Privatised Utilities - Electricity

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Privatised Utilities - Electricity

The Electricity industry was privatised in 1990. It was split into 12 regional electricity companies (recs), which were all geographical monopolies, and 3 generators; National Power, Power Gen and the still state owned Nuclear Electric, in the hope of creating some competition. There were also two Scottish suppliers. The Nuclear division could not be privatised because it was revealed that Britain's nuclear power stations were hopelessly inefficient, unreliable and expensive (would you want to invest given that information?). The two private generators are obliged to buy up all the power generated by the nuclear power stations before using the cheaper coal and gas fired power stations.

The head of OFFER also uses the RPI − x formula. The current figures for x are 3% for transmission and 2% for the suppliers.

Privatised Utilities - Electricity

The first big consequence of this privatisation was the 'dash for gas'. The two generators were now privately owned profit maximises, and so chose to produce electricity in the cheapest manner. Gas is a dearer fuel than coal, but the gas-fired power stations are cheaper to build, have lower operating and maintenance costs and are more efficient at converting heat to electricity than the equivalent coal power stations. Also, emissions are lower, causing less pollution. Unsurprisingly, the generating companies ignored coal and started using gas to generate electricity. Witness the huge job losses in the coal industry.

Competition in the domestic electricity market finally began on the 14th September 1998 and will eventually affect 25 million households in Britain. Later that year, National Power announced that it was selling off 40% of its generating capacity, but at the same time, entering the world of electricity retailing through the £180m purchase of Midlands Electricity's supply business.

At the start of 1999, Callum McCarthy took over as the electricity regulator (along with gas - now called OFGEM). He arrived with a bang, accusing the generators of fixing prices via the 'pool' using their market power. Changes to the system of setting wholesale prices are in the pipeline. He suggested that interim measures might have to be enforced. American companies were buying up more and more of the UK's generating business. National Power and PowerGen had 78% of the generating market in 1990. Now it is only 27%. In McCarthy's first price review, a carrot and stick approach was used. As of April 2000 electricity companies are expected to borrow more for investment, but the price control package proposed was less severe than had been expected. By May, only 6% of households had switched their electricity supplier compared with just over 20% of households in the gas market.

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