UK Regulator Warns Buyers to Beware

British energy regulator Ofgem warned potential bidders for the UK local gas distribution grids that they will not be able to claw back any premium paid for the assets by imposing higher tariffs. National Grid is selling controlling stakes in its remaining four, while SSE is considering selling up to a third of its 50% stake in a fifth, SGN.

In an open letter September 28, Ofgem boss Dermot Nolan said it would continue to regulate these businesses under its existing methodology until 2020, when it would decide on a new gas distribution price control, RIIO-GD2, for implementation from April 2021.

The logo of SGN, formerly Scotia Gas Networks, which is 50% owned by SSE (Logo credit: SSE)

It said that to ensure consumers get what they pay for, it would make adjustments for any shortfalls in the current price control period and for any investment deferred to the next one. "We have not yet made any firm decisions about RIIO-GD2. Therefore, any assumptions that bidders make about future regulatory behaviour are at their own risk. Bidders should be clear that we will not provide compensation for any premium paid over the regulated asset values, nor will we take into account any particular financing arrangements that might be adopted when setting future price controls," he said.

A number of companies are believed to have expressed interest in a business seen as a safe place for investors, given the regulations in place. UK gas demand however is falling and homes generally becoming more energy efficient.

William Powell