Outlook: Beckett signs up to electricity split

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The Independent Online
Never a dull moment in the electricity industry. No sooner has it seen off the threat from British Gas to the 12 domestic monopolies that make up the market than the Government is about to recommend splitting each business in two.

The idea of separating electricity supply, the bit that sends out bills and fails to turn up for appointments on time, from the monopoly wires business, the bit that makes the profit, is hardly a new one. There is so much agreement on what a good thing it would be that even the industry regulator, Professor Stephen Littlechild, thinks it a good idea. Now the President of the Board of Trade, Margaret Beckett, is about to adopt it too, in her Green Paper on utility regulation, coming to an HMSO bookshop near you any time soon.

The present structure of the industry gives plenty of scope for cross subsidisation of low-margin supply businesses from the highly profitable wires businesses. So there's an obvious case for going the separation route. What is less clear is how the two legs should be split apart. Will simple ring fencing of the two suffice or will the authorities insist on separate ownership?

For the US utilities that now own the industry the quid pro quo may be that separation of the businesses may be the trigger for a series of mergers in supply and distribution, enabling the RECs to create new economies of scale. Meanwhile, Ed Wallis at PowerGen is wondering whether there will be room at the table for the generators too. Whether Mrs Beckett has an equal appetite for his kind of vertical integration as well remains less obvious. Certainly, it would kick against the idea of separating supply and distribution, so the omens aren't good.

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