Southern Electric promises price cuts in water bid battle

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The Independent Online
Southern Electric yesterday promised price cuts of around pounds 10 a year to customers of Southern Water if its pounds 1.6bn bid for the water supplier is successful. The offer to ameliorate price increases by up to 4 per cent of over the next three years compares with a 3 per cent reduction over two years being offered by rival bidder Scottish Power.

Southern Electric, which also announced it was cutting bills for its own customers by 4 per cent, said it hoped the reductions would set its deal "on the start of the road to clearance" by the water regulator, Ofwat. Henry Casley, chief executive, said: "We are not counting any chickens as far as this is concerned. We are optimistic, but not complacent. We will continue the dialogue with the regulator and with the Department of Trade and Industry and hope that leads to eventual clearance."

Scottish Power dismissed the move, which accompanied the publication of Southern Electric's offer document. A spokesman for the Glasgow-based group said: "This document shows Southern Electric's concerns about the competition we will bring to the region. We recognise the importance of a customer dividend. It is interesting to note they are following our lead."

Southern Water is already committed to raising its bills by 1 percentage point less than than the 8 per cent over inflation allowed this year by the regulator. The REC says it will continue the water company's policy of keeping prices below the permitted level, cutting 4 points off the 20 per cent allowed above inflation by 1999.

Southern chairman Geoffrey Wilson claimed in a letter to Southern Water shareholders that the electricity company's bills had fallen by nearly 13 per cent over the past five years, equivalent to a saving of pounds 40.

The documents show that directors of Southern Electric made substantial option profits in January, with Mr Casley leading the way with a paper profit of nearly pounds 195,000 on the exercise at 446p. He subsequently sold half the resulting shares at 898p.

The bid of pounds 6,311.24 in cash plus 526 new Southern Electric shares values Southern Water shares at pounds 10.02, a 5.9 per cent premium over Scottish Power's competing offer, the documents claim.

The news came as London Electricity chairman Sir Bob Reid issued a warning that any extra taxation on utilities imposed by a Labour government could hit much-needed investment. Threats of a windfall tax did not contribute to the stable fiscal environment required to ensure the steady flow of funds to finance investment, he said.

London announced pre-tax profits of pounds 276m for the year to March, up from pounds 172m before. But stripping out the holding in the National Grid, distributed as a dividend to shareholders last year, and exceptional items, underlying profits were down 5.5 per cent to pounds 183m and disappointed analysts.

Sales of electricity rose 5.2 per cent last year, reflecting signs of revival in the capital's economy, the group said. The improvement has continued into the first part of the current year, with sales increasing by more than 5 per cent.

London has made a pounds 4.5m provision to cover the effect of highly priced North Sea supply contracts on its joint venture gas operation with the French oil group Total.