20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

¨ Annual report pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 (Fee required)

or

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 2004 (No Fee required)

or

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from N/A to N/A (No Fee required)

Commission file number 1-14990

BRITISH ENERGY PLC

(Exact Name of Registrant as Specified in Its Charter)

Scotland

(Jurisdiction of Incorporation or Organization)

3 Redwood Crescent, Peel Park, East Kilbride, G74 5PR

(Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Ordinary shares of 44 28/43p each (“ordinary shares”)	New York Stock Exchange*
American Depositary Shares (“ADSs”) each of which represents 75 ordinary shares	New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:  None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:  None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary shares of 44 28/43p each	620,362,444 shares
“A” shares of 60p each	80,908,247 shares
Non voting deferred shares of 60p each	74,752,351 shares
Non-voting special rights redeemable Preference share of £1	1 share

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

(1)  x    (2)  x

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ¨        Item 18  x

* Not for trading but only in connection with the registration of ADSs pursuant to the requirements of the Securities and Exchange Commission.

TABLE OF CONTENTS

Introduction		1
Exchange Rates		1
Technical Terms		1
Information Regarding Forward-Looking Statements		1
Non-GAAP Financial Measures		2
Item 3.	Key Information	3
Item 4.	Information On The Company	29
Item 5.	Operating And Financial Review And Prospects	67
Item 6.	Directors, Senior Managers And Employees	103
Item 7.	Major Shareholders And Related Party Transactions	113
Item 8.	Financial Information	115
Item 9.	The Offer And Listing	116
Item 10.	Additional Information	117
Item 11.	Quantitative And Qualitative Disclosures About Market Risk	142
Item 13.	Dividend Arrearages And Delinquencies	145
Item 14.	Material Modifications To The Rights Of Security Holders And Use Of Proceeds	146
Item 15.	Controls And Procedures	146
Item 16.	Reserved	147
Item 16a.	Audit Committee Financial Expert	147
Item 16b.	Code Of Ethics	147
Item 16c.	Principal Accountant Fees And Services	147
Item 17.	Financial Statements	148
Item 18.	Financial Statements	148
Item 19.	Exhibits	148

Introduction

In this annual report, except as otherwise specified, “British Energy”, the “British Energy Group”, the “Company”, the “Group”, “we”, “us” or “our” refer to British Energy plc and its subsidiaries and any of their respective predecessors in business, as the context may require. We were incorporated under the Companies Act 1985, as amended (the “Companies Act”) on December 13, 1995.

Our registered office is located at 3 Redwood Crescent, Peel Park, East Kilbride, G74 5PR, Scotland, and our telephone number is 011 44 1355 262000. Our website address is www.british-energy.com. The information on our website is not a part of this annual report.

Exchange Rates

We publish our financial statements in pounds sterling. In this annual report, references to “pounds sterling”, “£”, “pence” or “p” are to UK currency, references to “US dollars”, “US$” or “$” are to US currency and references to “Canadian dollars”, or “C$” are to Canadian currency. Amounts in this annual report stated in US dollars, unless otherwise indicated, have been translated from pounds sterling solely for convenience and should not be construed as representations that the pound sterling actually represent such US dollar amounts or could be converted into US dollars at the rate indicated or any other rate. The Noon Buying Rate for pounds sterling on September 24, 2004 was £1.00 = $1.8031. For certain information about exchange rates between pounds sterling and US dollars, see “Item 3. Key Information—Exchange Rates”.

Technical Terms

This annual report refers to certain technical terms used to measure output of electricity and the production of electricity over time. The basic unit for the measurement of electricity output is a kilowatt (“kW”). The basic unit for the measurement of electricity production is a kilowatt-hour (“kWh”); that is, one hour of electricity production at a constant output of one kilowatt. One thousand kilowatts are a megawatt (“MW”) or, in terms of production, a megawatt-hour (“MWh”). One thousand megawatts are a gigawatt (“GW”) or, in terms of production, a gigawatt-hour (“GWh”). One thousand gigawatts are a terawatt (“TW”) or, in terms of production, a terawatt-hour (“TWh”).

Information Regarding Forward-looking Statements

This annual report contains certain “forward-looking” statements as defined in Section 21E of the US Securities Exchange Act of 1934. Such forward-looking statements include, among others:

• statements concerning our proposed restructuring and the effect of our proposed restructuring on our business and financial condition or results of operations,

• the anticipated development of the UK electricity industry, the future development of regulation of the UK electricity industry, the effect of these developments on our business, financial condition or results of operations, and

• other matters that are not historical facts concerning our business operations, financial condition and results of operations.

These forward-looking statements involve known and unknown risks, uncertainties and other factors which are in some cases beyond our control and may cause our actual results or performance to differ materially from those expressed or implied by such forward-looking statements. For a discussion of some of the risks associated with these forward-looking statements, see “Item 3. Key Information—Risk Factors”. Due to the uncertainties and risks associated with these forward-looking statements, which speak only as of the date hereof, we are claiming the benefit of the safe harbor provision referred to above.

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Non-GAAP Financial Measures

EBITDA and EBITDA from Continuing Activities

EBITDA means earnings before interest, taxes, depreciation, amortization and related exceptional items. EBITDA and EBITDA from continuing activities are supplemental measures of our performance and liquidity that are not required by, or presented in accordance with, UK GAAP or US GAAP. EBITDA and EBITDA from continuing activities are not measurements of our financial performance or liquidity under UK GAAP or US GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with UK GAAP or US GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.

We present EBITDA and EBITDA from continuing activities because we believe that they are frequently used by certain of our investors and other interested parties in evaluating our financial performance. EBITDA and EBITDA from continuing activities can facilitate comparisons of operating performance from period to period and company to company by eliminating potential differences caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses), the age and booked depreciation and amortization of assets (affecting relative depreciation and amortization of expense), extraordinary items and minority interests.

Nevertheless, EBITDA and EBITDA from continuing activities have limitations as analytical tools, and you should not consider them in isolation from, or as a substitute for analysis of, our financial condition or results of operations, as reported under UK GAAP. Some of these limitations are:

• EBITDA and EBITDA from continuing activities measures do not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

• EBITDA and EBITDA from continuing activities measures do not reflect changes in, or cash requirements for, our working capital needs;

• EBITDA and EBITDA from continuing activities measures do not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and EBITDA from continuing activities measures do not reflect any cash requirements for such replacements;

• EBITDA and EBITDA from continuing activities measures do not reflect exceptional income/expense or any other non-cash items;

• other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure.

Because of these limitations, EBITDA and EBITDA from continuing activities should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our UK GAAP results and using EBITDA only as supplemental measures.

Realized Price

We calculate our realized price for electricity by dividing UK turnover (net of energy supply costs and miscellaneous and exceptional income) by total output. Realized price is not derived in accordance with UK GAAP or US GAAP and should not be exclusively relied upon when evaluating our business. Realized price constitutes a non-GAAP financial measure because we eliminate energy supply costs (i.e., the cost of transmitting electricity to our customers) and other exceptional items from total turnover. We make these adjustments to turnover because we believe that they allow our management team and our investors to better understand the net price that consumers are paying for our electricity.

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ITEM 3.    KEY INFORMATION

RISK FACTORS

OPERATING RISKS

If we do not find alternative sources of income as our power stations start to close we may not be able to recover our costs from our sales revenue.

Five of our Advanced Gas Cooled Reactor (“AGR”) power stations (“AGR power stations”) are, based on current scheduled accounting closure dates, due to close by 2014. This will reduce our generating capacity by 61.5% of our current generating capacity. There can be no assurance that station lifetime extensions will be achievable at any of our AGR power stations or at our Pressurized Water Reactor (“PWR”) power station (“PWR power station”). Our ability to find alternative sources of income is restricted by the compensatory measures we have agreed to undertake in connection with the European Commission’s approval of the State Aid elements of the Restructuring (as defined in Item 4) and certain other agreements to be entered into pursuant to the Restructuring. If our remaining assets do not generate income in line with our expectations (for example as a result of earlier than anticipated closure of a nuclear power station) our costs (including the costs of maturing pension schemes) may exceed our revenue and this may adversely affect our financial results and our ability to pay dividends in the future.

Our future profitability is dependent upon several factors, some of which are outside our control.

Costs structure and variable electricity prices

The operation of our nuclear power stations is characterized by high fixed costs. Additionally, some of our costs are not borne by our non-nuclear competitors because they are unique to the nuclear power generation industry.

Our ability to generate sufficient turnover at sufficient margin to cover our fixed costs is dependent, in part, on favorable electricity prices and our sales and trading strategy. Electricity prices depend on a number of market factors. Because our costs are primarily fixed in nature, they cannot be reduced in periods of low electricity prices. Therefore, in these circumstances it is possible that we may not produce sufficient revenue from our electricity sales and/or trading to cover our generation costs.

In addition, increasing vertical integration in the electricity sector is likely to affect the liquidity of the markets in which we trade and the volatility of those markets. This in turn may affect the revenue from our electricity sales or trading and may adversely impact our proposed trading going-forward.

Unplanned outages

Unplanned outages of our nuclear reactors result in lost generation and, due to our contractual obligations to deliver electricity at pre-established prices and quantities, we may, therefore, be required to purchase replacement electricity volume in the open market which may be at unfavorable prices. Given the complexity of operating nuclear power stations, we do not believe that we will be able to completely eliminate the risk of unplanned outages and we cannot predict the timing or impact of these outages with any certainty.

Therefore, there is no assurance that we will be profitable or generate sufficient cash to fund our operations or to meet our financial obligations as they fall due. For further risks relating to unplanned outages see “Item 3. Risk Factors—Unplanned outages at our nuclear power stations could adversely affect our revenues and profitability”.

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Unplanned outages at our nuclear power stations could adversely affect our revenues and profitability.

Historically, our nuclear output has been adversely affected by unplanned outages and unplanned reductions in output. We believe that the loss of output is indicative of a deterioration of the materiel condition of plant over time in part caused by inadequate investment over the last few years which has resulted in an increase in our maintenance backlog and failure to carry out required maintenance on a timely basis.

Further, some of our unplanned outages flow from human errors in the operation and maintenance of our plant.

Plant unreliability can result in significant imbalance costs being incurred. In the medium term we have contracted to supply most of our electricity to customers at pre-agreed prices and volumes. If our stations fail to produce the amount of electricity that we have contracted to supply or have otherwise already balanced in the wholesale market, we may have to enter into the short-term market or accept the prices prevailing in the balancing mechanism to meet any such shortfall in output. Prices in the short-term market and imbalance mechanism may be very high, particularly in periods of tight capacity margins for generating plant in the UK, and the unplanned outages of our stations may raise demand and therefore raise prices in these markets.

The Performance Improvement Program (“PIP”) may be constrained by our cash resources and there is no certainty that the hoped for benefits of PIP will materalize. This may adversely affect our prospects in the long term.

Although we are attempting to improve our plant reliability through increased investment and the implementation of the PIP, there is no guarantee that we will be able to identify and/or remedy the causes of plant unreliability. Even if we can identify the causes, there is no certainty that we will be able to implement cost effective solutions or PIP in such a way as to maximize the potential benefits that PIP may afford due to the requirements to maximize the output of our plants. The amount we are able to spend on PIP will be affected by the availability of our cash resources and, in the future in certain circumstances, may be restricted or prohibited by our arrangements with the Nuclear Liabilities Fund (“NLF”). Furthermore, our ability to undertake the proposed capital expenditure may be affected by requirements to undertake urgent remedial work at one (or more) of our nuclear power stations.

In addition, our insurances contain standard exclusions and restrictions and the material damage and business interruption cover does not therefore provide cover for damage caused by, for example, losses due to erosion, corrosion, stress corrosion or cracking. Consequently we may not be able to claim under our material damage and business interruption cover in such circumstances.

Our nuclear stations utilize sea water for condensing the steam from the turbines and for cooling the reactor pressure vessel and turbine-generator auxiliaries. These systems are essential to support generation and a failure of them could result in lost generation, adversely affecting our revenues and profitability.

In 2003, the failure of a cast iron pipe carrying sea water at Heysham 1 resulted in unplanned losses of some 3.2 TWh. Hunterston B, Hartlepool and Hinkley Point B stations also use cast iron pipe work for carrying sea water.

To address the problem, we have developed a strategy to systematically replace the existing cast iron pipe work with steel pipe work coated with a corrosion resistant barrier at all these stations. The corrosive nature of sea water may affect other parts of our pipe work systems, although inspection and maintenance strategies are in place to mitigate this risk. This program of work is planned to take place

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in 2004/5, 2005/6 and 2006/7 and we have made allowances for additional outages to enable this work to take place. We cannot assure you that there will not be further unplanned losses if any failure occurs before the planned program of work is completed.

Problems of damaged pre-stressing tendons at certain of our AGR power stations could negatively affect our profitability or revenues.

At our AGR stations, steel wires (tendons) are used to maintain the integrity of the concrete pressure vessel. We have recently identified limited corrosion in a small number of these pressure vessel pre-stressing tendons at one of our AGR power stations. The access for repair to these tendons is straightforward, and hence repairs are considered to be undemanding.

However, similar steel pre-stressing wires are used to assure the integrity of the boiler closure units (which are housed within the concrete pressure vessels) at two of our AGR stations. As a result of the discovery of corrosion on the tendons (as described above), the Nuclear Installations Inspectorate (“NII”) has concluded boiler closure unit steel wires could also suffer from corrosion. These boiler unit wires are more difficult to inspect.

At three of our reactors (at two of our nuclear power stations) we are presently inspecting the boiler closure unit tendon top anchorages and testing to show that the tendons are intact and, as far as can be determined, free from corrosion. We expect to return these three reactors to service on completion of this work in September and October 2004.

We may wish, or be required by the NII to make, further more detailed inspections at these three reactors. Such inspections may be complex and invasive and may result in a substantial loss of output, which could adversely affect our financial condition. Until these inspections are completed we cannot give assurances as to the length of outages or the cost of work that may be required to complete the inspections or repairs.

A significant engineering fault or a design flaw at one of our power stations, or one which is generic to a class of nuclear plants, could decrease our revenues and increase our costs.

A major engineering fault at one of our nuclear power stations could result in the closure of that station ahead of its expected closure date. Furthermore, engineering faults or safety risks arising from a design problem that is generic to a particular type of nuclear plant could result in the closure of all our nuclear power stations of the same nuclear plant design ahead of their expected closure dates. The early closure of one nuclear power station or any one type of nuclear power station would result in a loss of planned future output and result in costs associated with the closure of the affected nuclear power station or stations.

To deal with the potential of a major engineering fault, we have extensive inspection and testing programs in place in order to evaluate the physical condition of our nuclear power stations. These programs periodically identify certain technical issues for resolution. However, there is no assurance that our inspection process will identify all significant problems and the identification of technical issues with respect to our nuclear power stations may require us to incur significant expenditure for repairs or replacement of parts or equipment. This may result in lost output due to the outages necessary to complete such repairs or replacements.

Problems of graphite core brick cracking and reduced boiler life could negatively affect our profitability and the lifetime of our AGR power stations.

Graphite core brick cracking and reduced boiler life could lead to prolonged outages for testing and, potentially, early station closures at certain of our AGR power stations. These risks are explained in greater detail below.

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Graphite core brick cracking

The graphite cores in the AGRs are made up of a number of graphite bricks arranged in layers. Over the course of the nuclear generation process, the graphite bricks suffer from degradation. Analysis has shown that this degradation can result in a significant number of the graphite bricks developing single or multiple cracks. We are not aware of any technique for eliminating the cracks. Such cracking can lead to the distortion of the core structure and the reduction of the AGRs’ operational capacity.

While our understanding of this issue continues to develop, there is uncertainty as to the level of tolerance of graphite bricks to multiple cracks that can be demonstrated and which may be acceptable to the NII. As such, the development of a safety case, and therefore the continued operation of the reactor, may not be possible. The potential impact of this risk is that currently assumed station lifetime may not be achieved, particularly at Hinkley Point B, Hunterston B, Heysham 2 and Torness, and extensions to station lifetime at these stations may not be possible.

We carry out periodic inspections on the AGR cores and continue to develop safety cases to attempt to demonstrate the tolerance of graphite core brick cracking. However, until we fully understand whether it is possible to devise ways to control or minimize further graphite core brick cracking (if at all), our plants may require more frequent inspection to support our safety cases, which could result in prolonged statutory or unplanned outages or a refusal by the NII to permit us to operate a particular reactor.

Boiler life

The boilers at our AGR power stations consist of multiple steel tubes over which the hot reactor gas flows in order to boil the water that flows through the tubes. Failure of any of the boiler tubes could result in prolonged outages in order to complete repairs or lead to station closure.

If a boiler tube fails, action is taken to permanently seal-off the leaking tube from the incoming water supply. This may result in a permanent reduction in boiler performance and, consequently, our ability to generate electricity if a material number of tubes are sealed. If, ultimately, we are not able to repair the boiler tubes, it may not be possible for us to maintain a safety case for the continued operation of that reactor and the currently assumed station lifetimes may not be achieved.

In addition to the general problem of boiler tube leaks at each of our AGR power stations, specific design issues at some of our stations could lead to further significant threats to boiler life. The design adopted for these stations is unique in that a central cylindrical segment called a spine supports the boiler. The spine construction incorporates the main water inlet and steam outlet, each fabricated from different materials selected to suit the specific operating conditions. The various elements that make up the spine are welded together to form one fabricated section. A small number of these welds are susceptible to high temperature re-heat cracking. Failure of these welds could result in collapse of the boiler with consequential damage to the reactor pressure vessel and other reactor internal components. The boiler spine design and layout makes physical inspection or repair of the vulnerable welds difficult. The safety case for boiler operations is therefore extremely complex and has required us to develop novel methods of analysis to establish the safety justification. If further material analysis and remote inspection fails to strengthen the current safety case, this could shorten station life at some of our power stations.

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Our Hartlepool and Heysham 1 stations may suffer additional outages as a result of flooding threats.

The potential for turbine hall flooding events at our Hartlepool and Heysham 1 stations resulting in consequential flooding of the reactor buildings was highlighted by the cast iron pipework failure at Heysham 1 in 2003.

It is possible that other unplanned incidents (in particular the possibility of turbine-alternator disintegration) could result in turbine hall flooding. At Hartlepool and Heysham 1 this could also result in flooding of the reactor buildings and may interfere with the electrical equipment that supports the gas circulators causing the gas circulators to become inoperable. Our current safety case requires that the gas circulators are operable when a reactor is shutdown, depressurized and with an air atmosphere.

On the occasions that we are required to shutdown and introduce an air atmosphere to a Hartlepool or Heysham 1 reactor our current safety case requires the threat from turbine hall flooding to be minimized and this is best achieved by shutting down the other reactor/turbine at that station to remove the threat from turbine-alternator disintegration.

We are currently amending our safety cases to avoid this requirement but until we have the necessary safety case in place there is the risk of increased outages which would adversely affect our profits.

Obsolescence of some of our equipment, component parts and computer systems that are required to operate our power stations and monitor plant stability could result in higher operating costs, unplanned losses or the closure of our power stations.

The first of our nuclear power stations became operational in 1976. As a result, it is becoming increasingly difficult to source replacement parts for some older equipment and to find engineers qualified to service certain equipment, in particular our aging computer and other information technology systems that were installed at or about the time the plants were constructed. We may not be able to maintain our older equipment on a cost effective basis or at all. We believe the increasing obsolescence of some of our parts and systems may result in an increase in unplanned losses, longer planned outages, significantly higher repair costs and/or the closure of our stations.

The condition of some of the plant, equipment and components at our power stations is subject to gradual deterioration over time.

The impact on the condition of some of the plant, equipment and components at our power stations of station operations and natural processes such as erosion and corrosion tends to increase as such plant, equipment and components grow older. While we attempt to implement inspection and maintenance practices such that we repair or replace such plant, equipment and components before they fail there is no guarantee that we will be successful and consequently we may experience unplanned losses which will adversely impact on our profitability.

The failure of our AGR fuel could result in decreases in our output and revenues.

Our AGR fuel is contained inside a stainless steel fuel can which acts as the primary barrier for any fission products produced by the fuel during operation. If the steel fuel can cracks, then the fission products will leak into the carbon dioxide gas that is used to cool the reactor. As many of these fission products are radioactive, any major leakage into the carbon dioxide gas will potentially contaminate large parts of the reactor which in turn will lead to major operational difficulties. It is therefore important to minimize fuel failures of this type.

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We have experienced on average one fuel failure per year across our fleet of AGR stations in the period 1975 to 2000. In 2001 and 2002, we experienced ten and nine failures respectively. In 2003 we experienced one fuel failure and we have not experienced any failures in the fiscal year ended March 31, 2004. The increase in fuel failure rates was attributable to fuel failures at our Dungeness B, Hunterston B, Torness, Heysham 1 and Hartlepool stations. We have determined the cause of the failures at Heysham 1 and Hartlepool and we have taken corrective action. We have received initial results on the cause of the fuel failures at Dungeness B which indicates that the cause is different from those at Heysham 1 and Hartlepool but is one that is known to us. Detailed examinations of the fuel failures at Hunterston B and Torness have yet to take place and the reasons for the failures cannot yet be confirmed. Dependent upon the cause of these failures, we may be required to remove fuel from the reactor earlier than anticipated or to operate our reactors at lower power levels to protect the fuel against further failures.

Based on the cause of fuel failures we may have to shut down one or more of our nuclear reactors until we have determined the cause of such failures. In order to do so, we are, in certain cases, reliant upon services provided to us by British Nuclear Fuels plc (“BNFL”) a company wholly owned by the UK Government (the “Government”). If they were unable or unwilling to provide such services, we may be unable to determine the cause of such failures. Any nuclear power station closure or prolonged outage could adversely affect our business and profitability.

Our business depends on equipment and service suppliers of a specialized nature, who may fail to provide necessary equipment and services on a timely basis, discontinue their products or services and/or seek to charge us prices that are not competitive. Any of these events could adversely affect our business and/or profitability.

We depend upon a small number of specialized suppliers for essential products and services which are unique or highly specialized to our industry. Consequently, if our suppliers are unable or unwilling to deliver products and services on a timely basis and at reasonable prices or if their products are found to be faulty, this may impact negatively on our ability to continue to operate our power stations economically (or at all), and would have an adverse effect on our financial condition and results of operations. In addition, as our plants age, the costs associated with the sourcing of spare parts are likely to increase.

Our AGR fuel is fabricated by BNFL, the only supplier of AGR fuel in the world. To protect against any short term disruptions in supply we maintain a stock of fuel elements at each of our sites. This, along with the fuel in our reactors, is sufficient to maintain normal operations for between three to six months. However, we cannot rule out a more extended disruption in fuel supply which could result in reductions in our output.

Our spent AGR fuel is delivered to BNFL which provides spent fuel management services. We are able to store approximately nine months arisings of spent fuel at each nuclear power station and, of that, have approximately three months additional capacity in the event of any short term interruptions in the movement of spent fuel to BNFL’s Sellafield Site. If a station’s spent fuel storage facilities became full, the station could theoretically continue to generate electricity but the volume of electricity produced would gradually reduce as the fuel in the reactor was consumed. It would not be possible to load additional fuel into the reactor until at least the equivalent quantity of stored spent fuel was despatched to Sellafield.

In the case of certain of our contracts for the provision of services, the liability of the service provider is capped and consequential losses that may be suffered by us are excluded. While these are not unusual contractual provisions, the consequences to us of a breach or non-performance by a service provider may be severe (for example certain agreements are required to be in place to meet nuclear site license requirements and may be difficult to replace) and we would almost certainly not be able to recover the loss it may suffer as a result of breach or non-performance by these counterparties.

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Our turbines, generators and certain other plant components are designed, manufactured and maintained by a small number of key suppliers. We are reliant upon certain of these suppliers for the supply of parts and for servicing and maintenance. If they fail to provide parts and/or perform servicing or maintenance, this could result in the shutdown of one or more of our turbines, generators or other plant components.

The unavailability of component parts could adversely affect our revenues and profitability.

The failure of certain components in use at our power stations could result in unplanned outages to affect repairs. The duration of the outages is influenced by, among other things, the lead-time required to manufacture and procure replacement components. Certain components (e.g. turbine rotors and transformers) are complex and may take several months to manufacture. To reduce the impact of the failure of such items we hold spare components at our power stations and in a central storage facility. We also participate in “spares clubs” where the cost of holding expensive replacement components is shared with other parties. Although we aim to optimize our spares holdings we cannot guarantee that we will always have ready access to the required component in the event of a failure and we may incur extended unplanned outages while we obtain the required component.

We continue to face liquidity risks associated with the seasonality of our business and the provision of collateral to our counterparties.

The UK electricity market is characterized by lower demand in the summer months and therefore comparatively lower market prices, which leads us, where possible, to plan statutory outages in this period. Accordingly, positive cash flow is reduced through the combined effect of lower prices and output. In addition, the historic high volatility of market prices increases the liquidity risk as a result of collateral calls due to increases in market prices. While we closely monitor these risks and continue to adopt mitigation strategies through trading and procurement operations, it is possible that these strategies will not be as effective in minimizing these risks as planned.

Lack of liquidity in the wholesale market may adversely affect or require us to alter our trading strategy.

Liquidity in the wholesale electricity market is dependent on there being a sufficient number of counterparties willing to trade actively in the market. Changes to the market structure, and in particular further consolidation of the existing generation and supply businesses, could result in a reduction in the number of active participants in the market. This could reduce the level of liquidity in the wholesale market to such an extent that we are no longer able to rely on wholesale market trading as a means of hedging our short to medium term exposure to wholesale electricity market prices and balancing our portfolio. We also rely on reported prices from a liquid wholesale market to deliver reliable reference prices which are used within a number of our indexed price contracts. Thus a lack of liquidity could result in us incurring higher hedging or balancing costs to achieve our trading objectives.

While our understanding of potential contaminated land liabilities at our power stations continues to grow, we have yet to fully implement risk management systems at all sites that will allow us to monitor liabilities at those sites and develop more informed assessments of any such liabilities. Consequently, we are currently unable to predict the likely cost of all our contaminated land liabilities.

With the exception of Dungeness B, where an extensive remedial operation in response to historic spillages of diesel to ground has now been completed, we currently have only limited data from physical site investigations to support our assessments of contaminated land liability at our power stations. However, an independent expert review was recently carried out to review the potential for any significant contaminated land at our nuclear power stations. This expert review, completed in

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January 2002, suggested that there were no obviously significant problems but it did highlight areas of vulnerability to contamination at a number of our sites and the need to establish groundwater monitoring networks and allied procedures at each.

A ground contamination risk assessment carried out at the Eggborough power station has concluded that the site has significant potential to affect local groundwater quality and is vulnerable to contamination migrating from neighboring landfill sites. Although no significant contamination problems have been observed at the Eggborough power station to date, we cannot be certain that none will occur in the future and therefore cannot exclude the risk of significant unforeseen clean-up costs.

Certain types of nuclear liabilities arising at our power stations will not be covered by the scope of the Nuclear Liabilities Funding Agreement (“NLFA”) or the HLFA under the NLFA and/or the HLFA.

These nuclear liabilities include those which are not connected with nuclear decommissioning and those which are adjudged to have arisen as a result of our safety and environmental compliance standards falling below those of the minimum performance standard or minimum contracting standard agreed under the NLFA or HLFA respectively or by the implementation of operational changes made by us other than to meet current or reasonably anticipated legal or regulatory requirements or to comply with practices and procedures both considered by, and acceptable to, the relevant regulators will not be covered by the NLFA and HLFA and will thus remain for our account. While the definitions of minimum performance standard or minimum Contracting Standard may be known it is not currently certain how such minimum performance standards would be interpreted or applied. It may also be difficult to be certain whether the implementation of operational changes would be considered to meet reasonably anticipated legal or regulatory requirements or to comply with practices and procedures both considered by, and acceptable to, the relevant regulators. Consequently, the nature or amount of these liabilities is uncertain.

The potential hazards of nuclear operations (including nuclear operations carried out by other operators in the UK and elsewhere in the world) could expose us to the risk of material liabilities, lost revenues, increased expenses or reputational damage.

Our operations use and generate radioactive and hazardous substances that have the potential to seriously impact human health and the environment. There are particular risks associated with the operation of nuclear power stations. These include accidents, the breakdown or failure of equipment or processes or human performance, including our safety controls, and other catastrophic events that could result in the dispersal of radioactive material over large areas, thereby causing injury or loss of life and extensive property or environmental damage. Certain of these events, including those arising as a result of third party acts, such as acts of terrorism or war, are not within our control. Liabilities we may incur, and interruptions in the operation of a power station caused by these events or associated with any of the radioactive or hazardous materials involved, could significantly reduce our revenues and increase our expenses and result in negative publicity and significant reputational damage. Insurance proceeds may not be adequate to cover all liabilities incurred, lost revenue or increased expenses. Analogous incidents occurring at other nuclear power stations elsewhere in the world may result in negative publicity and reputational damage regardless of our having no control or influence over such incidents.

The continued operation of the Eggborough power station is subject to a number of factors which could increase our costs and decrease our revenues. In particular, the introduction of the EU Emissions Trading Scheme (“ETS”) and Large Combustion Plant Directive (“LCPD”) are major environmental initiatives which will have an important impact on the Eggborough power station as they seek to reduce carbon dioxide and other emissions.

The Eggborough power station was constructed in the 1960’s and is approaching the end of its originally anticipated operating life. The Eggborough power station has been, and will continue to be,

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subject to routine and other maintenance and repair. In order to continue its economic operation, and to comply with environmental and other regulations, it has also been, and may in future be, necessary to make modifications to the Eggborough power station. We believe that we are likely to be required to make further repairs and/or modifications to the Eggborough power station as its age increases and, insofar as such requirements are currently understood, such requirements are already in our plans.

We cannot guarantee that we will be able to make any required repairs or modifications to the Eggborough power station either economically or at all (including pursuant to our legal obligations under the documentation entered into in connection with our Restructuring). Similarly, we cannot be certain that any such repairs or modifications will successfully rectify any problems and/or allow the continued operation of the Eggborough power station without interruption or at all. This may result in lost output and could adversely affect our revenues and profitability.

The ETS is due to be implemented in January 2005 and will limit pollution by the Eggborough power station. The LCPD is due to become effective on January 1, 2008 and, in replacing the previous Large Combustion Plants Directive (1988/609/EEC), will further restrict the limits of permitted pollution by the Eggborough power station. The full extent of the possible implications of this legislation are not yet known and therefore we cannot be certain of: (i) the impact on output; (ii) the likely costs associated with any required engineering or structural changes to the Eggborough power station which may be required to ensure compliance; or (iii) how the legislation will affect the electricity generation market and, in particular, the price of electricity in the medium to long-term.

We have entered into a trading strategy that seeks to reduce the price risk associated with the cost of our electricity generation. However, this has reduced our ability to benefit from increasing market prices in the medium-term and may also result in an increase in collateral requirements as market prices rise. In addition, should various other unforeseen events occur which place demands on cash flow, our financial resources may prove to be insufficient.

We have entered into short-term and medium-term trading contracts with market counter parties and short-term and medium-term sales contracts with other industrial and commercial customers to hedge a significant proportion of our output against downward movements in market price. However, as a result of this, our cash flow benefits from market price increases are reduced while the level of collateral calls made by trading counter parties increases to cover their mark to market exposure.

We are reviewing our trading strategy to attempt to maintain an appropriate balance between the importance to us of maintaining a high degree of certainty of our revenues and collateral requirements, as well as continuing to take steps to identify and manage cash flow risks and manage cash resources. However, we cannot be certain that the level of funding available to us will be sufficient to meet our future needs.

Our business is subject to extensive and unique regulations.

As an owner and operator of nuclear and coal-fired power stations, we are subject to extensive governmental regulations. We are subject to, among others, nuclear safety, electricity market and environmental regulations of the UK, the EU and other governmental authorities. Unexpected or adverse changes in these regulatory regimes could adversely impact our business and profitability. Changes in regulations or personnel governing nuclear safety in the UK may result in the modification, suspension or revocation of our licenses to operate nuclear power stations, or require us to incur substantial additional cost for capital expenditure and/or services and labor.

A feature of the nuclear licensing regime is that we must conduct Periodic Safety Reviews at each of our nuclear power stations which may affect how we operate our stations and may result in significant additional costs. We must also obtain the approval of the NII to restart a nuclear power station after a statutory outage. In granting permission to re-start, the NII take comfort from the level of

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British Energy’s knowledge and understanding of reactor performance. Consequently, wherever outage inspections indicate potential issues outside of the predicted norm, there is a heightened risk that delays to re-start may occur as a result of the regulator’s intervention. The refusal of the NII to approve, or any delay in gaining approval from the NII, to continue or restart the operation of any of our nuclear power stations, would adversely affect future revenues and reduce our ability to trade profitably.

We are revising certain aspects of the safety cases at our AGR power stations in the light of developing regulatory standards. Whilst we are dedicating significant resources to resolving these outstanding safety case points, there can be no assurance that one of these issues may not lead the NII to refuse consent to restart one of our reactors following a statutory or unplanned outage or cause it to communicate to us that it would oppose our restarting a reactor on its return from a refueling outage. If the NII takes such action, this, too, would affect future revenues and reduce our ability to trade profitability.

We have agreed, in some cases informally, with certain of our suppliers to defer payments due to them.

We have reached, in some cases informal, agreements with certain of our suppliers to defer payments due to them from the summer months until later in the financial year. Cash balances are therefore likely to be higher for the remainder of the financial year as a result. The amount of our trade creditors will however continue to reflect the amount owed to these creditors and will accrue late payment interest in accordance with the terms of the underlying agreements with creditors. In cases where this has not been formalized, we can give no assurance that our creditors will not seek to enforce their respective contractual rights to have the amount due to them paid strictly in accordance with the payment terms of their respective agreements with us. Demands for payments to be made in advance of an agreed deferral schedule by a supplier may reduce the cash available to other parts of our business and may affect our investment, trading or operational decisions which may in turn affect our financial condition or profitability adversely. Since we have already sought deferrals from a number of our creditors this may reduce the likelihood of our being able to achieve further deferrals at other times in the financial year when our cash resources may benefit from some flexibility from our suppliers with regard to payment terms.

A failure to comply with, or the incurrence of liabilities under, environmental, health and safety laws and regulations to which we are subject, or a failure to obtain or maintain required environmental, health and safety regulatory approvals, could adversely affect our business or our ability to trade profitably.

We are subject to various environmental and health and safety laws and regulations governing, amongst other things: (i) the generation, storage, handling, release, use, disposal and transportation of hazardous and radioactive materials; (ii) the emission and discharge of hazardous materials into the ground, air or water; and (iii) decommissioning and decontamination of our facilities and the health and safety of the public and our employees. Regulators in the UK, including the NII, Environment Agency (the “EA”) and the Scottish Environment Protection Agency (“SEPA”), administer these laws and regulations.

We are also required to obtain environmental and safety permits from various governmental authorities for our operations. Certain permits require periodic renewal or review of their conditions and we cannot predict whether we will be able to renew such permits or whether material changes in permit conditions will be imposed. Therefore, we may not have been, or may not at all times in the future be, in complete compliance with such laws, regulations and permits. Violations of these laws, regulations or permits could result in plant shutdowns, fines and/or litigation being commenced against us or other sanctions. Other liabilities under environmental laws, including clean-up of radioactive or hazardous substances, can be costly to discharge. Environmental liabilities or failure to comply with environmental laws could also lead to negative publicity and significant damage to our reputation.

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While we cannot predict with any certainty the nature of developments in environmental regulation and control, we anticipate that the direction of future changes will be toward stricter controls. In view of the age and history of many sites we own or operate, we may incur liability in respect of sites that are found to be contaminated, together with increased costs of managing or cleaning up such sites. Site values could be affected and potential liabilities and clean-up costs may make disposal of potentially contaminated sites more difficult. It is possible that any clean-up costs would have an adverse effect on our business or our financial condition or results of operations.

Environmental and health and safety laws are complex, change frequently and have tended to become more stringent over time. Whilst we have budgeted for future capital and operating expenditures to comply with current environmental and health and safety laws, it is possible that any of these laws will change or become more stringent in the future. Therefore, our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, radioactive or hazardous substances, could adversely affect our business or our operating or financial performance.

The proximity of certain of our nuclear power stations to Magnox stations could result in potentially harmful materials in the ground migrating across the boundary onto our own sites. UK law currently provides that, unless we can provide adequate evidence to the contrary, any liability associated with such material under our sites would belong to us even though its initial occurrence there is beyond our control. Radiological contamination from neighboring Magnox plant may render one of our sites radioactive and would prevent its operation.

Each of Hunterston B, Dungeness B, Hinkley Point B and Sizewell B is located close to Magnox nuclear power stations operated by the British Nuclear Group and its subsidiary companies. Groundwater monitoring networks are now in place at Hunterston B, Dungeness B and Sizewell B that should allow the migration of potentially contaminating material from the neighboring sites to be identified. Although the need has been identified, an equivalent network has yet to be established at Hinkley Point B.

The statutory regime governing contaminated land in the UK provides, broadly, that if the person who is alleged to have caused a contaminated land liability cannot be identified, the land owner/occupier will be held liable for the costs of remedying the problem. Therefore, we cannot be certain that the costs of complying with this regime will not adversely affect our business or our operating or financial performance as it may not always be possible to identify another operator as a responsible party.

Further changes to the regulatory environment in the UK market and introduction of the British Electricity Transmission and Trading Arrangements (“BETTA”) may adversely affect our cash reserves.

BETTA is due to be implemented in April 2005 and will introduce a single Great Britain-wide set of arrangements for trading energy and for access to and use of a single Great Britain transmission system. The current CUSC Framework Agreement, BSC Framework Agreement and the Grid Code will continue to take effect but amendments will be made to them in line with the new regime and the extension of the BSC, CUSC and Grid Code to Scotland. Thus British Energy Generation Limited (“BEG”) as an existing signatory to these agreements will not need to sign any additional documents but British Energy Generation (UK) Limited (“BEG UK”) will need to accede to the framework agreements and the Grid Code by following the steps specified in the respective codes.

The introduction of BETTA is expected to result in changes to the terms and conditions that existing parties have in place for connection to or use of the transmission system and for trading electricity. In the main, the arrangements under BETTA will be based on those currently prevailing in England and Wales. As a consequence, the changes are likely to be particularly significant for those connected to/using the transmission system in Scotland. It is also anticipated that The Office of Gas

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and Electricity Markets (“Ofgem”)/The Department of Trade and Industry (“DTI”) will modify all electricity generation, supply and distribution licenses to oblige the holders to comply with the Grid Code. The introduction of BETTA may also require, among other things, an increase in the amount of cash collateral necessary to support our generation, supply and trading operations. Consequently, it is possible that our cash reserves may also be adversely affected.

Our current sales contract for generation from our two Scottish nuclear stations will expire in April 2006 or earlier upon the implementation of BETTA which may adversely affect our cash reserves.

We currently sell all the output from our Scottish nuclear power stations to Scottish Power and Scottish and Southern Energy under the terms of the Nuclear Energy Agreement (“NEA”). The NEA will continue in operation until the introduction of BETTA or, if earlier, April 1, 2006. BETTA is due to be introduced on April 1, 2005 but it is possible that its introduction will be delayed. Upon the expiry of the NEA, we will need to make alternative sales arrangements for this output and/or constrain output. Alternative sales arrangements may not be available at that time on similar financial terms to the current sales contract. This may also require an increase in the amount of cash collateral necessary to support our generation supply and trading operations. Consequently it is possible that our cash reserves may be adversely affected.

Proposed arrangements governing the cost of electricity transmission in the UK could reduce our ability to trade profitably in the future.

In May 2001, the Gas and Electricity Markets Authority, or GEMA, proposed a number of possible reforms to the market arrangements governing electricity transmission system access and transmission losses in England and Wales. Transmission losses occur from the electricity that is lost to the network in the form of heat as it is transmitted. If GEMA were to implement its proposals in the form which it originally proposed, this would result in a significant redistribution of transmission costs between electricity market participants. Under the proposals, some generators would pay for a proportion of transmission losses for which they were not previously responsible. The proposal would be unfavorable to generating plants located in the North of England and Scotland, which make up a significant portion of our generating capacity.

On January 17, 2003, GEMA directed that a modification should be implemented to the Balancing and Settlement Code, to introduce zonal marginal transmission losses, with effect from April 2004 in England and Wales. On January 30, 2003, the Government issued a consultation paper on whether these changes were appropriate for Great Britain as a whole, and concluded, on June 27, 2003, that they were not. However, there is a risk that a new proposal to introduce zonal charging for losses will be made if the arrangements under BETTA are introduced in April 2005. These charging arrangements for access to and use of the transmission network are not yet finalized and therefore there is a risk that we might be adversely affected by them given the geographical distribution of our power stations.

We are involved in several disputes that if resolved or determined against our interests could adversely affect our profitability and our available cash.

Bruce Power

On February 12, 2004, the consortium that purchased our 82.4% interest in Bruce Power served a notice on us alleging a breach of certain warranties and representations relating to tax and to the condition of plant at the Bruce power station.

The tax claim relates to the treatment of expenditures at the Bruce plant during the period of our ownership which is currently under review by the Canadian tax authorities. While we have proposed a treatment that could result in a material tax rebate, the consortium claims that the allowance of the expenditures for that period would cause it to lose future deductions.

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The claim relating to the condition of the plant is based upon alleged erosion of certain parts of the steam generators including support plates through which boiler tubes pass. It is alleged that this erosion resulted in an extended outage at one unit at the plant in order to carry out repair works and loss of revenues and costs of approximately C$64.5 million. The consortium also claims that the alleged erosion may reduce the operating life of the unit and/or or result in expenditures for further repairs. We have rejected the foregoing claims and intend to defend them if they are pursued further and thus further losses. In accordance with accounting standards, no provision has been made in the financial statements at June 30, 2004 for either claim.

AmerGen

We are involved in a dispute with Exelon arising in connection with the sale of our 50 per cent. interest in AmerGen to Exelon. Under the terms of the AmerGen sale agreement, we gave certain indemnities and guarantees in connection with the sale of our interest. As a result of an accounting adjustment made by Exelon to the value of nuclear fuel contained in AmerGen’s balance sheet dated December 21 2003, we may be required to make a payment to Exelon of up to US$13.7 million. British Energy disputes such claim. We served a dispute notice on Exelon on June 4 2004 to preserve our rights and the parties are endeavoring to resolve the matter amicably. The agreement with Exelon for the sale of AmerGen requires that, prior to instituting any litigation or other dispute resolution procedure, the companies will in good faith seek to resolve any dispute. Furthermore, we are reviewing with Exelon the effect on the working capital adjustment resulting from a change to the estimated tax recoverable for the prior periods made after the consummation of the sale, and this, if agreed may result in a reduction in the purchase price payable by Exelon. The reduction in the purchase price is currently estimated to be in the range of up to US$6.3 million.

If either of the Bruce claims or the AmerGen dispute is resolved against us, it could have a adverse effect on our results of operation and our available cash.

We do not currently own the rights of support for the land under the Eggborough Station.

The Eggborough Station does not enjoy a protected right of support. As a result, there is presently no restriction on coal mining taking place in circumstances whereby the stability of the Eggborough Station could be affected. We have tried, without success, to negotiate with UK Coal Mining Limited (“UKC”) (the holders of a license from the Coal Authority to mine coal) a pillar of support agreement.

If UKC were to mine under or in proximity to the Eggborough station in circumstances affecting its stability, then extensive liabilities would fall on UKC pursuant to the Coal Mining Subsidence Act 1991. Under this Act, the coal operator is required to carry out remedial works and/or make payments for the consequences of the mining damage.

We have submitted an application to the Secretary of State pursuant to the Mines (Working Facilities and Support) Act 1966 for restrictions to be imposed on the working of minerals under part of the Eggborough Station, and land adjacent to it as may be necessary to secure sufficient support for that area. If the Secretary of State is satisfied that a case has been established, the application will be referred to court. The court can only grant the application if it is considered to be in the national interest that restrictions on mining should be imposed. In order to limit our potential liability to pay compensation, we have only applied for the restriction of mine working of the area covered by a previous notice served earlier in 2004.

There can be no guarantee that our application to the Secretary of State to refer this matter to the court will be successful, or that if it is, that the court will find in our favor. We believe that if the court were to find in our favor, compensation is unlikely to be payable to UKC. If our application is not successful, or the court does not find in our favor, UKC would be permitted to mine in the area beneath the power station and the stability of the Eggborough Station might be adversely affected. If this were to occur, it may not be possible to continue the operation of the Eggborough Station, or substantial repairs could be required, and the compensation that UKC would be required to pay under the Coal Mining Subsidence Act might adversely affect our financial condition.

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Our right to title to certain ash and water pipelines which benefit Gale Common and the Eggborough power station is not registered with the Land Registry and is based solely on statutory declarations. In the event that we cannot establish title by long use of these pipelines, we would be unable to continue to benefit from them and the operation of Gale Common and the Eggborough power station would be adversely affected.

Title to the use of much of the ash pipeline at the Eggborough power station, the water pipeline from Gale Common to the River Aire and sections of the Eggborough cooling water pipes is not granted by deed nor referred to on the relevant registers at the Land Registry and is based solely on statutory declarations for a period from 1974 (in relation to the water pipelines) and from 1983 (in relation to the ash pipelines and cooling water pipes). The evidence contained in the statutory declarations will only be an effective step towards establishing title by long use provided that no contrary evidence comes to light which cannot be satisfactorily explained and no arguments are upheld based on lack of relevant knowledge of the existence of the pipelines by landowners. We cannot guarantee that we will be able to establish title by long use and therefore that if the pipelines were disconnected, that the work required to relocate them would not be detrimental to the operation of Eggborough power station.

In addition, title to the use of the remainder of the ash pipeline is based on the grant of licenses, many of which are terminable on notice of various lengths but frequently of six months or less.

The cost of providing pensions benefits to employees is subject to changes in pension fund values and changing demographics, and might have a material adverse effect on our financial results.

We operate two pension schemes that provide defined benefits to eligible recipients. Our actuaries are undertaking actuarial valuations of the two pension schemes as at March 31, 2004 and these are expected to be completed in October 2004. The combined funding deficiencies (on the actuarial bases used for the valuations) in the two pension schemes is expected to be £385 million. The investment performance of our pension fund assets may have an adverse effect on our business. The cost of providing pension benefits could increase as a result of changes in pension fund values and changing demographics, including longer life expectancy of the schemes’ beneficiaries. We may be required to recognize a charge to our profit and loss account to the extent that the pension fund values are less than the total anticipated liability under the plan. In addition, we may be required to contribute additional amounts to our pension funds to address any difference between pension fund values and accrued liabilities. We cannot assure you that such charges or payments will not have an adverse effect on our financial condition.

Our inability to attract and retain senior management and employees who are highly qualified nuclear specialists could adversely affect our business.

The success of our operations depends largely on our ability to attract and retain senior management and employees who are highly skilled in nuclear sciences or have exceptional experience operating nuclear power plants and suitably qualified finance staff. There is a limited pool of candidates with these credentials and, because competition among employers for these candidates is intense, we may not always be successful in hiring or retaining them.

Our trading contracts and certain of our other contracts may be subject to credit support obligations, such as the posting of collateral. Trading without the constraints of available collateral may increase our exposure to both fluctuations in wholesale electricity prices and potential disruptions to our generation business. We may have to post additional amounts of cash as collateral to support our trading activities, which could reduce the amount of cash available for other purposes or exceed our available cash resources. Certain counterparties require other types of collateral which would increase our requirements for third party finance or, if not provided, may affect their willingness to trade with us.

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As our credit rating is below investment grade, we have needed to establish alternative credit support to a parent company guarantee in respect of our obligations under certain trading contracts by posting collateral to support our obligations under these agreements. In the case of a significant proportion of our contracts, the financial obligations to be covered by the alternative credit support are generally related to the prevailing wholesale price of electricity. During a period of rising market prices, the amount of collateral that we are required to post will generally increase. In periods of rising market prices, the increase in the level of collateral that we could be required to post may result in us having to reduce expenditures in other areas, including capital expenditures and could exceed our available cash resources. Since notification of the EC State Aid decision on September 22, 2004 no incremental collateral can be posted under the Government Facility and therefore incremental collateral requirements are being provided by a charge over cash deposits in certain of our accounts. Although we are satisfied that generally deposits in such accounts will represent reasonably acceptable alternative credit support, in certain cases other types of collateral may be required and no assurance can be given that the provision of such charge arrangements for such collateral requirements will not affect the willingness of certain counterparties to trade with us. This may increase our requirements for third party finance and may adversely affect our financial results. For further details on the Government Facility see “Item 4—Information on the Company—the Government Facility”.

Given our circumstances and the Restructuring, certain of our contracts may be capable of being terminated.

Given our circumstances certain contracts including GTMAs may be capable of being terminated. Although we have faced financial difficulties for some two years, we continue to have trading relationships with a high proportion of our contracted counterparties from 2002 and our circumstances and the Restructuring have been widely known for many months. We would likely vigorously resist attempts by counterparties to terminate contracts on these grounds. However, no assurance can be given that counterparties will not successfully exercise termination or other default rights on these grounds even after completion of the Restructuring, in which case we may be liable for termination payments or payments may be withheld from us or supplies of goods or services to our business may be interrupted, any of which could have an adverse affect on our cash flows or our operations.

The amount of insurance cover we are mandatorily required to maintain in relation to nuclear liabilities by virtue of the Nuclear Installations Act will increase significantly, and there is no assurance that cover for nuclear liability for acts of terrorism will be available from the nuclear pool in future.

In early 2004 the Government signed an international treaty amending the existing international Conventions dealing with third party liability in the field of nuclear energy with the effect that, amongst other things, the liability of nuclear operators for events involving nuclear material or ionising radiation which cause damage or personal injury is likely to be increased to €700 million. Furthermore, the definition of nuclear damage is likely to be expanded to include, amongst other things, economic loss. It is likely that the NIA will be amended to increase the level of insurance cover we are required to maintain from the existing £140 million to €700 million. While the directors believe the insurance market will have sufficient capacity to offer cover for these increased limits, there is no assurance that such cover will be available when required nor that the cost of the insurance will increase in line with the increases in liability limit on a straight-line basis. Our insurers may also seek exclusions and/or higher levels of retention which may affect the ability to make a claim if required to do so.

Cover for nuclear liability sustained by acts of terrorism has been obtained for the year ending March 30, 2005 from the nuclear pool. The limit for this cover and the right of recovery by insurers mirrors that under the NIA in respect of nuclear liability. The Nuclear Pool indicated following the terrorist attacks in the World Trade Center in New York that it would not provide cover for nuclear liability without agreement from the Government that the Government would provide reinsurance cover. This arrangement is subject to annual review and has been forthcoming for the last three years. There is no assurance that the Government will be able to do so in the future.

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RISKS RELATING TO COMPLETION OF THE RESTRUCTURING

The Restructuring remains subject to a large number of significant uncertainties and important conditions, and if we do not complete the Restructuring, we may have to initiate insolvency proceedings.

The Restructuring remains subject to a number of significant uncertainties and important conditions. These include settling certain documents with creditors, approval of the relevant UK court and listing of the new shares and new bonds. The Restructuring is also conditional on there being no material adverse change affecting us as a whole or Eggborough Power Limited (“EPL”) and no material adverse effect on the value of the creditors’ entitlements under the Restructuring. Furthermore, the Secretary of State is entitled not to proceed with the Restructuring if, in her opinion, we will not be viable in all reasonably foreseeable conditions without access to additional financing beyond that which is committed and will continue to be available when required. Also, for listing purposes, the restructured British Energy will need to have sufficient working capital for its present requirements from listing of the new shares and new bonds. The Restructuring is conditional on the restructuring and standstill arrangements not being terminated in accordance with their terms. Furthermore, to the extent the Members’ Scheme of Arrangement lapses and the disposal of our assets for the purposes of the Restructuring is not approved by shareholders, the Restructuring is also conditional on the delisting of the Company from the Official List of the UK Listing Authority (“UKLA”). For additional information regarding the contracts governing the Restructuring and the delisting, see “Item 10. Material Contacts” and “Item 4. Information on the Company—Impact of the Restructuring on Existing Shareholders and Recent Developments—Requisitioned Extraordinary General Meeting and Delisting”. Some uncertainties which may affect the cash flow position, performance or outlook are described in Item 5. Operating and Financial Review and Prospects.

If the conditions to the Restructuring are not fulfilled, or if our cash generating initiatives are not achieved in each case within the time scales envisaged or required, or if there is a material deterioration in our cash flow position, performance or outlook or if the restructuring and standstill arrangements which we have entered into with certain of our creditors are terminated, we may be unable to meet our financial obligations as they fall due and consequently we may have to take appropriate insolvency proceedings, in which case the distributions, if any, to unsecured creditors may represent only a small fraction of their unsecured liabilities and it is highly unlikely there will be any return to shareholders. Further details on the Restructuring are contained in note 1 to our audited consolidated financial statements.

The decision of the European Commission (the “Commission”) that, insofar as the Restructuring involves the grant of State aid by the Government, such State aid is compatible with the common market (the “Decision”), may be appealed against by interested third parties in the EC Court resulting in the annulment in whole or in part of the Decision, or the possible imposition of further conditions on the Company; third parties may also seek an order from the EC Court suspending the grant of State aid by the Government. Interested third parties may also complain to the Commission or bring actions in the Courts in the UK alleging that the Company or the Government are not complying with any of the conditions in the Decision. Any of these events could adversely affect our business or profitability.

On September 22, 2004, we announced the receipt by the Secretary of State of the Decision. The Decision may be appealed to the Court of First Instance of the European Communities (the “CFI”) by any interested third parties provided that they can show that they are directly and individually concerned by the Decision. A party will be individually concerned by a State aid decision if it can show, for example that its competitive position in the market was or may be adversely affected by the

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Decision. The Decision may also be appealed to the Court of Justice of the European Communities (the “ECJ”) by the government of any other EC Member State. In each case the application for the appeal must be filed within two months and ten days from either (a) the date when the Government or any interested third party receives a full copy of the Decision from the Commission or (b) from the date of the publication of the Decision in the Official Journal of the European Communities, where the interested third party has not already received a copy of the Decision from the Commission.

An appeal to either the CFI or the ECJ may result in the Decision being annulled in whole or in part. In addition, upon application and upon satisfaction of the legal requirements, the CFI or the ECJ may suspend the Decision, or apply other interim measures, pending a final ruling on the appeal.

In the event of the Decision being annulled, the Commission would be required to issue a new decision taking into account the judgement of the ECJ or CFI. This further decision could either impose additional conditions on us depending on the reasons for the annulment of the Decision, or conceivably not approve the State Aid at all or approve only parts of it. Any judgment of the CFI can be appealed to the ECJ, but only on points of law.

Furthermore, any interested third party may also complain at any time to the Commission alleging that either we or the Government are in breach of any of the conditions imposed by the Decision. There can be no assurance that the Commission may not, as a result of any investigation it makes into the complaint, order the recovery of any aid which has been unlawfully given as a result of a breach and/or modify the conditions of the Decision or impose additional ones.

Any interested third party which can show sufficient interest (under English law) or both title and interest to sue (under Scottish law) can also bring an action in a Court in the appropriate jurisdiction alleging that either we or the Government are in breach of any of the conditions imposed by the Decision. The Court could decide to consult with the Commission or to refer questions to the ECJ in so far as it considers them to be necessary to interpret or apply the provisions of the Decision that may be in dispute. There can be no assurance that the Court would not order that the arrangements whereby the Government provides aid to the Company be suspended pending compliance with the Decision. Furthermore, the Court could order any aid given in breach of the Decision to be recovered from the Company by the Government. Any such appeals or procedures may have an adverse effect on the Company and our shareholders.

The proposed Creditors’ Scheme of Arrangement with the holders of our bonds (the “Bondholders”) due in 2003, 2006 and 2016 respectively and the Royal Bank of Scotland plc “RBS”) requires the approval of the relevant UK court; without such approval, our Restructuring will not be able to proceed.

To become effective, the Creditors’ Scheme of Arrangement requires the approval of the relevant UK court that supervises the scheme. Before the court gives its approval, the court must satisfy itself that the proposed arrangements are fair. We cannot assure you that the court will determine that the restructuring arrangements contemplated by the Creditors’ Scheme of Arrangement are fair, or that the court will not conclude that there are other reasons why it should not approve the Creditors’ Scheme of Arrangement. If the relevant UK court does not approve the Creditors’ Scheme of Arrangement, we may not be able to complete our Restructuring as envisaged. It is possible for a person with an interest in the Creditors’ Scheme of Arrangement (whether a scheme creditor, a bondholder or another person) to raise objections or, after receipt of the court order, to appeal against the granting of the court order approving the Creditors’ Scheme of Arrangement. There can be no assurance that such objections or appeals will not delay or possibly prevent the Restructuring.

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If certain timing deadlines are not satisfied, the Restructuring may not be implemented.

In order for the Creditors’ Scheme of Arrangement to be effective, the outstanding conditions and uncertainties must be satisfied or resolved and the Creditors’ Scheme of Arrangement must receive the sanction of the court. The timing of the court process is in the discretion of the court and accordingly there can be no assurance that the court process to effect the Creditors’ Scheme will be completed by the earlier of 120 days after the satisfaction of the initial conditions and January 31, 2005 (or such later date as the Company and parties to the Restructuring may agree) as required by the documentation entered into in connection with the Restructuring. In the event that the Creditors’ Scheme is not effective by such date, the Creditor Restructuring Agreement will automatically terminate and the standstill period under the standstill arrangements will expire.

If the Nuclear Liabilities Fund (the “NLF”) does not become effective, we may be required to make substantial payments to meet the long-term post-closure costs of decommissioning our existing nuclear power stations in the UK.

In the UK we established the Decommissioning Fund to accumulate funds to meet certain long-term post-closure costs of decommissioning our UK nuclear assets. We made, and until the NLF is operational, will continue to make, quarterly contributions to the Decommissioning Fund that are subject to adjustment for inflation. However, there is no certainty that the Decommissioning Fund will be sufficient to cover all the liabilities to which it relates. Furthermore, other substantial decommissioning liabilities are currently unfunded and the value of the Decommissioning Fund is subject to the volatility and fluctuations of the equity markets. As part of the Restructuring, the Decommissioning Fund will be enlarged and renamed NLF to which we will make fixed contributions as well as an initial contribution of £275 million aggregate principal amount by way of new bonds. Additionally we will contribute £150,000 (indexed to the retail price index) for every ton of uranium loaded into Sizewell B our Pressurised Water Reactor nuclear power station, or PWR, after completion of the Restructuring, and payments amounting (initially and subject to adjustment) up to 65% of our consolidated annual cash flow net of tax, financing costs, cash reserves and a forecast expenditure reserve. However, we expect that as part of the establishment of the NLF, the Government will fund contracted liabilities associated with our historic spent fuel as well as certain uncontracted nuclear liabilities and decommissioning costs of our nuclear power stations to the extent that the assets of the NLF are insufficient to meet those liabilities as they fall due. Furthermore, as a condition of the NLF, we will be required to continue to operate our nuclear power stations in compliance with applicable law and the practices and the procedures acceptable to the safety and environmental regulatory authorities. If we fail to do so, we may in certain circumstances incur additional liabilities over and above those which we currently expect to bear under the NLF.

If the NLF does not become effective, we will be required to continue to make contributions to the Decommissioning Fund pursuant to our obligations under our nuclear site licenses, and will be required to meet other historic unfunded liabilities and certain decommissioning liabilities, which may in turn significantly reduce our ability to trade profitably.

Our revised contracts with BNFL are contingent upon completion of the Restructuring, and our reliance on BNFL as our single supplier for AGR fuel and spent fuel management services could lead to increased costs and decreased profitability upon termination of the revised contracts if the Restructuring is not completed.

We currently rely on BNFL to supply fuel fabrication and spent fuel management services for our Advanced Gas Cooled Reactor, or AGR, stations. BNFL is currently the sole supplier of AGR fuel worldwide. On May 16, 2003, we announced that we had entered into a series of contracts with BNFL, replacing our then current contracts covering the fabrication of fuel for our AGR power stations, known

20

as front-end fuel cycle services, and the disposal of AGR fuel used by our AGR power stations, known as back-end fuel cycle services. The front-end fuel cycle contracts became effective as of April 1, 2003, but, with the exception of the new arrangements for the supply of uranics, may be terminated if, among other things, the Restructuring is not completed. The back-end fuel cycle contracts are conditional upon completion of the Restructuring, although, in accordance with the terms of the standstill agreement, our payments to BNFL for back-end fuel cycle services are made as if the back-end contracts had become effective on April 1, 2003.

Under these contracts, prices for a certain proportion of front-end and back-end fuel cycle services are linked to the prevailing market price for electricity, thereby reducing our exposure to downward fluctuations in market price, conversely if market prices rise above certain levels, a proportion of our costs under the revised BNFL contracts will increase.

If we do not complete the Restructuring, and our revised contracts with BNFL are terminated (or do not take effect), we would be required to rely upon our prior front-end and back-end fuel cycle contracts with BNFL. Consequently, we would be unable to realize the operating cost benefits associated with our revised contracts with BNFL. Furthermore, our current contract with BNFL for the supply of front-end fuel cycle services for the majority of our AGR stations expires in 2006. If the revised contracts with BNFL are terminated (or do not take effect) and if BNFL is unable or unwilling to continue to supply fuel to our AGR stations, we would need to seek a new source of supply for AGR fuel. A new supplier of fuel for our AGR stations would need to retool its production systems in order to be able to produce AGR fuel. The costs of such a retooling would probably be passed on to us, resulting in significantly increased operating costs and reduced profitability.

If we complete the Restructuring, our shareholders will suffer a very significant dilution of their interests in British Energy plc.

Under the Restructuring, we will undertake a court sanctioned scheme of arrangement, referred to as the Creditors’ Scheme of Arrangement, to restructure our obligations with respect to the Bondholders and RBS, as provider of a letter of credit to the bank syndicate that provided financing for our Eggborough coal-fired power station (referred to collectively as the “Eggborough Banks”). As part of the Restructuring, we will also undertake a court sanctioned scheme of arrangement, referred to as the Members’ Scheme, for our shareholders to effect the cancellation of our ordinary shares and the issuance of ordinary shares in British Energy Group plc, the proposed holding company of the restructured group. The Restructuring also includes arrangements to restructure our obligations to the Eggborough Banks and our significant trade creditors; Teesside Power Limited, Total Gas & Power Limited and Enron Capital & Trade Europe Finance LLC (Teesside Power Limited, Total Gas & Power Limited and Enron Capital & Trade Europe Finance LLC are referred to collectively as the “Significant Creditors”). The Significant Creditors have since transferred their interests to Deutsche Bank. As a result of these arrangements, the new shares issued to the Bondholders, RBS, the Eggborough Banks and the Significant Creditors will represent substantially all of the share capital of the restructured British Energy. In the event that the Members’ Scheme is implemented we expect that our current shareholders will receive 2.5% of the issued share capital of the restructured British Energy and warrants exercisable for up to a further 5% of the thereby diluted issued share capital of the restructured British Energy immediately following completion of the Restructuring. If the Members’ Scheme is not approved, but instead our shareholders approve the disposal by us of all of our subsidiaries and other assets to British Energy Holdings plc (a wholly-owned subsidiary of British Energy Group plc) in consideration for it agreeing to discharge our liabilities (the “Disposal”) the shareholders will receive the warrants exercisable for ordinary shares of British Energy Group plc but no shares. If shareholders do not vote in favor of either proposal they would receive no shares or warrants. Consequently, if the Restructuring is completed, our current shareholders will suffer a significant dilution of their interests.

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Certain shareholders have threatened action to prevent the Restructuring occurring.

On September 3, 2004 Polygon Investment Partners LLP (“Polygon”) and Brandes Investment Partners LLC (“Brandes”) and their respective associates as owners of 10.22% of our ordinary shares requisitioned an extraordinary general meeting of shareholders (the “Requisitioned EGM”) to consider five resolutions. The resolutions were in brief summary: (1) to prevent the Company delisting from the Official List of the UKLA; (2) to prevent the Company from amending or extending the Creditors Restructuring Agreement; (3) to prevent the Company from disposing of its business or issuing shares in itself or any of its subsidiaries; (4) advising the board to seek to negotiate better terms for shareholders than those set out in the Restructuring; and (5) advising the board not to delist from the Official List of the UKLA. In response to the requisition, we have summoned an extraordinary general meeting of shareholders to be held on October 22, 2004. We are taking steps, described in a circular issued by us to shareholders on September 24, 2004, to enable us to implement the Restructuring even if some or all of the resolutions are passed. However no assurances can be given that such steps will be successfully implemented. On September 30, 2004, Polygon announced that in light of the recent circulars that we sent to shareholders, it had agreed to vote the ordinary shares of the Company owned by it against the proposed resolutions at the Requisitioned EGM and not to further oppose the Restructuring. While Polygon also announced on September 30, 2004 that it believes there is no commercial logic in proceeding with the Requisitioned EGM or supporting the proposed resolutions, the Requisitioned EGM will still take place on October 22, 2004 as described in the notice contained in the relevant circular mailed to our shareholders, and no assurance can be given that Brandes or other shareholders (acting individually or as a group) will be unable, through any shareholder action, exercise of voting rights, lobbying or court action, to prevent the Restructuring being implemented. If shareholders are able to prevent the Restructuring from being implemented as currently structured, we may be subject to significant liability under the Creditor Restructuring Agreement and may be unable to meet our financial obligations as they fall due. As such, we may have to take appropriate insolvency proceedings, in which case the distributions, if any, to unsecured creditors may represent only a small fraction of their unsecured liabilities and there is highly unlikely to be any return to shareholders. For further details on the Restructuring, see “Item 4—Restructuring” and note 1 to our audited consolidated financial statements starting on page F-1.

Our financial statements have been prepared on the basis that British Energy is a going concern. If we cease to be a going concern, we may be required to adjust the monetary value of assets, reassess our provisions for future liabilities and reclassify fixed assets and long-term liabilities as current assets and liabilities.

Our financial statements have been prepared on the basis that British Energy is a going concern. The going concern basis assumes that we will continue in operational existence for the foreseeable future. The validity of this assumption depends upon a number of factors that are beyond our control, including those discussed above. If for any reason we are unable to complete the Restructuring and cease to be a going concern, we may be required to adjust the monetary value of assets, reassess our provisions for future liabilities and reclassify fixed assets and long-term liabilities as current assets and liabilities. Such adjustments, reassessments and reclassifications may result in a material adverse change to the statement of our financial condition from that currently set forth in our financial statements. For additional information, see note 1 to our audited consolidated financial statements.

Selected Financial Data

The following summary consolidated financial information for British Energy, insofar as it relates to profit and loss and cash flow for the fiscal years ended March 31, 2004, 2003, and 2002, and balance sheets as of March 31, 2004 and 2003 is derived from the audited financial statements appearing elsewhere in this annual report.

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Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom, or UK GAAP, which differs in certain significant respects from generally accepted accounting principles in the United States, or US GAAP. A full description of the significant differences between UK GAAP and US GAAP as they apply to us and a reconciliation of profit/(loss) after tax (or net income/(loss)) and equity shareholders’ funds (or deficit on equity shareholders funds) under UK GAAP to those under US GAAP are set out in note 36, (as restated), to our consolidated financial statements and in “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies.”

Our financial statements have been prepared on the basis that we are a going concern. The going concern basis assumes that we will continue in operational existence for the foreseeable future. The validity of this assumption depends upon a number of factors that are beyond our control, including those discussed above. If for any reason we are unable to complete our proposed Restructuring and cease to be a going concern, we may be required to adjust the monetary value of assets, reassess our provisions for future liabilities and reclassify fixed assets and long-term liabilities as current assets and liabilities. Such adjustments, reassessments and reclassifications may result in a material adverse change to the statement of our financial condition from that currently set forth in our financial statements. You should read the following summary consolidated financial information in conjunction with our audited consolidated financial statements and the notes thereto appearing elsewhere in this annual report as well as “Item 4. Information on the Company—Restructuring” and “Item 5. Operating and Financial Review and Prospects.”

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	Year ended March 31,
	2004(5)		2004			2003			2002			2001			2000
									(restated)(1)
	(in millions, except earnings and dividends per share and per ADS and weighted average shares)
Profit and Loss Account Information:
UK GAAP
Turnover	$	2,774	£	1,516		£	1,903		£	2,049		£	2,124		£	2,058
Turnover—continuing operations		2,774		1,516			1,528			1,701			2,124			2,058
Turnover—discontinued operations(4)		—		—			375			348			—			—
Operating profit/(loss)		622		340			(3,802	)		(281	)		280			412
Operating profit/(loss)—continuing operations		622		340			(3,899	)		(333	)		280			412
Operating profit/(loss)—discontinued operations(4)		—		—			97			52			—			—
Profit/(loss) before taxation		425		232			(4,292	)		(493	)		57			225
Taxation		4		2			368			(25	)		(48	)		(118	)
Profit/(loss) after taxation		429		234			(3,924	)		(518	)		9			107
Dividends(2)		—		—			—			(48	)		(48	)		(48	)
Basic earnings/(loss) per ordinary share(s)		71.2		38.9	p		(654.7	)p		(88.5	)p		1.2	p		16.4	p
Basic earnings/(loss) per ordinary share(s)—continuing operations		71.2		38.9	p		(670.8	)p		(97.2	)p		1.2	p		16.4	p
Basic earnings/(loss) per ordinary share(s)—discontinued operations(4)		—		—			16.1	p		8.7	p		—			—
Basic earnings/(loss) per ADS(3)		5,339		2,918	p		(49,103	)p		(6,638	)p		90	p		1,230	p
Basic earnings/(loss) per ADS(3)—continuing operations		5,339		2,918	p		(50,310	)p		(7,290	)p		90	p		1,230	p
Basic earnings/(loss) per ADS(3)—discontinued operations(4)		—		—			1,208	p		652.5	p		—			—
Diluted earnings/(loss) per ordinary share(s)		71.2		38.9	p		(654.7	)p		(88.5	)p		1.2	p		16.1	p
Diluted earnings/(loss) per ordinary share(s)—continuing operations		71.2		38.9	p		(670.8	)p		(97.2	)p		1.2	p		16.1	p
Diluted earnings/(loss) per ordinary share(s)—discontinued operations(4)		—		—			16.1	p		8.7	p		—			—
Diluted earnings/(loss) per ADS(3)		5,339		2,918	p		(49,103	)p		(6,638	)p		90	p		1,208	p
Diluted earnings/(loss) per ADS(3)—continuing operations		5,339		2,918	p		(50,310	)p		(7,290	)p		90	p		1,208	p
Diluted earnings/(loss) per ADS(3)—discontinued operations(4)		—		—			1,208	p		652.5	p		—			—
Dividends per ordinary share, net(2)		—		—			—			8.0	p		8.0	p		8.0	p
Dividends per ADS, net(2)(3)		—		—			—			600.0	p		600.0	p		600.0	p

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	Year ended March 31,
	2004(5)			2004			2003			2002			2001			2000
							(restated)(6)			(restated)(1)(6)
	(in millions, except earnings and dividends per share and per ADS and weighted average shares)
US GAAP
Turnover	$	2,774		£	1,516		£	1,903		£	2,049		£	2,124		£	2,058
Turnover—continuing operations		2,774			1,516			1,528			1,701			2,124			2,058
Turnover—discontinued operations(4)		—			—			375			348			—			—
Profit/(loss) after taxation		13,839			7,562			(7,800	)		(343	)		(124	)		40
Basic earnings/(loss) per ordinary share(s)		2,298			1,256	p		(1,296	)p		(57.4	)p		(21.0	)p		6.3	p
Basic earnings/(loss) per ordinary share(s)—continuing operations		2,298			1,256	p		(1,305	)p		(60.2	)p		(21.0	)p		6.3	p
Basic earnings/(loss) per ordinary share(s)—discontinued operations(4)		—			—			8.8	p		2.8	p		—			—
Basic earnings/(loss) per ADS(3)		172,386			94,200	p		(97,176	)p		(4,302	)p		(1,575	)p		472.5	p
Basic earnings/(loss) per ADS(3)—continuing operations		172,386			94,200	p		(97,836	)p		(4,512	)p		(1,575	)p		472.5	p
Basic earnings/(loss) per ADS(3)—discontinued operations(4)		—			—			660	p		210	p		—			—
Diluted earnings/(loss) per ordinary share(s)		2,298			1,256	p		(1,296	)p		(57.4	)p		(21.0	)p		6.1	p
Diluted earnings/(loss) per ordinary share(s)—continuing operations		2,298			1,256	p		(1,305	)p		(60.2	)p		(21.0	)p		6.1	p
Diluted earnings/(loss) per ordinary share(s)—continuing operations		—			—			8.8	p		2.8	p		—			—
Diluted earnings/(loss) per ADS(3)		172,386			94,200	p		(97,176	)p		(4,302	)p		(1,575	)p		457.5	p
Diluted earnings/(loss) per ADS(3)—continuing operations		172,386			94,200	p		(97,836	)p		(4,512	)p		(1,575	)p		475.5	p
Diluted earnings/(loss) per ADS(3)—discontinued operations(4)		—			—			660	p		210	p		—			—
Weighted average number of ordinary shares(millions)		602			602			602			598			597			651
	As at March 31,
	2004(5)			2004			2003			2002			2001			2000
								(restated)(1)
	(in millions)
Balance sheet information:
UK GAAP
Fixed assets	$	1,715		£	937		£	763		£	4,909		£	5,245		£	5,620
Total assets		4,893			2,674			2,177			6,775			6,784			7,051
Provisions and long term liabilities		(8,036	)		(4,391	)		(4,375	)		(5,173	)		(4,931	)		(4,490	)
Equity shareholders’ (deficit)/funds		(5,960	)		(3,257	)		(3,476	)		490			1,075			1,110

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	As at March 31,
	2004(5)			2004			2003			2002			2001			2000
							(restated)(6)			(restated)(1)(6)
	(in millions)
US GAAP
Fixed assets	$	2,134		£	1,166		£	997		£	8,259		£	8,082		£	8,517
Total assets		4,672			2,553			2,175			10,250			9,766			11,823
Provisions and long term liabilities		(4,570	)		(2,497	)		(10,122	)		(10,367	)		(9,756	)		(11,024	)
Equity shareholders’ (deficit)/funds		(2,858	)		(1,562	)		(9,230	)		(1,145	)		(736	)		(545	)
	Year ended March 31,
	2004(5)			2004			2003			2002			2001			2000
										(restated)(1)
	(in millions)
Cash Flow Information:
UK GAAP
Operating profit/(loss) including exceptional items	$	622		£	340		£	(3,802	)	£	(281	)	£	280		£	412
Exceptional items		(518	)		(283	)		3,906			512			(54	)		16
Operating profit excluding exceptional items		104			57			104			231			226			428
Depreciation charges		92			50			287			285			277			260
Nuclear liabilities charged to operating costs		238			130			105			156			132			141
Nuclear liabilities discharged		(108	)		(59	)		(115	)		(332	)		(319	)		(310	)
Other provisions discharged		(5	)		(3	)		(45	)		(43	)		(39	)		(34	)
Regular contributions to UK decommissioning fund		(35	)		(19	)		(18	)		(18	)		(17	)		(17	)
Working capital:
Decrease in stocks		18			10			60			66			27			4
Decrease/(increase) in debtors		7			4			(18	)		(117	)		97			(54	)
Increase/(decrease) in creditors		(26	)		(14	)		(24	)		152			(107	)		32
Net cash inflow from operating activities		285			156			336			380			277			450
Payments to acquire tangible fixed assets								(282	)		(225	)		(133	)		(137	)
Net cash inflow from operating activities net of capital expenditure		285			156			54			155			144			313

⁽¹⁾ Our consolidated financial statements were restated in 2002 to reflect the retroactive application of the UK Accounting Standards Board’s Financial Reporting Standard No. 19—Deferred Tax, FRS 19. FRS 19 came into effect with respect to all accounting periods ending after January 23, 2002 and requires that, when calculating the amount of taxation, full provisions be made for all timing differences for deferred taxes.

⁽²⁾ Dividends per share exclude any associated UK tax credit available to certain holders of ordinary shares.

⁽³⁾ Calculated based on a ratio of 75 ordinary shares for one ADS. On March 18, 2003, we increased the ratio of four ordinary shares for one ADS to the current ratio of 75 ordinary shares for one ADS.

⁽⁴⁾ The turnover for discontinued operations which related to Bruce Power (our interest in which was sold on February 14, 2003) are set out on a 100% holding basis. Our share in Bruce Power was 82.4% prior to the disposal.

⁽⁵⁾ Translated solely for the convenience of the reader, at $1.83 to £1.00, the closing exchange rate at March 31, 2004.

⁽⁶⁾ Our US GAAP financial statements for the years ended March 31, 2003 and March 31, 2002 were restated for certain items in connection with Statement of Financial Accounting Standard No. 133, Accounting for Derivatives and Hedging Activities. For further information, see “Item 5. Operating and Financial Review and Prospects—US Generally Accepted Accounting Principles—Restatement of Prior Years Result.”

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	Year ended March 31,
	2004			2003			2002
	(in millions)
Other Financial Information:
Profit/(loss) after tax and exceptional items—UK GAAP	£	234		£	(3,924	)	£	(518	)
Interest (including exceptional items)		59			134			66
Revalorization (including exceptional items)		117			364			187
Tax (including exceptional items)		(2	)		(368	)		25
Depreciation charges		50			273			280
Exceptional depreciation (credits)/charges due to impairment review		(295	)		3,738			300
EBITDA(1)		163			217			340
(Gain)/loss on sale of business		(47	)		35			(4	)
AmerGen profits		(21	)		(43	)		(37	)
Bruce Power contributions		—			(97	)		(52	)
Net exceptional charges other than depreciation, interest, tax and revalorization		12			168			212
EBITDA—continuing activities(1)		107			280			459

⁽¹⁾ EBITDA represents earnings before interest, taxes, depreciation, amortization and related exceptional items. EBITDA and EBITDA from continuing activities are not GAAP measures in either the UK or in the United States and should not be considered in isolation or as a substitute for, or as an alternative to, net income, operating income, cash flow from operations, other cash flow data or any other performance measures prepared in accordance with UK GAAP or US GAAP. For additional information regarding the use of EBITDA, see “Presentation of Financial and Other Data—Non-GAAP Financial Measures—EBITDA.”

Dividends

Our Board of Directors did not declare any dividends for the years ended March 31, 2003 and 2004. In prior fiscal years, we have paid interim and final dividends in January and July respectively. It is our intention to pay dividends when the requirements of the business permit, subject to the availability of distributable reserves and other factors. However, we do not anticipate declaring dividends in respect of the two financial years ending March 31, 2005 and 2006, as we believe that any available funds should be reinvested in our business to achieve a successful turnaround. (See “Item 4. Information about the Company—Restructuring” and “Item 13. Dividend Arrearages and Delinquencies”). The following table sets out the dividends paid on ordinary shares and ADSs in respect of the past five fiscal years, excluding any associated UK tax credit in respect of such dividends.

	Year ended March 31,
	2004	2003	2002	2001	2000
	(in pence)
Pence per ordinary share(1)
Interim	—	—	2.7	2.7	5.7
Final	—	—	5.3	5.3	2.3
Total	—	—	8.0	8.0	8.0
	Year ended March 31,
	2004	2003	2002	2001	2000
	(in dollars)
US dollar per ADS:(1)(2)(3)
Interim	—	—	3.00	3.00	6.75
Final	—	—	5.63	5.63	2.81
Total	—	—	8.63	8.63	9.56

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⁽¹⁾ Dividends per share and per ADS exclude any associated UK tax credit available to certain holders of ordinary shares and ADSs. Dividends paid by the Depositary in respect of ADSs are paid in US dollars based on a market rate of exchange that differs from the Noon Buying Rate.

⁽²⁾ Calculated on a ratio of 75 ordinary shares for one ADS.

⁽³⁾ Dividends have been translated from pounds sterling into US dollars, solely for the convenience of the reader at the Noon Buying Rate in effect at the date of payment. As our dividends are paid in pounds sterling, exchange rate fluctuations will affect the US dollar amounts received by holders of ADSs on conversion by the Depositary of such cash dividends.

Exchange Rates

Dividends have been paid in pounds sterling. Exchange rate fluctuations have affected the US dollar amounts received by owners of the ADSs on conversion by the Depositary of such cash dividends. In addition, fluctuations in the exchange rate between pounds sterling and US dollars have affected the US equivalent of the quoted pounds sterling price of ordinary shares on the Daily Official List of the London Stock Exchange, and as a result, will likely affect the market price of ADSs in the United States.

The following table sets forth, for the periods and dates indicated, the noon buying rate in The City of New York as certified for customs purposes by the Federal Reserve Bank of New York, which we refer to as the Noon Buying Rate, for cable transfers in British pounds sterling, expressed in US dollars per British pound sterling. We provide these rates for your convenience only, and they are not the rates of exchange we used to prepare our consolidated financial statements included elsewhere in this annual report. We are not representing that British pounds sterling amounts have been or could be converted into US dollars at any of the exchange rates indicated.

Year ended December 31,	High		Low		Average(1)		Period
1999	$	1.68	$	1.55	$	1.62	$	1.60
2000	$	1.65	$	1.40	$	1.50	$	1.50
2001	$	1.50	$	1.37	$	1.44	$	1.45
2002	$	1.61	$	1.41	$	1.45	$	1.61
2003	$	1.68	$	1.55	$	1.61	$	1.59
2004 (through September 24, 2004)	$	1.90	$	1.75		—		—

⁽¹⁾ The average of the Noon Buying Rates on the last business day of each month during the relevant period.

The following table sets forth, for the six full months prior to the date of this annual report, the high and low Noon Buying Rates.

Month 2004	High	Low
March	1.8680	1.7943
April	1.8564	1.7674
May	1.8369	1.7544
June	1.8386	1.8090
July	1.8708	1.8160
August	1.8459	1.7921
September (through September 24, 2004)	1.8031	1.7733

Except as we specify otherwise, we converted exchange rate translations in this annual report at the rates in effect on March 31, 2004, which correspond to the rates we used to prepare our consolidated financial statements.

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ITEM 4.    INFORMATION ON THE COMPANY

Overview

Our principal activities are the generation, sale and trading of electricity. We are the UK’s largest generator of electricity, producing over one fifth of the UK’s electricity and employing approximately 5,150 staff. We own and operate eight nuclear power stations and one coal-fired power station in the UK. Of our nuclear power stations, seven are AGR power stations (Dungeness B, Hartlepool, Heysham 1, Heysham 2, Hunterston B, Hinkley Point and Torness) and the eighth (Sizewell B) is our sole PWR power station. Our nuclear power stations have a combined capacity of approximately 9,600 MW. Eggborough, our coal-fired power station in Yorkshire has capacity of 1,970 MW. During the year ended March 31, 2004, our power stations produced total output of 72.6 TWh, which was comprised of output of 65.0 TWh from our nuclear power stations and 7.6 TWh from Eggborough, our coal-fired power station. British Energy Power and Energy Trading Limited, one of our subsidiaries arranges the balancing of our electricity generation and supply.

During the periods under review, we made two significant divestitures: in February 2003 we disposed of our majority interest in Bruce Power, which operates the Bruce nuclear power station in Canada and in December 2003 we sold our 50% interest in AmerGen, a joint venture which operates three nuclear power stations in the United States.

We generated turnover of £1,516 million during the year ended March 31, 2004 resulting in operating profits of £57 million before exceptional operating credits of £283 million. During the year ended March 31, 2003, we generated turnover of £1,903 million, of which £1,528 million was from continuing activities, resulting in operating profits from continuing activities of £7 million before exceptional operating items of £3,906 million. Operating profits from continuing activities after exceptional operating credits were £340 million during the year ended March 31, 2004 as compared with an operating loss from continuing activities after exceptional operating costs of £3,802 million during the year ended March 31, 2003.

We use a variety of routes to market in the UK, including sales to the wholesale market, direct sales to large industrial and commercial customers and sales via long-term contracts. For a description of our sales activities see the paragraph below headed “Electricity Sales”. Our business is subject to a high degree of regulation in a number of areas, including nuclear and industrial safety, electricity generation, trading and supply, and the environment. For a description of our regulatory environment, see the paragraph below headed “Regulation”.

Restructuring

Work to implement our financial restructuring (the “Restructuring”) continued throughout the year and we achieved a number of significant milestones. In particular, on October 1, 2003 we announced that we had reached formal agreement on the terms of the Restructuring with the Government and certain of our creditors. During the financial year ended March 31, 2004 we also completed the sale of our 50% interest in AmerGen. The key terms of the Restructuring are set out in various agreements described below:

The Restructuring Agreements

(a) the Creditor Restructuring Agreement dated as of September 30, 2003 (as amended by a side letter entered into on October 31, 2003) among British Energy, certain other British Energy Group companies, the bank syndicate that provided financing for Eggborough (the “Eggborough Banks”), The Royal Bank of Scotland plc (“RBS”), Teesside Power Limited (“TPL”), Total Gas & Power Limited (“Total”) and Enron Capital & Trade Europe Finance LLC (“Enron”)

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(TPL, Total and Enron (which have subsequently transferred their respective interests to Deutsche Bank) collectively referred to as the “Significant Creditors”), the members of the ad hoc committee of British Energy’s bondholders (“Bondholders”) and British Nuclear Fuels plc (“BNFL”) (the “Creditor Restructuring Agreement”). By October 31, 2003, the Creditor Restructuring Agreement had been acceded to by all the Eggborough Banks and by Bondholders representing in aggregate with RBS, 88.8% of the combined amount owing to Bondholders; and

(b) the Government Restructuring Agreement, dated October 1, 2003 among British Energy and certain of our subsidiaries, the Secretary of State, the Nuclear Generation Decommissioning Fund Limited (the “Decommissioning Fund”) and the trustees of the Nuclear Trust (the “Government Restructuring Agreement”.

The principal elements of the Restructuring are as follows:

• the Bondholders, RBS, the Significant Creditors and the Eggborough Banks have agreed (subject to certain conditions) to compromise their existing unsecured claims in exchange for £275 million of new bonds (the “New Bonds”) to be issued by the restructured British Energy Group and at least 97.5% of the new ordinary shares (the “New Shares”) of the restructured British Energy Group. RBS and Bondholders will compromise their claims under a Court-approved scheme of arrangement (the “Creditors’ Scheme”) which must also be approved by a majority in number of those creditors representing three-fourths in value of their claims against us. The other Creditors have agreed to compromise their claims under the provisions of the Creditor Restructuring Agreement itself;

• the Decommissioning Fund will be enlarged and renamed the Nuclear Liabilities Fund (the “NLF”). The NLF will fund certain of our uncontracted nuclear liabilities and costs of decommissioning our nuclear power stations and the Government will fund these decommissioning costs and uncontracted nuclear liabilities to the extent they exceed the assets of the NLF, as well as contracted liabilities for historic spent fuel, subject to certain exceptions;

• in consideration for the assumption of the liability referred to above, the restructured British Energy Group will issue £275 million in New Bonds to the NLF. In addition, the restructured British Energy Group will make the following payments to the NLF: (i) fixed decommissioning contributions of £20 million per annum (indexed to the Retail Price Index, and subject to reduction as stations are closed); (ii) £150,000 (indexed to the Retail Price Index) for every tonne of fuel loaded into the Sizewell B reactor after completion of the Restructuring; and (iii) an annual contribution of up to 65% of our adjusted cash flow (after payment of debt service requirements) (the “NLF Cash Sweep”). The NLF Cash Sweep is subject to adjustment but will not exceed 65% of our adjusted cash flow;

• the NLF may convert the NLF Cash Sweep into convertible shares of the restructured British Energy equal to the same percentage of the thereby enlarged issued share capital. The terms of the convertible ordinary shares into which such entitlement will convert will limit the general voting rights attaching to such shares to a maximum 29.9%;

• the Eggborough Banks as lenders with security over the Eggborough coal-fired station and the shares of Eggborough Power Limited (“EPL”), have agreed (subject to certain conditions) to exchange their secured claims for a right to receive payments under an Amended and Restated Credit Agreement (the “Amended Credit Agreement”) equivalent to £150 million of New Bonds (the “CTA Bonds”). In addition, the Eggborough Banks will have an option to acquire the Eggborough power station in 2010 upon payment of a £104 million break fee and the extinguishment of the then outstanding CTA Bonds. This option may be accelerated in the event of a default under the Amended Credit Agreement;

• the BNFL contracts for front-end and back-end related fuel services to our AGR Stations have been amended; and

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• the standstill arrangements entered into by us and certain of our creditors on February 14, 2003 have been extended and will continue while the Restructuring is being completed (subject to the occurrence of certain termination events).

The Government Facility

The Government Facility provided to us by the Secretary of State was granted on September 9, 2002 for up to £410 million to provide working capital for our immediate requirements and to allow us to stabilize our trading position in the UK and North America. It was subsequently extended and increased to £650 million before being reduced to a £200 million facility in March 2003. As at September 28, 2004 there was no outstanding balance on the Government Facility. Under its terms the Government Facility matures on the earlier of (i) January 31, 2005, (ii) the date on which the Restructuring becomes effective and (iii) any date notified by the Secretary of State to us on which repayment of amounts outstanding under the Government Facility are required as a result of a European Commission (the “Commission”) decision or an obligation under EU law. Following the receipt by the Secretary of State of notification from the Commission that as far as Restructuring involves the grant of State Aid by the Government, such aid is compatible with the Common Market, no further drawings can be made under the Government Facility. On September 29, 2004 the final maturity date of the Government Facility was amended from September 30, 2004 to January 31, 2005.

Receivables Facility

On August 25, 2004 British Energy Generation Limited ("BEG") entered into a three year trade receivables financing facility ("Receivables Facility") with a financial institution under which, on utilization, BEG will sell to the financial institution on a full recourse basis receivables arising from its direct supply business. The amount of funding available to BEG under the Receivables Facility is limited to £60 million and is dependent on the amount of eligible receivables available at utilization, which, in turn, is subject, inter alia, to seasonal changes in the demand and price for electricity and to limits on customer concentrations within the receivables portfolio. On completion of the Proposed Restructuring the Receivables Facility will be guaranteed by the other principal companies within the Group (excluding EPL). The Receivables Facility is subject to customary representations, warranties and covenants appropriate to the financial situation of BEG and the prospective guarantors. Events of default include, inter alia, non-payment, cross-default, occurrence of insolvency related events, revocation of the electricity supply license and the exercise by the Secretary of State of her right not to proceed with the Proposed Restructuring if, in her opinion, the Group will not be viable without access to additional financing. As at September 28, 2004, the Receivables Facility remains unutilized.

Impact of the Restructuring on Existing Shareholders

As part of the Restructuring, we propose to cancel our existing ordinary shares of 44 28/43 pence each and A shares of 60 pence each (the “Shares”) under a scheme of arrangement with our shareholders (the “Members’ Scheme”), and issue to shareholders: (i) new shares (the “New Shares”) in British Energy Group plc equal to 2.5% of the issued share capital of a newly incorporated ultimate parent company of the British Energy Group (“British Energy Group plc”) immediately following implementation of the Restructuring, and (ii) warrants to subscribe for a maximum of 5% of the thereby diluted ordinary issued share capital of British Energy Group plc (excluding, amongst others, the impact of conversion of the NLF Cash Sweep described above) immediately following implementation of the Restructuring (“Warrants”).

If the shareholders do not approve the Members’ Scheme or for any other reason the Members’ Scheme is not implemented, but shareholders instead vote in favor of the Company selling all its business and assets to British Energy Holdings plc, a directly wholly-owned subsidiary of British Energy Group plc (the “Disposal”), they will receive only the Warrants. The Creditor Restructuring Agreement requires that, absent shareholder approval, the Restructuring will be completed by delisting our shares from the Official List thus avoiding the requirement for shareholder approval under the existing Listing Rules. The UKLA has published a consultation paper proposing that a rule change should be made which would require shareholder consent for delisting. Our directors are confident that

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the introduction of any new rule would only apply to companies which have not announced or given notice of firm and agreed delisting proposals for the first time prior to the rules becoming effective. Our directors further consider that such notice, on the basis of the several statements already made as to the intention to de-list, has already been given by us, or if necessary, could be given in good time. If the shareholders do not vote in favor of either proposal, they will not receive any New Shares or Warrants.

The subscription price for the warrants which shareholders would receive in the circumstances detailed above is £28.95 million in aggregate, equivalent to an equity market capitalization of the restructured British Energy of £550 million following implementation of the Restructuring.

Bruce Power

We completed the sale of our 82.4% interest in Bruce Power and our 50% interest in Huron Wind on February 14, 2003.

On April 28, 2003, we announced that we had received C$20 million which had been retained on completion of the sale of Bruce Power for the possible price adjustment relating to pensions following confirmation that no such adjustment was required.

In addition to the consideration received at the time of the disposal of its interest in Bruce Power, we were entitled to receive up to C$100 million, contingent on the restart of two of the Bruce A Units (Units 3 and 4). On March 22, 2004 we received the sum of C$20 million in respect of the restart of Unit 4 and on May 25, 2004 we received a further C$10 million in respect of the Unit 3 restart. Discussions are ongoing with the Ontario Provincial Government regarding the release of further sums (if any). The total amount that will be released in respect of the restarts will be significantly less than C$100 million.

On February 12, 2004 we received a notice of warranty claims from the consortium which purchased the Group’s interest in Bruce Power alleging breach of certain warranties and representations relating to tax and to the condition of certain plant at the Bruce power station. Under the agreement with the consortium C$20 million is retained in trust to meet any representation and warranty claims, and this may be retained pending agreement or determination of the claims. Further details of these claims can be found in “Item 5. Operating and Financial Review and Prospects—Contingent Liabilities”.

New Contracts with BNFL

On May 16, 2003, we announced that we had exchanged the suite of contracts covering front end and back end fuel services, required to give effect to non-binding heads of terms which it entered into with BNFL on November 28, 2002. The revised front end and back end fuel contracts that have been agreed with BNFL provide an important partial hedge against market price movement on approximately 50% of our total nuclear output.

The front end contracts became effective on April 1, 2003 but may be terminated if the Restructuring is not completed. The back end contracts are conditional on completion of the restructuring but, under the terms of the standstill agreement, pending formal implementation of the revised back end contracts, payment from us to BNFL will be made as if the revised back end contracts had become effective on April 1, 2003.

At the same time, we announced that new contracts had also been entered into for the sale of all of our natural and enriched uranium stocks to BNFL and their ongoing supply and procurement by BNFL. BNFL purchased the majority of our existing uranics stocks for some £50m and now provides us with a full uranics supply service (including an obligation to use all reasonable endeavors to achieve

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the lowest possible price for uranium to be supplied to us). The remaining stocks were subsequently purchased by BNFL later in the year. Under the new lifetime arrangements (which are terminable however after an initial period of seven years) BNFL will supply the uranics required for our AGR stations in England, and will also supply enriched uranium for PWR fuel fabrication. BNFL will continue to supply uranics for our AGR stations in England, and will also supply enriched uranium for PWR fuel fabrication. BNFL will continue to supply uranics for our AGR stations in Scotland under existing arrangements until 2006, when similar arrangements to those applicable in England will take effect.

In addition, we have entered into an agreement whereby we will provide computer implementation support services to the BNFL for a fee of £10 million per annum plus certain incremental costs. This project is expected to be completed by March 31, 2005.

BNFL deferrals

Certain of our contractual arrangements with BNFL provide for BNFL to use its reasonable endeavors to meet our requirements for deferring payments or for us to use our reasonable endeavors to meet BNFL’s requirements for receiving advance payments under those agreements respectively, so long as neither party is adversely affected.

In exercise of this provision, we agreed with BNFL in June 2004 that the payment of certain charges due and invoiced by BNFL in July, August and September under our existing and post 2006 fuel supply agreements covering fuel supplied to BEG, up to a maximum of £20 million, may be deferred in each of the financial years of 2004/05, 2005/06 and 2006/07 providing we are in compliance with our other payment obligations under the agreements. These deferrals will allow us to better align the payments due in any one of these three years for fuel more closely with the receipts from the sales of our electricity in the same year.

We have deferred the agreed sum of £20 million in this financial year under this agreement and have stated to BNFL that it is our intention to pay the amounts in respect of the July invoiced payments on February 1, 2005 and to pay the amounts in respect of the August and September invoiced payments on March 1, 2005. The interest payable on such deferred amounts for the period of the deferral is at the contractual late payment interest rate of LIBOR plus 2%. Interest is calculated every three months, upon which BEG has an option to pay this interest or add it to the deferred payment amount.

Disposal of Interest in AmerGen

In September 2002, British Energy and Exelon, equal joint venture partners in AmerGen announced their intention jointly to sell their investment. The disposal process did not attract suitable offers and on March 7, 2003 we announced that we had decided, jointly with Exelon, to terminate the sale process as both parties together concluded that none of the proposals received adequately reflected AmerGen’s intrinsic value. At that time we stated that we were continuing to take steps to realize our 50% interest in AmerGen.

On September 11, 2003, we announced that we and certain of our subsidiaries had entered into a conditional agreement to dispose of our interest in AmerGen to the FPL Group Inc. (“FPL”) for approximately US$277 million, subject to various potential adjustments. FPL had been selected by us to purchase our interest following a competitive bidding process.

This announcement highlighted the fact that Exelon had a right of first refusal to purchase our interest on the same terms and conditions and at the same price as those offered by FPL. Subsequently, on October 3, 2003, Exelon exercised its right of first refusal. The terms and conditions of the disposal were formally agreed on October 10, 2003.

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As a result of Exelon’s exercise of its right of first refusal, the original agreement with FPL terminated on October 13, 2003 following the service of formal notice to that effect by us. As a consequence, a break fee of US$8.3 million became payable by us to FPL.

On December 23, 2003 we announced the completion of the disposal of our interest in AmerGen and received initial consideration of approximately US$277 million prior to adjustments relating to working capital levels, unspent nuclear fuel, inventory, capital expenditures and low-level waste disposal costs which were to be determined as at the time of closing. Finalization of these adjustments is still outstanding and is subject to dispute. For further information, see “Item 3. Risk Factors—We are involved in several disputes that if resolved or determined against our interests could adversely affect our profitability and our cash flow.”

Approximately £94 million of the consideration was used to pay down outstanding amounts under the Government Facility and the balance was retained for corporate purposes.

Further steps

We are continuing to work hard with our advisers to complete the Restructuring. This requires, among others:

• preparation and publication of Creditors’ Scheme and Members’ Scheme documentation and a prospectus in relation to the New Shares, New Bonds and Warrants to be issued under the Restructuring;

• settling certain documents with creditors;

• the holding of creditors’ and members’ meetings;

• approval of the relevant UK Court in relation to the Creditors’ Scheme; and

• implementation and listing of the New Shares, Warrants and New Bonds.

Our ordinary shares are currently listed on the New York Stock Exchange (“NYSE”) in the form of American Depositary Receipts (“ADRs”) and we have agreed to make efforts to obtain a new listing of the New Shares upon completion of the Restructuring in the form of ADRs on the NYSE. We have also agreed to report our quarterly and annual financial results in compliance with US Generally Accepted Accounting Principles, generally to comply with the requirements of the Sarbanes Oxley Act, and to file reports as if we were a US domestic reporting company. The NYSE suspended trading in our ADRs prior to the opening of trading on September 28, 2004. At that time, the NYSE also instituted delisting proceedings. For further information concerning the background to the suspension of our ADRs see “Recent Developments” below.

Unless otherwise agreed by the relevant parties, the Creditor Restructuring Agreement and the Government Restructuring Agreement will automatically terminate (and consequently the Restructuring will not be implemented) if the Creditors’ Scheme has not become effective by 12:00 p.m. on the earlier of: (i) 120 days after the last of the key conditions to the Restructuring have been satisfied and (ii) January 31, 2005 (the “Restructuring Long Stop Date”).

The Restructuring remains subject to a large number of important conditions, including:

• the Secretary of State’s entitlement not to proceed with the Restructuring if, in her opinion, we will not be viable in all reasonably foreseeable conditions without access to additional financing beyond that which is committed and will continue to be available when required;

• the restructured British Energy Group having sufficient working capital for its present requirements from the listing of the New Shares and New Bonds;

• there being no material adverse change on our (or on EPL’s) current or future business or operations, financial or trading position, profits or prospects or which is likely to have a material

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adverse effect on the value of the New Bonds, the New Shares, the CTA Bonds or the new Eggborough arrangements;

• the Creditors’ Scheme becoming effective;

• continuation of the standstill arrangements; and

• agreement on presently unsettled documents with creditors, Scottish court approval and listing of the New Shares and New Bonds referred to above and the delisting of the Company’s ordinary shares and A shares.

There are also a large number of significant uncertainties which may affect the Group’s cash flow position, performance or outlook.

If for any reason we are unable to implement the Restructuring, we may be unable to meet our financial obligations as they fall due, in which case we may have to take appropriate insolvency proceedings. If we were to commence insolvency proceedings, distributions, if any, to unsecured creditors may represent only a small fraction of their unsecured liabilities, and it is highly unlikely that there would be any return to shareholders. Even if the Restructuring is completed, the return, if any, for shareholders will represent a very significant dilution of their existing interests.

RECENT DEVELOPMENTS

Requisitioned Extraordinary General Meeting and Delisting

On September 3, 2004 two groups of shareholders, together holding 10.22% of our ordinary shares, requisitioned the Requisitioned EGM. Those groups of shareholders were Polygon and Brandes and their respective associates. We are, as a result, obliged under the Companies Act to call the Requisitioned EGM. One of the resolutions proposed by Polygon and Brandes would have the effect, if passed, of requiring the Company to seek shareholder approval prior to applying for the cancellation of its listings in London and New York. If we were required, under the terms of the Creditor Restructuring Agreement, to take steps to cancel the London listings of our shares, but could not do so as a result of a failure to achieve such shareholder approval, the Company believes, having taken legal advice, that it would be likely to be in breach of the Creditor Restructuring Agreement.

We announced on September 23, 2004 that the Requisitioned EGM will be held on October 22, 2004 and that as a result of this attempt to frustrate the Restructuring agreed by the Company in October 2003, we would be applying to the UKLA to cancel the listings of our ordinary and A Shares As a consequence, and as announced on September 23, 2004, the NYSE suspended trading in our ADRs prior to the opening of trading on September 28, 2004. At that time, the NYSE also instituted delisting proceedings. The suspension and possible delisting from the NYSE does not affect our status as a SEC registrant under the US Securities Exchange Act 1934, or our periodic reporting obligations.

On September 24, 2004 the Company announced (i) the unanimous recommendation of the Board to shareholders to vote against the resolutions proposed by Polygon and Brandes at the Requisitioned EGM, (ii) that it intended to seek an extension to the Creditor Restructuring Agreement long stop date of January 31, 2005 for the Restructuring and (iii) that, in accordance with the Creditor Restructuring Agreement, it would execute a business transfer agreement whereby the Company’s assets would, conditional on the Restructuring becoming effective, be transferred to a new intermediate holding company of the restructured British Energy group.

On September 30, 2004 Polygon announced that it would withdraw its support for the Requisitioned EGM. Polygon stated that, having considered the Company’s recent circulars, they now believe there is no commercial logic for it supporting the resolutions to be considered at the Requisitioned EGM and consequently have confirmed that they will vote against the resolutions and not further oppose the Restructuring. The Requisitioned EGM will take place on October 22, 2004 as described in the notice mailed to our shareholders. Our Board continues to reiterate its unanimous recommendation to all shareholders to vote against the resolutions proposed for the Requisitioned EGM.

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State Aid Approval

On September 22, 2004 we announced the receipt by the Secretary of State of notification from the Commission that as far as Restructuring involves the grant of State Aid by the Government, such aid is compatible with the Common Market. The Commission’s decision is subject to the following conditions:

• the Company’s nuclear generation business will be ring-fenced from its fossil fuel, supply and trading businesses to ensure the aid to the nuclear business is not used to cross subsidize any other of the company’s businesses. This measure will last indefinitely;

• there is to be no nuclear or fossil-fuelled capacity expansion (above our current capacity) by the Company in the European Economic Area for six years, and no hydro-electric capacity expansion in the UK for the same period; and

• a restriction on the Company selling to its industrial and commercial customers at prices below the prevailing wholesale market price for six years unless there are exceptional market circumstances as determined by an independent expert.

The European Commission has set down an additional requirement that a threshold of £1.629 billion be set for the aid, above which the Commission can request enhanced reporting to satisfy themselves that the aid is being kept to a minimum and is only being used for authorized purposes.

Indicative Ratings for New Bonds

We have been in discussions with Fitch Ratings, Moody’s Investor Services and Standard & Poor’s Rating Services (“the Rating Agencies”) with regard to obtaining credit ratings for the £550 million of new bonds that are to be issued to certain of our creditors and to the NLF upon completion of the Restructuring pursuant to the terms announced on October 1, 2003.

Preliminary discussions were held with the Rating Agencies last year in advance of agreement on the terms of the Restructuring and it was stated in our announcement made on October 1, 2003 that one rating agency had provided an indicative rating for the new bonds of investment grade and two rating agencies had provided indicative ratings at non-investment grade.

On September 23, 2004, we announced that the Rating Agencies had updated their analysis and that all three agencies had now provided indicative non-investment grade ratings for the Company.

These ratings remain prospective and indicative and are subject to the Restructuring being completed in its proposed form in accordance with the assumptions that have been provided to the Rating Agencies for the purpose of the indicative prospective rating assessment. These ratings will only be finalized when the new bonds are issued upon completion of the Restructuring.

These ratings do not apply to the additional £150 million of bond-equivalent payments that will be issued to certain lenders to EPL through the Amended Credit Agreement, which will not be rated.

Classification of British Energy in the Public Sector

On September 24, 2004 the United Kingdom Office for National Statistics (‘‘ONS’’) announced that, with effect from September 9, 2002, the date on which the Government Facility was granted, the Company will be classified in the public sector. This classification was stated by the ONS to reflect the degree of control that can be exercised by the Government over us, first through the Credit Facility, and then as a result of our Restructuring. Prior to this announcement the ONS classified British Energy as part of the private sector.

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The ONS’s decision was made for UK National Accounts purposes and was dependent upon a judgment about the degree of control exercised by Government. The ONS has acknowledged that, following completion of the Restructuring, no one factor constitutes the degree of control necessary for a classification in the public sector. The decision is based on the view that, taken together, a number of factors represent a high degree of Government control. For further information on the background to and terms of the Restructuring, see “Item 4. Information on the Company—Restructuring’’ and note 1 to our financial statements beginning on page F-1.

The ONS have noted that as the Restructuring process has not been finalized, some of the details of their decision may change, and as a result this classification (as it will apply to the Company following the completion of the Restructuring) is provisional.

The UK National Accounts are produced by the ONS and provide an internationally compatible accounting framework that describes the activities in a national economy, including the transactions that take place between sectors of that economy.

We are currently assessing the implications of this decision for our business. In particular, we are giving thought to those relationships that will exist post-Restructuring that may require to be disclosed as ‘‘Related Parties’’ in our financial statements for the year ending March 31, 2005. We have not, as yet, finalized our conclusions on this. For further information see ‘‘Item 5. Operating and Financial Review and Prospects—Post Balance Sheet Events’’.

OUR BUSINESS

Our nuclear power stations

We own and operate two types of nuclear reactor namely, the advanced gas cooled reactor (“AGR”) and the pressurized water reactor (“PWR”). They differ in many respects including, amongst other things, in the types of fuels used and in the design of the reactor. Each of our seven AGR nuclear power stations, Dungeness B, Hartlepool, Heysham 1, Heysham 2, Hinkley Point B, Hunterston B and Torness, are powered by two AGRs. Sizewell B is powered by a single PWR. Whereas the AGR design is unique to the UK, the PWR design is the most common reactor type in the world.

As well as being unique to the UK, our AGR stations were constructed to varying specifications by different engineering consortia which we consider makes demonstrating safety cases for different reactors less straightforward and can mean that implementation of remedial action to make good a defect at one station cannot be replicated with ease at other differently designed stations. For further information on safety cases see the paragraph below headed “Station lifetimes”.

An AGR has a graphite moderator (which helps to control the reaction) which is comprised of large graphite bricks with channels for the fuel rods, control rods and pressurized carbon dioxide coolant. The reactor is encased in a steel-lined pre-stressed concrete pressure vessel several meters thick which also acts as a biological shield. The boilers in which the water is heated are situated inside the pressure vessel. The AGR uses enriched uranium for its fuel.

A PWR is contained inside a steel pressure vessel filled with pressurized water which acts as the coolant and moderator. Pressurized water is pumped around the reactor and through the boilers. The pressure vessel, boilers and connecting pipework are contained within a steel-lined pre-stressed concrete containment building, which acts as one of the multiple designed-in barriers to the release of radioactivity in the event of an accident. The fuel used is enriched uranium dioxide and is contained in zirconium alloy tubes.

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Operating regime

Capacity and output

The electrical output of a station depends on a combination of its overall generating capacity, the output level at which the station actually operates and its availability. The capacity of each station is reviewed and amended from time to time to reflect the long-term capability of the plant. The table below sets out the current capacity values for each of our nuclear stations, the output of each of our nuclear stations for each of the last five fiscal years and the percentage of the fleet’s load capacity that was achieved in each year (Annual Load Factor).

Station	Current Capacity (MW)(1)	Output(3) (TWh)/Year ended March 31,
		2004		2003		2002		2001		2000
Dungeness B	1,110	6.66		5.18		5.25		3.66		2.23
Hartlepool	1,210	8.28		9.34		8.83		9.09		9.32
Heysham 1	1,150	6.28		7.85		8.11		8.92		8.45
Heysham 2	1,250	9.81		9.30		9.03		10.05		6.41
Hinkley Point B	1,220	8.11		8.26		8.98		8.23		7.68
Hunterston B	1,190	8.77		8.93		9.85		6.43		8.88
Sizewell B	1,188	8.90		9.20		9.22		8.43		9.06
Torness	1,250	8.15		5.70		8.30		7.71		10.17
Total	9,568	64.96		63.76		67.57		62.53		62.20
Annual Load Factor(2)		77	%	76	%	81	%	75	%	74	%

⁽¹⁾ Capacities are stated net of all power consumed for the stations’ own use, including power imported from the National Grid.

⁽²⁾ Annual load factors are obtained by dividing the actual output by the output that would have been achieved had each station operated at its stated full load capacity in that year for the entire period.

⁽³⁾ Output in each year reflects any statutory, refueling and unplanned outages as discussed below.

The output levels which stations can achieve relative to their stated capacities are affected by a number of factors, including plant operating conditions and operating strategies, which can result in a station being operated at below its maximum capacity level. Station availability is principally affected by the number and duration of planned and unplanned outages and load reductions, such as those required to carry out refueling (as described below). Taking into consideration the impact of statutory outages and refueling (but excluding planned repair outages), the maximum annual load factor which could be achieved across our portfolio of stations is approximately 90%. This is less than the annual load factor which could be achieved at a PWR power station.

Statutory outages

Periodically, our reactors need to be shut down to allow for regulatory inspection and routine maintenance. We refer to these as statutory outages. The interval between the statutory outages is determined by the plant safety case which includes the requirements for inspection, maintenance and testing, and the arrangements in place to control this interval are approved by the Nuclear Installations Inspectorate (“NII”). Currently, each of our AGRs must initiate a statutory outage once every three years and our PWR once every 18 months.

After a statutory outage, the NII’s consent is required for a reactor’s return to service and this consent is dependent upon us demonstrating an adequate safety case in respect of that reactor. For more information on safety cases see the paragraph below headed “Station lifetimes”. We seek to reduce the impact of statutory outages on revenue by timing such outages to occur during periods of lower demand for electricity when prices are lower (generally between March and October). We also seek to reduce the duration of any statutory outages by improving the efficiency with which we conduct the required program of work. AGR statutory outages completed during the year ended March 31, 2004 had an average duration of 53 days, compared to 56 days in 2003 and 46 days in 2002. Statutory outages are limited to one reactor within each AGR station at any one time.

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Refueling operations

Reactor output is also affected by planned outages including load reductions required to carry out refueling. We conduct on-load refueling (i.e., refueling while the reactor’s power is reduced to between 20% and 40% of full power) at Hinkley Point B, Heysham 2, Hunterston B and Torness to help reduce the amount of output lost due to refueling. We refuel these reactors one at a time at each station. On-load refueling operations typically take a few days to complete and are repeated approximately every six weeks for each reactor.

At Heysham 1, Hartlepool and Dungeness B we refuel the reactors whilst they are off-load, which typically takes approximately one week. We also refuel these reactors one at a time at each station. This process typically occurs every five months for each reactor.

Improvements in fuel utilization have reduced the amount of refueling required at each reactor. In particular, we have developed more efficient fuel management techniques, such as increasing fuel enrichment and radial shuffling (the movement of partially burnt fuel assemblies from the edge of the reactor to the center so that more of the energy can be extracted from the fuel over a longer period) to increase the output extracted per tonne of fuel loaded. Radial shuffling is carried out routinely at Hinkley Point B and Hunterston B and radial shuffling safety cases have been developed for Hartlepool and Heysham 1, where the process is expected to start in 2004, and approximately one year later at Dungeness B. Radial shuffling is not carried out at Torness or Heysham 2 because we believe that to do so would disproportionately increase the time taken to complete refueling and therefore would be uneconomical.

We are presently in discussions with BNFL regarding possible further increases in fuel enrichment and changes to the fuel design that will further improve its utilization and also make it less susceptible to failure. For further details, see Item 3. Risk Factors.

PWRs are not designed to refuel on-load and must be shut down for refueling. Accordingly, we seek to time statutory outages at Sizewell B to coincide with refueling outages. Although Sizewell B has only one reactor, that reactor has a performance capacity comparable to the combined reactor capacity of both reactors at an AGR station and the impact of an outage is for the same period therefore substantially greater than that associated with a single AGR reactor. Sizewell B currently operates for a period of up to 18 months between statutory/refueling outages, the average length of which is 47 days. During refueling, approximately one third of the fuel is replaced.

Unplanned losses

Our level of unplanned losses in recent years has significantly affected the results of our operations. To date these unplanned losses have been caused by a variety of factors, amongst the most significant of which are problems with our refueling equipment and processes, turbine-generators, tendons, boilers, gas circulators (which are used to pump carbon dioxide coolant gas around the reactor core) and pipe work (which is used to carry sea water for cooling). We believe that these losses are indicative of a deterioration in the materiel condition of our plant over time caused by: (i) inadequate investment when compared with international benchmarks for spending at nuclear power stations (of the order of approximately £45m per annum across the fleet over five years); (ii) by a failure to perform required maintenance on a timely basis; and (iii) human errors in the operation and maintenance of plant including conducting our operations and maintenance functions on a station by station basis rather than a fleet wide basis. This conclusion is consistent with the findings of the World Association of Nuclear Operators (WANO) corporate review carried out in 2001 (details of which are set out in the paragraph below headed “Key findings from the WANO 2001 corporate review”). The table below sets forth the total unplanned losses (expressed in terawatt hours) for the periods under review.

Total unplanned losses (TWh)/Year to March 31,
2004	2003	2002	2001	2000
10.7TWh	10.6TWh	9.1TWh	12.8TWh	12.4TWh

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Performance Improvement Program

To address the issues described above and with a view to reducing the level of unplanned outages, in August 2003 we brought together a team within British Energy and engaged a consortium of experienced external consultants, led by Ove Arup and Partners International Limited, in conjunction with significant support from WANO, to design and implement a far-reaching Performance Improvement Program (PIP). Our PIP implementation team and power station management teams, supplemented with additional experienced nuclear professionals seconded from WANO, have targeted six focus areas namely: (i) foundation; (ii) training; (iii) human performance; (iv) equipment reliability; (v) management of work; and (vi) operational focus:

(i) Foundation provides the infrastructure to mobilize many of the changes planned across the fundamentals of human performance, equipment reliability, management of work and operational focus. Its focus is on creating a defined, aligned, effective and properly resourced organization with improved organizational effectiveness to help achieve excellence in nuclear plant operation. In addition, it aims systematically to develop management and leadership skills to meet station and corporate needs. We expect this aspect of the program will lead to our employing more engineering and technician staff to work at our nuclear power stations;

(ii) Training supports foundation and seeks to develop and maintain a knowledgeable, skilled nuclear staff by creating the appropriate training to enable staff effectively to do their job and ensure there is continual training to refresh and enhance skills.

(iii) Human performance involves promoting cultural change with a focus on accountability and striving for excellence, improving the skill sets of our operational support team and setting clear performance targets. We have sought to capture the essence of this objective by defining our corporate ethos (communicated to the vast majority of our employees) as “Safe, profitable and proud”. Examples of progress to date include a number of operationally experienced people being appointed to senior positions in our central support functions, improvements in our technical training function and the re-organization of operational staff that we have undertaken at station level;

(iv) Equipment reliability will involve significant investment to improve the materiel condition of our plant and to recover or attain higher levels of plant reliability and hence improve output levels. The asset survey review we recently concluded will be instrumental in seeking to identify and prioritize necessary expenditure over the next 5 years and to assist in ensuring that this expenditure is well targeted;

(v) Management of work follows on from the work management program initiated in 2001 and aims to improve the effectiveness and efficiency of maintenance work activities; to standardize processes for resolving issues across sites where commonality can provide benefits; and to redirect planning and work management processes to reduce maintenance backlogs by, for example, undertaking more maintenance at the same time as works undertaken in relation to planned and unplanned outages. Other key focuses are on keeping work scopes stable, improving adherence to work schedules and improving outage management across the fleet; and

(vi) Operational focus seeks to strengthen the management focus on excellence in nuclear operating performance. It includes the introduction of an effective corrective action program, redirecting our engineering teams to focus more closely on the health and performance of our systems (targeting the root cause of problems), ensuring operational challenges are identified and resolved prior to them impacting the operation of the stations, and promoting increased use of operating experience information to improve plant safety and reliability.

We envisage that PIP will evolve over time, as it is implemented, to reflect changes to our business and operations though its overriding objective – to reduce unplanned outages – would remain unchanged.

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Following an initial mobilisation phase which ended in July 2004 and which included an asset condition survey and the development of a plan of action, the next phase of PIP implementation, which will focus on staff organization, prioritization of work activities and human performance initiatives is targeted to complete, subject to availability of sufficient working capital headroom around April 2005. The final phase, which focuses on investing in the materiel condition of our plant, is targeted to complete, subject again to sufficient working capital headroom being available, by March 31, 2007. Certain aspects of remedial capital investment will, however, likely run beyond that into the financial year ending March 31, 2008.

The investment in the materiel condition of our plant will focus initially on those items which we believe from our asset survey condition, represent high priority issues. There can be no assurance that the items of plant which we have identified as lower priority issues, on the basis of information to date, will not be a cause of an unplanned outage in the future or that the order in which we deal with higher priority items of plant will prevent unplanned outages. Furthermore, we recognize that to successfully improve our overall business performance we will need to perform better across a number of different areas of our business such as trading.

By putting in place and implementing PIP, which in essence involves investing in our people, processes and plant, we are aiming to increase the reliability of our nuclear generating assets. PIP should also lead to a reduction in our maintenance backlog. We believe that as a result of PIP, if properly implemented, we will be better placed to play a role in any future review by Government of UK energy policy.

However, because of PIP’s wide ranging nature and the time and costs involved in implementing it, we do not expect to see the benefits of the hoped for improvement in operational reliability in the current or next financial year. The degree of improvement in operational reliability and the quantification of its impact on our financial results will depend on how the implementation of PIP progresses in the next 12 months but the directors believe, on the basis of other improvement programs implemented elsewhere in the world, that enhancements in output reliability should be capable of being achieved.

However, AGR power stations are unique to the UK and were built in the 1970s and 1980s by different design consortia to different design specifications. Accordingly, there can be no assurance that the improvement in reliability achieved in other nuclear power station improvement programs, upon which PIP is based and which have been undertaken on newer fleets of nuclear power stations based on non-AGR technology, will be capable of being achieved in respect of our AGR power stations.

Station lifetimes

The primary factor in determining the operating life of a nuclear power station is the technical and economic practicability of supporting an agreed safety case for that station. A safety case is the underlying written report that describes the steps taken to secure the safe operation of a power station as well as certain supporting documents built up over the years of the station’s operation that demonstrate the arrangements made for managing the safety of that station. The adequacy of the safety case for each power station is confirmed at each statutory outage by us undertaking a review of operating performance and by an inspection of the plant and passing the findings of such review and inspection to the NII. The NII must then give its consent to a reactor being restarted. As such a reactor may only be operated for the interval determined by the safety case which, in the majority of our AGR power stations, is currently three years. The NII’s consent to a restart is a matter determined by the NII in its sole discretion. Its decisions are made by reference to its satisfaction with the safety case at the reactor in question. From time to time such consent to restart is not received from the NII.

In addition, every ten years we have to undertake a Periodic Safety Review (“PSR”) for each nuclear power station. This, too, requires NII approval in order to secure continued operation. Following the first PSRs at our AGR stations, the NII gave its approval for a further ten years of

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operation for each station based on an agreed program of work for modifying the plant to ensure adequate safety cases. For further information on PSRs, see the heading below entitled “Periodic Safety Reviews”.

A key element in support of an AGR safety case is the ability to demonstrate the continuing integrity of the reactor’s graphite moderator core (as they may be uneconomic to replace) and is dependent on the NII’s perception of, among other things, the key technical issues such as the onset of graphite core brick cracking and reduced boiler life (which are discussed in greater detail in Item 3. Risk Factors). By contrast, the key element in support of a PWR’s safety case is the ability to show the continuing viability of the lifetime of the reactor pressure vessel (as this is unlikely to be economic to replace).

The assessment of the potential lifetimes of our stations used in our financial statements (and as set out below) is known as the “accounting life”. This is consistent with our technical assessment of the ability to make a secure safety case at each statutory outage and at the relevant PSR. The current potential lifetimes are set out in the following table.

Station	Lifetime	Estimated Closure Date	Date next PSR is submitted to NII	Date of expected response from NII
Dungeness B	25	2008	December 2006	January 2008
Hinkley Point B	35	2011	December 2005	January 2007
Hunterston B	35	2011	December 2005	January 2007
Heysham 1	30	2014	December 2007	January 2009
Hartlepool	30	2014	December 2007	January 2009
Torness	35	2023	December 2008	January 2010
Heysham 2	35	2023	December 2008	January 2010
Sizewell B	40	2035	December 2013	January 2015

The exact closure date of our AGR stations will depend on the timing of the reactors’ statutory outages. We will aim to close one of a pair of AGRs ahead of the other in order to allow the de-fuelling which forms part of the decommissioning process to take place efficiently.

Extension of accounting lifetimes

We recognize that extending the lifetimes of our stations will enhance the value of our asset base, and we plan to carry out the evaluations to see if station lives can be extended. A decision to extend the accounting life of an AGR station is based, in large measure, on the engineering judgments made in relation to that station’s safety case bearing in mind the technical issues referred to above. The current assessment of station lifetimes set out above for all our AGR stations, other than Dungeness, is at least five years greater than their initial design lives. These extensions were made on the basis of our judgment of our ability to make a secure safety case for the extended lifetime of the station (taking into consideration the related technical issues).

There can be no assurance that lifetime extensions will be attainable at any of our AGR power stations nor that the existing operating lifetimes used in our financial statements will be capable of being achieved. For further information see “Item 3—Risk Factors—Problems of graphite core brick cracking and reduced boiler life could negatively affect our profitability and the lifetime of our AGR power stations.” If our AGR power stations are to operate until the end of the current operating life used in our financial statements, we will also need continue to be able to source AGR fuel from BNFL, the sole supplier of AGR fuel. See Item 3. Risk Factors Our business depends on equipment and service suppliers of a specialized nature.

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Nuclear fuel cycle

There are several clearly identifiable stages in the life of nuclear fuel, known as the fuel cycle. The stages of fuel preparation before it enters the reactor, namely, uranium supply, conversion, enrichment and fabrication, are known as the front end fuel cycle. The handling, storage, reprocessing and ultimate disposal of spent fuel and associated waste products are known as the back end fuel cycle. The various stages of the fuel cycle and the relevant fuel cycle contracts are described in more detail below.

The front end fuel cycle

Uranium supply, conversion and enrichment

New uranium production is supplied from mines in the form of uranium ore concentrate, and is available on the competitive world market. It is first converted into uranium hexafluoride (natural UF₆). There are five major suppliers of conversion services and there is a competitive world market, although one of the suppliers (BNFL) has announced that its conversion plant will be shut down in 2006.

Once the uranium has been converted to natural UF₆, it is enriched by increasing the proportion of UraniumU₂₃₅ to make it suitable for use in certain types of commercial nuclear reactor (enriched UF₆). There are four major suppliers in a competitive world market for enrichment services. Uranium in the forms of ore concentrate, UF₆ and enriched UF₆ are collectively termed uranics. Over the last 15 years a substantial proportion of the world’s uranics needs have been met from ex-military and civil stockpiles.

Fabrication

Up to the fabrication stage, fuel cycle processes are identical for both AGRs and PWRs. At the fabrication stage, enriched UF₆ is converted into either AGR or PWR ceramic fuel pellets and assembled to produce fuel elements and fuel rods which are subsequently loaded into the reactors.

The sole supplier of AGR fuel fabrication services is BNFL. A competitive world market exists for PWR fuel fabrication services.

Front end fuel cycle contracts

Uranium procurement, conversion and enrichment

Under arrangements agreed as part of the Restructuring, BNFL is now responsible for purchasing all the uranics we require to be manufactured into fuel for our AGR power stations. Previously BNFL purchased uranics on behalf of the British Energy Generation (UK) Limited (“BEG (UK)”) stations only. BNFL is also responsible for purchasing enriched uranium for on-supply to our PWR fuel fabricator. These arrangements are set out in the AGR fuel fabrication and supply agreements between our companies and BNFL.

Existing contracts for the supply of uranics, along with the transfer by us to BNFL of British Energy BEG’s existing stocks of uranics both transferred to BNFL as part of the revised purchasing arrangements, are sufficient to fully meet our requirements for our AGRs and PWR until at least the end of 2006.

AGR fuel fabrication

We are dependent on BNFL as the sole supplier of AGR fuel fabrication services for the operating life of our AGRs. The AGR Fuel Supply Agreements agreed as part of Restructuring will expire when no further AGR fuel is required to be loaded into our AGR stations.

We maintain stocks of fuel at our AGR power stations which, together with the capability of the AGRs to continue to generate power without the need for new fuel to be loaded, would be sufficient for approximately three to four months’ continuous generation in the event of supply disruption.

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PWR fuel fabrication

Fuel fabrication services for Sizewell B are currently provided by Framatome ANP (Framatome) utilizing enriched uranium supplied to us by BNFL under the AGR Fuel Supply Agreements referred to above. The agreement with Framatome provides for a mix of fixed commitments for PWR fuel and options for us to call for additional PWR fuel, and is capable of meeting Sizewell B’s requirements until around 2015.

As PWR fuel is readily available in a competitive world market, we believe that it would be possible to secure replacement supplies in the event of supply disruption from Framatome, subject to fuel compatibility and licensing requirements.

The back end fuel cycle

Spent fuel

Spent fuel is fuel which is removed from a reactor because it can no longer support the required level of power generation. Following a three to six month period of storage and cooling in water-filled ponds at the AGR station sites, the spent AGR fuel is loaded into specially designed flasks and transported to BNFL’s plant at Sellafield, England for reprocessing or long-term storage. Our spent PWR fuel is stored on-site in cooling ponds pending construction of a longer term storage facility. Spent AGR and PWR fuel is stored for long periods prior to final disposal, or, after a period of at least three years for AGR spent fuel or five years for PWR spent fuel, it can be reprocessed.

Spent Fuel Reprocessing

Reprocessing of spent AGR fuel separates uranium and plutonium from highly radioactive nuclear waste products and is followed by storage of the resulting materials. We use BNFL’s reprocessing facilities at Sellafield, England. Reprocessed uranium can be recycled once it has been converted, enriched and fabricated into new AGR or PWR fuel. Reprocessed uranium is not currently used in the UK and a safety case has not been developed for its use.

Nuclear waste

Nuclear waste products are categorized by their radioactivity levels into low level radioactive waste, intermediate level radioactive waste and high level radioactive waste.

Low level waste (“LLW”) comprises potentially contaminated and slightly radioactive materials, such as used protective clothing and tools. In the UK, LLW represents approximately 86% by conditioned volume of radioactive waste. Most LLW can be handled by workers wearing simple protective clothing and gloves and without any requirement for radiation shielding.

Intermediate level waste (“ILW”) is more radioactive than LLW and includes the sludges and resins from the cleaning of cooling pond water and certain wastes arising from the reprocessing of spent fuel. In the UK, approximately 14% by conditioned volume of radioactive waste is classified as ILW.

High level waste (“HLW”) comprises spent fuel which is not reprocessed and certain nuclear waste products separated out from uranium and plutonium during the reprocessing of spent fuel. These categories of waste are characterized by the fact that their temperature may rise significantly as a result of its radioactivity and as such this factor has to be taken into account in the design of storage or disposal facilities. In the UK, HLW represents approximately 0.1% by conditioned volume of radioactive waste although this contains approximately 95% of the total radioactivity in all nuclear waste (excluding uranium and plutonium recovered from reprocessing).

