Scottish Hydro set to reject Littlechild's price formula

Professor Stephen Littlechild, the electricity regulator, is facing renewed confrontation with the industry over his "final" price controls for next year. At least one supplier, Scottish Hydro-Electric, is poised to reject the regime, risking a lengthy investigation by the Monopolies and Mergers Commission.

The company's board will meet next week to decide its formal response to the plans but executives have warned privately that they could not accept the formula "unconditionally". Another supplier, one of the largest regional electricity companies (RECs), also said yesterday it was concerned about signing a "blank cheque".

Scottish Hydro remains unhappy with the amount of cash Professor Littlechild has allowed the industry to spend to introduce domestic competition next year. The formula allows for a combined total of pounds 500m to be added to customer bills to fund computer systems, but the companies had previously asked to pass through pounds 850m. Scottish Hydro would only be able to recover about half the pounds 60m it says it is spending to prepare for 1998.

New operating licences also assume that the companies have already legally agreed some of the technical arrangements for the introduction of competition, when many have yet to be finalised. Scottish Hydro believes it would be difficult to accept the new licences before these arrangements are in place, a process which could take several more weeks.

The companies were given until 14 November to accept or reject the proposals, but the regulator has said he is unlikely to alter the package. However, the companies believe Professor Littlechild could not afford to risk a probe by the MMC, which could delay the opening up of the domestic market next April. A spokesman for Offer, the watchdog, said it was still in discussions with the companies.

The final price formula would see an average pounds 270 residential power bill drop by 9 per cent over two years from next April. It has caused controversy because the 12 RECs and two Scottish supply companies would not be able to pass through higher generation costs to consumers.