National Power PLC - Company Profile, Information, Business Description, History, Background Information on National Power PLC

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History of National Power PLC

National Power PLC is the largest of the three main electricity generating companies created from the break-up of the nationalized electricity industry in England and Wales. Carved out as a separate division of the Central Electricity Generating Board in 1989 as privatization loomed, National Power was incorporated as a public limited company (PLC) in 1990 and the majority of its shares were sold to the public a year later. National Power, Nuclear Electric, and PowerGen became the big three electricity generators in England and Wales. In the mid-1990s, National Power and PowerGen's market share was decreasing--and was expected to decline yet further&mdash the industry became more competitive. While National Power would likely continue to hold a significant niche in the home energy market, the company was also looking to allied ventures for new areas of growth, in particular the opportunities offered in international power markets.

Electricity was first harnessed for practical use in the United Kingdom in the late nineteenth century with the introduction of street lighting in 1881. By 1921 over 480 authorized but independent electricity suppliers had sprung up throughout England and Wales, creating a rather haphazard system operating at different voltages and frequencies. In recognition of the need for a more coherent, interlocking system, the Electricity (Supply) Act of 1926 created a central authority to encourage and facilitate a national transmission system; this "national grid" was achieved by the mid-1930s.

The state consolidated its control of the utility with the Electricity Act of 1947, which combined the distribution and supply activities of 505 separate bodies into 12 regional Area Boards, at the same time assigning generating assets and liabilities to one government-controlled authority. A further Electricity Act, in 1957, created a statutory body, the Central Electricity Generating Board (CEGB), which dominated the whole of the electricity system in England and Wales; generator of virtually all the electricity in the two countries, the CEGB, as owner and operator of the transmission grid, supplied electricity to the Area Boards, which in turn distributed and sold within their regions.

This situation remained for 30 years, until 1987, when the government proposed to privatize the electricity industry. The proposal became the Electricity Act of 1989, and a new organizational scheme was unveiled. The CEGB was splintered into four divisions, destined to become successor companies: National Power, PowerGen, Nuclear Electric, and the National Grid Company (NGC). National Power and PowerGen were to share between them England and Wales's fossil-fueled power stations; Nuclear Electric was to take over nuclear power stations; 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' shares were the first to be sold to the public, at the end of 1990. The majority of National Power and PowerGen's shares were offered for sale the following year, though the government retained ownership of 40 percent of each of the new companies' shares.

In order to assess National Power's role within the electricity industry, it is helpful to understand how the system operates. The provision of electricity consists of four components: generation, transmission, distribution, and supply. In England and Wales in the 1990s, generation was the province of National Power, PowerGen, and Nuclear Electric, and an increasing number of independent generators and suppliers "imported" from France and Scotland. Transmission, the transfer of electricity via the national grid, was accomplished through overhead lines, underground cables, and NGC substations; distribution, or the delivery of electricity from the national grid to local distribution systems, was operated by the Regional Electricity Companies (RECs). Supply, a term distinct from distribution in the electricity industry, referred to the transaction whereby electricity is purchased from the generators and transmitted to customers. Under the terms of its license, National Power had the right to supply electricity directly to consumers, and in the mid-1990s was increasingly doing so, although its main customers were the RECs, who in turn sold the electricity on to the end users.

A new trading market was devised with the privatization scheme for bulk sales of electricity from generators to distributors: the pool. A rather complicated pricing procedure existed in the pool, according to which, each generating station offered a quote for each generating set for every half-hour of the day, based on the operating costs of that particular plant. The NGC arranged these quotes in a merit order--with the lowest price first--and made the decisions regarding which plant to call into operation based on the expected demand. The pool system was not relied upon exclusively, however, as the generators frequently agreed on contractual arrangements with distributors for a specified period of time as a means of mutual protection against fluctuations in the pool price.

National Power's position in the industry is a legacy of its comparative status it inherited with privatization. The undisputed leader of the industry, National Power provided nearly half the electricity supplied in England and Wales via its 40 power stations, boasting an aggregate Declared Net Capacity or Capability (DNC) of 29,486MW (a megawatt here defined as the generating capacity of a power station in any given half-hour). Its smaller rival PowerGen, in second place, 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 small independent generators together accounted for about 2,900MW. Another, though limited, source was provided by linkages with the Scottish and French electricity systems, with which import or export deals were sometimes agreed. National Power and PowerGen between them thus controlled some 78 percent of the electricity market in England and Wales, of which about 46 percent was held by National Power, with the majority of the rest controlled by Nuclear Electric.

Privatization of the utility was designed to promote a beneficial result through the free play of market forces. The introduction of competition in power generation, it was argued, would lead both to greater efficiency within the industry and to lower prices for the consumer. Within a few short years, however, concerns had arisen, as some critics of the scheme had predicted from the start. The creation of three big players holding such a significant majority of the electricity generating market was never likely to embody the purest form of free market operations.

