PowerGen eyes London link-up

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POWERGEN and London Electricity are in advanced discussions to launch a national drive into the domestic power market when competition gets under way later this year.

The move would see PowerGen beat National Power to become the first of the two privatised generators to enter the residential market. PowerGen yesterday declined to comment on the talks, although it is understood the generator is having discussions with three or four other regional electricity companies (RECs) about marketing partnerships.

The talks coincided with PowerGen's move to step up its pounds 7m, three-year, advertising campaign, which will tonight be extended from newspapers to television. The commercials begin during the peak advertising slot during News at Ten and portray electricity as an "off-the-shelf" commodity like soap powder.

A PowerGen spokesman said the campaign, thought to cost pounds 3m this year, was designed to raise customer awareness of the potential of electricity competition. It is also part of the group's bid to increase by sevenfold its commercial and business customer base.

London Electricity, owned by Entergy of New Orleans, has targeted PowerGen because its research showed the generator's brand was easily the best- known by consumers, despite the fact that the generator had never directly supplied domestic customers. The group's national profile has risen since it began sponsoring the ITV weather bulletins.

Sources said London was in detailed talks with PowerGen, which could see the REC become one of the leading challengers outside its customer franchise, which covers 2.5 million homes in the capital. A partnership would combine London's billing know-how with PowerGen's brand, though the industry regulator has already ruled out preferential wholesale power supply contracts in such arrangements.

PowerGen has also been in talks with British Gas to supply the group with electricity for its move into the domestic power market. Centrica, the demerged British Gas supply group, has yet to sign contracts with generators to secure power supplies.

If the link-up with London goes ahead, it would fuel speculation that the two companies could move towards closer ties, including equity stakes. Ed Wallis, PowerGen's chairman and chief executive, has made no secret of his desire to buy a stake in an REC as soon as the Government gives generators the green light to buy power supply or distribution businesses. PowerGen last year looked at buying out one of the 50 per cent stakes in Midlands Electricity owned by Cinergy and GPU of the US.

The soon-to-be-published Green Paper on utility regulation is expected to sanction such moves and to allow RECs to split supply from the monopoly distribution operations. London is widely expected to be involved in one of the first REC merger deals and has already held exploratory talks with other RECs including neighbouring Seaboard.

In London's new internal mission statement Mike Bemis, its chief executive, tells staff that in the near future "there will be fewer electricity companies and what they do will be different in 2000 to today."