Ofgas to challenge on pricing

OFGAS, the industry watchdog headed by Sir James McKinnon, is threatening to challenge key findings in last week's Monopolies and Mergers Commission report on the future of British Gas.

In particular, Ofgas is unhappy with proposals that the formula controlling domestic gas price increases should be eased and that customers rather than shareholders should shoulder the costs of breaking up British Gas into two separate companies.

News of Ofgas's continued resistance will dismay British Gas, which has welcomed the MMC report as providing a reasonable basis for the future, after seven years of wrangling with the regulator.

An Ofgas spokesman said this weekend: 'We must have regard to the recommendation, but we're not bound to accept it and we'll be looking at the underlying assumptions very carefully.' He added: 'Since any changes would take effect at the start of April 1994, we shall begin that process very shortly.'

The MMC, which last week published the conclusions of a year-long inquiry into British Gas, said that the price- capping formula should be changed to compensate the company for the loss of its monopoly on customers using between 2,500 and 25,000 therms - mainly small businesses.

Under the current terms, British Gas can raise prices, at most, by inflation minus 5 per cent. The MMC says this should be modified to inflation minus 4 per cent.

Ofgas also expressed concern about the MMC's proposal that the costs of restructuring British Gas should be borne by consumers instead of the company's shareholders. 'It is an open question whether shareholders should not be asked to bear some of the costs,' said the spokesman.

(Photograph omitted)