THE COMPANY: ELECTRIC POWER PLC

THE COMPANY: "ELECTRIC POWER PLC"

"Electric Power Plc" (EP) was born from the ashes of the CEGB on the 30^th of March 1990. Even as early as 1991, EP was regarded as one of the world's largest international contenders in the fast-growing independent power market and the biggest in the UK (supplying about 50 percent of the non-nuclear energy in England and Wales with 35 power stations and over £4 billion turnover). Having to come to terms with the radically new market structure centered on the Pool, the challenge to the company was the transformation of a ‘public-sector’ culture rooted in an engineering-led ethos, to a more commercial one in tune with private sector disciplines.

Hence, in common with many post-privatization companies, EP saw several significant restructuring phases. In 1991, which saw the flotation of the company on the stock exchange, cost reduction, UK asset renewal, and efficiency improvement programs were introduced as a response to the new and increasingly competitive market. For this first year as an independent company, EP reported pre-tax profits of £479m, ahead of forecast, on a turnover of £4,378m. Since price was the only differentiating factor between EP's electricity and that produced by any other company or source, the company was forced in 1992 to set new and clear objectives, with a focus on generating electricity at the lowest possible cost. This required a rapid and radical reorganization to become more flexible and efficient, streamlining operations and applying best practices to the design of business processes. The initiatives resulted in increases in plant availability and manpower productivity by 3 percent and 23 percent respectively. At the same time, charges to consumers were reduced in real terms by 23 percent for a typical industrial customer, 8 percent for domestic and small users and 4 percent for very large contract customers.

With domestic competition increasing, 1993 saw the company experiencing another reorganization that culminated in the launch of a major international initiative. At the same time, involvement with partners in a range of associated ventures was sought, mainly in combined heat and power schemes, commercial wind power development, and gas acquisition and trading. For 1993, pre-tax profits were up by 13 percent, earnings per share were up by 15 percent, and dividends up 16 percent on a turnover of £4,348m. In 1994, prices to customers fell by a further 7 percent, and the cost associated with UK operations were down by 21 percent to their lowest level ever.

In the period of five years from 1991–1995 following privatization, EP had managed to secure a leading position as a major player in the international independent power sector. In summary, privatization led the company to:

• cut costs and improve efficiency to compete successfully

• apply the world's best practice to its operations

• improve thermal efficiency and availability, to match the world leaders for plant type

• become experienced in rapid and successful organizational and cultural change to meet commercial market needs

• simplify the company structure, leading to progressive improvements in productivity

• become involved in the design and establishment of competitive electricity trading arrangements

At the end of the '90s, EP realized that the only word that could best describe the future was ‘uncertainty.’ Competition was flourishing in generation with around 20 generators engaging in tactical battles each year to secure a segment of the market at a certain price. The increasing competition in the production of electricity had seen the market share of EP in England and Wales fall from 50 percent when it was privatized, to around 30 percent in 1996. Regarding the supply side, in addition to the 12 regional electricity companies that bought most of the generated electricity there were more than 20 other intermediaries, which together sold electricity to around 23 million customers.