Minister plugs in to power row

In the first of a series of articles on Labour, business and the City
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John Battle, the new Energy and Science Minister, yesterday held his first talks with the two energy regulators with the delicate question of whether to delay the start of domestic power and gas competition understood to be high on the agenda.

No details were given of the meetings with Clare Spottiswoode, gas industry regulator or her electricity counterpart, Professor Stephen Littlechild. Yet the relationship between government and the regulators, something the Conservatives deliberately kept unclear, is threatening to become one of Mr Battle's biggest headaches.

The DTI may not be the highest-profile department during Labour's storm into office, but the seemingly arcane technicalities of electricity competition represent not only one of the most pressing issues on its agenda but threaten to undermine the drive to put consumer interests above those of shareholders - something Mr Battle described as a "priority" just hours after being given the job.

Dieter Helm, energy expert and head of the Oxera consultancy group explained: "I think John has to act very quickly. The easy option is to muddle through, but by then it could be too late to avoid chaos. Everyone knows domestic power competition will be delayed. It's a question of whether he can take difficult decisions."

Several regional electricity companies (RECs) have so far requested talks with Mr Battle with the thinly disguised aim of postponing competition, which on Professor Littlechild's timetable would roll-out between April and September next year. Privately, several RECs believes the process is hopelessly tight, although publicly no company has said it would fail to meet the deadline.

The difficulty has been the lack of co-ordination between the 14 power companies involved; 12 RECs and the two Scottish suppliers. They must all produce complex new computer systems which can talk to each other and track customers as they switch supplier. If these fail experts predict huge billing problems as households disappear from the systems. Estimates of the cost of introducing competition range from pounds 500m to pounds 1bn.

On the other side the Electricity Consumers' Committees, independent bodies which represent customers interests, are stepping up their demands to keep to the existing deadline. Yvonne Constance, chairman of the committees, yesterday wrote to Mr Battle urging that customers should get the benefits of competition on time. She said: "We are aware the RECs were lobbying before and after the election. However, there is useful progress on the computer systems and there is nothing to be gained by removing the pressure to deliver. Any delay accepted now will let the momentum go out of the system."

The answer, according to Mr Helm, is for Mr Battle to announce a fundamental review of competition, which would take several weeks. "A lot of costs are being committed here for a timetable which may never happen. The policy needs to be bold and well thought out. It's not a big task to have a complete review, it's just unpalatable."

Yet delaying competition would almost certainly bring Mr Battle into conflict with Professor Littlechild, who has repeatedly defended his role in the project. A similar move to put back the further opening up of the gas market, planned to hit Scotland and the North-east of England this October, would sour relations with Ms Spottiswoode, who before the election made clear her doubts about the windfall utility tax.

Labour has suggested it may merge the gas and electricity watchdogs into one department, though Mr Helm said the outcome may be less radical. "I don't think he will replace the current regulators when their contracts expire."

One thing Mr Battle has no shortage of is advice. One of his first moves was to approach Dan Corry to become a full-time paid adviser. Mr Corry, from the left-leaning think tank, the Institute for Public Policy Research, is a well-known critic of the present system of utility regulation and of price regimes which serve up windfall gains for investors.

Mr Corry's role could, according to some observers, point to a much bigger transformation of utility regulation than anything Labour suggested in opposition. "The manifesto was fairly weakened and didn't say too much. We've got to look at changes to make regulation more accountable so its quite open at the moment," he said.

Labour's determination to push ahead with these more general utility reforms is unclear. Dieter Helm argues Mr Battle may prefer to concentrate on tightening the firms' social obligations. "He may look at a social levy to meet these obligations such as cutting disconnections or preventing price differentials between regions."

If Mr Battle successfully grasps the nettle on competition and maintains reasonable relations with the regulators, he could win valuable space for a fundamental review. Yet the risks are huge. If he fails, his credibility and that of Labour's beefed up DTI could be severely weakened.