British Gas pipeline prices to be capped
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Your support makes all the difference.OFGAS, the industry watchdog, is to impose an inflation-linked price cap on the British Gas pipeline system, which is increasingly being used by other gas suppliers such as North Sea producers.
The move could force British Gas to shed jobs to cut costs and maximise its rate of return. The main beneficiaries would be Shell, Esso and companies applying for licences to supply gas.
Sir James McKinnon, director general of Ofgas, said the introduction of an inflation-linked formula would force more efficiency into the system and ensure that the benefits were shared with customers and shareholders.
'The way you maximise your rate of return is to operate the pipeline system with the correct staffing levels and the correct level of costs,' he said.
Recently, Ofgas clashed with British Gas over the terms on which other companies should be allowed to use the pipeline and storage system. The result was a referral of the company to the Monopolies and Mergers Commission. There has since been speculation that the company may be asked to sell off the pipelines as a result.
Sir James believes, however, that some incentive to increase efficiency will be needed irrespective of who owns or runs the pipes. He says that work on an 'RPI minus X' formula should be ready once the MMC review is complete.
The pipeline and storage system is estimated to be worth around pounds 15bn, accounting for the bulk of British Gas assets. Until recently, regulation of the system was deemed unnecessary as about 65 per cent of the gas it carries goes to British Gas's domestic and other small customers over which it has a monopoly. As the company also dominates in the supply of gas to industry, almost all the gas it carries is destined for its own customers.
However, the Office of Fair Trading wants British Gas to reduce its share of the industrial market to 40 per cent within a few years from more than 80 per cent at present. In addition, the Government is reducing the size of the monopoly market by allowing smaller businesses to choose alternative suppliers and may ultimately abolish it entirely.
These developments mean that the pipes will increasingly be carrying fuel on behalf of rivals of British Gas.
British Gas believes that in setting prices to carry other people's gas it should be allowed a rate of return of 6.7 per cent on existing investment and 10.8 per cent on new investments. This is far in excess of the 4.5 per cent set by Ofgas at present.
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