Liquefied Petroleum Gas (Hansard, 25 February 1981)

§ Mrs. Sally Oppenheim

The report is published today. The commission concluded that the scale monopoly situation existing in favour of the Calor Group Ltd. and its subsidiaries Calor Gas Ltd. and Calor Kosangas Northern Ireland Ltd. did not operate against the public interest. The commission did, however, conclude that two practices previously pursued by Calor, but now discontinued, operated against the public interest, and recommended that they should not be reintroduced by Calor.

The commission found that Calor's dominant position in the reference LPG market seemed unlikely to be seriously eroded in the foreseeable future. This was mainly due to the difficulty which other suppliers had in competing on other than a relatively minor scale; but there were other circumstances which, although they were justifiable in themselves, particularly on grounds of safety, or were of only minor significance individually, when taken together tended to reinforce Calor's dominant position. Exclusive dealing, the cost to a user of switching to another supplier, the refusal to allow other suppliers to refill Calor cylinders, the fact that Calor Gas was widely thought to be a commodity rather than a brand name—and that some Calor sales literature appeared to support this belief—and the undoubted commercial advantages to be gained from the unique position of the Calor Laboratories were all examples of this.

The commission considered complaints that Calor had been unable on occasions to supply domestic users with butane. However, the commission recognised that there were special reasons for supply difficulties during the winter of 1978–79. which was the main period for complaints, and that Calor had taken steps to enable it to cope more effectively in the future with similar conditions. It did not think that Calor could be criticised for encouraging the increasing use of appliances without regard to the availability of butane to fuel them.

The commission considered that Calor's system of charging for the use of cylinders appeared equitable. The retail price differential between small and large cylinders, which was a source of complaint, was justified in the light of the different costs involved in each case. The uniformity of its refill authority charge, that is the initial charge for use of a cylinder, irrespective of the size of cylinder was also reasonable since the differential cost of cylinders was taken into account in determining the price of gas refills. The general level of Calor's prices, and the frequency of increases, had been the subject of complaint, but the commission did not regard prices as excessive or unreasonable. Retail price increases for LPG had been substantially less than rises in the cost of gas to Calor and had not been far out of line with the general index of retail prices. Calor was an efficient and cost-conscious company and its prices were not set at such a level as to enable it to make unduly high profits.

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The commission considered the stipulation imposed by Calor in its agreements with distributors that the latter should not deal in LPG from any other supplier. A similar provision was included in the agreements of other suppliers and the commission considered that if such exclusive dealing prevented, restricted or distorted competition a complex monopoly situation would exist in favour of these suppliers. It thought that, in principle, exclusive dealing could shut out potential competitors in localities where there was only a single suitable outlet, but it found that since in general there were a very large number of existing businesses which were suitable for distributing LPG any such restriction on competition would be minimal. At the retail level, it thought that competition between different brands would be keener where distributors were committed to the sale of a single brand because competition between them was likely to be on the basis of brand image and service rather than price, butane and propane being homogenous commodities. It considered that exclusive dealing on balance did not have any material adverse effect on competition.

The commission made some criticisms of Calor, partly in connection with practices it had now abandoned and partly in connection with forms of words used in sales literature which it considered to be misleading. However, these criticisms were not in its view of sufficient importance, taken together, to merit a finding that the dominant position of Calor was itself against the public interest, bearing in mind particularly that Calor was an efficient company, its profits had not been unreasonably high and its concern for safety had been an important factor in the growing use of LPG by the public.

However, it found that two practices previously operated by Calor and attributable to the existence of the monopoly situation did operate against the public interest: these were the requirement that distributors of Calor LPG should buy appliances only through Calor, and of including in its agreements a provision which prevented distributors from handling other suppliers' LPG for various periods after ceasing to buy Calor's. The commission recommended that Calor should not reintroduce these practices.

In addition, the commission suggested that conditions relating to the initial charge for having a cylinder should be set out more prominently, that adequate information on the significance of the term "Calor Gas Approval" should be provided to users, and that certain expressions in Calor's sales literature which might lead customers to think that an appliance should not be used with brands of butane other than Calor's should be amended.

Finally, the commission drew attention to the fact that Calor might be able to increase its profitability significantly in the event of substantial future rises in gas and electricity prices, to the desirability of ensuring that a standard cylinder valve was adopted in the LPG industry, and to the unsatisfactory situation arising from the fact that Calor Laboratories were not wholly independent of Calor commercial interests.

The Government accept the commission's recommendations. I am asking the Director General to seek undertakings from Calor not to reintroduce the two practices which have been the subject of adverse findings. I am also asking him to discuss with Calor what action it might take in response to suggestions made by the commission for giving greater prominence to the 358W conditions relating to the refill authority charge and for clarifying certain misleading statements used by the company in its advertising material and sales literature.

I have further asked him to consider possible ways of dealing with the unsatisfactory situation arising from the fact that Calor Laboratories, which tests appliances for the purpose of "Calor approval", is not an independant body and its criteria are not readily ascertainable by the public.