Ofgem set 'unlawful' terms for Powergen takeover

Ofgem, the energy regulator, applied "ill conceived", "unlawful" and "perverse" policies to Powergen's £1.1bn deal to buy Midlands Electricity, a leading lawyer has claimed.

Neil Upton, a partner at White & Case and one of the best-regarded lawyers in the energy sector, said the conditions imposed by Ofgem on Powergen's deal, which completed on Friday, set a "dangerous precedent".

His concern centres on a condition that Powergen must pass savings of £32m to its customers.

Mr Upton, who has no connection to the Powergen deal, spelt out his concerns in a long email to Ofgem. The regulator asked him to keep the email confidential, he said, but he went against its wishes because of the wide implications of Ofgem's actions.

"The whole policy that Ofgem has adopted is fundamentally flawed. It is ill conceived, unreasonable and unlawful ... and quite clearly perverse," Mr Upton says in the email.

Ofgem has no statutory powers to levy such a charge and the regulator should instead look at Powergen's business in April 2005, at the next price review, he said, adding that the regulator could be open to a legal challenge.

The policy was first applied when Electricité de France bought Seeboard for £1.4bn in 2002. "Simply because it is in existence is no reason to follow a policy which should never have been adopted in the first place," Mr Upton said.

Ofgem dismissed his claims. A spokesman said: "We have the legal powers to make a licence modification under the Electricity Act and it is important to point out that Powergen hasn't challenged it. This is not an issue."