State aid — United Kingdom — Invitation to submit comments pursuant to Article 88(2) of the EC Treaty, concerning aid C 52/03 (ex NN 45/03) — Restructuring aid in favour of British Energy plc
Date: 2003-07-31
Institutions: European Commission
Subjects: State aid, United Kingdom, aid for restructuring, control of State aid, electrical energy

31.7.2003

EN

Official Journal of the European Union

C 180/5

STATE AID — UNITED KINGDOM

Invitation to submit comments pursuant to Article 88(2) of the EC Treaty, concerning aid C 52/03
(ex NN 45/03) — Restructuring aid in favour of British Energy plc

(2003/C 180/03)

By means of the letter dated 23 July 2003 and reproduced in the authentic language on the pages
following this summary, the Commission notified the United Kingdom of its decision to initiate the
procedure laid down in Article 88(2) of the EC Treaty concerning the abovementioned measures.

Interested parties may submit their comments on measures in respect of which the Commission is
initiating the procedure within one month of
this summary and the
following letter to:

the date of publication of

European Commission
Directorate-General for Competition
Directorate H
Rue de la Loi/Wetstraat 200
B-1049 Brussels
Fax (32-2) 296 98 16.

The comments will be communicated to the United Kingdom. Confidential treatment of the identity of the
interested party submitting the comments may be requested in writing, stating the reasons for the request.

SUMMARY

The package contains seven measures:

I. PROCEDURE

On 9 September 2002 the United Kingdom (‘UK’) Government
in place a rescue aid package for the UK electricity
put
company British Energy plc (‘BE’). The Commission took a
decision not to raise objection on this case on 27 November
2002 (1). Under this decision, the UK authorities had until 9
September 2003 to submit a restructuring or liquidation plan
for BE, or to demonstrate that the aid had been repaid. On 7
March 2003 the UK authorities notified a restructuring plan to
by
the Commission.
the
Information was
Commission and submitted by the UK authorities,
for the
latest time on 2 May 2003. On 11 July 2003, the UK auth-
orities informed the Commission that
they considered the
notification as complete, gave notice to the Commission that
they would implement the measures unless the Commission
would take a decision about them in a period of 15 working
days, in application of Article 4(6) of Council Regulation (EC)
No 659/1999.

requested

II. DESCRIPTION OF THE MEASURES

The restructuring plan aims at restoring the viability of BE, that
has been in difficulty since September 2002,
in particular
because of the large drop in wholesale electricity prices that
followed the introduction of
the new electricity trading
arrangements in England and Wales.

A. The undertaking by the UK Government to assume the
in particular with
funding of historic nuclear liabilities,
respect
loaded prior to the
to the management of
restructuring and to the decommissioning of BE's nuclear
plants. The benefit of this measure for BE is estimated to
GBP 3 298 million.

fuel

B. The

of

fuel

supply

renegotiation

fuel
management contracts with British Nuclear Fuel Limited
(BNFL),
leading to a decrease of prices charged by BNFL
to BE for these services. The benefit of this measure for BE
is very hard to estimate. It may range from a few hundred
million GBP to more than GBP 1 000 million.

spent

and

C. The achievement of a standstill on BE's debts towards its
major creditors,
including BNFL, plus the possibility that
part of these debts be finally waived. The cash saved by
BE through the standstill is estimated to GBP 642 million.

D. A number of
major creditors.

financial restructuring arrangements with

E. The introduction of a new trading strategy for BE, aimed at
improving its hedging against wholesale electricity prices
fluctuations.

F. The disposal of assets in North America to generate cash.

G. A 3 months deferral of about GBP 4 million business rates

(1) OJ C 39, 18.2.2003, p. 15.

by local authorities.

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III. ANALYSIS OF THE MEASURES

least part of

At
the measures in question concern issues
covered by the Euratom Treaty and therefore have to be
assessed accordingly. However,
they are
the
not necessary for or go beyond the objectives of
Euratom Treaty or distort or threaten to distort competition
in the internal market, they have to be assessed under the EC
Treaty.

to the extent

that

The Commission notes that the restructuring plan confers BE a
selective competitive advantage in a sector where there is intra-
community trade. Measures A and G directly involve the UK
central or local authorities' budgets, hence State resources.
They are State aid within the meaning of Article 87(1) of the
EC Treaty.
It is also possible that Measure B, and, at least
partly, Measure C, involve State resources to the extent that
the publicly owned company BNFL would not have acted
following the private investor in a market economy principle.
At this stage of its assessment, the Commission thinks that
these measures,
too, are State aid within the meaning of
Article 87(1) of the EC Treaty.

the
The Commission has analysed the aid in the light of
Community Guidelines on State aid for rescuing and restruc-
turing firms in difficulty (2) (hereafter ‘Guidelines’).

This analysis has led the Commission to the following doubts
the aid with the common
as regards the compatibility of
market:

Indeed, some of

least 2086). Furthermore,

— The Commission has doubts as to whether the plan will
in a restoration of BE's viability in a reasonable
result
the measures have a very
timeframe.
long time span (until at
the
improvement of BE's position would seem to be only due
to external support conceded by the Government and
major creditors, rather than from physical internal restruc-
turing. Besides, should it be State aid, the renegotiation of
fuel supply and spent fuel management prices with BNFL
could be viewed as a life long operating aid for nuclear
stations, which would
the
be
requirement that BE faces the market with its own forces
alone after the restructuring is over, and to the polluter
pays principle.

incompatible with

to offset

the impact of

— The Commission has doubts as to whether the aid can be
any compensatory measure being
authorised without
offered in order
the aid on
competitors. In this respect, the Commission acknowledges
that it is likely that there is no or very small structural
the
overcapacity on the
Commission considers
the highly
competitive nature of this market and of the important
amount of
some sort of
is
compensatory measure would be necessary for the aid to
be compatible, even if this compensatory measure does not
consist in irreversibly closing power plants.

relevant market. However,
in view of
that,

likely that

the aid,

it

— The Commission has doubts as to whether the aid is
restricted to the minimum. In this respect, the Commission
notes that the plan provides for a mechanism by which BE
will participate to the restructuring costs via a percentage
of its free cash flow. However, in view in particular of the

large uncertainties as to the amounts of aid to be granted,
the Commission is not in the position to assess whether
this aid is limited to the minimum at this stage.

the

foregoing

into account

considerations,

the
Taking
Commission concludes, at this stage, that there are doubts
whether the restructuring plan complies with the criteria laid
down in the Guidelines and whether the measures awarded and
to be awarded by the UK Government to BE can be considered
as compatible with the Common Market. The Commission has
therefore decided to initiate the procedure laid down in Article
88, paragraph (2), of the EC Treaty.

This decision is without prejudice to the application of the
Euratom Treaty. Some measures, notably measures A and B,
have to be assessed in view of the objectives of the Euratom
Treaty. Therefore,
the United
Kingdom to provide all such information as may help to
assess the measures, notably measures A and B, in the light
of the objectives of the Euratom Treaty.

the Commission requests

In accordance with Article 14 of Council Regulation (EC) No
659/1999, all unlawful aid can be subject to recovery from the
recipient.

TEXT OF THE LETTER

‘The Commission wishes to inform the United Kingdom that,
having examined the information supplied by your authorities
on the measures referred to above, it has decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty, while in
particular examining to which extent measures A and B are
necessary to fulfil objectives of the Euratom Treaty.

I. PROCEDURE

1. On 9 September 2002,

the United Kingdom (‘UK’)
Government put in place a rescue aid package for the
UK electricity company British Energy plc (‘BE’). The
Commission took a decision not to raise objection on
case on 27 November 2002 (3). Under
this
this
decision, the UK authorities had until 9 March 2003 to
submit a restructuring or liquidation plan for BE, or to
demonstrate that the aid had been repaid. On 7 March
2003, the UK authorities notified a restructuring plan to
the Commission. The submission by the UK Government
was registered under State aid NN 45/2003 since certain
restructuring measures possibly containing aid had
already entered into force. Further information dated 10
March 2003 was submitted and registered on 13 March
2003. A meeting between representatives of
the
Commission and of the UK authorities took place on
28 March 2003. The Commission sent the UK authorities
a request for information on 21 April 2003, to which the
UK authorities replied on 2 May 2003. On 11 July 2003,
the UK authorities informed the Commission that they
considered the notification as complete, gave notice to
the Commission that they would implement the measures
unless the Commission took a decision about them in a
period of 15 working days, in application of Article 4(6)
of Council Regulation (EC) No 659/1999.

(2) OJ C 368, 23.12.1994, p. 12.

(3) OJ C 39, 18.2.2003, p. 15.

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II. DESCRIPTION OF THE MEASURES

2.1. Beneficiary of the aid

2.1.1. The British Energy plc group

2. BE is an electricity generator. It was privatised by the UK
authorities in 1996. Except for three special shares held
by the UK authorities (one in BE and one in each of its
two principal UK subsidiaries), BE is now wholly owned
by private investors.

3. At the time of privatisation the primary components of
BE's business were six nuclear power stations in England
and two nuclear power stations in Scotland. BE continues
to operate these stations which have a total registered
in
capacity of 9 820 MW, of which 7 281 MW is
England and Wales
in
(‘E & W’) and 2 539 MW is
Scotland. BE is the only private-sector-owned operator
of nuclear power stations in the UK. It supplies electricity
to the wholesale market and to certain large industrial
and commercial (‘I & C’) customers but not otherwise by
retail.

in the United States of America

4. Since privatisation, BE has entered into a 50:50 joint
(called
venture
to purchase and operate American nuclear
Amergen)
in
generating plants and acquired an 82,4 % interest
the lease of Bruce Power LP in Ontario, Canada. In the
UK, BE acquired in 1999 the retail supply business of
South Wales Electricity (subsequently sold in 2000) and,
in 2000, the 1 970 MW Eggborough coal-fired station to
get greater flexibility and a measure of security against
outage of its nuclear plants.

5. Of the eight UK BE nuclear stations, seven are advanced
gas-cooled reactors (‘AGRs’), a design and technology
unique to the UK. The eighth, Sizewell B, is a pressurised
water reactor (‘PWR’), a design and technology widely
adopted internationally.

6. BE's principal UK subsidiaries are:

— British Energy Generation Ltd (‘BEG’), which owns
and operates
in
the six nuclear power
England and holds the supply licence for the direct
supply business,

stations

— British Energy Generation (UK) Ltd (‘BEGUK’), which
owns and operates the two nuclear power stations in
Scotland,

— Eggborough Power (Holdings) Ltd (‘EPL’), which owns
and operates the Eggborough coal-fired power station
in England, and

BE's lack of hedging and the unplanned power station
outages,
stations
revenues generated by BE's power
decreased markedly during 2002. The high proportion
of non-avoidable costs (4)
in BE's cost structure in its
nuclear power stations has also given it little opportunity
to respond to lower prices by reducing costs.

8. A price fall of GBP 8,56/MWh, that has occurred in the
last two years,
is equivalent to an annual reduction of
income of GBP 642 million p.a. on output of 75 TWh
(the output of BE's power stations in the financial year).
Neither electricity trading contracts nor the direct sales
business has sufficiently mitigated the effect of this price
fall on BE's income.

9. As

a

these

result of

factors, BE's

cash position
deteriorated significantly during the summer of 2002,
with cash balances reducing from GBP 231 million at
the beginning of April 2002 to only GBP 78 million at
the end of August 2002, with the decline accelerating
from the end of June 2002. In addition to the significant
reduction in cash balances, BE anticipated substantial
cash outflows in the period from September 2002 to
March 2003. These outflows
to
British Nuclear Fuel Limited (‘BNFL’) under its spent
fuel management contracts, significant capital expen-
diture at BE's Bruce Power facility in Canada and the
repayment of the first tranche of its bonds, due on 25
March 2003.

included payments

10. In September 2002, in the light of a failed bond offering
in the summer and concern about its ability to access its
undrawn bank facilities, BE's Board received on 5
September 2002 legal advice that the Company would
not be able to draw down credit facilities. Indeed, as the
directors would not be in the position to state that they
believe that the Company could repay them, drawing
down these facilities would have been equivalent
to
trading without any reasonable prospect of avoiding
led BE to seek financial
insolvent
to avoid
support
support was
insolvency proceedings. That
approved
aforementioned
Commission decision of 27 November 2002.

from the UK authorities in order

financial
the

liquidation. This

rescue

aid

by

as

11. As is underlined in the said Commission decision, the UK
Government undertook to notify a liquidation or a
restructuring plan or proof that the facilities have been
reimbursed in full and/or that the guarantee has been
terminated to the Commission no later than six months
after the rescue aid has been authorised. On 7 March
2003,
the UK Government notified BE's restructuring
plan to the Commission.