The Government policy on HLW from reprocessing is that it should be stored for at least 50 years to allow the radioactivity to decay and heat generation to reduce. Once the waste has been allowed to cool the favored option is for underground disposal. Spent fuel which is not reprocessed should similarly be allowed to cool. Once the HLW has cooled, it will continue to be stored pending a decision

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on final disposal. There is currently no disposal route available in the UK for either ILW or HLW, however the Government has asked the newly formed Committee on Radioactive Waste Management to report to it on this issue in 2006.

Management and disposal of nuclear waste

We are responsible for the management and disposal of all operational nuclear waste arising from our operations in conformity with relevant law and regulations and having regard to Government policy.

LLW is often incinerated on site and the resulting ash and other LLW that has not been incinerated is, if appropriate, compacted and sent to BNFL for disposal at their facility at Drigg, England. We have contracts with BNFL until March 31, 2005 for the disposal of LLW. We intend to enter into further contracts with BNFL for the disposal of LLW at Drigg beyond March 31, 2005.

At present our ILW is stored on-site in purpose-built facilities and, in most cases, these facilities are designed to accommodate all of the ILW that we expect to be created during the current station lifetime. In anticipation of the fact that the capacity of our untreated ILW Resin storage tanks at Sizewell B will be exhausted ahead of plan, we are presently engaged in modifying the station’s on-site encapsulation plant to enable it to encapsulate ILW. Once the ILW has been cement encapsulated in metal drums, the waste can be stored in Sizewell B’s conditioned waste storage building. We intend to complete the encapsulation plant modifications before ILW resin storage tank exhaustion.

Back end fuel cycle contracts

Reprocessing and long-term management of spent fuel

AGR fuel

Each individual AGR power station’s storage capacity varies but overall capacity is approximately equivalent to nine months’ of spent fuel storage and with the storage facilities usually holding approximately six months’ spent fuel, this leaves approximately three months’ additional capacity in case of any short term interruptions in the movement of spent fuel to BNFL’s Sellafield site. If a station’s spent fuel storage facilities became full, the station could theoretically continue to generate, but the volume of electricity produced would gradually reduce as the fuel in the reactor was consumed. It would not be possible to load additional fuel into the reactor until the stored spent fuel was dispatched to Sellafield or otherwise suitably stored.

We have contracts with BNFL (the only available supplier of reprocessing and long term storage services in respect of spent AGR fuel) for the long term management of spent fuel covering the entire operating lives of the AGR power stations (the “Historic Fuel Agreements”) and for the fuel recovered from reactors at the end of their operating lives (the “New Fuel Agreements”).

Upon implementation of the Restructuring, under the Historic Fuel Agreements, BNFL will provide spent fuel management services for a certain period for all spent fuel arising from fuel which has been loaded into our AGR power stations prior to completion of the Restructuring (historic spent fuel). We retain ultimate responsibility for these materials after the date on which BNFL is no longer obliged to perform the services. The Government has agreed, subject to the implementation of the Restructuring, to meet our liabilities to BNFL (subject to certain exceptions) under the Historic Fuel Agreements (pursuant to the provisions of the Historic Liabilities Funding Agreement (the “HLFA”)). Under the HLFA, the Government will also have an option to acquire title to any of our historic spent fuel and materials deriving from spent fuel management at Sellafield.

Under the Nuclear Liabilities Funding Agreement (“NLFA”) the Government will (subject to certain exceptions and to the implementation of Restructuring) fund the uncontracted liabilities for management and disposal of the materials arising from the spent fuel management services (and for which we retain responsibility) to the extent that these and other defined liabilities cannot be met from the NLF. Under the Historic Fuel Agreements, BNFL will be responsible for the storage of the uranium, plutonium and, pending disposal, HLW and ILW arising from historic spent fuel reprocessing and for the storage of historic spent fuel which is not reprocessed until an agreed date.

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BNFL will be obliged to treat, package and store ILW resulting from fuel contracted for reprocessing under the Historic Fuel Agreements. If we require it, BNFL will store our ILW waste until an agreed date. BNFL will also take title to and all liabilities for certain pond equipment (LLW and/or ILW) which is used to store fuel on behalf of BEGL. The contracts with BNFL also provide for the possibility of extending these periods of storage, subject to obtaining necessary regulatory and planning consents, and taking into account the need for storage beyond this date.

Under the New Fuel Agreements BNFL will take title to, and all liability for, the management and ultimate disposal of all AGR spent fuel arising from fuel loaded into the reactors on or after implementation of the Restructuring.

PWR fuel

We intend that spent PWR fuel from Sizewell B will be stored on the Sizewell B site pending final disposal of the fuel. PWR fuel is not currently expected to be reprocessed though this has not been discounted.

The spent fuel storage pond at Sizewell B was designed to accommodate 18 years’ of spent fuel arisings and will be reconfigured to accommodate approximately 30 years’ spent fuel arisings, subject to obtaining appropriate consents including from the NDA. The reconfiguration work requires completion by 2009/10 to allow the continued operation of Sizewell B. At this time, it is our judgement that these works will be completed before or during 2009/10. We will consider, in due course, arrangements for the remainder of lifetime arisings for spent PWR fuel in the light of the prevailing commercial and regulatory environment.

The qualifying costs of waste management and the disposal of spent Sizewell B fuel will be met by the NLF (described in greater detail below in paragraph below headed: Liability for decommissioning).

Nuclear decommissioning

The decommissioning process

Decommissioning of a nuclear power station is the process whereby it is shut down at the end of its economic life and eventually dismantled. Throughout the world, over 90 nuclear reactors have been shut down and a large number of decommissioning projects are in progress. Decommissioning usually takes place over several decades and the majority of these projects are at an early stage. However, there is a growing volume of experience of the early decommissioning activities and pre-closure planning and preparation requirements of large scale nuclear power station decommissioning.

Our objectives for decommissioning are to: ensure the continued safety of the public, the workforce and the environment; minimize the environmental impact of the decommissioning of our stations as far as reasonably practicable; release sites for other use as appropriate; and, consistent with all of the foregoing, minimize the expenditure of resources on decommissioning.

We have adopted the Early Safestore Decommissioning Strategy (“ESS”) for decommissioning our AGR and PWR stations. The principal activities of the ESS are:

• Stage 1:    pre-closure preparatory work; defueling; decommissioning engineering preparatory work; and management of potentially mobile operational wastes;

• Stage 2:    dismantling redundant ancillary buildings; safestore development; site surveillance, care and maintenance; and

• Stage 3:    preparation for reactor building dismantling and clearance; retrieval and management of stored radioactive waste; reactor dismantling and reactor building dismantling and clearance; and site clearance and release for re-use.

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Liability for decommissioning

We have an obligation under our nuclear site licenses to decommission our stations at the end of their useful life. The estimated undiscounted costs of decommissioning our AGR and PWR stations are £5.1 billion. For further details, see Note 21 of our audited consolidated financial statements. Currently, certain of the decommissioning liabilities are covered by the existing arrangements with the Nuclear Decommissioning Fund (“NDF”) to which we have made contributions pursuant to the terms of the Nuclear Decommissioning Agreement (“NDA”) which was entered into on March 29, 1996.

If the Restructuring becomes effective, the NDA will terminate, the Nuclear Liabilities Funding Agreement and Contribution Agreement will become fully effective and the existing NDF will be enlarged into and renamed the NLF.

Under the terms of the Restructuring, the NLF will, subject to certain exceptions, fund certain of our qualifying uncontracted nuclear liabilities (i.e. all those nuclear liabilities for which there is currently no contract in place) and the costs of decommissioning our nuclear power stations and certain contracted liabilities for historic spent fuel. The NLF will be funded by contributions from us and the Government has agreed to fund the qualifying decommissioning costs and qualifying uncontracted liabilities to the extent that they exceed the assets of the NLF. To the extent that there is any surplus funds in the NLF, this amount will be paid to the Government. We will make the following contributions to the NLF:

• £275 million of New Bonds;

• fixed decommissioning contributions of £20 million per annum (indexed to the UK Retail Price Index (“RPI”) but tapering off as our nuclear power stations are scheduled to close);

• £150,000 (indexed to the RPI) for every tonne of fuel loaded into Sizewell B from the Effective Date of the Restructuring; and

• The NLF Cash Sweep.

The trustees of the NLF will have the right from time to time to convert all or part of the NLF Cash Sweep into our convertible ordinary shares. On a full conversion the NLF would hold up to 65% of the thereby enlarged share capital of the Company. These shares will be subject to certain voting restrictions, so that, for so long as the shares are held by NLF, they will be non voting to the extent they would otherwise carry more than 29.9% of our voting rights. The convertible ordinary shares will convert into New Shares automatically on transfer by the NLF to a third party but will not otherwise be convertible at the option of the NLF. There are certain restrictions on the manner which the NLF may convert its NLF Cash Sweep Payment or dispose of any of its shares.

COAL FIRED GENERATION

Eggborough Station’s operating regime

We acquired EPL, the owner of the Eggborough Station, from National Power (now RWE Innogy) in March 2000. This purchase was re-financed by a project finance loan of £550 million entered into on July 13, 2000 pursuant to which the lending banks (the Eggborough Banks) were granted security. As part of the Restructuring, the Eggborough Banks shall continue to have security over, among other things, the shares in EPL and the Eggborough Station and will have an option to acquire the Eggborough Station either through a share or asset purchase in 2010.

The Eggborough Station continues to be operated by our subsidiary EPL. Output from the Eggborough Station was 7.6 TWh during the year ended March 31, 2004, compared with 5.7TWh and 7.1TWh for the years ended March 31, 2003 and March 31, 2002, respectively. The Eggborough Station’s output level is influenced by market prices, our contracted trading position and the extent to which its operation is required to cover for unplanned outages at our nuclear stations, and by relevant environmental legislation (the influence of relevant environmental legislation will significantly increase over time).

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As a result of it being coal-fired, the Eggborough Station produces emissions of carbon dioxide (CO₂), sulphur dioxide (SO₂) and nitrogen oxides (NOx), and therefore its future output will be affected by the impact of two important environmental initiatives which seek to limit these emissions namely, the EU Emissions Trading Scheme and the Large Combustion Plant Directive, which are discussed in the paragraph below headed “Legislation affecting the Eggborough Station’s output”.

The Eggborough Station consists of four generating units with a nominal capacity of 500 MW and is operated at various levels, rather than at constant levels in the manner of our nuclear stations. Specifically, the Eggborough Station fulfils the following functions:

• Reserve capacity:    by maintaining a level of reserve capacity it assists in managing the trading risks associated with unpredictable reductions in the availability of our nuclear stations. Calling on the Eggborough Station as an alternative source of supply reduces our reliance on the spot markets or the balancing mechanism;

• Profiling or Shaping:    unless a customer has a purely base load power requirement (i.e. a requirement for unvarying amounts of energy) we are unable to meet this requirement based solely on our nuclear generation capacity. As a result, we need to combine our base load generation with flexible output to meet the requirements of our customers who require varying levels of output over the term of their contract. The Eggborough Station provides us with a source of electricity supply for this purpose, thereby reducing our reliance on purchases from competitors; and

• Flexibility:    changes in customer demand over the short term and the nature of the overall customer profile mean that we need to have access to generation that is able to change output rapidly in response to changing requirements. Like other fossil-fuel power stations, the Eggborough Station is able to provide this flexibility and is an alternative to the use of the short term markets and power exchanges.

We own an ash disposal site at Gale Common, close to the Eggborough Station, which is used for the disposal of ash produced by the Eggborough Station and the nearby Ferrybridge power station, which is owned by a subsidiary of Scottish and Southern Energy plc.

Investment in the Eggborough Station

In response to recent developments in relation to the regulation of emissions, details of which are set out in paragraph below headed “Legislation affecting the Eggborough Station’s output”, we are in the process of fitting two of the four generating units with flue gas desulphurisation (“FGD”) equipment. Once operational this equipment is designed to reduce emissions of SO₂ to the atmosphere from the units which have been fitted with FGD by approximately 90%. The construction of the FGD equipment has been completed and commissioning tests are in progress.

As part of the Restructuring, we are also contractually committed to other investments to improve the Eggborough Station’s performance and reliability, including modification work to reduce CO₂ emissions and improve plant monitoring and control systems and the acquisition of strategic spares for critical components.

Legislation affecting the Eggborough Station’s output

The EU Emissions Trading Scheme (“ETS”) and Large Combustion Plant Directive (“LCPD”) are major environmental initiatives which will have an important impact on the Eggborough Station as they seek to reduce CO₂, and SO₂, NOx and particulates. The ETS is due to be implemented in January 2005. The main provisions of the LCPD which limit emissions are due to become effective on January 1, 2008 and, in replacing the previous LCPD, will restrict further the limits of permitted emissions.

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ETS

Combustion installations with a rated thermal output in excess of 20 megawatts (excluding hazardous or municipal waste installations) require a Greenhouse Gas Emissions Permit (an Emissions Permit). Under an Emissions Permit, a combustion installation is allocated CO₂ emissions allowances (ETS Allowances). From January 1, 2005 onwards, each combustion installation must surrender ETS Allowances equal in amount to its actual annual reportable emissions of CO₂ by the date falling four months from the end of the year in which such emissions arose. In any year, a combustion installation’s emissions of CO₂ may not exceed its ETS Allowances for such year unless it has purchased additional ETS Allowances to cover such excess emissions (in principle, ETS Allowances should be tradable across all EU member states, enabling those operators with a surplus of allowances to sell to those with a shortfall).

Eggborough power station has an Emissions Permit, however, the Government is still in the process of determining the allocation of ETS Allowances for combustion installations. Implementation of the ETS in the UK involves a draft National Allocation Plan (NAP) under which each combustion installation, including the Eggborough power station, is given a CO₂ allocation for the period 2005/2007 (the First Phase). The Government is seeking an overall reduction in emissions of a package of greenhouse gases of 12.5% (based on 1990 levels) by 2010. In the draft NAP submitted to the Commission in April 2004, the Government stated that the First Phase would reduce emissions of CO₂ by 5.5 million tonnes and that this would be achieved by cutting the projected emissions of the power station sector by a corresponding amount.

In the draft NAP published by the Government in January 2004, the Eggborough power station was allocated ETS Allowances equating to 4.9 million tonnes of CO₂ emissions in each of the calendar years 2005, 2006 and 2007. This is equivalent to the level of emissions associated with electrical output of approximately 5.4TWh in each such year. This allocation is scheduled to be finalized in autumn 2004 but may change. Depending on the final allocations, additional allowances may need to be acquired if the Eggborough power station is to continue to generate electricity at 2003/2004 levels. We, along with other industry participants, are lobbying the Government for an increase in ETS Allowances. (The Government has indicated that they intend to retain some ETS Allowances for new market entrants and to auction any unallocated ETS Allowances from this reserve on an annual basis in the years up to 2007).

The basis for the allocation of ETS Allowances in the second phase of the ETS (this relates to the period from 2008 to 2012) has yet to be determined by the Government.

LCPD

The revised LCPD seeks to reduce the emissions of pollutants (namely NOx, SO₂ and particulates) into the air from large combustion plants. By January 1, 2008, EU member states must achieve significant emissions reductions in one of two ways:

• ensuring that all permits for the operation of existing plants contain conditions securing compliance with the Emission Limit Values (“ELVs”) established for new plants; or

• ensuring that existing plants are subject to a National Emission Reduction Plan (“NERP”).

The ELV approach involves setting emission rate limits for individual plants, for sulphur dioxide, oxides of nitrogen and particulates for a given period which cannot be exceeded without breaching its permit. In comparison NERP involves the reduction of total emissions for the EU member state concerned, referenced to the levels that would have been achieved by applying the same rate limits as under ELVs to existing plants in operation in the year 2000, on the basis of each plant’s actual annual operating time, fuel used and thermal input averaged over the last five years of operation up to and

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including 2000. Provided that the total amount allocated to an EU member state is not breached, a member state has some flexibility in how it introduces NERP, for example, while each plant may be subject to limits under NERP, it may allow its plants to trade their allocation amongst other plants in that same member state. However, a member state’s flexibility under NERP will always be limited by the limits set under the pollution, prevention and control regime and the fact that the LCPD provides that the closure of plants included in the NERP shall not result in an increase in the total annual emissions from the remaining plants covered by the plan.

The Government has been in discussions with the electricity, steel, oil refining and other industries in recent months concerning the implementation of the LCPD. Discussion has focussed on whether to limit future emission rates for plants or to limit total emissions based on historic generation; and whether a plant will be treated as being a whole station, or an individual generating unit, in which case the Eggborough power station’s four units would be treated as separate plants. In the case of the former, the Government has highlighted that it is in discussions with the Commission about implementing a hybrid solution where large power stations, such as Eggborough, would be subject to rate limits for future emissions.

Plant owners have the option to “opt-out” of the LCPD in which case they will be permitted to run plants for a total of 20,000 hours between January 1, 2008 and January 31, 2015, subject to additional regulations imposed by the Environment Agency. Given the uncertainty on the key issues, the Government has provided further instruction that plant that is opted out by June 30, 2004 can be opted back in prior to June 30, 2005. British Energy has therefore chosen to conditionally opt-out its two non-FGD units, the conditionality relating to i) the choice to opt back in prior to the June 30, 2005 deadline and ii) whether a plant is treated as being a whole station, or an individual generating unit (if the former is the case the two-unit opt-out would be deemed invalid and those two units would be opted back-in again (subject to the consent of the Eggborough Banks holding 66 ²/3% of the debt under the Amended Credit Agreement (such consent not to be unreasonably withheld or delayed)).

The final details of the implementation of the LCPD may affect the level of generation from the Eggborough power station and other fossil fuel plants in the future. The Government is expected to make a decision on how the LCPD will be implemented in the next few months.

Other legislation

Limits on the emissions of pollutants may also be imposed in permits issued by the Environment Agency (“EA”) and it is possible that stricter limits could be imposed than under the LCPD and NAP. This is because the EA are required to implement the LCPD and ensure that in doing so the National Emissions Ceiling Directive is not compromised. In addition, the EA has to take into account the requirements of the Integrated Pollution, Prevention Control Directive in 2006 and also the National Emissions Ceiling Directive (2001/81/EC), the Habitats Directive (1992/43/EEC) and the Water Framework Directive (2000/60/EC) requirements in setting permit conditions going forward.

ELECTRICITY SALES

We use a variety of routes to market to sell our generation output. These include bespoke longer term contracts, over-the-counter transactions in the wholesale traded market, electronic power exchange trading, direct supply to industrial and commercial customers, and sales of balancing and ancillary services to the National Grid. We also sell forward in order to manage the risks of short to medium price volatility in wholesale market prices and because there is insufficient liquidity in the short term markets alone for us to be sure that we would be able to sell our generation at an acceptable price.

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Role of trading

Our approach to trading utilizes these different routes to market with a view to seek to reduce overall exposure to volatility in short and medium term wholesale electricity market prices whilst seeking to reduce the amount of credit support required. We aim to build a portfolio of wholesale trades and direct supply contracts (often at fixed prices) to approximately match our planned generation output and to further mitigate the exposure to the wholesale market and, in particular, the risk of wholesale electricity market prices falling. This approach does however reduce in the medium term the benefit we receive from wholesale electricity prices rising. As of mid September 2004 we had in place contracts for volume equivalent to virtually all of our planned generation in 2004/05, of which a large majority are at fixed prices. For 2005/06, contracts are in place for over half of planned generation, with a significant proportion of these being at fixed prices. The average price under fixed contract price contracts for 2004/05 was £20.8 per MWh as of mid September 2004. This is substantially higher than the average realized price of £16.9/MWh for the year ended March 31, 2004.

Trades in the wholesale market

Longer term structured trades, on fixed or indexed price terms, are used in particular to hedge against exposure to falling market prices or to secure a longer term route to market for planned generation.

All of our over-the-counter trades, and a number of our longer-term bespoke trades are executed under the terms of Grid Trade Master Agreements (“GTMA”) agreed with the counter-party in question. The GTMA contract details responsibilities for contract notification and other obligations in respect of the Balancing and Settlement Code (“BSC”), payment terms, default and termination provisions, credit arrangements and other terms. Over-the-counter GTMA transactions, including both futures and options on electricity, are used to balance generation against the portfolio of contracts and as a hedge against adverse market price movements in the short to medium term.

Our ability to utilize the wholesale market as a route to market is affected by the strength and depth of the market, see risk Item 3—Risk Factors: “Lack of liquidity in the wholesale market may adversely affect or require us to alter our trading strategy”.

Short term trading is carried out via the Amsterdam Power Exchange (UK) Limited (APX), and is regulated by the Financial Services Authority. APX provides an anonymous electronic trading platform and clearing and notification service for electricity futures and spot trades for individual half-hour periods. We primarily use APX as a means of balancing our within-day physical position by either buying or selling to compensate for differences between our notified contractual position and planned generation and forecast supply up to gate closure, i.e. one hour before the start of the relevant delivery period. We typically trade 2-hour or 4-hour blocks, or individual half-hour periods.

Trading in products which may be regarded as regulated investments is carried out by our trading subsidiary, British Energy Trading Services Limited (“BETS”) as agent and arranger for BEPET. BETS is regulated by the Financial Services Authority in respect of these activities.

Direct supply business

One of our important routes to market is direct supply sales of electricity to industrial and commercial customers. Our target customer base is predominantly among industrial users with electricity demands of over 1,000 MWh per annum. As of March 31, 2004, we had contracts in place to supply some 1,350 customers at 7,500 sites. Our direct sales business has increased by almost 30% in volume terms in the period March 31, 2003 to March 31, 2004, to 29TWh, which is equal to approximately 40% of our total electricity generation. This follows an increase of 20% in volume terms in the period March 31, 2002 to March 31, 2003.

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We are progressively increasing the range of customers and are targeting customers such as retail groups with a large number of sites although we are not licensed to supply domestic customers. We have continued to maintain an overall number one ranking in terms of satisfaction of industrial and commercial customers for the last 20 successive quarters, based on data compiled by the independent Energy Information Centre via a quarterly survey of their customer base. The survey is designed to measure how customers rate the service they are receiving from their suppliers in 18 separate service areas. These service areas include, among others, contract price, responsiveness to enquiries, bill accuracy, clarity and promptness.

Ancillary and balancing services

We provide National Grid with ancillary services which include reactive power and frequency response. Because of its flexible response capability, the Eggborough Station is also able to provide balancing services to National Grid which are paid for at the bid or offer price if accepted.

Arrangements in Scotland

As there is currently no wholesale market in Scotland, we currently sell all the output from our Scottish nuclear power stations to Scottish Power and Scottish and Southern Energy under the terms of the Nuclear Energy Agreement (“NEA”), which was originally entered into in 1990 and subsequently amended, most recently, on July 15, 2002.

Under the revised terms of the NEA, Scottish Power and Scottish and Southern Energy purchase the electricity generated by our Scottish power stations from us under arrangements more closely linked to market prices and terms for the supply of base load energy in England and Wales than previously. The revised NEA will continue in operation until the introduction of BETTA (which is currently scheduled for April 1, 2005) or, if earlier, April 1, 2006. A further extension of the amended NEA beyond its original date of April 1, 2005 will be subject to regulatory approval. Beyond that date, Scottish Power and Scottish and Southern Energy have an option for follow-on contracts on GTMA terms up to 2011, at reduced volumes.

Collateral

Our electricity contracts give rise to the need for us to provide credit support in the form of cash collateral. In respect of trades in the wholesale market, this is requested by counter parties to ensure that, should the contracts terminate early for whatever reason, there are sufficient funds available to reimburse the costs they may incur in replacing the terminated transactions in the open market. In respect of most routes to market, and in respect of generation by our power stations, credit support is also required to ensure that there are sufficient funds available to cover balancing, transmission, distribution and other similar costs and charges.

Until September 2002, credit support was generally provided by way of parent company guarantee from British Energy plc. Following the loss of our credit rating in September 2002 this was replaced by collateral arrangements, which have substantially reduced the levels of liquid cash resources available to us. The level of collateral that we are required to post at any time is a function of three factors: (i) our contracting strategy; (ii) contract price; and (iii) prevailing electricity market prices.

Under certain of our GTMA wholesale contracts or as otherwise agreed, we are required to post collateral equal to the net sum of (i) billed or billable amounts which have not yet been paid for; (ii) the mark-to-market difference between the contract price and the prevailing market price at that time; and (iii) an additional sum that reflects the potential for market price volatility and future trades. Generally we have agreed to undertake this calculation on a weekly basis and any collateral sums that need to be posted are credited to a deposit account over which the relevant counter party holds a first fixed charge. In some limited cases the level of collateral that we are required to post is capped.

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Our direct supply sales to industrial and commercial customers do not require us to post any collateral to the purchasers of power. However, collateral is posted to distribution network operators in order to cover fees that BEG has to pay them.

In 2002 and 2003, we entered into contracts at the then prevailing wholesale market price equivalent to a large proportion of our forecast 2004 generation output. Since then, electricity prices have increased substantially, which has resulted in us being required to post a significant amount of collateral in support of these contracts.

Our direct supply sales to industrial and commercial customers generally do not require us to post any collateral to the purchasers of the power. However, collateral is required by distribution network operators in order to cover charges that BEG has to pay them.

Since notification of the EC State Aid decision on September 22, 2004, incremental collateral requirements are being provided by a charge over cash deposits in accounts in the name of Group Companies. Although the Group is satisfied that generally deposits in Group Company accounts will represent reasonable alternative credit support, in certain cases other types of collateral may be required and it may be the case that the provision of such charge arrangements for such collateral arrangements may affect the willingness of certain counterparties to trade with the New British Energy Group.

REGULATION

Introduction

Our participation in the electricity industry in two markets, England and Wales and Scotland, through a variety of routes, and the nature of the bulk of our electricity generation by nuclear power reactors means that we are a highly regulated business. In addition to the safety, competition, health and environment legislation which typically applies to a conventional power generation business, we are also subject to extensive safety, health and environmental constraints which apply solely to the operators of nuclear power plant, for example, the Nuclear Installations Act 1965 and the Radioactive Substances Act 1993. These regulatory regimes are described below in the paragraph below headed “Regulation of the UK nuclear generation industry”.

Regulation of the electricity industry

Key legislation

The framework for the economic regulation of the electricity industry in Great Britain is set out in the Electricity Act 1989 (Electricity Act) which was amended by the Utilities Act 2000 (Utilities Act) and the Energy Act 2004 (Energy Act).

GEMA was established by the Utilities Act. GEMA’s functions under the Electricity Act include granting licenses to generate, transmit, distribute or supply electricity; enforcing compliance with license conditions; administering funds generated by the English and Scottish Renewables Obligation Certificates (described in the paragraph below headed “Renewables Obligations”); and setting standards of performance for electricity licensees. The Electricity Act requires GEMA and the Government to exercise their functions under the Act in the manner which it considers is best calculated to protect the interests of consumers present and future, wherever appropriate by promoting effective competition.

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Regulatory developments

On July 22, 2004, the Energy Act received Royal Assent. The act provides the framework for the establishment of the NDA to manage the decommissioning of the UK’s nuclear legacy as well as the development of offshore wind and other marine renewable energy sources outside territorial waters. The act further provides for the implementation of BETTA thereby extending NETA to Scotland and creating a single wholesale electricity market for Great Britain. These new arrangements will create a much larger market for our Scottish generation once the NEA, under which all of our existing Scottish generation is currently sold to Scottish Power and Scottish and Southern Energy, ends in April 2006 or on the introduction of BETTA, whichever is the earlier. However, the termination of the NEA will also mean a loss of the guaranteed market for the output of our Scottish stations and other routes to market will need to be developed.

Licenses

Electricity generation licenses

Unless covered by exemption, all electricity generators operating a power station in the UK are required by the Electricity Act to have a generation license. In England and Wales, the conditions attached to a generation license require the license holder, amongst other things, to comply with the BSC (described above), the Grid Code and the Connection and Use of System Code (CUSC). For operators of power stations in Scotland, the conditions attached to generation licenses require the holder, amongst other things, to comply with the relevant grid code and the settlement agreement for Scotland. Failure to comply with any of the generation license conditions may subject the licensee to a variety of sanctions, including enforcement orders by GEMA, the imposition of monetary penalties or license revocation if an enforcement order or payment of a monetary penalty is not complied with.

Electricity supply licenses

Subject to minor exceptions, all electricity consumers in the UK must be supplied by a licensed supplier as provided for by the Electricity Act. Licensed suppliers purchase electricity and make use of the transmission and distribution networks to achieve delivery to customers’ premises. Following the enactment of the Utilities Act, there are now supply licenses covering all of Great Britain that contain standard license conditions for most suppliers.

The standard supply license is split into four distinct parts with not all parts of the license applicable to all supply license holders. The license deals with general obligations and requires the holder, amongst other things, to comply with the BSC, CUSC, Grid Code and Master Registration Agreement (the agreement to which all Ofgem licensed suppliers and distribution businesses are parties and which is concerned with retail customers changing their suppliers).

We currently hold one supply license through which we supply our large industrial and commercial customers in connection with our direct supply business. We are not licensed to supply to domestic customers.

Approval of State Aid

On September 22, 2004, the Commission advised the Government that, insofar as the restructuring plan notified by the Government on March 7, 2003 under Article 87(3) of the EU Treaty involved the grant of State Aid, such State Aid was compatible with the common market. The Commission’s decision is subject to certain conditions. These conditions include, amongst others, a requirement that we separate our direct supply business from other generation and trading businesses

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by April 2003. When we do so it is our intention to transfer our existing supply license for our direct supply sales business from BEG to British Energy Direct Limited, our direct sales subsidiary.

Renewables obligations

One of the ways in which the Government is seeking to increase the proportion of electricity generated from renewable sources is by the introduction of the Renewables Obligation (the “Obligation”). The Obligation on licensed electricity suppliers to source a proportion of their total electricity requirements from eligible renewable sources or to contribute through a buy-out payment came into force in April 2002. The amount of the Obligation increases from 3% in March 2003 to 10.4% in March 2011. As we are a licensed electricity supplier, we are subject to the Obligation in respect of our direct supply sales business.

Each MWh of electricity produced by an accredited renewable generator earns a Renewables Obligation Certificate (“ROC”) or, in Scotland, a Scottish Renewables Obligation Certificate (“SROC”). These certificates can be sold or purchased independently from the electricity to which they relate and a supplier can meet its renewables obligations by submitting equivalent ROCs/SROCs for the prescribed percentage of electricity supply or by making a buy-out payment to GEMA (currently set at £31.39/MWh and adjusted annually to reflect changes in the RPI) or a combination of both.

The Obligation is designed to incentivize electricity suppliers to acquire a sufficient number of certificates to meet their total electricity requirements, rather than making buy-out payments which are then distributed by GEMA (with interest accrued) to suppliers who have submitted ROC/SROCs in compliance with the Obligation.

In 2002/2003, the obligation in respect of our direct supply sales business was 564,622 MWh. This was met through a combination of ROCs, SROCs, and contributing to the buy-out fund. The cost of meeting the obligation is recovered from customers through their bills. For 2003/4 the amount of the obligation was 4.3% and the buy-out payment was £30.51/MWh.

Climate change levy

The Climate Change Levy (“CCL”), introduced in April 2001, aims to encourage the efficient use of energy and to reduce carbon emissions by around 5 million tonnes a year from 2001 levels by 2010. The CCL benefits qualifying renewables generators because energy acquired from renewable sources is exempted from the levy. Current Government thinking is that the CCL will continue in spite of the ETS. The levy is currently set at £0.43/KWh.

Our nuclear stations and the Eggborough power station do not qualify as renewable or CHP generators for the purposes of CCL. All suppliers are required to collect the CCL from their business customers and to pass this to HM Customs and Excise every quarter.

Regulation of the Eggborough Station and Gale Common

Key legislation

We are subject to numerous environmental regulations with respect to our ownership and operation of the Eggborough Station and the Gale Common ash disposal facility located next to the Eggborough power station.

A system of Integrated Pollution Control (“IPC”) for power stations was introduced under the Environmental Protection Act 1990 for which the Environment Agency has responsibility for

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enforcement. The EA’s IPC authorizations require power stations to use ‘Best Available Techniques Not Entailing Excessive Cost’ to minimize their emission of certain pollutants.

The Pollution Prevention and Control Directive 1996/61/EC was implemented in the UK on May 1, 2004 by the Pollution Prevention and Control Regulations and will modify the IPC regime, in relation to noise, waste minimization and energy efficiency, amongst other areas. Applications for authorization under the new Pollution Prevention and Control Regulations must be submitted to the EA by March 31, 2006.

Disposal of ash to the Gale Common facility is governed by the Landfill (England and Wales) Regulations 2002 and we currently hold two waste management licenses which are regulated by the EA.

More generally, we are also subject to the Water Resources Act 1991 which governs water pollution and requires persons who have knowingly permitted water pollution to carry out remediable works. The EU Environmental Liability Directive is aimed at the prevention and remedy of environmental damage to water, land and bio-diversity and is based on the principle that the polluter should bear the cost of damages caused to the environment or of measures to prevent imminent threat of damage.

Environmental management

We have seven key environmental policies for the Eggborough Station:

• To integrate environmental factors into business decisions.

• To comply with all statutory and company requirements.

• To continuously improve our environmental performance.

• To minimize and control pollution from the process of electricity generation by implementing corrective action and/or control measures, as appropriate.

• To regularly review and publicly report our environmental performance and objectives in our annual Environmental Performance Report.

• To ensure our people are fully aware of their environmental responsibilities and seek participation in environmental activities.

• To enhance our reputation for effective environmental management through certification to recognized standards.

In addition, we have a comprehensive environmental management system in place which is accredited by Lloyds Register Quality Assurance to international standard ISO 14001, a standard which demonstrates our continued commitment to the prevention of pollution and recognizes our environmental performance.

We are also members of the Joint Environmental Program, a research initiative funded by eight of the major fossil fuel power station operators in the UK, including EPL, whose objective is to increase our knowledge of the impact that the production of electricity from fossil fuels has on the environment.

In 1994, we carried out a comprehensive Environmental Effects Evaluation covering emissions to air, land and water. Since this time, we have periodically updated the evaluation as part of our efforts to develop an effective environmental management system.

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Regulation of the UK nuclear generation industry

Key legislation

The principal areas of nuclear safety and security regulation in the UK (except for Northern Ireland) cover the construction, operation and decommissioning of nuclear installations and the protection of workers and the public against ionizing radiation. The principle regulating provisions are the Nuclear Installations Act 1965 (“NIA”), the Ionizing Radiations Regulations 1999 (“IRRs”) and the Anti-Terrorism Crime and Security Act 2001 (“ATCSA”).

Environmental regulation of the nuclear industry covers the disposal of radioactive waste including discharges to the environment under the Radioactive Substances Act 1993 (“RSA”). Regulation of the transport of radioactive material is the subject of the Radioactive Material (Road Transport) Act 1991 (“RMRTA”).

The nuclear generation industry is also subject to the same regulations as other generators as regards non-nuclear aspects of health and safety and environmental protection, in particular under the Health and Safety at Work Act 1974 (“HSWA”), the Environmental Protection Act 1990 (“EPA”), the Water Resources Act 1991 and the Pollution Prevention and Control Act 1999.

Nuclear site licenses

Under UK law, and in particular the HSWA, employers are responsible for ensuring the safety of their workers and the public. This responsibility is reinforced for nuclear installations by the NIA which establishes a nuclear licensing regime controlled by the HSE. The licensing function is administered on HSE’s behalf by the NII. Operation of a nuclear plant is governed by the nuclear site license and the license conditions which are attached to it and apply to the whole plant through its life cycle, up to and including the early stages of decommissioning.

Before a nuclear site license is granted, the NII must be satisfied as to the safety of the operation and eventual decommissioning of an installation, and the ability of the applicant to understand and meet its obligations. Prospective licensees will be assessed under three broad areas: organization of applicant and measures to discharge license obligations; location and security of site; safety of the site’s design, its manufacture, installation, commercial operation and maintenance. NII consent is also needed before key stages, such as decommissioning, commence. The safety of the installation is demonstrated through a written safety case and the applicant also documents the arrangements for the management of safety which the NII assesses prior to granting a license. Modifications to the original safety case are managed through arrangements which ensure that significant changes cannot be made if the NII objects.

The NII’s regulatory approach to safety involves defining levels of tolerable risk. Activities above the level of tolerability are not normally permitted. Tolerable risks must be reduced to a level which is as low as reasonably practicable.

Nuclear site licenses require adequate arrangements to be made for the decommissioning of any plant. To ensure that a licensee’s decommissioning strategies remain sound as circumstances change, they are reviewed every five years by the NII, which also consults the relevant environmental regulatory bodies. Applicants justify their chosen decommissioning strategy to the NII and demonstrate that there will be adequate funds to carry out the work.

The NII scrutinizes the activities of the licensee directly on site, and of the licensee’s central support organization, through the assessment of the licensee’s written submissions. An NII inspector is allocated to each nuclear power station and is typically present on site one week per month to hold meetings with the station staff and to check for compliance with the license conditions and safety case requirements. An inspection team may also visit the station to assess a particular part of the plant, or aspect of the safety case, and may also visit the licensee’s central support organization to assess its part in ensuring safety on the licensed sites. As discussed in greater detail in the paragraph below headed “Safety management”, each license also requires the establishment of a Nuclear Safety

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Committee (“NSC”) for each licensed site, to provide independent advice to the licensee on significant nuclear safety issues.

There are nuclear site license conditions requiring the licensee periodically to shut down the reactor to carry out inspections and maintenance (statutory outages), particularly in respect of the reactor core and other plant that cannot be accessed whilst operating, and to review and reassess the safety case for the plant. Statutory outages take place at intervals of up to three years for an AGR and up to 18 months for a PWR. Before consenting to the reactor restarting, the NII has to be satisfied that, based on the previous operating experience and the condition of the plant, there is an adequate safety case for the operation of the plant for the next period. This may require enhancement of the safety case to justify continued operation.

The NII’s powers under HSWA extend to industrial safety and to enforcing the conditions of the nuclear site license by the service of Improvement Notices, Prohibition Notices or, in the event of non compliance with license conditions or other offences, by prosecution. The NII may also direct a licensee to shut down a nuclear reactor. A nuclear power station remains a licensed site throughout the decommissioning process and is subject to the same system of regulation as when it was operational.

Under our nuclear site licenses, we are required to carry out a PSR to review the safety case for each of our stations once every ten years, taking into account current safety standards, the operational history and the effects of plant aging. Further details of the PSR are set out below in the paragraph below headed “Periodic Safety Reviews”.

Nuclear site licenses for our nuclear power stations are currently held in England by BEG and in Scotland by BEG UK. In December 2002, BEG applied for nuclear site licenses in respect of the two nuclear stations in Scotland currently licensed to BEG UK. The re-licensing of these two stations is expected to be completed in 2005 and will result in all of our UK nuclear stations being operated by a single licensed company.

Safety management

In accordance with its site license, each nuclear power station has established an NSC to provide independent advice to the licensee on significant nuclear safety issues. The NSC consists of senior company personnel with knowledge of, and responsibility for, nuclear safety and the relevant station director and external appointees who have significant experience in the nuclear industry. The NII approves the terms of reference of each NSC, which determines the matters to be referred to it, and has a power of veto on any appointment to an NSC.

License condition on organizational change

In March 2000, the NII added a new condition to the standard nuclear site license, thereby bringing changes to organizational structure and resource directly within the licensing regime. We have site license compliance arrangements in place to address the new license condition and to manage organizational changes which may affect nuclear safety, such as the creation of new station posts, reductions in manpower or outsourcing of functions. A program director and change plan were put in place in connection with the closure of the current headquarters at Peel Park, East Kilbride, Scotland to manage the impact on the business and enable the licensees to satisfy themselves and the NII that the closure will not adversely affect the overall capability of suitably qualified and experienced persons employed within the central functions who support nuclear operations.

Nuclear liability under the Nuclear Installations Act

The NIA provides that the licensee of a nuclear site has a duty to ensure that no occurrence involving either nuclear material or ionizing radiation causes personal injury or damage to property other than property of the licensee, or other property which is on the site and is used in connection with the operation of the nuclear installation. The licensee is exclusively liable for a breach of this duty irrespective of fault and we currently maintain insurance in relation to this risk.

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Under the NIA, our liability to pay compensation for a breach of this duty is currently limited to £140 million per occurrence (excluding interest or costs). The NIA requires the licensee to make provision, by insurance or such other means as the Government may approve, for sufficient funds to be available at all times to ensure that duly established claims are satisfied up to £140 million per site in respect of each of the periods of the licensee’s responsibility specified in the NIA. The NIA also requires that the Government will make available such sums (in addition to insurance or other funds which may be available from the licensee) as may be required to ensure that all duly established claims (excluding interest or costs) in respect of any occurrence are satisfied, up to 300 million special drawing rights (equivalent to approximately £240 million). A claim for compensation which is not satisfied out of this sum may, under the NIA, be satisfied by the Government to such extent as it may determine. The Secretary of State may direct the licensee to begin a new period of responsibility in the light of previous occurrences or claims.

It is likely that these thresholds will increase in the near future. On February 12, 2004, the Government signed a Protocol to amend the Paris Convention on Third Party Liability in the Field of Nuclear Energy, 1960 and the Supplementary Brussels Convention, 1963 which together increase the limit of liability of nuclear operators to a minimum of 700 million euros; the liability of the Government to 500 million euros; and the liability of the pool of funds contributed to by contracting parties to the Brussels Convention to 300 million euros. Total compensation available under the revised regime will be a minimum of 1.5 billion euros, a four-fold increase. In addition, the definition of nuclear damage will be expanded to allow a broader range of damage to be compensated, including economic loss and the costs of preventive measures. Following ratification of the Protocol, the NIA will be amended. The Directors believe that the insurance market will have sufficient capacity to offer cover for these liabilities (and are aware that the costs of insurance will increase in line with the increases in liability resulting from the intended amendments to the NIA described above) arising to a nuclear operator and intend to maintain such insurance following implementation of the Restructuring.

Health and safety

Operators of nuclear power stations must comply with the strict limits set out in the IRRs which lay down basic safety standards for the protection of the health of workers and the general public against the dangers arising from ionizing radiation.

Periodic Safety Reviews

The adequacy of the safety case for each power station is confirmed at each statutory outage, at which point the NII reviews the operating performance of the station and the inspection that we have carried out on the plant. Prior to consenting to the nuclear reactor restarting, the NII must be satisfied that there is an adequate safety case for the operation of the plant.

In addition, pursuant to a condition of our nuclear site licenses, a PSR is required at each nuclear power station, at intervals of not more than ten years, to review the safety case taking into account operational history, plant aging and current safety standards. The scope and timing of the PSR is agreed between the NII and the licensee. The nuclear power station’s commercial viability may be significantly eroded if we fail to convince the NII of the adequacy of the safety case.

Once the timing of the PSR is agreed the licensee carries out the review and submits it to the NII. The NII’s expectation from a PSR is that it will receive confirmation that safety structures, systems and components remain fit for purpose insofar as they are able to perform according to original design intent and that modern standards are achieved as far as reasonably practicable. The NII may require additional work to be carried out to demonstrate the adequacy of the safety case for continued operation and the progress of any such work will usually be monitored by the NII on an ongoing basis.

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The first PSR has been completed for each of our AGRs. Sizewell B, the last station to complete a PSR, provided its submission to the NII in December 2003. The NII is expected to complete its assessment of that submission in September 2005 (although generally the NII takes approximately thirteen months to assess our PSRs). For details of the PSR dates for all our stations see the paragraph above headed “Station lifetimes”.

The next PSRs of Hunterston B and Hinkley Point B are planned to be submitted to the NII in December 2005 at which time we will be required to confirm that all the recommendations arising from the previous PSRs of Hunterston B and Hinkley Point B have been implemented. The NII’s decision whether to agree continued operation of each nuclear power station is expected a year or so after these submission dates.

Public safety

Transport

The transport of all radioactive material, both waste and fuel, off site must comply with the Department of Transport requirements under RMRTA and the HSE’s requirements under HSWA and ATCSA. The RMRTA regulates the transport by road of radioactive material. Under these Acts, the Government may regulate the packaging, labeling, consignment, handling, transport, storage and delivery of radioactive packages. The current regulations require certain consignments to be specifically approved by the Secretary of State for Transport.

Security

We operate in a world where we must be vigilant to security threats of all sorts in particular as a result of increased levels of terrorist activity internationally. Our operations are regulated and subject to audit by the Office for Civil Nuclear Security (“OCNS”) which published its initial report after the terrorist attacks on the World Trade Center in New York on September 11, 2001, and must comply with the Nuclear Industries Security Regulations 2003 (the NIS Regulations) which are made under ATCSA and all directions made under that legislation. The OCNS published its latest annual report (“The State of Security in the Civil Nuclear Industry and Effectiveness of Security Regulation April 2003-March 2004”) in July 2004. This report contains recommendations and changes, some of which we will be developing with the OCNS over the coming months, along with other nuclear operating companies to consider the impact of the revised strategy on our security arrangements but it is likely to result in increased security costs.

Our security arrangements are independently reviewed, and we remain confident that our security regime and processes are of a high standard. We have and are further enhancing our security arrangements to meet the increasing UK regulatory requirements and conform with Government guidelines. The reviews cover protective security-related compliance issues as well as compliance with legal requirements. Our security policy and our security risk management audit process are documented and subject to regular internal review and we consider we have effective systems in place to address security issues across a range of areas including personnel recruitment, information technology, physical security and health and safety. We make every effort to ensure that robust security management is achieved.

Emergency arrangements

Emergency arrangements have been established and demonstrated to the satisfaction of the relevant regulators. Each power station has an emergency plan which is approved by the NII and lodged with local emergency services, public libraries and others. Information on emergency arrangements is discussed at local consultative meetings and information is provided to local residents. Each power station has an emergency control center on-site, as well as off-site arrangements for co-ordination with the police, the local authorities, other emergency services and other government agencies. No nuclear emergencies have occurred at any of our sites which have resulted in a release of radioactivity above the authorized level.

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Safety performance

Under the terms of our nuclear site license, all incidents are required to be recorded and investigated and those of significance must be notified to the NII within defined time scales.

To aid public understanding of the safety significance of events at nuclear installations and their consequences, the International Atomic Energy Agency and the Nuclear Energy Agency of the Organization for Economic Co-operation and Development have developed the International Nuclear Event Scale which sets out various levels of incident increasing in seriousness from “0” (i.e. an anomaly with no safety significance) to “7” (i.e. major accident with widespread health and environmental effects) and the criteria relating to each level.

Only events at level 4 and above involve a significant release of radioactivity off-site. There has never been an event at any of our power stations resulting in an exposure to radiation of a person on or off the site above the statutory exposure limits, or the need to consider countermeasures to protect the public off-site. No event has been rated higher than level 2 at our power stations (i.e. an incident with a significant failure in safety provisions but with sufficient defense in depth remaining to cope with additional failures or an event resulting in a radiation dose to a worker in excess of the statutory annual dose limit and/or an event which leads to the presence of significant quantities of radioactivity in the installation in areas not expected by design and which require corrective action).

There has been a reduction in the collective radiation exposure to our workers from 0.12 man Sv/reactor in 2002/2003 to 0.09 man Sv/reactor in 2003/2004. This figure represents approximately one tenth of the worldwide median of the operators contributing to information collated by the World Association of Nuclear Operators (WANO) and places us in the top 10% of performers in this respect.

We maintain an open culture that promotes the reporting of all accidents, including those where no injury actually resulted. The industrial safety accident rate is used to indicate the average number of accidents involving time off work which an individual would be likely to experience in their working lifetime (based on an expected working life of 100,000 hours). In the year to March 31, 2004, our accident frequency rate was 0.53 lost-time accidents per 200,000 man-hours of operation, an increase from 0.46 in the prior year. This ranks unfavorably in comparison to other nuclear operators contributing data in respect of their industrial safety accident rates to WANO.

The Royal Society for the Prevention of Accidents (ROSPA) has recognized our safety performance by awarding all of our eight nuclear stations with Gold Awards for achieving very high standards of safety in 2003/04. Gold Medal Awards were presented to two of our power stations for achieving continued safety performance over the last five years and five of our power stations were awarded the President’s Award for achieving Gold Awards for the last ten consecutive years.

NII safety management audit

In 1998, the Board announced its decision to reorganize the Group and, in particular, our two licensed subsidiaries, BEG and BEG UK, to bring all eight UK nuclear power stations under one licensee, namely BEG. Following this decision, in April and May 1999, the NII carried out a major audit of the safety management arrangements in the central functions that support safety at the licensed sites. The report from this audit was published by the NII in January 2000, and included 103 recommendations to be addressed by both licensees. The NII expressed concern about the ability of BEG and BEG UK to maintain adequate levels of technical support in the future, the extended working time of technical staff, the levels of contractor support being used and the adequacy of the management of change arrangements. The NII confirmed that it was not concerned about the immediate safety of the power stations, but wished to ensure that BEG and BEG UK remained adequate nuclear licensees in the future.

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Since publication of the NII audit report in January 2000, we have worked to develop processes to address the NII’s concerns. Of the 103 recommendations, 80 have been fully cleared and require no further action, one has yet to be cleared (although the way to resolve the issue has been agreed), and 22 are being monitored to confirm that the agreed resolution has been fully carried out. The NII has confirmed that it will review the BEG and BEG UK management of the proposed relocation of technical staff from Peel Park to Barnwood over the next year or so as a test of whether the processes put in place to address the audit findings are working, and will not finally clear the majority of the remaining 22 recommendations until they are satisfied.

WANO

We are a member of WANO which unites operators from more than 420 nuclear power plants in over 30 countries. WANO aims to maximize the safety and reliability of its members’ nuclear power plants. WANO undertakes a program of site evaluations with the intent of reviewing operations at each of our nuclear power stations every two years.

WANO also carries out corporate evaluations where ‘corporate’ means any part of the power plant organization which does not report directly to the station director. These evaluations provide an opportunity for members to learn and share the best worldwide insights into the performance of the corporate organization. WANO has developed over the years a series of Performance Objectives & Criteria (POs&Cs) for operational nuclear power plant, which set the expectations of how the best performing utilities should perform. A subset of the POs&Cs has been developed as the basis for corporate reviews. At our request, WANO carried out a corporate review of BEG and BEG UK in July 2001, which was the first such review outside of North America.

Key findings from the WANO 2001 corporate review

In September 2001 WANO presented the findings of the corporate review and identified five areas for improvement:

• the materiel condition and equipment performance of our nuclear stations needed significant improvement as it is adversely impacting the reliability of the stations;

• we need to develop a strong operational focus to ensure sufficient attention to the problems and priorities that affect safe and reliable performance of our nuclear stations;

• the corporate organization needed to be aligned around an integrated strategy with the clear lines of authority and accountability to improve overall performance;

• operating experience information needed to be used effectively by the line organization to prevent the recurrence of operational events; and

• an unambiguous message regarding the overriding importance of nuclear safety needed to be provided throughout the organization.

June 2003 WANO revisit

In June 2003, a WANO corporate review team returned to BEG and BEG UK to review progress in addressing the five main areas for improvement described above. Since then, we have reformulated our strategic business objectives to address WANO’s concerns and improve our performance. We now focus on what we call the four fundamentals of human performance, equipment reliability, management of work and operational focus together with what we call the foundation areas of training organization and structure, people and leadership and culture change. Our efforts to regain world standards of safety and reliability are being supported by our recently launched performance improvement program described above in the paragraph above headed “Performance Improvement Program”.

Compliance with nuclear regulations

We place great emphasis on the importance of maintaining and continuing to develop a “safety first” culture in addition to complying with regulatory requirements. Our overall organizational structures

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and policies and our safety management arrangements are designed to ensure that legislative requirements and developments are recognized, implemented and monitored through appropriate procedures and practices and that continuous improvements in safety culture and performance are promoted.

Other regulation

Our operations are subject to numerous international, environmental and health and safety laws and regulations governing, amongst other things, the construction, operation and decommissioning of nuclear and coal-fired power stations; discharges to the air, water and land; the use, handling, transport and disposal of radioactive and hazardous substances and wastes; soil and groundwater contamination, and public and employee health and safety.

Waste, emissions and discharges

The Radioactive Substances Act 1993 (“RSA”) governs the disposal of radioactive waste including radioactive discharges. Radioactive gaseous, liquid or solid waste may only be disposed of or moved off the site in accordance with authorizations granted under the RSA. To enable the re-licensing to BEG of the two nuclear stations in Scotland currently licensed to BEG UK under the NIA, it is also necessary for BEG to be granted the RSA authorizations in respect of the two Scottish stations. Applications for these authorizations have been submitted to the Scottish Environment Protection Agency (“SEPA”) and are expected to be granted on a similar timescale to the nuclear site licenses to permit relicensing in 2005.

In England and Wales, the EA regulates nuclear power stations and grants discharge authorizations under the RSA. In Scotland, SEPA regulates under the RSA. We have obtained all necessary consents and authorizations from the EA and SEPA for the disposal of radioactive waste and for non-radioactive discharges from our stations.

Authorizations for disposal of radioactive waste require the operator to use best practicable means to reduce discharges or radioactivity. The operator must in any event comply with the authorized discharge limits set by the EA or SEPA. In England, the EA also sets quarterly notification levels for discharges which are lower than these limits and which, if exceeded, require a formal notification and justification to the EA that best practicable means have been employed. The Energy Act requires EA and SEPA to carry out periodic reviews to the limitations and conditions attached to the authorizations.

The EPA provides for a waste management licensing regime and imposes certain obligations and duties on companies that produce, handle and dispose of non-radioactive waste. Separately, the Integrated Pollution Control (“IPC”) environmental authorization regime introduced in 1991 under the EPA provides an authorization regime for emissions which requires that a power station use the best available techniques (not entailing excessive cost) to minimize the emission of certain pollutants. The IPC is under a staggered process of repeal, to be replaced by a new Integrated Pollution Prevention and Control (IPPC) regime. The IPPC regime will combine the waste management and emission regimes and will impose progressively stricter requirements on power stations. It is expected to be fully implemented by 2007. The regulatory bodies under the new IPPC regime will remain the EA and SEPA.

Consumer information

The EU has recently issued a liberalization directive relating to electricity markets. It includes a requirement for electricity suppliers to provide information on the types of fuel that have been used to produce the electricity, to assist consumers in making informed choices about the environmental

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impact of the electricity they buy. This requirement is imposed by way of a new license condition which will be introduced this autumn, although we have been disclosing fuel mix and other environmental information to customers since 2003.

Environmental performance

Our AGR and PWR Stations

The Centre for Environment, Fisheries and Agriculture Science produces a “Radioactivity in Food and the Environment” report on behalf of the EA, SEPA and the Food Standards Agency which contains radiological monitoring data. The report shows that in 2002 radiation doses to the public resulting from our radioactive discharges to the environment were well below the national and international limits in all parts of the UK.

Both in England and Wales and in Scotland, compliance with radioactive discharge authorizations is assessed through returns made to the relevant regulator and a regular program of site inspections by the regulator.

None of our stations has ever been prosecuted for exceeding any of its authorized discharge limits for the disposal of radioactive waste. However, in January 2003 BEG UK was prosecuted at Haddington Sheriff Court, Scotland relating to the unauthorized discharge of an Active Effluent Discharge Tank in October 2001 at Torness and was fined £15,000 reflecting the fact that: (i) this was the first ever prosecution against BEG UK; (ii) the action it took in reporting and remedying the breach; and (iii) the absence of detriment to the environment.

We have been served with a number of Enforcement Notices from the environmental regulatory authorities requiring improvements to plant and/or processes associated with environmental performance, all of which we have dealt with to the satisfaction of those authorities. In October 2003, the EA wrote to us highlighting a series of incidents and non-compliance that, in its view, indicated a serious shortfall in our compliance with, and understanding of, our environmental permits and environmental legislation. In December 2003, we responded to the EA setting out the actions that we intended to take to resolve the issues raised in their October 2003 letter. We continue to meet with the EA to review our environmental performance.

Eggborough Station and Gale Common

Every year we set environmental objectives and targets for the Eggborough Station and the Gale Common facility. For 2003/04, we set twenty targets related to the key environmental policies set out above in paragraph: “Regulation of the Eggborough Station and Gale Common”, seventeen of which were fully achieved by the end of the period in March 2004. Three of our targets were partially achieved in this period and therefore we will continue to work towards achieving them in the year 2004/05.

The levels of carbon dioxide, oxides of nitrogen, hydrogen chloride and sulphur dioxide emissions recorded in 2003/04 were lower than for each of the last three years. In addition, the level of emission of particulates was lower in 2003/04 compared with 2002/03. We hope to be able to carry out modifications to each unit at the Eggborough Station to help maintain or, even, reduce the rates of NOx emission, in particular, with work anticipated to start next year.

Along with other power station operators in the Aire Valley (the area in which the Eggborough Station is located), we monitor ambient air quality as part of a process agreed with the Environment Agency in order to meet the requirements of our IPC authorization. Results from this monitoring have

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all compared very favorably with the National Air Quality Standards and UK Objective for the protection of human health, both of which are due to come into force in 2005, as well as all the air quality standards currently in place.

We continue to play our part in creating and maintaining bio-diversity at the Eggborough Station and Gale Common through integrated Land Management Plans which we have developed with ADAS (a consultancy and research organization to land-based industries in the UK and abroad and formerly part of the Ministry of Agriculture, Fisheries and Food). The purpose of these plans is to protect and enhance the wildlife in, and conserve the local landscape and historical heritage of, the area in which we conduct our business.

PROPERTY, PLANT AND EQUIPMENT

Our properties consist of power stations and associated land and administrative offices, and various other properties (a small number of which are held pending disposal). We own the freehold (in England and Wales)/feuhold (in Scotland) to each of our eight UK nuclear power stations and one coal fired power station as well as the administrative centers, our corporate headquarters at Peel Park near East Kilbride in Scotland and at Barnwood near Gloucester in England. In connection with the closure of Peel Park we have agreed to take on other office premises in Scotland at Renfrew and Livingston. On September 15, 2004 we announced the proposed sale and partial lease-back of our corporate headquarters building at Peel Park. In addition, we currently lease an office in London. The nuclear power stations are operated under license and subject to regulation. Details of our power stations and offices are set out below:

Type	Capacity (MW)		Location
Nuclear Power Stations:
Dungeness B	AGR	1,110	England
Hartlepool	AGR	1,210	England
Heysham 1	AGR	1,150	England
Heysham 2	AGR	1,250	England
Hinkley Point B	AGR	1,220	England
Hunterston B	AGR	1,190	Scotland
Sizewell B	PWR	1,188	England
Torness	AGR	1,250	Scotland
Coal Fired Power Station:
Eggborough	—	2000	England
Principal Offices:
Peel Park, East Kilbride	—	—	Scotland
Barnwood, Gloucester	—	—	England
Sheldon Square, London	—	—	England

In connection with our privatization in July 1996, we entered into a Property Clawback Deed with the then Secretary of State for Trade and Industry. The Property Clawback Deed provides that in the event of the disposal (or a deemed disposal) of any property in which we had an interest as at March 31, 1996 (other than our power stations), the Government is entitled to 50% of any capital gain realized on the disposal in excess of £400,000 increased in accordance with RPI since April 1, 1996. The Property Clawback Deed will cease to have effect from March 31, 2006.

Under the terms of the Government Facility, we granted a first ranking security to the Government over each of our UK nuclear stations. This security will be released on termination of the Government Facility, implementation of the Restructuring, or EU approval of State Aid. In addition, certain of our

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subsidiaries have granted security over their assets in order to secure the decommissioning default payments and related costs and expenses under the Contribution Agreement pursuant to the DDP Debenture.

On July 2, 2003, we announced proposals to close our current corporate headquarters at Peel Park in East Kilbride. On September 15, 2004 we announced the proposed sale of the Peel Park building to Kenmore Capital East Kilbride Limited in consideration of a cash payment of £6.625 million and a potential additional cash payment of up to £0.25 million if certain letting arrangements come to fruition. We have also entered into a ten year lease for part of the building. It is expected that the sale will be completed in January 2005. As a consequence certain operational posts will be relocated to our Barnwood office, and our headquarters will be transferred to a new location at Alba Campus, Livingston in Scotland. A small number of staff will remain at Peel Park as part of the proposed sale and partial leaseback arrangement. We are currently in the process of consulting with those employees directly affected by these proposals. Our remaining staff who choose not to be re-located to Barnwood will be temporarily relocated to new offices at Renfrew in Scotland and will leave the company once their successors are in place at Barnwood.

As a result of the sale of Peel Park, we have taken a 15 year lease of two floors of an office in Livingston with a ten year break option. We have also agreed to take a 12-24 month lease of one wing of an office in Renfrew and a long lease of a second wing until 2013 with a terminal break option in 2009.

Competition

We compete in the market for electricity supply with the other power stations, including other nuclear power stations, and a number of coal-, oil- and gas-fired power stations. Our major competitors are E.ON UK, RWE Innogy, EDF Energy, Drax Power, Scottish Power, Scottish and Southern Energy and BNFL. In addition, there are a large number of companies that own single power plants. As compared to nuclear power stations, coal-, oil- and gas-fired power stations are able to more easily adjust their output to take advantage of changes in market price, which in some situations may put us at a competitive disadvantage.

There has been some consolidation of supply businesses in recent years. Excluding British Energy, there are only six major suppliers in Great Britain: E.ON (Powergen), RWE Innogy (previously National Power), EDF Energy, Scottish Power, Scottish and Southern Energy and Centrica (British Gas). While we operate exclusively in the industrial and commercial sector, the other major suppliers also compete in the domestic retail sector. Gaz de France has recently entered the supply market and competes in the industrial and commercial sectors.

Legal Proceedings

On February 12, 2004 we received a notice of warranty claims from the consortium which purchased our 82.4% interest in Bruce Power alleging breach of certain warranties and representations relating to tax and to the condition of certain plant at the Bruce power station.

The claim relating to the condition of the plant is based upon alleged erosion of some of the steam generator support plates, through which boiler tubes pass, which it is alleged resulted in an extended outage of one unit at the plant to carry out repair works and loss of net revenues and costs of approximately C$64.5million. The consortium also claims that the alleged erosion may reduce the operating life of the unit and/or result in further repairs involving further losses. We have rejected the claim and expect to defend it if it is pursued further.

The principal tax claim relates to the treatment of expenditures at the Bruce plant during the period of our ownership that is currently being considered by the Canadian tax authorities. The treatment proposed by us could result in a material tax rebate that has not been recognized in our financial statements. The consortium claims that allowance of the expenditure for that period would cause it to lose future deductions. We have rejected the tax claim and expect to defend it if it is pursued further. We do not believe that the

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amount of the tax claim should materially exceed the amount of the rebate, and therefore the tax claim should not have a material impact on our cash flow. See Item 3. Risk Factors—“We are involved in several disputes that if resolved or determined against our interests could adversely affect our financial condition.”

Under the Bruce Power sale agreement with the consortium, C$20million was retained in trust to meet any representation and warranty claims. This amount may be retained pending resolution of the claims.

As a result of an accounting adjustment made by Exelon to the value of nuclear fuel contained in AmerGen’s balance sheet dated December 21, 2003 we may be required to make a payment to Exelon of up to US$13.7 million. We dispute such claim and served a dispute notice on Exelon on June 4, 2004 to preserve our rights under the sale agreement. The agreement with Exelon for the sale of AmerGen requires that, prior to instituting any litigation or other dispute resolution procedure, the companies will in good faith seek to resolve any dispute. Furthermore, we are reviewing with Exelon the effect on the working capital adjustment resulting from a change to the estimated tax recoverable for prior periods made after the consummation of the sale, and this, if agreed, may result in a reduction in the purchase price payable by Exelon, with the reduction currently estimated to be in the range of up to US$6.3 million.

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

You should read the following information together with our audited consolidated financial statements and the related notes included herein beginning on page F-1. Further information on the basis of preparation are included in note 1 to our audited consolidated financial statements. The following discussion and analysis is based on our audited consolidated financial statements, which have been prepared in accordance with UK GAAP. UK GAAP differs in a number of significant respects from US GAAP. You can find a description of the differences between UK GAAP and US GAAP relevant to our audited consolidated financial statements and reconciliations of profit/(loss) after tax (or net income/(loss)) and deficit on equity shareholders’ funds in note 36 (as restated) to our audited consolidated financial statements.

Our financial statements have been prepared on the basis that we are a going concern. The going concern basis assumes that we will continue in operational existence for the foreseeable future. The validity of this assumption depends upon a number of factors that are beyond our control, including those discussed above. If for any reason we are unable to complete our proposed restructuring and cease to be a going concern, we may be required to adjust the monetary value of assets, reassess our provisions for future liabilities and reclassify fixed assets and long-term liabilities as current assets and liabilities. Such adjustments, reassessments and reclassifications may result in a material adverse change to the statement of our financial condition from that currently set forth in our financial statements. For further information, see note 1 to our audited consolidated financial statements.

Overview of the Group

Our principal activity is the generation, sale and trading of electricity. We are the UK’s (which comprises Great Britain and Northern Ireland) largest generator of electricity, producing over one fifth of the UK’s electricity and employing approximately 5,100 staff. We own and operate eight nuclear power stations and one coal-fired power station in the UK. Of our nuclear power stations, seven are AGRs (Dungeness B, Hartlepool, Heysham 1, Heysham 2, Hunterston B, Hinkley Point B and Torness) and the eighth (Sizewell B) is our sole PWR. Our nuclear power stations have a combined capacity of approximately 9,600 MW. Eggborough power station has output capacity of 1,970 MW. During the year ended March 31, 2004, our power stations produced total output of 72.6 TWh, which was comprised of output of 65.0 TWh from our nuclear power stations and 7.6 TWh from the Eggborough power station.

During the periods under review, we made two significant divestitures: in February 2003, we disposed of our majority interest in Bruce Power, which operates the Bruce nuclear power station in Canada and in December 2003, we sold our 50 per cent. interest in AmerGen, a joint venture which operates three nuclear power stations in the United States.

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We generated turnover of £1,516 million during the year ended March 31, 2004 resulting in operating profits of £57 million before exceptional operating credits of £283 million. During the year ended March 31, 2003, we generated turnover of £1,903 million of which £1,528 million was from continuing activities and resulted in operating profits from continuing activities of £7 million before exceptional operating costs of £3,906 million. Operating profits from continuing activities after exceptional operating credits were £340 million during the year ended March 31, 2004 as compared with an operating loss from continuing activities after exceptional operating costs of £3,802 million during the year ended March 31, 2003.

The Restructuring

We are currently in the process of a major financial restructuring. In October 2003, we announced that we had agreed to the terms of the Restructuring. Completion of the Restructuring remains subject to the satisfaction of a number of important conditions. If the Restructuring is completed, our Creditors will have agreed to compromise at least £1,199 million in debt and other obligations. The Restructuring involves the Bondholders the Eggborough Banks, RBS and the significant Creditors compromising their claims against the British Energy Group pursuant to the Creditors’ Scheme and other arrangements under the Creditor Restructuring Agreement in exchange for, among other things, £275 million of New Bonds to be issued by British Energy Holdings plc as well as at least 97.5 per cent. of the new shares of the New British Energy.

In addition the Significant Creditors will extinguish all and the Eggborough Banks will extinguish part of, their existing claims against the Group pursuant to the various arrangements under the Creditor Restructuring Agreement.

Furthermore, the Eggborough Banks will compromise their secured claims in exchange for a right to payments having a payment profile equivalent to £150 million of New Bonds and option to acquire the Eggborough power station in 2010 for a one-time payment of £104 million and the extinguishment of the then £83 million of outstanding payments due at that time.

Under the Government Restructuring Agreement entered into in connection with the Restructuring and which sets out new arrangements with the Secretary of State, the existing NDF will be enlarged and renamed the NLF which will fund qualifying uncontracted nuclear liabilities and the qualifying costs of decommissioning our nuclear power stations. The Secretary of State will fund: (i) qualifying uncontracted nuclear liabilities and qualifying costs of decommissioning of the Group’s nuclear power stations to the extent they exceed the assets of the NLF; and (ii) subject to certain exceptions, contracted liabilities for historic fuel. The New British Energy Group will be responsible for funding certain excluded or disqualified liabilities and will be, in certain circumstances, required to compensate or indemnify the NLF and the Government in relation to such liabilities. The excluded liabilities include, among others, employment and redundancy costs, certain environmental expenses, liabilities other than nuclear liabilities and liabilities. These excluded and disqualified liabilities include, amongst others, costs incurred as a result of our failure to operate in accordance with a minimum performance standard or introduction of certain operational changes at our nuclear power stations. In consideration for assuming these liabilities, Holdings plc will issue £275 million in New Bonds to the NLF and the New British Energy Group will make various payments to the NLF including an annual contribution equal to (initially and subject to adjustment but no to exceed) 65 per cent. of New British Energy’s adjusted net cash flow (the NLF Cash Sweep Payment). The NLF may, at its option, convert the NLF Cash Sweep Payment into Convertible Shares. The terms of the Convertible Shares will limit the general voting rights attaching to such shares, whilst held by the NLF, to the maximum amount which can be held by the NLF (and its concert parties) without triggering a mandatory offer under the Takeover Code, being currently 29.9 per cent.

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For further information about the Restructuring, the NLF and the related agreements see “Item 4. Information on the Company—Restructuring.” However, there can be no assurance that we will complete the Restructuring. For further information about the risks related to the Restructuring, the NLF and related agreements, see “Item 3. Risk Factors—Risks relating to completion of the Restructuring.”

Critical Accounting Policies

UK GAAP requires our Directors to adopt those accounting policies which are most appropriate for the purpose of the preparation of the accounts. In preparing the accounts in conformity with UK GAAP, the Directors are required to make estimates and assumptions which impact on the reported amounts of revenues, expenses, assets and liabilities. Actual results may differ from these estimates. Certain of our accounting policies have been identified as the most critical accounting policies by considering which policies involve particularly complex or subjective decisions or assessments and these are discussed below.

Going concern

Our audited consolidated financial statements have been prepared on a going concern basis because our Directors are currently seeking an alternative to liquidation or ceasing trading operations. The going concern basis assumes that we will continue in operational existence for the foreseeable future. The validity of this assumption is dependent on completion of the Restructuring.

If the remaining conditions and approvals to the Restructuring are not satisfied, we may no longer be considered to be operating as a going concern. Some of the conditions required to implement the Restructuring are beyond our control, such as Court approval of the Schemes. If for any reason we are unable to complete the Restructuring and cease to be a going concern, adjustments may have to be made to reduce the monetary values of our assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify our fixed assets and long-term liabilities as current assets and liabilities.

Nuclear liabilities and decommissioning

Our nuclear liabilities principally relate to the cost of reprocessing and storage of nuclear fuel and storage and disposal of nuclear waste, collectively known as back-end fuel costs and the cost of defuelling our reactors and decommissioning our nuclear power stations.

In accordance with UK GAAP, back-end fuel costs are recognized in each year’s financial statements in proportion to the amount of fuel consumed. However, because these costs will not be incurred for many years the estimated costs (expressed in current prices) are discounted at 3 per cent. per annum from their estimated payment dates. The discounted back-end fuel cost is recognized when the related fuel is consumed. The 3 per cent. discount rate reflects average assumed long-term investment returns. More than 80 per cent. of AGR back-end fuel costs (on a discounted basis) are covered by contractual arrangements with BNFL, all of which include fixed price terms subject to indexation. Liabilities for PWR back-end fuel costs are based on cost estimates derived from the latest technical estimates.

In accordance with UK GAAP, the estimated costs of decommissioning our nuclear power stations are provided for when the nuclear power stations begin operating commercially, and are capitalized as part of the cost of construction and depreciated over the same lives as the stations. The estimated costs of decommissioning are discounted to reflect the timescale before and during which the work will take place (following closure of the power station). We anticipate that after defueling the reactors, dismantling the reactors will not be possible for at least 50, and up to 135 years, after the closure of the relevant nuclear power station.

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As at March 31, 2004, our total undiscounted expected future payments in respect of nuclear liabilities, stated at current values, were £15.0 billion. This amount takes into account all costs associated with fuel consumed in the past, estimated fuel to be consumed in the future and decommissioning. Discounted at 3% per annum from the estimated eventual payment dates, this amount was £5.7 billion as at March 31, 2004, of which £4.2 billion had been accrued. The difference between the total discounted nuclear liabilities and the amount accrued as at March 31, 2004, represents the estimated discounted back-end fuel cycle costs associated with fuel to be consumed in the future.

The actual liability for decommissioning may vary significantly from our estimate, and as a result, the liabilities we report in our results may vary significantly if our assessment of these costs changes. Many of the factors that are integral to the determination of our estimate, such as governmental regulations and inflation, are beyond our control.

Fixed assets and depreciation

Fixed assets (other than assets in the course of construction) are stated in the balance sheet at cost less accumulated depreciation. Accumulated depreciation includes additional charges made where necessary to reflect impairment in value. Assets in the course of construction are stated at cost and are not depreciated until brought into commission.

The charge for depreciation of fixed assets is based on the straight line method so as to write off the costs of assets, after taking into account provisions for diminution in value, over their estimated useful lives.

The carrying values of fixed assets are reviewed for impairment where there has been a trigger event by assessing the preset value of estimated future cash flows and net realizable value compared with net book value. The calculation of estimated future cash flows is based on the Directors’ best estimates of future prices, output and costs and is therefore subjective.

Impairment of fixed assets

We undertook a review of the carrying value of our fixed assets compared with the economic value and net realizable value of those assets. In carrying out the economic valuations, significant estimates are made of the future cash flows being generated by the assets, taking into account current and expected future market conditions and the expected lives of our power stations. The assessment of future market conditions includes, for example, a view of likely overcapacity in the market over a number of years and the likely timing of the market returning to new entrant prices. The actual outcome can vary significantly from our forecasts, thereby affecting our assessment of expected future cash flows. The expected future cash flows are discounted at a rate approximating to our weighted average cost of capital as this is the rate most representative of those assets. The impairment review has resulted in the value of our power stations being written up by £295 million for UK GAAP during the year ended March 31, 2004.

Station accounting lives

Accounting lifetimes of our nuclear power stations reflect our current assessment of potential life limiting technical factors and independent engineering assessments. The operating lifetime of a nuclear power station is limited principally by the lifetime of items which are uneconomical to replace such as the graphite core, the boiler (in AGRs) and other components inside the reactor pressure vessel. The methodologies and technology used to evaluate the expected lifetimes of nuclear stations are dynamic, resulting in progressively improved measurement capabilities that allow us to determine whether the safety case for an extended accounting life of a nuclear power station can be supported. The estimates of station accounting lives are therefore subjective. The extension of a station’s life may improve our results, in light of the incremental income and the largely fixed cost base. We have not considered it appropriate to extend the accounting lives of any of our power stations in the financial year ended March 31, 2004.

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The Decommissioning Fund

We make contributions into an independently administered fund to cover all costs of decommissioning our nuclear power stations, except de-fuelling costs. Our annual contributions to the fund are determined by qualified actuaries, taking into account the amount and timing and expected decommissioning costs and the periods until station closures. The value of the asset in the balance sheet represents our contributions to the Nuclear Decommissioning Fund (the “Decommissioning Fund”), together with an estimated actuarially determined long-term rate of return on the Decommissioning Fund. The change in value arising from applying the estimated long-term rate of return is taken to the profit and loss account and disclosed as part of revalorization.

The revalorization of the Decommissioning Fund, which has been taken through the profit and loss account, is not a realized profit for the purposes of the Companies Act 1985 because the income is unrealized until we receive the related cash from the Decommissioning Fund to reimburse decommissioning expenditures. The inclusion of this profit in the profit and loss account is a departure from the requirements of the Companies Act 1985. Revalorization of the accrued decommissioning provision is charged to the profit and loss account each year and accordingly, we believe it is necessary to include the estimated annual long-term rate of return of the Decommissioning Fund in our profit and loss account in order for the financial statements to give a true and fair view. In the event that the net realizable value as indicated by the market value of the Decommissioning Fund is lower than the value determined under the accounting policy set out above, we have included the lower value in our accounts.

Onerous contracts

Following the introduction of NETA and the renegotiation of certain contracts, a number of our electricity trading contracts no longer hedge our physical output. As the status of these contracts changed under UK GAAP, a provision was made for the “out of market” element of the contracts under FRS 12. In arriving at the provision, the terms of the contract are considered along with our estimate of the expected future electricity prices over the period of the contracts. The financial statements for the year ended March 31, 2004 reflect the claim amounts for these contracts which have been agreed in principle for the purpose of the Restructuring.

Deferred Taxation

Following the implementation of FRS 19, Deferred Taxation, we discount our full deferred tax liability. FRS 19 allows a company the choice as to whether or not to discount its deferred tax liability. We implemented FRS 19 on a discounted basis in the financial year ended March 31, 2002 as we consider that this is necessary in order to present all our long term liabilities on a consistent basis. The implementation of FRS 19 resulted in an adverse adjustment to reserves and net assets of £130 million in our consolidated financial statements for the year ended March 31, 2002.

As at March 31, 2004, we had an unrecognized deferred taxation asset of £375m (£291m discounted) which was not recognized due to uncertainty over the level of future taxable profits. It is our policy to recognize deferred taxation assets when we consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Factors Affecting our Results of Operations

Our results of operations during the periods under review were affected by operational and other factors. Operational factors include changes in plant output, achieved electricity prices, operating costs and capital expenditures. Other factors that affected our results of operations include the impact of accounting for discontinued operations and revalorization charges. Our results of operations during the year ended March 31, 2004 have been affected by the implementation of the new BNFL contracts and the standstill arrangements with BNFL. Furthermore, results of operations during the periods under

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review were also affected by a change in the manner in which we accounted for turnover and certain operating costs to reflect the new trading arrangements in England and Wales as a result of NETA. Each of these factors is discussed below.

Operational factors affecting our results of operations

Nuclear output. The electrical output that our nuclear stations can achieve is affected by a number of factors, including plant operating conditions and strategy, and the frequency and duration of outages. The principal factor affecting our nuclear output for any given period is the number and duration of outages. The table set forth below shows our nuclear output from continuing operations for the periods under review:

Output	Year ended March 31,			Variance
	2004	2003	2002	2003-2004		2003-2002
	(in TWh)
Nuclear output	65.0	63.8	67.6	1.9	%	(5.6	)%

The nuclear regulatory regime in the UK requires each nuclear power station to be shut down periodically for maintenance and inspection as a condition of that power station’s nuclear site licence. We refer to such a shut down as a “statutory outage”. Certain of our nuclear power stations must also be shut down to allow for refueling, which we refer to as a “refueling outage”. Nuclear power stations must also be shut down for maintenance and testing or to address an unplanned technical malfunction or engineering failure, which we refer to as “unplanned outages”.

Our level of unplanned outages in recent years has significantly affected our operating and financial performance. Nuclear output for both the years ended March 31, 2003 and 2004 was adversely affected by a number of unplanned outages. In particular, we experienced unplanned outages at both reactors at Heysham 1 in 2004. We estimate that this loss of output at Heysham 1 equated to approximately £71 million in lost profits after considering imbalance costs and associated fuel savings. Since 2002, the proportion of unplanned outages arising from incidents other than major plant failures has gradually increased during the periods under review. To date these unplanned outages have been caused by a variety of technical issues, the most significant of which are: problems with our refueling equipment and processes; turbine-generators; tendons; boilers; boiler feed pumps; gas circulators (which are used to pump carbon dioxide coolant gas around the reactor core); and the seawater coolant system. We believe that the loss of output arising from these outages is indicative of a deterioration in the materiel condition of our plant over time, caused by: (i) inadequate investment when compared with international benchmarks for spending at nuclear power stations (of the order of approximately £45 million per annum across the fleet over each of the last 5 years); (ii) by a failure to perform required maintenance on a timely basis; and (iii) human errors in the operation and maintenance of our plant including conducting our operations and maintenance functions on a station by station rather than fleet wide basis. This conclusion is consistent with the findings of the World Association of Nuclear Operators (WANO) corporate review carried out in 2001.

The table set forth below shows the aggregate loss of output, in terawatt-hours, associated with our statutory, refueling and other outages during the periods indicated.

Outages	Year ended March 31,			Variance
	2004	2003	2002	2003-2004		2003-2002
	(in TWh)
Statutory	4.9	5.9	2.8	(16.9	)%	110.7	%
Refueling	2.9	3.0	3.9	(3.3	)%	(23.1	)%
Others	10.7	10.6	9.1	0.9	%	16.5	%
TOTAL	18.5	19.5	15.8	(5.1	)%	23.4	%

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In recent years, we have sought to reduce the impact of refueling outages through the introduction of low power on-load refueling (that is, refueling while the reactor is still on) at four of our seven AGR stations as well as scheduling refueling outages to coincide with statutory outages. (PWRs are not designed to refuel on-load and must be shut down for refueling.) We have reached an agreement with the NII which has allowed us to extend the period between statutory outages at all of our AGR stations to three years and to extend the period between statutory outages to 18 months in the case of our PWR power station. We seek to reduce the impact of statutory outages on revenue by timing such outages to occur during periods of lower demand for electricity when prices are lower (generally between March and October.) We also seek to reduce the duration of any statutory outages by improving the efficiency with which we conduct the required program of work.

Coal output. Output from the Eggborough Station for the periods under review was as follows:

Coal Output	Year ended March 31,			Variance
	2004	2003	2002	2003-2004		2003-2002
	(in TWh)
Total output	7.6	5.7	7.1	33.3	%	(19.7	)%

The Eggborough power station is operated at various output levels rather than at constant levels in the manner of our nuclear stations. We operate the Eggborough power station principally to take advantage of favorable electricity prices, to generate additional power during unplanned outages at our nuclear power stations and to change output in response to changing requirements. As such, prevailing electricity prices, our contracted trading position and unplanned outages at our nuclear plants are the primary factors driving our total output for each of the periods under review.

Electricity Prices

Our realized price for electricity is critical to our profitability. During the year ended March 31, 2004, our realized price, which is calculated by dividing total UK turnover (net of energy supply costs and miscellaneous and exceptional income) by total output during the period, was £16.9/MWh. The average forward price for baseload power which we consider to represent a “market price” for wholesale electricity sales for 2003/2004 delivery was £16.7/MWh. During the year ended March 31, 2003, our realized price was £18.3/MWh as compared with a market price of £18.6/MWh. The difference between our realized price and the market price primarily reflects the impact of fixed price contracts on turnover during a period when wholesale electricity prices were rising. However, while these contracts reduce our exposure to potential falls in market prices, it also means that we are not able to fully benefit from rising electricity prices and vice versa should prices fall. We currently have forward contracts in place for volume equivalent to virtually all our planned output for the year ended March 31, 2005. The large majority of these forward sales contracts are fixed price contracts and in mid September 2004 were at an average price of £20.8/MWh for 2004/2005 delivery. As at March 31, 2004, the forward price for baseload power for 2004/2005 delivery was approximately £20.3/MWh. As a result of these contracts, our realized price for electricity may differ from the average market price for the year.

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Our realized price for the years ended March 31, 2002 and 2003 also reflects the effect of several changes to the manner in which we account for turnover and certain operating costs as a result of the introduction of new trading arrangements brought about by the commencement of NETA. On a comparable basis, adjusted to reflect the trading arrangements in place prior to the commencement of NETA, our realized price for the periods under review were as follows:

	Year ended March 31,
	2004		2003		2002
Realized Price	£	16.9/MWh	£	18.3/MWh	£	20.4/MWh
Market Price(1)	£	16.7/MWh	£	18.6/MWh		(2	)

⁽¹⁾ The Market Price quoted is the average of the mid-point of the closing prices for annual baseload contracts during the year prior to delivery as reported on European Daily Electricity Markets, published by Heren Energy.

⁽²⁾ An equivalent market price for contracts traded in 2001/02 is not available because of limited liquidity immediately before the introduction of NETA on March 27, 2001.

Operating costs

In general, the operation of nuclear power stations is characterized by high fixed costs. Fixed costs include costs of decommissioning our power stations and other costs that are unique to the nuclear power generation industry. Fuel costs represent our most significant operating cost and reflect not only the amount of fuel burnt during the period (based on total output) and the efficiency of our fuel utilization (the percentage of nuclear fuel used before it is removed from the reactor) but also including the cost of reprocessing and storage of spent fuel and storage and disposal of nuclear waste, collectively referred to as back-end fuel costs.

New BNFL Contracts

On March 31, 2003 and May 16, 2003 respectively, we exchanged contracts covering front-end and back-end fuel services, which give effect to the non-binding heads of terms which we entered into with BNFL on November 28, 2002. The revised and amended front-end and back-end fuel contracts that have been agreed with BNFL provide that amounts paid to BNFL will reflect changes to wholesale electricity prices within certain agreed parameters, thereby partially hedging our fuel costs against market price movements. The revised front-end contracts became effective on April 1, 2003 but (except in relation to the supply of uranics by BNFL to BEG until March 31, 2006) may be terminated if the Restructuring is not completed. The new front-end post-2006 contracts are conditional on completion of the Restructuring. The amendments to existing back-end contracts and the new contracts are conditional on completion of the Restructuring but, under the terms of the standstill agreement, pending formal implementation of the new back-end contracts, our payments to BNFL for back-end fuel services are being made as if the new back-end contracts had become effective on April 1, 2003.

The profit and loss account for the year ended March 31, 2004 was prepared on the basis of the existing BNFL contracts in respect of back-end fuel costs, pending satisfaction of the BNFL Conditions. The accounting treatment has taken this approach, as this element of the Restructuring will have a retrospective impact. Consequently, our results of operations for the year ended March 31, 2004 do not reflect the profit and loss account savings that will arise under the New BNFL Contracts, which we estimate would have amounted to £58 million for the year ended March 31, 2004. This amount will be recognised on the completion of the Restructuring, together with other restructuring adjustments. The saving has been calculated using an average electricity price, as defined in the New BNFL Contracts, of £17.6/MWh.

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As noted above and as part of the standstill arrangements, we have made payments during the year ended March 31, 2004 to BNFL as if the revised BNFL contracts were in place. The difference in the cash payments, taken together with the profit and loss account savings under the revised contracts means that included within current liabilities are amounts due to BNFL which will never be paid by us, provided the Restructuring is completed. These amounts totalled £306 million as at March 31, 2004 and £113 million as at March 31, 2003.

Capital Expenditures

Following the substantial write down of our fixed asset carrying values of our nuclear power stations as at March 31, 2003, it has not been possible to demonstrate that expenditure of a capital nature has enhanced the value of our fixed assets. Accordingly, the cost of non-recurring expenditures as well as expenditures on strategic spares during the year ended March 31, 2004 has been recognized as an operating cost in our profit and loss account. We estimate that, of the total investment on power stations of £92 million during the year ended March 31, 2004, £70 million would have been capitalized as a capital expenditure but for the impairment review. The principal determining factor in the recommencement in capital expenditures will be a demonstrable and sustainable improvement in reliability of output. There is no certainty as to when this will occur and the accounting treatment for the future expenditure will be assessed when it is incurred.

Non-operational factors affecting our results of operations

Revalorization

In each fiscal year during the periods under review, we recompute our back-end fuel costs and decommissioning costs to reflect the impact of inflation during the year and to remove the effect of one year’s discount to the estimated costs of decommissioning (which is capitalized at the commencement of commercial operation of a nuclear power station and depreciated over the life of the station as the estimated payment date moves a year closer). These two effects combined, known as “revalorization,” are accounted for as part of the financing charge in our profit and loss account. The charge in respect of the revalorization of decommissioning liabilities is partially offset by a credit in respect of the actuarially determined value of the NDF on an assumed long-term real rate of return of 3 per cent. on investments. The amount of the revalorization charge in any given year will be affected, principally, by the rate of inflation in the UK. For the periods under review, the rate of inflation has fluctuated from 1.7 per cent. in 2002 to 2.6 per cent. in 2004.

The benefit under the revised BNFL back end contracts to the date of Restructuring will be recognized in the balance sheet upon implementation of the Restructuring together with other Restructuring related adjustments. The ultimate benefit recognized will depend on a number of factors including the date of Restructuring, the market price of electricity between April 1, 2004 and the date of Restructuring as defined in the contract and the amount of fuel used.

Discontinued Operations

During the periods under review, we disposed of our interests in Bruce Power, our Canadian operations, and of our interest in AmerGen, a joint venture in the United States. The results of operations of Bruce Power and the share of joint venture turnover from AmerGen during the periods under review are recognized as discontinued operations.

Disposal of Bruce Power

In May 2001, our 82.4% owned Canadian subsidiary, Bruce Power Limited Partnership (“Bruce Power”), leased the two nuclear power stations at the Bruce nuclear site in Canada from the Ontario Provincial Government (OPG). In the period of April 1, 2002 to February 14, 2003, Bruce Power generated 19.2 TWh and made an operating profit contribution before minority interest of £97 million.

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On February 14, 2003 we sold our entire interest in Bruce Power to a consortium consisting of Cameco Corporation (an existing partner in Bruce Power), BPC Generation Infrastructure and TransCanada Pipelines Limited. At completion of the disposal, we received initial consideration of C$627 million after minor closing adjustments, and a payment of C$51 million in recognition of our earlier capital contributions paid to Bruce Power. On April 28, 2003, we announced that we had received a further C$20 million that had been retained upon completion of the sale for a possible price adjustment relating to pensions following confirmation that no such adjustment was required within specified time periods.

In addition to the consideration received at the time of the disposal of our interest in Bruce Power, we are entitled to receive up to C$100 million, contingent on the restart of Units 3 and 4 at the Bruce plant within specified time periods. On March 22, 2004 we received C$20 million for the restart of Unit 4 and on May 25, 2004 we received a further C$10 million in respect of the restart of Unit 3. While discussions are continuing with OPG regarding the release of further amounts, if any, the total amount that may be released will be substantially less than C$100 million.

Pursuant to the terms of the sale of Bruce Power, a further C$20 million was retained as security against any representation and warranty claims. On February 12, 2004 we received a notice of warranty claims from the purchasers alleging breach of certain warranties and representations related to tax matters and the condition of the Bruce Power station. We expect that the C$20 million will remain in trust pending resolution of the dispute. For additional information regarding these claims, see “Item 4. Information on the Company—Legal Proceedings.”

Disposal of AmerGen

On December 23, 2003 we announced the completion of the disposal of our 50% interest in AmerGen to Exelon, our equal joint venture partner in AmerGen. AmerGen operates three nuclear power stations in the United States. AmerGen contributed an operating profit of £43 million during the year ended March 31, 2003 and £21 million during the year ended March 31, 2004.

At closing, consideration of approximately US$277 million was received prior to adjustments relating to working capital levels, unspent nuclear fuel, inventory, capital expenditures and low-level waste disposal costs which were to be determined as at the time of closing. Finalisation of these adjustments is still outstanding. Approximately £94 million of the consideration was used to pay down outstanding amounts under the Government Facility and the balance was used to fund ongoing working capital requirements.

Prior to the disposal of our interest in AmerGen to Exelon, we entered into a conditional agreement to dispose of our interest in AmerGen to the FPL Group Inc. (“FPL”) subject to Exelon’s right of first refusal to purchase our interest on the same terms and conditions as those offered by FPL. Exelon exercised its right of first refusal and, as a result the original agreement with FPL terminated on October 13, 2003. As a consequence on December 24, 2003 we paid a break fee of US$8.3 million to FPL.

In connection with the disposal of our interest in AmerGen, we gave certain indemnities and guarantees. As a result of an accounting adjustment made by Exelon to the value of nuclear fuel contained in AmerGen’s balance sheet dated December 21, 2003, we may be required to pay Exelon up to US$13.7 million. We dispute the claim and served a dispute notice on Exelon on June 4, 2004 to preserve our rights. Furthermore, we are reviewing with Exelon the effect on the working capital adjustment resulting from a change to the estimated tax recoverable for prior periods made after the consummation of the sale, and this, if agreed, may result in a reduction in the purchase price payable by Exelon, with the reduction currently estimated to be in the range of up to US$6.3 million.

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For additional information, see Item 3. Risk Factors.

Exceptional operating and financing items

During the three years ended March 31, 2004, our financial results have been significantly impacted by a number of exceptional operating and financing items. The table below summarizes the impact of exceptional operating and financing items (before tax) for each of the three prior fiscal years.

	Year ended March 31,
	2004		2003		2002
	(pounds in millions)
Reversal of write-down/(write-down) of fixed asset carrying values	295		(3,738	)	(300	)
UK decommissioning fund credit/(charge)	13		(13	)	—
Write-down of own shares held	—		(102	)	—
Provision for slow moving stocks	—		(57	)	—
Restructuring costs	(43	)	(35	)	—
Onerous trading contracts	—		(2	)	(209	)
Siemens settlement	18		—		—
Nuclear Energy Agreement	—		41		—
Exceptional costs in respect of shares issued to the British Energy Qualifying Share Trust to meet options granted to employees under the Sharesave Scheme	—		—		(3	)
Exceptional items included within operating results	283		(3,906	)	(512	)
UK/AmerGen decommissioning fund credit/(charge)	68		(159	)	(27	)
Credit/(charge) for interest rate swap provision	5		(56	)	—
Write-off of capitalized borrowing costs	—		(6	)	—
Exceptional items included within financing costs	73		(221	)	(27	)
Exceptional gain/(loss) on sale of joint venture and businesses	47		(35	)	4
Total net exceptional credits/(charges)	403		(4,162	)	(535	)

We recognized net exceptional operating and financial credits of £403 million for the year ended March 31, 2004, and net exceptional operating and financial charges of £4,162 million for the year ended March 31, 2003 and £535 million for the year ended March 31, 2002. These exceptional items were comprised of:

For the Year ended March 31, 2004

• An exceptional credit of £295 million following the review of the carrying value of our fixed assets to reflect the partial reversal of previous impairment losses. At March 31, 2004, we reassessed the fixed asset carrying values of our nuclear power stations, determined that revisions to the impairment of their fixed asset carrying values were appropriate principally due to an expectation of higher electricity prices. The carrying value of our nuclear stations was calculated by discounting the expected future cash flows from the continued use of the assets.

• An exceptional charge of £43 million relating to advisory fees and other costs associated with the Restructuring.

• An exceptional credit of £18 million from the settlement of a dispute with Siemens Power Generation Limited in connection with work carried out relating to the design and manufacture of turbines at Heysham 2.

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• The total Decommissioning Fund and AmerGen decommissioning fund exceptional credits of £81 million (Decommissioning Fund: £13 million; AmerGen: 68 million) as explained below:

• At March 31, 2004 the market value of the Decommissioning Fund had increased to £440 million compared with £334 million for the year ended March 31, 2003 thereby necessitating an exceptional credit of £59 million for the year ended March 31, 2004. The £59 million included a £13 million exceptional credit to reverse the write-down on non-operational assets made in the year ended March 31, 2003. The remaining balance of the restatement to market value of £46 million has been dealt with as an exceptional financing credit to reverse previously written-down revalorization amounts. The total of the Decommissioning Fund exceptional revaluation charge amounted to £159 million.

• The market value of the AmerGen decommissioning fund had also increased and our share of the exceptional credit was £22 million in the year ended March 31, 2004.

• An exceptional credit of £47 million related to the gain on the sale of our investments in Bruce Power, AmerGen and Offshore Wind.

• At March 31, 2004 the value of interest rate swaps were marked to market and the resultant valuation was lower than the book value. The exceptional credit is £5 million for the year ended March 31, 2004.

For the Year ended March 31, 2003

• An exceptional charge of £3,738 million (which has now been reversed in part) resulted from the write-down of our fixed assets. This is explained below:

• The carrying value of the nuclear stations was calculated by discounting the expected future cash flows from continued use of the assets, having made appropriate assumptions regarding future operating performance, including in relation to electricity price assumptions. The valuation of the Eggborough power station was based on an assessment of net realizable value.

• The electricity price assumptions were a significant component of the asset value calculation. We considered the market’s views on future prices of wholesale electricity and also specifically commissioned, and commercially available forecasts. We considered the potential for rationalization of generation capacity in the UK and the potential effect on the market of changes in Government policy on renewables generation and of any potential changes to that policy. In determining the price assumptions, we also took account of the effect on the market as a result of the dramatic fall in prices over the two years ended March 31, 2003 and took a cautious view on there being a significant recovery in prices.

• At March 31, 2003 the market value of the Decommissioning Fund at £334 million was lower than the value of £458 million that would have been derived from revalorizing the amounts contributed. As a result an exceptional charge of £124 million was recognized to record the fund at market value of which £111 million relates to the write-off of previous revalorization and £13 million has been classified as a write-off of non-operational assets.

• The market value of the AmerGen decommissioning fund was also lower than the value that would have been derived from revalorizing the amounts contributed. Our share of the adjustment required to restate the value of the fund to market value is £48 million, all of which relates to previous revalorization.

• The total of the Decommissioning Fund exceptional revalorization charges amounted to £159 million.

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• An exceptional charge of £102 million related to the write-down in value of our shares held in trust to satisfy employee share options. The shares were written down to £2 million to reflect market value compared to a book value of £104 million, based on market prices of 3.75p and 3.0p for our Ordinary Shares and “A” Shares respectively.

• An exceptional charge of £57 million related to a provision for slow-moving and obsolete stocks.

• An exceptional charge of £56 million related to interest swap provisions in respect of interest rate swap contracts which are no longer effective as hedges.

• An exceptional charge of £35 million related to advisory and other costs associated with the Restructuring.

• An exceptional charge of £35 million related to a loss on our disposal of Bruce Power and Huron Wind. The calculation of the loss on disposal incorporates receipt of the C$20 million retention relating to pensions.

• An exceptional charge of £6 million related to borrowings that are now part of the Restructuring. These costs had been capitalized and were being amortized over the duration of the borrowings.

• A £2 million charge when two trading contracts were terminated, thus giving rise to claims for certain amounts which became payable. The amounts reflect the claimed amounts that have been agreed in principle with the three relevant counterparties for the purposes of the Restructuring.

• An exceptional credit of £41 million related to the revised terms for the electricity supply agreement with ScottishPower and Scottish and Southern Energy. Under the terms of the agreement we released a balance of £41 million in respect of cash previously received.

For the Year ended March 31, 2002

• An exceptional charge of £300 million resulting from the write-down of our investment in the Eggborough Station. This write-down arose as a result of lower than anticipated electricity selling prices in England and Wales and our assessment as to the effect of continued over-capacity in the UK electricity market on the value of similar coal-fired power stations.

• An exceptional charge of £27 million related to the market value of the Decommissioning Fund.

• An exceptional charge of £209 million arising as a result of a provision for three significant out-of-the-money trading contracts due to lower than anticipated electricity prices in the UK. These contracts had previously been accounted for as a hedge against our electricity output in the UK. However, since the introduction of NETA, these contracts were no longer accounted for as hedge contracts and, because they were out-of-the-money, they were provided for as onerous contracts under UK GAAP.

• An exceptional operating cost of £3 million resulting from the issuance of shares to the British Energy Qualifying Employee Share Trust (QUEST) to satisfy the exercise of options granted to employees under the Sharesave Scheme between 2002-2003. The charge arises as a result of the difference between QUEST’s subscription price (the then prevailing market price per share) and the option exercise prices. The costs were charged over a five-year period ended March 31, 2002.

• An exceptional credit of £4 million related to the gain on the sale of our investment in Humber Power Limited. We acquired a 12.5% interest in Humber Power Limited, the operator of a 1,260 MW combined cycle gas fired power plant in 1997.

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Results of operations for the year ended March 31, 2004 compared with the year ended March 31, 2003

Turnover

Turnover and our share in turnover from the AmerGen joint venture for the year ended March 31, 2004 was £1,660 million. Turnover from continuing activities for the year ended March 31, 2004 was £1,516 million, a decrease of £12 million compared with turnover from continuing activities of £1,528 million for the year ended March 31, 2003. Turnover from discontinued activities for the year ended March 31, 2003 was £375 million and represented sales by Bruce Power prior to its disposal on February 14, 2003. The principal factors resulting in the decrease in turnover from continuing activities are set forth in the table below.

	Changes in Turnover from 2003
	£ (in millions)
Increased/(Decreased) Turnover
Due to increased output	57
Due to lower achieved electricity prices	(103	)
Due to increased energy supply costs recharged to customers	76
Decrease in miscellaneous sales	(1	)
Decrease in exceptional turnover	(41	)
Total decrease in turnover	(12	)

The decrease in turnover was primarily due to lower realized prices for our electricity. Our realized price¹ for the year ended March 31, 2004 was £16.9 MW/h compared with £18.3 MW/h for the year ended March 31, 2003, a 7.7% decrease.

The decrease in realized prices for electricity was partially off-set by the growth in our direct supply business and increases in output. Our direct supply business has become one of our more important routes to market. Our target customer base is predominantly amongst the energy intensive industrial and commercial users, with electricity demands of over 1,000 MWh per annum. In the year ended March 31, 2004 we had contracts in place to supply some 1,350 direct supply customers at 7,500 sites. Our direct supply business has increased by almost 30% in volume terms in the year to March 31, 2004, to 29TWh. The volume of power sold directly to customers through the direct supply business is now equivalent to 40% of total output. This follows an increase of 20% in volume terms in the year to March 31, 2003. The table below sets forth the turnover generated by each of our wholesale and direct supply routes to market.

	Year ended March 31,
	2004		2003
	(pounds in millions)
Turnover analysis
Wholesale generation	703		852
Direct supply (including energy supply costs)	782		603
Total turnover	1,485		1,455
Less: energy supply costs	(260	)	(184	)
Total turnover excluding energy supply costs	1,225		1,271
Per cent. split—excluding energy supply costs
Wholesale generation	57	%	67	%
Direct supply	43	%	33	%

⁽¹⁾ Realized price is calculated by dividing UK turnover, net of energy supply cost and miscellaneous and exceptional income, by total output during the same period.

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Total output from our plants in the UK for the year ended March 31, 2004 was 72.6 TWh, representing an increase of 3.1 TWh as compared with total output of 69.5 TWh for the year ended March 31, 2003. This increase was the result of output increases of 1.2 TWh from our nuclear plants and 1.9 TWh from the Eggborough power station. Our nuclear output was nevertheless affected by a number of unplanned outages. In particular, the major outage in both reactors at Heysham 1 resulted in the loss of 3.2 TWh due to cast iron pipe-work failure. The outages at Heysham 1 were equivalent to some £71 million of lost profit contribution inclusive of imbalance costs and associated fuel savings. Output at the Eggborough power station increased in 2004 compared to prior years in order to take advantage of higher electricity prices and to provide cover for the unplanned outages at our nuclear plants during the year.

Operating costs

Total operating costs (including exceptional items) for continuing activities for the year ended March 31, 2004 were £1,176 million compared to £5,427 million in the year ended March 31, 2003. Operating costs from continuing activities (excluding exceptional items) were £1,459 million for the year ended March 31, 2004, a reduction of £21 million compared to £1,480 million for the year ended March 31, 2003. The following table sets forth the various components of our operating costs for the years ended March 31, 2004 and 2003.

	Year ended March 31,
	2004		2003
	(pounds in millions)
Continuing activities excluding exceptional items:
Fuel	413		371
Materials and services	512		425
Staff costs	224		227
Depreciation charges	50		273
Energy supply costs	260		184
	1,459		1,480
Continuing activities—exceptional items:
Materials and services	25		94
Depreciation (credits)/charges due to impairment review	(295	)	3,738
Amounts (credited)/charged to non-operational assets	(13	)	115
	(283	)	3,947
Continuing activities—total costs:
Fuel	413		371
Materials and services	537		519
Staff costs	224		227
Depreciation (credits)/charges	(245	)	4,011
Energy supply costs	260		184
Amounts (credited)/charged to non-operational assets	(13	)	115
Total operating costs—continuing activities	1,176		5,427

Fuel Costs

Total fuel costs for the year ended March 31, 2004 amounted to £413 million, an increase of £42 million compared with £371 million for the year ended March 31, 2003. Nuclear fuel costs were £318 million for the year ended March 31, 2004, representing an increase of £20 million as compared with £298 million for the year ended March 31, 2003. Coal costs were £95 million for the year ended March 31, 2004, representing an increase of £22 million as compared with £73 million for the year ended March 31, 2003.

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Of the £20 million increase in the cost of nuclear fuel, £7 million was attributable to increased output from our plants, offset by savings and efficiencies of £1 million. The main increase, however, was due to costs being £14 million lower following a one-off review of contract cost schedules with BNFL in 2003. The £22 million increase in coal costs relates primarily to the increase in output from the Eggborough power station over the year ended March 31, 2004.

Materials and services

Materials and services costs comprise the operating expenses of the power stations and support functions, excluding fuel costs, staff costs and depreciation. The costs of material and services for the year ended March 31, 2004, excluding exceptional items, were £512 million compared with £425 million for the year ended March 31, 2003, an increase of £87 million. The increase in material and services costs was largely the result of capital investment expenses of £92 million that were expensed as operating costs for the year ended March 31, 2004. This arose because it was not possible to demonstrate that this expenditure enhanced the value of our fixed assets after taking account of the impairment review. We have reviewed the capital investment expenditure of £92 million incurred, primarily on our power stations, and concluded that of this amount, £70 million may have been capitalized in the absence of the impairment review. The balance of capital investment expenditure of £22 million has been classified as refurbishment costs within materials and services.

Staff costs

Staff costs decreased by £3 million from £227 million for the year ended March 31, 2003 to £224 million for the year ended March 31, 2004 mainly due to reduced severance costs of £11 million but this was partly offset by salary inflation and an increased head count.

Depreciation

Depreciation charges (excluding exceptional charges) were £50 million for the year ended March 31, 2004 compared to £273 million for the year ended March 31, 2003. The charges for depreciation for the year ended March 31, 2004 were significantly affected by the fixed assets write down of £3,738 million at March 31, 2003. For additional information regarding the writedown of these assets, see Note 13 of our audited consolidated financial statements.

Energy supply costs

Energy supply costs mainly comprise the costs incurred by our direct supply business for the use of the distribution and transmission systems. These costs, however, are passed on to our customers and are fully recovered through turnover. For the year ended March 31, 2004 energy supply costs also included costs of £36 million related to meeting the cost of compliance with the Obligation. We are required to comply with the Obligation as part of the regulations introduced by the UK Government which are intended to address climate change. The costs for the year ended March 31, 2004 were £260 million compared with £184 million for the year ended March 31, 2003, an increase of £76 million. This increase reflects the inclusion of costs associated with the Obligation and growth in the direct supply business since March 31, 2003 as discussed above.

Discontinued activities

Operating costs from discontinued activities for the year ended March 31, 2003 were £278 million and represented the costs of Bruce Power prior to its disposal on February 14, 2003.

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Operating Profit/(Loss)

The following table sets forth certain summary operating information and the variance from period to period as indicated.

Operating profit/(loss):

	Year ended March 31,			Variance
	2004	2003		2003-2004
	(pounds in millions)
Operating profit before exceptional items—continuing activities	57	7		50
Exceptional items	283	(3,906	)	4,189
Total operating profit/(loss)—continuing activities	340	(3,899	)	4,239
Operating profit—discontinued activities	—	97		(97	)
Group operating profit/(loss)	340	(3,802	)	4,142

The increase of £50 million over the results for the year ended March 31, 2003 is explained as follows:

	(pounds in millions)
Increased/(Decreased) Operating Profit due to:
Output increases—turnover	57
Output increases—operating cost impact	(31	)
Price movements	(103	)
Capital investment expenditure now expensed	(92	)
Depreciation decrease	223
Other	(4	)
Variance	50

Share of operating profit of discontinued joint venture

On 22 December 2003, we sold our 50% share in AmerGen to Exelon for US$277 million. Our share of the operating profit of AmerGen prior to the date of disposal was £21 million. Our share of operating profit was £43 million for the year ended March 31, 2003. This reduction of £22 million was due to an extended outage at the Three Mile Island nuclear power station and the contribution of only a part-year result within the period.

Financing charges, net interest and revalorization

The total financing charges were £176 million, consisting of revalorization and net interest of £249 million, exceptional financing credits of £5 million and exceptional revalorization credits of £68 million. This compares with total financing charges of £498 million for the year ended March 31, 2003 made up of revalorization and net interest of £277 million, exceptional financing charges of £62 million and exceptional revalorization of £159 million.

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The total financing charges are analyzed below:

	Year ended March 31,
	2004		2003
	(pounds in millions)
Revalorization of nuclear liabilities	215		228
Revalorization of decommissioning fund	(28	)	(29	)
Revalorization of other provisions	—		10
Share of revalorization of joint venture	(2	)	(4	)
Total revalorization	185		205
Net interest expense	64		72
Financing charges before exceptional items	249		277
Exceptional interest (credit)/charge	(5	)	62
Exceptional revalorization (credit)/charge	(68	)	159
Total financing charges	176		498

The net revalorization charge excluding exceptional items was £185 million, a decrease of £20 million from the year ended March 31, 2003 principally due to a reduction in inflation and discontinuation of revalorization of onerous contract provisions. The weighted average of RPI and RPIX used to revalorize our nuclear liabilities was 2.4% compared with 3.0% for the year ended March 31, 2003.

The net interest expense charge of £64 million for the year ended March 31, 2004 was £8 million lower than the charge for the year ended March 31, 2003. The principal reasons for this decrease were due to lower charges in relation to the interest rate swaps and additional interest earned on deposits. These increases were offset by an increase in standstill interest due to a full year charge in the year ended March 31, 2004.

In the year ended March 31, 2003 there were exceptional interest charges of £62 million resulting from the provision for the out of the money element of interest rate swaps which were no longer considered to be effective as hedges and the write-off of borrowing costs. The borrowing costs had been previously capitalized and were being amortized over the expected duration of loan financing in respect of the acquisition of the Eggborough Station. For the year ended March 31, 2004 there were exceptional interest credits of £5 million reflecting a partial reversal of the provision for interest rate swaps.

Profit/(loss) before tax

The profit before taxation was £232 million compared with a loss before tax of £4,292 million in the year ended March 31, 2003. The main reason for the movement of £4,524 million is the large exceptional costs in the prior year, some of which were partially reversed in the period.

Taxation

There was a £2 million taxation credit on ordinary activities for the period relating to the release of an over provision for foreign tax in prior years. The share of taxation for the discontinued joint venture was nil, comprising a tax charge on trading results to the date of the AmerGen disposal of £9 million, offset by credits for overprovisions of £9 million in earlier years.

In the year ended March 31, 2003 there was a net tax credit of £368 million, comprising tax charges of £18 million on North American activities, £10 million share of taxation for joint venture and a

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£396 million credit for release of UK deferred tax provisions. The deferred tax credit in the year ended March 31, 2003 arose as a result of the large exceptional charges.

The deferred tax assets of £291 million and £150 million at March 31, 2004 and at March 31, 2003 respectively were not recognized because there is insufficient certainty of recovery within the foreseeable future.

Earnings per share

The earnings per share in the period was 38.9p compared to a deficit of 654.7p for the year ended March 31, 2003, being an improvement of 693.6p.

Results of operations for the year ended March 31, 2003 compared with the year ended March 31, 2002

Turnover

Turnover in the year ended March 31, 2003 was £1,903 million, a decrease of £146 million compared with turnover of £2,049 million for the year ended March 31, 2002. The principal factors resulting in this decrease are set forth below.

	Changes in turnover from 2002
	(pounds in millions)
Decreased UK turnover
Due to decreased output	(118	)
Due to lower achieved electricity prices	(111	)
Due to exceptional NEA income	41
Increase in miscellaneous income	15
Decrease in turnover from continuing activities	(173	)
Increase in Bruce Power turnover	27
Total decrease in turnover	(146	)

Our output in the UK was 69.5 TWh in the year ended March 31, 2003 as compared with 74.7 TWh in the year ended March 31, 2002. Nuclear generation output was 63.8 TWh in the year ended March 31, 2003 compared with 67.6 TWh in the year ended March 31, 2002. Eggborough power station output fell from 7.1 TWh to 5.7 TWh in the year ended March 31, 2003. Decreased output from our UK power stations resulted in reduced turnover of £118 million.

Our realized price during the year ended March 31, 2003 was £18.30/MWh, a decrease of 10% as compared with the prior year, resulting in a decrease in our UK turnover of £111 million. UK turnover increased by £41 million in respect of the exceptional credit relating to the release of the balance that had been held awaiting settlement of our dispute with Scottish Power and Scottish and Southern Energy for the Nuclear Energy Agreement. Miscellaneous income increased by £15 million, mainly due to insurance receipts relating to outages at Torness. The increase in turnover at Bruce Power was mainly due to increased electricity prices, offset to some extent by a reduction in output.

Operating costs

Operating costs were £5,705 million in the year ended March 31, 2003, an increase of £3,375 million compared with £2,330 million in the year ended March 31, 2002. Excluding exceptional items,

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operating costs decreased by £60 million to £1,758 million in the year ended March 31, 2003 from £1,818 million in the year ended March 31, 2002. The following table sets forth the various components of our operating costs for the years ended March 31, 2003 and March 31, 2002.

	Year ended March 31,
	2003	2002
	(pounds in millions)
Continuing activities excluding exceptional items:
Fuel	371	467
Materials and services	425	395
Staff costs	227	209
Depreciation charges	273	280
Energy supply costs	184	171
	1,480	1,522
Continuing activities—exceptional items:
Staff Costs	—	3
Materials and services	94	209
Depreciation (credits)/charges due to impairment review	3,738	300
Amounts (credited)/charged to non-operational assets	115	—
	3,947	512
Continuing activities—total costs:
Fuel	371	467
Materials and services	519	604
Staff costs	227	212
Depreciation (credits)/charges	4,011	580
Energy supply costs	184	171
Amounts (credited)/charged to non-operational assets	115	—
Total operating costs—continuing activities	5,427	2,034
Discontinued activities
Fuel	17	23
Material and services	143	149
Staff costs	111	119
Depreciation	7	5
	278	296
Total operating costs	5,705	2,330

Fuel costs for our continuing UK activities were £371 million in the year ended March 31, 2003 compared with £467 million in the year ended March 31, 2002. The reduction reflects decreased output by our UK power stations, fuel efficiencies and price variances.

Materials and service costs are comprised of operating expenses for our power stations and support functions (such as administrative, engineering and maintenance costs) excluding fuel costs, staff costs and depreciation. Materials and services costs for our continuing UK activities in the year ended March 31, 2003 were £519 million, a decrease of £85 million compared with the year ended March 31, 2002. These figures include exceptional charges in the year ended March 31, 2003 of £57 million in respect of a write down of slow moving stocks, £35 million in respect of Restructuring costs and £2 million in respect of additional provisions for onerous trading contracts. They include exceptional charges of £209 million in the year ended March 31, 2002 in respect of provisions for onerous trading contracts. Excluding these exceptional items, materials and services costs for our

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continuing UK activities increased by £30 million to £425 million in the year ended March 31, 2003 compared with £395 million in the year ended March 31, 2002. This increase was primarily due to the costs associated with a higher number of outages in the year ended March 31, 2003.

Staff costs

Staff costs for our continuing UK activities in the year ended March 31, 2003 were £227 million, an increase of £15 million compared with the year ended March 31, 2002. The main reason for the increase was additional severance costs of £8 million.

Depreciation

Depreciation charges for our continuing UK activities were £4,011 million in the year ended March 31, 2003 compared with £580 million in the year ended March 31, 2002. These figures include exceptional charges associated with the write down of our fixed assets amounting to £3,738 million in the year ended March 31, 2003 and £300 million in the year ended March 31, 2002. Excluding these exceptional charges, the depreciation charges for our continuing UK activities decreased by £7 million to £273 million in the year ended March 31, 2003 compared with £280 million in the year ended March 31, 2002.

Amounts written off as non-operational assets in our continuing activities amounted to £115 million in the year ended March 31, 2003 compared to zero in the year ended March 31, 2002. These amounts consisted of exceptional items relating to the write down of our own shares held and an element of a write down of the UK decommissioning fund receivable, both of which were treated as exceptional items.

Energy supply costs

Energy supply costs in the UK were £184 million in the year ended March 31, 2003 compared with £171 million in the year ended March 31, 2002. The increase primarily reflects the increase of sales through our direct supply business.

Discontinued activities

Operating costs in our discontinued Canadian activities were £278 million in the year ended March 31, 2003 compared with £296 million in the year ended March 31, 2002. The decrease was partly attributable to reduced fuel costs arising from the reduction in output and partly attributable to operational efficiencies.

Our share of the operating profit of AmerGen increased by £6 million to £43 million in the year ended March 31, 2003. The output from the three AmerGen power stations totaled 20.2 TWh in the year ended March 31, 2003, an increase of 1.5 TWh compared with 18.7 TWh in the year ended March 31, 2002.

Operating loss

The operating loss in the year ended March 31, 2003 was £3,802 million compared with an operating loss of £281 million in the year ended March 31, 2002. The operating loss of our continuing activities was £3,899 million in the year ended March 31, 2003 compared with an operating loss of £333 million in the year ended March 31, 2002. The operating profit of our discontinued activities was £97 million in the year ended March 31, 2003 compared with an operating profit of £52 million in the year ended March 31, 2002.

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Excluding exceptional items, operating profit in the year ended March 31, 2003 was £104 million, compared with an operating profit of £231 million in the year ended March 31, 2002. The operating profit of our continuing activities was £7 million in the year ended March 31, 2003 compared with an operating profit of £179 million in the year ended March 31, 2002. The operating profit of our discontinued activities was £97 million in the year ended March 2003 compared with an operating profit of £52 million in the year ended March 31, 2002.

(Loss)/profit on sale of business

The results for the year ended March 31, 2003 include a loss of £35 million in respect of the disposal of our interests in Bruce Power and Huron Wind. The results for the year ended March 31, 2002 include a profit of £4 million on the disposal of our interests in Humber Power.

Financing charges

Financing charges, which comprise revalorization charges and net interest expense, were £498 million in the year ended March 31, 2003, an increase of £245 million compared with £253 million in the year ended March 31, 2002. The financing charges for the year ended March 31, 2003 include exceptional items amounting to £159 million in respect of a write down of our decommissioning fund receivable, £56 million in respect of a provision for interest rate swaps and £6 million in respect of a write off of capitalized borrowing costs. Financing charges for the year ended March 31, 2002 consist of a write down of £27 million in respect of the decommissioning fund receivable. Excluding these exceptional items, financing charges increased by £51 million to £277 million in the year ended March 31, 2003 compared with £226 million in the prior year. The increase primarily reflects higher revalorization as a result of higher UK inflation. Excluding the exceptional items, the revalorization charge was £205 million in the year ended March 31, 2003 compared with £160 million in the prior year. The increase in revalorization reflects the weighted average UK inflation rate of 3.0% in the year ended March 31, 2003 compared with 1.7% in the year ended March 31, 2002.

Taxation

In the year ended March 31, 2002 we adopted FRS19, the UK deferred tax accounting standard, on a discounted basis. The tax credit for the year ended March 31, 2003 was £368 million. Excluding tax relating to exceptional items, the tax charge for the year ended March 31, 2003 was £2 million. The effective tax rate is higher than the standard rate of 30% as a result of overseas profits being taxed at rates in excess of 30%, the impact of items that are non-deductible for tax purposes, such as the write-down of our investment in Eggborough, and the impact of unwinding one year’s discount from our opening deferred tax liability. The tax charge for the year ended March 31, 2003 comprises a deferred tax credit of £396 million, an overseas tax charge of £18 million and £10 million charge in respect of AmerGen. The tax charge for the year ended March 31, 2002 comprised a prior year UK corporation tax credit of £11 million, a deferred tax credit of £8 million, an overseas tax charge of £15 million and £29 million charge in respect of AmerGen.

As of March 31, 2003 there were deferred tax assets of £382 million and deferred tax liabilities of £20 million on an undiscounted basis. Of the deferred tax asset, £262 million relates to tax relief from operating losses carried forward. A further £64 million relates to the expected tax relief associated with accrued decommissioning costs which are expected to be deductible against future taxable income and £56 million relates to accelerated depreciation in excess of capital allowances. The deferred tax liability relates to other short-term timing differences.

The net discounted deferred tax asset under UK GAAP at March 31, 2003 of £150 million has not been recognized as it is not likely to be realized unless the Restructuring is completed. Under US

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GAAP a full valuation allowance has been made against the net deferred tax asset of £2,101 million at March 31, 2003.

Loss per share

There was a loss per share of 654.7p per share for the year ended March 31, 2003 compared with a loss per share of 88.5p per share in the year ended March 31, 2002.

Loss on ordinary activities

As a result of the factors discussed above, there was a loss on ordinary activities after taxation for the year ended March 31, 2003 of £3,924 million compared with a loss of £518 million in the year ended March 31, 2002. Excluding exceptional items there was a loss of £132 million in the year ended March 31, 2003 compared with a loss of £39 million in the year ended March 31, 2002.

Minority interests

There was a minority interest in respect of the 17.6% minority shares of the profits of Bruce Power of £17 million in the year ended March 31, 2003 compared with £9 million in the year ended March 31, 2002.

Review of our balance sheet items as at March 31, 2004

Current assets

Total current assets increased in the year ended March 31, 2004 by £323 million to £1,737 million, from £1,414 million in the year ended March 31, 2003. The largest component of this rise was the £240 million increase in cash and liquid funds from £333 million in the year ended March 31, 2003 to £573 million in the year ended March 31, 2004.

Total stocks were reduced by £10 million. Nuclear fuel stocks were reduced by £18 million following a supply chain review. This reduction was partly offset by an increase in stores of £7 million mainly due to the acquisition of certain key strategic spares at Eggborough power station following a risk review and an increase in coal stock of £1 million.

The level of total debtors reduced by £13 million to £374 million. This is due to a decrease in the taxation and social security balance recorded in debtors of £65 million, which was reallocated to current liabilities. This decrease is offset by an increase in the pension prepayment of £29 million and there is also an increase of £23 million in trade debtors and other prepayments.

The Decommissioning Fund will be used to fund post-defueling decommissioning costs. The balance sheet carrying value of the decommissioning fund receivable has been restated to a market value of £440 million compared to £334 million for the ended March 31, 2003. The increase in market value reflects the upturn in equity market values that occurred in the year ended March 31, 2004 and the fact that we contributed an additional £19 million to the fund.

Current liabilities

The level of creditors due within one year (excluding borrowings) has increased from £1,033 million to £1,250 million. The main movement is an increase in the level of nuclear liabilities classed as due within one year from £355 million to £554 million. The difference arises because the liability continues to be recorded under the historic BNFL contracts while payments are based on the revised BNFL contracts.

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The other movements within creditors comprise a net increase in the other taxes and social security balances of £40 million relating to the reallocation from debtors of £65 million, reallocation of VAT from the tax creditors of £86 million and an increase in the amount of £19 million during the year ended March 31, 2004. Trade creditors decreased by £18 million due to a reallocation of £86 million, as mentioned, to the other taxes and social security balance and an increase in trade creditors of £68 million. There were other decreases of £4 million in retentions, accruals and other creditors.

Provisions

Included in provisions at March 31, 2004 were accrued nuclear liabilities of £1,776 million, an increase of £103 million over the year ended March 31, 2003. The liabilities increased due to additional fuel consumed in our nuclear power stations, revalorization (inflation and removal of one year’s discount to restate the provision at balance sheet money values) and reduced by cash payments made during the year ended March 31, 2004.

Pensions

Note 25 to the Financial Statements provides the disclosures required under the transitional requirements of FRS17, the UK accounting standard dealing with retirement benefits. The FRS17 valuation is based on a valuation of assets and liabilities at a particular point in time and does not necessarily take account of the long-term nature of pension schemes. Movements in equity markets and bond yields can create considerable volatility in the FRS17 valuation at different points in time.

Under FRS17, the net pension deficit was £325 million for the UK schemes as at March 31, 2004, a decrease of £27 million from March 31, 2003. The value of the scheme assets has increased with the rise of the equity markets, but this was offset by increased liabilities due to future higher inflation rate assumptions and improved actuarial information.

The Trustees of the Schemes follow an investment policy whereby a high proportion of the Scheme’s assets is invested in equities. One consequence of this investment policy, and the methodology and assumptions used for determining the schemes’ liabilities under FRS17, is that the difference between the market value of the schemes’ assets and its FRS17 liabilities (i.e. its FRS17 “surplus” or “deficit”) is expected to be volatile. Indeed, the amount of any surplus or deficit could change significantly over periods as short as a day (in the event of significant market movements). The results reported should not, therefore, be taken as an indication of the Scheme’s financial position in accordance with FRS17 on any date other than March 31, of the relevant year.

The funding of the pension schemes is based on the results of three yearly valuations by independent actuaries rather than on the results of the FRS17 valuation. A valuation is being carried out by our actuaries as at March 31, 2004, however, the result of the valuation will not be concluded until October 2004. The combined funding deficiencies (on the actuarial bases used for the valuations) in the two pension schemes is expected to be £385 million, within the range of £330 million to £440 million previously disclosed. When the valuation is completed the potential level of increase in future employer contributions will be agreed with the Trustees of the Scheme.

During the year ended March 31, 2003, the actuary of the British Energy Generation Group scheme (our main UK pension scheme) carried out an interim review of scheme assets and liabilities in order to assess the appropriateness of continued use of the surplus that arose at the March 31, 2001 valuation. As a result of that review, the employer’s contributions to that scheme were increased from 10% to 17.1% from November 1, 2002. The employer’s contributions to the British Energy Combined Group scheme (our smaller UK pension scheme) were increased from 12% to 15.3% from April 1,

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2002. In total, cash contributions were £34 million for the year ended March 31, 2004 and £31 million for the year ended March 31, 2003.

There were no changes to the contribution rates in the year ended March 31, 2004.

Our balance sheet reported at March 31, 2004 and March 31, 2003 does not include the FRS17 deficit.

Total recognized gains and losses

In addition to the profit after tax of £234 million, exchange translation losses on foreign currency net investments arose amounting to £15 million. These were all in relation to the investment in the AmerGen joint venture and its subsequent disposal.

Disclosure of Contractual Obligations

We have made various financial commitments in the ordinary course of our business. Such commitments include entering into contracts for the supply of fuel for our power stations and capital expenditure commitments. In addition, we have made certain contingent financial commitments which may become payable under certain circumstances, for example in the event that a guarantee becomes payable.

The following table provides a summary of our general financial obligations as of March 31, 2004.

	Payment due by period
	Total	2003(3)	2004	2005	2006	2007	2008	2009	Thereafter
	(in millions of pounds)
Bonds(2)	408	110	—	—	163	—	—	—	135	(1)
Project finance loan(2)	475	—	42	45	48	52	56	60	172
UK nuclear fuel purchases	1,465	—	—	200	183	93	67	63	859
UK coal purchases	82	—	—	49	29	4	—	—	—
Capital commitments	17	—	—	17	—	—	—	—	—
Long-term electricity purchase contracts(2)	316	46	62	62	47	36	37	8	18
	2,763	156	104	373	470	185	160	131	1,184

⁽¹⁾ Final maturity in 2016.

⁽²⁾ The analysis of maturity of Bonds, Project Finance Loan and long term electricity trading contracts has been prepared based on the dates when they mature under the existing contractual arrangements. However, the standstill arrangements which have been put in place have the effect of deferring the payments of certain amounts due until the Bonds, Eggborough Project Finance Loan and long term electricity trading contracts are replaced as part of the Restructuring or earlier termination of the standstill. The maturity profile is likely to change upon completion of the Restructuring.

⁽³⁾ Amounts are included to illustrate obligations that were due in 2003, but are currently under the standstill arrangements.

In addition to the above, there are also amounts payable relating to our back-end fuel costs and decommissioning liabilities. These amounts are based on our expected future output and costs. For more information as to how we calculate the amounts set forth below, see “—Critical Accounting Policies—Nuclear Liabilities and Decommissioning”.

	Payment due by period
	Total	2005	2006	2007	2008	2009	Thereafter
	(in millions of pounds)
Nuclear liabilities	10,663	571	249	209	240	240	9,154

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Liquidity and capital resources

Government facility

Following the sale of AmerGen, the Government Facility was repaid in full and the amount of credit available under the Government Facility reverted back to £200 million on December 24, 2003 all of which was undrawn and available as at March 31, 2004.

Investment expenditure

There have been no additions to fixed assets recorded in the year ended March 31, 2004 following the fixed asset write down carried out in the year ended March 31, 2003. It has not been possible to demonstrate that the capital investment expenditure enhanced the value of our fixed assets after taking account of the impairment review. Included within material and services, an element of operating costs, for the year ended March 31, 2004 were £92 million of capital investment expenditures. Of this amount, £70 million may have been capitalized in the absence of an impairment review, with the balance of £22 million being classified as refurbishment costs which were expensed compared to £112 million of capital investment expenditures that were capitalized within fixed assets in the year ended March 31, 2003.

In relation to the financial year ending March 31, 2005, we expect that the investment in plant projects, major repairs and strategic spares across the whole company, including incremental costs associated with the Performance Improvement Program of approximately £20 million, will be in the range of £150 million to £180 million, compared to £128 million in the year ended March 31, 2004. Whether or not any of this expenditure will be capitalized or expensed depends on the future carrying value of fixed assets as a result of impairment, fair value reviews and whether the expenditure will enhance the value of the assets.

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Cash flow

A reconciliation of profit after tax and exceptional items to EBITDA(1) is shown in the table below. The EBITDA calculations are shown for the total results and also excluding the disposals during the year ended March 31, 2004 and exceptional items for the continuing business. The EBITDA calculation for the continuing activities is further expanded to show the operating cash flow and the increase in total cash. The total cash is however subject to restricted use prior to the completion of the Restructuring and thereafter to the terms of the NLF Cash Sweep Payment.

