Belfast Telegraph

Wednesday 27 August 2014

Holding the regulator to account over gas prices

Greater transparency is needed so that the public has the correct information

On Thursday April 24 the public was informed that, for customers of Phoenix Natural Gas, prices would rise on May 1 by 28%.

Phoenix Natural Gas justified the price increase, first, with reference to the increased wholesale prices it pays to buy gas, second, saying that the increase had been approved, after scrutiny by the Utility Regulator.

This decision-making sequence merits closer examination. The increase was announced by Phoenix, not by the regulator

The regulator, Iain Osborne, is independent from Government and his decisions are made independently. Concomitant with this role there is then a need for decision-making transparency.

The regulator uses his privileged position to prepare a professional analysis of funding and efficiency. It is no suggestion that he prepared an inadequate analysis to then argue that the next step should ensure that the analysis is adequately reported to customers.

The information obtained from Phoenix Natural Gas will be, in part, commercially confidential, and must be used so that a company such as Phoenix is not expected to give competitors, indirectly, sensitive details. Sometimes this will be on purchase prices, sometimes on the other costs.

However, this is the area where there is a tension between Phoenix, the regulator and the public interest.

Decisions on whether commercial confidentiality applies should be rigorously tested by the Regulator and only accepted if the Regulator independently makes that judgement. Simply for Phoenix to assert confidentiality would be inadequate.

On the announcement 11 days ago, the Regulator should be challenged on whether he has illustrated his independence, transparency and accountability.

Somewhat surprisingly the Regulator did not issue any written public statement in explanation of the 28% increase in household prices. He responded in media interviews but there is no definitive statement of how he reached the decision.

Indeed in a statement to the Assembly Enterprise, Trade and Investment Committee on the same day (compiled as a wider briefing paper) specific details on the Phoenix prices were not mentioned.

The public became aware of the approval of a 28% price increase, initially, because Phoenix Natural Gas issued a statement, closely followed by endorsement from the Consumer Council's that "this increase fairly reflects the rising global cost of wholesale gas."

At the time of the announcement of the tariff increase there was no guidance from Phoenix or the regulator on whether Phoenix was now making trading losses and, if so, whether any of the 28% is justified by a carry forward of recent losses.

Alternatively, is the 28% is to be applied to give adequate profit margins for 2008-9?

Neither Phoenix nor the regulator initially set the financial parameters to outline the trading period covered by the change.

Subsequently the regulator has confirmed that the recent decision starts from the financial position of Phoenix Supply in 2007.

The period to be covered by the new tariffs is for one year from May 1, 2008. If during the year, wholesale prices go up, or down, by more than 5%, there will be a further review.

Could the regulator, without any real threat to confidentiality, have issued a statement, consistent with publicly available wholesale price information, that he had factored into his calculations the (initially unstated) 66% rise in gas costs which are approximately 60% of the overall costs, a stated fall in the 40% of other operating costs, giving an answer of a 28% price rise?

Other suggestions of a 90% comparator for the rise in wholesale costs are now seen to have been (at best) misleading.

The regulator, to build his independent role, currently appears to lack adequate transparency and accountability.

The public should have better information to corroborate the integrity of his role.

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