— British Energy Power

and Energy Trading Ltd
(‘BEPET’), which sells all of BE's output (other than
in relation to the direct supply business) and manages
market risks.

2.2. The restructuring plan

2.2.1. Origin of BE's difficulties

2.1.2. The recent developments

7. As a consequence of the substantial

in electricity
prices in the market in which BE operates coupled with

fall

12. The UK Government has identified the origin of BE's

difficulties to be as follows.

(4) That is, those costs which cannot be avoided by ceasing to generate

or by shutting down stations.

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31.7.2003

BE's unhedged position

2.2.2. The restructuring measures

13. Unlike

sector

the other

generating
large private
companies, BE does not own a retail customer business
that provides a natural hedge for its wholesale electricity
price risk. BE instead sells its electricity primarily in the
wholesale market and a small share to large I & C
Consumers.

14. BE's position in the market for retail supply to large I & C
Consumers did not provide a hedge against the fall in
wholesale prices. This market has been fully open to
competition since 1994.
is competitive with price
It
sensitive consumers. Prices in this market have also
fallen. These are largely passed directly through to
customers. Accordingly, there has been no increase in
retail margins to offset the effects of falling wholesale
prices.

BE's high proportion of non-avoidable costs

21. The restructuring package consists in the following seven
its major
fuel

measures,
creditors
processing company BNFL), and the UK Government:

that were agreed between BE,
(including the publicly owned nuclear

— measure A: measures linked to the funding of nuclear

liabilities,

— measure B: measures concerning fuel cycle agreed

with BNFL,

— measure C: standstill measures,

— measure D: significant creditors restructuring package,

— measure E: introduction of a new trading strategy,

— measure F: asset disposals to help finance the restruc-

turing,

— measure G: local tax deferrals.

15. The cost structures of nuclear plants are characterised by
very high non-avoidable costs and low avoidable costs (5).

22. These measures are described in further detail below.

Firstly,

nuclear

stations.

16. Some of BE's non-avoidable costs are unique to nuclear
power
decommissioning
liabilities are unrelated to output, except in respect to
their timing, which is based on the timing of station
closures. Secondly, spent fuel management costs — the
costs of reprocessing, storage and final disposal of spent
fuel — are also not avoidable for fuel that has already
been loaded into the reactor.

17. On the other hand, avoidable costs of nuclear plants are
including

below those of other plants on the system,
other baseload power stations.

its

above

18. The fall in market prices has led to a large reduction in
costs.
the margin BE
earns
Consequently the funds available to meet
its high
non-avoidable costs, being mainly financing costs and
nuclear liabilities arising from past actions, have been
greatly reduced. This has led to difficulties in meeting
payments to creditors, which has required a financial
restructuring of the business.

avoidable

19. In addition to long term non-avoidable costs arising from
the nuclear liabilities, BE also suffered from high shorter
term non-avoidable costs
financing
expenses, increased as a result of its return of capital to
shareholders and its Eggborough and North American
acquisitions, and the cost of out-of-the-money power
purchase agreements.

in the form of

Significant unplanned outages at BE's nuclear stations

20. BE's loss of

income following the drop in electricity
wholesale prices was further exacerbated by significant
unplanned outages at BE's Torness 2 and Dungeness B
stations. On 13 August 2002, BE announced that,
following the unplanned outages at Torness, the target
for nuclear output in the UK had been reduced from
67,5 TWh to 63 TWh (± 1 TWh).

(5) That is, those costs which can be avoided by ceasing to generate or

by shutting down stations.

Measure A: measures linked to the funding of nuclear
liabilities

The nuclear liabilities

23. Nuclear

liabilities arise primarily from the need to
reprocess or
spent
store and ultimately dispose of
nuclear fuel (‘back-end liabilities’) and from the need to
decommission nuclear power stations at the end of their
commercial lives (‘Decommissioning Liabilities’).

24. For some of the back-end liabilities, BE has contracts for
the provision of spent fuel management services by BNFL
(‘contracted liabilities’). Contracted liabilities
represent
amounts that BE is contractually liable to pay to BNFL
in the future for the reprocessing and/or storage of AGR
spent
fuel and other services in connection with the
management of the spent fuel. The contracts cover repro-
cessing and storage of spent fuel and associated waste
products
the AGR
stations up to at least 2 038 or 2 086. These contracts
are primarily for a fixed price with all the technical risks
associated with the storage and reprocessing of spent
nuclear fuel residing with BNFL. Title to all spent fuel
and most associated wastes remains with BE throughout
the life of the contracts.

the lifetime fuel arisings of

for

for

services

currently exists

25. There are other back-end liabilities, which may or may
not be associated with the same spent fuel, for which no
contract
(‘uncontracted
liabilities’). Uncontracted liabilities principally relate to
fuel, plutonium, uranium and
final disposal of spent
wastes arising from the reprocessing of AGR fuel, the
storage and final disposal of spent PWR fuel, including
the construction of a dry store at Sizewell B, and the
storage and disposal of operational wastes.

26. Decommissioning liabilities

costs of
defuelling, decontamination and dismantling of
the
nuclear power stations after the stations have ceased to
generate
is
described as three stages:

electricity. Normally

decommissioning

to the

relate

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— stage 1: defuelling the reactor shortly after station
from the power

closure and removing the fuel
station,

— stage 2: dismantling redundant ancillary buildings and
making the reactor complex secure and weather
proof,
and
monitored, usually over long periods, and

following which it

is maintained

— stage 3: dismantling the reactor to allow the site to be
reused (at least 85 years after the end of generation
for AGR stations and up to 50 years for PWR
stations).

27. Until now several arrangements have been put in place
for funding the nuclear liabilities. At the time of privati-
sation, a separate fund, the Nuclear Decommissioning
Fund (‘NDF’) was established in the form of a company
limited by shares owned by an independent trust.
Its
purpose has been to accumulate a segregated fund, to
the decommissioning
be applied to discharge part of
liabilities. Funding of all other nuclear
liabilities has
been expected to be met out of operational cash flows
from BE's ongoing business. However as a consequence
of the fall of BE's revenues, these existing arrangements
are not sufficient for the funding of nuclear liabilities.

28. The UK Government has included in its restructuring
plan a number of instruments in order to take on the
financial responsibility for at least part of the nuclear
liabilities funding. These new instruments will be estab-
lished along with new arrangements for the contribution
of
liabilities costs
together with the management of BE's nuclear liabilities.

funds by BE towards the nuclear

The creation of a new fund

29. The restructuring plan provides for the existing NDF to
be enlarged into, or supplemented by, a new fund, the
nuclear liabilities fund (‘NLF’). The NLF is intended to be a
company limited by shares owned by an independent
trust. The NLF is intended to meet the costs of uncon-
tracted liabilities for:

restructuring are

— all AGR fuel that has been loaded into BE's reactors
prior to the date where all the conditions precedent
to the
including the
Commission decision on the Restructuring plan (‘the
restructuring effective date’) for all PWR fuel, as well
as the storage and disposal of operational wastes from
the power stations,

fulfilled,

— all stage 1 decommissioning liabilities of BE, and

— all stage 2 and 3 decommissioning liabilities of BE to
the extent that the accrued value of the NDF is insuf-
ficient to meet the stages 2 and 3 decommissioning
liabilities as payments fall due.

30. Once the restructuring is put in place, BE will contribute

to the NLF/NDF, in paying:

— fixed

decommissioning

of
GBP 20 million per annum — indexed to the retail
price index (‘RPI’) — but tapering off as stations close,

contributions

— GBP 150 000,
PWR fuel

indexed to RPI,

for every tonne of
loaded into the Sizewell B reactor after

the date where all the conditions precedent to the
restructuring effective date. According to the UK
authorities GBP 150 000 per tonne is comparable to
international costs for spent fuel management,

— GBP 275 million of new bonds to the NFL. The terms
of the new bonds have not been finalised yet but they
will be high ranking and unsecured,

— payments

initially

funding cash reserves

amounting to 65 % of BE's
consolidated net cash flow after tax and financing
costs and after
(‘the NLF
payments’). The trustees of the NLF will also have
the right, from time to time, to convert all or part
the NLF payments into a number of ordinary
of
shares of BE. For so long as these shares were held
by the NLF, they would be non-voting to the extent
they would otherwise carry 30 % or more of the
voting rights of BE.

31. The percentage of cashflow on which the NLF payments
are based may be adjusted from time to time on a fair
and reasonable basis, so that shareholders benefit from
retained cash flow and proceeds of new subscriptions for
shares of BE and so that the NLF and shareholders are
not adversely affected by any demerger, issue of securities
to shareholders or other corporate actions.

32. Payment of the fixed contributions of GBP 20 million
per annum (indexed and tapering as stations close) to
the NLF or NDF for decommissioning liabilities will be
accelerated to a net present value basis (discounted at a
discount rate appropriate to the NLF or the NDF, as the
case may be) and become immediately due and payable
in the event of the insolvency of BEG or BEGUK. The
accelerated payment(s) will be guaranteed by all principal
companies in the BE Group and secured by charges on
their assets.

33. The trustees of the NLF will have no roles or duties apart
from the management of the fund and its investments
and making payments against qualifying expenditure.
This will include assessing whether it would be beneficial
for the NLF to defer any NLF payments or convert the
NLF payments into equity. The trustees of the NLF will
not have any powers
funding
requirements or set the contributions of BE.

to review liabilities,

Aid from the UK Government in relation to the funding of nuclear
liabilities

34. The UK Government will

following
measures in relation to the funding of nuclear liabilities.

take the four

UK Government assuming the responsibility for BE's
liabilities under historic spent fuel contracts

35. The UK Government undertakes to assume responsibility
for BE's liabilities under contracts between BE and BNFL
BNFL (the ‘historic spent fuel contracts’), concerning (i)
the reprocessing and/or storage of AGR spent fuel loaded
into reactors before the restructuring effective date; and
(ii) other services relating to flask maintenance, oxide
management and rail transport under existing contracts
with.

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36. This undertaking does not cover the payments for fuel
loaded into the AGRs after the restructuring effective
date, whose costs will continue to be borne by BE
under new contracts which have resulted from the
commercial negotiations between BE and BNFL. It does
not cover payments in respect to PWR fuel, as PWR is
not reprocessed by BNFL, but managed directly — as a
matter of fact stored — by BE.

UK Government undertaking to cover any shortfall
in
NLF funding for stage 1 decommissioning liabilities and
uncontracted liabilities.

37. The UK Government undertakes to cover any shortfall in
funding within the NLF for stage 1 decommissioning
liabilities and for uncontracted liabilities (including the
cost of building the Sizewell B dry store and ultimate
fuel disposal).

UK Government's undertaking to cover shortfall in NLF
funding for Stages 2 and 3 decommissioning liabilities

38. The UK Government undertakes to cover any shortfall in
funding within the NLF in relation to Stages 2 and 3 of
decommissioning.

Specific tax disregard

39. The aforementioned undertaking by the UK Government
will be accounted for as an asset on the BE balance sheet
to the profit and loss
with a corresponding credit
account. Under normal circumstances, the undertaking
would be taxable. According to the UK Government,
this would require the UK Government
to ‘gross up’
the level of aid provided to BE in the restructuring
process by the amount of tax arising on the grant of
the undertaking in order to ensure that BE is solvent
post restructuring.

a

of

taxable

40. In order to avoid this, the UK authorities are in the
process of introducing specific tax disregard legislation
via the Electricity Bill. Without this tax disregard legis-
lation,
approximately
receipt
GBP 3 152 million would arise. According to the UK
the tax disregard legislation has been
Government,
drafted in a manner that aims to ensure that no asym-
is given to BE in the future. Any
metrical
subsequent
the undertaking,
whether due to price changes or revalorisation, will be
taxable, thereby matching the tax relief received by BE
when the extra expense is recorded in the profit and loss
accounts.

increases in the value of

tax relief

the nuclear

41. Table 1 contains a valuation by the UK authorities of the
instruments of aid described above. These estimates of
the value are subject to considerable uncertainty. Both
the costs of
liabilities relieved and BE's
contribution to those costs are highly uncertain. Indeed,
the discharge of the liabilities will occur over extremely
long time periods. For example, BE would not expect to
begin dismantling an AGR until at least 85 years after a
spent
station
fuel
generating, while
In addition,
management must continue indefinitely.

ceased

has

there are many tasks, including the decommissioning of
AGRs, for which there is to date no direct experience.

