Scottish Power and Scottish & Southern Energy consider merger

Scotland's two dominant energy groups, Scottish Power and Scottish & Southern Energy, are considering a £ 13 bn merger to fend off a takeover from bigger European rivals. Ian Russell, Scottish Power's CEO, expressed an unexpected warmth for the benefits of a merger as he announced a sharp leap in first-half pre-tax profits from £ 59.8 mm to £ 336.6 mm
Mr Russell, previously lukewarm about merger prospects, said: "Putting the two businesses together would clearly give us greater scale, particularly in UK generation and customer base and the two would have synergies in wires as well. There would be quite significant cost-savings from that."

Scottish Power has 3.5 mm customers while SSE has 4.8 mm, both substantially short of those served by British Gas, PowerGen, Innogy and London Electricity. SSE, with a new CEO in place for only five weeks, is less enamoured and Mr Russell said any merger could run into regulatory difficulties.
The combined group would run the entire power transmission and distribution network, produce the bulk of power and serve two-thirds of customers in Scotland, raising competition issues. Mr Russell, in regular contact with SSE colleagues, conceded that Scottish Power had been priced out of recent auctions for power suppliers, including the current bid battle for Midlands Electricity.
He said the group was winning a net 15,000 new customers a month. "We would like to add to the number of customers -- provided we can also add to our generation. The key issue is not size but balance."

Mr Russell strongly backed long-term contracts set at a premium above spot power prices as a way out of nuclear operator British Energy's crisis. His group, which takes 75 % of BE's Scottish output, and SSE recently signed a revised deal giving BE £ 1.65 a MW/hour above market rates.
The deal, due to be approved by energy regulator Ofgem and likely to save Scottish Power £ 25 mm a year, was presented by Mr Russell as a model for Britain as a whole, where his group expects wholesale prices to remain low for at least five more years. Scottish Power, meanwhile, said it was on track to meet its target of doubling operating profits at PacifiCorp, its US subsidiary, to $ 1 bn by 2005. The unit now accounts for two-thirds of group profits and assets.