Competition Commission finds for Phoenix Gas in price determination challenge

Northern Ireland gas customers will see prices rise by £2 overthe next two years, instead of falling by £10.

The price rises will occur because Northern Ireland gas network operator Phoenix Natural Gas won the support of the Competition Commission in a challenge to the Utility Regulator over its price determination for the next two years.

In its orginal price control, Northern Ireland’s Utility Regulator set levels that it said would reduce household bills by £10. But in a preliminary ruling, the Competition Commission said that in making that determination the regulator had retrospectively altered the total regulatory value of Phoenix’s business, without indicating in advance that it would do so. It noted that the previous price control, agreed in 2007, ntroduced a price control mechanism based explicitly on a regulated asset value and the determination of an opening asset value.

The CC said that in the long term that change would increase the costs to households, because it would damage investor confidence, and it would slow the expansion of the gas network – meaning customers would not get the opportunity to make the switch from using much higher-priced oil for heating.

The CC said indications were that its decision would mean household bills would increase by £2 per year, but it would make a detailed estimate. It asked for comments on the provisional ruling by 24 August and promised a final determination on 28 September.

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.”