Businesses face increases of up to 7% in natural gas prices

BUSINESSES ARE facing an estimated 5 per cent to 7 per cent hike in natural gas costs after the State’s energy regulator approved increases in network charges at the weekend.

On Friday, the Commission for Energy Regulation (CER) approved a series of increases for use of the natural gas transmission and distribution networks, which will come into effect in October.

According to independent natural gas and electricity supply company Vayu, the increases could result in a rise of 5 per cent to 7 per cent in the prices that businesses pay for natural gas.

The news comes ahead of an announcement on domestic natural gas charges, which is due later today. Bord Gáis Energy has sought a 7.54 per cent increase, but it is not known if the regulator will approve this.

Bord Gáis Networks operates the Republic’s transmission and distribution systems, which transport natural gas around the State. The prices that the company charges are regulated and subject to reviews by the CER, which decides on the tariffs based on submissions from Bord Gáis Networks, customers and other interested parties.

The increases approved by the regulator cover the use of the transmission system, which is the network’s backbone, and the distribution system, which delivers gas to customers.

Vayu’s head of regulation Bryan Hennessy predicted that large industries, such as pharmaceutical manufacturers and medium-sized businesses, would be most affected. “Energy is the biggest cost after employees and raw materials,” Mr Hennessy said.

He added that Vayu was aware high energy costs had been a factor in some multinational investors pulling out of the Republic, although he said he could not give specific examples of this for confidentiality reasons.

A Bord Gáis spokesman pointed out that the State-owned group’s networks division built and maintained the natural gas system and had to generate a return from this. The decision to increase the charges was the result of a process that had been going on for over a year.

“It’s the culmination of work that we started almost 18 months ago,” he said.

The spokesman pointed out that a key reason for the increase was the fact that Bord Gáis’s own borrowing costs had increased, making it more expensive to raise capital.

“This is a direct result of the financial crisis. Our rating is tied to the State’s and we were rerated some time ago. That increased the cost of raising capital,” he said. “That is the single biggest factor in the increase.”

Bord Gáis had net debt of €1.9 billion at the end last year, according to its 2011 annual report. Part of the money it has borrowed is used to fund the development of its networks.

Network costs account for half the 7.54 per cent rise in domestic prices that the group is seeking. The price that Bord Gáis charges its household customers for the fuel is regulated by the CER.