Northern Ireland Electricity (NIE) is considering legal action over a decision by the Northern Ireland industry regulator, Ofreg, to make the company cut its transmission and distribution prices by 29 per cent. Market reaction to the announcement was predictable as NIE's share price was marked down 20p in early trading before closing down 121/2p on the day at 4271/2p. NIE said yesterday it was studying the Ofreg announcement "closely" and may apply for a judicial review of the decision.
In May NIE announced a sharp drop in pre-tax profit from £107.4 million sterling to £59.8 million for the year ended March 31st, 1997.
One of the reasons for this was NIE's expectation that it would have to pay approximately £44 million in windfall tax, after an announcement in the British budget in July.
Ofreg's decision to modify NIE's prices by 29 per cent is steeper than the 25 per cent recommended by the Monopolies and Mergers Commission (MMC) in April.
It is estimated that a 29 per cent cut in transmission and distribution prices would reduce the average household bill by about 16 per cent or £54, and there would be a 6 per cent reduction for larger users.
Under the MMC proposals, electricity bills would fall initially by an average of £48 per year, with a drop of 5 per cent for larger users.
If there was no court challenge, the new prices should be imposed in about 10 weeks and a further 2 per cent cut in the price would be required each year over the next four years, according to Ofreg. Ofreg also intends to reduce the net present value (NPV) of NIE's allowed revenue for the 1997/ 2002 period, below the level proposed by the MMC.
The MMC had proposed an NPV of £575 million sterling, but Ofreg says it wants to cut that figure by £36.5 million sterling.
No one from NIE was available for comment yesterday.
Mr Douglas McIldoon, the director-general of electricity supply in Northern Ireland, said he did not believe "the changes would affect NIE's ability to earn a return on its assets and to finance its activities".
Mr McIldoon said that, if NIE's present price controls continued, there would be "adverse public interest effects". There have been repeated calls from the Northern Ireland Consumer Committee for Electricity for lower electricity prices.
In a previous statement, Mr McIldoon said customers were asking what return "they had received for the £2 billion paid in electricity bills since privatisation".
Mr Patrick Haren, chief executive of NIE, has said that the company would take immediate steps to "meet the challenges of new price controls".
The background to yesterday's decision is that electricity prices in Northern Ireland have not fallen as low as those in the rest of Britain.
Ofreg originally asked for a 30 per cent cut in transmission and distribution costs which would have meant 16.5 per cent off the average bill, with 6 per cent off bills for larger users.
