Interview: John Roberts, former chief executive, Manweb

“As a nationalised industry, we did things the way we wanted to do them, and if you didn’t like that as a customer, that was just too bad.”

In autumn 1990, as Allied troops were preparing for Operation Desert Storm in the Middle East, a battle of a very different kind was going on back home. Three years previously, Margaret Thatcher had been re-elected on the back of a manifesto that included a pledge to privatise the electricity industry and, after months of painstaking work, the flotation was about to happen. “There was a big debate as to whether or not we would actually float, because of all the uncertainty around Kuwait,” recalls John Roberts, then financial director of Manweb. “The decision was, we’ve got this far, we’ve invested this much time and effort, we’re going to go ahead. So we went ahead on 11 December, and the rest is history.”

For Roberts, that moment 25 years ago was one of the high points of a stellar career in utilities that has since included running Manweb and United Utilities as chief executive, and now chairing First Utility and Electricity North West. He has also had stints in other sectors such as financial services, where he chaired the Royal Bank of Canada.

For the electricity industry, that moment was the dawn of the modern age, when the blueprint for today’s fractured and fractious electricity industry was drawn in indelible ink. With the reputation of the sector now at an all-time low, the rights and wrongs of the privatisation a quarter of a century ago remain contentious – but Roberts tells Utility Week he is in no doubt: “If you gave me the choice, I would unquestioningly rather have the way it is now to the way it was.”

To understand why, we must travel back to the febrile atmosphere of the late 1980s. The market was king, and following the privatisation of the gas, water and telecoms industries, electricity was next in line. There could be no denying the problems of state-run industries: “You couldn’t plan more than one year ahead. We used to get our annual visit from the Treasury and they would tell us what we had to do about prices. The industry was run on a shoestring by civil servants. You never saw the same civil servant twice – they weren’t technologists or engineers, they didn’t really understand the industry. That, plus the monopoly mindset, gave you a very inefficient, arrogant, inwardly focused business that was nevertheless supplying a very fundamental need.”

The industry was expecting privatisation – but along the model of British Gas or British Telecom, where the whole entity was floated as one business. Instead, Margaret Thatcher had a momentous meeting with her then secretary of state for energy, Cecil Parkinson: “He persuaded her they should break up the industry – they produced a white paper to that effect in 1988. I was astounded to think we were going to be an independent business – we had just expected to be part of this massive thing. And so it started; we were creating an industry from scratch.”

Roberts was invited to be the financial director representative on the small working group designing regulation, so was at the centre of the hive of activity that followed, as bankers and lawyers pored over the detail of the 12 simultaneous flotations of the Regional Electricity Companies (Recs). At that time, these managed the electricity business from distribution through to retail (no-one had ever thought of separating the two) as well as appliances, with a shop on every local high street.

It was hard work, and came at a personal cost. “When privatisation started, my daughter was four and my son was six and when it finished, she was six and he was eight and they hardly knew me. It was one of those life choices you make.”

Yet Roberts describes the privatisation, which took two years, as one of the best experiences of his professional life. Working with high-powered merchant bankers (Oliver Letwin among them) was a new experience for those who had grown up in the public sector: “It was like being sent in to train with the Olympic squad and if you couldn’t keep up, that was it – you were dropped. It was a very exciting experience and we had to think about things we hadn’t thought about before.”

There were plenty of surprises in store: the weekend Roberts spent drawing up key parts of regulation at his daughter’s tiny desk; the obsessive detail required for the flotation (“it got surreal. We wrote that there was a seaside coastal town in north Wales on a dual carriageway, the A55, and someone said ‘prove the A55 is a dual carriageway’”).

More fundamentally, the changes to the nature of the industry were a surprise. “All we could think of was stock markets, and that our salaries would go up,” says Roberts, whose relatively modest £40,000 stipend as finance director doubled overnight. “We never foresaw the takeovers, the amalgamations, the foreigners coming in.”

One challenge for the markets at the time was differentiating between the 12 Recs – the Regional Electricity Companies that arose from the regional area boards. Manweb was quickly cast as the dog, thanks to its small size and challenging geography (rural Snowdonia coupled with inner city Liverpool). Roberts and his team weren’t afraid to take advantage of this reputation, and have a chuckle along the way: “At the time, going to Liverpool was, for bankers, like going to a foreign country – like going to Kosovo. We had two tours of Liverpool – the A tour and the B tour. The A tour went down leafy roads, beautiful Victorian villas, and that’s where we took all the prospective investors. The B tour went round the docks, round Toxteth and inner city Liverpool. That was the one where we took all the government people who were going to set the prices. We were going round Toxteth with these guys and I said, just for a laugh, we better lock the doors, because four white men with suits in a car are either rent collectors or the police – but we should be alright because it’s early morning, they won’t be out of bed yet.’ It was fun.”

