A dramatic shift of control

A merger between Southern Company of Georgia and National Power would represent the most dramatic change of ownership in the electricity industry since it was privatised six years ago.

Britain's biggest power generator falling under the control of America's largest quoted electricity utility might still seem improbable. But it would be a logical continuation of the consolidation that has seen the electricity industry being carved up between a small number of large players in the last year.

If the respective takeovers of Southern Electric (no relation) and Midlands Electricity by National Power and PowerGen go ahead, only four of the 12 regional electricity companies that were sold off in 1990 will still be independent.

Moreover, the industry will be dominated by a handful of large, well- capitalised groups generating, distributing and supplying electricity.

In addition to the enlarged National Power and PowerGen, there will be Scottish Power, which owns Manweb, the distributor for Merseyside and North Wales, and Hanson, which owns Eastern Electricity and could emerge with 10 per cent of Britain's power stations if it succeeds in buying plants from the two big generators.

When the nuclear power generator British Energy is sold in July, the expectation is that it too will bid for a REC, if there are any left to snap up.

This is a structure that the Government could have adopted when it dismantled and sold off the Central Electricity Generating Board in 1990. Instead, it chose to break the link between generation and supply by floating the 12 Recs as separate companies.

At the time there was widespread criticism of the structure adopted by ministers and the price the industry fetched. That has merely grown as executive directors have been rewarded with massive share option bonanzas and customers have become poor cousins to shareholders heaped with special dividends and other incentives.

There is every indication that ministers are content to see the emergence of a few giant integrated utilities, believing it to be a better guarantor of consumer choice and lower prices as the domestic electricity industry prepares for full competition in two years.

From April 1998 the country's 22 million domestic electricity customers will, in theory, be able to switch off from their local REC and shop around for supplies. The increasing level of competition in generation and the opening up of the franchise market is what has propelled the generators to snap up suppliers.

The prospect of a full-blown merger between Southern Company and National Power would add an extra dimension. It would also open up the prospect of PowerGen being acquired by an overseas utility.

At least three US electricity groups, Pacificorp, Houston Industries and Mission Power, have eyed the UK scene but are yet to make a move.

PowerGen insiders say that they cannot imagine both our premier generating companies being snapped up by Americans. But that may be a forlorn belief. The last 12 months have proved that almost anything is possible.

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