Ending TXU contract costs International Power £26m

International Power, the electricity generator, said yesterday that the end of a contract with the collapsed energy group TXU Europe would hit profits by a total of £26.4m in the next two years. The company also said it was taking legal action to recover a termination payment that was included in its contract with TXU.

The collapse of TXU affects International Power's plant in Rugeley, which is now operating at much reduced capacity. TXU said the changes will knock 0.4p a share off its 2002 earnings, equivalent to £4.4m. The result in 2003 will be 2p a share, equivalent to £22m. Analysts had previously been expecting full-year profits of £260m in 2002 and £220m in 2003.

The company said: "We will review the need for any potential impairment of the Rugeley power plant at or before the announcement of our 2002 year-end results [in March]."

International Power's deal with TXU Europe ended in October when its parent company in Texas withdrew the financial support for the European operation. It was a "tolling contract" under which TXU paid fuel costs plus an operating fee to International Power for generating electricity. But the deal, which was scheduled to run until 31 December 2005, was also struck at a level that contracted TXU to pay prices that were way in excess of the current market price, which has fallen sharply. With the Rugeley plant now forced to sell its electricity in the open market, it is securing far lower prices.

International Power declined to say how much the termination clause in its TXU contract might be worth but said it was taking "robust legal and commercial steps" to secure the payment. "We believe that structurally we are in an advantageous position to recover our termination claim," the company said.

The shares closed 2.25p down at 104p.