	Year ended March 31,
	2004		2003		2002
	(pounds in millions)
Profit/(loss) after tax and exceptional items	234		(3,924	)	(518	)
Interest (including exceptional items)	59		134		66
Revalorization (including exceptional items)	117		364		187
Tax (including exceptional items)	(2	)	(368	)	25
Depreciation charges	50		273		280
Exceptional depreciation (credits)/charges due to impairment review	(295	)	3,738		300
EBITDA(1)	163		217		340
(Gain)/loss on sale of business	(47	)	35		(4	)
AmerGen profits	(21	)	(43	)	(37	)
Bruce Power contributions	—		(97	)	(52	)
Net exceptional charges other than depreciation, interest, tax and revalorization	12		168		212
EBITDA—continuing activities	107		280		459
Nuclear liabilities charged to operating costs	130		105		156
Nuclear liabilities discharged	(59	)	(115	)	(332	)
Regular contributions to decommissioning fund	(19	)	(18	)	(18	)
Other provisions discharged	(3	)	(45	)	(43	)
Exceptional operating cash costs	(25	)	(154	)	—
Working capital movements	25		191		101
Operating cash flow from continuing activities	156		244		323
Capital expenditure	—		(112	)	(187	)
Taxation (paid)/received	(12	)	3		4
Disposal/(purchase) of investments	171		262		(129	)
Net interest paid	(75	)	(84	)	(53	)
Net cash outflow of discontinued activities	—		(78	)	57
Increase in cash (before equity dividends)	240		235		15
Equity dividends	—		(31	)	(46	)
Increase in total cash (after equity dividends)	240		204		(31	)

⁽¹⁾ EBITDA represents earnings before interest, taxes, depreciation and amortization, extraordinary and other non-cash items and minority interests. EBITDA and EBITDA from continuing activities are not GAAP measures in either the UK or in the United States and should not be considered in isolation or as a substitute for, or as an alternative to, net income, operating income, cash flow from operations, other cash flow data or any other performance measures prepared in accordance with UK GAAP or US GAAP. For additional information regarding the use of EBITDA, see “Presentation of Financial and Other Data—Non-GAAP Financial Measures.”

Operating cash flow from continuing activities

The operating cash flow from continuing activities for the year ended March 31, 2004 was £156 million, £88 million lower than the prior year after excluding the cash received from the disposal of Bruce Power. The cash flows for the year ended March 31, 2004 include capital investment

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expenditures totaling £92 million that are now expensed as part of materials and services costs. Of this amount, £70 million may have been capitalized on the absence of the impairment review with the balance of £22 million being classified as refurbishment costs. During the year ended March 31, 2003, £112 million was not deducted in calculating net cash inflow from operating activities.

When adjusted for the capital expenditure, the taxation paid or received, the receipts from sale of investments, the net interest paid and discontinued activities the free cash flow position is £240 million for the year ended March 31, 2004 compared to £235 million (before equity dividends paid of £31 million) in the year ended March 31, 2003.

Net cash outflows for interest payments reduced by £9 million. Net receipts from disposals of £171 million mainly represented the proceeds from the sale of AmerGen. In the prior year there were net receipts of £262 million from the sale of Bruce Power.

Capital resources

At March 31, 2004, total debt of £883 million comprised:

• A project finance loan of £475 million secured on the assets of Eggborough Power Limited (EPL), a subsidiary company that operates the Eggborough Station. At March 31, 2004, the effect of our interest rate contracts is to classify the borrowings as fixed rate. We do not guarantee amounts owed by EPL but we do guarantee the payment of amounts by British Energy Power and Energy Trading Limited (BEPET) to EPL under the Capacity and Tolling Agreement (CTA) between BEPET and EPL. The contractual amounts payable by BEPET under the CTA are calculated so as to cover EPL’s borrowing requirements and operating costs. We also provide a subordinated loan facility to EPL. The final installment of loan principal is due to be repaid in 2011. The loan currently bears interest at LIBOR plus 1.3% It is proposed that these arrangements will be restructured as part of our Restructuring. For further details of the Restructuring, see “Item 4. Information about the Company—the Restructuring”.

• An aggregate principal amount of £408 million sterling denominated bonds due between 2003 and 2016. The bonds bear interest at a rate of between 5.9% and 6.2% An aggregate principal amount of £110 million matured in March 2003 but payment has been stoodstill as part of the arrangements in the Restructuring. It is proposed that these arrangements will be restructured as part of our Restructuring.

	Cash at Bank	Term deposits/bank balances	Debt due in less than one year		Debt due after more than one year		Net debt
	(pounds in millions)
Net debt at April 1, 2003	87	246	(152	)	(731	)	(550	)
Cash flows	175	65	(45	)	45		240
Net debt at March 31, 2004	262	311	(197	)	(686	)	(310	)

As at March 31, 2004, our net debt was £310 million, a decrease of £240 million compared to our net debt as at April 1, 2003. The main reasons for the reduction in our net debt were the proceeds from the sale of AmerGen and improved cash management procedures.

Future liquidity

Our main source of liquidity is our operating businesses. Cash generated by our operating businesses is dependent upon the reliability of our power stations in producing electricity, the realized price for electricity, operational risk and capital investment expenditure (expensed in the profit and loss

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account since April 1, 2003), maintenance requirements as well as collateral requirements relating to our trading activities. However, we believe that our current available working capital is not sufficient to meet our present requirements. We are taking steps with a view to improving this situation. The receipt of the proceeds from the disposal of AmerGen significantly increased our financial flexibility. We are continuing to explore initiatives to reduce the demand for trading collateral and to achieve sufficient liquid resources to implement the Restructuring.

The Restructuring and, therefore, the working capital available to us remain subject to a large number of significant uncertainties and important conditions. These include settling certain documents with creditors, approval of the Scottish court and listing of the new shares and new bonds. The Restructuring is also conditional on there being no material adverse change affecting us as a whole or Eggborough Power Limited and no material adverse effect on the value of the creditors’ entitlements under the Restructuring. Furthermore, the Secretary of State is entitled not to proceed with the Restructuring if, in her opinion, we will not be viable in all reasonably foreseeable conditions without access to additional financing beyond that which is committed and will continue to be available when required. Also, for listing purposes, the restructured British Energy will need to have sufficient working capital for its present requirements from listing of the new shares and new bonds. For additional uncertainties which may affect our cash flow position, performance or outlook, see “Item 3. Risk Factors.”

During the third quarter of the year ended March 31, 2004 we faced short term pressures on liquidity resulting from the combined effect of seasonality, the major unplanned outage at Heysham 1 and the increased levels of collateral brought about increased volatility in electricity prices. As at March 31, 2004 we had £276 million in unrestricted cash which was not the subject of restrictions. In addition, we had £297 million deposited as collateral in support of trading activities. In the event that outages, collateral requirements or other events impact our ability to generate sufficient cash or liquidity for our operations, we have £200 million in available credit under the Government Facility. We have granted, amongst others things, a lien on certain receivables and a pledge and mortgage on the shares of certain of our subsidiaries as security for any future drawings under the Government Facility. On August 25, 2004 we entered into the Receivables Facility, details of which are contained in “Item 4. Restructuring—Receivables Facility”.

Post Balance Sheet Events

In connection with our agreement for the sale of Bruce Power we received the sum of C$10 million in respect of the restart of Unit 3 of the Bruce Power station on May 25, 2004, which brings the total sale proceeds relating to the sale of Bruce Power to C$728 million. See note 32 to our audited consolidated financial statements.

For further information on post balance sheet events see note 35 to our consolidated financial statements.

Contingent liabilities

On February 12, 2004, we received a notice of warranty claims from the consortium that purchased our 82.4% interest in Bruce Power alleging breach of certain representations and warranties relating to taxation and the condition of certain plants at the Bruce power station.

The principal tax claim relates to the treatment of expenditures at the Bruce plant during the period of our ownership that is currently being considered by the Canadian tax authorities. The treatment that we have proposed could result in a rebate of a material amount of tax that has not been recognised in our financial statements for the year ended March 31, 2004. The consortium claims that allowance of the expenditure for that period would cause it to lose future deductions. We have rejected the tax claim

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and expect to defend it if it is pursued further. On the basis of advice received, we are confident that the amount of the tax claim should not, in any event, materially exceed the amount of the rebate, and that the tax claim should have no material impact on our cash flow.

The claim relating to the condition of the plant is based upon alleged erosion of some of the steam generator support plates, through which boiler tubes pass, which it is alleged resulted in an extended outage of one unit at the plant to carry out repair works and loss of revenues and costs of approximately C$64.5 million. The consortium also claims that the alleged erosion may reduce the operating life of the unit and/or result in further repairs involving further losses. We have rejected the claim and expect to defend it if it is pursued further. In accordance with UK GAAP, no provision has been made in the financial statements at March 31, 2004 for either element of the claim.

Under the Bruce Power sale agreement, C$20 million has been placed in trust to satisfy any representation and warranty claim. The C$20 million may be retained by the trustee pending agreement or final resolution of the claims.

Following an accounting adjustment made by Exelon to the value of nuclear fuel contained in AmerGen’s balance sheet dated December 21, 2003 (as a result of which we may be required to make a payment to Exelon of up to US$13.7 million) we served a Dispute Notice on Exelon on June 4, 2004 to preserve our rights. The agreement with Exelon for the sale of AmerGen requires that, prior to instituting any litigation or other dispute resolution procedure, the companies will in good faith seek to resolve any dispute.

Furthermore, we are reviewing with Exelon the effect on the working capital adjustment resulting from a change to the estimated tax recoverable for prior periods made after the consummation of the sale, and this, if agreed, may result in a reduction in the purchase price payable by Exelon, with the reduction currently estimated to be in the range of up to US$6.3 million.

For additional information regarding further contingent liabilities, see note 33 to our audited consolidated financial statements.

Financial Instruments and Risk Management

Overview

The main financial risks faced are output risk across the fleet and trading risks in England and Wales and in Scotland following the introduction of BETTA in respect of movements in the wholesale market price for electricity. There is also an exposure to risks associated with fluctuations in the equity markets through the Decommissioning Fund and Pension Schemes. Policies have been instituted for managing each of these risks, which have been approved by the Board. Each of these risks is discussed in more detail below.

Our Power and Energy Trading Division manage electricity trading risks. The Power and Energy Trading Division operate within policies and procedures that are approved by the Board and monitored by a sub-committee of the Executive Committee.

Non-trading risks (i.e. cash resources, debt finance and financial risks) are managed by the central treasury function (the Treasury Department). The Treasury Department operates within policies and procedures approved by the Board of Directors. The Treasury Department uses appropriate and available instruments, within specified limits, to manage financial risk but is not permitted to take speculative, open positions. Both the Treasury Department and the Power and Energy Trading Division are subject to regular scrutiny from the Internal Audit Department (as are our other Departments and business units).

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Interest Rate Risk Management

The market value of debt varies with fluctuations in prevailing interest rates in the UK.

Eggborough related derivative agreements (nominal amount of £377 million as at March 31, 2004 and £398 million as at March 31, 2003) have been amended in the period as part of the Restructuring. The effect has been to fix future interest payments under the swaps from October 2004 onwards.

At March 31, 2004 the total of investments in liquid funds and cash amounted to £573 million, and had maturity dates due within one year. Cash not immediately required for business purposes is invested in fixed-rate term deposits and money market funds. At March 31, 2004, the term deposits and money market funds not used to fund our collateral agreements were due to mature or were available within one day and earned interest at an average rate of 3.9%. Term deposits, such as money market funds and bank balances, at March 31, 2004 include £297 million of cash that has been deposited in collateral bank accounts and earned interest at an average rate of 3.1%. However, this cash is restricted over the periods of our collateralized positions.

As the deposit terms are short term, the carrying value of our investment in liquid funds and cash at March 31, 2004 approximates to the fair market value.

Foreign Exchange Risk Management

At March 31, 2004 we did not hedge foreign currency risk. However, we will continue to evaluate currency hedging opportunities based on our exposure to foreign currency risk.

At March 31, 2003, there were deferred losses of £2 million accounted for as part of stock that arose on the rollover of maturing forward contracts used for hedging the future purchase of nuclear fuel prior to and including the year ended March 31, 2003. See note 20 to our audited consolidated financial statements.

Electricity Trading Risk Management

Our trading activities relate principally to supporting our power generation business and our direct supply business. The trading operations, therefore, act principally as wholesale marketers rather than as pure financial traders. The principal objective of our trading activities is to increase the return on our assets while hedging the market risk associated with plant output and market price.

Under NETA in England and Wales, any mismatch between actual metered generation (or demand) and the notified contract position is settled through the balancing mechanism at generally unfavorable prices. We generally sell all planned nuclear output forward and to minimize our exposure to unfavorable prices pursuant to the balancing mechanism. The risks in the wholesale market are managed through a contracting strategy that builds a portfolio of forward contracts of different lengths.

Eggborough power station provides a flexible generation capability that fulfils three purposes designed to enhance profitability. Firstly, it provides a means for compensating for unplanned lost output from our nuclear units at short notice; secondly it provides the capability to profile the output to meet the requirements of both wholesale and direct supply business customers; and thirdly, it provides a flexible capability.

Our policy is to manage credit exposure to trading and financial counterparties within clearly defined limits. A sub-committee of the Executive Committee strictly monitors electricity trading activities and places controls through delegated authorities and procedures, which include specific criteria for the management of counterparty credit exposures.

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Output from the two stations in Scotland will continue to be sold under the terms of the Nuclear Energy Agreement to Scottish Power and Scottish and Southern Energy until April 1, 2006, or the introduction of BETTA (currently scheduled for April 1, 2005), whichever is earlier.

Equity Risk Management

The Decommissioning Fund was established to provide for the eventual decommissioning of our nuclear power stations. Cash contributions are made on a quarterly basis to a payment profile set out in a contract between us and the Decommissioning Fund and are invested by it in UK marketable fixed income debt, equity securities and property in accordance with its investment policy. We are ultimately responsible for contributions to the Decommissioning Fund. Therefore, the level of future contributions, which are reviewed every five years in conjunction with the review of ultimate decommissioning costs, depend partly on the estimated long-term investment performance of the equity and debt instruments in which the contributions are invested and returns on investments in property. Income from dividends and other returns on the underlying investments are retained by the Decommissioning Fund and then reinvested in debt and equity securities.

The balance held by the Decommissioning Fund was recorded in the balance sheet at £440 million at March 31, 2004, which approximates to its market value. The Decommissioning Fund included property and debt and equity securities with market values of £44 million and £396 million respectively at March 31, 2004. Under the terms of the Restructuring, the Decommissioning Fund will be enlarged into and renamed the NLF and we will have no liability for shortfalls in the NLF resulting from changes in the market value of its debt and equity securities.

We reported a deficit of £325 million on our employee pension schemes, on an FRS17 basis, in our financial statements at March 31, 2004. As at March 31, 2004, the pension schemes’ assets were valued at £1,822 million compared to £1,525 million as at March 31, 2003, of which £1,571 million was held in equities and bonds compared to £1,316 as at March 31, 2003. The level of employer contribution to the schemes will be re-assessed following the triennial actuarial valuation that will be carried out as at March 31, 2004. The level of re-assessed contribution will depend partly on the estimated long-term investment performance of the equity and debt instruments in which the contributions are invested.

US Generally Accepted Accounting Principles

In addition to preparing our accounts in accordance with UK GAAP, the Directors are also required to prepare a reconciliation of our profit and loss and shareholders’ funds from UK GAAP to United States Generally Accepted Accounting Principles, or US GAAP. The adjustments required to reconcile our profit and loss and shareholders’ funds from UK GAAP to US GAAP are explained in Note 36 (as restated) to the accounts. Certain of our US GAAP accounting policies have been identified as the most critical US GAAP accounting policies and these are discussed below. The discussion below should be read in conjunction with the full explanation of US GAAP accounting policies set out in note 36 (as restated) of our audited consolidated financial statements.

Nuclear Liabilities and Decommissioning

As discussed in the preceding section under UK GAAP, we record liabilities for back end fuel costs and decommissioning costs. On April 1, 2003 we adopted FAS 143 “Accounting for Asset Retirement Obligations” which address the accounting for legal obligations associated with the retirement of long-lived assets that result from the construction, development or normal operation of a long-lived asset.

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Under FAS 143, a liability for an asset retirement obligation is recognized when a legal obligation arises and should be initially measured at fair value. The liability should also be capitalized as part of the carrying amount of the related long-lived asset. Changes in the liability due to the passage of time is recorded as an operating expense in the statement of profit and loss. The determination of the fair value of our asset retirement obligations requires management to make certain judgements about the estimated useful lives of our long-lived assets, changes in technology, economic and market conditions, and actions or assessments by our regulators. A change in these judgements can affect the amount of asset retirement obligations recognized in our financial statements.

As a result of adopting FAS 143, we recorded a cumulative adjustment of £5,539 million (net of tax charge of £2,374 million) in the year ended March 31, 2004. The cumulative adjustment is primarily due to the difference in accounting for the liability using a higher rate of discounting under FAS 143 than in previous periods. For additional information regarding the impact of FAS 143, see note 36 (as restated) of our audited consolidated financial statements.

Impairment of Fixed Assets

As discussed in the preceding section under UK GAAP, we have performed an impairment review of our fixed assets for UK GAAP. As a result of that review, the value of our power stations was written up by £295 million. In addition, we have also performed an impairment review of our fixed assets under US GAAP, using consistent assumptions and estimates as those used for purposes of our review under UK GAAP. Under US GAAP, fixed assets are written down to their fair value only when their carrying value exceeds their undiscounted future cash flows. In the current year the US GAAP impairment test indicated that the carrying value of our power stations did not exceed their undiscounted future cash flows. However, reversing previous year impairment charges is not permitted under US GAAP. As a result, we were required to record a US GAAP adjustment charge of £225 million for purposes of US GAAP in the year ended March 31, 2004. The charge reflects the £295 million difference arising from reversing previous impairment charges under UK GAAP, net of £70 million capital expenditures expensed under UK GAAP but capitalized under US GAAP. The adjustments are described more fully in note 36 (as restated) of our audited consolidated financial statements.

Derivatives

Under US GAAP certain contracts that have been entered into by us in the ordinary course of business are considered to be derivative instruments. Accordingly we are required to arrive at the fair value of these contracts at each period and include these fair values in our US GAAP balance sheet. The movement in fair value from one reporting period to the next is recognized in our income statement or within other comprehensive income, as appropriate.

In arriving at the fair values of the derivatives, estimates are made of future commodity prices, including the selling price for electricity and for coal. Certain of these prices can be ascertained externally in the short term, however, in the longer term we are required to use internal valuation techniques and models which take account of forecast sales volumes, prices and the correlation between various factors in the market place. The actual outcome can vary significantly from our future forecasts and, as a result, the amounts we report in our results can vary significantly as a result of changes in factors, many of which are beyond our control.

UK Decommissioning Fund

As discussed in the preceding section under UK GAAP, we rely on an actuarially determined assumed annual rate of return on the assets of the Decommissioning Fund that is recorded in our profit

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and loss account as a revalorization credit for UK GAAP. Under US GAAP, the assets of the Decommissioning Fund are classified as “available-for-sale” securities and are recorded at market value. Unrealized gains and losses resulting from changes in the market value of the securities in the Decommissioning Fund that are deemed to be temporary are excluded from the profit and loss account until realized and instead are reported within other comprehensive income as a separate component of equity shareholders’ funds. However, if the assets of the Decommissioning Fund continue to perform poorly, we are required to review the decline in the Decommissioning Fund’s value for an impairment that could potentially be considered to be “other-than-temporary” and would result in a charge to our profit and loss account rather than to shareholders’ equity. In arriving at a conclusion as to whether or not an impairment is considered to be temporary or “other-than-temporary”, we consider the following factors:

• Current market conditions

• Earnings and dividends of the assets and investments comprising the Decommissioning Fund

• Security ratings on the investments

• Financial condition of the underlying investments

We are required to make significant judgments and estimates in reviewing the assets of the Decommissioning Fund for an “other-than-temporary” impairment. The actual returns on the assets of the Decommissioning Fund can vary significantly from our estimate and market assumptions, and may therefore result in an inappropriate adjustment to our earnings.

In arriving at the market value of our investments in the Decommissioning Fund at March 31, 2003, we reviewed the decline in value of the Decommissioning Fund’s assets for impairment. Based on our review, we recognized a £94 million charge to our US GAAP net loss as we deemed a portion of the decline in value in the Decommissioning Fund to be “other-than-temporary”. As at March 31, 2004 the market value of the Decommissioning Fund had increased to £440 million, thereby necessitating an exceptional credit of £59 million for the year ended March 31, 2004 to reverse previously written-down amounts. As a result of the Decommissioning Fund receivable being restated at market value, a £13 million exceptional credit has been recorded in operating costs to reverse a prior write-down of non-operational assets, and exceptional credits of £46 million have been recorded in finance charges for the year ended March 31, 2004 to reverse the prior write-down of previous revalorization.

Pensions

As discussed in the preceding section under UK GAAP, we expense the cost of providing pension benefits over the average expected service life of eligible employees applying SSAP24. Additionally, we have provided the transitional disclosure requirements as prescribed by FRS 17.

Under US GAAP, we follow the accounting principles of FAS 87 and FAS 132R, which set out the accounting and disclosure requirements for pensions. We use an actuarial method for determining the pension costs and net pension liability or asset. Periodic pension costs are comprised of service and interest costs together with amortization of deferred actuarial gains and losses and offset by the expected return on plan assets. In computing our pension expense and obligation, significant assumptions and estimates are applied including:

• future rate of returns on pension assets

• interest rates used in the valuation of benefit obligations

• timing of employee retirements.

Changes in these assumptions may result in a different pension expense and obligation than that presented in our financial statements.

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UK GAAP to US GAAP Reconciliation

Restatement of Prior Year Results

We adopted Statement of Financial Accounting Standards (“FAS”) 133—“Accounting for Derivative and Hedging Activities”, as amended—(‘FAS 133’), as of April 1, 2001.

Upon adoption of FAS 133, we identified certain electricity purchase and sale contracts as being derivatives in accordance with FAS 133. For the years ended March 31, 2002 and 2003 certain of these contracts were not included in the annual mark to market calculations on the basis that they qualified for the Normal Purchase Normal Sale (“NPNS”) scope exemption.

During the year ended March 31, 2004 we adopted FAS 149—“Accounting for Derivative and Hedging Activities”. As part of the process of implementing FAS 149 we conducted a broader review of our compliance with derivative accounting regulation. During this exercise, the Group determined that the analysis supporting NPNS, and the documentation of compliance with the requirements of FAS 133 was not sufficient to support the accounting method previously applied. As a result of the review we determined that it was necessary to restate the results for 2002 and 2003. The impact of the restatement on the US GAAP financial statements is as follows:

	March 31, 2003												March 31, 2002
	As previously reported				Impact of Restatement				As restated				As previously reported				Impact of Restatement			As restated
	£m		Earnings per share		£m		Earnings per share		£m		Earnings per share		£m		Earnings per share		£m		Earnings per share	£m		Earnings per share
US GAAP net loss (net of tax) before cumulative adjustment for FAS 133	(7,732	)	(1,284	)p	(68	)	(12	)p	(7,800	)	(1,296	)p	(337	)	(56	)p	80		13p	(257	)	(43	)p
Cumulative adjustment for FAS 133 (net of tax)	—		—		—		—		—		—		(89	)	(15	)p	3		1p	(86	)	(14	)p
Loss for the year under US GAAP	(7,732	)	(1,284	)p	(68	)	(12	)p	(7,800	)	(1,296	)p	(426	)	(71	)p	83		14p	(343	)	(57	)p
Tax Effect of US GAAP adjustments	959		—		31		—		990		—		65		—		(35	)	—	30		—
Deficit on equity shareholders’ funds under US GAAP	(9,245	)	—		15		—		(9,230	)	—		(1,228	)	—		83		—	(1,145	)	—

Reconciling items

Under US GAAP a charge of £225 million was recorded in the financial year ended March 31 2004. The difference was the result of the reversal of £295 million of impairment charges incurred in the prior year for UK GAAP. Under US GAAP, reversal of previously incurred impairment charges are not permitted. This was partially offset by £70 million of expenses incurred under UK GAAP were permitted to be capitalized under US GAAP.

We adopted FAS 143 at April 1, 2003, resulting in a change in our methodology of recording asset retirement obligations related to decommissioning costs and back end fuel costs. Under FAS 143, asset retirement obligations are recorded at fair value, determined by discounting the expected future cash flows at the credit adjusted risk free rate.

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As a result of adopting FAS 143 and using a higher discount rate than under UK GAAP, we recorded a benefit for decommissioning costs and back end fuel costs of £13 million and £37 million, respectively. Additionally, the cumulative adjustment of adopting FAS 143 was a benefit of £5,539 million (net of tax of £2,374 million). Corresponding adjustments to shareholders deficit for decommissioning costs and back end fuel costs was £663 million and £1,624 million, respectively. The adjustments are described more fully in note 36, as restated, of our audited consolidated financial statements.

As at March 31, 2004, our total undiscounted estimated costs in respect of back-end fuel costs and decommissioning, stated at current prices, were £9.9 billion for back-end fuel costs and £5.1 billion for decommissioning. See note 22 to our audited consolidated financial statements.

During the year we disposed of our 50% interest in AmerGen. Due to the cumulative effect of differences between UK GAAP and US GAAP, AmerGen had a higher carrying value under US GAAP and therefore the sale resulted in a US GAAP loss on disposal. Under US GAAP, the profit after tax for the year ended March 31, 2004 was £7,562 million and the loss for the year ended March 31, 2003 was £7,800 million (as restated), compared with a profit of £234 million for the year ended March 31, 2004 and a loss of £3,941 million for the year ended March 31, 2003 under UK GAAP.

The deficit on equity shareholders’ funds under US GAAP at March 31, 2004 and March 31, 2003 were £(1,562) million and £(9,230) million (as restated) compared with equity shareholders’ funds of £(3,257) million and £(3,476) million respectively under UK GAAP. Differences primarily result from the adoption of FAS 143 (including decommissioning costs and back-end fuel costs and the deferred tax implications of these adjustments). See note 36 (as restated) to our audited consolidated financial statements.

New Accounting Standards

UK Accounting Standards

There is one new accounting standard that could have a potentially significant impact on our reported results that we have not yet implemented. FRS 17 sets out the requirements for disclosure and measurement of retirement benefits, including pensions. FRS 17 replaces SSAP 24 and discloses deferred benefit pension scheme surpluses or deficits on the balance sheet and accounts for all annual movements in pension scheme valuations through the profit and loss account and statement of total recognized gains and losses. The date for full adoption of FRS 17 is June 2005. However, we have complied with the applicable disclosure provisions by meeting the disclosures set out in Note 25 to our consolidated financial statements regarding the potential impact of FRS 17 on our balance sheet at March 31, 2004.

US Accounting Standards

In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” FIN 46 requires certain variable interest entities, or VIEs, to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We currently have no contractual relationship or other business relationship with a variable interest entity and, therefore, we do not expect that the adoption of FIN 46 will have a material effect on our consolidated financial position, results of operations or cash flows.

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ITEM 6.    DIRECTORS, SENIOR MANAGERS AND EMPLOYEES

Directors and Senior Management

We operate under the overall direction of our Board of Directors. Our Articles of Association provide that the number of Directors shall not, unless or until otherwise determined by an ordinary resolution, be less than four or more than 15. This provision of the Articles of Association may not be amended without the consent of the Special Shareholder (the Government). The Articles of Association also provide that at every annual general meeting of shareholders one third (or the number nearest to but not less than one third) of the Directors shall retire from office. The Directors to retire in each year are the Directors who have been longest in office since their appointment or re-appointment. Directors who retire by rotation in this manner are eligible to stand for re-election. The Directors may, at any time, appoint any person to be a director. Any person so appointed will hold office until the next annual general meeting of shareholders and shall then be eligible for election. The Directors may appoint one or more of their number to the office of Managing Director or to any other executive office for such period and on such terms as the Directors think fit. With the exception of Mr. Gatto all executive Directors have one-year rolling employment contracts with us. Mr. Gatto has a fixed term contract which terminates on December 31, 2004. The executive officers have contracts that are terminable by us on one year’s notice. It is our policy that Non-Executive Directors are appointed for a three-year term, renewable for a further three-year term on the basis of satisfactory performance, except where they are required to stand for re-election under the Articles of Association.

The name, title, age and date appointed of each of our Non-Executive Directors, our Executive Directors and our executive officers as at March 31, 2004^Q were as follows:

Name	Title	Age	Date appointed
Adrian Montague•¨	Chairman	56	November 28, 2002
Mike Alexander †§¨	Chief Executive	56	March 1, 2003
David Gilchrist †#§¨à	Managing Director, Generation	51	September 1, 2001
Martin Gatto§¨O	Interim Finance Director	53	December 8, 2003
Ian Harley +*•¨	Independent Director	53	June 1, 2002
William Coley +•†*¨	Independent Director	60	June 1, 2003
Pascal Colombani†¨	Independent Director	58	June 1, 2003
Sir Robert Walmsley*•#+†¨	Independent Director	63	August 1, 2003
John Delucca+¨	Independent Director	60	February 9, 2004
Clare Spottiswoode +*•¨	Deputy Chairman and Senior Independent Director	51	December 1, 2001
Robert Armour §	Company Secretary and General Counsel	44	December 13, 1995
Sally Smedley §	Director, Human Resources	54	February 8, 1999
Terry Brookshaw §<	Director, Power and Energy Trading	58	September 25, 2000

+ Denotes member of the Audit Committee.

* Denotes member of the Remuneration Committee.

• Denotes member of the Nominations Committee.

# Denotes member of the Safety, Health and Environment Committee.

† Denotes member of the Nuclear Performance Review Committee.

§ Denotes member of the Executive Committee.

¨ Denotes member of the British Energy plc Board.

^< Terry Brookshaw ceased to be Director of Power and Energy Trading on May 4, 2004. He was succeeded as Director of Power and Energy Trading by Neil O’Hara (aged 37).

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Q Roy Anderson (aged 54) joined British Energy as Chief Nuclear Officer and was appointed a member of the Executive Committee with effect from July 5, 2004. He was appointed as a Director of British Energy plc on September 16, 2004. The appointment of Roy Anderson as Chief Nuclear Officer is to be approved by the NII pursuant to our site license. We expect this approval to be forthcoming. For the purpose of this document we refer to Roy Anderson as Chief Nuclear Officer on this basis. Stephen Billingham (aged 46) joined British Energy as Finance Director Designate on August 25, 2004. He was appointed as Finance Director on September 16, 2004. David Pryde (aged 54) was appointed as an Independent Director on September 1, 2004.

à David Gilchrist resigned from the British Energy plc Board on August 5, 2004.

O Martin Gatto resigned from the British Energy plc Board on September 16, 2004 and was appointed Chief Financial Officer on the same date as part of ongoing hand over arrangements following Stephen Billingham’s appointment as Finance Director.

The written consent of the Special Shareholder is required for the appointment of the Chairman of the Board. As part of the agreements related to the Restructuring entered into with certain creditors, we have agreed to appoint two Directors to be proposed by the ad hoc committee representing the bondholders provided that the nominees met certain conditions relating to skills, suitability and independence. John Delucca and David Pryde were nominated by the ad hoc committee and appointed as Directors in furtherance of this agreement. There are no other arrangements or understandings between any Director or executive officer and any other person pursuant to which such director or executive officer was selected to serve. There are no family relationships between any of our Directors or executive officers.

Adrian Montague joined British Energy as Chairman in November 2002 and also held an executive role until the appointment of Mike Alexander as Chief Executive in March 2003. He is currently also Chairman of Michael Page plc, Deputy Chairman of Network Rail, Chairman of Infrastructure Investors Limited and a senior international adviser to Société Generale and a non-executive director of Cellmark AB. A law graduate of Cambridge University, he was a partner with Linklaters & Paines, before joining Kleinwort Benson as Head of the Project and Export Finance Department in 1993, and subsequently became Global Head of Project Finance of Dresdner Kleinwort Benson in 1997. Then he undertook a number of senior roles in the implementation of the Government’s private finance policies, serving as the Chief Executive of the Treasury Taskforce from 1997-2000, and as Deputy Chairman of Partnerships UK plc, and a Private Finance Advisor to the Department of the Environment, Transport and The Regions between 2000 and 2001. In September 2002 he was appointed to head the review team monitoring London’s Crossrail project. He was awarded a CBE in 2001. He is Chairman of the Nominations Committee.

Mike Alexander was appointed as Chief Executive in March 2003. Prior to joining British Energy he was Chief Operating Officer and Executive Board Member of Centrica plc, and before that Managing Director of British Gas Trading. After graduating from Manchester University with a BSc in Chemical Engineering and an MSc in Control Engineering he joined BP, undertaking a number of operational plant improvement, engineering, corporate planning and business development projects throughout the world. He joined British Gas in 1991 as Commercial Director of BG Exploration & Production Limited and was a Director of several overseas exploration and production subsidiaries, becoming Managing Director of British Gas Supply Limited. Whilst at British Gas he directed their move into the deregulated electricity market and oversaw the launch of the Goldfish credit card. He is a Chartered Engineer and Chartered Scientist and a Fellow of the Institute of Chemical Engineers, the Institute of Electrical Engineers and the Institute of Gas Engineers. He is a Non-Executive Director of Associated British Foods plc and was previously Chairman of AG Solutions Limited, Hydrocarbons Resources Limited, Goldfish Bank Limited and a Non-Executive Director of The Energy Saving Trust.

David Gilchrist was appointed Managing Director of British Energy Generation in 2002 . Formerly Executive Vice President, Finance of Bruce Power LP between 1999 and 2001, having previously been

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Financial & Commercial Director, British Energy North America. He was Executive Director, Finance of Nuclear Electric Limited from 1996 to 1998. After graduating from Cambridge University with a degree in engineering he worked in the UK and US at Caterpillar and Ford of Europe as well as a period with PA Management Consultants. A Chartered Engineer and member of the Institution of Mechanical Engineers, he was Business Development Director, Automotive at GKN plc from 1988 before joining Nuclear Electric in 1991. He was elected as the UK Representative on the Governing Board of the WANO Paris Centre in 2003. Mr Gilchrist resigned from the Board of Directors on August 5, 2004.

Martin Gatto was appointed Interim Finance Director in December 2003. He is a Fellow of the Chartered Institute of Management Accountants. Prior to joining British Energy he was Interim Chief Financial Officer at Midlands Electricity plc and was Group Finance Director at Somerfield plc between 1993 and 2002. He holds a degree in Polymer Technology from Brunel University and started as a graduate trainee with 3M UK. Subsequently he was Deputy Group Controller of Lex Service plc, and Financial Controller, Brewing, and Pubs and Leisure for Grand Metropolitan plc. He joined Hilton International in 1983, becoming Chief Financial Officer and Development and Property Director before becoming Chief Financial Officer of Sun International in 1991. In January 2004 he joined the board of Luminar plc as a Non-Executive Director and he is also a Non-Executive Director of Cox & Kings Travel Limited. Martin Gatto resigned from the Board of Directors on September 16, 2004 and was appointed Chief Financial Officer on the same date.

Ian Harley was appointed as an independent Non-Executive Director in 2002 and Chairman of the Audit Committee. He joined Abbey National in 1977 where he held a variety of posts in the Finance, Retail Banking and Wholesale Banking Divisions before joining the Board in 1993. He spent nine years on the Board as first Finance Director, then Chief Executive, before retiring in 2002. An Economics graduate of Edinburgh University, he is a Fellow of the Institute of Chartered Accountants and a Fellow and Past President of the Institute of Bankers. He is currently a Non-Executive Director of Rentokil Initial plc and Remploy, a Governor of the Whitgift Foundation and a Vice-President of the National Deaf Children’s Society. Previously Chairman of the Association for Payment Clearing Services, a member of the Deposit Protection Board, appointed by the Bank of England, and a member of the Financial Services Authority’s Practitioner Panel. He is Chairman of the Audit Committee.

William Coley was appointed as an independent Non-Executive Director in 2003. He joined Duke Power, a major US utility company as an engineer in 1966, becoming Group President in 1997 and retiring from this position in 2003 after a 37 year career with the company. During his time at Duke Power he held a variety of management and executive roles including Vice-President, Central Division and Senior Vice-President, Power Delivery. He was elected to Duke Power’s Board of Directors in 1990, becoming Senior Vice-President, Customer Group and was President of the Associated Enterprises Group between 1994 and 1997. A Non-Executive Director of CT Communications Inc., SouthTrust Corporation and Peabody Energy (all publicly traded companies), and a director of ER Jahna Enterprises (a privately owned company) he holds a BSc in Electrical Engineering from the Georgia Institute of Technology. He is a registered Professional Engineer in North and South Carolina. He is Chairman of the Nuclear Performance Review Committee and a member of the Nominations and Audit Committees.

Pascal Colombani was appointed as an independent Non-Executive Director in 2003. He holds a doctorate in nuclear physics and is a former Chairman and CEO of the French Atomic Energy Commission. He was also formerly the Chairman (non-executive) of Areva, the nuclear engineering conglomerate, and a board member of Electricité de France and France Télécom. He is a member of the French Academy of Technology, an Associate Director at ATKearney and a board member of Alstom SA and of the French Institute of Petroleum.

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Sir Robert Walmsley was appointed as an independent Non-Executive Director in 2003. Previously he served in the Royal Navy where his final appointment was as Vice Admiral Controller of the Navy and member of the Navy Board as a Vice Admiral, starting in 1994. He was knighted in 1995. During his earlier naval career he held a number of nuclear related posts including service as the Chief Engineer of a nuclear submarine, Project Manager of a Nuclear Submarine Refit and Refuel, and Chairman of the Naval Nuclear Technical Safety Panel; he was Director General, Submarines between 1993 and 1994. He held roles in Procurement at the Ministry of Defense and was Executive Aide to the Chief of Defense Procurement between 1986 and 1987. After retiring from the Navy, he was appointed as Chief of Defense Procurement (a Permanent Secretary grade post in the Civil Service), occupying that position from 1996 until 2003. Holding an MA from Cambridge University and a postgraduate diploma in control engineering he also was awarded an MSc in Nuclear Science and Technology from the Royal Naval College. Earlier this year he was appointed as a Senior Adviser at bankers Morgan Stanley and was elected as an independent director of General Dynamics in the United States. He is Chairman of the Safety Health and Environment Committee and a Non-Executive Director of the Group’s licensed nuclear generator subsidiaries.

John Delucca was appointed as an independent Non-Executive Director in February 2004. He holds an MBA in Finance from Fairleigh-Dickinson University School of graduate study and a BA from Bloomfield College and has held a variety of senior roles in US business. Most recently, from 2003 until March of this year he was Executive Vice-President and Chief Financial Officer of the REL Consultancy Group. Prior to that from 1998 to 2002 he was Executive Vice-President, Finance and Administration and Chief Financial Officer of Coty Inc and a member of their Executive Committee. Between 1993 and 1998 he was Senior Vice-President and Treasurer of RJR Nabisco Inc., having previously held executive positions with Hasco Associates, a private investment group, the Lexington Group, providing financial consulting to distressed companies, the Trump Group and the International Controls Corporation, where he was Executive Vice-President and CFO as well as Chairman and CEO of a subsidiary, Transway Finance Company. He is a Non-Executive Director, and chairs the audit committees of, ITC Deltacom, Enzo Biochem and Elliott Company. He has been a lecturer at Forham University’s Graduate School of Business Administration and Adjunct Assistant Professor at Seton Hall University School of Business Administration. He is deputy chairman of the Audit Committee.

Clare Spottiswoode was appointed as an independent Non-Executive Director in 2001. Chair of the Remuneration Committee. Her career started as an economist with the Treasury before establishing her own software company. Between 1993 and 1998 she was Director General of Ofgas and has also served as a member of the Government’s Deregulation Task Force (1993) and the Public Services Productivity Panel (1998). Mrs Spottiswoode currently chairs Busy Bees Group Limited and Economatters Limited and was previously a Non-Executive Director of Booker plc. She is also currently a Non-Executive Director of Advanced Technology (UK) plc, Tullow Oil plc and Petroleum Geo-Services ASA. Awarded a CBE for services to industry in 1999, she holds degrees from Cambridge and Yale Universities. She is the Deputy Chairman, Chairman of the Audit Committee and a senior Independent Non-Executive Director.

Robert Armour was appointed Company Secretary in 1995 and General Counsel in 2003. A solicitor, he was a partner in Wright Johnston & Mackenzie, solicitors, between 1986 and 1990 before joining Scottish Nuclear as Company Secretary in 1990. He was Director of Performance Development for Scottish Nuclear between 1993 and 1995. From 1997 to 2003 he was Director of Corporate Affairs. He holds a law degree and MBA from Edinburgh University and has also attended INSEAD’s Advanced Management Program.

Sally Smedley was previously Human Resources and Corporate Relations Director at East Midlands Electricity plc, and Employee Relations Director, the BOC Group plc. She has a BSc (Tech) in Occupational Psychology.

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Terry Brookshaw was previously Energy Trading Manager for British Gas where he was responsible for helping to develop their electricity market entry strategy. He has a BSc in Physics and an MSc in Operational Research. He stepped down as Director, Power and Energy Trading on May 4, 2004.

Neil O’Hara was appointed as Director of Power and Energy Trading on May 4, 2004. He was previously employed by RWE Innogy and before that was Managing Director for strategy and business development at American Electric Power.

Roy Anderson was appointed Chief Nuclear Officer of British Energy on September 16, 2004. He was previously President of PSEG Nuclear in the US, and Chief Nuclear Officer of Nuclear Management Company and of Florida Power Corporation. His early career involved working for Caroline Power and Light Company, Boston Edison Company and General Electric Company, all in the US. He has a degree in marine and nuclear engineering and an MBA in operation research.

Robert Hill retired as an Independent Non-Executive Director on July 31, 2003. Keith Lough resigned as Finance Director on December 8, 2003 and Duncan Hawthorne resigned as Non-Executive Director on March 12, 2004.

Stephen Billingham joined as Finance Director Designate on August, 25 2004. As part of ongoing handover arrangements, he was appointed as Finance Director on September 16, 2004. On the same date Martin Gatto, formerly our Interim Finance Director, resigned as a Director and assumed the role of Chief Financial Officer. Steven Billingham was formerly Group Finance Director at WS Atkins plc. Prior to his role at WS Atkins plc, he led the finance team that concluded the Metronet London Underground Public Private Partnership.

David Pryde was appointed as an Independent Director on September 1, 2004. He has extensive trading and risk management experience. Having formerly headed precious metals trading in Asia for NM Rothschild and Sons Ltd and Philipp Brothers Inc. He joined JPMorgan & Co. Inc. in 1984 and has subsequently held various senior management positions in trading businesses, including Global Head of Precious Metals Trading, Global Head of Commodity Derivatives Trading and Marketing and Global Head of Futures and Options Brokerage. He sat on the Boards of the Commodity Exchange, the Chicago Mercantile Exchange and the Future Industry Association.

Other Directorships

Details of other directorships and outside interests of our directors and executive officers are as follows:

	Other Directorships/Outside Interests
Adrian Montague	Crossrail; Network Rail; Michael Page International plc, Société Generale
Mike Alexander	Associated British Foods plc
David Gilchrist	WANO Paris Centre
William Coley	CT Communications Inc; South Trust Corporation; Peabody Energy
Pascal Colombani	AT Kearney; Alstom
Ian Harley	Rentokil Initial plc; Remploy; Whitgift Foundation; National Deaf Children’s Society
Clare Spottiswoode	Advanced Technology (UK) plc; Busy Bees Limited; Economatters Ltd; Tullow Oil plc; Petroleum Geo-Services ASA
Sally Smedley	Remploy
Robert Armour	The Electricity Association; Scottish Council Development and Industry; Northmere Limited; British Nuclear Industry Forum Limited
Martin Gatto	Luminar plc; Cox & Kings Travel Limited
John Delucca	ITC Deltacom; Enzo Biochem; Elliott Company
Sir Robert Walmsley	General Dynamics; Morgan Stanley

None of the other directors or executive officers had other business interests outside of British Energy.

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Compensation of Directors and Officers

During the year ended March 31, 2004, the aggregate amount of compensation we paid to all Executive and Non-Executive Directors and Executive officers was £2,662,253 (excluding pension contributions). During the year ended March 31, 2004, the aggregate amounts set aside or accrued to provide pension, retirement or similar benefits for Executive and Non-Executive Directors and executive officers, pursuant to any existing plan, was £2,460,000. Note 7 to the consolidated financial statements sets forth specific information regarding the emoluments and interests of individual Executive and Non-Executive Directors but does not address executive officers.

All of our Executive Directors are entitled to bonus payments under the Annual Incentive Plan. Bonus payments are determined by performance against a range of challenging targets underpinned by the safety and environmental priorities necessitated by the nature of our business.

In the year ended March 31, 2004, Executive Directors could be awarded cash payments of up to 60% of salary, depending on achievement of financial and other targets. In the year ended March 31, 2004, the plan included costs, output and operating cash flow targets, and was subject to an override reflecting the safety and environmental priorities necessitated by the nature of our activities.

During the year the Remuneration Committee determined that in the absence of any long-term incentive plan the bonuses earned by the Executive Directors and Executive Committee members in the year ended March 31, 2004 should be increased by a factor of 1.67. The Committee believes that this is reasonable both in the light of the absence of a long-term incentive plan and the stretch nature of the bonus target.

Service Contracts

We aim to set notice or contract periods for Executive Directors at one year or less. Where it is necessary to offer longer notice or contract periods to new Executive Directors recruited from outside the company, it is our policy to reduce the duration of these contracts as soon as possible after the initial period has expired. All of our Executive Directors currently have 12-month rolling contracts with the exception of Martin Gatto who has a fixed-term contract that will expire on December 31, 2004.

Independent and Non-Executive Directors

The remuneration of Non-Executive Directors is determined by the Board. Appointed for three-year terms, our independent and Non-Executive Directors do not have service contracts, are not eligible for any of our share schemes and do not receive any pension provision from us.

The expiry dates of the current Non-Executive Directors’ appointments are:

Name	Expiry Date
W Coley	31/05/2006
P Colombani	31/05/2006
J Delucca	31/01/2007
I Harley	01/06/2005
A Montague	01/12/2005
C Spottiswoode	01/12/2004
R Walmsley	31/07/2006

Board Practices

Remuneration Committee

The Remuneration Committee is concerned primarily with the pay, benefits and other employment conditions of Executive Directors. The Committee is made up entirely of Independent Directors. In

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addition, it retains an interest in the pay and benefits to other senior staff, to ensure reasonable consistency. The Terms of Reference for the Committee empower it to:

• establish the remuneration policies and practices for Executive Directors and certain other Directors and senior employees;

• design and implement long-term incentive schemes;

• determine and review the individual remuneration packages of the Executive Directors and other selected senior employees, including pension provision;

• authorize the annual performance incentive plan for Executive Directors; and

• obtain external professional advice and expertise necessary for the performance of its duties.

Audit Committee

The Audit Committee is comprised entirely of Independent Non-Executive Directors. The Committee is responsible for reviewing the adequacy and effectiveness of our internal control and compliance procedures and ensuring that we comply with all statutory requirements in relation to the principles, policies and practices adopted in the preparation of the Financial Statements, including those arising as a result of the application of the Sarbanes-Oxley Act. The Committee reviews our risk management including actions to mitigate or control key risks. The Committee seeks the advice of both external and internal auditors in relation to matters arising from their work and is also responsible for encouraging and monitoring the adoption of Best Practice in Corporate Governance. The Committee also reviews the nature and extent of our external auditor’s non-audit services to ensure that a balance of objectivity, independence and value for money is maintained.

Nominations Committee

The Nominations Committee advises the Board in relation to our senior appointments. Board appointments recommended by the Committee are made after an appropriate search and selection process has been undertaken. The Committee is made up entirely of Non-Executive Directors.

Share Ownership

As of March 31, 2004, the total amount of voting securities owned by the Directors and executive officers, as a group was 18,891 ordinary shares, representing 0.003% of our issued and outstanding ordinary shares.

In addition, as of March 31, 2004, our Directors and executive officers as a group, held options to purchase 489,489 ordinary shares, all of which options were issued pursuant to our Executive Share Option Schemes or our Sharesave Scheme. This figure includes share options granted to Keith Lough which lapsed on that date when he ceased to be an employee. For further details see the section entitled “Executive share options” below.

Options to Purchase Securities from Registrant or Subsidiaries

We have established several share option schemes. The No. 1 Scheme has been designed for approval by the UK Inland Revenue under Schedule 9 of the UK Income and Corporation Taxes Act of 1988 and, consequently confers certain tax benefits on its participants. The No. 2 Scheme is an unapproved share option scheme and does not, therefore, confer any particular tax benefits on its participants. Collectively, the No. 1 Scheme and No. 2 Scheme are referred to as the “Executive Share Option Schemes”. In order to be eligible to participate in the Executive Share Option Schemes an individual must be a full time director or employee of British Energy. The No. 3 Scheme (the

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“All-Employee Share Option Scheme”) has been approved by the UK Inland Revenue and is available to all of our employees other than those who may participate in the Executive Share Option Schemes. There is also a Sharesave Scheme that is open to all our UK employees and full time Directors who have been continuously employed for such period as the Board may prescribe (not exceeding five years before the date the options are to be granted).

As at March 31, 2004 there were 3,620,248 options outstanding under the Executive Share Option Schemes, 14,537,004 options outstanding under the All-Employee Share Option Scheme, and 8,518,496 options outstanding under the Sharesave Scheme.

Detailed below are the No. 1 Scheme options held by Directors and executive officers as at March 31, 2004. These options become exercisable three years after the date of grant, subject to achievement of a performance condition.

At our Annual General Meeting in July 2001, our shareholders approved the All Employee Share Option Plan 2001, which revised the terms of the previous No. 3 Share Option Scheme. No options have been granted under this scheme.

The Shareholders also approved the Share Incentive Plan (SIP) 2001. The SIP is based on UK legislation, which permits favorable tax treatment under certain circumstances for employees who invest in their employing company. This plan has not been activated.

At our Annual General Meeting in July 2002 shareholders approved a new Executive Share Option Plan 2002 to replace the No. 1 and No. 2 Share Option Schemes. No options have been granted under the plan.

Directors’ Emoluments

During the year the Board reviewed the fees paid to non-executive Directors. On the basis of external advice, fees were reviewed effective from January 1, 2004 as follows:

Independent/Non-Executive Director	£	27,000
Additional fee for Deputy Chairman/Senior Independent Director	£	25,000
Additional fee for Chairing Committees (per Committee)	£	10,000

In addition, with effect from April 1, 2004, those Non-Executive Directors who travel from the USA receive £1,000 per Board meeting subject to a maximum of £10,000 per annum. Those who reside elsewhere outside the UK are paid £500 per meeting to a maximum of £5,000 per annum.

Adrian Montague’s base fee is £150,000 per annum but, because of the additional time commitment, his fees will be £300,000 per annum until the Restructuring is effective and binding on all interested parties, or until negotiations for a solvent restructuring are terminated. His service agreement also provides for additional lump sum fees to be paid when certain milestones related to the Restructuring are achieved.

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	Basic Salary and Fees(£)		Bonus (£)		Contingent Fees (£)		Compensation for Loss of Office (£)
Name	2004	2003	2004	2003	2004	2003	2004	2003
A Montague	300,000	100,000	—	—	—	300,000	—	—
M Alexander	400,000	33,333	190,004	—	—	—	—	—
W Coley(1)	25,000	—	—	—	—	—	—	—
P Colombani(2)	22,500	—	—	—	—	—	—	—
J Delucca(3)	4,500	—	—	—	—	—	—	—
M Gatto(4)	130,000	—	36,013	—	—	—	—	—
D Gilchrist	199,013	183,563	106,105	—	—	—	—	—
I Harley	36,500	25,833	—	—	—	—	—	—
C Spottiswoode	59,000	53,333	—	—	—	—	—	—
R Walmsley(5)	24,667	—	—	—	—	—	—	—
Total Emoluments for serving Directors at March 31, 2004	1,201,180	396,062	332,122	—	—	300,000	—	—
R Biggam	—	11,167	—	—	—	—	—	—
D Hawthorne(6)	25,228	152,978	—	—	—	—	—	—
R Hill(7)	19,167	57,500	—	—	—	—	—	—
R Jeffrey	—	309,188	—	—	—	—	—	98,000
M Kirwan	—	45,042	—	—	—	—	—	—
K Lough(8)	151,975	211,250	73,679	—	—	—	145,625	—
P Stevenson	—	25,893	—	—	—	—	—	—
J Walsh	—	7,325	—	—	—	—	—	—
Total Emoluments (all Directors)	1,397,550	1,216,405	405,801	—	—	300,000	145,625	98,000

	Other Benefits (£)		Total Emoluments Excluding Pension (£)		Pension Contributions (£)
Name	2004	2003	2004	2003	2004	2003
A Montague	—	209	300,000	400,209	—	—
M Alexander	32,864	2,202	622,868	35,535	16,929	1,385
W Coley(1)	—	—	25,000	—	—	—
P Colombani(2)	—	—	22,500	—	—	—
J Delucca(3)	—	—	4,500	—	—	—
M Gatto(4)	—	—	166,013	—	—	—
D Gilchrist	15,247	20,067	320,365	203,630	16,929	12,020
I Harley	—	—	36,500	25,833	—	—
C Spottiswoode	—	—	59,000	53,333	—	—
R Walmsley(5)	—	—	24,667	—	—	—
Total Emoluments for serving Directors at March 31, 2004	48,111	22,478	1,581,413	718,540	33,858	13,405
R Biggam	—	—	—	11,167	—	—
D Hawthorne(6)	—	8,046	25,228	161,024	—	21,749
R Hill(7)	—	—	19,167	57,500	—	—
R Jeffrey	—	17,349	—	424,537	—	—
M Kirwan	—	4,007	—	49,049	—	4,453
K Lough(8)	11,309	12,886	382,588	224,136	11,657	12,020
P Stevenson	—	—	—	25,893	—	—
J Walsh	—	—	—	7,325	—	—
Total Emoluments (all Directors)	59,420	64,766	2,008,396	1,679,171	45,515	51,627

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Notes:

⁽¹⁾ Appointed as Non-Executive Director on June 1, 2003

⁽²⁾ Appointed as Non-Executive Director on June 1, 2003

⁽³⁾ Appointed as Non-Executive Director on February 1, 2004

⁽⁴⁾ Appointed as Executive Director on December 8, 2003

⁽⁵⁾ Appointed as Non-Executive Director on August 1, 2003

⁽⁶⁾ Retired as Executive Director on February 14, 2003. Appointed as Non-Executive Director on February 15, 2003 and resigned on March 12, 2004

⁽⁷⁾ Retired as Non-Executive Director on July 31, 2003

⁽⁸⁾ Resigned as Executive Director on December 8, 2003

Shares and Share Options

Ordinary shares	March 31, 2004	March 31, 2003
A Montague	2,188	2,188
M Alexander	0	0
W Coley	0	0
P Colombani	0	0
J Delucca	0	0
M Gatto	0	0
D Gilchrist	6,024	6,024
I Harley	2,000	2,000
C Spottiswoode	0	0
R Walmsley	0	0

There has been no change in Directors’ Shareholdings since March 31, 2004 and no Director has a non-beneficial interest in any of our shares.

Any ordinary shares required to fulfill entitlements under current option schemes may be provided by the British Energy Employee Share Trust (BEEST) an the Qualifying Employee Share Trust (QUEST). As beneficiaries under the BEEST and the QUEST, the Directors are deemed to be interested in the shares held by both Trusts, which, at March 31, 2004, amounted to 27,026,922 ordinary shares and 19,165,471 ‘A’ shares.

Executive share options

As at March 31, 2004 Directors’ interests in Executive and SAYE share options over ordinary shares were as follows:

Name	Options held at April 1, 2003	Options Granted during the year	Options Exercised during the year	Options Lapsed during the year	Options held at March 31, 2004	Option Exercise Price (£)	Date from which exercisable	Expiry date
D Gilchrist	57,692	—	—	—	57,692	2.60	15/07/2000	14/07/2004
	11,538	—	—	—	11,538	2.60	15/07/2000	14/07/2007
	19,862	—	—	—	19,862	5.08	29/06/2001	28/06/2005
	21,379	—	—	—	21,379	5.295	25/06/2002	24/06/2006
	40,659	—	—	—	40,659	2.4125	14/07/2003	13/07/2007
	151,130	—	—	—	151,130
K Lough	9,433	—	—	—	9,433	3.18	14/09/2004	13/09/2011
	116,353	—	—	—	116,353	3.18	14/09/2004	13/09/2008
	125,786	—	—	—	125,786

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No. 1 Scheme Options

	Date of Grant	Date when option expires	Option price		Number of Ordinary Shares under Option
D Gilchrist	July 15, 1997	July 14, 2007	£	2.60	11,538
K Lough	September 14, 2001	September 13, 2011	£	3.18	9,433
R Armour	August 12, 1997	August 11, 2007	£	2.60	11,538
S Smedley	February 8, 1999	February 7, 2009	£	6.67	4,497

No. 2 Scheme Options

	Date of Grant	Date when option expires	Option price		Number of Ordinary Shares under Option
D. Gilchrist	July 15, 1997	July 14, 2004	£	2.60	57,692
	June 29, 1998	June 28, 2005	£	5.08	19,862
	June 25, 1999	June 24, 2006	£	5.29	21,379
	July 14, 2000	July 13, 2007	£	2.41	40,659
K. Lough	September 14, 2001	September 13, 2008	£	3.18	116,353
R. Armour	August 12, 1997	August 11, 2004	£	2.60	19,243
	June 29, 1998	June 28, 2005	£	5.08	11,392
	June 25, 1999	June 24, 2006	£	5.29	25,436
	July 14, 2000	July 13, 2007	£	2.41	43,523
S. Smedley	February 8, 1999	February 7, 2006	£	6.67	15,368
	June 25, 1999	June 24, 2006	£	5.29	25,023
	July 14, 2000	July 13, 2007	£	2.41	56,373

Robin Jeffrey and Duncan Hawthorne ceased to be Executive Directors during the fiscal year ended March 31, 2003. All share options granted to them lapsed on the dates when, respectively, Mr. Hawthorne ceased to be an Executive Director and when Dr. Jeffrey tendered his resignation. Keith Lough’s share options lapsed on March 31, 2004 when he ceased to be an employee.

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

Control of Registrant

We are not directly or indirectly owned or controlled by another corporation or by any government (except to the extent permitted by the Special Share, discussed below). The rights of the Government and certain creditors under the Restructuring are described in “Item 4. Information on the Company—Restructuring.” As at September 24, 2004 we had been notified of the following interests of 3% or more of the issued ordinary share capital of British Energy.

Shareholder	Percentage
Brian J Stark	10.66
Brandes Investment Partners	6.92
UBS Investment Bank	6.53
Polygon Investment Partners LLP	5.69
Deutsche Bank AG	4.97
The Goldman Sachs Group, Inc.	4.26
British Energy Employee Share Trust	3.50

The voting rights of holders of 3% or more of our ordinary shares do not differ from those of other shareholders.

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The shareholding held by British Energy Employee Share Trust at the year end in each of the previous three years was as follows:

March 31, 2004	3.50	%
March 31, 2003	3.50	%
March 31, 2002	3.47	%

On March 31, 2004, there were 184 registered holders of 305,853 ordinary shares with addresses in the US. The combined holdings of these shareholders constituted less than 1% of the total number of ordinary shares outstanding. As certain of the ordinary shares are held by brokers and other nominees, these numbers may not be representative of the actual number of beneficial owners in the US or the number of ordinary shares beneficially held by US persons.

On March 31, 2004, there were 36 registered holders of 1,318,645 ADRs. The combined holdings of these shareholders constituted over 10% of the total number of ordinary shares outstanding. One ADR is equivalent to 75 ordinary shares.

We do not know of any current arrangements the operation of which may result in our change of control. However, if the Restructuring is completed, the NLF may, at its option, convert certain cash amounts due under the NLF cash sweep into ordinary shares of British Energy. Such option if effective and if exercised may result in a change of control. For additional information, see Note 1 to our consolidated financial statements.

Our share capital includes one special rights redeemable preference share, the Special Share, with a nominal value of £1.00. The Special Share may only be held by the Special Shareholder, which includes any of one or more of Her Majesty’s Secretaries of State, another minister in the UK Government, the Treasury Solicitor or any person acting on behalf of the UK Government. The Special Shareholder may require us to redeem the Special Share at any time after September 30, 2006 at its nominal value by giving us notice and delivering the relevant share certificate. The registered holder of the Special Share may attend and speak at any general or other meeting of holders of any class of our shares but has no right to vote at any such meeting.

Until such time as the Special Share is redeemed, our Articles of Association prohibit any person (other than certain permitted persons) from holding more than 15% of the voting rights of our issued share capital. We call this restriction the Limitation. Permitted persons are deemed to include any custodian or depositary who holds shares for the benefit of holders of our ADRs. However, permitted persons would not include a holder of ADRs which represent, in aggregate, a beneficial interest in more than 15% of the voting rights of our issued share capital. As long as the Limitation is in effect, we are required by our articles to enforce the Limitation (including, without limitation, withdrawal of voting rights of such shares and the forced sale of such shares).

The written consent of the Special Shareholder is required for each of the following:

• The amendment, removal or alteration of the effect of (including the ratification of any breach of) certain provisions of our Articles of Association, including the provisions with respect to the Special Share and the Limitation and the number of Directors who may be appointed to the Board of Directors.

• The creation or issue of any of our shares carrying voting rights other than (a) shares carrying voting rights in all circumstances at general meetings of our shareholders and (b) shares which do not constitute equity share capital (as defined in the Companies Act) and which, when aggregated with all other such shares, carry the right to cast less than 15% of the votes capable of being cast at any general meeting of our shareholders.

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• Variation of any voting rights attached to any class of shares.

• The appointment of the Chairman of the Board.

• The passing of a resolution for our voluntary winding up.

• Any changes to the Articles of Association of our operating subsidiaries that would allow them to issue shares to any person other than us and the disposal by us of any such shares.

As a consequence of the Restructuring it is likely that British Energy plc will become a wholly-owned subsidiary of a new parent company of the British Energy group following the Restructuring. As a result, the interests of existing shareholders are likely to be very substantially diluted. British Energy plc may subsequently be liquidated or dissolved, with all of its assets distributed to its creditors over time in accordance with the proposed scheme of arrangements. (see “Item 4. Information On The Company—Restructuring”)

Related Party Transactions

Interest of Management in Certain Transactions

There have been no material transactions during our most recent three fiscal years, nor are there presently proposed to be any material transactions to which we or any of our subsidiaries are or were a party and in which any Executive or Non-Executive Director, or 10% shareholder, or any relative or spouse thereof or any relative of such spouse, who had the same home as such person or who is a director or executive officer of any parent or subsidiary of British Energy had or is to have a direct or indirect material interest. Furthermore, during our most recent three fiscal years there has been no, and at present there is no, outstanding indebtedness to us or any of our subsidiaries owed or owing by any of our Executive or Non-Executive Directors or any associate thereof.

Duncan Hawthorne, who was an Executive Director of the company until February 15, 2003 was also Chief Executive Officer of Bruce Power. Following the sale of our interest in Bruce Power which was completed on that date, Mr. Hawthorne remained as Chief Executive of, and as an employee of, Bruce Power. After that date he ceased to be an Executive Director, and became a Non-Executive Director of British Energy. Mr. Hawthorne resigned as a Non-Executive Director on March 12, 2004.

ITEM 8.    FINANCIAL INFORMATION

See “Item 18. Financial Statements”.

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ITEM 9.    THE OFFER AND LISTING

Nature of Trading Market

The principal trading market for our ordinary shares is the London Stock Exchange. In addition, American Depositary Shares, or ADSs, (each of which represents 75 ordinary shares) are issued by Morgan Guaranty Trust Company of New York, as depositary for our ADRs, or the Depositary. Prior to October 31, 1999, neither ordinary shares nor American Depositary Receipts were listed or quoted on any recognized stock exchange in the United States. The table below sets forth, for the calendar quarters of each year indicated, the highest and lowest middle-market quotations (the closing price quoted for a security on any given day on the London Stock Exchange as published in the Daily Official List of the London Stock Exchange) for the ordinary shares.

	Ordinary Shares(1)		ADSs(2)
	High	Low	High	Low
	(in pence)		(in dollars)
QUARTERLY
1999
Third	591.00	405.00	—	—
Fourth	444.50	345.00	24.38	23.00
2000
First	399.75	175.25	25.88	11.06
Second	205.00	119.50	12.50	7.25
Third	262.00	165.00	16.19	10.38
Fourth	258.00	162.25	14.81	9.50
2001
First	295.50	193.00	17.35	11.75
Second	324.00	228.50	19.10	13.20
Third	337.00	256.75	19.40	14.45
Fourth	293.00	219.00	16.60	12.90
2002
First	259.75	175.00	14.96	10.20
Second	190.00	161.00	10.94	9.42
Third	171.50	5.00	9.15	0.50
Fourth	16.88	5.15	1.07	0.36
2003
First	7.50	3.20	4.93	0.22
Second	7.17	3.50	8.72	4.05
Third	6.75	3.50	7.96	4.25
Fourth	5.50	4.03	6.90	5.53
2004
First	10.25	4.21	13.70	5.94
Second	14.30	7.00	19.29	9.79
MONTHLY
January	5.85	4.21	8.40	5.94
February	10.25	6.25	13.70	8.87
March	8.00	6.50	11.08	9.09
April	12.30	7.00	16.27	9.79
May	14.30	9.81	19.29	13.27
June	14.00	11.60	18.90	16.07
July	22.25	14.50	30.60	20.09
August	21.50	19.00	30.20	26.00
September(3)	24.75	15.25	32.50	18.51

⁽¹⁾ The past performance of the ordinary shares is not necessarily indicative of future performance.

⁽²⁾ In order to meet the minimum price criteria set by and following discussions with the New York Stock Exchange (NYSE), on

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March 7, 2003 we announced that we would change the ratio of our shares traded on the NYSE. The effect of the change would be to alter this ratio from one ADR to four ordinary shares, to a new ratio of one ADR to 75 ordinary shares. This change became effective on March 18, 2003.

⁽³⁾ Through September 23, 2004.

On September 5, 2002, our Board of Directors announced that it had initiated discussions with the UK Government with a view to seeking immediate financial support to implement a longer-term financial restructuring. The Board of Directors decided to initiate discussions with the UK Government based on several factors including: (i) its review of our revised forecast for UK nuclear generation for the fiscal year ending March 31, 2003 (which indicated output of approximately 63 TWh as compared with the original target output of 67.5 TWh, due to unplanned outages particularly those at our Torness and Dungeness B nuclear power stations), (ii) the failure of our negotiations with BNFL to reach agreement on the terms of our fuel contracts, and (iii) the review of our long-term prospects. At close of business on September 5, 2002, certain of our securities including our ordinary shares listed in London and our ADRs traded on the New York Stock Exchange were subjected to temporary trading suspensions on the London Stock Exchange and the New York Stock Exchange respectively. Our ordinary shares and our ADRs resumed trading on the London Stock Exchange and the New York Stock Exchange on September 9, 2002. We announced on September 23, 2004 that we would be applying to the UKLA to cancel the listing of our ordinary and A shares. As a consequence the NYSE suspended trading in our ADRs prior to the opening of trading on September 28, 2004. At that time, the NYSE also instituted delisting proceedings.

ITEM 10.    ADDITIONAL INFORMATION

Material Contracts

Disposals

(a) Master purchase agreement, dated October 10, 2003, by and between British Energy Investment Limited (“BEIL”) and Exelon Generation Company, LLC (“Exelon”) relating to the disposal of British Energy plc’s entire 50% interest in AmerGen Energy Company LLC (“AmerGen”) (the “New AmerGen Agreement”).

In consideration of the disposal of its entire 50% interest in AmerGen, British Energy plc received initial consideration of US$277 million upon financial closing on December 22, 2003 prior to adjustments for working capital levels, unspent nuclear fuel, inventory, capital expenditure and low level waste disposal costs.

BEIL gave standard representations and warranties to Exelon, in relation to, inter alia, the business and affairs of AmerGen. The obligations of British Energy plc to indemnify Exelon in respect of losses suffered by it in respect of such representations and warranties are broadly subject to a minimum aggregate loss threshold of $5,000,000. Only aggregate claims in excess of the threshold are to be indemnified. There is a maximum claims limit of 75% of the purchase price following adjustment. In addition, British Energy plc has agreed to indemnify Exelon in respect of losses suffered by it in relation to the allegations of environmental violations resulting from specified recent events at one of AmerGen’s plants which resulted in the death of numerous fish near the plant. This indemnity is not subject to the above-mentioned thresholds, but is not likely to be material.

The New AmerGen Agreement is governed by and construed in accordance with the domestic laws of the State of New York.

(b) Master purchase agreement dated September 11, 2003 and made between BEIL and FPL Nuclear Mid-Atlantic, LLC (FPL) (the Original AmerGen Agreement).

The principal terms of the Original AmerGen Agreement are substantially identical to those of the New AmerGen Agreement save that references in the description of the New AmerGen Agreement to Exelon as the buyer should be construed instead as references to FPL Nuclear Mid-Atlantic, LLC and

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the break fee arrangements are slightly different. As a result of the exercise by Exelon of its right of first refusal to purchase British Energy plc’s interest in AmerGen on the same terms as those offered to FPL (arising under a limited liability company agreement relating to AmerGen dated August 1, 2000 and amended on December 21, 2001 and May 1, 2002), the Original AmerGen Agreement terminated on October 13, 2003 following the service by British Energy plc of a formal notice to that effect on FPL.

(c) A Master Purchase Agreement dated January 17, 2003 for the disposal of British Energy’s interest in Bruce Power Limited Partnership (“Bruce Power”) (“the Disposal”) was entered into between, among others, British Energy and (i) Cameco Corporation (“Cameo”), (ii) BPC Generation Infrastructure Trust (“BPC”) and (iii) TransCanada Pipelines Limited (“TransCanada”) (together, the “Consortium”).

The Disposal was effected by the sale of the entire issued share capital of British Energy (Canada) Limited (“BECL”) to a newly incorporated Ontario Corporation funded by the Consortium. The total consideration payable by the Consortium was C$950 million subject to certain adjustments. The Consortium paid C$100 million of the total consideration directly to the Provincial Government of Ontario, Canada as a one-off allowance and restructuring fee. C$100 million of the consideration was contingent upon the restart of two Bruce A units, and, to date, we have received C$30 million of such sum following the restart of unit 4 in the third quarter and unit 3 in the fourth quarter of 2003/04. A further C$80 million was held in escrow to cover the estimated outstanding tax liabilities of the Bruce Group following an interim refund of some C$3 million and the balance has been remitted to the tax authorities in Ontario. An additional C$20 million is held in escrow to cover successful claims in respect of representations and warranties for such period until all claims made against British Energy and British Energy International Holdings Limited (“BEIHL”) within two years from the completion of the Disposal are resolved. Finally, we received C$20 million in April 2003 which had been retained in escrow following completion in respect of a possible price adjustment relating to pensions following confirmation that no such adjustment was required.

Pursuant to binding heads of agreements entered into in November and December 2002 between British Energy and certain of its subsidiaries, the Power Workers’ Union Trust No.1 and The Society of Energy Professionals Trust (together “the Unions”) consented to the transaction under the Limited Partnership Agreement in consideration of Bruce Power Investments Inc (“BPII”) forgiving loans of approximately C$16.2 million made to the Unions to allow them to acquire their initial 2.6% interest in Bruce Power and fund subsequent capital calls, and the transfer by BPII to the Unions of an additional 2.6% interest in Bruce Power in aggregate immediately prior to the completion of the Disposal.

British Energy and BEIHL have jointly and severally given extensive representations and warranties to the Consortium in relation to, inter alia, the business and affairs of the Bruce Group. The obligations of British Energy and BEIHL to indemnify the Consortium in respect of any breach of such representations and warranties are mostly subject to a minimum claims limit of C$20 million, a maximum claims limit of C$1,175 million and customary time limits.

The Consortium have, upon completion of the Disposal, assumed responsibility for all of British Energy’s obligations as credit support provider and/or guarantor under Bruce Power’s existing Trading Contracts. The Consortium also took over British Energy’s financial assurance obligations to Bruce Power in respect of the CNSC License upon completion of the Disposal. In addition, pursuant to the OPG Heads, the Consortium assumed responsibility for the C$175 million guarantee granted by British Energy to OPG under the Lease and the Lease Guarantee and British Energy was released from these obligations and the Consortium put Bruce Power in funds to pay the C$225 million of deferred rent payment due by Bruce Power to OPG at the date of completion of the Disposal which was further condition to the OPG Heads. British Energy has no further obligation to OPG in respect of rent payments.

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British Energy will provide support services as requested from time to time by Bruce Power to support plant operations for a period of four years on terms to be agreed between British Energy and Bruce Power, acting reasonably.

Neither British Energy nor any of its affiliates will for a period of two years from the disposal (i) solicit any of BPII or Bruce Power’s existing employees; or (ii) become involved in nuclear power generation operations in Canada.

Cameco already holds a 15% interest in Bruce Power and BPII through its subsidiary Cameco Bruce Holdings Inc. (“CBHI”) and the Unions together hold a 2.6% interest in Bruce Power. Each of the Consortium members will own a 31.6% interest in Bruce Power and a 16.7% interest in Huron Wind as a result of the disposal. The Bruce Workers’ Union Trust No. 1 will have a 4.0% interest in Bruce Power and The Society of Energy Professionals Trust will have a 1.2% interest in Bruce Power. BPII will be entirely owned by the Consortium.

The Master Purchase Agreement is governed by the laws of the province of Ontario.

Standstill and Restructuring

(d) Creditor Restructuring Agreement dated October 1, 2003 (as amended by a side letter entered into on October 31, 2003) and entered into by British Energy plc, certain other Group companies, Enron Capital & Trade Europe Finance Limited (“ECTEF”) Teesside Power Limited, (“TPL”), Total Gas & Power Limited (“Total”) (ECTEF, TPL and Total collectively, the “Significant Creditors”), the Royal Bank of Scotland plc (“RBS”), the members of the ad hoc committee of British Energy plc’s Bondholders and British Nuclear Fuels plc (“BNFL”) (the “Creditor Restructuring Agreement”).

On October 1, 2003, Bondholders representing in aggregate with RBS 88.8% of the combined amount owing to Bondholders and RBS signed up to the Creditor Restructuring Agreement, and all of the lenders and swap providers in the Eggborough Bank syndicate, (each, an “Eggborough Bank”) also entered into the Creditor Restructuring Agreement, they (and RBS) having obtained credit committee approvals by such date. A summary of the key terms and conditons of the Creditor Restructuring Agreement is set forth in “Item 4. Information on the Company—Restructuring.”

(e) Standstill Agreement entered into on February 14, 2003 between RBS, Barclays Bank PLC, the Eggborough Banks, Significant Creditors and BNFL (the “Creditors”) and British Energy plc and certain of its subsidiaries (the “Old Standstill Agreement”) as replaced by a new standstill agreement entered into by the parties (and their successors in title) to the Old Standstill Agreement on February 13, 2004 (the “New Standstill Agreement”)).

During the period of the standstill, the Creditors agreed that they would not take any steps to initiate insolvency proceedings or demand or accelerate any amounts due and payable by us. The original standstill period would have terminated on the earliest of: (i) September 30, 2004; (ii) the occurrence of a termination event, and (iii) the completion of the Restructuring (the “Standstill Period”). Under the terms of the New Standstill Agreement, the Standstill Period was extended until the earliest of: (i) the Restructuring Long Stop Date (as defined in the Creditor Restructuring Agreement); (ii) the date British Energy receives a termination notice; and (iii) the date on which the Restructuring becomes effective. Under the terms of the New Standstill Agreement certain Significant Creditors will be paid interest but not principal in respect of their claims against us. Interest will continue to be paid to the Eggborough Banks in accordance with existing arrangements. In respect of TPL, Deutsche Bank, AG London, ECTEF and RBS, interest was to be paid first on March 25, 2003 and then on the last business day of every six-month period thereafter based on the agreed amounts which such creditors

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were claiming against us (except in the case of RBS where interest payments were to be based on the then present value of its claim amount).

Any of the Creditors has the right to terminate the New Standstill Agreement following the occurrence of a termination event. Termination events include certain insolvency events affecting British Energy plc, BEG, BEG UK, BEPET or EPL, acceleration of the Government Facility, and any of British Energy plc, BEG UK, BEG, BEPET or EPL failing to discharge certain continuing obligations.

The termination events are set out in full in the new Standstill Agreement which is set forth as an exhibit to this Form 20-F. See “Item 19. Exhibits”.

(f) Government Restructuring Agreement entered into between British Energy plc and certain of its subsidiaries, the Nuclear Generation Decommissioning Fund Limited (to be renamed the NLF) and the trustees of the Nuclear Trust on October 1, 2003.

This agreement sets out the circumstances in which the Secretary of State will support the Restructuring, including entering into the agreements with us, and in certain cases the NLF, which effect the proposals regarding the manner in which the decommissioning and other uncontracted liabilities of the Group are to be funded and the agreements relating to the funding of certain of the contracted nuclear liabilities of the Group (the “Nuclear Liabilities Agreements”). It also effects some further amendments to the Government Facility described in paragraph (g) below.

Under the Government Restructuring Agreement, the obligations of the Secretary of State to support the Restructuring (including as the holder of a number of special shares) and of the parties to the Nuclear Liabilities Agreements to enter into them are conditional on, inter alia:

• the Creditor Restructuring Agreement becoming effective (save for the extension of the standstill arrangements which is immediately effective) by October 31, 2003 or such later date as the Secretary of State may agree;

• the Creditor Restructuring Agreement becoming unconditional in all respects by the earlier of 120 days following the date that the initial conditions to implementation of the Restructuring (as set out in the Creditor Restructuring Agreement) are satisfied and January 31, 2005 (“Restructuring Longstop Date”);

• the Secretary of State not having determined and notified British Energy plc in writing that, in her opinion, the Group (including British Energy Group plc and British Energy Holdings plc, the public companies incorporated pursuant to the Restructuring) will not be viable in all reasonably foreseeable conditions without access to additional financing (other than financing which the Secretary of State is satisfied has been committed and will continue to be available when required);

• there being no continuing event of default under the Government Facility;

• receipt by the Secretary of State of copies of letters from the Group’s auditors and financial advisers giving the confirmations referred to in the terms of Rule 2.18 of the UKLA Listing Rules without qualification (whether or not British Energy Group plc is to be listed on the Official List of the UKLA) (without imposition of any duties, or increase in the liabilities of these advisers beyond those which would otherwise apply). (The confirmations referred to relate to the requirement for the provision by British Energy Group plc of an unqualified working capital statement which would be required to be produced by it in its listing particulars were it to be listed pursuant to the Restructuring);

• the representations and warranties given by British Energy plc parties in the Government Restructuring Agreement being true, accurate and not misleading when given and if repeated at the effective date of the Restructuring; and

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• there being no breach of any undertaking given by any British Energy plc party under the Government Restructuring Agreement which, in the opinion of the Secretary of State, is or is likely to be material in the context of the Restructuring.

If any of the above conditions are not fulfilled or waived by the Secretary of State by the time specified in the requisite condition or if no such date is specified, by the Restructuring Longstop Date, the Government Restructuring Agreement will terminate and if a material adverse change (as defined) occurs at any time before the order sanctioning the Restructuring Scheme is filed with the registrar of companies in Scotland, the Secretary of State may give written notice to British Energy plc to terminate the Government Restructuring Agreement.

Financings

(g) Credit facility agreement (the “Government Facility”) dated September 26, 2002 (as amended) between, among others, the (i) Secretary of State and (ii) British Energy plc, BEG UK, BEG and BEPET as borrowers and (iii) British Energy plc, BEG UK, BEG, BEPET, BEIL, District Energy Limited and BEIHL as Guarantors (the borrowers and guarantors (including Peel Park Funding Limited) are together referred to as the Obligors).

All obligors have given some security for obligations under the Government Facility.

The original facility amount was £650 million; the total facility amount now is £200 million. The Government Facility consists of a £175 million collateral facility and a £25 million working capital facility. The facilities have an availability period ending on September 30, 2004 (subject to extension at the discretion of the Secretary of State), although the Secretary of State can require earlier repayment if, inter alia, that is required by the Commission or under European law or if she is of the opinion that the Restructuring cannot be implemented in the manner or time envisaged in the Creditor Restructuring Agreement (the Final Maturity Date). Each loan made pursuant to the Government Facility is repayable no later than the Final Maturity Date.

Mandatory prepayment events under the agreement include if (1) the initial conditions set out in the Creditor Restructuring Agreement are not satisfied on or before November 30, 2004; or such later date as the Secretary of State may in writing agree; (2) the restructuring date, (as defined in the Creditor Restructuring Agreement) does not occur by the Restructuring Longstop Date; and (3) Any restructuring Agreement (as defined in the Government Facility, to include the Creditor Restructuring Agreement and the Government Restructuring Agreement) is terminated before the date on which the documentation required to give effect to the Restructuring is filed.

The obligors make and repeat customary representations and warranties. The obligors have given covenants appropriate to their financial situation and the nature of their business. A cash sweep mechanism is included by which on the first business day in each week, all cash not forecast to be required to meet payments of members of the Group incorporated or otherwise carrying on business in the UK in the following seven day period shall, to the extent that it exceeds £10 million, be deposited in a cash reserve account (the Cash Reserve Account) which is secured in favor of the Secretary of State. Events of default include, inter alia, non-payment, breach of obligations, misrepresentation, cross-default, material judgments or orders being made, distress, sequestration or other process being levied/enforced, occurrence of insolvency related events, material litigation, seizure, change in control and breach of law. The Government Facility is governed by English law.

(h) Bondholder Restructuring Agreement

A Bondholder Restructuring (Standstill) Agreement dated February 14, 2003 was entered into between British Energy plc, BEG and BEG (UK) and (i) certain Bondholders owning 58% of the £109,861,000 5.949% Guaranteed Bonds due 2003 (the “2003 Bonds”), (ii) certain Bondholders owning 55% of the £163,444,000 6.077% Guaranteed Bonds due 2006 (the “2006 Series Bonds”) and (iii) certain Bondholders owning 75% of the £134,586,000

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6.202% Guaranteed Bonds due 2016 (the “2016 Series Bonds”) (collectively known as the “Bondholders” and the 2003 Bonds, the 2006 Series Bonds and 2016 Series Bonds, together (the “Bonds”).

The Bonds were issued by British Energy on March 25, 1999. The principal amount outstanding of the 2003 Bonds is £109,861,000. The scheduled maturity date was March 25, 2003. Interest at 5.949% per annum is payable on March 25, in each year. The principal amount outstanding of the 2006 Bonds is £163,444,000. The scheduled maturity date is March 25, 2006. Interest at 6.077% per annum is payable on March 25, in each year. The principal amount outstanding of the 2016 Bonds is £134,586,000. The scheduled maturity date is March 25, 2016. Interest at 6.202% per annum is payable on March 25, in each year. The trustee of the Bonds is the Law Debenture Trust Corporation (the “Trustee”).

Pursuant to the Bondholder Restructuring (Standstill) Agreement, during the Standstill Period (the period commencing on February 14, 2003 and ending on September 30, 2004, or the earliest of a termination event or the completion of the Restructuring), British Energy plc will continue to pay interest on the Bonds (at the current rate(s) on the full principal amounts outstanding on the Bonds), but on a semi-annual basis after the annual payment to be made on March 25, 2003. The scheduled redemption of the 2003 Bonds will be deferred until the end of the Standstill Period or, if later, in circumstances where there is no event of default subsisting, the date on which such Bonds would otherwise become due and payable. The holders of each series of Bonds and the other affected Significant Creditors will not be able to accelerate their claims or commence insolvency or other proceedings against British Energy plc and certain of its subsidiaries.

The Supplemental Trust Deeds (constituting the standstill arrangements in respect of the relevant series of Bonds) entered into by the Trustee can be terminated upon, amongst other things, the receipt by British Energy of a lawful notice of termination by the Trustee. The Trustee would serve such a notice of termination if it is requested in writing to do so by the holders of at least 50% in aggregate principal amount outstanding of the relevant series of Bonds (and provided it has been indemnified to its satisfaction) following the occurrence of a Termination Event (as defined in the Bondholder Restructuring (Standstill) Agreement), which includes failure to pay interest on the Bonds when due and such failure continues for 20 business days. Each and every Supplemental Trust Deed also contains undertakings by British Energy plc, BEG and BEG (UK) concerning the way in which their business is carried on during this Standstill Period. If any of these undertakings is breached, the Supplemental Trust Deed can be terminated if such breach is not remedied within seven days of the date on which the Trustee serves a notice on British Energy plc (and copied to the UK Secretary of State) requiring remedy and either (i) the Trustee certifies to the Issuer that such breach is, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders or (ii) the Trustee is requested to do so by the holders of at least 50% in principal amount outstanding of the relevant series of Bonds and has been indemnified to its satisfaction.

(i) Supplemental Trust Deed (which constitutes the standstill arrangements in respect of the Bonds) entered into by British Energy plc, BEG, BEG UK and the Trustee (the “First Supplemental Trust Deed”).

Pursuant to a resolution of the Bondholders passed on March 24, 2003, the First Supplemental Trust Deed was entered into on March 31, 2003. The First Supplemental Trust Deed implements certain standstill arrangements with respect to the Bonds and can be terminated upon, among other things, the receipt by British Energy plc of a lawful notice of termination by the Trustee. The Trustee would serve such a notice of termination if it is requested in writing to do so by the holders of at least 50% in aggregate principal amount of the Bonds then outstanding (and provided it has been indemnified to its satisfaction) following the occurrence of a termination event, which includes failure to pay interest on the Bonds when due and such failure continues for 20 business days.

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The First Supplemental Trust Deed also contains undertakings by British Energy plc, BEG and BEG UK concerning the way in which their businesses are carried on during this Standstill Period. If any of these undertakings is breached, the First Supplemental Trust Deed can be terminated if such breach is not remedied within seven days of the date on which the Trustee serves a notice on British Energy plc (and copied to the Secretary of State) requiring remedy and either (i) the Trustee certifies to the Issuer that such breach is, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders or (ii) the Trustee is requested to do so by the holders of at least 50% in principal amount

outstanding of the relevant series of Bonds and has been indemnified to its satisfaction.

The BNFL Contracts

(a) The Deed of Amendment and Guarantee between British Energy Generation Limited (“BEG”), British Nuclear Fuels plc (“BNFL”) and British Energy plc dated March 31, 2003 (as amended on July 22, 2003 and October 30, 2003) relating to the Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Reactors between Nuclear Electric Limited and BNFL dated June 3, 1997, as amended.

This amendment gives effect to certain changes to the fuel supply arrangements and inserts new arrangements in relation to the supply of uranics used in the AGR fuel fabrication process and enriched uranium for on-supply by BEG to its PWR fuel fabricator. The amendments contained in the deed became effective on April 1, 2003 however, (except in relation to the amendments relating to the new uranics arrangements which are not subject to conditionality), the amendments are subject to a number of termination conditions relating to the Restructuring of the British Energy Group. In the event that the conditions are not satisfied (or waived) by January 31, 2005, the existing agreement will continue in force as if the deed had never been entered into (except in relation to the new uranics arrangements as noted above).

The main amendments effected by the deed relate to:

• the reduction of the fixed annual payment by an agreed sum and a discount (which is calculated across both the BEG and the British Energy Generation (UK) Limited (“BEG (UK)”) AGR fuel supply agreement in accordance with wholesale baseload electricity prices.

• the insertion of additional exceptions to the general prohibition on assignment of rights under the agreement without the consent of the other party (not to be unreasonably withheld) permitting both BNFL and BEG to assign rights under the fuel supply agreement without consent and or on certain conditions.

• an additional obligation on the parties to provide assistance to HMG in relation to the State Aid notification and to notify the agreements to the competition authorities.

• the insertion of a parent company guarantee by British Energy plc under which British Energy plc guarantees the performance of BEG under BEG’s existing AGR fuel supply agreement as amended by the deed. British Energy plc’s liability under the guarantee is expressed to be no greater than the liability of BEG under the agreement. Where British Energy plc ceases to be the ultimate holding company of BEG, it must notify BNFL and assign certain contracts which it has entered into with BNFL.

• the insertion of a new provision whereby British Energy plc and BEG acknowledge and agree that no member of the Group will bring any claim against BNFL that the terms of the existing agreement/deed or the heads of terms dated November 28, 2002 between BNFL and British Energy plc infringe competition law or that the “hardship” provisions of the existing agreement may be invoked.

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• new uranics arrangements under which BNFL will supply uranics to BEG for an initial firm period of seven years which either BEG or BNFL may terminate on 12 month’s notice (but not before the end of the sixth year) or earlier for non-performance by BNFL. This initial term is divided across BEG’s existing fuel supply agreement and its new post 2006 fuel supply agreement (described in paragraph (b) below). BNFL is to supply BEG with uranics for the purposes of fabrication into AGR fuel in accordance with a procurement policy and a procurement strategy, and is required to provide certain information to BEG on a regular basis. BEG is required to pay variable charges to BNFL relating to the uranics contained in the fabricated fuel supplied to BEG, incidental services (such as transport, insurance, cylinder washing, cylinder hire or uranic analysis), administration based on the quantity of stocks held by BNFL for the purposes of supplying fuel to BEG under BEG’s fuel supply agreement and procurement and management services.

Stock is to be repurchased by BEG in the event that the value of BEG’s forecast of stock cover at the end of the first month of BEG’s 12 months forecast exceeds certain levels under the existing fuel supply agreement), and BNFL is to buy back and use any stock repurchased by BEG prior to purchasing any new uranium material. BEG has rights to step into the uranics supply arrangements and procure uranics required under the existing fuel supply agreement (at the sole cost of BNFL) in the event that the level of uranium material available for BEG for the purposes of fabricating into fuel under the fuel supply agreement falls below a percentage of forward months’ fuel requirements for a period of three months (subject to a grace period).

Upon the expiry or early termination of the uranics supply arrangements, BEG must repurchase all stock maintained by BNFL for the purposes of supplying fuel under BEG’s fuel supply agreement and take back all contracts novated to BNFL as well as all new contracts entered into by BNFL for the supply of uranics and/or for conversion or enrichment services in order to supply BEG with fabricated fuel (subject to consent of the counterparties). The stock repurchase will be immediate upon the expiry or elective termination of BEG or BNFL, and will take place over a period of five years in accordance with an agreed schedule where BEG terminated for breach by BNFL.

(b) An Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Reactors from April 1, 2006 between British Energy Generation Limited (“BEG”), British Nuclear Fuels plc (“BNFL”) and British Energy plc, dated March 31, 2003, (as amended on July 22, 2003 and October 30, 2003).

This agreement is based on BEG’s existing AGR fuel supply agreement and incorporates the new provisions inserted into BEG’s existing AGR fuel supply agreement by way of the deeds of amendment (entered into in 2003 as described above in paragraph (a)). Subject to satisfaction of the conditions described above, the agreement will take effect on April 1, 2006 and continue until the end of the fuel supply period (defined as the date following which no further AGR fuel is loaded into any AGR reactor of either BEG or British Energy Generation (UK) Limited (“BEG (UK)”).

The main differences between the new post 2006 agreement and BEG’s existing AGR fuel supply agreement as amended by the deeds of amendment (entered into in 2003 as described above in paragraph (a)) are:

• the annual fixed charge is £25.5 million. This charge is adjusted in the same way as described above in relation to the deeds of amendment (entered into in 2003 as described above in paragraph (a));

• BNFL agrees to provide certain services relating to AGR fuel required as a result of the closure of a station (for example, the decommissioning or refurbishment of surplus fuel stocks and the return of or storage of surplus fuel) (on terms and conditions to be agreed); and

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• the prices for the supply of ancillary components will be derived by adding an engineering, procurement and warranty charge to the buying-in price of externally sourced components. The prices charged to BEG will be reviewed annually.

(c) A Deed of Amendment and Guarantee between British Energy Generation (UK) Limited (“BEG (UK)”), British Nuclear Fuels plc (“BNFL”) and British Energy plc, dated March 31, 2003 (as amended on July 22, 2003 and October 30, 2003) relating to the Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Reactors between Scottish Nuclear Limited and BNFL dated March 30, 1995 as amended.

The amendments contained in this deed are as set out above in paragraph (a) respect of the deed of amendment to British Energy Generation Limited’s existing fuel supply agreement, except in relation to the uranics arrangements which will essentially continue as set out in BEG (UK)’s existing fuel supply agreement. All amendments contained in this deed are subject to the same conditionality as described in relation to the deed of amendment to BEG’s existing fuel supply agreement described above in paragraph (a).

(d) An Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Reactors from April 1, 2006 between British Energy Generation (UK) Limited (“BEG (UK)”), British Nuclear Fuels plc (“BNFL”) and British Energy, dated March 31, 2003 (as amended on July 22, 2003 and October 30, 2003).

This agreement is based on BEG (UK)’s existing fuel supply agreement as amended by the deeds of amendment entered into in 2003 as described above, and is subject to the same conditionality as the deeds of amendment to the BEG and BEG (UK) existing fuel supply agreements and the BEG new post 2006 fuel supply agreement.

(e) A Deed of Sale and Purchase of Enriched and Natural Uranium Stocks between British Energy Generation Limited (“BEG”), British Nuclear Fuels plc (“BNFL”) and British Energy plc, dated March 31, 2003 as amended on October 13, 2003, November 26, 2003, February 20, 2004, April 5, 2004 and June 10, 2004.

This deed provides for the purchase by BNFL of BEG’s existing stocks of uranium material with an approximate value of £60 million. The sale of the stocks was arranged to take place in several tranches: on March 31, 2003, July 1, 2003 and further interim sales on dates nominated by BEG (the last date being August 31, 2004) (comprising all remaining stocks which could not be transferred on the date of the second sale). A reconciliation to market prices of the stocks transferred in the second and further sales will be reconciled following audit certification.

The deed also provides for the transfer to BNFL of BEG’s third party contracts relating to the supply of uranium ore, uranium hexafluoride and/or the provision of conversion or enrichment services by August 31, 2004. An interim pass-through of the contracts applies between March 31, 2003 (the completion of the first sale) and the final completion date under which BEG will perform the contracts upon BNFL’s instructions, and an ongoing pass-through of all contracts applies in respect of those contracts which the parties have not been able to novate to BNFL (e.g. because of failure to obtain counter party consent) until the earlier of the date of expiry or early termination of the relevant contracts and the date on which the term of the uranics supply arrangement under the fuel supply agreements ends.

Reciprocal provisions apply under which the liability of BEG and BNFL is capped (except in relation to BNFL’s obligation to pay the purchase price of the stocks sold under the agreement) and indirect losses are excluded (except in relation to payments under the indemnities in connection with the pass-through arrangements described above).

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(f) An End of Life Program: Transmittal Letter from British Nuclear Fuels plc (“BNFL”) to British Energy dated February 14, 2003, acknowledged by British Energy on March 31, 2003.

This side letter provides for the establishment of a joint team to study the end of life optimization program for AGR power stations with a view to lowering the full costs of production of AGR fuel and sharing the benefits. The prices for AGR fuel, when this is being loaded into three or fewer stations, will be set on the basis of the recommendations of this team (which is required to meet formally at least annually). The respective parties are to provide an update on progress towards station lifetime extension and/or station closure and progress against the Springfields Transformation Plan, and are required to submit a report to the parties containing their recommendations as to certain matters.

(g) An agreement dated March 31, 2003 between British Energy Generation Limited (“BEG”), Magnox Electric plc (“Magnox”), BNFL and British Energy plc for the implementation of the Passport 9 asset management software.

Under an agreement signed in 1996, BEG currently provides Magnox with computer services to host the asset management software entitled “Passport”, and to provide fault and maintenance support for emergency services. BEG uses Passport to manage its own power stations and has recently upgraded to a new version of the software. Under a computer services agreement signed on March 31, 2003, BEG is to assist Magnox in its upgrade to a new version of Passport. The upgrade is expected to be completed by the end of March 2005. The 1996 agreement, which was due to expire on March 31, 2004, was extended on March 31, 2003 to last until end March 2005, at a cost to Magnox of £1.5 million.

Under the new computer services agreement BEG is to receive £10 million annually from Magnox paid in equal monthly installments, which are accelerated if the project is completed ahead of schedule. A one-off amount is payable at the start of the contract period in respect of project set-up costs. Two costs are payable by Magnox during the lifetime of the project: a fixed monthly amount in respect of mainframe costs; and a variable amount in respect of external consultants’ costs. The latter are to be borne equally by BEG and Magnox up to a cap of £1 million annually for BEG. Once BEG has borne £1 million of external consultants’ costs in a year, any further costs are to be paid for entirely by Magnox. Magnox’s payment obligations are guaranteed by BNFL, its parent company. British Energy plc is a party to the agreement for the purposes of guaranteeing the performance of BEG’s obligations should BEG transfer its rights and obligations under the agreement or subcontract it to another group company.

(h) An agreement for new spent fuel management services between British Nuclear Fuels plc, (“BNFL”) British Energy Generation Limited (“BEG”), British Energy Trading Services Limited and British Energy plc dated May 16, 2003 (as amended on October 30, 2003) (“BEG New Spent Fuel Agreement”).

This agreement is based on the current Spent Fuel Management Agreement dated June 3, 1997. It, together with the BEG (UK) New Spent Fuel Agreement described in paragraph (i) below, (together the “New Spent Fuel Agreements”) provides for BNFL to manage irradiated AGR fuel arising from fuel which was loaded to the AGR reactors on or after the effective date, until the final delivery of irradiated fuel from the last AGR station to shut down including final cores. The effective date is the date following the date on which certain conditions relating to the Restructuring of the British Energy Group are satisfied or waived. These conditions apply to both the AGR Fuel Supply Agreements described in paragraphs (a) to (d) above and the other spent fuel management and ancillary services agreements and deeds of amendment described below. None of these spent fuel management related agreements and deeds of amendment become effective until these conditions precedent have either been satisfied or, in certain cases, waived by BNFL.

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The main features of the BEG New Spent Fuel Agreement are as follows:

• Under the BEG New Spent Fuel Agreement, BNFL will take title to all irradiated AGR fuel on collection by BNFL of such fuel from the power stations. Under the current spent fuel arrangements, although risk passes to BNFL on collection of the fuel, title to the fuel and most of the waste products deriving therefrom remains with BEG, who is therefore obliged to remove and be responsible for the ultimate disposal of these products and wastes at the end of the contracted storage period. Under the BEG New Spent Fuel Agreement, BNFL will be responsible for managing and ultimately disposing of the irradiated AGR fuel at its sole discretion.

• The pricing provisions under the BEG New Spent Fuel Agreement differ substantially from the current arrangements. BEG will make one-off payments to BNFL in respect of the each tonne of uranium contained in the fuel, such payments being linked to the time of first loading of such fuel into a reactor rather than the date on which it is actually delivered to BNFL as irradiated fuel, which will in most cases be some 5-10 years later. The payment structure is also subject to a rebate/surcharge mechanism linked to wholesale electricity prices, giving BEG a two-way hedge against these prices.

In relation to the main payment, BEG will pay BNFL a price of £150,000 (in 2002/03 money and thereafter escalated in accordance with RPI) per tonne of uranium. The surcharge/rebate is calculated according to a formula based on the amount of BEG/BEG(UK) output.

Invoicing will be on a monthly basis and will be based on agreed estimates of loading, coupled with an estimated rebate or surcharge. An annual reconciliation will be carried out. In the event that the annual reconciliation reveals that the payments that should have been made by BNFL to BEG exceed those from BEG to BNFL, then the reconciliation amount will be adjusted so that the total payments from BNFL to BEG equal those from BEG—i.e. there will never be a net payment from BNFL to BEG in a year.

In addition to the above, BEG must pay BNFL all those incremental costs incurred by BNFL in handling, storing and disposing of any non-standard fuel over and above those costs that BNFL would have incurred in respect of an equivalent quantity of fuel that meets the specification.

• British Energy plc is a signatory as guarantor in respect of its subsidiaries’ obligations (both financial and performance).

(i) An agreement for new spent fuel management services between British Nuclear Fuels plc, British Energy Generation (UK) Limited (“BEG (UK)”), British Energy Trading Services Limited and British Energy dated May 16, 2003 (as amended on October 30, 2004) (“BEG (UK) New Spent Fuel Agreement”).

The BEG (UK) New Spent Fuel Agreement is equivalent to the BEG New Spent Fuel Agreement and is based on the Agreement for the Long-Term Storage of Irradiated Fuel dated March 30, 1995. It is subject to the same conditionally as that agreement as described in paragraph (h) above.

(j) A deed of amendment between British Nuclear Fuels plc (“BNFL”) and British Energy Generation Limited (“BEG”), dated May 16, 2003, and as amended in October 30, 2003, relating to the agreement for the storage and reprocessing of irradiated oxide fuel and related services between British Nuclear Fuels plc and Nuclear Electric plc dated March 31, 1995, as amended and novated (“BEG 1995 Historic Fuel Agreement”).

This deed of amendment amends and restates the BEG 1995 Historic Fuel Agreement so that, together with the amended and restated agreements (described below in paragraphs (k), (l) and (m)), (together, the “Historic Fuel Agreements”) it covers the management of irradiated AGR fuel which has

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already been delivered to BNFL’s Sellafield facility, which is currently in the reactors, or in spent fuel storage at the stations or which is to be loaded into the reactors prior to the effective date. The effective date is the date following the day on which certain conditions in relation to the proposed Restructuring of the British Energy Group are satisfied or waived.

The services provided under this amended and restated agreement are the same as, and on the same terms as, those currently provided under the existing agreement. The primary difference between the existing agreement and this amended version are:

• consequential amendments that are necessary to reflect that while the existing BEG 1995 Historic Fuel Agreement (together with the existing versions of the other Historic Fuel Agreements) covered the lifetime arisings from the power stations, the amended and restated BEG 1995 Historic Fuel Agreement, together with the amended and restated versions of the other Historic Fuel Agreements, now only deal with fuel loaded into the reactors prior to the effective date, on which date the BEG (UK) New Spent Fuel Agreement and the BEG New Spent Fuel Agreement described above will come into play; and

• the current payment provisions have been replaced by a fixed monthly payment schedule. Payments for services, beyond the standard services, such as extended storage or treatment of non-standard fuel are not covered by the scheduled monthly payments.

• this agreement terminates immediately upon the occurrence of the appointment of a liquidator in respect of BEG or the making of a court order, or the passing of a resolution, for the winding-up or dissolution of BEG (other than for the purposes of a solvent amalgamation or reconstruction) and BNFL shall also be entitled to terminate the Historic Fuel Agreements to which BEG is a party on the occurrence of the appointment of a liquidator or the making of a court order, or the passing of a resolution, for the winding-up or dissolution (other than for the purposes of a solvent amalgamation or reconstruction) in respect of BEG (UK) or British Energy plc or (where British Energy plc is no longer BEG’s ultimate holding company) BEG’s ultimate holding company.

(k) A Deed of Amendment between British Nuclear Fuels plc (“BNFL”) and British Energy Generation Limited (“BEG”) dated May 16, 2003 (as amended on October 30, 2003), relating to the Agreement for Spent Fuel Management Services between BNFL and Nuclear Electric Limited dated June 3, 1997, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG 1995 Historic Fuel Agreement.

The current payment provisions have been removed and payment for services provided under this agreement is covered by the monthly payments made by BEG pursuant to the amended and restated BEG 1995 Historic Fuel Agreement described in paragraph (j) above.

(l) A Deed of Amendment between British Nuclear Fuels plc (“BNFL”) and British Energy Generation (UK) Limited (“BEG (UK)”) dated May 16, 2003 (as amended on October 30, 2003), relating to the Agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Scottish Nuclear Limited dated March 30, 1995, as amended, and to the agreement for the Long Term Storage of Irradiated Oxide Fuel and Related Services dated March 30, 1995 between BNFL and Scottish Nuclear Limited, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG 1995 Historic Fuel Agreement in paragraph (j).

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As with the Historic Fuel Agreements, to which BEG is a counterparty, (as described above), the current payment provisions of the agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Scottish Nuclear Limited dated March 30, 1995 and the agreement for the Long Term Storage of Irradiated Oxide Fuel and Related Services dated March 30, 1995 between BNFL and Scottish Nuclear Limited have been replaced by a fixed monthly payment schedule which appears in the amended and restated agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Scottish Nuclear Limited dated March 30, 1995 and which will be determined on the effective date. These payments cover the provision of services by BNFL to BEG (UK) under the agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Scottish Nuclear Limited dated March 30, 1995 and the agreement for the Long Term Storage of Irradiated Oxide Fuel and Related Services dated March 30, 1995 between BNFL and Scottish Nuclear Limited as well as the provision of services to BEG (UK) under those agreements described in paragraphs (q), (r), (s) and (t). Payments for services, beyond the standard services, such as extended storage or treatment of non-standard fuel are not covered by the scheduled monthly payments.

(m) A Deed of Amendment between British Nuclear Fuels plc (“BNFL”) and British Energy Generation Limited (“BEG”) dated May 16, 2003 (as amended on October 30, 2003), relating to the agreement for Oxide Flask Maintenance between BNFL and Nuclear Electric plc dated March 31, 1996, as amended and novated (“BEG Flask Maintenance Agreement”).

The amendments to the BEG Flask Maintenance Agreement and the agreements described in paragraphs (n), (o), (p), (q), (r), (s) and (t) below (together the “Ancillary Agreements”) are essentially consequential amendments required to reflect the new structures of the New Spent Fuel Agreements and Historic Fuel Agreements described in paragraphs above.

Termination provisions, equivalent to those described in respect of the Historic Fuel Agreements above, appear in the amended and restated versions of this agreement and the other Ancillary Agreements. However, such termination rights are limited to the historic fuel component of such agreements—i.e. the provision of services in respect of fuel loaded into British Energy’s AGR reactors prior to the effective date. The reason for this is that these Ancillary Agreements support both the New Spent Fuel Agreements (described in paragraphs (h) and (i)) and the Historic Fuel Agreements (described in paragraphs (j), (k) and (l)). The New Spent Fuel Agreements do not contain such a termination provision and, accordingly, in the event that the Historic Fuel Agreements terminate, the services provided under the Ancillary Agreements would still be needed in respect of the New Spent Fuel Agreements.

An additional amendment has also been made in respect of this agreement and the BEG (UK) 1996 Flask Maintenance Agreement described in paragraph (q). Monthly payments were due under those agreements have been removed as they are now covered by the new payment schedules in the Historic Fuel Agreements described in paragraphs (j), (k) and (l).

(n) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation Limited (“BEG”), relating to the new agreement for Oxide Flask Maintenance between BNFL and Nuclear Electric Limited dated June 3, 1997, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

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(o) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation Limited (“BEG”), relating to the agreement for Rail Transport Services of Irradiated Nuclear Fuel in the United Kingdom between BNFL and Nuclear Electric Limited dated June 3, 1997, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

(p) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation Limited (“BEG”), relating to the agreement for Oxide Miscellaneous Services between BNFL and Nuclear Electric plc dated March 31, 1996, as amended and novated.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

(q) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation (UK) Limited (“BEG (UK)”), relating to the agreement for Oxide Flask Maintenance between BNFL and Scottish Nuclear Limited, dated March 29, 1996, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

(r) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation (UK) Limited (“BEG (UK)”), relating to the new agreement for Oxide Flask Maintenance Services between BNFL and Scottish Nuclear Limited, dated June 3, 1997, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

(s) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation (UK) Limited (“BEG (UK)”), relating to the agreement for Rail Transport Services of Irradiated Nuclear Fuel in the United Kingdom between BNFL and Scottish Nuclear Limited, dated June 3, 1997, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

(t) A Deed of Amendment dated May 16, 2003 (as amended on October 30, 2003) between British Nuclear Fuels plc (“BNFL”) and British Energy Generation (UK) Limited (“BEG (UK)”), relating to the agreement for Oxide Miscellaneous Services between BNFL and Scottish Nuclear Limited, dated March 29, 1996, as amended.

This deed of amendment is equivalent to the one described above in respect of the BEG Flask Maintenance Agreement.

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Memorandum and Articles of Association

The following is a summary of the principal provisions of our Memorandum and Articles of Association a copy of which has been filed with the Registrar of Companies. We were incorporated in Scotland on December 13, 1995 as Company Number 162273 Memorandum and Articles of Association.

The following is a summary of the principal provisions of our Memorandum and Articles of Association a copy of which has been filed with the Registrar of Companies. We were incorporated in Scotland on December 13, 1995 as Company Number 162273.

Memorandum of Association

Clause 6 of our Memorandum of Association states that our principal objectives are, among other things, to carry on all or any of the businesses of generators, suppliers, distributors, transformers, converters, transmitters, producers, manufacturers, processors, developers, storers, carriers, importers and exporters of, and dealers in electricity, derived from whatever source.

Articles of Association

At an Extraordinary General Meeting held on November 4, 2002, an amendment to the Articles of Association was approved, authorizing the Directors to permit the aggregate principal amount outstanding in respect of moneys borrowed by the Group to be up to an amount of £1.6 billion.

(u)    Voting Rights

In the following description of the rights attaching to our shares, a “holder of shares” and a “shareholder” is, in either case, the person registered in the company’s register of members as the holder of the relevant shares. Shareholders can choose whether their shares are to be evidenced by share certificates (i.e. in a certificated form) or held in uncertified electronic form in CREST (the electronic settlement system in the United Kingdom).

Except as provided by the restrictions described below, every shareholder present at any general meeting has one vote on a show of hands and, on a poll, every shareholder present in person or by proxy has one vote for each share which they hold or represent.

Voting at all meetings of shareholders is by a show of hands unless a poll is demanded by the chairman of the meeting or by at least five shareholders at the meeting who are entitled to vote on the resolution (or their proxies), or by one or more shareholders at the meeting entitled to vote (or their proxies) and who have, between them, not less than 10% of the total votes of all shareholders who have the right to vote at the meeting; or by one or more shareholders at the meeting entitled to vote (or their proxies) who have, between them, shares conferring the right to vote on a resolution on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

No person is, unless the board decides otherwise, entitled to attend or vote at any general meeting or to exercise any other right conferred by being a shareholder at or in relation to meetings of the company in respect of any shares held by them if they or any person appearing to be interested in those shares have been sent a notice under section 212 of the Companies Act 1985 (which confers upon public companies the power to require information with respect to interests in their voting shares) and they or any interested person has failed to supply to the company the information requested within 14 days after delivery of that notice; and, in the case of any person who is interested or appears to us to be interested in shares representing at least 0.25% in nominal value of the issued shares of the class they shall additionally not be entitled to receive any dividend or other distribution or amount payable in respect of the default share, or to transfer or agree to transfer any of those shares or any rights in them. These restrictions continue until the earlier of:

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(i) Seven days after the earlier of the date the shareholder complies with the request to the board’s satisfaction or the company receives notice that there has been a market transfer or the shares; or

(ii) if the board decides to waive these restrictions, in whole or in part.

At any general meeting, the necessary quorum is two persons present in person or by proxy and entitled to vote.

(v)    A Shares

Our authorized share capital includes A shares, par value 60p. As of March 31, 2004, 80,908,247 A Shares were issued and outstanding. The A Shares do not carry any rights to receive notice of, attend, speak or vote at any general meeting, unless the meeting is due to consider a resolution for our winding up, or the non-cumulative preferential dividend remains unpaid six months or more after it fell due. Upon our winding up, the A Shares have preferential rights over the ordinary shares in respect of the distribution of capital. The A Shares confer no right to participate in our capital or profits beyond their nominal value. The A Shares are held in certificate and uncertificated (paperless) form.

(w)    The Special Share

Our authorized share capital includes one Special Share, a special rights redeemable preference share of £1. The Special Share may only be issued to, held by and transferred to one or more of Her Majesty’s Secretaries of State, another Minister of the Crown, the solicitor for the affairs of her Majesty’s Treasury or other person acting on behalf of the crown. The approval of the holder of the special share is required for certain matters, including alterations to our Memorandum of Association, certain of our Articles of Association, and certain other rights including the appointment of the chairman of the board. The holder of the Special Share may require us to redeem the Special Share at par at any time after September 30, 2006.

(x) Limitation on Size of Shareholdings

The term “interest” is widely defined for the purpose of these provisions. It generally follows but is more extensive than the definition used in deciding whether a notification to the company would be required under Part VI of the Companies Act, 1985 (which contains requirements for the notification of interest in shares in public limited companies). Any person who has an interest in 3% or more of the voting shares in the company is required to notify the company of that interest and is otherwise required to give notices in relation to interests in voting shares as currently provided in Part VI of the Companies Act.

If, to the knowledge of the board, any person has an interest in the company’s shares which carry 15% or more of the total votes attaching to relevant share capital (as that expression is defined in the Act), the board shall send a written notice to all persons (other than certain persons referred to below) who appear to it to have such interests, and if different, to the registered holder(s) of the shares concerned. That notice will set out the restrictions referred to below and will call for the interest concerned to be reduced to less than 15% by sale or other disposal of shares within 21 days of giving the notice to the registered holder(s) (or such longer period as the board considers reasonable). No transfer of the shares comprised in the interest may be made except for the purpose of reducing the interest to less than 15% or if the notice sent by the board is withdrawn.

If that notice is not complied with to the satisfaction of the board and has not been withdrawn, the board must, so far as it is able, effect the disposal on the terms as it decides, based upon advice obtained by it for the purpose and being reasonably practicable having regard to all the circumstances.

A registered holder on whom a valid notice referred to above has been served is not entitled in respect of the share or shares comprised in the interest, until that notice has been complied with to the satisfaction of the board or withdrawn, to attend or vote at any general meeting of the company or meeting of the holders of a class of shares and those rights will vest in the chairman of the meeting who may act entirely at his discretion.

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The board is not required to send a notice to any person if it does not know that person’s identity or address. Not delivering a notice in such case and any accidental error in or failure to give notice to a person to whom notice is required to be sent under this provision will not prevent the implementation of or invalidate any procedure under the relevant article. Any resolution or determination of, or decision or exercise of any discretion or power by, the board is final and conclusive.

Certain specified shareholders, including the ADR Depositary or a Clearing House, acting, in each case in that capacity are not subject to these restrictions.

(y) Variation of Rights

Whenever our share capital is split into different classes of shares, the special rights attached to any of those classes can be varied or withdrawn either:

(i) in such manner as may be provided by those rights; or

(ii) in the absence of such provision, either with the consent in writing of the holders of at least three-quarters in nominal value of the issued shares of that class or with the sanction of an extraordinary resolution passed at a separate general meeting of the holders of those shares validly held in accordance with the articles, but not otherwise.

Unless otherwise expressly provided by the terms of their issue, the rights attached to any class of shares shall not be deemed to be varied by the creation or issue of further shares ranking equally with them or subsequent to them or by the purchase or redemption by us of our own shares or by any other reduction of capital.

(z)    Changes in Capital

We may by ordinary resolution:

(i) increase our share capital by the creation of new shares of the amount prescribed by the resolution;

(ii) cancel any shares which have not, at the date of the ordinary resolution, been taken or agreed to be taken by any person and which diminish the amount of our share capital by the amount of the shares so cancelled;

(iii) consolidate and divide all or any of our share capital into shares of a larger amount than its existing shares; and

(iv) sub-divide all or part of our share capital into shares of a smaller amount than is fixed by the memorandum or articles;

We may also:

(i) by extraordinary resolution passed at a separate meeting, buy back our own shares; and

(ii) by special resolution reduce our share capital, any capital redemption reserve and any share premium account.

(aa)    Dividends

We may declare dividends by passing an ordinary resolution. No dividend can exceed the amount recommended by the Directors. The board may declare and pay such dividends as appear to be justified by the profits available for distribution. If the Directors consider that our profits justify such payments, they can pay interim dividends on any class of shares of the amounts and on the dates and for the periods they decide. Fixed dividends will be paid on any class of share on the dates stated for the payments of those dividends.

The Directors can (with the authority of an ordinary resolution of shareholders) offer ordinary shareholders the right to choose to receive new ordinary shares, which are credited as fully paid, instead of some or all of their cash dividend. To date, we have not sought such approval.

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Any dividend which has not been claimed for 12 years after it was declared or became due for payment may be forfeited and will belong to us unless the Directors decide otherwise.

We can stop paying dividends to a shareholder if payments for two dividends in a row are sent back or not cashed or have not been able to be made, until the shareholder or a person entitled to the shares by transmission claims them.

In view of British Energy’s financial situation, no interim or final dividend was paid in the financial year 2003-2004. The Board does not expect to declare or propose any dividend on the ordinary or “A” shares prior to the completion of the proposed restructuring.

(bb)    Distribution of Assets on Winding Up

If we are in voluntary liquidation the liquidator may, with the sanction of an extraordinary resolution passed by the shareholders, and any other sanction required by law, divide among shareholders all or any part of the assets of the company. This applies whether the assets consist of property of one kind or different kinds. For this purpose, the liquidator can place whatever value the liquidator considers fair on any property and decide how the division is carried out between shareholders or different groups of shareholders or; vest the whole or any part of the assets or class of assets in trustees upon such trusts for the benefit of shareholders as the liquidator shall determine.

(cc)    Transfer of Shares

Our certificated shares may be transferred in writing either by an instrument of transfer in the usual standard form or another form approved by the board. The transfer form must be signed or made effective by or on behalf of the person making the transfer. The person making the transfer will be treated as continuing to be the holder of the shares transferred until the name of the person to whom the shares are being transferred is entered in the register of members of the company. The board may, in its absolute discretion and without giving any reason for its decision, refuse to register the transfer of a certified share not fully paid up, or a certified share on which we have a lien.

The board may refuse to register any transfer of any share held in certified form:

• which is in respect of more than one class of shares;

• which is in favor of more than four joint holders;

• unless it is left at the place decided by the board for registration;

• unless the transfer form to be registered is properly stamped to show payment of any applicable stamp duty; and

• unless the transfer has the share certificate for the shares to be transferred with it, together with any other evidence which the board asks for to prove that the person wanting to make the transfer is entitled to do this; and if the transfer form is executed by another person on behalf of the person making the transfer, evidence of the authority of that person to do so.

Transfers of uncertified shares must be carried out using a relevant system (as defined in Uncertificated Securities Regulations 1995 (the “Regulations”)). The board can refuse to register a transfer of an uncertified share in the circumstances stated in the Regulations.

If the board decides not to register a transfer of a share, they must notify the person to whom the share was to be transferred within two months of either the transfer, or the instruction from the operator of the relevant system being lodged with us.

The board can decide to suspend the registration of transfer, for up to 30 days a year, by closing the register of shareholders. The register must not be closed without the consent of the operator of a relevant system in the case of any relevant register relating to a particular security.

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(dd)    Untraced Shareholders

We may sell any shares after advertising our intention and waiting for three months if the shares have been in issue for at last 12 years, during that period at least three dividends have become payable on them and have not been claimed and we have not heard from the shareholder or any person entitled to the dividends by transmission. We shall account for the proceeds to the former shareholder or the person entitled to them by transmission if that shareholder, or that other person, asks for them.

(ee)    General Meetings of Shareholders

Every year we must hold an annual general meeting. The board can call an extraordinary general meeting at any time, and, under general law, it must call one on a valid shareholder’s requisition.

(ff)    Limitations on Rights of Non-residents or Foreign Shareholders

There are no limitations imposed by the Articles of Association on the rights of non-residents on foreign shareholders.

(gg)    Directors

Directors’ Remuneration

The Directors (other than alternate Directors or those Directors who hold an executive office or employment with the Company (or one of its subsidiaries), shall be paid out of the funds of the Company by way of remuneration for their services as Directors such fees not exceeding in aggregate £500,000 a year (or such larger sum as British Energy may by ordinary resolution, determine) as the Directors may decide to be divided among them in such proportion and manner as the board decides (or else equally). The Directors shall also be paid their expenses properly incurred by them in connection with the discharge of their duties as our Directors.

The board may grant special remuneration to a director who performs any special or extra services to or at the request of the board.

The board may provide pensions or other benefits to, among others, any director or former director or persons connected with them.

Directors’ Votes

A director need not be a shareholder, but a director who is not a shareholder can still attend and speak at shareholders’ meetings.

Unless the Articles of Association say otherwise, a director cannot vote on a resolution about a contract in which the director has a material interest (this will also apply to interests of a person connected with the director). The director can vote if the interest is only an interest in British Energy shares, debentures or other securities. A director can, however, vote and be counted in a quorum in respect of certain matters in which he is interested as set out in the articles.

Subject to the legislation, the shareholders can by passing an ordinary resolution suspend or relax, among other things, the provisions relating to the declaration of the interest of a director in any contract or arrangement or relating to a director’s right to vote and be counted in a quorum on resolutions in which he is interested to any extent or ratify any particular contract or arrangement carried out in breach of those provisions.

Directors’ Interests

If the legislation allows and the director had disclosed the nature and extent of the interest to the board, the director can:

(i) have interest in a contract with or involving us (or in which we have an interest or with or involving another company in which we have an interest);

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(ii) have any interest in a company in which we have an interest;

(iii) hold a position (other than an auditor) in us or another company in which we have an interest or power of appointment; and

(iv) along (or through some firm with which the director is associated) do paid professional work (other than as auditor) for us or another company in which we have an interest on terms and conditions decided by the board.

A director does not have to hand over to us any benefit received or profit made as a result of anything permitted to be done under the articles.

When a director knows that they are interested in a contract with us they must tell the other Directors.

Retirement of Directors

Under the terms of the Articles of Association the appointment of a director or requirement for him to stop being a director is not restricted due to the fact that he has reached a particular age.

At every annual general meeting one third of the Directors (or if their number is not a multiple of three, the number nearest to but not less than one third) must retire by rotation as Directors. The Directors to retire are selected on the basis of time in office since their last election. Any director appointed by the Directors automatically retires at the next following annual general meeting, and is then eligible for election, but is not taken into account in determining which and how many Directors are to retire by rotation at such meeting. A retiring director is eligible for re-election.

Exchange Controls and other Limitations Affecting Security Holders

There are no UK laws or regulations, including foreign exchange contracts that restrict the import or export of capital to or from the United Kingdom. Except as discussed in “Taxation” below, there are no restrictions on our payment of dividends or other amounts to non-UK resident holders of our securities. Except with respect to the Limitation, neither UK law nor our articles impose any restrictions on the rights of non-UK resident or non-UK citizen holders of our ordinary shares and ADSs to hold or to vote such securities.

Taxation

The following discussion describes certain US federal income tax and UK tax consequences of the acquisition, ownership and disposition of our ordinary shares or ADSs (evidenced by ADRs) to absolute beneficial owners of our ordinary shares or ADSs (as such term is used for UK tax purposes):

• who are residents of the United States for purposes of the income tax convention between the United States and the United Kingdom;

• whose ownership of our ordinary shares or ADSs are not, for the purposes of the income tax convention, attributable to a permanent establishment in the United Kingdom;

• who otherwise qualify for the full benefits of the income tax convention; and

• who are US holders (as defined below).

The statements of US federal income tax and UK tax laws set out below:

• are based on the laws in force and as interpreted by the relevant taxation authorities as of the date hereof; and

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• are subject to any changes in US federal income tax or UK tax law, in the interpretation thereof by the relevant taxation authorities, or in the income tax convention, occurring after the date hereof.

No assurance can be given that taxing authorities or the courts will agree with this analysis. For purposes of this discussion, the terms “we”, “us” and “our” refers to British Energy plc.

This discussion is not a complete listing of all potential tax consequences to a US Holder of the acquisition, ownership or disposition of our ordinary shares or ADSs, and does not address all aspects of UK taxation that may be relevant to a US holder and is not intended to reflect the individual tax position of any US holder, including tax considerations that arise from rules of general application to all taxpayers or to certain classes of investors or that are generally assumed to be known by investors.

The portions of this summary relating to US federal taxation are based upon the US Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed US Treasury regulations promulgated thereunder, published rulings by the US Internal Revenue Service (“IRS”), and court decisions, all in effect as of the date hereof, all of which authorities are subject to change or differing interpretations, which changes or differing interpretations could apply retroactively. The portions of this summary relating to US federal taxation are limited to US Holders who hold our ordinary shares or ADSs as capital assets within the meaning of Section 1221 of the Code, generally, property held for investment, and does not purport to deal with investors in special tax situations, such as expatriates, dealers in securities or currencies, persons whose functional currency is not the US dollar and certain persons, including but not limited to life insurance companies, tax exempt entities, banks, financial institutions, traders in securities that elect to use a “mark-to-market” method of accounting for their securities holdings, regulated investment companies, persons holding our ordinary shares or ADSs as part of a hedging, integrated, conversion or constructive sale transaction or straddle or persons subject to the alternative minimum tax, who may be subject to special rules not discussed below. In particular, the following summary does not address the tax treatment to a US holder if the US holder owns, directly or by attribution, 10% or more of our outstanding voting share capital for US federal tax income purposes.

As used herein, the term “US holder” means a beneficial owner of our ordinary shares or ADSs who or which is for US federal income tax purposes:

• a citizen or resident of the United States;

• a corporation (or other entity treated as a corporation) created or organized in or under the laws of the United States or any political subdivision thereof;

• an estate the income of which is subject to US federal income taxation regardless of its source; or

• a trust (1) that is subject to the supervision of a court within the United States and the control of one or more US persons as described in section 7701(a)(30) of the Code or (2) that has a valid election in effect under applicable US Treasury regulations to be treated as a US person.

If a partnership (or other entity treated as a partnership) holds our ordinary shares or ADSs, the US federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If a US holders is a partner of a partnership holding our ordinary shares or ADSs, the US holder should consult its own tax advisors regarding the US federal income tax consequences of the partnership acquiring, owning and disposing of the shares or ADSs.

The summary does not include any description of the tax laws of any state, local or foreign governments that may be applicable to the acquisition, ownership and disposition of our ordinary shares or ADSs. Shareholders are urged to consult their own tax advisor regarding the

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US federal, state, and local tax consequences to them of the acquisition, ownership and disposition of shares or ADSs, as well as the tax consequences to them in the United Kingdom and any other jurisdictions arising from the acquisition, ownership or disposition of our ordinary shares or ADSs.

For the purposes of the income tax convention and the Code, a US holder will be treated as the owner of our ordinary shares represented by the ADSs evidenced by the ADRs.

New Income Tax Convention

The new income tax convention between the United States and the United Kingdom (the “New Convention”) has recently been ratified by the competent authorities in the two countries and entered into force on March 31, 2003. The New Convention put in place new rules that modify the treatment of US holders under the previous income tax convention between the United States and the United Kingdom (the “Old Convention”) in several aspects. Specific references to the new rules under the New Convention have been included as appropriate throughout this summary. Each US holder should consult its own tax advisor regarding the effect of the New Convention on its investment in shares or ADSs.

Taxation of dividends

United Kingdom

No withholding tax is charged or due when a UK incorporated company pays dividends. An individual shareholder resident in the United Kingdom will generally be entitled to a tax credit in respect of any dividend received. The amount of the tax credit is equal to one-ninth of the cash dividend or 10% of the aggregate of the cash dividend and the associated tax credit. Under the New Convention, a US holder is not entitled to a payment from the UK Inland Revenue in respect to the tax credit.

United States

Subject to the PFIC discussion below, generally, distributions a US holder receives from us will constitute dividend income to the extent paid out of our current and accumulated earnings and profits, as determined under US federal income tax principles, and, subject to discussions below, taxed at ordinary income tax rates applicable to the US Holder. Distributions in excess of our current and accumulated earnings and profits will first be treated as a nontaxable return on capital to the extent of the US holder’s adjusted tax basis (generally equal to the US holder’s acquisition cost of the shares or ADSs) in the shares or ADSs and then as gain from the sale or exchange of a capital asset. Dividends paid by us will not be eligible for the dividends received deduction that is applicable to US corporations. For the purposes of computing the foreign tax credit, dividends paid on our ordinary shares or ADSs are treated as income from sources outside the United States, but generally will be grouped separately, together with other items of “passive” or “financial services” income. The rules governing the foreign tax credit are complex. US holders should consult their own tax advisors regarding the availability of the foreign tax credit in their particular circumstances.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (the “Act”) which became effective on May 28, 2003 modified various provisions of the Code relevant to the taxation of US Holders of our ordinary shares or ADSs. In particular, the Act reduces the maximum US federal income tax rate applicable to individual US Holders to a maximum 15% tax rate on certain types of dividends. The reduced rates of tax applies to the 2003 through the 2008 taxable years. Generally, dividends paid by a foreign corporation will be eligible for this reduced rate of tax if the foreign corporation (a) is not a

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“foreign personal holding company”, “foreign investment company” or “passive foreign investment company”, (b)(i) is eligible for benefits under a comprehensive income tax convention with the United States that satisfies certain requirements or (ii) the stock with respect to which the dividend is paid is readily tradable on an established securities market in the United States, and (c) certain other requirements are met. Individual US Holders should consult their own advisors as to the eligibility of the reduced rate of tax to dividends paid by us.

During the periods the Old Convention was in effect, if a US holder were eligible for benefits under, and elected the application of, the Old Convention, the US holder would include in gross income, as dividends, an amount equal to the sum of the actual dividend plus the tax credit amount (to the extent such amount is paid out of our earnings and profits), and the US holder would be treated for US foreign tax credit purposes, as having paid UK withholding tax equal to the amount of the tax credit. A US holder could elect the application of the Old Convention by filing a timely and duly completed Form 8833 with the US holder’s income tax return for the relevant year. Subject to certain conditions and limitations, the UK deemed withholding tax could be deducted from taxable income, or instead credited against the US holder’s US federal income tax liability.

