Watchdog ruling may lift gas bills

Click to follow
The Independent Online
OFGAS, the gas industry regulator, will this week put forward proposed changes to British Gas's price control formula that could result in higher bills for residential customers.

British Gas has argued that loss of market share over the last few years means that the price cap, which limits increases to inflation minus five percentage points, is no longer justified. The formula has been in place since 1992 and has three more years to run unless the regulator intervenes.

Last week Cedric Brown, chief executive of British Gas, called for a better deal for shareholders, saying that customers had enjoyed most of the advantage since the business was privatised.

Last year the Monopolies and Mergers Commission recommended that the price cap be lowered to inflation minus four percentage points but British Gas has argued for even greater relaxation.

The outcome depends on Clare Spottiswoode, the director general of gas supply, who has signalled her intention to continue with tough regulation for the foreseeable future but at the same time has been careful to develop a positive relationship with British Gas.

The issue of the price formula will test the new atmosphere of cooperation between the company and Ofgas.

Ms Spottiswoode will also give British Gas her view on whether the consumer should help to pay for the reorganisation of the company that is required by the Government.

Although ministers rejected MMC recommendations to split up British Gas, they have demanded accounting separation of the pipeline and trading operations.

The restructuring is supposed to help rival gas suppliers, including North Sea producers and electricity companies, to make greater inroads into the market by ensuring that they can use the pipes on the same terms as British Gas's own trading arm.

British Gas has declined to put figures on the cost of reorganisation, which is expected to run to millions of pounds. The changes will result in 20,000 job cuts over the next three years.

The Gas Consumers' Council challenged British Gas's assertion that customers should pay more, arguing that it could do much more to reduce operating costs. Ian Powe, the director of the GCC, has said that the planned job cuts between now and 1996 will save British Gas pounds 370m on its salary bill and that British Gas could achieve yet more.

'There is neither case nor cause for higher domestic gas bills. British Gas has always been overmanned and overmanaged,' Mr Powe said.

British Gas is also awaiting joint consultation between the Department of Trade and Industry and Ofgas on the equally thorny issue of how much its rivals should pay to use its pipes and its facilities for storing gas.