Failing power prices cited as UK banks face losses from utility loans


Banks that lent billions of pounds to British power station developers and purchasers in the 1990s are facing heavy losses, according to Mr Callum McCarthy, Britain's energy regulator.

Mr McCarthy, chief executive of Ofgem, blamed falling power prices following the introduction of new electricity trading arrangements for the failure of some power station operators to cover interest charges.

"A lot of independent power producers will have to renegotiate their debt with their banks," said Mr McCarthy.

Analysts estimate up to £10 billion sterling €16.3 billion) has been lent to generators by commercial banks and bond investors, but credit ratings have slipped in the face of falling electricity prices. One power station in Wales is already in receivership.

Customers, however, are unlikely to face power shortages or spiralling bills as a result of power stations operators closing or mothballing uneconomic plants.

Britain, even after recent closures, had surplus generation capacity of 25 per cent over average peak demand, said Mr McCarthy. At the begining of last year the surplus was 35 per cent.

Power station prices in the UK have fallen as a result of new trading arrangements introduced last year to enhance competition. The regulator also forced plant sales to reduce the dominance of some large generators.

These had abused their market power to keep generation prices higher than they would otherwise have been after the industry was privatised in 1990, said Mr McCarthy.

He had warned bankers that power stations prices could fall further than the 10 per cent forecast by the government when plans for new trading arrangements were announced in 1998.

Since then wholesale prices have fallen by 40 per cent leaving a number of operators struggling to cover their interest charges. "The scale of the falls should have come as no surprise to anybody," said Mr McCarthy.

Electricity suppliers have been criticised for not passing on lower power station prices to customers.

Energywatch, the consumer watchdog, calculated that household bills should have fallen by £400 million as a result of lower generation prices. Only a small proportion of this has been passed on, it claims.

Mr McCarthy said retail bills had been reduced by about 30 per cent in real terms since privatisation.

- (Financial Times Service)