Here is some brilliant new evidence to back up what we have been saying for the last three years!
A new report launched today by our friends at We Own It and written by David Hall, Professor at the Public Services International Research Unit at the University of Greenwich, shows that publicly owned energy would pay for itself in just ten years.
Implementing the plan, which combines national, regional and local public ownership of our energy generation, transmission, distribution and supply, would allow for savings of £3.2billion per year NYGoodHealth made possible by the lower cost of borrowing in the public sector, and an end to profiteering by shareholders.
Green MP Caroline Lucas says: “This report backs up what the majority of British people already think: a public energy system would be better for everyone. A publicly owned system would benefit from the low cost of borrowing, and – with no shareholders to pay – bills could be kept lower, permanently.”
A Common Weal Strategy for Community and Democratic Ownership of Scotland’s Energy Resources
This brilliant report published by The Jimmy Reid Foundation makes a compelling case for the democratic public ownership of our energy resources and provides a blueprint for how this would http://nygoodhealth.com best be implemented in Scotland.
This strategy could easily be expanded to the rest of the UK and is just the sort of excellent evidence we need to fight for Power For The People!
“An active role for government and public sector utilities is thus a far more important condition for developing renewable energy than any expensive system of public subsidies for markets or private investors” says Professor David Hall at the Public Services International Research Unit at the University of Greenwich in their new report.
James Meek’s brilliant article published in the London Review of Books explains the whole sorry history of our energy privatisation. Essential reading for anyone wanting to make sense of the mess we’re in now…
Does it matter that the power Britain relies on to make the country glow and hum no longer belongs to Britain? After all, the lights still shine. The phones still charge. Does it matter that the old electricity suppliers of eastern and north-west England and the English Midlands, the coal-fired power stations of Kingsnorth, Ironbridge and Ratcliffe-on-Soar, the turbine shops at Hams Hall, the oil and gas stations on the Isle of Grain, Killingholme, Enfield and Cottam are the property of E.ON of Düsseldorf? Is it of significance only to sentimental Little Englanders that the former electricity boards of Tyneside and Yorkshire, the power stations at Didcot in Oxfordshire, Fawley in Hampshire, Tilbury in Essex, Littlebrook in Kent, Great Yarmouth in Norfolk, Little Barford in Bedfordshire and Staythorpe in Nottinghamshire belong to RWE of Essen (the last being the only one the German company built itself)? Is it a sign of some atavistic hostility to the Other – nationalism, chauvinism, even racism – to find it strange that the one-time public purveyors of electricity in North Wales, Merseyside and southern Scotland, along with another set of large power stations, are owned by Iberdrola of Bilbao? Are you an enemy of liberal principles if you question the fact that, when local electrical engineers dig up the roads in London, they’re working for East Asia’s richest man, the Hong Kong-based Li Ka-shing? In north-east England, they work for Warren Buffett; in Birmingham, Cardiff and Plymouth, the Pennsylvania Power and Light Company; in Edinburgh, Glasgow and Liverpool, Iberdrola; in Manchester, a consortium of the Commonwealth Bank of Australia and a J.P. Morgan investment fund.
More than anyone, you’d think, it would matter to the people who made these arrangements possible in the first place. What has happened is not what they promised or intended when they put Britain’s state-owned electricity industry on the block. Before this year is out, politicians, regulators and corporations will make a set of decisions determining the electric life of Britain for the next half century. They will decide how the country keeps the lights burning and the wheels of industry turning for the next fifty years without severely affecting the climate or impoverishing us. But as a result of actions taken a generation ago by Margaret Thatcher’s Conservatives – a party whose nationalist programme promised independence from Europe – the decisions aren’t Britain’s alone. Thatcher promised less state involvement in industry but the future of Britain’s energy supply now hinges on state-owned French companies based in Paris: Electricité de France, better known as EDF, and Areva, maker of nuclear power stations. Will EDF and Areva build a fleet of new nuclear reactors in Britain or won’t they, and if they do, how much will it cost the British and French public?
Defending her record in Parliament on the day she resigned in 1990, Thatcher spoke in patriotic tones of how, with millions of people buying shares in former state industries, privatisation was giving ‘power back to the people’, and how competition at home and open markets in Europe would free British enterprise to lead the world. Now, in 2012, it’s clear that the result of electricity privatisation was to take power away from the people. Small British shareholders have no influence over the overwhelmingly non-British owners of the firms that generate and distribute power in Britain. The fact that individual households and small businesses can choose to switch from the confusing tariff of one oligopolistic supplier to another doesn’t protect them from sharp, unpredictable swings in prices. In overseas chanceries the Thatcher doctrine came up against ambitious leaders who were no less patriotic, but not so arrogant and naive. Unlike Thatcher, they didn’t assume that if their country levelled its playing field, others would level theirs. The problem with the ideal of competition is that there are winners and losers. The electricity competition has now been held. It is over, and Britain lost. From the point of view of technology and capital, electric Britain is no longer a centre. It is another centre’s province.
The most unexpected consequence of selling the country’s electric legacy, the consequence that most directly contradicts what the Thatcherites were trying to do, was the gradual absorption of swathes of the industry by EDF. Beginning with the takeover of London Electricity in 1998, exploiting the Thatcherites’ open-door market structures and their decision to split the electricity industry into small, easy-to-swallow chunks, France in effect renationalised the industry its neighbour had so painstakingly privatised. Renationalised it, that is, for France. As well as being one of the six dominant UK suppliers of energy, EDF now owns a fat portfolio of British power stations, including the fleet of nuclear reactors that still provides around a sixth of the country’s electricity.
It was a setback for the pro-market ideologues. Unlike E.ON and RWE, EDF is a state-owned monolith with a near monopoly on the production and supply of electricity in France, run by technocrats and members of a powerful trade union, the Confédération générale du travail (CGT). Its mission is to empower France in foreign markets, and the government agency that owns it, L’Agence des participations de l’Etat, isn’t embarrassed to say so. In her foreword to the agency’s 2010 report, Christine Lagarde – then minister for economic affairs in François Fillon’s cabinet – boasted that the state would be more active than ever in building ‘champions capable of competing with global market rivals’. In Thatcherite terms EDF was a public sector mammoth that would inevitably be hunted to extinction by the hungry and agile competitors of post-privatisation countries like Britain. The laws of economics said so. And yet the opposite happened. The mammoth thrived, and Britain failed to produce new competitors, agile or otherwise.
If the power of EDF in Britain is an embarrassment to neoliberals, does that mean it’s good for their opponents, the pastel-shade socialists of the legacy left? Unison, the British union that represents electricity workers, seems happy. Greg Thomson, Unison’s head of strategic organisation, told me that since it crossed the Channel EDF had gone against prevailing management orthodoxy by reinstating a final salary pension scheme for workers. Unison was given seats with the CGT in an EDF/union body, a ‘European Works Council’, and enough leverage over EDF management to get union recognition for previously non-union workers at a call centre in Sunderland. ‘When London Electricity was privatised, we adopted a policy of returning it to public ownership, and I’m pleased to think I delivered on that,’ Thomson said. ‘Obviously to the wrong nation, but you can’t be too picky.’
