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11 January 2000

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Title: 11 January 2000


1
POSITIONED FOR GROWTH
  • 11 January 2000

2
Sir IAN ROBINSON
  • Chief Executive

3
AGENDA
  • Introduction and strategy
  • US business overview
  • UK regulatory price reviews
  • UK business overview
  • Financial review
  • Conclusion

4
MAJOR EVENTS IN 1999
  • Full competition in UK energy
  • Regulatory reviews
  • Thus flotation
  • PacifiCorp completion

Today provides platform for viewing enlarged group
5
STRATEGY FOR THE 1990s
Electricity
International
PacifiCorp
Expand as a utility-based company
UK
Southern Water
Manweb
Thus
Diversify into otherutility businesses
Reshape core business and exploitexisting assets
Scotland
Gas
Electricity
Multi-Utility
Business
Creating shareholder value
6
EVOLUTION OF STRATEGY FOR 2000s
UK
Grow assets and customer base selectively
Drive for world-class performance in all
activities
Maximise value from 5.5 million homes
Electricity
Expand as a utility-based company
Post PUHCA?
Diversify into otherutility businesses
Reshape core business and exploitexisting assets
US
Electricity and convergence opportunities
Reshape core exploit assets
Multi- Utility
Creating shareholder value
7
UK STRATEGY - CLEAR AND CONSISTENT
International
Grow assets and customer base selectively
Drive for world-class performance in all
activities
Maximise value from 5.5 million homes
UK
Multi-Utility
Electricity
Utility-Related
Creating shareholder value
8
US STRATEGY SAME TEMPLATE
Post PUHCA?
National
Electricity and convergence opportunities
West
Reshape core business and exploit existing
assets
Multi- Utility
PacifiCorp Territory
Multi-Utility
Electricity
Creating shareholder value
9
VISION 2005
  • An internationally acknowledged leader in utility
    and related services
  • In world top 10 of utilities and related
    companies
  • Serving customer base of 10 million with
    multiple products
  • Recognised for its record of value creating
    growth and innovation

Focus on delivering shareholder value
10
IAN RUSSELL
  • Deputy Chief Executive

11
AGENDA
  • Introduction and strategy
  • US business overview
  • UK regulatory price reviews
  • UK business overview
  • Financial review
  • Conclusion

12
PACIFICORP IN CONTEXT
Operates in 6 western states Major western
generator and trader Large transmission
capability Significant coal mining
activities 1.4m franchise customers Significant
wholesale sales
A major US utility
13
UK COMPARISONS
  • PacifiCorp UK Comparator
  • Generation capacity (GW) 8 10 npower
  • Units Supplied (TWh) 141 32 ScottishPower
    Manweb
  • Retail Sales (TWh) 47 29 ScottishPower Manweb
  • Transmission System (km 000s) 24 14 National
    Grid Company
  • Distribution System (km 000s) 88 108 ScottishPowe
    r Manweb
  • Coal Mined (million te) 23 35 RJB Mining

Significant vertically integrated business
14
PACIFICORP KEY FINANCIAL STATISTICS
  • Revenues ( million)
  • Earnings Per Share 1 ()
  • Assets ( million)
  • Debt/Capitalisation
  • Return on Average Common Equity 1
  • 1998
  • 5,580
  • 1.01
  • 12,989
  • 53
  • 6.2

1997 4,549 1.19 13,627 50 10.6
1996 3,792 1.37 13,809 56 12.3
1 Adjusted for non-recurring items Source 1998
1997 Annual Reports to Shareholders
15
REFOCUSING PACIFICORP
  • Non Core Business Gross Proceeds (m)
  • TPC 150
  • California 193
  • Centralia 554
  • EnergyWorks 7
  • Bakun (Philippines) 2
  • Other US non-core Assets under review
  • Powercor Assets held for disposal
  • Hazelwood Assets held for disposal

Actual or Expected
16
TRANSITION MANAGEMENT
  • Experienced transition team
  • - 33 ScottishPower - 38 PacifiCorp
  • Separate from line management
  • Benchmarking processes and costs
  • 5-year cost performance plan published by May 2000

17
WINNING APPROVALS
  • System performance improvements and customer
    guarantees
  • Ring fencing arrangements and access to records
  • Merger credits (but with whole or partial
    elimination clauses)

Aggregate Merger Credits (m) (showing maximum
and minimum position)
Maximum
Minimum
Maximum (m) 14 29
29 29 18 0 Minimum
(m) 14 26 12
3 3 0
18
SCOPE FOR IMPROVEMENT
CurrentNormalised Regulatory ROE ()
Requested Regulatory ROE ()
Indicative 100 Basis Points Improvement
RequestedRate Increase
State
Utah
7.8
19 m
11.25
67 m
Oregon
6.7
19 m
11.25
88 m
Wyoming
4.8
7 m
11.25
12 m
Washington
5.9
5 m
11.25

