Frustrated British Gas goes for full Monopolies review

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THE entire business of British Gas is to be scrutinised by the Monopolies and Mergers Commission. Michael Heseltine, President of the Board of Trade, yesterday made the reference at the request of British Gas, which has clashed repeatedly with the industry watchdog, Ofgas.

The investigation could have wide- ranging implications for domestic gas prices and supply, as well as for competition in the industrial gas market. A previous MMC reference of British Gas in 1988 was concerned only with gas supply under contract to large firms.

British Gas had called for a review of a series of sweeping changes imposed on it over the past 18 months. These include a tougher price cap for domestic consumers, set by Ofgas, and demands from the Office of Fair Trading that it should establish its transportation arm as a separate business.

The OFT also said that British Gas should halve its share of the industrial gas market, while the Government announced that it would reduce, and possibly eliminate, the British Gas monopoly over domestic and other small customers.

Cedric Brown, the chief executive of British Gas, said: 'All this has happened in a piecemeal way and amounts to major uncertainty for us, our customers and employees. Quite frankly, with everything that has happened we believe an MMC reference is the only solution. It entails risk but we hope for a clear way forward at the end of the day.'

The reference came as talks collapsed between British Gas and Ofgas over attempts to increase competition in the industrial gas market. Hours before Mr Heseltine's announcement, Ofgas made a separate reference to the MMC of British Gas over its pipeline system, which the company is being forced to hive off as a separate unit that other gas suppliers can use on the same terms as British Gas.

British Gas and Ofgas failed to agree on how much it would be able to charge for the use of the pipes and how the pipeline business would be conducted.

Sir James MacKinnon, the director general of Ofgas, said: 'Discussions about appropriate arrangements have been dogged with difficulty and delays.' His reference to the MMC underlines the increasingly bitter relationship between the company and the watchdog.

Mr Brown said that British Gas had decided to ask for a wide-ranging reference by the Government rather than a narrow review of the pipeline business alone. He attacked the regulator for failing to discuss fully the issue of rates of return on the pipeline system, and hence how much it can charge, which British Gas regards as key to the talks.

Mr Brown also said that the company was in the untenable situation of falling between two regulators. Although the decision to hive off the pipeline system came from the Office of Fair Trading, the regulation of the business is the bailiwick of Ofgas.

Mr Brown said: 'We have not even scratched the surface of the issue with Ofgas. We worked in a professional way with the Office of Fair Trading, but with Ofgas we have reached an impasse.' He said that he had wanted to build bridges with the regulator but had failed to do so in a series of key meetings with Sir James over the past 10 days.