View from City Road: Outbreak of reason at Ofgas

It is hard to recall the last time British Gas squeezed a concession out of the regulator, so yesterday's announcement that as of next month it will not have to publish price schedules for big industrial users has to be seen as of some significance.

The suspension of schedules, albeit for a trial six months, is the first significant rolling back of regulation in the gas market since the company was privatised. No more will rivals to the company be able to undercut British Gas with confidence. For the first time they will be fighting an invisible price.

The grudging response from British Gas is that this is just one small step in the right direction. Yet it must be privately rejoicing and many will see the move as further evidence that Ofgas under Clare Spottiswoode has become something of a pushover for this veteran monopolist.

There is another side to the argument, however. British Gas's share of the contract market affected by the Ofgas decision has shrivelled to a mere 17 per cent since competition was introduced and it may now be reasonable to put all competitors on the same footing. That said, the nature of this market means that British Gas could claw back a very large portion simply by luring just a few big customers with cut-throat prices.

Ms Spottiswoode takes the view that once competition has begun to work effectively, the boundaries of regulation should be eased back as quickly and rapidly as possible. The policy is not without its risks, however. Old habits die hard, particularly at British Gas, whose culture of monopoly is still largely intact despite the battering it has taken. The company probably retains the ability as well as desire to cross-subsidise from markets where it is unassailably dominant. In these circumstances, the angry response of British Gas's growing band of competitors seems entirely justified; it has not shown itself to be a company that can be trusted to behave responsibly in these matters.

Is then Ms Spottiswoode's outbreak of reason little more than dangerous naivety, as her critics insist? We'll see but certainly she is right to give the whole thing a trial run before committing herself wholeheartedly.