City & Business: Don't be swayed by Northern's exposure

Turkeys may not vote for Christmas but do they support CalEnergy's bid for Northern Electric? Some already have. The rest should not.

Having gobbled up a 30 per cent stake in Northern, CalEnergy may be forgiven for counting its chicks before they are actually hatched. To do so, however, would be complacent and underestimates the strength of the arguments Northern has mounted in a defence which has confounded those who glibly wrote it off as a lost cause at the outset.

Northern has successfully reminded investors that there is value still to be found not only in its business but also in an ever diminishing independent sector. It is the attributes of the sector which are the most important, particularly to institutional investors who retain shareholdings across the remnants of the sector.

CalEnergy's bid does not reflect the intangible but significant value which is to be found in exposure to the British regulatory regime. This value is only apparent to overseas companies - particularly those from the US - and explains why so many US energy companies have expressed an interest in the electricity sector.

It is little appreciated that the current US regulatory framework is widely but quietly regarded as defective and will need to be changed to make it relevant as a promoter of competition rather than the defender of vested interest which it has become. When that change comes, the model will be the UK regime established by Professor Stephen Littlechild. It has become recognised as the blueprint for electricity regulation worldwide and is already being adopted in South America and Scandinavia.

Shrewd US utilities have recognised that not only does the British electricity market offer intriguing growth opportunities but it also allows them first- hand exposure to a regulatory framework which ultimately will be imposed on their key domestic markets. Given that the management of regulatory risk has become a crucial management imperative for utilities, the UK experience represents an accumulation of extremely valuable knowledge.

The opportunities to secure that experience at first hand are rapidly slipping away. However, the natural laws of supply and demand are not being observed by CalEnergy. The scarcity value of independent electricity companies is not reflected in the price it is offering for Northern. This is bad news for investors in that company and also for those in the rest of the sector where companies will be picked off one by one. London Electricity is expected to fall shortly; the others will follow. The worry is that if the Northern price is allowed to represent a benchmark then British investors will be exposed to significant undervaluation.

Concern that rejection of Northern will leave it isolated is overdone. So great is the US thirst for exposure to the sector that there will be other potential bidders, including CalEnergy which is committed to keeping its 30 per cent stake, come what may. For while much has been made about political and regulatory risk and windfall taxes, these are not deal- breaking issues. Under Professor Littlechild it has been made clear that overseas investors will be welcomed providing they promote competition and bring innovative thinking to the sector. Dominion Resources' bid for East Midlands should be cleared this week, confirming that US companies will always be welcome. As far as taxation is concerned, the US distance from the politics of this country means they can more readily appreciate that a windfall tax is much easier to talk about than it is to implement in any magnitude.

Northern may not have found its white knight but that is a reflection of US reluctance for contested bids rather than reticence about the sector.

The CalEnergy bid should be rejected. It undervalues Northern and if it is accepted it will undervalue the remains of the sector.

Misguided Imro

This week Imro, the fund management regulator, and Deutsche Morgan Grenfell are expected to reach agreement on compensation for investors in the European unit trusts managed by fallen star Peter Young. For the sake of the integrity of City regulation I can only hope that the grand finale of this complex matter will be handled by Imro with a little more dignity than has been demonstrated during the pre-match warm up. Imro appears to have adopted the regulatory equivalent of a shoot to kill policy. It is unsavoury, misguided and unnerving for those who come under Imro's jurisdiction.

There is mounting fear that Imro's aggressive high-profile method of dealing with those who have strayed from the straight and narrow is neither in the interests of regulation nor those whom Imro is trying to protect.

DMG, for instance, has been astounded to find so much of its private discussions with Imro being aired so publicly in the press. Throughout the whole Peter Young saga, DMG has played with a straight bat. It has acted swiftly and decisively, always with the best interests of investors at heart. It has always promised to compensate investors - the bill will be around pounds 200m - and is understandably aggrieved to find that Imro appears not to have respected the confidentiality which DMG had understood to be an integral part of the regulatory framework.

It was not so long ago that Imro, in the wake of the Maxwell pension scandal, was deemed to be weak and flabby. There is no doubt that Philip Thorpe, its chief executive, has done a fine job in restoring confidence both internally and externally. But he is getting perilously close to stepping over the line which takes regulation from the land of firm and fair into loud-mouthed and bullying territory.

If Imro does not retreat a little then it will expose itself to criticism that it is pursuing an agenda which has more to do with the reputation of Imro than the protection of investors. That can only undermine a credibility which it has fought hard to secure.

Effective regulation is built on the trust and respect of investors and the investment community. That requires a delicate balance to be struck, with the emphasis very much on the delicate.

If Imro does have ambitions to play a lead role in the regulatory world envisaged by a new Labour government then these will be better furthered by a profile which is based on efficiency and effectiveness rather than bluster and bullying.

Suggested Topics
News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
sportDidier Drogba returns to Chelsea on one-year deal
News
people
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
PROMOTED VIDEO
Sport
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
football
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Rhys Williams
commonwealth games
News
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
i100
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Travel
travel
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

The benefits of being in Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Test Analyst - UAT - Credit Risk

£280 - £300 per day + competitive: Orgtel: Test Analyst, Edinburgh, Credit Ris...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform