National Power shares feel the chill of electricity price cuts

SHARES in the electricity generators fell sharply yesterday after National Power warned that new lower-priced contracts signed with the regional supply companies would wipe pounds 130m off its profits in the coming financial year.

The company said that it would be passing through pounds 230m of cost savings, of which pounds 100m resulted from lower coal prices, worth a total of pounds 12 off domestic bills and pounds 65 off the annual charge for a small business.

The reduction in bills has already been factored into the new two-year supply price controls which come into effect in April and will save the average household pounds 24. Generation costs account for 56 per cent of domestic electricity bills.

National Power said that the price reductions stemmed from increased competition in the generating market and harder bargains struck by the regional electricity companies (Recs) as they prepared for the opening up of the domestic market.

Shares in the group fell 31p to 587p, while PowerGen shares ended the day 29p lower at 803p.

National Power said that it had secured contracts covering all its expected generating output next year. Contracts with the Recs for domestic supplies account for about 70 per cent of its output and these have been signed up at a price of about 3p a unit.

The impact of the price cuts will be to lower National Power's profits from about pounds 740m in the current year to pounds 610m in 1998-99. A spokesman said the prices it had obtained were the best available.

The five-year "back to back" coal contracts between the generators and the regional electricity companies end this April. Under the contracts, National Power, PowerGen and Eastern have been able to pass on the costs of having to buy higher-priced British coal to the domestic market. In the current year, the average price paid by the generators is 148p a gigajoule. Next year it will fall to under 120p.

All three generators are taking much less coal next year from RJB Mining, Britain's biggest coal producer, prompting fears that as many as eight pits will have to close with the loss of 5,000 jobs. National Power has contracted to buy 8 million tons against the 10 million tons it bought in 1997-98. PowerGen has only contracted to buy 3 million tons.

A deal was brokered before last Christmas by the Paymaster General, Geoffrey Robinson, giving the threatened pits a three-month lifeline when contracts run out in April. But there is no sign yet of a solution that will safeguard the pits in the longer term.

Meanwhile, the industry regulator, Professor Stephen Littlechild, announced bigger penalties for supply companies that perform poorly, including an increased compensation payment of pounds 50 for customers who have their electricity cut off for more than 24 hours.

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