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Modification of public electricity supply licences following takeover: response to consultation by the office of electricity regulation
11/02/1999
ISSUED ON BEHALF OF THE OFFICE OF ELECTRICITY REGULATOR
OFFER today published its response to a consultation on further modifications to the licences of public electricity suppliers (PESs) which have been subject to takeovers.
The main points are:
· where a PES has been taken over by another company having interests in generating plant, such that its own-generation limit would be breached, the generation business should be held by an affiliate which is not a subsidiary. In such cases, the generation business should be placed outside the PES's financial ring-fence;
· the present provision allowing PESs to carry on certain activities, provided they do not exceed five per cent of aggregate turnover, should be restricted further by introducing an additional test based on cumulative investment;
· PESs should be required to seek and maintain investment grade credit ratings;
· cross default provisions should be prohibited in any borrowing agreement; and
· dividend payments should be conditioned on the PES's directors being satisfied that the PES has compiled with the ring-fencing conditions in its licence.
BACKGROUND
1. Copies of the paper are available from the OFFER Web-Site, and the OFFER library on 0121 456 6377/6355.
2. OFFER published a consultation paper on February 24, 1998, proposing further modifications to be made to the licences of PESs that had been taken over.
3. Since the publication of that paper, there have been a number of significant developments affecting various PESs. These have included further changes to ownership of East Midlands Electricity, the merger of Scottish Hydro-Electric and Southern Electric, the announcement by Midlands Electricity to separate and divest it's supply business; and the announcement by both ScottishPower and The National Grid Group of major overseas acquisitions.
4.All of these cases have given rise to concerns similar to those which the ring-fence conditions are designed to safeguard.
Media Enquires:
OFFER Press Releases can be accessed on the Internet at:
http://www.coi.gov.uk/coi/depts/GER/GER.html
OFFER Web-site at: http://www.open.gov.uk/offer/offer.htm
Ofgas Press releases can be accessed on the Internet at:
http://www.coi.gov.uk/coi/depts/GAS/GAS.htm
Ofgas Web-Site at: http://www.ofgas.gov.uk/
News Release: AG030/99
11 February 1999