EUROPE – Pension fund deficits of utility companies worldwide have grown 60% in 2002, taking total deficits to around 65 billion dollars, reveals a report by UBS Warburg.

In Europe, utility company pension schemes face a 40 billion dollar deficit. Among those companies named was German conglomerate RWE, which has a deficit of over 14 billion dollars – around 90% of its market capitalisation. German multi-utility E.ON is also highlighted in the report as having a sizeable deficit at just over 10 billion dollars, although as a percentage of its market capitalisation this is only 33%.

Although deficits in Europe’s utility company pension funds are sizeable, the report says that the vast majority of exposure lies in the UK and the US.

In the UK, British Energy is reported as having a deficit of 664 million dollars yet the utility’s market capitalisation is only 61 million dollars. Water utility AWG also has a deficit of 353 million dollars, 32% of its market capitalisation, although as it is regulated, UBS Warburg believes the firm to “stand a chance of recovering at least part of its deficit”.

In the US, UBS Warburg believes that at the end of 2002, pension fund deficits for utility companies will have reversed on the five billion dollar surplus of 2001 to a deficit of 5.8 billion dollars, worsening by a further 32% in 2003. Among the utilities highlighted by the report are Exelon, CMS Energy, Mirant and Constellation Energy.

If deficits continue to grow, says the report, then trustees will require a funds contribution. With several US companies already having over-stretched balance sheets, however, the ability to make cash contributions to an under-funded plan is constrained. In Europe, where funding rules are more relaxed, UBS Warburg expects few companies to make cash contributions.

British Energy estimates a cash contribution of no more than 13 million pounds a year. Exelon has also mentioned the possibility of contributing 100 to 200 million dollars to its pension fund this year, and 300 to 350 million dollars in 2003.