Row likely as gas pipeline fees rise

BRITISH GAS is to raise charges for using its pipeline system by 15 per cent in a move likely to provoke a fresh clash with its regulator, Ofgas.

Sir James McKinnon, director- general of Ofgas, said at the weekend he would intervene on behalf of gas supply companies that consider the price increases unfair.

The new price schedule, to be published in September, would not affect domestic customers, who are protected by a price cap, but could squeeze new gas suppliers and bring higher prices for industrial and commercial users.

Sir James said: 'No one wants to see these sort of price increases. If people carrying gas think it unjustified they can come to Ofgas.'

British Gas has calculated the price increases on the basis of the risk it attaches to the gas transport business. It says it requires a return on the business of 10.8 per cent for all new investment and 6.7 per cent on existing assets.

These figures compare with 4.5 per cent which Ofgas used when settling earlier disputes.

But British Gas argues that it needs the returns to implement a pounds 4bn investment in the transmission and storage system over the next five years. It also believes that increased competition, and the gradual erosion of its monopoly over small customers, make it a riskier operation than before.

Sir James believes that the transmission business is low-risk and rejects British Gas's argument that other companies will invest heavily in rival pipelines. But Stuart Anderson, British Gas's director for operational planning, said: 'We have measured the risk in an accepted way. This is by no means a low-risk business.'

The company is already under pressure from the Office of Fair Trading and Ofgas to allow more competition in the industrial gas market. Under an agreement with the OFT it is being forced to hive off the transport and storage system as an arms-length operation.

This is to enable other gas suppliers, such as offshore energy companies, to use the pipes on the same basis as British Gas's own supply arm.

Ofgas has accused British Gas of 'filibustering'. Sir James believes the company will not meet the deadline for the new set-up to be in place by 1 October.

If he cannot agree with British Gas on satisfactory interim arrangements for transport and storage over the next few weeks he may refer the company to the Monopolies and Mergers Commission.