Should We Follow U.K.’s Lead?
Leonard S. Hyman is an economist and financial analyst specializing in the energy and regulated sectors. He was formerly head of utility equity research at Merrill Lynch, and senior advisor to investment banking at Salomon Smith Barney. At one point, he was on a NASA panel investigating the placement of nuclear power plants on the moon. He is author of America’s Electric Utilities: Past, Present and Future. William I. Tilles is a senior industry advisor and speaker on energy and finance. He worked as a bond analyst and later headed equity utility research at Dean Witter Reynolds and then Smith Barney. He then became a portfolio manager at Angelo, Gordon & Co. and later at Sandell Asset Management. For a time he ran the largest long/short equity book in the world.
Margaret Thatcher, the Iron Lady of British politics, launched the biggest revolution in the electricity business since ... Since her compatriot Samuel Insull, transplanted to Chicago, figured out a hundred years ago that electric utilities made more money if regulated.
A quarter century ago, the U.K. government sold the electric utilities to the private sector. This after separating transmission, generation, distribution and retail supply. It deregulated generation and retail supply. And it put the regulated sector under an incentive pricing "scheme," in the British sense of the word.
Americans may have finally noticed. Just as the Brits jettison the substance, but not the form, of the model that seems so attractive to outsiders. On the silver anniversary of the great event, shouldn't we pay it more attention?
There's a twenty-five year record of data, regulatory decisions, investigations, legislation and financial successes and disasters. We can examine what U.K. restructuring accomplished. And maybe learn something useful.
The British did the experimentation for us. That's cheaper than doing it ourselves.