Gas suppliers in the Midlands are concerned over proposals from the industry regulator to cut back on investment plans in their networks.
Gas and electricity regulator Ofgem said it would allow £5 billion funding for investment in gas network development and mains replacement between 2008-13.
The regulator said it would permit each UK gas distribution network (GDN) average operating costs each year of £628 million - a 13 per cent reduction on the amount they had requested from Ofgem.
It also said it would set the network operators "challenging cost-cutting targets" and would introduce a new incentive to reduce greenhouse gas emissions.
In the Midlands, the gas is supplied by National Grid Gas, which has 1.9 million customers in the region and which employs 2,500 at its base at Warwick.
Mark Fairbairn, National Grid's executive director for gas distribution, said: "We are very disappointed at the limited movement in Ofgem's position since the Initial Proposals in May, particularly around their unreasonable assumptions on the rates charged by contractors and the productivity savings available to networks.
"There is a long way to go before this represents a fair settlement that balances risk and reward, ensuring a safe and reliable network for customers, but we are committed to working with Ofgem to get there."
Ofgem said its proposals would help the GDNs to continue a nationwide programme to replace ageing gas mains.
The overall effect of its plans will be to increase current gas bills by around £1 a year in real terms, it added.
"Ofgem is keeping up the pressure on the gas distribution networks (GDNs) to operate more efficiently over the next five years," it said in a statement.
Ofgem made its comments in its Updated Proposals for the 2008-13 Gas Distribution Price Control, published yesterday.
The regulator said a comparison of the performance of the GDNs owned by National Grid against the four networks under new ownership would result in efficiency savings being passed back to customers over successive price control periods.
Ofgem said it had set the revenue allowances including an annual efficiency saving of 2.5 per cent over the five year duration of the price control period.
The regulator's chief executive, Alistair Buchanan, said: "Our latest proposals protect customers by requiring challenging cuts in operating expenditure.
"Overall, the proposals allow the companies to invest £5 billion in delivering a safe, modern gas network while ensuring that costs to customers are kept to a minimum."
Final proposals for the price controls will be published this December.
The industry body, the Energy Networks Association (ENA) added it was extremely concerned by the limited movement made by Ofgem.
ENA's chief executive, Nick Goodall said: "Ofgem has failed to recognise the evidence provided by the network companies, supported by independent reports, relating to the risks of operating a distribution business and of rapidly rising contractor rates.
"Coupled with the unrealistic expectation of additional cost savings the networks can achieve makes these proposals unacceptable to the companies.
"The methodology Ofgem and their consultants have adopted in setting allowances is flawed. The proposals seriously underestimate the investment needed to ensure the safe and reliable delivery of gas to 23 million homes and businesses across Britain."
