ScottishPower Plc

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ScottishPower Plc

1 Atlantic Quay
Glasgow G2 8SP
Scotland
Oil 0141 248 8200
Fax: Oil 0141 248 8300

Public Company
Incorporated: 1989
Employees: 15,242
Sales: £2.27 billion (1996)
Stock Exchanges: London
SICs: 4900 Electric, Gas & Sanitary Services

ScottishPower plc is one of the leading and fastest growing utility companies in the United Kingdom, with more than five million customers in England, Wales, and Scotland. The company operates generating plants, sells electricity and gas, supplies advanced telecommunications and online information services, provides water and water waste services, operates electrical retail shops and superstores throughout the United Kingdom, and provides engineering and scientific consultancy services to various individuals, governmental, and corporate groups. One of the largest utility companies in the country, ScottishPower has three primary subsidiaries in three distinct geographical regions, including Manweb, which sells electricity to customers in Merseyside, Cheshire, and North Wales; Southern Water, which provides water and waste water services to customers in Kent, Sussex, Hampshire, and the Isle of Wight, along with designing and installing waste water treatment plants; and ScottishTelecom, which provides mobile telephone and online information services to many of Scotland’s largest corporations.

Early History

ScottishPower was formed in 1989 because of the reorganization of the Scottish electricity industry. The company is the direct successor to all of the nonnuclear operations and activities of the South of Scotland Electricity Board (SSEB). The South of Scotland Electricity Board had been founded in 1955 by the legislation of the Electricity Reorganization Act of 1954, which had merged the two previous Boards that provided electricity to customers in the area after nationalization of the industry in 1948.

Prior to the formation of ScottishPower, the Scottish electrical industry consisted of the South of Scotland Electricity Board and the North of Scotland Hydro-Electric Board (NSHEB). Both of these Boards, or companies, were operating as vertically integrated monopolies, engaged in such activities as the generation, transmission, distribution, and supply of electrical energy. During this time, all of the expenditures associated with generating and-transmitting electricity were shared, and each company’s requirements were met according to the determination of the respective Boards.

When the British government decided to reorganize the Scottish electrical industry, it summarily rejected the proposal that a single company cover all of the electrical requirements of Scotland. Consequently, when both ScottishPower and Hydro Electric went public in 1991, the British government made the determination that it was best for each of the companies to operate as vertically integrated electrical utility firms, which was in keeping with the tradition established in their earlier history.

One of the most interesting features of the Scottish electrical industry is its large surplus of generating capacity. When the reorganization of the industry took place in Scotland, it was expected that ScottishPower and Hydro Electric would use some of this surplus capacity for export to England and Wales. A large part of the surplus was initially derived from Scotland’s nuclear power plants, which existed in a much higher proportion than in any other country in Europe, except for France and Belgium. In fact, at the time of the reorganization, the Scottish nuclear power plants were capable of meeting half of the demand for electricity in the country. Once again, it was determined by the British government that ScottishPower should supervise and operate 74.9 percent of the commercial business of Scottish Nuclear, Ltd., while Hydro Electric took a 25.1 percent interest in the operations of the company.

ScottishPower inherited the entire region previously run by the South of Scotland Electricity Board, an area of 22,950 km that covered the part of Scotland south between the estuaries of the River Tay and River Clyde and encompassed a large area of Northumberland. This land included a significant portion of Scotland’s industrial base and was characterized by densely populated urban areas, but also extended to the more rural regions of the Borders and Galloway. The initial customer base was approximately 1.7 million people.

Growth and Expansion

Although its main role has always been to supply electricity to the southern part of Scotland, ScottishPower has been in the electrical retail business from its inception. Inheriting 73 retail stores from the South of Scotland Electricity Board, the company sold such items as radios, alarm clocks, and a host of other electrical products, much like the other utility companies across the United Kingdom. When most of the regional electrical companies in England, Wales, and Scotland, including its northern neighbor Hydro Electric, decided to divest all retailing operations, however, management at ScottishPower made the commitment to retain and even expand its network of retail stores, but only on the condition of increasing profitability.

One of the reasons management decided not to abandon retailing operations was that customers who paid their electricity bills in the stores would have been extremely upset. Many people in southern Scotland had grown accustomed to paying their bills while visiting the company’s retail stores, and management was well aware of the fact. Consequently, to strengthen its market position, in 1992 ScottishPower acquired a total of 17 units from Rumbelows chain of electrical retail stores owned by Thorn EMI and eight superstores from Atlantis Group, and soon thereafter purchased 50 superstores from the Clydesdale Group, another electrical product retailer with stores in Northern England and the Midlands. Having lost £5 million on sales of £32 million in 1990, ScottishPower Retailing Division reported an operating profit of £10 million on sales of £200 million by the end of 1994.

In 1993, ScottishPower was granted a license to enter into the public telecommunications industry, and it immediately installed fibre-optic links within its already existing network of communications between Glasgow and Edinburgh. Carried along its own high-voltage power lines, ScottishPower was soon able to provide extremely high-quality telecommunications services such as the fast transfer of voices, data, and pictures to Scotland’s major businesses, including a number of companies in the insurance and banking industries, not to mention engineering firms and universities. Christened “ScottishTelecom,” it was one of the fastest growing segments of ScottishPower’s business.

