British Energy seals Southern alliance

British Energy, the recently privatised nuclear power operator, has secured a long-term alliance to supply power to Southern Electric, the first such deal between a regional electricity company and generator.

The 15-year agreement, expected to be one of several such alliances by British Energy, gives the group a head start over the two other big power generators in England and Wales, PowerGen and National Power, as the industry scrambles to sign up contracts before the market is opened to full competition in 1998.

National Power had revealed earlier this week that it was negotiating with three RECs to create a broad supply alliance which could also include one of the UK's leading supermarket chains. The British Energy deal extends a one-year partnership under which Southern buys about 15 per cent of the power generated by the nuclear group in England and Wales. The new contract in likely to significantly increase the scale of the power purchases, though neither company would disclose the predicted figure, or the price at which the electricity would be supplied. Dr Robert Hawley, the chief executive, said the aim was to insulate British Energy from the volatility of prices in the electricity pool, the system which sets market prices. Because nuclear power stations have to generate power continuously they act as so-called "price takers" in the pool mechanism, while prices are mostly set by National Power and Powergen.

He also disclosed that negotiations were taking place with other RECs. "We don't want to get into the situation where all 100 per cent of our output is contracted in this way, but the deal isn't exclusive to Southern Electric. We are talking to other regional electricity companies," Dr Hawley said.

However Dr Hawley dismissed the idea of taking equity stakes in RECs or buying one of the few remaining independent power suppliers outright. "We are simple-minded people. I don't want to buy a REC and we've consistently said that."

Informal talks were also taking place with US power utilities aimed at securing contracts to help improve efficiency in nuclear power plants in America.

British Energy yesterday announced a sharp reduction in post-tax losses in the six months to the end of September to pounds 32m, compared with pounds 169m during the same period in 1995. This excludes one-off gains and losses associated with the privatisation and an pounds 813m payment the previous year for the development of the Sizewell B power station.

The improvement came from a 12 per cent rise in the amount of electricity generated through better efficiency and a 10 per cent reduction in operating costs.