Page 30 - Gi March 2019 - Flipbook

THE CREATION

OF THE GAS

NETWORKS

Twenty-five years on from the formation of the gas
networks, IGEM Marketing Assistant Dimple Visram
remembers the path we took to get here

n February 1994, the gas industry The first step in opening the market
looked like water does today; up had been the development of
with one company operating standard published prices for the
pipes and selling water within a sale of British Gas Plc’s industrial and MMC report, British Gas had agreed to
I geographically defined region. commercial gas and the new concept reduce its share of the contract market
The integrated British Gas Plc had of transportation of third party gas following discussions with the OFT.
been privatised only a few years earlier via third party access agreements. A series of consultations and
and used the slogan ‘from drill bit to Competition was initially limited to discussions with Ofgas led to British Gas
burner tip’. At a regional level, gas premises using greater than 25,000 Plc requesting a referral of the whole gas
conversion notwithstanding, little had therms and new entrant gas suppliers business to the MMC in July 1992.
changed since nationalisation some 45 included companies affiliated with After a year of investigations, the
years earlier. The idea of competition in the upstream producers. Despite MMC concluded that there was a
supply seemed strange and customer these measures, many felt that new conflict of interest in a company
surveys suggested that many gas entrants still faced many barriers for competing with others in the market
consumers were satisfied with the entry into the gas market, and several whilst simultaneously controlling the
industry’s performance. interventions were needed before full transportation network. They claimed
However, actions taken by the liberalisation occurred. that this made it impossible to provide
regulator Ofgas in the preceding In 1991, a review by the Office of the necessary conditions for self-
years, and ultimately the Monopolies, Fair Trading (OFT) proposed that the sustaining competition.
Mergers and Commission (MMC) integrated company should release Therefore, the MMC recommended
inquiry in 1992-3, prompted a some gas it had already contracted to to the government that British Gas
complete overhaul to form the UK gas competitors in order to create a third Plc’s trading activities should be placed
industry we know today. party supply of gas. under separate ownership by 1997.
Policy makers across the globe were This view was supported by Ofgas, They further recommended that the
particularly interested in the outcomes which suggested the divestment of monopoly on supply to the domestic
of a more liberalised gas energy market the transportation business. The market should be lifted after 2000,
and whether applying the same changes government partially supported this, therefore British Gas was mandated to
could benefit their industry. The UK reducing the volume threshold for lose 60 per cent of the contract market.
domestic gas market became the first competitive supplies from 25,000 The MMC believed that a competitive
in the world to be opened to direct therms to 2,500 therms in 1992, market would drive down costs in
competition, despite its background as increasing the number of available the mature system, and therefore
a nationalised monopoly. customers to third parties. to end consumers. Following the
This was the era of Margaret British Gas countered this proposal, publication of the MMC’s investigation
Thatcher’s government and economists arguing that this would adversely affect recommendations on 17 August 1993,
noted that the then integrated company its financial strength and programme the government rejected the proposal
had two monopolies. These were the of international expansion. They also of separate ownership of transportation
transportation of gas and the supply of argued that, as the nation’s primary network and supply services. The
gas to residents. gas retailer at the time, they were being regulatory focus then shifted towards
Early steps to create a legislative unfairly targeted with uncoordinated enabling competition in the uncapped
framework were taken in 1982 with the regulation by the Department of (less than 2,500 therms) sector. By
Oil and Gas (Enterprise) Act, but little Trade and Industry (DTI), the OFT and 1994, the government had announced
occurred in the first few years. Ofgas. Prior to the publication of the its plans to open all markets to

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