Downing Street Years - Margaret Thatcher [424]
The most technically and politically difficult privatization — and the one which went furthest in combining transfer of a public utility to the private sector with radical restructuring — was that of the Electricity Supply Industry. The industry had two main components. First, there was the Central Electricity Generating Board (CEGB) which ran the power stations and the National Grid (the transmission system). Second, there were the twelve Area Boards which distributed the power to customers. (In Scotland there were two companies running the industry — the South of Scotland Electricity Board and the North of Scotland Hydro Board.) Some attempt had been made in Nigel Lawson’s 1983 Energy Act to introduce competition into the system. But it had had no practical effect. As a result the whole of the industry was based on monopoly. The CEGB had a monopoly nationally and the Area Boards monopolies regionally. The challenge for us would be to privatize as much as possible of the industry while introducing the maximum amount of competition.
I had an initial discussion about electricity privatization with Peter Walker and Nigel Lawson on the eve of the 1987 general election. I did not intend to keep Peter at Energy so there was no point in going into detail. But we did agree that the pledge of privatization should be included in the manifesto and be given effect in the next Parliament.
When Cecil Parkinson took over as Energy Secretary after the election he found that the department’s thinking had been strongly influenced by Peter Walker’s corporatist instincts — and by their recognition that Walter Marshall would be passionately opposed to the break-up of the CEGB of which he was chairman. The prevailing idea seemed to be that the CEGB and the National Grid would be floated as one company and the twelve Area Boards would be combined into another. This would have done no more than change a monopoly into a duopoly; but Cecil changed all this. He was subsequently the butt of much malicious and unjust criticism because of the changes which his successor, John Wakeham, had to make in his original privatization strategy, particularly in connection with the nuclear power stations. In fact, it was Cecil who took the bold and right decision to reject both corporatist thinking and vested interests by breaking up the CEGB and — most crucially — removing from its control the National Grid. The grid would now be owned jointly by the twelve distribution companies created from the old Area Boards rather than by the CEGB. Whereas under the old system the controller of the grid was also its near monopoly supplier, control would now be with those who had the strongest interest in ensuring that as much competition as possible be allowed to develop in power generation. These two decisions meant that competition became effective.
Cecil Parkinson was working towards this model over the summer of 1987 and in September we had a seminar at Chequers to look at the options. At this stage none was ruled out, but I insisted that all the legislation must be enacted before the end of that Parliament. Cecil continued to work up the plans and discussed them again with me and other ministers in mid-December. No one was attracted by solutions which retained a monopoly of generation for the CEGB