Shareholder Executive

British Energy

Purpose

British Energy’s (BE) principal activities are the generation, sale and trading of electricity. It owns and operates eight nuclear and one coal-fired power station in the UK.

Legal Status and Ownership

On 3 February this year, BE delisted from the London Stock Exchange and is now part of EDF SA.The Government does not own any shares, other than a special share giving certain administrative rights and exercisable only on grounds of national security.

Description of Rights

As a result of BE’s financial restructuring which was completed in 2005, the Government underwrote certain of its liabilities and took an offsetting economic stake in the business.The economic stake was convertible into equity.As part of the restructuring arrangements, the Nuclear Liabilities Fund (NLF) had a right to receive a proportion of BE’s annual adjusted free cash flow (the ‘cash sweep’). In January 2009, the acquisition by EDF came into effect.With the conversion of its economic interest in BE and subsequent sale of equity, the cash sweep payments to the NLF ceased. BE will continue to make decommissioning payments to the NLF which received £4.42bn from the sale of the remaining equity in BE to EDF in 2009.

The restructuring agreements give Government certain controls over the company which are intended to ensure that the Government’s exposure to BE’s liabilities is minimised, and to provide mechanisms for financial oversight of the company.A number of these controls have fallen away following the sale of BE, and the restructuring agreements have been revised to reflect this.

Government's Objectives

Now that BE is part of EDF Energy, the Group is managed by EDF Energy’s Board of Directors. The Shareholder Executive still monitors BE’s performance and advises the Secretary of State on the NLF’s holdings.

The Government’s objectives are that:

• subject to the overriding requirements of nuclear safety, BE makes a significant contribution to the UK’s security of electricity supplies
• the contribution BE makes to its nuclear liabilities is maximised, consistent with the restructuring agreements
• costs of BE’s nuclear liabilities are minimised, thus reducing risk of NLF’s assets being insufficient.

Financial Performance

£m	2009	2008	2007
Turnover	2,846	2,811	2,999
Operating Profit	102	507	794
Profit/(Loss) for the year	(127)	335	465
Net Cash flow	(311)	(73)	463
Net Operating Assets	2,989	2,720	2,430
RONA1	3.4%	18.6%	32.7%
Shareholders' Funds	8,790	4,982	2,647
Dividends	291	140	-

Dividend policy

No longer applicable.

Performance targets

No longer applicable.

Notes

¹ Net operating assets in 2009 excludes Conversion Assets of £6.3bn, relating to the conversion and sale by the NLF of part of its interest in BE. For comparative purposes, if this figure is included, the RONA decreases to 1.1%.
² Dividends were paid in different financial years to which they related.

Commentary

On 24 September 2008, Government welcomed EDF’s proposed £12.5bn takeover offer for British Energy Group plc and the British Energy Board’s recommendation of the offer to its shareholders. The terms of the proposed EDF offer represented excellent value for money for the taxpayer. EDF’s offer for British Energy was declared wholly unconditional on 5 January 2009.

EDF has stated its intention to build four new nuclear reactors on BE sites with plans for the first new reactor to be on-stream by 2017.The Government has reached agreement with EDF that the latter will sell land to other potential nuclear operators at some specific sites in order to accelerate development of new nuclear power in the UK.

BE’s total output for the year was 52.2 TWh (2007-08: 58.4 TWh), with nuclear output lower than in previous years at 42.9 TWh (2007-08: 50.3 TWh).The reduction in nuclear output principally reflects lost output attributable to the Boiler Closure Unit issue at Hartlepool and Heysham