Leading Article: Competition in the pipeline

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MICHAEL HESELTINE, the President of the Board of Trade, evidently wants to be a consumers' champion. In his decision on the future regulation of the gas industry yesterday, he went further than the Monopolies and Mergers Commission reports in two important respects. He brought forward by four years to 1996 the date from which British Gas will have to face competition in the domestic market; and he decided to throw the market open in one go, rather than extending competition step by step from larger customers to smaller.

The question still unanswered, however, is whether Mr Heseltine's quickie competition will do more good for the consumer than the slower, but more far-reaching, market opening recommended by the MMC in July. For there is so much politics in the regulation of monopolies that Mr Heseltine had to offer British Gas some carrots to compensate its shareholders for his boldness.

It is already accepted that consumers will have to pay for the administrative costs that competition will force on British Gas. The cap on prices imposed by the gas regulator - BG is currently expected to cut its prices by 3.6 per cent a year, or 5 percentage points below the RPI - is likely to be loosened by at least one point. So British Gas prices must fall by at least one percentage point before competition begins to pay for itself.

The new entrants will also be limited to a combined 5 per cent market share in 1996 and a 10 per cent share in 1997. This seems bizarre, since a battle between minnows and a whale gives little benefit to consumers. But Clare Spottiswoode, the new head of Ofgas, believes that this limit is necessary to prevent competition turning into chaos. When other companies were first allowed to sell gas to industrial consumers, they were blamed for British Gas's resulting problems - with administration, transportation and storage.

More important, Mr Heseltine also had to give up the idea of splitting British Gas into two companies: one to sell gas to consumers, competing with other gas suppliers; the other to run the pipes, charging gas suppliers to use them. The MMC argued in the summer that only this 'divestment' would ensure a fair playing field between the BG supply company and the new suppliers. Mr Heseltine and Ms Spottiswoode now say the MMC was wrong. They have decided instead to allow BG just to split supply and pipeline businesses into separate divisions under the same roof.

It is impossible to tell today whether they are right, or whether BG pipeline managers will still find a way of favouring their sister supply company over its competitors. But Mr Heseltine has two points in his favour. One is that since he no longer needs to wait two years for divestment to take place, he can bring competition in more quickly. The other is that it does not much matter if he is wrong. Divestment can be kept in reserve as a plan B if yesterday's plan A does not work.

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