BE’s share price had been falling since the introduction of the New Electricity Trading Arrangements in England and Wales in March 2001, which has seen wholesale electricity prices drop to around £16/MWh. A much sharper fall was precipitated when BE’s reactors at Torness and Heysham were shut for safety reasons and, by the end of August, it was below 80 pence. It recovered slightly on rumours of a government bailout, but on 5 September trading was suspended when BE announced it was seeking “immediate financial support” from the UK government as a precursor to “long term restructuring”. BE said that even if the discussions were successful “there can be no certainty that this will preserve value for investors” and if they were unsuccessful “the company may have to take appropriate insolvency proceedings”. On 18 September, BE’s share price fell to 5p; a year ago its shares were trading at over 320p.
In its statement BE blamed BNFL for the crisis. The two companies have been trying to renegotiate spent fuel management contracts for many years – BE argues that fuel should be placed in long-term storage instead of being reprocessed, saving the generator some £200 million per year. But formal proposals made by BNFL on 4 September “fell short of those which BE requires,” the generator said, and chairman Robin Jeffrey added: “It is now clear that there will be no prompt resolution of these issues.” But the problem of spent fuel management has only exacerbated BE’s fundamental problem in the UK market: the price at which it is paid for the electricity it supplies is well below cost (see News Update, p16).
The Department of Trade & Industry (DTI) responded to BE’s pleas on 9 September with the £410 million loan, “in respect of [BE’s] working capital requirements and cash collateral for trading in the UK and North America.
“The short term loan has been put in place in respect of the period until 27 September 2002, pending clarification of the company’s full financial position.” The DTI said its aim was to assure the safe operation of the reactors and security of electricity supply – BE provides around 20% of the UK’s power – and it has made no long-term promises. Any rescue package would have to be cleared by the EU.
