In-house power

Despite Innogy Holdings undergoing rapid upheavels and diversification, it still relies most heavily on its in-house legal team over ny external firm. And to good effect. Julia Cahill reports

Think power stations and you only have a snippet of what Innogy Holdings, the newly demerged UK arm of National Power (NP), is all about. In a rapidly changing sector, highly exposed to political and environmental pressures as well as commercial demands, this young and ambitious company is a far cry from the grey old image of the utility sector. “We face a very interesting mixture of issues, and it gives a lively workload to our lawyers,” says company secretary Mike Bowden.

Innogy was spun out of the UK energy giant a little over a month ago. Linklaters & Alliance advised longstanding client NP on all aspects of the demerger, including the transfer of more than 60 properties into the newlycreated Innogy. The process was sealed with the flotation of the UK business on the London and New York markets on 2 October. NP, renamed International Power, retained its UK and US listings and its shares fared well. Innogy took an initial plunge but has since witnessed a dramatic rise.

The company is divided up into five business areas. In addition to the traditional core business of power stations, classed as operations and engineering, there is the energy retailing side NPower, a cogeneration and renewables business that encompasses National Wind Power (NWP), a new technologies business called Innogy Technology Ventures, and an energy trading business.

Bowden, who is head of legal and regulatory affairs as well as being the company secretary, leads the 14-strong in-house legal team, inherited mostly from NP. “It’s the longest title I’ve ever had,” jokes the former NP employee, who has worked in the sector since privatisation. He replaced former company secretary Andrew Swanson, who took severance terms, and head of legal Stuart Wheeler, who stepped down earlier this year. As a result, dealing with industry regulator Ofgen and the increasingly influential Environmental Agency also comes within Bowden’s remit. “Previously, the primary input was economic regulation. Now there’s been a change of emphasis. Environmental regulation is making a more telling input on our bottom line,” he says.

There has been little breathing space for Bowden and his team since the demerger was announced in August. Before Innogy floated, Bowden was locked in all-night negotiations to buy Independent Energy after it went into receivership on 8 September. The £10m deal gave Innogy 320,000 electricity and gas customers, taking its customer base past the three million mark. Innogy paid just £32 per customer – it will win back that and more in commission for collecting Independent Energy’s £150m backlog of bills on behalf of the receivers.

The deal was completed within just four working days, with Linklaters & Alliance advising Innogy, Allen & Overy advising receiver KPMG, and Herbert Smith acting for the regional electricity companies, instructed by Northern Electric. “The deal showed that this is not a cumbersome organisational structure. We now have the ability to move very swiftly,” says Bowden. Innogy saw off competition from five or six other short-listed companies which submitted proposals to the receivers.

Bowden’s close involvement in the acquisition is typical of the hands-on approach he expects his department to take. The company has rejected the alternative model of having just a handful of lawyers acting as an interface with external advisers.

Bowden says: “I’m sure that model has its merits, but we’ve decided to go the other way. Our team has a very high-level understanding of the underlying issues within the various parts of the business. It provides much more commercially aware legal advice than external advisers, and there are also cost advantages.”

For anti-trust litigation in Brussels, for example, the company’s own in-house litigation specialist Gary Chapman is able to instruct counsel direct.

“I’m not for one moment saying that we do everything in-house,” says Bowden. “But we do far more than the everyday drudging stuff. We strive to cover all but the very largest corporate transactions.” And even when it comes to the latter, Bowden sees his staff as key negotiators and contributors.

Innogy intends to retain Linklaters as its chosen corporate adviser for the foreseeable future. The demerger prompted a number of competitors to approach Bowden in the hope that the company, like International Power, would want to make a fresh start with new legal advisers. Last month International Power instructed Clifford Chance as principal corporate adviser, although Linklaters will continue to do some projects work (The Lawyer, 9 October). Bowden, though, has no such plans. “We’re flattered by the interest but see no reasons to change,” he says. “We have a longstanding relationship with Linklaters and I’m a huge admirer of their high-quality legal service. They also mix with us very well.” Personal relationships, then, are clearly of great importance to Bowden.

