Falling profits put pressure on Powergen prices:
Powergen warned its 6 million British residential customers yesterday that it was keeping its prices "under constant watch" as its German parent company, E.ON, reported a sharp fall in UK profits. Powergen raised gas prices for domestic consumers by almost 25% in March and pushed up electricity prices by more than 18% at the same time but is the only leading British energy supplier not to have introduced a second round of increases this year. Yesterday E.ON said earnings before interest and tax from the UK business had fallen 26% to €451m (£304m) in the first half of the year. Pointing to the retail price rises introduced in March it warned: "In an environment of rising wholesale energy costs, the pricing strategy is under constant watch." Despite the fall in UK profits the German utility, which is pursuing a €27bn takeover of Spain's Endesa, remains interested in British acquisitions after last year's rejection of its £11bn bid for ScottishPower. Wulf Bernotat, E.ON's chief executive, said the company would not stop its acquisition efforts after Endesa. "We were interested [in ScottishPower] but were not ready to pay the expected price," he said. "We are looking at the British market with further interest." E.ON broke off approaches to ScottishPower in November but since then the group has dismissed its chief executive, Ian Russell, and replaced him with Philip Bowman, a drinks industry executive with extensive merger experience. Mr Bernotat refused to be drawn on which UK companies E.ON may chase but the group has also been linked to Centrica, owner of British Gas. Refusing to rule out further price increases, E.ON's finance director, Erhard Schipporeit, said the UK performance had "improved significantly" in the second quarter. Mr Bernotat said the group wanted to invest in gas fields in the British sector of the North Sea as well as Norway, Russia, the Middle East and North Africa to secure supplies. His comments came as E.ON, which imports 60% of Germany's gas, said first-half sales rose 31% to €36.9bn and pre-tax earnings 13% to €4.84bn. Mr Schipporeit, who said European gas profits jumped 82% to just short of €1.5bn, raised the full-year profits guidance to "more than 5%" above last year's €7.3bn. E.ON is locked in a legal battle with the Spanish authorities over the decision by the energy regulator, CNE, to impose 19 conditions for approving its bid for Endesa. It has secured the backing of the European commission for rejecting these, with Brussels threatening to override Madrid. Late last week the Spanish government replied to an unprecedented eight-page letter from Neelie Kroes, EU competition commissioner, denouncing CNE's conditions as infringements of the free movement of capital. Spanish reports say Madrid, which favours an all-Spanish merger of Endesa with Gas Natural, has accused her of being "completely mistaken" and of unconditionally approving the E.ON bid with "unjustified haste". Insisting that the Endesa deal was of paramount importance for securing EU energy supplies and creating a genuine single market, Mr Bernotat exuded confidence that it could proceed without a protracted legal battle. He conceded that E.ON could accept some of the CNE's conditions but not the entire package which would require it, inter alia, to dispose of one nuclear power plant and two coal-fired stations in Spain. He indicated that a settlement could be reached in talks with Spain's industry ministry, which, together with the shelving of Endesa's legal action against Gas Natural's €21.7bn bid, could free the way for the takeover to proceed swiftly. "Personally I don't assume there will be a long legal process," he added, ruling out an increased offer. 16.8.06