It plans to pay a pounds 186m special dividend next month worth 85p a share to all its existing shareholders. At the same time it will consolidate its existing shares to reduce the number in issue by 12 per cent.
Nigel Rudd, non-executive chairman since May, said East Midlands had 200,000 shareholders with between 200 and 300 shares each. They will receive cheques for between pounds 170 and pounds 255 before Christmas. Non-taxpayers will receive a further 25 per cent tax credit.
Jack Cunningham, shadow trade and industry secretary, criticised the proposed scheme, saying East Midlands' customers had been forced to pay 20 per cent more for their electricity since privatisation.
'This is disgraceful profiteering at electricity customers' expense, and the Government and regulator have done nothing about it,' he said.
The City welcomed the scheme, pushing the shares 40p higher than yesterday's opening price of 626p, which had already deducted the 85p payout.
Other regional electricity companies rose on speculation they might emulate the plan. Analysts believed Southern Electricity could be the next to announce a similar scheme.
The sector has underperformed over the summer on worries about a possible one- off tax when the National Grid, jointly owned by the 12 regional companies, is sold off. There has also been concern about the plans of a future Labour government.
East Midlands is the ninth regional electricity company to reduce the number of shares in issue over the past two months as a way of using up surplus cash and enhancing earnings per share.
While others have achieved this by buying shares in from their institutional shareholders, East Midlands' plan involves the issue of a one-off special dividend to all. Following the payment, blocks of 25 existing shares will each be consolidated into 22 new shares.
As a result holders of share options, including the company's 4,000 staff, will be protected because the consolidation will theoretically add back 85p to the value of each share.
Mr Rudd said the scheme was fairer than those of the other regional companies because a tax credit attached to the payout would be available to all shareholders. The Inland Revenue had already cleared the deal, whereas it was reserving judgement on aspects of some recent buybacks.
Mr Rudd confirmed that East Midlands would focus on its core business of electricity supply and distribution. In May it took a pounds 130m charge to cover the cost of restructuring unsuccessful diversifications into electrical contracting, security and retailing.
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