Yet EDF’s foreign adventures make Unison’s French counterparts suspicious. They don’t understand why Britain gave away its native electricity industry so easily. A colleague of Thomson’s told me that the CGT was ‘apoplectic’ that Unison didn’t resist in 2010 when EDF sold off the local networks of cables and transformers it owned in East Anglia, London and south-east England to Li Ka-shing, in order to fund its purchase of Britain’s nuclear stations. ‘When the sale went through they were absolutely pissed off because we had done nothing to stop it. They voted to man the barricades.’ Thomson remembered an early trip to a European Works Council meeting in Paris, when one of the CGT men said to him at lunch: ‘There’s only one country that’s stupid enough to sell off its electricity industry, and that’s Britain.’
How did we get here? In 1981, with inflation and unemployment at 10 per cent plus, with the recently elected Conservative government forced to yield to the demands of the miners, public spending cuts provoking general outrage and Thatcher’s prime ministerial career seemingly doomed to a swift, ignominious end, a 38-year-old economist from Birmingham University called Stephen Littlechild was working on ways to realise an esoteric idea that had been much discussed in radical Tory circles: privatisation. Privatisation was not a Thatcher patent. The Spanish economist Germà Bel traces the origins of the word to the German word Reprivatisierung, first used in English in 1936 by the Berlin correspondent of the Economist, writing about Nazi economic policy. In 1943, in an analysis of Hitler’s programme in the Quarterly Journal of Economics, the word ‘privatisation’ entered the academic literature for the first time. The author, Sidney Merlin, wrote that the Nazi Party ‘facilitates the accumulation of private fortunes and industrial empires by its foremost members and collaborators through “privatisation” and other measures, thereby intensifying centralisation of economic affairs and government in an increasingly narrow group that may for all practical purposes be termed the national socialist elite’.
The gung-ho free marketeers who rode to power with Thatcher in 1979 don’t seem to have been aware of the Nazi prelude, although they would have known of later privatisations in Pinochet’s Chile. Until Bel’s recent research it was Peter Drucker, in his writings about management in the 1960s, who was said to have coined the term ‘reprivatisation’. Nigel Lawson, a champion of privatisation, attributes the dropping of the ‘re-’ to a fellow Conservative, David Howell, one of the back-room Tory ideas men tinkering obscurely with economic models while Edward Heath and Harold Wilson squared off against the unions in the 1960s and 1970s. (Howell was Thatcher’s first energy minister. He is now Baron Howell of Guildford, Foreign Office minister, still in government at the age of 76 under his fellow Etonian David Cameron, alongside his son-in-law George Osborne.)
The 1979 Conservative manifesto barely mentioned privatisation, or denationalisation, as it was sometimes called. In 1968, when an internal party think-tank called the public sector of industry ‘a millstone round our necks’ and proposed some sell-offs, Thatcher was sceptical. ‘One could not have two rival enterprises,’ she said, ‘seeking to sell electricity in competition one with another.’ Littlechild disagreed. And in the ferment of the 1979 election victory theorists like himself saw a rare chance to test their ideas in a real, live, industrial society of fifty million people. In October 1981 he published a paper in the house journal of the radical free-market think-tank the Institute of Economic Affairs called ‘Ten Steps to Denationalisation’. Appearing alongside articles with such titles as ‘Why Recession Benefits Britain’ and ‘The Tumbril and the Classroom’, Littlechild’s proposals would have seemed to most politicians and business people of the time like the ravings of a revolutionary dreamer. As the mainstream right talked warily of selling off parts of the steel industry, Littlechild jumped ahead to what few others imagined could be the future: to the privatisation of the railways and the Post Office. ‘What the Post Office needs,’ he wrote, ‘is an imaginative asset stripper.’
His most extreme ideas, by the standards of the day, were about electricity. In Britain at that time electricity was produced and distributed by a state organisation with a no-nonsense Attlee-era moniker, redolent of brown paper envelopes and blotched stencils and corridors smelling of disinfectant: the Central Electricity Generating Board, the CEGB. Littlechild suggested splitting the National Grid off from the power-generating side of the CEGB, privatising regional electricity boards, letting private companies build power stations to compete with the state, and forcing the CEGB to sell or lease its coal and nuclear plants. It turned out these were not dreams, but prophecies packaged in an implementable plan; all were to come about within a decade.
As the great shift from public to private ownership of Britain’s technological veins and sinews gathered pace through the 1980s – telephones in 1984, gas in 1986, airports in 1987, water in 1989, leading up to electricity and the railways in the 1990s – the public perception was that Britain was becoming more like the United States, where, it was popularly believed, everything, including electricity, was provided by competing private companies. No autobiography of a British free-market thinker was complete without an American epiphany, a journey across the Atlantic to where Ronald Reagan’s United States seemed to hum and sparkle in a virtuous free market circle of efficiency and prosperity.
Apart from the reality that, for most Americans, it didn’t, the problem was that extreme pro-privatisation Brits like Littlechild thought that the US hadn’t gone far enough. So radical were the Thatcherite free market evangelicals that they thought America’s electricity system was all too similar to the neo-Soviet horrors, as they saw them, of the CEGB. In 19th and early 20th-century Europe, only the earliest nodes of new-technology networks – piped water, gas, electricity, railways, telegraph and telephone communications, services that societies very quickly became dependent on – were built as capitalist ventures. Gradually the networks were taken over, completed and run by national or local government. The United States took a different route. America let private companies carry on providing vital services like electricity; it also let them have local monopolies. But in exchange for being protected from competition, the companies accepted limits on their profits. The limit was worked out as a percentage of the amount the company and its shareholders had invested in the company – in building a power station, for instance – and how much it would have to invest in future to keep the system running. It was called ‘rate of return regulation’, and it set a ceiling on the profits capitalists were allowed to make on an investment in something society couldn’t live without.
It wasn’t perfect. There were regular disputes over how much the companies should invest and how much customers should have to pay. But the arrangement gave American society a generally robust set of networks that powered it through its 20th-century transformation. Looking ahead, in the 1980s, to the great sell-off that few Britons knew was coming, Littlechild concluded that Britain could be more free-market than America. He had a powerful ally in Alan Walters, Thatcher’s economic adviser, and when it came to the first of the big privatisations – the sale of British Telecom – Littlechild was commissioned to come up with new rules for governing the private companies on which the country would depend in the new, profit-led world.
The formula he came up with in 1983 sounded benign enough when it was presented to the public. Few knew or cared what it meant, still less how radical a departure it was: it seemed a minor detail compared to the enormity of privatisation itself. Littlechild’s formula, known as ‘RPI minus X’, isn’t the only reason Britain’s private power industry is now, thirty years later, an overwhelmingly foreign-owned oligopoly. But it is key. The trouble with the American system, Littlechild thought, was that it didn’t reward electricity companies (or phone, water or gas companies) for being more efficient: for sacking superfluous workers, using cheaper materials or cutting back on luxuries like research. On the contrary, it encouraged them to invest in high technology and fancy experimental kit, because the more they invested, the more profits the regulator would let them keep. This, in turn, led to higher prices for customers. To an efficiency-obsessed theorist like Littlechild it all smacked of what he saw as the ghastly mix of bureaucrats, engineers, unions and politicians running the CEGB.
