Regulators fret over powers

Ofwat and Offer, the water and electricity regulators, may seek greater financial powers over North West Water if its proposed pounds 1.6bn takeover of Norweb, the regional electricity firm, succeeds. The watchdogs said they might need "greater supervision" over loans and dividends within the enlarged group, and may also need measures to ensure they have access to all the information they need.

Their comments came as Don Cruickshank, the telecommunications watchdog, called for greater power for regulators to promote competition and to protect consumers. Mr Cruickshank said he needed greater discretion to stop anti-competitive behaviour by BT or any other company that could abuse a dominant position. Speaking at a London conference, Mr Cruickshank said: "We have watered down the powers of the regulator too much already." He also said that we should "cherish the independence of regulators" but that consideration could be given to replacing individuals with voting commisions.

The views of the water and electricity watchdogs come in a consultative document on North West Water's takeover attempt, announced last week, which has so far been rejected by Norweb.

The regulators warn that the merger raises public interest issues including job losses and undue concentration of economic power. But they say that these aspects are outside their remit and should be examined by ministers and the Office of Fair Trading. Ofwat said that a big concern in the event of the pounds 1.6bn takeover would be North West's ability to finance the investment programme in the core water and sewerage businesses, which would cost billions over the next decade.

The consultative document is a first for the watchdogs in that it involves a merger between a water company and an electricity firm. The regulators say they would seek measures to ensure that the two core utilities could be effectively compared to others in their sectors and that they are properly ring- fenced from each other and from the parent group.

Efficiency savings from the merger would be expected to show through in lower bills for customers at the the next review of price controls. This delay (the present controls run to the end of the decade) is widely expected to become one of the most controversial aspects of the proposed takeover.

The regulators, who will advise the OFT, have asked for comments by next Monday. Any decision on whether to refer the merger to the Monopolies and Mergers Commission would be taken by Ian Lang, President of the Board of Trade.

Norweb refused to comment yesterday. The company is believed to be talking to potential white knights from the US.Shares closed unchanged at pounds 10.08, compared with the cash offer of 975p. The sector is also awaiting the final defence by Manweb, the regional electricity firm fighting a pounds 1bn takeover bid by Scottish Power. Shares in Manweb, expected to announce a package of sweeteners for shareholders on Friday, rose by 10p to pounds 10.14 compared with the cash offer of 915p.

Comment, page 17

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