Comment: It's not too late for British Gas to reconsider

Comment
Short of an about-turn by the laughing regulator (Clare Spottiswoode), the board of British Gas looks to be gearing up for a major sense-of-humour failure later this week. Unless the director general of Ofgas agrees to modify significantly her final set of price controls over the TransCo pipeline business, Dick Giordano and his merry men intend to stomp off and put their case to the Monopolies and Mergers Commission.

It is important, at this point, to note that we have been here many times before. Recent history is littered with examples of how privatised utilities have been irreconcilably opposed to proposals by their regulators, only to cobble together some miraculous accommodation at the last moment.

This time, however, it does look like more than a game of brinkmanship. The two sides have become so entrenched in their attitudes and uncompromising in their public utterances that it is hard to see how either can back down without heavy loss of face.

The regulator, with one eye on survival after the next election and the other on the pounds 28 cut in bills she has dangled before domestic gas users, believes she has right on her side. The company maintains it cannot accept the Ofgas proposals even if it wanted to. Quite apart from amounting to expropriation of assets, they would render TransCo incapable of running the pipelines in a reliable and safe manner. Not much room to cut a deal there.

The difficulty for British Gas is that this is just one of the many fires it is fighting. Its public image remains lamentable, as the latest debacle over the disconnection of paying customers shows. Meanwhile, it is still trying to untangle the take-or-pay mess, cope with the introduction of competition into its monopoly markets and, lest we forget, demerge into two separate companies.

It was in part these distractions that scuppered the deal in Scotland with Hydro-Electric, and yet here is British Gas prepared to submit itself to a six-month MMC inquiry. For Ms Spottiswoode, on the other hand, this is pretty much the only game in town save for the other price review she is conducting into the supply arm of British Gas. She has nothing to lose by standing firm, whereas British Gas cannot be sure of gaining anything by going to the MMC.

It is still not too late for the board to reconsider. It may gain a little loose change by going to the MMC, but this is unlikely to counteract the lost management time and opportunity involved in tying itself up for six months or more in such an all-embracing investigation.

Comments