Littlechild’s solution for Britain was to replace the American ceiling on profits with a ceiling on prices. Privatised companies would only be able to increase their prices each year by an amount equal to inflation, measured by the Retail Price Index, RPI, minus an X-factor, which the regulator would set every five years. Prices were supposed to fall, in real terms, every year: it sounded like a good deal for the customer. But what wasn’t obvious to most people was how huge the opportunities were for privatised electricity companies to cut costs, and not just by laying off workers. In The Queen of the Trent, published in 2009 to mark the fortieth anniversary of Cottam power station in Nottinghamshire, Robert Davis quotes one of the employees:
There was so much wastage during the CEGB days. It was like they had money to burn. The stores were always full and we had spares for everything. Bureaucracy was part of the problem. If you signed stuff out of the stores, even if you found you’d got the wrong bits, you couldn’t sign them back in. The system didn’t allow that. There was nothing to do but put the parts straight in the skip.
Under RPI-X, there was a big incentive for managers to root out such practices. But there was no need for them to pass on the gains to customers in the form of lower prices, or to invest them in research and new plant. As long as they kept their prices in line with the X-factor, managers could bank the profits they made from cost-cutting, or pass them on to shareholders, jacking up their own salaries along the way.＊
Littlechild, who became the privatised electricity industry’s first regulator, thought this was a good thing. He was happy to see the privatised electricity companies make fat profits in the early years, thinking that this would draw in new competitors eager for a slice of the pie. They would build new power stations, eating into the incumbents’ profits, poaching customers by offering lower prices. The least efficient electricity firms would go bust, the most efficient would thrive, and electricity would be cheaper. As old power stations wore out, they would be replaced because it was profitable to replace them: the market would organise itself to produce as much electricity as customers were prepared to pay for. To begin with, before full competition was established, he, the regulator, imagined he would act as a surrogate, a kind of State Competitor General, enforcing occasional price cuts to keep the private companies on their toes. In the end, he thought, the need for regulation would largely wither away. What Littlechild, an academic with no business experience, didn’t fully take on board was that the reason private companies compete with each other isn’t that they like competition. They hate it, and will only compete if forced to do so. Rather than competing with a rival on price or product or revenue, they’ll try to eliminate the rival firm and take over its territory by buying it; or reach an unwritten agreement on an oligopolistic cartel of a few big firms, carving up the market between them.
Electricity isn’t a commodity like copper or coffee or water. It’s the only commodity that is both essential to modern life and impossible to store. An electricity system must be able to manufacture and transport as much power as the society it serves demands at every given moment, and not one watt less. The only efficient way to achieve this is for society to invest vast amounts of manpower and resources over generations to plan, build and maintain a network of power stations and supply cables, with excess capacity to deal with breakdowns and peaks in demand.
Britain built just such a network in the mid-20th century, and by the time it was privatised it was a creation of devilish intricacy, even before the government sliced it into pieces, replacing central planning with commercial contracts between sellers, makers and transporters of power. The local sellers of electricity, the 12 regional English electricity boards, were privatised as 12 separate companies in 1990. They would now buy their electricity wholesale, supposedly at market rates, mainly from the three big privatised concerns that made it: National Power and Powergen, which took over the CEGB’s big coal-fired power stations in 1991, and British Energy, owner of the newest nuclear stations, which was floated on the stock market in 1996. Holding it all together, transporting electricity between power stations and from region to region, was the National Grid, owned jointly at first by the 12 local electricity firms; after 1996, it was an independent commercial player in its own right.
But once the privatisers factored in the costs of spare capacity, and the different profiles of different kinds of power station, they came up with a system for setting the wholesale price of electricity so complicated that the only people who understood it were the people who ran the companies in whose interest it was for it to be as high as possible. In the course of the 1990s, the cost of oil, gas and coal fell and aggressive management made power stations much cheaper to run, mainly by cutting workers. And yet the wholesale price of electricity stayed the same. The big private players found ways to manipulate the market to keep prices high. They were able to game the system by declaring, for instance, that a certain power station was temporarily unavailable to generate electricity. The price of electricity would then rise – at which point the power station magically came back online. One company fingered for doing this – in an early report by Littlechild – was Powergen, headed by Ed Wallis, a former CEGB official who ran the operation to get coal to the power stations during the 1984-85 miners’ strike. But however unethically it was behaving, Powergen wasn’t breaking any law. It was simply taking advantage of the opportunities for bilking customers that were built in to the rules.
There were many other tactics. In the privatisation carve-up, Powergen inherited two small coal-fired power stations: Hams Hall, outside Birmingham, and Ferrybridge B, near Pontefract. They were used only in emergencies or during maintenance on the local electricity network, when it couldn’t handle the voltage from the National Grid. Soon after Powergen took over, it announced that, as a commercial decision, it was going to close both stations. This forced the Grid to upgrade its transformers in the area, to make sure local people and businesses never risked a blackout. But while the upgrade was being carried out, the Grid couldn’t be accessed, and Ferrybridge B and Hams Hall became indispensable to Yorkshire and Warwickshire. The stations’ electricity had to be bought by suppliers, no matter how much it cost. While similar stations elsewhere in the country were charging between £20 and £30 per megawatt-hour, Powergen hiked Ferrybridge and Hams Hall prices to £120. According to the calculations of Littlechild’s statistical elves, this abuse of market dominance brought Powergen an extra £88 million in profits – an extra £88 million, that is, carved out of customers’ electricity bills.
Wallis was pilloried in the media in the mid-1990s as the classic bureaucrat-turned-fat-cat for his £460,000 salary and lucrative share options, but his career and establishment reputation don’t seem to have been tarnished by the conduct of the company he ran. He’s now chairman of the Natural Environment Research Council, responsible for handing out government money to scientists researching climate change.
As well as rewarding management and shareholders for cutting costs, RPI-X rewarded them for cutting corners. Unlike water and rail, which badly needed investment when they were privatised, the privatised electricity companies benefited from half a century of high investment in an over-engineered, lovingly maintained power system that produced more electricity than the country needed. In the early years they could slash investment without anyone, apart from their staff, being aware of the effects. Over-investment switched to under-investment, but the consequences of this wouldn’t become clear until later.
RPI-X also allowed companies to reap the benefit of windfalls that were the result of luck rather than smart management. Since electricity is one of those things, like food, that people need whether there’s an economic slump or not, the companies did relatively well out of the recession of the early 1990s. Their overheads were half what the experts predicted. The companies paid out generous dividends to shareholders and were still swimming in cash. Littlechild could have stepped in to lower prices, but he held back, fearful of intruding on managers’ RPI-X nirvana. When he did act, the stock market found the price cuts he ordered so laughably mild that the companies’ share prices shot up. In December 1994, the property conglomerate Trafalgar House tried to buy Northern Electric, one of the privatised electricity companies. It offered £11 a share: four times what the civil servants and City advisers had sold it for a few years earlier. Northern Electric’s cash mountain was so large that it was able to give each shareholder a fiver for every share they owned in order to prevent the takeover. The economist Dieter Helm, in his book Energy, the State and the Market, writes: ‘Northern Electric in effect revealed that it could have given its domestic customers a year without paying any bills and still have been able to finance its functions.’
