The Independent - 28 Dec 95

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 18 Aug 09)

£ 200m First Hydro Windfall for Recs

By Peter Rodgers
Thursday, 28 December 1995

A windfall of more than £ 200m was revealed yesterday by the 12 regional electricity companies, which have been paid far more for their pumped storage power generating business than they expected five weeks ago.

First Hydro, the Snowdonia power generator which the Recs owned, was sold to the US company Mission Energy for £ 680m, including cash balances of £ 27.5m.

The Recs that are still quoted on the stock market said they were keeping the money for use in their businesses and not passing it to shareholders.

The amounts raised range from £ 36.7m at South Wales Electricity and £ 44m at Northern Electric to £ 71m at London Electricity and £ 74.5m at Southern, which has the biggest stake. The sale gave a modest boost to most Rec share prices.

Mission is one of four bidders shortlisted to buy £ 1bn of power stations put up for sale by National Power, the biggest generator in Britain. If it succeeds in the second deal it would become Britain's fourth largest electricity generator.

Mission beat off competition to buy First Hydro from Scottish Hydro, the north of Scotland electricity generator, which is thought to have offered nearly £ 200m less. The other failed bid was from Dominion Energy, a US company.

The Recs' advisers believe the cold snap just before Christmas, when prices soared in the electricity market, helped them gain a high price for First Hydro, by underlining the volatility of British power prices.

The business makes its money by using cheap off-peak electricity to pump water to high level reservoirs at Dinorwic and Blaenau-Ffestiniog in Snowdonia. When demand for electricity is high, the water is run down the mountains to low level reservoirs where it generates electricity again. It is the national electricity grid's equivalent of a storage battery for saving power.

First Hydro becomes highly profitable when electricity market prices soar. However, Mission has also indicated that a favourable tax position made a high bid possible.

The sale price is more than £ 200m above the £ 450m value put on the business in the National Grid prospectus published on 21 November, and will lead to a substantial extra capital gains bill for the Recs.

National Grid had previously owned First Hydro, but just ahead of its own flotation demerged the business into a separate company owned by the 12 Recs.

The Recs that are still independent have passed the value of their National Grid shares direct to their own shareholders, but said yesterday they would keep all the cash from the First Hydro sale to use in their own businesses.

In the competition to buy the National Power stations, with generating capacity of 4,000 megawatts, Mission is competing against Enron, Applied Power Systems and Hanson's electricity distribution subsidiary, Eastern Group. National Power confirmed Mission was still in the running and said bids were being evaluated.

Mission is part of SCEcorp, a $6bn (£ 4bn) US utility whose subsidiaries include Southern California Edison, one of the biggest generators in the US.

With the domestic market tightly controlled and unexciting, the group has joined the assault by US utilities on foreign power markets. It has recently invested $250m in Indonesia and is involved in two small gas power stations, Roosecote and Derwent, in the UK.