Northern Electric and Calortex in alliance talks

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The Independent Online
Northern Electric, the US-owned regional electricity company, is in talks with Calortex, the UK's leading independent domestic gas business, which could see the two companies form an alliance to make a joint push into the emerging competitive energy markets.

Calortex's 50 per cent shareholder, Calor Group, has put part of its stake in the business up for sale and is understood to have held discussions with at least three regional electricity companies (RECs). Northern Electric is thought to be the main bidder left in the ring, though power generators and some energy companies have also been approached. The other Calortex shareholder, Texaco, has decided to hold on to its investment.

A link with an REC would enable Calortex to expand from gas into electricity retailing as the power market opens to competition from next April. It would join combat with other combined energy sellers in the shape of ScottishPower and Eastern Group, which have invested heavily in trials of domestic gas competition. Centrica, the demerged BG supply business, has also pledged to move into the electricity market, while United Utilities last week launched its own energy business.

The move by Calor comes after its majority shareholder, the privately owned Dutch food and energy company, SHV, took full control of the company earlier this year in a pounds 250m agreed bid. SHV wants to cut its stake in Calortex to around 15 per cent to free up resources for liquid petroleum gas projects in developing countries.

Sources suggested Calortex was likely to spend more than pounds 30m this year on its assault on the domestic gas market and could raise this spending in 1998 as full competition emerges. Most of the cash has gone on building computer databases, billing systems and in marketing expenses.

Figures released to the industry last week by Ofgas, the watchdog, showed 370,000 customers have so far switched from BG to new suppliers out of 2 million households taking part in the competition trials. Numbers moving to independent gas companies are running at about 10,000 a month, with Calortex thought to have grabbed well over 100,000 customers.

Calortex has managed to maintain its lead over Eastern and ScottishPower in the trials, though the biggest challenge facing all the participants will be the opening of a third trial area later this year covering 2 million homes in Scotland and the North-east of England. Independent suppliers will meet Clare Spottiswoode, the regulator, today and are expected to delay the Scottish trial from October to mid-November.

TransCo, the BG pipeline business, had pleaded for more time to build a new computer database to track customers as they moved supplier.

The shape of the emerging domestic gas market has surprised observers after the big supermarket and oil giants decided not to participate. They have been put off in part by non-existent profit margins.

Gas and electricity suppliers will join forces this week to launch a code of practice to protect domestic consumers from dubious sales tactics.

The Association of Energy Suppliers, to be formally announced on Wednesday, is an attempt to head off growing criticism of doorstep-selling practices in the domestic gas competition trials in the south of England. The code will, for the first time, include a tribunal panel with sanctions available if members misbehave. One supplier, Eastern Natural Gas, has faced strong criticism from the Gas Consumers Council and watchdog, Ofgas, after members of its sales force allegedly told customers British Gas had changed its name to "Eastern".