City cheers MMC verdict on British Gas: Findings to provoke shake-up

THE Government yesterday published two inquiries carried out by the Monopolies and Mergers Commission into the UK gas market and British Gas, writes Neil Thapar.

The key findings, which are likely to result in a shake-up of both, include:

British Gas is both a seller of gas and owner of the transportation system that its competitors have no alternative but to use. This dual role gives rise to an inherent conflict of interest. 'The lack of effective neutrality of the transportation system may be expected to reduce competition in the industrial-commercial (non-tariff) market,' the reports said.

The company's monopoly of supply to most domestic (tariff) customers should be removed from April 1997. At present, household consumers using less than 2,500 therms can be supplied only by British Gas. But the MMC recommended the threshold should be cut to 1,500 therms.

'The eventual removal of the monopoly, which will be beneficial to consumers, should however depend on important safety and security of supply considerations and might be expected to follow three to five years later,' the MMC said.

The tariff formula - which governs gas prices to domestic consumers - should be adjusted in favour of the company so that prices fall by a real 4 per cent instead of 5 per cent in future years. The MMC believes the current formula is likely to produce inadequate profits and inhibit new investment.

The rate of return used in setting transportation charges for the company's rivals should be set between 6.5 and 7.5 per cent on new investment under current conditions. This is equivalent to between 4 and 4.5 per cent on existing current cost of assets.