On 6 January 2011, the Office of the Gas and Electricity Markets ("Ofgem") announced that it intends to impose a fine of £8 million on National Grid Gas ("NGG") for acting in breach of its licence obligations to provide the regulator with accurate information.
The misreporting covers the reporting period 2005/06 to 2007/08 and relates to information NGG was required to provide to Ofgem concerning the progress of its gas mains replacement programme. The cost of this programme is recovered by NGG through its distribution charges which are ultimately payable by the consumer. As per the provisions of its licence, NGG is obliged to provide a report every regulatory year on the mains decommissioning work completed by it in that year.
Ofgem's investigation was supplemented by an internal investigation carried out by NGG, revealing various misreporting breaches such as forward booking, duplicate reporting and the failure to maintain proper systems and processes as part of the programme.
Ofgem stated that misreporting of regulatory information has the potential to affect the allowances set during price controls, which could have an adverse effect on the interests of customers and consumers. It also pointed out that misreporting is difficult for Ofgem to detect and that therefore there is a need for it to be deterred by regulatory action. Furthermore, National Grid plc (NGG's parent company) had previously provided assurances to Ofgem in relation to the quality of its regulatory data and NGG was on notice of the need to ensure compliance
The Chairman of Ofgem, Lord Mogg, stated that "Ofgem's actions... reinforce our strong message to all energy companies that misreporting cannot and will not be tolerated".
The issue came to light when a whistleblower informed NGG of the misreporting. In its press release, Ofgem revealed that the proposed fine would have been higher had it not been for the fact that NGG brought the misreporting to Ofgem's attention quickly, and subsequently cooperated with Ofgem and attempted to put things right.
Any representations or objections to the proposed penalty must be submitted by 27 January 2011.
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