Southern Electric has joined forces with a top US utility to bid for power stations owned by National Power, the UK's largest generator. National is under pressure from the industry regulator, Offer, to help competition by selling about 4,000MW of capacity - the equivalent of two large power stations - or face a reference to the Monopolies and Mergers Commission.
Southern has teamed up with its namesake, Southern Electric International, which is based in Atlanta and both generates and distributes power. The Anglo-American partners are one of several groups which are in negotiation with National over plant sales. One consortium is said to involve companies including ICI, Blue Circle, BOC, Pilkington and Coal Investments. Other regional electricity firms are also believed to be in the running.
Both National Power and PowerGen, another leading electricity generator, have been resisting pressure to sell a plant and say they will not do so unless shareholder value is assured. The deadline for selling - or at least for convincing Offer that they have done their best to achieve disposals - is the end of this year.
Keith Henry, National's new chief executive, said last week: "We have had significant offers which we are evaluating. But to start with, we had some derisory offers.
"We would rather not do it, and we still have to persuade our board and shareholders that it makes sense. We are not encouraging an MMC enquiry, but if it has to happen, fine."
National argues that it needs substantial compensation for being asked to sell off market share. It has been accused in the past, by potential buyers, of demanding outrageous prices for its power stations.
One company source said: "We do not need the money. We have a very strong balance sheet. Selling 4,000MW is a very big deal and involves an awful lot of people." Two large power stations would typically employ between 700 and 800 people, he said.
Southern is keen to expand its generating interests to help replace earnings it will lose if the planned sale of the National Grid, which is owned by the 12 regional electricity companies, goes ahead. It owns 11 per cent of the grid and its share of the dividend has been contributing 10 per cent of pre-tax profits in recent years. Southern is unusual among the regional companies in not having turned to special dividend payouts and share buybacks to increase shareholder value. It is thought to have net cash of about £180m.
A source in the company said: "It is no secret that we view developing new business and replacing grid earnings as a more positive way of running the business than buying back shares."
Southern already has interests in power stations based on combined cycle technology at Barking, east London, and at Medway, Kent. It is also a partner in a combined heat and power plant at Derby. The company's aim is to have 15 per cent of operating profits coming from outside the core electricity supply operation by the end of the decade. To that end, it is also continuing its drive into areas such as electrical contracting.
and other utility engineering work.