Table 1

Valuation of the measure A aid instruments (1)

(in GBP million)

NPV
(discounted at
5,4 % nominal (2))

Total future
cash payments
(undiscounted)

Undertaking for historic spent
fuel contracts

Undertaking for uncontracted
liabilities

Undertaking
for
sioning liabilities

decommis-

Amounts contributed by BE to
NLF/NDF

amounts

Net
Secretary of State

payable

by

Tax disregard

2 185

750

879

3 218

3 166

4 917

– 1 432

– 1 845

197

916

6 238

946

Total

3 298

10 402

(1) Alls amounts are in December 2002 values.
(2) The discount rate is the 5,4 % nominal rate recommended as the reference
from 1 January 2003 in accordance with Commission notice

rate
97/C 273/03.

Measure B: measures concerning fuel cycle agreed with
British Nuclear Fuel Limited (BNFL)

42. BNFL both provides nuclear fuel to BE for all its AGR
reactors and processes this fuel when it is spent (6).

43. As a part of the restructuring plan, BNFL, which is BE's
largest single creditor, has agreed to modify its contracts
with BE both as regards fuel supply and as regards
processing of spent fuel.

Measures concerning fuel supply

44. Pre-restructuring fuel supply agreements between BE and
BNFL dated from 1997 and 1995 for BEG and BEGUK
respectively. They were supposed to continue in force
until 31 March 2006, but with the intent to renegotiate
and extend these contracts from that date in respect of
BEG and an option to extend in respect of BEGUK.

45. Charges for the supply of fuel comprised an annual fixed
charge and an additional variable charge per fuel element
delivered. The charges were defined,
to an
adjustment in accordance with an inflation index.

subject

46. The renegotiated fuel supply terms have come into effect
from 1 April 2003 by way of addenda to the prior
agreements. The new terms will also form the basis of
new lifetime agreements for AGR fuel supply after 31
March 2006, to come into effect on 1 April 2006.

(6) BE purchases the fuel for its only PWR nuclear plant from another
party, and has no contract for PWR spent fuel as it stores it on site.

31.7.2003

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Official Journal of the European Union

C 180/11

the prior

agreements will be

47. Under the new conditions, the fixed annual payment
under
reduced by
GBP 5 million a year and there will be a further
discount,
linked to baseload electricity prices, but
to a cap of GBP 15 million (both at 2003
subject
prices
indexation). Prices will
and subject
otherwise remain as in the prior contracts.

to RPI

48. In respect of fuel supply from 1 April 2006, and subject
to at least four of the seven AGR stations remaining
fixed charge payable by BE will be
open,
the
GBP 25,5 million,
less the discount described above,
with a variable charge (as per the existing contracts)
equivalent
tonne of uranium.
These prices are at July 2002 money values and will be
indexed in accordance with RPI.

to GBP 191 000 per

49. For the period when only three or fewer power stations
remain open, the price will be set on the basis of recom-
mendations of a joint BE and BNFL team, following a
study of
the end-of-life optimisation programme of
BNFL's fuel fabrication plant.

Measures concerning spent fuel

50. In 1995,

and Scottish Nuclear

the legal predecessors of BEG and BEGUK
respectively)
(Nuclear Electric
the
entered into long-term contracts with BNFL for
storage and reprocessing of
irradiated AGR fuel and
related services. BEGUK (then Scottish Nuclear) entered
a further contract in 1995 for the long-term storage of all
AGR fuel arisings in excess of
the quantity already
contracted for reprocessing. In 1997, BEG also signed a
further contract
fuel management services,
which dealt with all lifetime arisings of irradiated AGR
fuel in excess of those delivered under the 1995 contract
from BEG reactors. All the contracts referred above will
fuel
be referred to hereunder as ‘the existing spent
management agreements’. They provide services through
to at least 2 038 or 2 086 (depending on the category of
waste).

for spent

51. Under the existing spent fuel agreements, BE retains title
to all spent fuel. Eventually, BEG and BEGUK will be
required to receive from BNFL's stores the vitrified high
level waste, spent fuel, certain intermediate level waste
and reprocessed uranium and plutonium to fulfil their
responsibilities
such high level
the disposal of
for
waste, spent fuel,
intermediate level waste and repro-
cessed uranium and plutonium.

52. Pricing for these agreements are essentially fixed, subject
to adjustment for inflation and, in the case of the storage
and reprocessing commitments, based on the tonnages of
fuel delivered. The pricing of the initial 1995 contracts
also incorporates amounts in respect of the decommis-
sioning of THORP (the thermal oxide reprocessing plant)
at Sellafield,
is being reprocessed.
Given the nature of the services provided by BNFL, BE
is committed to make continuing payments in respect of
fuel delivered whether or not it terminates the contracts
in respect of undelivered fuel.

in which AGR fuel

53. The payment streams for the 1995 storage and repro-
fixed and run through to
the contracts in 2086, with payments

cessing
completion of

contracts

are

made monthly. The payment
contract
deliveries to BNFL.

is based on the timing and tonnage of

stream for

the 1997
fuel

54. The renegotiated spent

fuel management agreement
(hereunder ‘the new spent fuel management agreements’)
apply differently depending on whether the managed fuel
was loaded prior to or after the restructuring effective
date.

55. The significant revisions for fuel

loaded prior to the

Restructuring Effective Date will be as follows:

— the payment scheduling will be foreshortened, in such
a way that the net present value of future payments,
computed using the UK public sector discount rates,
is unchanged,

in this case,

— the contracts' termination clauses will be modified in
such a way that, should BE become insolvent despite
the restructuring,
the contracts would terminate
without recourse to BE. The UK authorities have
indicated that,
it would be likely that
this fuel would have to continue to be managed at
BNFL's site at Sellafield and that the UK Government
or the NLF would need to enter into contractual
arrangements with
successor
BNFL,
company, to do this. In this event, the UK authorities
these new
have indicated that
the
arrangements to be based on a review of all
relevant
including
existing contractual terms.

they would expect

circumstances

time,

any

the

or

at

56. The significant revisions for fuel loaded on or after the

restructuring effective date will be as follows:

— title to the spent fuel will pass to BNFL at the time it
takes on the risk for managing the spent fuel (i.e. on
delivery of the spent fuel to BNFL), after which point
BE shall have no further liability in respect of it,

— payment for the spent fuel services will be payable in
relation to the time of loading the unirradiated fuel to
BE's reactors, rather than at any later stage (e.g. on
delivery of the spent fuel to BNFL) and will be based
on a loading plan with an annual reconciliation,

— the base price for spent fuel will be GBP 150 000 per
tonne of uranium, payable on loading of the unir-
radiated fuel, at 2003 prices. Thereafter it will be
indexed to RPI.
an upwards or
In each year
downwards adjustment will also be made according
to a formula based on the amount of electricity
generated by the AGR power stations and the value
of baseload electricity in E & W, thereby offering BE
protection from fluctuations in the price of electricity.
fuel management
The
approximates to GBP 0,6/MWh, before the upwards
or downwards adjustment.

spent

price

base

for

Fuel supply and reprocessing measures impact

57. Table 2 shows the effect for BE of changes to BNFL fuel
supply contracts, as estimated by the UK authorities
under three possible scenarios for the evolution of the
electricity market.

C 180/12

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Official Journal of the European Union

31.7.2003

Table 2

Table 3

Effect of changes to BNFL fuel supply contracts

NPV impact of changes to future AGR spent fuel contracts (1)

Computation of fuel supply savings

(in GBP million)

Year to 31 March

2004

2005

2006

2007

2008

Pre-restructuring costs

— Bank case and upside case

— Downside case

Post restructuring costs

— Bank case

— Upside case

— Downside case

Savings

— Bank case

— Upside case

— Downside case

221

216

247

241

232

227

203

198

213

208

206

207

200

231

231

220

218

227

205

188

198

176

201

207

186

15

14

16

16

16

21

14

5

22

15

5

22

12

6

22

58. The UK authorities have submitted that giving precise
estimates of the savings by BE after 2006 would be
difficult, as the pre-restructuring fuel supply contracts
were planned to end in 2006. Any estimate of
the
benefit for BE of the changes would therefore have to
take account in some way of the benefit to BNFL of the
prolongation of the contracts until the end of BE's plants'
lifetime, which is reflected in the new contracts' prices.
Bearing in mind these uncertainties, the UK authorities
have indicated that BE's internal estimate of the cost
the plants would be
savings over
GBP 239 million (undiscounted) and GBP 140 million
(discounted at a real rate of 3,5 % (7)).

lifetime of

the

59.

60. Table 3 hereunder shows the effect for BE of changes to
BNFL AGR spent fuel contracts, as estimated by the UK
authorities, under the same three possible scenarios (8).
The net present value is computed using the UK public
sector discount rate of 3,5 % real. This table addresses
only the impact of price changes in contracts for fuel
the restructuring effective date.
loaded on or after
Impact of changes in contracts for fuel loaded prior to
the restructuring effective date is difficult to quantify, at it
would materialise only in the event that BE becomes
insolvent. Besides, the benefit for BE of the transfer of
title of spent fuel, and liabilities attached to it, to BNFL, is
difficult to estimate, according to the UK authorities. The
UK authorities have nevertheless
a
subjective estimate of the benefit for BE of this transfer
of title would be at around GBP 1 421 (undiscounted)
and GBP 148 million (discounted at 5,4 % nominal).
This benefit is not included in the table hereunder.

submitted that

(7) This percentage corresponds to the public sector discount rate.
(8) The definition of these three scenarios is given at point 150.

(in GBP million)

NPV

Undiscounted total
payments

592

1 117

418

881

3

174

– 289

589

558

1 204

4

559

– 87

1 113

Pre-restructuring

— Bank case

Post-restructuring

— Bank case

— Upside case

— Downside case

Savings

— Bank case

— Upside case

— Downside case

(1) This assumes that the restructuring effective date is 1 April 2004; NPV at

March 2003.

Measures concerning uranics

61. Originally, the companies that are now BEG and BEGUK
both themselves acquired uranics for transfer to BNFL
in the production and fabrication of
and used by it
nuclear fuel for their AGR plants. The company that is
now BEGUK then transferred to BNFL its uranics
contracts. Those pre-existing contracts
procurement
in any event, sufficient only for
were long-term and,
the relatively small quantities of material required by
BEGUK, and therefore that change gave BNFL only a
limited
uranics
procurement and supply business unit.

development of

base

the

for

a

62. As part of the renegotiation between BE and BNFL of the
contracts for the future supply of fabricated nuclear fuel
it was agreed that BEG should also
by BNFL to BE,
transfer
to BNFL
which thus becomes responsible for
the making of
future arrangements for the procurement of uranics for
nuclear fuel for BEG's AGR plants.

its uranics procurement contracts

63. At the same time, BNFL will purchase from BEG its
uranics stocks, the estimated book value of which is up
to GBP 67 million.

duration

64. The UK authorities submit that, because of the larger
quantity of material used in BEG's AGR plants and the
the
shorter
pre-existing
of
procurement contracts,
that change will give BNFL a
much stronger base for the development of a uranics
procurement and supply business unit and, as such,
is
a favourable commercial opportunity for BNFL.

transferred

31.7.2003

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Official Journal of the European Union

C 180/13

Measure C: standstill measures

‘the standstill agreements’)

the restructuring plan, BE has
(hereunder

reached
65. As part of
agreements
in
relation to a standstill, subject to certain conditions, of
payments due to BNFL and a number of significant
financial creditors (hereunder ‘the significant creditors’)
which comprise the holders of
the
2003, 2006 and 2016 sterling bonds issued by BE
the Eggborough bank
(hereunder
syndicate including the Royal Bank of Scotland as letter
of credit provider (hereunder ‘RBS’) (together ‘the Bank
Lenders’) and counter-parties to three out of the money
power purchase agreements (‘PPAs’) and contracts for
differences: Teaside Power Limited (‘TPL’), Total Fina Elf
(‘TFE’); and Enron (hereunder
collectively ‘the PPA
Counterparties’).

‘the Bondholders’),

the majority of

66. Under the standstill agreements,

the standstill period
commences on 14 February 2003 and ends on the
earliest of 30 September 2004 or the occurrence of a
termination event or the completion of the restructuring.
During this period, BNFL and significant creditors have
they will not take any steps to
agreed with BE that
initiate
demand or
accelerate any amounts due and payable by BE.

administration proceedings or

67. BE's and BNFL and significant creditors' obligations under

the standstill agreements are described hereunder.

