The European Commission (EC) today approved a restructuring package for UK utility British Energy to “pave the way for the nuclear group’s survival”.
The EC said: “The commission is satisfied that the new structure of British Energy will ensure that aid is exclusively used for the decommissioning of nuclear power plants in the future.”
Last year, EC trade commissioner Mario Monti warned that the package, supported by the UK government, could be “unlawful” [see Business News No. 44, 1st August 2003]. However, today he said the commission’s decision demonstrated its “ability to apply competition rules in newly liberalised energy markets with great success”.
Under the terms of the restructuring plan, British Energy will “ring fence” the nuclear generation capacities which are the only branch of its activities that are entitled to benefit from state aid. In this case, the EC said ring fencing means that the company will create three separate businesses – each with their own separate accounts:
· A business dealing with nuclear generation (running the company’s eight nuclear power plants in the UK);
· A non-nuclear generation unit (operating the coal fired plant at Eggborough in the UK);
· A unit for direct sales to large business customers (also known as “direct-supply-to-business – or “DSB”).
However, the EC’s approval is based on a number of conditions, including that:
· British Energy must cap production capacity, including nuclear capacity, for a period of six years and it cannot extend its fossil fuel activities outside the UK. The company is also prevented from acquiring large hydro power plants from its competitors in the UK. However, the EC said this did not apply to investments in renewable energy sources.
· The company is not allowed to undercut prices that its non-aided competitors are unable to afford in the DSB market and, for a period of five years, the company cannot set its DSB prices below those that prevail in the wholesale segment.
The restructuring package and the UK’s financial aid to the company followed a substantial fall in electricity prices in the UK in 2002. A UK law to help the company implement restructuring plans, or to “ease processes” in the event of British Energy going into administration, came into effect last year.
Today, the secretary of state (chief government minister) heading the UK’s Department of Trade and Industry (DTI), Patricia Hewitt, said the EC’s conditions were “stringent but workable”, although she said “contingency plans remain in place… if the restructuring plan fails for any reason and the company decides administration is the only option”.
The DTI said that under EC rules, rescue aid for British Energy ends with today’s decision and no further drawings can be made on a UK government loan facility – which was set at 410 million pounds in 2002 and later reduced [see Business News No. 72, 26th September 2002 and Business News No. 66, 30th November 2003]. The DTI said the company had repaid all drawings on that facility with interest.