The privatised electricity companies’ minuscule debts and the fat profits they were making under RPI-X drew predators from across the Atlantic, and when the government’s golden share in the firms lapsed in 1995, the Americans pounced. Just as California was making the disastrous decision to imitate the British model in opening up its own electricity system to competition, companies from Ohio, Nebraska, Texas, Georgia, Colorado, Louisiana and Virginia spent £10 billion buying up British firms. As the Americans began to flood in, Labour took over from the Conservatives, and Gordon Brown slapped a windfall tax of £1.5 billion on the electricity firms as punishment for their excess profits. It was easy for the Americans to borrow the money to pay, because their new acquisitions had so little debt on their books. But the windfall tax was a sign that US executives, caught up in the more-testosterone-than-sense expansionist passion that brought about the downfall of Enron, had misjudged the risks of investing in British electricity.
They tried the same tricks as their British predecessors. Edison Mission Energy of California, for instance, bought two big coal-fired power stations from Powergen in 1999. In 2000, it announced that it was closing one of the generating units at its Fiddlers Ferry coal station in Cheshire because, it said, it cost too much to run. In fact, it could have been run at a profit. But by taking 500 megawatts of the power it generated off the market, Edison Mission drove up the price of electricity, which meant more money for Edison Mission, and for the other owners of power stations. The customers paid the price. Edison Mission eventually brought the unit back online after pressure from Littlechild’s successor as regulator, Callum McCarthy. The writing was on the wall for the Americans. The windfall tax suggested there’d be a tighter regulatory regime under Labour, and shortly after the American buying spree began, wholesale prices for electricity plummeted. There was a rush for the exit. In desperation, the Americans cast around for somebody willing to take their British electricity assets off their hands.
McCarthy was indifferent to the rout of the Americans. He was only interested in price, and claimed partial credit for the sudden cheapness of electricity: he attributed it to Neta, a wholesale electricity trading system that he favoured and the government backed. The New Electricity Trading Arrangements were designed to bring prices down by making the electricity market fairer and more open. On the face of it, Littlechild had cause for satisfaction, too. He could point out that the fate of the Americans – some, notably TXU of Houston, lost their shirts in Britain – gave the lie to the notion that the privatised electricity system was a licence for capitalists to print money. In reality, the fall in the electricity price had little to do with Neta and much to do with Littlechild’s endorsement in the late 1990s of the ‘dash for gas’ – the rapid construction of gas-fired power stations, cheaper to build and run at the time than coal or nuclear. This led at the turn of the century to an electricity glut.
New power stations, an electricity surplus, lower prices, companies going bust because they weren’t competitive: it sounds as if everything Littlechild planned had come to pass. Yet the result wasn’t at all what he’d imagined. Just because the American companies’ shareholders, and their customers back home in the US, got stiffed by their adventures in Britain didn’t mean that Britain benefited. In the first place, the electricity surplus was a political and industrial disaster. The new wave of gas-fired power stations took enough market share from the coal and nuclear stations to bring them to the edge of bankruptcy, but didn’t have the capacity to replace them if they actually went bust. It wasn’t just that the livelihoods of thousands of miners and engineers loyal to Labour were on the line: a system that could bring the country to a halt in a fraction of a second was subjected to market shocks that had no market solution. Blair’s government had already intervened to slow down the switch from coal to gas; in 2002 it had little choice but to bail out British Energy, the private company that owned the nuclear stations.
And there was a deeper, less visible problem. Neta was fantastically complex. There is no evidence to suggest that any elected politician has ever understood how it worked (any more than they understood its byzantine predecessor, the ‘Pool’). Some specialists believe civil servants don’t understand it either. How could they? Its arcane codexes are intelligible only to corporate lawyers and accountants. Yet there was one important clue to how Neta worked: the electricity companies were all for it – this, despite the fact that McCarthy championed it as a means of bringing them to heel. And when Neta – the electricity trading system we still have today – was introduced, it gradually became clear why. It was even more opaque than the Pool. And although its introduction coincided with a sharp fall in wholesale electricity prices, customers saw no change in their bills.
It was true that the ‘dash for gas’ had brought about a squeeze in profits for the companies that generated electricity. But the main beneficiaries of this weren’t customers: they were the firms that distributed and sold the power. Excessive profit margins simply shifted from one set of electricity companies to another. The inevitable next stage was for the companies that distributed electricity to merge with the companies that generated it: this was ‘vertical integration’, just the kind of cosy arrangement, with all its potential for price-fixing and abuse of market dominance, that Littlechild wished to avoid. The introduction of Neta shed no light on the real costs to companies that sell customers electricity they’ve ‘bought’ wholesale from themselves. There was only one set of companies rich, powerful and experienced enough to take advantage of Britain’s burgeoning oligopoly. In 1998, as the Americans began their withdrawal from Britain, Continental Europeans arrived to take their place. The first bid from across the Channel, only seven years after the CEGB was destroyed, came from Electricité de France, the French CEGB.
I met Stephen Littlechild at a hotel in Dorridge, near Birmingham. He’s still busy in the obscure world of utility regulation, still attached to Birmingham and Cambridge Universities. Gently sunburned, with white hair and beard, he’s almost seventy; he has a Puckish energy, an enthusiasm more postgraduate than professorial, and a way of punctuating his conversation with a falsetto giggle. He once said that instead of RIP, the inscription on his gravestone should read ‘RPI-X’.
Privatisation, he told me, had been a matter of achieving clarity. ‘In the nationalised industries … nobody had a clue what anything cost. The government just gave them money, and sometimes didn’t … What has happened is that a price has been put on everything.’ He blamed two groups for the problems that followed the electricity privatisation. One was the City analysts who mistakenly characterised investment in long-established public electricity enterprises as ‘risky’, thus underestimating how cheaply new owners would be able to borrow money. The other was the politicians, who never gave him the powers he wanted to obstruct the anti-competitive mergers of electricity makers and electricity sellers.
In 1995, Scottish Power, which was integrated from the moment of privatisation – it both sold and generated electricity from the big coal stations at Longannet and Cockenzie – became the first privatised producer to take over a privatised seller when it bid for the former Merseyside and North Wales Electricity Board, renamed Manweb. Littlechild said he had tried to persuade Tim Eggar, energy minister at the time, to intervene. Instead of worrying about the power over customers the takeover would give the Scottish firm, Eggar said he wanted to give Manweb ‘a kick in the pants’. Both companies now belong to Iberdrola of Spain.
It seemed odd that Littlechild, the great free marketeer, should be upset about a private Scottish firm taking over a privatised electricity board, yet quite relaxed about a state-owned French company taking over the private London Electricity in November 1998. That first foray by EDF was followed in 2000 by its purchase of Cottam; in 2002 EDF added the old electricity boards in south-east and south-west England to its portfolio, and in 2008, with the purchase of British Energy, it bought most of Britain’s working nuclear power stations. As age shuts them down the plan is to replace them, starting in 2019, with a French-designed reactor known as the European Pressurised Reactor (EPR). With the abolition of the CEGB Britain no longer has the skills to design and build nuclear power stations.
‘People naturally feel some pang of regret that something made in Britain is no longer made in Britain,’ Littlechild said. ‘But the reason it happens is that a better service has been provided elsewhere.’
Didn’t it invalidate the privatisation of the CEGB and the old electricity boards if they could just be renationalised by the French, without British firms being able to do anything similar in France?
‘People are better off,’ he replied, ‘even if it means some jobs move overseas, because we specialise in other industries and other sectors where we have an advantage, like financial services. The argument that Adam Smith and others made for free trade did not depend on other countries accepting it as well. You appear to think that you should not let foreigners compete in this country unless our companies are able to compete in their country. I’m saying we stand to gain by letting anyone who wants to compete in this country – at least customers stand to gain.’
