Responding to the price increase announced by Phoenix Natural Gas and after formal consultation with the General Consumer Council, OFREG have examined the proposed rise and are satisfied it reflects the underlying costs at which Phoenix is buying gas.
Dermot MacCann from OFREG commented:
“We have seen significant rises in world energy costs in recent months, driven by rises in the underlying prices of wholesale oil, gas and coal.
We have looked at the proposed Phoenix price rise along with the General Consumer Council and are content that the rise is appropriate given the increase in the underlying costs at which Phoenix are able to buy gas for use in Northern Ireland. It is solely the rise in wholesale gas costs that is driving this proposed price increase. Raw wholesale gas costs now represents over 50% of the costs that Northern Ireland consumers see in their final bills. Unfortunately it is therefore not surprising to see this sort of significant price rise coming through here – large rises have been seen over the course of the last year in Britain and more recently in the Republic of Ireland.
On the remaining half of final gas bills to do with the costs of Phoenix’s own gas pipework and gas transport costs - that half that is directly regulated under Phoenix’s licence - costs have in fact remained stable over the course of the year and have not contributed to this proposed rise.
We understand that a price rise of this size is a significant blow to gas users in Northern Ireland, and particularly to those less well off households where difficulties with rising energy costs are already a real issue. If in future years wholesale gas costs fall, this will allow the potential for reductions in gas prices – this however cannot be guaranteed. In the meantime Ofreg continues to work with Phoenix, the General Consumer Council, DETI and other relevant Government Departments to ensure that gas costs are kept as low as possible.”
Notes for Editors
1. OFREG (the Office for the Regulation of Electricity and Gas) supports the Northern Ireland Authority for Energy Regulation (NIAER) the regulator of the Electricity and Gas industries in Northern Ireland. NIAER’s powers are derived from the Electricity (Northern Ireland) Order 1992, the Gas (Northern Ireland) Order 1996 both as amended by the Energy (Northern Ireland) Order 2003.
2. Under the relevant legislation, transmission and distribution (together known as conveyance) and the supply of natural gas are licensable activities in Northern Ireland. Phoenix was first granted a licence in 1996, at which point it started to build its new gas network. The licence gave it exclusive rights to transmit, distribute and supply gas in an area which included Larne and the Belfast conurbation.
At that time, British Gas had a controlling interest in Phoenix which it continued to hold until 2003. East Surrey Holdings acquired Phoenix outright in December 2003.
The Phoenix gas network now covers approximately 230,000 of the 300,000 properties in the area covered by its licence and more than 80,000 of those properties are currently connected to the network.
3. On 8 April 2005, Kellen Acquisitions Limited (Kellen), an acquisition vehicle for the private equity house Terra Firma, announced its offer to acquire the shares in East Surrey Holdings plc (ESH). The principal assets of ESH are East Surrey Water plc, a water company in southern England, and Phoenix Natural Gas Limited (Phoenix).
4. NIAER recently consulted widely on issues generated by a proposed takeover of East Surrey Holdings by Terra Firma Capital Partners Ltd. which would thus change the ultimate ownership of Phoenix Natural Gas. The issues raised by that consultation remain unresolved at this time and Terra Firma have recently indicated their desire not to go ahead with the proposed takeover. The Stock Exchange Takeover Panel is due to announce shortly their decision on whether they will allow Terra Firma to withdraw from the proposed takeover.
For further information contact Terry McErlane at Weber Shandwick Telephone 028 90761007 or 07770886911