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RNS Number:1302N
OFGEM
04 December 2006


EMBARGOED UNTIL 07.00 HOURS ON MONDAY 4 DECEMBER 2006

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FINAL PROPOSALS FOR GAS DISTRIBUTION ONE YEAR PRICE CONTROL

*         Companies' capital expenditure allowances will increase so they can
upgrade networks for customers

*         Domestic customers' gas bills will increase by around #10 for
2007-2008 as gas distribution companies face rising costs for the mains
replacement programme, pensions, business rates and replacing the small amounts
of gas lost as it is transported

The final proposals for the gas distribution one-year price control have been
published today (Monday) by energy regulator Ofgem, giving a significant boost
to investment in local gas networks.

The companies which run Britain's gas distribution networks (GDNs) will be able
to invest #946 million* in 2007-2008 to upgrade their networks to benefit
customers. This is 11 per cent higher than the network owners have forecast they
will spend in 2006-2007.

To enable the companies to meet rising costs, Ofgem is proposing to allow an
increase in the revenue which GDNs' can recover from customers by, on average,
11.5 per cent. This partly reflects the additional investment, but the majority
of the increase reflects rising costs over the past five years which are outside
the companies' control.

These include business rates, pensions and costs relating to the small amounts
of gas lost as it is transported through the networks.  At the same time Ofgem
has reduced the amount the companies will receive for the other day to day
running costs of their business by 2.5 per cent so that customers will benefit
from efficiency savings that this brings.

For domestic customers the effect of our proposals will be an increase of around
#10 in their gas bill in 2007-2008.

Ofgem Chief Executive, Alistair Buchanan, said: "The gas distribution networks
require increases in their investment allowances to pay for projects which will
bring benefits to customers. Ofgem has also recognised that the companies are
facing rising costs which are outside their control and we have allowed these
costs to be passed on to customers.

"We are currently reviewing the five-year price control for the gas distribution
networks which will apply from 2008. The 2008-2013 price controls will be our
first opportunity to compare the performance of companies which are owned and
operated by different management teams - each trying to improve the way they
operate in terms of cost and quality.  We will collect and use this information
to set tougher price controls in future than we would have been able to do
without these comparators. "

* in 2005-2006 prices.

                                                                  - Ends -

Notes to Editors:

1. The existing gas distribution price controls come to an end on March 31, 2007
but they are being extended for one year until April 2008 and then reset for the
following five years until 2013. The proposals published today relate only to
the one year control.  Work on the subsequent five-year control will continue
throughout 2007.

2. The GDNs spent #864 million (in 2005-2006 prices) more in their networks over
the current five-year price control period than anticipated at the last review.
Where Ofgem considers that this investment is inefficient, GDNs will not be able
to recover any of the additional costs from customers.  If the additional
investment is efficient and brings benefits to customers, GDNs will be allowed
to recover some but not all of the additional money.  Overall shareholders will
fund 37 per cent of the additional investment.

3. A programme to replace ageing gas mains on local distribution networks was
introduced in 2002. It means that the companies must replace all iron mains
within 30 metres of premises over the course of 30 years.

3. Timeline for the Gas Distribution Price Control Review:

One year extension:
* September 2006 - initial proposals
* December 2006 - final proposals

Main review:
* November 2006 - third consultation document
* September 2007 - updated proposals
* March 2007 - fourth consultation document
* May 2007 - initial proposals
* December 2007 - final proposals

4. Copies of the document "Gas Distribution Price Control Review One Year
Control Initial Proposals" are available on the Ofgem website www.ofgem.gov.uk.
Hard copies can be ordered from the Ofgem distribution centre on 020 7901 7116
or by email from distribution@ofgem.gov.uk

5. Annual gas distribution charges for the average customer bill are #86.

6. Following consultation, in March 2004 Ofgem set out its intention to extend
the current gas distribution price control by one year to 31 March 2008. This
was to provide a more balanced workload for companies and Ofgem and to allow gas
distribution and transmission issues to be considered separately. The one year
control also creates an opportunity for Ofgem to review an additional year's
data when setting the main price control.

7. The final proposals for the one year extension represent a small change from
our initial proposals published in September when we indicated that GDN revenue
on average would be allowed to increase by 9.7 per cent and 38 per cent of the
additional investment would be funded by shareholders compared to an increase in
revenue in final proposals of 11.5 per cent and 37 per cent of the additional
investment being funded by shareholders.

8. A very small amount of gas is lost as it is transported through the networks.
This is known as shrinkage and the GDNs have to replace this gas by purchasing
it in the wholesale market. Currently 0.7 per cent of all gas transported
through the distribution networks is lost as shrinkage and this figure is in
line with other gas networks in European countries. In Britain shrinkage will
fall as a result of the 30 year mains replacement programme for all the networks
which is presently underway.

9. The distribution companies are currently operating under price controls set
in 2002 when the networks were all part of National Grid Transco.

  * 2002: start of previous Transco distribution price controls running to
    2007
  * 2005: four of eight distribution networks sold
  * 2006-7: consultation on one-year price controls for separate distribution
    networks
  * 2007: one-year price controls begin with consultation on first full
    five-year review
  * 2008-13: first full gas distribution price control period.

Information on costs gathered during the one year price control review will feed
into the first and subsequent full five-year reviews.  Over time, the collection
of this information will allow Ofgem to make more meaningful comparisons between
companies and identify increased efficiency savings which can then be passed
back to customers in future reviews.

10. Ofgem has also today announced final proposals for price controls for the
four electricity and gas transmission companies which own Britain's high-voltage
national networks and the national gas pipeline. These companies are: National
Grid Electricity Transmission (NGET), National Grid Gas NTS (National
Transmission System), Scottish Power Transmission Limited (SPTL) and Scottish
Hydro-Electric Transmission Limited (SHETL)

11. Ofgem is the Office of the Gas and Electricity Markets, which supports the
Gas and Electricity   Markets Authority, the regulator of the gas and
electricity industries in Great Britain. The Authority's functions are set out
mainly in the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998
and the Utilities Act 2000. In this note, the functions of the Authority under
all the relevant Acts are, for simplicity, described as the functions of Ofgem.

For further press information contact:

Chris Lock: 020 7901 7225 or 07766 511470
Mark Wiltsher: 020 7901 7006 or 07774 728971
Trevor Loveday: 0207 901 7288 or 07801 290554


                      This information is provided by RNS
            The company news service from the London Stock Exchange
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