Power price control 'too tough'

MARY FAGAN

Industrial Correspondent

Scottish Hydro-Electric won a modest victory over the regulator, Offer, following a proposal by the Monopolies and Mergers Commission that said price controls were too tough. The results of an MMC inquiry, published yesterday, would allow Hydro-Electric an extra pounds 5m profit a year compared with a formula put forward last year by Offer.

The report failed to dampen fears about regulatory uncertainty in the electricity industry, with the 12 regional electricity companies still awaiting the outcome of their own price review. Shares in the sector fell relative to the market. Hydro-Electric shares were down 6.5p at 336.5p.

There was some confusion as to how the MMC proposals - yet to be translated into price controls by Offer - would help customers. Offer said the average household would save pounds 57 over three years under the MMC plan compared with its proposal of pounds 70. But Hydro-Electric calculated that the reduction would be about pounds 35 over three years, based on an average pounds 400 bill.

Professor Stephen Littlechild, Director General of Offer, said: "I do not think this is too different to my proposals, although there are some differences in the detail." He said he would consult with the industry before implementing any changes.

Professor Littlechild said he would consider the implications of the report in his review of electricity distribution prices in England and Wales, due for completion in July. He said it is too soon to draw any conclusions, but pointed out the MMC had confirmed his view that seven per cent of return on assets is "reasonable".

Roger Young, chief executive of Hydro-Electric, said: "If the regulator accepts the MMC's proposals, our customers in the north will continue to enjoy falling real prices while receiving the rising quality of supply they deserve."

He said the key issue was not the overall profit but the MMC's acknowledgement that Hydro should be allowed to invest more in upgrading its wires than Offer said. The MMC has also agreed a transfer of pounds 29.2m a year for five years from the generating business to the distribution business to help fund this investment programme.

Mr Young said that should Professor Littlechild not stick to the spirit of the MMC report, the company might seek a judicial review of new price controls.