PowerGen in talks with potential US partners

POWERGEN, THE smaller of the UK's two specialist electricity generators, is continuing talks with a number of potential US partners in its attempts to enter the US utilities market as speculation mounted over the weekend that its pounds 10bn deal with Houston Industries had foundered.

PowerGen said it was "premature" to claim that its deal with Houston Industries had collapsed in the face of concern about the conditions which would be imposed on the PowerGen business in the UK. No announcements are expected at least until the regulatory issues on both sides of the Atlantic are clearer, City sources said.

PowerGen is considering the pace of deregulation in the US and the effects it will create for companies to establish cross-holdings of electricity and water businesses in the US and at state level. Deregulation is necessary to create the necessary opportunities for cost-saving and joint marketing but the pace is necessarily slow. PowerGen is thought to be willing to take the plunge before all the issues have been decided but is not yet ready to move.

On the other hand, Houston is known to be concerned at the conditions the electricity regulator, Professor Littlechild, will put on PowerGen as the price of approving PowerGen's takeover of East Midlands Electricity, which was completed last month. PowerGen is expected to sell off at least one, maybe two, of its four coal-fired power stations to win a favourable recommendation from the regulator, but the appointment of Peter Mandelson as the new boss at the DTI could pose a further obstacle.

The regulator is expected to make a recommendation to the DTI next month and Mr Mandelson in turn to make a decision by the end of september. Meanwhile, PowerGen has appointed Goldman Sachs to handle negotiations with a number of potential buyers for one or more of its coal-fired stations. Buyers include British Energy, the specialised atomic energy generator, as well as Florida Power & Light, Scottish Power, Scottish Hydro and several UK distribution companies.