Littlechild seemed reluctant to accept that EDF’s move into Britain undermined the rationale for electricity privatisation and I was surprised, just before I left, when he looked at me sadly and said that, yes, he did regret what had happened, only a month before his term as regulator came to an end. ‘I think it was not possible for the regulator to stop it … I didn’t want an important reform being compromised by a company from overseas that was still state-owned, very large, not subject to competition, its actions not determined by meeting the needs of customers but by, well, its plans.’
It wasn’t that nobody tried to stop EDF’s move into Britain. But in 1998, Labour was working with the set-up it had inherited from the Tories. In her notorious Bruges speech ten years earlier, Thatcher had warned overweening Eurocrats: ‘We have not successfully rolled back the frontiers of the state in Britain, only to see them reimposed at a European level.’ The same year, in another, forgotten speech, she boasted to an audience of businessmen that her government had forced Europe to break down the barriers to cross-border business. By supporting a single European market in goods and services, she said, the Conservatives were taking action ‘to secure free movement of capital throughout the Community’. She saw no contradiction: those who claim to be her heirs still don’t. But implicit in Thatcher’s support for the single market was the acceptance of a single Brussels-based regulator as the ultimate arbiter of fair competition in Europe. Since then the EU Competition Directorate has had more impact on Britain than any other EU body. And France has proved an adept lobbyist. Brussels has let the French protect EDF from competition at home, allowed EDF to borrow money at low government rates, and let it expand into the open arena of Britain.
A strong, cunning negotiator capable of schmoozing the Eurocrats was required if the Department of Trade and Industry was ever to make the case in Brussels against the EDF takeover of London Electricity. On 30 November 1998, when news of the deal broke, exactly such a man was in charge at the DTI: Peter Mandelson. New in the job and eager to prove he was more than just a master of the political dark arts, he claimed he modelled himself on a Tory predecessor, Michael Heseltine, who had pledged to ‘intervene before breakfast, lunch and dinner’ on the side of British industry. But Mandelson never had a chance to put the case. A few weeks after EDF made its move, he was on the brink of tears, listening to Tony Blair telling him over the phone that he had to resign. Details had emerged of an undeclared £373,000 loan Mandelson had taken from the Treasury minister Geoffrey Robinson to buy a house in Notting Hill, an untenable conflict of interest. Mandelson quit, and after a sojourn on Corfu with his ‘old and good friends’ from the Rothschild banking family, passed into his personal Golgotha: a small flat, a Fiat Punto instead of a ministerial car and Friday nights shopping in Hartlepool Tesco’s.
Had his desire for a nice house not forced him out of office, would Mandelson have made the effort to lead a concerted lobbying effort in Brussels against the EDF takeover? We’ll never know. He was, proudly, the grandson of a patriarch of nationalisation, Herbert Morrison, and as such a kind of familial opponent to George Osborne, son-in-law of David Howell, patriarch of privatisation. Mandelson claimed in his memoirs that his house purchase was ‘nesting, rather than socialising’. But by moving to Notting Hill and hanging out with the Rothschilds he passed into Osborne’s territory.
Tucked away in Mandelson’s account of his 1998 downfall is a tortured paragraph, part confession, part self-justification, which could stand as the heart’s cry of New Labour – the agony that wells up in the soul of an ambitious, sensitive socialist who suffers because he can’t live like the hedge fund people, those people who are so much more charming than one has been led to expect. ‘A bit of high living had definitely crept into my soul,’ Mandelson wrote.
I saw what others enjoyed and I wanted to share it. Not glamour, or luxury, or swank. Just comfort and smartness. I had absolutely no desire to show off. Social life was always secondary. Work always came first. But I cared about money because I didn’t have it. I wanted my own savings, my own ability to spend on myself and others. I have never been greedy for riches. And yet it was my eyes getting too big for my stomach that brought me down.
With Mandelson gone and his replacement, Stephen Byers, coming to terms with the job, the baton passed to civil servants and to a junior minister responsible for energy, John Battle. Battle was from Leeds, a Catholic and an activist for social justice whose life until that point – studying the poetry of William Empson, training for the priesthood, setting up Church Action on Poverty to campaign for a minimum wage and mastering Labour’s housing brief in opposition – hadn’t obviously pointed him towards the energy portfolio in government. Today he is no longer an MP, and has returned north to a life of good works. I met him in the Tiled Hall Café in Leeds, where he recalled the day in 1997 he first walked into the DTI building as minister. He was met by a reception committee of civil servants.
‘I was asked which room I wanted, and whether I needed anything. I remember asking for a whiteboard, and being told I wouldn’t need one. I asked for a bookcase and they said: “Minister, if there are any books you want to read, you’ve got civil servants now, just get one of them to read the book and they’ll give you a précis.” I didn’t understand that “Is there anything you need?” was code for “What do you want in your drinks cabinet?”’ He asked the civil servants if they would draw up a report on the new energy markets and fuel poverty. ‘I was told fuel poverty was not a concept recognised in the department; it was the concern of the Department of Social Security.’
Battle was well aware of the unfairness of the French takeover, but was under the impression that Littlechild was happy to see it go ahead. The civil servants who might have told him otherwise don’t seem to have made a fuss about it; the DTI’s permanent secretary at the time, Michael Scholar, told me in an email that the EDF takeover ‘was not in the department a cause célèbre’. Battle now regrets not challenging Littlechild and the other regulators. ‘The regulator was completely fixed on price mechanism as the be all and end all, and opening up to new entrants. On paper it sounded fine. But in the real global economy, we couldn’t buy a French power station, and they could buy ours. We didn’t get a grip on the regulators. We left the framework to them. We should have changed the remit. We were too cautious and nervous about questioning the market. Why was it that we had to lose our nationalised industries in order to hand them over to nationalised industries from other countries? They could buy into us, but we couldn’t buy into them. The French said they wanted to open up their markets but they never did.’
The DTI asked Brussels to let Britain’s own competition authorities decide on the EDF bid. The European competition commissioner, the late Karel van Miert, refused, and soon afterwards issued an eight-page judgment clearing the EDF takeover. Ignoring EDF’s monopoly in France, he focused instead on the cross-Channel cable through which EDF already sold Britain a relatively small amount of power. Such a piddling market share, he concluded, hardly threatened dominance.
It was as if UEFA had been asked to consider the fairness of a French football team becoming the 21st member of the Premier League and, after scrupulous examination of the relative strengths of the existing 20 English teams, announced that the French would have no special advantage playing in England, ignoring the detail that when the English teams visited the French side at home, the French goal was boarded up with plywood. ‘The DTI,’ Helm writes,
simply assumed that the British model was the one Europe should follow, and that its superiority would be evident from the results … The failure to prevent EDF’s acquisition of London Electricity or its subsequent incremental acquisitions reflected not just an ignorance of how to work the Commission, but also of how to play the system. Whilst RWE, Ruhrgas [now part of E.ON] and EDF invested in the politics and processes of Brussels, the DTI relied on general principles. Its team was systematically outclassed.