The tour must have worked, because Manweb came out with the highest price cap – RPI plus 2.5 per cent. Roberts shakes his head as he recalls a regime networks could only dream of today. “The government were desperate to sell the industry and Mrs Thatcher was very keen about mass share ownership, and of course they wanted it to be a success, so they sold it at a discount so that when the voters invested, they made money.”

Thanks to its handsome price cap, Manweb floated at the biggest premium – £1.77 a share. “But still, there was apprehension in the business.”

A brave new world had dawned. “We had freedom to do what we liked – to go into manufacturing, to go into retail, and freedom to go into liquidation.” Unlike many of his peers, Roberts, who subsequently became chief executive, chose not to opt for wild diversification. “Some companies went into all kinds of stuff. For my part, being in Manweb, I said ‘we’re going to get this right, we’re not going to diversify into anything’.” The strategy worked – until 1995, when the government’s golden share option on the Recs expired and Manweb was subject to a hostile takeover by Scottish Power, eventually becoming Scottish Power’s distribution business, as it remains today. The staff still did well out of the flotation, with free shares and shares at a discount. “Despite the concern and the trepidation… they made money out of it, which was a good thing.”

Through negotiations with the unions, and in response to calls from a certain Tony Blair, then shadow secretary of state for energy, the workers got two gold-plated guarantees. The first was that there could be no changes to their defined benefit pensions without their explicit agreement – and individuals are still retiring on to these plans today. The second was around health and safety, with a national council set up to protect standards. “Safety has just improved out of sight.”

Within a few years, the 12 Recs had transformed into something more recognisable as today’s market, as the supply businesses were sold and the network arms were subsumed into larger groups. “Some of the wilder diversifications bit the dust, inevitably, and the industry came to be more in its present shape. I don’t think anybody in the early days foresaw for one minute what was going to happen.”

Roberts is convinced that, for customers, it all worked out for the best. Today’s grievances with customer service are well known, but those of yesteryear are sometimes forgotten: “As a nationalised industry, we organised ourselves from the inside out. We did things the way we wanted to do them, and if you didn’t like that as a customer, that was just too bad. You’d ring up on a Wednesday afternoon and say, ‘your electricity is going off’. Not ‘is it alright?’, just ‘that’s it’.”

The outcome for government was more problematic. The politicians of the time believed they had washed their hands of the electricity industry. When asked what the government’s energy policy was in the 1990s, Nigel Lawson famously replied that the government had no energy policy, beyond what the market dictated. What policymakers had forgotten was that private companies had no incentive to deliver policy objectives – something that soon became clear when their contracts for coal-generated power ran out. Eventually, Manweb was arm-twisted into signing a new contract to support the Coal Board, but not without protest. “Whether it penetrated the Whitehall mind or not, that was the first demonstration of the fact that you can’t tell industry what to do. Of course now, as we can see, of the big six, four are owned by foreign owners… The supply margin is getting very, very thin and the difference now compared to where we were in the 1970s is that the people making investment decisions are sitting in boardrooms in Madrid, or Paris, or Frankfurt, not sitting in Whitehall. That is something that the government, in all of those 25 years, hasn’t sorted out.”

Perhaps unsurprisingly, Roberts sees further change in the future. He predicts a shift in thinking around demand-side management – “there’s some interesting issues around the economics of electricity supply which frankly I don’t think have ever been bottomed out” – plus seismic changes in retail, hence his involvement with First Utility. “If you’d said to me in 1990, people will sell electricity on computers, it would have been beyond imagination. When you think about it, energy is the perfect product to sell on the web. An electron is an electron. It’s not like selling clothes or even books. There’s nothing tangible and the delivery mechanism is there. I think eventually the vast majority of energy will be sold on the web. It may well be sold by businesses other than the ones who are there now – the natural service providers, the people who understand e-commerce.”

The scale of change on the retail side makes the past 25 years seems more like 250, says Roberts. “But in the distribution business, it feels like just five years. The technology has improved a lot, but people are still basically doing the same things.” The asset-heavy businesses of transmission and generation have also remained largely stable.

The most disruptive change, for networks and for other areas of the business, notably generation, has been the growing focus on climate change. “The whole green thing – nobody even thought about that, about carbon or climate change, other than one or two rather unorthodox scientists. We were worried about conservation and energy efficiency purely from the point of view of the price of energy and energy dependency, because we had the oil price shocks in the 1970s and all of that. Nobody was thinking about climate change.”

It’s been a quarter of a century since the energy market was privatised, but the battles continue – and will, for the foreseeable future. Roberts, now chairing both a supply and network business, is in a privileged position, able to apply the lessons of yesterday to the challenges of today. And, clearly, he still loves the energy business.