Transco says red tape is hiking costs and manpower

Transco, the gas pipeline operator which is owned by Lattice, disclosed yesterday that it has been forced to take on an extra 1,000 emergency staff because of the introduction of the working time directive.

The company also said that new safety requirements due to be published in the next fortnight by the Health and Safety Executive, could increase its bill for replacement of cast iron mains to more than £2bn over the next five years.

Ofgem, the energy regulator, has promised to take the HSE's requirements into account when it publishes final price controls for Transco on 26 September.

In its draft price proposals published in July, the regulator agreed to allow £1.6bn of expenditure on mains replacement. But Transco claims that it needs an extra £3bn above and beyond what Ofgem allowed for in its draft proposals to meet all its expenditure needs for the national transmission system.

Ofgem also proposed a cut in Transco's return on capital to 6 per cent, which would translate into a 14 per cent reduction in revenues and £15 off the average domestic bill.

Phil Nolan, Lattice chief executive, would not say whether it would appeal to the Competition Commission if Ofgem refused to budge, but he added: "Ofgem described its proposals as the maximum price cut possible and we would expect them to move from that."

He also said the regulator had to allow Transco the financial flexibility to invest in its transmission network so that it could transport imported gas from either the east coast or the north of Scotland, depending on whether supplies from Norway or the Continent were cheaper.

Pre-tax profits for the six months to the end of June fell 11 per cent to £398m largely due to lower profits at Transco and start up costs in telecoms.

Profits at Transco, which accounts for 95 per cent of Lattice, fell £55m as lower transmission prices, increased operating costs and higher capital expenditure more than offset the beneficial impact of colder weather.

Lattice said that its new telecoms division had won its first contract from one of the UK's 3G mobile operators, worth "tens of millions of pounds" over a 20-year period. Lattice is investing £450m in the fibre-optic network, which is strung alongside its gas transmission system.