BG accepts Ofgas pricing formula

BG plc has accepted a pricing formula set by U.K. gas industry regulator Office of Gas Supply (Ofgas) for transportation of gas through the U.K. national grid by BG's Transco unit. This ends a long battle between BG and Ofgas and follows a ruling in favor of a transport cost reduction by the Monopolies and Mergers Commission (OGJ, June 23, 1997, p. 26). While MMC recommended a 21% cut in Transco's third party transportation charges, the final deal calls for average transportation cost

Oct. 20, 1997

2 min read

BG plc has accepted a pricing formula set by U.K. gas industry regulator Office of Gas Supply (Ofgas) for transportation of gas through the U.K. national grid by BG's Transco unit.

This ends a long battle between BG and Ofgas and follows a ruling in favor of a transport cost reduction by the Monopolies and Mergers Commission (OGJ, June 23, 1997, p. 26).

While MMC recommended a 21% cut in Transco's third party transportation charges, the final deal calls for average transportation cost cuts of 25% in fiscal 1997-98.

Clare Spottiswoode, Ofgas director general, said: "This announcement marks the end of a process begun in 1995. The result will be a considerable reduction in gas transportation charges to the benefit of all gas consumers."

Under the final deal, Ofgas will allow 50% of Transco's income from independent gas suppliers to vary with throughput, as recommended by MMC.

However, Ofgas has increased its required cut in transport costs to 25%, because current gas demand is running above Transco's estimates on which the MMC recommendation was based.

David Varney, chief executive of BG, said, "It seemed clear to us that the MMC recognized the inherent uncertainty of demand for Transco's services and carefully considered the proposed mechanism for dealing with it."