Difficulties in the US that hit ScottishPower’s US business, Pacificorp, culminated last month in a surprise profit warning which wiped around £1bn off the group’s stock market value.
Russell, a chartered accountant, claims the trigger for the warning came after his company was forced to make an announcement concerning losses in the US on forward energy contracts – a loss which his counterparts could simply carry on the balance sheet under US accounting rules.
‘Under UK GAAP, we have to write off any loss in the market price [of energy] now and then seek to recover it through the regulatory process at least in part in the future,’ he said.
‘Under US GAAP, you are able to carry that charge on the balance sheet as a deferred asset and match any recovery against the asset in future periods.’ Russell added that because it is unable to carry losses forward, ScottishPower stands out from its US peers.
‘[Moving to US GAAP] is something we are going to have to look at because it is uncompetitive for us to use a different set of accounting standards to our rivals,’ he said.
Pacificorp’s latest warning stemmed from last year’s Californian energy crisis, which caused forward energy contract prices to rocket.
Under US law, power companies are obliged to meet their supply obligations. Pacificorp, along with rivals, paid dearly to ensure blackouts would not be repeated.
But demand fell rapidly over the summer. Russell explained that under normal market conditions, he would have been able to sell excess power back into the market, but the sharp fall in demand meant he had to announce a Pounds 249m loss on electricity trading to the stock market.
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