MMC delivers an early verdict on power firms

Trade Secretary Ian Lang has received reports on the bids for Southern Electric and Midlands Electricity by National Power and PowerGen, fuelling speculation that another bout of takeover activity is about to hit the sector.

The Monopolies and Mergers Commission delivered its verdict on the two bids to Lang's office on Friday - a week earlier than expected - and an announcement is expected in the next four weeks.

Shares in all four power companies rose as the market bet that both bids would be cleared although with conditions attached to prevent the two generators wielding undue influence in the market.

In return for approval, the generators have volunteered to ring fence their generation and supply activities, guarantee transparency in pricing and ensure that the market for contracts is sufficiently liquid to prevent them from rigging the electricity pool.

Should the two bids be waved through there is speculation that it will re-ignite interest in the remaining independent Recs from foreign utilities and electricity companies. Eight of the 12 Recs will have been swallowed up by rival UK utilities or large overseas operators if the bids by National Power and PowerGen go through.

It would also result in a sharp increase in vertical integration of generation and supply - reversing the way the industry was broken up on privatisation in 1990.

PowerGen has already agreed to sell 2,000 megawatts of plant to Hanson, which now owns Eastern Electricity while Hanson is among four bidders short-listed by National Power for 4,000 megawatts of capacity it must sell off.

The two generators have argued in evidence to the MMC that this, along with Scottish Power's takeover of Manweb, has created the precedent for vertical integration within the industry.

Comment, page 19

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