The Grid dispute has been given a new twist by the declared intention of Professor Stephen Littlechild, the director-general of the Office of Electricity Regulation, to toughen the pricing regime of the RECs.
Last August, Professor Littlechild ordered a cut of between 11 and 17 per cent in electricity prices by next month, with increases being held to 2 per cent below the rate of inflation thereafter. But last week, after a large increase in REC share prices and the Trafalgar bid for Northern, he indicated that he wanted to lower that ceiling. This has made nine of the RECs keen to float the Grid as quickly as possible - to deny themselves the income that it produces.
That way, the nine argue, they will appear less well-off and Professor Littlechild might treat them more leniently. The Grid is expected to be valued at £5bn on the stock market, although there have been intense negotiations between the RECs and the Government over how that money should be divided between the 12 companies, their shareholders and consumers.
But the other three RECs, understood to be Yorkshire, Eastern and Southern, are arguing that it is more sensible to forget the Grid for the moment and concentrate on persuading Professor Littlechild to lower the price ceiling by as little as possible. This has been characterised by the majority as a "sod shareholders" attitude, in which "petty point scoring" is being allowed to obscure what they see as the real issue.
Last week, Kenneth Harvey, chairman of National Grid Holdings, warned that the Littlechild declaration "must now put into question the whole issue of whether or not we should float the Grid. There may be very good reasons to proceed, but the financial implications of a new distribution review will need to be taken into account".
The Grid became a key issue in Northern's defence against Trafalgar's £11-a-share bid, which lapsed on Friday despite receiving 82 per cent acceptances by the 1pm deadline, because Trafalgar argued that the Littlechild intervention meant that Northern was no longer worth so much. Until then, Northern planned to distribute some of its Grid bounty to shareholders.
Under Takeover Panel rules, Trafalgar must wait a year after one bid fails before it can launch another - unless Northern's board consents.
Simon Keswick, the Trafalgar chairman, faxed a letter on Friday morning to David Morris, his counterpart at Northern, asking for permission to launch such a new bid valuing the company at £1.06bn, or £9.50 a share. The reply, delivered over Stock Exchange screens at 5:30pm that day, was in the negative.
"What Northern's board has done is to deny their shareholders the chance to consider a £9.50 bid when their shares are trading at £8," a spokesman for Trafalgar said at the weekend. "You can expect to see a lot of incensed shareholders."
Only court action by Northern shareholders challenging the board's execution of its fiduciary duties could force consideration of the offer. "I understand some of the shareholders may take it to court," said the Trafalgar spokesman.
If the renewed bid does not go ahead, Trafalgar still has the option of bidding for one of the other RECs. Its other choice, to wait a year before making a second attack on Northern, would leave it holding about £220m in tax credits that it had hoped to offset against the electricity company's UK cash stream.
Another victim of Professor Littlechild's shock decision could be the Government, which faces legal action from investors in the National Power and PowerGen flotation.
At least two writs have already been filed by small investors.