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Working paper / Energy

The Creation of a Market for Retail Electricity Supply

Author(s): LITTLECHILD Stephen

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ABSTRACT

In September 1989, as part of its privatization program, the Government laid down an eight year timetable for opening up to retail competition the entire electricity market of England and Wales, phased over the period 1990-1998. It might be assumed that the Government was in a position to specify all the arrangements, and that this was part of a considered policy to facilitate the introduction and implementation of competition. But previous accounts suggest that the outcome was part of a deal between generators and regional companies to limit competition (Henney 1994), or was intended to set targets to force companies, regulators and government to come up with practical solutions (Helm 2004). The Department of Energy’s internal History of Electricity Privatisation, only now available, shows that there is merit in these last two suggestions. However, it also documents the significantly evolving views within Government as the implications of retail competition became clearer, not least for electricity contracts and for privatization of the coal industry. Initially, retail competition was hardly worth mentioning, later it was a mild concern that could be met by a small tranche of spot-price contracts, by July 1989 the plan was to introduce full competition immediately with short-term instead of long-term contracts. But the industry resisted, and in September 1989 the Government accepted the industry proposal of a franchise monopoly to enable a mix of short, medium and long-term contracts, though it insisted that the franchise should have an eight year limit. The approach may not be a model for others, but it may not be atypical of how governments actually behave in balancing conflicting objectives and practical constraints, save perhaps for the distinctive commitment to competition exhibited by the leading actors here.