Powergen favourite to buy TXU customers

Powergen was last night continuing fraught negotiations with TXU Europe, the stricken electricity group, in its battle for control of the company's 5.25 million domestic customers.

It and Scottish & Southern Energy were the groups to bid for parts of TXU, which insisted yesterday that it was moving towards a financial restructuring which may yet stave off administration.

Innogy, the German-owned group which trades in the UK as nPower, and ScottishPower both looked at TXU but decided against tabling bids.

TXU Europe was cut adrift last week by its US parent, which withheld a £450m loan that was to be used to help find a path to profitability. The European business has been brought to the brink of disaster by the collapse in energy prices and the downgrading of its debt to junk status.

Powergen's owner, E.ON of Germany, is keen to expand its presence in the UK retail market, while Scottish & Southern is looking for new domestic customers to help balance its exposure to the troubled UK generation market. Analysts value TXU Energi, the retail arm, at a minimum of £1.2bn, and TXU is hoping to raise up to £2bn from disposals.

Insiders said they believed a deal could be hammered out within days, although the threat to put the whole of TXU Europe into administration was hanging over the negotiations. The bidders are keen to tie up a deal before the middle of this week to avoid the possibility that supplies may be interrupted and to ensure that nervous customers are not poached by rivals. The appointment of administrators and the resulting sale process could take weeks.

The company is talking to its banks and other creditors as it pursues a parallel restructuring process for the parts of the business that have not received offers. Its assets include an energy trading division and three UK power stations.