Gas Supply (Hansard, 19 October 1988)

§ Mr. Maude

The report is published today, following a reference to the commission by the Director General of Fair Trading in November 1987.

In its unanimous report, the commission found extensive discrimination by British Gas in the pricing and supply of gas to contract customers. It concluded that this practice operated against the public interest. The commission made four main recommendations which it felt would encourage competition in the supply of gas, and restrain BG's discriminatory policy on pricing and supply of gas. The recommendations were that BG should be required: to publish a price schedule at which it is prepared to supply firm and interruptible gas to contract customers, and not to discriminate in pricing or supply; not to refuse to supply interruptible gas on the basis of the use made of the gas, or the alternative fuel available; to publish further information on common carriage terms; to contract initially for no more than 90 per cent, of any new gas fields.

One of the main findings was that BG's policy of price discrimination imposed higher costs on customers less well placed to use alternative fuels, or to obtain them on favourable terms, thus placing an arbitrary cost disadvantage on these customers. In addition, BG's policy of relating prices to those of the alternatives available to each customer placed it in a position to undercut potential gas suppliers, which may be expected to deter new entrants and inhibit the development of competition in the market. Its refusal to supply interruptible gas to some customers also imposed additional costs on those users.

The commission also concluded that BG's failure to provide adequate information on the costs of common carriage, its ability to identify potential customers of competing suppliers and the potential source of gas, and its position as a dominant purchaser of gas may all be expected to deter entry into the market.

My right hon. and noble Friend the Secretary of State welcomes this report. The MMC's recommendations offer a sound basis for encouraging the development of effective competition in the supply of gas to contract customers. The Secretary of State is asking the Director General of Gas Supply to seek agreement with British Gas to modifications to British Gas's authorisation so as to effect remedies relating to British Gas's pricing and contract policies in the supply of gas to large users, and also relating to the provision of information on its common carriage 947W terms for transmission of gas. If satisfactory arrangements cannot be made by agreement, the Secretary of State has powers to remedy the adverse effects by order under the Fair Trading Act.

In order to encourage the emergence of other suppliers of gas to industrial users, the Secretary of State considers that it is essential that a reasonable percentage of the output of new gas fields should be available to suppliers other than British Gas. He has asked the Director General of Fair Trading to consult interested parties on the basis of the MMC's recommendations, with a view to proposing by 31 January 1989 a scheme which will make it easier for others to buy gas from developers of gas fields. In particular, he has asked the director general to advise him whether requirements under such a scheme should be subject to a time limit, and if so what the limit should be. The Secretary of State will then consider the position further.

The Secretary of State believes that these measures will remove distortions in the gas market with consequential improvements to resource allocation and efficiency. The remedies are designed to encourage new entrants into the industrial gas market thereby accelerating the development of competition.