Midlands seeks supply merger with rival

MIDLANDS ELECTRICITY is in negotiations to merge its supply arm with one of two rival regional electricity companies. This would signal the first serious consolidation in the sector as the domestic market opens up to competition from this autumn.

The decision follows a top-level strategy meeting in Denver, Colorado last week between Midlands and its two US owners, Cinergy and GPU.

Roger Murray, Midlands managing director of energy services, said: "We intend to be a national supplier when the electricity market is liberalised. We have had specific discussions with three or four other parties and we are now focussing on one or two of them."

He said the aim was to complete a merger in the next three to 12 months. Midlands is not ruling out the possibility of going for a full merger by including its wires business in a deal.

Mr Murray refused to say whether the companies Midlands was in merger discussions with were also US-owned. But he confirmed that Midlands was not interested in making a bid for London Electricity.

Midlands, which has 2.2 million domestic customers, is in the second wave of regions being liberalised, starting in October. It has made a worst-case assumption that it will suffer a net loss of 10 per cent of its customers over the next five years. But Mr Murray said he would "mortified" if the loss was that high.

The company is trebling the size of its doorstep sales force to 600 over the next six months and has completed affinity agreements with Calor and Total to sell LPG and fuel oil alongside electricity. Two-thirds of the sales force will be deployed to protect its existing customer base, with the remainder luring electricity customers from rival suppliers.

Price cuts are not expected to exceed 10 per cent, compared with the 25 per cent savings on offer when the gas market was thrown open.