Under the New Income Tax Convention, the amount of dividends to be included in a US holder’s gross income no longer includes the amount any UK tax credit amount described above. Therefore, the amount of dividends that a US holder is treated as receiving from us will be the amount of dividends the US holder actually receive from us. US holders should consult their own tax advisors regarding the effects of the Old Convention and the New Convention on their investment in our ordinary shares or ADSs, and their eligibility for benefits under the Old Convention and the New Convention with respect to distributions from us.

The amount of any dividend paid in pounds sterling will equal the US dollar value of the pounds sterling received calculated by reference to the exchange rate in effect on the date the dividend is received by a US holder, in the case of shares, or by the Depositary, in the case of ADSs, regardless of whether the pounds sterling are converted into US dollars. If a US holder does not convert the pounds sterling received as a dividend into US dollars on the date of receipt, the US holder will have a basis in the pounds sterling equal to their US dollar value on the date of receipt. Generally, any gain or loss realized on the US holder’s subsequent conversion or other disposition of the pounds sterling will be treated as ordinary income or loss from US sources.

Taxation of capital gains

United Kingdom

If a US holder is not resident or ordinarily resident in the United Kingdom for UK tax purposes, the US holder is not liable for UK tax on capital gains realized or accrued on the sale or other disposition of shares or ADSs unless the shares or ADSs are held in connection with the US holder’s trade or business (which for this purpose includes a profession or a vocation) carried on in the United Kingdom through a permanent establishment and the shares or ADSs are or have been used, held or acquired for the purposes of such trade or business or such permanent establishment.

A US holder who is an individual who has on or after March 17, 1998 ceased to be resident or ordinarily resident in the United Kingdom for a period of five years and who disposes of shares or ADSs during that period may also be liable for UK tax on capital gains on his return to the UK notwithstanding that the person may not be resident or ordinarily resident in the United Kingdom at the time of the disposal.

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United States

Subject to the PFIC discussion below, gain or loss realized by a US holder on the sale or other disposition of the shares or ADSs will be subject to US federal income tax as capital gain or loss in an amount equal to the difference between the US holder’s adjusted tax basis in the shares or ADSs and the amount realized on the disposition. The capital gain or loss will be long-term capital gain or loss if the US holder has held the shares or ADSs for more than one year at the time of the sale or exchange. In the case of individual US Holders, the Act reduces the maximum long-term capital gains tax rate to 15% for sales and exchanges occurring on or after May 6, 2003 through 2008. Gain or loss realized by a US holder generally will be treated as US source gain or loss for US foreign tax credit purposes.

Passive foreign investment company considerations

Generally, for US federal income tax purposes, we will be a “passive foreign investment company”, or a “PFIC”, for any taxable year if either (i) 75% or more of our gross income is “passive” income or (ii) 50% or more of the value of our assets, determined on the basis of a quarterly average, is attributable to assets that produce or are held for the production of passive income. Passive income generally includes dividends, interest, royalties and rents not arising from the active conduct of a trade or business, and gains from the sale of assets that produce such income. If we are a PFIC in any taxable year that a US holder owns our ordinary shares or ADSs, the US holder may be subject to tax at ordinary income rates on (a) a portion of any gain recognized on the sale of our ordinary shares or ADSs and (b) any “excess distribution” paid on our ordinary shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, any dividends paid by us that would otherwise be eligible for the reduced rate of tax as discussed above, will not be eligible for such reduced rate of tax if we are a PFIC.

Based on our current activities and assets, we do not believe that we are a “passive foreign investment company” or a “PFIC”, and we do not expect to become a PFIC in the foreseeable future for US federal income tax purposes. The determination of whether we are a PFIC is made annually. Accordingly, it may be possible that we will become a PFIC in the current or any future year due to changes in our asset or income composition.

UK stamp duty and stamp duty reserve tax

Subject to certain exemptions, stamp duty will be charged at the rate of 1.5% rounded up to the nearest £5, or there will be a charge to stamp duty reserve tax at the rate of 1.5% on the amount or value of the consideration paid, or in some circumstances the issue price or open market value, on a transfer or issue of shares (1) to, or to a nominee for, a person whose business is or includes the provision of clearance services, or (2) to, or to a nominee for, a person whose business is or includes the issuing of depositary receipts. It is assumed that the UK Inland Revenue Stamp Office considers the depositary to fall within one or the other of the above two categories. The stamp duty reserve tax on the deposit of Shares with the depositary will be payable, pursuant to the terms of the deposit agreement among British Energy plc, Morgan Guaranty Trust Company of New York, as depositary, and the holders of ADRs, dated as of June 26, 1996, by the holders of the ADRs. Where stamp duty reserve tax is charged on a transfer of shares and ad valorem stamp duty is chargeable on the instrument effecting the transfer, the amount of the stamp duty reserve tax charged is an amount equal to the excess, if any, of the stamp duty reserve tax charge due on the transfer after the deduction of the stamp duty paid.

For US federal income tax purposes, a US holder will not be entitled to a foreign tax credit with respect to any UK stamp duty or stamp duty reserve tax, but may be entitled to a deduction subject to applicable limitations under the Code. US holders are urged to consult their own tax advisors regarding the availability of a deduction under their particular circumstances.

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Transfers of ADRs

No UK stamp duty will be payable on an instrument transferring an ADR or on a written agreement to transfer an ADR provided that payment is made outside the UK and the instrument of transfer or the agreement to transfer is executed outside the United Kingdom. Where these conditions are not met, the transfer of, or agreement to transfer an ADR could, depending on the circumstances, attract a charge to ad valorem stamp duty at the rate of 0.5% of the value of the consideration (rounded up to the nearest £5) plus (i) interest if not stamped within 30 days of execution and (ii) penalties if not presented for stamping within 30 days after the earlier of the day on which it is executed in the UK and the day on which it is first received in the UK.

No stamp duty reserve tax will be payable in respect of an agreement to transfer an ADR, whether made in or outside the United Kingdom.

Where no sale is involved and no transfer of beneficial ownership has occurred, a transfer of shares by the depositary or its nominee to the holder of an ADR upon cancellation of the ADR is subject to UK stamp duty of £5 per instrument of transfer.

Issue and transfer of Shares in registered form

Except in relation to persons whose business is or includes the issue of depositary receipts or the provision of clearance services or their nominees, the allotment and issue of shares by us will not normally give rise to a charge to UK stamp duty or stamp duty reserve tax.

Transfers of shares, as opposed to ADRs, will attract ad valorem stamp duty normally at the rate of 0.5% of the value of the consideration (rounded up to the nearest £5). A charge to stamp duty reserve tax, normally at the rate of 0.5% of the consideration, arises, in the case of an unconditional agreement to transfers shares, on the date of the agreement, and in the case of a conditional agreement the date on which the agreement becomes unconditional. In the case of transfers effected through the CREST system, ordinarily the stamp duty reserve tax is collected through the system. In other cases, the stamp duty reserve tax is payable on the seventh day of the month following the month in which the charge arises. Where an instrument of transfer is executed and duly stamped before the expiry of a period of six years beginning with the date of that agreement, any stamp duty reserve tax that has not been paid ceases to be payable, and if any stamp duty reserve tax has been paid a claim may be made for its repayment (with interest) provided that the tax paid is not less than 25 pounds sterling.

Information reporting and backup withholding

Payments that relate to the shares or ADSs that are made in the United States or by a US related financial intermediary will be subject to information reporting. Information reporting generally will require each paying agent making payments, which relate to a share or ADS, to provide the US Internal Revenue Service, or the IRS, with information, including the beneficial owner’s name, address, taxpayer identification number, and the aggregate amount of dividends paid to such beneficial owner during the calendar year. These reporting requirements, however, do not apply to all beneficial owners. Specifically, corporations, securities broker-dealers, other financial institutions, tax-exempt organizations, qualified pension and profit sharing trusts and individual retirement accounts are all excluded from reporting requirements.

We may be required to withhold, as a backup against a US holder’s US federal income tax liability, a portion of each payment of dividends on our ordinary shares or ADS in the event that the US holder:

• fails to establish its exemption from the information reporting requirements;

• is subject to the reporting requirements described above and fails to supply its correct taxpayer identification number in the manner required by applicable law; or

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• underreports its tax liability; or

• if we are otherwise notified by the IRS.

This backup withholding tax is not an additional tax and may be credited against the beneficial owner’s US federal income tax liability if the required information is furnished to the IRS.

ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussions about our risk management activities include “forward-looking” statements that involve risk and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.

The following tables summarize the financial instruments, derivative instruments and derivative commodity instruments held by us at March 31, 2004, which are potentially sensitive to changes in interest rates, foreign exchange rates, commodity prices and equity markets. We use foreign exchange contracts and other derivative instruments to hedge the primary market exposures associated with our underlying assets, liabilities and committed transactions. None of the instruments we have entered into are leveraged or held for speculative purposes. We use fixed rate interest rate borrowings and deposits to reduce our exposure to fluctuations in interest rates.

Financial Instruments and Risk Management

Overview

The main financial risks faced are trading risk in England and Wales in respect of both price and output volume. There is also an exposure to risk associated with fluctuations in the equity markets through the Decommissioning Fund and Pension Schemes. Policies have been instituted for managing each of these risks, which have been approved by the Board of Directors. Each of these risks is discussed in more detail below.

Electricity trading risks are managed by the Power and Energy Trading Division. The Power and Energy Trading Division operate within policies and procedures approved by the Board and monitored by a sub-committee of the Executive Committee.

Non-trading risks (i.e. cash resources, debt finance and financial risks) are managed by the central treasury function (the “Treasury Department”). The Treasury Department operates within policies and procedures approved by the Board. The Treasury Department uses appropriate and available instruments, within specified limits, to manage financial risk but is not permitted to take speculative, open positions. Both the Treasury Department and the Power and Energy Trading Division are subject to regular scrutiny from our internal auditors.

Interest Rate Risk Management

Debt at March 31, 2004 comprised a project finance loan of £475 million, and bonds in an aggregate principal amount of £408 million no change from the previous year end March 31, 2003.

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The market value of our debt varies, with fluctuations in prevailing interest rates in the United Kingdom. The debt is analyzed as follows:

	Expected Maturity Date									Fair Value at March 31,
Liabilities	2003	2004	2005	2006	2007	2008	2009	Thereafter	Total	2004	2003
	(in millions of pounds, except percentages)
Fixed rate bond due 2003 at 5.949%(1)	110	—	—	—	—	—	—	—	110	138	46
Fixed rate bond due 2006 at 6.077%(1)	—	—	—	163	—	—	—	—	163	204	69
Fixed rate bond due 2016 at 6.202%(1)	—	—	—	—	—	—	—	135	135	168	56
Long-term—project finance loan—sterling(1)	—	42	45	48	52	56	60	172	475	150	150
Weighted average interest rate, %	6.04	5.34	5.34	5.98	5.34	5.34	5.34	5.76	5.72	—	—

⁽¹⁾ The analysis of maturity of Bonds, Project Finance loan and long term electricity trading contracts has been prepared based on the dates when they mature under the existing contractual arrangements. However, the standstill arrangements which have been put in place have the effect of deferring the payments of certain amounts due until the bonds, Eggborough project finance loan and long term electricity trading contracts are replaced as part of the restructuring of the Group or earlier termination of the standstill. The maturity profile is likely to change upon completion of the proposed restructuring.

The following interest rate agreements were in effect as at March 31, 2004.

Maturity Analysis of Interest Rate Contracts	2005		2006		2007		2008		2009		Fair Value as at March 31, 2004
	(in millions of pounds, except percentages)
Eggborough Fixed:
Notional Amounts*	356		332		291		235		174		(28	)
Average Pay Rate	6.6	%	6.6	%	6.6	%	6.6	%	6.6	%
Average Receive Rate	4.7	%	4.7	%	4.7	%	4.7	%	4.7	%
British Energy plc
Variable to Fixed:
Notional Amounts**	30										(3	)
Average Pay Rate	5.8	%
Average Receive Rate	6M LIBOR
Collars:
Notional Amounts***	70										(2	)
Fair Value Collar Spread	5.3%-6.8	%

* The Eggborough related derivative agreements were amended post March 31, 2003 as part of the proposed Restructuring process. The effect has been to fix future interest payments under the swaps from October 2004. onwards.

** Bank has the right to cancel swap at zero cost on any cancellation date from April 2005 and every year thereafter.

*** Banks have the right to enter into semi-annual swap receiving 5.25% and paying 6 month LIBOR for ten years at zero cost in April 2005.

At March 31, 2004 the total of investments in liquid funds and cash at bank amounted to £573 million, and had maturity dates due within one year. Cash not immediately required for business purposes is invested in fixed-rate term deposits and money market funds. At March 31, 2004, these term deposits and money market funds earned interest at an average rate of 3.9%. Term deposits, money market funds and bank balances at March 31, 2004 include £297 million of cash which has been deposited in collateral bank accounts. Availability of this cash is therefore restricted over the period of the collateralized position.

143

As the deposit terms are short term, the carrying value at March 31, 2004 approximates the fair market value.

Foreign Exchange Risk Management

There are potential future foreign currency receivables in respect of the retentions outstanding from the sales of Bruce Power and AmerGen. When these cash flows become more certain in the future, the Group will evaluate currency hedging opportunities, balancing the cost and availability of entering into such transactions against the underlying currency risk.

At March 31, 2004 there were no foreign exchange contracts in place.

At March 31, 2004, there were nil deferred losses accounted for as part of stock which arose on the rollover of maturing forward contracts used for hedging the future purchase of fuel prior to and including the year ended March 31, 2003. See note 19 to our consolidated financial statements. The equivalent deferred losses for the years ended March 31, 2003 and 2002 each accounted for as part of inventory approximated £2 million and £10 million respectively.

The underlying fuel purchase commitments as at March 31, 2004 are analyzed as follows:

	Expected Maturity Date					Fair Value at March 31,
Total fuel commitments per currency (millions) as at March 31, 2003	2005	2006	2007	2008	Thereafter	2004	Total 2003
US Dollars	54.2	17.5	7.9	8.6	—	88.2	144.1
Euros	8.7	—	9.4	9.4	—	27.5	8.5

We do not have significant commodity price exposure in relation to our procurement of nuclear fuels.

Electricity Trading Risk Management

Our trading activities principally relate to supporting our generating business. Our trading operations, therefore, principally act as wholesale marketers rather than as pure financial traders, with the principal objective of increasing the return on our assets while hedging the market risk associated with the output of the plants.

Under NETA any mismatch between actual metered generation (or demand) and the notified contract position is exposed to the prices in the balancing mechanism run by the grid system operator. Based on experience to date prices in the balancing mechanism encourage forward contracting, as the price for spilling energy to the system tends to be lower than the forward market price, whereas the price for purchasing top-up supplies tends to be higher than the forward market price.

We manage the risks in the new wholesale market through a contracting strategy that builds a portfolio of forward contracts with a variety of terms. Contracts are sold through several routes to market including bespoke bilateral contracts, brokered over-the-counter trades in standard products, exchange trading and direct sales to industrial and commercial customers. The objective is to sell forward all of our planned nuclear generation in England and Wales ahead of delivery. Eggborough provides a flexible generation capability which fulfils three purposes designed to enhance our profitability. Firstly, it provides a means for compensating for unplanned lost output from nuclear units at short notice; secondly, it provides the capability to profile the generation shape to meet the requirements of both wholesale and directly-supplied customers; and thirdly, it provides a flexible capability that is offered to the system operator via the balancing mechanism. Output from our two stations in Scotland will continue to be sold under the terms of the NEA to ScottishPower and Scottish and Southern Energy, until April 2006, or the introduction of BETTA, whichever is earlier.

144

Our policy is to manage our credit exposure to trading and financial counter parties within clearly defined limits. Electricity trading activities are strictly monitored and controlled through delegated authorities and procedures, which include specific criteria for the management of counter party credit exposures.

Equity Risk Management

The Decommissioning Fund was established to provide for the eventual decommissioning of our UK nuclear power stations. Cash contributions are made on a quarterly basis to a payment profile set out in a contract between us and the Decommissioning Fund and are invested by the trustees of the Decommissioning Fund in UK marketable fixed income debt, equity securities and property. We are solely responsible for contributions to the Decommissioning Fund. Therefore the level of future contributions, which are reviewed every five years in conjunction with our review of ultimate decommissioning costs, depend partly on the estimated long-term investment performance of the equity and debt instruments in which the contributions are invested and returns on investments in property. Income from dividends and other returns on the underlying investments are retained by the Decommissioning Fund and then invested in debt and equity securities.

At March 31, 2004 we reported a book value of £440 million in the Decommissioning Fund, which is the same as the market value as at March 31, 2004. The Decommissioning Fund included debt and equity securities with market values of £44 million and £396 million respectively.

ITEM 13.    DIVIDEND ARREARAGES AND DELINQUENCIES

On June 3, 2003 we announced that we did not expect to pay any dividends prior to the completion of the Restructuring. No dividends were paid to holders of A Shares on the August 11, 2003 payment date. The Board intends to distribute to shareholders as much of the Company’s available cash flow as prudently possible, but not prior to the completion of the Restructuring, and not until the operational requirements of the business permit. In addition, under the terms of the Restructuring there are certain restrictions on or factors affecting our ability to pay dividends, including:

• we are required to fund a cash reserve out of our net cash flow in order to support British Energy Group plc’s collateral and liquidity requirements following the Restructuring. The initial target amount for the cash reserve is £490 million plus the amount by which cash employed as collateral exceeds £200 million (the “Target Amount”). Prior to paying any dividend, our cash must equal or exceed the Target Amount and certain amounts specified in the Contribution Agreement.

• the terms of the Contribution Agreement also require that once the cash reserve is funded to the Target Amount, we must make the NLF Cash Sweep Payment. Initially this is 65% of the increase in cash, cash equivalents and other liquid assets during the year after adjusting for certain matters (the “Payment Percentage”). The Payment Percentage may be adjusted for certain corporate actions but may never exceed 65%. The requirement to make the NLF Cash Sweep Payment will greatly reduce the amount of cash that would otherwise be available for distribution to shareholders. In addition, we may not pay any dividends without making an additional payment to the NLF if the result of paying such dividend would be that the aggregate amount of dividends paid to shareholders following the Proposed Restructuring would exceed the aggregate of our annual adjusted net cash flow in such period less the aggregate NLF Cash Sweep Payment payable in such period.

145

• the terms of the New Bonds contain certain covenants, including a restriction that allows us to pay a dividend only if no event of default has occurred; and

• we are incorporated in the UK and must comply with all UK legislation affecting companies incorporated in the UK. One such requirement under UK legislation is that in order to declare dividends we must have distributable reserves as defined by the Companies Act.

As a result of these restrictions and after making a prudent allowance for collateral requirements, we believe that the earliest possible period for which declaration of a dividend may be considered is the financial year 2006/7.

Subject to these restrictions, we intend to distribute to shareholders as much of our available cash flow as prudently possible. Any such decision to make such a distribution will be made in the circumstances of the time. In relation to any financial year in respect of which we might otherwise be permitted to pay a dividend, the directors might, for example, consider during the course of that year (or subsequent to it) whether it would be prudent to redeem or repurchase New Bonds and CTA Bonds (together with accelerated payments of fixed decommissioning payment to the NLF), make additional contributions to our pension schemes, allocate cash to the forecast expenditure reserve in accordance with the Contribution Agreement (for instance, to meet certain qualifying expenditure on PIP which is due in the following financial period, to acquire or finance a specific fixed asset or undertaking (expected to be with cash and not from borrowings)) or retain cash reserves in excess of the Target Amount.

Movements in our operational cash flow (prior to debt service and the adjustments referred to above) from one financial year to another are likely to be volatile, for example because of movements in the wholesale price of electricity and variability in our output.

Taking account of the constraints set out above, consideration of prudence and the likely volatility of operational cash flows, the Board believes that any dividends paid may vary in size and frequency.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

(None)

ITEM 15.    CONTROLS AND PROCEDURES

As recommended by the U.S. Securities and Exchange Commission, or SEC, we have established a Disclosure & Controls Committee (the “Disclosure Committee”). The Disclosure Committee reports to our Chief Executive Officer, Chief Financial Officer and to the Audit Committee. It is chaired by the Group Financial Controller and the members consist of senior managers from operations, finance, legal, internal audit and investor relations. It has responsibility for considering the materiality of information, and on a timely basis, determination of the disclosure and treatment of material information. The Disclosure Committee also has responsibility for the timely filing of reports with the SEC and the formal review of the contents of our Annual Report on Form 20-F.

As part of the process of implementing FAS 149—Accounting for Derivative and Hedging Activities—during the year ended March 31, 2004 we conducted a broader review of our compliance with derivative accounting regulation and identified certain NPNS analysis and documentation concerns, as further detailed in Item 5. As a result of the review we determined that it was necessary to restate the results for 2002 and 2003 and are making certain procedural amendments going forward.

146

Our Chief Executive Officer and our Chief Financial Officer, after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this annual report, except as discussed in the immediately preceding paragraph, have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective to ensure that material information relating to us and our consolidated subsidiaries is recorded, processed, summarized and reported in a timely manner.

There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of such controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

In accordance with Section 404 of the Sarbanes-Oxley Act 2002, we are undertaking a comprehensive review of our internal control processes and controls for financial reporting purposes, and will report the findings in our Annual Report on form 10-K for the year ending March 31, 2005.

Changes in Internal Controls

There were no significant changes in our internal controls or, to our knowledge, in other factors that could significantly affect such controls subsequent to the Evaluation Date.

ITEM 16.    RESERVED

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Ian Harley and John Delucca are “audit committee financial experts.”

ITEM 16B.    CODE OF ETHICS

We have not adopted a code of ethics that meets the specific requirements of a “code of ethics” as defined in the rules promulgated under the Sarbanes-Oxley Act because we currently have, and distribute to all personnel, a code of conduct that governs the ethical and moral conduct of our officers, directors and employees. We are formulating a more all embracing code of ethics which will be published with our Corporate Social Responsibility Report later in the year.

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

It is our policy to engage PricewaterhouseCoopers LLP on assignments where their expertise and experience with British Energy are important, or where they win work on a competitive basis. An analysis of auditor’s remuneration for the past two fiscal years ending March 31, 2003 and 2004 is as follows:

	2004		2003
	£000’s	%	£000’s	%
Audit Related Fees	768	13	695	23
Tax Fees	510	9	331	11
All Other Fees
—  Creditors’ long form report	2,017	35	—	—
—  Reporting accountant—working capital report	1,208	21	532	17
—  Review of accounting for restructuring	1,114	20	1,111	36
—  Other non-audit services	80	1	409	13
Total	5,697	100	3,078	100

147

ITEM 16D.

Not Applicable

ITEM 16E.

Not Applicable

ITEM 17.    FINANCIAL STATEMENTS

See Item 18.

ITEM 18.    FINANCIAL STATEMENTS

See our audited consolidated financial statements beginning at page F-1.

ITEM 19.    EXHIBITS

1.01	Articles of Association of British Energy plc, as amended.(1)
1.02	Memorandum of Association of British Energy plc.(2)
4.01	Trust Deed, dated March 25, 1999 among British Energy plc, British Energy Generation Limited, British Energy Generation (UK) Limited and The Law Debenture Trust Corporation constituting £134,586,000 6.202% Guaranteed Bonds due 2016 and £163,444,000 6.077% Guaranteed Bonds due 2006 and £109,861,000 5.949% Guaranteed Bonds due 2003 guaranteed by British Energy Generation Limited and British Energy Generation (UK) Limited.(2)
4.02	Master Purchase Agreement dated January 17, 2003 for the disposal of British Energy’s interest in Bruce Power Limited Partnership was entered into between, amongst others, British Energy and (i) Cameco Corporation, (ii) BPC Generation Infrastructure Trust and (iii) TransCanada Pipelines Limited.(1)
4.03	Standstill Agreement dated February 14, 2003 between British Energy plc and (i) the steering committee of the Eggborough Bank Syndicate, (ii) The Royal Bank of Scotland plc as provider of a letter of credit to the Eggborough Banks, (iii) Teesside Power Limited, (iv) TotalFinaElf Gas and Power Limited, (v) Enron Capital & Trade Europe Finance LLC and (vi) British Nuclear Fuels plc.(4)
4.04	Bondholder Restructuring (Standstill) Agreement dated February 14, 2003 between British Energy plc, British Energy Generation Limited and British Energy Generation (UK) Limited and (i) certain Bondholders owning 58% of the £109,861,000 5.949% Guaranteed Bonds due 2003, (ii) certain Bondholders owning 55% of the £163,444,000 6.077% Guaranteed Bonds due 2006 and (iii) certain Bondholders owning 75% of the £134,586,000 6.202% Guaranteed Bonds due 2016.(4)
4.05	The Deed of Amendment and Guarantee between British Energy Generation Limited, British Nuclear Fuels plc (“BNFL”) and British Energy plc dated March 31, 2003 (as amended on July 22, 2003) relating to the Agreement for the supply of Fuel for Use in Advanced Gas Cooled Reactors between Nuclear Electric Limited and BNFL dated June 3, 1997, as amended.(4)(5)
4.06	Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Reactors from April 1, 2006 between British Energy Generation Limited, British Nuclear Fuels plc and British Energy plc, dated March 31, 2003, (as amended).(4)(5)
4.07	Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Reactors from April 1, 2006 between British Energy Generation (UK) Limited, British Nuclear Fuels plc and British Energy plc, dated March 31, 2003 (as amended)(4)(5)

148

4.08	Deed of Amendment and Guarantee between British Energy Generation (UK) Limited, British Nuclear Fuels plc and British Energy plc, dated March 31, 2003 (as amended) relating to the Agreement for the Supply of Fuel for Use in Advanced Gas Cooled Nuclear Reactors between Scottish Nuclear and BNFL dated March 30, 1995 as amended.(4)(5)
4.09	Nuclear Electric—Generation License.(2)
4.10	Scottish Nuclear—Generation License.(2)
4.11	Representative Nuclear Site License.(2)
4.12	Credit Facility Agreement dated September 26, 2002 as amended and restated on March 7, 2003 and further amended by a side letter dated August 15, 2003 between the UK Secretary of State and (i) British Energy, British Energy General (UK) Limited, British Energy Generation Limited and British Energy Power and Energy Trading Limited as borrowers and (ii) British Energy, British Energy General (UK) Limited, British Energy Generation Limited, British Energy Power and Energy Trading Limited, British Energy Investment Limited, District Energy Limited, British Energy International Holdings Limited, British Energy US Holdings Inc., British Energy L.P. and Peel Park Funding Limited as guarantors.(4)
4.13	Purchase and Sale Agreement dated as of September 11, 2003 between British Energy Investment Limited and FPL Energy Nuclear Mid-Atlantic, LLC relating to the sale and purchase of 100% of the shares of British Energy US Holdings Inc.
4.14	Purchase and Sale Agreement dated as of October 10, 2003 between British Energy Investment Limited and Exelon Generation Company, LLC relating to the sale and purchase at 100% of the shares of British Energy US Holdings Inc.
4.15	Government Restructuring Agreement dated October 1, 2003 between British Energy plc, British Energy Generation (UK) Limited, British Energy Generation Limited, certain other British Energy parties, the Nuclear Generation Decommissioning Fund Limited (to be renamed Nuclear Liabilities Fund Limited), the Trustees of the Nuclear Trust and the Secretary of State for Trade and Industry.
4.16	Creditor Restructuring Agreement dated as of September 30, 2003 between British Energy plc, British Energy Generation Limited, British Energy Generation (UK) Limited, British Energy Power and Energy Trading Limited, Eggborough Power Limited, Eggborough Power Holdings Limited, Teesside Power Limited, Total Gas & Power Limited, Enron Capital & Trade Europe Finance LLC, the Royal Bank at Scotland plc, British Nuclear Fuels plc, the consenting EPL Banks (as defined) and the consenting EPL Bondholders (as defined) (as amended on October 24, 2003).(5)
4.17	New Standstill Agreement dated February 13, 2004 between British Energy plc and (i) the steering committee of the Eggborough Bank Syndicate, (ii) The Royal Bank of Scotland plc, (iii) Teesside Power Limited, (iv) Barclays Bank PLC, (v) Enron Capital & Trade Europe Finance LLC, (vi) Deutsche Bank AG and (vii) BNFL.
8.01	List of Subsidiaries of British Energy plc.(3)
12.1	Certification of Mike Alexander, Chief Executive Officer of British Energy plc, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2	Certification of Martin Gatto, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
13.1	Certification by Chief Executive Officer of British Energy plc of periodic financial report pursuant to 18 U.S.C. Section 1350, as mandated by Section 906 of the Sarbanes-Oxley Act of 2002.

149

13.2 Certification by Chief Financial Officer of British Energy plc of periodic financial report pursuant to 18 U.S.C. Section 1350, as mandated by Section 906 of the Sarbanes-Oxley Act of 2002.

⁽¹⁾ As filed on the registrant’s Annual Report on Form 20-F on September 23, 2003 (File No. 1-14990).

⁽²⁾ As filed on the registrant’s Registration Statement submitted on Form 20-FR on December 6, 1999 (File No. 1-14990).

⁽³⁾ As filed on the registrant’s Annual Report submitted on Form 20-F on August 13, 2001 (File No. 1-14990).

⁽⁴⁾ As filed on the registrant’s Annual Report submitted on Form 20-F on September 23, 2003 (File No. 1-14990).

⁽⁵⁾ Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission.

The registrant agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument which defines the rights of holders of long-term debt of British Energy and its consolidated subsidiaries.

150

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized.

BRITISH ENERGY plc
By:	/s/ Martin Gatto
Name:	Martin Gatto
Title:	Chief Financial Officer
September 30, 2004

US FORM 20-F

Financials

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Members of British Energy plc:

We have audited the accompanying consolidated balance sheets of British Energy plc and its subsidiaries, together “the Group,” as of March 31, 2004 and 2003, and the related consolidated statements of profit and loss account, cash flows, and total recognized gains and losses for each of the three years in the period ended March 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and auditing standards generally accepted in the United Kingdom. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of British Energy plc and its subsidiaries as at March 31, 2004 and 2003, and the results of their operations and their cash-flows for each of the three years in the period ended March 31, 2004 in conformity with accounting principles generally accepted in the United Kingdom.

The accompanying financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 1 to the financial statements, the validity of this depends on the fulfilment of the conditions of the Proposed Restructuring and the achievement of the Group’s cash generating initiatives, in each case within the time scales envisaged or required and the continuation of the restructuring and standstill arrangements with certain creditors and financial assistance from the Secretary of State pursuant to the Government Facility and there being no material deterioration in the Group’s cash flow position, performance or outlook. In view of the significance of the uncertainties concerning these matters, together with the losses from operations and net capital employed deficiency, there is substantial doubt about the Group’s ability to continue as a going concern. The Board’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences, as restated, is presented in note 36 to the Consolidated Financial Statements.

PricewaterhouseCoopers LLP

Chartered Accountants and Registered Auditors

Edinburgh, United Kingdom

June 17, 2004

F-2

GROUP PROFIT AND LOSS ACCOUNTS

For the years ended March 31, 2004, 2003 and 2002

	Notes	2004		2003		2002
		£m		£m		£m
Turnover: Group and share of joint venture		1,660		2,115		2,259
Less: Share of turnover in joint venture		(144	)	(212	)	(210	)
Turnover:
—continuing activities		1,516		1,528		1,701
—discontinued activities		—		375		348
Turnover	3	1,516		1,903		2,049
Operating costs before exceptional items	4	(1,459	)	(1,758	)	(1,818	)
Exceptional items	4	283		(3,947	)	(512	)
Operating costs after exceptional items	4	(1,176	)	(5,705	)	(2,330	)
Group operating profit/(loss)
—continuing activities		340		(3,899	)	(333	)
—discontinued activities		—		97		52
Group operating profit/(loss)		340		(3,802	)	(281	)
Share of operating profit of discontinued joint venture		21		43		37
Operating profit/(loss): group and share of joint venture		361		(3,759	)	(244	)
Profit/(loss) on sale of investments	5	47		(35	)	4
Financing (charges)/credits
—revalorization	8	(185	)	(205	)	(160	)
—net interest payable	8	(64	)	(72	)	(66	)
—exceptional items	8	73		(221	)	(27	)
Profit/(loss) on ordinary activities before taxation		232		(4,292	)	(493	)
Taxation on profit/(loss) on ordinary activities	9	2		378		4
Share of taxation for joint venture	9	—		(10	)	(29	)
Profit/(loss) on ordinary activities after taxation		234		(3,924	)	(518	)
Minority interest		—		(17	)	(9	)
Profit/(loss) attributable to shareholders		234		(3,941	)	(527	)
Dividends
—annual	11	—		—		(48	)
—non-equity	11	—		—		(2	)
Profit/(loss) for the year	27	234		(3,941	)	(577	)
Earnings/(loss) per share (p)
—basic	12	38.9		(654.7	)	(88.5	)
—diluted	12	38.9		(654.7	)	(88.5	)
Dividends per share (p)
—annual	11	—		—		8.0
—non-equity	11	—		—		2.3

Other gains and losses for the years are set out in the Statement of Total Recognized Gains and Losses on Page F5.

Notes 1 to 36 form part of these financial statements.

F-3

BALANCE SHEETS

As at March 31, 2004 and 2003

		Group				Company
	Notes	2004		2003		2004		2003
		£m		£m		£m		£m
Fixed assets
Tangible assets	13	931		686		—		—
Investment in joint venture:
—share of gross assets		—		477		—		—
—share of gross liabilities		—		(406	)	—		—
	14	—		71		—		—
Other investments	14	6		6		10		14
		937		763		10		14
Current assets
Decommissioning fund	15	440		334		—		—
Stocks	16	350		360		—		—
Debtors	17	374		387		11		85
Investments—liquid funds	31	311		246		249		210
Cash at bank	31	262		87		256		83
		1,737		1,414		516		378
Creditors: amounts falling due within one year
—borrowings	19	(197	)	(152	)	(110	)	(110	)
—other	18	(1,250	)	(1,033	)	(4,496	)	(3,742	)
		(1,447	)	(1,185	)	(4,606	)	(3,852	)
Net current assets/(liabilities)		290		229		(4,090	)	(3,474	)
Total assets less current assets/(liabilities)		1,227		992		(4,080	)	(3,460	)
Creditors: amounts falling due after more than one year
—borrowings	19	(686	)	(731	)	(298	)	(298	)
—other	18	(1,893	)	(1,909	)	—		—
Provisions for liabilities and charges	21	(1,812	)	(1,735	)	(5	)	(9	)
Net liabilities		(3,164	)	(3,383	)	(4,383	)	(3,767	)
Capital and reserves
Called up equity share capital	26	277		277		277		277
Share premium		76		76		76		76
Capital redemption reserve		350		350		350		350
Profit and loss account	27	(3,960	)	(4,179	)	(5,179	)	(4,563	)
Equity shareholders’ interests	28	(3,257	)	(3,476	)	(4,476	)	(3,860	)
Non-equity shareholders’ interests	26	93		93		93		93
Capital employed		(3,164	)	(3,383	)	(4,383	)	(3,767	)

Notes 1 to 36 form part of these financial statements.

F-4

GROUP CASH FLOW STATEMENTS

for the years ended March 31, 2004, 2003 and 2002

	Notes	2004		2003		2002
		£m		£m		£m
Net cash inflow from operating activities	29	156		336		380
Interest paid		(85	)	(91	)	(62	)
Interest received		10		9		13
Fees paid		—		—		(2	)
Dividends paid on non-equity shares		—		(2	)	(2	)
Returns on investments and servicing of finance		(75	)	(84	)	(53	)
Taxation (paid)/received		(12	)	3		4
Payments to acquire tangible fixed assets		—		(282	)	(225	)
Receipts from sales of financial investments		—		—		38
Capital expenditure and financial investment		—		(282	)	(187	)
Receipts from sale of Canadian investment		171		262		—
Investment in North America		—		—		(129	)
Acquisitions and disposals		171		262		(129	)
Equity dividends paid		—		(31	)	(46	)
(Increase)/decrease in term deposits		(65	)	(37	)	18
Management of liquid resources	31	(65	)	(37	)	18
Minority funding of Bruce Power		—		12		4
New loans, net of repayments of amounts borrowed		—		(92	)	9
Financing		—		(80	)	13
Movement in cash	31	175		87		—

STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES

for the years ended March 31, 2004, 2003 and 2002

	Notes	2004		2003		2002
		£m		£m		£m
Profit/(loss) for the financial year		234		(3,941	)	(527	)
Translation differences on foreign currency net investments	28	(15	)	(25	)	(8	)
Total recognized gains/(losses) for the year		219		(3,966	)	(535	)
Prior year adjustment in respect of accounting policy changes		—		—		(130	)
Total recognized gains/(losses) since last annual report		219		(3,966	)	(665	)

Notes 1 to 36 form part of these financial statements.

F-5

NOTES FOR FINANCIAL STATEMENTS

for the year ended March 31, 2004

1.    BASIS OF PREPARATION

(i)    Introduction

The Group accounts are a consolidation of the financial statements of the Company and all its subsidiary undertakings, and are drawn up on a non-restructured basis, i.e. on the basis of contracts and agreements in place at March 31, 2004. In the following discussion British Energy plc is referred to as ‘British Energy’ or ‘the Company’ and ‘the Group’ refers to the Company and its subsidiary undertakings.

On February 14, 2003, the Group disposed of its stake in Bruce Power Limited Partnership (‘Bruce Power’) and Huron Wind Limited Partnership (‘Huron Wind’), therefore, their results up to the point of disposal have been classified as discontinued activities within prior reporting periods. On December 22, 2003, the Group disposed of its 50% interest in AmerGen Energy Company LLC (‘AmerGen’), therefore, its results up to the point of disposal have been classified as discontinued joint venture operations during the year. All other activities of the Group have been shown as continuing activities

(ii)    Background to Proposed Restructuring

Having reviewed the longer-term prospects of the business, on September 5, 2002 the Directors of British Energy announced that they had no alternative but to seek financial support from the UK Government. On September 9, 2002 the UK Government granted the Company a credit facility of up to £410m (the ‘Government Facility’) to provide working capital for the Group’s immediate requirements and to allow British Energy to stabilise its trading position in the UK and North America. On September 26, 2002 British Energy announced that the UK Government had agreed to extend a revised Government Facility for up to £650m until November 29, 2002 to give the Company sufficient opportunity to develop a restructuring plan. On November 28, 2002 British Energy announced that the Government Facility had been further extended until March 9, 2003. The Government Facility is cross-guaranteed by the principal Group subsidiaries (excluding Eggborough Power (Holdings) Limited and Eggborough Power Limited (‘EPL’)) and is secured by, among other things, fixed and floating charges and/or share pledges granted by those subsidiaries. The Government Facility also contains a requirement to provide further security as required by the Secretary of State for Trade and Industry (the ‘Secretary of State’) provided that the creation of such security would not cause a material default under any contract to which any member of the Group is a party or a breach of law.

On February 14, 2003 British Energy and certain of its subsidiaries announced that they had entered into binding standstill agreements, namely:

(a) the Standstill Agreement between British Energy and its subsidiaries and the bank syndicate that provided financing for the Eggborough coal-fired power station (the ‘Eggborough Banks’), The Royal Bank of Scotland plc (‘RBS’) as provider of a letter of credit to the Eggborough Banks, our significant trade creditors, Teesside Power Limited (‘TPL’), TotalFinaElf Gas and Power Limited (now Total Gas & Power Limited) (‘Total’) and Enron Capital & Trade Europe Finance LLC (‘Enron’) (TPL, Total (which has subsequently transferred its interest to Deutsche Bank) and Enron (which has also subsequently transferred its interest to Deutsche Bank) being collectively referred to as the ‘Significant Creditors’) and British Nuclear Fuels plc (‘BNFL’); and

(b) the Bondholder Restructuring Agreement between British Energy, British Energy Generation Limited (‘BEG’), British Energy Generation (UK) Limited (‘BEGUK’) and certain holders of British Energy bonds due in 2003, 2006 and 2016 (the holders of those bonds being referred to collectively as the ‘Bondholders’).

F-6

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

On March 7, 2003 British Energy announced that the UK Government had agreed to extend the Government Facility in the reduced amount of £200m, such that it would mature on the earliest of (1) September 30, 2004, (2) the date on which the proposed restructuring, outlined in (iii) below, (the ‘Proposed Restructuring’) becomes effective, and (3) any date notified by the Secretary of State to British Energy on which repayment of amounts outstanding under the Government Facility are required as a result of a European Commission (‘Commission’) decision or an obligation under EU law (the ‘Final Maturity Date’). In the meantime the Secretary of State may require repayment of the Government Facility if she concludes that the Proposed Restructuring cannot be completed in the manner or time scales envisaged.

On October 1, 2003, the Company announced that it had agreed the terms of the Proposed Restructuring of the Group with certain of the Group’s creditors and the Secretary of State and by October 31, 2003 had obtained the further approvals and agreements required.

The Company also agreed the proposed disposal of its 50% interest in AmerGen to Exelon Generation Company LLC (‘Exelon’) in October 2003 for US$277m, subject to various adjustments and conditions including a break fee of US$8.295m payable to FPL Group Inc. The disposal was completed on December 22, 2003.

The Government Facility was temporarily increased to £275m on November 27, 2003. The additional £75m ceased to be available on the Group’s receipt of the proceeds from the sale of AmerGen on December 23, 2003.

On December 19, 2003 Bondholders approved amendments to the trust deed constituting the bonds to facilitate the implementation of the Proposed Restructuring and to amend the standstill arrangements under the trust deed on terms consistent with the Creditor Restructuring Agreement (as defined in (iii) below). Following formal amendment of the trust deed, a new standstill agreement has been entered into with creditors in place of the Standstill Agreement dated February 14, 2003 in accordance with the terms of the Creditor Restructuring Agreement.

We have retained a trading relationship with a high proportion of our existing contracted counterparties during the period since our announcement of September 5, 2002, although in most cases we have been required to provide alternative credit support to a parent company guarantee. Given the financial circumstances of the Group, certain contracts may be capable of being terminated. Such termination may result in termination payments being payable as well as having an adverse effect on our cash flows.

The Company faced short-term pressures on liquidity during the year resulting from the combined effect of seasonality, the unplanned outage at Heysham 1 and the increased levels of collateral and costs of unplanned outages brought about by the increased level of volatility in electricity prices. The Board is exploring initiatives to achieve sufficient liquid resources to implement the Proposed Restructuring, including investigating the availability of third party financing.

The alternative credit support currently in place has been provided by the Group under banking arrangements involving the UK Government established in connection with the Government Facility. The Group is seeking to replace these with arrangements which do not involve the UK Government before the Final Maturity Date of the Government Facility and over the longer term to reduce the demand for trading collateral.

F-7

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(iii)    Terms of the Proposed Restructuring

The terms of the Proposed Restructuring are set out in:

(a) the Creditor Restructuring Agreement dated as of September 30, 2003 and entered into by the Company, certain other Group companies, the Significant Creditors, RBS, the members of the ad hoc committee of British Energy’s Bondholders and BNFL (as amended by a side letter entered into on October 31, 2003) (the ‘Creditor Restructuring Agreement’); and

(b) the Government Restructuring Agreement dated October 1, 2003 and entered into between the Company, BEGUK, BEG, British Energy Power and Energy Trading Limited (‘BEPET’), British Energy Investment Limited, District Energy Limited, British Energy International Holdings Limited, British Energy US Holdings Inc., British Energy L.P., Peel Park Funding Limited, the Secretary of State, the Nuclear Generation Decommissioning Fund Limited (to be renamed the Nuclear Liabilities Fund Limited (‘NLF’)) and the trustees of the Nuclear Trust (the ‘Government Restructuring Agreement’).

The Creditor Restructuring Agreement required certain further creditor approvals and sign ups. By October 31, 2003 all these requirements had been satisfied as follows:

(a) bondholders representing in aggregate with RBS 88.8% of the combined amount owing to the Bondholders and RBS had signed up to the Creditor Restructuring Agreement;

(b) the terms of the Proposed Restructuring had been approved by the credit committee of RBS; and

(c) all of the lenders and swap providers comprising the Eggborough Banks had signed up to the Creditor Restructuring Agreement with full credit committee approvals.

The principal features of the Proposed Restructuring include:

• compromising the existing claims of Bondholders, RBS, Significant Creditors and the Eggborough Banks in exchange for new bonds and new ordinary shares and settling new arrangements for Eggborough (the claims of the Bondholders and RBS will be exchanged pursuant to a scheme of arrangement to be proposed to these creditors by the Company (the Creditors’ Scheme). In the case of the Significant Creditors and the Eggborough Banks, claims will be exchanged pursuant to the terms of the Creditor Restructuring Agreement itself);

• the amendment and extension of the BNFL contracts for front end and back end related fuel services for the Group’s AGR stations announced on May 16, 2003 and the implementation of a new trading strategy;

• establishing the NLF which will assume financial responsibility for certain uncontracted nuclear liabilities and decommissioning costs in return for initial and ongoing contributions from British Energy; and

• the Government funding liabilities relating to certain historic spent fuel and any shortfall in the NLF.

F-8

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Creditor Restructuring Agreement

Conditions

Completion of the Proposed Restructuring is subject to a large number of conditions in the Creditor Restructuring Agreement including, amongst other things:

• the receipt by the Secretary of State of notification of a satisfactory decision by the Commission that insofar as the proposals involve the grant of State Aid by the UK Government, such aid is compatible with the common market. The Secretary of State expects to receive this notification this autumn;

• there being no material adverse change (see below);

• the Government Restructuring Agreement becoming unconditional;

• agreement of presently unsettled documents with creditors;

• the approval of the Scottish Court; and

• the listing of the new shares and bonds and delisting of the ordinary and A shares.

For the purposes of the Creditor Restructuring Agreement, a material adverse change is defined as a material adverse change in the current or future business or operations, the financial or trading position, profits or prospects of the Group as a whole or of EPL or a change in the current or future business or operations, the financial or trading position, profits or prospects of the Group as a whole which is likely to have a material adverse effect on the value of the new bonds, the new ordinary shares (to be issued as part of the Proposed Restructuring), the CTA global bond to be held by EPL to fund the £150m of new bond-equivalent payments under the new Eggborough arrangements (the ‘CTA Global Bond’) or the new Eggborough arrangements.

Creditor allocations

Under the terms of the Creditor Restructuring Agreement the creditors have agreed (subject to certain conditions) to extinguish their existing unsecured claims against the Group in exchange for £275m of new bonds and at least 97.5% of the issued ordinary shares of the new parent company of the Group (‘Newco 1’).

In addition, the Eggborough Banks, as creditors with security over the assets of and shares in EPL, have agreed (subject to certain conditions) to replace their existing secured claims with a right to payments under an Amended and Restated Credit Agreement (the ‘Amended Credit Agreement’) having a payment profile equivalent to £150m of new bonds secured over the assets of and shares in EPL. The Eggborough Banks will also have an option to acquire the Eggborough station either through a share or asset purchase in 2010 upon payment of an approximate £104m break fee and the extinguishment of the principal then outstanding under the Amended Credit Agreement. This option may be accelerated in the event of a default under the Amended Credit Agreement. The security over the assets of and shares in EPL under the Amended Credit Agreement will secure both the £150m bond-equivalent payments and, through an indemnity for non-performance, the option acceleration.

Standstill arrangements

The Creditor Restructuring Agreement and ancillary agreements restrict the Significant Creditors, the Eggborough Banks, RBS, each Bondholder who signs up to the Creditor Restructuring Agreement

F-9

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(the ‘Consenting Bondholders’) and BNFL (together the ‘Consenting Creditors’) from taking any steps to initiate insolvency proceedings or demand or accelerate any amounts due and payable by British Energy during the period of the standstill (the ‘Standstill Period’) until the earliest of:

(a) 12 noon on the earlier of January 31, 2005 and the date falling 120 days after the satisfaction of the initial conditions to the Proposed Restructuring (the ‘Restructuring Longstop Date’);

(b) termination of the Creditor Restructuring Agreement or the standstill arrangements in accordance with their terms; or

(c) the completion of the Proposed Restructuring.

Any of the Consenting Creditors may terminate the standstill arrangements following the occurrence of a termination event. The termination events include, inter alia, certain insolvency events affecting the Company, BEG, BEGUK, BEPET or EPL; acceleration of the Government Facility; and any of the Company, BEG, BEGUK, BEPET or EPL failing to discharge certain continuing obligations. If the standstill arrangements terminate, the Creditor Restructuring Agreement will also terminate and vice versa.

Under the standstill arrangements, RBS, the Eggborough Banks, Significant Creditors and Bondholders are to be paid interest but not principal in respect of any claims against the Group. Interest will continue to be paid to Bondholders and the Eggborough Banks in accordance with existing arrangements. The terms of the bonds were amended in March 2003 for interest to be paid on a six monthly rather than an annual basis. In respect of the Significant Creditors and RBS, interest was paid first on March 25, 2003 and is subsequently payable on the last business day of every six month period thereafter based on the agreed claim amounts (except in the case of RBS where interest payments will be based on the present value of its claim amount as at February 14, 2003). Commission will also continue to be paid to RBS under the facility agreement for the letter of credit to the Eggborough Banks.

The Creditor Restructuring Agreement also contains certain covenants by British Energy for the benefit of the Consenting Creditors that have signed it, including certain limitations on acquisitions and disposals, a prohibition on the payment of dividends and on the issuing of equity as well as a negative pledge.

Mechanics for implementation and shareholder allocation

The Proposed Restructuring will involve establishing Newco 1 as the new parent company of the Group and a directly wholly owned subsidiary of Newco 1 as an intermediate holding company (‘Newco 2’).

The Company proposes to cancel its existing ordinary shares of 44 ²⁸/43 pence each and A shares of 60 pence each under a scheme of arrangement with its shareholders (the ‘Members’ Scheme’), and issue to shareholders: (i) new ordinary shares in Newco 1 equal to 2.5% of the issued share capital of Newco 1 immediately following implementation of the Proposed Restructuring, and (ii) warrants to subscribe for a maximum of 5% of the thereby diluted ordinary issued share capital of Newco 1 (excluding, amongst others, the impact of conversion of the NLF Cash Sweep Payment (see section entitled ‘Government Restructuring Agreement’ below)) immediately following implementation of the Proposed Restructuring. The subscription price under the warrants is £28.95m in aggregate, equivalent

F-10

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

to an equity market capitalization of the Group of £550m following implementation of the Proposed Restructuring. This will result in a very significant dilution of the holdings of the existing shareholders.

If the Members’ Scheme is not approved by the requisite majority of shareholders or for any other reason the Members’ Scheme is not implemented, the Company will dispose of all its business and assets to Newco 2. If the disposal is approved by the shareholders in general meeting, shareholders will receive only the warrants. If neither proposal is approved by shareholders, they will receive no shares or warrants.

Government Restructuring Agreement

The Government Restructuring Agreement provides for the circumstances in which the Secretary of State will support the Proposed Restructuring, including entering into the agreements with the Group and, in certain cases, the NLF, which affect the proposals regarding the manner in which the decommissioning and other uncontracted liabilities of the Group are to be funded and the agreements relating to the funding of certain of the contracted nuclear liabilities of the Group (the ‘Nuclear Liabilities Agreements’). It also affects some further amendments to the Government Facility. As noted above the Government Facility will terminate (unless previously extended) on the Final Maturity Date.

Conditions

Under the Government Restructuring Agreement, the obligations of the Secretary of State to support the Proposed Restructuring (including as the holder of a number of special shares) and of the parties to the Nuclear Liabilities Agreements to enter into them are conditional on, among other things:

• the Creditor Restructuring Agreement becoming unconditional in all respects by the Restructuring Longstop Date;

• the Secretary of State not having determined and notified British Energy in writing that, in her opinion, the Group (including Newco 1 and Newco 2) will not be viable in all reasonably foreseeable conditions without access to additional financing (other than financing which the Secretary of State is satisfied has been committed and will continue to be available when required);

• there being no continuing event of default under the Government Facility;

• receipt by the Secretary of State of copies of letters giving the confirmations relating to working capital referred to in the terms of Rule 2.18 of the UKLA Listing Rules without qualification (whether or not Newco 1 is to be listed on the Official List of the UKLA);

• the representations and warranties given by the members of the Group being true, accurate and not misleading when given and if repeated at the effective date of the Proposed Restructuring; and

• there being no breach of any undertaking given by any member of the Group pursuant to the Government Restructuring Agreement which, in the opinion of the Secretary of State, is or is likely to be material in the context of the Proposed Restructuring.

If any of the conditions are not fulfilled or waived by the Secretary of State by the time specified in the requisite conditions or if no such date is specified, by the Restructuring Longstop Date, the Government Restructuring Agreement will terminate. In addition if a material adverse change (as defined in the Creditor Restructuring Agreement) occurs at any time before the order sanctioning the

F-11

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Creditors’ Scheme is filed with the Registrar of Companies in Scotland, the Secretary of State may give written notice to British Energy to terminate the Government Restructuring Agreement.

Nuclear Liabilities Agreements

Under the Nuclear Liabilities Agreements to be entered into pursuant to the Government Restructuring Agreement, the NLF will assume financial responsibility for discharging certain of the Group’s uncontracted nuclear liabilities and the costs of decommissioning the Group’s nuclear power stations, and the Secretary of State will assume financial responsibility for certain of the Group’s contracted nuclear liabilities and any shortfall in the NLF. In consideration for this assumption of financial responsibility, Newco 2 will issue £275m in new bonds to the NLF. In addition, members of the Group will make the following payments to the NLF; (i) fixed decommissioning contributions of £20m per annum (indexed to RPI and tapering as stations are currently scheduled to close); (ii) £150,000 (indexed to RPI) for every tonne of fuel loaded into the Sizewell B reactor after completion of the Proposed Restructuring; and (iii) an annual contribution equal to (initially and subject to adjustment but not to exceed) 65% of the Group’s increase in cash, cash equivalents and other liquid assets, during the year after adjusting for the NLF Cash Sweep Payment and any dividends paid in the year the proceeds from issuers or sales of shares and notional transfers to cash reserves and the Forecast Expenditure Reserve. (the ‘NLF Cash Sweep Payment’).

The entitlement of the NLF to the NLF Cash Sweep Payment is convertible into an equity shareholding in British Energy Group plc. equal to the same percentage of the thereby enlarged issued share capital. Although the NLF will receive convertible ordinary shares equal to the then prevailing NLF Cash Sweep Payment percentage (again subject to a maximum of 65%) the terms of the convertible ordinary shares into which such entitlement will convert will limit the general voting rights attaching to such shares to a maximum of 29.9%.

In addition, under the Nuclear Liabilities Agreements, British Energy is required to establish and maintain cash reserves to provide collateral for trading and operations, cover lost revenue and costs resulting from plant outages and to meet other working capital requirements (the ‘Cash Reserve’). The initial target amount for the Cash Reserve is £490m plus the amount by which cash employed as collateral exceeds £200m.

(iv)    Principles Underlying Going Concern Assumption

The financial statements have been prepared on a going concern basis in accordance with FRS18, because British Energy has not been liquidated nor is it ceasing to trade. The validity of this assumption depends on the fulfillment of the conditions of the Proposed Restructuring and achievement of the Group’s cash generation initiatives, in each case within the time scales envisaged or required and the continuation of the restructuring and standstill arrangements with certain creditors and financial assistance from the Secretary of State pursuant to the Government Facility and there being no material deterioration in the Group’s cash flow position, performance or outlook. This assumption is, therefore, subject to a large number of significant uncertainties and important conditions.

If for any reason British Energy is unable to meet its financial obligations as they fall due the Company may have to take appropriate insolvency proceedings and cease to be a going concern, in which case adjustments may have to be made to reduce the monetary values of assets to the recoverable amounts, to provide for further liabilities that might arise and to reclassify the fixed assets and long-term liabilities as current assets and liabilities.

F-12

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

2.    ACCOUNTING POLICIES

(i)    Basis of Accounting

The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards, except for the departures noted below.

Commodity trading contracts, where there is no associated physical delivery, are marked to market using externally derived market prices. This is a departure from the general provisions of Schedule 4 of the Companies Act 1985. An explanation of this departure is given in note 2 (xix).

The income recognized by the Group in respect of the long-term rate of return of the decommissioning fund is unrealized and its recognition is a departure from one of the accounting principles set out in Schedule 4 of the Companies Act 1985. An explanation of this departure is given in note 2 (xvii).

The preparation of accounts in conformity with UK and US Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the accounts and the reported amounts of revenues and expenses during the reporting period. Actual results can differ from those estimates.

In accordance with FRS18 the Directors have reviewed the Group’s accounting policies and confirm that they continue to be the most appropriate. A number of the policies require the Group to use a variety of estimation techniques. Significant factors considered when assessing the carrying value of assets include future electricity prices, expected annual output, expected station operating costs, remaining station lives and discount rates. Estimates of output, costs and timing of associated cash flows as well as the expected regulatory framework are key factors used to apply the stated policies for long-term nuclear liabilities and decommissioning as discussed further in note 2 (xvi) below.

The effect of the Proposed Restructuring of the Company, as noted above, will be significant and will result in, among other matters, the reassessment of estimates and assumptions which have been used to prepare these financial statements. In particular, the calculation of the carrying value of the nuclear stations will be reassessed on the basis of the new contracts with BNFL, the contribution of 65% of cash flow to the Nuclear Liabilities Fund and the likely review of the risk discount rate applied to the future cash flows.

In preparing these accounts changes in presentation have been made to the accounts previously presented in the Group’s published UK Annual Board Report and Accounts, with the exception of the consolidated cash flow statements, in order to comply with accounting presentation and disclosure requirements applicable in the United States. A reconciliation to US GAAP is set out in note 36.

(ii)    Basis of Consolidation

The Group financial statements consolidate the financial statements of British Energy and all its subsidiary undertakings. Inter-company profits, transactions and balances are eliminated on consolidation.

F-13

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(iii)    Turnover

Turnover represents sales of electricity, net of electricity purchases, and sales of other related goods. Turnover is shown net of value added tax and climate change levy.

Wholesale generation and direct supply sales are recognized on an accruals basis with reference to meter readings or where required based on management’s best estimate of electricity supplied.

Included within turnover is the mark to market of net unrealized gains and losses made from trades recorded within the proprietary trading book. Refer to note 2 (xix) for details of accounting treatment of proprietary trading.

(iv)    Fuel Costs—Nuclear Front End

Advanced Gas Cooled Reactors (“AGR”)

Front end fuel costs consist of the costs of procurement of uranium, conversion and enrichment services and fuel element fabrication. Fabrication costs comprise fixed and variable elements. The fixed element is charged to the profit and loss account as incurred and the variable element, other than for unburnt fuel at shutdown, is charged to the profit and loss account in proportion to the amount of fuel burnt.

Pressurized Water Reactor (“PWR”)

All front-end fuel costs are variable and, other than for unburnt fuel at shutdown, are charged to the profit and loss account in proportion to the amount of fuel burnt.

Bruce Power

Front end fuel costs are recognized when fuel is loaded into the reactor. The reactors are continually reloaded and as such this method closely reflects fuel burnt. British Energy disposed of its interest in Bruce Power on February 14, 2003.

(v)    Fuel Costs—Nuclear Back End

AGR

Spent fuel extracted from the reactors is sent for reprocessing and/or long-term storage and eventual disposal of resulting waste products. Back end fuel costs comprise the estimated cost of this process at current prices discounted back to current value in respect of both the amount of irradiated fuel burnt during the year and an appropriate proportion of unburnt fuel which will remain in the reactors at the end of their lives. All back end fuel costs, other than for unburnt fuel at shutdown, are charged to the profit and loss account in proportion to the amount of fuel burnt.

PWR

Back end fuel costs are based on wet storage in station ponds followed by dry storage and subsequent direct disposal of fuel. Back end fuel costs comprise the estimated cost of this process at current prices discounted back to current value. All back end fuel costs, other than for unburnt fuel at shutdown, are charged to the profit and loss account in proportion to the amount of fuel burnt.

F-14

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Bruce Power

Under the terms of the Bruce Power lease the responsibility for spent fuel, waste and decommissioning remains with Ontario Power Generation Inc. British Energy disposed of its interest in Bruce Power on February 14, 2003.

(vi)    Unburnt Fuel at Shutdown

Due to the nature of the nuclear fuel process there will be some unburnt fuel in the reactors at station closure. The front end and back end costs of this fuel are charged to the profit and loss account over the estimated useful life of each nuclear station on a straight line basis.

(vii)    Fuel Costs—Coal

Fuel costs for coal are determined on a weighted average cost basis.

(viii)    Energy Supply Costs

Annual commitments payable under Renewable Obligation Certificates are reflected in the profit and loss account based on the volume of direct supply sales. Acquired certificates are recognized as assets on purchase and are offset against related obligation payments.

(ix)    Research and Development

Research and development expenditure is charged to the profit and loss account as incurred.

(x)    Pensions and Other Post-retirement Benefits

The Group continues to provide for UK pension costs in accordance with SSAP24. Contributions to the Group’s defined benefit pension schemes are assessed by qualified actuaries and are charged to the profit and loss account so as to spread the cost of pensions over employees’ working lives with the Group. The capital cost of ex-gratia and supplementary pensions is charged to the profit and loss account, to the extent that the arrangements are not covered by the surplus in schemes, in the accounting period in which they are granted. Differences between the amounts funded and the amounts charged to the profit and loss account are included in the balance sheet.

In Canada, the charges for pensions and other post retirement benefits are determined annually by actuaries on the basis of management estimates. These costs consisted of current service costs, interest and adjustments arising from plan amendments, changes in assumptions, and experience gains or losses, which were amortized on a straight line basis over the expected average remaining service life of the employees covered by the plan. Costs are recorded in the year in which employees render services. British Energy disposed of its interest in Canada on February 14, 2003.

(xi)    Foreign Currencies

Transactions in foreign currencies are recorded at the rate of exchange at the date of the transaction or, if hedged forward, at the rate of exchange under the related forward currency contract. Assets and liabilities denominated in foreign currencies are retranslated into Sterling at the rate of exchange ruling at the date of the balance sheet or at the contracted rate if applicable. All differences are taken to the profit and loss account.

F-15

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

For consolidation purposes the assets and liabilities of overseas subsidiary undertakings and joint ventures are translated at closing exchange rates. Profit and loss accounts of such undertakings are consolidated at the average rates of exchange during the year up until the date of disposal. Differences on foreign exchange arising from the retranslation of the opening net investment in, and results of, subsidiary and associated undertakings and joint ventures are taken to reserves. Where appropriate, these are matched with differences arising on the translation of related foreign currency borrowings and are reported in the statement of total recognized gains and losses.

(xii)    Tangible Fixed Assets and Depreciation, including Decommissioning Costs

Fixed assets comprise assets acquired or constructed by the Group. During the year ended March 31, 2004 all capital expenditure investment that would previously have been capitalized as fixed assets was expensed as operating costs following the fixed asset impairment review carried out in the year ended March 31, 2003. This arises because it is not possible to demonstrate that this expenditure enhanced the value of the Company’s fixed assets after taking account of the impairment review.

Fixed assets (other than assets in the course of construction) are stated in the balance sheet at cost less accumulated depreciation. Accumulated depreciation includes additional charges made where necessary to reflect impairment in value. Assets in the course of construction are stated at cost and not depreciated until brought into commission.

The carrying values of fixed assets are reviewed for impairment where there has been a trigger event by assessing the present value of estimated future cash flows and net realizable value compared with net book value. The calculation of estimated future cash flows is based on the Directors’ best estimates of future prices, output and costs and is therefore subjective.

The charge for depreciation of fixed assets is based on the straight line method so as to write-off the costs of assets, after taking into account provisions for diminution in value, over their estimated useful lives.

The asset lives adopted are subject to regular review and for the year ended March 31, 2004 were:

AGR power stations	25-35 years
PWR power stations	40 years
Bruce power station assets	18 years
Coal power station	12 years
Other buildings	40 years
Other plant and equipment	5 years

The estimated costs for decommissioning the Group’s nuclear power stations are capitalized as part of the cost of construction and are depreciated over the same lives as the stations. These estimated costs are discounted having regard to the time scale whereby work will take place over many years after station closure. The estimated costs include the demolition and site clearance of the stations’ radioactive facilities and the management of waste.

(xiii)    Fixed Asset Investments

Investments in subsidiaries are initially recorded at the nominal value of shares allotted. Fixed asset investments are stated at cost less amortization or provisions for diminution in value. The

F-16

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Group’s investment in its joint venture is stated at cost plus the Group’s share of retained earnings up until the date of disposal. The carrying value of all fixed asset investments is regularly assessed for permanent impairment and provision made, if appropriate.

Own shares purchased in respect of the Employee Share Option and ShareSave Option Schemes are held at cost less charges to write-down the shares to the option exercise prices over the minimum lives of the options. The carrying value of all own share investments is regularly assessed for permanent impairment and provision made if appropriate. The Group has taken advantage of the exemption relating to Inland Revenue approved schemes under UITF17 in respect of Save As You Earn Share Schemes.

(xiv)    Stocks of Fuel, Stores and Spares

Stocks of fuel, stores and spares are valued at the lower of cost and net realizable value. The nuclear fuel stock is reduced by the provision for unburnt fuel at shutdown (note 2 (vi)). Strategic spares are amortized over the life of the asset to which they relate.

(xv)    Deferred Taxation

Deferred tax is recognized in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date. The full amount of the provision is discounted using a discount rate similar to the current post tax rates of return on UK treasury gilts. Deferred tax assets are recognized only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

(xvi)    Nuclear Liabilities

Nuclear liabilities represent provision for the Group’s liabilities in respect of the costs of waste management of spent fuel and nuclear decommissioning. The provisions represent the Directors’ best estimates of the costs expected to be incurred. They are calculated based on the latest technical evaluation of the processes and methods likely to be used, and reflect current engineering knowledge. The provisions are based on such commercial agreements as are currently in place, and reflect the Directors’ understanding of the current Government policy and regulatory framework. The Directors carry out an in-depth review of the adequacy of amounts provided on a five-yearly basis, and also review the amounts provided for significant change during the intervening years. Given that Government policy and the regulatory framework on which our assumptions have been based may be expected to develop and that the Directors’ plans will be influenced by improvements in technology and experience gained from decommissioning activities, liabilities and the resulting provisions are likely to be adjusted.

In matching the costs of generating electricity against the income from sales, accruals are made in respect of the following:

(a) Fuel costs—back end

The treatment of back end fuel costs in the profit and loss account has been dealt with in notes 2(v)and 2(vi). These accruals cover reprocessing and storage of spent nuclear fuel and the long-term storage, treatment and eventual disposal of nuclear waste. They are based, as

F-17

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

appropriate, on contractual arrangements or the latest technical assessments of the processes and methods likely to be used to deal with these obligations under the current regulatory regime. Where accruals are based on contractual arrangements they are included within creditors. Other accruals are based on long-term cost forecasts which are reviewed regularly and adjusted where necessary, and are included within provisions.

(b) Decommissioning of nuclear power stations

The financial statements include provision for the full cost of decommissioning the Group’s nuclear power stations. Provision is made on the basis of the latest technical assessments of the processes and methods likely to be used for decommissioning under the current regulatory regime. The provision established at the commencement of a power station’s operating life is capitalized as part of the costs of the station and depreciated over the station life.

Accruals and provisions for back end fuel costs and decommissioning are stated in the balance sheet at current price levels, discounted at a long-term real rate of interest of 3% per annum to take account of the timing of payments. Each year the financing charges in the profit and loss account include the revalorization of liabilities required to discharge one year’s discount from provisions made in prior years and restate these provisions to current price levels.

(xvii)    Decommissioning Funds

The Group makes contributions into an independently administered fund to cover all costs of decommissioning its nuclear power stations, except de-fuelling costs. The Group’s annual contributions to the fund are assessed by qualified actuaries, taking into account the amount and timing and expected decommissioning costs and the periods until station closures. The value of the asset in the balance sheet represents the contributions made by the Group, together with an estimated actuarially determined long-term rate of return on the fund. The change in value arising from applying the estimated long-term rate of return is taken to the profit and loss account and disclosed as part of revalorization.

The revalorization of the decommissioning fund, which has been taken through the profit and loss account, is not a realized profit for the purposes of the Companies Act 1985 because the income is unrealized until the Group receives the related cash from the fund to reimburse decommissioning expenditure. The inclusion of this profit in the profit and loss account is a departure from the requirements of the Companies Act 1985. Revalorization of the accrued decommissioning provision is charged to the profit and loss account each year and accordingly, in the opinion of the Directors, it is necessary to include the estimated annual long-term rate of return of the fund in the Group’s profit and loss account in order for the financial statements to give a true and fair view. In the event that the net realizable value as indicated by the market value of the fund is lower than the value determined under the accounting policy set out above, the lower value is included in the Group accounts.

UK GAAP comprises both the provisions of the Companies Act 1985 and Accounting Standards. Within UK GAAP, a company is allowed to depart from the provisions of Schedule 4 of the Companies Act 1985 if the departure is considered necessary to give a true and fair view of the Group’s financial position. Therefore to invoke the true and fair override is not a departure from UK GAAP, but the adoption of a specific set of rules within UK GAAP.

The recognition in the profit and loss account of the actuarial gain on the investment assets of the Decommissioning Fund, which is unrealized profit, is in contradiction to Schedule 4 of the Companies

F-18

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Act 1985 (Schedule 4 (12a)) but is allowable by the true and fair view override provision (Companies Act §226(4)). It is the opinion of the Directors of British Energy that this departure from Schedule 4 of the Companies Act 1985 is necessary to give a true and fair view.

Under UK GAAP, without invoking the true and fair override, the Group would carry a current asset at historic cost (cash contributions made) to represent the investment assets of the Decommissioning Fund. This is because, under the Companies Act 1985, a current asset must be stated at the lower of historical purchase cost or net realizable value. The mark-to-market approach is not permitted under UK GAAP for current assets. However, because the actuarial value is lower than the market value the Decommissioning Fund is included in the financial statements at market value. In order to give a true and fair view, the actuarial gains on the independent fund are included within the profit and loss account and disclosed according to UK GAAP (Companies Act §226(4), Schedule 4 and para. 15, UITF 7).

The effect of the departure for the UK fund is to increase the loss before tax by £74m (2003: increase the loss before tax by £82m; 2002: increase the loss before tax by £4m), and to reduce the reported loss before exceptional items for the year by £28m (2003: increase the loss by £29m; 2002: increase the loss by £23m). There is no impact on the net assets at March 31, 2004 as the fund has been restated at market value (2003 net assets were £nil; 2002: £82m higher due to this departure). There are no tax consequences of this departure.

A similar decommissioning fund existed in the United States for AmerGen that was accounted for on a consistent basis as outlined above for the UK fund. Up until the date of sale the effect of the departure for the AmerGen Fund was to increase the profit before tax by £36m (2003: increase the loss before tax by £28m) and to reduce the reported loss before exceptional items for the year ended March 31, 2004 by £14m (2003: £20m). There was no impact on net assets as the AmerGen fund had been restated at market value.

(xviii)    Liquid Funds

Cash which is placed on term deposits which mature more than one day after the end of the financial year or invested in commercial paper, is classified under current asset investments in the balance sheet and the movement in liquid funds is disclosed under management of liquid resources in the cash flow statement.

(xix)    Financial Instruments and Derivatives

Debt instruments

All borrowings are stated at cost with issue costs being charged to the profit and loss account on purchase. The interest payable on debt is charged to the profit and loss account over the life of the borrowing. Premiums and discounts arising on early repayment of borrowings are recognized in the profit and loss account as incurred and received.

Commodity contracts

Where there is physical delivery associated with power and coal commodity contracts they are accounted for on an accruals basis following delivery of the commodity. Amounts payable or receivable in respect of these contracts are recorded within trade creditors and debtors respectively and recognized as turnover.

F-19

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Where there is no physical delivery associated with these contracts, they are recorded at fair value on the balance sheet. Where the instrument is for proprietary trading purposes, the change in fair value is reflected through the profit and loss account as part of turnover—wholesale generation. This is not in accordance with the general provisions of Schedule 4 of the Companies Act 1985, which requires that these contracts are stated at the lower of cost and net realizable value or that, if revalued, any revaluation difference be taken to a revaluation reserve. However, the Directors consider that this departure is necessary in order that the financial statements give a true and fair view of the results of the Group’s trading activities, in accordance with Section 226(5) of the Companies Act 1985. The effect of the departure on the financial statements is to increase the profit for the year by £12m (2003: reduce the loss for the year by £9m) and reduce the net liabilities at March 31, 2004 by £21m (2003: £9m).

As noted above, UK GAAP comprises both the provisions of the Companies Act 1985 and Accounting Standards. Within UK GAAP a Company is allowed to depart from the provisions of Schedule 4 of the Companies Act 1985 if the departure is considered necessary to give a true and fair view of the Group’s financial position. Therefore, to invoke the true and fair override is not a departure from UK GAAP, but the adoption of a specific set of rules within UK GAAP.

For instruments used for proprietary trading purposes, reflecting the change in fair value through the profit and loss account is in contradiction to the general provisions of Schedule 4 of the Companies Act 1985 but is allowable by the true and fair view override provision (Companies Act §226(4)). It is the opinion of the Directors of British Energy that this departure from Schedule 4 of the Companies Act 1985 is necessary to give a true and fair view.

Under UK GAAP, without invoking the true and fair override, the Group would carry these contracts at the lower of cost and net realizable value and, if revalued, any difference would be taken to the profit and loss account. This is because, under the Companies Act 1985, a current asset must be stated at the lower of historical purchase cost or valuation. The mark-to-market approach is not permitted under UK GAAP for current assets. In order to give a true and fair view, these contracts are marked to market.

Futures and power options

Power futures and options are undertaken for hedging and proprietary trading purposes. Initial margins paid on entering power exchange contracts are recorded on the balance sheet within restricted cash in ‘Investments—liquid funds’ throughout the term of the contract. Where the instrument is a hedge, the daily margin calls are initially reflected on the balance sheet and subsequently reflected through the profit and loss account to match the recognition of the hedged item.

Interest rate swaps

Interest rate swaps are used to manage debt interest rate exposure. Amounts payable or receivable in respect of interest rate swaps are recognized as adjustments to the net interest charge over the term of the contracts. Where derivatives used to manage interest rate risk or to hedge other anticipated cash flows are terminated before the underlying debt matures, the resulting gain or loss is deferred on the balance sheet and amortized to the profit and loss account to match the timing and accounting treatment of the underlying debt. If the debt is subsequently terminated any unamortized deferred gain or loss is recognized immediately in the profit and loss account. Where interest rate swaps are no longer considered effective hedging instruments, any cumulative losses relating to the fair value of the derivatives are taken to the profit and loss account in accordance with FRS 12.

F-20

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Options

The Group used currency options to manage exposure on its disposal of overseas assets. Premiums received and paid on the contracts are included in the net sale proceeds in ‘Exceptional gain/(loss) on sale of joint venture and businesses’.

Premiums received and paid on wholesale generation contracts are amortized over the period of the contracts and are included within turnover.

(xx)    Goodwill

Goodwill arising on acquisitions represents the excess of the fair value of the consideration at acquisition compared to the fair value of the identifiable net assets acquired. Goodwill is capitalized as an intangible asset on the balance sheet and amortized on a straight line basis over its estimated useful life.

(xxi)    Joint Venture

The Group’s share of the results of the joint venture is included in the consolidated financial statements based on the latest audited accounts of the joint venture, except where the accounting reference date is not coterminous with the parent company, in which case management accounts are used and adjusted to comply with British Energy accounting policies.

On December 22, 2003 the Group disposed of its interest in AmerGen.

(xxii)    Operating Leases

The Group entered into an operating lease with Ontario Power Generation (OPG) to lease the Bruce Power nuclear plant in Ontario, Canada until 2018. Under the terms of the agreement a significant initial payment was made. This consideration, plus related transaction costs attributed to the operating lease prepayment, was amortized on a straight line basis over the expected period of the lease. Other costs of the Bruce Power lease were charged to the profit and loss account in accordance with the rental schedule which is included in the lease agreement. The Group disposed of its investments in Bruce Power and Huron Wind on February 14, 2003. The results of Bruce Power are classified as a discontinued activity for the purpose of this report.

Rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the lease term.

F-21

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

3.    TURNOVER, PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAX AND NET

The Group considers that it has one geographical segment being the UK. In addition it separately discloses certain financial information in respect of Bruce (sold February 14, 2003) and AmerGen (sold December 22, 2003).

(a)    Output and Turnover

	2004	2003	2002
	TWh	TWh	TWh
Output
United Kingdom	72.6	69.5	74.7
Canada	—	19.2	20.5
	72.6	88.7	95.2
	£m	£m	£m
Group Turnover
Continuing activities
United Kingdom
—wholesale generation	703	852	1,162
—direct supply	782	603	522
—Turnover from continuing activities excluding exceptional income and miscellaneous income	1,485	1,455	1,684
—miscellaneous income	31	32	17
—exceptional income	—	41	—
	1,516	1,528	1,701
Discontinued activities	—	375	348
Turnover	1,516	1,903	2,049

In the year ended March 31, 2003 the Group agreed revised terms for the Nuclear Energy Agreement (‘NEA’) with Scottish Power and Scottish and Southern Energy which resulted in the release of £41m in respect of cash amounts previously received, and was reported as an exceptional item in the results for the year ended March 31, 2003.

Turnover from discontinued activities in Canada in 2002 and 2003 represent the sales by Bruce Power which was acquired on May 12, 2001 and sold on February 14, 2003.

The turnover, operating profits and net assets of the Group’s joint venture, AmerGen, relate entirely to activities in the United States of America. On December 22, 2003 the Group disposed of its interest in AmerGen.

(b)    Profit/(Loss) on Ordinary Activities Before Taxation

A geographical analysis of operating profit/(loss) on ordinary activities before taxation is as follows:

	2004	2003		2002
	£m	£m		£m
United Kingdom	187	(4,388	)	(586	)
Canada—discontinued	—	97		52
	187	(4,291	)	(534	)
Share of discontinued joint venture—United States	45	(1	)	41
	232	(4,292	)	(493	)

F-22

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(c)    Net (Liabilities)/Assets

A geographical analysis of the Group’s net (liabilities)/assets is as follows:

	2004		2003		2002
	£m		£m		£m
United Kingdom	(3,164	)	(3,454	)	388
Canada	—		—		158
United States	—		71		81
	(3,164	)	(3,383	)	627

(d)    Additional Financial Information

Included within the profit and loss account of the Group (excluding AmerGen joint venture) are the following items by geographical location.

	2004						2003					2002
	UK		Canada		Group		UK		Canada	Group		UK		Canada		Group
	£m		£m		£m		£m		£m	£m		£m		£m		£m
Depreciation	50		—		50		273		7	280		280		5		285
Revalorization	187		—		187		209		—	209		164		—		164
Interest receivable	(11	)	—		(11	)	(9	)	—	(9	)	(13	)	(3	)	(16	)
Interest expense	75		—		75		81		—	81		74		8		82
Taxation	—		(2	)	(2	)	(396	)	18	(378	)	(19	)	15		(4	)
Exceptional items	(381	)	—		(381	)	4,162		—	4,162		535		—		535

F-23

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

4.    OPERATING COSTS

	2004		2003	2002
	£m		£m	£m
Total costs
Continuing activities
—fuel	413		371	467
—materials and services	537		519	604
—staff costs (note 6)	224		227	212
—depreciation (credits)/charges	(245	)	4,011	580
	929		5,128	1,863
Amounts written off non-operational assets	(13	)	115	—
Electricity purchases for direct supply costs	260		184	171
	1,176		5,427	2,034
Discontinued activities
—fuel	—		17	23
—materials and services	—		143	149
—staff costs (note 6)	—		111	119
—depreciation charges	—		7	5
	—		278	296
Total operating costs	1,176		5,705	2,330
Exceptional items
Continuing activities
—materials and services	25		94	209
—staff costs (note 6)	—		—	3
—depreciation (credits)/charges	(295	)	3,738	300
	(270	)	3,832	512
Amounts written off non-operational assets	(13	)	115	—
	(283	)	3,947	512
Analysis of exceptional items
—restructuring costs	43		35	—
—settlement of claim	(18	)	—	—
—stock obsolescence	—		57	—
—staff costs	—		—	3
—onerous trading contracts	—		2	209
—fixed asset (write up)/ down (note 13)	(295	)	3,738	300
—investments in own shares write down (note 14)	—		102	—
—UK decommissioning fund (write up)/write down (note 15)	(13	)	13	—
	(283	)	3,947	512

There were exceptional materials and services costs of £43m in respect of costs incurred on advisory fees and other costs associated with restructuring the Group’s activities.

F-24

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The Group settled long standing disputes with Siemens Power Generation Limited (‘Siemens’) relating to work done since 1996 by the former Parsons business. Under the terms of the settlement Siemens paid the Company approximately £18m. The settlement included a commitment by the Company and Siemens to develop a mutually beneficial relationship under a long-term supply agreement.

At March 31, 2004 the Directors reassessed the fixed asset carrying values, in line with the requirements of FRS11, to determine whether any revisions to fixed asset carrying values were appropriate. In carrying out such a review the Directors concluded that, pending completion of the Proposed Restructuring, it was appropriate to carry out a full review of valuations.

The carrying value of the nuclear stations was calculated by discounting the expected future cash flows from continued use of the assets, having made appropriate assumptions regarding future operating performance. The valuation of Eggborough was based on an assessment of net realizable value. Following the review, the carrying value of fixed assets was increased by £295m at March 31, 2004 to reflect reversal of previous impairment losses. The calculation of fixed asset carrying values at March 31, 2004 includes cash flow estimates regarding the level of increase in pension fund contributions that may be required to repair the actuarial pension fund deficit at March 31, 2004. The potential payments included in the fixed asset calculation amount to approximately £207m after being discounted at 15%, and are equivalent to a pension fund deficit calculated on an actuarial basis in the range of £330m to £440m. Formal triennial valuations of the British Energy Generation Group (BEGG) and British Energy Combined Group (BECG) pension schemes at March 31, 2004 are currently being undertaken, but the results of these valuations will not be finalised until later in 2004.

The electricity price assumptions are a very significant component of the asset value calculation. The Directors have considered market views on future prices of wholesale electricity and also the commercially available forecasts. They have considered the impact on future prices of the increases in market electricity prices which occurred in the past year, the outlook for coal and gas fuel prices, potential for changes in generation capacity in the UK, and the potential effect on the market of changes in Government policy particularly in the area of environmental legislation. In determining the price assumptions the directors have taken a cautious view of there being a significant long-term recovery in market prices. This recovery of market prices during the year has led to forecasts of future electricity prices being greater than those underpinning the value in use calculated at March 31, 2003. Greater cash inflows are therefore anticipated over the lifetime of the nuclear plants, and so an element of the prior year impairment loss has been reversed. As market prices are outside the Directors’ control actual prices may differ from those forecast.

At March 31, 2004 the market value of the UK decommissioning fund had increased to £440m (March 31, 2003: £334m), thereby necessitating an exceptional credit of £59m in the twelve months ended March 31, 2004. The £59m included a £13m exceptional credit to reverse the write-down on non-operational assets made in the year ended March 31, 2003. The remaining balance of the restatement to market value of £46m has been dealt with as an exceptional financing credit to reverse previously written-down revalorization amounts. The remaining UK decommissioning fund movements relate to revalorization of £28m and regular cash contributions of £19m.

Exceptional operating costs amounting to £3,947m were reported for the year ended March 31, 2003. These amounts are further explained as follows:

• charges incurred on advisory fees and other costs associated with the restructuring of the Group’s activities of £35m in the year ended March 31, 2003;

F-25

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

• a charge of £57m in the year ended March 31, 2003 to provide for obsolete stores and spares;

• a charge of £2m for the year to March 31, 2003 to provide for the onerous pre-New Electricity Trading Arrangements (NETA) contracts with TPL, Total and Enron;

• exceptional depreciation charge of £3,738m in the year ended March, 31 2003 in respect of a write down of an impairment loss in the carrying value of fixed assets following a review of economic values and net realizable values of fixed assets;

• a write-down of £102m in the year ended March 31, 2003 to reflect permanent diminution in the value of own shares held in employee trusts; and

• the investments held within the UK decommissioning fund were written-down to reflect a reduction in market value, resulting in a charge for the year to March 31, 2003 of £13m.

Exceptional operating costs amounting to £512m were reported for the year ended March 31, 2002.

These amounts are further explained as follows:

• a £209m provision in respect of the onerous pre-NETA contracts with Enron, TPL and TFE;

• a charge of £3m for share option costs charged to staff costs; and

• an asset write-down of £300m in respect of the Eggborough Power Station.

	2004	2003	2002
	£m	£m	£m
Operating costs are stated after charging:
—research and development	14	15	16
—operating lease costs—Bruce Power	—	70	38
—other	1	—	—

It is the Group’s policy to engage PricewaterhouseCoopers LLP on assignments where their expertise and experience with the Group are important, or where they win work on a competitive basis. An analysis of auditors’ remuneration on a worldwide basis is provided below:

	2004		2003		2002
	£000’s	%	£000’s	%	£000’s	%
Audit services
—Statutory	510	9	480	16	358	16
—Audit related regulatory reporting	258	5	215	7	101	5
Further assurance services
—Creditors’ long form report	2,017	35	—	—	—	—
—Reporting accountant—working capital report	1,208	21	532	17	—	—
—Review of accounting for restructuring	1,114	20	1,111	36	—	—
Taxation
—Tax service	510	9	331	11	1,249	57
Other
—Other non-audit services	80	1	409	13	475	22
Total	5,697	100	3,078	100	2,183	100

Statutory audit fees for British Energy plc were £65,000 (2003: £60,000; 2002: £45,000).

F-26

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

5.    SALE OF INVESTMENTS

On December 22, 2003 the Group completed the sale of its 50% interest in AmerGen to Exelon. The Group received initial consideration of US$277m upon financial close on December 22, 2003 prior to adjustments relating to working capital levels, stocks of unspent nuclear fuel inventory, capital expenditures and low-level waste disposal costs to be determined at the time of closing. The gain on sale calculated below is a provisional estimate pending receipt of financial statements drawn up as at the date of financial close.

On December 23, 2003 the Group sold its 50% equity interest in Offshore Wind Power Limited (‘Offshore Wind’) to GB Gas Holdings Limited, a wholly owned subsidiary of Centrica plc, for an up front cash consideration of £2m and deferred consideration of up to £750,000 which has not been recognized in these accounts (net book value £nil).

Total cash receipts in relation to the discontinued activities of Bruce Power amounted to £17m. The cash receipt of £9m received on April 28, 2003 in relation to Bruce Power was accounted for in the year ended March 31, 2003 as an adjusting post balance sheet event. The additional receipt of £8m received on March 22, 2004 was in relation to the re-start of the Bruce A reactor. These receipts relate to the discontinued activities of Bruce Power.

The exceptional profit arising from the disposal of joint venture and businesses and cash consideration which have been recognized in the current period are analyzed as follows:

	Bruce Power	AmerGen	Offshore Wind	Total
	£m	£m	£m	£m
Net assets sold	—	112	—	112
Accounted for by:
Cash consideration net of transaction cost and break fee	8	149	2	159
Exceptional gain on sale of joint venture and businesses	8	37	2	47
Cash flows:
Cash consideration net of transaction costs received in the year ended March 31, 2004	17	152	2	171

On February 14, 2003 the Group completed the sale of its 82.4% interest in Bruce Power Limited Partnership (“Bruce Power”) and 50% share in Huron Wind Limited Partnership to a Canadian consortium led by Cameco Corporation, TransCanada and BPC Generation Infrastructure Trust.

The Group received initial consideration of C$678m upon financial close on February 14, 2003, together with a C$20m retention initially held in escrow pending confirmation of the pension deficit which was subsequently received in April 2003. In addition, there are certain amounts held in escrow which the Group may be entitled to receive pending satisfaction of various conditions related to the disposal. These amounts, which have not been recognized in the results for the year ended March 31, 2003, are:

• C$100m, contingent on the restart of two Bruce A units, with C$50m to be released provided the first unit restarts by June 15, 2003 and an additional C$50m if the second unit restarts by August 1, 2003. If the units do not restart on the specified dates then the contingent amounts

F-27

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

released for each unit will be reduced by C$5m and such payment is reduced by a further C$5m if that unit is not restarted on or before the first day of each successive calendar month following the scheduled restart date.

• C$20m, which is held in escrow from closing to cover any successful claims in respect of representations and warranties until any claims made against British Energy and British Energy International Holdings which are made within two years from the date of closing are resolved.

A further C$80m is held in an escrow account to cover the estimated outstanding tax liabilities of the Bruce Group. In the event that the sums held back to satisfy the tax liability are insufficient, then British Energy would be required to repay the amount of such excess to the Bruce Power consortium. Conversely, British Energy will be refunded any balance remaining after settlement of the tax liability.

The loss arising from the disposal and cash consideration which have been recognized in these accounts are analyzed as follows:

	£m
Net assets sold:
Tangible fixed assets	303
Investment in joint venture and associates	4
Stocks	37
Debtors	313
Cash at bank	4
Borrowings	(92	)
Creditors and provisions	(192	)
Net assets disposed	377
Minority interests	(68	)
Net assets disposed less minorities	309
Accounted for by:
Cash consideration net of transaction costs	266
Contingent consideration received post year end on determination of pension deficit	8
Loss on disposal—exceptional item	(35	)
Cash flows:
Cash consideration net of transaction costs received in 2002/03	266
Less: cash held by disposed subsidiary	(4	)
Net cash inflow	262

The Group’s disposal of its interest in Humber Power Limited during 2001/02 resulted in an exceptional profit of £4m.

F-28

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

6.    EMPLOYEE INFORMATION

(a)    Staff Costs

	2004		2003		2002
	£m		£m		£m
Salaries	208		201		189
Social security costs	19		17		18
Pension costs (note 25)	—		6		1
Severance charges	2		12		—
Amortization of share option costs	—		—		9
Amounts capitalized	(5	)	(9	)	(8	)
Exceptional charge/(credit)	—		—		3
Continuing activities	224		227		212
Discontinued activities	—		111		119
Total staff costs	224		338		331

Amounts capitalized within staff costs for the year ended March 31, 2004 are subsequently expensed as operating costs within materials and services costs following the fixed assets impairment review carried out.

(b)    Employee Numbers

	2004	2003	2002
	Number	Number	Number
Average number of employees during the year
Continuing operations	5,165	5,103	4,969
Discontinued operations	—	2,799	2,701
	5,165	7,902	7,670

Average number of full-time equivalent employees by category during the year were:

	2004	2003	2002
	Number	Number	Number
United Kingdom
Power stations	3,870	3,826	3,750
Engineering, technical and corporate support	1,257	1,228	1,170
North America—continuing operations	12	28	32
	5,139	5,082	4,952
Canada—discontinued operations	—	2,798	2,701
	5,139	7,880	7,653

F-29

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

7.    DIRECTORS’ EMOLUMENTS AND INTERESTS

(a)    Summary of Directors’ Emoluments

	2004	2003	2002
	£’000	£’000	£’000
Total emoluments, including pension contributions
As Directors	517	585	221
For management services:
—salaries and other benefits	940	996	1,041
—performance related bonuses	405	—	343
—pension contributions	46	52	48
	1,908	1,633	1,653
—compensation for loss of office	146	98	365
	2,054	1,731	2,018

(b)    Individual Remuneration

	Salary and fees	Bonus	Compensation for loss of office	Other benefits	Total emoluments excluding pension
Year ended March 31	2004	2004	2004	2004	2004	2003
	£	£	£	£	£	£
A Montague(1)	300,000	—	—	—	300,000	400,209
M Alexander(2)	400,000	190,004	—	32,864	622,868	35,535
W Coley(12)	25,000	—	—	—	25,000	—
P Colombani(12)	22,500	—	—	—	22,500	—
J Deluca(13)	4,500	—	—	—	4,500	—
M Gatto(14)	130,000	36,013	—	—	166,013	—
D Gilchrist(3)	199,013	106,105	—	15,247	320,365	203,630
I Harley(5)	36,500	—	—	—	36,500	25,833
C Spottiswoode(11)	59,000	—	—	—	59,000	53,333
R Walmsley(15)	24,667	—	—	—	24,667	—
Total emoluments for serving Directors as at March 31, 2004	1,201,180	332,122	—	48,111	1,581,413	718,540
R Biggam(7)	—	—	—	—	—	11,167
D Hawthorne(3),(4)	25,228	—	—	—	25,228	161,024
R Hill(16)	19,167	—	—	—	19,167	57,500
R Jeffrey(6)	—	—	—	—	—	424,537
M Kirwan(9)	—	—	—	—	—	49,049
K Lough(3),(17)	151,975	73,679	145,625	11,309	382,588	224,136
P Stevenson(8)	—	—	—	—	—	25,893
J Walsh(10)	—	—	—	—	—	7,325
Total emoluments (all Directors)	1,397,550	405,801	145,625	59,420	2,008,396	1,679,171
Compensation for loss of office:
R Jeffrey(6)						98,000

There were no accommodation and relocation expenses paid in the year to March 31, 2004.

F-30

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(c)    Directors’ Pension Contributions

	2004	2003
	£	£
A Montague(1)	—	—
M Alexander(2)	16,929	1,385
W Coley(12)	—	—
P Colombani(12)	—	—
J Delucca(13)	—	—
M Gatto(14)	—	—
D Gilchrist(3)	16,929	12,020
I Harley(5)	—	—
C Spottiswoode(11)	—	—
R Walmsley(15)
Total pension contributions serving Directors at March 31, 2004	33,858	13,405
Sir R Biggam(7)	—	—
D Hawthorne(3),(4)	—	21,749
Sir R Hill(16)	—	—
R Jeffrey(6)	—	—
M Kirwan(9)	—	4,453
K Lough(3),(17)	11,657	12,020
P Stevenson(8)	—	—
J Walsh(10)	—	—
Total Pension Contributions (all Directors)	45,515	51,627

Notes referred to in above tables—

(1) Appointed on December 1, 2002.

(2) Appointed on March 1, 2003.

(3) Appointed as Executive Directors on September 1, 2001.

(4) D Hawthorne’s pro rata salary to termination date of February 14, 2003 is C$357,107 and has been converted into Sterling at the average exchange rate for the year (£1 = C$2.40). Mr Hawthorne became a Non-Executive Director serving on the Board from February 15, 2003 and resigned on March 12, 2004.

(5) Appointed on June 1, 2002.

(6) R Jeffrey resigned as a Director on February 10, 2003.

(7) Sir R Biggam resigned as a Director on June 7, 2002.

(8) P Stevenson resigned as a Director on February 28, 2003.

(9) M Kirwan resigned as a Director on May 31, 2002. The salary figure for 2003 includes accrued holiday pay of £13,458.

(10) J Walsh resigned as a Director on July 16, 2002.

(11) C Spottiswoode appointed as a Director on September 1, 2001.

(12) Appointed as Non-Executive Directors on June 1, 2003.

(13) Appointed as Non-Executive Director on February 1, 2004.

(14) Appointed as Executive Director on December 8, 2003.

(15) Appointed as Non-Executive Director on August 1, 2003.

(16) Sir R Hill resigned as a Non-Executive Director on July 31, 2003.

(17) K Lough resigned as an Executive Director on December 8, 2003.

F-31

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(d)    Executive Share Options

Name	Options held at 01/04/03	Options granted during the year	Options Exercised during the year	Options lapsed during the year	Options held at 31/3/04	Option exercise Price (£)	Date from which exercisable	Expiry date
D Gilchrist	57,692	—	—	—	57,692	2.60	15/7/00	14/7/04
	11,538	—	—	—	11,538	2.60	15/7/00	14/7/07
	19,862	—	—	—	19,862	5.08	29/6/01	28/6/05
	21,379	—	—	—	21,379	5.295	25/6/02	24/6/06
	40,659	—	—	—	40,659	2.4125	14/7/03	13/7/07
	151,130	—	—	—	151,130
K Lough	9,433	—	—	—	9,433	3.18	14/9/04	13/9/11
	116,353	—	—	—	116,353	3.18	14/9/04	13/9/08
	125,786	—	—	—	125,786

8.    FINANCING CHARGES/(CREDITS)

	2004		2003		2002
	£m		£m		£m
Revalorization of nuclear liabilities	215		228		175
Revalorization of decommissioning fund	(28	)	(29	)	(23	)
Revalorization of other provisions	—		10		12
Share of revalorization of joint venture	(2	)	(4	)	(4	)
Revalorization charge before exceptional items	185		205		160
Exceptional revalorization (credit)/charge (see below)	(68	)	159		27
Revalorization charge	117		364		187
Interest:
Interest on loans repayable within five years
—banks	11		11		27
—others	33		24		27
Interest on loans repayable in five years or more
—banks	24		38		20
—others	7		8		8
Interest receivable	(11	)	(9	)	(16	)
Net interest before exceptional items	64		72		66
Exceptional (credit)/charge—interest rate swaps	(5	)	56		—
Exceptional charge—borrowing costs	—		6		—
Exceptional financing (credit)/charges	(5	)	62		—
Net interest payable and similar charges	59		134		66

At March 31, 2004 the market value of the UK decommissioning fund had increased to £440m (March 31, 2003: £334m), thereby necessitating an exceptional credit of £59m in the twelve months ended March 31, 2004 to reverse previously written-down amounts. As a result of the UK decommissioning fund receivable being restated at market value, a £13m exceptional credit has been recorded in operating costs to reverse a prior write-down of non-operational assets, and exceptional

F-32

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

credits of £46m have been recorded in finance charges for the twelve months ended March 31, 2004 to reverse the prior write-down of previous revalorization. The market value remains below the amount which would have been calculated by revalorizing on an actuarial basis the total amounts that have been invested in the fund.

The market value of the AmerGen decommissioning fund had also increased over the period of December 22, 2003, and the British Energy share of the exceptional credit was £22m in the year to the date of sale.

The total of the UK decommissioning fund and AmerGen decommissioning fund exceptional revalorization credits included within financing charges amounted to £68m.

At March 31, 2004 the value of the interest rate swaps were marked to market and the resultant valuation was lower than the book value. The exceptional credit is £5m for the year ended March 31, 2004.

At March 31, 2003 the market value of the UK decommissioning fund was lower than the value that would have been derived from revalorizing the cost of the investment. The difference was £124m of which £111m was recognized as an exceptional financing charge with the remainder classified as write-offs of non-operational assets. At March 31, 2003 the British Energy share of the adjustment required to reduce the AmerGen decommissioning fund to market value was a charge of £48m.

An exceptional charge of £56m was recognized for the year ended March 31, 2003 for interest rate swaps, which were no longer considered to be effective. In addition an exceptional charge of £6m was recorded for the write-off of borrowing costs which had been previously capitalized and were being amortized over the expected duration of the loan financing the acquisition of the Eggborough power station.

The UK Decommissioning Fund was also written down by £27m in the 2001/02 accounts, to reflect a lower market value at March 31, 2002.

9.    TAXATION

	2004		2003		2002
					(restated)
	£m		£m		£m
Tax on profit on ordinary activities:
UK corporation tax—prior year	—		—		(11	)
Deferred taxation on (loss)/profit before tax and exceptionals	—		(40	)	34
Unwinding of discount	—		14		14
(Charge)/credit on loss for the year	—		(26	)	48
Exceptional deferred tax credit	—		(370	)	(56	)
Deferred tax credit for the year	—		(396	)	(8	)
Foreign tax	(2	)	18		15
	(2	)	(378	)	(4	)
	2004		2003		2002
	£m		£m		£m
Share of taxation for discontinued joint venture:
Ordinary activities	—		10		29

F-33

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

There is no UK current tax charge for the year ended March 31, 2004 (2003: £nil). The tax credit of £2m for the year ended March 31, 2004 represents the release of an over provision of foreign tax in earlier years.

The exceptional tax credit for the year ended March 31, 2003 of £370m related to a deferred taxation credit on exceptional items of £520m offset by the de-recognition of the deferred taxation assets of £150m.

As set out in the Group’s Cash Flow Statement, the tax paid of £12m in the year relates to the Group’s liability for its share of AmerGen’s taxable profits. In the year ended March 31, 2003 the net tax refund of £3m comprised tax paid of £10m in respect of AmerGen and Bruce Power offset by a UK tax refund of £13m.

In 2001/02 the credit arose mainly as a result of the increased provision on the long-term onerous trading contracts.

A reconciliation of the effective tax rate for the current year tax charge, which solely comprises foreign tax is set out below.

	2004		2003		2002
	£m		£m		£m
Tax charge/(credit) on Group profit/(loss) at standard rate of 30%	70		(1,288	)	(148	)
Deferred tax:
Current year movement	—		396		8
Impact of discounting	(140	)	619		55
Increase in deferred tax asset not recognized	113		150		—
Total deferred tax movement pre discounting	(27	)	1,165		63
(Credits)/expenses not (chargeable)/deductible for tax purposes	(16	)	140		108
(Gain)/loss on sale of investments not taxable	(13	)	11		—
Lower tax rates on overseas earnings	—		(6	)	3
Minority interests	—		(4	)	(3	)
Impact of joint venture	(14	)	—		(8	)
Over provision for foreign tax in earlier years	(2	)	—		—
Current tax (credit)/charge for year	(2	)	18		15

The share of taxation for the joint venture represents the Group’s liability for its share of AmerGen’s taxable profits.

10.    LOSS OF THE COMPANY

The Group’s results include a loss of £616m (2003: loss of £6,058m; 2002: loss of £310m) attributable to the Company, inclusive of a provision of £590m (2003: provision of £6,144m) made in the year for bad and doubtful inter-company debtors which is eliminated on consolidation. The Company did not have any distributable reserves at March 31, 2004 (2003: £nil). As permitted under Section 230 of the Companies Act 1985 the Company has not published a separate profit and loss account.

F-34

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

11.    DIVIDENDS

	2004	2003	2002	2004	2003	2002
	p/share	p/share	p/share	£m	£m	£m
Annual dividend per ordinary share
Interim paid	—	—	2.7	—	—	16
Final proposed	—	—	5.3	—	—	32
Total annual	—	—	8.0	—	—	48
	—			—
Actual cash dividends paid per Ordinary Share	—	—	8.0	—	—	46
Non-equity dividend	—	—	2.3	—	—	2

The British Energy Employee Share Trust and the QUEST elected to waive their entitlement to receive dividends for financial year ended March 31, 2002.

12.    EARNINGS/(DEFICIT) PER SHARE

The basic earnings/(deficit) per share for the year has been calculated by dividing the profit/(loss) on ordinary activities after taxation, minority interests and non-equity dividends by the weighted average number of ordinary shares in issue during the year, based on the following information:

	2004	2003		2002
Profit/(loss) for the year (£million)	234	(3,941	)	(529	)
Basic weighted average share capital (number of shares, million)	602	602		598

A calculation of diluted earnings per share has not been provided because the outstanding share options do not have any dilutive potential at March 31, 2004, 2003 or 2002.

13.    TANGIBLE FIXED ASSETS

Group	Power stations		Other land and buildings		Other plant and equipment		Total
	£m		£m		£m		£m
Cost
As at April 1, 2003 and March 31, 2004	10,747		47		434		11,228
Depreciation
As at April 1, 2003	10,108		24		410		10,542
Exceptional asset write up	(275	)	(1	)	(19	)	(295	)
Charge for the year	38		1		11		50
As at March 31, 2004	9,871		24		402		10,297
Net book value
As at March 31, 2004	876		23		32		931
As at March 31, 2003	639		23		24		686

F-35

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The net book value of tangible fixed assets includes the following amounts in respect of freehold land and buildings:

	2004	2003
	£m	£m
Cost	2,245	2,245
Net book value	157	107

The Directors have reviewed the economic values and net realizable values of the Group’s fixed assets and compared them to their book value. A discount rate of 15% (2003: 15%) was applied to the economic value review. As a result of this review the value of its fixed assets has been increased by £295m (2003: reduced by £3,738m). The background to the review is discussed more fully in note 4.

The value of fixed assets held by the Company is £nil (2003: £nil).

14.    FIXED ASSET INVESTMENTS

Group	AmerGen joint venture		Loans to Nirex	Own shares	Other investments	Total
	£m		£m	£m	£m	£m
Cost
As at April 1, 2003	119		37	140	4	300
Foreign exchange	(11	)	—	—	—	(11	)
Share of retained profits at date of disposal	48		—	—	—	48
Disposal of joint venture	(156	)	—	—	—	(156	)
As at March 31, 2004	—		37	140	4	181
Provision for diminution in value
As at April 1, 2003	48		37	138	—	223
Foreign exchange	(4	)	—	—	—	(4	)
Disposal of joint venture	(44	)	—	—	—	(44	)
As at March 31, 2004	—		37	138	—	175
Net book value
As at March 31, 2004	—		—	2	4	6
As at March 31, 2003	71		—	2	4	77

Other investments relate wholly to the investment held by Lochside Insurance Limited.

F-36

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

On December 22, 2003 the Group disposed of its interest in AmerGen. An analysis of British Energy’s share of the aggregate net assets of the AmerGen joint venture as at March 31, 2003 is set out below.

	2003
	£m
Negative goodwill	(7	)
Tangible assets	144
Stocks	10
Cash	6
Decommissioning fund	306
Debtors	18
Creditors	(51	)
Decommissioning liabilities	(321	)
Loan notes	(34	)
Net assets	71

Negative goodwill relates to AmerGen’s acquisition of Oyster Creek nuclear power station in August 2000.

Loans have been made to United Kingdom Nirex Limited to fund development expenditure for building an intermediate-level nuclear waste repository. These loans have been fully provided for in the Group’s financial statements.

At March 31, 2004 British Energy Employee Share Trust held 21,734,839 ordinary shares at an average cost of £4.68 for a total consideration of £101m. At 31 March 2004 the Qualifying Employee Shareholders Trust held 5,292,103 ordinary shares at a cost of £5.32 per share (£28m) and 19,165,471 ‘A’ shares at a cost of 60p per share (£11m).

The market value of the shares held by the employee trusts at March 31, 2004 was £3m, compared to a book value of £2m. The long-term prospect of the Company have deteriorated considerably and the Directors considered it inappropriate to recognize the increase in value of the shares held in employee trusts.

The Company held investments in Lochside Insurance Limited and British Energy Finance Limited at March 31, 2004. During the year, the investment in Lochside Insurance Limited was written down by £4m (2003: £nil), to a net book value of £4m at March, 31 2004 (2003: £8m).

Company	Subsidiary undertakings
	£m
Cost
As at April 1, 2003 and March 31, 2004	14
Provision for diminution in value
Charge for the year	4
Net Book value
At March, 31 2004	10
At March 31, 2003	14

F-37

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Details of British Energy’s principal subsidiary undertakings and other holdings of more than 10% are as follows:

	Country of registration and operation	Class of Share	Group share- holding	Company share- holding	Principal activity
			%	%
Subsidiary undertakings
British Energy Generation (UK) Limited	Scotland	Ordinary	100	100	Generation and sale of electricity
British Energy Generation Limited	England and Wales	Ordinary	100	—	Generation and sale of electricity
British Energy Power & Energy Trading Limited	Scotland	Ordinary	100	100	Energy trading
Eggborough Power Limited	England and Wales	Ordinary	100	—	Generation and sale of electricity
Other holdings of more than 10 per cent
United Kingdom Nirex Limited	England and Wales	Ordinary	10.8	—	Disposal of nuclear waste

Included in the Group and Company accounts are the assets of British Energy Employee Share Trust and the assets of British Energy Qualifying Employee Share Trust, which are trusts set up to hold shares purchased on behalf of the Group’s employees under the Employee Share Scheme and the British Energy ShareSave Scheme respectively.

15.    DECOMMISSIONING FUND

	Group
	£m
As at April 1, 2003	334
Regular contributions	19
Revalorization (note 8)	28
	381
Exceptional item to mark the fund to market value (note 8)	59
As at March 31, 2004	440

The decommissioning fund asset in the balance sheet normally represents the contributions made by the Group, together with an estimated actuarially determined long-term post-tax real rate of return on the fund of 3.5% per annum. The change in value arising from applying the estimated long-term rate of return is taken to the profit and loss account as a revalorization credit. The decommissioning fund asset is receivable after more than one year and is restricted in its use.

At March 31, 2004 the market value of the UK decommissioning fund had increased to £440m (March 31, 2003: £334m), thereby necessitating an exceptional credit of £59m to the profit and loss account in the twelve months ended March 31, 2004 to reverse previously written-down amounts. The market value remains below the amount which would have been calculated by revalorizing on an actuarial basis the total amounts which have been invested in the fund. As a result of the UK decommissioning fund receivable being restated at market value, a £13m exceptional credit has been

F-38

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

recorded in operating costs to reverse a prior write-down of non-operational assets, and exceptional credits of £46m have been recorded in finance charges for the twelve months ended March 31, 2004 to reverse the prior write-down of previous revalorization.

The Company has no decommissioning fund at March, 31 2004 (2003: £nil).

16.    STOCKS

	Group
	2004		2003
	£m		£m
Unburnt nuclear fuel in reactors	472		469
Provision for unburnt fuel at station closure	(280	)	(272	)
Net unburnt nuclear fuel in reactors	192		197
Other nuclear fuel	61		74
Coal stocks	15		14
Stores/strategic spares	82		75
	350		360

The Company has no stock at March 31, 2004 (2003: £nil).

17.    DEBTORS

	Group		Company
	2004	2003	2004	2003
	£m	£m	£m	£m
Trade debtors	252	226	4	3
Other debtors	16	89	—	—
Prepayments	106	72	7	1
Amounts due from subsidiary undertakings	—	—	—	81
	374	387	11	85

Included within the Company’s amount due from subsidiary undertakings is £6,734m relating to amounts due from UK subsidiaries all of which have been provided for (2003: £6,144m relating to amounts due from UK subsidiaries all of which have been provided for and £81m which was denominated in foreign currencies and translated at the year-end exchange rate).

Included within prepayments for the Group is £101m (2003: £72m) in respect of pension contribution payments made in advance of their recognition in the profit and loss account. These amounts fall due after more than one year.

F-39

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

18.    CREDITORS

	Group		Company
	2004	2003	2004	2003
	£m	£m	£m	£m
Amounts falling due within one year
Nuclear liabilities (note 22)	554	355	—	—
Trade creditors	180	198	—	—
Retentions	6	5	—	—
Other taxes and social security	49	9	—	—
Other creditors	317	326	3	1
Accruals	144	140	18	20
Amounts due to subsidiary undertakings	—	—	4,475	3,721
	1,250	1,033	4,496	3,742
Other creditors: amounts falling due after more than one year Nuclear liabilities (note 22)	1,893	1,909	—	—

Other creditors include £316m (2003: £316m) in respect of claims relating to onerous trading contracts. These contracts are pre-NETA electricity trading contracts with Enron, TPL and Total. The Enron and Total contracts were terminated during the prior year, which gave rise to claims for certain amounts which have become payable. Interest is payable on standstill balances at a rate of 6%, other than the bonds and the amounts due to the Eggborough banks which continue under their original terms. These accounts reflect the claim amounts, which have been agreed in principle with Enron, TPL and Total for the purposes of the Proposed Restructuring of the Group. Total and Enron subsequently transferred their interest to Deutsche Bank.

19.    BORROWINGS

Summary

The Group and Company’s borrowings at March 31, 2004 were as follows:

	Group		Company
	2004	2003	2004	2003
	£m	£m	£m	£m
Long term project finance loan—Sterling	475	475	—	—
Bonds—Sterling	408	408	408	408
	883	883	408	408

The borrowings mature as follows:

	Group		Company
	2004	2003	2004	2003
	£m	£m	£m	£m
Amounts falling due within one year	197	152	110	110
Amounts falling due after more than one year	686	731	298	298
	883	883	408	408

The maturities assume no debt has been accelerated and reflect the standstill agreements as part of the Proposed Restructuring.

F-40

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The long-term project finance loan is secured on the assets of EPL. Amounts owed by EPL to the lenders are not guaranteed by British Energy plc but British Energy guarantees the payment of amounts by BEPET to EPL. The contractual amounts payable by BEPET are calculated so as to cover EPL’s borrowing requirements and operating costs. British Energy also provides a subordinated loan facility to EPL. The final installment of loan principal is scheduled to be repaid in 2011. The loan currently bears interest at LIBOR plus 1.3%. It is proposed that these arrangements will be restructured as part of the Proposed Restructuring of the Group.

20.    FINANCIAL INSTRUMENTS AND DERIVATIVES

Disclosures include short-term debtors and creditors and exclude commodity power contracts.

(i)    Interest rate risk profile of financial liabilities

The interest rate profile of financial liabilities of the Group as at March 31, 2004 was:

Currency	Total	Floating rate financial liabilities	Fixed rate financial liabilities	Mixed rate financial liabilities (see below)	Financial liabilities on which no interest is paid
	£m	£m	£m	£m	£m
Sterling	3,883	475	408	33	2,967

	Fixed rate financial liabilities		Financial liabilities on which no interest is paid
Currency	Weighted average interest rate	Weighted average period for which the rate is fixed	Weighted average period until maturity
	%	Years	Years
Sterling	6.08	4.8	13.1

At March 31, 2004, nil borrowings (2003: £475m) were reclassified to fixed rate financial liabilities due to the effect of the Group’s interest rate contracts. The 2003 balance has been reclassified to floating rate financial liabilities, as the directors believe the swaps used to cover this liability are no longer effective.

The interest rate profile of mixed rate financial liabilities of the Group as at March, 31 2004 was:

Interest rate agreements	2005	2006	2007	2008	2009	Net fair value
Fixed
Notional amounts A (GBP million)	356	332	291	235	174	(28	)
Average pay rate	6.6%	6.6%	6.6%	6.6%	6.6%
Average receive rate	4.7%	4.7%	4.7%	4.7%	4.7%
Variable to fixed:
Notional amounts B (GBP million)	30					(3	)
Average pay rate	5.8%
Average receive rate	6 month
	LIBOR
Collars:
Notional amounts C (GBP million)	70					(2	)
Collar spread	5.3% to 6.8%
TOTAL						(33	)

F-41

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

A. The derivative agreements were amended post March 31, 2003 as part of the Proposed Restructuring. The effect has been to fix interest payments under the swaps from October 2004 onwards

B. The bank has the right to cancel the swaps at zero cost on any cancellation date from April 2005 and every year thereafter.

C. The banks have the right to enter into semi-annual swaps receiving 5.25% and pay 6 month LIBOR for ten years at zero cost in April 2005.

The interest rate profile of financial liabilities of the Group as at March 31, 2003 was:

Currency	Total	Floating rate financial liabilities	Fixed rate financial liabilities	Mixed rate financial liabilities (see below)	Financial liabilities on which no interest is paid
	£m	£m	£m	£m	£m
Sterling	3,729	475	408	56	2,790

	Fixed Rate financial liabilities		Financial liabilities on which no interest is paid
Currency	Weighted average interest rate	Weighted average period for which the rate is fixed	Weighted average period until maturity
	%	Years	Years
Sterling	6.08	5.5	14.6

The interest rate profile of mixed rate financial liabilities of the Group as at March 31, 2003 was:

Interest rate agreements	2004	2005	2006	2007	2008	Net fair value
Variable to fixed:
Notional amounts (GBP million)	377	356	332	291	235	(47	)
Average pay rate	6.6%	6.6%	6.6%	6.6%	6.6%
Average receive rate	6 month	6 month	6 month	6 month	6 month
	LIBOR	LIBOR	LIBOR	LIBOR	LIBOR
Fixed variable:
Notional amounts (GBP million)	30	30				(3	)
Average pay rate	5.8%	5.8%
Average receive rate	6 month	6 month
	LIBOR	LIBOR
Collars:
Notional amounts (GBP million)	70	70				(6	)
Collar spread	5.3% to 6.8%	5.3% to 6.8%
TOTAL						(56	)

F-42

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(ii)    Interest rate risk profile of financial assets

The Group held the following financial assets as at March 31, 2004 and March 31, 2003:

	Group
	2004	2003
	£m	£m
Assets held as part of the financing arrangements of the Group:
Short-term financial assets
Sterling	840	647
Non-Sterling	1	1
	841	648
Long term financial assets
Sterling	446	340
	1,287	988

Short-term financial assets comprise cash, investments in liquid funds and debtors (excluding prepayments) all of which have maturity dates within one year. Cash not immediately required for business purposes is invested in fixed-rate term deposits and money market funds. At March 31, 2004 the term deposits and money market funds not used to provide collateral were due to mature or were available within one month and earned interest at an average rate of 3.9%. The balance of £297m, which was deposited in support of collateral requirements, earned an average rate of 3.1%. Availability of the cash is restricted over the periods of the collateralized positions.

Long-term financial assets comprise the balance in the UK decommissioning fund and fixed asset investments.

(iii)    Maturity profile of financial liabilities

	2004	2003
	£m	£m
Less than one year	1,304	1,089
Between one and two years	413	248
Between two and five years	679	834
Over five years	1,487	1,558
	3,883	3,729

The analysis of maturity of borrowings has been prepared based on the dates when the borrowings mature under the existing contractual arrangements. However, the standstill arrangements which have been put in place have the effect of deferring the payments of certain amounts due until the bonds and Eggborough project finance loan are replaced as part of the restructuring of the Group or earlier termination of the standstill arrangements. The maturity profile of borrowing is likely to change upon completion of the restructuring.

F-43

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(iv)    Borrowing facilities

At March 31, 2004 and March 31, 2003 the Group had the following undrawn committed borrowing facilities in place, in respect of which all conditions precedent had been met at that date:

	2004	2003
	£m	£m
Expiring in one year or less—Government Facility	200	200

(v)    Fair values

Set out below is a comparison by category of book values and fair values of all the Group’s financial assets and financial liabilities as at March 31, 2004 and March 31, 2003.

	2004				2003
	Book value		Fair value		Book value		Fair value
	£m		£m		£m		£m
Primary financial instruments held or issued to finance the Group’s operations:
Short-term assets	810		810		639		639
Short-term borrowings and current portion of long-term borrowings	(1,261	)	(1,288	)	(1,033	)	(969	)
Long-term assets	446		446		340		340
Long-term borrowings and liabilities	(2,579	)	(2,328	)	(2,640	)	(2,140	)
	(2,584	)	(2,360	)	(2,694	)	(2,130	)
Financial instruments held or issued for proprietary trading purposes
Speculative trading contracts	21		21		9		9
Derivative financial instruments used to manage foreign currency, interest rate and commodity price risk
Interest rate swaps	(33	)	(33	)	(56	)	(56	)
	(2,596	)	(2,372	)	(2,741	)	(2,177	)

The fair value of the short-term assets approximates to book value due to their short-term maturities.

Short-term borrowings comprise trade creditors and retentions. The book value of these liabilities has been used to approximate fair value.

Long-term assets comprise the balance in the UK decommissioning fund and other fixed asset investments. The basis of valuation is referred to in notes 15 and 14 respectively.

Long-term borrowings and liabilities comprise the Group’s nuclear liabilities, bonds and the long-term project finance loan related to the investment in the Eggborough Power Station. There is no open market information available for the long-term project finance loan, the value of which has been severely affected by the financial restructuring of the Group. Therefore, the fair value that has been

F-44

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

attributed to the loan, £150m (2003: £150m), has been based on the Directors’ best estimate of the net realizable value of the Eggborough Station upon which this debt is secured. The nuclear liabilities book value has been used to approximate fair value and the quoted closing clean market price at the balance sheet date has been used to determine the fair valuation of the long-term bonds.

The fair value of onerous trading contracts represents the value established within the terms of the Proposed Restructuring.

The market trading price at balance sheet date was used to determine the fair valuation of the interest rate swaps.

(vi)    Gains and losses on financial instruments held or issued for trading purposes

The net gain from trading in energy derivatives included in the profit and loss account for the period to March 31, 2004 is £14m (2003: £13m).

Interest rate swaps are also held, which do not qualify for hedge accounting. However, the interest rate swaps are not held for trading purposes, and so disclosures in the interest rate swaps are given in note 23.

As discussed in note 2(xix) where the financial investments are for proprietary trading purposes, the movement in the fair value is reflected through the profit and loss account.

F-45

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(vii)    Hedges

Gains and losses on instruments used for hedging are not recognized until the exposure that is being hedged is itself recognized. Unrecognized gains and losses on instruments used for hedging, and the movements therein, are as follows:

March 31, 2004	Unrecognized Gains	Unrecognized Losses		Total Unrecognized		Deferred
	£m	£m		£m		£m
Net losses on derivative instruments at April 1, 2003	—	—		—		(2	)
Note losses arising in previous period included in current period profit and loss account	—	—		—		2
Net losses on derivative instruments at March 31, 2004	—	—		—		—
March 31, 2003	Unrecognized Gains	Unrecognized Losses		Total Unrecognized		Deferred
	£m	£m		£m		£m
Net losses on derivative instruments at April 1, 2002	—	(28	)	(28	)	(10	)
Note losses arising in previous period included in current period profit and loss account	—	28		28		8
Net losses arising before April 1, 2002 not included in current period profit and loss account	—	—		—		(2	)
Net losses arising in current period not included in current period profit and loss account	—	—		—		—
Net losses on derivative instruments at March 31, 2003	—	—		—		(2	)
Of which:
Net losses expected to be included in the profit and loss account for the year end March 31, 2004	—	—		—		(2	)
Net losses expected to be included in the profit and loss accounts beyond the year ended March 31, 2004	—	—		—		—

The above analysis excludes any gains and losses in respect of the net investment as gains and losses arising on these contracts are recorded in the statement of total recognized gains and losses.

(viii)    Currency exposures

The Group used foreign currency borrowings to mitigate the currency exposures arising from its net investments overseas. Gains and losses arising on net investments overseas and currency borrowings used to hedge the currency exposure have been recognized in the statement of total recognized gains and losses. The Group did not hold material net monetary assets or liabilities in currencies other than functional currency of the operating unit involved at March 31, 2004 and March 31, 2003.

F-46

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

There are potential future foreign currency receivables in respect of amounts outstanding from the sale of Bruce Power and AmerGen. When these cash flows become more certain in the future the Group will evaluate currency hedging opportunities, balancing the cost and availability of entering into such transactions against the underlying currency risk.

21.    PROVISIONS FOR LIABILITIES AND CHARGES

	Group		Company
	2004	2003	2004	2003
	£m	£m	£m	£m
Nuclear liabilities (note 22)	1,776	1,673	—	—
Other provisions (note 23)	36	62	5	9
	1,812	1,735	5	9

22.    NUCLEAR LIABILITIES

	Back end fuel costs contracted		Back end fuel costs uncontracted	De- commissioning	2004 Total		2003 Total
	£m		£m	£m	£m		£m
As at April 1, 2003	2,263		678	996	3,937		3,719
Charged to profit and loss account:
—operating costs	114		16	—	130		105
—revalorization (note 8)	129		35	51	215		228
Payments in the year	(59	)	—	—	(59	)	(115	)
As at March 31, 2004	2,447		729	1,047	4,223		3,937

The year end balances of nuclear liabilities are included in the balance sheet as follows:

	2004	2003
	£m	£m
Creditors:
—amounts falling due within one year	554	355
—amounts falling due after more than one year	1,893	1,909
Provisions for liabilities and charges	1,776	1,673
	4,223	3,937

Fuel costs—back end

Accruals for AGR fuel services relating to spent AGR fuel are based on the terms of contracts with BNFL (dated March 30, 1995 and June 3, 1997), most of which include fixed prices subject to indexation, or the Group’s estimates where no contracts exist. Provisions for services relating to the disposal of nuclear waste and the storage and disposal of PWR spent fuel are based on cost estimates derived from the latest technical assessments.

Decommissioning

The costs of decommissioning the power stations have been estimated on the basis of technical assessments of the processes and methods likely to be used for decommissioning under the current

F-47

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

regulatory regime. The estimates are designed to reflect the costs of making the sites of the power stations available for alternative use in accordance with the Group’s decommissioning strategy.

Projected payment details

Based on current estimates of station lives and lifetime output projections, the following table shows, in current prices, the likely undiscounted payments, the equivalent sums discounted at 3% per annum to the balance sheet date and the amounts accrued to date.

	Back end fuel costs contracted	Back end fuel costs uncontracted	Decommissioning	Group 2004 Total	Group 2003 Total
	£bn	£bn	£bn	£bn	£bn
Undiscounted	5.2	4.7	5.1	15.0	14.7
Discounted	3.5	1.1	1.1	5.7	5.3
Accrued to date	2.4	0.7	1.1	4.2	3.9

The differences between the undiscounted and discounted amounts reflect the fact that the costs concerned will not fall due for payment for a number of years. The differences between the discounted amounts and those accrued to date will be charged to the profit and loss account over the remaining station lives since they relate to future use of fuel.

Under the terms of the contracts with BNFL referred to above and in accordance with the projected pattern of payments for decommissioning and other liabilities, taking account of the decommissioning fund arrangements described in note 2 (xvii), the undiscounted payments in current prices are expected to become payable as follows:

	Back end fuel costs contracted	Back end fuel costs uncontracted	Decommissioning	Group 2004 Total	Group 2003 Total
	£m	£m	£m	£m	£m
Within 1 year	552	—	19	571	373
Within 1-2 years	223	7	19	249	253
Within 2-3 years	182	8	19	209	242
Within 3-4 years	205	16	19	240	207
Within 4-5 years	178	12	50	240	228
Total within 5 years	1,340	43	126	1,509	1,303
6 - 10 years	1,181	123	206	1,510	1,391
11 - 25 years	1,575	422	320	2,317	2,375
26 - 50 years	649	1,079	54	1,782	1,845
51 years and over	485	3,060	—	3,545	3,489
	5,230	4,727	706	10,663	10,403

F-48

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

23.    OTHER PROVISIONS

	Eggborough site restoration	Interest rate swaps		Restructuring		2004 Group total		2003 Group total		2004 Company interest rate swaps		2003 Company interest rate swaps
	£m	£m		£m		£m		£m		£m		£m
As at April 1, 2003	3	56		3		62		349		9		—
Provided in year	—	—		—		—		64		—		9
Revalorization	—	—		—		—		10		—		—
Revaluation to market value	—	(5	)	—		(5	)	—		—		—
Utilized in the year	—	(13	)	(3	)	(16	)	(45	)	(3	)	—
Reclassified as other creditors	—	(5	)	—		(5	)	(316	)	(1	)	—
As at March 31, 2004	3	33		—		36		62		5		9

The interest rate swaps provision of £33m is in respect of swap contracts, which were put in place to hedge interest rate risk. The Directors have reviewed the necessity for these swaps in the context of the Proposed Restructuring and have concluded that the swaps are no longer effective as hedges. A provision of £56m was created at March 31, 2003 and was reduced to £33m at March 31, 2004 through utilizations of £13m, amounts reclassified as other creditors of £5m and revaluation to market value of £5m. The Company share of the provision was £9m at March 31, 2003, which was reduced to £5m at March 31, 2004 through utilizations of £3m and an accruals movement of £1m.

24.    DEFERRED TAXATION

	2004		2003
	£m		£m
Accelerated capital allowances	30		(56	)
Other long-term timing differences	(85	)	(64	)
Short-term timing differences	28		20
Corporation tax losses	(348	)	(262	)
Undiscounted asset for deferred tax	(375	)	(362	)
Discount	84		212
De-recognition of asset	291		150
Discounted provision of deferred tax	—		—

The Company does not have a deferred tax liability at March 31, 2004 (2003: £nil).

F-49

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

25.    POST RETIREMENT BENEFIT OBLIGATIONS

UK Pension schemes

British Energy operates two separate pension arrangements in the UK within the Electricity Supply Pension Scheme (‘ESPS’), BEGG for the majority of employees and BECG for the employees at Eggborough Power Station. The ESPS is a defined benefit scheme, which is externally funded and subject to triennial actuarial valuation. Each pension group that participates in the ESPS is financially independent from the other groups.

The most recent triennial valuations of the BEGG and BECG schemes were carried out at March, 31 2001 by the independent ESPS actuary. The valuations for accounting purposes have been carried out by a separate independent actuary using the projected unit method. The principal assumptions adopted for both these accounts valuations were that, over the long-term, the investment rate of return would be 6% per annum for benefits already accrued, and 6.5% for the return achieved on future contributions. The rate of salary increase would be 4% per annum and the rate of pension increase would be 2.5% per annum. Assets were taken at market value. At the date of the valuation, the combined market value of assets of both schemes was £1,944m. This represents 119% of the benefits that had accrued to members after allowing for expected future increases in earnings.

Formal triennial valuations of BEGG and BECG pension schemes at March 31, 2004 are currently being undertaken, but the results of these valuations will not be finalised until later in 2004. However, initial indications are suggesting a range of deficit between £330m to £440m.

British Energy contributed 17.1% to the BEGG pension scheme and 15.3% to the BECG pension scheme for the period April 1, 2003 to March 31, 2004. Contributing members contribute 5% and 6% to the respective plans. Any deficiency disclosed in the BEGG or BECG pension schemes following an actuarial valuation has to be made good by British Energy.

The Group’s UK pension costs for the year to March 31, 2004 were nil net of surplus amortization (2003: £6m). At that date there was a SSAP24 prepayment of £101m (2003: £72m) in the UK.

Bruce Power Pension Scheme

Following the disposal of British Energy’s interest in Bruce Power in 2003 the Group no longer operates the Bruce Power Pension Plan. As a result FRS17 disclosures are only made with regard to this scheme in relation to prior year comparatives as applicable.

