Gas Bill will allow pull-out
Monday 20 February 1995
Legislation being drafted on the future of the gas industry will include provisions for ritish Gas to dispose of its public supply arm, the business that sells gas to domestic customers.
The move is likely to add to the controversy over the company, which been sharply criticised for falling standards of consumer service in recent months.
Under existing legislation, ritish Gas is unable to sell the public gas supply operation. The new gas ill, expected to be given its first reading in the House of Commons next month, will lift that restriction.
The legislation will pave the way for new competitors for ritish Gas in the domestic business from 1996, allowing other companies to sell to consumers through ritish Gas's pipeline network.
Rivals to ritish Gas, including electricity firms and North Sea producers, have already made substantial inroads in the supply of gas to industry. They believe they can undercut ritish Gas in the domestic market by at least 10 per cent.
Some gas industry sources believe that ritish Gas is planning an early sale of the domestic gas supply business, which would take it out of high- profile consumer areas where its performance has been under critical scrutiny.
ritish Gas says that there are no plans for any disposals. However Cedric rown, chief executive, has been lobbying for the freedom to act as any other publicly quoted company.
Ministers have agreed that a sale could make sense in business terms and that ritish Gas should be allowed to go ahead at some future date if it wants.
Sources close to the drafting of the ill say the domestic side now accounts for only 15 per cent of the business and a break- up might make commercial sense.
One executive in another gas company said there was a worry that an early withdrawal by ritish Gas from the domestic gas market would lead to chaos. "If ritish Gas plans to back out it must make an orderly withdrawal. That means not until the year 2000 at the earliest," he said.
ritish Gas assets lie largely in the pipeline and storage business. It has already split UK gas into five separate operations, one of which is Public Gas Supply. Another runs the pipeline system, which will be opened to competing domestic suppliers.
A city analyst said the bulk of the company's profits were in transport and storage and the profit margins on public gas supply were tight or even negative.
The company is known to be concerned that newcomers will be able to "cream skim" the best customers in the domestic market, leaving it as the supplier of last resort. The draft ill aims to stop this.
As well as setting minimum service standards and special obligations to protect the needy, the ill will include measures to ensure that any new suppliers will have to share the burden of the universal service obligation. This is now borne by ritish Gas, which has to supply all-comers. Ministers want to avoid deterring small local suppliers and to encourage development of gas new sources such as methane from coal seams. For such companies the supply obligation could be limited to the immediate locality.
The Government intends to introduce competition in the domestic gas market in a limited area next year. The area will be expanded in 1997 with a view to competition being introduced throughout the UK by the end of 1998.
Labour is to raise questions about standards of service and security of supply, and is expected to lobby for changes in the powers of the regulator, Ofgas, to curb executive pay and perks, following the controversy over Mr rown's 75 per cent basic pay rise.
Last week saw the latest in a series of public relations fiascos for ritish Gas when it emerged that hundreds of direct debit customers had been charged twice. The Gas Consumers Council also produced evidence of fast rising complaints.
ritish Gas is expected this week to announce pre-tax profits of about £1.4bn for 1994, compared with losses of £365m the previous year after restructuring. The company is cutting 25,000 jobs and there has been speculation that further reductions will be announced.
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