South Western in gas venture

SOUTH WESTERN Electricity has become the latest regional electricity company to take advantage of the liberalisation of the gas market in forming a joint venture company with the US UtiliCorp United to sell gas.

Western Gas is 75 per cent owned by South Western and 25 per cent by UtiliCorp. Five other regional electricity companies have formed joint ventures with the US company.

From October 1992 British Gas will have to make 60 per cent of the gas contract market above 2,500 therms available to other gas suppliers. Western Gas, which will begin operations in August, plans to draw gas supplies from a variety of sources.

News of the gas venture accompanied full-year results from South Western showing a 35 per cent rise in pre-tax profits to pounds 83m and a 14.5 per cent rise in dividends to 17.4p with a final of 12.15p. Results were struck after a pounds 6.6m charge to cover the merging of its retailing operations with those of South Wales Electricity.

Profits in electricity distribution rose by 32.5 per cent to pounds 89.6m. In low-margin wholesale supply there was, unusually, an increase from pounds 1.7m to pounds 4.1m as South Western managed to hedge itself against a rise in 'uplift' or system charges from the generators.

William Nicol, chairman, explained that of the pounds 24m profits improvement in electricity some pounds 15m had come from price rises net of local cost inflation and pounds 12m from a combination of pounds 7m cost reductions and a 1.4 per cent increase in units distributed.

South Western has increased tariffs by an average 3.3 per cent, or 2.3 per cent for customers moving to direct debit, which is about 0.3 per cent less than permitted under the current regulatory pricing regime. In addition the company is carrying forward pounds 17m of 'under-recovered' income which it has chosen not to recover from customers.

South Western has streamlined management to save pounds 2m and aims to cut about pounds 3m from operating costs this year.

Retailing and contracting profits fell from pounds 1.1m to pounds 400,000 thanks to a turnround to losses of pounds 400,000 in retailing.