PowerGen PLC Company Profile

PowerGen Plc posted entire grosss of E9.894 million for the fiscal twelvemonth ended December 2003, a important addition over the old financial twelvemonth figure of E $ 4.422 million. Internal operating net income rose from E329 million in 2002 to E620 million in 2003. PowerGen sells electricity, gas and related services to 8.5 million residential, concern, corporate and authorities clients straight and through the cyberspace. The company is headquartered in Coventry, UK. PowerGen is a subordinate of the German public-service corporation giant, E.ON AG.

Statisticss:

Wholly Owned Subsidiary of E.On AGA

Incorporated: A 1989 as The Power Generation Company PLCA

Employees: A 10,253A

Gross saless: A ?5.65 billion ( 2001 ) A

Stock Exchanges: A Frankfurt New YorkA

Ticker Symbol: A EOA, EONA

NAIC: A 221112 Fossil Fuel Electric Power Generation ; 221121 Electric Bulk Power Transmission and Control ; 221122 Electric Power Distribution ; 221210 Natural Gas DistributionA

Company Perspectives: A

Powergen ‘s vision is to make one of the universe ‘s prima independent electricity and gas concerns. It aims to turn by bring forthing, administering and providing power both in the U.K. and other states in which it operates. As a low-cost, advanced and environmentally responsible operator, it delivers value and quality to its clients, stockholders, employees, spouses and communities.A

Cardinal Dates: A

1988: A Denationalization of the United Kingdom ‘s electricity industry occurs.A

1989: A The Power Generation Company PLC ( Powergen PLC ) is incorporated.A

1991: A Sixty per centum of Powergen portions are sold to the public.A

1993: A Powergen opens its first gas-fired power station at Killingholme.A

1995: A The U.K. authorities sells its staying 40 percent interest in Powergen.A

1997: A Powergen announces the joint venture Cottam Development Centre with Siemens.A

1998: A The company acquires East Midlands Electricity and sells Powergen North Sea Ltd.A

1999: A Powergen becomes the first U.K. company to sell electricity and gas to domestic clients via the Internet.A

2000: A The company enters the U.S. energy market with its US $ 3.2 billion acquisition of LG & A ; E in Kentucky.A

2002: A The German-based planetary energy services company E.ON finalizes the acquisition of Powergen and its U.S. subordinate, LG & A ; E Energy, as a entirely owned subsidiary.A

Company History:

Powergen PLC is a taking incorporate gas and electric company created from the dissolution of the nationalized electricity industry in England and Wales. While denationalization looms, Powergen is carved out as a separate division of the Central Electricity Generating Board in 1989 and is incorporated as a populace limited company with the bulk of its portions sold to the public two old ages subsequently. Powergen and its larger challenger at the clip, National Power, constitute a practical duopoly of electricity coevals in England and Wales, though that scenario is expected to alter as more and more competition enter the industry. Possibly in response to this inevitable displacement in the position quo, the company progressively becomes involved in allied ventures including raids into international power markets, the proviso of combined heat and power, and, most significantly, investing in natural gas.

Commercial Electricity, National Policy, and the Creation of Powergen

Electricity was foremost harnessed for practical usage in the United Kingdom in the late nineteenth century with the debut of street illuming in 1881. By 1921, over 480 authorized but independent electricity providers had sprung up throughout England and Wales, making a instead haphazard system runing at different electromotive forces and frequences. In acknowledgment of the demand for a more coherent, meshing system, the Electricity ( Supply ) Act of 1926 created a cardinal authorization to promote and ease a national transmittal system. This aim of a national grid was achieved by the mid-1930s.

The province consolidated its control of the public-service corporation with the Electricity Act of 1947, which collapsed the distribution and supply activities of 505 separate organic structures into 12 regional Area boards, at the same clip delegating bring forthing assets and liabilities to one government-controlled authorization. A farther Electricity Act in 1957, created a statutory organic structure, the Central Electricity Generating Board ( CEGB ) , which dominated the whole electricity system in England and Wales. Generator of virtually all the electricity in the two states, the CEGB, as proprietor and operator of the transmittal grid, supplied electricity to the Area boards, which they in bend distributed and sold within their parts.