26 m
9.7
3 m
Idaho
-
Overall
6.7
53 m
193 m
The low rate increase requested in Wyoming
reflects the fact that no merger credits are
committed.
All rate cases have now been filed
19
EFFICIENCY IMPROVEMENT POTENTIAL
  • Utility
  • Ranking

Non Generation cost / customer
1997
1998
1996
1998
1 158 155 173 5 191 193 186 10 214 221
228 30 280 261 270 50 324 292 292
75 PacifiCorp 300 340 352
Aim to achieve top ten efficiency by 2004
Source FERC Form1 1998, 1997, 1996 (Non
generation costs exclude bad debt customer
informational expenses)
20
OPERATING COSTS/EXPENSES
1998 (m)
Taxes 97
Special Charges 123
Fuel 478
Maintenance 165
Administration 234
Depreciation Amortisation 387
Other Operations 292
Total 1,776m
Source PacifiCorp 10K Expenses for US
domestic electric excluding purchased power
21
CURRENT OPERATIONAL FOCUS
  • Command and control post completion - Replaced
    the PacifiCorp Board - Alan Richardson - CEO of
    PacifiCorp
  • - Appointed CFO of PacifiCorp - Jack Kelly -
    Chairman of Powercor - Appointed advisers for
    Powercor
  • Deregulation in Oregon - Implementation process
    under way - Large customer choice October 2001
  • Transmission restructuring - FERC rules
    issued - Options being considered

22
WESTERN INDUSTRY STRUCTURE
Investor Owned Utilities Electric
Local Distribution Companies Gas
23
US BUSINESS SUMMARY
  • Major US electric utility
  • High quality but underperforming assets
  • Initiatives well underway to focus management on
    business improvement
  • Transition plan ready for communication by May
    2000
  • Excellent value improvement proposition
  • Further growth opportunities

24
AGENDA
  • Introduction and strategy
  • US business overview
  • UK regulatory price reviews
  • UK business overview
  • Financial review
  • Conclusion

25
ELECTRICITY SUPPLY
  • Covers domestic customers April 2000to March
    2002
  • Control allows some supply net margin to
    encourage competition
  • On average, passes through wires reduction to
    customers
  • Anticipation that control can be removed in 2
    years (gas control to be removed after 1 year)

Industry Po Proposals
Hydro
SWEB
Swalec
Eastern
London
Norweb
Manweb
Southern
Midlands
Seeboard
Northern
Yorkshire
East Midlands
ScottishPower
Industry Average
26
ELECTRICITY TRANSMISSION
  • Po cut of 6.0
  • X of 0 recognises efficiencies already achieved
  • Revised cost of capital 6.5 compared to 6
    currently
  • Increase in allowed capital expenditure
    particularly in later years

27
ELECTRICITY DISTRIBUTION
Industry Po Proposals
  • Improvements in Quality of Supply for customers
  • Cost of capital 6.5
  • Increase in allowed capital expenditure

Hydro
SWEB
Swalec
London
Eastern
Norweb
Southern
Manweb
Midlands
Seeboard
Yorkshire
Northern
ScottishPower
East Midlands
Industry Average
Including cost transfers to Energy Supply
28
SOUTHERN WATER
  • Overall package very demanding
  • Positive Ks in latter years of review
  • Capex increase without new obligations
  • Given efficiency and customer service allowances

Industry Po Proposals
Wessex
Anglian
Thames
Southern
Yorkshire
North West
South West
Dwr Cymru
Severn Trent
Northumbrian
Industry Average
29
UK REGULATORY PRICE REVIEWS SUMMARY
  • Energy Supply proposals will encourage
    competition - ScottishPower well positioned
  • Wires proposals demanding but ScottishPower and
    Manweb among the lowest price cuts
  • Southern Water proposals are challenging,
    particularly in relation to future investment
    programme

A stable base for future business development
30
AGENDA
  • Introduction and strategy
  • US business overview
  • UK regulatory price reviews
  • UK business overview
  • Financial review
  • Conclusion

31
GENERATION
Average Sales Price
/MWh
32
GENERATION
Controllable Costs and Output Volumes (Costs in
1999/00 Money)
33
THE REVIEW OF SCOTTISH TRADING ARRANGEMENTS
(RoSTA)
  • Welcome the reform of the Scottish Trading
    Arrangements
  • There are two key elements to effective reform of
    the Scottish Arrangements - Removal of
    Restructuring Contracts which restrict
    competition in Scotland - Fair and transparent
    arrangements for Interconnector access and
    pricing, designed to encourage competition
    between markets

