Utilities stand by to be politically corrected

Political considerations will dominate the energy sector in 1997. A change of government would have big implications for the privatised electricity companies and other former publicly owned utilities.

Labour’s proposed windfall tax would hit profits this year, but would not be as influential in the long term as its embryonic plans to change the regulatory regime by capping profits and distributing any excess between shareholders and customers.

In response, the electricity companies, particularly National Power and PowerGen, are likely to intensify efforts to broaden their international activities. The big two may also face political interference as they renegotiate their coal supply contracts: the current five-year deals expire at the end of March 1998. Labour has made repeated noises about curbing the dash for gas, but whether it will intervene to ensure a larger slice of the market for coal remains to be seen.

More takeover activity can be expected among the distribution companies, following trade and industry secretary Ian Lang’s clearance of the hostile bid for Northern Electric by the US-owned CE Electric. There will probably be some strategic tie-ups between generators and regional electric companies ahead of full competition in 1998.

Competition issues will be the focus of interest in the gas industry, too, as the Monopolies and Mergers Commission investigates the operations of TransCo, the transmission arm of British Gas. Independent suppliers could also come under scrutiny, following allegations of improper tactics by Eastern Gas to persuade customers to switch from British Gas.

Andrew Cavenagh