Reversal of fortunes, but no 1812

The news from America has never been better. The British invasion, that strange idea a lot of us here in bleakest Blighty have cherished for a while, is finally underway. After sustained bombardment from the other side of the pond – US players have dropped around $24 billion on UK utility equity investments since 1995, and assumed heaps of scorched earth debt too – ScottishPower and National Grid announced major US acquisitions within days of each other this December. Together, the deals are worth $11 billion in equity terms – the gross transatlantic gap is almost half way closed.

Meanwhile PowerGen, British Energy (one reactor scalp already), and National Power are hunting for weak points. Entergy, Dominion Resources, GPU/Cinergy, and AEP/Public Service Co of Colorado have sold off some or all of their UK interests, while whispers surround the remaining US players here. Sorry, boys, you had a good run, but we’re heading up the Potomac to put a torch to your simplistic aspirations.

Turncoat talk like this will get a transplanted Yankee in trouble, but so what. The Scots running PacifiCorp and National Grid running New England wires is a lesson some in the US need. One bewildered lawyer at the Oregon Citizen’s Utility Board had this to say to the Associated Press when the PacifiCorp deal was announced: “we’re trying to be as fair as we can…but we’re dealing with a complete unknown”. Utah’s governor was even more in need of instruction: his comment to AP was “I need to see why we ought to be turning control of a Utah basic resource – power –over to an entity in Scotland. I’m having a hard time seeing what the benefit will be to Utah ratepayers.”

Well, this “complete unknown”, this “entity” that is ScottishPower, like its English peer National Grid, is a pretty fearsome business machine. PacifiCorp in particular is some of the fairest prey around. It did the US thing in the mid 1990s, pumping up trading from Oregon to the US east coast, and mounting Patton-like (but not so successful) acquisition campaigns abroad. It moved so fast it lost control of its operations, sliding into the humiliation last August of nasty trading losses and sacking its chief executive. In October, his sobered replacement announced that the campaign was over, and about everything would go, except the Northwest core and one Australian trophy.

Truss acquirers up with as much regulatory rope as you want, but don’t stop these deals. Cost-cutting records and tight management are just what traders seemingly dedicated to losses and managers with a novel approach, but a poor long term record, need. Licence conditions imposed on US buyers here in the UK, admittedly with a hint of that slightly darkening eye which greets foreigners just about everywhere in this “global” market, are only fair over there as well. But they should not be a shield for business and resource jingoism, when America itself has done rather handsomely well out of globalisation, on Wall Street and Main Street alike.

Hang on, sceptics might say, aren’t we talking about the failed UK system, which made utilities rich, and failed every one else? Why entrust our energy security to a bunch of “fat cats” the UK’s own government finds so exasperatingly awful that the whole utility system is not under repair, but total redesign, as in throw out the last decade, and start again from zero? Aren’t ScottishPower and the rest in for a hiding from the regulator in the 2000 price review, which might make today’s protestations (in deal talks anyway) of unshakeable financial stability ring hollow?

That is what we are talking about. But there is a record that is hardly just blemishes – try substantial real terms price cuts since 1990, even if they could (read should) have been deeper. Try clearance of deals and projects other countries, including the US, would never have allowed. Try, thanks in part to those clearances, a multinational list of solid contenders for the competition end game, which we are now entering.

That game should mean low electricity prices, by corporate hook or regulatory crook. ScottishPower and National Grid should be given a chance to prove their mettle, and not their diplomatic skills, here at home and abroad. After all, a replica replay of the 1812 war this is not: Britain is no imperial power, and the US no backwater. If it’s surprising to meet not a dumb imperial redcoat, but a skilled capitalist guerrilla, well, tough!