East Surrey Holdings, the UK group that owns the Northern Ireland energy distributor Phoenix Natural Gas, has launched a blistering attack on the regulator blaming it for scuppering a takeover deal.

East Surrey Holdings chairman Pat Barrett has made a formal complaint against the Northern Ireland Authority for Energy Regulation to Angela Smith, Parliamentary Secretary of State for Northern Ireland. The complaint stems from moves by a private investment group, Terra Firma Investments to attempt to pull out of its £453 million (€668 million) takeover of East Surrey.

The takeover, agreed in April, was cleared by the Office of Fair Trading in June but water regulator Ofwat was still in the process of examining it.

On Thursday, East Surrey was informed by Terra Firma that it was seeking to lapse its proposed acquisition.

Phoenix Natural Gas supplies 80,000 properties in Belfast and passes a further 150,000 of the 300,000 homes in the city.

In the letter, Mr Barrett, refers to correspondence between Northern energy regulator chairman, Douglas McIldoon and Terra Firma last week, in which he claims Mr McIldoon wished to secure "additional customer value ... in the region of £55 million".

Mr Barrett says calling for such a customer rebate is outside the remit of regulators as no precedent exists for such an action on an acquisition such as Terra Firma's with East Surrey.

He says that, in respect of Terra Firma's proposed acquisition of Sutton and East Surrey Water, Ofwat rejected in its July 20th position paper a suggestion that Terra Firma should return a customer dividend of £40 to each customer. Further, Mr Barrett says the attractiveness of East Surrey was not focused exclusively on Phoenix. "Any idea that any premium for shareholders is built solely on a premium for Phoenix is naive in the extreme," he writes.

The regulator refused to comment on the letter's contents yesterday. In a statement it said it was an independent statutory body that must operate within the terms of its legislative framework.

"The authority has expressed to Phoenix its willingness to discuss these matters at any time at which Phoenix is prepared to do so," it said.