Ofgas threatens to seek backdated price cuts

Clare Spottiswoode, the gas industry regulator, is calling for backdated price cuts for consumers should competition in the domestic market be delayed. The move by Ms Spottiswoode comes as British Gas continues to insist that competition, due to start for 500,000 households in the South-west on 1 April, should be postponed.

Ms Spottiswoode believes that in the event of a delay, consumers who ultimately switch to lower-cost suppliers should have those prices backdated to a meter reading taken on 1 April. She argues that British Gas and its rivals, which include offshore companies and electricity firms, should sort out the financial implications and that consumers should not be penalised.

Rivals such as Amerada Hess plan to undercut the company by up to 15 per cent and so far British Gas has failed to say how it will respond. There are fears in the company that others will come in and cherry-pick the most lucrative users, leaving it with those who are least economical to supply.

The moves by Ofgas to back-date price reductions are at an early stage and are the latest twist in the long-running battle to have competition introduced on time. British Gas has warned that there could be chaos because of insufficient testing of computer and billing systems. It is thought that the company angered Ms Spottiswoode last week by agreeing to a statement in favour of the 1 April kick-off and then continuing to complain that delays are necessary.

A spokesman for TransCo, British Gas' pipeline arm, said 1 June was the earliest sensible date for competition to begin. Critics of the company say this could be the first of many efforts to put off the opening of the market in the hope that it may never happen. But Harry Moulson, TransCo's managing director, argues that postponement is the only way to ensure things are "hassle-free".

The row over the domestic market is one of a series of battles which British Gas faces with the regulator. Ms Spottiswoode is expected to intervene soon to block imminent increases in charges for other companies that need to use British Gas's pipes. At the same time, the watchdog is consulting on fundamental changes in the way the company is regulated as part of a review of British Gas price controls to be completed by the middle of the year. Separately, large industrial users are calling on Ms Spottiswoode's office to investigate the company's policy of cutting supplies at times of high demand, including during the cold snap.

Many large users have contracts at low prices on condition that they can be interrupted when demand from other consumers soars.

Meanwhile, Moody's, the credit rating agency, has placed British Gas's debt under review for a possible downgrade. Moody's said the review would focus on a number of factors, including the company's on-going negotiations with producers.