Lattice wins Ofgem concessions on prices

Lattice climbed down from its threat to take its regulator to the Competition Commission yesterday, after winning fresh concessions from Ofgem over the five-yearly price review.

Lattice climbed down from its threat to take its regulator to the Competition Commission yesterday, after winning fresh concessions from Ofgem over the five-yearly price review.

The company, which runs the country's gas pipe infrastructure, said that it had decided to accept the review, which runs from April 2002, despite its "challenging" targets.

Lattice has been unhappy about the regulatory review since a draft was published in June that showed a £3bn gap between the company's envisaged expenditure and that allowed by the regulator. Last month, the revised Ofgem proposals still showed a gap of £1.9bn.

Philip Nolan, Lattice's chief executive, said the final package accepted by the company had a shortfall of £500m. "We're not saying this is a wonderful outcome. On balance it's preferable to spending nine months arguing it out at the Competition Commission. We've made a pragmatic decision."

Lattice shares closed up 4p at 159p as the uncertainty weighing on the stock was lifted with the regulatory settlement. The company said it would now be able to maintain the current dividend level in real terms.

The regulator has reduced the capital expenditure required by £500m, while Lattice has identified a further £400m in cost savings. The rest of the extra money comes from the fact that it will not now separate its emergency and metering divisions and lower funding of its pension fund.

Ofgem had also agreed to review the situation should the economic circumstances of the company change. There are policy changes being considered that could hit Lattice.

The Government is piloting a scheme whereby utilities are charged rent for the time they dig up roads. This could cost Lattice's Transco arm hundreds of millions of pounds. The Government's Energy Policy Review is under way, as is a review of the tax and safety regime under which the company works.