Conclusions and Recommendations
1. As a result of the restructuring of British
Energy, the taxpayer has been left to underwrite a large and uncertain
liability, recently valued at £5.3 billion.
The Company assumed full responsibility for its nuclear power
stations, including the associated nuclear liabilities, on privatisation
in 1996. In reality, the Government's international obligations
always meant that responsibility would fall on the taxpayer if
the company was unable to meet them.
2. The most recent estimate of the liabilities
underwritten by the taxpayer resulted in a 29% increase on the
previous figure, a figure that may well rise further.
The previous revaluation of the liabilities was as long ago as
1996, which is unsatisfactory. Estimates of nuclear liabilities
need to keep abreast of the developing knowledge of the decommissioning
process and its likely costs. Under the restructuring agreement,
the Company is required to produce estimates at not more than
5-year intervals. The Department should require the Company to
do so and ensure its compliance.
3. Uncertainty about the size of the liabilities
is partly due to different discount rates which the Department
and the Treasury use to convert the liability figures to present
day values depending on the purpose of the calculation.
There is too much confusion and difficulty for the user in trying
to interpret the figures in a meaningful way. The Treasury should
produce a single statement setting out which discount rate is
to be used for which purposes in estimating future costs and benefits,
and Departments should be able to reconcile results produced by
different rates.
4. The Company's creditors would have got
very little on liquidation, but on restructuring they received
bonds worth £425 million plus 97.5% of the issued shares
in the restructured Company, assets which were worth £3.9
billion by February 2006. They have however
assumed no responsibility for the nuclear liabilities. For electricity
consumers and taxpayers, the balance of risk and reward is less
favourable, although the Nuclear Liabilities Fund should benefit
if the Company does well.
5. In approaching the restructuring the Department
concentrated on the viability of the Company if electricity prices
were low but gave insufficient attention to the effect if prices
were high. In the event, electricity prices
rose by over 80% in the year following restructuring. The Department's
financial modelling should always test outcomes under a sufficiently
wide range of scenarios.
6. The Nuclear Installations Inspectorate
had concerns about its ability to regulate the Company if it fell
into administration. The Department has
known about this problem for four years but has yet to resolve
it. The Department is now considering establishing a special administration
regime for such companies and should take prompt action to resolve
this issue.
7. The Department spent £29 million on
advisers but of the four main firms it employed only one was appointed
by competition. The Department should
have arrangements in place to appoint external advisers competitively,
if necessary by appointing adviser panels who can then be drawn
upon at short notice and should also benchmark the costs of its
advisers against those of other large users. The Department should
always review the quality of the advice and the value for money
it receives from consultants, who in the case of British Energy
did not test the restructuring plans against a sufficiently wide
range of electricity prices.
8. Without direct responsibility for meeting
its liabilities, the Company may now lack the incentive to reduce
the liabilities falling to the Nuclear Liabilities Fund.
The Department, working with the Nuclear Decommissioning Authority,
should put in place adequate arrangements to confirm that the
Company carries out its operations efficiently, reducing the eventual
liabilities to be met by the Nuclear Liabilities Fund wherever
possible.
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