Offer warned of price breach

Offer, the electricity regulator, was warned weeks ago by generators and their customers that wholesale electricity prices could breach the maximum allowed limit this year.

The warnings were followed by a surprise announcement from Offer last Friday that it may launch a price enquiry, and this knocked off-course the Government's pathfinder prospectus for the £4bn sale of shares in National Power and PowerGen.

The timing of the pricing announcement took the Treasury by surprise, causing acute embarrassment and costing thousands of pounds in rescheduling of printing arrangements. The intervention by the generators clarifies what is thought to have been an arbitrary and disruptive move by the regulator.

Professor Stephen Littlechild, director general of Offer, is thought to have delayed the statement in the hope that problems with nuclear power stations, which have caused recent surges in electricity prices, would have been resolved earlier than was thecase. The eleventh-hour threat of a pool price enquiry has had Government lawyers working feverishly to analyse the implications for the sale and changes needed in the prospectus with a view to publishing next Monday.

The Treasury is also thought to be putting pressure on the generators to clarify what they are doing to meet their undertakings keep prices in the electricity trading pool within the cap.

One source in the electricity industry said that the Treasury had totally underestimated Professor Littlechild in thinking he would not act in a way which might upset the sale. "With the prices we have seen in recent weeks, and obvious concern in the industry, he is going to have to do something."

Another industry source said that Professor Littlechild feels that the market is "too sanguine" about what he will do in future. "People are being asked to spend £4bn. The regulator holds the view that the companies' shares do not at present reflect the regulatory risk. There is concern about the general lack of concern over regulation down the track."