The OFFER electricity distribution review and its aftermath: A regional electricity company's perspective

Abstract

The regional electricity companies (RECs) in England and Wales have now undergone two regulatory reviews. The first, on their electricity supply businesses, was completed in July 1993 and came into effect on 1 April 1994. The second review, on the RECs' distribution businesses, is the most important, particularly from a profitability point of view. The Office of Electricity Regulation's (OFFER's) initial proposals were published in August 1994. These were accepted by the RECs, and were to take effect from 1 April 1995. However, on 7 March 1995, following increasing disquiet in the media with regard to the RECs' profitability and share price increases, and culminating in Northern Electric's proposals aimed at resisting the hostile takeover bid from Trafalgar House, Professor Stephen Littlechild, the Director General of Electricity Supply (DGES), announced that he was minded to look again at his proposals. Although the changes due on 1 April 1995 came into effect, he decided to carry out a further review, and announced his proposals on 6 July 1995. These will take effect from 1 April 1996. The outcome of the distribution review will have far-reaching effects. In this paper, Bob Westlake and Ron Beckett give their personal view on this outcome, and consider the impacts it might have both on the strategic direction of an REC and on its main stakeholders — its customers, shareholders, staff, community and its working relationship with its Regulator.