Kansas firm rides in on UK gas revolution

Click to follow
The Independent Online
AS THE UK moves closer to a more competitive gas market, one of the winners is likely to be Utilicorp, a gas and electricity supply company based in the American Midwest.

In 1990, Utilicorp established a joint venture with Midlands Electricity, based in Birmingham, to supply gas to the UK market. The agreement created Midlands Gas, 75 per cent owned by the British company and 25 per cent by Utilicorp.

The day-to-day management is British. Utilicorp contributed gas marketing expertise and, initially, access to Amoco's North Sea gas supplies.

It was a bold step; by any measure, Birmingham is a long way from Kansas City. But Utilicorp saw a familiar pattern in the way the UK market has been moving since the privatisation of British Gas in 1986. The company, which is traded on the New York Stock Exchange, has also been affected by deregulation in the US gas and electric industries.

Since hooking up with Midlands, Utilicorp has gone on to create five similar joint ventures with regional electricity suppliers. The geographical spread stretches from Scotland to the south-west of England, and in each case the aim is to sell gas. Utilicorp has also set up United Gas as a marketing company for the whole of the UK.

Richard C Green Jr, the company's chairman, president and chief executive officer, said Utilicorp has put just over dollars 5m ( pounds 3.3m) into its British operations. 'We've got a start-up venture with a minimal capital investment that has turned profitable in parts in 1993.' He would not cite profit figures.

Utilicorp does not intend to seek more joint ventures in this country, but will concentrate on its existing activities. Mr Green believes the geographical spread 'gives us good coverage throughout the UK' along with the basic infrastructure needed to build the business. The whole British strategy, he noted, mirrors 'what we've been doing in the United States since 1986'.

Mr Green said Utilicorp made sure its joint ventures were not adjacent to each other, so each had enough room to spill over from the territory of its parent electric company. Midlands Gas, for example, is already selling gas throughout the UK. Mr Green conceded that the ventures will in effect be competing with each other - but the 'net result is that we'll have a broader, more solid customer base across the UK'.

He hopes Utilicorp will learn lessons in Britain that can be applied at home, as foreign competition increases in the US market. He also believes that developments in the UK energy industry will set a pattern for other countries.

Utilicorp has already formed a joint venture with an electricity distribution company in New Zealand.

Gordon Edwards, manager of Midlands Gas, described the link- up as 'quite a successful business, both for Midlands Electricity and for Utilicorp. We have grown the business quite significantly over the last two years, to a point where we supply around 7,000 sites' throughout the UK.

Mr Edwards said Midlands Gas is in profit, but he would not discuss figures. He reported that revenues for the year ended 31 March were just under pounds 25m.

Paul Spedding, an energy industry analyst at Kleinwort Benson, believes Utilicorp's strategy in Britain has been sound. He noted that apart from setting up joint ventures, it has signed long-term gas supply contracts. The next logical step, he said, would be a joint venture with a major North Sea producer: 'That's the one leg that is missing in their pyramid.'

Utilicorp, Mr Spedding added, has also entered the gas market at the 'more difficult end - the smaller customer, which none of the big players really want to supply'. Large energy companies such as British Petroleum, Shell and Exxon have concentrated on the larger industrial users.

But Mr Spedding feels the Government has made it too easy for competitors to take on British Gas, which is responsible for maintaining the network.

'For an outsider, it's competition for free,' he said. 'They've got nothing at risk; they don't have to invest in the gas infrastructure. British Gas would find it impossible to walk away from the gas business tomorrow; Utilicorp could walk away whenever it wants.'