Northern Ireland watchdog set to refer generators to MMC

The Northern Ireland electricity regulator looks set to refer the three generating companies in the province to the Monopolies and Mergers Commission before the autumn, in a long-running dispute over power prices.

Independent research into the pounds 300m generation market by the consultancy group London Economics was delivered to the regulator, Douglas McIldoon, on Monday.

The document, commissioned by the Northern Ireland power watchdog, Ofreg, looked at the suggestions put forward by the generators which they hoped could avert an MMC referral.

Charles Coulthard, the deputy electricity regulator, declined to comment on the likelihood of a referral. However, the offers of power price cuts are not thought sufficient to satisfy Ofreg.

Mr Coulthard said: "The report will give us a clear indication in policy terms. Douglas will then have to decide whether to refer the generators to the MMC. If we can get a solution, Douglas may accept it."

It would be the second MMC investigation into the Northern Ireland power market, where average domestic bills of around pounds 320 are almost 20 per cent higher than in the rest of the UK. Northern Ireland Electricity (NIE) is locked in a dispute with Mr McIldoon following an MMC probe into transmission and distribution price controls.

In a controversial move Mr McIldoon has rejected the MMC's recommendations, which would cut NIE's revenues by 25 per cent, as too lenient. He has instead proposed a cut of 29 per cent, opening a debate about the powers of utility regulators.

The London Economics report calculated the potential savings from changes to the generation market, which accounts for about 60 per cent of domestic bills.

Three companies took over the four power stations in the province at privatisation in 1992.

They include Premier, owned by BG, which operates the 1,000 megawatt Ballylumford power station.

One suggestion was to reform the wholesale power market, by allowing large industrial customers to negotiate direct contracts with the generators. Under the present system all users have to buy their electricity from NIE, which has inflation-proof contracts with the generators lasting until 2010.

Generation charges in Northern Ireland of 4.2p a unit are much higher than in the UK. Ofreg has aimed to reduce the cost to 3.5p, while the London Economics calculations suggest the generators' own schemes would cut prices by up to 3.6p, though some of the savings could be much smaller.

Mr McIldoon's predecessor had hoped to introduce a trading market for wholesale power in Northern Ireland, similar to the Electricity Pool in England and Wales, but the initiative was abandoned as too complex.

Another idea from the generators was to invest in more efficient power plants.