Hydro looks at buying supply business

The Scottish power group, Hydro-Electric, disclosed yesterday it would be interested in buying an electricity supply business in England and Wales in readiness for the opening up of the domestic market to full competition, writes Michael Harrison.

Hydro also said it was looking to build further generation capacity which could entail investment of up to pounds 800m over the next five years and raise its gearing up to 80 per cent.

Roger Young, chief executive, said a number of the US utilities that had bought regional electricity companies in the past two years were considering hiving off their supply businesses.

If that happened, Hydro would be a bidder. Other options for entering the domestic market outside Scotland included joint ventures with one of more RECs or a so-called "affinity arrangement" whereby Hydro could supply electricity through a well-known brand name.

It already has a tie-up with General Accident which could be used to market electricity nationwide.

Mr Young said: "We would very much like to enter the competitive domestic market as long as we don't see the pricing madness we have seen in gas."

He said the introduction of competition was likely to see prices fall by 5 to 10 per cent at best and part of that reduction would be due to the signing of cheaper coal contracts and the introduction of more efficient generating plant.

Although Hydro aimed to be ready for the launch of competition in April next year, Mr Young said it would probably take until 1999 before consumers in all parts of the country could chose their supplier.

The investments Hydro is examining include pounds 200m to re-equip its gas- fired station in Peterhead, north of Aberdeen, and expansion of its two combined cycle gas-fired stations in England - Keady on Humberside and the pounds 315m Seabank station near Bristol which is 50 per cent owned with British Gas.

Hydro increased pre-tax profits in the year to March by 5 per cent to pounds 205m and lifted the dividend by 12 per cent. It intends to reduce dividend cover to two times earnings. More than a third of its generating capacity will be outside Scotland once Seabank is on stream.