Storm looms over threat to gas bills

THE Government is braced for a political row this week over a controversial report on competition in the domestic gas market, which critics say could lead to higher gas bills for millions of households.

The consultative document is a joint effort by the Department of Trade and Industry and Ofgas, the regulator. But it is already long overdue, and Ofgas is expected to publish its own version in the next few days if ministers continue to stall.

The document sets out the way in which competition in gas supply might be introduced for the 18 million households British Gas still has a monopoly to supply. An earlier draft of the document is believed to have made it clear that some consumers will see bills rise in a fully competitive market, as cross-subsidies are eliminated and prices are more accurately linked to costs.

It is expected that this aspect will have been watered down, however, as the prospect of higher gas bills - on top of the introduction last month of VAT on domestic fuel - is considered too politically sensitive. It is widely believed that the document was suppressed by ministers until after last week's local elections and that without pressure from Ofgas, it would be further delayed until after the European parliamentary elections.

The Gas Consumers Council has already been in contact with MPs of all parties, warning them of the potential impact on their constituents.

Clare Spottiswoode, the director-general of gas supply, says that the introduction of competition will not mean higher bills for consumers. However, British Gas privately believes higher bills are inevitable and that the poorest customers could suffer most. One source said: 'The reality is that she does not know who may end up paying more. But some sections of the community will have to, because that is the nature of competition.'

British Gas claims that it loses money supplying 10 million households that use fewer than 600 therms of gas a year, and subsidises them from the profits it makes on the rest. The Gas Consumers Council says that those 10 million, which tend to be poorer households, could suffer in a free market without subsidies.

The GCC is also worried that gas might be dearer in future for people who live furthest from the terminal where gas is landed in the UK. It argues that gas prices are more likely to be linked to the distances over which the fuel has to be transported.

Rivals to British Gas, including electricity companies and North Sea producers, have already taken a substantial slice of the industrial and commercial gas market. They say they are keen to supply domestic customers, too, but the price would depend on how much they have to pay British Gas to use the pipelines.

Besides domestic gas prices, the report on competition will address the thorny issues of safety, security of supply, and how to protect consumers from firms that enter the market to make a quick profit and then disappear.

It will also have to ask who should bear responsibility for the elderly and disabled, many of whom need special treatment.

(Photograph omitted)

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