Ofgas last week asked the power companies to stop selling gas in their regions after a complaint from Centrica, the British Gas supply group. Centrica was concerned that the five-month delay to electricity competition meant it would lose gas customers, but would be prevented from signing up electricity customers.
But electricity companies had refused to comply with the regulator's request, threatening a lengthy MMC investigation. John Devaney, chairman of Eastern Group, the largest UK power company, said Ofgas had "backed right off" over the issue. "Our legal advice showed Ofgas had no jurisdiction in this. This was about Ofgas protecting Centrica."
ScottishPower welcomed Ofgas's move, which came after a meeting on Monday with the Electricity Association. A ScottishPower spokeswoman continued: "Common sense has prevailed. This is great news for customers. We will carry on selling gas."
Under the compromise the power groups agreed in return to stop special offers to existing electricity customers, giving homes extra discounts if they signed up to receive both fuels. An Ofgas spokesman said it would review the domestic gas market in the summer and could still take suppliers to the MMC if they were guilty of creating "undue restrictions" on competition, such as cross-subsidies between the two fuels.
However, Mr Devaney said this warning could equally apply to British Gas. He said Eastern was considering requesting an MMC or European Commission investigation into British Gas's business. Mr Devaney argued British Gas was likely to emerge with 80 per cent of the domestic gas market after full competition, and called for its business to be broken up.