The current review of the financing of NIE by the Regulator is proving fractious. The initial proposals of the Regulator, published in April, have been challenged by NIE. A number of issues from the interim determination are in contention. The Regulator is due to respond to the existing NIE challenges on October 23.
At the time of the initial interim determination, the Regulator said that he proposed a further investigation to test whether the accounting practices of NIE had been changed, without any formal agreement with the Regulator, in ways that would effectively give NIE the benefit of some reduction in current operating costs.
The merit of current versus capital costs was less significant than the way in which the regulatory formula would work. The reduced current operating costs would give NIE a gain as a measure of improved performance whilst the increase in capital costs would become an increased cost to consumers.
The Regulator now wishes, starting from 2007-8, retrospectively, to reduce the approved capital baseline for NIE by £35m.
This will, if approved, take about 1% off customer bills each year. NIE's annoyance has now been increased again and it claims that going back to 2007-8 to make changes is retrospective and good regulatory practice is being challenged.
NIE may claim that the Regulator has seen NIE accounts, year by year, and that this new investigation comes very late. The Regulator suggests that the NIE changed its accounting capitalisation practice in 2005 and did not make the Regulator aware of this.
The Regulator has now proposed further adjustments to the outcome of the 2012 price review. The chances that NIE and the Regulator will find a compromise agreement on the whole price review without recourse to the Competition Commission must now be in doubt.