Time for a power surge

AMERICAN football fan Bill Coley has in recent weeks found himself strangely fascinated by flippers and googlies, in-swingers and out-swingers. As a native of Charlotte, North Carolina , the chief executive of nuclear firm British Energy admits he was seduced like the rest of the nation by the cricket series between England and Australia. Not that he had a clear idea of what was going on.

Relaxing in a conference room in Edinburgh's Murrayfield Stadium on Thursday, Coley joked: "I do not understand cricket. But then some of my colleagues who watch it say they don't understand it either."

Coley's attention is more closely focused on the smooth-running of BE's eight nuclear power stations, including two in Scotland - Torness in East Lothian and Hunterston B in Ayrshire - and one coal-fired plant at Eggborough in Yorkshire.

"First, we have to improve our operations and return to top tier performance," he says. "Second, we have to improve our financial position, and third, we will seek life extensions for our assets."

It's a tall order for a man who follows two previously ousted chief executives - Robin Jeffrey and Mike Alexander - and is a relative unknown on these shores. But he will draw on his long experience at Duke Power, part of the $27bn revenue Duke Energy giant, to turn round BE, which survived a financial meltdown last year only with the support of the government.

He also faces a well organised anti-nuclear lobby that will present a fearsome opponent if and when the British government decides to go ahead with an expansion of nuclear power, an issue over which Coley diplomatically tiptoes. He claims no inside knowledge, but the industry believes he has not been brought over from America just to keep the BE seat warm.

In the short term he will endeavour to shake off the company's reputation as a "basket-case" after shocking the market in 2002 with a warning that it was facing insolvency. At the time, the former FTSE-100 company blamed a combination of high fixed costs at its stations and low power prices, as well as a high level of unscheduled outages - or power failures - for its predicament.

Faced with the prospect of one of the country's most strategically important businesses falling into administration, the government stepped in with a £5bn rescue package. A controversial £1bn debt-for-equity swap was arranged - resulting in millions of pounds of shareholders' funds being wiped out - and BE re-listed on the stock market in January. But BE's ageing nuclear power plants are also facing decommissioning, and the industry awaits a decision on whether the government will opt to replace them.

BE said last week that the lifespan of Dungeness B in Kent would be extended by ten years until 2018. The move safeguarded 550 jobs and the £30m annual contribution to the local economy, as well as allaying some concerns about the UK's future energy supply.

But the news alarmed environmentalists, who say the UK's ageing nuclear stations are unsafe. BE added to concerns last week when it said it was shutting its two Hartlepool reactors due to safety concerns, as well as units at Heysham in Lancashire - proof, environmentalists say, of a disaster waiting to happen.

Coley points out that the decision to extend the life of a generator is not made by BE alone, and that the Nuclear Decommissioning Authority (NDA) has the final say on the matter. BE is spending between £230m and £250m in the current financial year and the same next year on repairs that will help sustain the life span of its stations. Coley says, with more than a hint of hopefulness, that the life of "every station can be extended" if it is operating properly.

Nuclear supporters and those who see the status quo as unsustainable say the long-term future energy needs of the country make it inevitable that new nuclear stations will be built. While the government insists publicly that no decision has yet been taken, many believe it is a question of when, not if.

Fears of the lights going out as the UK's oil and gas reserves become depleted, along with the prospect of having to import most of the nation's gas from countries such as Russia, are forcing the government's hand.

Renewables such as wind and wave will play a part in meeting energy demands, but nuclear plants - which emit no greenhouse gases into the atmosphere at any stage in their life cycle - are seen by supporters as the only viable alternative.

Coley, though, says building new generators is not a "fundamental issue" for BE at present, and insists he is not putting any pressure on Whitehall. "We are not lobbying government at all. The position we have taken is that we have no birth-right. If they ask us for our opinion or our answers, then we will respond. Having said that, our objective is to be so good at what we do that the government couldn't consider a future in nuclear without British Energy."

But Coley says the time is approaching when tough decisions will have to be taken. "The UK has established a pretty aggressive goal for reducing carbon emissions with Kyoto. If you look at the sources of energy generation available, it would seem that nuclear is an attractive alternative from the standpoint of emissions-free. I consider nuclear an indigenous supply of energy. If I was in government, I would want a balanced energy policy of nuclear, gas, coal-fired and renewables."

As for those concerned over radioactive waste - who include first minister Jack McConnell - Coley adopts a view some may regard as complacent and others as pragmatic.

"[Waste disposal] is a policy issue for all governments and I think all these governments have to decide is where the repository will be. The technology of being able to manage [the waste] is not really an issue." One legacy of the government's bail-out of BE in 2002 inherited by Coley is a complicated financing system, which results in 65% of BE's earnings above a certain level immediately being paid to the Nuclear Decommissioning Fund.

The fund is supposed to cover the billions needed to pay for the time-consuming and costly process of decommissioning the nuclear generators. But it also makes it hard for investors to value BE. Since re-listing, BE's shares have risen from 286p to close at 476.5p on Friday and, like the proverbial phoenix, the company is poised to re-enter the FTSE 100 in the next quarterly review.

Citigroup predicts pre-tax profits of £831m on revenues of £2.74bn in 2006, but recently described BE as "the most difficult stock to value in our European coverage list" because of the scale of its restructuring and because of the influence that fluctuations in wholesale power prices has on its shares.

Coley says he can give no assurances to shareholders that wholesale power prices - a major part of BE's problems three years ago - will not trouble the group again in the future.

"You never know what the world holds for us," he says. "But I will say that we are profitable and I am pleased with the way we manage risk in the company.

"If we meet the operational objectives for the company, I feel confident that we can be competitive in any energy market in the UK. I have no idea about future energy prices. I would be surprised if future energy prices will ever be as low as they have been in the past."

AWAY FROM THE DAY JOB

Family: Married, with a son and a daughter, both of whom live in the US.

Sport and recreation: "I play golf. I'm not very good but I love it anyway.

"I enjoy American football and soccer and I like rugby. I really want to go to a rugby match.

"I really enjoy just getting out of the city by bus or train. There's so much to see and do. This is a beautiful country."

UK vs US: "There are some differences. One of them is that I found London to be very expensive. I do my best to think of everything in pounds, and never in dollars."