UK gas U-turn angers energy users

One of the elements of today’s energy bill that is likely to go relatively unnoticed (except for by FT readers of course) is a clause asking gas companies to pay a market price for the gas they use, even if an emergency has sent gas prices soaring.

The idea is that it will encourage gas companies to make sure they never get into that situation, as it would be prohibitively expensive to buy gas at such prices. At the moment, the companies would pay the same price during an emergency as they would have done immediately before.

The policy actually marks a U-turn, at least for the Conservative half of the coalition. Back in March, David Cameron announced that his party would deal with a possible crisis in the security of gas supply by obliging gas companies to maintain supplies even in emergencies.

This fitted well with the repeated (and not especially credible) warnings the party made that the UK could run out of gas in eight days. And what’s more, it quickly secured cross-party support.

So why has the government decided not to implement this Labour- and Tory-backed policy? Part of the reason seems to be lobbying. The Gas Forum, an industry group, says it has always preferred a “market-based solution” to an “administrative-based solution”. And industry executives promise the new law will be enough to change their buying policies. “It provides a strong incentive to suppliers to ensure they have enough supply,” said one.

But users are worried it will do nothing of the sort, and that gas companies will simply hedge their risk by charging customers more.

Steve Radley, director of policy at EEF, the manufacturers’ association, said:

Today was the ideal opportunity for the government to tackle the long-standing issue of gas storage and provide a clear and simple obligation on suppliers to demonstrate they can meet demand in the event of disruption. As it stands, the proposals in the Bill are based on such an unlikely scenario that they are unlikely to change the behaviour of suppliers and encourage greater investment in storage capacity.

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