Bruce Power provided pensions, group life insurance and health care benefits for retirees in Canada. Pensions were provided through the Bruce Power Pension Plan, which was a defined benefit scheme and was externally funded and subject to triennial actuarial valuations. Members of the plan contributed on average 5% of their salaries to the scheme. Bruce Power contributed the balance of the cost of providing the pension.

Bruce Power also operated a supplemental retirement pension plan that provided additional pensions to some retirees. This plan was not funded. Retiree group life insurance and health care benefits were also not pre-funded.

The Group’s Bruce Power related pension costs for the period of ownership from April 1, 2002 and February 14, 2003 were £12m.

F-50

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

FRS17 Disclosures

The Group has not implemented FRS17 ‘Retirement benefits’ in the accounts for the year ended March 31, 2004. The disclosures required under the transitional arrangements for UK and Canadian plans within FRS17 as advised by the Company’s actuaries are, however, set out below:

(i)    UK Pension Schemes

a) Major assumptions for FRS17 disclosures 31 March:

	2004	2003	2002
	% pa	% pa	% pa
Price inflation	2.75	2.25	2.75
Rate of general increase in salaries	4.25	3.75	4.25
Rate of increase of pensions in payment	2.75	2.25	2.75
Discount rate	5.50	5.50	6.00

b) The assets and liabilities of the scheme on an FRS17 basis and the expected rates of return at 31 March are:

	Rate of return	Value at March 31, 2004		Rate of return	Value at March 31, 2003		Rate of return	Value at March 31, 2002
	%	£m		%	£m		%	£m
Equities	8.25	1,102		8.5	878		8.0	1,248
Bonds	4.75	469		4.5	438		5.3	412
Property	6.4	223		6.5	183		6.7	175
Others	3.75	28		3.75	26		4.75	7
Total market value of plan assets		1,822			1,525			1,842
Present value of plan liabilities		(2,147	)		(1,877	)		(1,799	)
Pension (liability)/asset before deferred tax		(325	)		(352	)		43
Related deferred tax liability		—			—			(13	)
Net pension (liability)/asset		(325	)		(352	)		30

No deferred tax asset is recognizable on the pension deficit in 2004 and 2003, based on application of the deferred tax accounting policy set out in note 2 (xv).

c) Analysis of the amount that would be charge to operating profit on an FRS17 basis:

	2004 (Gain)/loss		2003 (Gain)/loss
	£m		£m
Operating profit
Current service cost	35		32
Past service cost	1		13
Total charge to operating profits	36		45
Finance income
Expected return on assets in the pension scheme	(106	)	(132	)
Interest on pension scheme liabilities	102		107
Net credit to finance income	(4	)	(25	)
Total profit and loss account charge before tax	32		20

F-51

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

d) Movement in plan (deficit)/surplus during the year on an FRS17 basis:

	2004		2003
	£m		£m
(Deficit)/surplus in plan at beginning of the year	(352	)	43
Contributions paid	34		31
Current service cost	(35	)	(32	)
Past service cost	(1	)	(12	)
Other finance income	4		25
Actuarial gain/(loss) (note 25(e))	25		(407	)
Deficit in the plan at the end of the year	(325	)	(352	)

e) History of experience gains and losses which would have been recognized on an FRS17 basis:

	2004				2003
	(Gain)/loss		As % of plan		(Gain)/loss		As % of plan
	£m				£m
Consolidated statement of total recognized gains and losses
Actual return less expected return on post employment plan assets	(228	)	(13	)	410		27
Experience losses arising on plan liabilities	34		2		(3	)	—
Changes in assumptions (financial and demographic)	169		8		—		—
Actuarial (gain)/loss recognizable in consolidated statement of total recognized against and losses before tax	(25	)			407
As % of plan liabilities at end of year	1				22

(ii)    Bruce Power Pension Scheme

Due to the Group’s disposal of its interest in Bruce Power during 2003 the following disclosure has only been provided where applicable.

(a) Major assumptions for FRS17 disclosures at 31 March:

	2003	2002
	% pa	% pa
Price inflation	2.75	2.75
Rate of general increase in salaries	3.75	3.75
Rate of increase of pensions in payment	2.75	2.75
Discount rate	7.0	7.0

F-52

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

b) The assets and liabilities of the scheme on an FRS17 basis and the expected rates of return at 31 March are:

	Rate of return	Value at March 31, 2002
	%	£m
Equities	8.5	255
Bonds	6.0	151
Others	5.0	16
Total market value of plan assets		422
Present value of plan liabilities		(396	)
Net pension asset		26
Other non-pension post retirement benefits		(64	)
Related deferred tax asset		11
Net deficit for post retirement benefits net of tax		(27	)

c) Analysis of the amount that would be charged to operating profit on an FRS17 basis:

	2003 (Gain)/loss
	£m
Operating profit
Total charge to operating profits—current service cost	15
Gain on settlements—disposal of Bruce Power	(103	)
Finance income
Expected return on assets in the pension scheme	(26	)
Interest on pension scheme liabilities	26
Net credit to finance income	—
Total profit and loss account credit before tax	(88	)

Due to the Group’s disposal of its interest in Bruce Power during 2003 there was no balance sheet impact of the Bruce Power Pension Plan for the March 31, 2003 and 2004 year ends.

d) Movement in plan deficit during the year on an FRS17 basis:

	2003 (Gain)/loss
	£m
Deficit in plan at April 1, 2002	(38	)
Current service cost	(15	)
Gain on settlement	103
Foreign exchange	2
Actuarial loss	(52	)
Deficit in the plan at March 31, 2003	—

F-53

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

e) History of experience gains and losses which would have been recognized on an FRS17 basis:

	2003 (Gain)/loss
	£m
Actual return less expected return on post employment plan assets	50
Experience gains and losses arising on plan liabilities	—
Changes in assumptions (financial and demographic)	2
Foreign exchange adjustments	(4	)
Actuarial loss recognizable in consolidated statement of total recognized gains and losses before tax	48

(iii)    Group reconciliation of net liabilities and reserves under FRS17

	2004		2004		2003		2003
	Net liabilities		Profit and loss account reserve		Net liabilities		Profit and loss account reserve
	£m		£m		£m		£m
As reported	(3,164	)	(3,960	)	(3,383	)	(4,179	)
SSAP 24 prepayment	(101	)	(101	)	(72	)	(72	)
Net liabilities excluding defined benefit asset	(3,265	)	(4,061	)	(3,455	)	(4,251	)
FRS17 pension asset	1,822		1,822		1,525		1,525
FRS17 defined benefit liability	(2,147	)	(2,147	)	(1,877	)	(1,877	)
Including FRS17 pension liability	(3,590	)	(4,386	)	(3,807	)	(4,603	)

No deferred tax asset is recognizable on the pension deficit or pension repayment in 2004 and 2003, based on application of the deferred tax accounting policy set out in note 2 (xv).

26.    CALLED UP SHARE CAPITAL

	2004	2003
	£m	£m
Authorized
991,679,020 ordinary shares of 44 28/43p each	443	443
720,339,029 ‘A’ shares of 60p each	432	432
One special rights redeemable preference share of £1	—	—
	875	875
Allotted, called up and fully paid
620,362,444 ordinary shares of 44 28/43p each	277	277
Non–equity shareholders funds
80,908,247 ‘A’ shares of 60p each	48	48
74,752,351 deferred ‘A’ shares of 60p each	45	45
One special rights redeemable preference share of £1	—	—
	93	93
	370	370

F-54

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Special rights redeemable preference share of £1

The special rights redeemable preference share is redeemable at par at any time after September 30, 2006 at the option of the Secretary of State, after consulting the Company. This share, which may only be held by a Minister of the Crown or other person acting on behalf of HM Government, does not carry any rights to vote at general meetings, but entitles the holder to attend and speak at such meetings. The special share confers no rights to participate in the capital or profits of the Company beyond its nominal value. Certain matters, in particular, the alteration of specific sections of the Articles of Association of the Company (including the Article relating to limitations that prevent a person having the right to have an interest in 15% or more of the voting share capital), require the prior written consent of the holder of the special share.

‘A’ shares and deferred shares

The ‘A’ shares are traded on the London Stock Exchange and at March 31, 2004 had a market value of 6p (2003: 3p). The deferred shares have a £nil fair value at March 31, 2004 (2003: £nil).

The ‘A’ shares and deferred shares do not carry any rights to receive notice of, attend, speak or vote at any general meeting, unless in the case of ‘A’ shares the meeting is due to consider a resolution for the winding up of the Company, or the non-cumulative preferential dividend to which the ‘A’ shares are entitled remains unpaid six months or more after it fell due. On a winding up of the Company, the ‘A’ shares have preferential rights over the ordinary shares in respect of the distribution of capital. The deferred shares do not confer any rights to participate in the capital or profits of the Company, including on a winding up of the Company.

The impact on the Company’s share capital as a result of the Proposed Restructuring is discussed more fully in note 1.

F-55

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Share Option Schemes

Options outstanding at March 31, 2004, together with their exercise prices and earliest dates of exercise, are as follows:

	Exercise price per share	Exercise Date	No. of Ordinary Shares
	£		2004	2003
British Energy ShareSave Scheme	4.44	2003	4,353	174,600
	4.39	2004	99,444	113,268
	1.36	2003	32,449	4,895,405
	1.36	2005	3,069,904	3,624,113
	2.61	2004	435,619	484,116
	2.61	2006	410,851	485,011
	2.29	2005	—	499,455
	2.29	2007	—	453,946
	1.36	2005	1,832,153	3,726,626
	1.36	2007	2,633,723	4,616,840
Employee Share Scheme	2.60	2000	6,282,958	6,423,428
	4.08	2000	502,572	516,572
	5.08	2001	3,829,474	3,915,603
	5.29	2002	3,922,000	4,022,000
Senior Management Share Scheme	2.60	2000	1,023,941	1,099,802
	3.95	2000	22,264	22,264
	5.08	2001	402,252	444,425
	6.67	2002	19,865	19,865
	5.29	2002	537,985	599,337
	3.57	2002	33,952	33,952
	2.41	2003	1,454,203	1,636,752
	3.18	2004	125,786	125,786

27.    PROFIT AND LOSS ACCOUNT

	Group						Company
	2004		2003		2002		2004		2003		2002
	£m		£m		£m		£m		£m		£m
As at April 1, 2001, April 1, 2002 and April 1, 2003	(4,179	)	(213	)	372		(4,563	)	1,495		1,855
Profit/(loss) for the year	234		(3,941	)	(577	)	(616	)	(6,058	)	(360	)
Foreign currency translation adjustments	(15	)	(25	)	(8	)	—		—		—
	(3,960	)	(4,179	)	(213	)	(5,179	)	(4,563	)	1,495

The Company did not have distributable reserves at March 31, 2004 (2003: £nil).

28.    RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS’ FUNDS

	Group
	2004		2003
	£m		£m
As at April 1, 2003 and April 1, 2002	(3,476	)	490
Profit /(loss) for the financial year	234		(3,941	)
Foreign currency translation adjustments	(15	)	(25	)
As at March 31, 2004 and March 31, 2003	(3,257	)	(3,476	)

F-56

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

29.    RECONCILIATION OF OPERATING PROFIT TO OPERATING NET CASH FLOWS

	Group		Group
	2004		2003
	Total		Continuing activities		Discontinued activities		Total
	£m		£m		£m		£m
Operating profit/(loss)	340		(3,899	)	97		(3,802	)
Depreciation (credit)/charges (includes fixed asset write-(up)/down and lease amortization)	(245	)	4,012		13		4,025
Nuclear liabilities charged to operating costs	130		105		—		105
Nuclear liabilities discharged	(59	)	(115	)	—		(115	)
Other provisions discharged	(3	)	(45	)	—		(45	)
Regular contributions to decommissioning fund	(19	)	(18	)	—		(18	)
Operating exceptional decommissioning fund movement	(13	)	13		—		13
Decrease/(increase) in stocks	10		72		(12	)	60
Decrease/(increase) in debtors	4		12		(30	)	(18	)
Increase in creditors	11		107		24		131
Net cash in flow from operating activities	156		244		92		336
Payments to acquire tangible fixed assets	—		(112	)	(170	)	(282	)
Net cash inflow from operating activities net of capital expenditure	156		132		(78	)	54

30.    RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN FUNDS

	2004		2003		2002
	£m		£m		£m
Increase in cash in the year	175		87		—
Increase/(decrease) in liquid resources	65		37		(18	)
Decrease/(increase) in debt	—		185		(111	)
Decrease/(increase) in net debt in the year	240		309		(129	)
Net debt at start of year	(550	)	(859	)	(730	)
Net debt at end of year	(310	)	(550	)	(859	)

31.    ANALYSIS OF NET DEBT

	Cash at bank and in hand	Term Deposits	Debt due within one year		Debt due after more than one year		Net funds/ (debt)
	£m	£m	£m		£m		£m
As at March 31, 2002	—	209	(153	)	(915	)	(859	)
Cash flows	87	37	1		91		216
Disposal of Bruce Power debt	—	—	—		93		93
As at March 31, 2003	87	246	(152	)	(731	)	(550	)
Cash flows	175	65	(45	)	45		240
As at March 31, 2004	262	311	(197	)	(686	)	(310	)

F-57

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

32.    CONTINGENT ASSETS

On May 16, 2003 the Company announced that it had exchanged the last of the suite of contracts covering front end and back end fuel services required to give effect to the non-binding heads of terms entered into with BNFL on November 28, 2002. The front end contracts became effective on April 1, 2003 but may be terminated if the Proposed Restructuring is not completed. The back end contracts are conditional on completion of the Proposed Restructuring but payments are being made as if the revised back end contracts had become effective on April 1, 2003. The financial statements for the period to March 31, 2004 have been drawn up on the basis of the historic BNFL contracts in respect of back end fuel contracts, pending satisfaction of the restructuring conditions set out in the revised contracts, thereby creating a contingent asset of £306m (2003: £113m) which will be recognized upon completion of the Proposed Restructuring as one of a number of expected adjustments at that time. An analysis of amounts included in current liabilities due to BNFL but not expected to be paid by the Group provided the Proposed Restructuring is completed is shown as follows:

	£m		£m
Opening balance at April 1, 2003			113
Amounts payable to BNFL under the historic back end contracts for the period	249
Less: amounts paid/payable for the period under the revised BNFL back end contracts, analyzed as follows:
Amounts settled	(59	)
Amounts included in accruals at year end	(11	)
Cash flow benefit arising within the year			179
Finance charges accrued on amounts stood still			14
Closing balance at March 31, 2004			306
			£m
Amounts payable under historic BNFL back end contracts
Opening balance at April 1, 2003			113
Amounts falling due in year			249
Amounts settled			(59	)
Standstill interest accrued			14
Closing asset balance at March 31, 2004			317
Less: amounts payable under revised BNFL back end contracts
Opening balance at April 1, 2003			—
Amounts falling due in year			70
Amounts settled			(59	)
Closing liability balance at March 31, 2004			11
Contingent asset at March 31, 2004			306

On February 14, 2003 the Company announced that it had completed the disposal of its 82.4% interest in Bruce Power in Canada to a consortium of three parties. In addition to the consideration payable by the consortium under the master purchase agreement, up to a further C$100m was payable to British Energy contingent upon the restart of two of the Bruce A units under a trust agreement (the ‘Trust Agreement’) entered into on the same date. Had the first unit restarted by June 15, 2003, C$50m would have been released to British Energy and an additional C$50m would have been released to British Energy had the second unit restarted by August 1, 2003. An amount of C$5m

F-58

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

is deducted from the C$50 payable in respect of each unit for its failure to restart by the scheduled restart date or by the first day of each successive calendar month following the scheduled restart date. The Group received C$20m on March 22, 2004 and C$10m on May 25, 2004 in partial consideration under the Trust Agreement. British Energy is seeking the payment of additional consideration under the Trust Agreement on the basis that Bruce A Unit 4 restarted in October 2003 and Unit 3 restarted in January 2004 but has not recognized any additional amounts on its balance sheet at March 31, 2004 because of uncertainties regarding their realization. The Company is in discussion with the Ontario Provincial Government which has indicated that it considers that the units may have restarted, for the purposes of the Trust Agreement, or at later dates. The amounts recoverable in respect of the restarts will be substantially lower than the maximum C$100m but the amounts and timing of the payments have still to be confirmed.

33.    CONTINGENT LIABILITIES

These accounts are drawn up on a going concern basis, the basis of which is explained more fully in note 1 to these accounts. This note describes the contingent liabilities that are applicable to the Group and the Company.

The Group has been provided with a credit facility by the Secretary of State. As at March 31, 2004, the Group had no drawings under the Government Facility. Also at March 31, 2004, the Group had cash and liquid investments of £573m of which £297m had been deposited as collateral to support trading and other operations.

The following security has been granted for obligations under the Government Facility made available by the Secretary of State:

• an all monies debenture creating fixed security (by way of assignment and/or fixed charge) over certain intra-group receivables and special accounts and a floating charge between the Secretary of State and certain Group companies;

• fixed charges in relation to the UK nuclear power stations; and

• pledge and mortgage of shares in certain Group subsidiaries in favour of the Secretary of State.

Amounts owing by EPL to the Eggborough Banks are not guaranteed by the Company. However, the Company guarantees the payment of amounts by BEPET to EPL, calculated to cover EPL’s borrowing and operating costs. In addition the Company also provides a subordinated loan facility to EPL.

On October 1, 2003, the Company announced that it had entered into the Creditor Restructuring Agreement with certain significant creditors (including the Eggborough Banks) and BNFL relating to the standstill, recognition and compromise of their claims. However, while the Directors believe that the amounts of the agreed claims agreed for the purposes of the Proposed Restructuring currently reflect the amounts legally claimable, in the event of the Proposed Restructuring not being completed different amounts may be calculated as being claimable.

On September 25, 2002 the Nuclear Generation Decommisioning Fund Limited (the ‘NDF’) served a default notice relating to the solvency of the Company, BEG and BEGUK. Unless the default is cured to the satisfaction of the NDF, or waived, the NDF has the right to require accelerated payment of all of

F-59

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

the contributions due to the NDF prior to the next quinquennial review in Autumn 2005. Annual payments are in the region of £18m. The NDF has agreed not to take enforcement action without further notice while the Group progresses satisfactorily towards achieving the Proposed Restructuring. If the conditions to the Proposed Restructuring are satisfied, the NDF and others will enter into a Deed of Termination whereby the NDF agrees that it shall take no action to enforce its rights pursuant to the default notice.

On February 12, 2004 British Energy received a notice of warranty claims from the consortium which purchased the Group’s 82.4% interest in Bruce Power alleging breach of certain warranties and representations relating to tax and to the condition of certain plant at the Bruce Power Station.

The claim relating to the condition of the plant is based upon alleged erosion of some of the steam generator support plates, through which boiler tubes pass, which it is alleged resulted in an extended outage of one unit at the plant to carry out repair works and loss of revenues and costs of approximately C$64.5m. The consortium also claims that the alleged erosion may reduce the operating life of the unit and/or result in further repairs involving further losses. British Energy has rejected the claim and expects to defend it if it is pursued further.

The principal tax claim relates to the treatment of expenditure at the Bruce Power Station during the period of the Company’s ownership, which is currently being considered by the Canadian tax authorities. The treatment proposed by British Energy could result in a rebate of a material amount of tax to the Group, which has not been recognized in the financial statements of the period. The consortium claims that allowance of the expenditure for that period would cause it to lose further deductions. British Energy has rejected the tax claim and expects to defend it if it is pursued further. On the basis of advice received, the Company is confident that the amount of the tax claim should not, in any event, materially exceed the amount of the rebate, and that the tax claim should have no material cash flow impact on the Group.

Under the agreement with the consortium C$20m is retained in trust to meet any representation and warranty claims, and this may be retained pending agreement or determination of the claims.

The Group has given certain indemnities and guarantees in respect of the disposal of its investment in AmerGen. As a result of an accounting adjustment made by Exelon to the value of nuclear fuel contained in AmerGen’s balance sheet dated December 21, 2003 British Energy may be required to make a payment to Exelon of up to US$13.7m. British Energy disputes the claim and served a Dispute Notice on Exelon on June 4, 2004 to preserve its rights. The agreement with Exelon for the sale of AmerGen requires that, prior to instituting any litigation or other dispute resolution procedure, the companies will in good faith seek to resolve any dispute.

The Group is involved in a number of other claims and disputes arising in the normal course of business which are not expected to have a material effect on the Group’s financial position.

The Company has given certain indemnities and guarantees in respect of its subsidiary undertakings. No losses are anticipated to arise under these indemnities and guarantees, provided relevant subsidiary undertakings continue as going concerns.

F-60

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

34.    FINANCIAL COMMITMENTS

(i)    Capital commitments

	2004	2003
	£m	£m
Capital expenditure contracted but not provided	17	40

(ii)    Analysis of annual commitments under operating leases

	2004	2003
	£m	£m
Other operating leases expiring in:
Two to five years	3	—

(iii)    Other contractual commitments

Under contractual arrangements, the Group has the following fuel commitments at March 31, 2004:

	2005	2006	2007	2008	2009	Thereafter	Total
	£m	£m	£m	£m	£m	£m	£m
Commitments to purchase in the year	200	183	93	67	63	859	1,465

At March 31, 2004 the estimated minimum commitment for the supply of coal was 2.4 m tonnes, which, at contract prices on March 31, 2004, equates to approximately £82m (2003: £68m).

In addition to the liabilities and provisions recognized and described in the notes to the financial statements the Group has provided certain guarantees and commitments in respect of the extent of capital expenditure by Eggborough Power Limited. The Group also enters into commitments to purchase and sell electricity in the normal course of business.

35.    POST BALANCE SHEET EVENTS

(i)    Audited

The Company was in receipt of a further C$10m on May 25, 2004 in partial consideration of the restart of the Bruce A units, see note 32.

(ii)    Unaudited

Output Forecast

On July 30, 2004 we announced that following the evaluation of structural inspections carried out during the statutory outage at the Hartlepool power station and discussions with the Nuclear Installations Inspectorate, we decided that further work to demonstrate the integrity of certain boilers was necessary. This work entails visual inspections of a number of boiler closures at Heysham 1 (one reactor is shut down and the other was shut down for its statutory outage in early September) and at Hartlepool (one reactor is currently shut down and there is no impact on the operation of the other reactor).

At the same time we also announced our revised target of annual nuclear output of around 61.5TWh for the 2004/05 financial year. We are satisfied that, in our current circumstances, the impact of this downward revision in output target on the carrying value of our nuclear assets is not material. The expected annual nuclear output for the year ending March 31, 2005 will be given in the prospectus which is to be published pursuant to the Proposed Restructuring.

F-61

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Exelon

As a result of the ongoing discussions with Exelon outlined in Note 33, we are reviewing with Exelon a working capital adjustment resulting from a change to the estimated tax recoverable for prior periods made after the consummation of the sale and this, if agreed, may result in a reduction in the purchase price payable by Exelon, with the reduction currently estimated to be in the range of up to US$6.3m.

Polygon

On September 3, 2004 two groups of shareholders, together holding 10.22% of our ordinary shares, requisitioned an extraordinary general meeting. Those groups of shareholders were Polygon, Brandes and their respective associates. We are, as a result, obliged under the Companies Act to call the Requisitioned EGM.

We announced on September 23, that the Requisitioned EGM will be held on October 22, 2004. On that date we also announced that as a result of this attempt to frustrate the Proposed Restructuring agreed by the Company in October 2003, we would be applying to cancel the listings of our ordinary and A Shares. As a consequence, and as announced on September 23, 2004, the NYSE suspended trading in our ADRs prior to the opening of trading on September 28, 2004. At that time, the NYSE also instituted delisting proceedings. The suspension and possible delisting from the NYSE does not affect our status as a SEC registrant under the US Securities Exchange Act 1934 or our periodic obligations.

On September 24, 2004 the Company announced (i) the unanimous recommendation of the Board to shareholders to vote against the resolutions proposed by Polygon and Brandes at the Requisitioned EGM, (ii) that it intended to seek an extension to the Creditor Restructuring Agreement long stop date of January 31, 2005 for the Proposed Restructuring and (iii) that, in accordance with the Creditor Restructuring Agreement, it would execute a business transfer agreement whereby the Company’s assets would, conditional on the Proposed Restructuring becoming effective, be transferred to a new intermediate holding company of the restructured British Energy group.

On September 30, 2004 Polygon announced that it would withdraw its support for the Requisitioned EGM. Polygon stated that, having considered the Company’s recent circulars, they now believe there is no commercial logic for it supporting the resolutions to be considered at the Requisitioned EGM and consequently have confirmed that they will vote against the resolutions and not further oppose the Proposed Restructuring. The Requisitioned EGM will take place on October 22, 2004 as described in the notice mailed to our shareholders. Our Board continues to reiterate its unanimous recommendation to all shareholders to vote against the resolutions proposed for the Requisitioned EGM.

Corporate Headquarters

On September 15, 2004 we announced the proposed sale of our corporate headquarters located at Peel Park, East Kilbride, Scotland to Kenmore Capital East Kilbride Limited in consideration of a cash payment of £6.625m and a potential additional cash payment of up to £0.25m if certain letting arrangements come to fruition. We have also entered into a ten year lease for part of the building. It is expected that the sale will be completed in January 2005. In August 2004 we signed a lease for our new corporate headquarters in Alba Campus, Livingston, Scotland.

State Aid

On September 22, 2004 we announced the receipt by the Secretary of State of notification from the European Commission that as far as the Proposed Restructuring involves the grant of State Aid by

F-62

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

the UK Government, such aid is compatible with the Common Market. The European Commission’s decision is subject to the following conditions:

• The Company’s nuclear and generation business will be ring-fenced from its fossil fuel, supply and trading businesses to ensure the aid to the nuclear businesses is not used to cross subsidize any of the Company’s businesses. This measure will last indefinitely;

• There will be no nuclear or fossil-fuelled capacity expansion (above our current capacity) by the Company in the European Economic Area for six years, and no hydro-electiric capacity expansion in the UK for the same period; and

• A restriction on the Company selling to its industrial and commercial customers at prices below the prevailing wholesale market prices for six years unless there are exceptional market circumstances as determined by an independent expert.

The European Commission has set down an additional requirement that a threshold of £1.629 billion be set for the aid, above which the European Commission can request enhanced reporting to satisfy themselves that the state aid is being kept to a minimum and is only being used to authorized purposes.

Credit Rating

On September 23, 2004 we announced that we had received indicative non- investment grade ratings for the £550m of new bonds that are to be issued to certain of our creditors and to the Nuclear Liabilities Fund Limited upon completion of the Proposed Restructuring pursuant to the terms announced on October 1, 2003.

Pension Scheme Valuation

A triennial valuation of the Group’s pension schemes is being carried out by the schemes’ actuaries as at March 31, 2004, however, the result of the valuation will not be concluded until October 2004. The combined funding deficiencies (on the actuarial bases used for the valuations) in the two pension schemes is expected to be £385m, within the range of £330m to £440m previously disclosed. The impact of this deficit will be reflected in our financial results for the year ending March 31, 2005.

Classification of British Energy in the Public Sector

On September 24, 2004 the United Kingdom Office for National Statistics (“ONS”) announced that, with effect from September 9, 2002, the date on which the Government Facility was granted, we would be classified as in the public sector. This classification was stated by the ONS to reflect the degree of control that can be exercised by the Government over us, first through the Government Facility, and then as a result of the terms of our Proposed Restructuring. Prior to this announcement the ONS classified British Energy as part of the private sector.

The ONS’s decision was made for UK National Accounts purposes and was dependent upon a judgment about the degree of control exercised by Government. The ONS has acknowledged that, following completion of the Proposed Restructuring, no one factor constitutes the degree of control necessary for a classification in the public sector. The decision is based on the view that, taken together, a number of factors represent a high degree of Government control. The background to and terms of the Proposed Restructuring are detailed in note 1 to the financial statements.

F-63

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The ONS has noted that as the Proposed Restructuring process has not been finalized, some of the details of its decision may change, and as a result this classification (as it applies to the Company post-restructuring) is provisional.

We are currently assessing the implications of this decision for our business. In particular, we are giving thought to those relationships that will exist post-restructuring that may require to be disclosed under FRS 8—“Related Party Disclosures” in our financial statements for the year ending March 31, 2005. We have not, as yet, finalized our conclusions on this but provide the following information to enable an understanding of the nature of our more significant relationships with Government connected with the Proposed Restructuring negotiations that exist at the present time:

Government: We were provided with the Government Facility by Government in September 2002 which matures on January 31, 2005 and has ranged between £200m and £650m during this period. The Government Facility is secured by certain group assets and cross-guaranteed by the principal group entities (excluding Eggborough Power Limited and Eggborough Power Holdings Limited). Under this facility, borrowings peaked at £123m in November 2003. The balance owed as of March 31, 2004 was £nil (£nil as at March 31, 2003). In addition, the Government has also provided various guarantees during this period to support the Company’s collateral and other commitments.

BNFL: We transact with BNFL, a Government owned body, in relation to certain fuel purchases and other fuel related services. In addition, we have in the past sold inventories and provided IT services to BNFL. In relation to fuel purchases and other fuel related services, purchases in the year ended March 31, 2004 amounted to £411m (March 31, 2003 £387m; March 31, 2002 £435m), and amounts owed to/(receivable from) BNFL as at March 31, 2004 were £333m (£127m as at March 31, 2003; £(26)m as at March 31, 2002). Amounts invoiced to BNFL in respect of sales of inventories were £64m in the year ended March 31, 2004 (£50m year ended March 31, 2003; £nil year ended March 31, 2002). Amounts invoiced to BNFL in respect of sales of IT services were £15m in the year ended March 31, 2004 (£3m year ended March 31, 2003; £3m year ended March 31, 2002). In addition, BNFL has provided financial support to the Company since September 2002 in the form of their participation in the Proposed Restructuring by renegotiating the contractual terms as set out in Note 32 to the financial statements and by rescheduling payment terms.

F-64

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

36.    SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”)

(i)    Notes on US GAAP Adjustments (Restated)

British Energy’s consolidated statements have been prepared in accordance with UK GAAP which differs in certain significant respects from US GAAP. The effects of the US GAAP adjustments, as restated, to the profit/(loss) and equity shareholders’ deficit are set out in the tables below.

Effect on Profit/(Loss) of Differences Between UK GAAP and US GAAP

	Note		2004		2003		2002
			£m		£m		£m
					(Restated)		(Restated)
Profit/(loss) for the year under UK GAAP			234		(3,941	)	(527	)
US GAAP adjustments:
Decommissioning costs	(a	)	13		(70	)	(151	)
Back end fuel costs	(a	)	37		(450	)	(155	)
Decommissioning fund	(b	)	(87	)	—		6
Amortization of capitalized interest	(c	)	—		(6	)	(4	)
Bonds renegotiation	(d	)	(5	)	(9	)	(9	)
Employee stock compensation schemes	(e	)	—		—		(4	)
Employee share trusts	(f	)	—		102		12
Capitalization of Bruce costs	(g	)	—		(1	)	(5	)
Pension costs	(h	)	(48	)	(1	)	(8	)
Investment in joint venture	(i	)	142		42		(5	)
Disposal of joint venture and Bruce Power	(j	)	(157	)	29		—
FAS 133 adjustments	(k	)	(90	)	(112	)	236
Fixed asset impairment adjustments	(l	)	(225	)	(2,942	)	300
Adjustment for Bruce Power lease	(m	)	—		(11	)	(11	)
Deferred income tax	(n	)	2,114		(1,420	)	38
Tax effect of US GAAP adjustments			95		990		30
Profit/(loss) for the financial year under US GAAP before cumulative adjustment			2,023		(7,800	)	(257	)
Cumulative adjustment for FAS 143 (net of tax)	(a	)	5,539		—		—
Cumulative adjustment for FAS 133 (net of tax)	(k	)	—		—		(86	)
Profit/(loss) for the year under US GAAP			7,562		(7,800	)	(343	)
			2004		2003		2002
					(Restated)		(Restated)
Basic and diluted net earnings/(loss) per share under US GAAP			1,256	p	(1,296	)p	(57	)p
Basic and diluted net earnings/(loss) per share under US GAAP—continuing operations			1,256	p	(1,305	)p	(60	)p
Basic and diluted net earnings per share under US GAAP—discontinued operations			—		9	p	3	p
Basic and diluted earning/(loss) per share before cumulative adjustments			336	p	(1,296	)p	(43	)p
Basic and diluted earnings/(loss) per share arising from cumulative adjustment for FAS 143 (2002: FAS 133)			920	p	—		(14	)p
			1,256	p	(1,296	)p	(57	)p

F-65

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Effect on Equity Shareholders’ Deficit of Differences Between UK GAAP and US GAAP

	Note		2004		2003
			£m		£m
					(Restated)
Equity shareholders’ deficit under UK GAAP			(3,257	)	(3,476	)
US GAAP Adjustments:
Decommissioning costs	(a	)	663		(1,375	)
Back end fuel costs	(a	)	1,624		(1,630	)
Capitalization of interest	(c	)	54		54
Bonds renegotiation	(d	)	24		29
Employee share trusts	(f	)	(2	)	(2	)
Capitalization of Bruce costs	(g	)	(16	)	(16	)
Pension costs	(h	)	(215	)	(215	)
Investment in joint venture	(i	)	175		33
Disposal of joint venture and Bruce Power	(j	)	(128	)	29
FAS 133 adjustments	(k	)	(87	)	3
Fixed asset impairment adjustments	(l	)	(196	)	(2,642	)
Adjustment for Bruce Power lease	(m	)	(22	)	(22	)
Deferred income tax	(n	)	375		(1,739	)
Tax effect of US GAAP adjustments			(554	)	1,739
Deficit on Equity shareholders’ funds under US GAAP			(1,562	)	(9,230	)

Reconciliation of movement in deficit on equity shareholders’ funds under US GAAP

	2004		2003
	£m		£m
			(Restated)
As at April 1, 2003	(9,230	)	(1,145	)
Profit/(loss) for the year under US GAAP	7,562		(7,800	)
Dividends under US GAAP	—		(32	)
Cumulative translation adjustments	(15	)	(25	)
Other comprehensive income—FAS 133	—		21
Additional minimum pension liability	34		(249	)
Unrealized gain on available-for-sale securities	87		—
As at March 31, 2004	(1,562	)	(9,230	)

F-66

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The cumulative effect of the differences between UK GAAP and US GAAP on the consolidated balance sheets of the Group at March 31, 2004 and 2003 is set out in the following summarized US GAAP balance sheet information:

	As at March 31, 2004		As at March 31, 2003
	£m		£m
			(Restated)
Assets
Current Assets	943		736
Property, Plant and Equipment	1,166		997
Deferred Debits and Other Assets	444		442
Total Assets	2,553		2,175
Liabilities and Shareholders’ Equity
Current Liabilities	1,525		1,190
Long-term Debt	662		702
Deferred Credits and Other Liabilities	1,835		9,420
Shareholders’ Equity	(1,469	)	(9,137	)
Total Liabilities and Shareholders’ Equity	2,553		2,175

(ii)    Restatement of Prior Year Results

We adopted Statement of Financial Accounting Standards (“FAS”) 133—“Accounting for Derivative and Hedging Activities”, as amended—(‘FAS 133’), as of April 1, 2001.

Upon adoption of FAS 133, we identified certain electricity purchase and sale contracts as being derivatives in accordance with FAS 133. For the years ended March 31, 2002 and 2003 certain of these contracts were not included in the annual mark to market calculations on the basis that they qualified for the Normal Purchase Normal Sale (“NPNS”) scope exemption.

During the year ended March 31, 2004 we adopted FAS 149—“Accounting for Derivative and Hedging Activities”. As part of the process of implementing FAS 149 we conducted a broader review of our compliance with derivative accounting regulation. During this exercise, the Group determined that the analysis supporting NPNS, and the documentation of compliance with the requirements of FAS 133 was not sufficient to support the accounting method previously applied. As a result of the review we determined that it was necessary to restate the results for 2002 and 2003. The impact of the restatement on the US GAAP financial statements is as follows:

March 31, 2003

March 31, 2002

As previously reported

Impact of Restatement

As restated

As previously reported

Impact of Restatement

As restated

£m

Earnings per share

£m

Earnings per share

£m

Earnings per share

£m

Earnings per share

£m

Earnings per share

£m

Earnings per share

US GAAP net loss (net of tax) before cumulative adjustment for FAS 133

(7,732

)

(1,284

)p

(68

)

(12

)p

(7,800

)

(1,296

)p

(337

)

(56

)p

80

13p

(257

)

(43

)p

F-67

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

	March 31, 2003												March 31, 2002
	As previously reported				Impact of Restatement				As restated				As previously reported				Impact of Restatement			As restated
	£m		Earnings per share		£m		Earnings per share		£m		Earnings per share		£m		Earnings per share		£m		Earnings per share	£m		Earnings per share
Cumulative adjustment for FAS 133 (net of tax)	—		—		—		—		—		—		(89	)	(15	)p	3		1p	(86	)	(14	)p
Loss for the year under US GAAP	(7,732	)	(1,284	)p	(68	)	(12	)p	(7,800	)	(1,296	)p	(426	)	(71	)p	83		14p	(343	)	(57	)p
Tax Effect of US GAAP adjustments	959		—		31		—		990		—		65		—		(35	)	—	30		—
Deficit on equity shareholders’ funds under US GAAP	(9,245	)	—		15		—		(9,230	)	—		(1,228	)	—		83		—	(1,145	)	—

(iii)    Notes on US GAAP Adjustments

(a)    Decommissioning Costs and Back End Fuel Costs

Effective April 1, 2003, the Group changed its method of accounting for asset retirement obligations upon adoption of FAS 143—“Accounting for Asset Retirement Obligations”. The adoption of FAS 143 has an impact on the way the Group has accounted for decommissioning costs and contracted and uncontracted back end fuel costs. The impact of adopting FAS 143 on these specific liabilities is discussed in greater detail below.

Under the new accounting method, the Group determines the fair value of the asset retirement obligation by discounting the expected future cash flows at the credit adjusted risk free rate effective at the date of adoption. Upon adoption of FAS 143, an asset retirement cost is capitalized by increasing the carrying amount of the related long-lived asset. For the purposes of calculating its asset retirement obligation under FAS 143, the Group has used a long-term real rate of interest of 12.2% per annum which is equivalent to its credit adjusted risk free rate. The charge to the profit and loss account under US GAAP reflects the accretion of the asset retirement obligation and the depreciation of the asset retirement cost.

The cumulative effect of the change on prior years resulted in a credit to income of £5,539m (net of taxes of £2,374m), which is included in the reconciliation of profit and loss between UK GAAP and US GAAP for the year ended March 31, 2004.

The following table illustrates the component values of the cumulative effect and related tax for year ended March 31, 2004:

	Decommissioning		Back End Fuel		Total
	£m		£m		£m
Cumulative adjustment	4,696		3,217		7,913
Tax	(1,409	)	(965	)	(2,374	)
Cumulative adjustment net of tax	3,287		2,252		5,539

F-68

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Had FAS 143 been adopted on April 1, 2002, the asset retirement obligation would have been as follows:

	March 31, 2004	March 31, 2003	April 1, 2002
	£m	£m	£m
Decommissioning costs	301	263	228
Back end fuel costs	1,722	1,530	1,379
Total asset retirement obligation	2,023	1,793	1,607

The following table sets out net (loss)/income, adjusted as if FAS 143 had been applied effective April 1, 2001:

	2003		2002
	£m		£m
	(Restated)		(Restated)
Reported (loss) before adopting FAS 143	(7,800	)	(343	)
Earnings effect of adopting FAS 143	3,140		455
Pro forma net (loss)/income	(4,660	)	112
Pro forma basic and diluted (loss)/net earnings per share under US GAAP	(774	)p	19	p

The asset retirement obligation is adjusted each period for any liabilities incurred during the period, accretion expense and any revisions made to the estimated cash flows.

The following table illustrates the reconciliation of the asset retirement obligation liability for the year ended March 31, 2004:

	Decommissioning	Back End Fuel		Total
	£m	£m		£m
Balance as at April 1, 2003	263	1,530		1,793
Liabilities incurred during the year	—	46		46
Liabilities settled during the year	—	(60	)	(60	)
Accretion expense	38	206		244
Balance as at March 31, 2004	301	1,722		2,023

The previous accounting treatment, the impact of FAS 143 and the differences between UK GAAP and US GAAP are considered for decommissioning costs and back end fuel costs below.

Decommissioning Costs

The estimated costs of decommissioning the Group’s power stations are provided for when stations begin operating commercially and are capitalized as part of the costs of construction and are depreciated over the same lives as the stations. Under UK GAAP these estimated costs are initially recorded in the balance sheet at current prices and discounted at a long-term real rate of interest of 3% per annum to take account of the time scale whereby the work will take place many years after station closure (this equates to a present value calculated by assuming an inflation rate of 2.1% and a risk free discount rate of 5.2%). In each subsequent year, the provision is revalorized to reflect the movement in current price levels and the unwinding of one year’s discount. This revalorization is classified as a financing charge in the UK GAAP income statement.

F-69

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Under US GAAP, prior to the adoption of FAS 143, liabilities in respect of decommissioning were recognized on an undiscounted basis and the annual movement in current price levels was capitalized each year. Following the adoption of FAS 143, the decommissioning liabilities are discounted at a credit adjusted risk free rate of return, which results in a higher discount rate under US GAAP than that applied under UK GAAP.

The higher discount factor adopted for US GAAP results in a lower decommissioning liability as at March 31, 2004 than that reported for UK GAAP purposes. The lower liability has also resulted in a lower accretion charge for the year under US GAAP.

The difference between UK GAAP and US GAAP relating to decommissioning costs is analyzed below, showing the effect on separate line items in each year and the impact of the adoption of FAS 143.

	2004		2003
	£m		£m
Balance Sheet
Fixed assets
Cost	4,913		4,913
Cumulative adjustment for FAS 143	(5,202	)	—
Total difference in cost between UK GAAP and US GAAP	(289	)	4,913
Depreciation	(2,326	)	(2,326	)
Cumulative adjustment for FAS 143	2,531		—
Total difference in depreciation between UK GAAP and US GAAP	205		(2,326	)
Total difference in net book value between UK GAAP and US GAAP (before impairment charge see note (l))	(84	)	2,587
Decommissioning liability	(3,949	)	(3,962	)
Cumulative adjustment for FAS 143	4,696		—
Total difference in decommissioning liability between UK GAAP and US GAAP	747		(3,962	)
Total shareholders’ funds adjustment	663		(1,375	)

	2004	2003		2002
	£m	£m		£m
US GAAP adjustments to Profit and Loss Account
Depreciation expense of undiscounted decommissioning costs	—	(127	)	(199	)
Accretion of decommissioning liability	13	57		48
Total profit and loss adjustment	13	(70	)	(151	)

Back End Fuel Costs

Back end fuel costs comprise the estimated costs of reprocessing and storage of spent nuclear fuel and the long-term storage, treatment and eventual disposal of resulting waste products. The vast majority of these costs relate to reprocessing, treatment and storage services that are the subject of contracts with BNFL. The other costs, which are not subject to fixed contractual arrangements, primarily represent estimated disposal costs and are based on long-term cost forecasts which are regularly reviewed and adjusted where necessary.

F-70

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Under UK GAAP, both contracted and uncontracted back end fuel cost liabilities are recorded in the balance sheet at current price levels and discounted at a real rate of interest of 3% per annum to take account of the timing of payments (this equates to a present value calculated by assuming an inflation rate of 2.1% and a risk free discount rate of 5.2%).

Under US GAAP, prior to the adoption of FAS 143, uncontracted back end fuel liabilities were recognized on an undiscounted basis, because the precise amount and timing of the related payments are not fixed or reliably determinable. This difference in methodology between UK GAAP and US GAAP resulted in significant adjustments to the profit and loss account and shareholders’ funds under US GAAP. Previously, the Group treated contracted back end fuel liabilities using the same methodology for both US GAAP and UK GAAP.

Upon adoption of FAS 143, both contracted and uncontracted back end fuel liabilities are discounted at the Group’s credit adjusted risk free rate under US GAAP. As such, there is a difference between UK GAAP and US GAAP for both contracted and uncontracted back end fuel liabilities as a result of the difference in the discount factor used. The tables below reconcile the shareholders’ funds adjustment and analyzes the effect on profit before tax of differences between UK GAAP and US GAAP with regard to contracted and uncontracted back-end fuel costs.

	2004		2003
	£m		£m
Back end fuel liability—UK GAAP	3,176		2,941
Back end fuel liability (net)—US GAAP	(1,552	)	(4,571	)
Total shareholders’ funds adjustment	1,624		(1,630	)

	2004		2003		2002
	£m		£m		£m
Adjustments from UK to US GAAP	37		(450	)	(155	)
US GAAP Adjustments:
Back-end fuel costs	130		(460	)	(150	)
Reclassifications	—		32		—
Amortization	(51	)	—		—
Revalorization of back-end fuel costs	(42	)	(22	)	(5	)
Back-end fuel costs	37		(450	)	(155	)

(b)    Decommissioning Fund

The amount of the Group’s decommissioning fund as recorded in its UK GAAP balance sheet represents the contributions made by the Group, together with an estimated actuarially determined long-term rate of return on the fund. The change in amount arising from applying the estimated long-term rate of return is taken to the profit and loss account and disclosed as part of revalorization. See note 2(xvii). If the actuarial value exceeds the market value of the investment in the fund then the decommissioning fund is stated at the lower amount.

Under US GAAP, the debt and equity securities held by the Group’s independently administered decommissioning fund are classified as “available-for-sale” securities within Investments (non-current) and stated at market value. Under UK GAAP there was an exceptional credit of £59m made in the year ended March 31, 2004 (2003: charge of £124m) to write up (2003: down) the carrying value of the investments to market value. Consequently there is no difference in the carrying amount of these investments between UK GAAP and US GAAP in the year ended March 31, 2004 or March 31, 2003.

F-71

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

In accordance with FAS 115, “Accounting for Certain Investments in Debt and Equity Securities”, these securities are reported at their estimated fair value of £440m as of March 31, 2004 and £334m as of March 31, 2003 in the Group’s Consolidated Balance Sheet under “Decommissioning Fund”. Realized gains and losses from these securities are included in profit. Unrealized gains and losses are excluded from profit until realized and reported as a separate component of equity shareholders’ funds unless the unrealized loss is deemed to be “other-than-temporary”. At March 31, 2003 the decline in value was deemed to be “other-than-temporary” by the Directors, and a charge of £94m was recorded in the profit and loss account for US GAAP. This charge represented the sum of the exceptional and revalorization charge recorded for UK GAAP in the year ended March 31, 2003.

Information on investments in securities held by the decommissioning fund by major security type (in millions):

	March 31, 2004					March 31, 2003
	Gross gains/(losses) (£m)					Gross gains/(losses) (£m)
	Cost	Unrealized Gain	Unrealized Loss		Fair value	Cost	Unrealized Gain	Unrealized Loss		Realized Loss		Fair value
UK equities	173	53	(9	)	217	225	8	(4	)	(62	)	167
Non-UK equities	100	36	(2	)	134	123	8	(2	)	(30	)	99
Index linked gilts	38	5	—		43	23	3	(1	)	—		25
Property	42	5	(1	)	46	43	2	—		(2	)	43
	353	99	(12	)	440	414	21	(7	)	(94	)	334

Using the specific identification method to determine cost, the gross realized gains and losses were:

	2004	2003
	£m	£m
Gross realized losses	—	(94	)
	—	(94	)

Proceeds from sales of available-for-sale securities were £40m and £69m during the years ended March 31, 2004 and 2003 respectively. These proceeds were not withdrawn from the fund.

(c)    Capitalization and Amortization of Capitalized Interest

Under UK GAAP, interest payable may be capitalized where borrowings are specifically financing the construction of a major capital project with a long period of development. Up until April 1, 2001 British Energy had elected not to capitalize interest. US GAAP requires that interest incurred on borrowings, which could have been avoided if the expenditure on the asset had not been made must be included in tangible fixed assets and depreciated over the lives of the related assets. For US GAAP purposes the amount of interest capitalized is determined by reference to average interest rates on outstanding long-term borrowings. As a result of the impairment review performed in 2003 the interest capitalized under US GAAP was fully impaired. Under US GAAP, the gross amount of capitalized interest is £2,037m (2003: £2,037m), the total accumulated depreciation is £1,983m (2003: £1,983m). An additional £54m of capitalized interest was included in the fixed asset impairment charge at March 31, 2003.

F-72

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(d)    Bonds Renegotiation

Under UK GAAP, gains and losses on linked transactions should be recognized only where justified by a change in the substance of the entity’s assets and liabilities. The Group concluded that the repurchase and sale of bonds constituted two distinct transactions that caused a significant change in the substance of its commitments due to the increase in the bond principal and changes in underlying covenants.

For US GAAP purposes, only gains and losses arising from an exchange of debt instruments with a substantially different economic substance should be recognized. A modification of debt is considered substantially different if the present value of the cash flows under the terms of the new debt instrument differ by at least ten percent from the present value of the remaining cash flows under the terms of the original instrument. The renegotiation occurred immediately before March 31, 1999. The increase in principal of £66m is amortized, on a weighted average basis, over the life of the bonds.

(e)    Employee Stock Compensation Schemes

The Group has three stock compensation schemes—a ShareSave Scheme, an Employee Share Scheme and an Executive Share Option Scheme. Under UK GAAP, the ShareSave Scheme is specifically exempt by the Inland Revenue from the requirement to recognize compensation cost. For the Employee Share Scheme and the Executive Share Option Scheme, the total compensation charge is recognized as the difference between the cost of the shares and the price at which the options can be exercised. This charge is amortized over the period from the grant date to the earliest date of exercise. No options were granted under any of the schemes during the period.

F-73

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Under US GAAP, the Group has elected to account for its stock compensation schemes in accordance with FAS 123—“Accounting for Stock-Based Compensation” using the Black-Scholes option-pricing model, under which a fair value is calculated for the share option schemes as at the date of grant of the options. This fair value, less amounts to be contributed by employees is charged to the profit and loss account over the period from the date the options were granted to the date at which the options are expected to vest to the employees. The corresponding credit is included in Shareholders’ Funds. The additional amount recognized in income under US GAAP as compensation expense for the period was £nil (2003: £nil, 2002: £4m) A reconciliation of the options outstanding is as follows:

	ShareSave Scheme				Employee Share Scheme				Executive Share Option Schemes
	Number of Shares		Weighted Average Exercise Price per Share		Number of Shares		Weighted Average Exercise Price per Share		Number of Shares		Weighted Average Exercise Price per Share
Outstanding March 31, 2001	21,850,582		£	1.63	16,906,495		£	3.99	6,278,104		£	3.30
Options granted	7,376,968		£	2.45	—			—	125,786		£	3.18
Options exercised	(8,818,218	)	£	1.60	(647,282	)	£	2.60	(61,538	)	£	2.60
Options forfeited	(1,079,866	)	£	2.52	(869,210	)	£	4.35	(1,221,004	)	£	3.53
Outstanding March 31, 2002	19,329,466		£	1.89	15,390,003		£	4.03	5,121,348		£	3.25
Options granted	9,194,761		£	1.36	—			—	—			—
Options exercised	(13,348	)	£	1.36	—			—	—			—
Options forfeited	(9,437,499	)	£	2.13	(512,400	)	£	4.04	(1,139,165	)	£	3.22
Outstanding March 31, 2003	19,073,380		£	1.52	14,877,603		£	4.03	3,982,183		£	3.26
Options granted	—			—	—			—	—			—
Options exercised	—			—	—			—	—			—
Options forfeited	(10,554,884	)	£	1.51	(340,599	)	£	4.08	(361,935	)	£	3.25
Outstanding March 31, 2004	8,518,496		£	1.52	14,537,004		£	4.03	3,620,248		£	3.26

Of the options outstanding, 18,097,701 were exercisable as at March 31, 2004 (2003: 17,097,248, 2002: 13,401,538)

At March 31, 2004 the option groups outstanding, based on a range of exercise prices, were as follows:

	Option Groups Outstanding
	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
ShareSave Scheme
£1.36 to £2.29	7,568,229	2.6	£	1.36
£2.30 to £4.44	950,267	1.8	£	2.80
Employee Share Scheme
£2.60 to £4.07	6,282,958	3.3	£	2.60
£4.08 to £5.29	8,254,046	4.7	£	5.12
Executive Share Option Schemes
£2.41 to £3.17	2,478,144	3.0	£	2.49
£3.18 to £5.08	642,070	2.4	£	4.59
£5.09 to £6.67	500,034	2.4	£	5.35

F-74

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Using the Black-Scholes option-pricing model, the weighted average fair values on the date the options were granted were as follows:

	ShareSave Scheme		Employee Share Scheme		Executive Share Option Schemes
	2004	2003	2004	2003	2004	2003
	£	£	£	£	£	£
Weighted average fair value of those options for which the exercise price:
—exceeded market price on date of grant	—	0.27	—	—	—	—

The following assumptions were used in the Black-Scholes option-pricing model:

	ShareSave Scheme			Employee Share Scheme		Executive Share Option Schemes
	2004	2003		2004	2003	2004	2003
Risk free interest rate	—	4.5-4.7	%	—	—	—	—
Expected dividend yield	—	5.7	%	—	—	—	—
Expected volatility	—	55	%	—	—	—	—
Expected life (years)	—	3.1-5.1		—	—	—	—

The risk free rate is the yield on the date of grant of an UK government bond with the closest maturity to the expected term of the option.

(f)    Employee Share Trusts

Under UK GAAP, the Company’s shares held in Employee Share Trusts are classified as “own shares” within fixed assets. The cost of these shares to the Employee Share Trusts is subsequently written down to the amount expected to be received from employees over the period at the end of which the underlying options are exercisable by the employees. Under US GAAP, the issuance or sale of the Company’s shares to the Employee Share Trusts is recorded as a debit balance within equity shareholders’ funds. This account is subsequently credited as options are exercised, based on the cost of the shares to the Employee Share Trusts.

In 2002/03 as the long-term prospects of the Company had deteriorated considerably, a charge of £102m was recorded under UK GAAP to recognize a permanent diminution in the value of the shares held. Therefore, for US GAAP purposes this amortization and impairment were reversed.

(g)    Capitalization of Bruce Costs

UK GAAP allows for certain direct and indirect costs attributable to bringing an asset into working condition to be capitalized. Such costs would be written off over the estimated useful life of the associated asset. Certain of these costs would not be permitted to be capitalized under US GAAP and would be expensed as incurred. British Energy disposed of its interests in Bruce Power on February 14, 2003.

(h)    Pension Costs

Under UK GAAP, the cost of providing pension benefits is expensed over the average expected service lives of eligible employees in accordance with the provisions of Statement of Standard

F-75

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Accounting Practice (SSAP) 24, which aims to produce an estimate of cost based on long-term actuarial assumptions. Variations from the regular pension cost arising from, for example, experience deficiencies or surpluses, are charged or credited to the income statement over the expected average remaining service lives of current employees in the schemes.

Under US GAAP, employee pension costs are recognized in accordance with FAS 87—“Employers’ Accounting for Pensions”. FAS 87 requires the use of an actuarial method for determining defined benefit pension costs and provides for the deferral of actuarial gains and losses (in excess of a specified corridor) that result from changes in assumptions or actual experience differing from that assumed. FAS 87 also provides for the prospective amortization of costs related to changes in the benefit plan, as well as the obligation resulting from the transition. US GAAP also requires disclosure of the components of periodic pension cost and the funded status of the pension plans.

The following analysis sets out the disclosures applicable to continued and discontinued operations. The discontinued operations amounts in 2003 relate to Bruce Power (which was sold on February 14, 2003) and are set out on a 100% holding basis. British Energy’s share in Bruce Power was 82.4% prior to disposal.

	2004		2003
			Discontinued Canadian Operations		Continued Operations		Total
	£m		£m		£m		£m
Change in benefit obligation:
Projected benefit obligation at beginning of year	1,905		402		1,821		2,223
Foreign exchange movement	—		(42	)	—		(42	)
Service cost	34		13		28		41
Interest cost	103		22		107		129
Contributions by plan participants	10		4		10		14
FAS 88 termination cost	1		—		13		13
Net actuarial loss	200		—		6		6
Benefits paid	(81	)	(1	)	(80	)	(81	)
Settlement of benefit obligation	—		(398	)	—		(398	)
Benefit obligation at end of year	2,172		—		1,905		1,905
Change in plan assets:
Fair value of plan assets at beginning of year	1,525		423		1,842		2,265
Foreign exchange movement	—		(44	)	—		(44	)
Actual return on plan assets	334		(24	)	(278	)	(302	)
Employer contributions	34		—		31		31
Non participants contributions	10		4		10		14
Benefits paid	(81	)	(1	)	(80	)	(81	)
Settlement of plan asset	—		(358	)	—		(358	)
Fair value of plan assets at end of year	1,822		—		1,525		1,525

F-76

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

	2004		2003
			Discontinued Canadian Operations		Continued Operations		Total
	£m		£m		£m		£m
Net pension liability recognized:
Funded status	(350	)	—		(380	)	(380	)
Unrecognized transition asset	(35	)	—		(46	)	(46	)
Unrecognized prior service cost	38		—		41		41
Unrecognized net actuarial loss	548		—		600		600
Net amount recognized	201		—		215		215
Additional minimum liability	(346	)	—		(397	)	(397	)
Net pension liability	(145	)	—		(182	)	(182	)
Net periodic pension cost:
Service cost	34		13		29		42
Interest cost	103		22		107		129
Expected return on plan assets	(105	)	(25	)	(131	)	(156	)
Amortization of transition asset	(12	)	—		(12	)	(12	)
Amortization of prior service costs	3		—		3		3
Amortization of actuarial loss	24		—		—		—
Net periodic pension charge/(credit)	47		10		(4	)	6
FAS 88 termination cost—current year	1		27		13		40
Net periodic pension cost	48		37		9		46

The above FAS 88—“Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” cost refers to the cost of providing enhanced early retirement benefits to certain members following redundancy.

	2004		2003	2002
	%		%	%
Assumptions used to determine benefit obligations and net periodic pension costs were as follows:
UK
Discount rate	5.50	%	5.50%	6.00%
Expected return on plan assets	7.10	%	7.00%	7.25%
Rate of compensation increase	4.25	%	3.75%	4.50%
Pension increases	2.75	%	2.25%	2.50%
Canada
Discount rate	—		7.00%	7.00%
Expected return on plan assets	—		7.50%	7.50%
Rate of compensation increase	—		3.75% plus merit	3.70% plus merit
Pension increases	—		2.75%	2.75%

F-77

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Under US GAAP the cost of other post retirement benefits (excluding pension costs) are recognized in accordance with FAS 106—“Employers’ Accounting for Post Retirement Benefits other than Pensions”. FAS 106 requires the use of an actuarial method for determining other post retirement benefits. FAS 106 only applied to our Canadian operation which was sold on February 14, 2003. The disclosures required under US GAAP are set out below on a 100% holding basis. British Energy’s share of Bruce Power was 82.4% prior to disposal.

	2004	2003
	£m	£m
Changes in benefit obligation
Bruce obligation transferred in	—	46
Service costs	—	2
Interest cost	—	3
Amendments	—	7
Settlement of benefit obligation	—	(58	)
Benefit obligation at end of year	—	—

There were no plan assets during the period for the purposes of FAS 106.

The Group adopted FAS 132(R)—“Employers’ Disclosures about Pensions and Other Postretirement Plans” for the year ended March 31, 2004. The standard requires that more details are provided about plan assets, benefit obligations, cash flows, benefit cost and other relevant information. These additional disclosures are presented below.

Measurement and Valuation Method

The measurement date was March 31, 2004. The assets were valued using the market value method. The 10% corridor for amortising gains and losses has been utilized.

Plan Assets

	2004		2003
Asset category	Percentage of Plan assets	Expected return On assets	Percentage of Plan assets	Expected return On assets
	%	%	%	%
Equity securities	61	8.25	58	8.5
Debt securities	26	4.75	29	4.5
Real estate	12	6.4	12	6.5
Other	1	3.75	1	3.75
Total	100	7.1	100	7.0

The overall expected return on asset assumption is derived from the weighted average of the expected returns from each of the main asset classes at the beginning of the period. The expected return for each asset class represents a combination of historical performance analysis, forward looking views of the financial markets (suggested by the yields available) and the views of investment organisations.

F-78

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Description of Investment Policies

The Trustees of the BEGG pension scheme, which makes up 98% of the total assets of the pension schemes, are responsible for the investment strategy of the Scheme, in consultation with the Company. The objective is to have sufficient assets, in normal market conditions, to meet the accrued benefits on an ongoing basis, as assessed by the Actuary to the Scheme. The Trustees have determined a long term benchmark which takes into account the relationship between the assets and liabilities in the Scheme, and is on the basis of approximately half of the assets being held in UK bonds, with the balance invested in long term higher return seeking assets such as equities and property. The Trustees believe this provides an adequate balance between maximising the return on the assets and minimising the risk of failing to meet the liabilities over the long term. The long term benchmark is being phased in gradually, with the timing being driven primarily by the relative movement between the yields on UK equities and bonds, with the aim of avoiding switching from equities into bonds in adverse market conditions. The assets are invested in a diversified range of asset classes and investment managers. A similar approach is adopted by the BECG, though the actual strategy differs as it takes into account the BECG liability profile.

Cashflows

	2004	2003
	£m	£m
Employer’s contribution	34	31
Benefit payments	81	80

The employer’s contributions estimated for the year ending March 31, 2005 is £33m.

Reconciliation of prepaid pension cost

	2004		2003
	£m		£m
Prepaid pension cost at start of year (before adjustment to recognize minimum liability)	215		193
Company net pension cost	(48	)	(9	)
Company contributions	34		31
Prepaid pension cost at end of year (before adjustment to recognize minimum liability)	201		215

Accumulated Benefit Obligation, minimum liability, intangible asset and other comprehensive income

	2004		2003
	£m		£m
Accumulated benefit obligation (ABO)	1,967		1,707
Plan assets at market value	1,822		1,525
Minimum liability (excess of ABO over market value of assets)	145		182
Prepaid pension cost at end of year (before adjustment to recognize minimum liability)	201		215
Additional minimum liability	346		397
Intangible asset	(38	)	(41	)
Accumulated Other Comprehensive Income	308		356

F-79

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

(i)    Investment in Joint Venture

The management accounts of AmerGen are prepared on a US GAAP basis and these are translated into a UK GAAP basis when they are reported through to the Group for incorporation into the Group’s UK statutory accounts. There are a number of differences between US GAAP and UK GAAP, primarily relating to the acquisition of AmerGen nuclear power stations, and the valuation of decommissioning fund assets and decommissioning liabilities, including the adoption of FAS 143 for US GAAP purposes. These differences impact on reported income and the carrying values of its investment in AmerGen on the Group’s balance sheet.

(j)    Disposal of Joint Venture and Bruce Power

The UK GAAP results for the year ended March 31, 2003 include a loss of £35m in respect of the disposal of our interests in Bruce Power and Huron Wind. However, the book value of the Bruce Power assets which were disposed of as recorded under US GAAP differed from the UK GAAP book value as a result of the accounting adjustments described in (g), (h), (k) and (m), and exclusion of a pension payment received after the balance sheet date which had been recorded in the UK GAAP results at March 31, 2003.

During the current year the Group disposed of its 50% interest in AmerGen. The cumulative effect of differences between UK GAAP and US GAAP as described at note (i) above has resulted in an additional loss on disposal for US GAAP purposes of £175m due to there being a higher carrying value of the investment in AmerGen under US GAAP. The remaining adjustment in 2003/04 relates to Bruce Power.

(k)    FAS 133 Adjustments

The Group uses derivative instruments in the normal course of business to offset fluctuations in earnings and cash flows associated with movements in exchange rates, interest rates and commodity prices. As explained more fully in Note 2 (xix), energy trading financial derivatives and open positions on physical energy trading contracts are recognized as either assets or liabilities and are marked to market each reporting period using externally derived market prices under UK GAAP. Subsequent movements in their fair value are reflected in the profit and loss account. Interest rate swaps and forward rate agreements are not marked to market each reporting period. Rather profits and losses on such derivatives are reported in the profit and loss account in the period in which the underlying hedging transactions are completed. When an anticipated transaction is no longer likely to occur, any deferred gain or loss that has arisen on the related derivative is recognized in the profit and loss account together with any gain or loss on the terminated item. FAS 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by FAS 137—“Accounting for Derivative Instruments and Hedging Activities—deferral of the effective date of FASB statement No. 133”, FAS 138—“Accounting for certain Derivative Instruments and certain Hedging Activities and FAS 149 (hereinafter referred to collectively as ‘FAS 133’) was adopted by the Group with effect from April 1, 2001. FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities.

US GAAP requires that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value each reporting period. US GAAP prescribes specific requirements for designation and documentation of hedging relationships and ongoing assessments of effectiveness in order to qualify for hedge accounting.

F-80

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Derivative instruments are generally not held by the Company for speculative trading purposes. To the extent that such instruments are held for speculative trading purposes they are measured at fair value with gains and losses recorded in earnings. The fair value of trading derivatives at March 31, 2004 was £21m positive (2003: £9m positive).

In 2002/03 the remaining £21m of the cumulative effect of adopting FAS 133 at April 1, 2001 that was reported in other comprehensive income was recognized in earnings at March 31, 2003. This was due to the reduced term of the underlying debt and the resulting ineffectiveness of such interest rate swaps.

Certain contracts that meet the definition of derivative under FAS 133 may qualify as a normal purchase or a normal sale and be excluded from the scope of FAS 133. Specific criteria must be met in order for a contract that would otherwise be regarded as a derivative to qualify as a normal purchase or a normal sale. The Group has evaluated all commodity contracts to determine if they meet the definition of a derivative and qualify as a normal purchase or a normal sale. The Group also evaluates contracts for “embedded” derivatives, and considers whether any embedded derivatives have to be separated from the underlying host contract and accounted for separately in accordance with FAS 133 requirements. Where embedded derivatives have terms that are not clearly and closely related to the terms of the host contract in which they are included, they are accounted for separately from the host contract as derivatives, with changes in the fair value recorded in earnings, to the extent that the hybrid instrument is not already accounted for at fair value. As noted in note (ii), during the year ended March 31, 2004 management conducted a broad review of the Group’s compliance with derivative accounting regulations. During this exercise, the Group determined that the analysis supporting NPNS, and the documentation of compliance with the requirements of FAS 133 to claim the election was not sufficient to support the accounting method previously applied.

(l)    Fixed Asset Impairment Adjustments

In the March 31, 2004 UK GAAP accounts the Directors reassessed the carrying value of fixed assets compared with the economic value and net realizable value of those assets. In carrying out the economic valuations, significant estimates were made of the future cash flows being generated by the assets, taking into account current and expected future market conditions and the expected lives of the Group’s power stations. The actual outcome can vary significantly from these future forecasts, thereby affecting the Group’s assessment of expected future cash flows. The expected future cash flows were discounted at a rate approximating the Group’s weighted average cost of capital as this is the rate most representative of those assets. The assessment resulted in the value of the power stations being written up by £295 million (2003: written down by £3,738 million) for UK GAAP reported results.

The Directors have also performed an impairment review of the Group’s fixed assets under US GAAP, using consistent assumptions and estimates as those used for purposes of the impairment review under UK GAAP. However under US GAAP, fixed assets are written down to their fair value only when their carrying value exceeds their undiscounted future cash flows. In the current year the US GAAP impairment test indicated that the carrying value of the Group’s power stations did not exceed their undiscounted future cash flows. The Group did not reverse any previous year impairment charges as this is not permitted under US GAAP. The additional US GAAP impairment charge in 2003 was due to the different treatment of certain plant costs, such as capitalized interest and decommissioning. Significant estimates are made when performing an impairment review. A change in any estimates of the future cash flows or in the method of determining the fair value of the Group’s power stations could result in a different impairment charge.

F-81

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

Upon adoption of FAS 143 at April 1, 2004, approximately £2,671m of the US GAAP impairment charge recorded at March 31, 2003 was reversed and credited to the 2004 profit and loss account. This amount represents the reversal of the historical impairment charge taken prior to adoption of FAS 143 on the undiscounted asset retirement cost. In accordance with the FAS 143 transition provisions, this amount was credited to the current year profit and loss account as part of the cumulative effect of the change in accounting principle.

In addition, following the asset impairment review at March 31, 2003, no additions were recorded to fixed assets in the period under UK GAAP. As a consequence, the Group expensed £70m to the profit and loss account for the year ended March 31, 2004 that may have been capitalized in the absence of the impairment review. The Directors have assessed this expenditure under US GAAP and have concluded that the expenditure benefits future periods by extending the useful life and/or productivity of the assets concerned. This has resulted in fixed asset additions in the period of £70m under US GAAP.

In the March 31, 2002 UK GAAP accounts, following a review of the economic values and net realizable value of the Group’s assets compared with their carrying value in the accounts, Eggborough power station was written down by £300m for UK GAAP purposes. Under US GAAP the economic value must be compared with carrying value on an undiscounted basis in order to be impaired. As a result the Eggborough power station was not impaired on a US GAAP basis and the write down was reversed for the purposes of arriving at US GAAP profit and net assets.

(m)    Adjustment for Bruce Power Lease

Under UK GAAP the Bruce Power lease is treated as an operating lease. As a result the lease is not capitalized in the Group balance sheet and the lease obligations are not recognized as a liability in the balance sheet. Rental payments are charged in the period to which they relate. Under US GAAP the lease is treated as a capital lease with interest and depreciation charges being recognized in the Group profit and loss account. British Energy disposed of its interests in Bruce Power on February 14, 2003.

(n)    Deferred Income Taxation

British Energy has applied the discounting provision of the UK’s accounting standard on deferred tax reporting. This means that the amount provided is less than the full potential deferred tax liability or asset on an undiscounted basis. Deferred tax assets are recognized under UK GAAP only when they are expected to be recoverable within the foreseeable future.

Under US GAAP, deferred tax is provided for on a full liability basis. Deferred tax assets or liabilities are recognized for all differences between the financial and tax bases of assets and liabilities, and for tax losses carried forward at the statutory rate at which they are expected to be utilized. Valuation allowances are provided against deferred tax assets to the extent that it is considered more likely than not that some or all of the deferred tax asset will not be realized.

Loss before tax under US GAAP is calculated as follows at March 31:

	2004		2003
	£m		£m
			(Restated)
Profit/(loss) before tax under UK GAAP	234		(3,941	)
Effect of US GAAP adjustments	(420	)	(3,429	)
Loss before tax under US GAAP	(186	)	(7,370	)

F-82

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The provision for income taxes under US GAAP is calculated as follows:

	2004		2003
	£m		£m
			(Restated)
Deferred tax provision under UK GAAP	—		—
Adjustment under full provision method	(375	)	(362	)
Tax effect of US GAAP adjustments	554		(1,739	)
Valuation allowance	—		2,101
Deferred tax provision under US GAAP	179		—

There is a current income tax credit for the year ended March 31, 2004 of £2m and a charge of £18m in the year ended March 31, 2003. There are UK tax losses carried forward of £1,162m and £874m at March 31, 2004 and 2003 respectively, giving rise to potential undiscounted deferred tax assets of £348m and £262m. The discounted deferred tax assets under UK GAAP of £291m and £150m at March 31, 2004 and 2003 respectively, have not been recognized for US GAAP purposes. There was no utilization of losses in either year. There is a deferred tax liability under US GAAP of £179m and £nil at March 31, 2004 and 2003 respectively. The full amount of the deferred tax provision in 2004 relates to continuing activities. There are no overseas tax losses brought forward or carried forward.

The components of the net deferred tax liability, valued at the enacted UK tax rate of 30% (2003—30%) under US GAAP are as follows at March 31:

	2004		2003
	£m		£m
			(Restated)
Non-current assets:
Tax losses carried forward	348		262
Pensions	65		65
Book depreciation in excess of tax depreciation	30		849
Nuclear liabilities	—		1,741
Decommissioning asset	24		—
	467		2,917
Non-current liabilities:
Decommissioning asset	—		(777	)
Nuclear liabilities	(627	)	—
Capitalized interest	(16	)	(16	)
Other	(3	)	(23	)
	(646	)	(816	)
Net deferred (liability)/tax asset under US GAAP	(179	)	2,101
Valuation allowance	—		(2,101	)
	(179	)	—

F-83

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The reconciliation between the statutory tax rate in the United Kingdom and the effective tax rate is as follows on an UK GAAP basis:

	2004		2003		2002
	%		%		%
Provision/(benefit):
United Kingdom statutory tax rate	30		30		30
Differences relating to:
—impact of discounting	(60	)	(14	)	(11	)
—deferred tax asset/(liability) not recognized	49		(3	)	—
—decommissioning assets/(liabilities)	1		(1	)	(2	)
—decommissioning fund	(7	)	(1	)	—
—write down of QUEST	—		(1	)	—
—overseas tax in excess of UK rates	—		—		(4	)
—impact of joint venture	(6	)	—		—
—write down of Eggborough	—		(1	)	(18	)
—adjustment in respect of prior years	(1	)	—		2
—other	(6	)	—		(2	)
Effective income tax rate	—		9		(5	)

Under US GAAP the effective current income tax rate is approximately nil for the years ended March 31, 2004 and March 31, 2003 respectively.

Tax losses arising in the United Kingdom are available for carry forward and utilization in future years. There is no expiry date.

(iv)    Additional Disclosures (Restated)

a)    Consolidated Statement of Cash Flows

The consolidated statement of cash flows prepared in accordance with FRS 1 (Revised) presents substantially the same information as that required under US GAAP. US GAAP requires presentation of cash flows from (i) operating; (ii) investing; and (iii) financing activities. Under FRS 1 (Revised), cash flows are presented separately for (i) operating activities; (ii) dividends received from joint ventures and associates; (iii) returns on investment and servicing of finance; (iv) taxation; (v) capital expenditure and financial investment; (vi) acquisitions and disposals; (vii) equity dividends paid; (viii) management of liquid resources; and (ix) financing activities. Cash flows from taxation and returns on investments and servicing of finance would be included as operating activities under US GAAP. Equity dividends paid would be included in financing activities.

Under US GAAP, cash equivalents consist of highly liquid investments that are readily convertible into cash and have maturities of 90 days or less at the time of purchase. Cash and cash equivalents are not offset by book overdrafts repayable within twenty-four hours from the date of the advance, as is the case under UK GAAP, and instead book overdrafts are classified within financing activities. Under US GAAP, contributions to the decommissioning fund are classified as investing activities while under UK GAAP they are classified as operating activities. The prior year US GAAP presentation has been restated to reflect contributions to the decommissioning fund as investing activities rather than operating activities. The US GAAP definition of cash and cash equivalents does not include the amounts which the Group has deposited in collateral bank accounts for trading purposes as availability of this cash is restricted over the period of the collateralized position. Non-cash equivalent components of net debt under UK GAAP consist of term deposits having maturities of 90 days or greater. Short-term debt represents the book overdraft in the UK accounts at the end of the year.

F-84

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The table below summarizes the statement of cash flows for the Group as if presented in accordance with US GAAP.

	Year ended March 31
	2004		2003		2002
	£m		£m		£m
Cash inflow from operating activities	226		336		380
Returns on investment and servicing of finance	(75	)	(84	)	(53	)
Ordinary taxation	(12	)	3		4
Regular contributions to decommissioning fund	19		18		18
Net cash provided by operating activities	158		273		349
Acquisitions and disposals	171		262		(129	)
Amounts placed on restricted use term deposit	(88	)	(209	)	—
Capital expenditure and financial investment	(70	)	(282	)	(187	)
Regular contributions to decommissioning fund	(19	)	(18	)	(18	)
Net cash used in investing activities	(6	)	(247	)	(334	)
Financing	—		(80	)	13
Movement in book overdraft	(7	)	(54	)	55
Equity dividends paid	—		(31	)	(46	)
Net cash used/(provided) by financing activities	(7	)	(165	)	22
Net increase/(decrease) in cash and cash equivalents	145		(139	)	37
Cash and cash equivalents at beginning of year	131		270		233
Cash and cash equivalents at end of year	276		131		270

The US GAAP cash flow reconciles to the UK GAAP net debt figures as follows:

	Year ended March 31
	2004		2003
	£m		£m
Cash	262		87
Term deposits with maturities less than 90 days at end of year	14		44
Cash and cash equivalents under US GAAP at end of year	276		131
Restricted use term deposits	297		209
Book overdraft at end of year	—		(7	)
Long-term debt at the end of year	(883	)	(883	)
Net debt under UK GAAP at the end of the year	(310	)	(550	)

The increase of term deposits for 2004 under UK GAAP is £65m. This is represented within the US GAAP cash flow as follows:

	2004	2003		Movement
	£m	£m		£m
Term deposits with maturities less than 90 days at end of year	14	44		(30	)
Restricted use term deposits	297	209		88
Book overdraft at end of year	—	(7	)	7
Term deposits under UK GAAP	311	246		65

There are no significant non-cash investing or financing activities during the period.

F-85

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

b)    Information about Major Customers

In the year ended March 31, 2004 there were three UK customers who each accounted for more than 10% of Group turnover. The two largest customers each accounted for 19% of turnover, the other accounted for 16%.

In the year ended March 31, 2003 there were two UK customers who each accounted for more than 10% of Group turnover. The largest customer accounted for 14% of turnover, and the other accounted for 11%. In 2002 there were three customers who accounted for more than 10% of Group turnover. The largest customer accounted for 20% of turnover and the others accounted for 15% and 11% respectively.

In Canada all the output from Bruce Power was sold to Ontario Power Generation Inc (OPG) prior to the market opening on May 1, 2002. These sales totaled £375m or 20% of Group turnover in the year ended March 31, 2003 and totaled £348m or 17% of Group turnover in the year ended March 31, 2002. British Energy disposed of its interests in Bruce on February 14, 2003.

c)    Income and Cost Recognition

The revenues from the sale of electricity are recognized on the basis of the metered output supplied by the Group’s power stations during the accounting period. The income is matched with the cost of fuel burnt and other associated generation costs in each accounting period on an accrual basis. The revenues arising from direct supply sales are based on the metered consumption of each customer during the period and matched with the associated cost of purchasing this volume of electricity.

d)    Earnings/(Loss) per Share

The following table sets forth the computation of basic US GAAP earnings/(loss) per share:

	Year ended March 31,
	2004	2003		2002
	£m	£m		£m
		(Restated)		(Restated)
Numerator for basic earnings per share—earnings/(loss) available to shareholders	7,562	(7,800	)	(343	)
	Number	Number		Number
Denominator for basic earnings/(loss) per share—weighted average number of shares (millions)	602	602		598

e)    Exceptional Items

Under UK GAAP, income and expenses from non-recurring but significant transactions arising otherwise than in the course of the Group’s ordinary activities are recorded as exceptional items. Items classified as exceptional for purposes of UK GAAP generally do not meet the definition of “extraordinary” under US GAAP and, under US GAAP, would be classified as operating income or expenses.

F-86

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

f)    Statement of Comprehensive Income

FAS 130, “Reporting Comprehensive Income”, requires the presentation of comprehensive income (net income plus all other changes in equity shareholders’ funds from non-owner sources) and its components. Comprehensive income and other changes in equity are as follows:

	Total		Retained Losses		Other Compre- hensive Income		Treasury Stock		Additional Paid in Capital	Non- Equity	Common Stock
	£m		£m		£m		£m		£m	£m	£m
Balance at April 1, 2001	(643	)	(1,389	)	58		(181	)	499	93	277
Cumulative adjustment for FAS 133 (net of £10m tax charge)	(23	)	—		(23	)	—		—	—	—
Net income (Restated)	(343	)	(343	)	—		—		—	—	—
Translation adjustments	(8	)	—		(8	)	—		—	—	—
FAS 133 (net of £1m tax credit)	2		—		2		—		—	—	—
Unrealized (losses) on securities	(11	)	—		(11	)	—		—	—	—
Total comprehensive income (Restated)	(383	)	(343	)	(40	)	—		—	—	—
Dividends declared on common stock	(48	)	(48	)	—		—		—	—	—
Treasury stock	18		—		—		18		—	—	—
Compensation plans	4		—		—		4		—	—	—
Balance at March 31, 2002 (Restated)	(1,052	)	(1,780	)	18		(159	)	499	93	277
Net income (Restated)	(7,800	)	(7,800	)	—		—		—	—	—
Translation adjustments	(25	)	—		(25	)	—		—	—	—
FAS 133 (net of £9m tax credit)	21		—		21		—		—	—	—
Pensions (net of £107m tax charge)	(249	)	—		(249	)	—		—	—	—
Total comprehensive income (Restated)	(8,053	)	(7,800	)	(253	)	—		—	—	—
Dividends declared on common stock	(32	)	(32	)	—		—		—	—	—
Balance at March 31, 2003 (Restated)	(9,137	)	(9,612	)	(235	)	(159	)	499	93	277
Net income	7,562		7,562		—		—		—	—	—
Translation adjustments	(15	)	—		(15	)	—		—	—	—
Pensions (net of £14m tax charge)	34		—		34		—		—	—	—
Unrealized gains on securities	87		—		87		—		—	—	—
Total comprehensive income	7,668		7,562		106		—		—	—	—
Balance at March 31, 2004	(1,469	)	(2,050	)	(129	)	(159	)	499	93	277

F-87

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

g)    Discontinued Operations

On February 14, 2003 the Group completed the sale of its 82.4% interest in Bruce Power Limited Partnership, its majority-owned Canadian subsidiary, and its 50% share in Huron Wind Limited Partnership (collectively referred to as “Bruce”). Under US GAAP the results and subsequent disposal of Bruce would be classified as a discontinued operation in accordance with the provisions of FAS 144 “Accounting for the Disposal and Impairment of Long-Lived Assets”. Proceeds from the sale of Bruce totaled C$698m which included a C$20m retention initially held in escrow pending confirmation of the pension deficit which was subsequently received in April 2003. The loss on disposal of Bruce totaled £6m under US GAAP. The difference between the loss on disposal of Bruce under US and UK GAAP was due to the different treatment of certain costs incurred at Bruce as described in paragraphs (g), (h), (k) and (m) of Note 36 (iii), the additional derivatives recorded at Bruce for US GAAP and the recognition of the C$20m retention payment received which were recognized for UK GAAP but not for US GAAP at March 31, 2003. The following table sets forth turnover and net income of Bruce Power for the year ended March 31, 2003, reclassified as discontinued operations under US GAAP on an 82.4% holding basis.

	Year ended March 31, 2003
	£m
Turnover	309
Net income (before tax)	69

Net income from continuing operations and the discontinued operations of Bruce under US GAAP can be reconciled as follows:

	Year ended March 31, 2003
	£m
	(Restated)
Profit/(loss) from continuing operations before income taxes	(7,807)
Income credit/(taxes) on continuing operations	(46)
Profit/(loss) from continuing operations	(7,853)
Discontinued operations:
Net income before tax from operations of Bruce	69
Income taxes on discontinued operations	(16)
Profit on discontinued operations after tax	53
Profit/(loss) for year under US GAAP	(7,800)

h)    Provision for Unburnt Fuel at Shutdown

Due to the nature of the nuclear fuel process there will be some unburnt fuel in the reactors at station closure. The front end and back end costs of this fuel are charged to the profit and loss account over the estimated useful life of each nuclear station on a straight-line basis. The movements in provision are analyzed as follows:

	£m
Provision for unburnt fuel at March 31, 2002	266
Charges to profit and loss account	6
Provision for unburnt fuel at March 31, 2003	272
Charges to profit and loss account	8
Provision for unburnt fuel at March 31, 2004	280

F-88

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

i)    Segmental Analysis

Following the disposal of its investment in Bruce Power in February 2003 all ongoing Group operations are focused in the UK. Discontinued segments represent the results of the AmerGen joint venture, the Group’s interest in which was disposed of in December 2003.

The Group has determined its reportable segments in accordance with FAS 131—“Disclosure about Segments of an Enterprise and Related Information”, through consideration of the Group’s product, geographic area and regulatory environment, and has concluded that it has one business, being the generation and sale of electricity in the UK, resulting in one operating segment of Generation and Trading.

Revenues and operating profits/(losses) are measured on a segmental basis in accordance with UK GAAP as this is the basis on which management information is prepared, and has been reconciled to the primary statements which have also been prepared in accordance with UK GAAP. The chief operating decision maker evaluates segment performance and makes decisions on the basis of UK GAAP profit and loss information. Net asset information is not reviewed by the chief operating decision maker and so has not been presented in the segmental analysis.

The following table presents segment revenues and net operating profit, reconciled to the consolidated net profit in the primary accounts. All segment revenues arise from external customers:

	2004		2003		2002
	£m		£m		£m
Segmental analysis
Generation and Trading revenues	1,493		1,492		1,681
Segmental operating profit/(loss)	100		(1	)	207
Including:    Depreciation	(50	)	(281	)	(286	)
Settlement of Siemens claim	18		—		—
Head office	(26	)	113		24
Discontinued segments
North America	21		43		37
Total segmental operating profit	95		155		268
Reconciliation to UK GAAP consolidated net profit before tax
Restructuring costs	(43	)	(35	)	—
Exceptional items:
Stock obsolescence	—		(57	)	—
Onerous trading contracts	—		(2	)	(209	)
Fixed asset write up/(write down)	295		(3,738	)	(300	)
Investments in own shares write down	—		(102	)	(3	)
UK decommissioning fund write up/(write down)	13		(13	)	—
Discontinued operations	—		97		52
Other statutory reclassifications	1		(64	)	(52	)
Consolidated operating profit/(loss)	361		(3,759	)	(244	)
Gain/(loss) on sale of joint venture and businesses	47		(35	)	—
Gain on sale of investments	—		—		4
Interest income	11		9		16
Interest expense	(75	)	(81	)	(82	)
Revalorization charge	(185	)	(205	)	(160	)
Exceptional interest credit/(charge)	5		(62	)	—
Exceptional revalorization credit/(charge)	68		(159	)	(27	)
Profit/(loss) on ordinary activities before taxation	232		(4,292	)	(493	)

F-89

NOTES FOR FINANCIAL STATEMENTS—(Continued)

for the year ended March 31, 2004

The following table presents segment revenues reconciled to the consolidated revenue in the primary accounts. All segment revenues arise from external customers:

	2004		2003	2002
	£m		£m	£m
Reconciliation of revenue to UK GAAP consolidated accounts
Generation and Trading revenues from external customers	1,493		1,492	1,681
Head office	38		5	5
Discontinued operations
North America	—		342	348
Total segmental revenue	1,531		1,839	2,034
Exceptional income reclassified for statutory accounts	(18	)	41	—
Other statutory reclassifications	3		23	15
UK GAAP Group turnover	1,516		1,903	2,049

j)    Presentation of Prior Year Results

Certain reclassifications have been made to prior year presentation of results to conform to the current year presentation.

k)    Guarantees and Indemnities

British Energy has certain guarantees in respect of AmerGen, a company in which British Energy previously held a 50% interest which has now been sold to Exelon. These guarantees relate to obligations to pay deferred consideration under certain sale and purchase contracts. The guarantees may be called if payments are not made when they fall due and shall subsist until all outstanding payments are made. British Energy’s potential exposure under such guarantees currently stands at $74.6m, however, in connection with the sale of its interest in AmerGen, British Energy has received back-to-back indemnification from Exelon for any amounts due to be paid by British Energy in respect of such guarantees.

l)    New US Accounting Standards

In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51.” FIN 46 requires certain variable interest entities, or VIEs, to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. We currently have no contractual relationship or other business relationship with a variable interest entity and, therefore, we do not expect that the adoption of FIN 46 will have a material effect on our consolidated financial position, results of operations or cash flows.

F-90

EX-4.13

EXECUTION COPY

Exhibit 4.13

PURCHASE AND SALE AGREEMENT

dated as of

September 11, 2003

between

BRITISH ENERGY INVESTMENT LTD.

and

FPL ENERGY NUCLEAR MID-ATLANTIC, LLC

relating to the sale and purchase

of

100% of the shares of British Energy US Holdings Inc.

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS		1
SECTION 1.1	DEFINITIONS	1
SECTION 1.2	ACCOUNTING TERMS	15
ARTICLE 2 PURCHASE AND SALE		15
SECTION 2.1	PURCHASE AND SALE OF THE BEUSH SHARES FROM BRITISH ENERGY	15
SECTION 2.2	ADJUSTMENT TO PURCHASE PRICE	16
SECTION 2.3	CLOSING	18
SECTION 2.4	DELIVERIES BY BRITISH ENERGY AT CLOSING	18
SECTION 2.5	DELIVERIES BY BUYER AT CLOSING	19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER		20
SECTION 3.1	CORPORATE EXISTENCE AND POWER OF SELLER AND THE MEMBERS OF THE COMPANY GROUP	20
SECTION 3.2	AUTHORIZATION, EXECUTION AND ENFORCEABILITY OF TRANSACTIONS	20
SECTION 3.3	NON-CONTRAVENTION	21
SECTION 3.4	CONSENTS AND APPROVALS	21
SECTION 3.5	FINANCIAL STATEMENTS	21
SECTION 3.6	NO OTHER LIABILITIES	21
SECTION 3.7	OWNERSHIP OF BEUSH SHARES	22
SECTION 3.8	CAPITALIZATION OF BEUSH	22
SECTION 3.9	OWNERSHIP OF INTERESTS IN THE COMPANY	22
SECTION 3.10	BEUSH OPERATIONS	22
SECTION 3.11	BRITISH ENERGY LP OPERATIONS	22
SECTION 3.12	BRITISH ENERGY US INVESTMENTS LLC OPERATIONS	23
SECTION 3.13	ABSENCE OF CERTAIN CHANGES	23
SECTION 3.14	LITIGATION	23
SECTION 3.15	MATERIAL CONTRACTS	23
SECTION 3.16	QUALIFIED DECOMMISSIONING FUNDS	24
SECTION 3.17	NONQUALIFIED DECOMMISSIONING FUNDS	25
SECTION 3.18	INSURANCE	26
SECTION 3.19	COMPLIANCE WITH LAWS	26
SECTION 3.20	ENVIRONMENTAL MATTERS	27
SECTION 3.21	EMPLOYEES	28
SECTION 3.22	EMPLOYEE BENEFIT PLANS	29
SECTION 3.23	TAXES	30
SECTION 3.24	CONDEMNATION	31
SECTION 3.25	REAL PROPERTY	31
SECTION 3.26	PERMITS	32
SECTION 3.27	PLANT AND EQUIPMENT; PERSONAL PROPERTY	32
SECTION 3.28	BANK ACCOUNTS	33
SECTION 3.29	INTELLECTUAL PROPERTY	33
SECTION 3.30	SUBSIDIARIES	33
SECTION 3.31	UTILITIES	33
SECTION 3.32	BOOKS AND RECORDS	33
SECTION 3.33	AFFILIATE TRANSACTIONS	33
SECTION 3.34	BANKRUPTCY; SOLVENCY	33

i

TABLE OF CONTENTS

(continued)

		Page
SECTION 6.1	CONDITIONS TO OBLIGATIONS OF BUYER AND BRITISH ENERGY	52
SECTION 6.2	CONDITION TO OBLIGATION OF BUYER	53
SECTION 6.3	CONDITIONS TO OBLIGATION OF BRITISH ENERGY	54
ARTICLE 7 INDEMNIFICATION		55
SECTION 7.1	INDEMNIFICATION BY SELLER	55
SECTION 7.2	INDEMNIFICATION BY BUYER	55
SECTION 7.3	LIMITATIONS ON INDEMNITY	56
SECTION 7.4	INDEMNITY PROCEDURES	56
SECTION 7.5	PROCEDURAL REQUIREMENTS FOR ENVIRONMENTAL CLAIMS BY BUYER	58
SECTION 7.6	SURVIVAL AND TIME LIMITATION	58
SECTION 7.7	SPECIFIC INDEMNITY BY SELLER	59
SECTION 7.8	FURTHER INDEMNITY LIMITATIONS	59
SECTION 7.9	SOLE AND EXCLUSIVE REMEDY	59
ARTICLE 8 TERMINATION		59
SECTION 8.1	TERMINATION	59
SECTION 8.2	EFFECT OF TERMINATION	61
SECTION 8.3	REMEDIES	61
ARTICLE 9 MISCELLANEOUS		62
SECTION 9.1	NOTICES	62
SECTION 9.2	AMENDMENTS; NO WAIVERS	63
SECTION 9.3	EXPENSES	63
SECTION 9.4	SUCCESSORS AND ASSIGNS	64
SECTION 9.5	GOVERNING LAW	64
SECTION 9.6	COUNTERPARTS; EFFECTIVENESS	64
SECTION 9.7	ENTIRE AGREEMENT	64
SECTION 9.8	CAPTIONS	64
SECTION 9.9	THIRD PARTY BENEFICIARIES	64
SECTION 9.10	SEVERABILITY	64
SECTION 9.11	CONSTRUCTION	65
SECTION 9.12	CONSENT TO JURISDICTION	65
SECTION 9.13	WAIVER OF PUNITIVE AND OTHER DAMAGES AND JURY TRIAL	65
SECTION 9.14	GOOD FAITH COVENANT	66
SECTION 9.15	BUYER OBLIGATIONS	66
SECTION 9.16	DISPUTE RESOLUTION	66
SECTION 9.17	CHANGE IN LAW	66
SECTION 9.18	TIME IS OF THE ESSENCE; ACTION ON A BUSINESS DAY	66
SECTION 9.19	EXELON TAG ALONG	66

iii

Exhibits & Schedules

Exhibit A(i)	Form British Energy Scottish Counsel Opinion
Exhibit A(ii)	Form of British Energy U.S. Counsel Opinion
Exhibit B	[Intentionally Deleted]
Exhibit C	FIRPTA Affidavit
Exhibit D	Form of Seller Guaranty
Exhibit E	Buyer Guaranty
Schedule 1.1(a)	Seller Knowledge Group
Schedule 1.1(b)	Buyer Knowledge Group
Schedule 2.2	Working Capital Target
Schedule 3.2	Authorization, Execution and Enforceability of Transactions
Schedule 3.3	Seller Non-Contravention
Schedule 3.4	Consents and Approvals
Schedule 3.5	Financial Statements
Schedule 3.6	Other Liabilities
Schedule 3.8	BEUSH Options, Warrants and Purchase Rights
Schedule 3.10	BEUSH Operations Exceptions
Schedule 3.11	British Energy, LP Operations Exceptions
Schedule 3.12	BEUILLC Operations Exceptions
Schedule 3.13	Absence of Certain Changes
Schedule 3 14	Litigation
Schedule 3.15	Material Contracts
Schedule 3.16	Qualified Decommissioning Funds
Schedule 3.17	Nonqualified Decommissioning Funds
Schedule 3.18	Insurance
Schedule 3.19	Compliance with Laws
Schedule 3.20	Environmental Matters
Schedule 3.21	Collective Bargaining Agreements; Employee Matters
Schedule 3.22	Employee Benefit Plans
Schedule 3.23	Taxes
Schedule 3.24	Condemnation
Schedule 3.25	Real Property
Schedule 3.26	Permits
Schedule 3.27	Plant and Equipment; Personal Property
Schedule 3.28	Bank Accounts
Schedule 3.30	Subsidiaries
Schedule 3.33	Affiliate Transactions
Schedule 3.37	Prices and Terms for Purchase by Exelon of Power from the Facilities
Schedule 4.3	Buyer Non-Contravention
Schedule 4.4	Consents and Approvals
Schedule 5.3(a)	Operation of Business of Company Group During Interim Period
Schedule 5.3(c)	Capital Expenses Plan
Schedule 5.7	Guarantees
Schedule 5.11	Intercompany Loans
Schedule 5.17	Financial Statements During Interim Period
Schedule 6.2(d)	Buyer Regulatory Approvals
Schedule 6.3(d)	British Energy Regulatory Approvals

iv

PURCHASE AND SALE AGREEMENT

PURCHASE AND SALE AGREEMENT (this “Agreement”) dated as of September 11, 2003 between British Energy Investment Ltd., a Scottish company limited by shares (“British Energy” or “Seller”), and FPL Energy Nuclear Mid-Atlantic, LLC, a Delaware limited liability company (“Buyer”). British Energy and Buyer are referred to herein individually as a “Party” and collectively as the “Parties”.

WHEREAS, British Energy owns all of the issued and outstanding capital stock (the “BEUSH Shares”) of British Energy US Holdings Inc., a Delaware corporation (“BEUSH”), and BEUSH holds indirectly through its one hundred percent (100%) owned subsidiary British Energy LP, a Delaware limited partnership, fifty percent (50%) of the ownership interests in AmerGen Energy Company, LLC, a Delaware limited liability company (the “Company”); and

WHEREAS, British Energy desires to sell and Buyer desires to purchase the BEUSH Shares.

NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and on the terms and subject to the conditions set forth herein, the Parties hereto agree as follows:

ARTICLE 1

Definitions

SECTION 1.1 Definitions.

The following terms, as used herein, have the following meanings:

“Acceptance Notice” is defined in Section 7.4(a).

“Action” means any action, suit, proceeding, condemnation, investigation or audit by or before any court or other Governmental Authority, or any arbitration proceeding.

“Adjusted Purchase Price” is defined in Section 2.2(a).

“Adjustment Amount” is defined in Section 2.2(f).

“Adjustment Statement” is defined in Section 2.2(f).

“Affiliate” means, with respect to any Person, any other Person controlling, controlled by, or under common control with such Person. The concept of control, controlling or controlled as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” is defined in the Introduction.

1

“Capital Projects” means capital projects of the Company included in the Company’s budget for fiscal year 2003 except for Major Capital Projects.

“Clinton” means the Clinton Nuclear Power Station located in Harp Township, Illinois and identified in NRC Operating License No. NPF-62, Docket No. 50-461, and the facilities, equipment, supplies and improvements relating exclusively thereto.

“Clinton FSAR” means the report, as updated, that is required to be maintained for Clinton in accordance with the requirements of 10 CFR Section 50.71(e).

“Clinton Technical Specifications” means the technical specifications included in the NRC license for Clinton in accordance with the requirements of 10 CFR Section 50.36.

“Closing” is defined in Section 2.3.

“Closing Date” means the date of the Closing.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collective Bargaining Agreements” is defined in Section 3.21.

“Commercially Reasonable Efforts” means efforts which are reasonably within the contemplation of the Parties on the date hereof, which are designed to enable a Party, directly or indirectly, to satisfy a condition to, or otherwise assist in the consummation of, the transactions contemplated by this Agreement and which do not require the performing Party to expend any funds or assume liabilities other than expenditures and liabilities which are reasonable in nature and amount in the context of the transactions contemplated by this Agreement; provided that, (i) with respect to Buyer’s obligations under Sections 5.1, 5.2 and 5.6, such term shall include any sale or other disposal of electric generation facilities or uncommitted electric generation capacity required to obtain the approval of FERC or any other Governmental Authority, and (ii) with respect to any obligation of Seller that depends in whole or part on the consent or cooperation of Exelon, such term shall require that, if Exelon’s consent or cooperation is not initially obtained from an authorized Exelon employee, Seller shall seek to obtain such consent or cooperation by elevating the matter at issue to more senior employees of Exelon, including (if necessary) to Exelon’s Chief Nuclear Officer.

“Company” means AmerGen Energy Company, LLC, a Delaware limited liability company.

“Company Group” means BEUSH, BEUILLC, British Energy LP, the Company and their respective Subsidiaries.

“Company Working Capital” means the Working Capital of the Company.

“Company Working Capital Target” is defined in Section 2.1.

“Confidentiality Agreement” means the confidentiality letter agreement dated March 26, 2003, by and among Citigroup Global Markets Inc. on behalf of Seller, and Buyer.

3

“Contested Proceeding” means a proceeding at NRC or FERC considering an Application which becomes subject to hearing or other extraordinary procedure by NRC or FERC.

“Contested Taxes” is defined in Section 5.10(g).

“Credit Facility Agreement” means the Credit Facility Agreement dated September 26, 2002, among the Secretary of State for Trade and Industry, British Energy plc and others, as extended by the Extension and Amendment Agreement, dated November 28, 2002 and the Further Extension and Amendment Agreement, dated March 7, 2003.

“Decommissioning Trust Agreement” means the Amended and Restated Nuclear Decommissioning Master Trust Agreement effective October 16, 2001 among the Company and Mellon Bank, N.A., as trustee.

“Decommissioning Trusts” means the irrevocable trusts created pursuant to the Decommissioning Trust Agreement, consisting of assets held as Qualified Decommissioning Funds and Nonqualified Decommissioning Funds.

“DOE” means the U.S. Department of Energy or any successor thereto.

“Employee Benefit Plan” means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan, (d) Employee Welfare Benefit Plan or material fringe benefit plan, program or arrangement or (e) profit sharing, bonus, stock option, stock purchase, equity, stock appreciation, deferred compensation, incentive, severance plan or other benefit plan.

“Employee Pension Benefit Plan” has the meaning set forth in ERISA Section 3 Subsection (2).

“Employee Welfare Benefit Plan” has the meaning set forth in ERISA Section 3 Subsection (1).

“Energy Reorganization Act” means the Energy Reorganization Act of 1974, as amended.

“Environment” means soil, land surface or subsurface strata, real property, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwater, water body sediments, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life (including fish and all other aquatic life) and any other environmental medium or natural resource.

“Environmental Claim” means a claim by any Person based upon a breach of Environmental Law or an Environmental Liability alleging loss of life, injury to persons, property or business, damage to natural resources or trespass to property.

4

“Environmental Clean-Up Site” means any location which is listed or formally proposed for listing on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, or on any similar state list of sites requiring investigation or cleanup, or which is the subject of any action, suit, proceeding or investigation for any alleged violation of any Environmental Laws.

“Environmental Laws” means all Laws including any binding administrative or judicial interpretation thereof in effect as of or prior to the date hereof relating to: (a) the regulation, protection and use of the Environment; (b) the conservation, management, development, control and/or use of land with respect to natural resources and wildlife; or (c) the management, manufacture, possession, use, generation, transportation, treatment, storage, disposal, Release, abatement, removal, remediation, or handling of or exposure to, any Hazardous Substances; and includes, without limitation, the following federal statutes (and their implementing regulations): the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended, 33 U.S.C. § 1251 et seq.; the Clean Air Act of 1966, as amended, 42 U.S. C. § 7401 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq.; the Oil Pollution Act of 1990, as amended, 33 U.S.C. § 2701 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., to the extent involving handling of or exposure to Hazardous Substances; the Federal Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. § 136 et seq.; the Coastal Zone Management Act of 1972, as amended, 16 U.S.C. § 1451 et seq.; the Rivers and Harbors Act of 1899, as amended, 33 U.S.C. § 401 et seq.; the Endangered Species Act of 1973, as amended, 16 U.S.C. § 1531 et seq.; the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. § 300(f) et seq.; all analogous or comparable state statutes and regulations; and any common law doctrine, including negligence, negligence per se, nuisance, trespass, personal injury or property damage relating to or arising out of the Release of or exposure to Hazardous Substances; provided, however, that in no event shall “Environmental Laws” include any Nuclear Laws.

“Environmental Liability” means any Liability of the Company which: (i) arises under any Environmental Laws, as a result of (a) any violation or alleged violation of Environmental Laws, with respect to the ownership, operation or use of the Assets; (b) loss of life, injury to persons, property or business or damage to natural resources caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, above, adjacent to or migrating from the Assets, including, but not limited to, Hazardous Substances contained in building materials at the Assets or in the atmosphere, soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Assets; (c) the Remediation of Hazardous Substances that are present or have been Released at, on, in, under, above, adjacent to or migrating from the Assets, including, but not limited to, Hazardous Substances contained in building materials at the Assets or in the atmosphere, soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Assets; (d) loss of life, injury to persons, property or business or damage to natural resources caused (or allegedly caused) by the offsite disposal, storage, transportation, discharge, Release or recycling, or the arrangement for such activities, of Hazardous Substances, in connection with the ownership or operation of the Assets; and (e) the Remediation of Hazardous Substances that are

5

disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, in connection with the ownership or operation of the Assets, and (ii) is attributable to the Company’s conduct during the Seller Ownership Period, provided, however, that in no event shall “Environmental Liability” include Nuclear Liability.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, and the rules and regulations promulgated thereunder.

“ERISA Affiliate” of any entity means any other entity which, together with such entity, would be treated as a single employer under Section 414 of the Code.

“Event of Loss” is defined in Section 5.19.

“Exelon” means Exelon Generation Company, LLC.

“Facilities” means Clinton, TMI-1 and Oyster Creek, collectively.

“Facility” means each of Clinton, TMI-1 and Oyster Creek.

“FERC” means the Federal Energy Regulatory Commission, or its regulatory successor, as applicable.

“Federal Power Act” means the Federal Power Act, 16 U.S.C. Section 792, et seq., as amended, or any successor statute.

“Final Safety Analysis Reports” or “FSARs” means collectively, the Clinton FSAR, the TMI-1 FSAR and the Oyster Creek FSAR, as required in accordance with 10 C.F.R. Section 50.71(e).

“Financial Statements” is defined in Section 3.5.

“FIRPTA Affidavit” means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit C hereto.

“GAAP” means generally accepted accounting principles in the United States.

“Good Utility Practices” means any of the practices, methods and activities engaged in and approved by a significant portion of the electric utility industry in the United States as good practices applicable to nuclear generating facilities of similar design, size and capacity during the relevant time period or any of the practices, methods or activities which, in the exercise of reasonable judgment by a prudent nuclear operator in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and applicable Law. Good Utility Practices are not intended to be limited to the optimal practices, methods or acts to the exclusion of all others, but rather to be practices, methods or acts generally accepted in the United States utility industry applicable to nuclear generating facilities.

“Governmental Authority” means (a) any governmental, regulatory or administrative agency, commission, department, board or other governmental subdivision of (i) the United

6

States of America, or (ii) any state, county, municipality or other governmental subdivision within the United States of America, and (b) any court, tribunal or arbitral body of the United States of America or of any state, county, municipality or other governmental subdivision within the United States of America.

“Guarantees” is defined in Section 5.7.

“Hazardous Substance” means (a) any petrochemical or petroleum products, oil or coal ash, radioactive materials, radon gas, asbestos or asbestos-containing material, polychlorinated biphenyls, lead based paint or urea formaldehyde foam insulation, (b) any chemicals, materials, substances or wastes which are currently defined or regulated as “hazardous substances,” “hazardous materials,” “hazardous constituents,” “extremely hazardous substances,” “hazardous wastes,” “restricted hazardous materials,” “toxic substances,” “toxic pollutants,” “toxic air pollutants,” “pollutants” or “contaminants” or words of similar meaning and regulatory effect under any Environmental Law, and (c) any other chemicals, materials, wastes or substances, the exposure to or treatment, storage, transportation, disposal or Release of which is prohibited, limited or regulated by any Environmental Law; provided, however, that “Hazardous Substances” shall specifically exclude any “Nuclear Material,” as defined in this Agreement, to the extent regulated under any Nuclear Laws.

“High Level Waste” means (a) Spent Nuclear Fuel, (b) liquid wastes resulting from the operation of the first cycle solvent extraction system, or its equivalent, and the concentrated wastes from subsequent extraction cycles, or their equivalent, in a facility for reprocessing irradiated reactor fuel, or (c) solids into which such liquid wastes have been converted, or (d) any other material containing radionuclides in concentration or quantities that exceed NRC requirements for classification as Low Level Waste.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the applicable rules and regulations promulgated thereunder.

“ICC” means the Illinois Commerce Commission and any successor agency thereto.

“Indemnified Claim” is defined in Section 7.4(c).

“Indemnified Party” is defined in Section 7.4(a).

“Indemnifying Party” is defined in Section 7.4(a).

“Independent Accounting Firm” means a nationally-recognized independent accounting firm in the United States mutually appointed by British Energy and Buyer.

“Intercompany Loans” is defined in Section 5.11.

“Interim Period” means that period of time commencing on the date hereof and ending on the Closing Date.

“Inventory” means those items listed in the Company’s Passport System with respect to Clinton and PIMS with respect to Oyster Creek and TMI-1.

7

“Inventory Target Amount” is defined in Section 2.1.

“ISRA” is defined in Section 5.13.

“Knowledge” means (a) with respect to Seller, the actual knowledge of the individuals listed on Schedule 1.1(a), based on a reasonable inquiry of appropriate employees of the Company (including without limitation seconded employees of Seller) and (b), with respect to Buyer, the actual knowledge of the individuals listed on Schedule 1.1(b), based on a reasonable inquiry of appropriate employees of the Buyer.

“Law” means any applicable statute, law, code, ordinance, regulation, rule, ruling, order, restriction, requirement, writ, injunction, judgment, charge, license, interpretation, constitution, decree, common law, treaty or other official act or restriction of or by any Governmental Authority.

“Leased Real Property” is defined in Section 3.25(b).

“Liability” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or incurred or consequential, and whether due or to become due.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance, option, warrant, purchase right, lease or other encumbrance, or adverse claim of any kind in respect of such asset except for any of the foregoing contained in or granted pursuant to Section 7.3 of the LLC Agreement. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Limited Liability Company Agreement” or “LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Company dated as of August 1, 2000, and amended on December 21, 2001 and May 1, 2002.

“Losses” (and, with correlative meaning, “Loss”) means any and all claims, Liabilities, losses, damages, causes of action, fines, penalties, litigation, lawsuits, administrative proceedings, administrative investigations and costs and expenses, including reasonable attorneys’ fees, court costs and other costs of suit; provided, however, that with respect to any of the foregoing suffered or incurred by the Company, “Losses” for purposes of this Agreement shall in no event exceed 50% of the Company’s Losses.

“Low Level Waste” means waste material which contains radioactive nuclides emitting either primarily beta or gamma radiation, or both, in concentrations or quantities which exceed applicable federal or state standards for unrestricted release; provided that Low Level Waste shall not include any waste containing more than ten (10) nanocuries of transuranic contaminants per gram of material, Spent Nuclear Fuel, or material classified as either High Level Waste or waste which is unsuited for disposal by near-surface burial under any applicable federal regulations.

8

“Major Capital Projects” means those capital projects of the Company involving expenditures in excess of $500,000, each of which is identified on Schedule 5.3(c), and such other capital projects as may be agreed upon by the Parties after the date hereof.

“Major Loss” is defined in Section 5.19(b).

“Material Adverse Effect” means when used in connection with any Person, any change, effect, event, occurrence or state of facts (a) that is, or would likely be, materially adverse to the business, assets, properties, financial condition or results of operations of such Person and its Subsidiaries taken as a whole, or (b) that prevents, or can reasonably be expected to prevent, such Person from performing any of its material obligations under this Agreement or consummation of the transactions contemplated hereby; provided, however, that Material Adverse Effect shall not include any change (or changes taken together) generally affecting the international, national, regional or local wholesale or retail electric industry as a whole or nuclear generating facilities or their operations or operators as a whole which does not affect the Assets or the Parties in any manner or degree significantly different than the industry as a whole, including but not limited to (i) changes in markets for electric power, nuclear generation or fuel used in connection with the Assets, (ii) changes resulting from or associated with acts of war or terrorism or changes imposed by a Governmental Authority to address the events of September 11, 2001, or (iii) changes (individually or taken together) in the North American, national, regional or local electric transmission systems or operations thereof; and provided, further, that any loss, claim, occurrence, change or effect that is cured prior to the Closing Date (at Seller’s expense), or that is a result of a change in general economic, regulatory or political conditions, shall not be considered a Material Adverse Effect.

“Material Contract” is defined in Section 3.15.

“Multiemployer Plan” means each Employee Benefit Plan that is a multiemployer plan, as defined in Section 3(37) of ERISA.

“NJBPU” means the New Jersey Board of Public Utilities and any successor agency thereto.

“Nonqualified Decommissioning Fund(s)” means one or more of the external trust funds that do not meet the requirements of Code Section 468A or Treas. Reg. Section 1.468 A-5, maintained by the Company pursuant to the Decommissioning Trust Agreements, as further defined in Section 3.17(a).

“NQDF Tax Reimbursement” means the distribution from the Non-Qualified Decommissioning Funds for administrative costs and other incidental expenses for periods prior to the Closing Date.

“NQDF Tax Reimbursement Share” means an amount equal to fifty percent (50%) of any NQDF Tax Reimbursement received by the Company up to a maximum amount of $12,500,000.

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“NRC” means the United States Nuclear Regulatory Commission, as established by Section 201 of the Energy Reorganization Act of 1974, as amended, 42 U.S.C. Section 5841, or any successor commission, agency or officer.

“NRC Staff’ means the regulatory staff of the NRC.

“Nuclear Fuel” means all nuclear fuel assemblies in the Facilities’ reactors on the Closing Date and any irradiated nuclear fuel assemblies that have been temporarily removed from the Facilities’ reactors as of the Closing Date and all nuclear unirradiated fuel assemblies awaiting insertion into the Facilities’ reactors, as well as all nuclear fuel constituents in any stage of the fuel cycle which are in the process of production, conversion, enrichment or fabrication for use in the Facilities or which have been or will be purchased for the Facilities.

“Nuclear Fuel Amount” is defined in Section 2.1.

“Nuclear Laws” means all applicable Federal, state, local, provincial, foreign and international civil and criminal Laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to the regulation of nuclear power plants, source material, byproduct material and special nuclear materials (as defined in the Atomic Energy Act); the regulation of Low Level Waste and High Level Waste; the transportation and storage of Nuclear Materials; the regulation of safeguards information; the regulation of nuclear fuel; the enrichment of uranium; the disposal and storage of High Level Waste and Spent Nuclear Fuel; contracts for any payments into the Nuclear Waste Fund; and as applicable, the antitrust laws and the Federal Trade Commission Act to specified activities or proposed activities of certain licenses of commercial nuclear reactors, but shall not include Environmental Laws. “Nuclear Laws” include the Atomic Energy Act of 1954, as amended (42 U.S.C. Section 2011 et seq.); the Price-Anderson Act (Section 170 of the Atomic Energy Act of 1954, as amended); the Energy Reorganization Act of 1974 (42 U.S.C. Section 5801 et seq.); Convention on the Physical Protection of Nuclear Material Implementation Act of 1982 (Public Law 97-351; 96 Stat. 1663); the Foreign Assistance Act of 1961 (22 U.S.C. Section 2429 et seq.); the Nuclear Non-Proliferation Act of 1978 (22 U.S.C. Section 3201); the Low-Level Radioactive Waste Policy Act (42 U.S.C. Section 2021b et seq.); the Nuclear Waste Policy Act, (42 U.S.C. Section 10101 et seq., as amended); the Low-Level Radioactive Waste Policy Amendments Act of 1985 (42 U.S.C. Section 2021d, 471); the Energy Policy Act of 1992 (4 U.S.C. Section 13201 et seq.); and any applicable state or local Laws analogous to the foregoing.

“Nuclear Liability” means any Liability arising out of or resulting from the hazardous or radioactive properties of (a) Nuclear Material or any other fissionable isotope and (b) any fission product resulting from the fission process.

“Nuclear Material” means any source, special nuclear or byproduct material, as defined in the Atomic Energy Act of 1954, as amended.

“Nuclear Waste Fund” means the fund established pursuant to Section 302(c) of the Nuclear Waste Policy Act of 1982, as amended.

“OCIP” is defined in Section 3.18.

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“Offsite Hazardous Substance Facility” means a location, or transport vehicle or vessel, which accepts or accepted Hazardous Substances for treatment, storage or disposal, other than a Facility.

“Owned Real Property” is defined in Section 3.25(a).

“Oyster Creek” means the Oyster Creek Nuclear Generating Station located in Lacey Township, New Jersey and identified in NRC Operating License No. DPR-16, Docket No. 50-219, and the facilities, equipment, supplies and improvements relating exclusively thereto.

“Oyster Creek FSAR” means the report, as updated, that is required to be maintained for Oyster Creek in accordance with the requirements of 10 C.F.R. Section 50.71(e).

“Oyster Creek Technical Specifications” means the technical specifications included in the NRC License for Oyster Creek in accordance with the requirements of 10 C.F.R. Section 50.36.

“PaPUC” means the Pennsylvania Public Utility Commission and any successor agency thereto.

“Party” means either Buyer or Seller.

“Parties” means Buyer and Seller collectively.

“Permits” means all certificates, licenses, permits, approvals, consents, orders, exemptions, decisions and other actions of a Governmental Authority to the extent pertaining to the ownership or operation of the Company, the Assets or the Facilities.

“Permitted Encumbrances” means and includes: (a) Liens for Taxes or other charges or assessments by any Governmental Authority to the extent that the payment thereof is not in arrears or otherwise due or is being contested in good faith; (b) encumbrances in the nature of zoning restrictions, building and land use Laws, ordinances, orders, decrees, restrictions or any other conditions imposed by or pursuant to any agreement with any Governmental Authority; provided, however, that the same do not materially detract from operation or use of such property; (c) easements granted or reserved by an instrument executed in connection with this Agreement or the transactions contemplated hereby or thereby, but excluding such encumbrances that secure indebtedness; (d) deposits or pledges made in connection with or to secure payment of workers’ compensation, unemployment insurance, pension programs mandated under applicable Laws or other social security regulations; (e) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, statutory or common law liens to secure claims for labor, materials or supplies and other like liens, which secure obligations to the extent that payment thereof is not in arrears or otherwise due; (f) any Lien or title imperfection with respect to the Assets created by or resulting from any act or omission of the Buyer; and (g) Liens arising under purchase money obligations to finance the purchase of, and limited to, equipment and other personal property.

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“Person” means an individual, corporation, partnership, limited partnership, association, trust, limited liability company, joint venture or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plant Material Adverse Effect” means any event, circumstance, claim, occurrence, change or effect related to any Facility which could reasonably be expected to cause a Loss by the Buyer within one year following the Initial Closing Date in excess of $2,000,000 individually, or in excess of $10,000,000 in the aggregate; provided, however, that Plant Material Adverse Effect shall not include any change (or changes taken together) generally affecting the international, national, regional or local wholesale or retail electric industry as a whole or nuclear generating facilities or their operations or operators as a whole which does not affect the Assets or the Parties in any manner or degree significantly different than the industry as a whole, including but not limited to (a) changes in markets for electric power or fuel used in connection with the Assets, (b) changes resulting from or associated with acts of war or terrorism or changes imposed by a Governmental Authority to address the events of September 11, 2001, or (c) changes (individually or taken together) in the North American, national, regional or local electric transmission systems or operations thereof; and provided, further, that any event, circumstance, claim, occurrence, change or effect that is cured prior to the Closing Date, at the Seller’s expense, or that is a result of general economic, regulatory or political conditions, shall not be considered a Plant Material Adverse Effect.

“Pledge Agreement” means the Pledge Agreement, dated September 27, 2002 and amended as of November 28, 2002, between the Secretary of State for Trade and Industry and BEUSH.

“Pre-Closing ERISA Liability” shall mean any Liability or obligation of BEUSH, BEUILLC or British Energy LP as a result of such member of the Company Group being considered at any time prior to the Closing Date a single company with any other Person pursuant to ERISA Section 4001 or Section 414 of the Code.

“Prime Rate” means the prime lending rate as reported in The Wall Street Journal from time to time as the base rate on loans to creditworthy corporate borrowers.

“Prohibited Transactions” are defined in Section 5.16.

“Property Tax Agreement” means agreements with a taxing authority having jurisdiction and powers to impose real property Tax, personal property Tax or other Taxes on the Assets.

“Purchase Price” is defined in Section 2.1.

“Qualified Decommissioning Funds” means the external trust funds that meet the requirements of Code Section 468A and Treas. Reg. Section 1.468A-5, maintained by the Company pursuant to the Decommissioning Trust Agreements, as further defined in Section 3.16(a).

“Real Property Leases” is defined in Section 3.25(b).

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“Release” means any actual, threatened or alleged spilling, leaking, pumping, pouring, emitting, dispersing, emptying, discharging, injecting, escaping, leaching, migrating, dumping, or disposing of any Hazardous Substance into the Environment that may cause an Environmental Liability (including the disposal or abandonment of barrels, containers, tanks or other receptacles containing or previously containing any Hazardous Substance). The term “Released” has a comparable meaning.

“Remediation” means any and all of the following activities to the extent required under applicable Environmental Law to address the presence or Release of Hazardous Substances: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work as well as obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct such activities; (b) preparing and implementing any plans or studies for any such activities.; (c) obtaining a written notice from a Governmental Authority with competent jurisdiction under Environmental Laws that no material additional work in connection with such activities is required; and (d) any other related activities required under Environmental Laws.

“Representative” means, with respect to any Person, any of such Person’s Affiliates and its or their agents (including, without limitation, accountants, counsel, directors, officers, employees, consultants, advisors or investment bankers).

“Required Expenditure” is defined in Section 5.3(a).

“Required Nuclear Expenditure” means a capital expenditure that is (a) required in order to satisfy an order from the NRC or other applicable legal requirement, (b) required in order to preclude, forestall or satisfy any form of NRC enforcement action (including, without limiting the generality of the foregoing, a so-called “confirmatory action letter”), or (c) necessary in order to cause a Facility to meet NRC regulations.

“Schedule” means a schedule to this Agreement.

“Seller” is defined in the Introduction.

“Seller Indemnified Party” and “Seller Indemnified Parties” are defined in Section 7.2.

“Seller Ownership Period” means, with respect to each Facility or Asset, the period of time beginning on the date on which the Company first acquired any direct or indirect ownership or leasehold interest in any Facility or Asset and ending on the Closing Date.

“Seller Ownership Period Environmental Liability” shall mean any Liability under applicable Environmental Law in effect on or prior to the Closing Date, to the extent relating to (i) the disposal, storage, transportation, discharge, release, recycling or arrangement for such activities of Hazardous Substances at or from a Facility, at any Offsite Hazardous Substance Facility, or at a location other than the Facility to the extent caused by the Company Group, or by or on behalf of any member of the Company Group, where the initial disposal, storage, transportation, discharge, release or recycling of such Hazardous Substances occurred during the Seller Ownership Period, (ii) the failure during the Seller Ownership Period of any operations of

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any member of the Company Group to be in compliance with any applicable Environmental Laws, and (iii) any other act or failure to act (where there is a duty to act under Law) occurring during the Seller Ownership Period with respect to any Assets of the Company or its Subsidiaries or a Facility which gives rise to any Environmental Liability. By way of example, but not in limitation, civil or criminal claims and/or penalties arising from the 2002 fish kill incident involving Oyster Creek constitutes a Seller Ownership Period Environmental Liability.

“Solvent” means, as to any Person, that such Person is able to pay its debts as they mature and owns property having a fair market value greater than the amount required to pay its debts.

“Spent Nuclear Fuel” means fuel and other radioactive materials associated with nuclear fuel assemblies that have been withdrawn from a nuclear reactor following irradiation, and have not been chemically separated into its constituent elements by reprocessing.

“Subsidiary” when used in reference to any Person means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.

“Taking” is defined in Section 5.19.

“Tax Basis” means the adjusted tax basis determined for federal income tax purposes under Code Section 1011(a).

“Taxes” (and, with correlative meaning, “Tax”) means any taxes, duties, assessments, fees, levies, or similar governmental charges, together with any interest, penalties and additions to tax, imposed by any Taxing Authority, including without limitation all net income, gross income, gross receipts, net receipts, sales, use, transfer, franchise, privilege, profits, social security, disability, withholding, payroll, unemployment, employment, excise, severance, property, windfall profits, value added, ad valorem, occupation, license, business enterprise, stamp, premium, environmental (including Taxes under Section 59 of the Code), capital stock, recordation, registration, estimated or other Tax or similar governmental charge or imposition of any kind or nature.

“Taxing Authority” means any taxing authority, wherever located (i.e., whether federal, state, local, municipal or foreign).

“Tax Return” means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto.

“Technical Specifications” means, collectively, the Clinton Technical Specifications, the TMI-1 Technical Specifications and the Oyster Creek Technical Specifications.

“TMI-1” means Three Mile Island Unit 1 Nuclear Generating Facility located near Middletown, Pennsylvania and identified in NRC Operating License No. DPR-50, Docket No. 50-289, and the facilities, equipment, supplies and improvements relating exclusively thereto.

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“TMI-1 FSAR” means the report, as updated, that is required to be maintained for TMI-1 in accordance with the requirements of 10 C.F.R. Section 50.71(e).

“TMI-1 Technical Specifications” means the technical specifications included in the NRC license for TMI-1 in accordance with the requirements of 10 C.F.R. Section 50.36.

“Transition Executive Committee” is defined in Section 5.3(b).

“Working Capital” means the excess of current assets over current liabilities, determined in accordance with GAAP, consistently applied; provided, however, that for purposes of this computation, if any Tax Return is filed with respect to any member of the Company Group after June 30, 2003, and if such Tax Return reflects a higher initial Tax Basis for the assets of the Company than reported in prior Tax Returns as a result of a redetermination of the initial purchase price of such assets attributable to the nonqualified decommissioning liability, the excess, if any, of (a) the Taxes which would have been reported on such Tax Return had such Tax Return been filed without reflecting such higher Tax Basis, over (b) the Taxes reported on such Tax Return, shall be treated as a current liability, but only to the extent that such excess (whether in the form of a receivable, a Tax refund or a reduction in Tax liability) has otherwise been taken into account in determining Working Capital; provided further, that any distribution directly or indirectly from the Nonqualified Decommissioning Funds to any member of the Company Group in excess of (i) $25 million in the case of the Company, or (ii) the NQDF Tax Reimbursement Share in the case of any member of the Company Group other than the Company, shall be excluded from Working Capital.

SECTION 1.2 Accounting Terms. Any accounting terms used in this Agreement shall, unless otherwise specifically provided, have the meanings customarily given them in accordance with GAAP, and all financial computations hereunder or thereunder shall, unless otherwise specifically provided, be computed in accordance with GAAP consistently applied.

ARTICLE 2

Purchase and Sale

SECTION 2.1 Purchase and Sale of the BEUSH Shares from British Energy. Upon the terms and subject to the conditions of this Agreement, at the Closing, British Energy agrees to sell to Buyer, and Buyer agrees to purchase from British Energy, the BEUSH Shares. The aggregate purchase price for the BEUSH Shares will be $276,500,000 in cash (the “Purchase Price”), which shall be paid as provided in Section 2.5(f) and shall be subject to adjustment as provided in Section 2.2. The Purchase Price includes an allowance of (i) negative $26,800,000 for the Working Capital of the Company (the “Company Working Capital Target”), (ii) negative $6,375,167 for the Working Capital of BEUSH (the “BEUSH Working Capital Target”), (iii) $31,100,000 for the book value of Inventory (the “Inventory Target Amount”), and (iv) $206,500,000 for the net book value of Nuclear Fuel (the “Nuclear Fuel Amount”).

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SECTION 2.2 Adjustment to Purchase Price. The “Adjusted Purchase Price” shall be the Purchase Price, less the amounts payable pursuant to Section 2.5(g), as increased or decreased, as follows:

(a) There shall be an adjustment for Working Capital equal to (i) fifty percent (50%) of the sum of the Company Working Capital as of the Closing Date minus the Company Working Capital Target, plus (ii) the sum of the BEUSH Working Capital minus the BEUSH Working Capital Target. The statement of the Company Working Capital as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with the calculation of the items reflected in the Company Working Capital Target set forth on Schedule 2.2. The statement of BEUSH Working Capital as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as BEUSH has historically used in connection with the calculation of the items reflected in the BEUSH Working Capital Target set forth on Schedule 2.2. Buyer and British Energy each agree to cooperate in connection with the preparation of the statement of the Company Working Capital and the statement of BEUSH Working Capital as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(b) There shall be an adjustment for Inventory equal to fifty percent (50%) of the sum of the book value of the Inventory (including reductions for missing, unusable or obsolete Inventory on a basis consistent with the Company’s past practices) as of the Closing Date minus the Inventory Target Amount. The statement of the book value of the Inventory as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with the calculation of the book value of Inventory (including reductions for missing, unusable or obsolete Inventory on a basis consistent with the Company’s past practices). Buyer and British Energy each agree to cooperate in connection with the preparation of the statement of the book value of Inventory as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(c) There shall be an adjustment for Nuclear Fuel equal to fifty percent (50%) of the sum of the net book value of the Nuclear Fuel as of the Closing Date minus the Nuclear Fuel Amount. The statement of the net book value of the Nuclear Fuel as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with the calculation of the net book value of Nuclear Fuel. Buyer and British Energy each agree to cooperate in connection with the preparation of the net book value of Nuclear Fuel as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(d) There shall be a downward adjustment for capital expenditures equal to (i) fifty percent (50%) of the excess, if any, of the budget for Capital Projects over the actual expenditures by the Company for such Capital Projects as of December 31, 2003, in the aggregate, plus (ii) fifty percent (50%) of the total projected costs to complete Major Capital Projects that the Company failed to complete on or prior to the Closing Date but were scheduled to be completed on or prior to such date, on a project by project basis, plus (iii) fifty percent (50%) of the Company’s total expected costs as of the Closing Date to complete any unfinished Major Capital Projects that were not scheduled to be completed on or prior to such date in

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excess, if any, of the budget for such Major Capital Projects, on a project by project basis. The statement of the actual expenditures by the Company for Capital Projects and Major Capital Projects and the Company’s projected costs to complete any unfinished Major Capital Projects shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with preparation of the budget set forth on Schedule 5.3(c). Buyer and British Energy each agree to cooperate in connection with the preparation of the actual expenditures by the Company for Major Capital Projects and the Company’s projected costs to complete any unfinished Major Capital Projects as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(e) In addition to the adjustments pursuant to Sections 2.2(a) through (d) hereof, to the extent that prior to the Closing Date the Company has not disposed of all of its Low Level Waste, whether located at a Facility or at any other location, and the cost of such disposal is in excess of Five Hundred Thousand Dollars ($500,000) (in 2003 dollars), the Purchase Price shall be decreased by an amount equal to fifty percent (50%) of the excess of such amount (the cost of such disposal to be determined based on the Company’s cost to dispose of such Low Level Waste under the terms of any existing contract pursuant to which such Low Level Waste may be disposed or, if no such contract exists, based on the prevailing industry costs as of a date as close to the Closing Date as practicable). The statement of the cost of disposal of Low Level Waste at each facility as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection of such costs. Buyer and British Energy each agree to cooperate in connection with the preparation of the costs of disposal of Low Level Waste as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(f) British Energy shall prepare an adjustment statement which reflects the Purchase Price as increased or decreased by each of the adjustments set forth in Sections 2.2(a) through (e) herein (in aggregate, the “Adjustment Amount”, such statement being referred to herein as the “Adjustment Statement”). If the Adjustment Amount for the Company Group is positive, within ten (10) Business Days after Buyer’s receipt of the Adjustment Statement, Buyer shall pay to British Energy an amount equal to Adjustment Amount. If the Adjustment Amount for the Company Group is negative, within ten (10) Business Days after Buyer’s receipt of the Adjustment Statement, British Energy shall pay to Buyer an amount equal to the Adjustment Amount. If there is a dispute with respect to any amount on the Adjustment Statement, any undisputed amounts shall be paid within ten (10) Business Days after Buyer’s receipt of the Adjustment Statement. All payments made pursuant to this Section 2.2 shall be paid together with interest thereon for the period commencing on the Closing Date through the date of payment, calculated at an annual rate equal to the Prime Rate, in cash by wire transfer of immediately available funds.

