Electricity dividends set for 10% rise over five years

SHAREHOLDERS in the 12 regional electricity companies in England and Wales are set for real dividend increases of up to 10 per cent over the next five years under the price controls set by Offer, the regulator.

The prediction came from City analysts who said that the controls were more favourable to the companies than had been expected.

Shares in the companies rose sharply after the announcement of the new distribution price controls, which come into effect in April 1995. The biggest gainers were London Electricity, whose shares closed up 61p at 645p, East Midlands, up 40p to 692p, and Southern Electric, which reached 714p, an increase of 51p.

Under the controls, companies must cut distribution prices by between 11 and 17 per cent next April. All must then cap prices at inflation minus two percentage points.

This compares with an average distribution price cap of inflation plus 1.1 at present. Distribution accounts for the bulk of the companies' profits but only about one quarter of household bills.

Professor Stephen Littlechild, Director-General of Electricity Supply, said the controls would save customers pounds 2.5bn over five years but would allow companies to invest pounds 5bn to replace plant, meet new demand and improve quality of supply.

The initial price cut varies depending on factors including efficiency, costs and investment needs. The most swingeing cuts of 17 per cent are imposed on Manweb, Northern Electric and South Wales Electricity. Those with the smallest cuts of 11 per cent are Eastern Electricity, East Midlands and Southern Electric. The rest must cut prices by 14 per cent.

Professor Littlechild said customers should not bear the full burden of capital investment.

The new price controls assume that companies will be able to reduce controllable operating costs by 3 per cent a year and overall costs by 2 per cent. Professor Littlechild said the cost control must not threaten quality of service, which he was asking the companies to review and improve.

The companies must agree the price formulae or appeal to the Monopolies and Mergers Commission. Yorkshire Electricity, East Midlands and Seeboard were the first to agree but most analysts assume that all 12 will accept.

Malcolm Chatwin, chief executive of Yorkshire Electricity, said the regime would cut the company's income by pounds 40m next year and by pounds 6m a year thereafter.

In anticipation of the review Yorkshire recently made a provision of pounds 43.5m for restructuring with the loss of 1,000 jobs.

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