Flotation of National Grid left consumers short-changed

ELECTRICITY customers missed out on a bigger rebate when the National Grid was floated in 1995 because the Government underestimated the value of part of the business by 50 per cent and ignored tax breaks enjoyed by the company and its shareholders.

A report from the National Audit Office today shows the DTI valued the Grid's pump storage business at pounds 300m for the purposes of determining how much the company had increased in value since privatisation in 1990.

Two weeks after the flotation, the pump storage business was sold to Mission Energy of the US for pounds 680m.

The NAO also says that the sum to which customers were entitled might have been as high as pounds 1.5bn, had all the tax allowances enjoyed by the Grid and its shareholders been included in the calculations.

In the event they shared a total of pounds 1.18bn which worked out at pounds 52 per customer or a 17 per cent reduction on the average domestic bill. The aim of the Government was to ensure that profits on the flotation of the Grid, which was divided up between the 12 regional electricity companies on privatisation, was split 50:50 between customers and shareholders. Ignoring the tax breaks, the split was 48:52 but included them the customer discount was only 36 per cent of the increase.

The report says that the DTI was concerned that the owners of the Grid might have abandoned the flotation if it had insisted on a bigger rebate for customers than was achieved.

However, the NAO says that had the DTI obtained an independent valuation of the pumped storage business, it would have strengthened its hands in negotiations.

Although the rebate was worth pounds 52 only pounds 31 of this was paid from the Grid, the rest coming from taxpayers and non-domestic electricity customers.