BE's standstill obligations

68. Under the standstill agreements:

— interest will continue to be paid to bondholders and
the Eggborough banks in accordance with existing
arrangements, except that following the payment of
the normal annual coupon to bondholders on 25
March 2003,
interest payments will,
subject to appropriate resolutions being passed by
the Bondholders, be made on a six-monthly rather
than an annual basis,

subsequent

— interest at 6 % per annum will be paid to RBS (in
respect of
its letter of credit) on an amount of
GBP 34 million and to the PPA Counterparties on
their claim amounts (RBS GBP 37,5 million; TPL
GBP 159 million;
Enron
GBP 72 million),

TFE GBP 85 million;

— EPL will be paid amounts attributable to its operating

costs and capital expenditure,

— BE will continue to purchase power from TPL at fixed
prices at levels based on the current forward price
curve for electricity until completion of the restruc-
turing,

— interest will accrue to BNFL in respect of the amounts
fuel management
the existing spent
owed under
agreements from 1 April 2003 and will be waived
if the restructuring takes place. Amounts accruing
under the existing spent fuel management agreements
in respect of fuel
loaded prior to the restructuring
effective date will be stood still to the extent they

exceed the amounts that would have been payable
had the new spent
fuel management agreements
been effective from 1 April 2003 and will be
waived if the restructuring takes place.

BNFL and significant creditor standstill obligations

69. Under the standstill agreements:

— from November 2002 up to 1 April 2003, BNFL will
stand still all payments due under the existing spent
from 1 April 2003,
fuel management agreements;
BNFL will
between
difference
the
stand
payments due under the existing and the new spent
fuel management agreements,

still

— Bondholders will, assuming passing of the necessary
bondholder resolutions, stand still principal due under
the 2003 bonds,

— Eggborough

banks will

principal
repayments and other payments due under
the
capacity and tolling agreement (‘CTA’) except those
included in BE's continuing obligations,

stand

still

— RBS will stand still all amounts in respect of the RBS
counter-indemnity, composite guarantee or letter of
credit, and

— the PPA counterparties will stand still all amounts
those included in
the PPAs except

arising under
BE's continuing obligations.

70. The obligations of a significant

its
agreement to standstill payments will cease to apply if
any of the following occurs and a significant creditor
gives notice of termination to BE:

creditor under

— there is a default in payment of the non-deferred
creditor which

amounts due to that
continues for more than 20 business days,

significant

— a winding-up or administration petition or order is
made in respect of BE or any of its subsidiaries,

— the UK Government makes a written demand for
repayment of the credit facility agreement or under
facility from commercial banks
any replacement
guaranteed by the UK Government and the related
counter
in
favour of the UK Government,

indemnity by BE and its subsidiaries

— the requisite approvals have not been obtained from
the Eggborough credit facility agent, RBS, the TPL
bank syndicate or Enron,

— documentation is

its
to
subsidiaries which provides
significant creditors different to those in the heads
of terms agreed by the significant creditors.

issued by BE or any of
for distributions

Standstill impact

71. Table 4 sets out the level of cash that would be saved by
BE through the standstill Agreements according to the
UK authorities, should the restructuring effective date
be on 31 March 2004.

C 180/14

EN

Official Journal of the European Union

31.7.2003

Table 4

Cash saved by BE through standstill Agreements

Standstill amounts

Year ending
March 2003

Year ending
March 2004

(in GBP million)

BNFL

Bondholders

Eggborough banks

TPL

TFE

Enron

VAT impact

Interest impact

Standstill impact

Cumulative cash

132

110

47

13

3

4

0

– 9

300

300

265

0

40

33

14

19

– 8

– 21

342

642

Measure D: significant creditors restructuring package

72. In addition to the standstill agreements, the restructuring
plan provides for the claims of the significant creditors to
be restructured and rescheduled. On 14 February 2003,
BE reached a non-binding agreement with the significant
creditors for the compromise and allocation of
their
claims.

73. The

the

liabilities of

to be
compromised, as reflected in BE's unaudited financial
statements for the six months to 30 September 2002,
were as follows:

significant

creditors

— bondholders: GBP 408 million,

— bank lenders: GBP 490 million,

— PPA counterparties: GBP 365 million.

74. Under the heads of terms, the claim amounts in relation
to the PPAs have since been set at GBP 316 million for
the purposes of the restructuring package.

75. The liabilities will be restructured and rescheduled as

follows:

— GBP 275 million of new bonds will be issued to the
bondholders, bank lenders, RBS, TPL, TFE, and Enron.
The allocation of new bonds has been determined by
an entity priority analysis as agreed by the significant
creditors and BE. The priority analysis assesses the
claim to which each party would be entitled on
insolvency of BE. The terms of the new bonds have
not been finalised yet but they will have a senior
ranking and be unsecured,

— a

revised CTA will be

entered into with the
Eggborough banks with a financial return for the
banks equivalent to GBP 150 million of new bonds,

— ordinary shares in BE will be issued to the bond-
holders, bank lenders, RBS, TPL, TFE, and Enron, on
the basis of allocation between the parties set out
below,

— BE's Board is considering proposals under which
existing holders of shares in BE would have both
shares and warrants in the restructured group. Any
allocation of shares or warrants to existing share-
holders in the restructured group will need to be
agreed with the significant creditors. If the restruc-
turing is implemented, the return, if any, to existing
shareholders will represent a very significant dilution
of their existing interests.

Measure E: introduction of a new trading strategy

76. BE has revised its trading strategy, seeking to reduce its
risks. The revisions
in the restructuring

exposure to output and price
constitute one of
the elements
package which enhance BE's financial robustness.

Background

77. BE is one of the largest electricity generators within the
UK, contributing over 20 % of UK power generation. This
electricity
generation portfolio consists of nuclear
generation (83 % by capacity) and coal-fired generation
(17 % by capacity), capable of producing approximately
75 TWh per annum.

78. The trading arm of BE, BEPET is responsible for selling
the output of BE's generation portfolio, managing the
exposure of BE to electricity market price fluctuations
and maximising the sales prices achieved by BE relative
to the market. Since 83 % of BE's generation capacity is
nuclear, a key focus for BEPET is the sale of this mainly
continuous production.

79. The coal-fired Eggborough plant is also an important
element in the trading portfolio. It offers output flexibility
to accomodate changing customers demand levels and
valuable ‘insurance’ in the event of a nuclear outage.

80. In order to manage BE's exposure to market prices whilst
maximising the sales price achieved relative to market,
BEPET sells its output forward. By the time the electricity
is produced, BEPET, in common with other generators,
seeks to have sold 100 % of
its generation to avoid
exposure to the typically volatile prices in the balancing
mechanism. By selling ahead, the company is able to
ensure that
the
prevailing price at that time and,
in some cases, that
prices for future output are fixed.

future output volumes are sold at

81. BEPET has a number of routes through which it can sell
BE generation and sells 32 % of
its total generation
through the direct supply business (‘DSB’). The DSB has
grown organically and represents a key element of BE's
business strategy.

31.7.2003

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Official Journal of the European Union

C 180/15

82. BE's retail market position accounts for a small part of its
generating output relative to other significant generators
in Great Britain. BE's growth in this market is driven by
the goal of diversifying delivery channels for generation
output rather than any goal with respect to the retail
market by itself. BE achieves
a gross margin of
approximately 2 % (9) on its direct sales reflecting the
competitive nature of this market.

83. The reasons for the financial difficulties faced by BE in
September 2002 included three substantially out-of-
the-money power purchase agreements and contracts
for differences into which it had entered as part of
earlier trading and corporate activity. Each was included
in the compromise agreement with significant creditors
reached as part of the restructuring package.

84. The first one is the contract with TFE. Compared to
today's prevailing market prices,
the exercise price
within this contract is very high. The agreement was
struck in 1997, at a time when prices were on average
much higher than is currently the case. The agreement is
substantially out-of-the-money for BE and the claim
amount due to TFE is GBP 85 million.

85. The second relates to the swap contract with Enron,
dated 1 April 1996, which is a financially settled
instrument, based on the difference between peak and
off-peak pool prices. The contract was entered into by
BE prior to its acquisition of Eggborough. It was intended
as a hedge against the varying shape of BE's growing
I & C consumer business. The claim amount due to
Enron recognised in respect of
this out-of-the-money
PPA in the restructuring package is GBP 72 million.

86. The third one concerns an agreement, inherited through
BE's 1999 acquisition of SWALEC, with TPL. The
contract was originally signed on 26 June 1991. The
contract is substantially out of the money. The claim
amount due to TPL recognised in respect of this PPA
in the restructuring package is GBP 159 million.

BE's new trading strategy

87. As part of the restructuring package, BE has determined
to secure more medium-term fixed price sales of
its
output. According to the UK Government, the implemen-
reduce the volatility of
this
tation of
cashflows
longer-term financial
and
viability of the company.

strategy will
reinforce

the

88. Under the new strategy,

fixed price forward sales of
output will result in the Company pre-selling a higher
portion of its output for the next three to five years at a
fixed price, such that BEPET fixes the value of a greater
proportion of its future generation.

(9) Gross margin is based on total revenue before interest and tax less
direct cost of supply (including electricity and delivery costs). (Source
BE).

89. The key objectives of the new trading strategy are: (i) to
limit price risks by securing further fixed-price contracts;
(ii)
to maintain viable sales channels for significant
generation volumes; and (iii) to provide additional cash
to maintain adequate financial reserves.

90. Since the new strategy was articulated in early December
2002, BE has succeeded in selling or extending an
additional 14,8 TWh of DSB sales for 2003 to 2006
through the renewal of annual contracts and some
extensions to multi-year agreements. As at 6 March
2003, BE had also had negotiations with a number of
wholesale counterparties on the subject of structured
trades.

91. On 6 February 2003, a significant contract was signed
with British Gas Trading Limited for
sale of
approximately 10 TWh per annum until 1 April 2007,
more than half of which is at a fixed price.

the

92. The new contracts with BNFL also provide some element
of electricity price hedging to BE due to the variable
price,
linked to electricity prices, to be paid for AGR
fuel supply and AGR spent fuel management services.
At current market prices,
the new agreements with
BNFL provide a partial hedge on approximately 60 %
of BE's AGR output of approximately 58 TWh p.a.

93. BE proposes focusing on the following objectives in its

medium-term strategy:

— ensuring the BE's nuclear plants are operating to
world safety and performance levels. BE will seek to
deliver its performance targets consistently and on a
sustainable basis,

— enhancing safety while improving productivity and

competitiveness,

— reducing exposure to wholesale electricity prices in
the UK whilst continuing to maintain a reliable
route to market. This will be achieved through a
mixture of
to flexible
generation through Eggborough and DSB, focusing
primarily on the I & C Consumer sector. BE already
has significant market presence in this sector with a
strong brand,

contract

terms,

access

— developing

a profitable

renewables business

to
support the competitiveness of the DSB. As a large
supplier of electricity via DSB, BE must source an
increasing proportion of its supply from renewable
sources to comply with the UK's renewables obli-
gation launched in 2002,

— a

continuing

supporting
commitment
EU-sponsored safety-related activities in the former
Soviet Union and eastern Europe.

to

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Official Journal of the European Union

31.7.2003

Measure F: asset disposals to help finance the restruc-
turing

Bruce Power

94. On 23 December 2002, BE announced that

it had
entered into binding heads of agreement to dispose of
its 82,4 % interest in Bruce Power as follows: 79,8 % to a
consortium made up of Cameco, BPC Generation Infra-
and TransCanada PipeLines Limited
structure Trust
the ‘Consortium’) and 2,6 % to the Power
(together,
Workers' Union Trust No 1 and The Society.
In
addition, the Consortium agreed to acquire BE's 50 %
interest
in
Ontario. The sale of Bruce Power and Huron Wind to
the Consortium was completed on 14 February 2003. At
the closing, BE received CAD 678 million in cash
(including repayment of a CAD 51 million capital call).
to
In
CAD 140 million from contingent on the restart of
two Bruce A units and escrow accounts.

in Huron Wind, a wind turbine project

addition,

expects

receive

up

BE

to

95. The initial proceeds of GBP 275 million,

less certain
amounts for transaction costs, have been paid into an
account approved by and charged in favour of the DTI
under the rescue credit facility agreement (‘CFA’).

AmerGen

96. Exelon Generation Company, LLC (‘Exelon’) and British
Energy Investment Ltd. have been soliciting proposals for
their respective interests in AmerGen with respect to a
sale of AmerGen. BE continues to explore options to
realise its interest in AmerGen. According to the UK
Government, BE will enter into an agreement
to sell
their
to regulatory
in AmerGen,
approvals, by 30 June 2003.

interest

subject

101. The network

distinct
is broadly made of
geographical subnetworks, managed by different entities,
corresponding to E & W, Scotland and Northern Ireland.

three

102. As can be seen in table 5, interconnection between the
three subnetworks and between the subnetworks and
foreign networks are small. It can also be noted that
the E & W subnetwork represents by far the majority of
the United Kingdom capacity.

Table 5

Subnetworks generation (1) and interconnection capacity

Area

Generation
capacity

Intercon-
nection
capacity
with E & W

Intercon-
nection
capacity
with
Scotland

(in MW)

Intercon-
nection
capacity
with
Northern
Ireland

Intercon-
nection
capacity
with other
EU/EEA
networks

E & W

63 500

—

1 200

0

2 000
with
France

Scotland

10 100

1 200

—

500

0

Northern
Ireland

1 700

0

500

—

600
with the
Republic
of Ireland

(1) Source: market survey provided by the UK authorities. Capacities are registered
capacities in 2002, and nominal capacity for the interconnectors. Mothballed
plants are not included.

