Iberdrola losing money on Scottish Power?

The Spanish utilities giant Iberdrola, who bought Scottish Power, claim to be losing money on the generation and retail businesses, according to a Herald story this morning.

The generation and supply business in the UK lost €47.9 million (£38.7m) on an earnings before interest and taxation basis in the first nine months of 2012. Keith Anderson, chief corporate officer of ScottishPower, said that over the past three years ScottishPower had faced margins of only 1% to 2%. “Margins are wafer thin,” he said. As a consequence ScottishPower announced its prices would rise by 7% from December, adding £8 to an average customer’s monthly dual-fuel bill.

There is no doubt that retail margins are slim as we have previously highlighted. Only this week Ofgem’s latest figures confirmed the £45 retail margin figure. Generation profits are more difficult to pin down. And of course, as a multinational company it is difficult to know how much transfer pricing they are indulging in. Notably, there are no indications that they are planning to sell Scottish Power. Mr Galan said that a widely reported proposal to sell a stake in its UK networks business “might not be required”. Such a sale is “fifth or sixth priority”, he said, indicating the company would like to sell less attractive assets first.

His comments on energy competition were also interesting. The Herald reports his views on Cameron’s proposals:

“The question for me is market yes or market no.” If the Government decides it wants a market-led system it should allow energy companies to continue to compete in all aspects, including marketing and service as well as price, he argued. “If not, it is better to go to a regulated tariff,” he said. The criticism is particularly telling because Mr Galan has been a vocal proponent of the British energy market, yesterday reiterating his call for eurozone governments “not to use energy for making politics”.

 

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