National Grid backs down on price controls

Directors of National Grid, the privatised electricity transmission business, have reluctantly accepted tough price controls from the electricity watchdog, Offer, which will slash the company's revenues by pounds 1bn in four years and lead to further job losses.

The decision to back down in the row with the regulator, Professor Stephen Littlechild, means the dispute will not be referred to the Monopolies and Mergers Commission and opens the way for cuts of pounds 4 off average domestic electricity bills from next year. It also represents another clear victory for the regulators as they increasingly take a tougher line over the privatised utilities.

The price formula would cut Grid transmission charges by 20 per cent from April next year, and cap increases in the following three years at no more than 4 per cent below the rate of inflation. It would hit the group's revenues by up to pounds 300m a year.

National Grid had campaigned vociferously against the controls, but had failed to mobilise the kind of revolt by small investors which British Gas had generated in its battle with Ofgas over price controls planned for its pipeline business.

Yesterday the company claimed it was in the best interests of shareholders to accept the decision. Peter Gavan, the Grid's director of corporate affairs, said: We're not pretending the settlement isn't very tough but we had to weigh that up against the prolonged uncertainty of taking our case to the Monopolies and Mergers Commission."

He said implementing the formula would mean more job losses on top of the 500 already planned, out of a total workforce of 4,200. Unions had feared an extra 500 job cuts to achieve Offer's recommendations, but the likely number is thought to be about 200.

City analysts were not surprised at the news. One said referring the dispute to the MMC would have delayed the possible sale of the Grid's telecommunications business, Energis. Grid shares rose 4.5p to 178p.

Separately, Scottish Power and Scottish Hydro-Electric yesterday accepted another proposal by Offer which will cut the price of the energy they sell to rival electricity suppliers by up to 5 per cent from next year.