103. BE operates only in E & W and Scottish segments, each

of which are further described below.

Measure G: local tax deferrals

The E & W segment

97. A number of

local authorities have agreed to defer
without interest the payment of business rates owed to
them by BE.

98. In view of the information forwarded by the UK auth-

orities, these authorities are:

— Lancaster City Council,

in respect of the Heysham

plant, for GBP 1 775 240,

— Shepway District Council, in respect of the Dungeness

plant, for GBP 578 524,

— Hartlepool Borough Council, in respect of the Hart-

lepool plant, for GBP 447 508,

— North Ayrshire Council, in respect of the Hunterston

plant, for GBP 735 947,

— East Lothian Council, in respect of the Torness plant,

for GBP 765 986.

99. In total, as much as GBP 4 303 205 in rates payments
were postponed from November 2002 to February 2003.

2.3. Market description

100. From a physical point of view, the United Kingdom elec-
tricity network is characterised by its segmentation and
its small interconnection with other networks.

104. The E & W segment is the one on which competition is

the most developed.

105. Its commercial organisation is based on a system that
was introduced in March 2001 by the Great Britain elec-
tricity and gas sector regulator, the Ofgem. This system is
known as the new electricity trading arrangements or
NETA.

106. Under NETA, most of the exchanges are subject to direct
bipartite contracts between generators and suppliers,
based on estimated energy generation and consumption.
The bipartite contracts are complemented by a last hour
balancing system operated by NG and a complementary
settlement mechanism by which NG charges most of its
last minute balancing costs to generators and suppliers
estimated generation and
that do not
consumption.

their

fulfil

107. NETA is such a competitive market organisation that,
according to Ofgem its introduction has resulted,
in
in a 20 % decrease in
only one year of existence,
baseload electricity prices and a 27 % decrease in peak
electricity prices (10).

(10) Source: Ofgem — The review of the first year of NETA. July 2002.

31.7.2003

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Official Journal of the European Union

C 180/17

108. The energy mix in E & W is described in table 6:

Table 6

E & W energy mix (1)

Type

Capacity
(GW)

Share of total
capacity
in %

Coal

CCGT

Oil

OCGT

Pumped Storage

Nuclear

Interconnectors

25,9

21,6

1,8

1,2

2,1

9,9

3,2

39,4

32,9

2,7

1,8

3,2

15,1

4,9

under the control of two companies: Scottish Power and
Scottish and Southern Electricity, that own most of the
electricity generation assets in Scotland except from BE's.
These two companies also have a special arrangement
with BE, know as ‘the nuclear energy agreement’, by
which they purchase all the electricity generated by BE
in Scotland.

112. Moreover, at present, prices in the Scottish market are
linked to those
through a
mechanism know as the Scottish administered price
mechanism.

in the E & W market

113. This mechanism should be suppressed within a few years,
with the introduction of a unified E & W and Scotland
market mechanism, which will be an extension of NETA,
and will be know as the British electricity trading and
transmission arrangement (BETTA).

Total

65,7

100

114. Capacities by company and energy source in Scotland are

(1) Figures for 2002. Capacities are registered capacities, excluding mothballed

plants.

summarised in table 8:

Table 8

Capacity by company and energy source in Scotland

109. Mothballed plants represent another 6 760 MW capacity.
These plants are currently not operating, but are in such
they could be brought back to the
a position that
network, although this operation might
least
some months.

take at

110. Table 7 summarises the different operators' capacity

market shares.

Company/plant-energy type

British Energy

Hunterston — AGR

Torness — AGR

Table 7

Scottish and Southern Energy

E & W capacity market shares (1)

Peterhead — CCGT

Company

PowerGen

BE

Innogy

Edison

AES

AEP

BNFL

EdF (through interconnector with France)

Scottish interconnector (2)

CCGT new entrants

Other new entrants

Share
in %

15,5

14,1

12,5

3,2

7,5

6,1

4,1

7,3

2,2

23,9

2,7

(1) Figures for 2002. Shares are relative to registered capacities, excluding moth-

balled plants.

(2) This interconnector is used mostly in the Scotland to E & W direction.

The Scottish segment

Hydro

Pumped storage

Diesel

Scottish Power

Longannet — coal

Cockenzie — coal

Hydro

Pumped storage

Wind

BNFL

Chapel Cross – Magnox

Others

Fife energy

Grangemouth

Wind

Waste

Biomass

Capacity
(MW)

2 440

1 190

1 250

2 974

1 524

1 065

300

85

4 055

2 304

1 152

123

400

76

196

196

418

134

130

96

43

15

111. At present, there is no such trade system as the NETA in
Scotland. As a matter of fact, the Scottish market is still

Total

10 141

C 180/18

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Official Journal of the European Union

31.7.2003

III. ASSESSMENT

115. At least part of the measures in question concern issues
covered by the Euratom Treaty and therefore have to be
assessed accordingly. However, to the extent that they are
not necessary for or go beyond the objectives of the
threaten to distort
Euratom Treaty or distort or
competition in the internal market,
they have to be
assessed under the EC Treaty.

3.1. Aid in the sense of Article 87(1) of the EC Treaty

116. According to Article 87(1) of the EC Treaty, there is State
aid when aid granted by a Member State or through State
resources in any form whatsoever distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods and affects trade between
Member States.

117. Amongst

the six restructuring measures, measure D
(‘significant creditors restructuring package’), measure E
(‘the new trading strategy’) and measure F (‘assets
disposal’) do not derive from public resources and are
therefore not to be qualified as State aid under Article
87(1) of the EC Treaty.

118. The UK authorities have notified Measure A (‘funding of
nuclear liabilities’) as state aid. This measure derives from
public resources since the State takes over part of the
Nuclear Liabilities, which are
costs which should
normally be borne by the company. This measure
conveys BE with advantages in respect of its competitors.
As BE operates in a competitive market, these financial
advantages place the companies in a favourable position
as compared to its competitors and threaten to distort
competition. Furthermore, electricity can flow between
Ireland. The
the UK and France and the Republic of
advantages are therefore likely to affect trade between
Member States. Therefore, at this stage, the Commission
considers that measure A, which has also to be assessed
in view of the objectives of the Euratom Treaty, may be
regarded as State aid in the sense of Article 87 (1) of the
EC Treaty. It will not enter into force before the restruc-
turing effective date, hence not before the Commission
takes a decision on the restructuring plan.
It must
therefore be regarded as notified within the meaning of
Article 88(3) of the EC Treaty.

119. As regards measures B (‘measures concerning fuel cycle
agreed with British Nuclear Fuel Limited (BNFL)’), C
(‘standstill agreements’) and G (‘local tax deferrals’), the
UK Government claims that these measures in favour
of BE do not constitute aid.

fuel contracts has meant

120. The UK Government argues concerning measure B that
the renegotiations of the spent fuel contracts with BNFL
have been made at arm's length. According to the UK
Government the long term nature and complexity of the
spent
they have been
continuously subject to supplement or amendment as
circumstances dictate and in the normal course of
business. The UK Government adds that the contracts
have within them ‘non-discrimination’ and ‘hardship’
clauses. In respect of the hardship clause, if either party
experienced serious difficulty under the contract such

that

that it would continue to experience significant losses
by compliance with the agreement, it could request the
other party to consider changes to the agreement. In view
of the financial difficulties of BE and considering the fact
that BE is BNFL's largest customer, BNFL would have
been particularly exposed as a substantial creditor in
insolvency. Consequently BNFL
the
expressed
possible
to
amendment of certain commercial terms in the existing
agreements. Therefore, according to the UK authorities,
the new contracts between BE and BNFL are not State aid
within the meaning of to Article 87(1) of the EC Treaty.

event of BE's

itself willing

consider

the

121. At this stage of its assessment, the Commission thinks
that the renegotiations of the contracts between BNFL
and BE can be considered as being State aid. The
Commission notes
that BNFL is a publicly- owned
company. This does not preclude that it might act as a
private operator in particular if it can be proved that it
acted the same way as another private operator in the
sector. However the Commission notes that BE has been
attempting to invoke the hardship clause for
some
period. During 2002, extensive discussions took place
between BE and BNFL to see whether changes to the
could be made, but without
spent
conclusion. It is only following the announcement by
BE that
it had initiated discussions with the UK
Government with a view to seeking immediate financial
support, that BNFL expressed itself willing to consider the
possible amendment of certain commercial terms in the
existing agreements.

contracts

fuel

the

creditor

and that

122. Under these circumstances, the Commission holds the
preliminary opinion that BNFL has not acted only as a
private
conclusion of more
favourable contracts that what would otherwise have
been agreed can be
imputed to the State. The
Commission therefore thinks that the renegotiation of
BE's contracts with BNFL, which has also to be assessed
in view of the objectives of the Euratom Treaty, can be
considered as containing State aid elements within the
meaning of Article 87(1) of the EC Treaty (11). In this
regard, it must be noted that the renegotiated contracts
have for most of them already entered into force. Should
they contain State aid within the meaning of Article
87(1) of the EC Treaty, this State aid would have been
put into place prior to Commission authorisation, and
should therefore be regarded as unlawful within the
meaning of Article 1(f) of Regulation (EC) No
659/1999 (12).

123. The same reasoning and the same preliminary conclusion
as above may apply to the part of measure C that is
undertaken by BNFL.

124. Measure C provides for a standstill of BE's major creditors
debts, be they privately owned or publicly owned.

125. It must be noted though that

this
standstill are different
for privately owned creditors
(known as ‘the significant creditors’) than for BNFL, the
latter accounting for nearly half of the cash saved by BE
through measure C.

the conditions of

(11) Effect on trade has already been shown (See point 118).
(12) Council Regulation (EC) No 659/1999 of 22 March 1999 laying
down detailed rules for the application of Article 93 of the EC
Treaty (OJ L 83, 27.3.1999, p. 1).

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Official Journal of the European Union

C 180/19

126. At this stage of its analysis, in view of the complexity of
the contracts and the great differences between the
respectively
conditions
significant
creditors and BNFL,
the Commission would tend to
consider that the standstill conditions agreed by BNFL
result in a more favourable deal for BE than the standstill
conditions agreed by other, privately owned, creditors.

agreed

the

by

the

that

same

and the

reasoning

127. Should this be the case, then the Commission would
same
consider
preliminary opinion as the one described above for
measure B would apply, at
the part of
arrangement with BNFL that exceed in terms of benefit
for BE the benefit that it gets from other creditors. As the
part of the standstill regarding BNFL has already been put
in place, the same reasoning as above concerning the
unlawfulness of the aid applies.

least

for

128. As regards, measure G,

the United Kingdom has not
the local authorities have acted as a
established that
interest
In view of
private creditor.
charged for
the Commission doubts
whether the deferral can escape being qualified as State
aid within the meaning of Article 87(1) of the EC Treaty.

the absence of

the deferral,

129. As

the deferrals have

same
reasoning as above concerning the unlawfulness of the
aid applies.

already occurred,

the

3.2. Derogation under Article 87(3)(c) of the EC Treaty

130. In view of the above, some restructuring measures may
to be assessed as ad hoc aid by the

or do fall
Commission.

131. Article 87(2) and (3) of the EC of the Treaty foresee
incompatibility as stated in

exemptions to the general
paragraph 1 therein.

132. The exemptions in Article 87(2) of the EC Treaty do not
seem to apply in the present case because the aid
measures neither have
and are
granted to individual consumers, nor do they make
good the damage caused by natural disasters or excep-
tional occurrences, nor are the aids granted to the
economy of certain areas of
the Federal Republic of
Germany affected by its division.

character

social

a

3.2.1. Eligibility of the firm

136. In order to be eligible for restructuring aid, BE must
qualify as a firm in difficulty as defined in section 2.1
of the guidelines. In particular, it must be demonstrated
that the company cannot stem its losses through its own
resources or with the funds it obtains from its owner/
shareholders or creditors.

