Taxpayer faces massive bill for power shake-up upup

The Government may be faced with a bill running into millions of pounds if it is to meet its target of allowing all 23 million domestic electricity customers to choose their supplier from 1998, it emerged yesterday.

Industry officials have warned that if competition is introduced on a trial basis before 1998 in the way that it has been in the gas industry - then it may result in large compensation payments to RJB Mining, headed by Richard Budge, which took over the English coalfields a year ago.

The problem arises from the so-called "back-to-back" contracts signed between British Coal, the two electricity generators, National Power and PowerGen, and the 12 regional electricity companies at the time of privatisation.

Under these the generators are contracted to buy about pounds 900m of coal a year from RJB Mining until April 1998. All the electricity generated from the coal is then sold to the Recs to satisfy demand from the domestic market.

If the market is opened up to competition on a trial basis before 1998 the Recs may lose some customers. The knock-on effects would be reduced demand from the generators and a reduced requirement on their part for coal.

Officials at the Office of Electricity Regulation said yesterday that in such circumstances the Government would have to step in and compensate the industry.

This is one of the reasons it may not be possible to run pilot trials before April 1998, placing a question mark over the Government's ability to meet its deadline.

Professor Stephen Littlechild, the industry watchdog, insisted yesterday that the industry was "on track" to meet the target of liberalisation in 1998. He said he expected all the main elements needed to create the structure for competition to be in place within the next month. This would enable rival Recs and other suppliers to test their systems for supplying customers in regions other than their own and settle accounts within the electricity pool, the wholesale market for England and Wales.

However, many industry observers believe that the Government and the regulator have set themselves too formidable a timetable.

Professor Littlechild conceded it was "tight" but achievable. But one large generator said it did not see how the target date could conceivably be met.