Powergen plc, the integrated electricity and gas company has agreed a five-year IT outsourcing contract with consultants Cap Gemini Ernst & Young. The multi-million pound deal announced today, is part of Powergen’s drive to reduce costs ahead of its agreed acquisition by German power group Eon.

Cap Gemini Ernst & Young UK beat off competitive bids from a number of US and European multinationals in order to win the IT outsourcing contract from Powergen Retail.

The service will be centred upon an IBM mainframe at Rotherham, South Yorkshire which provides core systems including customer records for Powergen’s over three million retail customers 24 hours a day. Users will include staff at the Powergen Retail HQ in Nottingham and other Powergen sites in the UK.

Cap Gemini Ernst & Young will be running IT hardware for Powergen and will not interface with Powergen customers. There are no plans for any staff to transfer across as a result of the arrangement.

Don Leiper, IS Manager, Retail Mass Markets at Powergen, said,”Outsourcing to Cap Gemini Ernst & Young will enable us to drive down IT costs significantly and this is clearly important in the highly competitive domestic electricity market in which we operate.”

He added that, a further point in Cap Gemini Ernst & Young’s favour was its ability during the bidding phase to offer technical advice, which saved Powergen over £1 million in essential hardware upgrade costs. “Access to Cap Gemini Ernst & Young’s wide pool of technical skills over the next five years will be a significant bonus”, said Leiper.

Derek Curran, head of the UK energy and utilities sector at Cap Gemini Ernst & Young, said,”Companies across the business landscape are now seeking to sharpen their competitive edge by reducing IT costs while maintaining or enhancing service levels. The outsourcing route offers a quantifiable way of achieving those aims, and I am delighted that Powergen has chosen to follow it with our help and guidance.”

Curran said that the infrastructure management deal would allow Powergen to focus on its customers, rather than the back-office. He said that Cap Gemini Ernst & Young had carried out various consulting tasks for Powergen in the past but this was the first longer-term arrangement – on which they would be looking to build.

Separately, Powergen received key approval yesterday for its unopposed acquisition by German power group Eon from the Kentucky Public Service Commission. Powergen’s ownership of Kentucky power company LG & E Energy, made it necessary to seek a series of US regulatory approvals if the €8.2 bn ($7.2 bn) bid is to go through.

A spokesman for Powergen said that the Kentucky ruling was one of the most important.

In an announcement posted on its website, the Kentucky Public Service Commission said it would require E.ON “to honour many of the same conditions under which the merger with Powergen was approved in May 2000.”

These conditions include maintaining LG & E headquarters in Louisville for ten years following the acquisition.