View from City Road: Tough package of not much
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Your support makes all the difference.On the face of it, Professor Stephen Littlechild has delivered a tough package to National Power and PowerGen in return for not referring them to the Monopolies and Mergers Commission. On closer inspection it is less clear that his measures - the sale of substantial amounts of power plant and a reduction in electricity pool prices of up to 7 per cent - will make much difference to the companies at all.
National Power and PowerGen may well have said they will endeavour to sell 15 per cent and 10 per cent respectively of their generating capacity by December 1995. But talks over plant sales have in the past foundered on the issue of price and neither company is prepared, regulator or no regulator, to be forced into a fire sale. Whether the latest undertaking makes any difference at the end of the day is up to potential buyers, and there is still no guarantee that they will agree with the generators on price.
Then there are the pool price cuts that the generators must make, which, Professor Littlechild says, will save customers pounds 500m. But it is the state-owned Nuclear Electric - keen to be privatised - that will take the lion's share of the damage to profits as it is heavily affected by prices in the electricity pool. Both Nuclear Electric and other independent generators are deeply aggrieved at this attack on their profits as a result of a clampdown on National Power and PowerGen.
British Coal, now on a fast track to privatisation, is another bystander that has wandered into the line of fire. It is unclear what will happen to British Coal's contracts with National Power and PowerGen if they sell up to six large, coal-fired power plants, which is what Professor Littlechild wants.
The two big generators may lose some money over the next two years, but not enough to worry shareholders, and they will still have considerable market power. They have also gained a period of certainty, which gives the Government the chance to sell its remaining 40 per cent stake.
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