In 2002, there was another flurry of activity brought on by "distressed" sales as a collapse in wholesale electricity prices pushed companies such as TXU Europe into administration. The US group was bought by E.ON, which already owned Powergen.
But then, in 2003, it suddenly went quiet. The foreign utility players, whose spending power was backed by monopoly positions back home, stopped to digest their mammoth purchases. The slide in wholesale prices had run its course as an opportunity and instead became a deterrent. The uncertainty over the future of the British energy market made companies cautious about overpaying for assets. There were no more deals to be done.
The bloated teams of investment bankers working in the utility sector, who had done so well out of the boom of the previous few years, slipped away.
Two years on, and things are starting to change. One of the few remaining possible deals, a merger between Scottish Power and Scottish & Southern Energy (SSE), is being talked about again, while Centrica, the only other UK independent among the six existing utility groups, could come into play on the back of a rumoured (and strongly denied) boardroom split between chief executive Sir Roy Gardner and chairman Roger Carr.
Add all this to the energy review that the Government is expected to launch soon - one which could shake up the whole sector and pave the way for more nuclear power - and it is no wonder sparks are flying again and bankers are dusting off their old bid documents. Even officials at the Westminster head office of energy regulator Ofgem are starting to wonder if they will have another merger on their hands soon.
In the spartan offices of SSE in Perth, and those of its Scottish counterpart in Glasgow, talk of a merger is a running joke because it had been peddled by analysts and journalists alike for so long without anything happening. Since 2003, few people have bothered even asking since the chances appeared so remote. But the £5.4bn sale of Scottish Power's huge US subsidiary Pacificorp, which was announced in May, has changed everything.
Executives at SSE always listed Pacificorp as one of several obstacles to a deal. SSE is a UK player and does not want to own a US business, they would say. They also never agreed with Scottish Power's high valuation of Pacificorp, which had been the cause of several profit warnings since its £4.2bn acquisition in 1999. With Scottish Power announcing the sale, this obstacle will be removed.
This, in turn, could knock down another barrier to a deal. Ian Russell, Scottish Power's chief executive, was the architect of the Pacificorp acquisition and insisted at every profit warning that the US business was integral to the company's strategy and would not be sold. It is no secret that there is no love lost between Mr Russell and his SSE counterpart, Ian Marchant. Their management styles could not be more different: Mr Russell is urbane, an Arsenal supporter and has a charming exterior that colleagues say masks a ruthless streak; Mr Marchant, a south Londoner and Crystal Palace fan, is more of a straight talker - what you see is what you get. His colleagues know he would not work with Mr Russell, while the latter's chances of employment in a unified Scottish company have taken a massive hit from the Pacificorp debacle. As one analyst puts it: "There is no question that shareholders see Ian Marchant in a much better light than Ian Russell."
With the obstacles of Pacificorp and management potentially removed, the issue of competition remains. "We are getting pretty close to the minimum [number of companies]," says Doug King, senior partner for energy and utilities at accountancy group Deloitte. He is right, but the question is whether we can get closer.
Analysts from Dresdner Kleinwort Wasserstein say that the competition issues with an SSE/Scottish Power deal would not be insurmountable. The two companies would own 21 per cent of the UK's total generation capacity, which is a big power base but below the formal 25 per cent level that sets competition alarms ringing. It would also own four of the 14 electricity distribution networks, but this is a lower market share than National Grid's, which is keeping four out of the UK's eight gas networks.
The biggest concern arises from the two companies bringing their residential customers together, which would make it the second-largest UK energy supplier with 22 per cent of the market. But this is still way behind the leader, Centrica, with 38 per cent. As the Dresdner Kleinwort Wasserstein analysts point out, having a larger competitor may put pressure on Centrica to cut its prices, while the ability of consumers to switch supplier - as many Centrica customers have been doing - also limits the potential impact of having dominant operators.
A takeover of Centrica by one of the other five companies is less likely than the Scottish deal. It was formed out of the privatisation of British Gas, rather than the old Central Electricity Generating Board, and so does not own the heavy infrastructure of electricity distribution networks that the other companies do. This means there would be fewer synergies from a takeover. Meanwhile, for competition reasons, Centrica's dominant position in the energy supply market would prevent any of the other five combining their own market share.
With North Sea gas becoming more scarce, and with prices rocketing, Centrica is focusing attention on securing supply for its customers - by taking a stake in Belgian company SPE with Gaz de France, for example, rather than consolidating its market share in the UK.
Centrica was also rumoured to be in merger talks with Norwegian industrial group Norsk Hydro earlier this year, while Gaz de France has stated its ambition of gaining a foothold in the UK supply market for domestic gas.
A deal between Scottish Power and SSE is the most compelling, therefore, though the competition issues could remain a barrier in some people's eyes. But using the 2003 Enterprise Act, the Government could influence the Office of Fair Trading on mergers if there was a public interest ground.
Scottish Power and SSE might claim in response that a merger would increase the security of energy supply in Britain by creating a stronger UK- based company. Or they could try to argue that a combined company would be able to offer lower electricity and gas prices to consumers (though the opposite might just as easily be true).
The point is that no one knows. And when there is uncertainty, as Stewart Gray from energy consultancy Wood Mackenzie points out,"You can imagine some management deciding it's worth giving it a go."
The force is with them: Britain's six electricity companies
The company owns 6.4 gigawatts (GW) of generation capacity, or 9 per cent of Britain's total generation capacity. It also owns two of the 14 electricity distribution networks and, via these, has around five million domestic energy customers, or 10 per cent of the market.
Scottish & Southern Energy
SSE owns 8.8GW of capacity, or 12 per cent of the total generation capacity in the UK. It owns two electricity distribution networks and has 12 per cent of Britain's domestic energy customers. It also owns two gas distribution networks.
The third and final UK independent utility has the largest domestic consumer base: just over 12 million customers supplied with gas and 6.2 million supplied with electricity. It also has a telecoms business, onetel, and is building up a customer base in North America. Through its fields in the North Sea, it provides around 8 per cent of the UK's gas.
The UK arm of the state-owned Electricité de France has more than five million domestic energy customers, and distributes electricity to a quarter of the population via its three distribution companies, which include London Electricity. It generates around 5GW.
The German company, through its UK subsidiary RWE npower, has 12 per cent of the domestic supply market and owns three distribution companies. It has 8.6GW of capacity and owns Thames Water.
The German-owned E.ON has three electricity distribution companies and 17 per cent of the domestic energy supply market. It can generate around 10GW of electricity.Reuse content