This state of affairs continued for 30 old ages, until the authorities mooted the thought of privatising the electricity industry in 1987. The proposal was enshrined in the Electricity Act of 1989, and a new organisational strategy was unveiled. The CEGB was splintered into four divisions, destined to go successor companies: Powergen, National Power, Nuclear Electric, and the National Grid Company ( NGC ) . Powergen and National Power were to portion between them England and Wales ‘s fossil-fueled power Stationss ; Nuclear Electric was to take over atomic power Stationss ; and the NGC was to be awarded control of the national electricity distribution system. The 12 Area boards were converted, virtually unchanged, into 12 Regional Electricity Companies ( RECs ) , and these were given joint ownership of the NGC. The RECs ‘ portions were the first to be sold to the populace, at the terminal of 1990. Powergen and National Power ‘s portions were offered for sale the undermentioned twelvemonth.

Powergen before and after Industry Privatization

In order to understand Powergen ‘s function within the electricity industry it is helpful to understand how the system operated until the extended alterations brought on by the Utilities Act of 2000. The proviso of electricity consisted of four constituents: coevals, transmittal, distribution, and supply. In England and Wales, coevals was the state of Powergen, National Power, and Nuclear Electric. Transmission is the transportation of electricity via the national grid, through overhead lines, belowground overseas telegrams, and NGC substations. Distribution was the bringing of electricity from the national grid to local distribution systems operated by the Regional Electricity Companies. Supply, a term distinct from distribution in the electricity industry, refers to the dealing whereby electricity is purchased from the generators and transmitted to clients. Under the footings of its licence, Powergen had the right to provide electricity straight to consumers, but in the company ‘s earlier old ages that right was small exercised. Powergen ‘s usual clients were the RECs, which in bend sold the electricity to the terminal users.

A new trading market was devised with the denationalization strategy for bulk gross revenues of electricity from generators to distributers — the pool. A instead complicated pricing process existed in the pool, harmonizing to which each bring forthing station offered a quotation mark for each half-hour of the twenty-four hours, based on an luxuriant set of standards including the operating costs of that peculiar works, the clip of twenty-four hours, the expected demand for electricity, and the available capacity of the station. The NGC arranged these quotation marks in a virtue order and made the determinations sing when to name each works into operation. The pool system was non relied upon entirely, nevertheless, the generators often made contractual agreements with distributers for a specified period of clip as a agency of common protection against fluctuations in the pool monetary value.

At the terminal of 1990, National Power — divided into International Power and Innogy Retentions in 2000 — Powergen ‘s bigger challenger at the clip, boasted an aggregative Declared Net Capacity or Capability ( DNC ) of 29,486 megawatts ( MW ) , where a megawatt was defined as the bring forthing capacity of a power station in any given 30 minutes. Powergen, in 2nd topographic point, had 18,764MW DNC. Nuclear Electric ‘s figure was 8,357MW, the National Grid Company controlled 2,088MW, and British Nuclear Fuels PLC, the United Kingdom Atomic Energy Authority, and little independent generators together accounted for about 2,900MW. Another, though limited, beginning was provided by linkages with the Scots and Gallic electricity systems, with which import or export trades were sometimes made. Powergen and National Power between them therefore controlled some 78 per centum of the electricity market in England and Wales, of which about 30 per centum was held by Powergen.

Denationalization of the public-service corporation was designed to advance a good consequence through the free drama of market forces. The debut of competition in power coevals, it was argued, would take both to greater efficiency within the industry and to lower monetary values for the consumer. Within a few short old ages, nevertheless, concerns had already arisen, as critics of the strategy had predicted from the start. A duopoly, which at the clip of its creative activity held such a important bulk of the electricity bring forthing market, was ne’er likely to incarnate the purest signifier of free market operations.

Government Regulation and the “ Dash for Gas ”

In 1994 the industry watchdog, the Office of Electricity Regulation ( Offer ) , expressed concern about Powergen and National Power ‘s go oning laterality of the market — and the fact that from June 1990 to January 1994 the sweeping monetary value of electricity had risen by 50 per centum. The market portion of the large two had in fact declined since denationalization, with National Power basking some 33 per centum and Powergen commanding less than 25 per centum, but however rumours were rife that Offer would mention the duopoly to the Monopolies and Mergers Commission. Offer finally stopped short of that proceeding, but the regulator did lay stenosiss on the two bring forthing companies, necessitating that they should sell a specified sum of bring forthing works capacity — in the instance of Powergen 2,000MW — and subject to price-capping for a period of two old ages.

