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Ofgem

The UK has led the world in developing novel ways of regulating natural monopolies such as gas transmission and distribution pipeline systems. The UK system consists of 6,000 km of transmission line and around 250,000 km of distribution and is the second largest in the world after Gazprom of Russia.

Regulation in the UK is based on carrying out an economic analysis using price control of the form of RPI – x where RPI is the retail price index and x is an efficiency factor. In order to build this economic model it is necessary to include forecast capital and operating costs. This information is supplied by the company being regulated but needs to be checked by an independent engineering consultant such as PDC.

PDC was selected as the technical consultant for this work covering the Price Control Period 2002-7. We reviewed Transco’s entire operation covering both the transmission and distribution system. This involved around 1 year’s work and included a number of visits to Transco’s head office as well as to a number of the district offices.

The outcome of this work accepted by both Ofgem and Transco was that there were recommended savings of £696 million in capital expenditure and £686 million in operating costs over the period 2002-7.

You can see a copy of the report by downloading the file listed below.

Ofgem Report