Watchdog casts fresh doubt on Energy sale

A fresh shadow was cast over the flotation of British Energy last night after ScottishPower warned that it might re-open a key nuclear electricity contract with the generator.

The warning followed an announcement from the industry regulator, Professor Stephen Littlechild, calling for price cuts of between 3 and 5 per cent for business and industrial users north of the border.

The director general of Offer criticised ScottishPower and the other Scottish generator, Hydro-Electric, saying there was too little competition and warning that failure to reach agreement on price cuts would lead to a referral to the Monopolies and Mergers Commission .

But ScottishPower and Scottish Hydro, which dominate electricity supply in Scotland, dismissed his claims and said the best way to cut prices would be to renegotiate the contract with Scottish Nuclear, part of British Energy, under which they are forced to buy nuclear-generated electricity at above market rates until 2005.

That would put a big question-mark over British Energy's privatisation, as the company supplies half the electricity used in Scotland and any reduction in prices is likely to have a significant impact on profits.

Offer yesterday denied that its intervention now had been to get round a "gagging order" to be included in British Energy's pathfinder prospectus due to be published on Monday. A spokeswoman said Professor Littlechild would not be gagged, but admitted that the prospectus would contain a list of forthcoming statements from Offer and a warning that he retained the right to deal with unforeseen events.

In a statement, the regulator said that customers, suppliers and others had expressed concern about the development of electricity competition in Scotland, highlighting the lower penetration of suppliers to the business market than in England and Wales.

The practice under which the two Scottish companies were meant to make electricity available to alternative suppliers at the current pool- market price was not working, he said, and was therefore no longer appropriate.

He therefore proposed that the price of electricity bound for the competitive second-tier market should be based on a formula which in England and Wales resulted in a level around 6 per cent lower than the pool selling price.

In Scotland, customers in the competitive market could expect to see cuts of between 3 and 5 per cent.

The move angered the two Scottish companies, as they will continue to be forced to buy the highly priced nuclear-generated electricity but suffer selling price cuts which they are unable to recover from customers due to increased competition.

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