Sparks Flying Over Thatcher’s Plan to Sell Electric Utility

Few world leaders can match Margaret Thatcher’s passionate faith in the ultimate good of the free market: Doubters need only consider $70 billion worth of state-owned industry, housing and utilities that the Conservative prime minister’s government has sold off to private investors since taking power in 1979.

So it seems ironic that the largest and most important privatization that Thatcher has tried yet--sale of the British electric utility industry--hinges largely on a government lifeline for nuclear power facilities that the free market otherwise almost certainly would shun.

The privatization of $65 billion worth of electrical generation, transmission and distribution facilities, with their 130,000 employees and annual turnover of about $20 billion, is scheduled to take place in stages during the next two to three years under a bill wending its way through Parliament.

The measure is a key to the government’s legislative program for its current term. And although an opinion poll in the Sunday Times indicates that two out of three voters oppose the selloff, it is virtually certain to be approved in Parliament, controlled by Thatcher’s Conservative Party.

But controversy remains, even among Conservatives, over several of the bill’s provisions--and none are more controversial than those relating to nuclear power.

“Nuclear power is an example par excellence of the contradictions in Thatcherism--trust the market, as long as it gives the ‘right’ answers,” Oxford economist Dieter Helm wrote in a column for the Times of London a few days ago.

Irwin Stelzer, the director of Harvard University’s Energy and Environmental Policy Center, agreed, saying: “It’s hard to tell whether the government is pro nuclear or anti coal miner.”

At the same time, Stelzer, who has closely followed the British electricity issue, alluded in an interview to the power politics that, much more than economic irony, color this highly controversial step in what has generally been a popular privatization program.

Thatcher’s government is admittedly determined to ensure that Britain’s economy can never again be held hostage by its unions--particularly its coal miners. And, clearly, the prime minister believes that it is worth making consumers pay the equivalent of an extra few dollars a month in electricity bills, as well as sacrificing some of her free-market principles, to achieve that goal. (The workers at Britain’s nuclear power stations are also unionized, but they are less numerous and much less powerful than the miners.)

‘Scargill Tax’

The nuclear premium that consumers face has been dubbed by some the “Scargill tax” after the Marxist head of the National Union of Mineworkers, Arthur Scargill.

“On at least two occasions in the past 10 years, Britain would have faced enormous difficulties but for our nuclear power stations,” Energy Minister Cecil Parkinson told Parliament in defending the special provisions for the nuclear industry.

“If we had not had nuclear power in 1985, Mr. Scargill would have won,” he explained, referring to bitter coal strikes that turned into a yearlong showdown between the government and mine workers. “Oh, yes, he would.”

He added, “If there had been no nuclear power during the oil price explosion, the lights would have gone out.”

The basic electricity privatization measure represents a bold step toward the “vertical disintegration” of the power industry--the separation of power generation, transmission and distribution functions in hopes that it will engender competition and greater efficiency.

“No other country in the world has tried such a large-scale split between generation and distribution to customers,” according to Britain’s Financial Times newspaper.

In some ways, Stelzer said, “the system that we (in the United States) are headed toward . . . the British are leaping toward.”

Currently, the British system is made up of the Central Electricity Generating Board, 12 area boards and a governing Electricity Council over all.

CEGB has an effective monopoly on electricity production in England and Wales and also operates the National Grid transmission system, which links into the separate electricity systems of Scotland and France. The 12 area boards are responsible for regional distribution of electricity.

The privatization law would first split CEGB into two competing electrical generating companies. One, called PowerGen, would own about 30% of CEGB’s existing capacity, all of it non-nuclear. The other, called National Power, would own the remainder, including all 10 nuclear plants.

The area boards are to be privatized as 12 independent public electricity suppliers, buying bulk electricity under contract from PowerGen, National Power or any independent power companies that may enter the market.

Vertical Integration

The National Grid, meanwhile, would be transferred to a separate company jointly owned by the 12 new supply firms. At the same time, the Electricity Council would be dissolved and a new director general of electricity supply appointed to monitor the industry, regulate retail prices and otherwise protect consumers.

