ICI asks Offer to tighten pool price cap

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The Independent Online
ICI has called on the electricity regulator, Offer, to tighten the price cap in the electricity trading pool because of advances in lower-cost power generation technology. The company, which has suffered in recent weeks from sudden surges in pool prices,said lower electricity production costs justified a price decrease of 15 per cent.

Prices have surged to record highs of 60p a unit and more during some periods recently compared with only a few pence at times of low demand. The price per unit, which varies each half-hour, is supposed to average out at 2.4p over a year under the price cap. A source in one of the generators said that if the price spikes continued the cap could be breached.

ICI has written to Professor Stephen Littlechild, director-general of Offer, asking for urgent action. Brian Bulloch, power services manager at the company's Chlor Chemical plant, said: "Reducing the pool price cap as we are proposing would be one step in the direction of restoring credibility to a flawed and discredited privatised electricity market.

"In a situation where there is a substantial surplus of generated capacity the recent electricity prices are outrageous and a clear demonstration of the absence of competition in generation - five years after privatisation," he added.

The complaint from Britain's largest consumer of electricity comes at a sensitive time for the Government, which is embarking on the £4bn sale of its remaining 40 per cent stake in National Power and PowerGen. Regulatory threat is expected to feature in the pathfinder prospectus for the sale, due to be published next week. ICI has previously said it might seek a Monopolies and Mergers Commision inquiry into the electricity industry if sharp price movements continue.

National Power and PowerGen believe that they have been unfairly blamed for the volatility in prices, which is largely due to the temporary closure of two large nuclear power plants. The absence of these plants, which would normally run flat out, has coincided with cold weather and natural increases in demand for power.

The generators also say that a large part of the price increases results from a capacity charge paid to generators to keep plant available when demand is high, even when they do not run.

National Power has also attacked critics of the pool for exposing themselves to volatility in prices. It adds that most industrial users cover themselves by taking out hedging contracts.