Eastern Electricityhas a point
Saturday 13 May 1995
Unsurprisingly, the smaller companies are hopping mad about it. John Devaney, chief executive of Eastern, is equally angry with Northern Electric, which he blames for landing the industry with the new price review. Northern in turn is fed up with the lot of them, arguing, not unreasonably, that it cannot be blamed for an uninvited bid which laid bare for all to see the industry's hidden wealth. Still, what is done is done and the argument is now largely about what methodology the regulator should adopt. There was some attempt to differentiate between the regional electricity companies last time round - three levels of one off price cut were imposed - but in so far as there was a methodology behind the ruling, it was hard to follow. This time Professor Littlechild will at least have to explain himself.
Smaller companies are on the whole allowed to charge more per customer on the grounds that they have fewer economies of scale. Eastern's argument is that Professor Littlechild's pricing formulae should also reflect variations in operating cost efficiency between companies.
If this approach is adopted it might lead to bigger price cuts for some of the smaller, high-tariff companies. Though that would be tough on their shareholders, it clearly makes sense to relate rewards and penalties to performance. Eastern is a better business than most of the others, is poised to enter the FT-SE 100 and has almost eliminated the bureacratic electricity board ethos still prevalent among some of its peers. Mr Devaney's lobbying should be taken seriously.
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