Stephen Littlechild, director-general of Offer, warned that if the companies were seen to have breached his price cap, the matter might have to be referred to the Monopolies and Mergers Commission.
The prospectus, due for publication on Monday, will be put back for a week while lawyers and other advisers consider the implications of Professor Littlechild's statement. The prospectus already includes tracts on the regulatory threat facing the generators, and the timing of Offer's missive is thought to have infuriated government advisers. However, the Treasury said the overall timetable for the sale, due for completion at the beginning of March, was not affected.
Professor Littlechild's statement is in response to record surges in prices in the electricity trading pool over recent weeks. The increases do not affect household bills, as the regional electricity firms have contracts with the generators to hedge against volatility in wholesale prices. But they have seriously affected some large industrial users, including ICI, which buy direct from the pool.
Last year National Power and PowerGen gave undertakings that pool prices would keep within a cap of 2.4p per unit at October 1993 prices, averaged over the year. At one time recently the price peaked briefly at 63p and has regularly exceeded 40p, againstless than a penny when demand is lowest.
The generators say the main reason for the spikes are temporary closure of two nuclear plants because of problems with welds. This drop in generating capacity has meant National Power and PowerGen using plant that would not normally run but which may be needed to meet peaks in demand and for which they get extra payments. The so-called capacity payments for making plant available are on top of what the companies charge for generating power.
Professor Littlechild said he would look at prices at the end of the financial year, which falls in March. "If I were to conclude that either company had not complied with the price undertaking I should need to consider what steps to take. I should take account of all relevant considerations in deciding whether a reference to the MMC was appropriate." One issue to be looked at would be the generators' progress on his demands that they sell power plants to increase competition, he added. Neither company is thought to be near a sale.
Professor Littlechild has held three pool price inquiries in the past and has made it clear that he is worried about the power of the two companies in the marketplace. National Power said it had complied with all its undertakings to the regulator. PowerGen reiterated that the price hikes were not something it could control.Reuse content