I arranged to meet some of the agents of the Robin Hood group, L’Association des Robins de Bois – a clandestine network of French subversives working within EDF on the company’s home territory – in Montbéliard, in Franche-Comté, where the Peugeot family began making things for sale, starting with coffee mills and bicycles in the 19th century. While I waited for my contact outside the railway station, a freight train clanked past bearing a seemingly infinite number of new Peugeots. Here was France’s well-lubricated machine a-running, its state-planned network of nuclear reactors pouring out cheap, low-carbon electricity to power world-renowned Franche-Comté companies like Peugeot and Alstom, and to power the network of state-planned trains à grande vitesse that connects the country. ‘Bienvenue à Belfort Montbéliard – Territoire d’énergies’ reads a poster at the TGV station.
But Peugeot is struggling to compete at home and abroad; France’s 58 nuclear reactors, all built between 1971 and 1991, are coming to the end of their working lives, with no certainty as to how they will be replaced; and the new Belfort-Montbéliard TGV station, which opened last year, deposits arriving passengers in the middle of the countryside, several miles away from both Belfort and Montbéliard. As for cheap electricity, it is no use, if you are French, knowing that EDF electricity is cheaper in France than EDF electricity in Britain (which it is) if you can’t afford it.
My Robin Hood contact, P, had worked directly for EDF for 15 years, then spent another 15 in the CGT union, still, under the French system, on the EDF payroll. Over lunch, he explained the Robin Hood group: a loose association of electrical engineers and co-ordinators who step in when EDF managers order a customer to be cut off for non-payment. In certain cases, if they can’t help the customer any other way, a Robin Hood EDF engineer will return to the property and clandestinely, illegally reconnect the supply. Five years ago EDF electricians discovered that some government officials whose work was tied to the company were getting electricity for nothing. They promptly disconnected them. ‘That was the birth of Robin Hood,’ said P.
The group does what it can to protect its members and impoverished EDF customers from prosecution – making sure the reconnecting engineer is not the same as the disconnecting engineer, and that the meter never stops running, so that the bill continues to rise, at least nominally. Where possible they call in social services to help the customer rather than cut them off, or invent a reason not to do the job.
‘We want an engineer to have the right to refuse to cut somebody off,’ P said. ‘It used to be easier to come up with excuses not to do it, because there weren’t so many jobs. Now one engineer’s doing ten disconnections a day, you can’t refuse them all.’ It was dangerous work, he explained. ‘You need to know how to do it. If you make a mistake when you try to restore electricity, you’re dead. If you create a short circuit you can blow your head off. You need special gloves, a special mask, a visor.’
Rather than use the tactic EDF and other electricity firms have adopted in Britain – replacing non-payers’ meters with a meter requiring power to be paid for in advance – the homeland EDF will sometimes install a ‘trickle meter’, rationing poor customers to a thousand watts at a time. ‘A thousand watts. It’s too little,’ P said. ‘You can’t live with that. If you have the light on in the evening, the TV and the washing machine, that’s it.’
P described the Robin Hood group’s activities as ‘a legitimate act of resistance’, echoing the origins of EDF in the undercover planning for postwar France carried out by the National Council of the Resistance during the Occupation. At the CGT’s headquarters in Paris, in a modern brick building hollowed out by a vast atrium, I found the same description of France’s electricity supply as a part of la patrie that had somehow been taken over by outside forces. ‘For us,’ Denis Cohen, the communist head of the CGT until 2003, told me, ‘energy is like culture; it’s not a private good.’
It was puzzling. From this side of the English Channel, it had seemed clear enough: although some shares in EDF have been sold, and the management has been given a measure of commercial freedom, EDF looks like a state company, owned, controlled and supported by the French state, subject to French political control, and thus to the French electorate. It has taken over a large chunk of the British electrical system, though EDF doesn’t answer to me and my fellow voters. Yet ordinary French people don’t seem to feel it is under their control either. My efforts to arrange an interview with the company’s supposed owners, the French state, in the form of the Agence des participations de l’Etat, were rebuffed. As a last resort I turned up unannounced at the APE’s headquarters in the government offices in Bercy, a forbidding building resembling a cliff face of beige stone and tinted glass. I was shown the door.
‘It’s a funny company,’ Thibaut Madelin, energy correspondent of Les Echos, told me. ‘Obviously it’s a state-owned company, and you can argue it’s controlled by the government, and the union plays a big role, but I think the real power is within EDF. I’ve covered energy for four years and I’ve found no one can actually challenge it. The civil service and the regulator try somehow to control EDF but they can’t. It’s very hard to define where the power comes from.’
One spring morning I took the train from London, north through Cambridgeshire and Lincolnshire, to Nottinghamshire. The trackside was sprinkled with blackthorn blossom and when the sun flashed between the rainclouds the fields of rape flowers shone a dizzy yellow. Just before Newark-on-Trent the track began to cross lines of six-armed National Grid pylons, heaving their cables over the sheep and hedgerows like devas converging on a sacred site. We passed between Sherwood Forest and the River Trent and clusters of steam-headed cooling towers rose on the horizon, signalling the approach to England’s great electric estate.
The five coal-fired power stations that spread out in an arc along the Aire and Trent valleys have been there since I was a boy: the squat towers, seen from the window of express trains hurrying between London and Scotland, seem as natural in the landscape as flat green fields and comfortable houses of dark red brick. Most of them were built by the CEGB in the 1960s, in the heyday of state planning, to use local coal. The quintet of West Burton, Cottam, Drax, Eggborough and Ferrybridge still run. With their turbines spinning at full tilt, they can make a fifth of the electricity Britain needs on a cold winter’s day.
Inside the noisy room at Cottam that houses four 164-foot high boilers, Stephen Rawlinson, the plant’s mechanical maintenance manager, beckoned me up a set of metal steps and opened a tiny hatch. We were like insects under the grate of a coal fire, sparks and orange-hot cinders the size of my head shooting into heaps of ash. Looking up, I saw the inferno itself, a vast fireball coiling and erupting, fed by jets of pulverised coal, ground finer than talcum powder in enormous rotating drums filled with steel balls. Here was the elemental fury behind the green charging light and the whine of the washing machine.
Cottam coal station (there’s also a gas station, owned by a German company, on the same site) was privatised in 1991 and bought by EDF in 2000. When I asked the predominantly middle-aged engineers how they felt about working for the French, they told me their first loyalty was to the power station itself. But beyond that, working for EDF reminded them of the old British public service they started out in. ‘It’s very much along the lines of the CEGB as we knew it years ago – very structured procedurally, which is a good thing to have,’ said Dave Owen, a boiler engineer. He took me inside a boiler that had been shut down for cleaning. The mass of hot dust had been vacuumed out but every surface was still covered in brown powder. A gut-tangle of tubes and steam condensers at the top resolved itself into a vertiginous shaft lined with a delicate layer of tightly packed tubes that parted at the base to take coal from the feeders.
‘I don’t mind it going to other countries, but I believe there should be an engineering base in the UK,’ Owen said. ‘As a country we’re losing out, from engineers who design to people who maintain.’
Boyd Johnson, who looks after the mass of machinery – itself the size of a large factory – that strips polluting sulphur from the gas given off by the burning coal, said that Powergen, the company that inherited Cottam from the CEGB, hadn’t seemed committed to the future: it never invested in the full anti-pollution gear. EDF was different. ‘As engineers, we’re all about investment in the kit.’ Being with EDF, he said, was ‘like going back to the CEGB, but a little bit crisper.’ France, to be sure, had different priorities, but ‘at the end of the day, the French are investing. OK, you could say that in the future, when all the nuclears are built, they’ll get quite a large say in how the industry is run. But then we have government regulators.’
