ScottishPower is pleased to announce it has reached conditional agreement with Scottish & Southern Energy (SSE) on the early termination of electricity contracts that should save ScottishPower around £20m a year from April 2005.

The combined Peterhead and Hydro Agreements, in place since before privatisation in 1991, had the effect of obliging ScottishPower to pay an above-market rate for electricity produced by SSE's Peterhead station until 2012 and also to pay for electricity produced from SSE's hydro plants until 2039.

After discussions that focused on the suitability of such contracts in a fully competitive energy market, both parties have agreed to end the agreements on 1 April 2005, thereby halting the payments to SSE.

Charles Berry, Executive Director UK, said: "I am delighted to be able to make this announcement. The UK Division, which made £7m operating profits in the half-year, has been absorbing these extra costs, and once this conditional settlement has been implemented it will allow us to be free of this burden.  It also helps pave the way for the introduction of BETTA."

Further inquiries:

Andrew Jamieson                     Head of Investor Relations         0141 636 4527

Simon McMillan                       Media Relations Manager         0141 566 4875

Notes to editors

The restructuring agreements were put in place when the Scottish electricity industry was privatised in 1991. 

Today's settlement is principally conditional upon regulatory approvals to be given by Ofgem.

Peterhead Agreement:

• A tolling type contract for 642 MW of conventional thermal plant plus 115 MW of OCGT capacity.
• The contractual efficiency is only around 34%, therefore not equivalent to the efficiency of a modern CCGT plant.
• Tolling fee made up of approximately £25m capacity fee plus transmission costs, with the additional risk of costs increasing under BETTA.
• The agreement is due to run until March 2012 with clear burden to ScottishPower.

Hydro Agreement:

• A peak energy contract for a maximum of 170 MW and a maximum output of  Approximately 360 GWh.
• A "virtual" contract with operating characteristics of hydro but with a running cost equivalent to thermal coal.
• The agreement is due to run until 2039.
• Annual fixed charge of approximately £8m made up of capacity charge, transmission charge and a variable energy charge, with the additional risk of costs increasing under BETTA.
• Estimated to make small positive contribution to ScottishPower.

Combined Impact:

Terminating the contracts will save ScottishPower £15m to £20m per annum pre tax in first 5 years of contract with a significant positive NPV over total life.