Business

Ruling hits NIE plans for network upgrade

PLANS by Northern Ireland Electricity (NIE) for a major upgrade of its network took a blow after a ruling limited it to increasing bills by £5 a year.

The provisional determination by the Competition Commission puts a massive dent in the amount of revenue NIE can make from customers over the next five years.

The commission was asked to adjudicate after the Utility Regulator - which must agree the electricity giant's price control - rejected NIE's request for permission to raise prices by up to £25 a year.

Its determination will be seen as a major victory for the regulator which had actually been prepared to allow NIE around 6.4 per cent more revenue than the commission has ruled.

NIE is the owner of the electricity transmission and distribution infrastructure in Northern Ireland and receives around 20 to 25 per cent of domestic customers' bills.

The commission also called for changes in the way price controls are set in the future saying the present system is "against the public interest".

It said NIE should provide more detailed information to the regulator to let it regulate "in a fully effective manner".

Commission deputy chairman Prof Martin Cave said: "The interests of all electricity customers have been at the forefront of our minds in making this provisional determination.

"We found that the design of the historical price control system does not work in the public interest and so our decision involves a major re-design of NIE's price-control conditions.

"Effectively there will be a new regulatory model in operation, which is quite different in many respects from both the Utility Regulator's determination and NIE's proposals.

"In proposing to set new revenue controls for NIE we have critically assessed NIE's proposals for capital expenditure and approved funding for more investment projects than in the Utility Regulator's determination. We have also set a new allowed rate of return on NIE's investments.

"This rate is considerably lower than past price controls and accounts for a large part of the reason why the total allowed revenues are lower than in the Utility Regulator's determination.

"Finally, we are requiring NIE to make fuller disclosure of information for greater transparency in formats comparable with other electricity companies in Great Britain.

"We believe these new arrangements will incentivise NIE to pursue efficiencies, ultimately to the benefit of customers."

The Utility Regulator welcomed the provisional determination. It said it would "consider the findings carefully and engage further with the Competition Commission during the consultation period".

An NIE spokesperson said: "We welcome the publication of the provisional determination and will submit our response by the due date November 29 2013.

"The Competition Commission will be holding further hearings to discuss responses to the provisional determination during December and we expect the final determination to be published in February 2014."

The Consumer Council said it would examine the ruling.

The provisional determination is out for consultation before a final report next April.