Chris Wild, in charge of milling the coal into powder, showed me the troughs where conveyor belts deliver the raw mined nuggets into the plant. I asked where the coal came from. The last deep mine in Nottinghamshire, Thoresby, is twenty miles away. ‘We have such a varied diet,’ he said. ‘I think this is from Kentucky.’ Wild was among the last batch of apprentices taken on by the CEGB before it was broken up and sold. ‘It doesn’t matter,’ he said. ‘I don’t think “My boss is wearing EDF overalls” if he rings up at two in the morning and says some bit of kit’s broken down.’
Cottam operates with hundreds fewer staff than it did in the CEGB days and no apparent problems. ‘If this downsizing had been done under the auspices of the CEGB, would it have worked?’ Wild asked. ‘How do you measure the loss of such things as the Hams Hall workshops and the apprentice workshops at Burton on Trent, or the CEGB engineering programme? It makes you wonder if it could have remained as a privatised, streamlined CEGB. Would it have been better?’
The decisions on where electric Britain goes next, decisions in which Paris plays a key role, can’t be put off any longer. The cumulative effects of Littlechild’s RPI-X regime, two decades’ idealisation of shareholder capitalism, and the relentless promotion of the notion that it is socially acceptable for senior managers to be motivated by nothing other than a desire for personal enrichment, have left the electricity system on which Britain relies worn out. A fifth of the British power stations running today are due to close by the 2020s, and the government wants some mix of new nuclear, wind and gas, together with a smattering of coal and a rejig of the Grid, to make good the shortfall. Presenting a draft energy bill to Parliament in May the energy secretary, Ed Davey, said the figure of £110 billion often bandied about for how much this would cost was only the beginning.
The new imperative to be good world citizens by burning less fossil fuel makes matters harder. Our nuclear power stations are clapped out, our coal and oil stations are greenhouse gas factories, and since we’ve burned through most of our own North Sea reserves we have become reliant on shiploads of liquefied gas from Qatar, routed through the Strait of Hormuz, which Iran promises to close if foreign powers give it trouble. Onshore wind farms are unpopular with rural Tories; offshore wind farms are expensive and far from the Grid, and besides, wind power needs to be backed up with alternatives, since the wind doesn’t blow all the time.
Of the three main sources of Britain’s future electricity supply – gas, wind and nuclear – the first two don’t require such urgent attention as the third, though we can expect any amount of rhetoric from the gas and wind lobbies while the energy bill is debated. The gasbags (of whom Osborne is one) will argue that the worldwide shale gas revolution is going to make gas cheaper and more widely available, that gas-fired power stations don’t need subsidies, and that gas is environmentally friendly because it’s less filthy than coal. The windbags, led by Davey, will argue that improving technology will make offshore wind cheaper, that it’s far cleaner than gas, and that wind energy makes Britain less dependent on imports from risky regimes. It’s an argument that Britain would be having whoever owned our electricity industry and it seems inevitable that the gradual end result will be more gas, more wind, and less coal. New nuclear power stations, however, are not only central to the government’s hopes: the companies who would build them say that the decision to proceed must be made by the end of the year.
The original idea, formulated under Labour and inherited by the coalition, was to unleash the pent-up atomic yearnings of the private electricity sector by giving the go-ahead for four new nuclear stations, each with a pair of reactors. Two pairs would be built by EDF at Hinkley Point in Somerset and Sizewell in Suffolk; two would be built by the Germans, E.ON and RWE, at Wylfa on Anglesey and Oldbury in Gloucestershire. At least four and possibly all eight would be a single model, the efficient, super-safe EPR designed by Areva of France. Making all eight of one type would reduce costs: they would effectively be mass-produced. It was argued by the nuclear lobby that since nuclear power stations, like wind farms, don’t produce greenhouse gases once they’re up and running, they should benefit from the same sorts of subsidy as wind. If the French and Germans were being asked to pony up the billions, it was reasoned, they needed some guarantee of payback over the decades of the stations’ working life. Hinkley Point would go online in 2019, and within a few years nearly a quarter of Britain’s peak electricity demand would be supplied by safe, clean, reliable new nukes.
And what was wrong with that? Almost everything, it turns out. The triple meltdown of reactors at Fukushima after the earthquake in Japan last March prompted the German government to shut down its nuclear sector entirely, which in turn led RWE and E.ON to abandon nuclear investment in Britain. Areva is now cobbling together a joint bid to build EPR reactors on the Wylfa and Oldbury sites with a Chinese firm, China Guangdong Nuclear Power Company. But it faces competition from its Japanese rival, Toshiba Westinghouse, which together with another Chinese company, the State Nuclear Power Technology Corporation, also wants to take over the former German projects, and proposes building a different reactor, also said to be efficient and super-safe, the AP1000. The French achieved economies of scale in the 1970s and 1980s by building nearly sixty reactors of identical design. Eight reactors for Britain already sounds more like an artisanal than an assembly-line product; four of one and four of another sounds frankly experimental.
And experimental is what the new reactors are. They are untried. No EPR or AP1000 is or ever has been operational. Two EPRs are being built in China, one in Finland and one at Flamanville in Normandy. None is close to switch-on. The Finnish and French EPRs will cost at least twice as much as they were supposed to. The Chinese reactors are said, by the firms involved, to be on schedule, but Flamanville is running four years late. Recently the local electricity company that ordered the Finnish reactor cancelled the latest opening date – 2014, already five years behind schedule – without giving a new one.
The French themselves seem to be cooling on the EPR. François Hollande wants to cut the nuclear component of France’s electricity from 75 to 50 per cent. In a 2010 report on the future of the French nuclear industry François Roussely, a former head of EDF, warned that the EPR was too complex, needed a redesign, and that customers should be offered a smaller, simpler reactor called the ATMEA. The previous year, taking over as the head of EDF, its current boss, Henri Proglio, mocked Areva for pushing the EPR abroad. ‘Do you know how many companies have just one product in their catalogue?’ he sneered. ‘There was Ford and his Model T. But that was a hundred years ago, and at least he knew how to make and sell it.’ Proglio now says he wants to build EPRs in Britain. His comments were widely interpreted in France as a power play within the febrile world of French industrial politics, and it is this world – a world over which the British electorate has no control – to which the British public is being shackled.
Britain’s prospective investment in the EPR, and possibly the AP1000, is disturbingly reminiscent of the prelude to the catastrophic demise of Railtrack, the privatised company that had to be renationalised in 2001. There, too, the government allowed a private network on which the country depended to invest in an unproven technological fix, despite warnings from Europe that the technology wasn’t ready. In the free-market utopia envisioned by Littlechild and Lawson, this shouldn’t have been a problem. In their vision, state planners don’t know what people want: people know what people want, and entrepreneurs will invest and compete to supply those wants. If the product or service supplied is underused, useless or too expensive, it’s the entrepreneur who loses out, not the customers. This perspective takes no account of people’s susceptibility to marketing, yet it’s a reasonable principle, and applied to restaurants, or cars, or furniture, there’s much to be said for it. Were banks to face real competition it would be a good thing. Applied to Britain’s electricity industry, however, it gives rise to two formidable problems.
