By The Walrus
Downloading PDF. Please wait... Issue 267

Public Money, Private Grief

This article is over 19 years, 3 months old
Will the last privatisation fiasco please turn off the lights?
Issue 267

For how much longer, one wonders, can New Labour cling to its fixation with privatisation? In the last year alone we have had two really spectacular disasters–with Railtrack steaming off into oblivion and the part-privatisation of National Air Traffic Services taking a nosedive within weeks of taking off. But we have also watched incredulously a whole procession of PFI calamities, of which a Capita-inspired cock-up over the vetting of teachers and a complete balls-up over A-level results are but two examples in the past few weeks.

And, to cap it all, the country’s main nuclear power generating company, British Energy, looks very much as though it is heading into meltdown, leaving government ministers looking like the kind of joke fire brigade that starts up the odd blaze here and there in order to come along and douse the flames shortly afterwards like heroes. But British Energy already bears all the hallmarks of another prize fiasco.

As we saw with Railtrack, both the City and the government have been desperately trying to play down the scale of the crisis at British Energy, trying to make out that the basic idea of privatisation was a good one. When the news about British Energy first started to leak out, for example, we were told that it was only an unexpected problem with a fan blade at the Torness nuclear reactor which we needed to worry about. A £400 million sub from taxpayers’ money would be enough to tide the company over the temporary crisis.

Then it emerged that maybe things weren’t so straightforward. British Energy is different from the other generating companies in that it uses nuclear fuel rods rather than coal, gas or oil to produce electricity. But the company produces up to 25 percent of the total electric power produced in the UK and occupies a key position in the sector. Even if it is forced to wind up and/or go into administration (as the City would prefer) the power stations would have to be kept going–we know that because they reckon it will take about 25 years to shut down the reactor at Dounreay which is currently being decommissioned.

The real reason for the crisis at British Energy is that, just like Railtrack, it comes as a direct result of the fragmentation which has taken place in the electricity industry in the last few years. Before privatisation all of the power stations in the country, the pylons and the regional electricity boards were run by the state-owned Central Electricity Board. In the first few years after the sell-off responsibility for power generation was taken over by Powergen and National Power, transmission by National Grid, and distribution by new privately owned regional supply companies.

The theory was that this would introduce a sensible free market into the sector which, by its very nature, would bring about sunshine, and joy all round. In practice it led to an immediate scramble by some of the big US power companies to snaffle up the most profitable chunks of the industry. But that was before the Californian power crisis blew a giant hole in their ambitions, and changes to the regulatory environment in Britain hastened a rapid exit by the US carpet-baggers.

More recently the industry has undergone another complete transformation, after it became clear that the relatively small units created after the break-up were unable to benefit from the required ‘economies of scale’ (as if nobody had thought of that in the first place), and that these juicy morsels were turning out to provide rich pickings for some of the real giants of the industry. In fact most of the industry, which was virtually dismantled a few years ago, has reformed under the ownership of a handful of new monopolies. Just about the entire industry in the south of England, in a line from Bristol to the Wash, is now owned by Électricité de France (EDF). Other big chunks have been taken over by RWE and EON of Germany, and by TXU Europe, the sole American survivor.

What these new monopolies have in common is that they have been able to cut production costs drastically, by shedding staff and putting the squeeze on suppliers like UK Coal. As a result they can claim to have cut production costs dramatically, as demanded by the industry regulator. But they can more than make up for these reductions because the new industry giants also control most of the local distribution and supply networks, together with the entire customer base of the former regional electricity companies.

This has put firms like EDF, RWE and TXU in a position to exploit new electricity trading (or NETA) arrangements introduced earlier this year very much to their advantage. In July of this year the consumer watchdog Energywatch was already asking ‘exactly why reductions of 20 percent in wholesale prices… resulted in only 1-2 percent reductions in prices paid by domestic consumers’, especially since the host suppliers ‘retain market share of around two thirds’.

The big problem British Energy faces is that, unlike EDF, RWE or TXU, it never managed to buy up any of the regional distribution and supply network. So, although it has also been producing electricity much more cheaply, it cannot offset these reductions (and boost its profit figures) by continuing to charge consumers at vastly inflated prices. Simple, really.

Since there is currently an overcapacity in the industry anyway, the City slickers (egged on by the other power generators) have already called for British Energy to be forced into administration. The twin advantage of this is that it would not only ease the competition substantially, it could also help to avoid any hint that the company might need to be renationalised. By complete contrast, the leader of the GMB union, John Edmonds, has stated categorically that ‘we now need a complete rethink of the role of the private sector in major UK utilities. We cannot continue to gamble the future of such an important sector on the roulette wheel of the stock exchange.’

Even better, maintenance workers formerly employed by East Midlands Electricity (in turn owned by Powergen) are currently balloting for strike action. Like the successful battle at Caparo steel, this is all about pension entitlements being shed, despite a 1989 promise that pension rights would be protected.

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