Midlands Electricity pays millions to pull plug on computer billing system

Midlands Electricity yesterday joined the long list of utilities that have had to abandon expensive computer billing systems. Michael Harrison reports on the casualties.
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Work began installing the IBM system at Midlands' Birmingham headquarters five years ago and at one point 160 contractors were working on the project. But the system, costing tens of millions of pounds, was abandoned last week after Midlands decided that it would not be ready in time for the deregulation of the electricity market next April when 22 million households, including its 2 million domestic customers, will be able to start shopping around for suppliers.

Midlands is the third electricity company to ditch the IBM system. A year ago South Wales Electricity and South Western Electricity abandoned their system which was being developed through a joint venture called CROESO. Swalec made a pounds 30m charge to cover the cost of withdrawing.

A Midlands spokeswoman said that far from delaying the launch of competition in the region, the decision to scrap the IBM Customer Services System would enable it to meet the deadlines it has agreed with the industry regulator Offer.

She declined to say how much the system had cost to develop or how much Midlands would have to write off. But the company estimated in May that the cost of getting its computer systems ready for the deregulated market would be pounds 67.45m. This compares with the pounds 24.67m that Offer says it will cost and is allowing Midlands to pass on to its customers. Total nationwide costs are put at pounds 850m by the industry and pounds 500m by Offer.

The company has decided that it will develop its existing mainframe computer system to handle the transition to competitive markets. But it declined to say how much extra investment this would entail.

The decision will not result in any job losses at Midlands, where about a dozen staff were involved on the project. Nor is any individual being held to blame for the costly move. "The system looked ideal five years ago but we decided that if we were to be ready for 1998 and be a major player in the competitive market then it would be better to invest in our existing mainframe system."

An IBM spokesman told the magazine Utility Week that Midlands had abandoned the system "in light of developments in the marketplace. But IBM went on to defend the system, saying it was "installed around the world with many utilities and other organisations that have large number of customers being billed automatically". Another of its UK customers is Southern Electric.

Midlands was taken over in June last year by Avon Energy, a joint venture between two US utilities - GPU of Ohio and Cinergy of Cincinatti for pounds 1.73bn. But the Midlands spokeswoman said the decision to abandon the IBM system was taken by it, not the parent company.

British Gas has also run into problems with its Tariff Gas Billing System which have resulted in it having to spend pounds 120m to get the system ready for domestic gas competition. Cellnet, the mobile telephone operator also lost pounds 40m on a customer billing system.