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Monday, 14 October, 2002, 12:24 GMT 13:24 UK
US firm pulls plug in power crisis
Power station
Closure looms for a number of UK power stations
The crisis in the UK power sector came to a head on Monday morning as US utilities giant TXU said it was cutting off its UK and European units' $700m (450m) cash supply, leaving UK employees facing layoffs.

Its 5.5 million UK customers, concentrated in the North-West and East Anglia, will be unaffected, the company promised.

But with energy markets in chaos around the world, following the misdeeds of Enron and other companies, valuations of power companies are at rock-bottom levels.

The result for TXU is that it is effectively putting its European subsidiaries up for sale, and talks are already under way with a number of likely suitors including UK generator Powergen.

Redundancies in the UK are probably unavoidable, a TXU spokesman told BBC News Online, with others in Switzerland and the Scandinavian countries.

The Dallas-based TXU's dividend will also be slashed by 80%.

Search for a solution

Regardless of whether customers immediately notice any change, the decision leaves TXU Energi, its UK energy trading arm, and its supply business scrabbling for a way out.

According to a company spokesman, TXU Corporation had little choice but to cut its European units loose.

Credit agencies have already cut the rating on the company's debt, and spending the money on Europe would have been the last straw.

"There were only two options: to protect TXU Europe or TXU Corporation," he said. "That's not a difficult choice."


But he said that talks with suppliers are well under way.

"We've had positive discussions with our suppliers, and a lot of help from the regulator who - needless to say - we've been in touch with practically on a daily basis," he said.

But in the meantime the UK unit is still groaning under heavy long-term contracts for power supply.

Originally they were intended to smooth out peaks and troughs in supply, but with wholesale prices down 40% since 1998 the contracts with six generators are costing 400m a year over the next four years.

And since deregulation competition for customers among retailers had been cut-throat, and stabilising the customer roster has been an expensive business.

The situation presents a sharp contrast to TXU's purchase of the UK energy trading and supply unit in 1998.

The business was then worth $10bn, and US power companies were buying up UK generators and suppliers all over the country to take advantage of deregulation.

Musical chairs

Some observers now believe the government might step in following recent state bailouts of more recently privatised entities, such as the National Air Traffic Service and British Energy.

British Energy, which is being kept afloat by a 650m government loan, may be forced to close two power stations in order to win European Commission approval for the state rescue package.

TXU is not betting on anything more than help from the government to encourage other players to be lenient.

The reshaping of the UK energy market will continue, though.

Over the weekend, the Mail on Sunday reported that Powergen's chairman, Ed Wallis, warned the government that up to 10 power plants must be axed to end the turmoil within the sector.

The company last week mothballed two stations.

TXU's Christian Judge
There's no danger that customers will lose their power supply
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