Penalizing the UK’s gas distribution operators for delivering the networks their customers require and reducing the returns on existing and future investment sends out entirely the wrong message to prospective investors within the industry, said Energy Networks Association (ENA) chief executive Nick Goodall.

His comments follow the publication of Ofgem’s initial proposals for the one-year price control, which outline the regulator’s suggestions for extending the existing gas distribution price control by one year, from April 2007.

In these initial proposals, Ofgem suggests that gas distribution networks shareholders fund around 40% of the companies’ overspend on capital and non-mains replacement expenditure, which amounts to over GBP800 million in the current five-year price control period.

The gas industry is in need of a sustained period of high investment to meet the demands of its customers, Mr Goodall continued. On the face of it, these proposals, by reducing the returns that the companies will make from these much-needed investments, will put at risk their successful delivery.

Instead, he suggests, Ofgem should offer incentives for both potential investors to continue providing funding and for the companies to ensure they can deliver gas as efficiently as possible.

Mr Goodall also said that Ofgem’s proposal that the companies recover the majority of the costs of past investments should be urgently reviewed before the final proposals are published in December.

The ENA represents a number of UK electricity and gas transmission and distribution companies. Its members and associates include EDF Energy, National Grid, Scottish & Southern Energy, ScottishPower and United Utilities.