REGULATING the price of home heating oil in Northern Ireland would be surprisingly straightforward.

It would be unusual – most developed countries leave it entirely up to the market – but it could certainly be done.

John French, chief executive of the Utility Regulator, told the BBC this week that he could take on the task if Stormont included it in his remit, although he added: “We cannot reduce the price below what the fundamentals of the market is.”

Regulation would not mean subsidised oil or one-off emergency payments.

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Its main aim would be to control the excess profits made when the global price of oil jumps up and the price to consumers immediately follows, even for oil already in suppliers’ storage tanks or ordered using contracts that fix the price months ahead.

Most of the 300 or so oil delivery companies in Northern Ireland are too small to use such contracts and have only a day or two of storage, putting them effectively in the same boat as their customers.

But that is not the case for their suppliers, the four companies that import oil into Northern Ireland through facilities in Belfast and Derry.

They can use a mix of storage and contracts to hedge against price fluctuations, although the mix differs and not all use both.

Between them they store 300 million litres of home heating oil at any given time, equivalent to over a quarter of annual consumption, or 600 litres for each of the half a million households here heated by oil.

The industry is more complicated than this picture suggests. Nevertheless, regulation would require little more than keeping an eye on the four importers.

This would particularly suit Northern Ireland’s approach to utility regulation, which is presumably why Mr French sounds unfazed by the prospect.

In Britain, regulation involves capping consumer prices. Regulator Ofgem sets maximum unit prices for electricity and gas in each region, based on its assessment of industry costs and conditions.

Misleadingly, it reports this as a maximum price for the average household – currently £1,758 per year – but any household using more than the average pays higher bills. There is no ‘household cap’.

In Northern Ireland, regulation involves capping profits. For example, Power NI is allowed to make a maximum 2.2% profit in the years 2025 to 2029.

Caps are decided by considering each company’s needs, costs and market position.

NIE Networks, which owns the electricity grid, has a 4.79% cap because it has to be that profitable to attract all the investment it requires.

Power NI buys electricity from the grid and sells it on. It only needs to run an office.

Regulation in the Republic caps neither prices nor profits, preferring to trust the market on both.

The argument for Northern Ireland’s unique approach is that in a small region with a handful of utility companies, setting general price caps would be a needlessly blunt instrument.

It is better for the regulator to examine each company and consider what suits their circumstances, while still allowing them to make a fair profit.

Profit caps can be multi-year, allowing companies to borrow and plan investment.

Frankly, it is also easier in Northern Ireland to make sure no particular company is taking the mickey – an oversight ability that should not be wasted.

The Northern Ireland approach is rarely adversarial and does not require the regulator to keep changing caps as global prices change. Ofgem has to change its maximum prices every three months.

Our four oil importers could be given individual profit caps and left to get on with it.

Being straightforward does not necessarily make this worthwhile – it could only be counted on to smooth out the normal ups and downs of the market.

The 300 million litres of storage is partly to hedge against prices, but mainly to ensure a stable supply for customers throughout the year.

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It needs to be refilled as it is used, so it cannot be considered a useful buffer against international shocks.

Contracts and other financial instruments are probably far more significant, yet these do not guarantee security in a crisis.

One-fifth of the world’s oil supply is currently stuck in the Persian Gulf, regardless of who owns pieces of paper entitling them to delivery.

The only way to prepare for an emergency on this scale is with a government-owned strategic oil reserve, which Stormont neither has nor could afford.

Ironically, the Republic stores its national oil reserve in Carrickfergus.

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