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.

Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Sport
The Pipes and Drums of The Scottish Regiments perform during the Opening Ceremony for the Glasgow 2014 Commonwealth Games at Celtic Park on July 23, 2014 in Glasgow, Scotland.
Commonwealth GamesThe actor encouraged the one billion viewers of the event to donate to the children's charity
Sport
Karen Dunbar performs
Entertainers showcase local wit, talent and irrepressible spirit
Sport
Members of the Scotland deleagtion walk past during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
PROMOTED VIDEO
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
Life and Style
fashion Designs are part of feminist art project by a British student
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
Life and Style
Listen here: Apple EarPods offer an alternative
techAre custom, 3D printed earbuds the solution?
Arts and Entertainment
Top guns: Cole advised the makers of Second World War film Fury, starring Brad Pitt
filmLt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a uniform
News
The University of California study monitored the reaction of 36 dogs
sciencePets' range of emotions revealed
News
Snoop Dogg pictured at The Hollywood Reporter Nominees' Night in February, 2013
people... says Snoop Dogg
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
A scene from Shakespeare in Love at the Noel Coward Theatre
theatreReview: Shakespeare in Love has moments of sheer stage poetry mixed with effervescent fun
News
Joining forces: young British men feature in an Isis video in which they urge Islamists in the West to join them in Iraq and Syria
newsWill the young Britons fighting in Syria be allowed to return home and resume their lives?
Arts and Entertainment
The nomination of 'The Wake' by Paul Kingsnorth has caused a stir
books
News
i100
Life and Style
food + drinkZebra meat is exotic and lean - but does it taste good?
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

PMO Analyst - London - Banking - £350 - £400

£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...

Cost Reporting-MI Packs-Edinburgh-Bank-£350/day

£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...

Insight Analyst – Permanent – Up to £40k – North London

£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...

Test Lead - London - Investment Banking

£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game