Comment: Second chance to rethink the meaning of power
'The two generators will not be allowed to abuse their market positions in the south and east of the country and they would be crazy to do so'
Saturday 13 April 1996
But neither this nor the synthetic rage of Labour, should deter the Trade Secretary Ian Lang from doing the correct thing and going along with the advice of the Monopolies and Mergers Commission.
The MMC concluded that whilst the mergers might operate against the public interest in some respects these were not sufficiently serious to warrant prohibition and could in any case be overcome with binding undertakings.
The one dissenting voice on the MMC panel was that of Patricia Hodgson, the BBC's director of policy and planning, who submitted a minority report arguing that if the mergers were allowed it would mean higher prices and less competition.
This is rich coming from an employee of an organisation that does not have to compete for its income and which also enjoys what in MMC parlance would be called a "scale monopoly" in broadcasting.
But let us pass over that and consider the facts. The principal objection to the two mergers is that they would result in an unacceptable degree of vertical integration, creating two large groups that generate, distribute and supply electricity - the structure that existed before the industry was broken up on privatisation in 1990.
But the Government conceded the principle of vertical integration when it allowed the takeover of Manweb by Scottish Power to go ahead.
The boundaries have been further blurred by the prospect of Eastern Electricity, which is owned by Hanson, taking over power stations from National Power and PowerGen, which would make it the fourth-biggest generator in the country.
It has also been argued that allowing the deals would give National Power and PowerGen captive regional markets for their electricity, driving choice down and prices up, and increase their ability to rig prices in the electricity pool, the wholesale market for England and Wales.
But the two generators will not be allowed to abuse their market positions in the south and east of the country by the regulator of the industry, Professor Stephen Littlechild, and they would be crazy to do so since we are now less than two years away from the point when the country's 22 million domestic consumers will be able to dispense with their local supplier and shop around.
The undue influence they could exert in the pool will need careful watching but this is steadily being eroded by the arrival of competitors offering electricity from "mid-merit" generating plants - those power stations which generally set the overall pool price.
National Power and PowerGen have almost certainly overstated the efficiency gains they can make from combining generation with distribution and supply and in any event what cost savings they could squeeze out would go to shareholders first and customers second.
But the overriding issue which Mr Lang has to address is what kind of structure he wants for the electricity industry as the domestic market prepares for liberalisation - a dozen regional electricity companies happy to sit on their local monopolies, or a smaller group of well-capitalised integrated players who will bring more competition into electricity supply.
Vertical integration is not always the friend of the consumer but the manner in which the electricity industry was broken up in 1990 has not been an unalloyed success. This time around the Government has the chance to rectify that while putting in place the safeguards that will ensure the customer benefits.
A chance Airbus must not squander
It is hard not to smile at the suggestion that McDonnell Douglas is planning a 400-seater jet to compete with the Boeing 747. Surely this can't be the same company that was obliged to take out newspaper advertisements last year reassuring the world that it was not about to exit from civil aircraft production.
Yes it can, and no it does not end there for the newly-appointed president of the Douglas Aircraft Corporation, Michael Sears, promises that once its 400-seater is in the air it will turn its attention to building a super jumbo.
Now the scent of aviation fuel in the nostrils can do strange things to the sanest of executives so perhaps we should not dismiss these ideas out of hand.
But it is about as hard to conceive of McDonnell Douglas finding the $15bn it would take to build a super jumbo as it is to imagine it merging with Boeing - another of the ideas that did the rounds last year.
What is not in dispute, however is that McDonnell Douglas, number three in the world's jet building league, has turned the corner from basket case to serious contender.
That makes it all the more imperative that the latest proposal to overhaul Airbus Industrie and turn it into a public limited company is not allowed to run out of steam.
The European aircraft consortium has made large strides in the last five years much to the benefit of British Aerospace and its three other industrial partners in France, Germany and Spain.
Indeed Airbus, once the whipping boy for everything that went wrong in BAe's commercial aircraft division, is now the reason that it is still in the air.
But the uniquely French way that Airbus is structured as a Groupement d'Interets Economique militates against efficiency and means that production is carved up, not according to who is most competitive but what shareholdings each partner has.
BAe began sub-contracting out its work share years ago and now at last the other partners are moving in its direction. The Germans have warned they will not fund new Airbus models unless it reconstitutes itself. More importantly, the French, for long the main stumbling block to change, have agreed that Airbus needs to change shape even if it means Aerospatiale losing work-share.
Edzard Reuter, the former Daimler Benz chairman, is due to report to the Airbus superviory board in May on what struture it should adopt.
We have been here before. Six years ago Lord Sterling produced a "wise men's" report for the four government's recommending a complete overhaul of Airbus. Nothing happened.
On this occasion, however, there is concensus for the first time among the partners about what needs to be done. It is essential that the chance for change is not squandered.
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