Remedial work cuts into British Energy earnings

·Nuclear generator says bid talks are continuing ·Shares rise on better than expected figures
Mark Milner, industrial editor
The Guardian,
Thursday August 14 2008

British Energy yesterday insisted it had the credentials to play a pivotal role in the development of a new generation of nuclear power stations in Britain and said it remained in advanced discussions with a potential bidder.
The latest signal of the company's determination to remain central to Britain's nuclear generating capability came as it reported a slump in profits from its existing fleet. The company said its earnings before interest, tax, depreciation and amortisation fell from £253m to £129m in the three months to June 29, the first quarter of its financial year. It blamed lower output and the higher cost of remedial work at two nuclear stations for the near 50% decline.
British Energy said the role for nuclear new-build within Britain's energy policy was now firmly established.
Bill Coley, chief executive, said: "As we continue discussions in respect of a potential transaction, we remain clear that the expertise of our people, together with our sites, makes British Energy uniquely positioned to play a pivotal role in nuclear new-build."
British Energy has been at the centre of bid speculation since the government gave its blessing to nuclear new-build because areas next to its sites are likely to be the most suitable locations.
A number of European utilities have looked at a possible bid, with Electricité de France emerging as the frontrunner, though British Energy has never confirmed the identity of its leading suitor.
Two weeks ago British Energy and EDF came within a whisker of agreeing the terms for a £12bn bid. The move had the backing of the government, which has a 36% stake in British Energy, but was blocked by two leading shareholders who argued that 765p a share, the level of the proposed deal, was not enough.
EDF has said it remains committed to nuclear new build in Britain, but it remains unclear how the current impasse between the two companies can be broken. Some observers argue EDF will have to up its offer to more than £8 a share but others believe 765p was already stretching the French group's valuation.
Yesterday's better than expected figures saw British Energy shares rise 1.5p to 706.5p. Centrica, the parent company of British Gas, has indicated it could be interested in a possible merger with British Energy, but only if no one else makes an offer. It has already held talks with EDF about taking a 25% stake in British Energy if the state-owned French company were to make a successful bid for the UK company.
British Energy has eight nuclear power stations and one coal-fired plant. Problems at a number of the nuclear plants have forced it to cut output, though yesterday it said it was making "good progress" towards resolving the issues which have dogged the plants.
The company said output from its nuclear plant had been lower than in the same three months of last year, mainly as a result of boiler unit outages at its Hartlepool and Heysham plants. It said 1.2 million man hours had been spent tackling the issue while the cost this year is expected to be £115m.
British Energy said it had produced 9.5 terawatt hours from its nuclear stations against 13 terawatt hours in the comparable period last year. However the reduced nuclear output was partially offset by higher generation from the coal-fired Eggborough station and higher electricity prices.
The company is hoping that the two plants will be back on line in the third quarter of the financial year. It said reactor 3 at Hinckley Point B had been brought back into service after being shut down for a planned inspection while reactor 4 at Hunterston B was being restarted.
"We have continued to make good progress towards resolving the plant issues that have significantly impacted our performance in the year to date," Coley said.