The Electricity Industry (Hansard, 24 October 1995)

§ The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)
My Lords, the Government made it clear at privatisation that when their special shares expired the regional electricity companies would be exposed to the disciplines and opportunities of the market, including mergers and acquisitions.

§ Lord Ezra
My Lords, does the Minister recall that his right honourable friend Mr. Ian Lang recently stated, as reported in the press, that at some stage an accumulation of mergers:
may impede the electricity regulator's ability to carry out his duties."? In view of the fact that more than half of the regional electricity companies have been the subject of mergers or take-overs, and more are in the offing, will the Minister consider that the stage referred to by his right honourable friend has now been reached? Is he aware that on this issue the existing regulator has expressed grave concern on a number of occasions?

§ Lord Fraser of Carmyllie
My Lords, the existing policy on referrals to the MMC is the policy that has been followed since 1984; namely, that any referrals should be on competition grounds on a case-by-case basis. I believe that to some extent the noble Lord misinterprets what my right honourable friend the President of the Board of Trade said. He indicated that, where consideration was to be given to mergers between the regional electricity companies, there were particular factors to which he would pay attention. Those include the extent to which the regulatory power of the director general might be adversely affected if such a company were subsumed within a larger group; the extent to which there was a loss of comparators; any adverse effects of vertical integration; and the extent to which any of those adverse effects might be remedied by disinvestment. It would not be right for me or for my right honourable friend the President of the Board of Trade to determine that no further mergers were to take place. Each one should be considered on its particular merits.

§ Lord Taylor of Blackburn
My Lords, in view of what the Minister has said, does he not believe that there is a case for the take-over bid for North West Water by Norweb to be considered by the Monopolies and Mergers Commission?

§ Lord Fraser of Carmyllie
My Lords, I am dealing with a question about the transparency of the electricity industry. However, I have indicated a broad general 966 policy and, clearly, many aspects of that policy would also be applicable if there were to be mergers with water companies.

§ Lord Taylor of Gryfe
My Lords, will the Minister comment on the bids and the prices that are being offered in those take-overs? Will he talk to his merchant bank advisers who gave the original substantial undervaluation of those public assets?

§ Lord Fraser of Carmyllie
My Lords, there may be an argument to say that at the time at which the privatisations took place, there were those who had a particular interest in trying to talk down the value of those companies. I certainly do not think that that is correct. As the noble Lord will appreciate, I must resist commenting on any one of the proposals for take-over or merger because there are proper procedures to be followed. The Director General of Fair Trading, following on the advice that he receives from the electricity regulator, gives independent and impartial advice to the President of the Board of Trade who then takes the decision whether or not to make a referral.

§ Lord Haskel
My Lords, does the Minister agree that the main effort of the Government to introduce competition into the electricity market was by introducing the spot market; and that has failed? Instead of driving down the price of electricity, as the Government promised, it has increased it to such an extent that the regulator has been forced to cap it. Does the Minister agree that, had the regulator not capped that pool market for electricity, the price would have risen to such a level as to make the energy costs of British industry uncompetitive?

§ Lord Fraser of Carmyllie
My Lords, it is rather extraordinary to put the matter that way round. Of course we recognise that there is a role for the regulator to play, and one of those roles is in relation to price. But the noble Lord should have drawn attention to the fact that domestic electricity prices have fallen by some 7 per cent. in the past two years and are expected to drop by a further 3 per cent. in real terms over the next year. Industrial prices have fallen by some 6 per cent. Furthermore, next year, once the National Grid has been floated, every consumer will receive a £50 rebate.