Further damage in the pipeline

Further damage in the pipeline

Things just don't seem to get any better for British Gas. Still reeling from last week's disastrous annual meeting, the company is about to be hit by a dangerous missile from its regulator, Ofgas. A consultation document due this week on the control of the gas pipelines will not attract quite the same public attention as Cedric Brown's pay, but it will open up a Pandora's box for the company.

How much should British Gas be allowed to charge other companies to use its pipes and what is the true valuation of the pipeline network? Is it the pounds 17bn British Gas claims, or the far lower figures some of its rivals suggest?

The pipelines are the heart and lungs of British Gas and as competition in the domestic market approaches, it is possible to envisage a time when it will be just about all the company is left with in the UK. BG will fight tooth and nail against any attempt to cut the valuation - and thus the return to be allowed on the business from charges to other gas suppliers who use the network to reach their customers. British Gas's opponents are equally adamant that they should not be forced to pay over the odds. They believe that since privatisation, British Gas has already raked in many millions more than it needs to invest in the pipeline system and keep it refurbished.

The document will also broach the subject of whether the RPI minus X formula used to control charges among privatised utilities is the right approach for gas. Other methods might be more appropriate as competition increases. Pipelines may not be the sexiest of subjects. It is one, however, which is vitally important to British Gas. The danger is that the company has been so damaged by the Cedric Brown pay row and the series of other public relations disasters it has experienced over the last year that its case may not get much of a hearing. If it does not, it only has itself to blame.