THE Northern Ireland Energy Regulator is proposing to ‘correct’ funding to Northern Ireland Electricity to the tune of £35 million after an investigation into accounting practices at the firm, it emerged on Thursday.
Regulator Shane Lynch said the action proposed was necessary to prevent consumers continuing to pay twice for services provided by the firm which is responsible for the transmission and distribution of electricity across the province.
The proposals were published in a draft consultation document backed by the report of an independent review which found changes in accounting procedures involving capital and operating expenditure (capex and opex) at the company that the regulator was not aware of.
Announcing the investigation in April, Mr Lynch said the issue had arisen during negotiations over the new price control, known as RP5, prompting the agency to explore further NIE’s accounts from 2005/6 onwards.
“We allowed them a certain amount of money for operating costs in the [previous] RP4 period and they did it for significantly less, “ said Mr Lynch at that stage.
“That is to be welcomed if it resulted from genuine efficiencies which they delivered. The difficulty we have and what we need to be clear about is we have also noted that, in regard to certain cost items, they changed their capitalisation practice.
“Some items that used to be classified as operating cost are now classified as capital costs and we just need to be clear that there’s no element of double counting as a result of that.”
He said it was clear that action was required.
“We hired consultants to do a fairly detailed investigation and they have concluded that, indeed, consumers would pay twice if we didn’t make a correction and that correction is of the order of £35 million,” he said, adding that around £3 million of that figure had already been paid by consumers and would be clawed back from NIE over the next two years.
“The other £32 million or so is money that consumers would be due to pay over something like the next 40 years and we would just make a correction to make sure that doesn’t happen,” he said.
“That is what we have proposed in this consultation paper.”
However, he declined to speculate on how the anomalies in the firm’s accounting procedures had arisen or whether any punitive action against the company might follow.
“From our perspective we’re not making any judgement on that,” he said.
“Our objective was really just to ascertain whether there was a risk that cosumers had paid twice in the past or would pay twice in the future.
“That is our job to protect consumers and that’s the only aspect that we were looking at. We are not proposing any [punitive measures].”
In a statement responding to the draft document, NIE said it strongly disagreed with the report’s findings and conclusions and that it would be submitting “a comprehensive rebuttal to the proposals”.
“NIE’s accounts have, at all times, been prepared and independently audited in accordance with the conditions of its licence,” the statement read.
“The retrospective nature of the proposals is contrary to essential principles of good regulatory practice.”
Mr Lynch said the report and the resulting proposals represented diligent and necessary work on behalf of the consumer.
“It’s important that, in order to protect consumers, we have total transparency and that the regulator does have to scrutinise quite a bit to make sure that consumers don’t pay twice for services.
“It’s important that we have regulation that examines things in some detail.”
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