Scottish Hydro-Electricis a special case

With South Wales Electricity now into its second shares buy-back, the idea of a windfall tax to punish greedy utilities is rapidly becoming something of an irrelevance. Far from hoarding cash, boards are scorching the earth. Labour will find little of value to plunder to meet its promise of retribution for excessive profits.

Sympathy for electricity companies is about as fashionable as clogs, but yesterday they seemed to find support from a curious source - the Monopolies and Mergers Commission. The MMC found that Scottish Hydro-Electric had been treated too harshly by Professor Stephen Littlechild, the electricity regulator, in his price review last year. Its report on Hydro, the result of the company's protests about last year's electricity price review, actually reduced the gains for consumers proposed by the regulator, admittedly by rather marginal amounts.

What, if anything, should the MMC's report tell us about what the professor will do to the distribution industry in his rethink of price controls, due to be published next month?

The MMC has no direct control over the regulator, but its position as the appeal body against his decisions gives it clout and could have an important indirect influence over what he does. Professor Littlechild will have at the back of his mind that if he pushes the companies too far, they could follow Hydro's example and go en masse to the MMC.

The MMC in fact accepted Hydro's main arguments in favour of changing the way cross-subsidies between different parts of its business are treated. Hydro is in many respects a special case with little relevance to the rest of the industry; unlike the regional electricity companies, it is a vertically integrated generating and distribution company with customers far and wide.

Even so, there seem to be some wider lessons. The MMC took issue with the regulator's decision to reduce the level of capital on which returns in the distribution business are based. This is mildly positive for Hydro, and perhaps also for the regional companies, if only because it shows that the regulator can be challenged successfully on important financial details.

The most important lesson, however, is that the MMC has also reduced the base level on which operating costs are calculated at Hydro. If this approach was transferred to the regional companies, it would be highly costly for them. It is perhaps dangerous to take parallels with the rest of the distribution industry too far. Even though Hydro seems to have come out on top, there is little in the report that would give comfort to the RECs, which can only expect to be dealt with extremely harshly.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Guru Careers: Communications Exec / PR Exec

£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral