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Competition Commission Turns Up The Heat On Heating Oil
3rd August 2012
The Competition Commission (CC) has provisionally redetermined a price control made by the Utility Regulator for Northern Ireland to help ensure both regulatory certainty and encourage future investment in the natural gas industry in Northern Ireland by helping to expand the gas network in 'oil rich' areas of the province.
The Utility Regulator referred an appeal by Phoenix Natural Gas Ltd (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 in Larne, Co. Antrim. The CC has to determine the appeal by assessing whether the PNGL price control licence conditions operate against the public interest and, if necessary, set new price limits.
The CC's revised price limits set in its provisional determination published today would, according to preliminary indications, increase average household gas bills by around £2 a year. The Utility Regulator has said that its proposals would have reduced household bills by £10. The CC will examine the precise effects on household bills in its final determination.
The Utility Regulator's proposed changes would have removed allowances for outperformance and deferred capital expenditure from PNGL's regulated asset base (total regulatory value), which was determined in 2007 as the basis for future price controls. Whilst some adjustment for certain deferred capital expenditure was reasonable, the CC has ruled that the Utility Regulator was not justified in retrospectively altering the total regulatory value that was included in the 2007 determination, having previously given no indication that it would, because doing so risks damaging confidence in the regulatory system.
Chairman of the Phoenix Inquiry Group and CC Deputy Chairman, Professor Martin Cave said, 'Our decision has been guided by the long-term interests of customers, who would benefit from further expansion of the gas network in Northern Ireland. By trying to change elements of the price control which PNGL had valid cause to believe had been previously agreed, the Utility Regulator's proposals risk damaging confidence in the regulatory system which in turn could inhibit future investment. It could also increase PNGL's costs in the long run due to higher costs it may face in financing its activities; this would in turn be reflected in customer bills.
'Such investment is particularly important to fund any future expansion of the gas network in Northern Ireland, where the majority of customers use oil rather than gas, even though it is far more expensive. A typical household converting from oil to gas can save £1,000 a year. Whilst we are very conscious of anything that impacts on household and business bills, we have had to weigh this up against the goal of developing the gas industry in Northern Ireland."
The CC is inviting responses to its provisional determination before it publishes its final report. Its deadline for the final report is 28 September 2012 and comments should be made in writing by 24 August 2012 to phoenix@cc.gsi.gov.uk or in writing to:
Appeal Manager
Phoenix Natural Gas Limited Price Determination
Competition Commission
Victoria House
Southampton Row
LONDON
WC1B 4AD
