View from City Road: British Gas is still in the woods

The awesome pounds 1.6bn price tag for impending job losses at British Gas went far beyond most expectations, and the company says it may only be a start. If this is what happens when the company escapes the break-up suggested by the Monopolies and Mergers Commission, what on earth might have happened if it had not?

British Gas is constrained on all sides. Its prices to domestic consumers will remain tightly controlled, and it has yet to run the gauntlet with Ofgas over the rate of return allowed on its pipeline and storage operation - a business with assets of pounds 17bn to pounds 18bn.

The uncertainty over the pipes, coupled with the forthcoming report on how competition will be introduced in the domestic market, makes it difficult for British Gas to look ahead. Whether on overseas expansion - the likely key to future earnings growth - or the way forward for dividends, British Gas needs a clearer view of its position in the UK.

Clare Spottiswoode, the new director general of gas supply, will put forward her views on the regulation of the pipeline business in April. Price control could be in place by 1 October.

So far, Ms Spottiswoode and British Gas appear to have a constructive relationship, but it is early days. She has already said that the regulation of the pipelines will be a 'tough' job for a long time to come and that she regards it as central to the emergence of competition in the marketplace. British Gas is not out of the woods yet.