Gas bills to rise as watchdog allows £946m investment


Household gas bills will rise by at least £10 next year after the energy industry regulator, Ofgem, yesterday unveiled proposals to allow the companies that run Britain's gas distribution networks to spend £946m on upgrading work.
The move comes after increases of 40% since the start of the year despite wholesale gas prices falling by 40%.
Ofgem also announced proposals to allow £5bn worth of investment to expand and upgrade Britain's gas and electricity transmission networks over five years.


The regulator said its proposals for gas distribution - the pipes that bring gas into homes and businesses - would add around £10 a year to bills for 2007/08, while spending on the gas and electricity transmission network would add another £2 to £3 a year to domestic energy costs.
Ofgem's proposals will allow the three companies that run the gas and electricity transmission networks - National Grid, ScottishPower and Scottish and Southern Electricity - to double the amount they were allowed to spend over the previous five years.
Ofgem's latest figures, which include £530m already approved for infrastructure to plug renewable energy projects into the electricity network, are £100m above its initial proposals but are £1bn below what the companies had sought. Ofgem has also increased the companies' return on capital from 4.2% to 4.4%, but that is still below the 4.8% that National Grid, had been seeking.
The three companies have the option of challenging Ofgem's plans before the Competition commission - the final arbiter for the regulated industries. They have until January 8 to submit their responses.
According to Angelos Anastasiou, an Evolution Securities analyst: "Ofgem has given some ground but not a huge amount. It is probably enough to prevent the companies involved, National Grid in particular, from appealing."
Analysts at Dresdner Kleinwort who took a similar view, said: "Although there is still a chance that NG refers to the Competition commission, we believe that the regulatory uncertainty over a referral will unwind benignly over the next six to nine months."
Ofgem said it believed the rate of return was sufficient to attract investment and that it had put in place measures to ensure the companies spent the amounts they had been allocated. David Gray, managing director, said: "We've introduced what we call a safety net ... What we are trying to prevent is us setting an allowance which is what we think is necessary but the company deciding it can spend less and then pocketing some of the cash."
Karen Darby, chief executive of Simply Switch.com, said: "Although this investment programme is necessary we don't feel it should be at the cost of the long-suffering householders."