Outlook: Power play

Outlook: Power play

FROM THE moment Electricite de France won the auction for London Electricity, it was clear the French would not stop there. Buying the capital's power supplier from Entergy of the US was merely the hors d'oeuvre. Now it is choosing the main course. What about Drax as an entree with a small helping of Seeboard on the side?

The French want to make a feast out of the liberalisation of the UK electricity market and, as luck would have it, there is no shortage of diners leaving the table. The Americans swallowed up more than half the industry and ended up being over here, over paid and over-leveraged.

Entergy's indigestion, brought on by the chronic pain of an overloaded balance sheet, was cured by offloading London to EdF and the French taxpayer. Other American buyers are now looking for a similar exit. Southern Company from Atlanta, Georgia has hoisted the for sale sign over Sweb and the Texans from Central & South West would not shed a tear if Seeboard disappeared from its portfolio either.

But the auction does not stop there. Hyder and United Utilities have discovered that the multi-utility strategy has its limitations and have put Swalec and Norweb on the market, or at least bits of them.

EdF has deeper pockets than most and does not have to worry about placating private investors. Nor does it have to worry about its domestic market being invaded through the cross-Channel interconnector. However competitive the UK generating scene becomes, it will not be enough to displace subsidised French nuclear power.

Drax would be a big mouthful, even for EdF, but there is no shortage of bidders looking for someone to partner with. Seeboard, which sits next to London on the map, would make a cosy fit, even though it would represent the first merger between two supply businesses, and might therefore encounter regulatory problems.

In its dreams, EdF sees itself as one of perhaps five big integrated UK energy suppliers, owning15 per cent of both generation and supply and nicely placed to hedge its exposure to both.

How far the French can go rather depends on whether there is the will to stop them. EdF would never have been allowed to get this far under the old Lilley doctrine, which forbade back-door renationalisation by state-owned foreigners. But with