(g) Buyer may dispute the Adjustment Amount; provided, however, that Buyer shall notify British Energy in writing of the disputed amount, and the basis of such dispute, within thirty (30) days of Buyer’s receipt of the Adjustment Statement. In the event of a dispute with respect to the Adjustment Amount, Buyer and British Energy shall attempt to reconcile their differences and any resolution by them as to any disputed amounts shall be final,

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binding and conclusive on Buyer and British Energy. If Buyer and British Energy are unable to reach a resolution of such differences within thirty (30) days of receipt of Buyer’s written notice of dispute to British Energy, Buyer and British Energy shall submit the amounts remaining in dispute for determination and resolution to the Independent Accounting Firm, which shall be instructed to determine and report to Buyer and British Energy, within thirty (30) days after such submission, upon such remaining disputed amounts, and such report shall be final, binding and conclusive on Buyer and British Energy with respect to the amounts disputed. The fees and disbursements of the Independent Accounting Firm shall be allocated between Buyer and British Energy so that Buyer’s share of such fees and disbursements shall be in the same proportion that the aggregate amount of such remaining disputed amounts so submitted by Buyer to the Independent Accounting Firm that is unsuccessfully disputed by Buyer (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed amounts so submitted by Buyer to the Independent Accounting Firm. Payment of the disputed amount shall be made by the appropriate Party within five (5) days of the final report of the Independent Accounting Firm together with interest thereon for the period commencing on the Closing Date through the date of payment, calculated at an annual rate equal to the Prime Rate, in cash by wire transfer of immediately available funds.

SECTION 2.3 Closing. The closing (the “Closing”) of the purchase and sale of the BEUSH Shares hereunder shall take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, at 10:00 a.m. (Eastern time), or another mutually acceptable time and location, on the date that is ten (10) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article 6 of this Agreement has been either satisfied or waived by the Party for whose benefit such conditions precedent exist; provided, however, that if such date falls during the continuance of a scheduled outage at any of the Facilities, then the Closing shall occur on the earlier of (a) the second Business Day after the conclusion of such scheduled outage, and (b) the date that is thirty (30) days after satisfaction or waiver of the conditions precedent set forth in Sections 6.2(d) and 6.3(d) hereof. Subject to the foregoing, the parties shall use their Commercially Reasonable Efforts to cause the Closing to occur, to the extent practicable and within the respective time periods set forth in the immediately preceding sentence, on the first Business Day of a calendar month and, in the event the Closing does not occur on the first Business Day of a calendar month, shall cooperate in good faith to determine and allocate any applicable costs and expenses of the Company among Seller and Buyer on a prorated basis for the month in which the Closing occurs. The Closing shall be effective for all purposes as of 12:01 a.m. (Eastern time) on the Closing Date.

SECTION 2.4 Deliveries by British Energy at Closing. British Energy shall deliver or cause to be delivered the following at Closing:

(a) certificates confirming (i) British Energy’s due and valid incorporation from the Registrar of companies in Scotland, and (ii) the good standing of the members of the Company Group from the Secretary of the State of the jurisdiction in which they are incorporated or organized, each dated within three (3) Business days of the Closing Date;

(b) the certificates for the BEUSH Shares free and clear of all Liens, duly endorsed or accompanied by stock powers duly endorsed in blank, with any required transfer stamps affixed thereto;

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(c) the certificates representing BEUSH’s partnership and membership interests in British Energy, LP and BEUILLC, free and clear of all Liens;

(d) the certificate representing British Energy, LP’s membership interest in the Company, free and clear of all Liens;

(e) resignations or terminations of the executive officers, directors and managers of each member of the Company Group appointed or designated by Seller or its Affiliates to such positions, effective as of the Closing Date;

(f) the officer’s certificates required of British Energy by Sections 6.2(a) and 6.2(b);

(g) each of the legal opinions and documents required by Section 6.2(f);

(h) evidence of the receipt of British Energy Regulatory Approvals;

(i) the consents and approvals listed on Items 1 and 2 of Schedule 3.2;

(j) cancelled promissory notes or other proof of repayment in full of the loans identified on Schedule 5.11;

(k) a duly executed FIRPTA Affidavit;

(1) a guaranty, in the form of Exhibit D hereto, executed by British Energy plc in favor of Buyer, guaranteeing the obligations of British Energy under this Agreement (or a substitute guaranty or other credit support that guarantees the obligations of British Energy under this Agreement, in form and substance reasonably acceptable to Buyer, has been executed); and

(m) such other agreements, consents, documents, instruments and writings as are reasonably required to be delivered by British Energy at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith, including all such other instruments as Buyer or its counsel may reasonably request in connection with the purchase of the BEUSH Shares contemplated hereby.

SECTION 2.5 Deliveries by Buyer at Closing. Buyer shall deliver or cause to be delivered the following at Closing:

(a) a certificate confirming the good standing of Buyer from Secretary of State of Delaware, dated within three (3) Business days of the Closing Date;

(b) the officer’s certificates required of Buyer by Sections 6.3(a) and 6.3(b);

(c) [Intentionally Omitted];

(d) evidence of the receipt of the Buyer Regulatory Approvals;

(e) the third party consents listed on Schedule 4.4;

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(f) the Purchase Price (less any amounts paid pursuant to Section 2.5(g) hereof) in immediately available funds by wire transfer to an account of British Energy designated by British Energy by notice to Buyer not later than three (3) Business Days prior to the Closing Date;

(g) an amount equal to the amount necessary to pay in full to British Energy or its affiliates the net amount of all Intercompany Loans (including any unpaid, accrued interest and other fees as of the Closing Date) to BEUSH and its Subsidiaries in accordance with Section 5.11 in immediately available funds by wire transfer to an account of British Energy or its affiliates as designated by British Energy by notice to Buyer not later than two (2) Business Days prior to the Closing Date; and

(h) such other agreements, consents, documents, instruments and writings as are reasonably required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith, including all such other instruments as British Energy or its counsel may reasonably request in connection with the purchase of the BEUSH Shares contemplated hereby.

ARTICLE 3

Representations and Warranties of

Seller

Seller hereby makes the following representations and warranties to Buyer as of the date hereof:

SECTION 3.1 Corporate Existence and Power of Seller and the Members of the Company Group. Each of the Seller and the members of the Company Group is a limited liability company, corporation or limited partnership, as appropriate, duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized. True and correct copies of the organizational documents of Seller and the members of the Company Group, each as amended to date, have been delivered or made available to Buyer. Each of the Seller and the members of the Company Group (i) has all requisite powers and authority required to carry on its business as now conducted, and (ii) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of its business make such qualification necessary, except where the failure to be so qualified, licensed and in good standing would not have a Material Adverse Effect on the Company.

SECTION 3.2 Authorization, Execution and Enforceability of Transactions. British Energy has the full power and authority to execute and deliver this Agreement and, subject to receipt of the British Energy Regulatory Approvals or as disclosed on Schedule 3.2, to perform its obligations hereunder. Except as disclosed on Schedule 3.2, all necessary actions or proceedings to be taken by or on the part of British Energy to authorize and permit the due execution and valid delivery by British Energy of this Agreement, the performance by British Energy of its obligations hereunder, and the consummation by British Energy of the transactions contemplated herein, have been duly and properly taken (and true and valid evidence thereof has been provided to Buyer). This Agreement has been duly executed and validly delivered by

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British Energy, and, assuming due execution and delivery by Buyer and receipt of the British Energy Regulatory Approvals, or as disclosed on Schedule 3.2, constitutes the valid and legally binding obligation of British Energy, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, moratorium and other Laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether such enforceability is sought in equity or at law).

SECTION 3.3 Non-contravention. Subject to British Energy obtaining the British Energy Regulatory Approvals, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby and thereby, will (i) violate any Law to which British Energy or any of its property is subject or any provision of the charter or by-laws of British Energy, or (ii) conflict with, result in a breach of, constitute a forfeiture of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify, revoke, suspend or cancel, or require any notice under any agreement, contract, lease, Permit, license, instrument or other arrangement to which British Energy is bound or to which any of its assets is subject (or result in the imposition of any Lien upon any of the Assets), except for matters that, (x) in the aggregate, would not be likely to have a Material Adverse Effect on British Energy or its ability to perform its obligations under this Agreement and the Related Agreements or for which a consent or waiver shall have been obtained, (y) are disclosed on Schedule 3.3, or (z) arise in relation to any non-assigned rights under Permits, Material Contracts, or other agreements.

SECTION 3.4 Consents and Approvals. Except as disclosed on Schedule 3.4, and except for British Energy Regulatory Approvals, no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the execution and delivery of this Agreement by British Energy, or the consummation of the transactions contemplated hereby.

SECTION 3.5 Financial Statements. Set forth on Schedule 3.5 are (i) the audited consolidated balance sheets of the Company and the unaudited consolidated balance sheets of BEUSH in each case as of December 31, 2002 and the related audited (in the case of the Company) and unaudited (in the case of BEUSH) consolidated statements of income and cash flows for the year ended December 31, 2002, and (ii) the unaudited interim consolidated balance sheet of each such member of the Company Group for the three months ended March 31, 2003 and the related unaudited interim consolidated statements of income and cash flows for the three months ended March 31, 2003 (collectively, the “Financial Statements”). The Financial Statements fairly present, in conformity with GAAP, applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of such member of the Company Group as of the dates thereof and its consolidated results of operations and cash flows for the periods then ended (subject in the case of any unaudited interim financial statements to routine and recurring year-end adjustments which have not been and are not expected to be material in amount).

SECTION 3.6 No Other Liabilities. None of the Company, BEUSH, BEUILLC or British Energy, LP has any liabilities other than (i) liabilities reflected on its balance sheets as disclosed on Schedule 3.5, (ii) liabilities which have arisen since March 31, 2003 in the ordinary course of business, (iii) liabilities described on Schedule 3.6, and (iv) liabilities that would not, individually or in the aggregate, have a Material Adverse Effect.

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SECTION 3.7 Ownership of BEUSH Shares. British Energy is and will be at the Closing the record and beneficial owner of the BEUSH Shares, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such Shares) (other than those created by this Agreement, the LLC Agreement and restrictions on sales of stock under applicable securities laws and, prior to the Closing, other than any Lien or other limitation or restriction under the Credit Facility Agreement or the Pledge Agreement), and will transfer and deliver to Buyer at the Closing valid title to such BEUSH Shares free and clear of any such Lien and free and clear of any such limitation or restriction.

SECTION 3.8 Capitalization of BEUSH. The BEUSH Shares constitute all of the outstanding equity interests in BEUSH. The BEUSH Shares have been duly authorized and are validly issued, fully paid and nonassessable and were not issued in violation of the preemptive rights of any Person. Except as shown on Schedule 3.8, BEUSH has no outstanding convertible security, call, preemptive right, option, warrant, purchase right or other contract or commitment that would, directly or indirectly, require BEUSH to sell, issue or otherwise dispose of any equity interest in BEUSH.

SECTION 3.9 Ownership of Interests in the Company. BEUSH is and will be at the Closing the beneficial indirect owner of fifty percent (50%) of the ownership interests in the Company, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such ownership interests) (other than those created by this Agreement, the LLC Agreement and restrictions on sales of stock under applicable securities laws and, prior to the Closing, other than any Lien or other limitation or restriction under the Credit Facility Agreement or the Pledge Agreement).

SECTION 3.10 BEUSH Operations. Except as disclosed on Schedule 3.10, (a) the business of BEUSH is and, since its formation, has been restricted solely to directly holding ninety-nine percent (99%) of the ownership interests in British Energy, LP and one hundred percent (100%) of the ownership interests in BEUILLC, and indirectly holding fifty percent (50%) of the ownership interests in the Company, and doing things necessary or incidental in connection with those activities; (b) BEUSH does not and, since its formation, has not, owned any assets, incurred any liabilities or engaged, participated or invested in any business other than as described in clause (a) of this Section 3.10; (c) BEUSH does not and, since its formation, has not, had any employees, except to the extent it might be deemed to have, or have had, employees as a result of the employment by the Company of seconded employees from Affiliates of British Energy LP; (d) BEUSH does not have and, since its organization, has not had any outstanding debt obligations (other than the Intercompany Loans); (e) BEUSH is not a party to any contracts or agreements (other than the limited partnership agreement of British Energy LP); (f) BEUSH has no assets other than its ownership interests in British Energy LP and British Energy US Investments LLC; and (g) BEUSH has not incurred any other liabilities that remain outstanding.

SECTION 3.11 British Energy LP Operations. Except as disclosed on Schedule 3.11, (a) the business of British Energy LP is and, since its formation, has been restricted solely to directly holding fifty percent (50%) of the ownership interests in the Company and doing things necessary or incidental in connection with that activity; (b) British Energy LP does not and, since its formation, has not, owned any assets, incurred any liabilities or engaged, participated or invested in any business other than as described in clause (a) of this Section 3.11; (c) British Energy LP does not and, since its formation, has not, had any employees, except to the extent it

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might be deemed to have, or have had, employees as a result of the employment by the Company of seconded employees from Affiliates of British Energy LP; (d) British Energy LP does not have and, since its organization, has not had any outstanding debt obligations (other than the Intercompany Loans); (e) other than the LLC Agreement, British Energy LP is not a party to any contracts or agreements; (f) British Energy LP has no assets other than its ownership interests in the Company; and (g) British Energy LP has not incurred any other liabilities that remain outstanding.

SECTION 3.12 British Energy US Investments LLC Operations. Except as disclosed on Schedule 3.12, (a) the business of BEUILLC is, and since its formation, has been, restricted solely to directly holding one percent (1%) of the ownership interests in British Energy LP and doing things necessary or incidental in connection with that activity; (b) BEUILLC does not and, since its formation, has not, owned any assets, incurred any liabilities or engaged, participated or invested in any business other than as described in clause (a) of this Section 3.12; (c) BEUILLC does not and, since its formation, has not, had any employees, except to the extent it might be deemed to have, or have had, employees as a result of the employment by the Company of seconded employees from Affiliates of British Energy LP; (d) BEUILLC does not have and, since its organization, has not had any outstanding debt obligations (other than the Intercompany Loans); (e) BEUILLC is not a party to any contracts or agreements (other than the limited partnership agreement of British Energy LP); (f) BEUILLC has no assets other than its ownership interests in British Energy LP; and (g) BEUILLC has not incurred any other liabilities that remain outstanding.

SECTION 3.13 Absence of Certain Changes. Since December 31, 2002, except as disclosed on Schedule 3.13, as of the date hereof, there has not occurred (i) any Material Adverse Effect with respect to the Company Group, or (ii) any Plant Material Adverse Effect.

SECTION 3.14 Litigation. Except as set forth on Schedule 3.14, (i) there are no claims or Actions, pending, or to Seller’s Knowledge threatened, which, individually or in the aggregate, would be likely to have a Plant Material Adverse Effect or a Material Adverse Effect on the Company, that challenge the validity of this Agreement or of any action taken or to be taken pursuant to or in connection with the provisions of this Agreement, or which, individually or in the aggregate, would be likely to have a Material Adverse Effect as to any member of the Company Group; (ii) no member of the Company Group is subject to any outstanding judgment, rule, order, citation, fine, penalty, writ, injunction or decree of any court, arbitrator or Governmental Authority which, individually or in the aggregate, would be likely to have a Material Adverse Effect; and (iii) no member of the Company Group has received any written notification that it is in violation of any Laws or Permits with respect to the Assets, except for notifications of violations which would not, individually or in the aggregate, be likely to have a Material Adverse Effect.

SECTION 3.15 Material Contracts. Set forth in Part I of Schedule 3.15 is a list of all agreements and contracts to which any member of the Company Group is a party or by which any member of the Company Group is bound (except for Collective Bargaining Agreements and Employee Benefit Plans disclosed in other schedules to this Agreement) (i) involving an aggregate consideration, per contract, in excess of $150,000, or (ii) constituting a swap, exchange, commodity option or hedging agreement (the contracts referred to in the foregoing clauses (i) and (ii), the “Material Contracts”).

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Except as set forth in Part II of Schedule 3.15, no member of the Company Group is, in any material respect, in breach of or in default under, and no event has occurred and is continuing that would constitute a material default by a member of the Company Group under, any provision of any Material Contract, and no member of the Company Group has received written notice from any other party to any Material Contract that a member of the Company Group is in breach of such Material Contract, which breach has not been remedied, and, to Seller’s Knowledge, no such other party is, in any material respect, in breach of or default under any provision of any such Material Contract. Except as set forth on Part II of Schedule 3.15, each Material Contract is in full force and effect and (except for those contracts which, pursuant to their terms, are to be and will be fully performed prior to the Closing Date) will remain in full force and effect upon consummation of the transactions contemplated hereby and is a valid agreement, arrangement or commitment of the member of the Company Group which is a party thereto, enforceable against such member of the Company Group in accordance with its terms and, to the knowledge of Seller, is a valid agreement, arrangement or commitment of each other party thereto, enforceable against such party in accordance with its terms, except in each case where enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and except where enforceability is subject to the application of equitable principles or remedies. True, correct and complete copies of the Material Contracts have been made available to Buyer.

SECTION 3.16 Qualified Decommissioning Funds.

(a) Except as disclosed on Schedule 3.16, the Company is the sole owner of the AmerGen Clinton-1 Qualified Fund, AmerGen Three Mile Island-1 Qualified Fund and AmerGen Oyster Creek Qualified Fund (collectively, the Qualified Decommissioning Funds), each of which is, and since its inception has been, treated as a nuclear decommissioning reserve fund in accordance with Code Section 468A and is therefore treated as a corporation in accordance with Code Section 468A(e)(2)(D). Each of the Company’s Qualified Decommissioning Funds is a trust, validly existing and in good standing under the laws of the jurisdiction of its formation with all requisite authority to conduct its affairs as it now does. Seller has heretofore made available to Buyer a copy of the Decommissioning Trust Agreement provided by the Company as in effect on the date of this Agreement. Seller agrees to furnish Buyer with copies of all amendments to the Decommissioning Trust Agreement adopted after the date of this Agreement promptly after each such amendment has been adopted and provided by the Company to Seller. Each of the Company’s Qualified Decommissioning Funds satisfies the requirements necessary for such fund to be treated as a “Nuclear Decommissioning Reserve Fund” within the meaning of Code section 468 A(a) and as a “nuclear decommissioning fund” and a “qualified nuclear decommissioning fund” within the meaning of Treas. Reg. Section 1.468A-l(b)(3). Each such fund is in compliance in all material respects with all applicable rules and regulations of any Governmental Authority having jurisdiction (including, without limitation, the NRC, the PaPUC, the NJBPU, the FERC and the ICC). Except as set forth in Schedule 3.16, none of the Company’s Qualified Decommissioning Funds has engaged in any acts of “self-dealing” as defined in Treas. Reg. Section 1.468A-5(b)(2). No “excess contribution,” as defined in Treas. Reg. Section 1.468A-5(c)(2)(ii), has been made to the Company’s Qualified Decommissioning Funds which has not been withdrawn within the period provided under Treas. Reg. Section 1.468A-5(c)(2)(i) for withdrawals of excess contributions to

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be made without resulting in a disqualification of the funds under Treas. Reg. Section 1.468A-5(c)(l).

(b) The Company and/or the trustee of each of the Qualified Decommissioning Funds have filed or caused to be filed with the NRC, the IRS and any state or local Governmental Authority all material forms, statements, reports, documents (including all exhibits, amendments and supplements thereto) required to be filed by any of them. As of the Closing, the Company has not requested a revised schedule of ruling amounts and has not contributed any amounts to the Qualified Decommissioning Funds during the period that the Company has held such Qualified Decommissioning Funds.

(c) Seller has made available to Buyer the trustee statements provided by the Company for each of the Qualified Decommissioning Funds as of December 31, 2002, and they present fairly as of such date the financial position of each of the Qualified Decommissioning Funds. Seller has made or will make available, or has caused or will cause to be made available, to Buyer information from which Buyer can determine the Tax Basis of all assets in the Qualified Decommissioning Funds as of December 31,2002. There are no Liabilities, including any acts of “self-dealing” as defined in Treas. Reg. Section 1.468A-5(b)(2) or agency or other legal proceedings that may materially affect the financial position of each of the Qualified Decommissioning Funds other than those, if any, that are disclosed on Schedule 3.16.

(d) Seller has made available to Buyer all contracts and agreements provided by the Company to which the trustee of each of the Qualified Decommissioning Funds, in its capacity as such, is a party.

(e) Each of the Qualified Decommissioning Funds has filed all material Tax Returns required to be filed and all material Taxes, whether or not shown to be due on such Tax Returns, have been paid in full. Except as disclosed on Schedule 3.16, no notice of deficiency or assessment has been received from any Taxing Authority with respect to Liability for Taxes of each of the Qualified Decommissioning Funds which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 3.16 is being contested in good faith through appropriate proceedings. Except as disclosed on Schedule 3.16, to Seller’s Knowledge there are no outstanding agreements or waivers extending the applicable statutory periods of limitations for Taxes associated with each of the Qualified Decommissioning Funds for any period.

SECTION 3.17 Nonqualified Decommissioning Funds.

(a) Except as disclosed on Schedule 3.17, the Company is the sole owner of AmerGen Clinton Non-Qualified Fund, AmerGen Three Mile Island-1 Non-Qualified Fund and AmerGen Oyster Creek Non-Qualified Fund (collectively, the Nonqualified Decommissioning Funds), each of which is, and since its inception has been, treated as a grantor trust for federal income tax purposes in accordance with Code Section 671. Each of the Company’s Nonqualified Decommissioning Funds is a trust validly existing and in good standing under the laws of the jurisdiction of its formation with all requisite authority to conduct its affairs as it now does. Each of the Company’s Nonqualified Decommissioning Funds is in full compliance with all applicable rules and regulations of any Governmental Authority having jurisdiction (including, without limitation, the NRC, the PaPUC, the NJBPU, the FERC and the ICC).

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(b) The Company and/or the trustee of the Nonqualified Decommissioning Funds have filed or caused to be filed with the NRC and any state or local Governmental Authority all material forms, statements, reports, and documents (including all exhibits, amendments and supplements thereto) required to be filed by either of them.

(c) Seller has made available to Buyer the trustee statements provided by the Company for each of the Nonqualified Decommissioning Funds as of December 31, 2002 and they present fairly as of such date the financial position of the Nonqualified Decommissioning Funds. Seller has made or caused to be made available to Buyer, and will make or cause to be made available to Buyer, information from which Buyer can determine the Tax Basis of all assets of the Nonqualified Decommissioning Funds (other than cash) as of December 31, 2002. There are no liabilities (whether absolute, accrued, contingent or otherwise and whether due or to become due) including agency or other legal proceedings, that may materially affect the financial position of the Nonqualified Decommissioning Funds other than those, if any, that are disclosed on Schedule 3.17.

(d) Seller has made available to Buyer all contracts and agreements provided by the Company to which the trustee of each of the Nonqualified Decommissioning Funds, in its capacity as such, is a party.

(e) Each of the Nonqualified Decommissioning Funds has filed all material Tax Returns required to be filed and all material Taxes, whether or not shown to be due on such Tax Returns, have been paid in full. Except as disclosed on Schedule 3.17, no notice of deficiency or assessment has been received from any Taxing Authority with respect to Liability for Taxes of any of the Nonqualified Decommissioning Funds which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 3.17 is being contested in good faith through appropriate proceedings. Except as disclosed on Schedule 3.17, to Seller’s Knowledge there are no outstanding agreements or waivers extending the applicable statutory periods of limitations for Taxes associated with any of the Nonqualified Decommissioning Funds for any period.

SECTION 3.18 Insurance. Seller has made available to Buyer a list provided by the Company of all material insurance policies maintained by the Company and its affiliates covering the Assets, business, equipment, properties, operations, employees, officers and directors of the Company. There is no claim, suit or other matter pending under any of such policies as to which coverage has been denied or disputed by the underwriters of such policies. All premiums due and payable under all such policies have been paid and the Company has otherwise complied fully with the terms and conditions of all such policies. Except as disclosed on Schedule 3.18, there is no threatened termination or cancellation of any such policies as a result of the transactions contemplated hereby or otherwise, and as of the date of this Agreement, neither British Energy nor the Company has received any written notice of termination or cancellation as to any such policies. The Company is approved for self-insurance of the workers compensation in Pennsylvania and Illinois. Schedule 3.18 includes the list of surety bonds required for self-insurance of workers compensation, environmental issues and the letters of credit required to support the Owner Controlled Insurance Program (“OCIP”).

SECTION 3.19 Compliance with Laws. Except as set forth on Schedule 3.19, no uncured material violation of any applicable Law by any member of the Company Group exists,

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nor has there been any material violation of any applicable Law by any member of the Company Group during the Seller Ownership Period. Except as shown on Schedule 3.19, no member of the Company Group other than the Company has (and to Seller’s Knowledge the Company has not) received written notice from any Governmental Authority of any material violation of applicable Law with respect to the Company Group, the Business or the Assets. Except as set forth on Schedule 3.19, no written notice has been received by any member of the Company Group (other than the Company) or, to Seller’s Knowledge, by the Company, during the Seller Ownership Period to the effect that any member of the Company Group or the Assets are not in compliance in any material respect with any applicable Laws. Except as set forth on Schedule 3.19, during the Seller Ownership Period, no internal investigation has been conducted by Seller or by any member of the Company Group in connection with which any of them has retained or sought advice from outside legal counsel with respect to any actual, potential or alleged material violation of any applicable Law by any member of the Company Group or any of their employees, officers, directors or agents. Seller is not making any representations or warranties in this Section 3.19 with respect to any Environmental Law or any applicable Law relating to Taxes, and such matters are addressed in Sections 3.20 and 3.23.

SECTION 3.20 Environmental Matters. Except as set forth on Schedule 3.20:

(a) the Company Group and the Assets comply in all material respects with all applicable Environmental Laws, and neither Seller nor any member of the Company Group has received during the Seller Ownership Period, any written notice from any Governmental Authority alleging that any member of the Company Group or any Asset is in material violation of any Environmental Law;

(b) no Lien has been imposed on any Asset by any Governmental Authority in connection with any material violation of or material noncompliance with Environmental Laws and to Seller’s Knowledge there are no facts, circumstances or conditions that are reasonably likely or expected to restrict, encumber or result in the imposition of special conditions under any Environmental Law (other than ISRA and any successor statutes or regulations) with respect to the ownership, occupancy, development, use or transferability of the Assets, except those facts, circumstances or conditions relating to the status of the Facilities as nuclear facilities;

(c) all material Permits required under applicable Environmental Laws for the ownership and operation of the Assets as they are currently operated have been obtained, each such Permit is in full force and effect, the Company is in material compliance with all of its obligations thereunder, there are no proceedings pending or threatened that would reasonably be expected to result in the revocation, termination, modification or amendment of any such Permit, and the Company has not failed to make in a timely fashion any application or other filing required for the renewal of any such Permit which failure would reasonably be expected to result in such Permit terminating or being revoked, terminated, suspended or adversely modified;

(d) (i) neither any member of the Company Group nor any Asset is subject to any outstanding consent decree, compliance order or administrative order pursuant to an Environmental Law, and (ii) the Company Group has not received, during the Seller Ownership Period, any written notice of intent to sue under the citizen suit provision of any Environmental

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Law, or of any written notice, complaint or claim seeking to impose an Environmental Liability against the Company;

(e) there has been and is no Release of a Hazardous Substance initially occurring during the Seller Ownership Period, at, from, on, under or to any Asset that would reasonably be expected to result in any material Environmental Liabilities to any member of the Company Group;

(f) there are no environmental investigation reports with respect to any violation of any applicable Environmental Law by the Company Group or any Asset, or any Environmental Liability of the Company Group, in the custody or possession of the Seller or the Company Group, that have not been made available to Buyer and to Seller’s Knowledge, there exists no state of facts which would reasonably be expected to result in any material Environmental Liability with respect to any member of the Company Group or any Asset;

(g) during the Seller Ownership Period, neither Seller nor any member of the Company Group have performed, or arranged for, the transportation, storage, handling, disposal or treatment of any Hazardous Substance from any Asset to or at any off-site location that is an Environmental Clean-Up Site;

(h) the Assets are not Environmental Clean-Up Sites; and

(i) to Seller’s Knowledge, there are no underground storage tanks, active or abandoned, or polychlorinated biphenyl-containing equipment located at any of the Assets.

Except for the applicability of Sections 3.18 or 3.38 to this Section 3.20, this Section 3.20 contains the only representations and warranties of Seller regarding Environmental Laws or the presence, Remediation or Release of Hazardous Substances in this Agreement, and no other provision in this Agreement shall be construed to contain any such representation or warranty.

SECTION 3.21 Employees. Schedule 3.21 contains a list of all collective bargaining agreements that relate to the employees of the Company or the Assets (the “Collective Bargaining Agreements”), true and correct copies of which have heretofore been made available to Buyer. Except as described in Schedule 3.21, during the Seller Ownership Period: (a) there has been no work stoppage due to labor disagreements experienced by any member of the Company Group; (b) no written notice has been received from any Governmental Authority of any unfair labor practice charge or complaint against any member of the Company Group pending or threatened before the National Labor Relations Board or any other Governmental Authority with respect to the Company’s employees; (c) no arbitration proceeding arising out of or under any Collective Bargaining Agreement with respect to the Facilities and/or the Assets other than proceedings arising in connection with individual employee grievance procedures is pending against any member of the Company Group, and (d) there is no labor strike, slowdown or stoppage actually pending or threatened by any authorized representative of any union or other representative of employees of the Company Group related to the Facilities and/or the Assets against or affecting any member of the Company Group, except in any such case set forth in clauses (a) through (d) above as would not, individually or in the aggregate, have a Material Adverse Effect on such member of the Company Group.

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SECTION 3.22 Employee Benefit Plans.

(a) Schedule 3.22 contains a true and complete list of any Employee Benefit Plans maintained or contributed to or required to be contributed to by the Company for the benefit of any employee or former employee of the Company or any of its ERISA Affiliates (the “Plans”). No member of the Company Group (other than the Company) maintains or contributes to or is required to contribute to any Employee Benefit Plan for the benefit of any employee or former employee of the Company Group or any of their ERISA Affiliates. Schedule 3.22 identifies each of the Plans that is an Employee Welfare Benefit Plan, or Employee Pension Benefit Plan (such plans being hereinafter referred to collectively as the “ERISA Plans”).

(b) With respect to each of the Plans, Seller has heretofore delivered or made available to the Buyer true and complete copies of each of the following documents: (i) a copy of the Plan documents (including all amendments thereto) for each written Plan; (ii) a copy of the annual report or Internal Revenue Service Form 5500 Series, if required under ERISA, with respect to each such Plan for the last Plan year ending prior to the date of this Agreement for which such a report was filed; (iii) a copy of the actuarial report, if required under ERISA, with respect to each such Plan for the last Plan year ending prior to the date of this Agreement; (iv) a copy of the most recent Summary Plan Description (“SPD”), together with all summaries of material modification issued subsequent to the date of such SPD, required under ERISA with respect to such Plan; and (v) the most recent determination letter received from the IRS with respect to each Plan that is intended to be qualified under Section 401 (a) of the Code.

(c) The PBGC has not instituted proceedings pursuant to Section 4042 of ERISA to terminate any of the ERISA Plans subject to Title IV of ERISA and no condition exists that presents a material risk that such proceedings will be instituted by the PBGC.

(d) None of the ERISA Plans or any trust established thereunder has incurred any “accumulated funding deficiency” (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each of the ERISA Plans ended prior to the date of this Agreement and no Lien has been imposed under Section 412(n) of the Code or Section 302(f) of ERISA on the assets of the Company or any of its ERISA Affiliates.

(e) Neither the Company Group nor any of their respective ERISA Affiliates maintains or has an obligation to contribute to a Multiemployer Plan.

(f) Except as set forth in Schedule 3.22, (i) each of the ERISA Plans that is intended to be “qualified” within the meaning of Section 401 (a) of the Code has received a determination letter from the IRS stating that it is so qualified and (ii) any trust established under an ERISA Plan that is intended to satisfy the requirements of Section 501(c)(9) of the Code has received a determination letter from the IRS starting that it has so satisfied such requirements.

(g) Except as set forth in Schedule 3.22, neither the Company Group nor any of their respective ERISA Affiliates has announced any formal plan or commitment to create any additional Plan or make any material modifications or changes to any existing Plan.

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(h) No material liability under Title IV of ERISA or Section 412 of the Code has been incurred by the Company Group or any of their respective ERISA Affiliates that has not been satisfied in full, and no condition exists that presents a material risk to the Company Group or any of their respective ERISA Affiliates of incurring a material liability under such Title, other than liability for contributions to any such ERISA Plans or premiums due the Pension Benefit Guaranty Corporation (“PBGC”), which payments have been made when due with respect to any ERISA Plan.

(i) Neither the Company Group, any of their respective ERISA Affiliates, any of the ERISA Plans, any trust created thereunder nor any trustee, or administrator thereof has engaged in a transaction or has taken or failed to take any action in connection with which the Company Group or any of their respective ERISA Affiliates would reasonably be expected to be subject to any material liability for either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975(a) or (b), 4976 or 4980B of the Code.

(j) Except as set forth in Schedule 3.22, each of the Plans has been operated and administered in all material respects in accordance with applicable Laws, including but not limited to ERISA and the Code.

(k) Except as set forth in Schedule 3.22, the consummation of the transactions contemplated by this Agreement will not (A) entitle any current or former employee or officer of the Company Group to severance pay, unemployment compensation or any other similar termination payment or (B) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer.

(l) There are no pending or, to Seller’s Knowledge, threatened claims by or on behalf of any Plan, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan (other than routine claims for benefits) that could reasonably be expected to result in material liability.

SECTION 3.23 Taxes. Except as set forth in Schedule 3.23:

(i) all material Tax Returns required to be filed by or with respect to each member of the Company Group have been or will be timely filed with the appropriate Taxing Authorities in all jurisdictions in which such Tax Returns are required to be filed;

(ii) such Tax Returns are or will be true and correct in all material respects, and all Taxes, whether or not reported on such Tax Returns, have been or will be timely paid;

(iii) to Seller’s knowledge, no member of the Company Group has, and Seller has not with respect to the Company Group, extended or waived the application of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax;

(iv) to Seller’s knowledge, there is no audit or other proceeding presently pending or threatened with regard to any Tax of the Company Group and neither British Energy nor any member of the Company Group has received a written ruling from a Taxing Authority relating to any Tax or entered into a written agreement with any Taxing Authority;

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(v) there are no Liens for Taxes upon the assets of any member of the Company Group, except for Liens for Taxes not yet due or being contested in good faith;

(vi) none of the assets of any member of the Company Group, directly or indirectly, secures any debt the interest on which is tax exempt under Section 103(a) of the Code;

(vii) the Company is, and has been since its inception, classified as a partnership for federal Tax purposes under Treas. Reg. Sections 301.7701-2 and -3 and any comparable provision of applicable Law of state and local jurisdictions that permits such treatment;

(viii) true and correct copies of all material Tax Returns filed by or with respect to each member of the Company Group for all periods ending on and after December 31,1999 have been provided to the Buyer;

(ix) British Energy LP is and has been since its inception treated as a corporation for federal Tax purposes under Treas. Reg. Section 301.7701-3;

(x) BEUILLC is and has been since its inception treated as a disregarded entity for federal tax purposes under Treas. Reg. Section 301.7701-3;

(xi) BEUSH has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code at any time during the shorter of the period during which Seller held the stock of BEUSH (or any predecessor thereof) and five (5) years preceding the Closing Date; and

(xii) each member of the Company Group has complied in all material respects with all applicable Laws, rules and regulations relating to withholding Taxes, and has, within the time periods and in the manner prescribed by Law, withheld from employee wages and paid to the proper Governmental Authority or Taxing Authority all amounts required to have been so withheld and paid.

SECTION 3.24 Condemnation. Except as disclosed on Schedule 3.24, neither Seller nor any member of the Company Group has received any written notice from any Governmental Authority of any pending proceeding to condemn or take by power of eminent domain or otherwise, by any Governmental Authority, all or any part of the Assets that would be likely to have a Material Adverse Effect on the Company.

SECTION 3.25 Real Property. (a) To Seller’s Knowledge, Schedule 3.25(a) lists all real property owned by the Company (such property, the “Owned Real Property”). To Seller’s Knowledge, the Company has fee simple title to each parcel of Owned Real Property free and clear of all Liens, except: (A) as set forth on Schedule 3.25(a); (B) matters that are disclosed in the title policy and survey for the burdened Owned Real Property, none of which individually or in the aggregate materially and adversely affects the operation of any of the Assets as currently operated; (C) Permitted Encumbrances; and (D) zoning, planning and other limitations and restrictions of record, none of which individually or in the aggregate materially and adversely affects the operation of a Facility as currently operated. True and correct copies of each deed and lease pursuant to which the Company acquired the Owned Real Property, together with

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copies of the title insurance policies and surveys related thereto to which Seller has access have been made available to Buyer.

(b) To Seller’s Knowledge, Schedule 3.25(b) sets forth a list of all leases of real property under which the Company is lessee and all amendments thereto and assignments thereof (the “Real Property Leases”). The real property subject to the Real Property Leases is hereinafter referred to as the “Leased Real Property”. To Seller’s Knowledge, the Company has a valid leasehold in and enjoys quiet and undisturbed possession of the Leased Real Property. True and correct copies of the Real Property Leases have been made available to Buyer prior to the date hereof. To Seller’s Knowledge, (A) the Company is not in default in any material respect under any Real Property Lease, and (B) no lessor is in default in any material respect under any Real Property Lease.

(c) To Seller’s Knowledge, the Owned Real Property and the Leased Real Property constitute all the real property required by the Company Group for the conduct of the Business as currently conducted. Except as disclosed on Schedule 3.25(c), there are no leases, subleases, licenses, occupancy agreements, options, rights, concessions or other agreements or arrangements, written or oral, granting to any Person the right to purchase the Owned Real Property, or the right to use or occupy any of the Owned Real Property or Leased Real Property.

(d) No member of the Company Group other than the Company has title to or leases any real property.

SECTION 3.26 Permits. Except as set forth on Schedule 3.26, the Company Group has all material Permits required to conduct the Business as currently conducted. Each material Permit is in full force and effect and the applicable member of the Company Group is in compliance in all material respects with all its obligations with respect thereto. There are no proceedings pending or to Seller’s Knowledge threatened which might reasonably be expected to result in the revocation, termination or material adverse modification of any material Permit of the Company Group. Except as set forth on Schedule 3.26, all required filings with respect to such material Permits have been timely made and all required applications for renewal thereof have been timely filed, except for such failure to do any of the foregoing as would not lead to the revocation, cancellation, suspension or adverse modification of any such Permit. To Seller’s Knowledge, no such Permit will terminate or be subject to termination or revocation as a result of the transactions contemplated by this Agreement. Seller is not making any representation or warranty in this Section 3.26 with respect to Permits required under any Environmental Law, which Permits are instead addressed in Section 3.20.

SECTION 3.27 Plant and Equipment; Personal Property.

(a) Except as disclosed in Schedule 3.27, the Facilities conform in all material respects to the applicable Technical Specifications and Final Safety Analysis Reports and are being operated in all respects in conformance with applicable requirements under the Atomic Energy Act, the Energy Reorganization Act and the rules, regulations, orders and licenses issued thereunder. The Assets constitute all of the material assets necessary for the operation of the Business, and, except as disclosed on Schedule 3.27, the Assets are currently in a condition adequate and sufficient to operate the Facilities at full licensed thermal load in accordance with Good Utility Practice.

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(b) The personal property of the Company Group is not subject to or encumbered by any Liens, except (i) as disclosed on Schedule 3.27, and (ii) Permitted Encumbrances.

SECTION 3.28 Bank Accounts. Schedule 3.28 sets forth a complete list of all bank accounts of the Company Group.

SECTION 3.29 Intellectual Property. The Company or another member of the Company Group owns or has licensed or otherwise possesses sufficient legally enforceable rights to use all material patents, copyrights, trademarks, service marks, technology, know-how, computer software programs and applications and databases that are currently used in the Business. To Seller’s Knowledge, the Business is not operated in a manner that infringes upon any patents, copyrights, trademarks or other intellectual property rights of any third parties and, to the Seller’s Knowledge no third party is infringing on any patents, copyrights, trademarks or other intellectual property rights of the Company Group.

SECTION 3.30 Subsidiaries. Schedule 3.30 sets forth a list of each Subsidiary of the members of the Company Group and the ownership thereof. Except as set forth on Schedule 3.30, no member of the Company Group owns or holds, directly or indirectly, any equity or other ownership interest in any corporations, limited liability companies, partnerships, joint ventures or other entities.

SECTION 3.31 Utilities. To Seller’s Knowledge, there are utility lines to the Owned Real Property and the Leased Real Property which currently supply all such services on such real property necessary to operate the Business in a manner and to an extent consistent with past practices.

SECTION 3.32 Books and Records. The books, accounts, ledgers and files of each member of the Company Group other than the Company (and, to Seller’s Knowledge, of the Company) are true and complete in all material respects and have been maintained in accordance with GAAP on a consistent basis (except, with respect to members of the Company Group other than the Company, for any inconsistencies that may result from the reconciliation of such books, accounts, ledgers and files to GAAP prior to the date hereof) and bookkeeping practices in all material respects. The minute books and other similar records of each member of the Company Group are true and complete in all material respects.

SECTION 3.33 Affiliate Transactions. Except as set forth on Schedule 3.33, (i) neither Seller, any Affiliate of Seller (other than a member of the Company Group), officer, manager, or director of Seller or any Affiliate of Seller (including members of the Company Group), (ii) no individual related by blood, marriage or adoption to any person described in clause (i), and (iii) no entity in which any of the foregoing persons described in clause (i) or clause (ii) owns individually or in the aggregate a greater than ten percent (10%) beneficial interest is, or at any time during the past three (3) years has been a party to any agreement, contract, commitment or transaction with any member of the Company Group or has a material interest in any material property used by any member of the Company Group at any time during the past three (3) years.

SECTION 3.34 Bankruptcy; Solvency. There are no bankruptcy, reorganization or arrangement proceedings pending against or, to the Knowledge of Seller, threatened against the Seller or any member of the Company Group. The Seller and each member of the Company Group are Solvent.

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SECTION 3.35 Finders’ or Brokers’ Fees. Other than Citigroup Global Markets Inc., Lazard Freres & Co. LLC and Lazard & Co. Limited, each of whose fees shall be paid by Seller, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of any member of Company Group which might be entitled to any fee or commission from Buyer in connection with the transactions contemplated by this Agreement.

SECTION 3.36 DOE Standard Spent Fuel Contracts and Payment of Deferred One-Time Fees. The Company holds a DOE Standard Spent Fuel Contract for each of the Facilities. The liability to DOE for payment of a one-time fee for spent fuel discharged from TMI-1 and Oyster Creek prior to the execution of the DOE Standard Spent Fuel Contracts for those Facilities was deferred, as permitted by the DOE Standard Spent Fuel Contracts, and remains a liability to DOE with accumulated interest until payment. The previous owners of TMI-I and Oyster Creek retained the liability for the payment of the deferred one-time fee for spent fuel discharged from TMI-1 and Oyster Creek.

SECTION 3.37 Prices and Terms for Purchase by Exelon of Power from the Facilities. Pursuant to the LLC Agreement, all output from the Facilities, other than the output sold to the former owners as a condition of the sale, shall be sold to Exelon Generation’s Power Team at the price and for the period of time which the Company used in its evaluation of the acquisition of each Facility. Schedule 3.37 sets forth the price of the output and period of time that Exelon Generation’s Power Team is obligated to purchase the output, which the Company used in its evaluation of the acquisition of TMI-1, Oyster Creek and Clinton. The Company and Exelon are bound by the prices and term for each Facility set forth in Schedule 3.37.

SECTION 3.38 Disclosure. No representation or warranty made herein or in any document delivered hereunder contains any untrue statements of material fact nor does it omit to state a material fact which is known to either Seller or their Affiliates to be necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. There is no fact known to Seller or its Affiliates that Seller or their Affiliates have not disclosed to Buyer in writing on or before the Closing Date which would reasonably be expected to have a Material Adverse Effect on the Company Group or the Facilities.

SECTION 3.39 Inquiries by Seller. The individuals listed on Schedule 1.1 (a) constitute all Persons currently employed by British Energy or its Affiliate’s (including employees seconded to the Company) who might have direct knowledge of the information that is the subject of the representations and warranties contained in Article 3.

SECTION 3.40 Limitation of Representations and Warranties. BUYER ACKNOWLEDGES THAT EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE BUSINESS, ASSETS AND LIABILITIES OF THE COMPANY GROUP, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO ANY PROJECTIONS, ESTIMATES OR BUDGETS DELIVERED TO OR MADE AVAILABLE TO BUYER RELATING TO FUTURE FINANCIAL RESERVES, FUTURE REVENUES, FUTURE RESULTS OF OPERATIONS (OR ANY COMPONENT THEREOF), FUTURE CASH FLOWS OR FUTURE FINANCIAL CONDITION (OR ANY COMPONENT THEREOF) OF

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THE COMPANY OR THE FUTURE BUSINESS AND OPERATIONS OF THE COMPANY.

ARTICLE 4

Representations and Warranties of Buyer

Buyer hereby makes the following representations and warranties to British Energy as of the date hereof:

SECTION 4.1 Existence and Power of Buyer. Buyer is a limited liability company duly incorporated, validly existing and in good standing under the laws of Delaware, and has all requisite power and all certificates, licenses, permits, approvals, consents, orders, exemptions, decisions and other actions of a Governmental Authority to the extent required to carry on its business as now conducted, except where the failure to have such powers, certificates, licenses, permits, approvals, consents, orders, exemptions, decisions or actions would not have a Material Adverse Effect on Buyer.

SECTION 4.2 Authorization, Execution and Enforceability of Transactions. Buyer has the full power and authority to execute and deliver this Agreement and, subject to receipt of Buyer Regulatory Approvals, to perform its obligations hereunder. All necessary actions or proceedings to be taken by or on the part of Buyer to authorize and permit the due execution and valid delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder, and the consummation by Buyer of the transactions contemplated herein, have been duly and properly taken (and true and valid evidence thereof has been provided to Seller). This Agreement has been duly executed and validly delivered by Buyer, and assuming due execution and delivery by British Energy and receipt of Buyer Regulatory Approvals, constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, moratorium and other Laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether such enforceability is sought in equity or at law).

SECTION 4.3 Non-contravention. Subject to Buyer’s obtaining its Buyer Regulatory Approvals, and except as disclosed on Schedule 4.3, the execution, delivery and performance of this Agreement by Buyer do not and will not (a) contravene or conflict with the certificate of incorporation or bylaws of Buyer, (b) contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to Buyer, (c) require any consent, approval or other, action by any Person or constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Buyer or to a loss of any benefit to which Buyer is entitled under any provision of any material agreement, contract, indenture, lease or other instrument binding upon Buyer or any license, franchise, permit or other similar authorization held by Buyer, or (d) result in the creation or imposition of any Lien on any asset of Buyer, except in any such case set forth in clauses (b) through (d) above as would not, individually or in the aggregate, have a Material Adverse Effect on Buyer.

SECTION 4.4 Consents and Approvals. Except as disclosed on Schedule 4.4, and except for Buyer Regulatory Approvals, no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the execution

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and delivery of this Agreement by Buyer, or the consummation of the transactions contemplated hereby,

SECTION 4.5 Finders’ or Brokers’ Fees. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer that might be entitled to any fee or commission from Seller in connection with the transactions contemplated by this Agreement.

SECTION 4.6 Availability of Funds. Buyer has sufficient funds available to it or has received binding written commitments from third parties (copies of which have been provided to British Energy) to provide sufficient funds on the Closing Date to pay the Purchase Price as contemplated hereby and to enable Buyer timely to perform all of its obligations under this Agreement, including sufficient funds available or binding written commitments from third parties that are adequate to ensure the release of the obligations of certain guarantors as provided in Section 5.7 and the repayment of all loans as provided in Section 5.11.

SECTION 4.7 Litigation. There is no claim or Action pending against, or to Buyer’s Knowledge, threatened against or affecting, Buyer which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement.

SECTION 4.8 Due Diligence. Buyer acknowledges that, prior to its execution of this Agreement, (i) it has been afforded access to and the opportunity to inspect the Assets, the Material Contracts (or copies thereof) and all other due diligence items made available by Seller with respect to the Company Group and the Business, and (ii) it is relying upon only those representations and warranties that are expressly contained herein, as well as upon its own inspections and investigation, in order to satisfy itself as to the condition and suitability of the Assets and the Business. Buyer (A) is not relying upon any representations, warranties, statements, advice, documents, projections or other information of any type provided by Seller other than those representations and warranties expressly set forth in this Agreement; (B) is entering into this Agreement as principal (and not as advisor, agent, broker or in any other capacity, fiduciary or otherwise); (C) has entered into this Agreement with a full understanding of the material terms and risks of the same; and (D) has made its purchase decision (including regarding the suitability thereof) based upon its own judgment and any advice from such advisors as it has deemed necessary and not in reliance upon any view expressed by Seller.

SECTION 4.9 Absence of Certain Events. Since December 31, 2002, to Buyer’s Knowledge, there has not been any event which would be likely to have a Material Adverse Effect on Buyer’s ability to perform under this Agreement.

SECTION 4.10 No Knowledge of Breach. Buyer does not know of any breach of warranty or any misrepresentation by British Energy hereunder or of any condition or circumstance that would excuse Buyer from performance of its obligations under this Agreement.

SECTION 4.11 Inquiries by Buyer. The individuals listed on Schedule 1.1 (b) constitute Persons currently employed by Buyer or its Affiliates who have direct knowledge of the information that is the subject of the representations and warranties contained in Article 4.

SECTION 4.12 Buyer Guaranty. The Buyer Guaranty has been duly and validly executed and delivered by Buyer Guarantor and constitutes the legal, valid and binding obligation of Buyer Guarantor enforceable in accordance with its terms and conditions, subject to

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applicable bankruptcy, insolvency, moratorium and other Laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether such enforceability is sought in equity or at law).

ARTICLE 5

Covenants

SECTION 5.1 General. Without limiting the rights of any Party to exercise its rights hereunder, each Party will use Commercially Reasonable Efforts to take all actions and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement pursuant to this Agreement, prior to the date which is six (6) months from the date hereof, subject to any extension of the six (6) month period pursuant to Section 8.1(b) (including satisfaction of the Closing conditions set forth in Article 6).

SECTION 5.2 Notices, Consents and Approvals.

(a) Hart-Scott-Rodino. British Energy and Buyer shall, if required, file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. British Energy and Buyer shall cooperate with one another and use Commercially Reasonable Efforts to make such filings as promptly as possible after the date hereof and to respond promptly to any requests for additional information made by either of such agencies. Buyer will pay all filing fees under the HSR Act, but British Energy and Buyer each will bear its own costs for the preparation of any filing. British Energy and Buyer shall use Commercially Reasonable Efforts to cause any waiting period under the HSR Act with respect to the transactions contemplated by this Agreement to expire or terminate at the earliest possible time.

(b) Nuclear Regulatory Commission Approval.

(i) Application. As promptly after the date hereof as may be feasible (and in any event, within forty-five (45) calendar days of the date of this Agreement), British Energy and Buyer shall jointly prepare one or more Applications to be filed with the NRC for approval of the indirect transfer of the NRC licenses for each Facility and any conforming amendment of the NRC licenses to reflect such indirect transfer. Thereafter, British Energy and Buyer shall cooperate with one another to facilitate review of the Application(s) by the NRC Staff, including but not limited to promptly providing the NRC Staff with any and all documents or information that the NRC Staff may reasonably request or require any of the Parties to provide or generate. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in filing such Application(s) jointly with Buyer and in responding to requests for information from the NRC staff.

(ii) Prosecution of Application. The Application(s) shall identify British Energy and Buyer as separate parties to the Application(s), but Buyer shall direct and control the prosecution of the Application(s). In the event the processing of such Application(s) by the NRC becomes a Contested Proceeding, until such Contested Proceeding becomes final

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and nonappealable, British Energy and Buyer shall separately appear therein by their own counsel, and shall continue to cooperate with each other to facilitate a favorable result. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in prosecuting such Application(s).

(iii) Costs of Application and Prosecution. British Energy and Buyer will bear their own costs of the preparation, submission and processing of the Application, including any Contested Proceeding that may occur in respect thereof; provided, however, that Buyer shall bear the costs of all NRC Staff fees payable in connection with the Application. In the event that British Energy and Buyer agree upon the use of common counsel, they shall share equally the fees and expenses of such counsel. British Energy shall be responsible for any costs, fees and expenses of the Company.

(c) FERC Approval.

(i) Application. As promptly after the date hereof as may be feasible (and in any event, within forty-five (45) calendar days of the date of this Agreement), British Energy and Buyer shall jointly prepare and file with FERC an Application.

(ii) Prosecution of Application. Buyer shall direct and control the prosecution of the Application. In the event the processing of such Application by the FERC becomes a Contested Proceeding, until such Contested Proceeding becomes final, British Energy and Buyer shall separately appear therein by their own counsel, and shall continue to cooperate with each other to facilitate a favorable result.

(iii) Costs of Application and Prosecution. British Energy and Buyer will bear their own costs of the preparation, submission and processing of the Application, including any Contested Proceeding that may occur in respect thereof. In the event that British Energy and Buyer agree upon the use of common counsel, they shall share equally the fees and expenses of such counsel. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in all filings and any proceedings in connection with obtaining FERC approval, and British Energy shall be responsible for any costs, fees or expenses of the Company in connection with obtaining FERC approval.

(d) Consents and Approvals.

(i) British Energy and Buyer each shall cooperate and use Commercially Reasonable Efforts with respect to their respective obligations to (A) promptly prepare and file all necessary documentation, (B) effect all necessary applications, notices, petitions and filings and execute all agreements and documents, (C) obtain the transfer, issuance or reissuance, if necessary, to the Buyer of all necessary Permits, (D) facilitate the substitution, if necessary, of Buyer for British Energy where appropriate on pending Permits, and (E) obtain all necessary consents, waivers, approvals and authorizations of all other parties necessary or advisable to consummate the transactions contemplated by this Agreement (including British Energy Regulatory Approvals and Buyer Regulatory Approvals) or approvals required by the terms of any note, bond, mortgage, indenture, deed of trust, license, franchise, Permit, concession, contract, lease, warranty or other instrument to which either British Energy or Buyer is a party or by which any of them is bound. Without limiting the generality of the foregoing,

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British Energy and Buyer shall, as promptly as practicable after the date hereof and in any event by no later than forty-five (45) calendar days after the date hereof, make the necessary filings and pursue receipt of those British Energy Regulatory Approvals and Buyer Regulatory Approvals for which British Energy or Buyer has responsibility.

(ii) British Energy and Buyer each shall have the right to review and comment in advance on all filings relating to the transactions contemplated by this Agreement made by the other Party in connection with the transactions contemplated hereby. British Energy and Buyer shall in good faith consider such comments before making any such filings. Neither Party shall intervene in opposition to a filing made by the other Party in connection herewith unless the approval or other action to be taken in response to such filing would have a material adverse effect on the opposing Party or the filing is otherwise not in good faith. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in all filings and any proceedings in connection with obtaining British Energy Regulatory Approvals and Buyer Regulatory Approvals.

SECTION 5.3 Operation of Business of Company Group During Interim Period.

(a) During the Interim Period, British Energy shall cause each member of the Company Group (other than the Company), and, subject to Good Utility Practices and to the extent within its rights, authority and powers as a “Member” of the Company under the Limited Liability Company Agreement, use Commercially Reasonable Efforts to cause the Company, to:

(i) conduct its Business in the ordinary course (including making budgeted capital expenditures), not make any material change in the conduct of the Business and preserve intact its goodwill and maintain satisfactory relationships with those Persons having business relationships with it, except as contemplated by the matters described on Schedule 5.3(a);

(ii) except in the ordinary course of business and consistent with past practices or Good Utility Practices, or except as otherwise approved in writing by the Buyer, not enter into, assign, terminate or amend, in any material respect, any Material Contract or Permit or release or relinquish any material rights thereunder;

(iii) except as set forth in Schedule 5.3(a), not sell, lease (as lessor), transfer or otherwise dispose of, any material Assets, other than as used, consumed or replaced in the ordinary course of business consistent with Good Utility Practices, or encumber, pledge, mortgage or suffer to be imposed on any of the Assets any encumbrance other than Permitted Encumbrances, and not incur any indebtedness for borrowed money, other than in the ordinary course of business, or guarantee any such indebtedness or make any loans, advances or capital contributions to, or investments in, any other Person;

(iv) not make any material change in the level of inventories customarily maintained by the Company with respect to the Assets, except for such changes as are consistent with Good Utility Practices;

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(v) not enter into, amend, make any waivers under or otherwise modify any real or personal Property Tax Agreement, treaty or settlement or make any new, or change any current, election with respect to Taxes, or file any amended Tax Return (except for, or as a result of the filing of, any amended Tax Return with respect to the Company);

(vi) not engage in any practice, take any action, fail to take any action, or enter into any transaction that will result in any misrepresentation or breach of warranty under Article 3 as of the Closing Date;

(vii) not amend in any material respect, or cancel, any property, liability or casualty insurance policies related thereto, or fail to maintain by self insurance, or with financially responsible insurance companies, insurance in such amounts and against such risks and losses as are consistent with past practice;

(viii) not change, in any material respect, its accounting methods or practices, credit practices or collection policies;

(ix) not fail to take any actions required to be taken in order to ensure that the Assets are being operated and maintained in all material respects in a manner that is in compliance with Good Utility Practice and all applicable Laws or Permits;

(x) not to take reasonably appropriate steps to pursue currently pending regulatory approvals relating to the Facilities;

(xi) not hire any employees (other than to replace any employees who have resigned or been terminated) or increase the compensation or benefits payable to any employees, except as required under the Collective Bargaining Agreements or other agreements as in existence on the date hereof or consistent with the Company’s past practices;

(xii) not participate as an adverse party to the Buyer or to British Energy in any proceeding before the NRC or any other Governmental Authority relating to the sale of BEUSH Shares, or the transfer of any Permit, or the issuance of any Buyer Regulatory Approvals or British Energy Regulatory Approvals;

(xiii) except in accordance with Section 5.14 of this Agreement, not declare or pay any dividends or make any distributions in respect of or issue any of its equity securities or securities convertible into its equity securities, or repurchase, redeem or otherwise acquire any such securities or make or propose to make any other change in its capitalization;

(xiv) not merge into or with or consolidate with any other Person or acquire all or substantially all of the business or assets of any Person;

(xv) not make any material change in its certificate of incorporation, certificate of formation, the LLC Agreement, limited liability company agreement, operating agreement, partnership agreement or similar charter or organizational documents;

(xvi) not purchase any securities of any Person, except in accordance with the Company’s treasury management policy;

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(xvii) not take any action or enter into any commitment with respect to or in contemplation of any liquidation, dissolution, recapitalization, reorganization or other winding up of its business or operations;

(xviii) not enter into an agreement in writing or otherwise or otherwise resolve to take, any of the foregoing actions; and

(xix) not assign or consent to any assignment of any rights or obligations of any party under the LLC Agreement to any third party.

Notwithstanding anything in this Section 5.3 to the contrary, the Parties agree that (i) the Company may, in its sole discretion, make or incur an obligation to the extent relating to Required Nuclear Expenditures or any repairs or modifications to any Facility reasonably required in the normal course of business and in accordance with Good Utility Practices (a “Required Expenditure”), and (ii) the Company shall retain exclusive control over all aspects of the operation, maintenance, refueling, shutdown or other matters relating to the operation of the Facilities and to the Company during the Interim Period, all in accordance with Good Utility Practices.

(b) During the Interim Period, in the interest of facilitating an orderly transition of the upstream ownership of the Company and permitting informed action by the Buyer regarding its rights under Section 5.3(a), the Parties shall, as promptly as is practicable after the date hereof, establish a committee comprised of at least five (5) persons, two (2) persons to be designated by the Seller and two persons to be designated by the Buyer, and such additional persons as may be appointed by the persons originally appointed to such committee (the “Transition Executive Committee”). From time to time, the Transition Executive Committee shall report to the senior management of Seller and Buyer. The Transition Executive Committee shall meet periodically and shall oversee and manage the transition process during the Interim Period. The Seller shall consult with Buyer’s representatives on the Transition Executive Committee, on a regular and timely basis, with respect to the refueling outage(s) occurring during the Interim Period, to any repairs to the Facilities and to the Required Nuclear Expenditures and Required Expenditures. The Transition Executive Committee shall have no authority to bind or make agreements on behalf of Seller or the Buyer or to issue instructions to or direct or exercise authority over Seller or Buyer or any of their respective officers, employees, advisors or agents or to waive or modify any provision thereof. Seller shall use its Commercially Reasonable Efforts to arrange for Buyer’s representatives on the Transition Executive Committee to attend all Company Management Committee meetings (as defined in the LLC Agreement) and finance committee meetings until Closing. If Seller is unable to procure, despite Commercially Reasonable Efforts, the attendance at such Company Management Committee meetings and finance committee meetings of Buyer’s representatives on the Transition Executive Committee, then Seller shall provide Buyer with (i) as soon as practicable after receipt of notice thereof in accordance with Section 6.2(d) of the LLC Agreement, a copy of the agenda describing the matters proposed to be discussed at such meeting (and Seller shall consider in good faith any comments of Buyer with respect to such agenda), and (ii) as soon as practicable after the occurrence of any such meeting, a written summary of the matters discussed and decisions taken at such meeting. Seller shall refrain from voting on any material matter presented at such meeting that was not set forth on the agenda

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delivered to Buyer prior to such meeting, and shall consult with Buyer prior to voting on any such matter. Seller shall use its Commercially Reasonable Efforts to enable Buyer to send its management personnel to the Facilities at the Buyer’s expense to continue the Buyer’s transition efforts with respect to the Facilities. The Seller shall use Commercially Reasonable Efforts to provide the Buyer, at no cost to the Buyer, interim furnished office space, utilities and HVAC at each of the Facilities reasonably necessary to allow the Buyer and its representatives to conduct their transition efforts during the Interim Period; provided that the Buyer shall be responsible for all other costs relating thereto, including telecommunications expenses and the cost of workers’ compensation and employer’s liability coverage, which will be maintained by the Buyer for its employees.

(c) During the Interim Period, Seller shall provide quarterly progress reports to Buyer regarding Exelon’s adherence (both by way of cost and timeliness) on each of the Major Capital Projects and capital fuel expenses identified on Schedule 5.3(c) as compared to the budget set forth on Schedule 5.3(c). To the extent that there is or likely will be a material variance for any project from the budget set forth on Schedule 5.3(c), the Seller shall immediately notify the Buyer of such variation. In addition, in the event that Seller has the capability under the terms of the LLC Agreement, Seller shall use its best efforts to prevent or to minimize such variation.

SECTION 5.4 Access and Investigations During Interim Period. During the Interim Period, British Energy will permit, and will use Commercially Reasonable Efforts to cause the Company to permit, Buyer to have reasonable access to each Facility, subject to any restrictions and procedures set forth in this Section 5.4 or otherwise reasonably imposed by the Company, to conduct environmental studies and inspections (such as the review of existing environmental records and related material but, for the avoidance of doubt, not including any environmental testing of soil samples or other invasive procedures with respect to any Facility), and to observe and inspect all premises, properties, management, personnel, books, records, (including tax records), and other information, including without limitation all information necessary to enable Buyer to verify the representations and warranties as set forth in Article 3 and to confirm that British Energy has complied with the covenants set forth herein, and any other information or documents associated with or pertaining to the Assets. All access and inspections by Buyer are subject to the following provisions:

(a) Costs. All costs of such investigations and observations, including the compensation paid to the Persons involved and their expenses, and other discrete incremental costs incurred by the Company or British Energy in connection with such investigation and observation, shall be borne by Buyer.

(b) Escorted Physical Access to Facilities. The Buyer shall, with respect to each Person designated by the Buyer to have escorted access to the Facilities, provide the following information for each such Person to the contact designated by British Energy for the Facility (or his designee) no later than twenty-four (24) hours prior to the proposed time of access by such Person: name, date of birth, social security number and the name of each nuclear power plant at which such Person has a current badge for access. British Energy shall be permitted where necessary in its sole discretion to limit the number of Persons to whom escorted access is provided at any one time on account of reasonable logistical considerations.

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Subject to the immediately succeeding sentence, the Buyer shall, with respect to each Person designated by the Buyer to have escorted access to the Facilities, provide reasonable notice to the contact designated by British Energy for the Facilities (or his designee), so as not to interfere with the normal business operations of the Facilities, and such Person shall comply with all existing requirements of the Facility and NRC for escorted access, including, but not limited to, background investigation, training requirements, fitness-for-duty requirements, a psychological assessment and behavioral observation.

The Buyer may request that any Person subject to the fitness-for-duty program of the Buyer be excused from compliance with the fitness-for-duty program of the Company for up to ninety (90) days, in which event the provisions of 10 C.F.R. Section 26.23 shall be applicable to such Person designated by the Buyer to have access to the Facilities.

(c) Access to Records and Information. (i) Under no circumstances shall the Company be required by British Energy to provide access to any documents or information constituting or containing “Classified National Security Information” or “Restricted Data”, as defined in 10 C.F.R. Part 73. The Company shall not be required by British Energy to provide access to any documents or information constituting or containing “Safeguards Information”, as defined in 10 C.F.R. Part 73, except to any Person designated by Buyer to have access to such information and Buyer shall have first obtained authorization or concurrence from the NRC for the disclosure of such information to such Person.

(ii) Except as provided in clause (i) above, the Buyer shall have the right to receive copies of all documentary information and records associated with the Assets, subject to the provisions of Section 5.8.

(d) Limitations. Notwithstanding anything to the contrary in this Section 5.4, British Energy shall not be required to assist Buyer in obtaining from the Company: (i) access to confidential personnel records and medical records except as allowed by applicable Laws, (ii) any information that British Energy, the Company or the Company’s or British Energy’s counsel reasonably believes constitutes or could reasonably be deemed to constitute a waiver of the attorney-client privilege, or (iii) any information that British Energy or the Company is under a legal obligation not to supply; provided that British Energy shall use Commercially Reasonable Efforts to obtain the consent to disclose all material information otherwise described in this Section 5.4.

(e) Contact with Company Related Persons. Prior to the Closing Date, Buyer shall not contact any vendors, suppliers, contractors, customers or employees of the Company or British Energy regarding the Facilities, the Assets or the transactions contemplated in this Agreement without prior written consent of British Energy, which shall not be unreasonably withheld or delayed, and any such permitted contacts shall be conducted in a manner which will not materially adversely interfere with the operations or business relationships of the Company or British Energy with such Persons.

SECTION 5.5 Certain Notices.

(a) British Energy shall notify Buyer of the existence of any information or matter that becomes known to British Energy, which if in existence on the date hereof or the

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Closing Date, would cause or would have a reasonable likelihood of causing any of the representations or warranties in Article 3 to be materially untrue or incorrect. In particular, but without limitation, British Energy shall notify Buyer of (i) information regarding any actual or asserted Nuclear Liability, Environmental Liability or Environmental Claim, or (ii) communications from the NRC or any other Governmental Authority regarding any Permit, Nuclear Law or Environmental Law, in each case with respect to the Company Group or the Assets. Unless Buyer terminates this Agreement pursuant to Section 8.1(f), the written notice pursuant to this Section 5.5(a) shall be deemed to amend the original Schedule or Schedules as of the date hereof and the Closing Date, to have qualified the representations and warranties contained in Article 3 as of the date hereof and the Closing Date and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the existence of such matter.

(b) Buyer shall notify British Energy of the existence of any matter that becomes known to Buyer, which if, in existence on the date hereof or the Closing Date, would cause or would have a reasonable likelihood of causing any of the representations or warranties in Article 4 to be untrue or incorrect. Unless British Energy terminates this Agreement pursuant to Section 8.1(g), the written notice pursuant to this Section 5.5(b) shall be deemed to amend the original Schedule or Schedules as of the date hereof and the Closing Date, to have qualified the representations and warranties contained in Article 4 as of the date hereof and the Closing Date and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the existence of such matter.

(c) Buyer shall notify British Energy if any information or matter comes to its attention which would cause or would have a reasonable likelihood of causing any of the representations or warranties of British Energy in Article 3 above to be materially untrue or incorrect. British Energy shall then comply with Section 5.5(a) with respect to such information.

(d) British Energy shall notify the Buyer if any information or matter comes to its attention which would cause or would have a reasonable likelihood of causing any of the representations and warranties of Buyer in Article 4 above to be materially untrue or incorrect. Buyer shall then comply with Section 5.5(b) with respect to such information.

SECTION 5.6 Further Assurances; Post-Closing Cooperation.

(a) Subject to the terms and conditions of this Agreement, each of the Parties will use Commercially Reasonable Efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the transactions contemplated by this Agreement, including using Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party’s obligations hereunder. Notwithstanding anything in the previous sentence to the contrary, British Energy and Buyer shall use Commercially Reasonable Efforts to obtain all Permits necessary for Buyer to acquire the BEUSH Shares.

(b) From time to time after the Closing Date, without further consideration, British Energy will, at its own expense, execute and deliver such documents to Buyer as Buyer may reasonably request in order to more effectively consummate the transactions contemplated

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by this Agreement. From time to time after the Closing Date, without further consideration. Buyer will, at its own expense, execute and deliver such documents to British Energy as British Energy may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement.

(c) After the Closing Date, each Party shall have reasonable access to the employees of the other Party, for purposes of consultation or otherwise, to the extent that such access may reasonably be required in connection with matters relating to or affected by the operations of the Seller or the Company Group prior to the Closing Date. The Parties agree to cooperate in connection with any audit, investigation, hearing or inquiry by any Governmental Authority, litigation or regulatory or other proceeding which may arise following the Closing Date and which relates to the ownership of the Company Group or operation of the Assets by the Seller or the Company Group prior to the Closing Date. Notwithstanding any other provision of this Agreement to the contrary, each Party shall bear its own expenses, including fees of attorneys or other representatives, in connection with any such matter described in this Section 5.6(c) in which the Seller and the Buyer are subjects or parties or in which they have a material interest.

SECTION 5.7 Guarantees. Schedule 5.7 identifies each financial or performance guarantee by British Energy, and by any of its Affiliates, of any obligations of or related to BEUSH and its Subsidiaries (including without limitation, the Company) (the “Guarantees”). Buyer shall use commercially reasonable efforts to obtain promptly the release of the obligations of any guarantor, or Buyer’s substitution for such guarantor, with respect to all Guarantees identified on Schedule 5.7. Buyer agrees to indemnify, defend and hold harmless British Energy and its Affiliates, and their respective Representatives, from and against any and all losses, costs, damages, obligations, claims, liabilities, expenses and causes of action relating to, resulting from, or arising out of any Guarantee with respect to acts, omissions or occurrences arising on or after the Closing Date.

SECTION 5.8 Confidentiality. Notwithstanding anything herein to the contrary, British Energy and Buyer agree that prior to the Closing Date and after any termination of this Agreement, the Confidentiality Agreement shall remain in full force and effect in accordance with its terms; provided, however, that any party to this Agreement (and any employee, representative, or other agent of any party to this Agreement) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure; provided, however, that neither party (nor any employee, representative or other agent thereof) shall disclose (A) any information that is not relevant to an understanding of the tax treatment of the transactions contemplated by this Agreement, including the identity of any party to this Agreement (or its employees, representatives or agents) or other information that could lead any person to determine such identity or (B) any information to the extent such disclosure could result in a violation of any federal or state securities laws.

SECTION 5.9 Public Announcements. Prior to the Closing Date, the Parties shall consult with each other before issuing any public announcement, statement or other disclosure with respect to this Agreement or the transactions contemplated hereby and shall not issue any

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such public announcement, statement or other disclosure prior to such consultation and the approval of the other Party, except as may be required by Law or stock exchange rules. For the avoidance of doubt, this Section 5.9 shall not restrict Seller from making private disclosures with respect to this Agreement and the transactions contemplated hereby to members, officials and instrumentalities of the government of the United Kingdom or to Exelon pursuant to the LLC Agreement.

SECTION 5.10 Tax Matters.

(a) Preparation. The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain Tax matters following the Closing Date:

(i) Tax Periods Ending on or Before the Closing Date. Seller shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for all members of the Company Group other than the Company for all periods ending on or prior to the Closing Date that are due after the Closing Date. Seller shall permit Buyer to review and comment on such Tax Returns prior to filing. If Seller fails to file such Tax Returns prior to the date on which such Tax Returns are due, Buyer shall be required to file such Tax Returns on behalf of the Company Group. Seller shall pay or cause to be paid the Taxes of all members of the Company Group other than the Company with respect to such periods except to the extent such Taxes are included as current liabilities in Working Capital, which Buyer shall pay.

(ii) Tax Periods Beginning Before and Ending After the Closing Date. Buyer shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of all members of the Company Group other than the Company for Tax periods which begin before the Closing Date and end after the Closing Date. Buyer shall permit Seller to review and comment on such Tax Returns prior to filing and shall consider in good faith any changes reasonably suggested by Seller. Buyer shall pay or cause to be paid the Taxes of all members of the Company Group other than the Company with respect to such periods. Seller shall pay to Buyer within fifteen (15) days after the date on which Taxes are paid with respect to such periods an amount equal to the portion of such Taxes that relates to the portion of such Tax period ending on the Closing Date except to the extent such Taxes are included as current liabilities in Working Capital, which Buyer shall pay. In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall be (A) in the case of Taxes that are based upon or related to income or gross receipts or sales or use Tax, determined based on an interim closing of the books as of the close of business on the day immediately prior to the Closing Date (and for such purposes, the taxable period of any member of the Company Group other than the Company shall be deemed to terminate at such time); and (B) in the case of any Taxes other than gross receipts, sale or use Tax and Taxes based upon or related to income, deemed to be the amount of such Taxes for the entire period, multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the day immediately prior to the Closing Date and the denominator of which is the number of calendar days in the entire period.

(iii) Allocation of Items from Company. The allocation of British Energy LP’s share of all items of the Company’s income gain, loss, deduction or credit for the Company’s taxable year which includes the Closing Date between (x) the portion of the taxable year of

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BEUSH ending on the day immediately prior to the Closing Date, and (y) the portion of the taxable year of BEUSH beginning on the Closing Date, shall be made as if the Company’s taxable year ended on the day immediately prior to the Closing Date.

(b) Adjustment for Indemnity Payments. The Parties agree to treat any indemnity payment made pursuant to this Agreement as an adjustment to the Purchase Price, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code.

(c) Transfer Taxes. Buyer shall pay fifty percent (50%) and Seller shall pay fifty percent (50%) of all transfer Taxes resulting from the transactions contemplated by this Agreement. Buyer shall prepare and timely file all Tax Returns or other documentation relating to such transfer Taxes; provided, however, that to the extent required by Applicable Law, Seller will join in the execution of any such Tax Returns or other documents relating to such Taxes. Buyer shall provide Seller with copies of each such Tax Return or other document at least thirty (30) days prior to the date on which such Tax Return or other document is required to be filed.

(d) Tax Sharing Agreements. On or before the Closing Date, Seller shall ensure that no Tax indemnity agreement, Tax allocation agreement or Tax sharing agreement with respect to the Company Group (other than with respect to the Company or including only members of the Company Group) is in force or effect and that no member of the Company Group other than the Company shall have any Liability after the Closing Date under any such agreement.

(e) Assistance and Cooperation. Seller and Buyer shall reasonably cooperate, and shall cause their respective Affiliates, employees and agents reasonably to cooperate, in preparing and filing all Tax Returns, including maintaining and making available to each other all records that are necessary for the preparation of any Tax Returns that each Party is required to file under this Section 5.10, and in resolving all disputes and audits with respect to such Tax Returns.

(f) Tax Indemnity. Notwithstanding any other provisions of this Agreement, Sections 5.10(f), 5.10(g) and 7.6 hereof set forth the sole remedy of Buyer with respect to Losses of the nature described in this Section 5.10(f). Seller shall indemnify and hold the Company Group (other than the Company) and Buyer harmless from and against (i) any income Taxes imposed on Seller resulting from the sale of the BEUSH Shares to Buyer and any other transaction herein contemplated, and (ii) any Liability for Taxes for any period or portion thereof that ends on or prior to the Closing Date which is imposed on any member of the Company Group (other than the Company) under Treas. Reg. Section 1.1502-6 (or under any comparable provision of state or local law imposing several liability upon members of a consolidated, combined, affiliated or unitary group).

(g) Tax Indemnity Claims. Buyer shall notify Seller within thirty (30) days of receipt of written notice of any pending or threatened Tax examination, audit or other administrative or judicial proceeding relating to any member of the Company Group that could reasonably be expected to result in an indemnification obligation of Seller arising under Section 5.10(f) or under Section 7.1 as a result of the breach of any representation or warranty contained in Sections 3.16, 3.17 or 3.23 (“Contested Taxes”). If Buyer fails to provide such notice to

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Seller, Buyer shall not be entitled to indemnification for such Contested Taxes if the failure shall preclude Seller from contesting the Tax. Seller shall, at its own expense, control the defense and settlement of such Tax contest. Buyer shall have the right to participate in the conduct of any Tax contest relating to the Contested Taxes at its own expense, including through its own counsel and other professional experts and shall be entitled to control such Tax contest in the event that Seller fails to do so. Seller shall consult with Buyer prior to the settlement of any such Tax contest and Seller shall not settle any such Tax contest if the settlement would have an adverse tax effect in a taxable period ending after the Closing Date without the consent of Buyer, which shall not be unreasonably withheld; provided however, that Seller shall not settle any Tax contest without the consent of Buyer relating to a determination that the initial Tax Basis of the assets of the Company should not be increased by the amount of the nonqualified decommissioning liability.

(h) Refunds. Seller shall be entitled to all refunds of Taxes with respect to the Company Group (other than the Company) relating to taxable periods or portions thereof ending on or before the Closing Date except to the extent included in the Working Capital adjustment pursuant to Section 2.2 or attributable to an increase in the initial Tax Basis of the assets of the Company as a result of a redetermination of the initial purchase price of such assets attributable to the nonqualified decommissioning liability. Buyer shall, upon receipt of any refund by Buyer or the Company Group (other than the Company), pay over to the Seller any such refund or the amount of any such benefit within five (5) Business Days of the earlier of receipt or entitlement thereto. Buyer shall, if Seller so requests and at Seller’s expense, cause the relevant entity to file for and obtain any refunds or equivalent amounts to which Seller is entitled under this Section 5.10(h). Buyer shall permit Seller to control (at Seller’s expense) the prosecution of any such refund claimed and shall cause the relevant entity to authorize by appropriate power of attorney such persons as the Seller shall designate to represent such entity with respect to such refund claimed.

SECTION 5.11 Intercompany Loans. Schedule 5.11 identifies all loans between BEUSH and its Subsidiaries (other than the Company) and British Energy or its affiliates (other than BEUSH and its Subsidiaries) as of the date of this Agreement (the “Intercompany Loans”). On the Closing Date, Buyer shall repay, or cause to be repaid, in full to British Energy or its affiliates the net amount of all Intercompany Loans (including any unpaid, accrued interest and other fees as of the Closing Date) to BEUSH and its Subsidiaries as identified on Schedule 5.11; provided that, in determining the net amount of Intercompany Loans to be repaid under this Section 5.11, Buyer may discharge its obligation to repay or cause repayment of any Intercompany Loan to British Energy and its affiliates (other than BEUSH and its Subsidiaries) through netting the amount of any Intercompany Loans due from British Energy and its affiliates (other than BEUSH and its Subsidiaries). British Energy shall deliver or make available to Buyer cancelled promissory notes or other proof of repayment in full of Intercompany Loans at the Closing.

SECTION 5.12 Corporate Names.

(a) As soon as reasonably practicable after the Closing Date, but in any event no later than thirty (30) days from the Closing Date, Buyer shall cause BEUSH and each of its Subsidiaries to remove or cover the name “British Energy” and any trademarks, trade names, brandmarks, brand names, trade dress or logos relating to such name from all signs, telephone

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listings, labels, stationery, office forms, packaging or other materials of BEUSH or its Subsidiaries. Thereafter, the Buyer shall neither use nor permit any of BEUSH or its Subsidiaries to use such names or any trademark, trade name, brandmark, brand name, trade dress or logo relating or confusingly similar to such names in connection with the businesses of BEUSH or its Subsidiaries or otherwise. As soon as reasonably practicable after the Closing, but in any event no later than ninety (90) days thereafter, the Buyer shall cause each of BEUSH and its Subsidiaries to amend its certificate of incorporation, partnership agreement, LLC Agreement, limited liability company agreement and other applicable documents, subject to any required consent or approval of any other partner or member, which Buyer shall use its reasonable efforts to obtain, so as to delete any reference to “British Energy” in its legal name and, within such ninety (90) day period, to make all required filings with Governmental Authorities to effect such amendments.

(b) Each of the Parties hereto acknowledges and agrees that the remedy at Law for any breach of the requirements of this Section 5.12 would be inadequate, and agrees and consents that without intending to limit any additional remedies that may be available, temporary and permanent injunctive and other equitable relief may be granted without proof of actual damage or inadequacy of legal remedy in any proceeding which may be brought to enforce any of the provisions of this Section 5.12.

SECTION 5.13 ISRA Clearance. Seller shall obtain at its sole expense (and deliver a copy to Buyer), pursuant to the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:lK-6 et seq. and the regulations promulgated thereunder (“ISRA”), one of the following as required to consummate the transactions contemplated by this Agreement: (i) a letter of non-applicability of ISRA from the New Jersey Department of Environmental Protection (“NJDEP”); (ii) a no further action letter under ISRA; (iii) a remediation agreement pursuant to ISRA reasonably acceptable to Buyer and Seller, under which the Buyer will perform or cause to be performed such remediation, subject to any indemnification from Seller available hereunder with respect to environmental matters and in connection with which Buyer shall provide or cause to be provided all necessary financial assurance required by NJDEP (except to the extent NJDEP affirmatively requires that Seller (x) be so designated as the party responsible for performance of such remediation and/or (y) provide such financial assurance); (iv) approval of an application for one of the following exemptions from ISRA: (A) a “de minimis quantity” exemption, (B) an underground storage tank exemption, (C) a minimal environmental concern exemption, (D) a “remediation in progress waiver”; or (v) any other approval or authorization of the NJDEP reasonably acceptable to Buyer and Seller.

SECTION 5.14 Reimbursement of Nonqualified Decommissioning Funds. The NQDF Tax Reimbursement Share of any payments made to the Company for NQDF Tax Reimbursement shall be for the account of Seller, provided that (i) on or prior to the Closing Date, Seller shall be permitted to distribute to itself any or all of the NQDF Tax Reimbursement Share distributed to British Energy LP (provided that Exelon shall have received an equal distribution to the amount distributed to British Energy LP), and (ii) with respect to any NQDF Tax Reimbursement Share not distributed to Seller in accordance with subsection (i) of this Section 5.14 or received after the Closing Date, and to the extent not included as an asset in either the Company’s Working Capital Adjustment Statement or BEUSH’s Working Capital Adjustment Statement, Buyer shall pay to Seller an amount equal to such NQDF Tax

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Reimbursement Share in immediately available funds, within sixty (60) days of receipt of such payments by the Company.

SECTION 5.15 Documents Relating to Liability for Payment of One-Time Fee for Spent Fuel Disposal. Prior to Closing, Seller shall use Commercially Reasonable Efforts to obtain all documents from the files of the Company Group and their counsel that relate to the retained liability of the previous owners of TMI-1 and Oyster Creek for the payment to DOE of the deferred one-time fee for spent fuel discharged from TMI-1 and Oyster Creek pursuant to the DOE Standard Spent Fuel Contracts for those Facilities, including, but not limited to, the relevant documents from the Company’s and its counsel’s files from the negotiations leading to the purchase and sale agreements for the acquisition of TMI-1 and Oyster Creek and any correspondence with DOE relating to the payment of the deferred one-time fee for TMI-1 and Oyster Creek. Seller shall promptly provide Buyer with a copy of any documents obtained pursuant to the immediately preceding sentence, provided that Seller shall not be required to provide Buyer with documents or portions of documents containing: (i) any information that the Company or the Company’s counsel reasonably believes constitutes or could reasonably be deemed to constitute a waiver of the attorney-client privilege as to the Company, or (ii) any information that Seller or the Company is under a legal obligation not to disclose to third parties. Notwithstanding the foregoing, to the extent that documents are withheld from Buyer as a result of asserting (x) attorney-client privilege or (y) nondisclosure contractual obligations, Seller shall provide Buyer with a list of such documents citing the basis upon which each document is withheld (except to the extent such disclosure itself would violate such privilege or obligations) and, if the basis for withholding is attorney-client privilege, the name of the party asserting the privilege; provided that, the assertion of the privilege by the Company or a third party, including Exelon or its affiliates, shall in no event be deemed to constitute a breach by Seller of its obligations under this Section 5.15. In addition, Seller shall use Commercially Reasonable Efforts to seek waiver of any attorney-client privilege and to protect against, or cause to be protected against, such documents from being destroyed or lost during the Interim Period.

SECTION 5.16 Prohibited Transactions. From and after the date hereof, none of the Seller nor any member of the Company Group, nor their respective officers, directors, employees, affiliates, stockholders, representatives or agents, nor anyone acting on behalf of any of them, shall, directly or indirectly, encourage, solicit, engage in discussions or negotiations with, or provide any non-public information to, any person or entity (other than Buyer and Exelon and their respective representatives) concerning any sale of BEUSH Shares or similar transaction involving the Company or the Assets (collectively “Prohibited Transactions”) unless this Agreement is terminated pursuant to and in accordance with Article 8 hereof.

SECTION 5.17 Financial Statements. (a) Within thirty (30) days after the end of each calendar month during the Interim Period, the Seller shall provide to the Buyer consolidated financial statements of the Company Group, including a consolidated balance sheet as of the end of such calendar month and income and cash-flow statements for the one-month period then ending. Except as set forth on Schedule 5.17, such financial statements shall (a) be in accordance with the books and records of the Company Group, (b) be prepared in accordance with GAAP consistently applied throughout the periods covered thereby (except for the absence of footnotes and normal year-end adjustments), and (c) present fairly and accurately in accordance with GAAP the assets, liabilities (including, without limitation, all reserves) and

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financial condition of the Company Group as of the respective dates thereof and the results of operations for the periods covered thereby.

(b) Seller shall deliver to Buyer, as soon as practicable after they become available to Seller, the audited consolidated balance sheets of each of BEUSH, BEUILLC and British Energy, LP, in each case as of December 31, 2002 and the related audited consolidated statements of income and cash flows for the year ended December 31, 2002.

SECTION 5.18 Transmission. During the Interim Period, Seller shall use Commercially Reasonable Efforts to cause the Company to obtain and/or maintain any and all necessary transmission rights and services required in order to deliver the energy and capacity output of the Facilities to the purchasers of such output.

SECTION 5.19 Risk of Loss. Except as otherwise provided in this Section 5.19 and Article 7, during the Interim Period all risk of loss or damage to the property included in the Assets shall be borne by the Seller. If during the Interim Period the Assets are damaged by fire or other casualty (each such event, an “Event of Loss”) or are taken by a Governmental Authority by exercise of the power of eminent domain (each, a “Taking”), the following provisions shall apply:

(a) Upon the occurrence of (i) any one or more Events of Loss, as a result of which the aggregate costs to restore, repair or replace, less any insurance proceeds received or payable to the Company in connection with such Event or Events of Loss (provided that any insurance proceeds received or payable in connection with the Event or Events of Loss are either used to restore, repair or replace such Event or Events of Loss) are reasonably estimated to be equal to or less than $10,000,000, and/or (ii) any one or more Takings, as a result of which the aggregate condemnation proceeds equal an amount reasonably estimated to be equal to or less than $10,000,000, shall have no effect on the transactions contemplated hereby; provided that any condemnation proceeds received or payable in connection with the Taking or Takings shall be excluded from the calculation of Company Working Capital at Closing;

(b) Upon the occurrence of (i) any one or more Events of Loss, as a result of which the aggregate costs to restore, repair or replace, less any insurance proceeds received or payable to the Company in connection with such Event or Events of Loss (provided that any insurance proceeds received or payable in connection with the Event or Events of Loss are used to restore, repair or replace such Event or Events of Loss) are reasonably estimated to be greater than $10,000,000, and/or (ii) any one or more Takings, as a result of which the aggregate condemnation proceeds are reasonably estimated to be greater than $10,000,000 (a “Major Loss”), Seller shall have, in the case of a Major Loss relating to one or more Events of Loss, the option, exercised by notice to the Buyer, to cause the Company to restore, repair or replace the affected Assets. If the Seller elects not to cause the Company to restore, repair or replace the Assets affected by a Major Loss, or such Major Loss is the result of one or more Takings, the provisions of Section 5.19(c) will apply;

(c) In the event that the Seller elects not to cause the Company to restore, repair or replace a Major Loss, or in the event that the Seller, having elected to cause the Company to repair, replace or restore the Major Loss, fails to cause the Company to complete such repair, replacement or restoration prior to the Closing Date, or in the event that a Major

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Loss is the result of one or more Takings, then the Parties shall, within thirty (30) days following the Seller’s election not to cause the Company to restore, repair or replace, failure to complete, or the occurrence of such Takings, as the case may be, negotiate in good faith an equitable adjustment in the Purchase Price to reflect the impact of the Major Loss, as mitigated by any repair, replacement or restoration work actually completed by the Company, on the Assets, and proceed to the Closing at a Purchase Price so adjusted. To assist the Buyer in its evaluation of any and all Events of Loss, the Seller shall provide the Buyer such access to the Assets and such information as the Buyer may reasonably request in connection therewith; and

(d) In the event that the Parties fail to reach agreement on an equitable adjustment of the Purchase Price within the thirty (30) days provided in Section 5.19(c), then the Buyer shall have the right to elect, exercisable by notice to the Seller within fifteen (15) days immediately following the expiration of the thirty (30) day period, to (i) proceed with the consummation of the transaction at the Closing, with a reduction in the Purchase Price, consistent with the Seller’s last offer of equitable adjustment thereto as contemplated by the penultimate sentence of Section 5.19(c) communicated to the Buyer, in which event the Seller shall assign over or deliver to the Buyer at the Closing all condemnation proceeds or insurance proceeds that the Seller receives, or to which the Seller become entitled by virtue of the Event of Loss or Taking with respect to the Assets, less any costs and expenses reasonably incurred by the Seller in connection with such Events of Loss or Taking or in obtaining such, condemnation proceeds or insurance proceeds, and less the reduction in the Purchase Price made pursuant to this clause (i), or (ii) submit the matter to dispute resolution pursuant to Section 9.16 to determine the adjustment, if any, in the Purchase Price, which determination shall be binding on all Parties. If the Buyer fails to make the election within the fifteen (15) day period described in the preceding sentence, the Buyer will be deemed to have made the election to proceed with the Closing under clause (i) hereof.

(e) For the avoidance of doubt, any Event of Loss which has been repaired, replaced or restored by Seller pursuant to Section 5.19(b) or any Taking or Event of Loss which has been the subject of a purchase price reduction pursuant to Section 5.19(c) or 5.19(d) shall be disregarded for purposes of determining whether Seller has breached any representation or warranty hereunder, including for purposes of Section 6.2(a) and Section 7.1(i).

ARTICLE 6

Conditions to Closing

SECTION 6.1 Conditions to Obligations of Buyer and British Energy. The obligations of Buyer and British Energy to consummate the Closing are subject to the satisfaction of the following conditions:

(a) The waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act and any other material waiting periods under applicable foreign laws (if any) shall have expired or been terminated, or the Parties shall have determined to their mutual satisfaction that the transactions contemplated hereby are exempt from the HSR Act or other applicable foreign laws. No action by the Federal Trade Commission, Department of Justice or any foreign Governmental Entity challenging or seeking

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to enjoin the consummation of the transactions contemplated hereby shall have been instituted and be pending.

(b) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition shall have been issued and be in effect restraining or prohibiting the consummation of the transactions contemplated hereby nor shall any action have been taken or any statute, rule, regulation or order have been enacted, entered or enforced or be deemed applicable to the transactions contemplated hereby which makes the consummation of the transactions contemplated hereby illegal or prevents or prohibits the sale of the BEUSH Shares.

(c) The period of time in which Exelon may exercise its right of first refusal to acquire British Energy’s interest in the Company pursuant to Section 7.3 of the LLC Agreement has expired and Exelon has not exercised such right of first refusal.

SECTION 6.2 Condition to Obligation of Buyer. The obligation of Buyer to consummate the Closing is subject to the satisfaction or waiver of each of the following conditions:

(a) Representations, Warranties and Covenants. The representations and warranties in Article 3 shall be true and correct in all material respects on and as of the Closing Date, as if such representations and warranties were made on and as of the Closing Date (except to the extent that any such representations and warranties were made as of a specified date, which representations and warranties shall continue on the Closing Date to be true in all material respects as of such specified date), and the covenants and agreements of Seller to be performed on or before the Closing Date shall have been duly performed in all material respects in accordance with this Agreement, except where the failure of such representations and warranties to be so true, correct and complete or failure to perform a covenant or agreement shall not have, individually or in the aggregate, resulted in a Material Adverse Effect on any member of the Company Group. The Seller shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

(b) Closing Documents. On or prior to the Closing Date, Seller shall have delivered all agreements, instruments and documents required to be delivered by Seller pursuant to Section 2.4. The Seller shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

(c) No Action. Except for any NRC Proceeding initiated by a party other than a member of the Company Group which may be pending after the NRC has approved the Application, on the Closing Date, no claim or Action (excluding any such matter initiated by Buyer or any of its Affiliates) shall be pending or threatened seeking to enjoin or restrain the consummation of the Closing or the transactions contemplated by this Agreement, or seeking to recover substantial damages from Buyer or any Affiliate of Buyer resulting therefrom.

(d) Buyer’s Regulatory Approvals. Buyer shall have obtained or made each of the approvals listed on Schedule 6.2(d) (the “Buyer Regulatory Approvals”), each such approval to be in form and substance reasonably acceptable to Buyer.

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(e) Seller Approvals and Consents. Seller shall have obtained or made each of the British Energy Regulatory Approvals, each such approval shall be in form and substance reasonably acceptable to Buyer.

(f) Legal Opinions. Buyer shall have received opinions of counsel of British Energy, such in the form of Exhibit A(i) and Exhibit A(ii).

(g) No Material Adverse Effect. No Material Adverse Effect as to any member of the Company Group shall have occurred and be continuing.

(h) ISRA Clearance. Seller shall have obtained an ISRA clearance satisfying the requirements of Section 5.13.

(i) No Permanent Shutdown of Facilities. None of the Facilities shall have been permanently shut down as a result of actions taken by the NRC or other Governmental Authority.

(j) No Reduction of Licensed Thermal Output. Neither the NRC nor any other Governmental Authority shall have reduced the licensed thermal output of any Facility by an amount that exceeds five percent (5%) of the licensed thermal output of all Facilities on an aggregate basis.

(k) Guarantee of British Energy plc. British Energy shall deliver or cause to be delivered (i) a guaranty, in the form of Exhibit D hereto, executed by British Energy plc in favor of Buyer, guaranteeing the obligations of British Energy under this Agreement or (ii) an executed substitute guaranty or other credit support that guarantees the obligations of British Energy under this Agreement, in form and substance reasonably acceptable to Buyer.

(l) Tax Matter, (i) The Company has received from the Internal Revenue Service, and delivered to Buyer, a private letter ruling under Treas. Reg. Section 301.9100 that the transfer in 2001 of the fifty percent (50%) ownership interest in the Company from PECO Energy Company to Exelon had the tax consequences set forth in Treas. Reg. Section 1.468A-6(c); or (ii) Buyer has received a “will” opinion to the foregoing effect, dated as of the Closing Date, from counsel to Seller, addressed and in form satisfactory to Buyer in Buyer’s sole and absolute discretion.

(m) Any Liens associated with the Credit Facility Agreement or the Pledge Agreement shall have been released in the reasonable satisfaction of Buyer.

SECTION 6.3 Conditions to Obligation of British Energy. The obligation of British Energy to consummate the Closing is subject to the satisfaction or waiver of each of the following conditions:

(a) Representations. Warranties and Covenants. The representations and warranties of Buyer contained in Article 4 shall be true and correct in all material respects on and as of the Closing Date, as if such representations and warranties were made on and as of the Closing Date (except to the extent that any such representations and warranties were made as of a specified date, which representations and warranties shall continue on the Closing Date to be true in all material respects as of such specified date), and the covenants and agreements of

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Seller to be performed on or before the Closing Date shall have been duly performed in all material respects in accordance with this Agreement, except where the failure of such representations and warranties to be so true, correct and complete or failure to perform a covenant or agreement shall not have, individually or in the aggregate, resulted in a Material Adverse Effect on Buyer. The Buyer shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

(b) Closing Documents. On or prior to the Closing Date, Buyer shall have delivered all agreements, instruments and documents required to be delivered by Buyer pursuant to Section 2.5. The Buyer shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

(c) No Action. Except for any NRC Proceeding which may be pending after the NRC has approved the Application, on the Closing Date, no claim or Action (excluding any such matter initiated by Seller or any of its Affiliates) shall be pending or threatened seeking to enjoin or restrain the consummation of the Closing or the transactions contemplated by this Agreement, or seeking to recover substantial damages from Seller or any Affiliate of Seller resulting therefrom.

(d) British Energy Approvals. British Energy shall have obtained or made each of the approvals listed on Schedule 6.3(d) (the “British Energy Regulatory Approvals”), each such approval to be in form and substance reasonably acceptable to British Energy. The approvals listed in Items 1 and 2 of Schedule 3.2 have been obtained.

(e) [Intentionally Omitted.]

(f) ISRA Clearance. Seller shall have obtained an ISRA clearance meeting the requirements set forth in Section 5.13.

(g) Buyer Guaranty. The Buyer Guaranty shall be in full force and effect.

ARTICLE 7

Indemnification

SECTION 7.1 Indemnification by Seller. From and after the Closing, subject to the other terms and limitations set forth in this Agreement, Seller shall, indemnify, defend, reimburse and hold harmless Buyer, its Affiliates (including the Company Group) and their respective directors, officers, partners and employees (each such Person, a “Buyer Indemnified Party” and, collectively, the “Buyer Indemnified Parties”), from and against any and all Losses actually incurred by any Buyer Indemnified Party (i) for any breach of the representations and warranties contained in Article 3 or in any certificate delivered by Seller at the Closing with respect to such representations and warranties, (ii) for any breach of the covenants or obligations of Seller under this Agreement, (iii) for any Seller Ownership Period Environmental Liability, or (iv) for any Pre-Closing ERISA Liability.

SECTION 7.2 Indemnification by Buyer. From and after the Closing, subject to the other terms and limitations set forth in this Agreement, Buyer shall indemnify, defend, reimburse and hold harmless Seller, its Affiliates and their respective directors, officers, partners and

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employees (each such Person, a “Seller Indemnified Party” and, collectively, the “Seller Indemnified Parties”), from and against any and all Losses actually incurred by any Seller Indemnified Party (i) for any breach of Buyer’s representations or warranties made in this Agreement or in any certificate delivered by Buyer at the Closing with respect to such representations and warranties, or (ii) for any breach of the covenants or obligations of Buyer under this Agreement.

SECTION 7.3 Limitations on Indemnity.

(a) Except for the specific indemnity provided in Section 7.7 of this Agreement, anything in this Agreement to the contrary notwithstanding, in no event shall Seller ever be required to indemnify any Buyer Indemnified Party for Losses pursuant to Section 7.1 or any of the other provisions of this Agreement, including Section 5.10 (or to pay any other amount in connection with or with respect to this Agreement or the transactions contemplated by this Agreement) (i) until the aggregate amount of all such Losses shall have exceeded $5 million (the “Deductible”), whereupon only Losses in excess of the Deductible shall be subject to indemnification hereunder; provided, however, that any individual Loss of less than $100,000 that is otherwise subject to indemnification hereunder shall be disregarded in determining whether any Buyer Indemnified Party has incurred Losses up to or exceeding the Deductible, or (ii) in an amount exceeding, in the aggregate, 75% of the Adjusted Purchase Price.

(b) Notwithstanding anything to the contrary contained in this Agreement, Seller and Buyer agree that the recovery by any Indemnified Party of any damages suffered or incurred by such Indemnified Party as a result of any breach by another Party of any of its obligations under this Agreement shall be limited to the actual damages suffered or incurred by an Indemnified Party as a result of the breach by the breaching Party of its obligations hereunder, and in no event shall the breaching Party be liable to an Indemnified Party for any indirect, consequential, special, exemplary or punitive damages (including any damages on account of lost profits or opportunities or lost or delayed generation) suffered or incurred by an Indemnified Party as a result of the breach by the breaching Party of any of its obligations hereunder.

SECTION 7.4 Indemnity Procedures.

(a) If a claim by a third party is made against a Seller Indemnified Party or a Buyer Indemnified Party (any such person, an “Indemnified Party”) or an Indemnified Party shall otherwise learn of an assertion or of a potential claim, and if such Indemnified Party intends to seek indemnity with respect thereto under this Article 7 (other than with respect to an indemnity arising out of the breach of any representation or warranty contained in Sections 3.16, 3.17 or 3.23, which shall be governed by Section 5.10(g)), such Indemnified Party shall promptly furnish written notice of such claim (in reasonable detail and including the factual basis for such claim and, to the extent known, the amount thereof) to the Party against whom indemnity is sought (such Party, in such capacity, the “Indemnifying Party”). Thereafter, the Indemnified Party will deliver to the Indemnifying Party, promptly after the Indemnified Party’s receipt thereof, copies of all material notices and documents (including court papers) received or transmitted by the Indemnified Party relating to such claim. The failure of the Indemnified Party to deliver prompt written notice of a claim shall not affect the indemnity obligations of the Indemnifying Party hereunder, except to the extent the Indemnifying Party was actually disadvantaged by such delay in delivery of notice of such claim. The Indemnifying Party shall

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have thirty (30) days after receipt of such notice to provide written notice to the Indemnified Party acknowledging unconditionally its obligations to indemnify the Indemnified Party with respect to such claim (an “Acceptance Notice”) and if it delivers an Acceptance Notice, to elect to undertake, conduct and control (through counsel of its own choosing and at its own expense), the settlement or defense of such claim, and the Indemnified Party shall cooperate with it in connection therewith. If the Indemnifying Party does not assume the conduct and control of such settlement and defense, it shall have the right to participate in the settlement or defense of such claim, and the Indemnified Party shall cooperate with it in connection therewith. If the Indemnifying Parry elects to undertake, conduct and control the settlement or defense of such claim, the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by such Indemnified Party (but the fees and expenses of such counsel shall be borne by such Indemnified Party). So long as the Indemnifying Party, at the Indemnifying Party’s cost and expense, (i) has undertaken the defense of, and assumed full responsibility for all indemnified liabilities with respect to, such claim, (ii) is reasonably contesting such claim in good faith through appropriate proceedings, and (iii) has taken such action (including the posting of a bond, deposit or other security) as may be necessary to prevent any action to foreclose a lien against or attachment of the property of the Indemnified Party for payment of such claim, the Indemnified Party shall not pay or settle any such claim; provided, however, that, the Indemnified Party shall have the right to pay or settle any such claim if it has waived in writing any right to indemnity by the Indemnifying Party for such claim; and, provided, further, that, if within thirty (30) days after the receipt of the Indemnified Party’s notice of a claim of indemnity under this Section 7.4(a), the Indemnifying Party does not notify the Indemnified Party that it elects (at the Indemnifying Party’s cost and expense) to undertake the defense thereof and assume full responsibility for all indemnified liabilities with respect thereto, or gives such notice and thereafter fails to contest such claim in good faith or to prevent action to foreclose a lien against or attachment of the Indemnified Party’s property as contemplated above, the Indemnified Party shall have the right to contest, settle or compromise such claim and the Indemnified Party shall not thereby waive any right to indemnity for such claim under this Agreement.

(b) Any claim on account of Losses for which indemnification is provided under this Agreement which does not involve a claim of a third party will be asserted by prompt written notice (setting forth in reasonable detail the facts or circumstances that allegedly give rise to such claim and, to the extent known, the amount thereof) given by the Indemnified Party to the Indemnifying Party from whom such indemnification is sought. The failure or delay by any Indemnified Party to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party under this Agreement, except to the extent that the Indemnifying Party is actually disadvantaged by such delay in delivery of notice of such claim.

(c) In the event of payment in full by an Indemnifying Party to any Indemnified Party in connection with any claim (an “Indemnified Claim”), such Indemnifying Party will be subrogated to and will stand in the place of such Indemnified Party as to any events or circumstances in respect of which such Indemnified Party may have any right or claim relating to such Indemnified Claim against any claimant or plaintiff asserting such Indemnified Claim or against any other Person. Such Indemnified Party will cooperate with such

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Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim.

SECTION 7.5 Procedural Requirements for Environmental Claims by Buyer. The provisions of this Section 7.5 are in addition to, and not in limitation of, the procedures set forth in Section 7.4 (which shall be deemed superseded to the extent inconsistent with this Section 7.5). Buyer will provide Seller with prompt notice describing in reasonable detail any condition or claim in respect of which Losses arising out of a breach of the representations and warranties in Section 3.20 or any Seller Ownership Period Environmental Liability are or may be incurred by any Buyer Indemnified Party; provided, however, that if such notice is not given within a sufficient period of time or in sufficient detail to apprise Seller of the nature of any such condition or claim (in each instance taking into account the facts and circumstances with respect thereto), the costs and expenses incurred by such Buyer Indemnified Party in connection with such condition or claim shall not constitute Losses to the extent that Seller’s position is actually prejudiced as a result thereof. Seller will have the option to participate, at their own expense; in the resolution of any such conditions or claims (and, in any event, Buyer will consult in good faith with Seller in respect of the resolution of any such conditions or claims). Buyer will keep Seller apprised of the status of and any action by or on behalf of Buyer or any member of the Company Group or their respective Affiliates with respect to all such conditions or claims. If Seller is not given, within a sufficient period of time or in sufficient detail, information necessary to reasonably apprise Seller of the status of and any action by or on behalf of Buyer, any member of the Company Group or their respective Affiliates with respect to any such conditions or claims (in each instance taking into account the facts and circumstances with respect thereto), the costs and expenses incurred by Buyer or any member of the Company Group in connection with such condition or claim shall not constitute Losses to the extent that Seller’s position is actually prejudiced as a result thereof.

SECTION 7.6 Survival and Time Limitation. The terms and provisions of this Agreement shall survive the Closing of the transactions contemplated hereunder. Notwithstanding the foregoing, after Closing, any claim by any Buyer Indemnified Party that Seller is liable to such Buyer Indemnified Party under the terms of this Agreement for breach of any representations and warranties of Seller must be given to Seller on or prior to the date that is twelve (12) months after the Closing Date, except for (i) any claims for breach of the representations and warranties of Seller in Sections 3.1, 3.2, 3.3, 3.10, 3.11, 3.12, 3.16, 3.17 and 3.23, and any claims made by Buyer pursuant to Section 5.10, which must be given to Seller (or not at all) on or prior to the date that is ninety (90) days after the expiration of all applicable statutes of limitations with respect to the matters covered thereby, (ii) any claim for breach of the representations and warranties of Seller in Sections 3.7, 3.8, 3.9 and 3.36, which shall survive indefinitely, (iii) except as described in clause (iv) of this Section 7.6, any claim for breach of the representations and warranties of Seller in Section 3.20, which must be given to Seller on or prior to the date that is twenty-four (24) months after the Closing Date, (iv) any claim for breach of Section 3.20 relating to the matters described in Section 7.7 hereof, which shall survive until the later of the complete and conclusive resolution of any such matters with any applicable Governmental Authority or the payment in full of any amounts owed to each Buyer Indemnified Party under Section 7.7, and (v) any claim for breach of Section 3.37, which shall survive for the initial license term of each respective Facility. Notwithstanding the initial sentence of this Section 7.6, after Closing, any claim by any Seller Indemnified Party that Buyer is liable to such

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Seller Indemnified Party for a breach of any representations and warranties of Buyer must be given to Buyer on or prior to the date that is twelve (12) months after the Closing Date. All covenants and other agreements of Seller and Buyer contained in this Agreement that by their terms are to be performed after the Closing shall survive until the expiration of all applicable statutes of limitations with respect to the matters covered thereby.

SECTION 7.7 Specific Indemnity by Seller. Notwithstanding the foregoing, from and after the Closing, Seller shall indemnify, defend, reimburse and hold harmless each Buyer Indemnified Party from and against any and all Losses actually incurred by any Buyer Indemnified Party that were incurred by such Buyer Indemnified Party as a result of the “Fish Kill” described in Schedule 3.20 hereof (including without limitation any and all Losses actually incurred in connection with the allegations set forth in Schwartz v. AmerGen Energy Company. Exelon Generation Company, British Energy Company et al., Superior Court of New Jersey, Docket L-2075-03 as filed on July 25, 2003, and any subsequent amendments to the allegations related to the “Fish Kill”, as described in Schedule 3.20 hereof). In connection with making an Indemnified Claim, the Parties shall follow the Indemnification Procedures described in Sections 7.4 and 7.5 above.

SECTION 7.8 Further Indemnity Limitations. The amount of any indemnifiable Loss shall be reduced (i) to the extent any Indemnified Party actually receives any insurance proceeds with respect to such Loss, (ii) to take into account any net Tax benefit arising from the recognition of the Loss, (iii) to take into account any payment actually received by an Indemnified Party from a third party with respect to such Loss, and (iv) to the extent of any Loss that is attributable to a determination that the initial Tax Basis of the assets of the Company should not be increased by the amount of the nonqualified decommissioning liability.

SECTION 7.9 Sole and Exclusive Remedy. From and after the Closing, except as provided in Section 5.10 of this Agreement for any claim in respect of Taxes, the indemnification provisions of this Article 7 shall be the sole and exclusive post-Closing remedy of each Party (including the Seller Indemnified Parties and the Buyer Indemnified Parties) (i) for any breach of any Party’s representations, warranties, covenants or agreements contained in this Agreement, or (ii) otherwise with respect to this Agreement or the transactions contemplated hereby. In furtherance of the foregoing, each Party hereby waives, to the fullest extent permitted under applicable Law, any and all other rights, claims and causes of action it or any of its Affiliates may have against another Party hereunder with respect thereto.

ARTICLE 8

Termination

SECTION 8.1 Termination. This Agreement may be terminated at any time prior to the Closing:

(a) by mutual written agreement of British Energy and Buyer;

(b) by British Energy or Buyer if the Closing shall not have been consummated on or before the day that is six (6) months after the date hereof, unless the reason that the Closing has not occurred shall be the failure of the Party seeking to terminate this Agreement to fulfill its obligations hereunder; provided, however, (i) that if the reason the

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Closing has not occurred is because Buyer Regulatory Approvals or British Energy Regulatory Approvals have not been obtained and Commercially Reasonable Efforts are being undertaken to obtain such regulatory approvals by the Party responsible for obtaining such regulatory approvals, the reference to “the day that is six (6) months after the date hereof” in this Section 8.1(b) shall be extended for an additional six (6) months and neither British Energy nor Buyer may terminate this Agreement during such extended period so long as such Commercially Reasonable Efforts continue, or (ii) that if the reason the Closing has not occurred is because Exelon is attempting to prevent the transfer of the Seller’s indirect interest in the Company and Seller has timely commenced arbitration proceedings or other legal action with Exelon regarding Exelon’s action or inaction with respect to such transfer, the reference to “the day that is six (6) months after the date hereof” in this Section 8.l(b) shall be extended for an additional six (6) months and neither British Energy nor Buyer may terminate this Agreement during such extended period;

(c) by British Energy or Buyer if consummation of the transactions contemplated hereby would violate any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction;

(d) by Buyer if any Buyer Regulatory Approvals shall have been denied (and a petition for rehearing, a petition for review or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted subject to terms and conditions that would likely have a Material Adverse Effect, and all appeals of any such actions shall have been taken and been unsuccessful;

(e) by British Energy if any British Energy Regulatory Approvals shall have been denied (and a petition for rehearing, a petition for review or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted subject to terms and conditions that would likely have a Material Adverse Effect, and all appeals of any such actions shall have been taken and been unsuccessful;

(f) by Buyer if there has been a material violation or breach by British Energy of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by British Energy of written notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer;

(g) by British Energy if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of written notice specifying particularly such violation or breach, and such violation or breach has not been waived by British Energy;

(h) by Buyer or Seller if Exelon exercises its right of first refusal to acquire British Energy’s interests in the Company pursuant to Section 7.3 of the Limited Liability Company Agreement within the period of time in which such right may be exercised as provided in Section 7.3 of the Limited Liability Company Agreement.

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The Party desiring to terminate this Agreement shall give notice of such termination to the other Party in the manner set forth in Section 8.2.

SECTION 8.2 Effect of Termination. In the event of termination of this Agreement by Seller or Buyer pursuant to Section 8.1, written notice thereof shall promptly be given by the terminating Party to the other Parties, and this Agreement shall thereupon terminate provided, however, the termination of this Agreement shall not release any party from liability for any breach of any representation, warranty or covenant contained herein prior to the date of termination. Following any such termination, Buyer and Seller will continue to be bound by the obligations set forth in Sections 5.8 and 5.9 and Article 7. If this Agreement is terminated as provided herein, all filings, applications and other submissions made to any Governmental Authority shall, to the extent practicable, be withdrawn from the Governmental Authority to which they were made.

SECTION 8.3 Remedies.

(a) Seller’s Remedies. (i) Notwithstanding anything herein to the contrary, upon the failure by Buyer to fulfill any undertaking or commitment provided for herein on the part of Buyer that is required to be fulfilled on or prior to the Closing Date, Seller, at its sole option, may enforce specific performance of this Agreement or pursue any rights or remedies available at law or in equity.

(b) Seller’s Remedy for Termination Pursuant to Section 8.1(b), 8.1(c), 8.1(d) or 8.1(e). In the event that (i) this Agreement is terminated pursuant to any of Section 8.1(b) through 8.1(e), (ii) such termination resulted from a failure to obtain applicable regulatory approvals, and (iii) such failure is attributable to the announcement or consummation after the date hereof of any transaction pursuant to which Buyer or any of its Affiliates would acquire any electric generation facilities or uncommitted electric generating capacity, Buyer shall pay to Seller, no later than five (5) days after any such termination, by wire transfer of immediately available funds to an account designated in writing by Seller, an amount equal to $8,295,000.

(c) Buyer’s Remedies. Except as set forth in Section 8.3(d), notwithstanding anything herein provided to the contrary, upon failure of Seller to fulfill any undertaking or commitment provided for herein on the part of Seller that is required to be fulfilled on or prior to the Closing Date, Buyer, at its sole option, may enforce specific performance of this Agreement or pursue any rights or remedies available at law or in equity.

(d) Buyer’s Remedy for Termination Pursuant to Section 8.1(b) or 8.1(h). In the event that this Agreement is terminated (i) by Buyer or Seller pursuant to Section 8.1(b) and the Closing shall not have been consummated as a result of Exelon’s exercise of any of its rights under the Limited Liability Company Agreement or Exelon’s material interference with the transactions contemplated hereby, or (ii) by Buyer or Seller pursuant to Section 8.l(h), Buyer’s sole and exclusive remedy for such termination shall be a termination payment in the amount of $8,295,000 (the “Break Up Fee”), payable by Seller to Buyer by wire transfer no later than five (5) days after the consummation of any sale of the BEUSH Shares which directly or indirectly transfers the Company Group’s ownership interest in the Company to Exelon or an Affiliate thereof; provided that, in the event that, following such a termination of this Agreement, Seller

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has not consummated such a sale of its direct or indirect ownership interests in the Company within one (1) year of the date of this Agreement, Seller shall make a payment to Buyer, within three (3) Business Days after the first anniversary of the date hereof, in the amount of $1,000,000, such amount to be deducted from any payment of the Break Up Fee upon consummation of such a sale within three (3) years from the date of this Agreement. In the event such a sale of Seller’s direct or indirect ownership interests in the Company is not consummated within three (3) years from the date of this Agreement, Seller shall have no further liability to Buyer for termination pursuant to Section 8.1(b) or 8.1(h). The Parties agree that Buyer’s actual damages as a result of such termination would be extremely difficult to calculate, and that such payment constitutes liquidated damages for the consequences of such termination and is not a penalty.

(iii) Notwithstanding Section 8.3(d), in the event that the transaction which resulted in the termination of this Agreement pursuant to Section 8.1(h) is terminated within three (3) years from the date hereof, Seller and Buyer shall as soon as practicable enter into a 90-day exclusivity agreement whereby the Buyer shall be given the opportunity, on an exclusive basis, to acquire the BEUSH Shares on terms to be agreed upon by the Parties. Such exclusivity agreement shall contain customary rights and obligations and shall be negotiated in good faith by the Parties.

(e) Election of Remedies. (i) Except as set forth in Section 8.3(d) hereof, if any Party elects to pursue singularly any right or remedy available to it under this Section 8.3, then such Party may at any time thereafter cease pursuing that right or remedy and elect to pursue any other right or remedy available to it under this Section 8.3. All rights and remedies hereunder (except those set forth in Section 8.3(d)) shall be cumulative. Except as otherwise provided by Applicable Law, no delay or forbearance by a Party in the exercise or enforcement of any right or remedy hereunder shall be deemed a waiver by such party of its right hereunder to exercise or enforce such right or remedy.

ARTICLE 9

Miscellaneous

SECTION 9.1 Notices. All notices, requests and other communications to either Party hereunder shall be in writing. All notices, request, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally, (ii) sent by next-day or overnight mail or delivery, or (iii) sent by facsimile addressed as follows:

If to Buyer, to:

FPL Energy Nuclear Mid-Atlantic, LLC

c/o FPL Energy, LLC

700 Universe Boulevard

Juno Beach, FL 33408

Attn: President

Telecopy: (561)691-7305

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with a copy to:

FPL Energy, LLC

700 Universe Boulevard

Juno Beach, FL 33408

Attn: General Counsel

Telecopy: (561)691-2988

If to British Energy, to:

3 Redwood Crescent

Peel Park

East Kilbride, G74 5PR, Scotland

Attn: Company Secretary

Telecopy: 011-44-13552-62563

with a copy to:

Simpson Thacher & Bartlett

425 Lexington Avenue

New York, New York 10017-3954

Attn: Mario A. Ponce, Esq.

Telecopy: (212) 455-3442

All such notices, requests, demands, waivers and other communications shall be deemed to have been received (w) if by personal delivery, on the day after such deliver, (x) if by certified or registered mail, on the seventh business day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax or telegram, on the next business day following the day on which such fax or telegram was sent, provided, however, that a copy is also sent by certified or registered mail.

SECTION 9.2 Amendments; No Waivers.

(a) Any provisions of this Agreement may be amended or waived prior to the Closing Date if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Buyer and British Energy or in the case of a waiver, by the Party against whom the waiver is to be effective.

(b) No failure to delay by either Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

SECTION 9.3 Expenses. Except as expressly provided in this Agreement, all costs and expenses incurred in connection with the execution, delivery and performance of this Agreement, including fees and expenses of counsel, financial advisors and accountants, shall be paid by the

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Party incurring such cost or expense (or in the case of any fees or expenses incurred by any member of the Company Group, by Seller), whether or not the Closing shall have occurred.

SECTION 9.4 Successors and Assigns. The rights and obligations of the Parties shall not be assigned or delegated by either Seller, on the one hand, or Buyer, on the other hand, without the written consent of Buyer (in the case of an assignment or delegation by Seller) or Seller (in the case of an assignment or delegation by Buyer), which consent shall not be unreasonably withheld or delayed. No assignment of this Agreement will relieve the assigning Party of its obligations hereunder. Subject to the two preceding sentences, this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

SECTION 9.5 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

SECTION 9.6 Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto. Facsimile transmission of any signed original document and/or retransmission of any signed facsimile transmission will be deemed the same as delivery of an original. At the request of any Party, the Parties will confirm facsimile transmission by signing a duplicate original document.

SECTION 9.7 Entire Agreement. This Agreement and the Confidentiality Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written and oral, between the Parties with respect to the subject matter of this Agreement. Neither this Agreement nor any provision hereof is intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder.

SECTION 9.8 Captions. The captions herein are included for convenience of reference only and shall not affect in any way the meaning or interpretation hereof;

SECTION 9.9 Third Party Beneficiaries. Except as provided in Sections 5.8, 5.12 and 7.2, no provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the Parties and their respective successors and permitted assigns.

SECTION 9.10 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such a determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

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SECTION 9.11 Construction. Unless the context of this Agreement clearly requires otherwise, (a) references to the plural include the singular, the singular the plural, the part the whole, (b) references to any gender include all genders, (c) “or” has the inclusive meaning frequently identified with the phrase “and/or”, (d) “including” has the inclusive meaning frequently identified with the phrase “but not limited to”, (e) references to “hereunder” or ‘“herein” relate to this Agreement and (f) section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified.

SECTION 9.12 Consent to Jurisdiction.

(a) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any court of the State of New York sitting in Newcastle County or any Federal court of the United States of America sitting in the State of New York and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any transaction contemplated by this Agreement or for recognition or enforcement of any judgment relating to the transactions contemplated by this Agreement, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court of the State of New York or, to the extent permitted by Law, in such Federal court. Each of the Parties agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

(b) Each of the Parties hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement in any court of the State of New York sitting in New York County or any Federal court of the United States of America sitting in the State of New York. Each of the Parties hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

SECTION 9.13 Waiver of Punitive and Other Damages and Jury Trial.

(a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

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(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.13

SECTION 9.14 Good Faith Covenant. The Parties agree that their actions and dealings with each other pursuant to this Agreement shall be subject to an express covenant of good faith and fair dealing.

SECTION 9.15 Buyer Obligations. Any obligations of the Buyer under this Agreement may be satisfied or performed by an Affiliate of the Buyer.

SECTION 9.16 Dispute Resolution. Prior to instituting any litigation or other dispute resolution in connection with this Agreement, the Parties will attempt in good faith to resolve any dispute or claim by referring any such matter, within ten (10) days of written notice of any such dispute or claim, to one of their respective executive officers for resolution. The executive officers of the Parties shall attempt to resolve the dispute or claim within thirty (30) days thereafter.

SECTION 9.17 Change in Law. If and to the extent that any Laws or regulations that govern any aspect of this Agreement shall change, so as to make any aspect of this transaction unlawful or unpracticable, then the Parties shall endeavor, to the extent reasonably possible, to enter into such amendments to this Agreement as may be reasonably necessary for this Agreement to accommodate any such legal or regulatory changes, without materially changing the overall benefits or consideration expected hereunder by either Party.

SECTION 9.18 Time is of the Essence; Action on a Business Day. Time is of the essence under this Agreement. If the date specified in this Agreement for the giving of any notice or the taking of any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day which is a Business Day.

SECTION 9.19 Exelon Tag Along. In the event that Exelon exercises its right to participate in the transactions contemplated by this Agreement pursuant to, and subject to the terms and conditions of, Section 7.4 of the LLC Agreement, the Parties agree that this Agreement shall remain in full force and effect; provided, however, that the provisions hereof shall automatically be deemed adjusted, mutatis mutandis, to reflect the fact that only fifty percent (50%) of the BEUSH Shares will be sold to Buyer, and the Purchase Price will be commensurately reduced, and Buyer agrees to acquire a 25% interest in the Company from Exelon in accordance with the terms and conditions of this Agreement and Section 7.4 of the LLC Agreement.

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[intentionally left blank]

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement or have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BUYER
FPL ENERGY NUCLEAR MID- ATLANTIC, LLC
By:	/s/ Jin Robo
Name:	Jin Robo
Title:	President
SELLER
BRITISH ENERGY INVESTMENT LTD.
By:	/s/ K G Lough
Name:	KEITH GE_DES LOUGH
Title:	DIRECTOR

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EX-4.14

EXECUTION COPY

Exhibit 4.14

PURCHASE AND SALE AGREEMENT

dated as of

October 10, 2003

between

BRITISH ENERGY INVESTMENT LTD.

and

EXELON GENERATION COMPANY, LLC

relating to the sale and purchase

of

100% of the shares of British Energy US Holdings Inc.

