Suppliers ask watchdog to block British Gas price cuts

Independent gas suppliers and gas consumers yesterday called on the industry regulator Ofgas to block new price cuts announced by British Gas, warning that they could destroy attempts to open up the market to full competition.

The calls followed confirmation that British Gas Home Energy is offering households in the South-west discounts of 12 per cent - equivalent to pounds 40 off the average annual bill of pounds 330 - in an effort to stem the loss of customers to rival suppliers.

The Gas Consumers' Council described the price reductions as "premature" while rival gas suppliers warned that if British Gas went unchecked it could wreck the Government's attempts to liberalise the domestic gas market.

Clare Spottiswoode, director general of Ofgas, immediately launched a four-week consultation exercise after which she will decide whether the price cuts should be allowed to stand. The new tariff applies only to customers paying by direct debit.

Since the South-west was opened up to full competition last April, British Gas has lost 19 per cent of the market. About 95,000 of the 500,000 households in Cornwall, Devon and Somerset have switched to rival suppliers, lured by discounts of up to 20 per cent on British Gas's standard tariff.

A second round of competition began among 600,000 households in Avon and Dorset last month and a third trial involving 900,000 customers in Sussex and Kent begins this Friday.

Peter Franklin, joint general manager of Calortex, one of the biggest independent suppliers in the South-west, with about 45,000 customers, said: "We are extremely concerned at this move, which poses a significant threat to the development of competition. British Gas is still nine times the size of the next biggest supplier and competition is still only in its infancy. This is abuse of a dominant position designed to frustrate the growth of competition and bring back what amounts to a private-sector monopoly."

He also pointed out that the South-west was the most expensive area of the country to supply, being furthest away from the east coast, where gas comes ashore. By cutting prices in the region and keeping them higher elsewhere, British Gas was using monopoly profits from areas of the country where it did not face competition to subsidise the South-west.

Alan Lias, managing director of Beacon Gas, which has signed up 40,000 customers for the trials in Sussex and Kent starting later this week, said: "We will be objecting very vigorously. British Gas should not be allowed to start competing on price until it has lost at least 50 per cent of its domestic market."

Sue Slipman, director of the GCC, said the British Gas move could widen the already large price differential between rich and poor customers and said it remained unconvinced that sufficient competition had built up.

Mike Alexander, managing director of British Gas Trading, defended the move, saying that one in four direct debit customers in the South-west had already switched to more competitive suppliers since last April, proving that competition was now fully established.

A special hotline opens today for customers to request application forms. Any customers who telephone asking to switch to the new tariff can give their meter reading and go on to the tariff immediately.

Rivals fear that if the price cuts are allowed to stand then British Gas will be able to repeat the tactics in other trial areas more quickly. According to industry estimates as many as 110,000 customers in Sussex and Kent - 12 per cent of the market - could switch suppliers on day one. In the South-west trial the comparative figure was 6.5 per cent.

Mr Lias of Beacon Gas, a joint venture between Amoco and the local electricity supplier Seeboard, said that if the regulator did not step in, British Gas could be competing on price and winning back customers within six months.

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