ELECTRICITY giant ScottishPower said yesterday that a recent lack of snow would affect hydro-power generation at its PacifiCorp unit in the United States, but said its full year expectations remained on course.
"Over the winter there has been less snow than usual, which will reduce the availability of PacifiCorp's hydro generation during the next six months," the group said. "While this will impact on PacifiCorp's result for the year to 31 March, our expectations for the group are unchanged."
ScottishPower bought PacifiCorp for about dollars 10 billion in 1999 and the US electricity producer now accounts for around 50 per cent of overall earnings.
However, PacifiCorp has suffered recently from bad weather and plant outages, and last year ScottishPower said PacifiCorp would miss its full-year earnings target. This year, snow levels - essential for powering PacifiCorp's hydro plant - are less than 40 per cent of normal, thus reducing the availability of PacifiCorp's hydro generation for the next six months.
However, analysts said PacifiCorp's hydro-electricity problems would not affect the overall group's results this year, as hydro power only accounts for around 5 per cent of overall generation at the division.
ING energy analyst Fraser McLaren, who has a "sell" rating on ScottishPower, said he was concerned that "the cost of purchasing any shortfall in the market could jeopardise the company's divisional EBIT [earnings before interest and taxation] guidance of dollars 940 million for 2005-6".
He said he was concerned that "any negative news regarding the US could weigh heavily on sentiment in the short term", adding that "the shares are only worth 360p on fundamentals".
However, Bobby Chada at Morgan Stanley, who has a target price of 435p on the stock, was more positive, saying that, while the weakness could be taken negatively in the short term, in the longer term "the other three divisions are performing better than expected".
A spokesman for ScottishPower said: "Since our new year starts on Friday, the weather in the US will run over into the next financial year, so obviously the total impact is extremely hard to predict. But who knows, it could end up being the coldest, wettest winter in living memory."
ScottishPower shares fell as low as 406.75p before closing down 3.75p at 409.5p.
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