Generators face MMC threat: National Power and PowerGen rapped over electricity 'pool' prices

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NATIONAL POWER and PowerGen could be referred to the Monopolies and Mergers Commission by the end of the year because of growing concern over their market power and their ability to influence prices in the electricity trading 'pool'.

Offer, the electricity watchdog, said that increases in electricity pool prices - which are up to 20 per cent higher this year than last - are primarily due to National Power and PowerGen supplying power at higher prices.

In his most barbed attack on the generators to date, Professor Stephen Littlechild, the director-general of Offer, said recent increases were more attributable to National Power, but added: 'Both companies wanted a price increase and were able to achieve it.

'The position of market power which the generators hold in generation has adverse implications for the effectiveness of competition in supply,' he warned.

The watchdog said that he would examine the generators' costs and profit margins as well as the structure of the industry and the potential for new suppliers to come into the marketplace.

A decision whether to refer National Power and PowerGen to the MMC - or whether to take alternative action that could include capping prices - will follow later this year.

This is the fourth time Offer has examined pool prices and Professor Littlechild said he was deeply dissatisfied that the problem persists. He also called for a radical simplification of the working of the pool and for changes in the pricing mechanism to allow prices to take account of customers' demand as well as supply bids.

Shares in both the companies rose sharply in spite of the regulatory broadside. The City appeared relieved that no immediate MMC reference had been made and remained sceptical as to whether Professor Littlechild would take action at a later date.

Analysts said that with the Government's sale of its remaining 40 per cent stake in National Power and PowerGen expected by next summer an MMC reference was unlikely. The sale is likely to raise around pounds 3.5bn.

Nigel Hawkins of Hoare Govett said: 'Offer is all talk and no action. All the cards still appear to be in the hands of the generators.'

However Professor Littlechild said that his job is to do what is right for customers and for the electricity industry and not to take a view on the the sale of the stake.

ICI, which claims to have seen electricity price increases of up to 70 per cent since privatisation, attacked the lack of firm action by Offer.

But National Power and PowerGen said that most customers were paying less than before the industry was privatised and that they were confident of their position.

National Power's shares closed at 367p, up 6p, while PowerGen's shares rose by 7p to 394p.