ICI seeks generator monopoly inquiry

Click to follow
The Independent Online
The chemicals giant, ICI, may call for a Monopolies and Mergers Commission inquiry into the electricity trading pool following sharp increases in the pool price in recent days.

The price spikes have been caused mainly by problems with two nuclear power stations taken off the system which normally account for a fifth of the nuclear capacity in England and Wales.

The loss in nuclear capacity is being filled by National Power and PowerGen, which say they are being forced to run expensive plant to keep up with demand on the system.

The situation, exacerbated by the sudden spell of cold weather, has resulted in prices well above 40p per unit in some half-hour periods compared with 7p per unit for the day as a whole and 1.3p at one stage during warm periods.

Brian Bulloch, business manager for ICI's chlor-chemicals business, said: "We regret not pushing for an MMC inquiry when we considered it in February last year. All this shows that we have a pool system totally inappropriate to manufacturing industry using electricity as a feedstock."

The chlor-chemicals business is a massive user of electricity, accounting for about 1 per cent of the entire country's consumption at an annual cost estimated at £50m-£60m.

Mr Bulloch said that ICI had already cut production, adding: "We are having to run hard just to stay still."

Although prices in the electricity pool are capped at an average 2.4p over the year, ICI argues that the volatility makes life unacceptably difficult for a manufacturing firm.

Some companies have taken out contracts with the generators to hedge against sharp swings in prices but others, including ICI, have not done so and remain exposed to the vagaries of the marketplace.

The furore over electricity prices comes at a sensitive time for the Government, which is about to begin the £4bn sale of its remaining 40 per cent stakes in National Power and PowerGen.

Professor Stephen Littlechild, director-general of Offer, the regulator, already believes that the generators have too much power in the marketplace. He has ordered them to sell power plants to increase competition and has hinted that failure to do so will result in a reference to the MMC.

His past concern that the generators may have too much ability to influence prices because of their dominance resulted in the price cap.

A spokesman for Offer said it would continue to look at prices over the longer term. "Offer's view is that we will look at prices on an annual basis. A knee-jerk reaction is not appropriate at this time."

PowerGen said its pricing policy was consistent with undertakings given to the regulator.

One industry source said the problem was having to run highly priced oil-based power plants that would normally run only infrequently.

Outlook, page 33