“We don’t just blindly instruct Linklaters,” he says. “We do so on the understanding that lawyers who I know and like will do the work. You take competence as a given when you go to an external adviser, but you’ve got to be able to get on with them. We’re a young, high-energy team, and we want to mirror that personality type in the advisers we use.”

It also helps that Bowden has never seen Linklaters outsmarted by lawyers on the other side of the table. “If that happened we’d change horses,” he says. “We get a fair view of the premier league of London firms, but I’m still convinced Linklaters is the best.”

As well as the big corporate deals, some employment work is outsourced to Linklaters, but all property work for Innogy’s significant brownfield portfolio is dealt with in-house. Innogy owns just the kind of land the government is now eager to see developed. “We’re just starting to tap the commercial opportunities which this presents,” says Bowden.

Innogy also uses niche shipping, offshore and energy firm Curtis Davis Garrard, based at Heathrow, which is advising it on a series of industry disputes.

But those areas aside, Bowden’s aim is to get the full benefits of having a large in-house legal team by placing lawyers close to the business they predominantly work for. A prime example is Simon Wells, one of Innogy’s 14 qualified lawyers, who is company secretary for NWP. Addressing the planning issues involved in building a wind farm five kilometres offshore is just one example of the kind of issue this fast-moving area of the business throws up. Innogy also took on two Independent Energy lawyers when it bought that company.

“Any legal issue that comes out of that part of the business is dealt with by those lawyers. Alternatively, they can take it to the most appropriate specialist within the team,” says Bowden.

No doubt there are busy times ahead for his department. Innogy is currently growing its customer base organically, taking on 9,000 customers a week, but the company has made no secret of the fact that it is looking to make further acquisitions. US-owned retail suppliers Yorkshire Electricity, Northern Electric and Seeboard are all attractive candidates, but Innogy itself is not free from predators. “If someone wishes to make a bid for us, our board will consider it in line with our commitment to looking after shareholder value,” says Bowden. For the time being, however, the focus is on Innogy’s own growth.

Key to that strategy is the new technologies business. Innogy owns all of the intellectual property related to a new technology known as Regenesys, which allows electricity to be stored for use at peak demand. Regenesys makes Innogy unique in the energy sector, and the company plans to capitalise on its position by building a network of power stations in the UK and US using the new technology. Innogy is planning to recruit a lawyer as company secretary for this expanding area.

As energy is starting to be dealt with like any other commodity, trading is also taking off for Innogy. The company has its own trading floor at its Swindon offices, where Bowden plans to appoint a specialist trading lawyer, probably from the City, who is familiar with the New Electricity Trading Arrangements.

Innogy is by no means alone in seeing this as a growth area. “US utility companies are recruiting traders by the bucket load,” says Bowden. “Since the days of government-facilitated contracts, the process of trading has become more and more sophisticated. The legal expertise it requires is changing as well.” And as Innogy grows from strength to strength in the rapidly changing energy business, Bowden’s team must grow in size and expertise to keep up.

He says: “We are an expanding department because the businesses that we serve want and need more legal input into their growing businesses. We are customer led and customer focused. Our customers are the businesses that make the company’s profits.”
Mike Bowden
Head of legal and regulatory affairs and company secretary
Innogy Holdings

Organisation Innogy Holdings
Sector Energy
FTSE 250 rating 21 (also listed on the New York stock exchange)
Market capitalisation £2.234bn
Employees 4500
Legal capability 14 qualified lawyers, one paralegal and one trainee
Head of legal Company secretary and head of legal and regulatory affairs Mike Bowden
Reporting to Executive chairman Ross Sayers
Main location for lawyers Birmingham, Swindon and Worcester
Main law firms Curtis Davis Garrard and Linklaters & Alliance