Ofgas wanted tougher cuts

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The Independent Online
Clare Spottiswoode, the gas industry regulator, returned to the Monopolies and Mergers Commission earlier this year to demand an even tougher price regime over British Gas's pipeline business, it emerged yesterday.

Details of the revised proposals came to light as analysts ploughed through the 400 page MMC report, which largely vindicated the demand of Ofgas, the watchdog, for substantial cuts in BG's pipeline charges. The final proposals by the MMC, announced on Wednesday, will see the average domestic bill fall by pounds 29 this year and BG's revenues drop by almost pounds 400m a year.

The MMC's report shows that Ms Spottiswoode returned with stronger sanctions in March in response to improvements during the period of the investigation in BG's productivity and an unexpected drop in its investment spending.

In the "final" published proposals last August Ofgas said BG's asset base for the purposes of the price formula should be pounds 12.4bn, compared with the pounds 17bn in the company's accounts. The lower asset value reduced the amount of cash BG could earn to cover depreciation costs.

But in March she told the MMC she wanted to cut the asset base further to just pounds 10.9bn. She also urged the MMC to separate out the pounds 4bn value of BG's non-regulated gas exploration and production business from the price formula, a move the MMC rejected. Had the MMC adopted the change it would have given BG less room to manoeuvre.

Analysts were yesterday surprised by Ms Spottiswoode's decision to ask for further concessions from the MMC. "In some respects this shows BG got a result by going to the MMC, even though the headline figures suggest they were defeated," said one analyst.

Separately yesterday Richard Giordano, BG chairman, toned down his previous opposition to the Ofgas case in a speech in Birmingham on the same platform as Ms Spottiswoode. He said: "Not all of the report is to our liking, but it is a thoughtful and thorough examination."

BG shares fell 0.5p yesterday to 218.5p.