Ed Wallis, 62, another veteran of the UK electricity industry, reached the top of Powergen in 1988. He retired as chief executive in 2001, but picked up the reins again this year, as passionate as ever. The former Oldbury power station manager joined the CEGB in 1955, rising through the ranks with his electrical engineering background. In 1991 he led Powergen to privatisation, but his ambitions only started there.

Round 1 Vision

Innogy, in its National Power days, moved quickly to sell its power plant and snap up retail customers. It bought Northern Electric, Yorkshire Electricity and Midlands Electricity. It remains strongly focused on the UK market and aspires to the Centrica model, selling gas, telecoms and domestic services to its customer base, alongside electricity. Its thirst for a water business remains unquenched, but it is really only after the customers.

Powergen has striven for vertical integration, but found it elusive until this week’s purchase of TXU’s UK supply business. After privatisation, it sought vertical integration with generation, distribution and retail arms, but was less aggressive in selling generation capacity and shyer in grabbing retail customers. Frustrated in the UK, it turned to the US, where it snapped up LG&E, in Kentucky. E.ON, Powergen’s new owner, also sees the US as the main source of growth.

Round 2 Financial clout

Innogy was snapped up by RWE, Germany’s number two energy group, in 2002. Like E.ON, RWE is strong, recently reporting a 9 per cent rise in first-half operating profits to €2.2 billion (£1.4 billion). Having spent €22.3 billion on acquisitions in power and water in two years, RWE has put expansion on hold for now. Innogy’s profits have risen from £215 million to £282 million in two years through acquisitions.

Powergen’s acquisition by E.ON in 2001 puts the UK company in a very powerful position. E.ON, Germany’s number one energy group, has a rumoured €19 billion (£12 billion) war chest after selling €28 billion of industrial assets. A long takeover dispute for Ruhrgas, now resolved, forced E.ON to put US expansion on hold, but a market cap of €33.5 billion and expected profits of €6 billion make it formidable.

Round 3 Track record

Brian Count is seen as a shrewd operator, but his sale of Innogy to RWE was his finest deal. Innogy was created quickly, if expensively, so the 31 per cent premium he extracted from the Germans was needed to satisfy investors. Before approaches, Innogy shares failed to thrive and although time has vindicated Innogy’s decision to go short on generation, investors in Nat Power could have hoped to have done better.

Ed Wallis’s reputation in the City is founded on the value creation he achieved at Powergen. Investors had more than doubled their money between 1999 and 2001, when the E.ON deal was clinched. Powergen’s move into the US, buying LG&E, also showed it was not easily thwarted. Latterly, Powergen has looked strategically weak, as low power prices have savaged its position. The TXU deal puts it back on track.

Round 4 Strengths

Innogy created a separate retail brand, Npower, which, British Gas apart, has the highest profile in UK energy. Sports sponsorship and advertising have worked. The retail focus was planned many years ago and Count’s foresight in anticipating the new electricity market’s effects paid off. Innogy will not mothball plant, its supply margins are aided by low wholesale prices and, with its parent, it can wait to see off rivals.

Wallis’s enthusiasm for the electricity industry is undiminished by age. He has steered Powergen through 11 years of a liberalised market and knows almost every UK power station inside out. With its TXU deal, Powergen gains more than 8 million customers, giving it the hedge that it needs at times of low prices. With 21 per cent of the electricity market, Powergen can survive the price squeeze much longer than rivals.

Round 5 Weaknesses

Innogy’s decision to go long on retail and short on generation may return to haunt it if power prices suddenly start to rise. The company relies on its trading business to mitigate this risk, but trading is not without troubles. Since Enron’s demise, there have been fewer trading counterparties, increasing the risks for Innogy. Count will also spend time teaching the Germans to make the most of liberalising markets.

Powergen has grumbled that the power market is bust, yet has now acquired lots of inefficient plant from TXU. It may have to mothball, but with so many new customers to supply, it must be cautious. On the brand side, TXU is a hindrance, but the Powergen name is not much better known. Now is the time to put real money behind the brand. TXU will keep it busy for some time, preventing expansion in the US.

And the winner on points is . . .

THE challenge for both Brian Count and Ed Wallis at the moment is to make money, any money, in a power market in which prices are at a record low.

When the bottom falls out of any commodity market, the most vulnerable players in it will go to the wall. By luck or by foresight, Innogy has found itself in a strong position in just such a market. Through sheer financial strength, Powergen has hauled itself into a much safer position than it was in.

Both companies have the might of German former conglomerates behind them, but as TXU’s experience shows, a mighty parent can shun you when the going gets tough. Neither E.ON nor RWE look ready to do that and would be castigated if they did. However, Innogy and Powergen must begin to think about the next strategic step –– whether, in the short term, to take advantage of distressed players or, in the long term, how to position themselves for price recovery.

E.ON and RWE have many markets in which to wage their battle, not least the US. In the UK, Innogy can take advantage in the short term of a very strong, stable retail business. But Powergen could overtake it in the long term, if it can combine efficient power station management with flair on the customer side.

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