A dilemma for the professor

Comment

A dilemma for the professor

It is nice to see that Professor Stephen Littlechild, head of Offer, the electricity watchdog, has lost none of his sense of timing. He goes on holiday on 11 July, which means he is highly likely to announce the results of his rethink on regional electricity company charges before then; unless either of the two contenders achieves a knockout blow in the first round, the announcement will come at a critical moment in the leadership fight.

Not that this latest dictat has quite the same dramatic implications as Professor Littlechild's last utterance. He caused an almighty stink by admitting only days after the Government had sold its remaining shares in the two generating companies that he had made a big mistake in his price review and would need to do it all over again. With electricity shares now in the doldrums, the worst Professor Littlechild might do is probably now in the price. None the less, there is a real danger for investors that, having erred on the side of the shareholder last time round, he will this time go too far the other way.

By his own admission it was the Northern Electric defence that caused the scales to fall from Professor Littlechild's eyes, so what does the Northern situation tell us about what he might do? The package of goodies that Northern was promising shareholders would have sent debt gearing rocketing to 225 per cent in the short term, falling back to around 100 per cent by the turn of the century. If the RECs really are capable of living with that level of debt, then Northern has set a benchmark that could be reflected in a very substantial one-off cut in distribution charges. The recent package of customer benefits announced by Seaboard, in an attempt to pre-empt the regulator, equates to a one-off cut of 8.5 per cent.

Plainly there is scope for more than anything offered voluntarily. Too much, however, and the RECs will take their case to the Monopolies and Mergers Commission. The picture is further complicated by the proposed sale of the National Grid, which is owned by the RECs. An impasse is threatened, with the Treasury and the regulator demanding what most RECs regard as an excessive share of the spoils. The way things are going, they may not sell at all. Professor Littlechild is under intense political pressure to deliver for customers but if he goes too far he will look disloyal to the principles of privatisation. For a change it is possible to feel some sense of sympathy for the regulator's dilemma.