U.S.-U.K. Venture to Explore Utility Deregulation

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Scottish Power and Science Applications International Corp. last month formed a venture called Calanais to exploit IT and e-business opportunities in the deregulation of global utilities.

Scottish Power supplies electricity across the United Kingdom in the wake of British utility deregulation in 1998. SAIC is a San Diego-based Fortune 500 company with sales of $5.5 billion and a work force of 39,000 people.

Both companies believe that utility deregulation is a coming global phenomenon that will provide opportunities for developing new products and services to enhance the value of the core product -- electricity -- and make the utility more competitive on a deregulated market.

One such product Scottish Power developed is a proprietary trading and settlement system to handle post-deregulation payments. With consumers free to buy from 40 suppliers, generators, distributors and meter readers have to be paid separately.

"We were the first company in the U.K. to go live with those trading and settlement systems," said David Jones, Scottish Power's chief information officer.

"We were the first utility to produce a combined gas and electricity billing system and the first to sign people up for power and gas on the Web and the first to have business customers operate purely on the Web with us."

Six months ago Scottish Power formed a venture with the Royal Bank of Scotland to bring innovative products and services in the financial services areas to market, "and we are the only U.K. utility to do that."

The company plans to launch two products next month that are a mix of financial and utility services. And it is working on another Web-based product that has nothing to do with utilities to be launched in October. Jones declined to reveal details.

Deregulation, however, also meant that the separate groups within Scottish Power could not cross-subsidize each other, "which makes it difficult for a large internal IT division to continue because subsidies could be hidden there."

Last year, Scottish Power decided to break the internal IT division into a separate entity and to sell the expertise it had gained to other companies on outside markets.

The company held discussions with 12 companies and found SAIC Ltd., a wholly-owned subsidiary based in London, as the most promising partner and struck a deal for a venture.

In the United States, SAIC had been preparing clients for deregulation, which, Lane Sloan, the executive vice president for the company's energy sector, said, is happening in the United States on a state-by-state basis.

One SAIC client, New Orleans-based Entergy, Sloan said, knows that deregulation "is the coming world and preparing for it. Scottish Power has already done it and we were really attracted by their forward-looking and competitive mindset."

SAIC has broad experience in systems integration and considers e-commerce as one of its strengths.

Scottish Power has guaranteed the new venture five years of work "which will be delivered at considerable savings," Jones said, savings he estimated at 100 million pounds, or $160 million.
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