Generators forced to reduce electricity prices by 7%: Offer imposes power plant sale to increase competition

NATIONAL POWER and PowerGen are being forced to reduce prices in the electricity trading pool by up to 7 per cent for the next two years, saving customers as much as pounds 500m.

The companies are also being asked to sell a total of 6,000 megawatts of generating plant - equivalent to about six large power stations - in order to increase competition in the electricity generating market.

The measures have been imposed by Stephen Littlechild, the director general of electricity supply, as an alternative to referring the generators to the Monopolies and Mergers Commission.

Professor Littlechild has been concerned about the ability of the two companies to influence electricity prices. The prices they quote for power from their plants tend to set the overall price in the trading pool.

He said: 'The generators have the ability and willingness to increase prices at the expense of customers.'

He added that if the measures failed to resolve the issue by December 1995 he may then be forced to refer the companies to the MMC.

The savings of up to pounds 500m over two years will mainly benefit large electricity customers who buy from the pool rather than through contracts. Domestic consumers will see little benefit as they get their supplies from regional supply companies, which tend to buy mainly through contracts with generators rather than paying the prices in the pool.

Analysts estimate that National Power profits could fall by about pounds 40m to pounds 50m in each of the two years while PowerGen's could be reduced by about pounds 20m.

However, state-owned Nuclear Electric, which has about 25 per cent of the generating market in England and Wales, is expected to bear the brunt of the lower prices as it sells largely through the pool.

Both National Power and PowerGen said that their position remained strong and that there was unlikely to be any adverse effect on dividend policy.

Professor Littlechild said that the sales of plant would double independent generation in the electricity market in England and Wales. He said that with the growth in nuclear power and increased electricity imports, National Power and PowerGen's market share could soon be less than half.

Professor Littlechild said that a number of people have been keen to buy power plants but have been unable to reach agreement with National Power or PowerGen. He believes that regional electricity companies, large electricity consumers and US firms may now buy power plants.

However, National Power and PowerGen stressed that they will not be forced into distress sales but will want a fair return for shareholders on the sale of plants.

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