Gas distributors reject Ofgem's 'unsustainable' targets
Wednesday, 30 May 2007
Print
Email
Gas distributors yesterday rejected price controls proposed by the energy regulator that call for a 3.3 per cent cut in annual operational spending between 2008 and 2013.
Ofgem also wants the country's four gas distributors - dominated by National Grid - to limit capital and replacement spending on their networks to £1bn a year. The regulator believes the proposals would add less than £1 a year to domestic gas bills.
But the Energy Networks Association (ENA), which represents Britain's four gas distributors, rejected the regulator's initial proposals as "totally unacceptable" yesterday.
"Ofgem's initial proposals for the forthcoming five-year price controls for the gas distributors fall well short of what the companies could consider to be an acceptable package of measures," said Nick Goodall, the chief executive of the ENA. "Our particular concerns relate to the proposed substantive cuts in operating expenditure, and the allowed return on assets. Ofgem's expectation that the companies can continue to significantly out-perform the rest of the economy in cutting costs is unsustainable."
The gas distributors estimate that they need to spend £797.5m a year during the five-year period as part of their programme to replace all iron gas mains within 30 metres of homes and business premises by 2032. Ofgem is proposing to cut this replacement expenditure to £654m a year up to 2013, some 18 per cent below the distributors' forecasts. The regulator also wants capital expenditure capped at £328.2m a year, compared with the distributors' forecasts for £393.1m, while operating expenditure would be 17 per cent below the distributors' forecasts at £598m a year.
The regulator yesterday acknoweldged the targets are "challenging", and that spending needs to rise to meet increasing demand for gas and the mains replacement programme. But it argued that the proposals allowed for increases in capital and replacement expenditure of 26 per cent and 32 per cent respectively compared with the previous five-year period from 2002 to 2007.
"Today is one of a number of milestones along the way to our final proposals in December," Ofgem's chief executive Alistair Buchanan said. "We will listen carefully to the feedback we receive. We do intend to set challenging price controls to give the companies incentives to operate more efficiently. This will generate savings for customers which will be passed on in successive price controls."
