View from City Road: British Gas learns a lesson
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Last summer British Gas was caught yards offside by Ofgas, its industry regulator and tormentor-in-chief, and was forced to cut the gas bills of domestic customers by 3 per cent in July.
The reduction was made with considerable ill-grace on the part of British Gas. The company had hoped to wait until nearer the autumn so that any price move would be linked to the October retail prices index on which its pricing regime is based.
Ofgas, as it was entitled to do, asked for swifter action and, amid threats of legal action, British Gas bent the knee. But not before Robert Evans, the chairman, raged against Ofgas, accusing it of a 'media stunt'.
Relations with Ofgas have not improved since and, with the regulator's public call in December for the Monopolies and Mergers Commission to break British Gas into pipeline, storage and marketing companies, may have deteriorated.
But lessons have been learned at British Gas. Anticipating Ofgas, the company declared yesterday that it would not be increasing prices on 1 April. This is despite higher sterling gas costs and other adjustments which, it claims, would have allowed it to lift prices in line with inflation.
Better handling of Ofgas could pay dividends, at least until the MMC makes its report. Last summer British Gas shares badly underperformed those of other utilities and have also suffered in the past month despite the allure of a prospective yield of 7 per cent at a time of falling interest rates.
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