Electricity firms see mergers

The expected clampdown on electricity distribution prices by the regulator, Offer, could spark mergers and acquisitions across the industry, according to Southern Electric.

Henry Casley, chief executive, said the "tighter the screw", the more companies would have to cut jobs or seek a partner to achieve economies of scale. Mr Casley said Southern had made it clear it would welcome talks on a merger. But he added: "The silence has been deafening." He said everyone in the industry was waiting for the announcement on prices by Professor Stephen Littlechild, director-general of Offer, which could come as early as next week.

Southern, one of the largest regional firms, also echoed calls made by Eastern Electricity for a tougher regime for the smaller regional firms. Southern and Eastern complain that the small companies were given an unfair financial advantage at privatisation and that they often have the highest domestic charges. Mr Casley said: "Professor Littlechild should punish the guilty not the innocent."

Professor Littlechild has been highly secretive about the new price controls. But Southern said that the prospects of them being so onerous as to force the entire industry to the Monopolies and Mergers Commission is "incredible", particularly in the light of government plans to sell the nuclear industry.

Southern announced a drop in pre-tax profits to pounds 202m in the year to 31 March from pounds 222m the previous year after a pounds 50m charge related to the disposal of the retail arm. The underlying profit rose by 13.6 per cent to pounds 252.1m and earnings per share increased by 12.2 per cent to 71.8p. The total dividend for the year is up 25.6 per cent to 28.5p.