Comparisons in the generation game

If there is one area where competition seems to be really effective in the electricity industry, it is the setting of dividends. Investors were treated yesterday to the sight of PowerGen and National Power vying for the largest increase, with NP winning hands down with a promise of 24 per cent. There was much speculation about their motives, and even a suggestion that the discrepancy in the payout was part of an uninentional muddle. Both companies are planning share buybacks on a similar scale, so that does not explain the difference. It is also hard to justify on performance grounds alone.

One theory was that National Power was simply reacting to PowerGen's glossier image among investors by stealing a march on the dividend front.

On most grounds, the two companies' long-term prospects are equally attractive. The generosity of the dividends confirms, as if proof were needed, the power firms' ability to rake in money from a semi-protected market, whose price regime has conspicuously failed to set enough of a market discipline.

The regulator, Professor Stephen Littlechild, is attempting to tighten up, by pressing for the sale of some power plants and by belatedly having another go at prices charged to customers. Lurking in the background is the threat of a reference to the Monopolies Commission if he finds there is not enough will to change.

But it would take several years for the impact of a reference to work through.

In the meantime, the power companies are discovering that high dividends now overcome a lot of their investors fears about the future.