Battle over TransCo intensifies

The Monopolies Commission yesterday looked certain to be drawn into the battle between British Gas and Ofgas over its recent review of the TransCo pipeline business after the gas group launched a wide-ranging attack on the proposals.

Unveiling its detailed response, Philip Rogerson, deputy chairman of British Gas, said: "If at the end of the day we don't get an Ofgas proposal which we regard as acceptable, we believe we can take a case to the MMC which they will regard as credible and sensible."

Mr Rogerson claimed that several of the assumptions under which the regulator, Clare Spottiswoode, had arrived at her conclusions were wrong and could endanger the security of supply of gas in the UK. She was overturning established principles in reducing British Gas's assets for regulatory purposes to between pounds 9bn and pounds 11bn.

Her proposals were unrealistic, unsustainable and threatened the successful introduction of domestic competition in 1998. If implemented, "they would represent a very significant interference in the right of management to manage".

He said there was no personal animosity against Ms Spottiswoode, but he attacked "the huge untrammelled power of a single individual. What we are seeing is the power of an individual regulator to change the regulatory system."

He said it would "probably be helpful" if the regulator had a board of non-executive directors akin to that of a commercial company to provide a check on her powers.

Although both sides are understood to have met this week, the gulf between them was evident from Mr Rogerson's complaint that three key reports on which the Ofgas proposals were based had been withheld from the company.

While British Gas had supplied 1,200 documents to the regulator, it had been refused a Coopers & Lybrand study of the company's operating costs, a report by consulting engineers WS Atkins on capital expenditure and the financial model used by Ofgas.

Mr Rogerson said Ofgas's demand for a 4 per cent a year cut in controllable costs was unrealistic and translated into a productivity improvement of 10 per cent of sales, or four to five times the national average. It assumed a reduction of up to 50 per cent in areas like safety, on which British Gas currently spends around pounds 140m a year, and a halving of the current workforce of 20,000. "We could not run this business with that many people."

He threw back the regulator's claim that the pricing regime had unduly favoured shareholders. Since privatisation in 1986, customers had seen prices fall by 23 per cent, while shareholders have enjoyed a return of 4.5 per cent a year, including dividends, less than half the 9.3 per cent average derived from the FT-SE All Share.

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