There has been a trend for vertically integrated U.S. electrical utilities to buy more power from independent producers, Stelzer noted. Southern California Edison, for example, reports that about 33% of its “energy mix” was purchased from outside sources in September, the last month for which figures are available. A year earlier, the figure stood at only 23%.

Energy Minister Parkinson says Britain is counting on a similar rise here. He recently told Parliament that “we know already of nearly 20 proposed independent power generation projects that would amount to more than 10% of our national needs” once the industry is privatized. And, he says, it is that competition that promises to bring greater efficiency and, ultimately, lower prices to the consumer.

Critics respond that Parkinson’s argument is nonsense. “At the heart of this proposal is a gaping black hole where the interests of the consumer should be,” charged the Labor Party’s “shadow” energy minister, Tony Blair.

Blair’s parliamentary colleague James Hood called the electricity bill a “treacherous” bit of legislation pushed by “the supreme pawnbroker”--a reference to Thatcher.

And although partisan politics no doubt plays a large role in the Labor Party’s criticism, provisions in the bill included to protect nuclear power bother even some Conservative parliamentarians.

With the prices of fossil fuels considerably lower than a few years ago and the cost of building a nuclear plant considerably higher, nuclear energy is the most expensive form of energy to generate. All else being equal, it would be the last choice of privatized power firms.

But because Thatcher’s government is determined to foster nuclear power as an option to coal-fired generating plants, it has had to skew its privatization law to accomplish what it knows the free market will not.

The government would require, for example, that the 12 newly privatized regional power companies either contract for or produce at least 20% of their electricity from non-fossil fuel plants--in other words, nuclear stations. And it creates a mechanism by which all users would share the higher cost of this electricity--expected to add as much as $6 monthly to consumers’ electricity bills.

15% Rate Hike

The government also proposes to pledge up to $4.5 billion of taxpayers’ money to offset the costs to investors of nuclear waste disposal and the decommissioning of old nuclear stations. And it would limit a company’s liability in the event of a Chernobyl-type disaster.

In part, noted Harvard’s Stelzer, these provisions--as well as a two-year, 15% rate hike before privatization--are intended to make the various pieces of the industry more attractive to investors. Presumably, he said, that will mean a higher price for the industry to be paid to British taxpayers through their government.

“So the nuclear subsidy does not represent a net loss to the British public,” he maintained.

But others are much less sanguine.

“What is outrageous about the bill is that, for the first time that I remember, it enacts public risk and private profit,” Labor’s Blair stormed. The government’s “singular achievement has been to bring forward the only privatization measure where, in exchange for the public underwriting the risks of privatization, investors will be free to take monopoly profit from the captive consumers providing that subsidy.”

While endorsing the proposed new system as “a vast improvement,” Conservative parliamentarian David Howell conceded that “some of us would have liked to see a way to have four or five generating boards, all somewhat smaller, rather than an extremely large one and a very large one.”

However, the respected Economist magazine noted, the proposed breakup of CEGB into only two firms was “dictated solely by the need to create one generating company big enough to cope with and disguise nuclear power’s spiraling costs.”

Rollback Pledged

The Economist urged that Parkinson leave Britain’s nuclear program in the public sector. “He could then have a more competitive, less regulated electricity industry and sell National Power at a fatter price--not at the huge discount it will need with nuclear power on board,” the magazine editorialized.

What, if any, changes will be made in the government’s privatization plan remain to be seen. Meanwhile, Blair pledged in Parliament that the whole scheme ultimately will be rolled back anyway.

“We are proud that we took the industry into public ownership,” the opposition politician said. “When we come to power, it will be reinstated as a public service for the people of this country and will not be run for private profit.”

But what Blair failed to mention is that Labor shows no sign of returning to power any time soon. Lately, it has been slipping even further in the polls, while the public--despite occasional delight in criticizing her alleged ideological inconsistencies--continues to give a sizable edge to Thatcher.