Power generators ordered to increase competition: Watchdog threatens companies with reference to the Monopolies and Mergers Commission if they do not comply

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The Independent Online
OFFER, the electricity regulator, has called on National Power and PowerGen to increase competition in the marketplace if they wish to avoid a reference to the Monopolies and Mergers Commission.

At the same time, Offer has decided to allow Nuclear Electric, the state-owned generator, to sell direct to large companies, a market from which it has been banned until now.

A statement from the watchdog on National Power and PowerGen has been awaited for months. Offer, which is concerned over the two generators' power to influence prices in the electricity trading pool, wants undertakings that the companies will sell power stations to potential rivals.

Professor Stephen Littlechild, director-general of Offer, also wants a guarantee that prices will remain at acceptable levels until more competition emerges. He said the generators had until the middle of next month to persuade him that a reference was unnecessary.

The market reacted with relief to the Offer statement, with National Power's share price rising 13p to 449.5p and that of PowerGen closing up 9p at 509p.

Professor Littlechild has also expressed concern about the workings of the electricity trading pool. One option he is considering is to allow people to buy and sell electricity outside the pool. Another is to change the rules so that National Power and PowerGen receive the price they quote for power from a particular station. At present all stations are paid the same as the most expensive one needed to run in any half-hour period in order to meet demand.

The regulator's holding statement prolongs uncertainty over the companies' future and the possibility of the Government selling its remaining 40 per cent stake in both companies.

PowerGen said a reference was unnecessary but that, should it proceed, it should examine the industry as a whole rather than just the generators. National Power declined any comment except to say it continued to co-operate with Offer.

National Power, the larger of the two generators, is believed to be the more reluctant to sell power stations, redundant or otherwise, to potential rivals.

PowerGen has already sold a redundant power station to China despite interest from a British buyer.

Meanwhile, the decision to allow Nuclear Electric to sell direct to large users has caused concern among regional electricity companies.

Northern Electric has asked for government assurances that the subsidy for Nuclear Electric - at present about pounds 1bn a year - will expire in 1998.

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