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Back in 1989, when the electricity industry was privatised, the Central Electricity Generating Board (CEGB) was responsible for virtually all electricity generation in England and Wales. Following privatisation it was separated into three generating companies and a separate transmission company, National Grid Company (NGC). The initial three generating companies were National Power, PowerGen, and Nuclear Electric.

Today these companies, together with ScottishPower and Scottish Hydro-Electric sell electricity via the NGC's transmission system.

They operate alongside a number of new independent operators, regional electricity companies (RECs), and Electricit茅 de France, which has a long established link with the UK, previously supplying CEGB through interconnectors.

In addition, US owned utilities have significantly increased their role within the RECs of England and Wales, despite the fact that Entergy sold London Electricity to Electricit茅 de France and Dominion Resources sold East Midlands Electricity to PowerGen.

In England and Wales, NGC owns and operates the transmission system. In Scotland, both ScottishPower and Scottish Hydro-Electric own and operate transmission systems. Price controls govern the prices these companies can charge by limiting price increases to changes in the retail price index, plus or minus an x-factor.

There has been a major departure from the original structure of the sector as set out at the time of privatisation. PowerGen had a 拢1.9 billion agreed bid for Midlands Electricity blocked by the DTI, and National Power had an agreed bid of 拢2.8 billion for Southern Electric blocked at the same time.

ScottishPower took over Manweb after a hostile 拢1.1 billion bid in 1995 and has now begun targeting utility groups after concluding that it has gone as far as it can in expanding its UK electricity and water interests.

Expanding interests
Many of the RECs recognise that Britain's utility market may soon become dominated by non-traditional competitors, such as large retail groups, and so are beginning to investigate possible future strategies, such as exploring international markets, diversification into other utility markets and the possibility of partnerships and joint ventures. They also recognise the importance of the commercial market for electricity use. See table 1 for a breakdown of electricity usage in the UK commercial sector between 1996-2000.

The principal business of RECs is the distribution and supply of electricity. They also provide electrical contracting services and in some cases generate electricity. Many RECs have further diversified their interests, and gas supply has been one of the most common forms of diversification, though most have withdrawn from electrical products retailing. Furthermore, energy retailers are using the strength of their brand and their large customer base to cross-sell other products, such as financial services, home insurance, vehicle recovery and telecommunications services.

The main licence under which the RECs operate is the Public Electricity Supply (PES) licence. This distinguishes between two main businesses: that of distributing electricity and that of supplying electricity.

Each licence contains provisions specific to each of these businesses. Presently, each REC is required to account separately for its distribution business, PES business, second tier supply business and generation business. Each PES licence prohibits cross-subsidies between these activities, and between these and any other activities of the operator.

The largest electricity distribution company in terms of area covered is Eastern Electricity, accounting for 13% of the total of England and Wales, and 14% of the customers.

Southern Electric is the second largest in terms of area covered, and it has a population density approximating to the industry average, representing 11% of both the area and number of customers.

The third largest company is East Midlands Electricity, which also accounts for 11% of the area covered, and 10% of the number of customers, while Midlands Electricity, accounts for 9% of the area and customers.

Not surprisingly, the most significant level of customer density is London Electricity, where the area covered is less than 0路5% of the total, but the number of customers is equivalent to 8%.

Both Scottish companies cover larger areas than any of the individual RECs in England and Wales. However, the Scottish Hydro-Electric area is very sparsely populated and both companies represent fewer customers than any of the RECs of England and Wales on a number per square kilometre of area covered.

With opportunities to increase electricity sales in Scotland limited, both operators consider England and Wales as a major focus for their expansion plans. However, the two companies have adopted very different strategies.

ScottishPower has acquired Southern Water and Manweb, which is an REC that has concentrated on power distribution, while Scottish Hydro is pursuing a strategy of concentrating on power generation and supply (trading) opportunities. Both companies have made use of the inter-connector between England and Scotland to export excess supplies.

Scottish Hydro has several interests in chp projects in England. In addition to its 780 MW Keadby power station, a joint venture with Norweb, it also has a 50% stake in a 750 MW power station in Seabank with British Gas.

Market estimates
MBD estimates a reduction in capital expenditure by the electrical suppliers sector in the forthcoming years, taking expenditure to 拢1285.7 million by 2005.

This represents a decline of more than 14% compared with 2001. See table 2 for capital expenditure figures between 1996-2000, and table 3 for the next four years' forecast. Table 4 shows the capital expenditure forecast of individual companies for the next four years.

The process plant expenditure remains such an important element of the total capital expenditure of electricity suppliers, that the development of expenditure within the process plant sector will largely drive the overall development of capital expenditure by the sector. Also, a reduction in civil engineering expenditure up to 2005 is expected to be generally consistent.

In the more distant future, electricity generators will probably view the renewables market less as a competitor, and more as a profitable business area. Given their propensity to seek out new profit, the RECs may well move into sectors such as wind power and photovoltaics.