BE under price pressure

30 May 2001

Scottish Power has started legal proceedings against nuclear generator British Energy (BE) and Scottish & Southern Energy after withdrawing from negotiations with the two companies. The dispute is over the Nuclear Energy Agreement (NEA) that requires Scottish Power and Scottish & Southern Energy to buy the whole output of BE's Hunterston B and Torness AGRs in Scotland. Scottish Power takes 75% of the output and Southern the remaining 25%. Unlike England and Wales, Scotland has no mechanism to open up its electricity market.

The NEA, which governs BE’s supply of more than half of Scotland’s electricity needs, has existed since 1990 and is not due to expire until 2005. Scottish Power’s suit comes as the three companies had been trying to establish how the new electricity trading arrangements (NETA) introduced in England and Wales in March, would affect the Scottish NEA. Scottish Power has launched its proceedings in order to change the pricing mechanism. It wants the courts to rule that the price review procedure in the NEA should be revoked as a result of NETA’s introduction, or that the NEA has been frustrated by the NETA. Because the agreement involves three parties, Scottish Power also has to take Southern to court.

BE has said that it believes the NEA to be “legally robust” up to 2005 and that there are no grounds for any changes. It adds that it is confident that a court would find in its favour. Historically, the prices that BE has received for its output in Scotland have aligned closely with corresponding prices in England and Wales. Energy regulator Ofgem has said recently that Scotland needs more electricity competition if Scottish consumers are to benefit from price reductions brought about by NETA south of the border. Ofgem chief executive Callum McCarthy said that Scottish domestic customers at the time of privatisation paid 5% less than their English and Welsh counterparts. They now pay 5% more.

• BE has just reported full-year pre-tax profits of £10 million, a drop of over £230 million on the previous year. This reflects a fall of 15% in the price of electricity during the year to March 31, and a lower than expected nuclear output. BE experienced unplanned shutdowns Dungeness and Hunterston, and restrictions at Torness. A spokesman for BE said the company had anticipated making a loss of up to £50 million, but a strong performance by its US interests has prevented the company from going into the red.

BE plans to continue developing its North American business, while reducing costs in the UK. Just before issuing its full-year results, the company announced plans to cut 400 jobs over four years to reduce its UK nuclear generating costs by £150 million.
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