CC final determination on NI gas price control is published

19 Dec 2012

The CC has largely maintained its conclusions from its provisional determination, published in August. It has concluded that some proposals by the Utility Regulator to reduce PNGL’s regulatory asset base, which would have reduced the cost of gas to customers, should not be accepted because the current arrangements are in the public interest. These conclusions take account of the interests of current and future consumers, appropriate incentives and returns to regulated companies and the need to encourage further investment and development in the gas network in Northern Ireland.

The Utility Regulator referred the price control conditions that operated in respect of PNGL to the CC in March, following the company’s decision to reject the Utility Regulator’s two-year price control determination covering 2012 and 2013. PNGL is the owner and operator of the natural gas distribution network in the Greater Belfast Area and Larne (its Licensed Area). The CC has to determine whether the PNGL licence conditions operate, or may be expected to operate, against the public interest. On 28 November the CC submitted its final determination to the Utility Regulator. The Utility Regulator has now published the decision, following a mandatory period of consultation with the Department of Enterprise, Trade and Investment and it is also available on the CC website here.

The main impact of the CC determination will be that instead of PNGL’s regulatory asset base being reduced by £74 million as proposed in the Utility Regulator’s January 2012 determination, it will be reduced by £13.6 million. The CC has concluded that some elements of the regulatory asset base, relating to deferred capital expenditure and the funding of business rates expenses, should be removed. The CC has also agreed with the Utility Regulator that other aspects of the price controls need to be updated (such as operational and capital expenditure allowances).

The CC’s price limits set in its final determination would increase average household gas bills by around £11 a year. The Utility Regulator’s proposals would have seen a small fall of around £1 a year.

Chairman of the Phoenix Inquiry Group and CC Deputy Chairman, Professor Martin Cave, said:

‘We have been very conscious of the effect of our determination on current household and business bills, but we believe that it is in the public interest to take account of the incentives and rewards required for companies to make investments and take risks, as well as providing incentives for future network investment and expansion—thus meeting the needs of future customers.

‘Our determination recognizes the importance of including such incentives in the price control and licence conditions. We think it is appropriate for PNGL to be able to earn the agreed rate of return on its investments. We also think that removing elements of PNGL’s regulatory asset base, which it had earned under the rules applying at the time, could damage investor confidence. This is important when the gas network in Northern Ireland needs to be developed and significant areas of the country still remain unconnected to the grid.

‘We have, however, agreed with the Utility Regulator about some of the proposed revisions, where we have concluded that it is not appropriate to require customers to pay a return on certain items in the regulatory asset base.

‘We have considered the responses to our provisional determination and other evidence which has been submitted to us very carefully. This is reflected in our report; however, our conclusions on the determination are broadly unchanged.

‘We think that the long-term public interest is best served by a stable environment that encourages confidence and investment.’

Notes for editors

1. The CC is an independent public body, which carries out investigations into mergers, markets and the regulated industries.

2. The Gas (Northern Ireland) Order 1996 requires the Utility Regulator to refer any disputed determination of price limits to the CC for determination.

3. The Phoenix Inquiry Group consist of: Professor Martin Cave (Chairman of the Group and CC Deputy Chairman), Stephen Oram, John Smith, and Richard Taylor.

4. Enquiries should be directed to Rory Taylor or Siobhan Allen or by ringing 020 7271 0242.