137. According to point 5(a) of the guidelines, a firm is, in any
event, regarded as being in difficulty,
in the case of a
limited company, where more than half of its registered
capital has disappeared and more than one quarter of
that capital has been lost over
the preceding 12
months. At 31 March 2001 the total equity shareholders
funds of BE stood at GBP 1 075 million. At 31 March
2002 this figure had fallen to GBP 490 million. Thus BE
lost more than half
in the
preceding 12 months and falls within the terms of
point 5(a) of the guidelines (14).

its shareholders' capital

138. This situation has resulted from a deterioration of BE's
financial situation over the last two years. In the course
of 2002, BE made an attempt to refinance itself from the
capital markets. In late June 2002 it sought to issue 10
year bonds to the value of GBP 262 million to repay
existing debt and for general corporate purposes. This
issue was unsuccessful and was withdrawn at the end
of July. At the beginning of September, the board of
BE determined that
in the absence of Government
support, the company would no longer be able to meet
its liabilities to creditors as they arose and that it would
otherwise be insolvent. The Electricity Regulator also
warned the Secretary of State for Trade and Industry
that there was a serious risk of default by BE under the
Balancing and Settlement Code. The above shows that BE
was not able to recover through its own resources or
with external funds.

139. This conclusion is supported by the financial figures of

BE.

Table 9

financial figures of BE

133. Further exemptions are laid out in Article 87(3)(a), (b)

and (c) of the EC Treaty.

Financial year
2000/2001 (1)

Financial year
2001/2002 (1)

As of
31 August
2002 (2)

134. As

the aid concerns

the primary objective of

the
restoration of long-term viability of an undertaking in
difficulty, only the exemption of Article 87(3)(c) of the
first sight apply. Article 87(3)(c)
EC Treaty could at
is
provides
granted
certain
economic sectors, where such aid does not adversely
affect trading conditions to an extent contrary to the
common interest.

the authorisation of State aid that

for
to promote

development of

the

135. In its Community guidelines on State aid for rescuing and
the
a

restructuring firms
Commission spelled out
favourable exercise of its powers of appreciation.

the preconditions

in difficulty (13)

(‘guidelines’)

for

(13) OJ C 288, 9.10.1999, p. 2.

Turnover

2 124

2 049

n/a

Profit after tax (before
exceptionals)

Net cash flow

Debt

Net assets

– 23

– 11

730

1 168

– 39

– 31

859

627

– 70

– 131

995

557

(1) Source: British Energy Annual Report 2001/2002.
(2) Source: British Energy Management Accounts, as transmitted by the United

Kingdom authorities.

(14) The fact that BE has apparently paid a dividend to shareholders on
16 July 2002 is not relevant in checking whether point 5(a) of the
Guidelines is fulfilled.

C 180/20

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Official Journal of the European Union

31.7.2003

140. BE's last approved annual accounts and management
accounts show that, during last year, BE were confronted
with the usual signs of a firm in difficulty as defined in
point 6 of the Guidelines. It suffered increasing losses, its
turnover diminished, its cash flow declined and its debt
increased as shown in table 9. All these criteria worsened
particularly during the last five months preceding the
decision of the board of the company to ask for State
aid. In addition, the net asset value also fell considerably.
It has to be noted that other signs defined in point 6 of
the Guidelines, like increasing stocks, are not applicable
due to the specificity of the electricity sector.

141. BE therefore qualifies as a firm in difficulty in the sense
of section 2.1 of the guidelines and is eligible for restruc-
turing aid.

3.2.2. Restoration of viability

142. The award of

restructuring aid requires a feasible,
coherent and far reaching restructuring plan capable of
restoring the long-term viability of the firm within a
realistic
reasonable time span and on the basis of
assumptions. According to point 32 of the guidelines,
the improvement in viability must derive mainly from
internal measures contained in the restructuring plan.

143. Point 33 of the guidelines require the Member State to
submit a restructuring plan describing the circumstances
that
led to the company's difficulties and considering
scenarios reflecting best-case, worst-case and intermediate
assumptions. Point 34 of the guidelines adds that the
plan should provide for a turnaround that will enable
the company after completing its restructuring to cover
all its costs including depreciation and financial charges.
The expected return on capital should be enough to
enable the restructured firm to compete in the market
place on its own merits.

Position of the UK authorities

between

144. Before presenting the effect of the restructuring plan on
the viability of BE, the UK authorities have described the
economics of nuclear generation.
In assessing the
economics of BE's generation activities the notification
distinguishes
and
the
non-avoidable costs of running BE's stations. Nuclear
plants are characterised by very high non-avoidable
costs and comparatively low avoidable costs, in particular
short run marginal costs. According to the UK auth-
orities, since the decision to generate is motivated by
the level of avoidable costs and in view of the fact that
nuclear plants have the lowest short-run marginal costs,
running nuclear plants is economic rational.

avoidable

costs

145. The UK authorities then argue that if BE's restructuring
succeeds, the firm will not structurally be loss-making.
According to the UK authorities,
the plan is able to
address the issues at the origin of BE difficulties and
lead to long-term viability. In particular, it will improve
its trading strategy to try to offset BE unhedged position,
relieve BE from part of its very high fixed costs in taking
over historic nuclear liabilities and enable it
to build
sufficient cash reserves to secure its activities.

146. The objective of BE's restructuring plan is to restructure
BE's costs and liabilities and to put in place a stable
capital structure in order for BE to continue to operate
in the long term as a financially viable entity. In order for
the UK
BE
Government has assumed that, over a period of time,
the company must be profitable, with positive cashflow
and able to finance its activities on an ongoing basis.

considered

financially

to be

viable,

147. The following component parts of the restructuring plan
were developed in order to achieve the objective of
financial viability:

— the sale of BE's

interests

in Bruce Power and
AmerGen,
to build up cash resources
within the business, enhance robustness and reduce
the scope of the business,

in order

— reduction in BE's ongoing cost base through the
commercial negotiation with existing
significant
creditors to compromise their historic claims, and
enter into standstill agreements until the restructuring
is effected,
in exchange for a combination of new
debt and new equity in BE following completion of
the restructuring,

the UK Government;

— the assumption of costs of certain nuclear liabilities
commercial
and the
by
renegotiation of
front end and back end nuclear
fuel contracts with BNFL. The new commercial
arrangements with BNFL have also reduced BE's
exposure to adverse electricity price movements,

— implementation of a new trading strategy to reduce
BE's exposure to electricity wholesale market volume
and price risk.

148. The restructuring plan has been developed to take
financial viability ie
account of a key requirement of
the ability of
the company to finance its activities.
Since the company would expect to face difficulty in
obtaining financing from the bank or bond markets,
particularly considering the relatively small number of
lenders prepared to provide financing to a nuclear
generating company, the restructuring plan has to be
considered as an alternative to seeking external financing.
It foresees the creation and build-up of cash reserves.
These cash reserves would be designed to enable the
company to enter
into electricity trading contracts
requiring collateral cover and to sustain cash shortfalls
funding.
without
Accordingly,
the
creation of two reserves: a cash collateral reserve; and
an outage and liquidity reserve. Although two separate
pools of reserves have been identified, it is intended that
these reserves will be fungible giving the ability to call on
the outage and liquidity reserve to meet additional
collateral
to
requirements
provide additional robustness for BE.

to rely
restructuring

and vice-versa. This

the need
the

plan envisages

on external

is

149. In the period ending 31. March 2004, the cash reserves
are built up through two sources of funds: the standstill
agreements (measure C) and asset disposals (measure F),
after repayment of the liabilities outstanding under the
rescue aid credit facility agreement.

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Official Journal of the European Union

C 180/21

150. The UK authorities have developed three

financial
scenarios to take into account the variables to which
BE's financial position is particularly sensitive: generation
output and electricity prices. In order to determine the
alternative
impact
assumptions for generation output and electricity prices,
BE has considered one upside and one downside sensi-
tivity:

position of

on BE's

financial

— the upside case assumes output

from the nuclear
plants of approximately 67 TWh per annum and
electricity price forecasts between the Ilex average
and the Ilex low price forecasts,

— the downside case assumes output from the nuclear
plants of approximately 65 TWh per annum and
electricity price forecasts from the market survey
low case.

— the bank case assumes output from the nuclear plants
of approximately 67 TWh per annum and electricity
price forecasts from Accenture,

151. Table 10 sets out the projected profit-and-loss accounts
in the bank case for the five years ended 31 March 2008
together with the estimated profit and loss for the current
financial year.

Profit and loss accounts in the bank case until 31 March 2008 (1)

Table 10

Five-year forecast period

2003

2004

2005

2006

2007

2008

UK nuclear output (TWh)

63,0

67,1

66,3

67,2

68,1

67,2

Income

Operating costs

Fuel costs

Materials and services

Staff costs

Capital expensed to P/L

Depreciation and amortisation

1 654

1 317

1 301

1 339

1 372

1 416

– 404

– 580

– 332

0

– 280

– 428

– 450

– 232

– 114

– 50

– 332

– 436

– 261

– 100

– 45

– 348

– 447

– 268

– 91

– 45

– 366

– 450

– 274

– 85

– 44

– 380

– 467

– 280

– 84

– 41

Total operating costs

– 1 596

– 1 273

– 1 174

– 1 199

– 1 219

– 1 251

Operating profit (loss)

AmerGen operating profit

Profit before finance charges and
tax

Finance charges

Revalorisation (net)

Net interest and other finance charges

Total finance charges

Profit before tax, minorities, HMG
indemnity and exceptionals

Minority interests (share of PBT)

Profit before tax, HMG indemnity
and exceptionals

Movement in HMG-indemnity

Profit before tax and exceptionals

Exceptionals

Profit before tax

Taxation

Profit attributable to ordinary
shareholders

Dividends

Retained earnings

58

48

106

– 190

– 65

– 255

– 148

– 15

44

41

85

– 177

– 80

– 257

– 172

0

– 164

– 172

0

– 164

– 4 232

– 4 396

389

0

– 172

4 408

4 236

– 17

– 4 006

4 220

0

0

– 4 006

4 220

127

0

127

0

– 32

– 32

94

0

94

– 39

55

– 14

42

0

42

0

42

140

0

140

0

– 22

– 22

118

0

118

– 74

44

0

44

– 1

42

0

42

153

0

153

0

– 18

– 18

135

0

135

– 112

22

0

22

0

22

0

22

164

0

164

0

– 15

– 15

150

0

150

– 85

65

– 39

26

0

26

0

26

(1) The GBP 4 408 million exceptionals for 2004 correspond to the value of the undertakings by the UK Government under measure A.

C 180/22

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Official Journal of the European Union

31.7.2003

152. Profit before tax, minority interests, the UK Government's
undertakings and exceptional
items improves from an
estimated loss of GBP 172 million in 2004 to profits
of between GBP 94 million and GBP 150 million in
subsequent years. The projected losses in 2004 are
largely due to the continuing revalorisation charge of
GBP 177 million on outstanding liabilities. This revalori-
sation charge will be reduced from 2004 once the
restructuring is agreed and the undertaking can be
recognised on the balance sheet.

153. Profit before tax is substantially reduced by contributions
to the NLF from 2005. However, these contributions are
65 % of cash flows available after debt service and are
not payable when either cashflows are negative or
transfers
to maintain target cash reserve levels are
required.

154. Exceptional

items

in 2003 relate primarily to the
write-down of
item in
2008 relates to the expected closure in March 2008 of
Dungeness B.

fixed assets. The exceptional

155. An analysis of BE's financial projections demonstrates
that under the bank case, the restructured business is
expected to generate profits and cash flows to service
the various stakeholders and that significant contributions
are made towards the discharge of uncontracted liabilities
and decommissioning liabilities before any return to
shareholders. Applying the sensitivity variables lead to
the following conclusions. Under the upside case, while
the business is very sensitive to changes in output and
to
price assumptions,
and to provide
constrain returns
additional
liabilities.
Finally, under
the level of cash
reserves is at an appropriate level sufficient to maintain
financial viability.

the clawback arrangements act
to shareholders

the downside case,

to fund nuclear

contributions

156. On basis of the above financial projections, the UK auth-
orities are convinced that the restructuring plan will lead
to the restoration of the beneficiary's long-term viability
in a reasonable time-span.

Commission's preliminary assessment

157. The Commission notes that

the UK Government has
submitted a detailed plan containing a market survey
and scenarios reflecting best-case, worst-case and inter-
mediate assumptions, as required by the guidelines.

158. The guidelines also foresee that

the improvement

in
viability must derive mainly from internal
resources
contained in the restructuring plan and may be based
on external
factors such as variations in prices and
demand over which the company has no influence if
the market
generally
assumptions made
acknowledged.

are

internal measures such as the introduction of a new
trading strategy and the disposal of assets. However
other measures depend mostly on external commercial
partners and/or of
they are not
limited in time.

the State; besides

160. Measure A which relates to the funding of nuclear
liabilities constitutes the central point of BE's restruc-
turing plan. Its financing will mostly be at the costs of
the State. Besides the costs related to some nuclear
liabilities are not limited to a reasonable time-span but
can arise until 2 086. The UK Government argues that
the nuclear liabilities are historically incurred costs which
do not have any impact on the ongoing costs of the
company. There would be,
therefore, no ongoing
subsidy to BE. The Commission does not subscribe to
that view.
liabilities
occurred in the past (spending of fuel and construction
of nuclear plants), the costs will have to be carried out in
the future. One of the main reason of BE's difficulties was
its inability to meet
the high fixed costs attached to
nuclear generation. Measure A will certainly help the
return to viability of BE but this measure can not be
In
considered as internal and limited in its duration.
addition,
it seems to relieve BE from part of its obli-
gations under the ‘polluter pays’ principle.

the origin of

the nuclear

If

161. Besides, the Commission holds the preliminary view that
measure B also involves State aid. This measure does not
concern only historical costs but also costs linked to
future operations. It is not limited in time either. The
Commission therefore doubts that the company can be
considered to face the market with its own forces while it
benefits from this measure.

