British Gas to hold back on domestic price cuts

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The Independent Online
British Gas has decided against slashing prices to maintain market share when competition is introduced in the spring, giving rivals an unexpectedly clear run at the domestic market.

The company is to wait until "competition is established" before cutting charges, rather than risk the wrath of the Government or the regulator, Ofgas.

Rivals to British Gas, including North Sea producers and electricity firms, are promising to undercut British Gas existing by up to 20 per cent and more.

About 60,000 households in the South-west - the first area earmarked for competition - have already said they are interested in abandoning British Gas in favour of new suppliers.

The beleaguered company, which last week announced its intention to split in two, was widely expected to follow suit. But a spokesman said:"The licence says we cannot do anything anti-competitive or predatory. There will be no immediate price cuts in the South-west. We must not upset the applecart. Prices will come down but not until an open market is established and no one knows at what stage the Government and the regulator will consider that to be."

It is thought that, if competition begins on schedule in April, British Gas may not cut prices until late summer or autumn, by which time it could have seen a sharp reduction in market share.

Its reticence about responding aggressively comes in spite of Ofgas' view that it should be allowed to match others' prices, while not leading them down.

British Gas is likely to base its campaign on quality and reliability. The spokesman said: "Others have been very reticent to say what they will deliver in terms of service."

Competition issues aside, there could be a public and political outcry if consumers in other parts of the UK see the South-west paying less for gas while their bills remain unchanged until the market is fully opened in 1998.

With an election in the offing, the Government is likely to be keen that competition in domestic supply does not turn into a banana skin.

British Gas may also be seeking to avoid any more bad publicity after more than a year of fiascos in its relationship with the public, culminating in the announcement last week that its chief executive, Cedric Brown, will retire early in the spring.

In the eyes of the nation,Mr Brown became a symbol of "boardroom greed" at the end of 1994 after his pay was increased by 71 per cent to pounds 475,000.

Richard Giordano, chairman, fiercely defended the changes at the time but now says that he would not have introduced the changes in pay structure which enabled the increase if he had foreseen the "fat cat" row that ensued.

It has also emerged that British Gas wants the Government to eliminate its golden share in the company completely after the planned split into two in 1997. Under the existing proposals, the Government would not have a golden share in British Gas Energy, the company with responsibility for supply. But it would retain a share in Transco, which will own the pipelines and the international exploration and production business. Without the golden share, Transco would be subject to the same threat of takeover as any other company.