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International Opportunities

Fortnightly Magazine - January 15 1995

began with efforts in the Thatcher government to "roll back the frontiers of the state." "Conventional" commercial enterprises were privatized first, followed by British Telecom in 1984 and British Gas in 1986, both privatized as virtual monopolies. At the time, the Central Electricity Generating Board (CEGB) was poorly run, overmanned, and politically manipulated. The CEGB launched ill-conceived policies for building large and expensive nuclear and coal plants, and compiled a poor track record in time spent completing projects.

Competition seemed the best way to reduce industry inefficiencies and government interference. The electric industry was privatized by creating an independent grid as a common carrier, splitting the CEGB's generation capacity into five competing fossil fuel generators that would be privatized (but leaving the nuclear plant in public ownership), and creating a pool as a real-time spot market.

As a result, the significant political power of the electricity supply industry has dissolved. The industry has also become more efficient. The CEGB employed 48,000 people; its successor companies employ 25,000. Plans for three nuclear plants and six 900-MW coal units were scrapped in favor of 13 gigawatts of combined-cycle gas turbines, which were built economically and speedily. A major cultural change has occurred within the electric companies. Now that they are commercially oriented rather than engineering dominated, they think.

In the 1980s, the Norwegian government encouraged rationalization of the ESI into vertically integrated undertakings. Norway's 1990 Energy Act introduced competition "to run distribution more efficiently . . . to make power production more efficient . . . to achieve more efficient development and on the right scale." Although it did not privatize Norway's mainly state- and municipally owned industry, the Act opened all the wires to access by any generator or customer. It also introduced a new regulatory framework that requires accounting unbundling of generation, transmission, distribution and supply, and incorporates provisions for price control over the wires (but not over generation or the supply of electricity). In 1991, the government created a separate government-owned grid company, Statnett SF. Norway's pool (which was created in 1971 with membership limited to generators) was also opened to all parties, including traders. Wholesale prices now range about a fifth lower, exerting considerable pressure on some companies to increase efficiency. Tariffs have also been rebalanced to reduce the subsidy to domestic customers.

Lukewarm Followers

The Swedish and Finnish governments quickly determined to follow Norway's suit, although prices in both countries are low. In 1991, the Swedish government created a separate grid, Svenska Kraftnat. In June 1994, Sweden's parliament passed an act opening access, but the recently elected government has decided to wait until 1996. Finland's state power company Imatran Voima Oy (IVO) put its grid into a separate subsidiary; in September 1994, the government introduced a bill to open access. The government may privatize IVO in due course.

The evolution of change in continental Europe has made interesting politics. The 1985 Single Act extended the concept of the internal market to include energy. Then, in 1988, the European Commission tried to sell member states on the idea of an