The first is that a nuclear power station isn’t a restaurant. When the café I own on the market square goes belly up, my livelihood suffers, but the townsfolk won’t lack for coffee. If the National Grid pencils in 13 gigawatts of nuclear electricity for the 2020s, however, and it doesn’t arrive, the country is in peril. It’s a variant of the old joke about you having a problem if you owe the bank a hundred pounds, but the bank having a problem if you owe them a billion. If Henri Proglio plans to move into a new house by Christmas and it isn’t ready, Henri Proglio has a problem. If Henri Proglio’s new reactor isn’t ready for 2019, Britain has a problem. A wind farm that is nine-tenths finished is nine-tenths operational. A nuclear power station that is nine-tenths finished is a £3 billion white elephant.
The possibility that companies might get part-way through building a set of new nuclear reactors in Britain and have to stop due to cost overruns is less likely than the other variant: that, once begun, the new nukes will be finished whatever the cost. Which is the second problem. Expensive to build and difficult to dispose of, nuclear reactors aren’t profitable. The only reason nuclear power is on the table is global warming. The only way it can be financed is by government subsidy. By the end of this year, the British government must decide how big a subsidy it is prepared to give EDF and Areva; EDF and Areva, in consultation with their main shareholder, the French government, will have to decide whether that’s enough.
But the subsidy won’t come from general taxation. It will come, as wind farm subsidies already do, from British customers’ electricity bills. It’s a stark illustration of the realities of privatising essential services – that what is being sold is not infrastructure, but bill-paying citizens, and what is being privatised is not electricity, but taxation. Effectively the French government is buying the right to tax British electricity customers through their electricity bills; to use British money and British sites to finance a world showcase for unproven French nuclear technology. And because the hidden taxes in electricity bills take no account of people’s ability to pay, the poorer you are, the bigger contribution you make to the programme.
That’s not to say the French people will be winners as a result of the deal (although Hollande has at least acknowledged that in France electricity bills are a form of taxation, and should be adjusted according to income). Given that all the options are expensive and politically charged, the British government might still decide the EPR is too risky and allow extra gas stations to take up the slack, while assuaging the green lobby with continued offshore wind subsidies and promises of esoteric future technologies: tidal power, clean coal, thorium reactors, a European supergrid linking northern windmills and Mediterranean solar farms, a cable feeding green electricity from Iceland. In which case the French people will be on the hook for EDF’s expensive acquisition of British Energy and its existing, worn-out British nukes.
Free marketeers like Littlechild and Lawson might argue that, left to its own devices, the market would never have built nuclear power stations; it would always have gone for the cheapest option. But this is disingenuous. With electricity, the market can never be left alone. Coal might be the cheapest option, but it’s too dirty. Gas might be the cheapest option, but the more the country relies on gas, the more emergency reserves it will have to keep in storage – which the market won’t pay for. Helm’s most devastating point about electricity (and gas) privatisation in Britain is that these are not naturally public industries; nor are they naturally private. ‘It is extraordinary,’ he writes, ‘that anyone could have regarded these as anything other than political industries.’
Electricity privatisation hasn’t been a success in bringing down prices. Most recent figures suggest that British prices are typically right in the middle of the European average – higher than France’s, lower than Germany’s. It has been a failure in terms of British industry and management; the best measure of the scale of folly and betrayal by politicians of both parties is the simple fact that a reliable, badly run British electricity system was destroyed, rather than being reformed, only so that a large part of it could be taken over by a foreign version of the original. And it has been a failure in terms of clarity, in the sense that in order to fund investment, governments that boast about not raising taxes, or of taking low-earners out of the tax bracket, permit predominantly foreign-owned electricity companies to collect flat-rate taxes that hit the poor disproportionately.
How to explain the sense in this country that EDF is a manifestation of the French state, and the sense in France that it is and it isn’t – that by expanding abroad it somehow eluded the people who are supposed to own it? ‘EDF is the biggest electricity company in the world but it is still Franco-French,’ Denis Cohen said, expressing the paradox. ‘The strategy of this company, even though it is Franco-French, is to try to get out of France.’
What matters about EDF’s enormous acquisitions in Britain is not that it’s French, but that by crossing the Channel so decisively it has become something that is neither altogether French nor altogether British. It has become one of those transnational entities that uses national jurisdictions as conveniences, in the same way as the wealthy use national jurisdictions as conveniences for tax avoidance. By presenting itself in France as a champion of French national interests, sheltering behind the shield of the French state, while presenting itself in Britain as committed to the global free market and fair competition, it is taking advantage of the fact that the two countries’ governments, electorates and media are separate: the two eyes of supervision are attached to divergent brains, and EDF can exist in a state of institutionalised hypocrisy.
EDF is still the French CEGB, though more technically skilled than its former British counterpart. Tony Cooper, who in the 1990s headed the union representing electricity managers, told me that when EDF took over Britain’s old nuclear power stations in 2008, ‘a lot of people were saying: “Christ, at last we’ve got someone who knows how to run these bloody things.”’ But by lurching into the tax-gathering business overseas EDF has become a hybrid – a French CEGB crossed with a French version of Enron. One long-time observer of the French energy scene described accompanying a group of EDF executives to an Enron trading room at the hubristic height of that company’s success. She was taken aback by the gleam of fascination and envy in the eyes of the énarques as they watched their American counterparts trade gigawatts on the screens.
Just because EDF is beset by Robin Hoods in France and has planted its standard at Cottam, hard by Sherwood Forest, doesn’t make it the Sheriff of Nottingham. And yet there is an echo, in the conduct of the electricity oligopoly, of the popular notion of medieval social injustice that has defined the background to the Robin Hood legend: a country where the symbol of the nation’s best interests, in the form of the king, is far away, and in his absence, a rootless elite that has no concept of duty or service except to itself is busy taxing the poor. It is as if national boundaries are for the little people, the global peasantry who pay their taxes, not for great men and the great transnational corporations they run.
Still, the lights haven’t gone out. At least that’s what an MP told Dieter Helm a few years ago when he was giving evidence in Parliament. People warned there would be blackouts the previous winter, the MP said, and there weren’t. With unusual passion, Helm put him straight. If you define the problem as the lights not going out, he said, you misunderstand everything about the way the new world of electricity markets works. The ideal situation for private electricity firms is one where there is only just enough electricity to go round. Then they can charge as much as they like, and people will have to pay. ‘People think insecurity of supply means will the lights go off or not – but that is not the issue,’ he said. ‘It is what happens just before the lights go off.’
More than twenty years after the great electricity experiment was launched, it can be seen that although it was an act of privatisation – of taxation, principally – it was most significantly an act of alienation, lowering an impenetrable barrier of complexity, commercial secrecy and sheer geographical distance between the controlling interests of electricity companies and the customers they serve. It’s easy to switch suppliers. But behind that barrier citizens and small businesses have no way of knowing that they aren’t being fleeced as egregiously by the cheapest provider as they are by the most expensive. The consumer-peasants of Britain bring their tithes to the locked gates of the great electrical estates and wonder who lives in the big house now, and whether they are at home, or in one of their other estates around the world. No wonder Denis Cohen, old communist, heir to the Communards and the sans-culottes, hates what the company that pays him is doing abroad. ‘I was very surprised to see the British trades unionists were not very opposed to this,’ he said, meaning privatisation and foreign takeover. ‘We, with our culture, would have fought until death to prevent it.’
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