Littlechild hints at MMC reference for PowerGen

MARY FAGAN

Industrial Correspondent

Professor Stephen Littlechild, the electricity regulator, dropped a strong hint last night that he will urge a monopolies reference for the expected pounds 2bn bid by PowerGen for Midlands Electricity.

There are also indications that the City is having a change of heart as a result of the latest development in the wholesale reorganisation of the electricity industry.

The prospect of the bid is thought to worry some institutions. One senior fund manager said a takeover of Midlands by PowerGen was "illogical" given the structure of the industry chosen by the Government at privatisation. "There is no doubt it should be referred to the MMC," he said.

Professor Littlechild warned that the bid was the most significant so far in the industry and raised "serious issues" for customers. He said he would have to be convinced that consumers would be protected in terms of both price and competition and that there should be serious consideration given to a reference to the Monopolies and Mergers Commission.

Professor Littlechild said that the merger of the two companies would involve more vertical integration than any to date and would create a powerful regional company.

Although his advice to refer two earlier bids, for Northern Electric and Manweb, was ignored by the Government, his latest comments coincide with mounting pressure for a reference from opposition parties and consumer groups.

Ministers have made clear that their refusal to refer earlier bids was not meant to signal a free-for-all and that there would be circumstances in which later bids in the industry could be sent to the MMC.

In an attempt to avert a reference, PowerGen is already believed to have offered undertakings to Offer that the generation arm of the enlarged group would sell to its captive supply arm on an open and fair basis - treating it as any other regional firm. It is also likely that the company would agree to separating the three parts of the business in accounting terms.

PowerGen and Midlands combined would control about 20 per cent of the electricity generating market and 14 per cent of the electricity supply market in England and Wales.

Jack Cunningham, shadow trade and industry secretary, said: "There is a free-for-all in the ownership and control of the electricity supply industry. The Government has abandoned any pretence to be concerned about consumer interest."

National Consumer Council director Ruth Evans said: "The electricity industry as a whole is being restructured almost by accident. There should be an MMC inquiry to take an independent look at all the implications." The Consumers Association said that an entire review of the regulation of the industry is needed.

The takeover talks follow clearance two weeks ago by Ian Lang, President of the Board of Trade, of bids for South Western Electricity, Eastern Electricity and Manweb. Some analysts said a proposed takeover of a regional firm by a generator would be the straw to break the camel's back and would end up at the MMC.

A merger between PowerGen and Midlands would appear to turn on its head the Government's decision to privatise power generation in England and Wales separately from electricity distribution and supply.

Shares in PowerGen fell by 25.5p to 578.5p and those in Midlands rose 45p to 938p.

PowerGen's share of the generating market is being squeezed by the growth of nuclear power and new independent companies building gas-fired plant. Both PowerGen and the largest generator, National Power, are also being told by Offer to dispose of some plants to enable more competition in the generating marketplace.

PowerGen is now near to completion of a deal to lease two power plants - High Marnham and Drake Low - to Eastern Electricity. It is as yet unclear whether this agreement will be enough to address Offer's concerns.

Comment page 21

What ministers said before privatisation

August 1988

"Already we see very encouraging signs of clear rivalry between the two parts"

- Cecil Parkinson, energy secretary, on the Central Electricity Generating Board being split into two.

November 1988

"The only permanent monopoly in the industry will be the ownership of wires used for transmission and distribution",

- John Wakeham, later to become energy secretary.