21st Jan 2005 07:00
OFGEM21 January 2005 R/5 Friday 21 January 2005 OFGEM APPROVES GAS NETWORKS SALE • Ofgem has conditionally approved NGT's sale of four gas distribution networks • NGT must implement new industry structures before sale can go ahead • Comparative regulation should bring reduced charges to customers • Ofgem's cost and benefit analysis identifies potential net benefits to customers of around £225 million Energy regulator Ofgem announced today (Friday) that it has conditionallyapproved the sale of four gas distribution networks by National Grid Transco(NGT). Based on its statutory duties, the key legal test on which the Ofgem Authorityhas had to judge NGT's proposal is whether customers' interests can be protectedin the event of a sale. Following extensive work, involving customers and industry, Ofgem is satisfiedthat customers' interests can be safeguarded and that, therefore, it can giveits consent. A detailed cost benefit analysis has identified the potential forsavings of around £225 million.* Furthermore, changes to industry structures andgovernance have been identified and are required as a condition of the sale tosafeguard customers' interests. Ofgem's Chairman, Sir John Mogg, said: "Ofgem is satisfied that, against thelegal test that the Authority must apply, customers' interests, in terms of keyissues such as costs, competition and security of supply, can be fully protectedin the event of a sale. "Separate ownership and management of the gas distribution networks will enableOfgem to compare and contrast the performance of gas distribution companies.This will allow gas customers, for the first time, to benefit from efficiencygains of the kind that successive price controls have secured for electricitydistribution customers." "Lower distribution charges are the prize from this sale which Ofgem, throughcomparative regulation, will begin to capture for customers from the next pricecontrol in 2008." As well as securing regulatory approval from Ofgem, further approvals arerequired from the Secretary of State for Trade and Industry and the Health andSafety Executive before the sale can proceed. ends Notes to Editors 1. The costs of gas distribution make up around 23 per cent of the averagedomestic customer's bill. 2. In August 2004 NGT announced that it had entered into conditional agreementson the sale of four gas distribution networks. NGT has to obtain approval fromOfgem, the Secretary of State for Trade and Industry, and the Health and SafetyExecutive before the sale can go ahead. 3. The key legal test against which Ofgem's Authority has had to judge thisproposal is its primary statutory objective to 'protect the interests ofconsumers.' 4. Ofgem estimates the potential net benefits to customers range from a highcase of around £500 million to a low case of around £80 million between2005-2023.* These benefits are expected to start to feed through to customers infuture price controls as Ofgem will be better able to compare the performance ofthe distribution networks. The next price control for gas distribution will takeeffect in April 2008. In electricity distribution, the ability to comparedifferent companies' performance has enabled Ofgem to halve the costs ofdistribution in real terms since privatisation (1989). 5. The conditions for Ofgem's approval of this sale relate to the regulatory, commercial and operational arrangements that are required to support a divested industry structure. For example: • clearly defined roles and responsibilities for network owners • New Offtake arrangements (to be implemented from September 2005) • the introduction of an agency to carry out functions that NGT currently carries out centrally, including administering the processes needed to support gas competition. The conditions of the Authority's consent to the sale will be published shortly. 6. Ofgem is the Office of the Gas and Electricity Markets, which supports theGas and Electricity Markets Authority, the regulator of the gas and electricityindustries in Great Britain. Ofgem's aim is to bring choice and value to all gasand electricity customers by promoting competition and regulating monopolies.The Authority's powers are provided for under the Gas Act 1986, the ElectricityAct 1989 and the Utilities Act 2000. * The potential saving of around £225 million is the estimated net benefitcustomers could receive between 2005 -2023, calculated in today's terms. For further press information contact: Mark Wiltsher 020 7901 7006Richard Hunt 020 7901 7158Out of hours: 07774 728971 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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