PowerGen bid prompts Offer warning on power takeovers

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The Independent Online

The electricity regulator yesterday voiced some of his most serious concerns yet about takeovers in the power sector, with warnings about the proposed bid by PowerGen for Midlands Electricity.

His comments came as Scottish Power's revised offer document revealed that fees to advisers in its hostile bid for Manweb will rise to pounds 36m.

Yesterday's remarks by Professor Stephen Littlechild, in a consultation document, were being seen as a further indication that he will urge a monopolies reference for the expected pounds 2bn bid.

Professor Littlechild, director general of Offer, said he was particularly worried about vertical integration of a generator and a distributor, and the consequences of a concentration of power for the consumer.

He noted that joint ownership of the network monopoly distribution business, with potentially competitive generation and supply businesses, could become more problematic. He said that a possible remedy to some of his concerns might be for Midlands to dispose of its power generation interests and its stake in the power transmission network, the National Grid. He also raised the prospect of potential licence amendments, including prohibiting new contracts between PowerGen and Midlands's power supply business.

A combined PowerGen and Midlands would control about 20 per cent of the electricity generating market and 14 per cent of the electricity supply market in England and Wales.

Although PowerGen has, on the recommendation of the regulator, reduced its capacity by selling two power stations, a merger would increase its concentration. "This would be a detriment of the merger," Professor Littlechild said.

He also raised concerns about access to the necessary information about Midlands that would enable him to set price levels and protect customers.

While he noted PowerGen's argument that a combined company might bring a more effective competitor to the market, he said: "On the other hand, the proposed merger would reduce the number of competing suppliers and hence could reduce diversity and choice for customers."

Professor Littlechild had recommended that the Office of Fair Trading refer to the MMC the bid by Scottish Power for Manweb for similar reasons, but was overruled by the Government, which cleared the bid last month.