In 1994, the industry watchdog, the Office of Electricity Regulation (Offer), became concerned about National Power and PowerGen's continuing dominance of the market. The market share of the big two had in fact declined since privatization, with National Power controlling some 33 percent and PowerGen holding less than 25 percent, but nonetheless rumors were rife that Offer would refer them to the Monopolies and Mergers Commission. After six months of deliberation, Offer stopped short of that proceeding, but the regulator did lay strictures on the two generating companies, requiring that they should use all reasonable endeavors to sell a specified amount of generating capacity--in the case of National Power 3,000-4,000MW, or 15 percent, of its total power output--and submit to price capping for a period of two years.

The demand to sell a portion of its holdings was expected to cause little hardship to National Power. Moreover, the issue of which plant to sell and when was up to the company's discretion, provided it complied with Offer's deadline of December 31, 1995. Thus the company would not be forced to make a disadvantageous sale. In preference to an outright sale, some speculated that National Power might arrange an asset exchange with a foreign power company. Another alternative under consideration was the demerger option, whereby a new company, designed to own and operate the capacity in question, could be created from a portion of National Power's capital holdings.

The required price caps, ironically, were likely to prove less burdensome to National Power and PowerGen than to the state-owned Nuclear Electric and to small independents, both existing and potential. While Offer's strictures caused the two largest players to lose around one-third of their market share, the companies retained their dominant position in the market. National Power and PowerGen had, in effect, continued to control the establishment of pool prices, and this was unlikely to change to any significant degree. Residential customers, who purchased their electricity through the RECs, saw little change in their electricity bills, while most major industrial customers, who purchased straight from the pool, saw their prices fall 20 percent. While the potential for price hikes existed in long-term forecasts, given the costs of environmental clean-up, the company hoped to offset such increases with greater efficiency.

The government, apart from its concerns about fair competition and price, was especially eager to resolve any controversy or questions regarding National Power and PowerGen to clear the way for the sale of its remaining 40 percent share in each of the two companies. The sell-off to the public, in February 1995, raised a welcome £4 billion for the government, some £2.5 billion of which was attributable to National Power. Controversy dogged the two generators right to the end, however, as spiraling prices in the electricity pool, albeit over a period of only around a month, prompted Offer to delay publication of the share prospectus.

The electricity industry was slowly but dramatically changing in the 1990s. While plans were being laid to modernize and improve power generation, coal- and oil-fired plants remained the mainstay of the utility. Most of the stations National Power inherited after privatization were products of the 1960s and 1970s (with the notable exception of the 1980s-vintage Drax). British-mined coal remained, in 1995, the overwhelmingly dominant fuel source, but National Power, like others in the industry, was exploring a more diversified fuel base.

The company was slowly reducing the stockpiles of coal accumulated in the days of government ownership, when the CEGB bought more generously than necessary from the British Coal Corporation. Since privatization, National Power had already shut down some coal-fired plants. Some capability was made redundant by excess generating capacity, and more was jettisoned in favor of the trend toward combined cycle gas turbine plant (CCGT): the so-called "dash for gas." National Power's first CCGT plant, at Killingholme, South Humberside, was completed in 1993. One in North Wales followed in 1994, with another in Bedfordshire expected in 1995 and yet another, in Oxfordshire, in 1996. Moreover, a fifth CCGT plant was in the early planning stages. More closures of coal-fired plant were likely as the new CCGT stations came online.

Linked economic and environmental factors motivated the move to gas. Environmental improvements were urgently needed in the energy industry--the issue was too long ignored in the state sector. Regulations, emanating from both London and Brussels, were becoming increasingly stringent--and were making coal increasingly unattractive. Despite the availability of technology designed to reduce sulphur-dioxide emissions from coal-fired stations (the primary cause of acid rain), for example, it was often more economically advantageous to simply replace these stations with CCGT plants. The exception during this time was Drax, National Power's massive North Yorkshire coal-fired power station, which supplied approximately ten percent of England and Wales's electricity. In the biggest project of its kind in the world, National Power was cleaning up the plant through the implementation of flue gas desulphurization (FGD) retrofits, designed to significantly reduce sulphur dioxide emissions. The effort was begun even before privatization, was not expected to be completed until 1996. Costing an estimated £65.8 billion, the station was expected to result in a 90 percent reduction in harmful emissions.

To the dismay of the beleaguered British coal industry, National Power, like the other electricity generators, continued to look at the import of foreign coal for use in its stations. Foreign-mined coal was not only potentially cheaper but in general had a significantly lower sulphur content than its British counterpart, thus obviating the need for expensive desulphurization equipment.

