Free-market gas 'cheaper': Independents say domestic supply could be open to competition by 1996

THE introduction of competition in the domestic gas market would cut bills by pounds 470m a year - an average of pounds 26 per household - according to a report by 12 independent gas supply companies including Total, Amerada Hess and UtiliCorp of the United States.

The companies say that the entire gas market could be opened to competition by October 1996 without any reduction in service standards or security of supply.

The report, endorsed by the regulator, Ofgas, accuses British Gas of misleading the public in claiming that domestic competition would cause some household bills to almost double. British Gas has warned that the less well-off would suffer most in a free market.

The independent suppliers say British Gas's 'alarmist' figures are based on allocating a disproportionate amount of its very high overhead costs to the small consumer. The report says: 'The reality of competition is that prices will be driven lower by the more efficient operation and lower overheads of the competitive suppliers. All customers will benefit.'

Sir James McKinnon, director- general of Ofgas, said the analysis showed that British Gas had put forward invalid figures and was guilty of scaremongering in its attempts to defend its monopoly over domestic and other small customers.

Only those using 2,500 therms of gas a year can choose their supplier, so 94 per cent of customers, mainly households, must buy from British Gas. The Monopolies and Mergers Commission has recommended that this monopoly be abolished, but not until the beginning of the next decade. There is a growing view that the Government, which has yet to respond to the MMC, will opt for an earlier date for full competition.

British Gas denied scaremongering but declined to comment on the figures in the report. The company said that the MMC recognised in its report that competition would mean higher prices for some people.

The MMC report also recommended that British Gas hive off its gas trading arm. The aim is to ensure that rival suppliers are assured of using the pipelines on a fair basis. However, independent gas suppliers say that free competition must come first and should not depend on separating out parts of British Gas.

Their report said that security of supply would not suffer, because, under the new gas licences, all suppliers would have at least the same responsiblities as British Gas. They would also have an obligation not to discriminate between customers. New domestic suppliers, like British Gas, would have to supply special services to the elderly and disabled.

The independents say that in supplying gas to industry and commerce, they have not discriminated and have saved customers pounds 100m since 1990 - an average real reduction of 12 per cent on bills.

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