Although ScottishPower operated six power generating plants composed of coal, gas, and hydro power, including Longannet at Kincardine on Forth, Cockenzie, Methil, Cruachan, Stonebyres and Bonnington, and Galloway Hydro Scheme, the company was not averse to engaging in more experimental forms of generating energy. In the early 1990s, ScottishPower constructed its first wind farm, located at Penrhyddlan and Llidarty waun in Wales, a unique joint venture between ScottishPower, SeaWest of California, and the Toman Corporation of Japan. The largest such wind farm in Europe, it has a generating capacity of 31 MW. Not long afterward, the company established new wind farms in Northern Ireland, Lanarkshire, Cornwall, and Lancashire. By the mid-1990s, ScottishPower had become the largest wind farm operator in the United Kingdom.

Strategic Acquisitions

As opportunities for more customers and increased sales for electricity became limited in Scotland, management at ScottishPower embarked on a strategic acquisitions policy that extended the company’s operations into other areas of the United Kingdom. The initial acquisition was Manweb plc, a regional electrical company that provided service to more than 1.3 million commercial, industrial, and residential customers in Mersey-side, Cheshire, and rural North Wales. Purchased at a price of £1.1 billion, the transaction was a milestone since it was the first merger between two electricity companies in the United Kingdom.

The merger was an efficient move by ScottishPower, since common functions between Manweb and its parent firm were easily integrated, resulting in lower costs to customers and, at the same time, enabling Manweb to focus on developing its electricity distribution and supply network. With a ScottishPower investment of £300 million to improve and enhance Manweb’s power system, the new acquisition was able to limit its supply interruptions significantly, reroute electricity supplies to alternative circuits when necessary, and provide better service to sparsely populated countryside in western England and northern Wales. Manweb was also at the forefront of innovations within the electricity industry. The company developed a “live line” technique, by which repairmen are able to carry out maintenance and repairs on overhead distribution lines without needing to interrupt the supply of electricity to customers in the local area. In one of the most original developments in which Manweb was involved, the company conducted experiments with “trenchless technology,” which allowed the laying of cable without having to excavate pavements and streets.

Company Perspectives:

“We are committed builders of businesses, in electricity and utility related markets, determined to deliver outstanding performance. Our mission is underpinned by five values which are at the heart of everything we do. These are: well earned customer loyalty; enhanced shareholder value; positive working environment; trust of communities; teamwork and leadership.”

In August of 1996, ScottishPower acquired Southern Water plc, a water supply and waste water services company with barely less than two million customers in Kent, Sussex, Hampshire, and the Isle of Wight, for £1.67 billion. Supplying approximately 644 million liters of drinking water per day, through an extensive system of pipes that total 13,000 kilometers, and treating more than 1,300 liters of sewerage per day, at the time of the acquisition Southern Water was one of the leaders in the water supply and waste water treatment industry. Over the years, Southern Water had garnered a stellar reputation in the United Kingdom. The company had dramatically improved the quality of drinking water to the geographical region it served and had successfully cleaned up the pollution along an extensive part of the coastline in southern Britain. Southern Water had also cleaned up the rivers within its operating region so that 94 percent of them support healthy fish stock and allow for natural breeding.

Under ScottishPower leadership, Southern Water invested £18 million to build a pipeline to transport water from the River Medway in Kent to Bewl Reservoir on the Kent/Sussex boundary. Since very dry summers bordering on drought had plagued that part of Britain during the mid-1990s, ScottishPower and Southern Water were committed to enhancing the region’s water resource management. New and improved waste water treatment plants were also planned by Southern Water, to be built during the late 1990s to comply with the European Union’s Urban Wastewater Directive. Perhaps the most important and far-reaching effect of ScottishPower’s acquisition of Southern Water was the decrease in prices for all customers in the new subsidiary’s region. Consumer prices would be reduced one percent in 1997 and two percent in 1998 and 1999.

Looking Toward the Future

One of the fastest growing segments of ScottishPower’s business is the consultancy services it provides to an ever-increasing list of customers that include, among others, British Petroleum, British Steel, Motorola, and the British Energy Group. The company’s consultancy services encompass a wide variety of activities, such as the design and construction of power plant buildings, the development of control systems and monitoring devices, the hands-on installation and maintenance of boilers, turbines, and other large power plant equipment, the analysis of plant components and water samples, and assistance with environmental management. The design, construction, and project management of new power stations, like Scotland’s nuclear generating stations at Hunterston and Torness, are two examples of the company’s consultancy activities in the mid-1990s.

In addition, ScottishPower formed a contracting services business, which carries out a full range of electrical contracting services in the areas of security systems, large scale power plant installations, high and low voltage installations, installing electric heating systems, testing and maintaining electrical systems, and facilities management. In the mid-1990s, clients included hospitals, universities, prisons, supermarket chains, and a host of blue-chip corporations such as NEC, Motorola, Coca Cola, and Vauxhall.

Through its strategic acquisitions, astute management of a growing retail operation, cultivation of new service-oriented consulting businesses, and provision of reliable and inexpensive electricity to its customers, ScottishPower has earned the reputation as one of the best utility companies in the world.