The company's Strategic Business Plan (SBP), submitted to regulator Ofgem as part of the price control review process, has been framed to meet the needs of the industry and its consumers at a time of significant change and uncertainty.

It builds on Transco's Business Plan Overview (BPO) published last December, which was based on the company's existing organisational structure and obligations. It retains the efficiency savings highlighted in that document and outlines, where possible, the extra funding needed to deliver additional required outputs.

The SBP seeks to take account of a number of factors:

• As supplies from UK offshore fields tighten, the British gas market must adjust to growing dependence on gas imports and increasing linkage with other European gas markets.
• Growing inter-dependence between the gas and electricity transportation systems, which under the New Electricity Trading Arrangements (NETA), may make greater demands on the responsiveness of the system.
• Changes to public safety standards are being considered by the Health and Safety Executive (HSE) and the Utilities Act 2000 has introduced new social and environmental obligations.
• The continuing drive for efficiency and lower gas prices needs to be balanced against other consumer benefits - retaining high standards of public safety and supply reliability, and realising social and environmental improvements.

The key points in the SBP are:

• On safety, Ofgem has said its price control proposals will take fully into account Transco's obligations to operate a safe system to standards set by the HSE. Substantial additional funding will be needed if existing mains replacement programmes are accelerated following discussions with Ofgem and the HSE, and the scope of the gas emergency service is expanded as a result of the HSE review of gas safety.
• On reliability, Transco points to the likelihood of greater dependence on gas imports, and uncertainties about where these supplies might enter the system. The National Transmission System (NTS) is likely to require significant investment if Britain's wholesalers and suppliers are to procure gas competitively from a diversity of supply sources. A flexible framework which encourages additional investment in the network will provide greater protection against supply shortages, and facilitate competition among upstream suppliers. The scope of any additional investment will be determined by Ofgem.
• On customer service, as proposed by Ofgem, Transco will reduce the time needed to restore supplies after unplanned interruptions and cut the agreed response time for answering telephone calls. In line with Ofgem's proposals, Transco is including some £150 million to improve its emergency and metering performance standards. Maintenance work is carried out on the public highway and the impact of changing legislation will need to be taken into account.
• On environment, as has been suggested by the Environment Agency, Transco is allocating £60 million for the replacement of four compressor units, reducing nitrogen oxide emissions and thereby benefiting the environment.
• On resourcing, sustaining the position of Britain's gas industry as one of the safest in the world depends largely on the competence and professionalism of its employees. The Gas Industry National Training Organisation (GINTO) has said the industry needs to undertake substantial programmes of recruitment and training in order to meet its future needs. Compliance with the European Working Time Directive, and Government proposals for industry-wide standards of competence will both have an impact on the availability of skills. The average age of Transco's industrial staff is also increasing. Transco's Strategic Business Plan identifies ways to tackle the potential shortage of skilled workers.
• On organisation, Transco considers unbundling of metering will lead to effective competition from 2002, but that a transitional control may be appropriate for the provision and maintenance of existing meters, areas where competition is not sufficiently developed. Separating emergency and meter work, as required by Ofgem, will result in the establishment of dedicated workforces in both areas, which will cost over £200 million over the next five years.
• On financing, with the industry facing the need for a new cycle of infrastructure investment, Transco points out that its cost of capital and credit rating are crucial to efficient delivery of its strategy, and the related consumer benefits and service standards. It believes its cost of capital is at least 7% in real terms. It emphasises the need to retain the financial flexibility provided by its mid-single A credit rating as well as certainty on its regulatory asset base (RAB). The RAB underpins debt investors' security in the business and equity investors' returns. It needs to be updated in line with the well-recognised regulatory treatment endorsed by two MMC enquiries. If investor confidence is to be restored, it should not be retrospectively adjusted.
• On operational efficiency, Transco's Strategic Business Plan foresees that, depending on the assumptions for the rate of mains replacement, the projected cash spend could amount to £12 billion over the period 2002 - 2006. This would be £1.3 billion (12%) higher than that contained in its Business Plan Overview published last December. This increase would be almost entirely the result of the higher customer outputs outlined in the SBP- with half the increase relating to the provisionally assumed replacement programme for metallic pipes. Inevitably if these improvements are to be provided, Transco's transportation charges will be higher than they would otherwise have been. Offsetting this, the Business Plan Overview identified some £140 million in further possible efficiencies.

Notes to Editors

1. Transco - part of Lattice Group plc - is the owner, operator and developer of the majority of Britain's gas transportation system. Its network supplies almost half the country's energy needs.

2. The new Transco price control is due to come in to effect in April 2002. Under the timetable Ofgem is due to publish draft proposals in June 2001 with final proposals being published in September 2001.

3. Transportation charges have fallen by about 20% since the start of the current formula period in 1997 - equivalent to about £25 a year for the average household. Transportation charges account for 35-40% of the average domestic gas bill.

4. Transco's customers are approximately 60 gas shippers who sell gas to some 20 million consumers.