162. Finally measures B, C and G depend on the participation
realised by BE
of external partners The economies
following these measures are only due to concessions
by creditors and suppliers and not by any rationalisation
of BE's activities.

163. Consequently,

at

this

it doubts,

In particular,

the Commission doubts whether

the
restructuring plan submitted by the UK authorities can
the
be considered as complying with the criteria of
guidelines.
stage,
whether the improvement of viability can be considered
as mainly deriving from internal measures and whether
the company can be considered to be able to compete on
the market place on its own merits once the restructuring
is completed. It also doubts whether without the inter-
vention of the State the plan could be considered as
providing a turnaround that will enable the company,
after completing the restructuring, to cover all its costs.
Finally, the intervention of the State in the funding of
nuclear liabilities can still last until 2 086 which cannot
in principle be deemed to be limited to a reasonable
time-span.

doubts whether

the restructuring measures proposed,
restoration

the
159. In view of
Commission
of
long-term viability of BE can be considered as mainly
deriving from internal
the
duration of the restructuring plan can be deemed to be
as short as possible. The restructuring plan does contain

and whether

resources

the

3.2.3. No undue distortions of competition

164. Point 35 of the guidelines provides that, in order to avoid
undue distortions of competition by the aid,
‘measures
should be taken to mitigate as far as possible any adverse
effect of the aid on competitors’.

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165. Apart from the case where the size of the relevant market
at the Community or EEA level or the beneficiary of the
aid's market share would be negligible, point 36 of the
guidelines indicates that these measures should usually
take the form of a limitation of the presence which the
company can enjoy on its market after the end of the
restructuring period.

166. Point 39 of the guidelines states that the form of this
limitation depends on the capacity situation on the
relevant market. In case there is a Community-wide or
EEA-wide structural excess of production capacity, then
the compensatory measures must take the form of an
In case
irreversible reduction of production capacity.
there is no such excess,
then the Commission may
examine whether compensatory measures are required,
and may take account of other types of measures than
irreversible reductions of production capacity.

167. Point 38 of the guidelines also indicates that a relaxation
of the need for compensatory measures may be contem-
plated if such measures were likely to cause a manifest
deterioration in the structure of the market, for example
by having the indirect effect of creating a monopoly or a
tight oligopolistic sitution.

Opinion of the UK authorities

168. The UK authorities have not offered any form of
compensatory measure as part of their restructuring plan.

169. They consider that no such measure is necessary, for the
following reasons, each of which will be further detailed
below:

(a) the restructuring aid does not distort competition,
hence there is no adverse effect of
the aid on
competitors, and therefore no need to mitigate such
effects;

(b) there is no structural overcapacity on the British elec-

tricity market;

(c)

in any event, capacity reductions would be unefficient
and more costly for the State.

a. The restructuring aid does not distort competition

170. The UK authorities base this assertion on the fact that,
according to them, BE's nuclear plants'
run
marginal cost (15) (‘SRMC’) are the lowest of all of the
UK's plants, save for hydro power plants, even without
the aid. As a matter of example,
the UK authorities
present the following comparison of the average BE's
nuclear plants' SRMC with some of its competitors'.

short

(15) That is, those costs that can be avoided by not running the plants
and that vary directly with the output generated. They include
mainly fuel costs, but also small amounts of other variable costs
like hours-dependant maintenance costs.

Table 11

Comparison of BE's plants' SRMC with other types of plants'
SRMC

SRMC
with base case
fuel price
scenario
for 2004
(GBP/MWh)

SRMC
with low case
fuel price
scenario
for 2004
(GBP/MWh)

4,3

13,3

15,1

4,3

11,0

12,7

Average
(pre-restructuring)

of

BE's

nuclear

plants

Drax

Cottam Development Centre Limited

171. Now, according to the UK authorities, in a competitive
market like NETA, the decision by operators whether to
generate or not at a certain time is based on whether
market price is expected to cover their SRMCs. Indeed, if
market price exceeds one plant's SRMC, then it is always
profitable for this plant to generate, even if the profit
generated may not be sufficient to cover all the costs
of its corporate structure.

172. As the market functions as a kind of auction process,
operators are selected by the market according to their
rank in the SRMC scale.

173. According to the UK authorities, BE's nuclear plants are
the first or almost the first in the SRMC scale in E & W,
and are only second to hydro capacity in Scotland. As
BE's nuclear plants account for 9,251 GW in E & W for a
minimum demand of about 19 GW, they would always
be selected. As for Scotland, the UK authorities submit
that BE's 2,539 GW capacity there, even when added to
the 1,3 GW of hydro capacity, would be also well below
the 2,2 GW minimum demand, taking into account the
outward flow in the Scotland-England interconnector, the
capacity of which will be upgraded to 2,7 GW in 2004.

174. As far as Eggborough's coal-fired plant is concerned, the
UK authorities submit that its position in the SRMC scale
prior to any restructuring ensures a 40 % load factor for
it. The UK authorities claim that, with this load factor,
the plan is run for daytime
depending on whether
for 24 hours a day
throughout
during the winter only,
it would be able to sell at
prices between 17 % to 24 % or 2 % to 8 % above its
avoidable costs (which are themselves greater that the
SRMC).

the whole year or

175. All BE's plants would therefore always be covering their
SRMC in any event, be the restructuring plan imple-
mented or not. Besides, as the SRMC ranking scale
would not be changed (hydro capacity having in any
event a virtually null SRMC), the operators that would
been selected at any period of the year would be the
same whether the plan be implemented or not.

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176. The UK authorities conclude from this line of reasoning
that the restructuring plan and the aid it contains would
have no effect on BE's competitors. They also note that
this reasoning would not be affected in the exceptional
case where BE would be put under administration.
Indeed, they submit that the administrator, as a rational
economic actor, would notice that BE's plants' SRMC are
covered by market prices, and would therefore operate
them anyway.

177. The restructuring plan would therefore have no effect on
BE's competitors in any event. Thus there would be no
need to implement any measure to compensate the effect
of the aid on competitors.

b. There is no structural overcapacity on the British elec-

tricity market

178. The UK authorities argue that, while judging whether
there is overcapacity on an electricity market, one
should take account of the fact that, for a number of
reasons, network operators
physical
installed generation capacity
consider
should always exceed the average
cold spell peak
demand by a certain amount, know as the ‘capacity
margin’.

and technical
the total
that

179. They submit that the capacity margin in E & W would be
at present 20,3 % (16), which is not high, both compared
to its past values (it has always been above 20 % except
in year 1995/1996, where it fell to 18 %) and to values
European
in
below).
countries
Futhermore,
the capacity margin is expected to stay
within the range 18 % to 22 % within the foreseeable
future.

other

chart

(see

180. They also submit that adding mothballed plants in the
capacity margin estimate would not significantly change
the result, as one should take account of the fact that
many mothballed plants could not easily be brought back
to the network, and that therefore,
if one takes only
that could be brought back in
account of plants
reasonable time and within reasonable expenses,
the
capacity margin would increase only to 23,4 % (17).

Table 12

Capacity margin in EU countries in 2002 (1)

Member State

Capacity
(GW)

Peak demand
(GW)

Capacity margin
(%)

Austria

Belgium

Denmark

Finland

France

Germany

17,5

15,5

12,1

16,6

115

117

9

13

6,3

13,2

77

85

94

19

92

26

49

38

(16) This figure includes the import capacity interconnection with
Scotland and France. It does not take into account mothballed
plants.

(17) This figure also includes the import capacity interconnection with
Scotland and France. It includes the Deeside, Killingholme, Tilbury
and Grain mothballed plants.

Greece

Ireland

Italy

Luxembourg

The Netherlands

Portugal

Spain

Sweden

United Kingdom

12

5

74

1,5

20

9,9

45

30,8

73

8,8

4,2

51

0,9

17

7,5

37

26

61

EU-15

564,9

416,9

36

19

45

67

18

32

22

18

20

36

(1) Charts submitted by the UK authorities. These figures exclude intercon-

nections and count hydrocapacity at full rate.

that,

181. Finally, as regards Scotland, the UK authorities submit
that the current capacity margin there is about 71 %,
but
if one excludes the interconnector capacity
from this figure, as would be consistent with the fact
interconnector
that
capacity, then the capacity margin falls to 33 %. They
also submit
there is no mothballed capacity in
Scotland.

for E & W include

figures

that

this

182. The UK authorities conclude from the above that there is
no significant overall
structural overcapacity on the
British electricity market, and that there will be none in
the foreseeable future. They conclude therefore that there
is no need for compensatory measures to the restruc-
turing plan.

c. Capacity reductions would be unefficient and more costly

for the State

183. The UK authorities submit that closing nuclear plants

would have a number of detrimental effects.

184. The first of these aspects would be an increase in elec-
tricity prices, that would range between GBP 1/MWh if 2
GW of BE nuclear power was to be removed from the
network to GBP 3/MWh if all BE nuclear plants were to
be closed. According to the UK authorities, this would
result
ranging from about
in a cost
if 2 GW of BE nuclear power
GBP 350 million p.a.
were
to be removed from the network to about
GBP 1 000 million if all BE nuclear plants were to be
closed.

to customers

185. The second aspect would be an increase of the nuclear
liabilities cost to the tax payers. This increase would be
due to the fact that BE would not be able to fund part of
these liabilities out of its cashflow and to the fact that
some of these liabilities would have their net amount
increased, as they would have to be either processed
earlier than foreseen, in already fully booked reprocessing
facilities or to be stored in an expensive way for years
before they are managed.

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186. The third aspect would be a detrimental

impact on
environment, as a large amount of CO2 free generation
capacity would be removed from the network. The UK
authorities submit that from 5,2 to about 30,9 (18) about
more mtpa of CO2 would be released in the atmosphere.

187. To end with, the closure of nuclear capacity would also
have a detrimental impact on the diversity of fuel supply
in Great Britain,
increasing heavily the UK's
dependence of gas (and to a lower extent coal).

thus

Commission's preliminary analysis

188. First of all, the Commission shares the view that the UK
electricity network is largely independent from the rest of
the Union's network. At this stage,
it seems that the
relevant geographic market may be regional or national
and may be restricted to the UK electricity market in
the guidelines (19). The
application of
Commission notes that this market is not negligible at
Community and at EEA level, nor is BE's share of it
negligible. Point 36, second sentence, of the guidelines
therefore does not apply to the case.

footnote 20 of

189. The Commission also notes that the reduction or limi-
tation of BE's presence on the market is not likely to
create a monopoly or a tight oligopoly on the UK elec-
tricity market, in view of the great level of competition
on the market induced by the existence of the NETA in
E & W, which is by far the largest part of the UK elec-
tricity market.

190. At this point of its analysis, the Commission does not see
any other reason to believe that such a reduction or
limitation could create any other sort of ‘manifest deterio-
ration in the structure of the market’. The Commission
therefore doubts that point 38 of the guidelines could be
applied to the case.

191. In view of the above, the Commission must consider the
effect of
the aid on competitors and examine the
necessity to require compensatory measures to mitigate
this effect, and the form these measures should take, if
any.

a. Impact of the aid on competitors

192. The Commission takes good note of the UK authorities'
reasoning as regards the impact of the restructuring plan
on BE's competitors.

193. In particular, at this stage of its analysis, the Commission
considers that it is indeed likely that BE's nuclear plants'
rank in the SRMC scale will not be affected by the aid.

194. However, the Commission has doubts as to whether one
can conclude from this that the aid has no impact on
competitors.

195. Firstly,

the Commission considers

the
ranking of BE's plants in the SRMC scale is likely not
to be affected by the aid, the value of their SRMC itself
the more
will be diminished as the consequence of

that, even if

(18) Depending on whether only 2GW of BE nuclear capacity or the
whole BE nuclear capacity is withdrawn from the network.
(19) The reasoning which follows could also apply if E & W and
relevant geographic

Scotland had to be considered as
markets in the present case.

the

favourable contracts for the supply of
with BNFL.

fuel concluded

196. As the price at which generators sell their electricity is
linked to their costs, and in particular their SRMC, such
an effect on BE's SRMC may result in a decrease in elec-
tricity market prices, especially if one takes account BE's
rather large market share.

