Valve closes on gas abuse

CLARE SPOTTISWOODE, the head of the gas industry watchdog Ofgas, has put an end to speculators' abuses of the gas release scheme, a plan intended to promote competition among gas suppliers.

In April, an investigation by the Independent on Sunday revealed that many of the 102 companies that secured gas under the scheme last year were set up by speculators hoping to make a quick profit.

This year, Ofgas has allocated gas to just nine new entrants, in addition to the 32 companies that got gas in the first round three years ago. These have a contractual right to further supplies of release gas, provided they pass a mid-term eligibility test.

So few applications were approved that Ofgas did not allocate the full 200 million therms of gas it had set aside for new entrants. It awarded 122 million therms to the nine companies it identified as genuine gas traders and put the remaining 78 million therms up for tender among the 32 first- round applicants. Under the original terms of the gas release scheme, British Gas was required to sell 500 million therms of gas as a wholesaler to independent gas suppliers approved by the Office of Fair Trading. But there were numerous abuses of the system last year, including multiple applications and stagging. Of the 30 companies whose records the IoS examined, most proved to be get-rich-quick schemes rather than genuine competitors.

Housewives, students, a lorry driver and David Thompson, the multi-millionaire founder of Hillsdown Holdings, were among those who hoped to profit by buying gas at just above cost and selling it on to independent gas suppliers, after pocketing a guaranteed wholesale margin.

United Gas, the partly owned American supplier, was responsible for 10 of the 70 new applications. After discussing its business plans with the OFT, it got permission to submit multiple entries, even though the rules stated that applications from new entrants would be ineligible if the company was an 'affiliate' of an existing new buyer or another new entrant.

The Monopolies & Mergers Commission subsequently transferred control of the scheme from the OFT to Ofgas, after a year-long inquiry into British Gas which ended last November. Earlier this year, Ofgas published tighter new rules, requiring applicants to prove that they supplied the bulk of their gas to end users.

Only six of the 70 companies that applied for gas for the first time last year have again received gas under the scheme. Another three companies are completely new entrants, whch hae been able to satisfy the more rigorous criteria laid down by the gas regulator.