BG settles pipeline dispute with regulator

Ofgas, the gas watchdog, yesterday hailed a new era of peace with BG, the former British Gas, after the two sides settled their long-running war over pipeline price cuts.

But Ofgas's claim that domestic bills would drop by a further pounds 5 under the new price formula were disputed by BG and the Gas Consumers' Council. Chris Godsmark, Business Correspondent, reports.

Clare Spottiswoode, the industry regulator, yesterday unveiled the final version of the controversial five-year price formula, which would see gas transportation charges drop by around 25 per cent in 1997/98, more than the 21 per cent cut recommended earlier this year by the Monopolies and Mergers Commission (MMC).

Ofgas said this translated into an extra pounds 5 off household bills, in addition to the pounds 29 cut implied by the MMC report. Referring to BG's high- profile campaign last year against the price proposals, Ms Spottiswoode said: "This isn't the biggest smash and grab raid ever. This is a very calm and collected and proper protection of customers."

BG yesterday accepted the new price regime, but cast doubt on the impact on bills. The pounds 29 cut has already proved controversial, after it emerged that bills would only fall in practice by around pounds 14, after BG was allowed to recover revenues outstanding from the previous year. The cuts also only applied to most British Gas customers, while rival independent suppliers did not have to pass them on.

David Varney, BG's chief executive, warned that any extra drop in domestic bills depended on demand for gas over the winter and the volumes for industrial users. "The whole issue of pricing is hideously complicated. ...We don't know the volumes and the mix is terribly important."

The Gas Consumers' Council (GCC) said it was worried consumers' hopes of bigger reductions would be disappointed. "It would be unwise to raise consumer expectation of price reductions too high," argued Sue Slipman, GCC's director.

BG had reluctantly accepted the MMC report, which would cut its revenues by some pounds 550m, after a year-long battle with Ofgas. But the company immediately steered into a new row with Ms Spottiswoode over claims that she was going much further than the MMC's conclusions, by proposing that BG's pipeline revenues should be capped completely.

The deal agreed yesterday would see BG receiving no benefit if the volume of gas transported through its pipelines rose by up to 3 per cent, a move which could cost the company pounds 140m over five years. Any further increase would see BG receiving half its normal revenues, a figure already recommended by the MMC.

BG was swift to deny claims that it had threatened to take Ofgas to the High Court over the issue. Instead, both sides insisted they had forged a new relationship. " We've had good, businesslike discussions with Ofgas," said Mr Varney.