The transformation of the electricity industry, started by the last government, has not been reversed by present one. After forty years in the public sector, the last decade has seen two profound revolutions – first privatisation and then competition. PowerGen was formed from the generating capacity of the old Central Electricity Generating Board, but has just purchased a regional electricity company and is now selling gas too.
Industry change
Previously the industry in England and Wales was dominated by one large generating and transmission company, the CEGB. That sold electricity to 12 area boards, each with a regional monopoly. (In Scotland and Northern Ireland, vertically integrated boards had the monopoly.)
First came privatisation in 1989 and 1990, creating National Power and PowerGen as competing fossil-fired generators (nuclear was treated separately), the National Grid Company owning the high-voltage transmission system, and 12 regional electricity companies (RECs) running the distribution (the local wires) and actual supply to final customers.
The impact of competition and tight regulation in the UK led some companies including PowerGen to expand overseas in search of growth. That process works both ways, and since 1995 foreign ownership of the UK electricity companies has been allowed. First the Americans and most recently the French have come in. Within the UK, some multi-utility companies were formed, combining electricity, water and telecoms.
The second revolution was competition in supply, starting with large industrial customers, moving in stages to all domestic customers. This was paralleled by similar liberalisation of the gas market. Now each REC charges for the use of its local wires (still a monopoly), but the supplier may be another REC, a gas company, a generator or an independent supplier. The market share of generators like PowerGen is falling, as technological change (combined cycle gas turbine stations) opened up the way for new producers to enter the market. Regulation is also forcing the sale of coal stations: when a REC (Eastern) bought some of PowerGen’s stations in 1995 the process of recreating a vertically integrated industry began again.
The PowerGen business
That process continued when PowerGen was allowed in July 1998 to purchase a distribution and supply business, East Midlands Electricity. This brought it 2.3 million domestic customers immediately, from which it can build a nationwide supply business on the back of the PowerGen brand. However it must sell two more coal fired stations.
All of which leaves PowerGen a very different business at the end of the 1990s:
just three coal-fired stations and three gas powered in the UK, plus hydro-electric capacity;
no assured customers for its UK generating capacity, with market share down to under a fifth, and expected to fall below 15% by the end of 2000;
overseas generation growing in Germany, Hungary, Portugal, India, Indonesia, Thailand, South Korea and Australia – and hopes for expansion in the USA.
Community strategy
At the start of the decade, the task for community affairs was to build a programme from scratch, appropriate for a company in the private sector and reflecting the fact that the company had no direct customers outside the industrial, commercial and wholesale market at that time. This had two main focuses:
the specific local communities where PowerGen was located, both the headquarters in Coventry and the power stations which are major local employers and a highly visible part of the environment;
certain specific national audiences, such as the Westminster/Whitehall audiences of regulators and legislators, and some opinion formers.
Now that approach is no longer adequate. As a national brand and with 2.3 million customers following the integration of East Midlands Electricity into the group, PowerGen has a focus on consumers as well as major role in a whole region. And given the change in government, the previous Westminster/Whitehall audience is now interested in social exclusion and for utilities to address their social impact, not just the price paid by consumers.
So a review of the approach to communities is underway, covering the types of activity undertaken, how they are organised and the level of resources devoted. As well as more than doubling group employee numbers, the merger with EME has brought a more overt and organised approach to community involvement and some excellent flagship programmes which are now being developed further.
Programme activities
Only UK charitable donations have until now been reported externally. A process to value the full community contribution in the current year, including EME, is likely to yield a group-wide total approaching £1 million. Flagship projects include:
Weather Reports Project – building on the sponsorship of ITV weather bulletins, schools receive a weather station kit and teachers manual, addressing science, technology and numeracy in the curriculum; each site hosts a workshop for teachers and then schools undertake practical projects, submitting them to a national awards scheme; nearly 500 schools have taken part and the project is being expanded beyond individual sites to cover the whole East Midlands area;
Lighting 2000, EME’s Millennium project – safety and security schemes worth ?500,000 over three years are being funded, covering public areas such as footpaths and community halls;
Age Concern – testing electric blankets for members of local Age Concern groups, with a voucher donated by Boots for a free new blanket where safety is at risk – over half were found to be faulty – (and a 25% off voucher for everyone else, so encouraging take-up);
Royal Society for Nature Conservation – a ?50,000 fund for community projects, now going national and linking into Local Agenda 21 plans and the UK Biodiversity Action Plan.
Along side these, arts continues to be a strand of activity – for example, chairman, Ed Wallis, chairs the Birmingham Royal Ballet Trust – and local sites have small scale activities around their plant. An underlying characteristic of the whole programme is to ‘make a difference’, providing support where possible for projects which would otherwise not have happened. For the future it is likely that education will grow as a focus area, increasingly concentrating on issues directly relevant to the business.
Organisation
PowerGen’s new community involvement function is headed by Pam Staff, who has 28 years experience in various roles going back to CEGB days. In addition to a full-time assistant, there is also a network of community co-ordinators, mainly in personnel and communications, who work at each of PowerGen’s operating locations. Community involvement is part of corporate affairs, reporting upwards to director, Esther Kaposi.
Employee involvement was centrally organised in EME, with staff voting for a Charity of the Year. This is being extended to the whole group, with the Leukaemia Research Fund this year’s choice. Matched grants are available on application for individual fundraising, and time-off for voluntary activities is at the discretion of local managers.
The commercial rationale, explicitly in approved business plan, is:
to earn and extend ‘licence to operate’;
to support the PowerGen brand as it extends throughout the retail market;
to enthuse and motivate employees;
to contribute to a prosperous economy and meet responsibilities as a good corporate citizen.
Future challenges
The primary challenge is to make the community programme more effective, at a time when competitive pressures mean the business is focused on immediate commercial objectives and budgets cannot grow significantly. This can be achieved by identifying and supporting existing activities, by refocusing resources on specific projects that better achieve strategic objectives and by increasing staff involvement.
Achieving a tighter link with the PowerGen brand is particularly challenging, given the nature of the product – taken very much for granted by consumers, it arrives at the home unseen and the only physical evidence is the quarterly bill from a supplier who is unlikely to have generated it.
So for the future, more emphasis on communication is inevitable, focusing on the good work being done, but without diminishing the genuine community benefit.
PowerGen has also embraced sustainable development as a concept. This presents a further challenge, to move towards holistic sustainability reporting, adding social impact to existing environmental monitoring.
Beyond these immediate UK objectives, the implications of overseas expansion are arguably greater. In developing countries, social issues tend to be more basic – wholly inadequate healthcare, poor schooling, profound environmental degradation. And if growth ambitions in the USA come to fruition, the well-developed expectations of that market place will have to be met too.
One thing is clear: PowerGen’s next decade will be even more demanding on the community programme than the last.
Corporate Citizenship Briefing, issue no: 45 – April, 1999
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