British Gas will let rivals use storage facilities

BRITISH Gas will provide storage facilities for rival suppliers, including North Sea oil and gas companies, after protracted negotiations with Ofgas, the industry watchdog.

It had previously refused to open its storage to competitors - a stance that Ofgas said would have stifled competition in the gas supply market - but caved in at negotiations last week.

British Gas will write this week to third parties, giving details of the storage facilities on offer. However, prices have yet to be agreed by Ofgas and could lead to further clashes.

Storage charges will be 21.2p a therm for every therm booked, plus 1.1p a therm for each therm stored and a further 0.4p when the therm is withdrawn.

Bill Hetherington, the Ofgas assistant director of competition and tariffs, said: 'We want to make it clear that we are not backing these prices. Ofgas will see what the market thinks, and if gas shippers say the prices are too high we will take up the issue.'

Mr Hetherington said the watchdog had also won guarantees from British Gas that it would not discriminate against rival suppliers by cutting off their customers 'on a whim' when capacity on the pipeline was tight. But he said that Ofgas had yet to see the guarantees in writing.

The development suggests Ofgas will continue to put pressure on British Gas during the Monopolies and Mergers Commission's wide-ranging investigation.

Earlier this month, British Gas asked to be referred to the MMC as Ofgas said it would refer the company to the MMC on the narrow issue of prices it would charge others to use its pipes.

Sir James McKinnon, director general of Ofgas, has forced the company to agree interim prices while the year-long MMC investigation proceeds. These are designed to give British Gas a 4.5 per cent return on its investment in the pipes.

The company says this is too low. It wants between 6.7 and 10.8 per cent on its investment.

Although British Gas's competitors are in the main expected to market their services to large businesses, Ofgas has also set interim prices to help suppliers to smaller customers using under 25,000 therms a year. These customers are part of British Gas's captive franchise market, but the Government will reduce the franchise threshold to 2,500 therms in October.

Mr Hetherington declined to detail the prices, but said: 'I believe this will enable competition below 25,000 therms. It is now up to gas shippers to decide if this is a market they want.'

The agreement could help companies such as the regional electricity companies, several of which are entering the gas market.

Sir James has made it clear he will intervene on behalf of new gas suppliers if they find the conditions for using the pipes and storage over the coming year are unfair.

He hopes that a more permanent agreement with British Gas can be reached by October 1993 after the MMC has finished its scrutiny of the company.