Power shares gain ahead of Offer review

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The Independent Online

Industrial Correspondent

Shares in the regional electricity companies made strong gains yesterday following confirmation that the new price controls would be announced on Friday by Offer, the industry regulator.

The view among analysts is that the controls will not be tough enough to be rejected by any of the companies in favour of a reference to the Monopolies and Mergers Commission.

There is a growing consensus that Professor Stephen Littlechild , director general of Offer, will announce a one-off cut of 10 per cent on electricity distribution charges next April, followed by an annual cap of inflation minus four percentage points.

The effect on customers' bills will be much less as distribution accounts for only about one quarter of the amount people pay.

One analyst said that the saving for customers could be pounds 200m in the first year of the regime.

He added that if Professor Littlechild met market expectations, companies could still increase dividends by about 6 per cent annually in real terms up to the end of the decade. The announcement on Friday brings to an end four months of speculation since Professor Littlechild shocked the industry by announcing the distribution price review.

His statement overturned a regime agreed only last August with the companies and within hours wiped pounds 3.5bn from the value of electricity shares.

The August regime imposed a reduction varying among companies from 11 to 17 per cent from April this year - which took effect as planned - with a subsequent cap of "RPI minus 2".

Professor Littlechild said in March that his decision to look again at distribution charges, which account for most of the regional companies' profits, was prompted partly by the sustained rise in the share prices since the agreement last year.

He also cited Northern Electric's ability to offer more than pounds 500m in sweeteners to shareholders in defence of a bid for the company by Trafalgar House, which later lapsed.

The review has split the industry. Larger companies are seeking a clamp- down on the smaller of the 12 firms, which tend to have higher household bills.