Belfast Telegraph

Phoenix rejects regulator proposals

By David Elliott

Northern Ireland's biggest gas provider has rejected proposals by the Utility Regulator which the company says risk deterring investment in Northern Ireland and pushing up energy prices to consumers.

Phoenix Natural Gas said the plans, which involve a cap on the amount of money the energy giant spends on the upkeep and extension of its distribution network, may offer short-term savings to customers but these will be negated longer-term.

The company claimed the plans reneged on an agreement it made with the Regulator in 2006.

It added that it would make international investors view the Northern Ireland energy market with caution and push up the price of borrowing.

According to Phoenix, the increased costs would then have to be passed on to consumers.

News of the proposals triggered a warning from ratings agency Fitch that it could drop Phoenix's status to BBB- from BBB.

This move was keenly watched by private equity owner Terra Firma.

"We are unable to accept the authority's proposal to modify retrospectively the total regulatory value of Phoenix as set out in our licence," Phoenix said in a statement. "It is particularly unfortunate that the authority's final decisions paper and response to its consultation contain a misapprehension of, and only partial response to, the points we have made as well as a serious mischaracterisation of the agreement reached between the Authority and Phoenix in 2006."

The regulator said its proposals, which would see Phoenix defer money destined for network upkeep and extension back to customers, would save energy-hungry big businesses here £10,000 a year while domestic consumers could expect savings of £10 a year.

Within the proposals, Phoenix's regulatory asset base - the value of money invested on which allowable interest is earned - would have been reduced by £74.4m to £238m.

The reduction comprises £17.3m in deferred capital expenditure and £57.1m in 'outperformance' - where the company operated at below projected costs.

Previously these savings had been retained within the company rather than shared.

The regulator said it now has 56 days to decide whether to refer the matter to the Competition Commission.

Background

Phoenix Natural Gas is the largest gas distribution business in Northern Ireland and was founded in 1996. It owns and operates the licence for the distribution network in the Belfast area and Larne. The distribution business is responsible for the development of the pipeline network and for providing services to other gas suppliers. The Phoenix network covers around 3,000km of gas mains.

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