ScottishPower hit by $300m US write-off

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The Independent Online

ScottishPower saw more than £1bn wiped off its stock market value yesterday after the energy group admitted that volatile US power prices would cause it to take a second multi-million dollar hit in nine months, further denting the credibility of the company's management.

The utility giant shocked the City by warning that the recent collapse in western US electricity prices would cost it $300m (£205m) in excess power costs in the year to March 2002. The group's shares dived 12 per cent, down 53.5p at 426.5p.

Ian Russell, the chief executive, blamed the extreme volatility of western US power markets and last winter's unprecedented high prices in California. "We had to buy power to avoid being supply constrained in a very high price market," he said.

PacifiCorp, the US unit that ScottishPower bought in 1999, had to buy enough power in the expensive forward spot market to meet regulatory obligations. Since peaking at $200 per megawatt hour (MWh) in the first quarter, forward contracts have collapsed to about $30 per MWh. This is below normal prices of $35 to $40 per MWh.

Mr Russell said: "The result of the collapse is that the power we had to buy to meet demands has fallen in price. The difference is the $300m charge we have taken." The loss will be reflected in the utility's second-quarter results and will knock the group's earnings per share by 9p.

Analysts said the announcement had caught the City by surprise. One analyst said: "It's a question of sentiment and uncertainty. A few months ago, Scottish Power had problems because it was short on power. Now it is long on power."

The group ran into difficulties last December at the height of the Californian power crisis when its Utah power station broke down. This cost the utility $1m a day – more than $160m in total – as it bought in power to meet regulatory obligations.

Mr Russell allayed fears that the utility could suffer from another spike in Californian power prices this winter. "We have bought power up to the end of the financial year, so any rise in the market price of power would be beneficial," he said.

The utility, the biggest in Britain, intends to boost its power generating capacity in the US by more than 10 per cent this year to avoid needing to buy expensive electricity on the spot market in future. It currently generates enough power to meet 80 per cent of its demand.

ScottishPower said it was in talks with US regulators to seek to recover a large proportion of the $300m charge. It has recovered more than $170m in rate increases to date. Yesterday, it announced that PacifiCorp had received $64m in compensation from regulators in the state of Oregon, compared with claims of $104m. A ruling is expected from regulators in Utah later this week.

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