Taxpayer "exposed" by British Energy restructuring
UK taxpayers were left "exposed" by the restructuring of British Energy five years ago, an influential parliamentary committee has said.
According to the public accounts committee (PAC) the UK's largest electricity generator "now poses a risk to the taxpayer" after it admitted it could not meet its nuclear liabilities in September 2002.
First privatised 11 years ago, the government assumed the utility's liabilities for £5.3 billion in order to preserve electricity supplies and ensure nuclear safety.
This cost the government £20 million per year as the then Department of Trade (now the Department for Business, Enterprise and Regulatory Reform BERR) shared the cost of restructuring with the company's shareholders and creditors.
Under the terms of the deal shareholders exchanged 100 per cent of existing equity for 2.5 per cent, while the company's creditors assumed the remaining 97.5 per cent.
This holding was worth £3.9 billion by February 2006, which heralded an increase in electricity prices from £24 per megawatt per hour to £40.
Earlier this year the government announced it had partly disposed of its interest in British Energy, using a cash sweep to diversify the nuclear liabilities fund's assets.
And the PAC report today warns that BERR's monitoring of the company's performance will be "key to preserving the taxpayer's interest".
"Upon privatisation in 1996, British Energy took on full responsibility for its nuclear power stations, including the associated nuclear liabilities," commented the committee's chairman Edward Leigh.
"In actual fact, from 2002 when the company was restructured, those liabilities uncertain in size but valued at £5.3 billion in 2006 have been underwritten by the taxpayer.
"The rise in wholesale electricity prices following the restructuring resulted, under the terms of the agreement, in British Energy paying much more into the nuclear liabilities fund," Mr Leigh continued.
"These receipts will have been supplemented recently by the decision to sell part of the government's stake in the company.
"But the taxpayer is still exposed. The department must not forget this and do a lot better job in monitoring the performance of the company, influencing its commercial strategy and ensuring that the eventual liabilities are as small as possible."
British Energy, which includes eight nuclear power stations, generates one fifth of energy in England and Wales, and more than half in Scotland.
A spokesman for BERR insisted that the government's "overriding objectives" had always been to ensure "nuclear safety and security of supply".
"The successful completion of the restructuring secured these objectives while safeguarding the interests of taxpayers," a spokesman said.
He added that the sale of the government's interest in British Energy earlier this year raised £2.3 billion and helped ensure it was "better placed to meet the eventual decommissioning costs of British Energy's nuclear stations".