BG today accepted Ofgas' final proposals for Transco's
new licence conditions, and said that in large measure
they reflect the substance of the 18 June MMC settlement
and its value. On this basis, Transco can now concentrate
on meeting the demanding targets set by the MMC settlement,
and on playing its central role in the successful implementation
of full domestic competition.
Commenting on the proposals, David Varney, Chief Executive
of BG plc said:
"The aim of both sides has been to achieve a stable
regulatory framework which on the one hand would reduce
the cost of capital to the advantage of both gas consumers
and shareholders, while on the other giving Transco's
management the incentive to strive for superior performance.
The proposed licence conditions preserve the central
features of the MMC settlement and its value. On the
volumes issue, we didn't get a direct implementation
of the MMC's recommendation for linking volume, cost
and price, and that is a matter of regret. It seemed
clear to us that the MMC recognised the inherent uncertainty
of demand for Transco'sservices, and carefully considered
the proposed mechanism for dealing with it. Nonetheless,
outside the 3% revenue cap Transco will retain the intended
incentive to play its part in developing the infrastructure
for the growing gas market.
"Our task now is to get on and make a success of the
business within the regulatory framework established".
Notes to Editors
- In its initial Consultation Document Ofgas was minded
to set in advance volumes to be included in the price
formula. This would have provided Transco with a
fixed level of revenue, regardless of actual outturn
volumes.
Ofgas are now proposing
a volume band over which
no additional revenue will
be allowed, should actual
volumes be up to 3% above
the MMC forecast. If Implemented,
the proposal will ensure
that Transco receives the
allowed revenues recommended
by the MMC at their forecast
volumes, with the first
3% of growth above forecast
forming the volume "dead
band". Variations in volumes
either side of the dead
band will result in allowed
revenues being adjusted
by the incremental revenues
recommended by the MMC.
(The band width, 3%, has
been determined by Ofgas
assuming that the difference
between forecast and actual
volumes for 1996/97, 3.8%,
will be sustained at a
slightly lower level and
making a small allowance
for some additional costs.)
- The 7.1% figure quoted
by Ofgas in their Consultation
Document represents the
variation in demand compared
to Transco's forecast,
assuming average weather
conditions for the whole
of the 1997/98 formula
year. However, the actual
volume growth for the first
six months of 1997/98 was
only 3.8%, reflecting the
warm weather to date and
substantially comprises
increases in low revenue
large user volumes. Consequently,
this will have little impact
on prices and would result
in approximately only a
0.2% increase in revenues
under the MMC's form of
control.
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