Company of the week: PowerGen
Sunday 12 September 1999
On Thursday the company said it had returned to a first-half profit after buying East Midlands Electricity. The company, which has 11 million customers in England and Wales, earned pounds 241m from a previous year loss of pounds 138m. It said East Midlands helped it boost earnings and sales by one-third.
PowerGen has to expand abroad to grow as a series of mergers, sparked by British deregulation nine years ago, has all but exhausted opportunities for other large UK purchases. Its domestic rivals have already moved into the US, the largest electricity market, where Scottish Power acquired PacifiCorp. "PowerGen clearly could use a boost from a US acquisition," said Pat Wild, an analyst at WestLB Panmure.
About half of the 50 US states have enacted legislation or issued regulatory orders to open their electricity markets to competition. Finance director Peter Hickson said Europe also looks "interesting" because the EU is deregulating, though countries such as Germany tend to be protective of their own companies. German rivals Veba and Viag are in talks about a merger that would create a company roughly four times PowerGen's size.
Falling prices are putting pressure on PowerGen. Its UK market share fell almost 2 percentage points to 17.2 per cent in the first half, while prices have fallen by more than one-quarter since 1990.
Prices for electricity distribution, accounting for one-fifth of PowerGen's operating profit, will go on falling. Regulators told electricity companies a month ago they'll have to cut prices for the use of their power lines by up to 30 per cent from next year. The greater than expected cuts are likely to reduce earnings, analysts said.
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