British Gas freed to negotiate prices for large consumers: Rivals fear big reductions and cross-subsidies for domestic losses

OFGAS has released British Gas from the requirement to publish price schedules for its large consumers, freeing the company to negotiate with individual customers.

Rival producers attacked the decision, claiming that British Gas would slash prices for big companies to gain market share and then cross-subsidise any losses from the domestic market.

Since 1989 British Gas has had to publish and strictly adhere to price schedules for contract gas customers. Rivals, including electricity firms and North Sea producers, have undercut the published prices, typically by about 10 per cent.

The Ofgas decision to suspend price schedules applies initially to the firm contract market where customers use more than 25,000 therms a year. These are mainly manufacturing, engineering and metals companies as well as large hotels. British Gas's share of this segment of the market - thought to be worth about pounds 1.1bn a year - has shrunk from almost 100 per cent in the late 1980s to 17 per cent this year.

The suspension will take effect from 1 October and last initially for six months. Its continuation depends on British Gas conducting its pricing policy in a non-discriminatory way. During the six months Ofgas will review the situation, which could result in the total abolition of all published price schedules throughout the gas market, allowing British Gas to negotiate price with all sizes of business.

Independent companies said they are now in danger of being squeezed out of the market. They said that Ofgas would not be able to police British Gas prices for discrimination or cross-subsidy. The companies argue that British Gas should not be freed in any way until the Government ends its monopoly in domestic gas supply.

Norman Ellis, managing director of Kinetica, a joint venture between PowerGen and Conoco, said: 'Prices will not be British Gas's driving motivation, it will be market share. It could take back 20 per cent or 30 per cent share overnight. We will be squeezed out and will have nowhere else to go.'

Clare Spottiswoode, director- general of Ofgas, said that most larger gas customers wanted the schedules removed and that she was keen to respond to their needs.

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