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Electricity Acts: A cautionary tale and case study of how British electricians pioneered the technology, the government regularly interfered, privatization produced big profits and electricity consumers usually ended up as losers

1. I decided to write Electricity Acts after being part of  a Merrill Lynch investment banking team that attempted to snatch the British electricity privatization assignment from Goldman Sachs.  We did not succeed, but in the process of trying, I met all the principal players in the industry,  think tanks experts who furnished  ideas to the government,  regulators, members of Parliament, government officials, union members and I even offered advice at Number 10 Downing Street, advice unaccepted. As one ever condescending civil servant put it, we Americans were there to "flog" (sell) the stocks, not offer advice. 

 

Why did Margaret Thatcher's Tories think that they needed to perform major surgery on Britain's electricity industry and how did they select the formula that they thought would rejuvenate it? Those questions matter because Thatcher's restructuring of the electricity sector set the  stage for deregulation throughout the world and later events may presag treatment of renewables, nuclear and system reliability globally as well.

 

I  tackled those questions by starting from the beginning because the UK government's initial interventions set in motion a chain of  missteps that led to more interventions, nationalization and then privatization and deregulation, followed by a new phase of government interference. I benchmarked the British experience against that of the United States. Both countries burned similar fuels, shared ideas and entrepreneurs, and had deep financial markets  that could meet any of its industry's  investment needs. That is, neither money nor information gave either country a lead. Yet the British quickly fell behind and stayed there. Their reorganizations mattered more to insiders and politicians  than to  consumers. Where did all the savings go?

 

The really big issues discussed in Electricity Acts — the status of coal, environmentalism, support for nuclear power, market vs regulatory solutions, political interference, self generation or central station power, how regulation can helps utilities more than consumers, cost of  capital and choosing the right technology  — recur repeatedly both in the United Kingdom and the United States. But it is sometimes easier to look at them  when they happen to somebody else. Electricity Acts affords that look. It presents a case study in how to  build up, regulate and manipulate a business for noncommercial ends,  and evenmake extraordinary profits.   And given the British government's penchant for moving quickly in new directions,  perhaps a view of our future, as well. It can happen here. Be prepared.