Prospect of tougher controls knocks electricity shares

SHARES in the regional electricity companies fell further yesterday as speculation increased that they will be forced to accept tough new price controls from next year or be referred to the Monopolies and Mergers Commission.

Initial proposals outlined in a letter from Professor Stephen Littlechild, the director-general of electricity supply, could result in one-off cuts in electricity distribution charges of around 20 per cent, followed by a limit keeping annual price increases to inflation minus 3 or 4 per cent.

The initial price cut would mean a drop of about 7 per cent in electricity bills, of which distribution costs make up a quarter.

Senior executives in most of the companies were in discussions yesterday to prepare for meetings over the next few weeks with Professor Littlechild, and executives said they needed more information from the regulator before they could understand his approach to the price cuts.

In his letter to each company, Professor Littlechild said: 'I am conscious that there are many issues involved. We should aim to touch on all of them at the meeting but we shall need to concentrate on the most significant ones.'

Among the issues are: standards of service offered by the companies; electricity connection and standing charges; company profits; financial requirements; and whether the proposed new price controls should last three or five years.

While Professor Littlechild's proposals are intended to start debate, it is thought that he will not be willing to change his stance significantly on the level of price controls.

Sources at Offer, the electricity regulator, are angry at the way information contained in the letter has been leaked. Professor Littlechild is in the United States but staff said that he would be dismayed at the publicity over a process that is supposed to be confidential.