NIE Must Change Price Control Conditions - CC

The Competition Commission (CC) has provisionally determined that significant changes should be made to Northern Ireland Electricity (NIE) price control conditions.

It has done so in a way which is designed to keep price increases to customers down while maintaining the reliability of supply.

According to preliminary indications, the effect of the CC's provisional determination is to increase annual charges by 3.3% in total by 2017 compared with 2012, expressed at constant price levels (so excluding inflation). In real terms, this indicates an increase in annual charges for a typical domestic customer in 2017 (comparing the forecast 2017 charges with those that applied in 2012) of around £5, before adjustment for inflation. Actual charges will also depend on price inflation measured by the Retail Prices Index.

The CC's provisional determination of NIE's maximum regulated revenue allows it approximately 6.4% less revenue than was allowed in the Northern Ireland Authority for Utility Regulation's (the Utility Regulator's) Final Determination.

Professor Martin Cave, CC Deputy Chairman and Chairman of the Inquiry Group, said: "The interests of all electricity customers have been at the forefront of our minds in making this provisional determination. We found that the design of the historical price control system does not work in the public interest and so our decision involves a major redesign of NIE's price control conditions. Effectively there will be a new regulatory model in operation, which is quite different in many respects from both the Utility Regulator's determination and NIE's proposals.

"In proposing to set new revenue controls for NIE, we have critically assessed NIE's proposals for capital expenditure, and approved funding for more investment projects than in the Utility Regulator's determination. We have also set a new allowed rate of return on NIE's investments. This rate is considerably lower than past price controls and accounts for a large part of the reason why the total allowed revenues are lower than in the Utility Regulator's determination.

"Finally, we are requiring NIE to make fuller disclosure of information for greater transparency in formats comparable with other electricity companies in Great Britain. We believe these new arrangements will incentivize NIE to pursue efficiencies, ultimately to the benefit of customers.

"Our provisional determination provides for lower charges to customers than the Utility Regulator's determination. In balancing the various aspects of the public interest (such as, for example, charges to current and future consumers, the interests of vulnerable groups, the need to secure all reasonable demands for electricity are met, and allowing for the expansion of renewable energy generation) we have been very conscious of anything that impacts on household and business bills. We believe that our provisional determination strikes the right balance. We look forward to receiving views on these proposals before we make our final determination."

(CD/JP)