With gas an increasingly popular and sensible option for the energy industry, National Power also took steps to ensure its own reliable and cost-effective supply; in 1991 alone the company arranged to buy the entire output from the Caister field in the North Sea, made a 15-year deal with Norwegian suppliers, and made another deal with Ranger Oil (UK). The company was also involved in gas exploration, having a 25 percent stake in a consortium led by Total Oil Marine, which was exploring a block in the southern North Sea. Even wind power was being investigated and employed, though on a very small scale as of the mid-1990s. The subsidiary National Wind Power Ltd. was established in 1991 and was expected to be producing 250MW by the end of the century.

National Power was also moving into the field of combined heat and power generation (CHP), another wave of the future for the energy industry. One of National Power's business units, National Power Cogen, was responsible for the development of schemes for such clients as Lancaster University, the chemical manufacturers Albright & Wilson Ltd., the paper manufacturers SCA, and Sterling Organics Ltd., makers of paracetemol.

National Power branched out into the industrial property business in 1993, leasing land at its Eggborough power station to an air separation plant, Air Gas Products. The mutually profitable idea behind the arrangement was that new factories, conveniently located, could tap directly into their power source, therefore rendering unnecessary the need for a middleman in the form of a regional electricity company.

National Power also looked to the international arena for its future growth. The CEBG's overseas activities in its state sector days were restricted almost exclusively to consulting projects carried out by the subsidiary British Electricity International Ltd. After privatization, with its share of the home market dwindling, National Power substantially boosted its international profile. The creation, via a 1993 internal restructure, of a full-fledged division within National Power devoted to researching and developing overseas business strategies and opportunities is indicative of the company's vision of its future. In 1993 the company moved into the United States with the purchase of American National Power for £103 million. A well-established and successful enterprise, American National Power operated in Virginia, Georgia, and New Jersey. National Power's other major foreign ventures included Portugal's Pego power station, owned by a consortium led by National Power, and a £64 million investment in an oil-fired power station project in Pakistan. While National Power's international presence was still young, the company was confident of its prospects. Independent financial commentators tended to agree. Blessed as the company was with healthy cash reserves, and clearly aware of the tremendous potential of the international market, National Power could expect to be well compensated through such wise investments.

A look at National Power's 1995 sales figures showed a mixed but on the whole optimistic prospect. On one hand, the company's market share was much reduced and electricity prices were down. Furthermore, capital expenditure was up, due to investments in new plants and environmental improvements. Nevertheless, costs to the company were dramatically reduced, due to a rigorous, some might say ruthless, cost-cutting program implemented since privatization. Under the plan, rationalization and increased efficiency measures decisively chopped operational costs, fuel supply expenses were pared, and staff costs were drastically slashed (the pre-privatization work force of 17,000 was just over 5,000 in 1995). As a result, National Power saw consistently rising profits despite continually falling market share.

Controller of nearly half of Britain's electricity market at the end of 1990, National Power had only a third of that market four years later, and the company's share was expected to diminish still more as competition increases. Nonetheless, National Power would likely remain a significant force in U.K. power generation, as the company continued to improve and adapt to meet changing conditions in the energy industry. Furthermore, with a strong cash base to support an avowed and active interest in overseas projects, National Power was poised for international expansion.

Principal Subsidiaries: British Electricity International Ltd.; National Power International Holdings Ltd.; National Power International Ltd.; National Power (North) Ltd.; National Wind Power Ltd.; Seafield Resources PLC.

Additional Details

Further Reference

"Bills Will Rise for Clean Electricity," Guardian, January 14, 1994."Customers Set to Benefit by up to £500m," Financial Times, February 12, 1994."Generators in Deal to Sell Plant and Reduce Prices," Financial Times, February 12, 1994."Investors Chronicle Survey: Electricity," Investors Chronicle, April 22, 1994."The Lex Column: Power Play," Financial Times, February 12, 1994.Mortished, Carl, "Regulator Forces Power Prospectus Rewrite," The Times, January 28, 1995, p. 25."National Power Beats Forecasts," Lloyds List, May 19, 1994."National Power Breathes Life into Factories," Yorkshire Post, March 11, 1994."National Power to Close Five Plants," Independent, April 1, 1994."National Power to Consider Job Cuts," Independent, May 19, 1994."No Stampede in Power Station Sale," Financial Times, February 12, 1994."Power Generators Meet Offer to Head off MMC Enquiry," The Times, January 24, 1994."Special Report on Competitive Power," Daily Telegraph, March 11, 1994."Survey of Drax--the Big Clean-Up," Financial Times, January 14, 1994."Tough Package of Not Much," Independent, February 12, 1994.Waller, Martin, "Options Row Mars Power Launch," The Times, February 7, 1995, p. 23.

User Contributions:

Freda Lim
Greetings from Singapore

May I have a email address to correspondence with your Human Resources?

Its about my relative Ms Wendy Lim, who once work for National Power near where she live inWindsor.
Her last email address contact is
Her last address was 7 Chaley Gardens Slough Berks SL 2LW. Tel: 0753-528920.

Would appreciate any kind of help lead us further to be able to reach her.

Looking forward to your kindness - Sincerely Freda (my email address : from Singapore

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