However, the long-awaited report by the Commons Public Accounts Committee largely exonerated the role of Government ministers in the affair, instead blaming their officials for failing to tell them that the electricity regulator, Professor Stephen Littlechild, was intending to look again at price controls affecting regional power suppliers.
Professor Littlechild stunned investors in March 1995 when he announced that he would undertake a second review of the price regime, following criticism that the price controls imposed the previous year had been far too lenient.
The regulator's announcement came just after the Government completed the pounds 4bn sale of the first instalment of shares in its remaining stake in the two electricity generators, National Power and PowerGen. News of the price review plunged the markets into turmoil, knocking pounds 3.5bn off electricity share prices and leaving institutional investors with huge paper losses.
Furious ministers claimed Professor Littlechild had misled them over the timing of the price review announcement. Senior ministerial sources admitted they had prior knowledge of the review, but had no idea it would be announced so soon after the share offer.
The Public Accounts Committee said yesterday that Treasury officials had known about the possibility of a review of the price controls but failed to alert ministers because they did not believe the issue was relevant to the generators' offer.
The report said the Committee regretted "that ministers were not consulted further before the final decision was taken by Treasury officials to proceed with the sale".
However, the Committee stopped short of calling for changes to the rule that regulators of privatised utilities should not make price-sensitive announcements during share offers. Big City investors were concerned during the share sales that Professor Littlechild had informed the Government of his intentions just one working day after the closing deadline for share applications.
The Treasury had argued in evidence to the Committee that it "could not have been anticipated" that the financial markets would interpret that Professor Littlechild's move, which affected regional electricity companies, would have any knock-on impact on generating companies, which are not subject to the same price controls.
The report agreed that Treasury officials had "learned lessons from previous sales".Reuse content