Anger as Eastern and London power merger threatens 800 jobs

A FRESH wave of merger mania is in prospect across the electricity industry after Eastern and London, two of the country's biggest suppliers, yesterday unveiled plans to combine their distribution businesses with the loss of 800 jobs.

London Electricity, which is owned by Electricite de France, and Eastern, which is controlled by the US energy group TXU, forecast that the link- up would produce "significant and substantial" cost savings.

But they ruled out passing on any of the benefits to consumers in the shape of further reductions in electricity bills on top of those already promised.

The two foreign-owned companies also said they were confident the deal would not be blocked by the industry regulator, Callum McCarthy of Ofgem, claiming he had given it a "warm welcome" when told of the plan last week.

However, an Ofgem spokesman disputed this, saying: "It is true to say we are pleased they told us what they intended to do in advance, but we have certainly not warmly welcomed this."

A fortnight ago Mr McCarthy said he was likely to refer any merger between electricity distribution businesses to the Competition Commission. He warned they could cause "detriment" to competition and to offset this customers should share in any efficiency gains achieved.

But London and Eastern claimed their agreement did not amount to a merger since the physical assets, operating licences and income from supply businesses would be kept separate. The two companies are to create a 50:50 joint venture company serving more than five million customers. The move is likely to lead to further consolidation across the electricity industry as rivals seek to cut costs by merging.

The deal will result in a quarter of the 3,200-strong workforce in the combined business losing their jobs. The public service union Unison condemned the move as "a shocking blow to staff just before Christmas and a cut too far for customers".

Bruno Lescoeur, chief executive of London, said the two companies had informed Mr McCarthy of the deal last week, saying it would enable them to achieve the cost reductions demanded by the regulator in his latest set of price controls.

Eastern must cut domestic bills by pounds 20 each next year while customers of London will enjoy a pounds 13 reduction in charges.

Initially, the deal will be vetted by the European Commission because of the size of the two parent companies but UK competition authorities will have a strong case for claiming their right to make a final decision.

Mr Lescoeur said: "We do not anticipate any problems with regulators in Brussels or the UK." However, Ofgem said the deal raised some "tricky" issues and it was seeking more information from the two companies before reaching any decision.

Ofgem has calculated that any merger between two electricity distribution businesses should yield savings of at least pounds 12.5m. Philip Turberville, chief executive of TXU Europe, indicated that the savings expected were far in excess of this. In the long term, the joint venture would be interested in other electricity distribution businesses and water companies.

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