Outlook: Power play

IF YOU cannot buy your competitors then buy your customers, seems to be the motto in the electricity market right now. Already this year three electricity supply businesses have been snapped up by generators and the likelihood is that the trend will accelerate in the coming months.

The big boys - National Power, PowerGen and British Energy - naturally defend this process on the grounds that large vertically integrated players provide more competition for one another and hence a better deal and lower prices for the consumer. In reality what they are doing is creating a natural hedge for their generation businesses, so that if the price they can charge for producing electricity is squeezed, they can take more of their profit from supply and vice versa.

The generators are assuming that the regulator, Callum McCarthy, will not kick up a fuss since this type of vertical integration also results in separate ownership of supply and distribution, something else which he is very keen on.

The worrying aspect is where the process will end. Eight of the UK's 12 supply businesses are now in the hands of generators. British Energy, National Power, PowerGen and Electricite de France have made no secret of their desire to expand still further into supply.

The regulatory system is supposedly designed to ensure that generation is ring-fenced from supply to prevent generators from stuffing their captive customers with high-priced electricity.

But a number of generation-only groups like Edison Mission Energy - which was yesterday given the green light to purchase two of PowerGen's coal- fired stations - are beginning to voice fears that soon there may be very few customers they can effectively compete for. The last time the industry was integrated in this way it was known as the Central Electricity Generating Board and prices were 30 per cent higher, in real terms, than they are now. Mr McCarthy needs to be extra vigilant.

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