The demand to sell works capacity was expected to do small adversity to Powergen ; which works to sell and when to sell was left to the company ‘s discretion, provided it complied with Offer ‘s deadline of December 31, 1995. Much of the works capacity disposed of was expected to be less-attractive coal-burning workss, some of which Powergen would hold closed anyhow as the workss were unneeded to its demands. In penchant to an straight-out sale, it seemed possible that Powergen might be able to set up an plus exchange with a foreign power company.

The needed monetary value caps, ironically, appeared likely to turn out a less burdensome load to Powergen and National Power than to the state-owned Nuclear Electric and to little mugwumps, both bing and possible. Nor would the new pricing regulations result in lower electricity measures for the mean household consumer — merely for big corporate clients.

The authorities, apart from its concerns about just competition and monetary value, was peculiarly interested in deciding any contention or inquiries sing Powergen and National Power, as it intended to sell its staying 40 per centum portion ( which it had retained at denationalization ) in each of the two companies. The sell-off to the populace, scheduled to take topographic point in February 1995, was expected to raise a welcome ?4 billion for the authorities ; ?1.5 billion of which would be attributable to Powergen.

Powergen followed the usual path of privatized companies in the United Kingdom by set abouting a strict plan of cost-cutting, achieved chiefly through improved efficiency, staff decreases, and works closings. Employee redundancies had been dramatic: Powergen ‘s staff as of 1994 was less than half its 1990 degree. Several power Stationss were closed outright, while others were put into indefinite modesty. The scheme proved a successful one, with the company ‘s net incomes healthy despite a decrease in gross revenues.

In readying for denationalization, programs were laid to reorganise and overhaul power coevals, and during the 1990s the face of the industry consequently changed. From a heavy trust on coal-burning workss, Powergen, like its rival National Power, began traveling to a more diversified base. As of 1994 coal was still the dominant beginning — figures for 1993 to 1994 proved that Powergen still relied really to a great extent on the resource, with coal accounting for a brawny 80.6 per centum of entire fuel used. Increasingly, coal was imported from abroad, as the foreign assortment had a lower sulfur content than its British opposite number, rid ofing the demand to suit particular emission-reducing equipment to follow with environmental criterions.

An emerging tendency was toward combined rhythm gas turbine ( CCGT ) workss — the alleged “ elan for gas. ” Excess bring forthing capacity in the 1980s made some coal-burning capableness redundant, and more was jettisoned in favour of natural gas, the usage of which had both economic and environmental advantages. The usage of gas, while comparatively little at 10.6 per centum, should be compared to 1992 to 1993 figures, when gas accounted for merely 3.6 per centum. And clearly, Powergen believed the hereafter was in natural gas. Since denationalization the company invested in some 3,000MW of new CCGT works capacity, generated by three power Stationss: Killingholme, in South Humberside ( finishing its first full twelvemonth of operations in 1993 to 1994 ) ; Rye House, Hertfordshire ( finished in 1993 ) ; and Connah ‘s Quay, in North Wales, which was expected to supply over half the electricity needs of Wales.

Therefore a portion of Powergen ‘s long-run program was to broaden its involvements in natural gas. Equally early as 1989, with denationalization on the skyline but non yet effected, Powergen, in a joint venture with Conoco UK Ltd. , set up a gas trading company, Kinetica, to market gas downstream and concept gas conveyance grapevines. The venture became a clear success for Powergen, and the company was confident that there would be ample range for farther development. The subordinate Powergen ( North Sea ) Ltd. constituted an investing for the company ‘s hereafter concern. In 1993, Powergen acquired from Monument Oil and Gas PLC a 3.9 per centum interest in the Liverpool Bay development. This would provide gas to Powergen ‘s ain Connah ‘s Quay power station. Further widening its range, Powergen purchased in 1994 from a subordinate of Lasmo an extra 5 per centum of Liverpool Bay and a 12 per centum involvement in the Ravenspurn North field every bit good as a 3.75 per centum interest in Johnston field, both located in the Southern Gas Basin of the North Sea.

