Page 2: Review
The Electricity Industry in this country was privatised mainly in 1990 and 1991. The operations of the Electricity Industry consist of four main functions:
- Generation: The production of electricity at power stations.
- Transmission: The bulk transfer of electricity at high voltages through a central transmission system known as the national grid.
- Distribution: The transfer of electricity from the national grid and its delivery over local distribution systems to customers.
- Supply: The wholesale purchase of electricity from generating companies and its sale to the customer, using the transmission and distribution systems to deliver the power.
Before 31 March 1990, the responsibility for carrying out these functions was in the hands of public sector organisations. Most of the electricity was generated and transmitted in England and Wales by a central generating board, with regional electricity boards distributing the electricity and selling it to customers within their own areas. In Scotland the two main boards generated and supplied electricity to the north and south of Scotland respectively. In 1990 the first companies in the Electricity Industry were privatised.
Individual companies in England & Wales take their electricity from the national grid, operated by the National Grid Company. These individual companies - known as RECS - then feed these supplies to customers through their own distribution systems. They buy electricity via the Electricity Pool which is a wholesale market for bulk electricity.
In Scotland, the two electricity companies, ScottishPower and Scottish Hydro-Electric, generate, transmit and supply their own electricity. Both companies take a large portion of their electricity from Scottish Nuclear, under agreed trading arrangements. Both companies also trade in the Electricity Pool in England and Wales and both successfully export power. At present, throughout the UK, suppliers are able to compete to supply mainly large customers (those using over 100kW). From 1 April 1998 all customers throughout the United Kingdom will be able to purchase their energy needs from any supplier. The objective of this change to the existing market is to introduce greater competition into the marketplace.
This case study therefore focuses on the way in which one such organisation - ScottishPower has developed a multiutility strategy that will enable it to keep ahead of the field in serving customers in the next century and beyond.
The principal activities of ScottishPower are the generation, transmission, distribution and supply of electricity to industrial, commercial and domestic customers, together with the sale and servicing of electrical appliances, electrical contracting and the provision of technical services. The company supplies gas to industrial and commercial customers and, through Scottish Telecom, is engaged in the provision of telecommunication services to commercial customers.
The company acquired Manweb plc on 6 October 1995. Manweb also distributes and supplies electricity and gas to commercial and domestic customers in Merseyside and North Wales. In August 1996, ScottishPower acquired Southern Water. You can see from this current range of activities that ScottishPower is already a multi-utility organisation. This case study goes on to outline the logic behind and the benefits that stem from this direction. The popularity of a multi-utility approach is growing around the world. Here are some international examples of multi-utilities:
The main business reasons behind multi-utilities
- Customers are able to buy all their utility services from a single company they know and trust. In other words they benefit from a one-stop shop for all their utility needs, creating the opportunity for a business to grow rapidly.
- Multi-utilities give organisations a much reduced cost base. Companies an cut the costly duplication of billing and administration of accounts. They can have a single telephone system, common depots, maintenance and transport fleets. (With large fleets they can also demand lower servicing rates). Companies can share energy management initiatives and benefit from a rationalisation of their headquarters.
- The multi-utilities capitalise on their knowledge and experience of delivering basic services into homes and businesses. However, they are reducing risk by building on several bases, so that they are stronger.
- Water and electricity companies share many characteristics, such as managing large capital expenditure programmes and large customer bases. In commercial terms the two businesses are complimentary, with the strong cash flow generated by the electricity business, financing the large capital investment programmes which are needed by the water companies to meet new environmental requirements.
- The expanded business offers more geographical centres of opportunity and more opportunities for dissemination of best practice and a larger skills base.