Press Releases
Pre Close Statement Ahead of Half Year Results 2001-02
28 September 2001
Key Points:
- Cost savings delivered in Infrastructure Division
- Additional generation capacity in both US and UK Divisions.
- Excess net power costs in US.
- Price increases in US regulated business
- Customer service improving in UK Division
Ian Russell, Chief Executive, said: "The underlying performance of our UK, US and Infrastructure Divisions remains satisfactory. In the US we have had a tough time with excess net power costs, but we are delivering the promised cost savings, building more generation and looking to increase returns in the business. The integration and growth of our UK energy activities is progressing well and our Infrastructure Division is focused on delivering further improvements in efficiency."
The major business items in the year to date are:
US Division
Management focus:
delivering the efficiency and cost targets of the PacifiCorp Transition Plan
maximising recovery of costs through the regulatory process
acquiring access to additional generation
PacifiCorp is making good progress with the Transition Plan, both in terms of improved operational performance and cost savings. The Transition Plan set out savings of $300 million in operating costs and $250 million of capital expenditure by 2004/05. We are on track to achieve a cumulative $113 million by the end of this year. Key areas of focus in the first half of this year have been customer service improvements, realising centralised procurement group cost savings and successful labour relation negotiations.
In Oregon, PacifiCorp recently received a $64.4 million revenue increase, the bulk of which was related to increased power costs, with the remainder setting the return on equity at 10.75%. In addition to this, in Oregon, PacifiCorp was awarded $23 million per annum of cost recovery under the deferred accounting mechanism. On 3 July, the Oregon legislature doubled the allowed maximum under this mechanism to 6%, enabling PacifiCorp to file on 21 September for an additional $23 million per annum of accrued costs. Also in Oregon, PacifiCorp was granted in June 2001 an additional $8 million under the "Alternative Form of Regulation" mechanism.
Total additional revenue in Oregon, therefore amounts to $95 million potentially increasing to $118 million.
In Utah, PacifiCorp was granted a $40.5 million revenue increase, which will result in a pro rata refund of about $22 million from the $70 million interim increase granted earlier in the year. PacifiCorp is reviewing options for reconsideration and appeal on this order. In August PacifiCorp filed for recovery of deferred accounting costs related to the Hunter power plant outage in Utah of $104 million. On 21 September PacifiCorp filed a request for deferred accounting costs, not related to Hunter, of $109 million. These filings will be heard later this year.
PacifiCorp received a $9 million general rate case award and has also filed for deferred power costs amounting to $47 million in the state of Wyoming. In California PacifiCorp has filed for an interim rate case amounting to $7m. In total PacifiCorp has received regulatory awards in excess of $140 million to date and has filings and petitions pending decisions for an additional $290 million to date, with further state filings still to be made.
As announced on 10 September 2001, the collapse in western wholesale prices has resulted in an increase of approximately $300 million in the excess net power costs incurred by PacifiCorp in balancing its load for the year to March 2002, a charge which will be reflected in the second quarter. To address this situation PacifiCorp is taking strong actions including:
Firstly, to seek recovery of the excess net power costs through the regulatory process with filings later this year.
Secondly, to discuss with regulators changes to the ways in which power costs are dealt with, for example via the introduction of power cost adjustment mechanisms, as used by a number of other US power companies.
Thirdly, to work with other market participants to develop products which make it possible to buy and sell power with more flexibility that better matches the shape of PacifiCorp's demand.
Fourthly, to construct more regulated generation so that there is less need to enter into contracts to meet PacifiCorp's regulated obligation to supply customers.
A further update on these actions will be provided in November.
Development of new generation in the US continues in line with our target of increasing our US generation capacity this year by approximately 10%. PacifiCorp Power Marketing (PPM), in its development of unregulated generation, commissioned the 484 MW plant (of which PPM has access to 237 MW) at Klamath in July. By the end of December, a further 100 MW at Klamath, some 264 MW of the 300 MW of the Stateline wind farm and 80 MW of plant at West Valley is expected to be commissioned. PacifiCorp will purchase the output of the regulated 50 MW wind farm in Wyoming, which is expected to be commissioned in November. A plan is being developed to install permanent peaking capacity at the existing Gadsby site in Utah to replace the temporary plant installed earlier this year.
UK Division
Management focus:
integrating Generation, Commercial and Trading and Energy Supply activities
adding new generation to our portfolio
improving customer service and increasing Energy Supply profitability
The integration of the formerly separate UK energy businesses is progressing well with Generation, Commercial and Trading and Energy Supply all now operating as one division. We have a strong integrated management team and under NETA our trading systems and processes are operating satisfactorily. NETA favours flexible plant, such as that within our portfolio, and we believe that the arrangements will allow us to establish a significant profitable base to develop further business opportunities.
As part of the integration, both the newly constructed plant at Shoreham and the purchased plant at Rye House now operate as part of our UK generation portfolio. In addition we have announced plans for two more wind farms in Scotland, bringing the total capacity proposed for development in the UK to 350 MW as part of our target of having 10% of our UK generation from renewable resources by 2010. We are also in discussion with a number of parties regarding the potential acquisition of additional generation capacity in England and Wales in line with our objective of building an effective integrated energy business in the UK.
We have made good progress towards re-establishing high standards of customer service. During the first half of this year we successfully migrated our domestic and small business customers onto one billing platform. The completion of that programme together with underlying improvements in business processes has already led to significant improvements in our call centre performance, level of complaints and the accuracy of bills issued.
Infrastructure Division
Management focus:
improve relative cost performance in the sector
outperform allowed regulatory returns
release capital from Southern Water
In the Infrastructure Division we are on track to deliver savings in cash costs of £142m by 2002/03. In particular, in the first half of this year we have seen benefits from a sharper focus on costs, processes and working practices in credit management, call handling, strategic procurement and the performance of our asset owner/service provider model. The Division is also currently developing plans aimed at enhancing the levels of overall efficiency, to improve its relative performance in the sector.
In addition, in Southern Water we continue to explore options to release capital through refinancing or possible disposal of the business.
Other Financial Information
In the quarter to September 2001 net debt is expected to rise as a result of further capital expenditure during the quarter and due to the impact of market conditions on PacifiCorp results.
The interim dividend, which will be declared with the second quarter results in November, is projected to be consistent with our stated aim of increasing dividend by 5% per annum to March 2003.
For Further Enquiries:
Andrew Jamieson, Head of Investor Relations 0141 636 4527
Colin McSeveny, Group Media Relations Manager 0141 636 4515
Safe Harbor
This news release may contain forward-looking statements within the meaning of Section 21E of the United States Securities Exchange Act of 1934. Forward-looking statements should be read with the cautionary comments and important factors included about forward looking statements in ScottishPower's Annual Report and Form 20-F for the year ended March 31, 2001 under the title "Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995". Forward-looking statements are all statements other than statements of historical fact, including without limitation those that are identified by the use of the words "estimates," "expects," "believes," "anticipates" and similar expressions.