TABLE OF CONTENTS

		Page
ARTICLE 1 DEFINITIONS		1
SECTION 1.1	DEFINITIONS	1
SECTION 1.2	ACCOUNTING TERMS	15
ARTICLE 2 PURCHASE AND SALE		15
SECTION 2.1	PURCHASE AND SALE OF THE BEUSH SHARES FROM BRITISH ENERGY	15
SECTION 2.2	ADJUSTMENT TO PURCHASE PRICE	15
SECTION 2.3	CLOSING	17
SECTION 2.4	DELIVERIES BY BRITISH ENERGY AT CLOSING	18
SECTION 2.5	DELIVERIES BY Buyer AT CLOSING	19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER		20
SECTION 3.1	CORPORATE EXISTENCE AND POWER OF SELLER AND THE MEMBERS OF THE COMPANY GROUP	20
SECTION 3.2	AUTHORIZATION, EXECUTION AND ENFORCEABILITY OF TRANSACTIONS	20
SECTION 3.3	NON-CONTRAVENTION	20
SECTION 3.4	CONSENTS AND APPROVALS	20
SECTION 3.5	FINANCIAL STATEMENTS	21
SECTION 3.6	NO OTHER LIABILITIES	21
SECTION 3.7	OWNERSHIP OF BEUSH SHARES	21
SECTION 3.8	CAPITALIZATION OF BEUSH	21
SECTION 3.9	OWNERSHIP OF INTERESTS IN THE COMPANY	21
SECTION 3.10	BEUSH OPERATIONS	22
SECTION 3.11	BRITISH ENERGY LP OPERATIONS	22
SECTION 3.12	BRITISH ENERGY US INVESTMENTS LLC OPERATIONS	22
SECTION 3.13	ABSENCE OF CERTAIN CHANGES	23
SECTION 3.14	LITIGATION	23
SECTION 3.15	MATERIAL CONTRACTS	23
SECTION 3.16	QUALIFIED DECOMMISSIONING FUNDS	24
SECTION 3.17	NONQUALIFIED DECOMMISSIONING FUNDS	25
SECTION 3.18	INSURANCE	26
SECTION 3.19	COMPLIANCE WITH LAWS	26
SECTION 3.20	ENVIRONMENTAL MATTERS	26
SECTION 3.21	EMPLOYEES	28
SECTION 3.22	EMPLOYEES BENEFIT PLANS	28
SECTION 3.23	TAXES	30
SECTION 3.24	CONDEMNATION	31
SECTION 3.25	REAL PROPERTY	31
SECTION 3.26	PERMITS	31

ii

SECTION 3.27	PLANT AND EQUIPMENT; PERSONAL PROPERTY	32
SECTION 3.28	BANK ACCOUNTS	32
SECTION 3.29	INTELLECTUAL PROPERTY	32
SECTION 3.30	SUBSIDIARIES	32
SECTION 3.31	UTILITIES	32
SECTION 3.32	BOOKS AND RECORDS	33
SECTION 3.33	AFFILIATE TRANSACTIONS	33
SECTION 3.34	BANKRUPTCY; SOLVENCY	33
SECTION 3.35	FINDERS’ OR BROKERS’ FEES	33
SECTION 3.36	DOE STANDARD SPENT FUEL CONTRACTS AND PAYMENT OF DEFERRED ONE-TIME FEES	33
SECTION 3.37	PRICES AND TERMS FOR PURCHASE BY EXELON OF POWER FROM THE FACILITIES	33
SECTION 3.38	DISCLOSURE	34
SECTION 3.39	INQUIRIES BY SELLER	34
SECTION 3.40	LIMITATION OF REPRESENTATIONS AND WARRANTIES	34
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER		34
SECTION 4.1	EXISTENCE AND POWER OF BUYER	34
SECTION 4.2	AUTHORIZATION	35
SECTION 4.3	NON-CONTRAVENTION	35
SECTION 4.4	CONSENTS AND APPROVALS	35
SECTION 4.5	FINDERS’ OR BROKERS’ FEES	35
SECTION 4.6	AVAILABILITY OF FUNDS	35
SECTION 4.7	LITIGATION	36
SECTION 4.8	DUE DILIGENCE	36
SECTION 4.9	ABSENCE OF CERTAIN EVENTS	36
SECTION 4.10	NO KNOWLEDGE OF BREACH	36
SECTION 4.11	INQUIRIES BY BUYER	36
ARTICLE 5 COVENANTS		36
SECTION 5.1	GENERAL	37
SECTION 5.2	NOTICES, CONSENTS AND APPROVALS	37
SECTION 5.3	OPERATION OF BUSINESS OF COMPANY GROUP DURING INTERIM PERIOD	38
SECTION 5.4	ACCESS AND INVESTIGATIONS DURING INTERIM PERIOD	41
SECTION 5.5	CERTAIN NOTICES	42
SECTION 5.6	FURTHER ASSURANCES; POST-CLOSING COOPERATION	43
SECTION 5.7	GUARANTEES	44
SECTION 5.8	CONFIDENTIALITY	44
SECTION 5.9	PUBLIC ANNOUNCEMENTS	44
SECTION 5.10	TAX MATTERS	45
SECTION 5.11	INTERCOMPANY LOANS	47
SECTION 5.12	CORPORATE NAMES	47
SECTION 5.13	ISRA CLEARANCE	48

iii

SECTION 5.14	REIMBURSEMENT OF NONQUALIFIED DECOMMISSIONING FUNDS	48
SECTION 5.15	DOCUMENTS RELATING TO LIABILITY FOR PAYMENT OF ONE-TIME FEE FOR SPENT FUEL DISPOSAL	48
SECTION 5.16	PROHIBITED TRANSACTIONS	49
SECTION 5.17	FINANCIAL STATEMENTS	49
SECTION 5.18	TRANSMISSION	50
SECTION 5.19	RISK OF LOSS	50
ARTICLE 6 CONDITIONS TO CLOSING		51
SECTION 6.1	CONDITIONS TO OBLIGATIONS OF BUYER AND BRITISH ENERGY	51
SECTION 6.2	CONDITION TO OBLIGATION OF BUYER	52
SECTION 6.3	CONDITIONS TO OBLIGATION OF BRITISH ENERGY	53
ARTICLE 7 INDEMNIFICATION		54
SECTION 7.1	INDEMNIFICATION BY SELLER	54
SECTION 7.2	INDEMNIFICATION BY BUYER	54
SECTION 7.3	LIMITATIONS ON INDEMNITY	54
SECTION 7.4	INDEMNITY PROCEDURES	55
SECTION 7.5	PROCEDURAL REQUIREMENTS FOR ENVIRONMENTAL CLAIMS BY BUYER	56
SECTION 7.6	SURVIVAL AND TIME LIMITATION	57
SECTION 7.7	SPECIFIC INDEMNITY BY SELLER	57
SECTION 7.8	FURTHER INDEMNITY LIMITATIONS	58
SECTION 7.9	SOLE AND EXCLUSIVE REMEDY	58
ARTICLE 8 TERMINATION		58
SECTION 8.1	TERMINATION	58
SECTION 8.2	EFFECT OF TERMINATION	59
SECTION 8.3	REMEDIES	59
ARTICLE 9 MISCELLANEOUS		61
SECTION 9.1	NOTICES	61
SECTION 9.2	AMENDMENTS; NO WAIVERS	62
SECTION 9.3	EXPENSES	62
SECTION 9.4	SUCCESSORS AND ASSIGNS	62
SECTION 9.5.	GOVERNING LAW	62
SECTION 9.6	COUNTERPARTS; EFFECTIVENESS	62
SECTION 9.7	ENTIRE AGREEMENT	62
SECTION 9.8	CAPTIONS	63
SECTION 9.9	THIRD PARTY BENEFICIARIES	63
SECTION 9.10	SEVERABILITY	63
SECTION 9.11	CONSTRUCTION	63
SECTION 9.12	CONSENT TO JURISDICTION	63
SECTION 9.13	WAIVER OF PUNITIVE AND OTHER DAMAGES AND JURY TRIAL	64

iv

SECTION 9.14	GOOD FAITH COVENANT	64
SECTION 9.15	BUYER OBLIGATIONS	64
SECTION 9.16	DISPUTE RESOLUTION	64
SECTION 9.17	CHANGE IN LAW	65
SECTION 9.18	TIME IS OF THE ESSENCE; ACTION ON A BUSINESS DAY	65

v

Exhibits & Schedules

Exhibit A(i)	Form British Energy Scottish Counsel Opinion
Exhibit A(ii)	Form British Energy U.S. Counsel Opinion
Exhibit B	[Intentionally Deleted]
Exhibit C	FIRPTA Affidavit
Exhibit D	Form of Seller Guaranty
Exhibit E	[Intentionally Deleted]
Schedule 1.1(a)	Seller Knowledge Group
Schedule 1.1(b)	Buyer Knowledge Group
Schedule 2.2	Working Capital Target
Schedule 2.2(d)	Capital Expenses Plan
Schedule 3.2	Authorization, Execution and Enforceability of Transactions
Schedule 3.3	Seller Non-Contravention
Schedule 3.4	Consents and Approvals
Schedule 3.5	Financial Statements
Schedule 3.6	Other Liabilities
Schedule 3.8	BEUSH Options, Warrants and Purchase Rights
Schedule 3.10	BEUSH Operations Exceptions
Schedule 3.11	British Energy, LP Operations Exceptions
Schedule 3.12	BEUILLC Operations Exceptions
Schedule 3.13	Absence of Certain Changes
Schedule 3.14	Litigation
Schedule 3.15	Material Contracts
Schedule 3.16	Qualified Decommissioning Funds
Schedule 3.17	Nonqualified Decommissioning Funds
Schedule 3.18	Insurance
Schedule 3.19	Compliance with Laws
Schedule 3.20	Environmental Matters
Schedule 3.21	Collective Bargaining Agreements; Employee Matters
Schedule 3.22	Employee Benefit Plans
Schedule 3.23	Taxes
Schedule 3.24	Condemnation
Schedule 3.25	Real Property
Schedule 3.26	Permits
Schedule 3.27	Plant and Equipment; Personal Property
Schedule 3.28	Bank Accounts
Schedule 3.30	Subsidiaries
Schedule 3.33	Affiliate Transactions
Schedule 3.37	Prices and Terms for Purchase by Exelon Power from the Facilities
Schedule 4.3	Buyer Non-Contravention
Schedule 4.4	Consents and Approvals
Schedule 5.3(a)	Operation of Business of Company Group During Interim Period
Schedule 5.7	Guarantees
Schedule 5.11	Intercompany Loans

vi

Schedule 5.17	Financial Statements During Interim Period
Schedule 6.2(d)	Buyer Regulatory Approvals
Schedule 6.3(d)	British Energy Regulatory Approvals

vii

EXECUTION COPY

PURCHASE AND SALE AGREEMENT

PURCHASE AND SALE AGREEMENT (this “Agreement”) dated as of October 10, 2003 between British Energy Investment Ltd., a Scottish company limited by shares (“British Energy” or “Seller”), and Exelon Generation Company, LLC, a Pennsylvania limited liability company (“Buyer”). British Energy and Buyer are referred to herein individually as a “Party” and collectively as the “Parties”.

WHEREAS, British Energy owns all of the issued and outstanding capital stock (the “BEUSH Shares”) of British Energy US Holdings Inc., a Delaware corporation (“BEUSH”), and BEUSH holds indirectly through its one hundred percent (100%) owned subsidiary British Energy LP, a Delaware limited partnership, fifty percent (50%) of the ownership interests in AmerGen Energy Company, LLC, a Delaware limited liability company (the “Company”); and

WHEREAS, pursuant to a notice from Buyer, dated October 3, 2003, Buyer has elected, pursuant to the requirements of, and in accordance with, the Limited Liability Company Agreement (as defined below), to exercise its right of first refusal to purchase the BEUSH Shares;

NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein, and on the terms and subject to the conditions set forth herein, the Parties hereto agree as follows:

ARTICLE 1

Definitions

SECTION 1.1 Definitions.

The following terms, as used herein, have the following meanings:

“Acceptance Notice” is defined in Section 7.4(a).

“Action” means any action, suit, proceeding, condemnation, investigation or audit by or before any court or other Governmental Authority, or any arbitration proceeding.

“Adjusted Purchase Price” is defined in Section 2.2(a).

“Adjustment Amount” is defined in Section 2.2(f).

“Adjustment Statement” is defined in Section 2.2(f).

“Affiliate” means, with respect to any Person, any other Person controlling, controlled by, or under common control with such Person. The concept of control, controlling or controlled as used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” is defined in the Introduction.

“Application” or “Applications” means all necessary or appropriate actions to request NRC or FERC approval of a transfer of the BEUSH Shares, indirect transfers of the Facilities’ NRC licenses, or any amendment to the Facilities’ NRC licenses and such other matters as may be necessary or appropriate with respect to the NRC or FERC in connection with the transactions contemplated hereunder.

“Assets” means, individually or in the aggregate, the assets and properties of the Company, including, without limitation, the Facilities.

“Atomic Energy Act” means the Atomic Energy Act of 1954, as amended, 42 U.S.C. Section 2011 et seq., or any successor statute.

“BEUILLC” means British Energy US Investments, LLC, a Delaware limited liability company.

“BEUSH” means British Energy US Holdings, Inc., a Delaware corporation.

“BEUSH Working Capital” means the Working Capital of the Company Group (excluding the Company Working Capital).

“BEUSH Working Capital Target” is defined in Section 2.1.

“BEUSH Shares” is defined in the Recitals.

“British Energy” means British Energy Investment Ltd., a Scottish company limited by shares.

‘British Energy LP” means British Energy LP, a Delaware limited partnership.

“British Energy Regulatory Approvals” is defined in Section 6.3(d).

“Business” means the business and operations of the Company Group.

“Business Day” shall mean any day other than Saturday, Sunday and any day on which banking institutions in the State of New York are authorized by law or other governmental action to close.

“Buyer” is defined in the Introduction.

“Buyer Indemnified Party” and “Buyer Indemnified Parties” are defined in Section 7.1.

“Buyer Regulatory Approvals” is defined in Section 6.2(d).

2

“Capital Projects” means capital projects of the Company included in the Company’s budget for fiscal year 2003 except for Major Capital Projects.

“Clinton” means the Clinton Nuclear Power Station located in Harp Township, Illinois and identified in NRC Operating License No. NPF-62, Docket No. 50-461, and the facilities, equipment, supplies and improvements relating exclusively thereto.

“Clinton FSAR” means the report, as updated, that is required to be maintained for Clinton in accordance with the requirements of 10 CFR Section 50.71(e).

“Clinton Technical Specifications” means the technical specifications included in the NRC license for Clinton in accordance with the requirements of 10 CFR Section 50.36.

“Closing” is defined in Section 2.3.

“Closing Date” means the date of the Closing.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collective Bargaining Agreements” is defined in Section 3.21.

“Commercially Reasonable Efforts” means efforts which are reasonably within the contemplation of the Parties on the date hereof, which are designed to enable a Party, directly or indirectly, to satisfy a condition to, or otherwise assist in the consummation of, the transactions contemplated by this Agreement and which do not require the performing Party to expend any funds or assume liabilities other than expenditures and liabilities which are reasonable in nature and amount in the context of the transactions contemplated by this Agreement; provided that, with respect to Buyer’s obligations under Sections 5.1, 5.2 and 5.6, such term shall include any sale or other disposal of electric generation facilities or uncommitted electric generation capacity required to obtain the approval of FERC or any other Governmental Authority.

“Company” means AmerGen Energy Company, LLC, a Delaware limited liability Company.

“Company Group” means BEUSH, BEUILLC, British Energy LP, the Company and their respective Subsidiaries.

“Company Working Capital” means the Working Capital of the Company.

“Company Working Capital Target” is defined in Section 2.1.

“Confidentiality Agreement” means the confidentiality letter agreement dated March 26, 2003, by and among Citigroup Global Markets Inc. on behalf of Seller, and FPL.

“Contested Proceeding” means a proceeding at NRC or FERC considering an Application which becomes subject to hearing or other extraordinary procedure by NRC or FERC.

“Contested Taxes” is defined in Section 5.10(g).

3

“Credit Facility Agreement” means the Credit Facility Agreement dated September 26, 2002, among the Secretary of State for Trade and Industry, British Energy plc and others, as extended by the Extension and Amendment Agreement, dated November 28, 2002 and the Further Extension and Amendment Agreement, dated March 7, 2003.

“Decommissioning Trust Agreement” means the Amended and Restated Nuclear Decommissioning Master Trust Agreement effective October 16, 2001 among the Company and Mellon Bank, N.A., as trustee.

“Decommissioning Trusts” means the revocable trusts created pursuant to the Decommissioning Trust Agreement, consisting of assets held as Qualified Decommissioning Funds and Nonqualified Decommissioning Funds.

“DOE” means the U.S. Department of Energy or any successor thereto.

“Employee Benefit Plan” means any (a) nonqualified deferred compensation or retirement plan or arrangement which is an Employee Pension Benefit Plan, (b) qualified defined contribution retirement plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or arrangement which is an Employee Pension Benefit Plan, (d) Employee Welfare Benefit Plan or material fringe benefit plan, program or arrangement or (e) profit sharing, bonus, stock option, stock purchase equity, stock appreciation, deferred compensation, incentive, severance plan or other benefit plan.

“Employee Pension Benefit Plan” has the meaning set forth in ERISA Section 3 Subsection (2).

“Employee Welfare Benefit Plan” has the meaning set forth in ERISA Section 3 Subsection (1).

“Energy Reorganization Act” means the Energy Reorganization Act of 1974, as amended.

“Environment” means soil, land surface or subsurface strata, real property, surface waters (including navigable waters, ocean waters, streams, ponds, drainage basins and wetlands), groundwater, water body sediments, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life (including fish and all other aquatic life) and any other environmental medium or natural resource.

“Environmental Claim” means a claim by any Person based upon a breach of Environmental Law or an Environmental Liability alleging loss of life, injury to persons, property or business, damage to natural resources or trespass to property.

“Environmental Clean-Up Site” means any location which is listed or formally proposed for listing on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System, or on any similar state list of sites requiring investigation or cleanup, or which is the subject of any action, suit, proceeding or investigation for any alleged violation of any Environmental Laws.

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“Environmental Laws” means all Laws including any binding administrative or judicial interpretation thereof in effect as of or prior to the date hereof relating to: (a) the regulation, protection and use of the Environment; (b) the conservation, management, development, control and/or use of land with respect to natural resources and wildlife; or (c) the management, manufacture, possession, use, generation, transportation, treatment, storage, disposal, Release, abatement, removal, remediation, or handling of or exposure to, any Hazardous Substances; and includes, without limitation, the following federal statutes (and their implementing regulations): the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq.; the Hazardous Materials Transportation Act, 49 U.S.C. §1801 et seq.; the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; the Federal Water Pollution Control Act of 1972, as amended, 33 U.S.C. § 1251 et seq.; the Clean Air Act of 1966, as amended, 42 U.S. C. § 7401 et seq.; the Toxic Substances Control Act of 1976, as amended, 15 U.S.C. § 2601 et seq.; the Oil Pollution Act of 1990, as amended, 33 U.S.C, § 2701 et seq.; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. § 11001 et seq.; the Occupational Safety and Health Act, 29 U.S.C. § 651 et seq., to the extent involving handling of or exposure to Hazardous Substances; the Federal Insecticide, Fungicide and Rodenticide Act, as amended, 7 U.S.C. § 136 et seq.; the Coastal Zone Management Act of 1972, as amended, 16 U.S.C. § 1451 et seq.; the Rivers and Harbors Act of 1899, as amended, 33 U.S.C. § 401 et seq.; the Endangered Species Act of 1973, as amended, 16 U.S.C. § 1531 et seq.; the Safe Drinking Water Act of 1974, as amended, 42 U.S.C. § 300(f) et seq.; all analogous or comparable state statutes and regulations; and any common law doctrine, including negligence, negligence per se, nuisance, trespass, personal injury or property damage relating to or arising out of the Release of or exposure to Hazardous Substances; provided, however, that in no event shall “Environmental Laws” include any Nuclear Laws.

“Environmental Liability” means any Liability of the Company which: (i) arises under any Environmental Laws, as a result of (a) any violation or alleged violation of Environmental Laws, with respect to the ownership, operation or use of the Assets; (b) loss of life, injury to persons, property or business or damage to natural resources caused (or allegedly caused) by the presence or Release of Hazardous Substances at, on, in, under, above, adjacent to or migrating from the Assets, including, but not limited to, Hazardous Substances contained in building materials at the Assets or in the atmosphere, soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Assets; (c) the Remediation of Hazardous Substances that are present or have been Released at, on, in, under, above, adjacent to or migrating from the Assets, including, but not limited to, Hazardous Substances contained in building materials at the Assets or in the atmosphere, soil, surface water, sediments, groundwater, landfill cells or in other environmental media at or adjacent to the Assets; (d) loss of life, injury to persons, property or business or damage to natural resources caused (or allegedly caused) by the offsite disposal, storage, transportation, discharge, Release or recycling, or the arrangement for such activities, of Hazardous Substances, in connection with the ownership or operation of the Assets; and (e) the Remediation of Hazardous Substances that are disposed, stored, transported, discharged, Released, recycled, or the arrangement of such activities, in connection with the ownership or operation of the Assets, and (ii) is attributable to the Company’s conduct during the Seller Ownership Period, provided, however, that in no event shall “Environmental Liability” include Nuclear Liability.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto, and the rules and regulations promulgated thereunder.

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“ERISA Affiliate” of any entity means any other entity which, together with such entity, would be treated as a single employer under Section 414 of the Code.

“Event of Loss” is defined in Section 5.19.

“Exelon” means Exelon Generation Company, LLC.

“Facilities” means Clinton, TMI-1 and Oyster Creek, collectively.

“Facility” means each of Clinton, TMI-1 and Oyster Creek.

“FERC” means the Federal Energy Regulatory Commission, or its regulatory successor, as applicable.

“Federal Power Act” means the Federal Power Act, 16 U.S.C. Section 792, et seq., as amended, or any successor statute.

“Final Safety Analysis Reports” or “FSARs” means collectively, the Clinton FSAR, the TMI-1 FSAR and the Oyster Creek FSAR, as required in accordance with 10 C.F.R. Section 50.71(e).

“Financial Statements” is defined in Section 3.5.

. “FIRPTA Affidavit” means the Foreign Investment in Real Property Tax Act Certification and Affidavit, substantially in the form of Exhibit C hereto.

“FPL” is defined in Section 8.1(b).

“GAAP” means generally accepted accounting principles in the United States.

“Good Utility Practices” means any of the practices, methods and activities engaged in and approved by a significant portion of the electric utility industry in the United States as good practices applicable to nuclear generating facilities of similar design, size and capacity during the relevant time period or any of the practices, methods or activities which, in the exercise of reasonable judgment by a prudent nuclear operator in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and applicable Law. Good Utility Practices are not intended to be limited to the optimal practices, methods or acts to the exclusion of all others, but rather to be practices, methods or acts generally accepted in the United States utility industry applicable to nuclear generating facilities.

“Governmental Authority” means (a) any governmental, regulatory or administrative agency, commission, department, board or other governmental subdivision of (i) the United States of America, or (ii) any state, county, municipality or other governmental subdivision within the United States of America, and (b) any court, tribunal or arbitral body of the United States of America or of any state, county, municipality or other governmental subdivision within the United States of America.

“Guarantees” is defined in Section 5.7.

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“Hazardous Substance” means (a) any petrochemical or petroleum products, oil or coal ash, radioactive materials, radon gas, asbestos or asbestos-containing material, polychlorinated biphenyls, lead based paint or urea formaldehyde foam insulation, (b) any chemicals, materials, substances or wastes which are currently defined or regulated as “hazardous substances,” “hazardous materials,” “hazardous constituents,” “extremely hazardous substances,” “hazardous wastes,” “restricted hazardous materials,” “toxic substances,” “toxic pollutants,” “toxic air pollutants,” “pollutants” or “contaminants” or words of similar meaning and regulatory effect under any Environmental Law, and (c) any other chemicals, materials, wastes or substances, the exposure to or treatment, storage, transportation, disposal or Release of which is prohibited, limited or regulated by any Environmental Law; provided, however, that “Hazardous Substances” shall specifically exclude any “Nuclear Material,” as defined in this Agreement, to the extent regulated under any Nuclear Laws.

“High Level Waste” means (a) Spent Nuclear Fuel, (b) liquid wastes resulting from the operation of the first cycle solvent extraction system, or its equivalent, and the concentrated wastes from subsequent extraction cycles, or their equivalent, in a facility for reprocessing irradiated reactor fuel, or (c) solids into which such liquid wastes have been converted, or (d) any other material containing radionuclides in concentration or quantities that exceed NRC requirements for classification as Low Level Waste.

“HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the applicable rules and regulations promulgated thereunder.

“ICC” means the Illinois Commerce Commission and any successor agency thereto.

“Indemnified Claim” is defined in Section 7.4(c).

“Indemnified Party” is defined in Section 7.4(a).

“Indemnifying Party” is defined in Section 7.4(a).

“Independent Accounting Firm” means a nationally-recognized independent accounting firm in the United States mutually appointed by British Energy and Buyer.

“Intercompany Loans” is defined in Section 5.11.

“Interim Period” means that period of time commencing on the date hereof and ending on the Closing Date.

“Inventory” means those items listed in the Company’s Passport System with respect to Clinton and PIMS with respect to Oyster Creek and TMI-1.

“Inventory Target Amount” is defined in Section 2.1.

“ISRA” is defined in Section 5.13.

“Knowledge” means (a) with respect to Seller, the actual knowledge of the individuals listed on Schedule 1.1 (a), based on a reasonable inquiry of appropriate employees of the Company (including without limitation seconded employees of Seller) and (b), with respect to

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Buyer, the actual knowledge of the individuals listed on Schedule l.l(b), based on a reasonable inquiry of appropriate employees of the Buyer.

“Law” means any applicable statute, law, code, ordinance, regulation, rule, ruling, order, restriction, requirement, writ, injunction, judgment, charge, license, interpretation, constitution, decree, common law, treaty or other official act or restriction of or by any Governmental Authority.

“Leased Real Property” is defined in Section 3.25(b).

“Liability” means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, or incurred or consequential, and whether due or to become due.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance, option, warrant, purchase right, lease or other encumbrance, or adverse claim of any kind in respect of such asset except for any of the foregoing contained in or granted pursuant to Section 7.3 of the LLC Agreement. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset.

“Limited Liability Company Agreement” or “LLC Agreement” means the Amended and Restated Limited Liability Company Agreement of the Company dated as of August 1, 2000, and amended on December 21, 2001 and May 1, 2002.

“Losses” (and, with correlative meaning, “Loss”) means any and all claims, Liabilities, losses, damages, causes of action, fines, penalties, litigation, lawsuits, administrative proceedings, administrative investigations and costs and expenses, including reasonable attorneys’ fees, court costs and other costs of suit; provided, however, that with respect to any of the foregoing suffered or incurred by the Company, “Losses” for purposes of this Agreement shall in no event exceed 50% of the Company’s Losses.

“Low Level Waste” means waste material which contains radioactive nuclides emitting either primarily beta or gamma radiation, or both, in concentrations or quantities which exceed applicable federal or state standards for unrestricted release; provided that Low Level Waste shall not include any waste containing more than ten (10) nanocuries of transuranic contaminants per gram of material, Spent Nuclear Fuel, or material classified as either High Level Waste or waste which is unsuited for disposal by near-surface burial under any applicable federal regulations.

“Major Capital Projects” means those capital projects of the Company involving expenditures in excess of $500,000, each of which is identified on Schedule 2.2(d) and such other capital projects as may be agreed upon by the Parties after the date hereof.

“Major Loss” is defined in Section 5.19(b).

“Material Adverse Effect” means when used in connection with any Person, any change, effect, event, occurrence or state of facts (a) that is, or would likely be, materially adverse to the business, assets, properties, financial condition or results of operations of such

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Person and its Subsidiaries taken as a whole, or (b) that prevents, or can reasonably be expected to prevent, such Person from performing any of its material obligations under this Agreement or consummation of the transactions contemplated hereby; provided, however, that Material Adverse Effect shall not include any change (or changes taken together) generally affecting the international, national, regional or local wholesale or retail electric industry as a whole or nuclear generating facilities or their operations or operators as a whole which does not affect the Assets or the Parties in any manner or degree significantly different than the industry as a whole, including but not limited to (i) changes in markets for electric power, nuclear generation or fuel used in connection with the Assets, (ii) changes resulting from or associated with acts of war or terrorism or changes imposed by a Governmental Authority to address the events of September 11, 2001, or (iii) changes (individually or taken together) in the North American, national, regional or local electric transmission systems or operations thereof; and provided, further, that any loss, claim, occurrence, change or effect that is cured prior to the Closing Date (at Seller’s expense), or that is a result of a change in general economic, regulatory or political conditions, shall not be considered a Material Adverse Effect.

“Material Contract” is defined in Section 3.15.

“Multiemployer Plan” means each Employee Benefit Plan that is a multiemployer plan, as defined in Section 3(37) of ERISA.

“NJBPU” means the New Jersey Board of Public Utilities and any successor agency thereto.

“Nonqualified Decommissioning Fund(s)” means one or more of the external trust funds that do not meet the requirements of Code Section 468A or Treas. Reg. Section 1.468A-5, maintained by the Company pursuant to the Decommissioning Trust Agreements, as further defined in Section 3.17(a).

“NQDF Tax Reimbursement” means the distribution from the Non-Qualified Decommissioning Funds for administrative costs and other incidental expenses for periods prior to the Closing Date.

“NQDF Tax Reimbursement Share” means an amount equal to fifty percent (50%) of any NQDF Tax Reimbursement received by the Company up to a maximum amount of $12,500,000.

“NRC” means the United States Nuclear Regulatory Commission, as established by Section 201 of the Energy Reorganization Act of 1974, as amended, 42 U.S.C. Section 5841, or any successor commission, agency or officer.

“NRC Staff” means the regulatory staff of the NRC.

“Nuclear Fuel” means all nuclear fuel assemblies in the Facilities’ reactors on the Closing Date and any irradiated nuclear fuel assemblies that have been temporarily removed from the Facilities’ reactors as of the Closing Date and all nuclear unirradiated fuel assemblies awaiting insertion into the Facilities’ reactors, as well as all nuclear fuel constituents in any stage of the fuel cycle which are in the process of production, conversion, enrichment or fabrication for use in the Facilities or which have been or will be purchased for the Facilities.

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“Nuclear Fuel Amount” is defined in Section 2.1.

“Nuclear Laws” means all applicable Federal, state, local, provincial, foreign and international civil and criminal Laws, regulations, rules, ordinances, codes, decrees, judgments, directives, or judicial or administrative orders relating to the regulation of nuclear power plants, source material, byproduct material and special nuclear materials (as defined in the Atomic Energy Act); the regulation of Low Level Waste and High Level Waste; the transportation and storage of Nuclear Materials; the regulation of safeguards information; the regulation of nuclear fuel; the enrichment of uranium; the disposal and storage of High Level Waste and Spent Nuclear Fuel; contracts for any payments into the Nuclear Waste Fund; and as applicable, the antitrust laws and the Federal Trade Commission Act to specified activities or proposed activities of certain licenses of commercial nuclear reactors, but shall not include Environmental Laws. “Nuclear Laws” include the Atomic Energy Act of 1954, as amended (42 U.S.C. Section 2011 et seq.); the Price-Anderson Act (Section 170 of the Atomic Energy Act of 1954, as amended); the Energy Reorganization Act of 1974 (42 U.S.C. Section 5801 et seq.); Convention on the Physical Protection of Nuclear Material Implementation Act of 1982 (Public Law 97-351; 96 Stat. 1663); the Foreign Assistance Act of 1961 (22 U.S.C. Section 2429 et seq.); the Nuclear Non-Proliferation Act of 1978 (22 U.S.C. Section 3201); the Low-Level Radioactive Waste Policy Act (42 U.S.C. Section 2021b et seq.); the Nuclear Waste Policy Act, (42 U.S.C. Section 10101 et seq., as amended); the Low-Level Radioactive Waste Policy Amendments Act of 1985 (42 U.S.C. Section 2021d, 471); the Energy Policy Act of 1992 (4 U.S.C. Section 13201 et seq.); and any applicable state or local Laws analogous to the foregoing.

“Nuclear Liability” means any Liability arising out of or resulting from the hazardous or radioactive properties of (a) Nuclear Material or any other fissionable isotope and (b) any fission product resulting from the fission process.

“Nuclear Material” means any source, special nuclear or byproduct material, as defined in the Atomic Energy Act of 1954, as amended.

“Nuclear Waste Fund” means the fund established pursuant to Section 302(c) of the Nuclear Waste Policy Act of 1982, as amended.

“OCIP” is defined in Section 3.18.

“Offsite Hazardous Substance Facility” means a location, or transport vehicle or vessel, which accepts or accepted Hazardous Substances for treatment, storage or disposal, other than a Facility.

“Owned Real Property” is defined in Section 3.25(a).

“Oyster Creek” means the Oyster Creek Nuclear Generating Station located in Lacey Township, New Jersey and identified in NRC Operating License No. DPR-16, Docket No. 50-219, and the facilities, equipment, supplies and improvements relating exclusively thereto.

“Oyster Creek FSAR” means the report, as updated, that is required to be maintained for Oyster Creek in accordance with the requirements of 10 C.F.R. Section 50.71(e).

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“Oyster Creek Technical Specifications” means the technical specifications included in the NRC License for Oyster Creek in accordance with the requirements of 10 C.F.R. Section 50.36.

“PaPUC” means the Pennsylvania Public Utility Commission and any successor agency thereto.

“Party” means either Buyer or Seller.

“Parties” means Buyer and Seller collectively.

“Permits” means all certificates, licenses, permits, approvals, consents, orders, exemptions, decisions and other actions of a Governmental Authority to the extent pertaining to the ownership or operation of the Company, the Assets or the Facilities.

“Permitted Encumbrances” means and includes: (a) Liens for Taxes or other charges or assessments by any Governmental Authority to the extent that the payment thereof is not in arrears or otherwise due or is being contested in good faith; (b) encumbrances in the nature of zoning restrictions, building and land use Laws, ordinances, orders, decrees, restrictions or any other conditions imposed by or pursuant to any agreement with any Governmental Authority; provided, however, that the same do not materially detract from operation or use of such property; (c) easements granted or reserved by an instrument executed in connection with this Agreement or the transactions contemplated hereby or thereby, but excluding such encumbrances that secure indebtedness; (d) deposits or pledges made in connection with or to secure payment of workers’ compensation, unemployment insurance, pension programs mandated under applicable Laws or other social security regulations; (e) statutory or common law liens in favor of carriers, warehousemen, mechanics and materialmen, statutory or common law liens to secure claims for labor, materials or supplies and other like liens, which secure obligations to the extent that payment thereof is not in arrears or otherwise due; (f) any Lien or title imperfection with respect to the Assets created by or resulting from any act or omission of the Buyer; and (g) Liens arising under purchase money obligations to finance the purchase of, and limited to, equipment and other personal property.

“Person” means an individual, corporation, partnership, limited partnership, association, trust, limited liability company, joint venture or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

“Plant Material Adverse Effect” means any event, circumstance, claim, occurrence, change or effect related to any Facility which could reasonably be expected to cause a Loss by the Buyer within one year following the Initial Closing Date in excess of $2,000,000 individually, or in excess of $ 10,000,000 in the aggregate; provided, however, that Plant Material Adverse Effect shall not include any change (or changes taken together) generally affecting the international, national, regional or local wholesale or retail electric industry as a whole or nuclear generating facilities or their operations or operators as a whole which does not affect the Assets or the Parties in any manner or degree significantly different than the industry as a whole, including but not limited to (a) changes in markets for electric power or fuel used in connection with the Assets, (b) changes resulting from or associated with acts of war or terrorism or changes imposed by a Governmental Authority to address the events of September 11, 2001, or (c) changes (individually or taken together) in the North American, national, regional or local electric

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transmission systems or operations thereof; and provided, further, that any event, circumstance, claim, occurrence, change or effect that is cured prior to the Closing Date, at the Seller’s expense, or that is a result of general economic, regulatory or political conditions, shall not be considered a Plant Material Adverse Effect.

“Pledge Agreement” means the Pledge Agreement, dated September 27,2002 and amended as of November 28, 2002, between the Secretary of State for Trade and Industry and BEUSH.

“Pre-Closing ERISA Liability” shall mean any Liability or obligation of BEUSH, BEUILLC or British Energy LP as a result of such member of the Company Group being considered at any time prior to the Closing Date a single company with any other Person pursuant to ERISA Section 4001 or Section 414 of the Code.

“Prime Rate” means the prime lending rate as reported in The Wall Street Journal from time to time as the base rate on loans to creditworthy corporate borrowers.

“Prohibited Transactions” are defined in Section 5.16.

“Property Tax Agreement” means agreements with a taxing authority having jurisdiction and powers to impose real property Tax, personal property Tax or other Taxes on the Assets.

“Purchase Price” is defined in Section 2.1.

“Qualified Decommissioning Funds” means the external trust funds that meet the requirements of Code Section 468A and Treas. Reg. Section 1.468A-5 maintained by the Company pursuant to the Decommissioning Trust Agreements, as further defined in Section 3.16(a).

“Real Property Leases” is defined in Section 3.25(b).

“Release” means any actual, threatened or alleged spilling, leaking, pumping, pouring, emitting, dispersing, emptying, discharging, injecting, escaping, leaching, migrating, dumping, or disposing of any Hazardous Substance into the Environment that may cause an Environmental Liability (including the disposal or abandonment of barrels, containers, tanks or other receptacles containing or previously containing any Hazardous Substance). The term “Released” has a comparable meaning.

“Remediation” means any and all of the following activities to the extent required under applicable Environmental Law to address the presence or Release of Hazardous Substances: (a) monitoring, investigation, assessment, treatment, cleanup, containment, removal, mitigation, response or restoration work as well as obtaining any permits, consents, approvals or authorizations of any Governmental Authority necessary to conduct such activities; (b) preparing and implementing any plans or studies for any such activities; (c) obtaining a written notice from a Governmental Authority with competent jurisdiction under Environmental Laws that no material additional work in connection with such activities is required; and (d) any other related activities required under Environmental Laws.

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“Representative” means, with respect to any Person, any of such Person’s Affiliates and its or their agents (including, without limitation, accountants, counsel, directors, officers, employees, consultants, advisors or investment bankers).

“Required Expenditure” is defined in Section 5.3(a).

“Required Nuclear Expenditure” means a capital expenditure that is (a) required in order to satisfy an order from the NRC or other applicable legal requirement, (b) required in order to preclude, forestall or satisfy any form of NRC enforcement action (including, without limiting the generality of the foregoing, a so-called “confirmatory action letter”), or (c) necessary in order to cause a Facility to meet NRC regulations.

“Schedule” means a schedule to this Agreement.

“Seller” is defined in the Introduction.

“Seller Indemnified Party” and “Seller Indemnified Parties” are defined in Section 7.2.

“Seller Ownership Period” means, with respect to each Facility or Asset, the period of time beginning on the date on which the Company first acquired any direct or indirect ownership or leasehold interest in any Facility or Asset and ending on the Closing Date.

“Seller Ownership Period Environmental Liability” shall mean any Liability under applicable Environmental Law in effect on or prior to the Closing Date, to the extent relating to (i) the disposal, storage, transportation, discharge, release, recycling or arrangement for such activities of Hazardous Substances at or from a Facility, at any Offsite Hazardous Substance Facility, or at a location other than the Facility to the extent caused by the Company Group, or by or on behalf of any member of the Company Group, where the initial disposal, storage, transportation, discharge, release or recycling of such Hazardous Substances occurred during the Seller Ownership Period, (ii) the failure during the Seller Ownership Period of any operations of any member of the Company Group to be in compliance with any applicable Environmental Laws, and (iii) any other act or failure to act (where there is a duty to act under Law) occurring during the Seller Ownership Period with respect to any Assets of the Company or its Subsidiaries or a Facility which gives rise to any Environmental Liability. By way of example, but not in limitation, civil or criminal claims and/or penalties arising from the 2002 fish kill incident involving Oyster Creek constitutes a Seller Ownership Period Environmental Liability.

“Solvent” means, as to any Person, that such Person is able to pay its debts as they mature and owns property having a fair market value greater than the amount required to pay its debts.

“Spent Nuclear Fuel” means fuel and other radioactive materials associated with nuclear fuel assemblies that have been withdrawn from a nuclear reactor following irradiation, and have not been chemically separated into its constituent elements by reprocessing.

“Subsidiary” when used in reference to any Person means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.

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“Taking” is defined in Section 5.19.

“Tax Basis” means the adjusted tax basis determined for federal income tax purposes under Code Section 1011(a).

“Taxes” (and, with correlative meaning, “Tax”) means any taxes, duties, assessments, fees, levies, or similar governmental charges, together with any interest, penalties and additions to tax, imposed by any Taxing Authority, including without limitation all net income, gross income, gross receipts, net receipts, sales, use, transfer, franchise, privilege, profits, social security, disability, withholding, payroll, unemployment, employment, excise, severance, property, windfall profits, value added, ad valorem, occupation, license, business enterprise, stamp, premium, environmental (including Taxes under Section 59 of the Code), capital stock, recordation, registration, estimated or other Tax or similar governmental charge or imposition of any kind or nature.

“Taxing Authority” means any taxing authority, wherever located (i.e., whether federal, state, local, municipal or foreign).

“Tax Return” means any return, report, information return, declaration, claim for refund or other document (including any schedule or related or supporting information) required to be supplied to any taxing authority with respect to Taxes including amendments thereto.

“Technical Specifications” means, collectively, the Clinton Technical Specifications the TMI-1 Technical Specifications and the Oyster Creek Technical Specifications.

“TMI-1” means Three Mile Island Unit 1 Nuclear Generating Facility located near Middletown, Pennsylvania and identified in NRC Operating License No. DPR-50, Docket No. 50-289, and the facilities, equipment, supplies and improvements relating exclusively thereto.

“TMI-1 FSAR” means the report, as updated, that is required to be maintained for TMI-1 in accordance with the requirements of 10 C.F.R. Section 50.71(e).

“TMI-1 Technical Specifications” means the technical specifications included in the NRC license for TMI-1 in accordance with the requirements of 10 C.F.R. Section 50.36.

“Transition Executive Committee” is defined in Section 5.3(b).

“Working Capital” means the excess of current assets over current liabilities, determined in accordance with GAAP, consistently applied; provided, however, that for purposes of this computation, if any Tax Return is filed with respect to any member of the Company Group after June 30, 2003, and if such Tax Return reflects a higher initial Tax Basis for the assets of the Company than reported in prior Tax Returns as a result of a redetermination of the initial purchase price of such assets attributable to the nonqualified decommissioning liability, the excess, if any, of (a) the Taxes which would have been reported on such Tax Return had such Tax Return been filed without reflecting such higher Tax Basis, over (b) the Taxes reported on such Tax Return, shall be treated as a current liability, but only to the extent that such excess (whether in the form of a receivable, a Tax refund or a reduction in Tax liability) has otherwise been taken into account in determining Working Capital; provided further, that any distribution

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directly or indirectly from the Nonqualified Decommissioning Funds to any member of the Company Group in excess of (i) $25 million in the case of the Company, or (ii) the NQDF Tax Reimbursement Share in the case of any member of the Company Group other than the Company, shall be excluded from Working Capital.

SECTION 1.2 Accounting Terms. Any accounting terms used in this Agreement shall, unless otherwise specifically provided, have the meanings customarily given them in accordance with GAAP, and all financial computations hereunder or thereunder shall, unless otherwise specifically provided, be computed in accordance with GAAP consistently applied.

ARTICLE 2

Purchase and Sale

SECTION 2.1 Purchase and Sale of the BEUSH Shares from British Energy. Upon the terms and subject to the conditions of this Agreement, at the Closing, British Energy agrees to sell to Buyer, and Buyer agrees to purchase from British Energy, the BEUSH Shares. The aggregate purchase price for the BEUSH Shares will be $276,500,000 in cash (the “Purchase Price”), which shall be paid as provided in Section 2.5(f) and shall be subject to adjustment as provided in Section 2.2. The Purchase Price includes an allowance of (i) negative $26,800,000 for the Working Capital of the Company (the “Company Working Capital Target”), (ii) negative $6,375,167 for the Working Capital of BEUSH (the “BEUSH Working Capital Target”), (iii) $31,100,000 for the book value of Inventory (the “Inventory Target Amount”), and (iv) $206,500,000 for the net book value of Nuclear Fuel (the “Nuclear Fuel Amount”).

SECTION 2.2 Adjustment to Purchase Price. The “Adjusted Purchase Price” shall be the Purchase Price, less the amounts payable pursuant to Section 2.5(g), as increased or decreased, as follows:

(a) There shall be an adjustment for Working Capital equal to (i) fifty percent (50%) of the sum of the Company Working Capital as of the Closing Date minus the Company Working Capital Target, plus (ii) the sum of the BEUSH Working Capital minus the BEUSH Working Capital Target. The statement of the Company Working Capital as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with the calculation of the items reflected in the Company Working Capital Target set forth on Schedule 2.2. The statement of BEUSH Working Capital as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as BEUSH has historically used in connection with the calculation of the items reflected in the BEUSH Working Capital Target set forth on Schedule 2.2. Buyer and British Energy each agree to cooperate in connection with the preparation of the statement of the Company Working Capital and the statement of BEUSH Working Capital as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(b) There shall be an adjustment for Inventory equal to fifty percent (50%) of the sum of the book value of the Inventory (including reductions for missing, unusable or obsolete Inventory on a basis consistent with the Company’s past practices) as of the Closing

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Date minus the Inventory Target Amount. The statement of the book value of the Inventory as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with the calculation of the book value of Inventory (including reductions for missing, unusable or obsolete Inventory on a basis consistent with the Company’s past practices). Buyer and British Energy each agree to cooperate in connection with the preparation of the statement of the book value of Inventory as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(c) There shall be an adjustment for Nuclear Fuel equal to fifty percent (50%) of the sum of the net book value of the Nuclear Fuel as of the Closing Date minus the Nuclear Fuel Amount. The statement of the net book value of the Nuclear Fuel as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with the calculation of the net book value of Nuclear Fuel. Buyer and British Energy each agree to cooperate in connection with the preparation of the net book value of Nuclear Fuel as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(d) There shall be a downward adjustment for capital expenditures equal to (i) fifty percent (50%) of the excess, if any, of the budget for Capital Projects over the actual expenditures by the Company for such Capital Projects as of December 31, 2003, in the aggregate, plus (ii) fifty percent (50%) of the total projected costs to complete Major Capital Projects that the Company failed to complete on or prior to the Closing Date but were scheduled to be completed on or prior to such date, on a project by project basis, plus (iii) fifty percent (50%) of the Company’s total expected costs as of the Closing Date to complete any unfinished Major Capital Projects that were not scheduled to be completed on or prior to such date in excess, if any, of the budget for such Major Capital Projects, on a project by project basis. The statement of the actual expenditures by the Company for Capital Projects and Major Capital Projects and the Company’s projected costs to complete any unfinished Major Capital Projects shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the Company has historically used in connection with preparation of the budget set forth on Schedule 2.2(d). Buyer and British Energy each agree to cooperate in connection with the preparation of the actual expenditures by the Company for Major Capital Projects and the Company’s projected costs to complete any unfinished Major Capital Projects as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(e) In addition to the adjustments pursuant to Sections 2.2(a) through (d) hereof, to the extent that prior to the Closing Date the Company has not disposed of all of its Low Level Waste, whether located at a Facility or at any other location, and the cost of such disposal is in excess of Five Hundred Thousand Dollars ($500,000) (in 2003 dollars), the Purchase Price shall be decreased by an amount equal to fifty percent (50%) of the excess of such amount (the cost of such disposal to be determined based on the Company’s cost to dispose of such Low Level Waste under the terms of any existing contract pursuant to which such Low Level Waste may be disposed or, if no such contract exists, based on the prevailing industry costs as of a date as close to the Closing Date as practicable). The statement of the cost of disposal of Low Level Waste at each facility as of the Closing Date shall be prepared by British Energy within sixty (60) days of the Closing Date using the same GAAP, policies and methods as the

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Company has historically used in connection of such costs. Buyer and British Energy each agree to cooperate in connection with the preparation of the costs of disposal of Low Level Waste as of the Closing Date and related information, and each shall provide to the other such books, records and information as may be reasonably requested from time to time.

(f) British Energy shall prepare an adjustment statement which reflects the Purchase Price as increased or decreased by each of the adjustments set forth in Sections 2.2(a) through (e) herein (in aggregate, the “Adjustment Amount”, such statement being referred to herein as the “Adjustment Statement”). If the Adjustment Amount for the Company Group is positive, within ten (10) Business Days after Buyer’s receipt of the Adjustment Statement, Buyer shall pay to British Energy an amount equal to Adjustment Amount. If the Adjustment Amount for the Company Group is negative, within ten (10) Business Days after Buyer’s receipt of the Adjustment Statement, British Energy shall pay to Buyer an amount equal to the Adjustment Amount. If there is a dispute with respect to any amount on the Adjustment Statement, any undisputed amounts shall be paid within ten (10) Business Days after Buyer’s receipt of the Adjustment Statement. All payments made pursuant to this Section 2.2 shall be paid together with interest thereon for the period commencing on the Closing Date through the date of payment, calculated at an annual rate equal to the Prime Rate, in cash by wire transfer of immediately available funds.

(g) Buyer may dispute the Adjustment Amount; provided, however, that Buyer shall notify British Energy in writing of the disputed amount, and the basis of such dispute, within thirty (30) days of Buyer’s receipt of the Adjustment Statement. In the event of a dispute with respect to the Adjustment Amount, Buyer and British Energy shall attempt to reconcile their differences and any resolution by them as to any disputed amounts shall be final, binding and conclusive on Buyer and British Energy. If Buyer and British Energy are unable to reach a resolution of such differences within thirty (30) days of receipt of Buyer’s written notice of dispute to British Energy, Buyer and British Energy shall submit the amounts remaining in dispute for determination and resolution to the Independent Accounting Firm, which shall be instructed to determine and report to Buyer and British Energy, within thirty (30) days after such submission, upon such remaining disputed amounts, and such report shall be final, binding and conclusive on Buyer and British Energy with respect to the amounts disputed. The fees and disbursements of the Independent Accounting Firm shall be allocated between Buyer and British Energy so that Buyer’s share of such fees and disbursements shall be in the same proportion that the aggregate amount of such remaining disputed amounts so submitted by Buyer to the Independent Accounting Firm that is unsuccessfully disputed by Buyer (as finally determined by the Independent Accounting Firm) bears to the total amount of such remaining disputed amounts so submitted by Buyer to the Independent Accounting Firm. Payment of the disputed amount shall be made by the appropriate Party within five (5) days of the final report of the Independent Accounting Firm together with interest thereon for the period commencing on the Closing Date through the date of payment, calculated at an annual rate equal to the Prime Rate, in cash by wire transfer of immediately available funds.

SECTION 2.3 Closing. The closing (the “Closing”) of the purchase and sale of the BEUSH Shares hereunder shall take place at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, at 10:00 a.m. (Eastern time), or another mutually acceptable time and location, on the date that is ten (10) Business Days following the date on which the last of the conditions precedent to Closing set forth in Article 6 of this Agreement has

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been either satisfied or waived by the Party for whose benefit such conditions precedent exist; provided, however, that if such date falls during the continuance of a scheduled outage at any of the Facilities, then the Closing shall occur on the earlier of (a) the second Business Day after the conclusion of such scheduled outage, and (b) the date that is thirty (30) days after satisfaction or waiver of the conditions precedent set forth in Sections 6.2(d) and 6.3(d) hereof Subject to the foregoing, the parties shall use their Commercially Reasonable Efforts to cause the Closing to occur, to the extent practicable and within the respective time periods set forth in the immediately preceding sentence, on the first Business Day of a calendar month and, in the event the Closing does not occur on the first Business Day of a calendar month, shall cooperate in good faith to determine and allocate any applicable costs and expenses of the Company among Seller and Buyer on a prorated basis for the month in which the Closing occurs. The Closing shall be effective for all purposes as of 12:01 a.m. (Eastern time) on the Closing Date.

SECTION 2.4 Deliveries by British Energy at Closing. British Energy shall deliver or cause to be delivered the following at Closing:

(a) certificates confirming (i) British Energy’s due and valid incorporation from the Registrar of companies in Scotland, and (ii) the good standing of the members of the Company Group from the Secretary of the State of the jurisdiction in which they are incorporated or organized, each dated within three (3) Business days of the Closing Date;

(b) the certificates for the BEUSH Shares free and clear of all Liens, duly endorsed or accompanied by stock powers duly endorsed in blank, with any required transfer stamps affixed thereto;

(c) the certificates representing BEUSH’ s partnership and membership interests in British Energy, LP and BEUILLC, free and clear of all Liens;

(d) the certificate representing British Energy, LP’ s membership interest in the Company, free and clear of all Liens;

(e) resignations or terminations of the executive officers, directors and managers of each member of the Company Group appointed or designated by Seller or its Affiliates to such positions, effective as of the Closing Date;

(f) the officer’s certificates required of British Energy by Sections 6.2(a) and 6.2(b);

(g) each of the legal opinions and documents required by Section 6.2(f);

(h) evidence of the receipt of British Energy Regulatory Approvals;

(i) the consents and approvals listed on Items 1 and 2 of Schedule 3.2;

(j) proof of repayment in full of the loans identified on Schedule 5.11;

(k) a duly executed FIRPTA Affidavit;

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(l) a guaranty, in the form of Exhibit D hereto, executed by British Energy plc in favor of Buyer, guaranteeing the obligations of British Energy under this Agreement (or a substitute guaranty or other credit support that guarantees the obligations of British Energy under this Agreement in form and substance reasonably acceptable to Buyer, has been executed); and

(m) such other agreements, consents, documents, instruments and writings as are reasonably required to be delivered by British Energy at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith, including all such other instruments as Buyer or its counsel may reasonably request in connection with the purchase of the BEUSH Shares contemplated hereby.

SECTION 2.5 Deliveries by Buyer at Closing. Buyer shall deliver or cause to be delivered the following at Closing:

(a) a certificate confirming the good standing of Buyer from Secretary of State of the Commonwealth of Pennsylvania, dated within three (3) Business days of the Closing Date;

(b) the officer’s certificates required of Buyer by Sections 6.3(a) and 6.3(b);

(c) [Intentionally Omitted];

(d) evidence of the receipt of the Buyer Regulatory Approvals;

(e) the third party consents listed on Schedule 4.4;

(f) the Purchase Price (less any amounts loaned to British Energy LP pursuant to Section 2.5(g) hereof) in immediately available funds by wire transfer to an account of British Energy designated by British Energy by notice to Buyer not later than three (3) Business Days prior to the Closing Date;

(g) evidence of a loan by Buyer (or on Buyer’s behalf) to British Energy LP of an amount in immediately available funds sufficient to pay in full to British Energy or its affiliates the net amount of all Intercompany Loans (including any unpaid, accrued interest and other fees as of the Closing Date) to BEUSH and its Subsidiaries in accordance with Section 5.11; and

(h) such other agreements, consents, documents, instruments and writings as are reasonably required to be delivered by Buyer at or prior to the Closing Date pursuant to this Agreement or otherwise reasonably required in connection herewith, including all such other instruments as British Energy or its counsel may reasonably request in connection with the purchase of the BEUSH Shares contemplated hereby.

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ARTICLE 3

Representations and Warranties of Seller

Seller hereby makes the following representations and warranties to Buyer as of the date hereof:

SECTION 3.1 Corporate Existence and Power of Seller and the Members of the Company Group. Each of the Seller and the members of the Company Group is a limited liability company, corporation or limited partnership, as appropriate, duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized. True and correct copies of the organizational documents of Seller and the members of the Company Group, each as amended to date, have been delivered or made available to Buyer Each of the Seller and the members of the Company Group (i) has all requisite powers and authority required to carry on its business as now conducted, and (ii) is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of its business make such qualification necessary, except where the failure to be so qualified, licensed and in good standing would not have a Material Adverse Effect on the Company.

SECTION 3.2 Authorization, Execution and Enforceability of Transactions. British Energy has the full power and authority to execute and deliver this Agreement and, subject to receipt of the British Energy Regulatory Approvals or as disclosed on Schedule 3.2, to perform its obligations hereunder. Except as disclosed on Schedule 3.2, all necessary actions or proceedings to be taken by or on the part of British Energy to authorize and permit the due execution and valid delivery by British Energy of this Agreement, the performance by British Energy of its obligations hereunder, and the consummation by British Energy of the transactions contemplated herein, have been duly and properly taken (and true and valid evidence thereof has been provided to Buyer). This Agreement has been duly executed and validly delivered by British Energy, and, assuming due execution and delivery by Buyer and receipt of the British Energy Regulatory Approvals, or as disclosed on Schedule 3.2, constitutes the valid and legally binding obligation of British Energy, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, moratorium and other Laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether such enforceability is sought in equity or at law).

SECTION 3.3 Non-contravention. Subject to British Energy obtaining the British Energy Regulatory Approvals, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby and thereby, will (i) violate any Law to which British Energy or any of its property is subject or any provision of the charter or by-laws of British Energy, or (ii) conflict with, result in a breach of, constitute a forfeiture of, constitute a default under, result in the acceleration of, create in any Person the right to accelerate, terminate, modify, revoke, suspend or cancel, or require any notice under any agreement, contract, lease, Permit, license, instrument or other arrangement to which British Energy is bound or to which any of its assets is subject (or result in the imposition of any Lien Upon any of the Assets), except for matters that, (x) in the aggregate, would not be likely to have a Material Adverse Effect on British Energy or its ability to perform its obligations under this Agreement and the Related Agreements or for which a consent or waiver shall have been obtained, (y) are disclosed on Schedule 3.3, or (z) arise in relation to any non-assigned rights under Permits, Material Contracts, or other agreements.

SECTION 3.4 Consents and Approvals. Except as disclosed on Schedule 3.4, and except for British Energy Regulatory Approvals, no declaration, filing or registration with, or

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notice to, or authorization, consent or approval of any Governmental Authority is necessary for the execution and delivery of this Agreement by British Energy, or the consummation of the transactions contemplated hereby.

SECTION 3.5 Financial Statements. Set forth on Schedule 3.5 are (i) the audited consolidated balance sheets of the Company and the unaudited consolidated balance sheets of BEUSH in each case as of December 31, 2002 and the related audited (in the case of the Company) and unaudited (in the case of BEUSH) consolidated statements of income and cash flows for the year ended December 31, 2002, and (ii) the unaudited interim consolidated balance sheet of each such member of the Company Group for the three months ended March 31, 2003 and the related unaudited interim consolidated statements of income and cash flows for the three months ended March 31, 2003 (collectively, the “Financial Statements”). The Financial Statements fairly present, in conformity with GAAP, applied on a consistent basis (except as may be indicated in the notes thereto), the consolidated financial position of such member of the Company Group as of the dates thereof and its consolidated results of operations and cash flows for the periods then ended (subject in the case of any unaudited interim financial statements to routine and recurring year-end adjustments which have not been and are not expected to be material in amount).

SECTION 3.6 No Other Liabilities. None of the Company, BEUSH, BEUILLC or British Energy, LP has any liabilities other than (i) liabilities reflected on its balance sheets as disclosed on Schedule 3.5, (ii) liabilities which have arisen since March 31, 2003 in the ordinary course of business, (iii) liabilities described on Schedule 3.6, and (iv) liabilities that would not, individually or in the aggregate, have a Material Adverse Effect.

SECTION 3.7 Ownership of BEUSH Shares. British Energy is and will be at the Closing the record and beneficial owner of the BEUSH Shares, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such Shares) (other than those created by this Agreement, the LLC Agreement and restrictions on sales of stock under applicable securities laws and, prior to the Closing, other than any Lien or other limitation or restriction under the Credit Facility Agreement or the Pledge Agreement), and will transfer and deliver to Buyer at the Closing valid, good and marketable title to such BEUSH Shares free and clear of any such Lien and free and clear of any such limitation or restriction.

SECTION 3.8 Capitalization of BEUSH. The BEUSH Shares constitute all of the outstanding equity interests in BEUSH. The BEUSH Shares have been duly authorized and are validly issued, fully paid and nonassessable and were not issued in violation of the preemptive rights of any Person. Except as shown on Schedule 3.8, BEUSH has no outstanding convertible security, call, preemptive right, option, warrant, purchase right or other contract or commitment that would, directly or indirectly, require BEUSH to sell, issue or otherwise dispose of any equity interest in BEUSH.

SECTION 3.9 Ownership of Interests in the Company. BEUSH is and will be at the Closing the beneficial indirect owner of fifty percent (50%) of the ownership interests in the Company, free and clear of any Lien and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such ownership interests) (other than

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those created by this Agreement, the LLC Agreement and restrictions on sales of stock under applicable securities laws and, prior to the Closing, other than any Lien or other limitation or restriction under the Credit Facility Agreement or the Pledge Agreement).

SECTION 3.10 BEUSH Operations. Except as disclosed on Schedule 3.10, (a) the business of BEUSH is and, since its formation, has been restricted solely to directly holding ninety-nine percent (99%) of the ownership interests in British Energy, LP and one hundred percent (100%) of the ownership interests in BEUILLC, and indirectly holding fifty percent (50%) of the ownership interests in the Company, and doing things necessary or incidental in connection with those activities; (b) BEUSH does not and, since its formation, has not, owned any assets, incurred any liabilities or engaged participated or invested in any business other than as described in clause (a) of this Section 3.10; (c) BEUSH does not and, since its formation, has not, had any employees, except to the extent it might be deemed to have, or have had, employees as a result of the employment by the Company of seconded employees from Affiliates of British Energy LP; (d) BEUSH does not have and, since its organization, has not had any outstanding debt obligations (other than the Intercompany Loans); (e) BEUSH is not a party to any contracts or agreements (other than the limited partnership agreement of British Energy LP); (f) BEUSH has no assets other than its ownership interests in British Energy LP and British Energy US Investments LLC; and (g) BEUSH has not incurred any other liabilities that remain outstanding.

SECTION 3.11 British Energy LP Operations. Except as disclosed on Schedule 3.11, (a) the business of British Energy LP is and, since its formation, has been restricted solely to directly holding fifty percent (50%) of the ownership interests in the Company and doing things necessary or incidental in connection with that activity; (b) British Energy LP does not and, since its formation, has not, owned any assets, incurred any liabilities or engaged, participated or invested in any business other than as described in clause (a) of this Section 3.11; (c) British Energy LP does not and, since its formation, has not, had any employees, except to the extent it might be deemed to have, or have had; employees as a result of the employment by the Company of seconded employees from Affiliates of British Energy LP; (d) British Energy LP does not have and, since its organization, has not had any outstanding debt obligations (other than the Intercompany Loans); (e) other than the LLC Agreement, British Energy LP is not a party to any contracts or agreements; (f) British Energy LP has no assets other than its ownership interests in the Company; and (g) British Energy LP has not incurred any other liabilities that remain outstanding.

SECTION 3.12 British Energy US Investments LLC Operations. Except as disclosed on Schedule 3.12, (a) the business of BEUILLC is, and since its formation, has been, restricted solely to directly holding one percent (100%) of the ownership interests in British Energy LP and doing things necessary or incidental in connection with that activity, (b) BEUILLC does not and, since its formation, has not, owned any assets, incurred any liabilities or engaged, participated or invested in any business other than as described in clause (a) of this Section 3.12; (c) BEUILLC does not and, since its formation, has not, had any employees, except to the extent it might be deemed to have, or have had, employees as a result of the employment by the Company of seconded employees from Affiliates of British Energy LP; (d) BEUILLC does not have and, since its organization, has not had any outstanding debt obligations (other than the Intercompany Loans); (e) BEUILLC is not a party to any contracts or agreements (other than the

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limited partnership agreement of British Energy LP); (f) BEUILLC has no assets other than its ownership interests in British Energy LP; and (g) BEUILLC has not incurred any other liabilities that remain outstanding.

SECTION 3.13 Absence of Certain Changes. Since December 31,2002, except as disclosed on Schedule 3.13, as of the date hereof, there has not occurred (i) any Material Adverse Effect with respect to the Company Group, or (ii) any Plant Material Adverse Effect.

SECTION 3.14 Litigation. Except as set forth on Schedule 3.14, (i) there are no claims or Actions, pending, or to Seller’s Knowledge threatened, which, individually or in the aggregate, would be likely to have a Plant Material Adverse Effect or a Material Adverse Effect on the Company, that challenge the validity of this Agreement or of any action taken or to be taken pursuant to or in connection with the provisions of this Agreement, or which, individually or in the aggregate, would be likely to have a Material Adverse Effect as to any member of the Company Group; (ii) no member of the Company Group is subject to any outstanding judgment, rule, order, citation, fine, penalty, writ, injunction or decree of any court, arbitrator or Governmental Authority which, individually or in the aggregate, would be likely to have a Material Adverse Effect; and (iii) no member of the Company Group has received any written notification that it is in violation of any Laws or Permits with respect to the Assets, except for notifications of violations which would not, individually or in the aggregate, be likely to have a Material Adverse Effect.

SECTION 3.15 Material Contracts. Set forth in Part I of Schedule 3.15 is a list of all agreements and contracts to which any member of the Company Group is a party or by which any member of the Company Group is bound (except for Collective Bargaining Agreements and Employee Benefit Plans disclosed in other schedules to this Agreement) (i) involving an aggregate consideration, per contract, in excess of $150,000, or (ii) constituting a swap, exchange, commodity option or hedging agreement (the contracts referred to in the foregoing clauses (i) and (ii), the “Material Contracts”).

Except as set forth in Part II of Schedule 3.15, no member of the Company Group is, in any material respect, in breach of or in default under, and no event has occurred and is continuing that would constitute a material default by a member of the Company Group under, any provision of any Material Contract, and no member of the Company Group has received written notice from any other party to any Material Contract that a member of the Company Group is in breach of such Material Contract, which breach has not been remedied, and, to Seller’s Knowledge, no such other party is, in any material respect, in breach of or default under any provision of any such Material Contract. Except as set forth on Part II of Schedule 3.15, each Material Contract is in full force and effect and (except for those contracts which, pursuant to their terms, are to be and will be fully performed prior to the Closing Date) will remain in full force and effect upon consummation of the transactions contemplated hereby and is a valid agreement, arrangement or commitment of the member of the Company Group which is a party thereto, enforceable against such member of the Company Group in accordance with its terms and, to the knowledge of Seller, is a valid agreement, arrangement or commitment of each other party thereto, enforceable against such party in accordance with its terms, except in each case where enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors’ rights generally and except where enforceability is subject to the application of equitable principles or remedies. True, correct and complete copies of the Material Contracts have been made available to Buyer.

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SECTION 3.16 Qualified Decommissioning Funds.

(a) Except as disclosed on Schedule 3.16, the Company is the sole owner of the AmerGen Clinton-1 Qualified Fund, AmerGen Three Mile Island-1 Qualified Fund and AmerGen Oyster Creek Qualified Fund (collectively, the Qualified Decommissioning Funds), each of which is, and since its inception has been, treated as a nuclear decommissioning reserve fund in accordance with Code Section 468A and is therefore treated as a corporation in accordance with Code Section 468A(e)(2)(D). Each of the Company’s Qualified Decommissioning Funds is a trust, validly existing and in good standing under the laws of the jurisdiction of its formation with all requisite authority to conduct its affairs as it now does. Seller has heretofore made available to Buyer a copy of the Decommissioning Trust Agreement provided by the Company as in effect on the date of this Agreement. Seller agrees to furnish Buyer with copies of all amendments to the Decommissioning Trust Agreement adopted after the date of this Agreement promptly after each such amendment has been adopted and provided by the Company to Seller. Each of the Company’s Qualified Decommissioning Funds satisfies the requirements necessary for such fund to be treated as a “Nuclear Decommissioning Reserve Fund” within the meaning of Code section 468A(a) and as a “nuclear decommissioning fund” and a “qualified nuclear decommissioning fund” within the meaning of Treas. Reg. Section 1.468 A-1 (b)(3). Each such fund is in compliance in all material respects with all applicable rules and regulations of any Governmental Authority having jurisdiction (including, without limitation, the NRC, the PaPUC, the NJBPU, the FERC and the ICC). Except as set forth in Schedule 3.16, none of the Company’s Qualified Decommissioning Funds has engaged in any acts of “self-dealing” as defined in Treas. Reg. Section 1,468A-5(b)(2). No “excess contribution,” as defined in Treas. Reg. Section 1.468A-5(c)(2)(ii), has been made to the Company’s Qualified Decommissioning Funds which has not been withdrawn within the period provided under Treas. Reg. Section 1.468A-5(c)(2)(i) for withdrawals of excess contributions to be made without resulting in a disqualification of the funds under Treas. Reg. Section 1.468A-5(c)(1).

(b) The Company and/or the trustee of each of the Qualified Decommissioning Funds have filed or caused to be filed with the NRC, the IRS and any state or local Governmental Authority all material forms, statements, reports, documents (including all exhibits, amendments and supplements thereto) required to be filed by any of them. As of the Closing, the Company has not requested a revised schedule of ruling amounts and has not contributed any amounts to the Qualified Decommissioning Funds during the period that the Company has held such Qualified Decommissioning Funds.

(c) Seller has made available to Buyer the trustee statements provided by the Company for each of the Qualified Decommissioning Funds as of December 31, 2002, and they present fairly as of such date the financial position of each of the Qualified Decommissioning Funds. Seller has made or will make available, or has caused or will cause to be made available, to Buyer information from which Buyer can determine the Tax Basis of all assets in the Qualified Decommissioning Funds as of December 31, 2002. There are no Liabilities, including any acts of “self-dealing” as defined in Treas. Reg. Section 1.468A-5(b)(2) or agency or other legal proceedings that may materially affect the financial position of each of the Qualified Decommissioning Funds other than those, if any, that are disclosed on Schedule 3.16.

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(d) Seller has made available to Buyer all contracts and agreements provided by the Company to which the trustee of each of the Qualified Decommissioning Funds, in its capacity as such, is a party.

(e) Each of the Qualified Decommissioning Funds has filed all material Tax Returns required to be filed and all material Taxes, whether or not shown to be due on such Tax Returns, have been paid in full. Except as disclosed on Schedule 3.16, no notice of deficiency or assessment has been received from any Taxing Authority with respect to Liability for Taxes of each of the Qualified Decommissioning Funds which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 3.16 is being contested in good faith through appropriate proceedings. Except as disclosed on Schedule 3.16, to Seller’s Knowledge there are no outstanding agreements or waivers extending the applicable statutory periods of limitations for Taxes associated with each of the Qualified Decommissioning Funds for any period.

SECTION 3.17 Nonqualified Decommissioning Funds.

(a) Except as disclosed on Schedule 3.17, the Company is the sole owner of AmerGen Clinton Non-Qualified Fund, AmerGen Three Mile Island-l Non-Qualified Fund and AmerGen Oyster Creek Non-Qualified Fund (collectively, the Nonqualified Decommissioning Funds), each of which is, and since its inception has been, treated as a grantor trust for federal income tax purposes in accordance with Code Section 671. Each of the Company’s Nonqualified Decommissioning Funds is a trust validly existing and in good standing under the laws of the jurisdiction of its formation with all requisite authority to conduct its affairs as it now does. Each of the Company’s Nonqualified Decommissioning Funds is in full compliance with all applicable rules and regulations of any Governmental Authority having jurisdiction (including, without limitation the NRC the PaPUC, the NJBPU, the FERC and the ICC).

(b) The Company and/or the trustee of the Nonqualified Decommissioning Funds have filed or caused to be filed with the NRC and any state or local Governmental Authority all material forms, statements, reports, and documents (including all exhibits, amendments and supplements thereto) required to be filed by either of them.

(c) Seller has made available to Buyer the trustee statements provided by the Company for each of the Nonqualified Decommissioning Funds as of December 31, 2002 and they present fairly as of such date the financial position of the Nonqualified Decommissioning Funds. Seller has made or caused to be made available to Buyer, and will make or cause to be made available to Buyer, information from which Buyer can determine the Tax Basis of all assets of the Nonqualified Decommissioning Funds (other than cash) as of December 31, 2002. There are no liabilities (whether absolute, accrued, contingent or otherwise and whether due or to become due) including agency or other legal proceedings, that may materially affect the financial position of the Nonqualified Decommissioning Funds other than those, if any, that are disclosed on Schedule 3.17.

(d) Seller has made available to Buyer all contracts and agreements provided by the Company to which the trustee of each of the Nonqualified Decommissioning Funds, in its capacity as such, is a party.

(e) Each of the Nonqualified Decommissioning Funds has filed all material Tax Returns required to be filed and all material Taxes, whether or not shown to be due on such

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Tax Returns, have been paid in full. Except as disclosed on Schedule 3.17, no notice of deficiency or assessment has been received from any Taxing Authority with respect to Liability for Taxes of any of the Nonqualified Decommissioning Funds which have not been fully paid or finally settled, and any such deficiency shown in such Schedule 3.17 is being contested in good faith through appropriate proceedings. Except as disclosed on Schedule 3.17, to Seller’s Knowledge there are no outstanding agreements or waivers extending the applicable statutory periods of limitations for Taxes associated with any of the Nonqualified Decommissioning Funds for any period.

SECTION 3.18 Insurance. Seller has made available to Buyer a list provided by the Company of all material insurance policies maintained by the Company and its affiliates covering the Assets, business, equipment, properties, operations, employees, officers and directors of the Company. There is no claim, suit or other matter pending under any of such policies as to which coverage has been denied or disputed by the underwriters of such policies. All premiums due and payable under all such policies have been paid and the Company has otherwise complied fully with the terms and conditions of all such policies. Except as disclosed on Schedule 3.18, there is no threatened termination or cancellation of any such policies as a result of the transactions contemplated hereby or otherwise, and as of the date of this Agreement, neither British Energy nor the Company has received any written notice of termination or cancellation as to any such policies. The Company is approved for self-insurance of the workers compensation in Pennsylvania and Illinois. Schedule 3.18 includes the list of surety bonds required for self-insurance of workers compensation, environmental issues and the letters of credit required to support the Owner Controlled Insurance Program (“OCIP”).

SECTION 3.19 Compliance with Laws. Except as set forth on Schedule 3.19, no uncured material violation of any applicable Law by any member of the Company Group exists, nor has there been any material violation of any applicable Law by any member of the Company Group during the Seller Ownership Period. Except as shown on Schedule 3.19, no member of the Company Group other than the Company has (and to Seller’s Knowledge the Company has not) received written notice from any Governmental Authority of any material violation of applicable Law with respect to the Company Group, the Business or the Assets. Except as set forth on Schedule 3.19, no written notice has been received by any member of the Company Group (other than the Company) or, to Seller’s Knowledge, by the Company, during the Seller Ownership Period to the effect that any member of the Company Group or the Assets are not in compliance in any material respect with any applicable Laws. Except as set forth on Schedule 3.19, during the Seller Ownership Period, no internal investigation has been conducted by Seller or by any member of the Company Group in connection with which any of them has retained or sought advice from outside legal counsel with respect to any actual, potential or alleged material violation of any applicable Law by any member of the Company Group or any of their employees, officers, directors or agents. Seller is not making any representations or warranties in this Section 3.19 with respect to any Environmental Law or any applicable Law relating to Taxes, and such matters are addressed in Sections 3.20 and 3.23.

SECTION 3.20 Environmental Matters. Except as set forth on Schedule 3.20:

(a) the Company Group and the Assets comply in all material respects with all applicable Environmental Laws, and neither Seller nor any member of the Company Group has

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received during the Seller Ownership Period, any written notice from any Governmental Authority alleging that any member of the Company Group or any Asset is in material violation of any Environmental Law;

(b) no Lien has been imposed on any Asset by any Governmental Authority in connection with any material violation of or material noncompliance with Environmental Laws and to Seller’s Knowledge there are no facts, circumstances or conditions that are reasonably likely or expected to restrict, encumber or result in the imposition of special conditions under any Environmental Law (other than ISRA and any successor statutes or regulations) with respect to the ownership, occupancy, development, use or transferability of the Assets, except those facts, circumstances or conditions relating to the status of the Facilities as nuclear facilities;

(c) all material Permits required under applicable Environmental Laws for the ownership and operation of the Assets as they are currently operated have been obtained, each such Permit is in full force and effect, the Company is in material compliance with all of its obligations thereunder, there are no proceedings pending or threatened that would reasonably be expected to result in the revocation, termination, modification or amendment of any such Permit, and the Company has not failed to make in a timely fashion any application or other filing required for the renewal of any such Permit which failure would reasonably be expected to result in such Permit terminating or being revoked, terminated, suspended or adversely modified;

(d) (i) neither any member of the Company Group nor any Asset is subject to any outstanding consent decree, compliance order or administrative order pursuant to an Environmental Law, and (ii) the Company Group has not received, during the Seller Ownership Period, any written notice of intent to sue under the citizen suit provision of any Environmental Law, or of any written notice, complaint or claim seeking to impose an Environmental Liability against the Company;

(e) there has been and is no Release of a Hazardous Substance initially occurring during the Seller Ownership Period, at, from, on, under or to any Asset that would reasonably be expected to result in any material Environmental Liabilities to any member of the Company Group;

(f) there are no environmental investigation reports with respect to any violation of any applicable Environmental Law by the Company Group or any Asset, or any Environmental Liability of the Company Group, in the custody or possession of the Seller or the Company Group, that have not been made available to Buyer and to Seller’s Knowledge, there exists no state of facts which would reasonably be expected to result in any material Environmental Liability with respect to any member of the Company Group or any Asset;

(g) during the Seller Ownership Period, neither Seller nor any member of the Company Group have performed, or arranged for, the transportation, storage, handling, disposal or treatment of any Hazardous Substance from any Asset to or at any off-site location that is an Environmental Clean-Up Site;

(h) the Assets are not Environmental Clean-Up Sites; and

(i) to Seller’s Knowledge, there are no underground storage tanks, active or abandoned, or polychlorinated biphenyl-containing equipment located at any of the Assets.

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Except for the applicability of Sections 3.18 or 3.38 to this Section 3.20, this Section 3.20 contains the only representations and warranties of Seller regarding Environmental Laws or the presence, Remediation or Release of Hazardous Substances in this Agreement, and no other provision in this Agreement shall be construed to contain any such representation or warranty.

SECTION 3.21 Employees. Schedule 3.21 contains a list of all collective bargaining agreements that relate to the employees of the Company or the Assets (the “Collective Bargaining Agreements”), true and correct copies of which have heretofore been made available to Buyer. Except as described in Schedule 3.21, during the Seller Ownership Period: (a) there has been no work stoppage due to labor disagreements experienced by any member of the Company Group; (b) no written notice has been received from any Governmental Authority of any unfair labor practice charge or complaint against any member of the Company Group pending or threatened before the National Labor Relations Board or any other Governmental Authority with respect to the Company’s employees; (c) no arbitration proceeding arising out of or under any Collective Bargaining Agreement with respect to the Facilities and/or the Assets other than proceedings arising in connection with individual employee grievance procedures is pending against any member of the Company Group, and (d) there is no labor strike, slowdown or stoppage actually pending or threatened by any authorized representative of any union or other representative of employees of the Company Group related to the Facilities and/or the Assets against or affecting any member of the Company Group, except in any such case set forth in clauses (a) through (d) above as would not, individually or in the aggregate, have a Material Adverse Effect on such member of the Company Group.

SECTION 3.22 Employees Benefit Plans.

(a) Schedule 3.22 contains a true and complete list of any Employee Benefit Plans maintained or contributed to or required to be contributed to by the Company for the benefit of any employee or former employee of the Company or any of its ERISA Affiliates (the “Plans”). No member of the Company Group (other than the Company) maintains or contributes to or is required to contribute to any Employee Benefit Plan for the benefit of any employee or former employee of the Company Group or any of their ERISA Affiliates. Schedule 3.22 identifies each of the Plans that is an Employee Welfare Benefit Plan, or Employee Pension Benefit Plan (such plans being hereinafter referred to collectively as the “ERISA Plans”).

(b) With respect to each of the Plans, Seller has heretofore delivered or made available to the Buyer true and complete copies of each of the following documents: (i) a copy of the Plan documents (including all amendments thereto) for each written Plan; (ii) a copy of the annual report or Internal Revenue Service Form 5500 Series, if required under ERISA, with respect to each such Plan for the last Plan year ending prior to the date of this Agreement for which such a report was filed; (iii) a copy of the actuarial report, if required under ERISA, with respect to each such Plan for the last Plan year ending prior to the date of this Agreement; (iv) a copy of the most recent Summary Plan Description (“SPD”), together with all summaries of material modification issued subsequent to the date of such SPD, required under ERISA with respect to such Plan; and (v) the most recent determination letter received from the IRS with respect to each Plan that is intended to be qualified under Section 401(a) of the Code.

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(c) The PBGC has not instituted proceedings pursuant to Section 4042 of ERISA to terminate any of the ERISA Plans subject to Title IV of ERISA and no condition exists that presents a material risk that such proceedings will be instituted by the PBGC.

(d) None of the ERISA Plans or any trust established thereunder has incurred any “accumulated funding deficiency” (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of each of the ERISA Plans ended prior to the date of this Agreement and no Lien has been imposed under Section 412(n) of the Code or Section 302(f) of ERISA on the assets of the Company or any of its ERISA Affiliates.

(e) Neither the Company Group nor any of their respective ERISA Affiliates maintains or has an obligation to contribute to a Multiemployer Plan.

(f) Except as set forth in Schedule 3.22, (i) each of the ERISA Plans that is intended to be “qualified” within the meaning of Section 401(a) of the Code has received a determination letter from the IRS stating that it is so qualified and (ii) any trust established under an ERISA Plan that is intended to satisfy the requirements of Section 501(c)(9) of the Code has received a determination letter from the IRS stating that it has so satisfied such requirements.

(g) Except as set forth in Schedule 3.22, neither the Company Group nor any of their respective ERISA Affiliates has announced any formal plan or commitment to create any additional Plan or make any material modifications or changes to any existing Plan.

(h) No material liability under Title IV of ERISA or Section 412 of the Code has been incurred by the Company Group or any of their respective ERISA Affiliates that has not been satisfied in full, and no condition exists that presents a material risk to the Company Group or any of their respective ERISA Affiliates of incurring a material liability under such Title, other than liability for contributions to any such ERISA Plans or premiums due the Pension Benefit Guaranty Corporation (“PBGC”), which payments have been made when due with respect to any ERISA Plan.

(i) Neither the Company Group, any of their respective ERISA Affiliates, any of the ERISA Plans, any trust created thereunder nor any trustee, or administrator thereof has engaged in a transaction or has taken or failed to take any action in connection with which the Company Group or any of their respective ERISA Affiliates would reasonably be expected to be subject to any material liability for either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975(a) or (b), 4976 or 4980B of the Code.

(j) Except as set forth in Schedule 3.22, each of the Plans has been operated and administered in all material respects in accordance with applicable Laws, including but not limited to ERISA and the Code.

(k) Except as set forth in Schedule 3.22, the consummation of the transactions contemplated by this Agreement will not (A) entitle any current or former employee or officer of the Company Group to severance pay, unemployment compensation or any other similar termination payment or (B) accelerate the time of payment or vesting, or increase the amount of compensation due any such employee or officer.

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(l) There are no pending or, to Seller’s Knowledge, threatened claims by or on behalf of any Plan, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan (other than routine claims for benefits) that could reasonably be expected to result in material liability.

SECTION 3.23 Taxes. Except as set forth in Schedule 3.23:

(i) all material Tax Returns required to be filed by or with respect to each member of the Company Group have been or will be timely filed with the appropriate Taxing Authorities in all jurisdictions in which such Tax Returns are required to be filed;

(ii) such Tax Returns are or will be true and correct in all material respects, and all Taxes, whether or not reported on such Tax Returns, have been or will be timely paid;

(iii) to Seller’s knowledge, no member of the Company Group has, and Seller has not with respect to the Company Group, extended or waived the application of any statute of limitations of any jurisdiction regarding the assessment or collection of any Tax;

(iv) to Seller’s knowledge, there is no audit or other proceeding presently pending or threatened with regard to any Tax of the Company Group and neither British Energy nor any member of the Company Group has received a written ruling from a Taxing Authority relating to any Tax or entered into a written agreement with any Taxing Authority;

(v) there are no Liens for Taxes upon the assets of any member of the Company Group, except for Liens for Taxes not yet due or being contested in good faith;

(vi) none of the assets of any member of the Company Group, directly or indirectly, secures any debt the interest on which is tax exempt under Section 103(a) of the Code;

(vii) the Company is, and has been since its inception, classified as a partnership for federal Tax purposes under Treas. Reg. Sections 30 1.7701-2 and -3 any comparable provision of applicable Law of state and local jurisdictions that permits such treatment;

(viii) true and correct copies of all material Tax Returns filed by or with respect to each member of the Company Group for all periods ending on and after December 31,1999 have been provided to the Buyer;

(ix) British Energy LP is and has been since its inception treated as a corporation for federal Tax purposes under Treas. Reg. Section 301.7701-3;

(x) BEUILLC is and has been since its inception treated as a disregarded entity for federal tax purposes under Treas. Reg. Section 301.7701-3;

(xi) BEUSH has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code at any time during the shorter of the period during which Seller held the stock of BEUSH (or any predecessor thereof) and five (5) years preceding the Closing Date; and

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(xii) each member of the Company Group has complied in all material respects with all applicable Laws, rules and regulations relating to withholding Taxes, and has, within the time periods and in the manner prescribed by Law, withheld from employee wages and paid to the proper Governmental Authority or Taxing Authority all amounts required to have been so withheld and paid.

SECTION 3.24 Condemnation. Except as disclosed on Schedule 3.24, neither Seller nor any member of the Company Group has received any written notice from any Governmental Authority of any pending proceeding to condemn or take by power of eminent domain or otherwise, by any Governmental Authority, all or any part of the Assets that would be likely to have a Material Adverse Effect on the Company.

SECTION 3.25 Real Property. (a) To Seller’s Knowledge, Schedule 3.25(a) lists all real property owned by the Company (such property, the “Owned Real Property”). To Seller’s Knowledge, the Company has fee simple title to each parcel of Owned Real Property free and clear of all Liens, except: (A) as set forth on Schedule 3.25(a); (B) matters that are disclosed in the title policy and survey for the burdened Owned Real Property, none of which individually or in the aggregate materially and adversely affects the operation of any of the Assets as currently operated; (C) Permitted Encumbrances; and (D) zoning, planning and other limitations and restrictions of record, none of which individually or in the aggregate materially and adversely affects the operation of a Facility as currently operated. True and correct copies of each deed and lease pursuant to which the Company acquired the Owned Real Property, together with copies of the title insurance policies and surveys related thereto to which Seller has access have been made available to Buyer.

(b) To Seller’s Knowledge, Schedule 3.25(b) sets forth a list of all leases of real property under which the Company is lessee and all amendments thereto and assignments thereof (the “Real Property Leases”). The real property subject to the Real Property Leases is hereinafter referred to as the “Leased Real Property”. To Seller’s Knowledge, the Company has a valid leasehold in and enjoys quiet and undisturbed possession of the Leased Real Property. True and correct copies of the Real Property Leases have been made available to Buyer prior to the date hereof. To Seller’s Knowledge, (A) the Company is not in default in any material respect under any Real Property Lease, and (B) no lessor is in default in any material respect under any Real Property Lease.

(c) To Seller’s Knowledge, the Owned Real Property and the Leased Real Property constitute all the real property required by the Company Group for the conduct of the Business as currently conducted. Except as disclosed on Schedule 3.25(c), there are no leases, subleases, licenses, occupancy agreements, options, rights, concessions or other agreements or arrangements, written or oral, granting to any Person the right to purchase the Owned Real Property, or the right to use or occupy any of the Owned Real Property or Leased Real Property.

(d) No member of the Company Group other than the Company has title to or leases any real property.

SECTION 3.26 Permits. Except as set forth on Schedule 3.26, the Company Group has all material Permits required to conduct the Business as currently conducted. Each material Permit is in full force and effect and the applicable member of the Company Group is in

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compliance in all material respects with all its obligations with respect thereto. There are no proceedings pending or to Seller’s Knowledge threatened which might reasonably be expected to result in the revocation, termination or material adverse modification of any material Permit of the Company Group. Except as set forth on Schedule 3.26, all required filings with respect to such material Permits have been timely made and all required applications for renewal thereof have been timely filed, except for such failure to do any of the foregoing as would not lead to the revocation, cancellation, suspension or adverse modification of any such Permit. To Seller’s Knowledge, no such Permit will terminate or be subject to termination or revocation as a result of the transactions contemplated by this Agreement. Seller is not making any representation or warranty in this Section 3.26 with respect to Permits required under any Environmental Law, which Permits are instead addressed in Section 3.20.

SECTION 3.27 Plant and Equipment; Personal Property.

(a) Except as disclosed in Schedule 3.27, the Facilities conform in all material respects to the applicable Technical Specifications and Final Safety Analysis Reports and are being operated in all respects in conformance with applicable requirements under the Atomic Energy Act, the Energy Reorganization Act and the rules, regulations, orders and licenses issued thereunder. The Assets constitute all of the material assets necessary for the operation of the Business, and, except as disclosed on Schedule 3.27, the Assets are currently in a condition adequate and sufficient to operate the Facilities at full licensed thermal load in accordance with Good Utility Practice.

(b) The personal property of the Company Group is not subject to or encumbered by any Liens, except (i) as disclosed on Schedule 3.27, and (ii) Permitted Encumbrances.

SECTION 3.28 Bank Accounts. Schedule 3.28 sets forth a complete list of all bank accounts of the Company Group.

SECTION 3.29 Intellectual Property. The Company or another member of the Company Group owns or has licensed or otherwise possesses sufficient legally enforceable rights to use all material patents, copyrights, trademarks, service marks, technology, know-how, computer software programs and applications and databases that are currently used in the Business. To Seller’s Knowledge, the Business is not operated in a manner that infringes upon any patents, copyrights, trademarks or other intellectual property rights of any third parties and, to the Seller’s Knowledge no third party is infringing on any patents, copyrights, trademarks or other intellectual property rights of the Company Group.

SECTION 3.30 Subsidiaries. Schedule 3.30 sets forth a list of each Subsidiary of the members of the Company Group and the ownership thereof. Except as set forth on Schedule 3.30, no member of the Company Group owns or holds, directly or indirectly, any equity or other ownership interest in any corporations, limited liability companies, partnerships, joint ventures or other entities.

SECTION 3.31 Utilities. To Seller’s Knowledge, there are utility lines to the Owned Real Property and the Leased Real Property which currently supply all such services on such real

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property necessary to operate the Business in a manner and to an extent consistent with past practices.

SECTION 3.32 Books and Records. The books, accounts, ledgers and files of each member of the Company Group other than the Company (and, to Seller’s Knowledge, of the Company) are true and complete in all material respects and have been maintained in accordance with GAAP on a consistent basis (except, with respect to members of the Company Group other than the Company, for any inconsistencies that may result from the reconciliation of such books, accounts, ledgers and files to GAAP prior to the date hereof) and bookkeeping practices in all material respects. The minute books and other similar records of each member of the Company Group are true and complete in all material respects.

SECTION 3.33 Affiliate Transactions. Except as set forth on Schedule 3.33, (i) neither Seller, any Affiliate of Seller (other than a member of the Company Group), officer, manager, or director of Seller or any Affiliate of Seller (including members of the Company Group), (ii) no individual related by blood, marriage or adoption to any person described in clause (i), and (iii) no entity in which any of the foregoing persons described in clause (i) or clause (ii) owns individually or in the aggregate a greater than ten percent (10%) beneficial interest is, or at any time during the past three (3) years has been a party to any agreement, contract, commitment or transaction with any member of the Company Group or has a material interest in any material property used by any member of the Company Group at any time during the past three (3) years.

SECTION 3.34 Bankruptcy; Solvency. There are no bankruptcy, reorganization or arrangement proceedings pending against or, to the Knowledge of Seller, threatened against the Seller or any member of the Company Group. The Seller and each member of the Company Group are Solvent.

SECTION 3.35 Finders’ or Brokers’ Fees. Other than Citigroup Global Markets Inc., Lazard Freres & Co. LLC and Lazard & Co. Limited, each of whose fees shall be paid by Seller, there is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of any member of Company Group which might be entitled to any fee or commission from Buyer in connection with the transactions contemplated by this Agreement.

SECTION 3.36 DOE Standard Spent Fuel Contracts and Payment of Deferred One-Time Fees. The Company holds a DOE Standard Spent Fuel Contract for each of the Facilities. The liability to DOE for payment of a one-time fee for spent fuel discharged from TMI-1 and Oyster Creek prior to the execution of the DOE Standard Spent Fuel Contracts for those Facilities was deferred, as permitted by the DOE Standard Spent Fuel Contracts, and remains a liability to DOE with accumulated interest until payment. The previous owners of TMI-1 and Oyster Creek retained the liability for the payment of the deferred one-time fee for spent fuel discharged from TMI-1 and Oyster Creek.

SECTION 3.37 Prices and Terms for Purchase by Exelon of Power from the Facilities. Pursuant to the LLC Agreement, all output from the Facilities, other than the output sold to the former owners as a condition of the sale, shall be sold to Exelon Generation’s Power Team at the price and for the period of time which the Company used in its evaluation of the

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acquisition of each Facility. Schedule 3.37 sets forth the price of the output and period of time that Exelon Generation’s Power Team is obligated to purchase the output, which the Company used in its evaluation of the acquisition of TMI-1, Oyster Creek and Clinton. The Company and Exelon are bound by the prices and term for each Facility set forth in Schedule 3.37.

SECTION 3.38 Disclosure. No representation or warranty made herein or in any document delivered hereunder contains any untrue statements of material fact nor does it omit to state a material fact which is known to either Seller or their Affiliates to be necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. There is no fact known to Seller or its Affiliates that Seller or their Affiliates have not disclosed to Buyer in writing on or before the Closing Date which would reasonably be expected to have a Material Adverse Effect on the Company Group or the Facilities.

SECTION 3.39 Inquiries by Seller. The individuals listed on Schedule 1.1 (a) constitute all Persons currently employed by British Energy or its Affiliates (including employees seconded to the Company) who might have direct knowledge of the information that is the subject of the representations and warranties contained in Article 3.

SECTION 3.40 Limitation of Representations and Warranties. BUYER ACKNOWLEDGES THAT EXCEPT AS SET FORTH IN THIS AGREEMENT, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, OF ANY NATURE WHATSOEVER RELATING TO THE BUSINESS, ASSETS AND LIABILITIES OF THE COMPANY GROUP, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SELLER MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO ANY PROJECTIONS, ESTIMATES OR BUDGETS DELIVERED TO OR MADE AVAILABLE TO BUYER RELATING TO FUTURE FINANCIAL RESERVES, FUTURE REVENUES, FUTURE RESULTS OF OPERATIONS (OR ANY COMPONENT THEREOF), FUTURE CASH FLOWS OR FUTURE FINANCIAL CONDITION (OR ANY COMPONENT THEREOF) OF THE COMPANY OR THE FUTURE BUSINESS AND OPERATIONS OF THE COMPANY.

ARTICLE 4

Representations and Warranties of Buyer

Buyer hereby makes the following representations and warranties to British Energy as of the date hereof:

SECTION 4.1 Existence and Power of Buyer. Buyer is a limited liability company duly incorporated, validly existing and in good standing under the laws of Pennsylvania, and has all requisite power and all certificates, licenses, permits, approvals, consents, orders, exemptions, decisions and other actions of a Governmental Authority to the extent required to carry on its business as now conducted, except where the failure to have such powers, certificates, licenses, permits, approvals, consents, orders, exemptions, decisions or actions would not have a Material Adverse Effect on Buyer.

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SECTION 4.2 Authorization. Execution and Enforceability of Transactions. Buyer has the full power and authority to execute and deliver this Agreement and, subject to receipt of Buyer Regulatory Approvals, to perform its obligations hereunder. All necessary actions or proceedings to be taken by or on the part of Buyer to authorize and permit the due execution and valid delivery by Buyer of this Agreement, the performance by Buyer of its obligations hereunder, and the consummation by Buyer of the transactions contemplated herein, have been duly and properly taken (and true and valid evidence thereof has been provided to Seller). This Agreement has been duly executed and validly delivered by Buyer, and assuming due execution and delivery by British Energy and receipt of Buyer Regulatory Approvals, constitutes the valid and legally binding obligation of Buyer, enforceable in accordance with its terms and conditions, subject to applicable bankruptcy, insolvency, moratorium and other Laws affecting the rights of creditors generally and the application of general principles of equity (regardless of whether such enforceability is sought in equity or at law).

SECTION 4.3 Non-contravention. Subject to Buyer’s obtaining its Buyer Regulatory Approvals, and except as disclosed on Schedule 4.3, the execution, delivery and performance of this Agreement by Buyer do not and will not (a) contravene or conflict with the articles of organization or formation or limited liability company agreement of Buyer, (b) contravene or conflict with or constitute a violation of any provision of any Law binding upon or applicable to Buyer, (c) require any consent, approval or other action by any Person or constitute a default under or give rise to any right of termination, cancellation or acceleration of any right or obligation of Buyer or to a loss of any benefit to which Buyer is entitled under any provision of any material agreement, contract, indenture, lease or other instrument binding upon Buyer or any license, franchise, permit or other similar authorization held by Buyer, or (d) result in the creation or imposition of any Lien on any asset of Buyer, except in any such case set forth in clauses (b) through (d) above as would not, individually or in the aggregate, have a Material Adverse Effect on Buyer.

SECTION 4.4 Consents and Approvals. Except as disclosed on Schedule 4.4, and except for Buyer Regulatory Approvals, no declaration, filing or registration with, or notice to, or authorization, consent or approval of any Governmental Authority is necessary for the execution and delivery of this Agreement by Buyer, or the consummation of the transactions contemplated hereby.

SECTION 4.5 Finders’ or Brokers’ Fees. Other than Dresdner Kleinwort Wasserstein, whose fees will be paid by the Buyer, there is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of Buyer that might be entitled to any fee or commission from Seller in connection with the transactions contemplated by this Agreement.

SECTION 4.6 Availability of Funds. Buyer has sufficient funds available to it or has received binding written commitments from third parties (copies of which have been provided to British Energy) to provide sufficient funds on the Closing Date to pay the Purchase Price as contemplated hereby and to enable Buyer timely to perform all of its obligations under this Agreement, including sufficient funds available or binding written commitments from third

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parties that are adequate to ensure the release of the obligations of certain guarantors as provided in Section 5.7 and the repayment of all loans as provided in Section 5.11.

SECTION 4.7 Litigation. There is no claim or Action pending against, or to Buyer’s Knowledge, threatened against or affecting, Buyer which in any manner challenges or seeks to prevent, enjoin, alter or materially delay the transactions contemplated by this Agreement.

SECTION 4.8 Due Diligence. Buyer acknowledges that, prior to its execution of this Agreement, (i) it has been afforded access to and the opportunity to inspect the Assets, the Material Contracts (or copies thereof) and all other due diligence items made available by Seller with respect to the Company Group and the Business, and (ii) it is relying upon only those representations and warranties that are expressly contained herein, as well as upon its own inspections and investigation, in order to satisfy itself as to the condition and suitability of the Assets and the Business. Buyer (A) is not relying upon any representations, warranties, statements, advice, documents, projections or other information of any type provided by Seller other than those representations and warranties expressly set forth in this Agreement; (B) is entering into this Agreement as principal (and not as advisor, agent, broker or in any other capacity, fiduciary or otherwise); (C) has entered into this Agreement with a full understanding of the material terms and risks of the same; and (D) has made its purchase decision (including regarding the suitability thereof) based upon its own judgment and any advice from such advisors as it has deemed necessary and not in reliance upon any view expressed by Seller.

SECTION 4.9 Absence of Certain Events. Since December 31, 2002, to Buyer’s Knowledge, there has not been any event which would be likely to have a Material Adverse Effect on Buyer’s ability to perform under this Agreement.

SECTION 4.10 No Knowledge of Breach. Buyer does not know of any breach of warranty or any misrepresentation by British Energy hereunder or of any condition or circumstance that would excuse Buyer from performance of its obligations under this Agreement.

SECTION 4.11 Inquiries by Buyer. The individuals listed on Schedule l.l(b) constitute Persons currently employed by Buyer or its Affiliates who have direct knowledge of the information that is the subject of the representations and warranties contained in Article 4.

ARTICLE 5

Covenants

SECTION 5.1 General. Without limiting the rights of any Party to exercise its rights hereunder, each Party will use Commercially Reasonable Efforts to take all actions and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement pursuant to this Agreement, prior to the date which is six (6) months from the date hereof, subject to any extension of the six (6) month period pursuant to Section 8.1(b) (including satisfaction of the Closing conditions set forth in Article 6).

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SECTION 5.2 Notices, Consents and Approvals.

(a) Hart-Scott-Rodino. British Energy and Buyer shall, if required, file or cause to be filed with the Federal Trade Commission and the United States Department of Justice any notifications required to be filed under the HSR Act and the rules and regulations promulgated thereunder with respect to the transactions contemplated hereby. British Energy and Buyer shall cooperate with one another and use Commercially Reasonable Efforts to make such filings as promptly as possible after the date hereof and to respond promptly to any requests for additional information made by either of such agencies. Buyer will pay all filing fees under the HSR Act, but British Energy and Buyer each will bear its own costs for the preparation of any filing. British Energy and Buyer shall use Commercially Reasonable Efforts to cause any waiting period under the HSR Act with respect to the transactions contemplated by this Agreement to expire or terminate at the earliest possible time.

(b) Nuclear Regulatory Commission Approval.

(i) Application. As promptly after the date hereof as may be feasible (and in any event, within forty-five (45) calendar days of the date of this Agreement), British Energy and Buyer shall jointly prepare one or more Applications to be filed with the NRC for approval of the indirect transfer of the NRC licenses for each Facility and any conforming amendment of the NRC licenses to reflect such indirect transfer. Thereafter, British Energy and Buyer shall cooperate with one another to facilitate review of the Application(s) by the NRC Staff, including but not limited to promptly providing the NRC Staff with any and all documents or information that the NRC Staff may reasonably request or require any of the Parties to provide or generate. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in filing such Application(s) jointly with Buyer and in responding to requests for information from the NRC staff.

(ii) Prosecution of Application. The Application(s) shall identify British Energy and Buyer as separate parties to the Application(s), but Buyer shall direct and control the prosecution of the Application(s). In the event the processing of such Application(s) by the NRC becomes a Contested Proceeding, until such Contested Proceeding becomes final and nonappealable, British Energy and Buyer shall separately appear therein by their own counsel, and shall continue to cooperate with each other to facilitate a favorable result. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in prosecuting such Application(s).

(iii) Costs of Application and Prosecution. British Energy and Buyer will bear their own costs of the preparation, submission and processing of the Application, including any Contested Proceeding that may occur in respect thereof provided, however, that Buyer shall bear the costs of all NRC Staff fees payable in connection with the Application. In the event that British Energy and Buyer agree upon the use of common counsel, they shall share equally the fees and expenses of such counsel. British Energy shall be responsible for any costs, fees and expenses of the Company.

(c) FERC Approval.

(i) Application. As promptly after the date hereof as may be feasible (and in any event, within forty-five (45) calendar days of the date of this Agreement), British Energy and Buyer shall jointly prepare and file with FERC an Application.

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(ii) Prosecution of Application. Buyer shall direct and control the prosecution of the Application. In the event the processing of such Application by the FERC becomes a Contested Proceeding, until such Contested Proceeding becomes final, British Energy and Buyer shall separately appear therein by their own counsel, and shall continue to cooperate with each other to facilitate a favorable result.

(iii) Costs of Application and Prosecution. British Energy and Buyer will bear their own costs of the preparation, submission and processing of the Application, including any Contested Proceeding that may occur in respect thereof. In the event that British Energy and Buyer agree upon the use of common counsel, they shall share equally the fees and expenses of such counsel. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in all filings and any proceedings in connection with obtaining FERC approval, and British Energy shall be responsible for any costs, fees or expenses of the Company in connection with obtaining FERC approval.

(d) Consents and Approvals.

(i) British Energy and Buyer each shall cooperate and use Commercially Reasonable Efforts with respect to their respective obligations to (A) promptly prepare and file all necessary documentation, (B) effect all necessary applications, notices, petitions and filings and execute all agreements and documents, (C) obtain the transfer, issuance or reissuance, if necessary, to the Buyer of all necessary Permits, (D) facilitate the substitution, if necessary, of Buyer for British Energy where appropriate on pending Permits, and (F) obtain all necessary consents, waivers, approvals and authorizations of all other parties necessary or advisable to consummate the transactions contemplated by this Agreement (including British Energy Regulatory Approvals and Buyer Regulatory Approvals) or approvals required by the terms of any note, bond, mortgage, indenture, deed of trust, license, franchise, Permit, concession, contract, lease, warranty or other instrument to which either British Energy or Buyer is a party or by which any of them is bound. Without limiting the generality of the foregoing, British Energy and Buyer shall, as promptly as practicable after the date hereof and in any event by no later than forty-five (45) calendar days after the date hereof, make the necessary filings and pursue receipt of those British Energy Regulatory Approvals and Buyer Regulatory Approvals for which British Energy or Buyer has responsibility.

(ii) British Energy and Buyer each shall have the right to review and comment in advance on all filings relating to the transactions contemplated by this Agreement made by the other Party in connection with the transactions contemplated hereby. British Energy and Buyer shall in good faith consider such comments before making any such filings. Neither Party shall intervene in opposition to a filing made by the other Party in connection herewith unless the approval or other action to be taken in response to such filing would have a material adverse effect on the opposing Party or the filing is otherwise not in good faith. British Energy shall use Commercially Reasonable Efforts to obtain the cooperation of the Company in all filings and any proceedings in connection with obtaining British Energy Regulatory Approvals and Buyer Regulatory Approvals.

SECTION 5.3 Operation of Business of Company Group During Interim Period.

(a) During the Interim Period, British Energy shall cause each member of the Company Group (other than the Company), and, subject to Good Utility Practices and to the

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extent within its rights, authority and powers as a “Member” of the Company under the Limited Liability Company Agreement, use Commercially Reasonable Efforts to cause the Company, to (except as required to comply with Sections 2.4(j) and 2.5(g) of this Agreement):

(i) conduct its Business in the ordinary course (including making budgeted capital expenditures), not make any material change in the conduct of the Business and preserve intact its goodwill and maintain satisfactory relationships with those Persons having business relationships with it, except as contemplated by the matters described on Schedule 5.3(a);

(ii) except in the ordinary course of business and consistent with past practices or Good Utility Practices, or except as otherwise approved in writing by the Buyer, not enter into, assign, terminate or amend, in any material respect, any Material Contract or Permit or release or relinquish any material rights thereunder;

(iii) except as set forth in Schedule 5.3(a), not sell, lease (as lessor), transfer or otherwise dispose of, any material Assets, other than as used, consumed or replaced in the ordinary course of business consistent with Good Utility Practices, or encumber, pledge, mortgage or suffer to be imposed on any of the Assets any encumbrance other than Permitted Encumbrances, and not incur any indebtedness for borrowed money, other than in the ordinary course of business, or guarantee any such indebtedness or make any loans, advances or capital contributions to, or investments in, any other Person;

(iv) not make any material change in the level of inventories customarily maintained by the Company with respect to the Assets, except for such changes as are consistent with Good Utility Practices;

(v) not enter into, amend, make any waivers under or otherwise modify any real or personal Property Tax Agreement, treaty or settlement or make any new, or change any current, election with respect to Taxes, or file any amended Tax Return (except for, or as a result of the filing of, any amended Tax Return with respect to the Company);

(vi) not engage in any practice, take any action, fail to take any action, or enter into any transaction that will result in any misrepresentation or breach of warranty under Article 3 as of the Closing Date;

(vii) not amend in any material respect, or cancel, any property, liability or casualty insurance policies related thereto, or fail to maintain by self insurance, or with financially responsible insurance companies, insurance in such amounts and against such risks and losses as are consistent with past practice;

(viii) not change, in any material respect, its accounting methods or practices, credit practices or collection policies;

(ix) not fail to take any actions required to be taken in order to ensure that the Assets are being operated and maintained in all material respects in a manner that is in compliance with Good Utility Practice and all applicable Laws or Permits;

(x) not to take reasonably appropriate steps to pursue currently pending regulatory approvals relating to the Facilities;

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(xi) not hire any employees (other than to replace any employees who have resigned or been terminated) or increase the compensation or benefits payable to any employees, except as required under the Collective Bargaining Agreements or other agreements as in existence on the date hereof or consistent with the Company’s past practices

(xii) not participate as an adverse party to the Buyer or to British Energy in any proceeding before the NRC or any other Governmental Authority relating to the sale of BEUSH Shares, or the transfer of any Permit, or the issuance of any Buyer Regulatory Approvals or British Energy Regulatory Approvals;

(xiii) except in accordance with Section 5.14 of this Agreement, not declare or pay any dividends or make any distributions in respect of or issue any of its equity securities or securities convertible into its equity securities, or repurchase, redeem or otherwise acquire any such securities or make or propose to make any other change in its capitalization;

(xiv) not merge into or with or consolidate with any other Person or acquire all or substantially all of the business or assets of any Person;

(xv) not make any material change in its certificate of incorporation, certificate of formation, the LLC Agreement, limited liability company agreement, operating agreement, partnership agreement or similar charter or organizational documents;

(xvi) not purchase any securities of any Person, except in accordance with the Company’s treasury management policy;

(xvii) not take any action or enter into any commitment with respect to or in contemplation of any liquidation, dissolution, recapitalization, reorganization or other winding up of its business or operations;

(xviii) not enter into an agreement in writing or otherwise or otherwise resolve to take, any of the foregoing actions; and

(xix) not assign or consent to any assignment of any rights or obligations of any party under the LLC Agreement to any third party.

Notwithstanding anything in this Section 5.3 to the contrary, the Parties agree that (i) the Company may, in its sole discretion, make or incur an obligation to the extent relating to Required Nuclear Expenditures or any repairs or modifications to any Facility reasonably required in the normal course of business and in accordance with Good Utility Practices (a “Required Expenditure”), and (ii) the Company shall retain exclusive control over all aspects of the operation, maintenance, refueling, shutdown or other matters relating to the operation of the Facilities and to the Company during the Interim Period, all in accordance with Good Utility Practices.

(b) During the Interim Period, in the interest of facilitating an orderly transition of the upstream ownership of the Company and permitting informed action by the Buyer regarding its rights under Section 5.3(a), the Parties shall, as promptly as is practicable after the date hereof, establish a committee comprised of at least five (5) persons, two (2) persons

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to be designated by the Seller and two persons to be designated by the Buyer, and such additional persons as may be appointed by the persons originally appointed to such committee (the “Transition Executive Committee”). From time to time, the Transition Executive Committee shall report to the senior management of Seller and Buyer. The Transition Executive Committee shall meet periodically and shall oversee and manage the transition process during the Interim Period. The Seller shall consult with Buyer’s representatives on the Transition Executive Committee, on a regular and timely basis, with respect to the refueling outage(s) occurring during the Interim Period, to any repairs to the Facilities and to the Required Nuclear Expenditures and Required Expenditures. The Transition Executive Committee shall have no authority to bind or make agreements on behalf of Seller or the Buyer or to issue instructions to or direct or exercise authority over Seller or Buyer or any of their respective officers, employees, advisors or agents or to waive or modify any provision thereof. Seller shall refrain from voting on any material matter presented at Company Management Committee meetings (as defined in the LLC Agreement) and finance committee meetings that was not set forth on the agenda delivered to Buyer prior to such meeting, and shall consult with Buyer prior to voting on any such matter.

SECTION 5.4 Access and Investigations During Interim Period. During the Interim Period, British Energy will permit, and will use Commercially Reasonable Efforts to cause the Company to permit, Buyer to have reasonable access to each Facility, subject to any restrictions and procedures set forth in this Section 5.4 or otherwise reasonably imposed by the Company, to conduct environmental studies and inspections (such as the review of existing environmental records and related material but, for the avoidance of doubt, not including any environmental testing of soil samples or other invasive procedures with respect to any Facility), and to observe and inspect all premises, properties, management, personnel, books, records, (including tax records), and other information, including without limitation all information necessary to enable Buyer to verify the representations and warranties as set forth in Article 3 and to confirm that British Energy has complied with the covenants set forth herein, and any other information or documents associated with or pertaining to the Assets. All access and inspections by Buyer are subject to the following provisions:

(a) Costs. All costs of such investigations and observations, including the compensation paid to the Persons involved and their expenses, and other discrete incremental costs incurred by the Company or British Energy in connection with such investigation and observation, shall be borne by Buyer.

(b) Escorted Physical Access to Facilities. The Buyer shall, with respect to each Person designated by the Buyer to have escorted access to the Facilities for purposes of this Section 5.4, provide the following information for each such Person to the contact designated by British Energy for the Facility (or his designee) no later than twenty-four (24) hours prior to the proposed time of access by such Person: name, date of birth social security number and the name of each nuclear power plant at which such Person has a current badge for access. British Energy shall be permitted where necessary in its sole discretion to limit the number of Persons to whom escorted access is provided at any one time on account of reasonable logistical considerations.

Subject to the immediately succeeding sentence, the Buyer shall, with respect to each Person designated by the Buyer to have escorted access to the Facilities, provide reasonable notice to the contact designated by British Energy for the Facilities (or his designee), so as not to interfere with the normal business operations of the Facilities, and such Person shall comply with

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all existing requirements of the Facility and NRC for escorted access, including, but not limited to, background investigation, training requirements, fitness-for-duty requirements, a psychological assessment and behavioral observation.

The Buyer may request that any Person subject to the fitness-for-duty program of the Buyer be excused from compliance with the fitness-for-duty program of the Company for up to ninety (90) days, in which event the provisions of 10 C.F.R. Section 26.23 shall be applicable to such Person designated by the Buyer to have access to the Facilities.

(c) Access to Records and Information. (i) Under no circumstances shall the Company be required by British Energy to provide access to any documents or information constituting or containing “Classified National Security Information” or “Restricted Data”, as defined in 10 C.F.R. Part 73. The Company shall not be required by British Energy to provide access to any documents or information constituting or containing “Safeguards Information”, as defined in 10 C.F.R. Part 73, except to any Person designated by Buyer to have access to such information and Buyer shall have first obtained authorization or concurrence from the NRC for the disclosure of such information to such Person.

(ii) Except as provided in clause (i) above, the Buyer shall have the right to receive copies of all documentary information and records associated with the Assets, subject to the provisions of Section 5.8.

(d) Limitations. Notwithstanding anything to the contrary in this Section 5.4, British Energy shall not be required to assist Buyer in obtaining from the Company: (i) access to confidential personnel records and medical records except as allowed by applicable Laws, (ii) any information that British Energy, the Company or the Company’s or British Energy’s counsel reasonably believes constitutes or could reasonably be deemed to constitute a waiver of the attorney-client privilege, or (iii) any information that British Energy or the Company is under a legal obligation not to supply; provided that British Energy shall use Commercially Reasonable Efforts to obtain the consent to disclose all material information otherwise described in this Section 5.4.

(e) Contact with Company Related Persons. Prior to the Closing Date, Buyer shall not contact any vendors, suppliers, contractors, customers or employees of British Energy regarding the Facilities, the Assets or the transactions contemplated in this Agreement without prior written consent of British Energy, which shall not be unreasonably withheld or delayed, and any such permitted contacts shall be conducted in a manner which will not materially adversely interfere with the operations or business relationships of the Company or British Energy with such Persons.

SECTION 5.5 Certain Notices.

(a) British Energy shall notify Buyer of the existence of any information or matter that becomes known to British Energy, which if in existence on the date hereof or the Closing Date, would cause or would have a reasonable likelihood of causing any of the representations or warranties in Article 3 to be materially untrue or incorrect. In particular, but without limitation, British Energy shall notify Buyer of (i) information regarding any actual or asserted Nuclear Liability, Environmental Liability or Environmental Claim, or (ii) communications from the NRC or any other Governmental Authority regarding any Permit,

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Nuclear Law or Environmental Law, in each case with respect to the Company Group or the Assets. Unless Buyer terminates this Agreement pursuant to Section 8.1(f), the written notice pursuant to this Section 5.5(a) shall be deemed to amend the original Schedule or Schedules as of the date hereof and the Closing Date, to have qualified the representations and warranties contained in Article 3 as of the date hereof and the Closing Date and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the existence of such matter.

(b) Buyer shall notify British Energy of the existence of any matter that becomes known to Buyer, which if in existence on the date hereof or the Closing Date, would cause or would have a reasonable likelihood of causing any of the representations or warranties in Article 4 to be untrue or incorrect. Unless British Energy terminates this Agreement pursuant to Section 8.1(g), the written notice pursuant to this Section 5.5(b) shall be deemed to amend the original Schedule or Schedules as of the date hereof and the Closing Date, to have qualified the representations and warranties contained in Article 4 as of the date hereof and the Closing Date and to have cured any misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of the existence of such matter.

(c) Buyer shall notify British Energy if any information or matter comes to its attention which would cause or would have a reasonable likelihood of causing any of the representations or warranties of British Energy in Article 3 above to be materially untrue or incorrect. British Energy shall then comply with Section 5.5(a) with respect to such information.

(d) British Energy shall notify the Buyer if any information or matter comes to its attention which would cause or would have a reasonable likelihood of causing any of the representations and warranties of Buyer in Article 4 above to be materially untrue or incorrect. Buyer shall then comply with Section 5.5(b) with respect to such information.

SECTION 5.6 Further Assurances; Post-Closing Cooperation.

(a) Subject to the terms and conditions of this Agreement, each of the Parties will use Commercially Reasonable Efforts to take, or cause to be taken, all action, and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the transactions contemplated by this Agreement, including using Commercially Reasonable Efforts to ensure satisfaction of the conditions precedent to each Party’s obligations hereunder. Notwithstanding anything in the previous sentence to the contrary, British Energy and Buyer shall use Commercially Reasonable Efforts to obtain all Permits necessary for Buyer to acquire the BEUSH Shares.

(b) From time to time after the Closing Date, without further consideration, British Energy will, at its own expense, execute and deliver such documents to Buyer as Buyer may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement. From time to time after the Closing Date, without further consideration, Buyer will, at its own expense, execute and deliver such documents to British Energy as British Energy may reasonably request in order to more effectively consummate the transactions contemplated by this Agreement.

(c) After the Closing Date, each Party shall have reasonable access to the employees of the other Party, for purposes of consultation or otherwise, to the extent that such

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access may reasonably be required in connection with matters relating to or affected by the operations of the Seller or the Company Group prior to the Closing Date. The Parties agree to cooperate in connection with any audit, investigation, hearing or inquiry by any Governmental Authority, litigation or regulatory or other proceeding which may arise following the Closing Date and which relates to the ownership of the Company Group or operation of the Assets by the Seller or the Company Group prior to the Closing Date. Notwithstanding any other provision of this Agreement to the contrary, each Party shall bear its own expenses, including fees of attorneys or other representatives, in connection with any such matter described in this Section 5.6(c) in which the Seller and the Buyer are subjects or parties or in which they have a material interest.

SECTION 5.7 Guarantees. Schedule 5.7 identifies each financial or performance guarantee by British Energy, and by any of its Affiliates, of any obligations of or related to BEUSH and its Subsidiaries (including without limitation, the Company) (the “Guarantees”). Buyer shall use commercially reasonable efforts to obtain promptly the release of the obligations of any guarantor, or Buyer’s substitution for such guarantor, with respect to all Guarantees identified on Schedule 5.7. Buyer agrees to indemnify, defend and hold harmless British Energy and its Affiliates, and their respective Representatives, from and against any and all losses, costs, damages, obligations, claims, liabilities, expenses and causes of action relating to resulting from, or arising out of any Guarantee with respect to acts, omissions or occurrences arising on or after the Closing Date.

SECTION 5.8 Confidentiality. Notwithstanding anything herein to the contrary, British Energy and Buyer agree that prior to the Closing Date and after any termination of this Agreement, each will observe the confidentiality requirements of Section 6.7 of the LLC Agreement; provided, however, that any party to this Agreement (and any employee, representative, or other agent of any party to this Agreement) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to it relating to such tax treatment and tax structure; provided, however, that neither party (nor any employee, representative or other agent thereof) shall disclose (A) any information that is not relevant to an understanding of the tax treatment of the transactions contemplated by this Agreement, including the identity of any Party to this Agreement (or its employees, representatives or agents) or other information that could lead any person to determine such identity or (B) any information to the extent such disclosure could result in a violation of any federal or state securities laws.

SECTION 5.9 Public Announcements. Prior to the Closing Date, the Parties shall consult with each other before issuing any public announcement, statement or other disclosure with respect to this Agreement or the transactions contemplated hereby and shall not issue any such public announcement, statement or other disclosure prior to such consultation and the approval of the other Party, except as may be required by Law or stock exchange rules. For the avoidance of doubt, this Section 5.9 shall not restrict Seller from making private disclosures with respect to this Agreement and the transactions contemplated hereby to members, officials and instrumentalities of the government of the United Kingdom or to Exelon pursuant to the LLC Agreement.

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SECTION 5.10 Tax Matters.

(a) Preparation. The following provisions shall govern the allocation of responsibility as between Buyer and Seller for certain Tax matters following the Closing Date:

(i) Tax Periods Ending on or Before the Closing Date. Seller shall prepare or cause to be prepared and file or cause to be filed all Tax Returns for all members of the Company Group other than the Company for all periods ending on or prior to the Closing Date that are due after the Closing Date. Seller shall permit Buyer to review and comment on such Tax Returns prior to filing. If Seller fails to file such Tax Returns prior to the date on which such Tax Returns are due, Buyer shall be required to file such Tax Returns on behalf of the Company Group. Seller shall pay or cause to be paid the Taxes of all members of the Company Group other than the Company with respect to such periods except to the extent such Taxes are included as current liabilities in Working Capital, which Buyer shall pay.

(ii) Tax Periods Beginning Before and Ending After the Closing Date. Buyer shall prepare or cause to be prepared and file or cause to be filed any Tax Returns of all members of the Company Group other than the Company for Tax periods which begin before the Closing Date and end after the Closing Date. Buyer shall permit Seller to review and comment on such Tax Returns prior to filing and shall consider in good faith any changes reasonably suggested by Seller. Buyer shall pay or cause to be paid the Taxes of all members of the Company Group other than the Company with respect to such periods. Seller shall pay to Buyer within fifteen (15) days after the date on which Taxes are paid with respect to such periods an amount equal to the portion of such Taxes that relates to the portion of such Tax period ending on the Closing Date except to the extent such Taxes are included as current liabilities in Working Capital, which Buyer shall pay. In the case of Taxes that are payable with respect to a taxable period that begins before the Closing Date and ends after the Closing Date, the portion of any such Tax that is allocable to the portion of the period ending on the Closing Date shall be (A) in the case of Taxes that are based upon or related to income or gross receipts or sales or use Tax, determined based on an interim closing of the books as of the close of business on the day immediately prior to the Closing Date (and for such purposes, the taxable period of any member of the Company Group other than the Company shall be deemed to terminate at such time); and (B) in the case of any Taxes other than gross receipts, sale or use Tax and Taxes based upon or related to income, deemed to be the amount of such Taxes for the entire period, multiplied by a fraction the numerator of which is the number of calendar days in the period ending on the day immediately prior to the Closing Date and the denominator of which is the number of calendar days in the entire period.

(iii) Allocation of Items from Company. The allocation of British Energy LP’s share of all items of the Company’s income gain, loss, deduction or credit for the Company’s taxable year which includes the Closing Date between (x) the portion of the taxable year of BEUSH ending on the day immediately prior to the Closing Date, and (y) the portion of the taxable year of BEUSH beginning on the Closing Date, shall be made as if the Company’s taxable year ended on the day immediately prior to the Closing Date.

(b) Adjustment for Indemnity Payments. The Parties agree to treat any indemnity payment made pursuant to this Agreement as an adjustment to the Purchase Price, unless otherwise required pursuant to a “determination” within the meaning of Section 1313(a) of the Code.

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(c) Transfer Taxes. Buyer shall pay fifty percent (50%) and Seller shall pay fifty percent (50%) of all transfer Taxes resulting from the transactions contemplated by this Agreement. Buyer shall prepare and timely file all Tax Returns or other documentation relating to such transfer Taxes; provided, however, that to the extent required by Applicable Law, Seller will join in the execution of any such Tax Returns or other documents relating to such Taxes. Buyer shall provide Seller with copies of each such Tax Return or other document at least thirty (30) days prior to the date on which such Tax Return or other document is required to be filed.

(d) Tax Sharing Agreements. On or before the Closing Date, Seller shall ensure that no Tax indemnity agreement, Tax allocation agreement or Tax sharing agreement with respect to the Company Group (other than with respect to the Company or including only members of the Company Group) is in force or effect and that no member of the Company Group other than the Company shall have any Liability after the Closing Date under any such agreement.

(e) Assistance and Cooperation. Seller and Buyer shall reasonably cooperate, and shall cause their respective Affiliates, employees and agents reasonably to cooperate, in preparing and filing all Tax Returns, including maintaining and making available to each other all records that are necessary for the preparation of any Tax Returns that each Party is required to file under this Section 5.10, and in resolving all disputes and audits with respect to such Tax Returns.

(f) Tax Indemnity. Notwithstanding any other provisions of this Agreement, Sections 5.10(f), 5.10(g) and 7.6 hereof set forth the sole remedy of Buyer with respect to Losses of the nature described in this Section 5.10(f). Seller shall indemnify and hold the Company Group (other than the Company) and Buyer harmless from and against (i) any income Taxes imposed on Seller resulting from the sale of the BEUSH Shares to Buyer and any other transaction herein contemplated, and (ii) any Liability for Taxes for any period or portion thereof that ends on or prior to the Closing Date which is imposed on any member of the Company Group (other than the Company) under Treas. Reg. Section 1.1502-6 (or under any comparable provision of state or local law imposing several liability upon members of a consolidated, combined, affiliated or unitary group).

(g) Tax Indemnity Claims. Buyer shall notify Seller within thirty (30) days of receipt of written notice of any pending or threatened Tax examination, audit or other administrative or judicial proceeding relating to any member of the Company Group that could reasonably be expected to result in an indemnification obligation of Seller arising under Section 5.10(f) or under Section 7.1 as a result of the breach of any representation or warranty contained in Sections 3.16, 3.17 or 3.23 (“Contested Taxes”). If Buyer fails to provide such notice to Seller, Buyer shall not be entitled to indemnification for such Contested Taxes if the failure shall preclude Seller from contesting the Tax. Seller shall, at its own expense, control the defense and settlement of such Tax contest. Buyer shall have the right to participate in the conduct of any Tax contest relating to the Contested Taxes at its own expense, including through its own counsel and other professional experts and shall be entitled to control such Tax contest in the event that Seller fails to do so. Seller shall consult with Buyer prior to the settlement of any such Tax contest and Seller shall not settle any such Tax contest if the settlement would have an adverse tax effect in a taxable period ending after the Closing Date without the consent of Buyer, which shall not be unreasonably withheld; provided however, that Seller shall not settle any Tax contest without the

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consent of Buyer relating to a determination that the initial Tax Basis of the assets of the Company should not be increased by the amount of the nonqualified decommissioning liability.

(h) Refunds. Seller shall be entitled to all refunds of Taxes with respect to the Company Group (other than the Company) relating to taxable periods or portions thereof ending on or before the Closing Date except to the extent included in the Working Capital adjustment pursuant to Section 2.2 or attributable to an increase in the initial Tax Basis of the assets of the Company as a result of a redetermination of the initial purchase price of such assets attributable to the nonqualified decommissioning liability. Buyer shall, upon receipt of any refund by Buyer or the Company Group (other than the Company), pay over to the Seller any such refund or the amount of any such benefit within five (5) Business Days of the earlier of receipt or entitlement thereto. Buyer shall, if Seller so requests and at Seller’s expense, cause the relevant entity to file for and obtain any refunds or equivalent amounts to which Seller is entitled under this Section 5.10(h). Buyer shall permit Seller to control (at Seller’s expense) the prosecution of any such refund claimed and shall cause the relevant entity to authorize by appropriate power of attorney such persons as the Seller shall designate to represent such entity with respect to such refund claimed.

SECTION 5.11 Intercompany Loans. Schedule 5.11 identifies all loans between BEUSH and its Subsidiaries (other than the Company) and British Energy or its affiliates (other than BEUSH and its Subsidiaries) as of the date of this Agreement (the “Intercompany Loans”). On or prior to the Closing Date, (i) Buyer shall loan, or caused to be loaned to British Energy LP an amount sufficient to repay in full to British Energy or its affiliates, and (ii) British Energy LP shall repay, or cause to be repaid, in full to British Energy or its affiliates, the net amount of all Intercompany Loans (including any unpaid, accrued interest and other fees as of the Closing Date) to BEUSH and its Subsidiaries as identified on Schedule 5.11; provided that, in determining the net amount of Intercompany Loans to be repaid under this Section 5.11, Buyer may discharge its obligation to loan or caused to be loaned an amount sufficient to repay or cause repayment of any Intercompany Loan to British Energy and its affiliates (other than BEUSH and its Subsidiaries) through netting the amount of any Intercompany Loans due from British Energy and its affiliates (other than BEUSH and its Subsidiaries). British Energy shall deliver or make available to Buyer proof of repayment in full of Intercompany Loans at the Closing.

SECTION 5.12 Corporate Names.

(a) As soon as reasonably practicable after the Closing Date, but in any event no later than thirty (30) days from the Closing Date, Buyer shall cause BEUSH and each of its Subsidiaries to remove or cover the name “British Energy” and any trademarks, trade names brandmarks, brand names, trade dress or logos relating to such name from all signs, telephone listings, labels, stationery, office forms, packaging or other materials of BEUSH or its Subsidiaries. Thereafter, the Buyer shall neither use nor permit any of BEUSH or its Subsidiaries to use such names or any trademark, trade name, brandmark, brand name, trade dress or logo relating or confusingly similar to such names in connection with the businesses of BEUSH or its Subsidiaries or otherwise. As soon as reasonably practicable after the Closing, but in any event no later than ninety (90) days thereafter, the Buyer shall cause each of BEUSH and its Subsidiaries to amend its certificate of incorporation, partnership agreement, LLC Agreement, limited liability company agreement and other applicable documents, subject to any required

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consent or approval of any other partner or member, which Buyer shall use its reasonable efforts to obtain, so as to delete any reference to “British Energy” in its legal name and, within such ninety (90) day period, to make all required filings with Governmental Authorities to effect such amendments.

(b) Each of the Parties hereto acknowledges and agrees that the remedy at Law for any breach of the requirements of this Section 5.12 would be inadequate, and agrees and consents that without intending to limit any additional remedies that may be available, temporary and permanent injunctive and other equitable relief may be granted without proof of actual damage or inadequacy of legal remedy in any proceeding which may be brought to enforce any of the provisions of this Section 5.12.

SECTION 5.13 ISRA Clearance. Seller shall obtain at its sole expense (and deliver a copy to Buyer), pursuant to the New Jersey Industrial Site Recovery Act, N.J.S.A. 13:1K-6 et seq. and the regulations promulgated thereunder (“ISRA”), one of the following as required to consummate the transactions contemplated by this Agreement: (i) a letter of non-applicability of ISRA from the New Jersey Department of Environmental Protection (“NJDEP”); (ii) a no further action letter under ISRA; (iii) a remediation agreement pursuant to ISRA reasonably acceptable to Buyer and Seller, under which the Buyer will perform or cause to be performed such remediation, subject to any indemnification from Seller available hereunder with respect to environmental matters and in connection with which Buyer shall provide or cause to be provided all necessary financial assurance required by NJDEP (except to the extent NJDEP affirmatively requires that Seller (x) be so designated as the party responsible for performance of such remediation and/or (y) provide such financial assurance); (iv) approval of an application for one of the following exemptions from ISRA: (A) a “de minimis quantity” exemption, (B) an underground storage tank exemption, (C) a minimal environmental concern exemption, (D) a “remediation in progress waiver”; or (v) any other approval or authorization of the NJDEP reasonably acceptable to Buyer and Seller.

