Firmus Energy (Distribution) Limited v Northern Ireland Authority for Utility Regulation Final determination 26 June 2017 © Crown copyright 2017 You may reuse this information (not including logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open–government– licence/ or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: [email protected]. Website: www.gov.uk/cma Members of the Competition and Markets Authority who conducted this appeal Phil Evans Roger Finbow Jon Stern Acting Chief Executive of the Competition and Markets Authority Andrea Coscelli The Competition and Markets Authority has excluded from this published version of the report information which the inquiry group considers should be excluded having regard to the three considerations set out in section 244 of the Enterprise Act 2002 (specified information: considerations relevant to disclosure). The omissions are indicated by []. Some numbers have been replaced by a range. These are shown in square brackets. Non-sensitive wording is also indicated in square brackets. Contents Page 1. Introduction ........................................................................................................... 4 Conduct of the appeal ........................................................................................... 5 Permission to appeal ....................................................................................... 6 Submissions from the Parties .......................................................................... 6 CMA provisional determination and responses ............................................... 6 Site visit and hearings ..................................................................................... 7 Transparency ................................................................................................... 7 2. Background to the appeal ..................................................................................... 8 The gas supply chain in NI .................................................................................... 8 The GDNs ............................................................................................................. 8 FE .................................................................................................................... 9 PNGL ............................................................................................................... 9 SGN ................................................................................................................. 9 The regulation of GDNs’ revenues ........................................................................ 9 The decision under appeal – GD17 .................................................................... 10 3. The legal framework for the appeal ..................................................................... 12 The decision under appeal .................................................................................. 12 The UR’s principal objective, powers and duties ................................................ 12 The principal objective ................................................................................... 12 Powers of the UR .......................................................................................... 12 Duties of the UR ............................................................................................ 13 Test on appeal .................................................................................................... 13 Standard of review .............................................................................................. 14 Materiality ........................................................................................................... 18 4. Ground 1: Opex allowance ................................................................................. 20 Introduction ......................................................................................................... 20 FE’s grounds of appeal on Ground 1 .................................................................. 20 Background on setting an Opex allowance ......................................................... 22 Ground 1B: ‘The Maintenance Sparsity Error’ .................................................... 23 Summary of grounds of appeal...................................................................... 23 The UR’s Decision ......................................................................................... 24 FE’s submissions ........................................................................................... 25 The UR’s submissions ................................................................................... 29 Our assessment ............................................................................................ 30 Our conclusion on Ground 1B ....................................................................... 33 Ground 1C: ‘The GIS Oversight Error’ ................................................................ 33 Summary of grounds of appeal...................................................................... 34 The UR’s Decision ......................................................................................... 34 FE’s submissions ........................................................................................... 37 The UR’s submissions ................................................................................... 38 Our assessment ............................................................................................ 39 Our conclusion on Ground 1C ....................................................................... 43 Observations on the GD17 process ............................................................... 44 Ground 1D: ‘The Manpower Scale Error’ ............................................................ 44 Summary of grounds of appeal...................................................................... 44 The UR’s Decision ......................................................................................... 45 FE’s submissions ........................................................................................... 46 The UR’s submissions ................................................................................... 52 1 Our assessment ............................................................................................ 54 Our conclusion on Ground 1D ....................................................................... 56 Ground 1E: ‘The Omission Error’ ........................................................................ 56 Summary of grounds of appeal...................................................................... 56 The UR’s Decision ......................................................................................... 57 FE’s submissions ........................................................................................... 59 The UR’s submissions ................................................................................... 60 Our assessment ............................................................................................ 62 Our conclusion on Ground 1E ....................................................................... 66 Ground 1A: ‘the Benchmarking Error’ ................................................................. 67 Summary of grounds of appeal...................................................................... 67 The UR’s Decision ......................................................................................... 67 FE’s submissions ........................................................................................... 70 The UR’s submissions ................................................................................... 74 Our assessment ............................................................................................ 76 Our conclusion on Ground 1A ....................................................................... 79 Observations on the GD17 process ............................................................... 80 Conclusion on Ground 1 ..................................................................................... 81 5. Ground 2: Connection incentive .......................................................................... 82 Introduction ......................................................................................................... 82 FE’s grounds of appeal on Ground 2 .................................................................. 82 Background on setting the connection incentive ................................................. 83 Ground 2A – ‘The Connection Target Error’ ....................................................... 84 The UR’s Decision ......................................................................................... 85 FE’s submissions ........................................................................................... 86 The UR’s submissions ................................................................................... 89 Third party submissions ................................................................................. 93 Our assessment ............................................................................................ 93 Our conclusion on Ground 2A ....................................................................