Margaret Beckett, President of the Board of Trade, is expected to approve the deal on condition that extra safeguards are built into the regulatory regime to prevent PacifiCorp from raiding Eastern's finances.
The conditions being planned by the Department of Trade and Industry would give the Secretary of State direct powers to intervene if it was felt that the dividends being paid out from Eastern to the parent company were excessive or threatened its ability to finance its operations.
Mrs Beckett received the report of the Monopolies and Mergers Commission into the takeover 11 days ago and is expected to publish its findings along with her decision early in the new year.
She referred the bid to the MMC in August because of concerns over whether it would be possible to maintain "adequate regulatory control" over the merged company.
The decision was taken against the advice of both the electricity regulator, Professor Stephen Littlechild, and the Director General of Fair Trading, John Bridgeman.
The verdict of PacifiCorp/Energy Group is being eagerly awaited because seven other regional electricity companies (RECs) are already owned by US utilities while three others are part of larger UK-based and run utility groups.
Any tightening of the regulatory regime which is applied to Eastern may also have to be extended to cover the other RECs which are now part of larger groups.
The Government is thought to have been concerned about the level of dividends PacifiCorp might seek to extract from Eastern because of the highly-leveraged nature of its bid. The take-over would create a group with debts of nearly $16bn, financed partly through junk bonds. Even after planned asset sales to help finance the bid, the combined business would still have debts of $12bn and conventional gearing of 300 per cent.
The electricity regulator Offer has general powers, enforced through licence amendments, to ensure that Recs which are owned by larger parent companies have sufficient resources to fund their regulated activities adequately.
Licence modifications have been introduced to ring-fence the regulated businesses to ensure they can finance their authorised activities and satisfy all reasonable demand for electricity. Each year they have to submit a report to Offer demonstrating their ability to fund the regulated businesses for the year ahead.
But there has been concern in government circles about the level of dividends being removed from some of the RECs by their American parents. Earlier this year it emerged that SWEB, the first of the RECs to be acquired by a US utility, had paid out pounds 472m in dividends to its parent, the Southern Company of Atlanta Georgia, on profits of pounds 237m in the year to March, 1996.Reuse content