National Grid vows to fight £42m fine

LONDON BRIEFING:BRITAIN'S ENERGY watchdog is baring its teeth. Just days after launching a probe into gas and electricity suppliers, Ofgem slapped a near £42 million fine on National Grid, accusing it of restricting competition in the domestic gas meter market, writes Fiona Walsh.

The size of the penalty, one of the biggest ever imposed by a regulator, came as a shock. Ofgem's biggest fine had been a mere £2 million imposed on London Electricity, as punishment for the unscrupulous behaviour of its door-to-door sales force.

That was six years ago, and followed a four-month investigation. London Electricity paid up with barely a murmur but National Grid, which has been under investigation for almost three years, made it clear this week that it will fight the record-breaking penalty, both on the grounds of size and the fact that it has been levied at all.

At issue are long-term contracts National Grid signed with Britain's leading energy suppliers for the supply and maintenance of domestic gas meters. Ofgem says the contracts, some of which ran for 18 years, severely restricted the number of older meters that could be replaced with cheaper or more advanced models from other suppliers, and were a "serious breach" of competition law.

Not so, says National Grid. The contracts were entered into voluntarily and saved customers some £120 million over their four years of operation. The group, which operates the UK's main gas pipeline system, is taking its case to the Competition Appeal Tribunal in a move that could take a year to resolve.

In the meantime, Britain's gas and electricity companies are to be investigated following the recent 15 per cent price rises that sparked such a chorus of complaint from customers a few weeks back.

Ofgem timed the announcement of its investigation to maximum effect - just hours after British Gas had further enraged consumer groups by reporting a massive increase in profits from its residential arm. Parent company Centrica defended the six-fold surge in profits by pointing out that all but a fraction of the £571 million reported for 2007 had been made in the first half of the year. In the second half, when prices on the wholesale market were soaring, profits came in at just £38 million.

The Confederation of British Industry traditionally does not involve itself in individual company matters but, in an unusual move, its director-general Richard Lambert leapt to the defence of Centrica. Dismissing claims of profiteering by the group, he said its profits needed to be seen in the context of its £6.5 billion turnover and the continued need for heavy investment.

No doubt these arguments will be rolled out again in the months ahead. As Centrica wearily pointed out, there have been 15 investigations into the energy industry in the last seven years and each of them has given it a clean bill of health.

Ofgem's chief executive Alistair Buchanan admitted that this latest inquiry had been called in response to consumer concerns over price rises rather than because any new evidence has been uncovered. Given the regulator's tough new approach, the energy companies will be praying that this will be 16th time lucky.

Boardroom rift in clothing firm

IN FEBRUARY 2002, the board of struggling menswear group Moss Bros roundly rejected a 40p a share takeover approach from the Joe Bloggs jeans entrepreneur Shami Ahmed. It was, they said, "wholly inadequate".

Scroll forward six years and the board of the still-struggling retailer has welcomed an indicative 42p a share offer from the acquisitive Icelandic retailer, Baugur.

Or at least most of the board has - the £40 million approach has created a good old-fashioned rift in the boardroom, with director Mark Bernstein making it quite clear he disapproves of the board's decision to enter into discussions with Baugur.

Mr Bernstein is a non-executive director of the group but, more important than that, he is married to a member of the founding Moss family, who first opened up shops in London's Covent Garden in 1851.

The Moss family retains an 18.5 per cent stake in the company while the Gee gamily (founders of the Cecil Gee chain which merged with Moss Bros in 1988) are sitting on a 7.8 per cent stake.The founding families are concerned that Baugur, which has built up a 28.5 per cent stake in Moss Bros, is trying to gain control of the business on the cheap.But, along with news of the bid approach earlier this week came the company's second profits warning in just three months. City analysts had cut their full year profit expectations to about £1.5 million at the time of the last warning; now they fear Moss Bros will make no profit at all.Having watched the shares go nowhere since 2002, the management team clearly sees the writing on the wall. And while more than 150 years of family ownership makes for strong emotional ties with a business, perhaps it's about time the Mosses and the Gees accepted the inevitable too.

Fiona Walsh writes for the Guardian newspaper in London