Privatised Utilities - Gas
Privatised Utilities - Gas
British Gas (BG) was sold-off in 1986 as a complete monopoly. The new private company had a complete monopoly of gas transmission and distribution. Initially, the regulator in this industry was the Office of Gas Supply (OFGAS) and its head was Clare Spottiswoode. They also use the RPI − x formula; the current value of x is 3%.
In hindsight, BG was an industry where a contestable market should have been set up, rather like the railways. In fact, a move towards this system is happening at the moment (see later).
This privatised utility was a classic example of one in which regulatory capture occurred. This is a situation where the privatised monopoly is in a position to feed carefully selected information to its regulator so that it gets only the part of the truth that the firm wants it to have. In essence, the regulator has been 'captured' and is in the pocket of the firm.
In 1998 the phasing in of competition for gas supply began. Nearly a quarter of the 4.5 million homes first offered the choice have opted to leave BG. There were problems because electricity companies could sell gas, but gas companies were not yet able to sell electricity. Even with the competition, BG plc and Centrica have both seen their share price rise since the BG low point in 1996. They still have 80% of the market share even though their competitors have reduced prices by as much as 20%. Service has improved and that is important too. They have been helped by many of their competitors having teething troubles. As of 23rd May 1998, all 19 million-gas customers in the UK were able to choose their supplier of gas. It looks like around 20% of all gas customers will switch to one of the 25 new suppliers. OFGAS and OFFER (the regulator for the electricity industry) were merged to reflect the fact that they now all compete for the same customers. The new name is OFGEM and its head is Dermot Nolan.
By 1999, Centrica had become a highly successful company. It was attracting new customers in the electricity market and looking to buy a power station. They were keeping prices down by offering joint gas/electricity contracts.It is also looking to diversify into mortgages, a car breakdown service and home shopping! Centrica (still know as British Gas in the market) are doing so well that competitors are having to cut their prices very significantly, so much so that it is felt that some of the new operators may not survive.
By the end of 1999 Transco was even talking about plans to lay a complete network of power lines, water pipes and telecommunications cables. There was even talk of merging all the utility regulators into one body called OFUTIL! Also, McCarthy proposed reducing annual gas bills for non-direct debit customers and the removal of all price controls for residential customers from 2001.