Backing for British Energy plan

7 March 2003

The agreement - reached with 'significant creditors' - means that some £275 million ($430 million) in new bonds will be issued to the creditors in respect of their outstanding £761.5 million ($1.1 billion) claim on the company. The government has agreed to meet the costs of BE's fuel liabilities with BNFL, the costs of which have been seen as a main factor for BE's inability to compete in the market.

However, the deal has displeased American Electric Power (AEP) which owns two of the UK's largest power stations. It warns that the government's aid will threaten overseas investment and endanger power supply by forcing other generators into insolvency.

UK wholesale electricity prices have recently fallen dramatically because of the introduction of the new electricity trading arrangements (NETA) combined with generation overcapacity. Many generators are reported to be considering whether to reconnect to the national grid when contracts are renegotiated in April, or to withdraw from the market. AES wrote down the value of the coal-fired Drax power station by £577 million ($908 million) in January.

BE got a boost by signing a four-year deal to supply up to 15% of its output to energy supplier Centrica. BE, which is losing around £5 million ($7.8 million) a week, will be paid 'slightly' below market prices for around half the output sold to Centrica. The rest will be linked to future electricity prices.

Nonetheless, it is likely that the company will find it hard to make a decent profit with the deal. Wholesale electricity prices are still at rock bottom and are unlikely to rise until generators close excess capacity. However, the deal is still seen as going some way to ease BE's plight.

The Centrica deal came days after its chief operating officer Mike Alexander was named BE's new chief executive (see NEI February 2003, p3). Centrica denied any link between the two events.



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