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Rival power company questions aid to British Energy

12 September 2002- A major US power company with electricity generation interests in the UK has expressed concern over the à‚£410m ($638m) UK government assistance given to nuclear power company British Energy earlier this week.

American Electric Power (AEP), which owns two power stations in northern England, is concerned that financial assistance for the company would prevent a much needed reduction in UK power station over-capacity.

UK managing director Stuart Staley has written to Britain’s energy minister Brian Wilson in which he said “If a satisfactory solution to British Energy’s problems is found, it should apply to all generators and not only British Energy.”

The funding was needed to enable British Energy to continue its trading activities without which it had warned that insolvency was a real possibility. The assistance is only likely to support British Energy until the end of the month and discussions are underway to find a long-term solution to the crisis facing the company.

A number of overseas utilities have invested in the UK power sector in recent years as opportunities arose through market deregulation. The experience has not always been a pleasant one with power prices falling 40 per cent since the introduction of the New Electricity Trading Arrangement s in March 2001.

Several US owners have since sold interests and others have mothballed plant whose operating costs exceed current market prices.

Staley says in his letter, “One would usually expect a competitor to mothball or withdraw generation capacity as it becomes too expensive to run. If British Energy were to take such an action then there would be an immediate impact on wholesale prices. Any government decision to grant concessions to a private company would therefore have a direct distortionary impact on the market by forcing competing plant to withdraw from the market.”

Staley went on to warn that this action could affect future involvement of US owners. AEP, which paid à‚£650m for its two plants, last year, is understood to be looking for buyers for them.

Analysts believe few, if any, UK power stations are operating profitably at current electricity prices. There are concerns that a number of project-financed independent power producers will burn through their cash reserves within a year if the current low power prices persist.