Failure to monitor British Energy's problems, say NAO

The government failed to monitor troubled nuclear power station operator British Energy closely enough as financial problems within the company grew, the National Audit Office (NAO) has said.

In a report published today NAO said that changes introduced by government to extend competition in the electricity market had either reduced British Energy’s income or increased its costs.

The resulting financial crisis plunged the struggling company into debt and forced a government-backed £410 million bail-out in 2002.

The report said that the Department of Industry (DTI) had failed to evaluate the effect of these changes on British Energy. And, when cracks did start to appear, due to its role in ensuring free and open competition the department did not intervene as this could have been construed as anti-competitive.

Head of the NAO, Sir John Bourne, said: "It is regrettable that risks identified in my report of 1998 have materialised. British Energy’s actions contributed significantly to its difficulties, and the Department was constrained in what it could do. But this case highlights the importance of monitoring and managing previously identified risks to ensure that the taxpayer is well protected."

Despite stepping up monitoring, faced with uncertainty over mixed messages from the company, the DTI had adopted a "wait and see" approach.

In the period March to September 2002, the department’s advisers, who had looked at British Energy's problems, decided that given recent falls in electricity prices, the company was "highly vulnerable". But the department policy remained one of non-intervention unless the company was in a position of "publicly evident distress". Contingency plans were prepared to ensure nuclear safety and the supply of electricity.

The NAO said that British Energy had not responded effectively to changes in the market and attempts to enter the domestic supply market were "too little, too late".

In September 2002, British Energy’s directors declared that the company was no longer able to meet its liabilities and the government extended a credit facility of up to £410 million.

In October 2003, British Energy formally agreed a restructuring deal with its key creditors and the government.

British Energy, the largest electricity generator in the UK, has an annual turnover of over £2 billion and operates eight nuclear stations generating around a fifth of the electricity used in England & Wales, and half that used in Scotland.

(SP)