E05 Sep06
Case E5
Competition in the Pipeline?
Monopoly in the supply of gas
Some of the best examples of monopoly in the UK are the privatised utilities such as telecommunications, water and gas. The government, recognising the dangers of high prices and high profits under monopoly, has attempted to introduce competition in various parts of these industries. But in other parts there is no competition: they remain monopolies. This mixture of competition and monopoly is well illustrated in the UK market for gas. There are three parts to this market: production; storage and transportation; and supply to customers. In production there is considerable competition, with several companies operating in the North Sea. In storage and transportation, however, there is a monopoly. National Grid Gas plc, originally called TransCo, owns the expensive gas pipelines and storage facilities. TransCo was formed in 1997 when British Gas (BG) was split into two parts. Following a merger with National Grid (owner of the electricity transmission network) Transco is now part of National Grid plc, the UK’s largest utility. The other part of the former British Gas is still called Bristish Gas (BG). BG is involved in supply to the customer. BG is part of Centrica, which also includes Dyno-Rod. The AA used to be owned by Centrica, but it was sold in July 2004 to private investment groups. In supply, the market has been gradually opened up to competition. First, in 1990, large industrial consumers of gas were allowed to choose their suppliers. This choice was extended to small industrial consumers in 1992. By 1993, BG’s share of the industrial gas market had fallen to 41 per cent (from virtually 100 per cent in 1990). Gas competition has encouraged over 60 gas suppliers to join the market, and between 1995 and 2000 average prices to industrial and commercial users fell by 53 per cent (after taking inflation into account). The market for domestic consumers in Great Britain was opened up to
Competition in the Pipeline?
Monopoly in the supply of gas
Some of the best examples of monopoly in the UK are the privatised utilities such as telecommunications, water and gas. The government, recognising the dangers of high prices and high profits under monopoly, has attempted to introduce competition in various parts of these industries. But in other parts there is no competition: they remain monopolies. This mixture of competition and monopoly is well illustrated in the UK market for gas. There are three parts to this market: production; storage and transportation; and supply to customers. In production there is considerable competition, with several companies operating in the North Sea. In storage and transportation, however, there is a monopoly. National Grid Gas plc, originally called TransCo, owns the expensive gas pipelines and storage facilities. TransCo was formed in 1997 when British Gas (BG) was split into two parts. Following a merger with National Grid (owner of the electricity transmission network) Transco is now part of National Grid plc, the UK’s largest utility. The other part of the former British Gas is still called Bristish Gas (BG). BG is involved in supply to the customer. BG is part of Centrica, which also includes Dyno-Rod. The AA used to be owned by Centrica, but it was sold in July 2004 to private investment groups. In supply, the market has been gradually opened up to competition. First, in 1990, large industrial consumers of gas were allowed to choose their suppliers. This choice was extended to small industrial consumers in 1992. By 1993, BG’s share of the industrial gas market had fallen to 41 per cent (from virtually 100 per cent in 1990). Gas competition has encouraged over 60 gas suppliers to join the market, and between 1995 and 2000 average prices to industrial and commercial users fell by 53 per cent (after taking inflation into account). The market for domestic consumers in Great Britain was opened up to