National Power plans RECs supply venture

National Power, the country's biggest generator, is in negotiations with three regional electricity companies and a leading supermarket chain to create a combined electricity supply business when the market is opened to competition in 1998.

Keith Henry, chief executive of National Power, said he expected to sign an agreement by next spring. The deal could involve the generator taking a direct equity stake in the supply company or agreeing a long-term alliance to sell electricity to the venture.

Professor Stephen Littlechild, the electricity industry regulator, is expected to publish guidelines soon setting out his views on what role the generators should be allowed to play when the electricity supply market is liberalised.

PowerGen, the rival generator, is also talking to a number of RECs with a view to entering the supply market directly. Both National Power and PowerGen were blocked by the Government from buying RECs earlier this year.

But a deal with the supply businesses of the RECs would give both generators access not just to regional electricity markets but all of Britain's 22 million domestic customers.

"We are talking to RECs that are both still independent and part of larger groups. We don't want to go charging into the retail electricity market on our own," Mr Henry said.

He declined to name the RECs that National Power was talking to or the supermarket group. However, Safeway has been rumoured to be interested in a deal to sell electricity.

Mr Henry was speaking as National Power disclosed that last year's attempted takeover of Southern Electric and its defence against a planned bid from a US utility had cost the company pounds 57m. Of this, pounds 52m relates to the exceptional loss National Power has taken on the 8 per cent stake it bought in Southern Electric at the time of its bid. It paid 960p a share compared with Southern's price of 615.5p on 30 September.

The remaining pounds 5m relates to fees charged by advisers, mainly its bankers, Schroders, during the offer for Southern and the defence against a potential bid from the Southern Company of Atlanta, which was also blocked by the Government.

The exceptional losses cut National Power's profits for the half-year ended September by 24 per cent from pounds 254m to pounds 194m.

Pre-exceptional profits were also down marginally at pounds 251m owing to a decline in National Power's market share from 30 to 27 per cent following the pounds 1.7bn sale of 4,000 megawatts of plant to the Hanson-owned Eastern Group. Its first half in 1995 also included an extra week's trading.

The decline in UK profits was offset by a jump in overseas earnings from from pounds 6m to pounds 23m. The company is forecasting that its international businesses will contribute pounds 70m in post-tax profits for the full year and pounds 145m in 1997-98.

National Power has so far invested pounds 900m in generating projects in Australia, Pakistan, the US, Turkey and China and is prepared to spend at least pounds 800m more on a big overseas acquisition if the right opportunity presents itself.

A fifth of its 4,500 staff are based overseas where it has interests in 7,500 megawatts of capacity compared with its 16,000 megawatts of UK generating plant.

The company expects its UK market share shrink to 25 per cent this year compared with 32 per cent in 1995.