34
THE NEW ELECTRICITY TRADING ARRANGEMENTS (NETA)
  • Welcome the changes being introduced in England
    and Wales
  • Provides an opportunity to develop harmonised
    trading arrangements across GB as a whole
  • Expect the new arrangements to result in more
    appropriate rewards for flexible generation
    relative to base load plant
  • Our portfolio of flexible coal-fired plant,
    pumped storage and generation from renewable
    sources is ideally suited to the new trading
    environment
  • Developing the portfolio with Brighton CCGT

35
POWER SYSTEMSCUSTOMER PERFORMANCE
0
10
20
30
40
50
60
Eastern
Southern
Seeboard
ScottishPower
East Midlands
Yorkshire
Manweb
London
Midlands
Norweb
Sweb
Northern
Swalec
Hydro-Electric
Standardised Controllable Operating Costs per
Customer (1997/98)
36
POWER SYSTEMS FUTURE BUSINESS MODEL
External Environment and Regulator (OFGEM)
Strategic Business Support
Business Quality
Customer Service Provision
Customers
Asset Owner ScottishPower Corporate
Asset Management
Network Management
Service Providers
Shared Services
Fault Management
Engineering Services
Construction
Maintenance
Competition and Market Forces
37
POWER SYSTEMS RESPONSE TO REGULATORY PRICE REVIEW
  • Regulatory impact Po 59m and X 13m p.a.
  • Response - Asset Owner / Service Provider model
  • Key Initiatives - Relocation of business HQ -
    Re-engineer processes - Provide shared services
    for transactions - Efficient and targeted
    investment programme
  • Cost savings will match X factor and new
    obligations

38
SOUTHERN WATER CORE BUSINESS OPERATIONAL
PERFORMANCE
Overall Customer Service
Cost Reduction
170
345
106
OFWAT Score
313
OFWAT Score
Pre Take-over 1995/96
1999/2000
Pre Take-over 1995/96
1999/2000 (at 95/96 Prices)
39
SOUTHERN WATER WAY AHEAD
FIELD STAFF
Asset Maintenance
Production Management
Customer Services - Non Technical
Energy Optimisation
DISPATCHER
CUSTOMER CONTACT MANAGEMENT
ASSET MANAGEMENT
CORPORATE PLANNING
CORPORATE PLANNING
Project Delivery
CONTROL ROOM
Customer Services - Technical
Sales Marketing
Quality Systems
40
SOUTHERN WATER RESPONSE TO REGULATORY PRICE REVIEW
  • Regulatory impact Po 59m
  • Response - Way Ahead Plan
  • Key Initiatives
  • - Remove regional structure
  • - Control room centralisation
  • - Re-engineer processes
  • - Efficient and targeted investment programme
  • - Cost savings will match Ofwats efficiency
    target
  • Benefits of competition

41
Strategy for Growth
ENERGY SUPPLY
  • Defend home area electricity market
  • Acquire new energy customers nationally
  • Leverage 1 in 5 UK householdswith new products

42
Defend Home Area Electricity Market
ENERGY SUPPLY
89
  • High market retention - ScottishPower ranked
    2nd - Manweb ranked 5th
  • Price premium to competitors - 10 to market
    leaders
  • 0.5m customers opting for dual fuel - One bill,
    one service telephone number - One meter read

Market Retention
86
85
ScottishPower
Industry Average
Manweb
Market leading retention
43
Acquire New Energy Customers Nationally
ENERGY SUPPLY
  • 3.6m live accounts
  • 16 growth sincecompetition
  • Doorstep still mainchannel
  • Telesales / Retail
  • Internet trial

Net winners from competition
44
Customer Facing Assets
LEVERAGING THE CUSTOMER BASE
  • 1 in 5 UK Homes - 9m customer phone calls p.a.
  • Advanced telesales facilities
  • 184 retail shops - footfall of 20m p.a.
  • Strong internet capabilities
  • Emerging national brand

Strong foundations for growth
45
Innovative Joint Venturewith the Royal Bank of
Scotland
LEVERAGING THE CUSTOMER BASE
  • ScottishPower
  • Utilities to 1 in 5 UK homes
  • Thus Demon Internet
  • National Retail presence
  • Royal Bank of Scotland
  • Leading UK financial player
  • Multiple brands
  • Alternative distribution channels

The right partners
46
The Proposition - Home Manager
LEVERAGING THE CUSTOMER BASE
Moneywise Money management for all your
household finances - mortgages, savings, loans etc
Sleeptight Protecting you from all household
disasters - home insurance, maintenance products
etc
  • Unique service packagesto the home and small
    businesses
  • Research stressessimplicity, convenience, value
  • Exploit Internet and traditional channels

