Competition in the British domestic gas market: efficiency and equity

Abstract

The British domestic gas market is to be opened to competition from April 1996; within 24 hours of enabling legislation being confirmed (Queen’s Speech, 1994),British Gas (BG) announced the first significant change in gas tariff structure since it had been privatised nine years earlier. The changes introduced cheaper tariffs for some of those who paid promptly and so were cheaper for BG to supply. These are likely to be the first of many such changes, as the threat of competition leads BG to abandon its previous policy of charging similar tariffs to a wide range of consumers even when they incur different costs of supply. It is clear that competition will have a much more dramatic effect on domestic tariffs than did the flotation of the industry. While it retained its monopoly in the domestic market, even the privatised BG continued its policy of crosssubsidisation between consumers, using a single charging structure despite cost differences. (One reason for this may have been to avoid signalling cost