Power suppliers 'subsidise' shops

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The Independent Online
Pressure for an investigation into how electricity supply companies have funded expansion of their chains of high- street shops will increase after a report prepared by Dixons, the retailer.

Dixons has sent copies to Offer, the electricity watchdog, and the Office of Fair Trading claiming that profits from power distribution are used as hidden subsidies for loss-making retail outlets.

Several retailers have complained that cross-subsidies between the regulated and non- regulated activities of the 12 regional electricity companies (RECs) are anti-competitive.

However, Dixons is the first to provide a detailed account of its opposition to the RECs. The report, details of which have been seen by the Independent on Sunday, says RECs made a combined operating loss of pounds 49.8m on their non-regulated business in the year to 31 March 1992, on turnover of pounds 1.3bn. This marks a pounds 100m decline in the non-regulated performance since 1986, which critics believe has to be met out of higher electricity charges.

For the past two years, most RECs have lumped their retailing profits together with other non-regulated activities, but the report says: 'We believe that retailing represents a large proportion of these combined results.' It claims that these figures understate the true economic cost of funding non-regulated activities. Most of the retail outlets operate rent-free, as they are on freehold properties held by the parent. If standard commercial criteria were applied to working capital and the market value of these properties, Dixons calculates that the combined losses over four years would be almost pounds 500m.

Despite the poor performance, the number of high- street outlets has continued to increase, with about 100 out-of- town stores opened since privatisation.

Mark Souhami, Dixons' deputy chairman, said most commercial concerns faced with such losses would have retrenched rather than expanded. 'RECs are not supposed to be retailers, they are supposed to be electricity supply companies. But if they want to run stores as a separate business, they should be accounted for as a separate business.'

The OFT said it was considering the report, but was already looking at some aspects of hidden subsidies as part of its Supply Price Control investigation. Offer would only confirm it had received the document.