Homewise Delivering all of your household
services - utilities, telecoms, internet etc
Lifestyle Helping you deal with the changes in
your life - home move, travel etc
Coming together to leverage value from a combined
10m customer base
47
Making It Happen
LEVERAGING THE CUSTOMER BASE
First 6 months
  • Establish new organisation
  • Product tests - Internet portal trial
  • Cross selling test - Home insurance,
    credit-card, personal loans

Second 6 months
Launch Flagship products - Internet
package - Innovative mortgage product - Home
move package
Significant value potential
48
A CLEAR STRATEGY
Leverage existing business for growth
Internet Interactive
Enable customers to exploit new technologies
thus
Call Centres
Data Telecoms
Implement technologically advanced platform
49
DELIVERING VALUETHROUGH THUS FLOTATION
  • 1.1 billion cash raised through flotation
  • Gain on sale of over 700m infull year accounts
  • Integral partner in leveraging customer base
  • Thus market capitalisation

Continuing benefit from business growth
50
BUSINESS SUMMARY
  • Broad range of cost reduction initiatives
  • Opportunities from new trading arrangements
  • Net winners from competition in energy and water
  • Leveraging the customer base viaRBoS Joint
    Venture
  • Delivered value through Thus flotation
  • PacifiCorp - Transition plan May 2000 -
    Opportunities for growth

51
DAVID NISH
  • Finance Director

52
AGENDA
  • Introduction and strategy
  • US business overview
  • UK regulatory price reviews
  • UK business overview
  • Financial review
  • Conclusion

53
CALENDAR FORFINANCIAL REPORTING
  • Pacificorp year end changed to 31 March
  • Quarterly reporting from the quarterto June 2000
  • Seasonal influence on quarterly profits
  • Integrating UK statutory reportingwith US 20F

54
UK BUSINESSESOUTLOOK FOR 1999/00
  • Operating profit continued investment in growing
    businesses and the impact of competition
  • Exceptional gain post-tax from Thus of over 700m
  • Provision for exceptional items
  • Interest charge increased due to Capex and share
    buyback offset by benefit of Thus proceeds
  • Underlying EPS increased due to benefit from
    share buy-back and reduced tax charge

55
UK BUSINESSESOUTLOOK FOR 2000/01
Operating Profit Drivers
  • Regulatory outcomes
  • Profit
    Reduction
  • Southern Water 59mDistribution
    52mTransmission 7mSupply 9m
  • 127m
  • Price pressures in Generation
  • Investment in growth businesses
  • Cost savings to offset future efficiency targets
    and new obligations

56
FINANCIAL IMPACT OF PACIFICORP
  • PacifiCorp 1999 underlying earnings in line with
    analysts consensus of 1.05
  • US operations consolidated for 4 months, impact
    mildly dilutive
  • Powercor treated as an asset held for disposal
  • Goodwill of approximately 1.3bn amortised over
    20 years
  • Rate cases and cost savings drivers of earnings
    growth
  • Restructuring provisions announced with
    transition plan
  • Transaction earnings accretive in first full year
    (2000/01) before goodwill

including Australia
57
OUTLOOK FORGROUP EARNINGS 2000/01
  • Substantial increase in operating profit from
    PacifiCorp - Offsets UK regulatory downside
  • Gearing of approximately 90 - debt of 5.4bn
  • Consolidated interest driven by levels of
    capex - UK capex of approximately 700m in
    2000/01 - US capex of approximately 300m in
    2000/01
  • Focus on balance sheet efficiency - achieve
    regulatorycost of capital targets
  • Rising tax rate offset by the benefits of
    transaction structure
  • EPS fall due to UK regulatory reviews

excludes Powercor
58
FUTURE DIVIDEND AIM
  • Revised policy post regulatory reviews
  • Aim to deliver real dividend growth
  • Appropriate cover to fund earnings growth
  • Dividend growth driven by business performance
  • Targeting annual growth rate of 5 nominal for
    next 3 years

59
AGENDA
  • Introduction and strategy
  • US business overview
  • UK regulatory price reviews
  • UK business overview
  • Financial review
  • Conclusion

60
CONCLUSION
  • 1999 - Successful completion of major tasks
  • 2000 - Drive business forward
  • Clear and consistent strategy in place
  • Strong management team
  • Uniquely positioned - Size of customer base -
    Power / Gas / Water - Majority interest in
    Thus - Major US Platform

Clear strategy - proven track record
61
DELIVERING SHAREHOLDER VALUE
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