any refunds.

(Q5) The Housing Committee report "The view of district and group heating charges" of 11 September 1985, paragraph 4.8, stated: "Following meetings between members and officers of the Council and representatives of Mainmet Ltd, the company has prepared a detailed report on the potential advantages and financial serving arising from the installation of heat meters, thermostats and programmers and pre-payment heat controllers in dwellings connected to the Byker district heating system. The contents and findings of the report are being considered by the officers and it is anticipated that a report will be made to the next meeting of this Committee".
These proposals were never implemented in Byker. Why not? (Mick Rabley)

Chris Mills said that as indicated in his presentation, there had been a series of reviews undertaken following which engineering consultants had been brought in to look at and overcome the loss of water/heat from both the primary main side and its secondary main side plus heating sub stations that were blind to the people running the system. The outcome of this review was a decision to go down the route of putting meters at the end of the process to give reliability of supply as a first priority.

(Q6) If the argument for incinerating rubbish is that as well as producing heat it also saves on landfilll costs and taxes, then why is that benefit not passed on to the user, in terms of lower charges? What would be the annual saving to the Council if all the refuse currently being landfilled was instead incinerated? (Geoff Stokle).

Chris Mills suggested that the Committee would already be aware of the implications of the landfill tax and he then referred to the financial elements involved at the network side which made up the final costs of the heat provided including:

Within the above costs the objective was to maintain the district-heating price to individual households (1986 level). He highlighted that currently under the district heating system a three bedroomed house paid �13.68 per week - �54 per month for 24-hour heat and hot water which he suggested compared very favourably to most gas central heating systems (notwithstanding the fact that under the district heating system the heating could not be turned off.

(Q7) The cost to the Council by the operator for running the district heat system is �337,920 (�227,000 standing charge plus �43,290 variable charge) for the financial year 2000/2001 which represents nearly 23% of the total cost of running the system. On top of this the operator is allowed to sell the electricity it produces and keep the profits (the implication is that the operators charging of the operators charges would be even higher if we were not allowed to do so). Is that really good value for money when systems such as Janet Street have no such overhead? If running a refuse burning plant is more expensive because of safety requirements, increased complexity etc then why run it in the first place? (Bill Hopwood)

Chris Mills gave a detailed account of the historical position in relation to Janet Street and then again referred to the capital value included in the costings for Byker.

At this point the Chair suggested that it was not very helpful to keep looking at the historical events and enquired whether if at Byker there was a stock transfer the capital cost could be removed once and for all.

Chris Mills said the accountancy protocol in relation to Byker was a major issue and he could not support it and it was something that the Select Committee could certainly comment upon in the sense that it was the charging system not the heating system that was at question. He would like to see heating being provided at less cost with more control at the household end.

(Q8) Apart from the initial capital outlay, would heating costs not be cheaper if users of the Byker system were transferred to a number of smaller CHP systems similar to Janet Street? There are many numerous schemes elsewhere (Stanhope Street in Newcastle, London, Nottingham, Glasgow, Birmingham etc) which have proven this to be the case. Many have received funding from community and city regeneration grants. Would Byker be eligible for such grants and has the Council bothered to find out? (Phil Capon)

In response Chris Mills said that it was far more efficient to have one efficient major plant than to have ten scattered gas-burning group-heating systems irrespective of capital costs involved. He again acknowledged that the pricing system was something this committee could justifiably concentrate on as something that needed further review.

(Q9) Had any investigations been undertaken to identify alternative renewable energy sources for the heating of hot water - e.g. solar power? (Steve Psallidas)

Chris Mills commented that the City Council had recently made a successful bid to the DTI/Europe for a photo-voltite pilot (electricity generating cells) to be done in conjunction with a re-roofing project at Newbiggin Hall. If this proved to be a success consideration could be given to its application at Byker. He also explained the non-conventional build of the Byker village houses and the steps taken by the Council to undertaken repairs and upgrade in terms of insulation and re-roofing (three hundred out of seventeen hundred houses to be completed by the end of the year).

The Chair asked if the City Council had considered the implications of a housing stock transfer at Byker and whether this might include the heating system.

Chris Mills said that like all other authorities Newcastle was carrying out an option appraisal including a transfer of housing stock and he confirmed that if the housing stock and the heating system were transferred that a different fuel could be used if it proved to be economically viable.

The Chair asked whether the heating plant would continue, over the next five years, to burn coal.

Chris Mills commented that the plant was capable of burning a number of fuels and this would be the subject of discussion in the current review of the waste strategy. He confirmed that the existing boilers were regarded, in investment terms, as nearing the end of their life but that subject to proper maintenance could carry on for some time. However, at some stage they would require replacement (being in for ten years) and their efficiency was beginning to drop and the time was coming for reinvestment.

The Chair thanked Chris Mills for his detailed presentation.