Ofgas delays final pricing formula

The gas industry regulator, Ofgas, is to wait another week before releasing its controversial final price formula for the British Gas pipeline business, TransCo. Sources within British Gas suggested the differences between the two sides over the price controls remained unbridgeable, and TransCo employees were now starting the lengthy and complex task of preparing for a referral to the Monopolies and Mergers Commission.

Ofgas said the final proposals, which are the subject of one of the most intense arguments ever between a regulator and privatised utility, will be unveiled next Wednesday. The final formula was originally due at the end of July but was delayed until "mid-August".

It is believed British Gas was under the impression that publication would take place today, and interpreted yesterday's announcement of a final date as a further delay.

An Ofgas spokesman insisted the regulator, Clare Spottiswoode, who returned from a fortnight's holiday on Monday, "will only put something out when she is good and ready". He continued: "this weekend will give us time to reflect over the proposals".

British Gas was yesterday playing down suggestions that a compromise was impossible. But a source said TransCo's "formula review team", which has been working for months on the price controls, was preparing to go to the Monopolies Commission. "We've done an MMC inquiry before [in 1993] and we are getting ready again. It is our understanding that Ofgas are starting to put together their case for the MMC as well," the source said.

Ofgas has proposed a reduction in the size of TransCo's asset base from around pounds 17bn to between pounds 9bn and pounds 11bn, on which it will be allowed to earn a rate of return. The change would cut its revenues from next April by 20 per cent to 28 per cent, equivalent to a pounds 30 cut off the average domestic bill. British Gas has warned this would mean a reduction in its revenues of up to pounds 850m, which could only be achieved by cutting up to 10,000 jobs and putting service levels at risk.

British Gas's deputy chairman, Philip Rogerson, had a long meeting with Ms Spottiswoode on Monday night, but neither side is thought to have backed down on the fundamental sticking points. The meeting was understood to have been in the form of a discussion, rather than a negotiation on any of the basic issues.

Yesterday the Gas Consumers' Council urged the regulator not to back down.

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