Leading Article: Use your power to refer, Mr Lang

A new revolution is sweeping the electricity industry. The company structure set up during privatisation in 1990 is being transformed amid a wave of takeovers. As shares are traded at great profit, electricity users - and taxpayers who feel their assets were sold too cheaply - are asking: "What can be done?"

Yesterday's announcement of the latest bid brings matters to a head. PowerGen, the electricity generator, has agreed terms for taking over Midlands Electricity, which distributes and supplies power. Great news for Midlands' shareholders: they stand to make a fortune. But the deal creates a potentially cosy arrangement between PowerGen and Midlands that could keep costs high, provide protection from competition and render accounts opaque to the electricity regulator. The consumer could come out badly.

Yesterday's announcement is one of several similar moves in the past few weeks. Bids are under way for the takeover of four other regional electricity companies. It cannot be long before some of the remaining seven are subject to tempting offers.

So far Ian Lang, President of the Board of Trade, has cleared three bids. But the rapid pace of acquisition and the nature of the two deals awaiting his imprimatur should make Mr Lang rethink his strategy. The PowerGen- Midlands deal represents a threat to competition. The possible takeover of Norweb by North West Water also poses fresh issues. It is the first cross-utility deal and raises competitive questions since the two utilities share the same customers.

Mr Lang should refer both deals to the Monopolies and Mergers Commission. We need a pause for breath as a competent authority takes an informed look at current changes. An MMC referral might also force the Government out of its increasingly embarrassed silence to make clear its preferred structure for the electricity industry.

But these moves would not be a complete solution. The MMC is in no position to ensure that the consumer and taxpayers share in the boom that many shareholders in the electricity industry are enjoying.

There have been calls for a windfall tax on cash-rich utilities. This may be tempting and would certainly be popular. But it would be extremely difficult for the Government to justify such a tax. Being retrospective, such a levy would be condemned as a breach of contract, like trying to get a higher price for a car years after you sold it. Taxpayers may have to live with their sense of loss.

Consumers are a different matter. There is an urgent need to revamp the regulation of the utilities. That much became clear last week when the water and electricity regulators indicated that they were powerless to do much about the North West Water-Norweb deal.

The environment is about to be dramatically altered for the electricity industry. So it would be right that the regulatory regime was strengthened. It may be too late to do much about windfall gains by shareholders. But there is time to make sure that, at least in the future, consumers get a fairer deal.