Opportunities Abroad and Vertical Alignment

After going a PLC, Powergen progressively looked abroad for chances and promotion. In 1993 to 1994 the company undertook, as a member of a pool with two U.S. companies — NRG Energy, Inc. and Morrison Knudson Co. , Inc. — to run lignite excavation and power coevals in the Leipzig part of Germany. As a future investing in the country, and once more in cooperation with NRG Energy, the company bought a 400MW portion in the 900MW Schkopau power station. At Tapada do Outeiro in Portugal, Powergen became a member of a pool charged to construct and run a 900MW CCGT power station.

Powergen began traveling into the field of combined heat and power coevals through its subordinate Powergen CHP. Its first undertaking in this country, initiated in 1993 to 1994, was a 14MW co-generation works commissioned by SmithKline Beecham. The subordinate has besides undertaken to supply energy for three paper Millss in Kent.

Powergen ‘s sallies into ventures, related to but independent of its primary map as a U.K. power generator, were necessary for the company to turn. Its portion of the place electricity market was undeniably dwindling, from a post-privatization heritage of 30 per centum to some 24.5 per centum in 1994 ; and Nuclear Electric had edged out Powergen as the 2nd largest power generator. Powergen ‘s market portion was expected to drop yet farther as the authorities ‘s program to increase competition in power coevals came to fruition. However, it seemed likely that Powergen would go on to command a important proportion of the industry.

The authorities sold its staying 40 percent stock in Powergen in February 1995. The undermentioned twelvemonth, the authorities rejected Powergen ‘s command to get Midlands Electricity PLC ( MEB ) , which would hold marked the first amalgamation between a U.K. power generator and distributer. The authorities believed the amalgamation would do reduced competition and higher monetary values, finally runing against public involvement.

Bouncing from the letdown, Powergen entered into a new joint venture with Siemens in 1997, the development of the Cottam Development Centre, which went on to win a 1997 Strategic Partnership Industry All-Star Award. This coaction was n’t the first between the two companies ; they had worked together on other large-scale undertakings, including building of the Killingholme station on South Humberside in 1993. The Cottam undertaking would go a show window for the latest design of high-efficient, environmentally aware gas turbines, supplying a solid platform for large-scale development ventures good into the hereafter.

In July 1998, Powergen purchased East Midlands Electricity for ?1.9 billion. This marked the company ‘s entryway into the residential and smaller concern electricity markets and allowed the distribution of electricity over a part of 16,000 square stat mis and 67,000 kilometres of overhead lines and belowground overseas telegrams. The undermentioned twelvemonth, Powergen became the first U.K. company to sell electricity and gas to domestic clients via the Internet.

The New Millennium Brings Industry Changes

The twelvemonth 2000 marked the beginning of a period of dramatic alteration for both the U.K. electricity industry and for Powergen as the company moved to shift itself for the moneymaking U.S. energy market. The company moved to get LG & A ; E, a Kentucky energy service supplier, for US $ 3.2 billion. But in order to do this happen, Powergen sold its Australian, Indian and other Asiatic assets, every bit good as three workss, including Cottam, which went as portion of a ?1.5 billion auction sponsored by Goldman Sachs.

In July 2000, the ACT Legislative Assembly created the Utilities Act, which was to get down on January 1, 2001. The Act instituted a new regulative construction for electricity, gas, H2O and sewerage public-service corporations in the United Kingdom. A individual energy regulator, the Gas and Electric Markets Authority, was established in November, and the offices for gas and electricity ordinance were merged to organize the Office of Gas and Electricity Markets ( OFGEM ) . The biggest alteration brought on by the Act was the separation of distribution and supply, but another of import constituent was the execution of the New Electricity Trading Agreements ( NETA ) . Powergen took a positive tack, denoting that, “ with our flexible coevals, turning client base and incorporate trading scheme, NETA represents a concern chance instead than a menace. ” The company went on to seal the LG & A ; E trade in December, merely four months before German company E.ON announced a preconditional offer to buy Powergen.

The German public-service corporation giant ‘s offer valued Powergen ‘s portion capital at approximately ?5.1 billion. The acquisition was completed in July 2002, when Powergen became portion of the universe ‘s largest investor-owned electricity and gas public-service corporation. It besides found itself better positioned to accomplish long-held aspirations in the United States and the United Kingdom. The Powergen board nem con recommended the sale.

Chief Subordinates: Corby Power Limited ( 50 % ) ; East Midlands Electricity ; LG & A ; E Energy Corp. ( US ) .

Chief Rivals: Centrica ; Scots Power ; TXU Europe.