Gas firms angry over price curbs

The energy regulator Ofgem came under attack from gas distribution companies yesterday after proposing a cut in their future returns on capital investment.

Ofgem also recommended that shareholders in the companies rather than customers pick up £337m of an estimated £834m overrun on existing capital expenditure programmes. The regulator said the companies should be allowed to increase transportation charges by an average of 9.7 per cent in 2007-08 - resulting in an increase in domestic bills of about 2 per cent, or £9.

Separately, Ofgem also proposed that the gas networks themselves fund 40 per cent of a forecast £834m overspend on capital and non-mains replacement in the five-year period to March 2007. The networks had wanted customers to pay for virtually all of the overspend.

The Energy Networks Association, which represents 21 UK electricity and gas distribution companies, reacted angrily to the price controls, accusing Ofgem of penalising the industry and urging it to think again. Nick Goodall, the association's chief executive, said: "The gas industry is in need of a sustained period of high investment to meet the demands of its customers. On the face of it, these proposals, by reducing the returns that companies will make from these much-needed investments, will put at risk their successful delivery."

Ofgem also proposed that the country's four electricity and gas transmission companies should be allowed to spend £4.5bn on the national grids. This represents a £260m increase on the amount of capital investment the regulator proposed allowing in June.