By ANDREW TAYLOR, Utilities Correspondent

Nov. 9, 2000 (Financial Times)—Scottish Power is the latest utility to consider plans to refinance its south of England water business using secured debt.

The multi-utility has already begun separating the management of physical infrastructure such as pipes and power lines from the actual operation of water and electricity services.

The split should make it easier to restructure funding of water assets using secured debt, said Sir Ian Robinson, who retires as chief executive in April.

He said the group “had no current plans to sell Southern Water” but would await the water regulator’s reaction to industry restructuring proposals.

Kelda, owner of Yorkshire Water, and Pennon, owner of South West Water, are among several companies considering similar schemes to cut finance costs following big price cuts imposed by the industry regulator.

The impact of tough UK water and electricity distribution price reviews did not prevent Scottish Power lifting underlying profits by 12 percent to £271.8m (£242.2m) during the six months to September 30.

The figures excluded £120.7m of exceptional charges to cover reorganisation at PacifiCorp, the US power group bought last year for £3.86bn.

Turnover rose 82 percent to £2.78bn (£1.53bn), including £1.35bn from PacifiCorp, with operating profit increasing 36 percent to £444.8m, of which PacifiCorp contributed £205.5m.

The group said it was ahead of schedule in meeting its five-year target to reduce annual operating costs by $300m (£210m) and capital expenditure by $250m.

Ian Russell, who succeeds Sir Ian as chief executive, said PacifiCorp was in the process of seeking regulatory price increases to offset the impact of higher US electricity wholesale prices.

A 26 percent drop in UK profits reflected tougher water and electricity distribution price controls, stiffer competition for electricity customers, particularly from British Gas, and lower revenues at telecommunications group Thus, 50.1 percent owned by Scottish Power.

Earnings per share before exceptionals and goodwill fell 20 percent to 13.09p (16.32p), reflecting the greater number of shares in issue and the poorer UK performance. The basic figure was 6.6p (11.45p). A second interim dividend of 6.51p brings the total so far to 13.02p (8.27p).

Comment Scottish Power supporters will have been encouraged by progress in cutting costs at PacifiCorp and the comments on restructuring finance at Southern. The shares, recovering since hitting a low of 3591/2p in February, eased 1p to 539p yesterday, for a forward p/e of 15 on forecast profits of £760m. The yield on a 5 percent rise in dividend is 4.8 percent.

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