Private lives of really useful companies

I LEARNT three lessons during a year spent carrying out an audit of sorts around, among and inside the more obscure recesses of three great former nationalised utilities: water, electricity and telecoms. The first was that these industries are having a ball. Since privatising, they have become more efficient, better run, more profitable, better equipped, more flush with funds and - if you are a top manager - better paid than they ever were in public ownership.

There is telecoms, doubly traumatised with a big technical and a big management change going on at the same time, lurching from one policy and one sort of reorganisation to another. Telecoms used to be deplorable, with equipment pre-dating the Second World War, so dilapidated that you dare not lean against it, and waiting lists of up to six months. British Telecom is now one of the best equipped in the world and you will get a new line next week.

Electricity has, astonishingly, halved the number of men it takes to run a power station, and the survivors look plump, happy and not visibly overworked.

The water companies have ceased to dig buses out of broken sewers, they have enormous capital works and their scientists have never had it so rich. That is lesson number one. There is life after privatising, and it is a good one.

Lesson number two is the shouldering aside of the ordinary consumer, who gets a pat on the head, is told mummy and daddy love him and 'be good and you'll get a sweetie'. Paternalism rules and it is called consumer service.

Every privatised utility has its building where soft-spoken men and women sit before screens on which they can call up your life's history - good payer, bad payer, awkward old cuss (in code) - and answer your queries. They'll even find the telephone number of the doctor whose name you've forgotten. But the promise of market forces and consumer choice is hollow. The important decisions are taken, as always, by well-intentioned people who claim to know our best interests.

A degree of regulation was inevitable in the transition from monopoly to market, but it is becoming alarmingly institutionalised. Saying abracadabra, let the market be opened, was not going to produce competition overnight, but in the case of telecoms, it has not produced it eight years later, either. Newcomers have not surged into the telecoms market to turn it into something akin to the oil business where co-equal giants elbow and jostle each other into a semblance of competitive equilibrium.

The crushing power of sheer size was badly underestimated. A hurtful and humiliating nip has been taken by Mercury out of BT's profitable City of London business, mobile phones have taken a gnat's bite out of its local traffic, cable companies are offering telephones along with cable television down various suburban streets, but 98 per cent of us, 22 million of us, are still BT subscribers.

Even if the many cable companies link, as they may do, with Mercury to form a genuine second network, the process could take 15 years. Or a quarter-century since telecoms was privatised.

This seems rather a long time to continue with a regime of regulation that deliberately keeps profits and prices high as a form of sex attractant to newcomers and keeps BT out of growth markets where it might give us good service. Were we asked if that is what we want? Those with memories of BT's old ways might well say, yes, it is. But we're not asked.

Nobody asks, either, whether we want new water and sewage standards that are sending prices through the roof. It is simply assumed that, like yoghurt and muesli and aerobics and low-fat diets, it will do us good. But in economics, as Keynes pointed out, in the long run we're all dead.

Water was tricky to privatise because it is essential to life; there is no substitute for it; treatment and sewerage are both local monopolies. The public must be protected. But there are nine separate organisations protecting us, dealing with different aspects of hygiene, supply, prices and profits, and a characteristic of all three utilities is the remarkable, mouthwatering profits they make, as if recession had never existed. The water regulators do not co-ordinate, they do not like each other and their collective efforts are leading to hideously expensive water.

Amazingly, toxicologists say there is no need for the new sewerage and water standards, but investment goes on regardless. Unamazingly, everyone agrees that paying for water by meter would hit large, poor families as they have never been hit before. But water meters are going into every new home and a lot of reconditioned ones none the less.

MPs who go purple and blow up like bullfrogs when regulation from Brussels threatens British sausages or cider are strangely silent and their blood pressure stays quite low when Brussels regulations cause the price of water to sky-rocket.

BY THE time electricity was privatised, the government was less starry eyed about how quickly outsiders would come in to challenge an existing monopoly, and the electricity generating monopoly was split three ways. Had there been more time, it would have been six. However the big three, plus stations in Scotland and even in France, do sell into a constantly fluctuating commodity market of Byzantine complexity: instant competition of a sort.

When it came to privatising electricity distribution, which accounts for as much of the price as the power stations do, the government faced the old problem it had met in water and telecoms - a monopoly of the means of local delivery. Yet with electricity, that can be turned to advantage because it is the archetypical standard commodity. French electricity does not grill bacon better because it is French. I cannot colour my current blue and say it burns better in the bulb.

This has made it possible, given the right metering, for the technical book- keeping operation to take place where I contract for power with a station hundreds of miles away and draw the equivalent amount off my local supply while the commodity market keeps demand and supply in balance.

Very big electricity users do this now and get discounts of 10 to 20 per cent. Medium users will do it from April of next year. Householders and small users, bottom of the pecking order as usual, will have to wait another six years and hope a cheap, simple meter will have been produced by then. These 'smart' meters are technically complicated. But it does foreshadow an end of the standard price for electricity, an end, possibly to those inexplicably high profits (sleeps still the regulator?) and something closer to supermarket shopping or the hunt for cheap petrol.

But the Government has spent the last six months interfering and attempting to upset this embryonic market in electricity, distorting it in order to solve its problems with coal. The most depressing third lesson of this audit is that privatised industries are not genuinely private.

On Tuesday, the Prime Minister was answering questions about water prices in the South-west. What on earth have local water prices to do with the Prime Minister? Like the row over coal, it demonstrates that privatised industries are unfree to run as normal businesses. They dwell in a twilight world somewhere between a free market amd straight government direction. When the row about coal presented the first public challenge to the industries' so-called freedom, politicians roared and salivated as if privatising had never happened. This afternoon the Government is to set out its proposals to resolve the pit closure crisis in a White Paper. If the Government announces that, while it cannot order the power stations to burn more coal, it can and will subsidise coal in order to make other fuels less attractive, it is sending the worst possible signals to anyone who was thinking of investing in the British electricity market, or, for that matter, buying into British coal. Because it is now plain that, along with the deal, comes more than 600 members of the House of Commons, more than 1,000 peers and a large part of the Cabinet. And they won't get off your back.

The author presents 'The Goldring Audit' on Channel 4. The last of the current series is tonight at 9pm.