British Gas to lose its monopoly: Bills for small businesses and big domestic consumers will fall as pipelines open up

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The Independent Online
BRITISH GAS faces being broken into two companies in an attempt to introduce more competition into the market.

The Monopolies and Mergers Commission, calling yesterday for the split, wants British Gas to dispose of its gas supply business and concentrate on running the pipelines, making it easier for other gas producers, such as oil companies, to use the pipes to supply customers.

However, the report immediately ran into stiff criticism since most domestic consumers will have to wait for almost a decade before being allowed a choice of gas supplier. In the meantime, many will have to pay more for gas than expected as the MMC has also recommended that controls on British Gas's prices should be relaxed to compensate shareholders for the progressive loss of its monopoly.

The Gas Consumers Council said the report was 'the worst possible way of bringing competition and choice to the largest body of consumers'. James Cooper, its chairman, estimated the recommendations on loosening price controls would cost domestic consumers pounds 300m more between 1994 and 1997. Large industrial consumers of gas can already shop around. Rivals to British Gas, such as North Sea oil and gas companies, are allowed to sell gas to customers using more than 2,500 therms a year. In practice gas received by such customers is pooled in the pipeline with British Gas's supplies; metering ensures rival suppliers put sufficient gas into the system to cover that used by their customers. This avoids the need for rival suppliers to build pipelines, which would be prohibitively expensive.

The MMC believes that if the current system is to be extended - as it recommends - so that by early in the next century all consumers would have a choice of supplier, the pipelines need to be owned by a company not supplying gas.

The commission's proposals on price changes involve a relaxation in the formula used to force British Gas to limit increases to less than inflation. At present British Gas has to adjust its prices each year by inflation minus 5 percentage points. Under the recommendations that would be changed to inflation minus 4 percentage points, with effect from next April.

The change is said to be to compensate British Gas for the fact that rival suppliers were originally allowed to offer gas only to very large consumers - those using more than 25,000 therms a year. In 1992 that limit was lowered to 2,500 therms.

The MMC is proposing that from 1997 the limit should be cut to 1,500 therms. That would benefit an estimated 500,000 customers who could see bills fall by up to 10 per cent. Most would be small businesses, however, since the average domestic household's annual consumption is 650 therms. Rival suppliers say only 2.5 per cent of British Gas's 18 million domestic customers will qualify.

The Labour Party said the proposals offered nothing for consumers, particularly in the light of government plans to introduce value-added tax on fuel bills from next year. Martin O'Neill, energy spokesman, said: 'The cost of loosening British Gas's stranglehold on the gas supply system will be paid through dearer gas bills if present price controls are relaxed.' He added that splitting up British Gas was a fruitless exercise which would undermine one of Britain's most successful companies. Changes in the market for gas supply are expected to lead to big job cuts. British Gas believes it will have to lose 20,000 jobs - affecting a third of employees in the UK gas business - over the next three years. It said the cuts were the inevitable result of changes in its marketplace, not a reaction to the MMC report. However, gas unions warned that up to 40,000 jobs will go if the proposals are implemented. Dave Stirzaker, leader of Unison's 32,000 gas workers, added 20,000 jobs in companies supplying services to British Gas to the 20,000 at British Gas.

The report needs the go ahead of the Government to be put into practice. But Michael Heseltine, President of the Board of Trade, is expected to implement it when he returns, after his heart attack, to the department in the autumn.

One senior Tory source said: 'If it had recommended going the whole hog with the total break- up, it would have been the battle of Waterloo. It is relatively mild and could be introduced fairly speedily.'

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Market cheers, page 23

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