ScottishPower warns of impact from price reviews

SCOTTISHPOWER, the multi-utility, warned yesterday that a series of proposed regulatory price cuts in its water and electricity businesses could have a serious impact on dividends, investment and levels of service.

The warning increased the possibility that the group, which also owns the regional electricity supplier Manweb and Southern Water, will be forced either to cut the payout or appeal to the Competition Commission.

ScottishPower refused to spell out what the financial impact would be of the four price reviews - three in electricity and one in water. But analysts estimated they could wipe pounds 90m off group operating profits next year and pounds 250m off revenues.

Announcing flat operating profits of pounds 325m for the first half of the year, Murray Stuart, the chairman of ScottishPower, said that, if implemented, the reviews would have "serious implications for customer service, infrastructure investment and shareholder returns".

It was "vigorously" pressing the two regulators, Ian Byatt of Ofwat and Callum McCarthy of Ofgem, to reconsider, he added.

ScottishPower is particularly angry about the proposed 16 per cent reduction in Southern Water bills next year and cuts in electricity supply charges ranging from 7 per cent for customers in Scotland to 11 per cent for those of Manweb.

Ian Robinson, the chief executive of ScottishPower, criticised the energy regulator for maintaining price controls when the electricity supply industry was open to full competition.

Despite the threat to profits and dividends, ScottishPower shares ended the day 18p higher at 595p amid mounting expectations that its pounds 4bn takeover of the US electricity company PacifiCorp will be completed before the end of next month.

ScottishPower has applied to US regulators for permission to raise prices by around $150m in the six states in which PacifiCorp operates. It also expects to achieve cost savings of $100m-$200m over a four-year period.

The takeover has been approved by four out of the six states and ScottishPower is now awaiting the green light only from Idaho and Utah.

Pre-tax profits fell by 25 per cent to pounds 185m due to pounds 55m of write-offs in its telecom business, Thus, which is being floated this month. The charges relate mainly to the closure of its fixed-radio-access business licenced from the collapsed telecoms operator Ionica. But Ian Russell, the deputy chief executive, estimated the Thus flotation would net ScottishPower a profit of around pounds 500m in the full-year.