National Power may have opened Pandora's box

"If it makes sense for generators to merge with distributors and suppliers, the bids can be used as a way of forcing a much more radical break-up of generating capacity than presently envisaged"

Having effectively ruled himself out of the great regional electricity company paper chase a couple of months back, John Baker, chief executive of National Power, had quite a somersault to perform yesterday as he unveiled details of a pounds 2.8bn takeover bid for Southern Electric. His explanation for the apparent change of heart was that National Power was merely "adjusting to changed circumstances".

By this he meant that the regulatory environment has changed. Something he thought would certainly not be allowed a couple of months back now seems to be perfectly OK as far as ministers, the Office of Fair Trading and the electricity regulator are concerned - the vertical integration of companies in electricity generation, distribution and supply. There seems to be no answer, other than the obvious, as to why National Power, the largest in the industry, left it to Scottish Power and PowerGen to blaze the trail of vertical integration. Certainly there is a "Johnnie come lately" feel about this bid.

However, National Power's slowness off the mark is perhaps an irrelevance set against the main issue of whether it is right to allow the market to continue reshaping Britain's electricity industry in any way it pleases. Clearly the National Power bid marks, if not a turning point in the game, at least a substantial acceleration of the action.

Even after selling off a fifth of its generating capacity, National Power will remain, with 23 per cent of the market, the dominant producer. Combine that with the acquisition of one of the two largest regional electricity companies, and it becomes overnight far and away the most powerful player in the reshaped electricity industry. Should this be allowed? The case in favour goes along these lines.

Consolidation of the industry is both an inevitable and a beneficial thing. Electricity "disaggregation", to use Mr Baker's word, ahead of privatisation, may have suited the Government's purpose at the time but things move on and an industry divided into 18 moving parts is plainly not the optimum in terms of efficiency. Nor is it necessarily a structure most capable of delivering to the consumer the benefits of free competition in supply, set to begin post 1998. To enter this market properly, the generators need the infrastructure investment in billing systems already made by the regional electricity companies. For a generator to invest on that scale without an existing customer base would not make any kind of commercial sense.

Furthermore, the argument goes, if National Power and PowerGen are referred to the Monopolies and Mergers Commission there is a strong possibility that the Americans will nip in and steal the bid prizes.

When PowerGen put these arguments to ministers it got a sympathetic hearing. Nothing, however, is ever as simple as presented. While it is true that vertical integration works perfectly well in many industries without damage to competition, it is probably fair to say that when a dominant producer links with a monopoly supplier, the effect is nearly always harmful regardless of regulatory safeguards. The "pool" provides no kind of protection. Nor, as we already know, does Professor Stephen Littlechild. Competition might eventually, but it will take time.

There is, however, an opportunity for ministers in the generating bids. If it makes sense for generators to merge with distributors and suppliers, the bids can be used as a way of forcing a much more radical break-up of generating capacity than presently envisaged. As a condition of the bid, for instance, National Power could be made to divest not just a fifth of capacity, but two fifths, or even three. If other RECs were given a fighting chance in generation, then the fully competitive market that ministers dream of becomes a real possibility. In bidding for Southern, National Power might have opened a Pandora's box.

GEC heavyweight should make way for flyweight

Like heavyweight boxers, corporate pugilists rarely know when to quit. Lord Weinstock should have retired long ago but seems intent on hanging on to the bitter end. Yet, the call for change grows. At least one senior GEC executive has been "whispering" to fund managers about the need for new management blood. A poll of GEC's key investors reveals an overwhelming call for Lord Weinstock's retirement. If that was not enough, look at the financial figures. GEC's plodding performance has disappointed the market for years.

Through it all, Lord Weinstock has maintained a lofty silence. The issue of the succession has now gained some urgency.Lord Weinstock himself imposed a deadline of next summer to resolve the matter. Last year he extended his contract until 1996, when he will be 72. The institutions did not particularly like it but voted it through on the understanding that the GEC nominations committee would arrange a smooth transition. But so far, nothing. If the strategy is simply to hold on long enough to ensure that his son Simon gets the job, then it is doomed to failure. The institutions will have none of it.

Lord Weinstock's brilliance as a manager and one time visionary is undeniable, but the company today seems structurally incapable of achieving rapid growth. His "scientific" management, rigid cost control, and evolutionary rather than revolutionary change has given GEC a tendency towards inertia. GEC urgently needs new blood. It has able insiders, like Peter Gershon at Marconi, or finance director David Newlands. But what is needed ideally is an outsider, someone capable of riding rough shod over the old guard. GEC has a strong order book, but lacks the commensurate earnings growth. To achieve the later, a fundamental shake-up at the divisional level is perhaps required. Do not count on this happening, however. GEC is far from the parlous financial condition that allows institutions to insist on a new broom. But would it not be something if Lord Weinstock displayed some of his old visionary flair by ensuring that a very different kind of man succeeds him.

Open secrets behind closed doors

The accountancy firm KPMG today finds itself in the unaccustomed position of hogging the limelight normally reserved for its clients. Such is the interest that has been generated by its plan to incorporate its audit arm that Britain's second biggest accountancy firm has taken over part of London's Savoy Hotel to announce the outcome of the vote.

One way in which the change is being sold to clients is that it will result in greater financial disclosure, enabling them to obtain the same sort of information about the financial health of their auditors as they can about most of their other suppliers and customers. Unfortunately for the clients, they will only learn details of the new incorporated structure after it has become a fait accompli. Let's hope the information is reassuring.

News
Jacqueline Bisset has claimed that young women today are obsessed with being 'hot', rather than 'charming', 'romantic' or 'beautiful'
people
Arts and Entertainment
Lena Dunham
booksLena Dunham's memoirs - written at the age of 28 - are honest to the point of making you squirm
Arts and Entertainment
A bit rich: Maggie Smith in Downton Abbey
tvDownton Abbey review: It's six months since we last caught up with the Crawley clan
Sport
Frank Lampard and his non-celebration
premier leagueManchester City vs Chelsea match report from the Etihad Stadium
PROMOTED VIDEO
News
people
Life and Style
A new app has been launched that enables people to have a cuddle from a stranger
techNew app offers 'PG alternative' to dating services like Tinder
Sport
Greg Dyke insists he will not resign as Football Association chairman after receiving a watch worth more than £16,000 but has called for an end to the culture of gifts being given to football officials
football
Arts and Entertainment
Jake Quickenden sings his heart out in his second audition
tvX Factor: How did the Jakes - and Charlie Martinez - fare?
Sport
premier league
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvOnly remaining original cast-member to leave crime series
Sport
Mario Balotelli celebrates his first Liverpool goal
premier leagueLiverpool striker expressed his opinion about the 5-3 thriller with Leicester - then this happened
News
ebooksAn unforgettable anthology of contemporary reportage
News
Britain's shadow chancellor Ed Balls (L) challenges reporter Rob Merrick for the ball during the Labour Party versus the media soccer match,
peopleReporter left bleeding after tackle from shadow Chancellor in annual political football match
Arts and Entertainment
Female fans want more explicit male sex in Game of Thrones, George R R Martin says
tvSpoiler warning: Star of George RR Martin's hit series says viewers have 'not seen the last' of him/her
News
i100
News
i100
Sport
Plenty to ponder: Amir Khan has had repeated problems with US immigration because of his Muslim faith and now American television may shun him
boxing
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments