The Government’s decision to block the take-over of two electricity
companies by power generators took the comp-anies and their lobbyists by
surprise. So what went wrong?
At the beginning of last week it seemed that the electricity lobbyists
had done their job exceptionally well. Despite industry regulator
concern and a referral to the Monopolies and Mergers Commission, the
‘friendly’ take-overs of Southern Electric and Midlands Electricity by
National Power and PowerGen respectively looked likely to be waved
A veritable army of lobbyists has been working to ensure just that for
weeks: Lowe Bell Political for National Power; Ian Greer Associates for
PowerGen; Rowland Sallingbury Casey for Southern Electric; and GJW for
It is likely the cost of their services - preparing submissions to the
MMC; winning friends among MPs; and applying pressure at local and
national level - has run into many hundreds of thousands of pounds. But
was it worth it?
The signs were good. Confidence was high. Then on Wednesday, the
President of the Board of Trade Ian Lang decided not to allow the
mergers saying they would be ‘detrimental to competition, given the
current state of the electricity market’s development.’
The announcement marked a turning point after a year of take-over fever
in the electricity industry, which saw half the distribution companies
come under new ownership. Vertical integration - where companies are
involved in both the generation and distribution of electricity to
customers - was always going to be a contentious issue, going against
the grain of the Government’s original competition policy.
But what incenses the lobbyists is that vertical integration had been
allowed to take place on two previous occasions. Southern Electric’s
lobbyist RSC had worked for north west electricity distributor ManWeb in
its successful merger with generator Scottish Power last year and fully
expected the precedent to be followed.
‘We always thought that the latest proposals would be referred to the
MMC but were very surprised at the final outcome,’ says David Hughes,
managing director of RSC.
Lang’s statement on the day of the decision was that ‘vertical
integration is not inherently objectionable’ but he judged it to
adversely affect competition in this instance.
Some national media believed that Lang’s decision was made at the 11th
hour under pressure from right wing MPs like John Redwood and Norman
Lamont who favour stronger competition. If true, the leak of an MMC
document to the Economist two weeks earlier may well have been
significant. And there is speculation among lobbyists that moles within
the DTI might have deliberately created a media outcry to coerce Lang
into blocking the deal.
There is also talk of pressure from industry regulator Professor Stephen
Littlechild who has been consistently outspoken about encouraging new
players, such as Hanson, and restricting the market shares of National
Power and PowerGen. Hanson gained a significant market share in both
generation and distribution via its purchase of selective power stations
from both generators and its take-over of Eastern electricity.
More significant is evidence of a shift in the ground on which merger
battles are fought. Until now the onus has been on the MMC to prove that
a merger would be against the public interest but a forthcoming General
Election and years of private utility ‘fat cat’ stories in the media,
have made all political parties keen to position themselves as the
consumer’s friend. Hence Government concern that any high-profile take-
over is proved to be indisputably in the consumer’s interest.
Whatever the reasons behind the decision, the Office of Electricity
Regulation and the Government now have a new battle to fight. PowerGen
has gone on the PR offensive and on Thursday highlighted its right to
refuse the handover of generating capacity to Hanson, due to a
contractual clause which allowed for a negative outcome. This indicates
a change in strategy from discreet lobbying of Government and Opposition
to high-profile statements by PowerGen chief executive Ed Wallis.
If PowerGen carries out its threat, it will be forced under the scrutiny
of the regulator along with the rest of the industry with potentially
damaging implications for the Government’s planned privatisation of
nuclear energy later this year.
Meanwhile the UK industry is bracing itself for more foreign take-overs
- notably from Southern Company of Atlanta which already owns South
Western Electricity. The US giant’s representatives are rumoured to have
been undertaking low-profile UK lobbying for weeks and are reported to
be considering a bid for National Power.
Lang’s decision has given it valuable breathing space - if National
Power’s bid had been approved, Southern Co would have been forced into
buying the UK generator before the Southern Electric take-over could go
Opinion is split on whether the Government has sent a strong enough
message to ward off such take-overs, or pulled the rug from under the
big UK generators, making them more vulnerable to acquisition from
As the dust settles, the four companies involved in the merger attempts
will be keener than ever to maintain friends in government and while the
electricity firms manoeuvre, lobbyists will need equally clever footwork
to avoid client conflict. GJW, which undertook work for Midlands during
the merger attempt is now understood to be political adviser to the
Southern Company. And Lowe Bell, currently retained by National Power,
also works for Hanson.
Moreover, the whole issue demonstrates that there is no magic formula
for political lobbying in the area of bids and mergers. Charles Miller,
whose Public Policy Unit recently produced a guide to bid lobbying,
points out that ‘parliamentary noise can influence staff morale or move
a share price but it rarely influences Ministers or officials.’
And at this politically-sensitive time, Government competition policy
seems more unpredictable than ever.