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Scottish Hydro awaits report

The Monopolies and Mergers Commission's inquiry into Scottish Hydro Electric, which followed the company's refusal to accept new price controls set by Offer, has cost the company pounds 2m.

Roger Young, chief executive, said a report to be published by Offer on the MMC inquiry today is "just another step on the road" to agreeing new controls with Professor Stephen Littlechild, the director general of Offer. "We have the option, if we think he did not follow the spirit of the MMC report, of going for a judicial review."

Mr Young said the company needs a regulatory regime that allows a real rate of return of 7.5 per cent on the electricity distribution business rather than the 3 per cent under Offer's proposals last year.

He said that Offer's regime would have prevented necessary upgrading of the electricity wires.

Mr Young yesterday would not be drawn on the contents of the report, which he has seen, but he said: "Whatever comes out tommorrow there is still another lap of the track to go before it turns into a firm price proposal."

He was speaking as Hydro Electric announced a 2.7 per cent increase in pre-tax profits to pounds 168.7m in the year to 31 March. The results were depressed by a pounds 14.5m restructuring charge and an pounds 18.8m premium on the redemption of Government debt.

Earnings per share fell by 2.3 per cent to 31p but underlying earnings were up by 12.7 per cent at 36.8p. The dividend for the year is 14.01p, an increase of 10.8 per cent on the previous year.

The underlying improvement was drive by a surge in sales to England and Wales, which rose 55 per cent in volume terms. Hydro refuses to say how much of the profits comes from outside Scotland, but the profit from England and Wales was pounds 29.5m more than a year ago.

In contrast, profits in Scotland were lower than in 1993-94 because of a warm winter and reduced demand following the Government's imposition of VAT on domestic fuel. Competition in the supply of electricity to businesses also depressed prices for commercial and industrial customers by at least 5 per cent.

Hydro-Electric is investing in further expansion south of the border, where it sees the main opportunity for growth. The company already has two combined heat and power plants in Dover and at Sellafield in Cumbria and is planning several more.

A gas-fired power station at Keadby near Scunthorpe has been delayed by technical problems but should be onstream by the end of this year.