Hydro-Electric goes to MMC over Offer rules

Hydro-Electric, the smaller of the two Scottish electricity companies, has rejected tougher-than-expected new price controls set by the industry regulator, Offer. The decision means the issue will be referred to the Monopolies and Mergers Commission.

Roger Young, chief executive, said that the new price controls, due to take effect in April 1995, would act against the interests of shareholders and customers. He said the company supported Offer's desire to see electricity bills fall but added that Hydro-Electric already had among the lowest prices in Britain.

A spokesman for the company said that the proposed price controls would leave it with too low a rate of return and threaten necessary investment in the electricity distribution network.

'Each year, Hydro-Electric needs to spend substantial sums on its programme to refurbish up to 900 miles of its network, much of which was built 30 to 60 years ago,' he said. 'Failure to do so will jeopardise reliability and store up a backlog of work for the next decade.'

The company said that the pricing regime was more onerous than that imposed on Scottish Power or the 12 regional electricity companies in England and Wales. However, some City analysts were surprised at the decision to go to the MMC.

One analyst said that even with the new controls Hydro should be able to increase dividends by 5 per cent in real terms to the end of the decade.

He pointed out that if the company failed to gain a more lenient price control as a result of a reference the credibility of the management would be at risk.