Average Gas Bills To Increase By £11 Next Year

The final determination of the Competition Commission (CC) on the price control and licence conditions for Phoenix Natural Gas Ltd (PNGL) has been published today.

The CC submitted its report on 28 November to the Northern Ireland Authority for Utility Regulation (Utility Regulator). This means that PNGL's regulatory asset base will not be reduced by as much as the Utility Regulator had planned in its determination published in January 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 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 recognises 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."

(CD)