British Gas may end home supply: Threat to pull out over competition

BRITISH Gas has threatened to stop supplying domestic customers if the Monoplies and Mergers Commission gives competitors what it sees as an unfair advantage.

British Gas has a monopoly over domestic customers, but independent gas companies, including North Sea producers, have asked the MMC - expected to report on gas next month - for freedom to compete in all sectors of the market.

Whether to continue the British Gas monopoly is one of the main issues being considered by the MMC and is also being looked at separately by the Government. The company is obliged to supply anyone wanting gas, unless it requires unreasonable investment to do so. However this obligation is likely to be removed or shared with other companies if the market is opened up. British Gas would then consider whether it is worth continuing to supply domestic gas.

Under the present regulations, British Gas believes it will be making a loss in the domestic gas market within two years. Regulation limits annual price increases to inflation minus five percentage points. At the same time, it limits the rate of return on British Gas's investment in the network to 4.5 per cent. The company has lobbied fiercely for the ability to make a higher rate of return and is at loggerheads with the watchdog, Ofgas.

The MMC is also considering whether British Gas should be broken up into a number of companies under separate ownership. The company has already told the MMC that, left to its own devices, it would split itself into seven businesses - owned by British Gas - but would then consider selling off its high street shops.

The separate units envisaged by British Gas include: the pipeline and storage system; the tariff gas market (largely domestic); the contract market; retailing; installation and contracting; exploration and production; and global gas. British Gas may also consider appointing franchisees to take over the contracting arm but does not want to sell it off.