Watchdog turns up the heat on NIE
The job of the Utility Regulator Shane Lynch is to determine the permitted charges of any regulated entity, such as Northern Ireland Electricity (NIE). The regulator must balance the interests of the electricity customers against allowing adequate profits to the provider to provide services, in this case NIE.
There continues to be a serious disagreement between the regulator and NIE. Essentially, NIE has been arguing that the financial restrictions the regulator wants to impose would damage the ability of NIE to provide a service with reasonable standards and at reasonable prices.
The dispute between the regulator and NIE this year has been more hostile than previously.
This is the first determination involving NIE under its new owners, ESB. It paid what seemed an upmarket price for NIE and, if the regulator now squeezes prospective profits too hard, ESB shareholders can be expected to scrutinise spending controls rigorously.
If the regulator squeezes NIE too hard, then there is a fear that this could have counterproductive consequences. If the proposals mean that the ability to earn adequate profits to finance extra borrowing is adversely affected then the cost of further borrowing will increase.
Then the ratings agencies may downgrade this borrowing and the extra borrowing costs will erode the objectives of the regulator.
Compromise is needed.