Fond memories of ESB won't blunt Viridian chief's fighting instinct

Dr Patrick Haren, a former ESB engineer, is determined to give his old colleagues a good run for their money.

Now the chief executive of Viridian Group plc, the North's largest plc and parent company of Northern Ireland Electricity, he is determined to eat into the ESB's monopoly once the Republic's energy market opens up to competition next February. If Dr Haren's track record as Viridian chief executive over the past 17 months is anything to go by, the ESB might have cause for concern. Since its formation in February 1998, Viridian has not only become a FTSE 200 company with around 1,500 full-time employees, its pre-tax profits rose by 11.5 per cent from £77.7 million sterling (€118 million) to £86.6 million in the year ending March 31st, 1999. Dr Haren himself commands an overall salary of £429,000.

For somebody in such fierce competition with the ESB, Dr Haren has fond memories of his time with the company which he joined after completing his degree in electrical engineering at Queen's University, Belfast.

"From an engineering point of view, it was a very interesting organisation to work for because of its international orientation. Even then, ESB procured their hardware in the international market whereas UK companies would have tended to buy only from British industry. "We also punched way above our weight in terms of being members of international technical committees in which I was involved, " he recalls.

After completing an engineering-related PhD at Queen's, his work for the ESB led Dr Haren to travel back and forwards to the US over a three-year-period in the late 1980s. He was immediately impressed with both the structure and the attitudes of US firms. "While here, we have a vertically integrated industry - that means you own everything from the purchase of fuel, the power stations themselves, conversion, wholesale delivery, retail distribution and customer relations - in the US power companies were far more diverse and dis-segregated. There was also a much greater level of trading between different operators and systems and a commercial, entrepreneurial background which even influenced government policy."

"What has to happen here and in the Republic is this opening-up of trading opportunities. We must stop believing that everything has to be a single entity and allow competition and commerce to set the basis at which the industry operates.

"One thing that state-owned utilities have always struggled with is the ability to break down their own internal monolith. They have difficulty in seeing what independent competition looks like. "It is only when you are dealing with smaller entities that you begin to see something more mobile, more dynamic, more responsive to opportunity. In the US I learned that, both psychologically and how to deal with it in commercial terms."

In 1997, Dr Haren was a contender for the position of ESB chief executive which was won by Mr Ken O'Hara. Any regrets? "Every time somebody puts a new opportunity in front of me, it is very difficult to resist it. I obviously enjoyed a terrific career in the ESB," says the 48-year-old, who spends his scarce free time skiing, sailing and mountain-climbing.

So how does it feel to head the ESB's closest rival? "Absolutely terrific. But it is not so much how do we feel competing against the ESB, but how do we feel competing. The terrific thing is that we are seeing a market on our door-step opening slowly and the opportunity to play a role in that market is very exciting. The ESB should also see that as exciting."

According to Dr Haren, one of the greatest problems Viridian has been experiencing with the ESB is the latter's reluctance to supply the company with information vital to the running of its new power plant in Huntstown, Co Dublin.

The project, which is a joint venture with Cement Roadstone Holdings (CRH), involves building two combined cycle gas turbines which will generate 600 megawatts. The project is expected to be operational in January 2002 at a cost of approximately £300 million (€381 million). Dr Haren says he is delighted the project has recently cleared the final hurdle of the planning stage. He is, however, unhappy at the ESB's apparent unwillingness to discuss trading mechanisms and pricing structures with Viridian.

"There really is no good reason for it. ESB would say they are having certain difficulties with providing information to us as they have not got a contract with the regulator yet. We would say, even if they have not got their final prices yet, they should at least be discussing the eventual pricing structure with us now."

"To be fair to the ESB, the regulatory structure should have been in place a year ago. "But there still is the issue whether they actually want to embrace the new market or whether they want to hold it back."

Dr Haren insists Viridian and CRH have invested much in the Huntstown plant, not only in financial but also in planning and future customer relations terms. "We are prepared to go quite a distance in terms of advancing the plant. But we do have to look for assurances so that we know we are building into a market that is going to work. It is very unsatisfactory that there are still so many unknown factors."

According to Mr Haren there is enough room in the market for all competitors as the Republic's energy demand has been growing steadily at 8 per cent annually over the last few years. In fact, without Viridian's new Huntstown plant and a similar project by the ESB at Ringsend customers could be facing an electricity shortage in two years' time, he says.

As stipulated in the European Electricity Directive, 28 per cent of the Republic's energy market is to be opened up to competition by February 2000, a development warmly welcomed by Dr Haren.

But he also sounds a note of caution. "A complete market opening is not always an entirely positive thing for all customers. If you are a very small, poor credit-risk user, nobody would want to supply you in a totally open market. So we need to keep a public service obligation in the new legislation."

He is, however, frustrated at the pace at which the new legislation has been passing through the Dail where it has been put back from May to the autumn. "We have to respect the Government's timetable but we would want to encourage everybody to move forward as fast as they possibly can."

As to the contents of the new legislation, Dr Haren will not be drawn on previously expressed fears regarding the ESB's position in a future energy market. "We would always be concerned about any special position that might be given to the ESB in the legislation. They already have a special position by definition, a position of tremendous strength which does not require extra protection."

Only when the full details of the legislation emerge will customers and companies be able to judge whether the EU Directive has been fully implemented, says Dr Haren. "But we would be concerned about anything in the legislation which slows down competitors trying to enter a difficult market."

What makes the market so difficult for newcomers is the lack of rules and regulations in place, he says. "Of course, we can look at rules in other places such as the UK, but there is no security until somebody actually implements the legislation or until a regulator interprets them or until you see how the resident monopoly interprets them."

"As a new entrant to that market, we need to know that there are not going to be any obstacles there which we would not expect to see there."

Dr Haren says while he respects the ESB's objective of "looking after themselves", the company has to recognise that "if you come from a 100 per cent position you have to give something up for the market to change and open up".

Referring to the ESB's recent application to supply 230 companies in the North, Dr Haren insists Viridian has done everything to facilitate the move. "They should recognise the level of access which they have to the market here and start making things easier for us in the South. It is important that they deal with outsiders in a totally transparent and responsible way."

In future, the top 300 corporate electricity users in the Republic will be able to choose their own providers. For Viridian it is vital to secure a fair share of such customers for its Huntstown plant to be viable.

"We have built very strong relationships with a large number of those top customers over the past 18 months, but I am not going to name names."

In the past, Viridian has repeatedly been accused of not passing on its savings to customers, an "entirely wrong perception" according to Dr Haren. In his view, electricity prices in the North are only high because of high generation costs, an area over which neither Viridian nor the industry's regulator OFREG have any influence.

Electricity bills in the North comprise 60 per cent generation costs and 40 per cent distribution costs, he says. Since the company at present has not got a licence for electricity generation in the North, any cost cutting it passes on to customers only affects the distribution share of their bill - an area in which there have been price reductions of 28 per cent over the past two years, according to Dr Haren.

"What is needed is open competition in electricity generation to the largest extent possible across the island of Ireland, because that is the only market large enough to make it interesting and workable.

The future is an all-Ireland open market with a North-South interconnector and a Scottish interconnector as a key additional variable."

The contract for the construction of the £150 million Moyle electricity interconnector between Ayrshire in Scotland and Islandmagee in Co Antrim will be awarded shortly. The envisaged operation date is December 2001.

Dr Haren says the project will inevitably cut the price of electricity for industrial customers while it might take several years for the savings to filter through to domestic users.

"The terrific thing is we are seeing markets opening up here and all of it is going to be good from a customer viewpoint. It is the customer viewpoint that ultimately should get all of us excited."