View from City Road: Gas shareholders need not despair
Your support helps us to tell the story
From reproductive rights to climate change to Big Tech, The Independent is on the ground when the story is developing. Whether it's investigating the financials of Elon Musk's pro-Trump PAC or producing our latest documentary, 'The A Word', which shines a light on the American women fighting for reproductive rights, we know how important it is to parse out the facts from the messaging.
At such a critical moment in US history, we need reporters on the ground. Your donation allows us to keep sending journalists to speak to both sides of the story.
The Independent is trusted by Americans across the entire political spectrum. And unlike many other quality news outlets, we choose not to lock Americans out of our reporting and analysis with paywalls. We believe quality journalism should be available to everyone, paid for by those who can afford it.
Your support makes all the difference.THE latest in what threatens to be a series of missives from Ofgas, detailing its submissions to the Monopolies and Mergers Commission over the future of British Gas, is typically uncompromising.
Ofgas clearly sees itself as the people's champion, with a mission to stimulate maximum competition in the market for gas.
But what catches the eye in Ofgas's latest explosion into print is its suggestion that by pulling out British Gas's pipeline and storage business into a completely separate company, eventually to be demerged or sold, it is doing British Gas shareholders a favour.
The British Gas board, which fought hard and long to keep the integrated activities of the company intact at privatisation, has itself suggested a 'Chinese wall' between gas marketing and the pipeline and storage system in order to retain economies of scale and to avoid the costs of a break-up.
This does not go nearly far enough for Ofgas. It proposes a tightly regulated natural pipeline and storage monopoly, presumably earning a rate of return at the bottom end of Ofgas's proposed 2.7 to 5.1 per cent range.
Since pipeline and storage accounts for 90 per cent of all British Gas's pounds 20bn assets, such a tight regime does not at first sight bode well for the profitability of this newly separated company.
Shareholders need not despair, since Ofgas claims that economies of scale in pipeline and storage do not really exist and any short-term costs of separation will be more than offset by extra efficiency and enhanced shareholder value.
The MMC will have to adjudicate between them. Meanwhile the yield - 7 per cent with the shares at 270p - looks set to stay high.
Join our commenting forum
Join thought-provoking conversations, follow other Independent readers and see their replies
Comments