Report warns of gas price rise as suppliers move to competition: New rules could mean inland customers paying more for supply

SOME consumers may have to pay more than others for their domestic gas supply when new rules governing the gas industry are introduced in 1996.

Gas prices could be 8 per cent higher for some customers as charges begin to reflect more accurately the cost of supply, according to a joint report by the Department of Trade and Industry and Ofgas, the regulator.

Tim Eggar, energy minister, played down the impact on prices, saying that competition, to be phased in between 1996 and 1998, would encourage lower costs and prices. But Clare Spottiswoode, director-general of gas supply, said that a move away from universal gas pricing was the inevitable effect of competition.

Their document says that to avoid unacceptable and abrupt price changes, the overall British Gas price cap on bills will stay at inflation minus 4 percentage points, at least until 1997. British Gas will have some freedom to adjust prices within that constraint.

The long-overdue report was attacked by the Labour Party and consumer groups. Nigel Griffiths, Labour's spokesman on consumer affairs, said: 'This will mean millions of people living hundreds of miles from coastal gas terminals will see an increase in bills.' He claimed that the results of the council elections last week would have been worse for the Conservatives had the report not been delayed by ministers.

Ian Powe, director of the Gas Consumers Council, said: 'It is difficult to avoid a first impression that low-income consumers, hardest hit by VAT (on domestic fuel), will gain nothing over the next four years and could face even higher gas bills than they were expecting from British Gas.'

The National Consumer Council said the Government has failed to give a proper analysis of the benefits of competition for consumers. A spokesman said that, in spite of assurances from ministers, the document clearly pointed to a rise in prices for some customers.

'Since competition in the domestic gas market was first imposed we have been calling for a full cost-benefit analysis of the likely effect for consumers, including low users. This document does not provide this much-needed analysis. Consumers are being asked to take a leap in the dark,' the spokesman said.

Cedric Brown, British Gas chief executive, said its priority was to ensure that in the interests of shareholders and customers 'competition is introduced on an equitable basis between all suppliers'.

Competition and Choice in the Gas Market sets out ways in which changes might be introduced in 1996, with the market opening fully in 1998. It gives no details of pricing as these depend on a separate study by Ofgas on how much British Gas should be allowed to charge other suppliers to use the pipes. This report is due out within weeks.

The DTI and Ofgas document says that like many monopolies, British Gas's present uniform pricing structure is not fully cost-effective and contains elements of cross- subsidy. The introduction of competition into such a market might focus initially on the more profitable segments, leading to a 'rebalancing of prices and services in the direction of greater reflection of costs'.

Rivals, including North Sea producers, electricity companies and foreign energy groups, welcomed the document and rejected allegations that there would be widespread price increases. However, Kinetica, one of the largest independent suppliers, said that competition could be threatened if Ofgas allowed British Gas to charge high prices for the pipes.

It is possible Ofgas might be given powers to raise money to contribute to the Government's energy efficiency schemes through the pricing formula.

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