It is not brain surgery exactly, but a basic financial explanation why the majority of the UK's electricity delivery companies are now in American hands. If PacifiCorp's bid for Energy Group (owners of Eastern Electric) succeeds, eight of the 12 regional electricity companies (Recs) in England and Wales will be US-owned.
Of course there are other, more strategic, reasons for the cross-border mergers between US regional electricity companies and their UK counterparts. One is the need for US companies to gain experience in a more deregulated UK market that they can subsequently apply to their own market; another is the perception among US utility executives that the UK has a more benign regulatory environment; a third is that in light of the uncertainty over deregulation in the US electricity market, the UK looks a relatively safe place to make profits.
The latter two perceptions are quite interesting in light of the proposed windfall taxes from the Labour government. Analysts believe that US electricity executives have already factored the tax into their business plans and still believe they can make better returns on capital in the UK than in trying to expand further in the US.
Most US electricity companies are now amalgams of regional and city-based electricity companies, a process that has been ongoing for the past 20 years in the face of more stringent price controls from US regulators. They have the experience in making mergers work, and cutting the costs once those mergers have happened, both of which have proven useful in the UK market.
The next stage, now under consideration by Entergy and Central & South West Corporation, is to merge their UK interests of London Electric and Seeboard into a single entity, which will be able to deliver further overhead savings. The process could be repeated several times involving adjacent Recs in other parts of the country: Midlands and East Midlands, Yorkshire and Northern, or even Yorkshire and East Midlands and Midlands and Sweb, if the other partner will not play ball.
"It makes sense to do this, because this is what has been happening in the US for over a decade," said Mr Rudakas.
The one question that has so far not been addressed is where the UK electricity consumer fits into all this. So far it has not mattered to consumers in the Seeboard region, for instance, that their electricity bill payments go to the bottom line of a Texan company. But the possible merger of adjacent Recs into a holding company structure, that may or may not subsequently be floated as a separate company, clouds the issue of ownership further and adds to the veils hanging over adequate disclosure and consumer accountability.
In a study to be published next Thursday, the National Consumer Council will take up this issue, arguing that the government needs to beef up regulation to make US electricity companies' accounts as transparent as possible, and perhaps demand that separate accounts be produced for their UK subsidiaries. It will also demand that statutory information about electricity prices be made available, and a "fair trading" clause inserted into the electricity supply licence.Reuse content