British Gas accused the regulator of being 'totally unrealistic', but confirmed that the proposal, if accepted, could cost as much as pounds 600m a year.
Ofgas declined to comment on a report that Sir James McKinnon, director-general, had proposed to the Monopolies and Mergers Commission that British Gas be limited to a maximum return of 3.2 per cent on its pounds 18bn pipeline network.
The MMC has been investigating the gas industry since August. Ofgas's first submission to the inquiry in December proposed a rate of return of between 2.5 per cent and 5 per cent. British Gas has argued that it needs a 6.7 per cent return for the pipeline network to maintain it.