ScottishPower shares rose sharply yesterday after the company reported a better-than-expected performance in the first quarter at its US division PacifiCorp.
The West Coast utility increased operating profits by 48 per cent to £134m, helping lift ScottishPower's overall pre-tax profits by a half to £152m in the three months from April to June. The shares rose 6 per cent to close up 20p at 334.5p.
ScottishPower's chief executive, Ian Russell, who has been heavily criticised for slashing the dividend by a third, said he was pleased by the recovery at PacifiCorp, which has hit a series of difficulties since it was bought for £7bn in 1999.
However, he cautioned that there was still a long way to go before PacifiCorp's profitability reached the maximum allowed by US regulatory authorities.
ScottishPower has set itself a goal of increasing PacifiCorp's profits from $500m (£317m) last year to $1bn in 2004-05 – equivalent to an 11 per cent return on equity. At present, its return on equity is running at about 6 per cent.
The biggest contribution will come from a targeted $300m reduction in costs involving 1,600 job losses, of which about a half have so far been achieved.
The first-quarter improvement at PacifiCorp was achieved with the help of £17m in rate increases, the recovery of £15m in excess power costs and £57m in lower power costs. Efficiency savings amounted to £9m.
Following the £2bn sale of Southern Water to the French group Vivendi Environnement, PacifiCorp now accounts for about two-thirds of ScottishPower.
The plan is to use some of the proceeds from the water sale to increase PacifiCorp's generating capacity and so help protect it from some of the price spikes which did so much financial damage to the company last year. PacifiCorp ran out of capacity and was forced to go into the market and pay high prices for additional power in order to meet customer demand in the six West Coast states in which it operates.
Mr Russell said that so far this year, PacifiCorp had increased its generating capacity by 5 per cent, or 300 megawatts, and further investment was planned.
The improved performance in the US helped offset a £13m decline in profits from the group's UK division, mainly as a result of lower wholesale electricity prices.
Debt interest payments for the three months fell £27m to £69m due to the proceeds from the Southern Water sale.
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