MMC report contained threat, says British Gas

The row between British Gas and the industry regulator, Clare Spottiswoode, continued yesterday after the company claimed the terms of her formal reference to Monopolies and Mergers Commission of its pipeline charges could be interpreted as a threat.

Ms Spottiswoode said the MMC's investigation would be confined solely to the prices charged by British Gas's pipeline and storage business, TransCo, after speculation that she was poised to ask for a much more wide-ranging probe into the company's structure.

However the Ofgas press statement raised the possibility that the MMC could widen its inquiry, which is expected to last six months, at a later date. Ofgas said it "does not ask the MMC to consider structural changes to British Gas at this time; however, it is possible for the director general [Ms Spottiswoode] to widen the terms of the MMC's investigation".

Philip Rogerson, British Gas's deputy chairman, said the company would have to prepare its evidence for the MMC panel on the basis that the investigation would eventually be expanded.

He said: "We are confused. First she says it's a narrow reference but then she says it might be widened. I don't know how to understand it ... this clearly could be interpreted as a threat."

The MMC referral followed automatically from the company's decision to reject the controversial five-year price regime, which would cut average gas bills to 19 million domestic customers by pounds 28 from next April. British Gas has savagely attacked the plans, which it claims would reduce TransCo's revenues by pounds 650m a year and lead to 10,000 job cuts, half TransCo's workforce, putting the pipeline system's safety at risk.

Ofgas told the MMC the current price formula enabled the company to charge unnecessarily high pipeline and storage prices compared with those needed to give shareholders a fair reward.

Earlier press reports had suggested Ofgas might want the MMC to consider whether the two businesses within TransCo International should be separated.

A wider MMC review into the structure of British Gas, which would have been the second in four years, could have threatened the company's plans to split itself in two. The demerger, due next spring, will hive off TransCo into a separate company which would include other activities such as offshore exploration and production.

Mr Rogerson said he assumed Ofgas would not seek to reopen the issue of the demerger, which was advocated by the MMC in 1993. But he said: "We have no alternative but to prepare for the possibility that the investigation might be widened. I'm struggling to know how to read this particular phrase in the press release."

A spokesman for Ofgas said the wording had been made for legal reasons and it was not the regulator's intention to widen the scope of the investigation.

"It's a technical thing that the lawyers asked us to put in. Technically Clare could extend the terms but it's highly unlikely that we'd bring in something new."

Shares in British Gas closed 4p lower at 184.5p following the statement from Ofgas.

Many analysts regard the shares as "dead money" for the foreseeable future until the row with the regulator is resolved.