197. The Commission considers that such a decrease in elec-
tricity prices would have a direct effect on competitors.
Indeed, even if their ranking in the SRMC scale and hence
their ability to generate would not be affected by the aid
as the UK authorities claim, the profit they can make out
thus
the electricity they sell would be decreased,
of
affecting at least their cash flow, if not their viability.

198. In addition, the restructuring package is likely to have an
impact on the break-even point of BE and may place BE
in a more favourable situation vis-à-vis its competitors. In
order to be able to assess the extent of the impact of the
aid on BE's competitors, the Commission would need
data on the break-even point of BE before and after the
restructuring in comparison with the break-even point of
its main competitors.

199. On the basis of the above, the Commission doubts that it
can be held that the restructuring aid has no effect on
BE's competitors. It is therefore necessary to examine the
need for compensatory measures.

200. In order to analyse whether compensatory measures are
mandatory or preferable, and what
form they should
take, the Commission must first examine whether there
is a structural overcapacity on the relevant market.

b. Existence of structural overcapacity on the relevant market

201. At this stage of its analysis, the Commission considers
that, in view of the physical specificity of electricity, like
the fact that it cannot be stored, and of the enormous
disturbance that electricity black-outs would create both
is
for the economy and to citizens' everyday life,
relevant to consider that the notion of overcapacity for
the electricity market should include a sufficient capacity
margin such as to allow the network operator to satisfy
the demand under any reasonable scenario of peak
demand that can be expected to arise in winter.

it

202. The Commission also takes good note that,

the value of

in this
respect,
the capacity margin in E & W,
which represents by far the majority of the UK market,
is not particularly high, both as compared to historical
values and to values in other countries. However, the
Commission also notes that
there seems to be little
room to decrease the capacity margin to the slightly
lower value it had in 1995/1996 or to the values it
has in a few other EU Member States.

203. The Commission therefore considers that, at this stage of
its analysis, although it seems that the capacity margin on
is not particularly high as
the UK electricity market
compared to values observed elsewhere,
cannot
totally exclude that there is no structural overcapacity
on this market. This preliminary conclusion would not
be affected in view of table 12 if overcapacity had to be
assessed at EU level.

it

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c. Relevance and form of potential compensatory measures

204. The guidelines state that, where there is a structural over-
capacity on the market, compensatory measures are
mandatory for a restructuring aid to be approved, and
should take the form of an irreversible reduction of
production capacity.
the
Commission notes that it cannot exclude the possibility
In case it
that a slight structural overcapacity exists.
the absence of
would,
compensatory measure in the restructuring plan as
submitted by the UK authorities would certainly be
incompatible with the guidelines provisions.

the Commission notes

In view of

above,

that

the

‘will

nevertheless

should be required’.

then the Guidelines provide that

205. If, on the other hand, there is no structural overcapacity
the
on the market,
examine whether
Commission
compensatory measures
In this
case, however, compensatory measures do not have to
irreversible reduction of production
take the form of
capacity, but may take other forms,
like for instance
the transfer of assets to other operators. In any event,
the type of compensatory measures has to be determined
depending on the effects of such measures on the
competition situation.

206. In the present case,

in view of

the high degree of
the very large
competition on the market, and of
amount of aid to be granted, the Commission doubts
that
any
be
could
compensatory measure being offered (20).

approved without

the

aid

207. The Commission acknowledges that such compensatory
measures would however have to take account the need
to preserve the necessary capacity margin in the UK.

arguments

208. To end with, the Commission takes note of the UK auth-
regard
of
orities'
as
compensatory measures
in the form of closure of
nuclear plants in particular as regards environmental
purposes and security of supply.

inefficiency

the

209. The Commission however has doubts

and

that

plant,

these
arguments can be considered as relevant in the present
context. Besides, the Commission notes that they apply
only to nuclear plants, and therefore not to Eggborough's
coal-fired
to
that
compensatory measures in the form of plant closures,
and therefore not
forms of compensatory
measures. To end with, the Commission considers that
the need to adopt State support measures to address
those specific policy considerations has not sufficiently
been argued, developed and proved by the UK authorities
in their notification.

to other

apply

only

they

anticipated from the Community's viewpoint. Therefore,
the investors must make a contribution to the restruc-
turing plan from their own resources. Moreover, the way
in which the aid is granted must be such as to avoid
providing the company with surplus cash which would
be used for aggressive, market-distorting activities not
linked to the restructuring process.

Opinion of the UK authorities

subject

liabilities

the nuclear

the aid are

the value of

211. In their notification, the UK authorities write that the
estimates of
to
considerable uncertainty. They refer in particular to the
aid related to the discharge of nuclear liabilities. Both the
costs of
relieved and BE's
contribution to those costs are highly uncertain. The
discharge of
the liabilities will occur over extremely
long time periods. For example, BE would not expect
to begin dismantling an AGR until at least 85 years
after a station has ceased generating, while spent fuel
management must continue indefinitely.
In addition,
there are many tasks, including the decommissioning of
AGRs, for which there is to date no direct experience.

212. The UK Government has therefore notified the classes of
liabilities and expenditure required to discharge those
liabilities rather than the current estimated values of the
cost of discharging those liabilities. The form of the aid is
fixed and cannot be altered going forward. In the short
term, the cost to the UK Government is estimated to
average between GBP 150 million to GBP 200 million
per annum for the next 10 years and to fall thereafter.
They come to a net present value of GBP 3 298 million
and have estimated the future cash payments as being
equal to GBP 10 402 million. The UK authorities have
added that despite the uncertainty relative to the amount,
the aid can be considered limited to the minimum
necessary for the following reasons. When BE's financial
difficulties
the UK
acute
Government was faced with three possible scenarios:

autumn,

became

last

— a solvent restructuring of BE,

— sale of stations to a third party, and

— UK Government ownership following insolvency

proceedings.

213. In assessing these scenarios, the UK Government had the

following objectives:

— the need to preserve safety of

stations and the safe management of
liabilities,

the nuclear power
the nuclear

3.2.4. Proportionality to restructuring costs and benefits

210. The amount and intensity of the aid must be limited to
the strict minimum needed to enable restructuring to be
related to the benefits
undertaken and must be

— maximising the value of the stations to the economy
over the rest of their useful lives, as well as their value
as generating capacity which avoids CO2 emissions,
and

(20) In this sense measure F cannot be considered as a compensatory

measure in line with point 39 of the guidelines.

— minimising the amount of aid.

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214. The aid value is difficult to precisely estimate. According
to the UK Government, the latter has sought to balance
the need to minimise the total amount of aid with the
need to ensure financial
robustness against plausible
downside risks, such as price movements or unplanned
station outages. The UK Government has further sought
to avoid the creation of perverse incentives on the
management of
the business through the removal of
liabilities and has put in place more robust arrangements
for the long-term management of those liabilities. The UK
Government has also acted to avoid the costs and
disruption to the business of insolvency.

the

215. Finally, the UK Government argues that since the aid
liabilities only
related to the discharging of nuclear
relieves historically incurred costs, BE carries all
its
ongoing costs. There is, therefore, no ongoing subsidy
to BE.
It adds that the opted out solution takes into
existing tension between limiting the
account
amount of aid and ensuring robustness to downside
risks. The means by which that tension is resolved is
the provision for BE to make payments under
the
in perpetuity, normally equating
clawback mechanism,
free cash flow into the NLF. The
to 65 % of
objective of
that BE's
contributions to the NLF are increased if BE's financial
performance improves.

its
this provision is

to ensure

to ensure that BE runs

216. Under the arrangements for the operation of the NLF, the
UK Government proposes to put in place a series of
controls and incentives
its
nuclear stations as though it were exclusively responsible
for the discharge of the nuclear liabilities notwithstanding
the aid package. These controls and incentives should
ensure,
for example, that BE is not enabled to make
changes to operating practices which increase operating
revenues but result in higher nuclear liabilities and thus
additional expenditure borne by the UK Government.

Commission's preliminary analysis

217. The Commission is of the opinion that it is not possible
to conclude at this stage that the aid is limited to the
minimum within the meaning of points 40 and 41 of the
guidelines. As previously said the Commission doubts
that Measures B, C and G do not contain any aid
element and cannot conclude that the aid package by
the UK Government is limited to measure A (nuclear
liabilities). Without knowing the extent of
the aid
it is therefore not possible to conclude that
package,
the aid is limited to the minimum.

218. Besides, as laid down by the UK Government, the value
of measure A is difficult to estimate since both the costs
of the nuclear liabilities relieved and BE's contribution to
those costs are unknown. For the liabilities related to
spent fuel, the totality of the costs will be taken over
by the UK Government. The clawback mechanism
which determines BE's participation in the funding of
the new NLF relates to the decommissioning liabilities
and contains a certain uncertainty as to the level of
funding by BE and the level of shortfall eventually to
be covered by the UK Government.

219. Consequently, in particular, in view of the uncertainty as
regards their extent and value, the Commission can not
determine whether
are
proportional to the costs and benefits of the restruc-
turing.

aid amounts

granted

the

3.2.5. Full implementation of the restructuring plan

220. The company must

fully implement

the restructuring
plan submitted to the Commission. The UK Government
has committed to fully implement the restructuring plan
if approved.

3.2.6. Monitoring and annual report

221. If the aid package is approved, the UK Government is
committed to providing to the Commission a report not
the aid
later than six months after the approval of
the
so that
package and thereafter annual
Commission can monitor BE's progress until
the
position has
at which the
stabilised to a point
Commission no longer feels the need for further reports.

reports

3.2.7. Other provisions of the Guidelines

222. Finally, given the large amount of the aid, the sector
the
concerned, and other
should not make use in
if
Commission doubts
particular of points 42 and 44 of the guidelines which
have not been referred to by the UK authorities.

specificities of
it

the case,

3.3. Euratom Treaty

223. According to the UK authorities,

the aims of

the
measures are, amongst others, to preserve the safety of
nuclear power stations, to ensure the safe management of
the nuclear liabilities, to enhance security of supply by
maintaining diversity of fuel sources in Great Britain as
well as to avoid carbon dioxide emissions.

224. It appears that

time

creating the

these objectives are pursued by the
Euratom Treaty. This Treaty was agreed notably to
guarantee a certain security of supply (21) while at the
same
safety and
security. As it was confirmed by the Court of Justice,
nuclear safety is a Community competence which must
be linked to the protection against the dangers arising
laid down in Article 30,
from ironising radiations,
Chapter 3, Euratom Treaty,
relating to health and
supply (22).

conditions of

225. The Commission needs to check whether the measures
may be necessary to fulfil these objectives and whether
they distort or threaten to distort competition in the
internal market. Article 305(2) of the EC Treaty lays
down that,
this Treaty shall not
the Treaty establishing the
derogate from those of
European Atomic Energy Community’. However, at this
stage, the UK authorities have not sufficiently explained
whether and how the measures take account of them.

‘the provisions of

(21) See in particular, its recital 3 where it claims, ‘Resolved to create
the conditions necessary for the development of a powerful nuclear
industry which will provide extensive energy resources, . . .’.
(22) Ruling of the Court of Justice dated 10 December 2002, Case

C-29/99.

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IV. CONCLUSIONS

226. In the

the

light of

the EC Treaty,

foregoing considerations,

the
Commission, acting under the procedure laid down in
Article 88(2) of
requests the United
its comments and to provide all
Kingdom to submit
such information as may help to assess the aids/measures,
within one month of the date of receipt of this letter. It
requests your authorities to forward a copy of this letter
to the potential recipient of the aid immediately.

227. The Commission wishes to remind the United Kingdom
that Article 88(3) of the EC Treaty has suspensory effect,
and would draw your attention to Article 14 of Council
Regulation (EC) No 659/1999, which provides that all
unlawful aid may be recovered from the recipient.

228. The Commission warns the United Kingdom that it will
inform interested parties by publishing this letter and a
meaningful summary of it in the Official Journal of the
European Union. It will also inform interested parties in

the EFTA countries which are signatories to the EEA
Agreement, by publication of a notice in the EEA
Supplement to the Official Journal of the European Union
and will
inform the EFTA Surveillance Authority by
sending a copy of this letter. All such interested parties
will be invited to submit their comments within one
month of the date of such publication.

229. This decision is without prejudice to the application of
the Euratom Treaty. As already stated, the measures in
question, notably measures A and B, have to be assessed
in view of the objectives of the Euratom Treaty and in
view of its possible impact on competition in the internal
market. Therefore, the Commission requests the United
Kingdom to provide all such information as may help to
assess the measures, notably measures A and B, in the
light of the objectives of the Euratom Treaty and in view
its possible impact on competition in the internal
of
market.’