Tough price curbs knock NI Electricity

A much tougher than expected price regime for Northern Ireland Electricity was unveiled by the regulator yesterday, promising a pounds 40 cut in bills for consumers, but sending the share price plunging by 13 per cent.

The shares dropped 53p to 353p. And the company will face an investigation by the Mon-opolies and Mergers Commission (MMC) unless it agrees to the price formula by the end of this month. The five-year price-cap proposed by the regulator, Offer (NI), would slash Northern Ireland Electricity's income from the core electricity transmission, distribution and supply business by 30 per cent from next April, reducing revenues by more than pounds 60m. In addition, prices could rise by no more than inflation minus 2 per cent.

The formula translates into a cut of pounds 40 off bills of pounds 330, in Northern Ireland. The average bill in England and Wales is pounds 270. NIE argues that it is being unfairly penalised, given that 60 per cent of household bills go to pay four, privately-run generators. Offer (NI) has already threatened to take thegenerators to the MMC.

The regulator argued that the current price-cap, which allows bills to rise by inflation plus 3.5 per cent, was too generous. Last year NIE profits surged by 23 per cent to pounds 107m, compared with pounds 75m between 1993 and 1994, the first year for the company on the stock market.

Charles Coulthard, the deputy director general of Offer (NI) said: "They can either say `no' and it will be the MMC, or `yes', in which case we get on with the price controls. We consider the existing price controls totally inappropriate. If they disagree, we must refer them to the MMC."

Mr Coulthard insisted that the new price cap would still allow sufficient cash to enable the company to increase dividends by more than inflation.

Dr Patrick Haren, the chief executive of NIE, said that investment would have to fall by about pounds 70m a year, which could damage customer service. He said a final decision on whether to risk an MMC referral would be taken in a few weeks. "At the end of the day, a company doesn't set itself up to manage MMC referrals," he said.

Scottish Power, meanwhile, has lost a High Court challenge against Offer as to whether or not its price controls should use the same formula as that applying to Scottish Hydro. The firm is considering an appeal.