ELECTRICITY regulator Stephen Littlechild yesterday threatened to refer National Power and PowerGen to the Monopolies and Mergers Commission (MMC) unless they sell off more coal-fired power stations to improve competition in the generation market.
He accused both companies of using their dominant share of the power market in England and Wales to drive up wholesale electricity prices over the unusually mild winter.
And he demanded that both transfer more coal generation capacity into the hands of competitors ''who may be expected to use it more actively to compete''.
Scottish Hydro-Electric immediately declared itself a potential buyer, but ScottishPower expressed only mild interest in acquiring second-hand coal-fired power stations south of the Border.
PowerGen has already volunteered to divest 2000 megawatts of coal-fired capacity to smooth the way for regulatory acceptance of its proposed #1900m acquisition of East Midlands Electricity.
But Littlechild said yesterday this did not go far enough and he was still unhappy with the idea of the generator buying a regional electricity company.
The Conservative administration of John Major vetoed an earlier attempt by PowerGen to buy Midlands Electricity two years ago with Littlechild's backing. It also blocked a similar bid by National Power for Southern Electric.
National Power, the UK's largest generator with a 21% market share, responded defiantly to Littlechild's latest broadside. A spokesman said yesterday the company would staunchly resist any attempt by the authorities to trim further its remaining 15,000-megawatt capacity in the UK.
Littlechild's tough comments followed last week's statement by Trade and Industry Secretary Margaret Beckett, urging National Power and PowerGen to sell off more of their coal-fired power stations.
Between them the two companies transferred 6000 megawatts of generating capacity to Eastern Electricity two years ago to meet government concerns over the lack of competition in the generation market.
But this still left them controlling 40% of the UK's electricity output and Littlechild's Office of Electricity Regulation (Offer) made clear yesterday that this was too much.
It accused both companies of pushing up wholesale electricity prices substantially last winter by bidding higher prices into the English and Welsh electricity pool and running less plant to meet demand.
The upshot was that regional electricity companies had to pay 1% more in real terms for power purchased from the pool, after enjoying price cuts for the three previous years.
Littlechild said this was not good enough and called for ''a diversity of new owners so as to maximise prospects for competition''.
The regulator also warned National Power and PowerGen that he wanted to see a ''clean sale'' of power stations without any earn-out arrangements attached.
''Voluntary disposal within a short time would be preferable, but a reference to the MMC should not be ruled out,'' he added.
His comments sent National Power shares plunging 13.5p to 564p, while PowerGen fell 30.5p to 828p.
Scottish Hydro Electric said it would look closely at any opportunity to buy a coal-fired power station south of the Border to supplement the output of its gas-fired power stations in England and Wales.
A spokeswoman said: ''We will certainly look with interest to see what they put on the market.
''We have got a very diverse (generation) portfolio just now and we would like to maintain that. Getting some coal into it would definitely be in our interest.''
But ScottishPower, which already owns two coal-fired power stations in Scotland, was cooler about the prospect.
Officials said the multi-utility would certainly look at anything that came on the market in the UK, but it was more focused on acquisition opportunities in North America.
National Power is also expanding overseas. Yesterday it announced plans to invest #45m in a power generation project in Kazakhstan.
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