IBERDROLA chairman Ignacio Galan said the energy firm is losing money on ScottishPower which is "in bad shape", as he responded to criticism over the company's latest round of price hikes.

The Spanish utility giant reported that its generation and supply business in the UK lost €47.9 million (£38.7m) on an earnings before interest and taxation basis in the first nine months of 2012.

Last week ScottishPower announced its prices would rise by 7% from December, adding £8 to an average customer's monthly dual-fuel bill.

Several of its rivals have also hiked prices, prompting calls from some consumer groups for a review on competition in the energy market.

Mr Galan said: "We are already in a very bad shape in generation and retail. We are losing money in our retail business in the UK.

"The public does not know that this happens."

Costs related to Government carbon-reduction measures had soared in recent years, he said.

Keith Anderson, chief corporate officer of ScottishPower, said that over the past three years ScottishPower had faced margins of only 1% to 2%.

"Margins are wafer thin," he said.

Prime Minister David Cameron yesterday repeated his view, initially set out last week, that energy customers should, by default, be put on the lowest energy tariff.

Mr Galan, while noting the plans had not been confirmed, said: "The question for me is market yes or market no."

If the Government decides it wants a market-led system it should allow energy companies to continue to compete in all aspects, including marketing and service as well as price, he argued.

"If not, it is better to go to a regulated tariff," he said.

The criticism is particularly telling because Mr Galan has been a vocal proponent of the British energy market, yesterday reiterating his call for eurozone governments "not to use energy for making politics".

Iberdrola bought Glasgow-based ScottishPower five years ago.

The business appears to have escaped a drastic pruning of investment by Iberdrola as Mr Galan pledged to maintain group profits over the next three years at 2011 levels.

He also wants to slash its debt by €6 billion to €26bn by 2014 in an effort to preserve its investment grade credit rating even as Spain's sovereign rating hovers precariously above "junk" status.

Investment will be slashed to €3.5bn per year for 2012-/14, meaning a reduction in more than one-third from the 2009/11 period.

But the UK will get around €4.4bn over the three-year period, 42% of the total.

Much of this will be ploughed into large projects such as upgrading the electricity interconnector between Scotland and England and building a subsea link.

ScottishPower is also upgrading substations in Glasgow and Edinburgh.

Iberdrola plans to make €2bn of disposals, including assets in non-strategic coun-tries outside Spain, the US and the UK.

It has identified a further €3bn of potential divestments.

Mr Galan said that a widely reported proposal to sell a stake in its UK networks business "might not be required". Such a sale is "fifth or sixth priority", he said, indicating the company would like to sell less attractive assets first.

There have been reports that it would seek to sell its stake in Spanish wind turbine maker Gamesa, which has a site in Bellshill, North Lanarkshire. But Mr Galan said: "We have no plan not to be a shareholder."