From October, prices will be capped to inflation minus five percentage points. British Gas warned that the cap, the first to be imposed on the pipeline system, would force it to cut investment by hundreds of millions of pounds. The company also said that the controls, first mooted in June, would mean there would be no dividend increase this year.
British Gas also warned that the price cap could delay the introduction of competition in domestic gas supply because more management time would have to be devoted to maximising returns on the pipeline business. The Government hopes to introduce domestic competition in 1996 with the market opening fully in 1998.
Clare Spottiswoode, director-general of gas supply, said British Gas should get a real rate of return of 6.5 to 7.5 per cent on its new investment and replacement expenditure, and 4 to 4.5 per cent on existing assets. The company had argued for 6.8 per cent on existing assets and 10.8 per cent on new assets in its gas transportation business.
British Gas said the formula was as expected. 'The view of the company has not changed,' a spokesman said.
Some City analysts say British Gas could make a better return than expected by Ofgas within the constraints of the formula, by improving efficiency. One analyst said the company could pursue a flat dividend policy over the next few years while building cover.
British Gas expects transportation and storage volume, at seasonal normal temperatures, to rise to 24.5 billion therms in the year to March 1996 and to 25.4 billion therms in the year to March 1997. The company predicted that if the weather was warm, transportation and storage volumes would be 22.8 billion therms in 1994/95 and 24.1 billion in 1995/96.Reuse content