Energy decision raises eyebrows

Timing is all in the case of price-sensitive information, and that is why British Energy's decision to start the closure of two reactors late on Tuesday night should raise eyebrows. This was less than a day ahead of another rather important closure date, of the offer to private investors of shares in the company.

British Energy and its advisers could fairly point out that there is a section in the prospectus about weld cracks, which mentions in some detail the work at Hunterston B and elsewhere, though not on the additional reactor closures on Tuesday. Furthermore, they could say in all fairness that the price of the shares is not set by private investors but by the book-building exercise among institutions which ends on Friday night.

If the closures, to inspect for more weld cracks, prove to be price-sensitive, institutions have time to think about it and adjust their offers. The likelihood is that they will judge that nothing has changed.

But whatever the institutions think about the crack problem as they mull it over, the fact is that private investors who have lodged their cheques are tied to the institutions coat-tails on price and cannot now withdraw. British Energy should have told them before noon yesterday, not made the announcement hours afterwards.

Do the additional closures really matter? British Energy and its advisers did a clever job last year of steering the City debate about the company's value away from what might be called traditional nuclear risks such as meltdowns, decommissioning costs and waste disposal. The investment debate centred instead on three areas familiar to any operator of large electrical plants: station operating lives, the price of electricity in the pool and the technical limits on output.

Of these, most people thought that the possibility of a collapse in the pool price of electricity was the worst risk, and this may explain a substantial part of the fall in the expected value of British Energy. There was rather less questioning about load factors, even though these are vital to the economics of nuclear power, which must run as near flat out as possible to make money.

BZW, advisers on the flotation, assumed load factor would rise very sharply indeed, by nearly 10 percentage points from last year's 73 per cent, as the new Sizewell station came on stream and improvements were made to the refuelling of the older advanced gas cooled reactors. A 5 percentage point variation in load factor changes the company's valuation by as much as pounds 700m. It so happens that throughout their lives, the AGRs have had a constant history of minor technical problems that have affected output.

In the short term, the shares have been priced to sell, and there may be a quick profit to be made. Owning British Energy shares as a long- term investment is rather different: it will require great faith in the company's ability to keep these ramshackle power stations on line at high output for another 10 to 20 years. The search for more weld cracks is a timely reminder of this risk.

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