Further supplementary memorandum submitted
by the Department of Trade and Industry
Questions 17 (Helen Goodman) & 74 (Mr Richard
Bacon): Applying the Green Book rates to British Energy's liabilities
1. As set out in the DTI's Supplementary
Memorandum Note on use of Discount Rates: British Energy liabilities
to the Committee for Public Accounts, in reporting its liabilities
the Department follows the flat discount rate set out in HM Treasury's
Resource Accounting Manual (RAM) (RAM provided the framework for
production of departments' 2004-05 resource accounts). The last
available accounts (2004-05) therefore used a flat rate of 3.5%.
This is the rate used in the NAO Report.
2. At the time that the decision to restructure
was taken and the level of Government support agreed (2002), the
prevailing Green Book did not set out a declining discount rate
for long term liabilities. Once it was clear the Government needed
to take financial responsibility for the spent fuel liabilities
(which fall within the next 30 years) and to underwrite the Nuclear
Liabilities Fund, the focus was on agreeing the financial structure
of BE. In undertaking this analysis, because the restructuring
required BE to be viable in the longer term (under State Aid rules),
the focus was on the annual cash flows (undiscounted).
3. We have, however, been asked to apply
the declining discount rates set out in the latest Green Book
(Appraisal and evaluation in central government). This calculation
would increase the liabilities reported in the NAO Report by £0.3
bullion:
|
| NAO Report | Green Book Declining Discount Rate
|
| £'billion |
£'billion |
|
| Uncontracted and decommissioning liabilities
| 2.7 | 3.0 |
| Historic spent fuel liabilities | 2.6
| 2.6 |
| Total | 5.3 | 5.6
|
|
| | |
4. The uncontracted and decommissioning liabilities span
approximately 175 years and therefore attract a range of discount
rates from 3.5%-2.0%. Applying the declining discount rates to
the NAO's forecast liability data increases the liability figure
presented by the NAO by £0.3 billion.
5. The historic spent fuel liabilities span less then
30 years and therefore attract a discount rate of 3.5%. Therefore
applying the declining discount rate to the NAO's forecast liability
data does not alter the figure presented by the NAO.
7 June 2006
| 
