Ofgas proposal challenged

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A ROW has erupted between the Gas Consumers Council and the industry watchdog, Ofgas, over the future shape of the gas industry in the UK, writes Mary Fagan.

In its annual report the council says Ofgas proposals to break up British Gas may be bad for the consumer. At the same time it says increased competition in the industrial market may mean rising prices for householders as British Gas tries to offset any fall in revenues.

Ofgas says British Gas should be broken up into regional supply companies and that the pipeline and storage system should also be hived off. It has put its proposals to the Monopolies and Mergers Commission, which is investigating the UK gas business.

However, the council now says that few companies could offer customers the security of supply provided by British Gas or have the financial strength to carry about pounds 35m of debt because of late or unpaid bills.

According to the GCC: 'Against the benchmark of consumer advantage, no case has been made for a radical and irreversible restructuring (of British Gas). Indeed, one is left with the very worrying impression that the protagonists accept that price, service and obligation to supply would be eroded for the end user.'

The council also attacked a ruling by the Office of Fair Trading, with the agreement of Ofgas, that British Gas should halve its share of the contract gas market to 40 per cent by 1996. The council said that the resulting drop in supply profits meant that British Gas could make a case for an easier price control formula, which would hurt domestic consumers.

Furthermore, the council also believes that because rivals, which include North Sea producers, are interested only in specific market sectors British Gas will find it hard to achieve as low a market share as 40 per cent. It says that the company may increase prices to industrial customers to force them to go elsewhere for gas supplies.

Last night Sir James McKinnon, director-general of Ofgas, accused the council of misrepresenting his position and attacked any suggestion that more competition had led or could lead to increased prices.

Sir James said: 'British Gas voluntarily agreed to reduce its industrial market share. It must live with the loss of profit arising from that agreement. It is not clear why the council appears to accept that prices have to rise as a result.'