Users of gas lose out

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BRITISH Gas siphoned off up to pounds 2bn of its customers' cash over 10 years to pay for rebuilding its pipeline network then transferred money to other arms of the business, leaving a debt of almost pounds 3bn.

A 343-page draft report by the accountants Arthur Andersen questions whether British Gas needed to collect pounds 200m a year (at 1992 values) from customers, saying pounds 30m would have been more reasonable.

It also suggested that much of the cash had been swallowed by excessively high payments to unregulated company divisions, including headquarters.

The regulated pipeline business, TransCo, was supposed to be hoarding the funds to pay for a reconstruction project after 2010 that would have seen most major trunk lines in Britain replaced, says the report obtained by the Independent on Sunday.

But company accounts released two weeks ago show that after next year's demerger, TransCo International - which includes pipelines and overseas exploration - will inherit debts currently worth pounds 2.9bn.

Andersen was commissioned last year by British Gas and its rivals to settle a dispute about charges for using the pipeline network. It found that the overall cost base was reasonable but that "inaccurate" or "questionable" transfers of pounds 290m were made last year alone.

With the first steps to deregulating the domestic market less than a month away, the revelations are likely to spark a customer revolt similar to the small- shareholder uprising following the announcement that British Gas's chief executive, Cedric Brown, who retires this month, was getting a 75 per cent pay rise.

The surcharge was supported by regulators, and British Gas was free to move money around its divisions until the new Gas Act came into effect on Friday.

A statement last week by the Ofgas regulator, Clare Spottiswoode, that she thought gas prices should come down, is thought to be based on a reading of the Andersen report.

British Gas has said the report vindicates its stance on pipeline charges. As a concession, it said it would reduce the value it placed on assets by about pounds 200m from the current pounds 18bn.

Business, page 3