British Gas digs in heels on moves to open market

British Gas has told the Government that decisions on full competition in the gas market must be deferred pending the outcome of a scheme starting next year. The move will be seen as an attempt to knock off course plans for a open domestic gas market by the end of 1998.

The Government and Ofgas, the industry regulator, are consulting on the pilot scheme, which will cover 500,000 customers from April 1996, and responses are due by the end of this week. British Gas believes that any decision on the next phase should depend on a thorough assessment of next year's pilot and a second larger scheme planned for 1997.

British Gas declined to comment, but it is understood to have told ministers that any problems in the pilot should dictate when full competition is introduced. Resistance by the company could lead to a clash with Ofgas, which wants the original timetable adhered to.

British Gas has also said that the second pilot phase in 1997, covering two million homes, should encompass the first 500,000. It argues that the regions chosen - probably the south west of England or Wales - should cover a broad spectrum of the community and both urban and rural areas.

British Gas is also concerned about the tight timetable for agreeing a Network Code - the system which will balance supply and demand of gas on a daily basis. The company says that the code needs to be in place by October this year if the pilot is to start on 1 April 1996.

A further potential problem is the completion of computer systems to ensure the 18 million domestic customers are billed by the right company under competition.

The bill for the introduction of competition in the gas market is expected to be given its first reading in early March. Although British Gas says it favours competition, it is worried that rivals such as electricity firms and North Sea producers will "cream-skim" customers.

The legislation is expected to ensure suppliers offer universal service and offer special services to the elderly and disabled. British Gas is also calling for guarantees that each licence area covers the full spectrum of customers.

Even with these measures, British Gas believes that cherry-picking could still occur. It wants a levy to be paid by all suppliers and given to those that end up with a disproportionate share of the elderly, disabled and debt-prone customers.

The levy would be charged by its pipeline arm, Transco, and would probably be passed back by suppliers to their customers. British Gas has previously put the cost of serving the elderly and disabled and the problem of debt and disconnection at about £170m a year.

The company's concern over being left as the supplier of last resort has fuelled speculation that it might sell out of public gas supply. The bill will give it the right to do so. Although British Gas says there are no plans to sell the business, there is a view in the company that losing market share through competition is the same thing as through divestment. City analysts say that the majority of British Gas's assets lie in pipeline and gas storage system.