British Gas Row With Ofgas

Earlier, the company rejected proposals by Ofgas for a new pricing regime at its pipeline and storage arm TransCo, triggering a lengthy Monopolies and Mergers Commission inquiry.

Spottiswoode told reporters this has not been a process where we felt they were seriously in discussion.

She said British Gas had held only about four or five meetings with Ofgas officials over TransCo, and she had met the company only once on this issue since putting forward moderated price control proposals in August.

The situation has been one where they were not involved in negotiations in any real sense. The amount of contact since the final proposals has been very limited.

 

The regulator added that she had made more concessions to British Gas in August than I felt comfortable with in order to give them no excuse for taking it to the MMC.

British Gas accused Ofgas of pursuing unjustified and unworkable proposals that would slash 400 million pounds ($626.2 million) a year from its cashflow, put the safety of its system at risk and lead to further job losses.

Spottiswoode wants a one-off cut of 20 per cent in the tariffs that TransCo charges to gas suppliers, followed by four years of charges pegged at 6.5 percentage points below inflation. Ofgas believes this would cut about 30 pounds a year from an average household gas bills.

British Gas chairman Richard Giordano accused the regulator of a flawed approach, saying British Gas had been refused access to key reports on which Ofgas had based its price proposals.

Spottiswoode defended herself against the complaint, saying it would have been unfair to give British Gas full access to information which was denied to their competitors.

There was nothing in it for us and everything in it for British Gas, Spottiswoode added.

British Gas shares fell 6p to 193-1/2p as investors bemoaned the fact that the second MMC enquiry in four years for the company will bring months of continued uncertainty.

British Gas has the hope it may salvage something, but there are absolutely no guarantees, said Irene Himona at broker SG Strauss Turnbull.

This referral means we will not find out the full story for the dividend for another nine months, she added. British Gas shareholders had already been let down on Monday by the companys failure to agree the sale of part of its loss-making gas supply business to Scottish Hydro-Electric.

British Gas is already under strain as it tries to re-negotiate so-called Take-or-Pay contracts, which oblige the utility to buy gas from North Sea producers at prices well above market rates.

Many industry analysts would rather see British Gas swallow the Ofgas proposals and put more effort into unravelling its crippling Take-or-Pay contracts.

British Gas, privatised 10 years ago and still struggling on many fronts to cope with the loss of its monopoly, plans to split itself in half next year into a domestic gas supply business known as British Gas Energy and TransCo.