Russell sees 'merits' in merger between Scottish power giants

The prospects of a £12.5bn merger between Scotland's two electricity companies strengthened yesterday after Ian Russell, the chief executive of ScottishPower, acknowledged there would be "merits" in such a move. Mr Russell, who earlier this year appeared to rule out a deal with Scottish & Southern Energy on regulatory grounds, refused to say whether he had held talks with his opposite number Ian Marchant.

But Mr Russell added: "Putting the two businesses together would clearly give us greater scale in the UK in generation and supply and there would be synergies in distribution.... There may be merits to us in getting together with Scottish & Southern but we would have to weigh it in the balance."

A combination of the two companies would create a group with 8.5 million energy customers and 11,000 megawatts of UK generating capacity, putting it on an even footing with the four dominant players emerging in the UK – RWE and E.on of Germany, Electricité de France and Centrica. But Mr Russell also stressed that there would still be regulatory hurdles to overcome since any merged company would control all electricity generation and distribution in Scotland and two-thirds of the retail energy supply market. "I don't know how that would sit with the regulators but I can imagine that there would be competition issues," he added.

He said that further expansion in the UK was only one of the options being examined, pointing out that two-thirds of ScottishPower's business was now in the US where it owns PacifiCorp.

Separately, ScottishPower gave its backing to the idea of an industry-wide rescue of the embattled nuclear generator British Energy. This would involve all UK electricity companies signing long-term supply contracts with British Energy at prices that were above the current spot rate and high enough to cover the company's costs. He was speaking as ScottishPower reported an 83 per cent increase in first-half operating profits to £451m thanks to a strong performance from PacifiCorp, which contributed £275m for the six months.