British Gas set to unveil power station

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The Independent Online

Industrial Correspondent

British Gas is poised to announce plans for a 750-megawatt gas-fired power station at Avonmouth, marking its first big move into the electricity generating market place. Its partner in the pounds 300m-pounds 400m project is thought to be Scottish Hydro-Electric, the smaller of the two electricity firms north of the border.

The move is in spite of over-capacity in the generating industry. It is likely to cause consternation at National Power and PowerGen, which have seen their market share sharply eroded since the industry was privatised five years ago.

The British Gas initiative comes at a controversial time as the station could help mop up some of the excess gas that has thrown the company into turmoil in recent months. British Gas has estimated liabilities of about pounds 1.5bn related to long-term contracts with North Sea producers which are forcing the company to buy much more gas than it can sell, and to buy it above today's market price.

The so-called "bubble" of excess gas has caused chaos in the industry because British Gas has asked the Government to make others share its financial pain. The crunch is expected to come this week with a decision by ministers on whether it may impose a levy on British Gas's rival suppliers - and therefore on consumers - to help offset the liabilities. Provision for a levy would be enshrined in the new licences being drafted for all public gas supply companies so that it could easily be imposed at a future date.

Rival suppliers to British Gas, including offshore companies and electricity firms, are already incensed at proposals for a levy and may use the power project to argue that British Gas will have a further outlet for its gas and has over-stated its predicament. Some oil and gas companies allege that British Gas is exaggerating its potential liabilities to win the sympathy of the Government.

The Gas Consumers Council is also concerned that the matter be investigated independently and has called in vain for an inquiry by the House of Commons Trade and Industry Committee. The GCC has said any levy could cost each household in the UK at least pounds 45.

The problem with the gas contracts is acknowledged as being one of the most serious faced by the company. Clare Spottiswoode, the industry watchdog, said late last year that it could threaten British Gas's financial security.

Tim Eggar, Minister for Energy and Industry, has called repeatedly on British Gas and the North Sea producers to renegotiate contracts in the interests of the industry, but to no avail.