Share prices have soared in the wake of the lenient price caps imposed by the industry regulator, Offer. The Stock Exchange said it was reviewing trading in electricity shares as analysts reported widespread leaks of price-sensitive information ahead of Offer's announcement.
One analyst said: 'I know one REC in particular was blamed and I believe details were leaked this time, because market rumours were too accurate.'
Another power analyst said he had been asked to comment on the figures a week before they were officially released.
The Stock Exchange is investigating whether directors or employees in any of the electricity companies bought shares in the other companies in advance of the announcement. The Stock Exchange routinely examines share trading before and after price-sensitive statements.
Robin Cook, shadow trade and industry secretary, said: 'People must be assured that electricity chiefs seen to be receiving high salaries and profiting from share options have not abused their position.'
Offer said it knew nothing of an investigation. It said that details of the new price caps for the entire industry were sent to the companies the day before publication, but in the strictest confidence.
Seeboard, the electricity distribution company for the South- east, last night admitted that Denis Cassidy, a non-executive director, was given board approval for the purchase of 5,000 Seeboard shares at 382p three days before the price review was published.
Mr Cassidy, who heads Boddington, the brewer, joined Seeboard in May. The company said the shares purchase demonstrated his long-term commitment to it.
Seeboard shares closed 18p higher at 414p yesterday. Shares of the other 11 regional companies also continued to rise strongly as City analysts speculated about takeovers and mergers in the industry and the sale or demerger of the National Grid Company - which is owned by the regional firms - in the wake of the review.
Analysts said that mergers or takeovers could happen swiftly after next March, when the Government's golden share in the companies expires. Nigel Hawkins, at Hoare Govett, said a variety of scenarios could emerge. They include agreed mergers of electricity companies of equal size and combinations of water companies and electricity firms.
There is also speculation that Scottish Power, the larger of the two Scottish electricity groups, is waiting to buy a regional firm south of the border. Scottish Power already exports large amounts of electricity to England and Wales and has ambitious expansion plans.
The regional electricity companies are now said to have agreed that the flotation of the National Grid Company, with an estimated price tag of pounds 4bn- pounds 5bn, should go ahead, probably next spring.
The new controls announced by Offer will cut electricity distribution prices by up to 17 per cent in April and will then cap them until the year 2000 at inflation minus two percentage points. The companies are expected to be able to increase dividends annually by up to 10 per cent in real terms in spite of the price cuts.
Cuts in some areas, including that served by Manweb, may be less than expected because the company does not charge as much as it could under its existing cap.
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