Eggar demands action by Recs over competition

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The Independent Online

Industrial Correspondent

A row has erupted between the Government and the electricity industry over the planned introduction of competition in the domestic market in 1998. Tim Eggar, Minister for Industry and Energy, has written to the 12 regional firms accusing them of failing to prepare the ground for the change, and warning that he will not delay the starting date.

Industry sources say that in a letter from the Department of Trade and Industry sent to the 12 regional chairmen within the last few weeks, Mr Eggar demanded urgent action on competition, led by the companies' top management. A Whitehall source said that the minister has been angered by suggestions from some firms that competition should be shelved.

The source said: "He is not prepared to be presented with a claim that it is all too difficult and needs to be deferred to a later date. The companies keep coming up with problems, but no solutions".

He added that Mr Eggar was outraged by the view among some in the industry that introducing competition - which was envisaged when the companies were privatised - remains a matter for the Government.

Mr Eggar is also known to be frustrated at resistance in the industry to pilot projects in advance of full competition, along the lines of those planned in gas supply from April next year. He is in favour of two or three substantial pilots but, although the idea has also been floated by the industry watchdog, Professor Stephen Littlechild, no plans have been put in place.

The electricity industry is already in bitter dispute over who should pay for the new computer systems - estimated to cost up to pounds 300m - which are needed to bring competition in electricity supply to 22 million homes. But the Government is thought to have made it clear that there should be no undue costs for consumers caused by wrangling and foot-dragging within the sector.

Professor Littlechild, who is overseeing the 1998 plans, is expected shortly to publish his views on how the costs of introducing competition should be borne. But he is unlikely to meet demands from the regional firms that costs should be passed on to consumers as soon as they arise, rather than when the benefits of competition have been realised.

The debacle over competition comes at a difficult time for the companies, which have been diverted by the frenzy of merger and takeover activity. The sector is even now braced for the Government's decision on whether to refer bids for regional firms by the generators, National Power and PowerGen, to the Monopolies and Mergers Commission. Ian Lang, President of the Board of Trade, could announce his conclusion today.

There is speculation that the bids - National Power's for Southern Electric and PowerGen's for Midlands Electricity - could become the first to be referred because of the resulting concentration of power in the industry. Were this to happen, some industry sources believe that the two regional firms might decide to merge instead, rather than be swooped on by US or European predators while the MMC carries out its investigation.

Separately, Welsh Water is believed to be preparing to mount a bid for South Wales Electricity at more than pounds 11 per share, valuing the company at over pounds 1bn.

Swalec met Welsh Water last Friday but there was no clarification on whether there would be any bid or on a potential price. Welsh Water claims that it cannot value Swalec until it forms an idea of the worth of the National Grid Company, which is owned by the 12 regional firms and is due for flotation on 11 December. Grey-market dealings in the Grid begin later this week.