SECTION 5.14 Reimbursement of Nonqualified Decommissioning Funds. The NQDF Tax Reimbursement Share of any payments made to the Company for NQDF Tax Reimbursement shall be for the account of Seller, provided that (i) on or prior to the Closing Date, Seller shall be permitted to distribute to itself any or all of the NQDF Tax Reimbursement Share distributed to British Energy LP (provided that Exelon shall have received an equal distribution to the amount distributed to British Energy LP), and (ii) with respect to any NQDF Tax Reimbursement Share not distributed to Seller in accordance with subsection (i) of this Section 5.14 or received after the Closing Date, and to the extent not included as an asset in either the Company’s Working Capital Adjustment Statement or BEUSH’s Working Capital Adjustment Statement, Buyer shall pay to Seller an amount equal to such NQDF Tax Reimbursement Share in immediately available funds, within sixty (60) days of receipt of such payments by the Company.

SECTION 5.15 Documents Relating to Liability for Payment of One-Time Fee for Spent Fuel Disposal. Prior to Closing, Seller shall use Commercially Reasonable Efforts to obtain all documents from the files of the Company Group and their counsel that relate to the retained liability of the previous owners of TMI-1 and Oyster Creek for the payment to DOE of the deferred one-time fee for spent fuel discharged from TMI-1 and Oyster Creek pursuant to the

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DOE Standard Spent Fuel Contracts for those Facilities, including, but not limited to, the relevant documents from the Company’s and its counsel’s files from the negotiations leading to the purchase and sale agreements for the acquisition of TMI-1 and Oyster Creek and any correspondence with DOE relating to the payment of the deferred one-time fee for TMI-1 and Oyster Creek. Seller shall promptly provide Buyer with a copy of any documents obtained pursuant to the immediately preceding sentence, provided that Seller shall not be required to provide Buyer with documents or portions of documents containing: (i) any information that the Company or the Company’s counsel reasonably believes constitutes or could reasonably be deemed to constitute a waiver of the attorney-client privilege as to the Company, or (ii) any information that Seller or the Company is under a legal obligation not to disclose to third parties. Notwithstanding the foregoing, to the extent that documents are withheld from Buyer as a result of asserting (x) attorney-client privilege or (y) nondisclosure contractual obligations, Seller shall provide Buyer with a list of such documents citing the basis upon which each document is withheld (except to the extent such disclosure itself would violate such privilege or obligations) and, if the basis for withholding is attorney-client privilege, the name of the party asserting the privilege; provided that, the assertion of the privilege by the Company of a third party, including Exelon or its affiliates, shall in no event be deemed to constitute a breach by Seller of its obligations under this Section 5.15. In addition, Seller shall use Commercially Reasonable Efforts to seek waiver of any attorney-client privilege and to protect against, or cause to be protected against, such documents from being destroyed or lost during the Interim Period.

SECTION 5.16 Prohibited Transactions. From and after the date hereof, none of the Seller nor any member of the Company Group, nor their respective officers, directors, employees, affiliates, stockholders, representatives or agents, nor anyone acting on behalf of any of them, shall, directly or indirectly, encourage, solicit, engage in discussions or negotiations with, or provide any non-public information to, any person or entity (other than Buyer and its representatives) concerning any sale of BEUSH Shares or similar transaction involving the Company or the Assets (collectively “Prohibited Transactions”) unless this Agreement is terminated pursuant to and in accordance with Article 8 hereof; provided that, Seller may provide FPL with a copy of this Agreement, the Waiver Letter, dated as of the date of this Agreement, from Buyer to Seller relating to the Agreement, and the notice from Buyer referred to in the Recitals, subject to the requirements of the Confidentiality Agreement.

SECTION 5.17 Financial Statements. (a) Within thirty (30) days after the end of each calendar month during the Interim Period, the Seller shall provide to the Buyer consolidated financial statements of the Company Group, including a consolidated balance sheet as of the end of such calendar month and income and cash-flow statements for the one-month period then ending. Except as set forth on Schedule 5.17, such financial statements shall (a) be in accordance with the books and records of the Company Group, (b) be prepared in accordance with GAAP consistently applied throughout the periods covered thereby (except for the absence of footnotes and normal year-end adjustments), and (c) present fairly and accurately in accordance with GAAP the assets, liabilities (including, without limitation, all reserves) and financial condition of the Company Group as of the respective dates thereof and the results of operations for the periods covered thereby.

(b) Seller shall deliver to Buyer, as soon as practicable after they become available to Seller, the audited consolidated balance sheets of each of BEUSH, BEUILLC and

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British Energy, LP, in each case as of December 31, 2002 and the related audited consolidated statements of income and cash flows for the year ended December 31, 2002.

SECTION 5.18 Transmission. During the Interim Period, Seller shall use Commercially Reasonable Efforts to cause the Company to obtain and/or maintain any and all necessary transmission rights and services required in order to deliver the energy and capacity output of the Facilities to the purchasers of such output.

SECTION 5.19 Risk of Loss. Except as otherwise provided in this Section 5.19 and Article 7, during the Interim Period all risk of loss or damage to the property included in the Assets shall be borne by the Seller. If during the Interim Period the Assets are damaged by fire or other casualty (each such event, an “Event of Loss”) or are taken by a Governmental Authority by exercise of the power of eminent domain (each, a “Taking”), the following provisions shall apply:

(a) Upon the occurrence of (i) any one or more Events of Loss, as a result of which the aggregate costs to restore, repair or replace, less any insurance proceeds received or payable to the Company in connection with such Event or Events of Loss (provided that any insurance proceeds received or payable in connection with the Event or Events of Loss are either used to restore, repair or replace such Event or Events of Loss) are reasonably estimated to be equal to or less than $ 10,000,000, and/or (ii) any one or more Takings, as a result of which the aggregate condemnation proceeds equal an amount reasonably estimated to be equal to or less than $ 10,000,000, shall have no effect on the transactions contemplated hereby; provided that any condemnation proceeds received or payable in connection with the Taking or Takings shall be excluded from the calculation of Company Working Capital at Closing;

(b) Upon the occurrence of (i) any one or more Events of Loss, as a result of which the aggregate costs to restore, repair or replace, less any insurance proceeds received or payable to the Company in connection with such Event or Events of Loss (provided that any insurance proceeds received or payable in connection with the Event or Events of Loss are used to restore, repair or replace such Event or Events of Loss) are reasonably estimated to be greater than $ 10,000,000, and/or (ii) any one or more Takings, as a result of which the aggregate condemnation proceeds are reasonably estimated to be greater than $10,000,000 (a “Major Loss”), Seller shall have, in the case of a Major Loss relating to one or more Events of Loss, the option, exercised by notice to the Buyer, to cause the Company to restore, repair or replace the affected Assets. If the Seller elects not to cause the Company to restore, repair or replace the Assets affected by a Major Loss, or such Major Loss is the result of one or more Takings, the provisions of Section 5.19(c) will apply;

(c) In the event that the Seller elects not to cause the Company to restore, repair or replace a Major Loss, or in the event that the Seller, having elected to cause the Company to repair, replace or restore the Major Loss, fails to cause the Company to complete such repair, replacement or restoration prior to the Closing Date, or in the event that a Major Loss is the result of one or more Takings, then the Parties shall, within thirty (30) days following the Seller’s election not to cause the Company to restore, repair or replace, failure to complete, or the occurrence of such Takings, as the case maybe, negotiate in good faith an equitable adjustment in the Purchase Price to reflect the impact of the Major Loss, as mitigated by any repair, replacement or restoration work actually completed by the Company, on the Assets, and

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proceed to the Closing at a Purchase Price so adjusted. To assist the Buyer in its evaluation of any and all Events of Loss, the Seller shall provide the Buyer such access to the Assets and such information as the Buyer may reasonably request in connection therewith; and

(d) In the event that the Parties fail to reach agreement on an equitable adjustment of the Purchase Price within the thirty (30) days provided in Section 5.19(c), then the Buyer shall have the right to elect, exercisable by notice to the Seller within fifteen (15) days immediately following the expiration of the thirty (30) day period, to (i) proceed with the consummation of the transaction at the Closing, with a reduction in the Purchase Price, consistent with the Seller’s last offer of equitable adjustment thereto as contemplated by the penultimate sentence of Section 5.19(c) communicated to the Buyer, in which event the Seller shall assign over or deliver to the Buyer at the Closing all condemnation proceeds or insurance proceeds that the Seller receives, or to which the Seller become entitled by virtue of the Event of Loss or Taking with respect to the Assets, less any costs and expenses reasonably incurred by the Seller in connection with such Events of Loss or Taking or in obtaining such condemnation proceeds or insurance proceeds, and less the reduction in the Purchase Price made pursuant to this clause (i), or (ii) submit the matter to dispute resolution pursuant to Section 9.16 to determine the adjustment, if any, in the Purchase Price, which determination shall be binding on all Parties. If the Buyer fails to make the election within the fifteen (15) day period described in the preceding sentence, the Buyer will be deemed to have made the election to proceed with the Closing under clause (i) hereof.

(e) For the avoidance of doubt, any Event of Loss which has been repaired, replaced or restored by Seller pursuant to Section 5.19(b) or any Taking or Event of Loss which has been the subject of a purchase price reduction pursuant to Section 5.19(c) or 5.19(d) shall be disregarded for purposes of determining whether Seller has breached any representation or warranty hereunder, including for purposes of Section 6.2(a) and Section 7.1 (i).

ARTICLE 6

Conditions to Closing

SECTION 6.1 Conditions to Obligations of Buyer and British Energy. The obligations of Buyer and British Energy to consummate the Closing are subject to the satisfaction of the following conditions:

(a) The waiting period applicable to the consummation of the transactions contemplated hereby under the HSR Act and any other material waiting periods under applicable foreign laws (if any) shall have expired or been terminated, or the Parties shall have determined to their mutual satisfaction that the transactions contemplated hereby are exempt from the HSR Act or other applicable foreign laws. No action by the Federal Trade Commission, Department of Justice or any foreign Governmental Entity challenging or seeking to enjoin the consummation of the transactions contemplated hereby shall have been instituted and be pending.

(b) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition shall have been issued and be in effect restraining or prohibiting the consummation of

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the transactions contemplated hereby nor shall any action have been taken or any statute, rule, regulation or order have been enacted, entered or enforced or be deemed applicable to the transactions contemplated hereby which makes the consummation of the transactions contemplated hereby illegal or prevents or prohibits the sale of the BEUSH Shares.

SECTION 6.2 Condition to Obligation of Buyer. The obligation of Buyer to consummate the Closing is subject to the satisfaction or waiver of each of the following conditions:

(a) Representations, Warranties and Covenants. The representations and warranties in Article 3 shall be true and correct in all material respects on and as of the Closing Date, as if such representations and warranties were made on and as of the Closing Date (except to the extent that any such representations and warranties were made as of a specified date, which representations and warranties shall continue on the Closing Date to be true in all material respects as of such specified date), and the covenants and agreements of Seller to be performed on or before the Closing Date shall have been duly performed in all material respects in accordance with this Agreement, except where the failure of such representations and warranties to be so true, correct and complete or failure to perform a covenant or agreement shall not have, individually or in the aggregate, resulted in a Material Adverse Effect on any member of the Company Group. The Seller shall have delivered an officer’s certificate dated as of the Closing, to such effect.

(b) Closing Documents. On or prior to the Closing Date, Seller shall have delivered all agreements, instruments and documents required to be delivered by Seller pursuant to Section 2.4. The Seller shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

(c) No Action. Except for any NRC Proceeding initiated by a party other than a member of the Company Group which may be pending after the NRC has approved the Application, on the Closing Date, no claim or Action (excluding any such matter initiated by Buyer or any of its Affiliates) shall be pending or threatened seeking to enjoin or restrain the consummation of the Closing or the transactions contemplated by this Agreement, or seeking to recover substantial damages from Buyer or any Affiliate of Buyer resulting therefrom.

(d) Buyer’s Regulatory Approvals. Buyer shall have obtained or made each of the approvals listed on Schedule 6.2(d) (the “Buyer Regulatory Approvals”), each such approval to be in form and substance reasonably acceptable to Buyer.

(e) Seller Approvals and Consents. Seller shall have obtained or made each of the British Energy Regulatory Approvals, each such approval shall be in form and substance reasonably acceptable to Buyer.

(f) Legal Opinions. Buyer shall have received opinions of counsel of British Energy, such in the form of Exhibit A(i) and Exhibit A(ii).

(g) No Material Adverse Effect. No Material Adverse Effect as to any member of the Company Group shall have occurred and be continuing.

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(h) ISRA Clearance. Seller shall have obtained an ISRA clearance satisfying the requirements of Section 5.13.

(i) No Permanent Shutdown of Facilities. None of the Facilities shall have been permanently shut down as a result of actions taken by the NRC or other Governmental Authority.

(j) No Reduction of Licensed Thermal Output. Neither the NRC nor any other Governmental Authority shall have reduced the licensed thermal output of any Facility by an amount that exceeds five percent (5%) of the licensed thermal output of all Facilities on an aggregate basis.

(k) Guarantee of British Energy plc. British Energy shall deliver or cause to be delivered (i) a guaranty, in the form of Exhibit D hereto, executed by British Energy plc in favor of Buyer, guaranteeing the obligations of British Energy under this Agreement or (ii) an executed substitute guaranty or other credit support that guarantees the obligations of British Energy under this Agreement, in form and substance reasonably acceptable to Buyer.

(l) Tax Matter. (i) The Company has received from the Internal Revenue Service, and delivered to Buyer, a private letter ruling under Treas. Reg. Section 301.9100 that the transfer in 2001 of the fifty percent (50%) ownership interest in the Company from PECO Energy Company to Exelon had the tax consequences set forth in Treas. Reg. Section 1.468A-6(c); or (ii) Buyer has received a “will” opinion to the foregoing effect, dated as of the Closing Date, from counsel to Seller, addressed and in form satisfactory to Buyer in Buyer’s sole and absolute discretion.

(m) Any Liens associated with the Credit Facility Agreement or the Pledge Agreement shall have been released in the reasonable satisfaction of Buyer.

SECTION 6.3 Conditions to Obligation of British Energy. The obligation of British Energy to consummate the Closing is subject to the satisfaction or waiver of each of the following conditions:

(a) Representations, Warranties and Covenants. The representations and warranties of Buyer contained in Article 4 shall be true and correct in all material respects on and as of the Closing Date, as if such representations and warranties were made on and as of the Closing Date (except to the extent that any such representations and warranties were made as of a specified date, which representations and warranties shall continue on the Closing Date to be true in all material respects as of such specified date), and the covenants and agreements of Seller to be performed on or before the Closing Date shall have been duly performed in all material respects in accordance with this Agreement, except where the failure of such representations and warranties to be so true, correct and complete or failure to perform a covenant or agreement shall not have, individually or in the aggregate, resulted in a Material Adverse Effect on Buyer. The Buyer shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

(b) Closing Documents. On or prior to the Closing Date, Buyer shall have delivered all agreements, instruments and documents required to be delivered by Buyer pursuant to Section 2.5. The Buyer shall have delivered an officer’s certificate, dated as of the Closing, to such effect.

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(c) No Action. Except for any NRC Proceeding which may be pending after the NRC has approved the Application, on the Closing Date, no claim or Action (excluding any such matter initiated by Seller or any of its Affiliates) shall be pending or threatened seeking to enjoin or restrain the consummation of the Closing or the transactions contemplated by this Agreement, or seeking to recover substantial damages from Seller or any Affiliate of Seller resulting therefrom.

(d) British Energy Approvals. British Energy shall have obtained or made each of the approvals listed on Schedule 6.3(d) (the “British Energy Regulatory Approvals”), each such approval to be in form and substance reasonably acceptable to British Energy. The approvals listed in Items 1 and 2 of Schedule 3.2 shall have been obtained.

(e) [Intentionally Omitted.]

(f) ISRA Clearance. Seller shall have obtained an ISRA clearance meeting the requirements set forth in Section 5.13.

ARTICLE 7

Indemnification

SECTION 7.1 Indemnification by Seller. From and after the Closing, subject to the other terms and limitations set forth in this Agreement, Seller shall, indemnify, defend, reimburse and hold harmless Buyer, its Affiliates (including the Company Group) and their respective directors, officers, partners and employees (each such Person, a “Buyer Indemnified Party” and, collectively, the “Buyer Indemnified Parties”), from and against any and all Losses actually incurred by any Buyer Indemnified Party (i) for any breach of the representations and warranties contained in Article 3 or in any certificate delivered by Seller at the Closing with respect to such representations and warranties, (ii) for any breach of the covenants or obligations of Seller under this Agreement, (iii) for any Seller Ownership Period Environmental Liability, or (iv) for any Pre-Closing ERISA Liability.

SECTION 7.2 Indemnification by Buyer. From and after the Closing, subject to the other terms and limitations set forth in this Agreement, Buyer shall indemnify, defend, reimburse and hold harmless Seller, its Affiliates and their respective directors, officers, partners and employees (each such Person, a “Seller Indemnified Party” and, collectively, the “Seller Indemnified Parties”), from and against any and all Losses actually incurred by any Seller Indemnified Party (i) for any breach of Buyer’s representations or warranties made in this Agreement or in any certificate delivered by Buyer at the Closing with respect to such representations and warranties, or (ii) for any breach of the covenants or obligations of Buyer under this Agreement.

SECTION 7.3 Limitations on Indemnity.

(a) Except for the specific indemnity provided in Section 7.7 of this Agreement, anything in this Agreement to the contrary notwithstanding, in no event shall Seller ever be

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required to indemnify any Buyer Indemnified Party for Losses pursuant to Section 7.1 or any of the other provisions of this Agreement, including Section 5.10 (or to pay any other amount in connection with or with respect to this Agreement or the transactions contemplated by this Agreement) (i) until the aggregate amount of all such Losses shall have exceeded $5 million (the “Deductible”), whereupon only Losses in excess of the Deductible shall be subject to indemnification hereunder; provided, however, that any individual Loss of less than $100,000 that is otherwise subject to indemnification hereunder shall be disregarded in determining whether any Buyer Indemnified Party has incurred Losses up to or exceeding the Deductible, or (ii) in an amount exceeding, in the aggregate, 75% of the Adjusted Purchase Price.

(b) Notwithstanding anything to the contrary contained in this Agreement, Seller and Buyer agree that the recovery by any Indemnified Party of any damages suffered or incurred by such Indemnified Party as a result of any breach by another Party of any of its obligations under this Agreement shall be limited to the actual damages suffered or incurred by an Indemnified Party as a result of the breach by the breaching Party of its obligations hereunder, and in no event shall the breaching Party be liable to an Indemnified Party for any indirect, consequential, special, exemplary or punitive damages (including any damages on account of lost profits or opportunities or lost or delayed generation) suffered or incurred by an Indemnified Party as a result of the breach by the breaching Party of any of its obligations hereunder.

SECTION 7.4 Indemnity Procedures.

(a) If a claim by a third party is made against a Seller Indemnified Party or a Buyer Indemnified Party (any such person, an “Indemnified Party”) or an Indemnified Party shall otherwise learn of an assertion or of a potential claim, and if such indemnified Party intends to seek indemnity with respect thereto under this Article 7 (other than with respect to an indemnity arising out of the breach of any representation or warranty contained in Sections 3.16, 3.17 or 3.23, which shall be governed by Section 5.10(g)), such Indemnified Party shall promptly furnish written notice of such claim (in reasonable detail and including the factual basis for such claim and, to the extent known, the amount thereof) to the Party against whom indemnity is sought (such Party, in such capacity, the “Indemnifying Party”). Thereafter, the Indemnified Party will deliver to the Indemnifying Party, promptly after the Indemnified Party’s receipt thereof, copies of all material notices and documents (including court papers) received or transmitted by the Indemnified Party relating to such claim. The failure of the Indemnified Party to deliver prompt written notice of a claim shall not affect the indemnity obligations of the Indemnifying Party hereunder, except to the extent the Indemnifying Party was actually disadvantaged by such delay in delivery of notice of such claim. The Indemnifying Party shall have thirty (30) days after receipt of such notice to provide written notice to the Indemnified Party acknowledging unconditionally its obligations to indemnify the Indemnified Party with respect to such claim (an “Acceptance Notice”) and if it delivers an Acceptance Notice, to elect to undertake, conduct and control (through counsel of its own choosing and at its own expense), the settlement or defense of such claim, and the Indemnified Party shall cooperate with it in connection therewith. If the Indemnifying Party does not assume the conduct and control of such settlement and defense, it shall have the right to participate in the settlement or defense of such claim, and the Indemnified Party shall cooperate with it in connection therewith. If the Indemnifying Party elects to undertake, conduct and control the settlement or defense of such claim, the Indemnifying Party shall permit the Indemnified Party to participate in such settlement or defense through counsel chosen by such Indemnified Party (but the fees and expenses of such counsel shall be borne by such Indemnified Party). So long as the Indemnifying Party, at the Indemnifying Party’s cost and

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expense, (i) has undertaken the defense of, and assumed full responsibility for all indemnified liabilities with respect to, such claim, (ii) is reasonably contesting such claim in good faith through appropriate proceedings, and (iii) has taken such action (including the posting of a bond, deposit or other security) as may be necessary to prevent any action to foreclose a lien against or attachment of the property of the Indemnified Party for payment of such claim, the Indemnified Party shall not pay or settle any such claim; provided, however, that, the Indemnified Party shall have the right to pay or settle any such claim if it has waived in writing any right to indemnity by the Indemnifying Party for such claim; and, provided, further, that, if within thirty (30) days after the receipt of the Indemnified Party’s notice of a claim of indemnity under this Section 7.4(a), the Indemnifying Party does not notify the Indemnified Party that it elects (at the Indemnifying Party’s cost and expense) to undertake the defense thereof and assume full responsibility for all indemnified liabilities with respect thereto, or gives such notice and thereafter fails to contest such claim in good faith or to prevent action to foreclose a lien against or attachment of the Indemnified Party’s property as contemplated above, the indemnified Party shall have the right to contest, settle or compromise such claim and the Indemnified Party shall not thereby waive any right to indemnity for such claim under this Agreement.

(b) Any claim on account of Losses for which indemnification is provided under this Agreement which does not involve a claim of a third party will be asserted by prompt written notice (setting forth in reasonable detail the facts or circumstances that allegedly give rise to such claim and, to the extent known, the amount thereof) given by the Indemnified Party to the Indemnifying Party from whom such indemnification is sought. The failure or delay by any Indemnified Party to so notify the Indemnifying Party will not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party under this Agreement, except to the extent that the Indemnifying Party is actually disadvantaged by such delay in delivery of notice of such claim.

(c) In the event of payment in full by an Indemnifying Party to any Indemnified Party in connection with any claim (an “Indemnified Claim”), such Indemnifying Party will be subrogated to and will stand in the place of such Indemnified Party as to any events or circumstances in respect of which such Indemnified Party may have any right or claim relating to such Indemnified Claim against any claimant or plaintiff asserting such Indemnified Claim or against any other Person. Such Indemnified Party will cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim.

SECTION 7.5 Procedural Requirements for Environmental Claims by Buyer. The provisions of this Section 7.5 are in addition to, and not in limitation of, the procedures set forth in Section 7.4 (which shall be deemed superseded to the extent inconsistent with this Section 7.5). Buyer will provide Seller with prompt notice describing in reasonable detail any condition or claim in respect of which Losses arising out of a breach of the representations and warranties in Section 3.20 or any Seller Ownership Period Environmental Liability are or may be incurred by any Buyer Indemnified Party; provided, however, that if such notice is not given within a sufficient period of time or in sufficient detail to apprise Seller of the nature of any such condition or claim (in each instance taking into account the facts and circumstances with respect thereto), the costs and expenses incurred by such Buyer Indemnified Party in connection with such condition or claim shall not constitute Losses to the extent that Seller’s position is actually prejudiced as a result thereof. Seller will have the option to participate, at their own expense, in

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the resolution of any such conditions or claims (and, in any event, Buyer will consult in good faith with Seller in respect of the resolution of any such conditions or claims). Buyer will keep Seller apprised of the status of and any action by or on behalf of Buyer or any member of the Company Group or their respective Affiliates with respect to all such conditions or claims. If Seller is not given, within a sufficient period of time or in sufficient detail, information necessary to reasonably apprise Seller of the status of and any action by or on behalf of Buyer, any member of the Company Group or their respective Affiliates with respect to any such conditions or claims (in each instance taking into account the facts and circumstances with respect thereto), the costs and expenses incurred by Buyer or any member of the Company Group in connection with such condition or claim shall not constitute Losses to the extent that Seller’s position is actually prejudiced as a result thereof.

SECTION 7.6 Survival and Time Limitation. The terms and provisions of this Agreement shall survive the Closing of the transactions contemplated hereunder. Notwithstanding the foregoing, after Closing, any claim by any Buyer Indemnified Party that Seller is liable to such Buyer Indemnified Party under the terms of this Agreement for breach of any representations and warranties of Seller must be given to Seller on or prior to the date that is twelve (12) months after the Closing Date, except for (i) any claims for breach of the representations and warranties of Seller in Sections 3.1, 3.2, 3.3, 3.10, 3.11, 3.12, 3.16, 3.17 and 3.23, and any claims made by Buyer pursuant to Section 5.10, which must be given to Seller (or not at all) on or prior to the date that is ninety (90) days after the expiration of all applicable statutes of limitations with respect to the matters covered thereby, (ii) any claim for breach of the representations and warranties of Seller in Sections 3.7, 3.8, 3.9 and 3.36, which shall survive indefinitely, (iii) except as described in clause (iv) of this Section 7.6, any claim for breach of the representations and warranties of Seller in Section 3.20, which must be given to Seller on or prior to the date that is twenty-four (24) months after the Closing Date, (iv) any claim for breach of Section 3.20 relating to the matters described in Section 7.7 hereof, which shall survive until the later of the complete and conclusive resolution of any such matters with any applicable Governmental Authority or the payment in full of any amounts owed to each Buyer Indemnified Party under Section 7.7, and (v) any claim for breach of Section 3.37, which shall survive for the initial license term of each respective Facility. Notwithstanding the initial sentence of this Section 7.6, after Closing, any claim by any Seller Indemnified Party that Buyer is liable to such Seller Indemnified Party for a breach of any representations and warranties of Buyer must be given to Buyer on or prior to the date that is twelve (12) months after the Closing Date. All covenants and other agreements of Seller and Buyer contained in this Agreement that by their terms are to be performed after the Closing shall survive until the expiration of all applicable statutes of limitations with respect to the matters covered thereby.

SECTION 7.7 Specific Indemnity by Seller. Notwithstanding the foregoing, from and after the Closing, Seller shall indemnify, defend, reimburse and hold harmless each Buyer Indemnified Party from and against any and all Losses actually incurred by any Buyer Indemnified Party that were incurred by such Buyer Indemnified Party as a result of the “Fish Kill” described in Schedule 3.20 hereof (including without limitation any and all Losses actually incurred in connection with the allegations set forth in Schwartz v. AmerGen Energy Company, Exelon Generation Company, British Energy Company et al.; Superior Court of New Jersey, Docket L-2075-03 as filed on July 25, 2003, and any subsequent amendments to the allegations

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related to the “Fish Kill”, as described in Schedule 3.20 hereof). In connection with making an Indemnified Claim, the Parties shall follow the Indemnification Procedures described in Sections 7.4 and 7.5 above.

SECTION 7.8 Further Indemnity Limitations. The amount of any indemnifiable Loss shall be reduced (i) to the extent any Indemnified Party actually receives any insurance proceeds with respect to such Loss, (ii) to take into account any net Tax benefit arising from the recognition of the Loss, (iii) to take into account any payment actually received by an Indemnified Party from a third party with respect to such Loss, and (iv) to the extent of any Loss that is attributable to a determination that the initial Tax Basis of the assets of the Company should not be increased by the amount of the nonqualified decommissioning liability.

SECTION 7.9 Sole and Exclusive Remedy. From and after the Closing, except as provided in Section 5.10 of this Agreement for any claim in respect of Taxes, the indemnification provisions of this Article 7 shall be the sole and exclusive post-Closing remedy of each Party (including the Seller Indemnified Parties and the Buyer Indemnified Parties) (i) for any breach of any Party’s representations, warranties, covenants or agreements contained in this Agreement, or (ii) otherwise with respect to this Agreement or the transactions contemplated hereby. In furtherance of the foregoing, each Party hereby waives, to the fullest extent permitted under applicable Law, any and all other rights, claims and causes of action it or any of its Affiliates may have against another Party hereunder with respect thereto.

ARTICLE 8

Termination

SECTION 8.1 Termination. This Agreement may be terminated at any time prior to the Closing:

(a) by mutual written agreement of British Energy and Buyer;

(b) by British Energy or Buyer if the Closing shall not have been consummated on or before the day that is six (6) months after the date hereof, unless the reason that the Closing has not occurred shall be the failure of the Party seeking to terminate this Agreement to fulfill its obligations hereunder; provided, however, (i) that if the reason the Closing has not occurred is because Buyer Regulatory Approvals or British Energy Regulatory Approvals have not been obtained and Commercially Reasonable Efforts are being undertaken to obtain such regulatory approvals by the Party responsible for obtaining such regulatory approvals, the reference to “the day that is six (6) months after the date hereof in this Section 8.1(b) shall be extended for an additional six (6) months and neither British Energy nor Buyer may terminate this Agreement during such extended period so long as such Commercially Reasonable Efforts continue, or (ii) that if the reason the Closing has not occurred is because FPL Energy Nuclear Mid-Atlantic, LLC or its Affiliates (collectively “FPL”) is attempting to prevent the transfer of the Seller’s indirect interest in the Company and Seller has timely commenced arbitration proceedings or other legal action with FPL regarding FPL’s action or inaction with respect to such transfer, the reference to “the day that is six (6) months after the date hereof in this Section 8.1(b) shall be extended for an additional six (6) months and neither British Energy nor Buyer may terminate this Agreement during such extended period;

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(c) by British Energy or Buyer if consummation of the transactions contemplated hereby would violate any nonappealable final order, decree or judgment of any court or governmental body having competent jurisdiction;

(d) by Buyer if any Buyer Regulatory Approvals shall have been denied (and a petition for rehearing, a petition for review or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted subject to terms and conditions that would likely have a Material Adverse Effect, and all appeals of any such actions shall have been taken and been unsuccessful;

(e) by British Energy if any British Energy Regulatory Approvals shall have been denied (and a petition for rehearing, a petition for review or refiling of an application initially denied without prejudice shall also have been denied) or shall have been granted subject to terms and conditions that would likely have a Material Adverse Effect, and all appeals of any such actions shall have been taken and been unsuccessful;

(f) by Buyer if there has been a material violation or breach by British Energy of any covenant representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by British Energy of written notice specifying particularly such violation or breach, and such violation or breach has not been waived by Buyer;

(g) by British Energy if there has been a material violation or breach by Buyer of any covenant, representation or warranty contained in this Agreement and such violation or breach is not cured by the earlier of the Closing Date or the date thirty (30) days after receipt by Buyer of written notice specifying particularly such violation or breach, and such violation or breach has not been waived by British Energy;

The Party desiring to terminate this Agreement shall give notice of such termination to the other Party in the manner set forth in Section 8.2.

SECTION 8.2 Effect of Termination. In the event of termination of this Agreement by Seller or Buyer pursuant to Section 8.1, written notice thereof shall promptly be given by the terminating Party to the other Parties, and this Agreement shall thereupon terminate provided, however, the termination of this Agreement shall not release any party from liability for any breach of any representation, warranty or covenant contained herein prior to the date of termination. Following any such termination, Buyer and Seller will continue to be bound by the obligations set forth in Sections 5.8 and 5.9 and Article 7. If this Agreement is terminated as provided herein, all filings, applications and other submissions made to any Governmental Authority shall, to the extent practicable, be withdrawn from the Governmental Authority to which they were made.

SECTION 8.3 Remedies.

(a) Seller’s Remedies. (i) Notwithstanding anything herein to the contrary, upon the failure by Buyer to fulfill any undertaking or commitment provided for herein on the

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part of Buyer that is required to be fulfilled on or prior to the Closing Date, Seller, at its sole option, may enforce specific performance of this Agreement or pursue any rights or remedies available at law or in equity.

(b) Seller’s Remedy for Termination Pursuant to Section 8.1(b), 8.1(c), 8.1(d) or 8.1(e). In the event that (i) this Agreement is terminated pursuant to any of Section 8.1(b) through 8.1(e), (ii) such termination resulted from a failure to obtain applicable regulatory approvals, and (iii) such failure is attributable to the announcement or consummation after the date hereof of any transaction pursuant to which Buyer or any of its Affiliates would acquire any electric generation facilities or uncommitted electric generating capacity, Buyer shall pay to Seller, no later than five (5) days after any such termination, by wire transfer of immediately available funds to an account designated in writing by Seller, an amount equal to $8,295,000.

(c) Buyer’s Remedies. Except as set forth in Section 8.3(d) hereof, notwithstanding anything herein provided to the contrary, upon failure of Seller to fulfill any undertaking or commitment provided for herein on the part of Seller that is required to be fulfilled on or prior to the Closing Date, Buyer, at its sole option, may enforce specific performance of this Agreement or pursue any rights or remedies available at law or in equity.

(d) Buyer’s Remedy for Termination Pursuant to Section 8.1(b). In the event that this Agreement is terminated by Buyer or Seller pursuant to Section 8.1(b) and the Closing shall not have been consummated as a result of FPL’s material interference with the transactions contemplated hereby, Buyer’s sole and exclusive remedy for such termination shall be a termination payment in the amount of $8,295,000 (the “Break Up Fee”), payable by Seller to Buyer by wire transfer no later than five (5) days after the consummation of any sale of the BEUSH Shares which directly or indirectly transfers the Company Group’s ownership interest in the Company to FPL or an Affiliate thereof; provided that, in the event that, following such a termination of this Agreement, Seller has not consummated such a sale of its direct or indirect ownership interests in the Company within one (1) year of the date of this Agreement, Seller shall make a payment to Buyer, within three (3) Business Days after the first anniversary of the date hereof, in the amount of $1,000,000, such amount to be deducted from any payment of the Break Up Fee upon consummation of such a sale within three (3) years from the date of this Agreement. In the event such a sale of Seller’s direct or indirect ownership interests in the Company is not consummated within three (3) years from the date of this Agreement, Seller shall have no further liability to Buyer for termination pursuant to Section 8.1(b). The Parties agree that Buyer’s actual damages as a result of such termination would be extremely difficult to calculate, and that such payment constitutes liquidated damages for the consequences of such termination and is not a penalty.

(e) Election of Remedies. (i) Except as set forth in Section 8.3(d) hereof, if any Party elects to pursue singularly any right or remedy available to it under this Section 8.3, then such Party may at any time thereafter cease pursuing that right or remedy and elect to pursue any other right or remedy available to it under this Section 8.3. All rights and remedies hereunder (except those set forth in Section 8.3(d)) shall be cumulative. Except as otherwise provided by Applicable Law, no delay or forbearance by a Party in the exercise or enforcement of any right or remedy hereunder shall be deemed a waiver by such party of its right hereunder to exercise or enforce such right or remedy.

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ARTICLE 9

Miscellaneous

SECTION 9.1 Notices. All notices, requests and other communications to either Party hereunder shall be in writing. All notices, request, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered personally, (ii) sent by next-day or overnight mail or delivery, or (iii) sent by facsimile addressed as follows:

If to Buyer, to:

Exelon Generation Company, LLC

4300 Winfield Road

Warrenville, IL 60555

Attn: Chief Executive Officer and Chief Nuclear Officer

Telecopy: (630) 657-4300

with a copy to:

Exelon Corporation

10 South Dearborn Street

Chicago, IL 60603

Attn: Executive Vice President and General Counsel

Telecopy: (312) 394-2900

If to British Energy, to:

3 Redwood Crescent

Peel Park

East Kilbride, G74 SPR, Scotland

Attn: Company Secretary

Telecopy: 011-44-13552-62563

with a copy to:

Simpson Thacher & Bartlett

425 Lexington Avenue

New York, New York 10017-3954

Attn: Mario A. Ponce, Esq.

Telecopy: (212) 455-3442

All such notices, requests, demands, waivers and other communications shall be deemed to have been received (w) if by personal delivery, on the day after such delivery, (x) if by certified or registered mail, on the seventh business day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax or telegram, on the next business day following the day on which such fax or telegram was sent, provided, however, that a copy is also sent by certified or registered mail.

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SECTION 9.2 Amendments; No Waivers.

(a) Any provisions of this Agreement may be amended or waived prior to the Closing Date if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by Buyer and British Energy or in the case of a waiver, by the Party against whom the waiver is to be effective.

(b) No failure or delay by either Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

SECTION 9.3 Expenses. Except as expressly provided in this Agreement, all costs and expenses incurred in connection with the execution, delivery and performance of this Agreement, including fees and expenses of counsel, financial advisors and accountants, shall be paid by the Party incurring such cost or expense (or in the case of any fees or expenses incurred by any member of the Company Group, by Seller), whether or not the Closing shall have occurred.

SECTION 9.4 Successors and Assigns. The rights and obligations of the Parties shall not be assigned or delegated by either Seller, on the one hand, or Buyer, on the other hand, without the written consent of Buyer (in the case of an assignment or delegation by Seller) or Seller (in the case of an assignment or delegation by Buyer), which consent shall not be unreasonably withheld or delayed. No assignment of this Agreement will relieve the assigning Party of its obligations hereunder. Subject to the two preceding sentences, this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective successors and permitted assigns.

SECTION 9.5 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York.

SECTION 9.6 Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed by the other Party hereto. Facsimile transmission of any signed original document and/or retransmission of any signed facsimile transmission will be deemed the same as delivery of an original. At the request of any Party, the Parties will confirm facsimile transmission by signing a duplicate original document.

SECTION 9.7 Entire Agreement. This Agreement and, to the extent applicable, the LLC Agreement constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements, understandings and negotiations, both written

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and oral, between the Parties with respect to the subject matter of this Agreement. Neither this Agreement nor any provision hereof is intended to confer upon any Person other than the Parties hereto any rights or remedies hereunder.

SECTION 9.8 Captions. The captions herein are included for convenience of reference only and shall not affect in any way the meaning or interpretation hereof.

SECTION 9.9 Third Party Beneficiaries. Except as provided in Sections 5.8, 5.12 and 7.2, no provision of this Agreement is intended to confer any rights, benefits, remedies, obligations or liabilities hereunder upon any Person other than the Parties and their respective successors and permitted assigns.

SECTION 9.10 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such a determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

SECTION 9.11 Construction. Unless the context of this Agreement clearly requires otherwise, (a) references to the plural include the singular, the singular the plural, the part the whole, (b) references to any gender include all genders, (c) “or” has the inclusive meaning frequently identified with the phrase “and/or”, (d) “including” has the inclusive meaning frequently identified with the phrase “but not limited to”, (e) references to “hereunder” or “herein” relate to this Agreement and (f) section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified.

SECTION 9.12 Consent to Jurisdiction.

(a) Each of the Parties hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any court of the State of New York sitting in New York County or any Federal court of the United States of America sitting in the State of New York and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any transaction contemplated by this Agreement or for recognition or enforcement of any judgment relating to the transactions contemplated by this Agreement, and each of the Parties hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court of the State of New York or, to the extent permitted by Law, in such Federal court. Each of the Parties agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law.

(b) Each of the Parties hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or the transactions contemplated by this Agreement in any court of the State of New

63

York sitting in New York County or any Federal court of the United States of America sitting in the State of New York. Each of the Parties hereby irrevocably waives, to the fullest extent permitted by Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

SECTION 9.13 Waiver of Punitive and Other Damages and Jury Trial.

(a) THE PARTIES TO THIS AGREEMENT EXPRESSLY WAIVE AND FOREGO ANY RIGHT TO RECOVER PUNITIVE, EXEMPLARY, LOST PROFITS, CONSEQUENTIAL OR SIMILAR DAMAGES IN ANY ARBITRATION, LAWSUIT, LITIGATION OR PROCEEDING ARISING OUT OF OR RESULTING FROM ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

(c) EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF THE FOREGOING WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.13.

SECTION 9.14 Good Faith Covenant. The Parties agree that their actions and dealings with each other pursuant to this Agreement shall be subject to an express covenant of good faith and fair dealing.

SECTION 9.15 Buyer Obligations. Any obligations of the Buyer under this Agreement may be satisfied or performed by an Affiliate of the Buyer.

SECTION 9.16 Dispute Resolution. Prior to instituting any litigation or other dispute resolution in connection with this Agreement, the Parties will attempt in good faith to resolve any dispute or claim by referring any such matter, within ten (10) days of written notice of any such dispute or claim, to one of their respective executive officers for resolution. The executive officers of the Parties shall attempt to resolve the dispute or claim within thirty (30) days thereafter.

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SECTION 9.17 Change in Law. If and to the extent that any Laws or regulations that govern any aspect of this Agreement shall change, so as to make any aspect of this transaction unlawful or impracticable, then the Parties shall endeavor, to the extent reasonably possible, to enter into such amendments to this Agreement as may be reasonably necessary for this Agreement to accommodate any such legal or regulatory changes, without materially changing the overall benefits or consideration expected hereunder by either Party.

SECTION 9.18 Time is of the Essence; Action on a Business Day. Time is of the essence under this Agreement. If the date specified in this Agreement for the giving of any notice or the taking of any action is not a Business Day (or if the period during which any notice is required to be given or any action taken expires on a date which is not a Business Day), then the date for giving such notice or taking such action (and the expiration date of such period during which notice is required to be given or action taken) shall be the next day which is a Business Day.

[intentionally left blank]

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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement or have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

BUYER
EXELON GENERATION COMPANY, LLC
By:	/s/ Charles P Lewis
Name:	Charles P Lewis
Title:	Vice President
SELLER
BRITISH ENERGY INVESTMENT LTD.
By:	/s/ Illegible
Name:	Illegible
Title:	Illegible

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EX-4.15

CONFORMED COPY

Exhibit 4.15

DATED: 1 October 2003

BRITISH ENERGY PLC

BRITISH ENERGY GENERATION (UK) LIMITED

BRITISH ENERGY GENERATION LIMITED

THE OTHER BRITISH ENERGY PARTIES

NUCLEAR GENERATION DECOMMISSIONING FUND LIMITED

(to be renamed Nuclear Liabilities Fund Limited)

THE TRUSTEES

of the Nuclear Trust

AND

THE SECRETARY OF STATE FOR TRADE AND INDUSTRY

GOVERNMENT RESTRUCTURING AGREEMENT

Slaughter and May

One Bunhill Row

London EC1Y 8YY

(CDR/AAK)

CONTENTS

1.	INTERPRETATION	2
2.	OBLIGATION TO APPROVE SCHEMES AND ENTER INTO NUCLEAR LIABILITlES AGREEMENTS	7
3.	CONDITIONS	9
4.	AMENDMENT OF CREDIT FACILITY AGREEMENT	12
5.	REPRESENTATIONS AND WARRANTIES	12
6.	UNDERTAKINGS	14
7.	BONDHOLDER RESTRUCTURING AGREEMENT, STANDSTILL AGREEMENT AND NEW STANDSTILL AGREEMENT	15
8.	STATE AID APPROVAL	15
9.	LIABILITY	15
10.	REMEDIES AND WAIVERS	15
11.	INVALIDITY	16
12.	CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999	16
13.	FURTHER ASSURANCE	16
14.	ENTIRE AGREEMENT	16
15.	ASSIGNMENT	17
16.	NOTICES	17
17.	COSTS AND EXPENSES	18
18.	COUNTERPARTS	18
19.	CHOICE OF GOVERNING LAW	18
20.	JURISDICTION	18
21.	AGENT FOR SERVICE	19

Schedule 1 (Other British Energy Parties)	20
Schedule 2 (The Trustees)	21
Schedule 3 (Amendment of Credit Facility Agreement)	22
Schedule 4 (Immediately Effective Provisions of Nuclear Liabilities Agreements)	23
Schedule 5 (Form of Newco 1 And Newco 2 Undertaking)	25
SIGNATURES	29

CONFORMED COPY

GOVERNMENT RESTRUCTURING AGREEMENT

DATE: 1 October 2003

PARTIES:

1. BRITISH ENERGY PLC of 3 Redwood Crescent, Peel Park, East Kilbride G74 5PR (registered in Scotland No. SC 162273) (“British Energy”);

2. BRITISH ENERGY GENERATION (UK) LIMITED of 3 Redwood Crescent, Peel Park, East Kilbride G74 5PR (registered in Scotland No. SC117121) (“ BEG(UK)”);

3. BRITISH ENERGY GENERATION LIMITED of Barnett Way, Barnwood, Gloucester, England GL4 7RS (registered in England No. 03076445) (“BEG”);

4. THE OTHER BRITISH ENERGY PARTIES set out in Schedule 1 (Other British Energy Parties);

5. NUCLEAR GENERATION DECOMMISSIONING FUND LIMITED of 16 Rothesay Place, Edinburgh EH3 7SQ (registered in Scotland No. SC164685) (to be renamed Nuclear Liabilities Fund Limited) (“NLF”);

6. THE TRUSTEES OF THE NUCLEAR TRUST, whose names are set out in Schedule 2 (Nuclear Trustees) (the “Trustees”);

AND

7. THE SECRETARY OF STATE FOR TRADE AND INDUSTRY of One Victoria Street, London SW1V OHT (the “Secretary of State”).

BACKGROUND

(A) In 1996 the Secretary of State privatised certain parts of the nuclear generation industry in the United Kingdom through a sale of shares in British Energy.

(B) To facilitate the privatisation, a segregated fund was established for the purpose of providing arrangements for funding certain nuclear decommissioning liabilities of BEG and BEG(UK), and for this purpose the Nuclear Trust and NLF were established. Each of BEG and BEG(UK) is a subsidiary of British Energy.

(C) In September 2002, British Energy initiated discussions with the Secretary of State with a view to seeking immediate financial support and to enable a longer term restructuring of the Group to take place. In November 2002, British Energy announced the principles of a restructuring of the Group, which the Secretary of State was willing in principle to support, and which together with other proposals to be agreed between British Energy and certain significant financial creditors, were intended to lead to a solvent restructuring of British Energy. In February 2003 the significant financial creditors

agreed between themselves and British Energy, pursuant to a non-binding term sheet, certain principles by which the rights of financial creditors would be restructured.

(D) The proposals agreed between the Secretary of State and British Energy in connection with the restructuring of British Energy included a change to the manner in which the decommissioning liabilities of the Group are to be funded and a proposal for the funding of certain of the contracted nuclear liabilities of the Group and certain of the uncontracted nuclear liabilities of the Group. These proposals require the parties to enter into the Nuclear Liabilities Agreements (as defined below) if the Restructuring (as defined below) is to become effective.

(E) This Agreement provides for the circumstances in which the Nuclear Liabilities Agreements will be entered into.

IT IS AGREED as follows:

1. INTERPRETATION

1.1 In this Agreement and the Schedules:

“Adherence Date”	means in relation to Newco 1 and Newco 2 the respective dates of their entering into the undertakings required by clause 2.7;
“Board”	means the board of directors of British Energy from time to time;
“Bondholder Restructuring Agreement”	has the meaning given to it in the Creditor Restructuring Agreement;
“British Energy Parties”	means British Energy, BEG(UK), BEG, and the companies set out in Schedule 1 (Other British Energy Parties);
“Business Day”	means a day (other than a Saturday or Sunday) on which banks are open for business (other than solely for trading and settlement in euro) in London and Edinburgh;
“Conditions”	means the conditions set out in clause 3.1 (Conditions);
“Contribution Agreement”	means the contribution agreement in the agreed form to be entered into between the Secretary of State, NLF, BEG(UK), BEG, Newco 1 and Newco 2 pursuant to which, amongst other things, BEG and BEG(UK) will agree to make certain contributions to NLF;

2

“Credit Facility Agreement”	means the credit facility agreement dated 26 September 2002 entered into between the Secretary of State, British Energy, the Borrowers as defined therein and the Guarantors as defined therein;
“Creditor Restructuring Agreement”	means the restructuring agreement entered into on the same date as this Agreement by British Energy, certain members of its Group, the consenting EPL Banks, the Significant Creditors, Royal Bank of Scotland PLC, British Nuclear Fuels PLG and the Consenting Bondholders as defined therein;
“Creditors’ Order”	has the meaning given to it in the Creditor Restructuring Agreement;
“Effective Date”	has the meaning given to it in the Creditor Restructuring Agreement;
“EPL Condition”	has the meaning given to it in the Creditor Restructuring Agreement;
“EPL Scheme Order”	has the meaning given to it in the Creditor Restructuring Agreement;
“Escrow Condition”	has the meaning given to it in clause 2.3 (Obligation to enter into Nuclear Liabilities Agreements);
“Group”	means BEG, BEG(UK) and, from time to time, any Subsidiary of BEG or BEG(UK), any Holding Company of BEG and BEG(UK), and any Subsidiary of any such Holding Company;
“Guarantee”	means the guarantee and indemnity to be entered into in the agreed form between the Guarantors as defined therein, BEG(UK), BEG, Newco 1, Newco 2, NLF and the Secretary of State;
“Historic Liabilities Funding Agreement”	means the agreement to be entered into in the agreed form between the Secretary of State, BEG, BEG(UK), Newco 1 and Newco 2 pursuant to which the Secretary of State will agree to meet certain payment obligations of BEG and BEG(UK) under the BNFL Historic Contracts (as defined therein);

3

“Holding Company”	means:
	(A) any holding company within the meaning of section 736 of the Companies Act 1985; and
	(B) any parent undertaking (as defined in section 258 of the Companies Act 1985);
“Material Adverse Change”	has the meaning given to it in the Creditor Restructuring Agreement;
“Members’ Order”	has the meaning given to it in the Creditor Restructuring Agreement;
“Members’ Scheme”	has the meaning given to it in the Creditor Restructuring Agreement;
“NDA Termination Deed”	has the meaning given to it in the Creditor Restructuring Agreement;
“NDF Articles”	has the meaning given to it in the Creditor Restructuring Agreement;
“New Bond Term Sheet”	has the meaning given to it in the Creditor Restructuring Agreement;
“New Standstill Agreement”	has the meaning given to it in the Creditor Restructuring Agreement;
“Newco 1”	has the meaning given to it in the Creditor Restructuring Agreement;
“Newco 2”	has the meaning given to it in the Creditor Restructuring Agreement;
“Nirex Option Agreement”	means the agreement to be entered into in the agreed form between the Secretary of State, BEG, BEG(UK), Newco 1 and Newco 2 pursuant to which BEG and BEG(UK) will each grant an option to the Secretary of State to acquire their respective interests. In shares of, and loans to, United Kingdom Nirex Limited;
“Nuclear Liabilities Agreements”	has the meaning given to it in the Creditor Restructuring Agreement;
“Notified Filing Date”	has the meaning given to it in the Creditor Restructuring Agreement;
“Nuclear Liabilities Funding	means the nuclear liabilities funding agreement to be entered into in the agreed form between NLF,

4

Agreement”	BEG(UK), BEG, Newco 1, Newco 2 and the Secretary of State pursuant to which NLF and the Secretary of State will undertake to fund certain nuclear decommissioning and other liabilities;
“Option Agreement”	means the agreement to be entered into in the agreed form between the Secretary of State, BEG, BEG(UK), Newco 1 and Newco 2 pursuant to which BEG and BEG(UK) will each grant an option to the Secretary of State to acquire the Stations (as defined therein);
“Proceedings”	means any proceeding, suit or action arising out of or in connection with this Agreement;
“Restructuring”	has the meaning given to it in the Creditor Restructuring Agreement;
“Restructuring Condition”	has the meaning given to it in the Creditor Restructuring Agreement;
“Restructuring Date”	has the meaning given to it in the Creditor Restructuring Agreement;
“Service Documents”	has the meaning given in clause 21 (Agent for Service);
“Standstill Agreement”	has the meaning given to it in the Creditor Restructuring Agreement;
“State Aid Approval”	has the meaning given to it in the Creditor Restructuring Agreement;
“Subsidiary”	means:
	(A) any subsidiary within the meaning of section 736 of the Companies Act 1985; and
	(B) any subsidiary undertaking (as defined in section 258 of the Companies Act 1985);
“UK GAAP”	means generally accepted accounting principles in force in the United Kingdom from time to time; and
“Working Hours”	means 9.30 a.m. to 5.30 p.m. on a Business Day.

5

1.2 Unless otherwise stated:

(A) references to any “party” shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

(B) references to a “company” shall be construed so as to include any company, corporation or other body corporate, wherever and however incorporated or established;

(C) references to a “person” shall be construed so as to include any individual, firm, company, government, state or agency of a state, local or municipal authority or government body or any joint venture, association or partnership (whether or not having separate legal personality);

(D) a reference to any statute or statutory provision shall be construed as a reference to the same as it may have been, or may from time to time be, amended, modified or re-enacted;

(E) any reference to a “day” (including within the phrase “Business Day”) shall mean a period of 24 hours running from midnight to midnight;

(F) Subject to paragraph (G) of this Agreement and to clauses 1.4 and 2.6 of the Creditor Restructuring Agreement, a reference to a document “in the agreed form” is a reference to that document in the form initialled by the parties or their solicitors for identification at the date of this Agreement;

(G) a reference to any other document referred to in this Agreement is a reference to that other document as amended, varied, novated, restated or supplemented at any time;

(H) (I) the rule known as the ejusdem generis rule shall not apply and accordingly general words introduced by the word “other” shall not be given a restrictive meaning by reason of the fact that they are preceded by words indicating a particular class of acts, matters or things; and

(II) general words shall not be given a restrictive meaning by reason of the fact that they are followed by particular examples intended to be embraced by the general words;

(I) the Schedules form part of this Agreement and shall have the same force and effect as if expressly set out in the body of this Agreement, and reference to this Agreement shall include the Schedules;

(J) references to any English legal term for any action, remedy, method of Judicial proceeding, legal document, legal status, court, official, or any legal concept or thing shall in respect of any Jurisdiction other than England be deemed to include what most nearly approximates in that jurisdiction to the English legal term; and

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(K) a reference to a clause, sub-clause, paragraph or a Schedule is a reference to a clause, sub-clause or paragraph of, or a schedule to, this Agreement.

1.3 All headings and titles are inserted for convenience only. They are to be ignored in the interpretation of this Agreement.

2. OBLIGATION TO APPROVE SCHEMES AND ENTER INTO NUCLEAR LIABILITIES AGREEMENTS

2.1 Subject to the satisfaction or waiver of the Conditions in accordance with clause 3 (Conditions), (other than the Condition set out in clause 3.1(L) (issue of scheme orders)), the Secretary of State shall as:

(A) joint holder of the special rights redeemable preference share in British Energy;

(B) holder of the special rights redeemable preference share in BEG;

(C) holder of the A special rights redeemable preference share in NLF; and

(D) the duly authorised representative of the Secretary of State for Scotland as holder of the special rights redeemable preference share in BEG(UK)_

give such consents as may be necessary under those shares (including, where necessary, appearing by counsel to consent to the Creditors’ Scheme and the Members’ Scheme), for the implementation of the Restructuring and the execution, delivery and performance of the Nuclear Liabilities Agreements.

2.2 Subject to the satisfaction or waiver of the Conditions in accordance with clause 3 (Conditions), the parties to this Agreement that are to be party to any of the Nuclear Liabilities Agreements will execute the relevant Nuclear Liabilities Agreements in the agreed form, with such amendments as may be agreed between British Energy (subject to the restrictions set out in clause 1.4 of the Creditor Restructuring Agreement and to the obligations of British Energy under clause 2.6 of that agreement) and the Secretary of State and:

(A) In the case of the amendment to the trust deed dated 27 March 1996 of the Nuclear Trust and the NDA Termination Deed the Trustees: and

(B) In the case of the Contribution Agreement, the Nuclear Liabilities Funding Agreement, the NDA Termination Deed the NDF Articles and the Guarantee, the NLF

and will deliver the Nuclear Liabilities Agreements in escrow subject to the Escrow Condition set out in clause 2.3.

2.3 The execution and delivery of the Nuclear Liabilities Agreements in accordance with clause 2.2 shall be in escrow, the condition of the escrow (the “Escrow Condition”) being that the Restructuring Condition has been satisfied by 12 noon on 31 January 2005 or, if earlier, the date falling 120 days after the Effective Date (or such later date as the Secretary of State may agree).

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2.4 Subject to clause 2.5, the Nuclear Liabilities Agreements will be dated the date of satisfaction of the Escrow Condition and (without prejudice to the undertakings set out in clause 6.1 (A)) will become effective as of that date.

2.5 If the Escrow Condition is not satisfied by the date referred to in clause 2.3, the Nuclear Liabilities Agreements will not become effective.

2.6 British Energy undertakes to the Secretary of State as follows:

(A) In the terms of the definitions of “Restructuring Steps” and “agreed form” and clauses 2.6 and 3.6 of the Creditor Restructuring Agreement, as if:

(i) the Secretary of State were a Party;

(ii) references therein to an Objecting Majority were instead references to the Secretary of State;

(iii) references therein to the Consenting Majorities included references to the Secretary of State; and

(iv) references therein to warranties given by the Companies in that agreement were references to the warranties given by Newco 1, Newco 2, the British Energy Parties or any of them in this Agreement;

(B) subject to clauses 3.5 and 3.6 of the Creditor Restructuring Agreement and paragraph (A), upon the execution and delivery in escrow of the Nuclear Liabilities Agreements, it will promptly deliver:

(i) the Creditors’ Order to the Registrar of Companies in Scotland for registration;

(ii) If the Members’ Scheme has not lapsed (as defined in the Creditor Restructuring Agreement), the Members’ Order to the Registrar of Companies in Scotland for registration; and

(iii) If the EPL Condition has not been satisfied, the EPL Scheme Order to the Registrar of Companies in England and Wales for registration; and

(C) to give the Secretary of State not less than five Business Days notice of the day of the sanction hearings for each of the Creditors’ Scheme and the EPL Scheme and of the day British Energy expects to file the Creditors’ Scheme Order with the Registrar of Companies in Scotland for registration; and

(D) that it will copy to the Secretary of State all information provided by it pursuant to clause 3.7 of the Creditor Restructuring Agreement.

2.7 British Energy undertakes to procure that before the Effective Date Newco 1 and Newco 2 will each enter into a written undertaking in favour of the other parties (in the form attached as Schedule 5 (Form of Newco 1 And Newco 2 Undertaking)) agreeing to be bound by the terms of this Agreement.

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3. CONDITIONS

3.1 The obligations of the parties to this Agreement to enter into the Nuclear Liabilities Agreements are conditional on:

(A) the Creditor Restructuring Agreement becoming effective pursuant to clause 1.5 thereof by not later than 31 October 2003, or such later date as the Secretary of State may in writing agree;

(B) there having been no waiver (other than a waiver approved in writing by the Secretary of State) of any Initial Condition (as defined in the Creditor Restructuring Agreement) of the Creditor Restructuring Agreement (other than pursuant to clause 3.3 thereof) or of any Restructuring Condition and the Creditor Restructuring Agreement having been neither amended in a manner that the Secretary of State considers to be material nor terminated;

(C) the Secretary of State not having determined and notified British Energy before the Notified Filing Date in writing that, in her opinion, the Group (including for this purpose Newco 1 and Newco 2) will not be viable in all reasonably foreseeable conditions without access to additional financing (other than financing which the Secretary of State is satisfied has been committed and will continue to be available when required);

(D) without prejudice to the generality of paragraph (C), the Secretary of State having received a copy of letters from the auditors and financial advisers of Newco 1 addressed to Newco 1 giving the confirmations referred to in Rule 2.18 of the Listing Rules of the UK Listing Authority without qualification (whether or not Newco 1 is to be listed on the Official List of the UK Listing Authority), provided that the delivery of copy letters pursuant to this paragraph (D) shall not impose duties upon, or increase the liabilities of, those advisers beyond what would otherwise be the case;

(E) there being no Event of Default (as defined in the Credit Facility Agreement) that is continuing;

(F) the representations and warranties of the British Energy Parties, Newco 1 and Newco 2 set out in clause 5.1 (Representations and Warranties) being true and accurate and not misleading when given and no circumstances having arisen as a result of which any of those representations and warranties would be untrue, inaccurate or misleading if repeated as at the date when the Nuclear Liabilities Agreements would be entered into;

(G) there having been no breach of any undertaking given in this Agreement by any British Energy Party, Newco 1 or Newco 2 which, in the reasonable opinion of the Secretary of State, is, or is likely to be, material in the context of the Restructuring;

(H) it being the case that as at the date when the other conditions set out in this clause 3.1 have been satisfied:

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(i) none of the representations and warranties to be given by British Energy Parties, Newco 1 or Newco 2 in the Nuclear Liabilities Agreements (with the exception of the Acquisition Warranties (as defined in the Option Agreement)) would be untrue; and

(ii) none of the undertakings to be given by British Energy Parties, Newco 1 or Newco 2 in the Nuclear Liabilities Agreements would be materially breached, were those agreements to be entered into;

(I) the initial Conditions set out in clause 3 of the Creditor Restructuring Agreement (other than any Initial Condition that refers to the satisfaction or waiver of the conditions in this clause 3.1) having been satisfied on or before 31 January 2005, or such later date as the Secretary of State may in writing agree;

(J) the Secretary of State, acting reasonably, being satisfied that:

(i) valid fixed and floating security has been granted by each of the British Energy Parties and Newco 1 and Newco 2 in favour of NLF to secure the Decommissioning Default Payment (as defined in the Contribution Agreement), such security to be in form and substance reasonably comparable to the security granted in favour of the Secretary of State under or in connection with the Credit Facility Agreement (with such amendments as NLF may reasonably require) and shall not include as assets the subject of the security the benefits and rights of the Group under the Historic Liabilities Funding Agreement and the Nuclear Liabilities Funding Agreement (the “Security”); and

(ii) each of the British Energy Parties and Newco 1 and Newco 2 have entered into such other security documentation as NLF may have reasonably required for the purpose of creating the Security over any or all of the assets and undertaking of each of those persons, on such terms as NLF may have reasonably required for the purpose of securing the Decommissioning Default Payment;

(iii) all consents and approvals for the creation of the Security have been obtained;

(iv) the Security will, after it becomes effective, rank ahead of any other mortgage, pledge, lien, charge, assignment, hypothecation, or security interest or any other agreement or arrangement having the effect of conferring security granted by, or which has been created in respect of the assets of, any of the British Energy Parties, Newco 1 or Newco 2 (except for the exceptions to the negative pledge set out in paragraph 14.8 of the New Bond Term Sheet set out as Schedule 9 to the Creditor Restructuring Agreement); and

(vi) the Security will become effective upon satisfaction of the Escrow Condition.

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(K) the board of directors and shareholders of Newco 1 having passed resolutions satisfactory to the Secretary of State; acting reasonably, creating the authorised share capital and authorising, pursuant to sections 80 and 95 of the Companies Act 1985, the allotment of shares without pre-emption, rights as required to implement any exercise of the NLF Conversion Rights (as defined in the Contribution Agreement);

(L) the Creditors’ Order having been issued and (to the extent required by the terms of the Creditor Restructuring Agreement) the Members’ Order and the EPL Scheme Order having been Issued;

(M) It not becoming unlawful at any time for any party to this Agreement to perform its material obligations hereunder; and

(N) British Energy having confirmed not more than 5 Business Days prior to the Notified Date (as defined in the Creditor Restructuring Agreement) by way of certificate addressed to the Secretary of State signed by a director of British Energy that:

(i) the Information set out in Note 22 to the audited consolidated balance sheet of the Group as at 31 March 2003:

(a) was prepared by British Energy in good faith; and

(b) was believed by the Board, after enquiry of appropriate officers and employees of members of the Group, to present fairly, in accordance with the methodology and assumptions set out therein, the provision for nuclear liabilities of the Group required by the Companies Act 1985 and UK GAAP as at such date;

(ii) since 31 March 2003, nothing has come to the attention of the Board, after enquiry of appropriate employees of members of the Group, that would require a material increase in the provision referred to in sub-paragraph (i)(b) above if it were prepared again as at the date of the Certificate (or the last reasonably practicable date prior to that date) but on the basis of the same methodology and assumptions and utilising the same core discount rates; and

(iii) British Energy has disclosed to the Secretary of State all material information available to its Board that it considers that the Secretary of State reasonably requires in order to assess the financial position of the Group and its viability upon completion of the Restructuring, and to the best of the knowledge and belief of the Board, after enquiry of appropriate officers and employees of members of the Group, none of the information disclosed was untrue or materially inaccurate or misleading, except as corrected by further disclosures made in a timely fashion to the Secretary of State,

provided that the liability of British Energy and of the director of British Energy giving such certificate shall be limited to liability for fraud or wilful default.

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3.2 The British Energy Parties and (from their respective Adherence Dates) Newco 1 and Newco 2 shall use all reasonable endeavours to ensure that the Conditions are satisfied.

3.3 The Secretary of State may waive any of the Conditions (other than those set out in paragraphs (A), (C), (I), (L) or (M)) by notice in writing to British Energy.

3.4 The Secretary of State shall consult British Energy before making a determination as referred to in paragraph (C) of clause 3.1. but shall have absolute discretion as to such determination. Such consultation shall commence before the State Aid Approval is received and shall continue until the earlier of (i) the Secretary of State making her determination, and (ii) the Notified Filing Date.

3.5 If any of the Conditions is not fulfilled or waived by the Secretary of State on or before the date specified therein or, if no such date is specified, on or before 12 noon on 31 January 2005 or, if earlier, the date falling 120 days after the Effective Date (or such later date as the Secretary of State may agree) this Agreement shall terminate.

3.6 If at any time prior to the Notified Filing Date there is a Material Adverse Change the Secretary of State may give written notice to British Energy to terminate this Agreement.

3.7 Upon termination of this Agreement, all the rights arid obligations of the parties under this Agreement, (including the obligations of British Energy, BEG, BEG(UK), Newco 1 and Newco 2 under clause 6.1 (A) to comply with certain provisions of the Nuclear Liabilities Agreements) shall forthwith cease. Termination shall be without prejudice to the rights and liabilities of the parties that have accrued prior to such termination.

4. AMENDMENT OF CREDIT FACILITY AGREEMENT

4.1 The parties to the Credit Facility Agreement agree that that agreement is amended as set out in Schedule 3 (Amendment of Credit Facility Agreement).

4.2 Save as set out in Schedule 3 (Amendment of Credit Facility Agreement), the Credit Facility Agreement and the other Finance Documents (as defined therein) shall remain in full force and effect. The entry by the Secretary of State, into this Agreement and the amendment of the Credit Facility Agreement effected hereby shall be entirely without prejudice to any right or remedy accruing to the Secretary of State under the Credit Facility Agreement or any other Finance Document (as defined therein), whether by virtue of circumstances already known to the Secretary of State or otherwise.

5. REPRESENTATIONS AND WARRANTIES

5.1 The British Energy Parties represent and warrant to NLF, the Trustees and the Secretary of State that as at the date of this Agreement:

(A) each British Energy Party is a company duly incorporated and validly existing under the laws of its jurisdiction of incorporation, as set out at beginning of this Agreement or in Schedule 1 (Other British Energy Parties);

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(B) each British Energy Party has the requisite capacity, power and authority to enter into and perform this Agreement;

(C) this Agreement constitutes valid and binding obligations of each British Energy Party;

(D) the execution and delivery by each British Energy Party of this Agreement, will not:

(i) result in a breach of, or constitute default under, any instrument by which it is bound;

(ii) result in a breach of any order, judgment or decree of any court, governmental agency or regulatory body by which it is bound; or

(iii) require the consent of any person;

other than (in the case of sub-paragraphs (i) and (ii)) a breach or default that will not result in a Material Adverse Change or (In the case of sub-paragraph (iii)) a consent the failure to obtain which will not result in a Material Adverse Change; and

(E) except where such event occurs for the purpose of implementing the restructuring of the Group in accordance with or as contemplated by the Creditor Restructuring Agreement:

(i) no resolution has been passed by any British Energy Party for its winding-up (other than in the context of a solvent amalgamation or reconstruction in either case on terms previously approved in writing by the Secretary of State) and no court of competent jurisdiction has made an order for the winding-up or dissolution of any British Energy Party;

(ii) no administrative receiver, receiver and manager or receiver has been appointed over all or a material part of the assets of any British Energy Party;

(iii) no provisional liquidator or administrator has been appointed in relation to any British Energy Party;

(iv) no British Energy Party has convened a meeting for a creditors’ voluntary liquidation, or for a creditors’ meeting following a members’ voluntary liquidation or for the consideration by creditors of a voluntary arrangement or scheme of arrangement (other than in the context of a solvent amalgamation or reconstruction, in either case on terms previously approved in writing by the Secretary of State);

(v) no distress, distraint, charging order, garnishee order, execution or other process has been levied or applied for in respect of any British Energy Party; and

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(vi) no British Energy Party has been subject to any proceeding or in a position analogous to that In sub-paragraphs (i), (ii), (iii), (iv) or (v) in its jurisdiction of incorporation.

5.2 Each of Newco 1 and Newco 2 warrants to NLF, the Trustees and the Secretary of State in the terms set out in clause 5.1 save that references to the date of this Agreement shall be deemed to be references to their respective Adherence Dates and references to the British Energy Parties shall be deemed to be to both Newco 1 and Newco 2.

5.3 The British Energy Parties and (from their respective Adherence Dates) Newco 1 and Newco 2 undertake to disclose in writing to NLF, the Trustees and the Secretary of State anything which is or may constitute a breach of or be inconsistent with any of the representations and warranties set out in clause 5.1, or would constitute such a breach if the representations and warranties were repeated immediately prior to the entering into of the Nuclear Liabilities Agreements, immediately it comes to the notice of any of them.

6. UNDERTAKINGS

6.1 Without prejudice to any undertakings given under the Credit Facility Agreement, British Energy, BEG, BEG(UK) and (from their respective Adherence Dates) Newco 1 and Newco 2 undertake to the Secretary of State as follows:

(A) until the Nuclear Liabilities Agreements are entered into they will, subject to the modifications set out in Schedule 4 (Immediately Effective Provisions of Nuclear Liabilities Agreements), comply with the provisions of the Nuclear Liabilities Agreements set out in Schedule 4 (Immediately Effective Provisions of Nuclear Liabilities Agreements) as if such Nuclear Liabilities Agreements were in force;

(B) subject to the restrictions set out in clause 1.4 of the Creditor Restructuring Agreement and to the obligations of British Energy under clause 2.6 of that agreement, until the Nuclear Liabilities Agreements are entered into they will continue to negotiate in good faith to develop to a greater level of definition those provisions of the Nuclear Liabilities. Agreements that the Secretary of State reasonably considers are not sufficiently developed to ensure that they are enforceable and do not give rise to significant risk of dispute. Such provisions include the provisions of the Option Agreement relating to M&O Contracts, Partial Closure M&O Contracts, Ancillary Services Contracts and Defuelling Contracts (each as defined in the Option Agreement) and the security documentation referred to in clause 3.1(J): and

(C) In the terms set out in paragraph 4 of Schedule 4 to the Creditor Restructuring Agreement, as if references therein to the Ad Hoc Committee or any of its advisers or to a Consenting Majority included references to the Secretary of State.

6.2 British Energy, BEG, BEG(UK) and (from their respective Adherence Dates) Newco 1 and Newco 2 undertake to the Secretary of State that they will disclose in writing to the Secretary of State any breach of the undertakings contained in clause 6.1 immediately after it comes to the notice of any of them.

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7. BONDHOLDER RESTRUCTURING AGREEMENT, STANDSTILL AGREEMENT AND NEW STANDSTILL AGREEMENT

7.1 The Secretary of State confirms her agreement, for the purposes of clause 4.1 (xi) of the Bondholder Restructuring Agreement, to the extension of the date for the occurrence of the Restructuring Initiation Event (as defined in that agreement) to 31 January 2005.

7.2 The Secretary of State confirms her agreement to the variation and possible substitution of the Standstill Agreement pursuant to, and as set out in, clause 5 of the Creditor Restructuring Agreement.

7.3 With effect from the coming into effect of the New Standstill Agreement, references in the Credit Facility Agreement to the Standstill Agreement shall be deemed to be references to the New Standstill Agreement.

7.4 The Secretary of State agrees that the termination of the Standstill Agreement upon the coming into effect of the New Standstill Agreement shall not cause prepayment to be required pursuant to clause 6.2(B)(_)(g) of the Credit Facility Agreement.

8. STATE AID APPROVAL

8.1 If by 15 September 2004 the State Aid Approval has been neither obtained nor refused then the Secretary of State shall within five Business Days thereafter, to the extent able to do so (subject to obligations of confidentiality to third parties), provide to British Energy a written update on the status of the State Aid Approval process, including, if known, the general nature of any likely material conditions.

8.2 The Secretary of State acknowledges that British Energy shall be entitled to pass on the contents of the update referred to in clause 8.1 (subject to such obligations of confidentiality as the Secretary of State may reasonably require) to the Significant Creditors, RBS, BNFL, the Consenting EPL Banks and the Ad Hoc Committee’s Advisers (each as defined in the Creditor Restructuring Agreement).

9. LIABILITY

9.1 Liabilities assumed by the British Energy Parties together under this Agreement are assumed jointly and severally. If any liability of one or some but not all of the British Energy Parties, is, or becomes, illegal, invalid or unenforceable in any respect, that shall not affect or impair the liabilities of the other British Energy Parties under this Agreement.

9.2 The Secretary of State may release or compromise the liability of one of the British Energy Parties or grant time or other indulgence to the same without releasing or reducing the liability of any other party.

10. REMEDIES AND WAIVERS

10.1 No delay or omission by any party or any other document referred to in it to this Agreement in exercising any right, power or remedy provided by law or under this Agreement shall affect that right, power or remedy or operate as a waiver of it.

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10.2 The single or partial exercise of any right, power or remedy provided by law or under this Agreement shall not preclude any other or further exercise of it or the exercise of any other right, power or remedy.

10.3 The rights, powers and remedies provided in this Agreement are cumulative and not exclusive of any rights, powers and remedies provided by law.

11. INVALIDITY

If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair:

(A) the legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or

(B) the legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of this Agreement.

12. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

The parties to this Agreement do not intend that any term of this Agreement should be enforceable, by virtue of the Contracts (Rights of Third Parties) Act 1999, by any person who is not a party to this Agreement.

13. FURTHER ASSURANCE

Each party shall at its own cost, from time to time on request, do or procure the doing of all acts and/or execute or procure the execution of all documents in a form reasonably satisfactory to the Secretary of State or, as the case may be, NLF, which the Secretary of State or, as the case may be, NLF may reasonably consider necessary for giving full effect to this Agreement and securing the full benefit of the rights, powers and remedies conferred upon them in this Agreement.

14. ENTIRE AGREEMENT

14.1 This Agreement constitutes the whole and only agreement between the parties relating to the subject matter of this Agreement.

14.2 Each party acknowledges that in entering into this Agreement it is not relying upon any pre-contractual statement which is not set out in this Agreement.

14.3 Except in the case of fraud, no party shall have any right of action against any other party to this Agreement arising out of or in connection with any pre-contractual statement except to the extent that it is repeated in this Agreement.

14.4 For the purposes of this clause, “pre-contractual statement” means any draft agreement, undertaking, representation, warranty, promise, assurance or arrangement of any nature whatsoever, whether or not in writing, relating to the subject matter of this Agreement made or given by any person at any time prior to the date of this Agreement.

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14.5 This Agreement may only be varied in writing signed by each of the parties.

15. ASSIGNMENT

No party may at any time:

(A) assign all or any part of the benefit of, or its rights or benefits under, this Agreement;

(B) make a declaration of trust in respect of or enter into any arrangement whereby it agrees to hold in trust for any other person all or any part of the benefit of, or its rights or benefits under, this Agreement; or

(C) sub-contract or enter into any arrangement whereby another person is to perform any or all of its obligations under this Agreement.

16. NOTICES

16.1 A notice under this Agreement shall only be effective if it is in writing. Telexes and e-mails are not permitted but faxes are permitted.

16.2 Notices under this Agreement shall be sent to a party at its address or number and for the attention of the individual set out below:

Party	Address	Facsimile no.	Attention
Any British Energy Party, Newco 1 and Newco 2	c/o Company Secretary British Energy Plc 3 Redwood Crescent, Peel Park, East Kllbride, Scotland G74 5PR	01355 594 022	Company Secretary
NLF	Its registered office from time to time	020 7405 6736	Company Secretary
The Trustees	c/o Company Secretary NLF at its registered office from time to time	020 7405 6736	Company Secretary
The Secretary of State	The Department of Trade One Victoria Street London SW18 0HT	020 7215 0138	Head of BE Team, Energy Group

provided that a party may change its notice details on giving notice to the other party of the change in accordance with this clause. That notice shall only be effective on the date falling five clear Business Days after the notification has been received or such later date as may be specified in the notice.

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16.3 Any notice given under this Agreement shall, in the absence of earlier receipt, be deemed to have been duly given as follows:

(A) if delivered personally, on delivery;

(B) if sent by first class post from the UK to a UK address, two clear Business Days after the date of posting;

(C) if sent by first class post to an address abroad, five clear Business Days after the date of posting; and

(D) if sent by facsimile, when clearly received in full.

16.4 Any notice given under this Agreement outside Working Hours in the place to which it is addressed shall be deemed not to have been given until the start of the next period of Working Hours in such place.

16.5 The provisions of this clause shall not apply in relation to the service of Service Documents.

17. COSTS AND EXPENSES

Except as otherwise stated in this Agreement or any other agreement between any of the parties to this Agreement, each party shall pay its own costs and expenses in relation to the negotiation, preparation, execution and carrying into effect of this Agreement.

18. COUNTERPARTS

18.1 This Agreement may be executed in any number of counterparts, and by the parties on separate counterparts, but shall not be effective until each party has executed at least one counterpart.

18.2 Each counterpart shall constitute an original of this Agreement, but all the counterparts shall together constitute but one and the same instrument.

19. CHOICE OF GOVERNING LAW

This Agreement is to be governed by and construed in accordance with English law.

20. JURISDICTION

20.1 The courts of England are to have jurisdiction to settle any dispute arising out of or in connection with this Agreement. Any Proceedings may be brought in the English courts.

20.2 Any Proceedings may also be brought in the courts of Scotland.

20.3 Any party may bring Proceedings in any court which has jurisdiction other than by virtue of clause 21 (Agent for Service).

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20.4 This clause shall not limit the right of any party to bring Proceedings, to the extent permitted by law, in the courts of more than one jurisdiction at the same time.

20.5 Each party waives (and agrees not to raise) any objection, on the ground of forum non conveniens or on any like ground, to the taking of Proceedings by another party in any court in accordance with this clause. Each party also agrees that a judgment against it in Proceedings brought in any jurisdiction in accordance with this clause shall be conclusive and binding upon it and may be enforced in any other jurisdiction.

20.6 Each party irrevocably submits and agrees to submit to the jurisdiction of the English courts and of any other court in which Proceedings may be brought in accordance with this clause.

21. AGENT FOR SERVICE

21.1 Each of British Energy, BEG(UK), British Energy Power and Energy Trading Limited, British Energy Investment Limited, British Energy International Holdings Limited, British Energy US Holdings Inc., Newco 1 (if not incorporated in England and Wales) and Newco 2 (if not incorporated in England and Wales) irrevocably appoint BEG and NLF irrevocably appoints PKF of 78 Hatton Garden, London EC1N 8JA (Attn: David Venus), in each case to be its agent for the receipt of Service Documents and each of them agrees that any Service Documents may be effectively served on it in connection with Proceedings in England and Wales by service on its agent effected in any manner permitted by the Civil Procedure Rules 1998 (as amended).

21.2 If an agent at any time ceases for any reason to act as such, the person(s) who appointed him shall appoint a replacement agent having an address for service in England and Wales and shall notify the other parties of the name and address of the replacement agent. Failing such appointment and notification, the Secretary of State shall be entitled by notice to appoint a replacement agent to act on behalf of the person(s) who appointed the agent. The provisions of this clause applying to service on an agent apply equally to service on a replacement agent.

21.3 A copy of any Service Document served on an agent shall be sent by post to the person(s) who appointed the agent. Failure or delay in so doing shall not prejudice the effectiveness of service of the Service Document.

21.4 “Service Document” means a claim form, application notice, order, judgment or other document relating to any Proceedings.

IN WITNESS of which this Agreement has been signed on the date which first appears on page 1 above.

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Schedule 1

(Other British Energy Parties)

British Energy Power and Energy Trading Limited	(Registered No. SC 200887)
British Energy Investment Limited	(Registered No. SC 173730)
District Energy Limited	(Registered No. 2362017)
British Energy International Holdings Limited	(Registered No. SC 138614)
British Energy US Holdings Inc.
British Energy L.P.
Peel Park Funding Limited	(Registered No. SF000854)

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Schedule 2

(The Trustees)

Sir John Raymond Johnstone

Dr. Janet Patricia Bruce, the Rt. Hon. The Lady Balfour of Burleigh

John Maxwell Kennedy

James Porteous

Gordon Mackay Bagot

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Schedule 3

(Amendment of Credit Facility Agreement)

1. The following new defined terms are inserted in alphabetical order in clause 1.1:

“Creditor Restructuring Agreement”	means the restructuring agreement dated 30 September 2003 between the Company, certain members of its Group, the Creditors as defined therein, Royal Bank of Scotland PLC. BNFL and the Consenting Bondholders as defined therein;
“Government Restructuring Agreement”	means the restructuring agreement dated 30 September 2003 between the Company, BEG UK, BEG, the other British Energy Parties (as defined therein), Nuclear Generation Decommissioning Fund Limited and the Secretary of State;

2. The definition of “Restructuring Agreement” in clause 1.1 is replaced with the following:

“Restructuring Agreement” means the Standstill Agreement, the Bondholders Restructuring Agreement and each Supplemental Trust Deed, the Creditor Restructuring Agreement and the Government Restructuring Agreement.

3. Clause 6.2(B)(i)(d) is deleted and replaced with the following:

(d) [intentionally deleted];

4. Clause 6.2(B)(i)(e) is replaced with the following:

“(e) any of the following occurs:

(1) the Creditor Restructuring Agreement does not become effective pursuant to clause 1.5 thereof on or before 31 October 2003, or such later date as the Secretary of State may in writing agree;

(2) the Initial Conditions set out in clause 3 of the Creditor Restructuring Agreement are not satisfied on or before 31 January 2005, or such later date as the Secretary of State may in writing agree;

(3) the Restructuring Date, (as defined in the Creditor Restructuring Agreement) does not occur on or before 12 noon on 31 January 2005 or, if earlier, the date falling 120 days after the Effective Date (or such later date as the Secretary of State may agree).

(4) the Secretary of State gives notice to British Energy under clause 3.1 (C) of the Government Restructuring Agreement;”

22

Schedule 4

(Immediately Effective Provisions of Nuclear Liabilities Agreements)

1. Nuclear Liabilities Funding Agreement

1.1 Clause 1 (Interpretation).

1.2 Clause 7 (Minimum Performance Standard).

1.3 Clause 8 (Operational Changes), except clauses 8.6(B) 8.7, 8.8(B)(ii).

1.4 Clause 10 (Strategy Approval Process) except clause 10.4.

1.5 Clause 11 (Annual Liabilities Report), except clauses 11.8, 11.9 and 11.10.

1.6 Clause 14 (Escalation).

1.7 Clause 19 (Capacity of the NDA).

1.8 Clauses 26 (Liability) to clause 45 (Variation) (inclusive).

1.9 Schedule 7 (Annual Liabilities Report).

2. Historic Liabilities Funding Agreement

2.1 Clause 1 (Interpretation).

2.2 Clause 4 (Minimum Performance Standard and Minimum Contracting Standard).

2.3 Clause 5 (Exercise of Rights by Licensee), except clause 5.4 and clause 5.5(B)(ii).

2.4 Clause 7 (Escalation).

2.5 Clause 9 (Amendments to the BNFL Historic Contracts), provided that the Secretary of State acknowledges that she has consented to the amendments to the BNFL Historic Contracts (as defined in the Historic Liabilities Funding Agreement) which are set out in Schedule 20 of the Creditor Restructuring Agreement and shall not be entitled to exercise any rights under that clause 9 in relation to such amendments.

2.6 Clause 14 (Liability) to clause 33 (Variation) (inclusive).

3. Contribution Agreement

3.1 Clause 1 (Interpretation).

3.2 Clause 8 (Cash Reserves).

3.3 Clause 14 (Acknowledgements).

3.4 Clause 18 (Dispute Resolution) to clause 33 (Agent for Service).

23

4. Option Agreement

4.1 Clause 1 (Interpretation).

4.2 Clauses 9.4 to 9.8 (Access and Information) (inclusive).

4.3 Clause 27 (Compliance with Applicable Law).

4.4 Clause 30 (Dispute Resolution) to clause 32 (No Partnership).

4.5 Clause 34 (Remedies and Waivers) to clause 45 (Agent for Service).

24

Schedule 5

(Form of Newco 1 And Newco 2 Undertaking)

THIS DEED OF ADHERENCE is made the [    ] day of [  ] 200[  ] by [Newco 1][Newco 2] (the “Covenantor”) and is supplemental to the Government Restructuring Agreement dated 30 September 2003 and made between all the parties named in the appendix attached hereto (the “Government Restructuring Agreement”).

IT IS AGREED as follows:

Words and expressions defined in the Government Restructuring Agreement shall have the same meaning in this Deed.

The Covenantor confirms that it has been supplied with a copy of the Government Restructuring Agreement and hereby covenants with the parties thereto to perform and be bound by the Government Restructuring Agreement (according to its terms) to the intent and effect that the Covenantor shall be deemed with effect from the date of this Deed to be a party to the Government Restructuring Agreement.

This Deed of Adherence shall be governed by and construed in accordance with the laws of England and Wales.

IN WITNESS whereof we have executed and delivered this Deed of Adherence as a deed on the date appearing at the head of the document.

EXECUTED AS A DEED
By [Newco 1][Newco 2]	)
acting by	)
	)
	director
	director/secretary

25

APPENDIX

British Energy Plc

3 Redwood Crescent

Peel Park

East Kllbride

Scotland G74 5PR

Telephone:	01355 59 4020
Facsimile:	01355 59 4022
Attention:	Robert Armour, Company Secretary

British Energy Generation Limited

c/o British Energy plc

(as above).

British Energy Generation (UK) Limited

c/o British Energy plc

(as above)

British Energy Power and Energy Trading Limited

c/o British Energy plc

(as above)

British Energy Investment Limited

c/o British Energy plc

(as above)

District Energy Limited

c/o British Energy plc

(as above)

26

British Energy International Holdings Limited

c/o British Energy plc

(as above)

British Energy US Holdings Inc.

c/o British Energy plc

(as above)

British Energy LP

c/o British Energy plc

(as above)

Peel Park Funding Limited

c/o British Energy plc

(as above)

Nuclear Generation Decommissioning Fund Limited (to be renamed Nuclear Liabilities Fund Limited)

16 Rothesay Place

Edinburgh

EH3 7SQ

Sir John Raymond Johnstone

c/o Nuclear Generation Decommissioning Fund Limited

(address as above)

Dr Janet Patricia Bruce, the Rt. Hon. The Lady Balfour of Burleigh

c/o Nuclear Generation Decommissioning Fund Limited

(address as above)

27

John Maxwell Kennedy

c/o Nuclear Generation Decommissioning Fund Limited

(address as above)

James Porteous

c/o Nuclear Generation Decommissioning Fund Limited

(address as above)

Gordon Mackay Bagot

c/o Nuclear Generation Decommissioning Fund Limited

(address as above)

The Secretary of State for Trade and Industry

One Victoria Street

London SW1V0HT

28

SIGNATURES

SIGNED for and on behalf of BRITISH ENERGY PLC acting by:	) )
SIGNED for and on behalf of BRITISH	)
ENERGY GENERATION (UK)	)
LIMITED acting by:	)
SIGNED for and on behalf of BRITISH	)
ENERGY GENERATION LIMITED	)
acting by:	)
SIGNED for and on behalf of BRITISH	)
ENERGY POWER AND ENERGY	)
TRADING LIMITED acting by:	)
SIGNED for and on behalf of BRITISH	)
ENERGY INVESTMENT LIMITED	)
acting by:	)
SIGNED for and on behalf of	)
DISTRICT ENERGY LIMITED acting	)
by:	)
SIGNED for and on behalf of BRITISH	)
ENERGY INTERNATIONAL	)
HOLDINGS LIMITED acting by:	)
SIGNED for and on behalf of BRITISH	)
ENERGY (US) HOLDINGS INC.	)
acting by:	)

29

SIGNED for and on behalf of BRITISH ENERGY L.P. acting by:	) )
SIGNED for and on behalf of PEEL PARK FUNDING LIMITED acting by:	) )
SIGNED for and on behalf of	)
NUCLEAR GENERATION	)
DECOMMISSIONING FUND LIMITED	)
acting by:	)
SIGNED by SIR JOHN RAYMOND JOHNSTONE:	) )
SIGNED by THE LADY BALFOUR OF BURLEIGH:	) )
SIGNED by JOHN MAXWELL KENNEDY:	) )
SIGNED by JAMES PORTEOUS:	)
SIGNED by GORDON MACKAY BAGOT:	) )
SIGNED by a senior official of the	)
Department of Trade and Industry duly	)
authorised to sign on behalf of THE	)
SECRETARY OF STATE:	)

30

EX-4.16

CONFORMED COPY

Exhibit 4.16

BRITISH ENERGY PLC

AND

OTHERS

CREDITOR RESTRUCTURING AGREEMENT

CONTENTS

Clause		Page
1.	DEFINITIONS, INTERPRETATION AND EFFECTIVENESS	2
2.	IMPLEMENTATION OF THE RESTRUCTURING	25
3.	INITIAL CONDITIONS AND PARENT UNDERTAKING	29
4.	REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS	34
5.	REAFFIRMATION OF STANDSTILL ARRANGEMENTS	35
6.	RELEASE OF DIRECTORS AND OTHERS	36
7.	CONSENTING BONDHOLDERS’ OBLIGATIONS	38
8.	TERMINATION	39
9.	COSTS	41
10.	GENERAL	41
11.	ENTIRE AGREEMENT	47
12.	VAT	48
13.	INVALIDITY	48
14.	FURTHER ASSURANCE	49

SCHEDULE 1	The Companies	50
SCHEDULE 2	The Significant Creditors	51
SCHEDULE 3	Restructuring Steps	52
SCHEDULE 4	Representations, Warranties And Undertakings	61
SCHEDULE 5	Claim Amounts And Compromise Entitlements	70
SCHEDULE 6	Restructuring Condition	71
SCHEDULE 7	The Members’ Scheme	72
SCHEDULE 8	Amendments To The Bondholder Restructuring Agreement	73
SCHEDULE 9	New Bond Term Sheet	74
	Intentionally left blank	75
SCHEDULE 11	Form Of Bondholder Undertaking	76
SCHEDULE 12	Form Of Newco 1 And Newco 2 Undertaking	78

SCHEDULE 13	Restructuring Documents And Unsettled Documents	79
SCHEDULE 14	Creditors’ Scheme	83
SCHEDULE 15	Business Transfer Agreement	84
SCHEDULE 16	Warrant Instrument Term Sheet	85
SCHEDULE 17	Form Of Deed Of Adherence	86
SCHEDULE 18	Intra-Group Funding Arrangements	88
SCHEDULE 19	Form Of Amending Resolutions, Single Vote Resolutions And Split Vote Resolutions	89
SCHEDULE 20	Amendments to BNFL Documents	90
SCHEDULE 21	Group Structure Chart	95
SIGNATURE PAGES		96

THIS CREDITOR RESTRUCTURING AGREEMENT (this “Agreement”) is made as of 30 September 2003

BETWEEN:

(1) BRITISH ENERGY PLC, a company incorporated in Scotland (registered no. SC162273) whose registered office is at 3 Redwood Crescent, Peel Park, East Kilbride, G74 5PR (the “Parent”);

(2) THE COMPANIES (other than the Parent) named in Schedule 1 (together with the Parent, the “Companies”);

(3) THE PERSONS named in Schedule 2 (the “Significant Creditors”);

(4) THE ROYAL BANK OF SCOTLAND PLC (“RBS”);

(5) BRITISH NUCLEAR FUELS PLC (“BNFL”);

(6) EACH OF THE CONSENTING EPL BANKS as defined in Clause 1.1; and

(7) EACH OF THE CONSENTING BONDHOLDERS as defined in Clause 1.1.

WHEREAS:

(A) Following a period of financial difficulties the board of directors of the Parent announced a proposed restructuring on 28 November 2002 relating to the restructuring of the claims of certain significant creditors of the Group.

(B) In furtherance of the proposed restructuring and in order to facilitate its implementation, on 14 February 2003 (i) the Parent, BEG, BEG (UK) and certain of the Bondholders entered into the Bondholder Restructuring Agreement pursuant to which such Bondholders agreed to the non-binding Heads of Terms and (ii) the Parent, certain of the Companies, the EPL Steering Committee, RBS, TPL, Total, ECTEF, the EPL Swap Providers and BNFL entered into the Standstill Agreement. All of the conditions to the Bondholder Restructuring Agreement and the Standstill Agreement have been satisfied.

(C) At meetings of the 2003 Series Bonds, the 2006 Series Bonds and the 2016 Series Bonds held on 24 March 2003, resolutions were duly passed authorising the Bond Trustee to enter into a supplemental trust deed, inter alia, formally incorporating the standstill arrangements in respect of the Bonds into the terms thereof for all Bondholders.

(D) In addition, on 14 February 2003, the non-binding Heads of Terms were signed by the Parent, the EPL Steering Committee, RBS, TPL, Total and ECTEF regarding the recognition, compromise and allocation of certain claims by the Significant Creditors, EPL Banks and RBS against the Group.

(E) This Agreement sets out the terms and conditions on which the Parties and BNFL agree to (i) give effect to the principles set out in the Heads of Terms and (ii) extend

the standstill arrangements contained in the Standstill Agreement and the Bondholder Restructuring Agreement.

IT IS AGREED AS FOLLOWS:

1. DEFINITIONS, INTERPRETATION AND EFFECTIVENESS

1.1 In this Agreement unless otherwise stated:

“Account Holder Letter” has the meaning ascribed to that term in the Creditors’ Scheme.

“Account Holder” has the meaning ascribed to that term in the Creditors’ Scheme.

“Accrued Interest” means interest and, in the case of RBS only, commission accrued and payable to (a) RBS and the Significant Creditors under the terms of Clause 2.3 and Clause 2.4 of the Standstill Agreement and (b) to the EPL Banks under the terms of the EPL Facility Agreement and the EPL Swaps as permitted by the Standstill Agreement and (c) to the Bondholders under the terms of the Bond Trust Deed.

“Ad Hoc Committee” means the Ad Hoc Committee of the Bondholders as at the date hereof namely Gartmore Investment Management plc, Morgan Stanley & Co International Limited, Duquesne Capital Management L.L.C. and Cargill Financial Markets plc unless otherwise notified in writing to the Parent by the Ad Hoc Committee’s Legal Advisers hereafter.

“Ad Hoc Committee’s Legal Advisers” means the legal advisers to the Ad Hoc Committee from time to time, being, at the date of this Agreement, Cadwalader Wickersham & Taft LLP.

“Ad Hoc Committee’s Financial Advisers” means the financial advisers to the Ad Hoc Committee from time to time, being, at the date of this Agreement, Close Brothers Corporate Finance.

“Ad Hoc Committee’s Advisers” means the Ad Hoc Committee’s Legal Advisers and the Ad Hoc Committee’s Financial Advisers.

“Admission” means:

(a) admission to the Official List of the UKLA and admission to trading on the London Stock Exchange plc & market for listed securities (and a reference to admission to listing becoming “effective” is to be construed in accordance with the Listing Rules) and a reference to admission to trading becoming “effective” is to be construed in accordance with the admission and disclosure standards made by the London Stock Exchange plc from time to time; or

(b) in respect of the New Shares only, in the event that admission to the Official List of the UKLA is refused by the UKLA or is considered by the Parent (acting reasonably) not to be achievable with reasonable certainty by the Restructuring Long Stop Date, admission to trading on the Alternative

Investment Market of the London Stock Exchange plc and a reference to Admission to trading becoming “effective” is to be construed in accordance with the AIM Rules; or

(c) in respect of the New Bonds only, in the event that admission to the Official List of the UKLA is refused by the UKLA or is considered by the Parent (acting reasonably) not to be achievable with reasonable certainty by the Restructuring Long Stop Date, admission to trading on the Luxembourg Stock Exchange.

“Affiliate” means with respect to any person, any other person controlling, controlled by, or under common control with such person. The concept of control, controlling or controlled as used with respect to any person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise.

“AIM Rules” means the Alternative Investment Market admission rules published by the London Stock Exchange plc from time to time.

“Amending Resolutions” means the resolutions, set out in Schedule 19, which will be proposed to Bondholders of each series of Bonds in the agreed form.

“Approvals Majorities” means all of (i) to (iii) below:

(i) RBS and the Ad Hoc Committee or, if the Ad Hoc Committee notifies the Parent that it does not wish to consent on behalf of Consenting Bondholders, one, some or all of RBS and Consenting Bondholders together holding in aggregate more than £223 million of Claim Amount;

(ii) unless otherwise stated in this Agreement, EPL Facility Agent acting on the instruction of the EPL Bank Special Majority; and

(iii) before any of Total, ECTEF or TPL effect a transfer permitted by Clause 10.4 of any of its Claim Amount, any two or more of Total, ECTEF and TPL together holding in aggregate £157 million or more of PPA Claim Amount and after any of Total, ECTEF or TPL effect a transfer permitted by Clause 10.4 of any of its Claim Amount, any two or more persons holding in aggregate more than £158 million of PPA Claim Amount. If any of Total, ECTEF and TPL transfer to any of their respective Affiliates, it and their respective Affiliates shall be treated as the same person and the transfer shall not be treated as a transfer for the purposes of this definition.

“BE Finco” means the treasury Group Company to be established for the purposes of the Intra-Group Funding Arrangements.

“BEG” means British Energy Generation Limited.

“BEG (UK)” means British Energy Generation (UK) Limited.

“BEPET” means British Energy Power and Energy Trading Limited.

“BETS” means British Energy Trading Services Limited.

“BNFL Agreements” means the BNFL Back-end Agreements and the BNFL Front-end Agreements.

“BNFL Back-end Agreements” means the following agreements all in the agreed form:

(a) the Agreement for New Spent Fuel Management Services between BNFL, BEG. BETS (as agent for BEG) and the Parent dated 16 May 2003;

(b) the Agreement for New Spent Fuel Management Services between BNFL, BEG(UK). BETS (as agent for BEG(UK)) and the Parent dated 16 May 2003;

(c) the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Nuclear Electric p1c dated 31 March 1995, as amended and novated (which is referred to in Schedule 20 as the “BEG 1995 Storage and Reprocessing Agreement”);

(d) the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Spent Fuel Management Services between BNFL and Nuclear Electric Limited dated 3 June 1997, as amended;

(e) the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Scottish Nuclear Limited dated 30 March 1995, as amended, and to the agreement for the Long Term Storage of Irradiated Oxide Fuel and Related Services dated 30 March 1995 between BNFL and Scottish Nuclear Limited, as amended;

(f) the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Oxide Flask Maintenance between BNFL and Nuclear Electric plc dated 31 March 1996, as amended and novated;

(g) the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the new agreement for Oxide Flask Maintenance between BNFL and Nuclear Electric Limited dated 3 June 1997, as amended;

(h) the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Rail Transport Services of Irradiated Nuclear Fuel in the United Kingdom between BNFL and Nuclear Electric Limited dated 3 June 1997, as amended;

(i) the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Oxide Miscellaneous Services between BNFL and Nuclear Electric plc dated 31 March 1996, as amended and novated;

(j) the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for Oxide Flask Maintenance between BNFL and Scottish Nuclear Limited, dated 29 March 1996, as amended;

(k) the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the new agreement for Oxide Flask Maintenance Services between BNFL and Scottish Nuclear Limited, dated 3 June 1997, as amended;

(l) the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for Rail Transport Services of Irradiated Nuclear Fuel in the United Kingdom between BNFL and Scottish Nuclear Limited, dated 3 June 1997, as amended; and

(m) the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for Oxide Miscellaneous Services between BNFL and Scottish Nuclear Limited, dated 29 March 1996, as amended.

“BNFL Front-end Agreements” means the following agreements all in the agreed form:

(a) the Deed of Amendment and Guarantee dated 31 March 2003 between BNFL, the Parent and BEG as amended on 22 July 20903, relating to the agreement for Supply of AGR Fuel dated 3 June 1997, as amended;

(b) the Deed of Amendment and Guarantee dated 31 March 2003 between BNFL, the Parent and BEG(UK) as amended on 22 July 2003, relating to the agreement for Supply of AGR Fuel dated 30 March 1995, as amended;

(c) the Agreement for the Supply of AGR Fuel dated 31 March 2003 as amended on 22 July 2003 between BNFL, the Parent and BEG; and

(d) the Agreement for the Supply of AGR Fuel dated 31 March 2003 as amended on 22 July 2003 between BNFL, the Parent and BEG(UK).

“BNFL Guarantees” means any guarantee or indemnity given by any Group Company in respect of (a) the BNFL Front end Agreement, (b) the spent fuel management agreement dated 16 May 2003 between BNFL, the Parent, BETS and BEG (c) the spent fuel management agreement dated 16 May 2003 between BNFL, the Parent, BETS and BEG(UK) (d) the Deed of Sale and Purchase of Enriched and Natural Uranium Stocks between BEG, BNFL and the Parent dated 31 March 2003 (as amended from time to time) and (e) the Passport 9 Implementation Services Deed between BNFL, the Parent, BEG and Magnox Electric plc dated 31 March 2003.

“Bondholder” means either a person who beneficially owns or provides investment management services on behalf of the beneficial owner of Bonds or a holder (as defined in the Bond Trust Deed) of a Bond, as the context may require.

“Bondholders’ Meeting” means any general meeting of the Bondholders convened for the purpose of passing resolutions in accordance with the terms of the Bond Trust Deed and any adjournment thereof.

“Bondholder/RBS Consenting Majority” means RBS and the Ad Hoc Committee or, if the Ad Hoc Committee notifies the Parent that it does not wish to consent on behalf of Consenting Bondholders, one, some or all of RBS and Consenting Bondholders together holding in aggregate more than £223 million of Claim Amount;.

“Bondholder Restructuring Agreement” means the restructuring agreement dated 14 February 2003 between the Parent, BEG, BEG (UK) and certain Bondholders.

“Bonds” means the £109,861,000 5.949% Guaranteed Bonds due 2003 (the “2003 Series Bonds”) and the £163,444,000 6.077% Guaranteed Bonds due 2006 (the “2006 Series Bonds”) and the £134,586,000 6.202% Guaranteed Bonds due 2016 (the “2016 Series Bonds”), issued by the Parent pursuant to the Bond Trust Deed.

“Bond Trust Deed” means the trust deed dated 25 March 1999 between the Parent, BEG, BEG (UK) and the Bond Trustee pursuant to which the Bonds were constituted and issued as amended by a supplemental trust deed between the same parties dated 31 March 2003 and as further supplemented and/or amended from time to time.

“Bond Trustee” means the trustee(s) in respect of the Bonds (or, as the case may be, the relevant series of the Bonds) appointed pursuant to the Bond Trust Deed from time to time, being The Law Debenture Trust Corporation p.l.c. as at the date hereof.

“Business Day” means a day on which banks are open for general business (other than a Saturday or Sunday) in London and Edinburgh.

“Business Transfer Agreement” means the agreement, in agreed form and set out in Schedule 15, which will be entered into between the Parent and Newco 2 pursuant to which the Parent will, subject to certain conditions, sell all of its business and assets to Newco 2 in consideration for Newco 2 undertaking to discharge all of the Parent’s liabilities.

“Claim Amount” means, in respect or the Bondholders, the EPL Banks, each of the Significant Creditors and RBS, the amount set out in Part A of Schedule 5, and “Total Claim Amount” means the aggregate of all such Claim Amounts.

“Commission” means the Commission of the European Communities.

“Companies” means the companies listed in Schedule 1.

“Companies Act” means the Companies Act 1985.

“Compromise Entitlement” means:

(a) in respect of the Bondholders, the EPL Banks, each Significant Creditor and RBS, the Accrued Interest to which they are entitled and that principal amount of New Bonds and that percentage of the Total New Shares as set out in Part B of Schedule 5 which will be issued to the Bondholders, the EPL Banks, each Significant Creditor and RBS (as the case may be) pursuant to the Restructuring in accordance with the terms of this Agreement, the Creditors’ Scheme and the EPL Scheme (if any); and

(b) in respect of the EPL Banks only, the rights (subject to the obligations) conferred on them under the New EPL Arrangements (which, for the avoidance of doubt, shall not include any entitlement in paragraph (a) above).

“Consenting Bondholder” means each Bondholder who is either a party to this Agreement or agrees to be bound by the terms of this Agreement as if he were a party as provided for in Clause 1.6 and “Consenting Bondholders” means all of them.

“Consenting EPL Bank” means a Consenting EPL Lender or Consenting EPL Swap Provider and “Consenting EPL Banks” means all of them.

“Consenting EPL Lender” means an EPL Lender who enters into this Agreement as provided in Clause 1.6 and “Consenting EPL Lenders” means all of them.

“Consenting EPL Swap Provider” means an EPL Swap Provider who enters into this Agreement as provided in Clause 1.6 and “Consenting EPL Swap Providers” means all of them.

“Consenting Majorities” means all of (i) to (iii) below:

(i) unless otherwise stated in this Agreement, one, some or all of RBS and Consenting Bondholders together holding in aggregate more than £223 million of Claim Amount; and

(ii) unless otherwise stated in this Agreement, the EPL Bank Simple Majority; and

(iii) before any of Total, ECTEF or TPL effect a transfer permitted by Clause 10.4 of any of its Claim Amount, any two or more of Total, ECTEF and TPL together holding in aggregate _____ ___ __ more __ PPA Claim Amount and after any of Total, ECTEF or TPL effect a transfer permitted by Clause 10.4 of any of its Claim Amount, any two or more persons holding in aggregate more than £158 million of PPA Claim Amount. If any of Total, ECTEF and TPL transfer to any of their respective Affiliates, it and their respective Affiliates shall be treated as the same person and the transfer shall not be treated as a transfer for the purposes of this definition.

“Court of Session” means the Court of Session in Scotland.

“Credit Facility Agreement” means the credit facility agreement dated 26 September 2002 entered into between the Secretary of State, the Parent, the Borrowers and the Guarantors (as defined therein).

“Creditors’ Order” means the order of the Court of Session sanctioning the Creditors’ Scheme.

“Creditors’ Scheme” means the scheme of arrangement set out in Schedule 14 to be proposed by the Parent to the Bond Trustee (and if Bonds in definitive form have been issued to Bondholders, such Bondholders) and RBS in the agreed form pursuant to section 425 of the Companies Act.

“Creditors’ Scheme Claims” has the meaning attributed to the expression “Scheme Claim” in the Creditors’ Scheme.

“Creditors’ Scheme Documents” means any document(s) required to be issued by the Parent (including without limitation the Creditors’ Scheme) to the Bond Trustee (and if Bonds in definitive form have been issued to Bondholders, such Bondholders) and RBS in connection with the Creditors’Scheme.

“Creditors’ Scheme Meeting” means the meeting of RBS and the Bond Trustee (and if Bonds in definitive form have been issued to Bondholders, such Bondholders) to be convened by order of the Court of Session pursuant to section 425 of the Companies Act or any adjournment thereof.

“Creditors’ Scheme Resolution(s)” means the resolution(s) to be proposed at the Creditors’ Scheme Meeting seeking approval for the Creditors’ Scheme,

“CTA Global Bond” means the £150 million global bond to be transferred to EPL in accordance with the New EPL Arrangements.

“Disposal Condition” means either (a) the passing of an ordinary resolution of the Parent in general meeting approving the sale by the Parent of all its business and assets to Newco 2 pursuant to the Business Transfer Agreement or (b) the receipt of confirmation from the UKLA that no such resolution as is described at (a) will be required.

“EC Treaty” means the Treaty establishing the European Economic Community of 25 March 1957 as amended from time to time.

“ECTRIC” means Enron Capital & Trade Resources International Corporation.

“ECTEF” means Enron Capital & Trade Europe Finance L.L.C.

“Effective Date” means the date on which the last of the Initial Conditions is satisfied.

“EGM” means the extraordinary general meeting of the Parent, including any adjournment of such meeting, that is intended to be convened to consider and, if

thought fit, approve resolutions to approve the Restructuring or any part of it to the extent required.

“Enron” means ECTRIC and/or ECTEF (as applicable).

“Enron CFD” means the agreement dated 1 April 1996 and made between ECTRIC and BEG (as amended and novated, including by the novation agreement dated 19 June 1998 novating the agreement from ECTRIC to ECTEF).

“Enron Guarantee” means the guarantee relating to the Enron CFD given by the Parent to ECTRIC initially on 12 April 1996 and then, following novation of the Enron CFD, to ECTEF on 9 July 1998.

“EPHL” means Eggborough Power Holdings Limited.

“EPHL Assignment” means the assignment of the share purchase agreement and tax deed of covenant dated 8 September 2000 between EPHL and Barclays Bank PLC as trustee for the EPL Lenders.

“EPL” means Eggborough Power Limited.

“EPL Banks” means the EPL Lenders and the EPL Swap Providers.

“EPL Bank Simple Majority” means one, some or all of the EPL Banks whose participation in the Loan (as defined in the EPL Facility Agreement) then outstanding and Swaps MTM Exposure aggregates more than 50 per cent. of £514,968,727.

“EPL Bank Special Majority” means one, some or all of the EPL Banks whose participation in the Loan (as defined in the EPL Facility Agreement) then outstanding and Swaps MTM Exposure aggregates more than 66 ²/3 percent. of £514,968,727.

“EPL Condition” means, at any particular time, all the EPL Banks at such time being Consenting EPL Banks.

“EPL Facility Agent” means the agent for the EPL Lenders (and other persons) from time to time under the EPL Facility Agreement, being Barclays Bank plc as at the date hereof.

“EPL Facility Agreement” means the facility agreement dated 13 July 2000 (as amended) between EPL as borrower and various lenders.

“EPL Facility Documents” means (a) the deed of guarantee between the Parent and National Power plc, dated 13 July 2000 (“British Energy Guarantee”) (b) the amendment and restatement agreement relating to the calculations and forecasting agreement dated 13 July 2000 between EPL and Barclays Bank PLC, dated 8 September 2000 (the “Calculations and Forecasting Agreement”) (c) the amended and restated direct agreement between Barclays Bank PLC, the Parent, BEPET and EPL dated 8 September 2000 (the “Capacity and Tolling Agreement Direct Agreement”) (d) the deed of guarantee between the Parent and EPL, dated 8

September 2000 (the “Capacity and Tolling Agreement Guarantee”) (e) the capacity and tolling agreement between BEPET and EPL, made on 13 July 2000 and amended and restated on 8 September 2000 and on 5 February 2001 (the “Capacity and Tolling Agreement”) (f) the deed of assignment and indemnity dated 13 July 2000 between EPL and BEPET in relation to the master coal purchase and sale agreement between EPL and Enron Coal Services Limited dated 30 March 2000 (the “Deed of Assignment and Indemnity (Enron)”) (g) the deed of assignment and indemnity dated 13 July 2000 between EPL and BEPET in relation to the agreement for the sale and purchase of coal between EPL and National Power plc dated 3 March 2000, (the “Deed of Assignment and Indemnity (NP)”) (h) intentionally left blank (i) the EPL Swaps (j) the amendment and restatement agreement dated 8 September 2000 between the Parent, BEPET, EPHL, EPL, Barclays Capital and Barclays Bank PLC relating to the sponsor undertaking dated 13 July 2000, (the “Sponsor Undertaking”) (k) the amended and restated subordinated loan agreement between Eggborough Power Limited and British Energy plc, dated 8 September 2000 (the “Subordinated Loan Agreement (EPL)”) (1) the EPL Facility Agreement.

“EPL Lenders” means the lenders, from time to time and for the time being, under the EPL Facility Agreement.

“EPL Scheme” means the scheme of arrangement which, in the event that the EPL Condition is not satisfied before the date of the hearing of the Parent’s application to the Court of Session for permission to convene the Creditors’ Scheme Meeting, will be proposed by EPL to the EPL Banks pursuant to section 425 of the Companies Act to (a) issue the EPL Banks with New Bonds and New Shares in accordance with their Compromise Entitlements, (b) implement the New EPL Arrangements, and (c) implement the terms of Clause 2.1, Clause 6 (notwithstanding that the EPL Condition has not been satisfied) and paragraph 3.1, paragraphs 3.10 to 3.12, 3.14, 3.15 and 3.18, paragraphs 4.1, 4.6, 4.7, 4.9 and 4.10 (including when applied by paragraph 5.2) and paragraphs 6.1 to 6.3, 6.6, 6.7; 6.9 and 6.10 of Schedule 3 to this Agreement insofar as they relate to the EPL Banks and which, once effective, will be implemented at the same time as the Creditors’ Scheme and if the Creditors’ Scheme does not become effective, will lapse.

“EPL Scheme Documents” means any document(s) required to be issued by EPL (including without limitation the EPL Scheme) to the EPL Banks in connection with the EPL Scheme.

“EPL Scheme Order” means the order of the High Court of England and Wales sanctioning the EPL Scheme.

“EPL Scheme Meeting” means the meeting of the EPL Banks to be convened by order of the High Court of England and Wales pursuant to section 425 of the Companies Act or any adjournment thereof.

“EPL Scheme Resolution(s)” means the resolution(s) to be proposed at the EPL Scheme Meeting seeking approval for the EPL Scheme.

“EPL Security Documents” means the Debenture, the Share Pledge and EPHL Assignment and any other document evidencing or creating any Security Interest over any asset of EPL or EPHL to secure any obligations of EPL, EPHL or the Parent to a Finance Party under the Finance Documents (all terms other than Parent as defined in the EPL Facility Agreement).

“EPL Steering Committee” means the EPL Lenders which signed the Standstill Agreement in that capacity.

“EPL Swaps” means the interest rate swap agreements made between EPL and each of the EPL Swap Providers as amended from time to time.

“EPL Swap Providers” means the following in their capacity as EPL Swap counterparties: The Toronto-Dominion Bank; Westdeutsche Landesbank Girozentrale; RBS; and Barclays Bank plc.

“Exchange Act” shall mean the United States Securities; Exchange Act of 1934, as amended.

“Exchange Act Registration Statement” shall mean a Registration Statement on Form 20-F under the Exchange Act, amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“Existing A Shareholders” means the holders of all of the A shares of 60 pence each in the capital of the Parent in issue as at such record date as the Parent reasonably designates.

“Existing Ordinary Shareholders” means the holders of all of the ordinary shares of 44  ²⁸/43 pence each in the capital of the Parent in issue as at such record date as the Parent reasonably designates.

“Existing Shareholders” means the Existing A Shareholders and the Existing Ordinary Shareholders.

“Existing Shares” means all of the A shares of 60 pence each and ordinary shares of 44  ²⁸/43 pence each in the capital of the Parent in each case in issue as at such record date as the Parent reasonably designates.

“Government Restructuring Agreement” means the agreement of even date in the agreed form between, among others, the Secretary of State, BEG, BEG (UK) and the Parent which provides for the circumstances in which HMG will support the Restructuring and the Nuclear Liabilities Agreements will be entered into.

“Group” means:

(a) prior to the Restructuring Date, the Parent and its Subsidiaries for the time being; and

(b) from the Restructuring Date, Newco 1 and its Subsidiaries from time to time,

and “Group Company” means any of them as the context requires.

“Heads of Terms” means the non-binding heads of terms dated 14 February 2003 between the Parent, the EPL Steering Committee, RBS, TPL, Total, ECTEF and the Bondholders who signed or acceded to the Bondholder Restructuring Agreement.

“HMG” means the government of the United Kingdom and any entity deemed to be part of the government for the purposes of article 87(1) of the EC Treaty.

“Identified Bonds” means, in relation to a Consenting Bondholder, the aggregate principal amount of Bonds set out on the signature page executed and delivered by it on the date hereof or in accordance with Clause 1.6.

“Immediately Effective Provisions” means the provisions of Clause 1, Clause 2.4.2, Clause 2.9, Clause 2.10, Clause 4, Clause 5, Clause 7.1.4, Clauses 8.1.7, 8.1.8, 8.1,9 and 8.1.11, Clause 9, Clause 10.2, Clause 10.3, Clause 10.4.1 (insofar as it applies to the Consenting EPL Swap Providers) Clause 10.4.3, Clauses 10.5 to 10.11, Clause 11 and Schedule 8 (save for paragraph 2.3 thereof) and such other provisions of this Agreement as may be relevant to the interpretation, operation or enforcement of such provisions.

“Initial Condition” means any condition set out in Clause 3.1 and “Initial Conditions” means all of them.

“Intra-Group Funding Arrangements” means (a) the intercompany loan agreement between, inter alia, the Parent, any Group Company and BE Finco and (b) the debenture creating fixed and floating charges in respect of the intercompany loan agreement between, inter alia, BE Finco, any Group Company and the Parent, each in agreed form and set out in Schedule 18.

“Liability” means any liability or obligation of a person whether it is present, future, prospective or contingent, whether or not its amount is fixed or undetermined, whether or not it involves the payment of money or the performance of an act or obligation and whether it arises at common law, in equity or by statute in England and Wales or Scotland or in any other jurisdiction or in any other manner whatsoever but such expression does not include any liability which is barred by statute or is otherwise unenforceable and for the avoidance of ______ a person who does not have a legal liability under a contract because such contract is void or, being voidable, has been duly avoided will not have a liability for the purposes of this Agreement, and “Liabilities” shall be construed accordingly.

“Listing Particulars” means the Newco 1 Listing Particulars and/or the Newco 2 Listing Particulars as the context requires.

“Listing Rules” means the rules made by the UKLA pursuant to section 74 of the Financial Services and Markets Act 2000 as amended from time to time.

“Material Adverse Change” means:

(a) a material adverse change in the current or future business or operations, the financial or trading position, profits or prospects of:

(i) the Group as a whole; or

(ii) EPL; or

(b) a change in the current or future business or operations, the financial or trading position, profits or prospects relating to the Group as a whole which is likely to have a material adverse effect on the value of the New Bonds, CTA Global Bond, New Shares or the New EPL Arrangements.

“Material Adverse Effect” means a material adverse change in the rights, benefits, liabilities and/or obligations of any of the Significant Creditors, the Consenting EPL Banks, RBS or the Bondholders provided for in this Agreement or in the Restructuring Documents.

“Members’ Order” means the order (if any) of the Court of Session sanctioning the Members’ Scheme.

“Members’ Scheme” means the scheme of arrangement set out in Schedule 7 to be proposed by the Parent to the Existing Shareholders in the agreed form pursuant to section 425 of the Companies Act.

“Members’ Scheme Condition” means the delivery of the office copy of the order of the Court of Session sanctioning me Members’ Scheme to and registration of such order by the registrar of companies in Scotland.

“Members’ Scheme Condition Shares” means such New Shares as represent 2.5 per cent in aggregate of the thereby enlarged issued ordinary share capital of Newco 1 immediately following completion of the Restructuring which will be allotted and issued to the Existing Shareholders pursuant to the Members’ Scheme if the Members’ Scheme becomes effective.

“Members’ Scheme Documents” means any document(s) required to be issued by the Parent to the Existing Shareholders in connection with the Restructuring and/or the Members’ Scheme.

“Minor Document” has the meaning given in Clause 2.6.2.

“New Bonds” means the £550 million nominal of bonds (excluding the CTA Global Bond) to be created pursuant to the Restructuring as described in the New Bond Term Sheet.

“New Bond Term Sheet” means the term sheet for die New Bonds set out in Schedule 9 in the agreed form.

“New Bond Trustee” means the trustee(s) to be appointed pursuant to the trust deed that will constitute the New Bonds and CTA Global Bond to be issued by Newco 2.

“New EPL Arrangements” means:

(a) a capacity and tolling agreement between EPL and BEPET (the “New CTA”) in the agreed form;

(b) an agreement between EPL and, inter alios, Barclays Bank PLC as agent and trustee for the EPL Lenders (the “Security Trustee”), scheduled to which shall be:

(i) the agreed form amended and restated EPL Facility Agreement (the “Amended EPL Facility Agreement”);

(ii) the amended and restated intercreditor agreement between, inter alios, the Security Trustee, EPL, EPHL and others (the “Amended Intercreditor Agreement”);

(iii) the amended accounts agreement between, inter alios, the Security Trustee and EPL (the “Amended Accounts Agreement”); and

(iv) the amended intercompany loan agreement between EPL as lender and EPHL as borrower (the “Amended Intercompany Loan”);

(c) a call option granting the Security Trustee a right to purchase the shares in EPL on 31 March 2010 (the “Share Option”) in the agreed form;

(d) a call option granting the Security Trustee the right to purchase the assets of EPL on 31 March 2010 (the “Asset Option”) in the agreed form;

(e) the new debenture between EPL, BEPET and the Security Trustee (the “New Debenture”), in substantially the form of the Debenture (as defined in the EPL Facility Agreement);

(f) the security document between EPHL and the Security Trustee (the “New EPHL Security” and together with the New Debenture, the “New Security Documents”), containing provisions in substantially the same form as the Shares Pledge and the EPHL Assignment (each as defined in the EPL Facility Agreement);

(g) the intercompany loan agreement between Newco 2 as lender and EPHL as borrower (the “First Intercompany Loan”);

(h) the intercompany loan agreement between EPHL as lender and EPL as borrower (the “Second Intercompany Loan”);

(i) the security instrument granted by EPL in favour of EPHL over certain of EPL’s rights under the Options (the “Second Intercompany Security”);

(j) the security instrument granted by EPHL in favour of Newco 2 over certain of EPHL’s rights under the Second Intercompany Security (the “First Intercompany Security”);

(k) the Gale Common deed of trust and escrow agreement between EPL and the Environment Agency (the “Gale Common Escrow Agreement”);

(1) the deferred share subscription agreement between EPL, EPHL, Newco 2, BEPET and the Security Trustee in respect of the issue of deferred shares by Newco 2 and/or EPL and/or EPHL in certain circumstances, including, without limitation, following the exercise of the Share Option and/or the Security Documents constituting security over EPHL’s shareholding in EPL (the “Share Subscription Agreement”);

(m) the deferred share subscription agreement between EPL, EPHL, Newco 2 and the Security Trustee pursuant to which the EPL Lenders will subscribe for deferred shares in Newco 2 and/or EPHL in certain circumstances (the “Lenders Share Subscription Agreement”);

(n) the fee letters referred to in the Amended EPL Facility Agreement (the “Fee Letters”); and

(o) a deed of termination between, inter alia, the Security Trustee, EPL and EPHL, terminating the EPL Facility Documents (the “Deed of Termination”).

“New Shares” the new ordinary shares in the capital of Newco 1.

“New Standstill Agreement” means the standstill agreement which will be entered into between the Companies, BNFL the Significant Creditors, RBS and the Consenting EPL Banks if required pursuant to Clause 5.6.

“Newco 1” means an English or Scottish public limited company to be incorporated or acquired from company formation agents which will have as part of its issued share capital, one special rights redeemable preference share of £1 having substantially similar rights as the existing special rights redeemable preference share in the capital of the Parent or (i) such lesser rights as HMG may require in order to comply with EU law as interpreted by the European Court of Justice and/or (ii) such lesser rights, without adversely affecting the rights of ordinary shareholders, as HMG may reasonably require.

“Newco 2” means an English or Scottish public limited company to be incorporated or acquired from company formation agents which will have as part of its issued share capital one special rights redeemable preference share of £1 having substantially similar rights as the existing special rights redeemable preference share in the capital of the Parent or (i) such lesser rights as HMG may require in order to comply with EU law as interpreted by the European Court of Justice; and/or (ii) such lesser rights,

without adversely affecting the rights of ordinary shareholders, as HMG may reasonably require.

“Newco 1 Articles of Association” means the articles of association of Newco 1 which, on completion of the Restructuring, shall be substantially equivalent to the present articles of association of the Parent, except that: (a) the provisions of and references in the articles of association of the Parent relating to the A shares of 60 pence each shall not be replicated in the articles of association of Newco 1; (b) as contemplated by the Nuclear Liabilities Documents, there will be a class of convertible ordinary shares ranking pari passu with the New Shares but having restricted voting rights and which, upon conversion into New Shares, will comprise up to 65 per cent, of the fully diluted issued ordinary share capital of Newco 1. The Parent shall modify or delete provisions entrenched in the articles of association of Newco 1 through the special rights redeemable preference share (including any limitation on shareholdings) so that the articles of association of Newco 1 contain: (i) such lesser rights as HMG may require in order to comply with EU law as interpreted by the European Court of Justice and/or (ii) such lesser rights without adversely affecting the rights of ordinary shareholders, as HMG may reasonably require.

“Newco 1 Listing Particulars” means the listing particulars or the admission document to be prepared by the Parent in accordance with the Listing Rules or the AIM Rules, as the case may be, in relation to Admission of the New Shares.

“Newco 2 Listing Particulars” means the listing particulars or other admission document to be prepared by the Parent in accordance with the Listing Rules, or the rules of the Luxembourg Stock Exchange, as the case may be, in relation to Admission of the New Bonds.

“Newco 2 Shares” means ordinary shares in the capital of Newco 2.

“NLFCo” means Nuclear Generation Decommissioning Fund Limited (registered in Scotland No. SC164685) (to be renamed Nuclear Liabilities Fund Limited).

“Notified Filing Date” has the meaning given in Clause 3.5.

“Nuclear Liabilities Agreements” means:

(a) the agreement between the Secretary of State, BEG, BEG (UK), Newco 1 and Newco 2 in respect of historic contracted liabilities (the “Historic Liabilities Funding Agreement”);

(b) the nuclear liabilities funding agreement between NLFCo, BEG, BEG (UK), the Secretary of State, the Parent, Newco 1 and Newco 2 (the “Nuclear Liabilities Funding Agreement”);

(c) the contribution agreement between the Secretary of State, NLFCo, BEG, BEG (UK), Newco 1 and Newco 2 (the “Contribution Agreement”);

(d) the option agreement between the Secretary of State, BEG, BEG (UK), Newco 1 and Newco 2 (the “Option Agreement”);

(e) the agreement between the Secretary of State, BEG, BEG (UK) and Newco 1, pursuant to which BEG and BEG (UK) will each grant an option to the Secretary of State to acquire their respective interests in shares of, and loans to, United Kingdom Nirex Limited (the “Nirex Option Agreement”);

(f) the guarantee and indemnity between the Guarantors as defined therein, BEG (UK), NLFCo and the Secretary of State (the “Guarantee and Indemnity”);

(g) the deed of amendment to the trust deed of the Nuclear Trust dated 27 March 1996 by the trustees of the Nuclear Trust, the Secretary of State and the Parent (the “Nuclear Trust Amendment”);

(h) the amended Memorandum and Articles of Association of the Nuclear Generation Decommissioning Fund Limited and the written resolution effecting the relevant changes (the “NDF Articles”); and

(i) the deed terminating the agreement entitled the “Nuclear Decommissioning Agreement” between, inter alia, BEG, BEG (UK), the Parent and the Nuclear Generation Decommissioning Fund Limited pursuant to which the Parent is required to make payments to the Nuclear Generation Decommissioning Fund Limited (the “NDA Termination Deed”),

each in the agreed form.

“Objecting Majority” means one or more of (i), (ii) or (iii) below:

(i) unless otherwise stated in this Agreement one, some or all of RBS and Consenting Bondholders together holding in aggregate more than £223 million of Claim Amount; or

(ii) unless otherwise stated in this Agreement, an EPL Bank Simple Majority; or

(iii) before any of Total, ECTEF or TPL effect a transfer permitted by Clause 10.4 of any of its Claim Amount, any two or more of Total, ECTEF and TPL together holding in aggregate £157 million or more of PPA Claim Amount and after any of Total, ECTEF or TPL effect a transfer permitted by Clause 10.4 of any of its Claim Amount, any two or more persons holding in aggregate more than £158 million of PPA Claim Amount. If any of Total, ECTEF and TPL transfer to any of their respective Affiliated, it and their respective Affiliated shall be treated as the same person and the transfer shall not be treated as a transfer for the purposes of this definition.

“Parent” means British Energy plc.

“Party” means a person who is a party to this Agreement other than BNFL.

“Permitted Security Interest” means (i) any Security Interest existing on the date on which the Standstill Agreement became effective in accordance with its terms; (ii) any lien arising by operation of law (or by agreement to the same or no greater effect) including, without limitation, any rights of set-off with respect to demand or time deposits with financial institutions and bankers’ liens with respect to property held by financial institutions; (iii) any Security Interest over goods or documents of title arising in the course of letter of credit transactions entered into in the ordinary course of business; (iv) title retention arrangements arising in the ordinary course of trading with suppliers of goods or arising under conditional sale or hiring arrangements in respect of goods supplied in the ordinary course of trading; (v) any Security Interest created under or in connection with or arising out of the Balancing and Settlement Code, the Connection and Use of System Code or the Grid Code; (vi) any Security Interest granted in favour of financial services providers over cash deposits held with such providers in relation to clearing and settlement services provided by them; (vii) any other Security Interest securing an amount not exceeding £5,000,000; (viii) any Security Interest given by way of cash collateral securing obligations of a member of the Group under electricity trading or procurement contracts with suppliers, in each case entered into in the ordinary course of that company’s business (or any such Security Interest given in respect of letters of credit relating to such obligation); (ix) any Security Interest created or arising at any time pursuant to or contemplated by any provision of the Credit Facility Agreement; and (x) any guarantee, indemnity and any Security Interest created under or in connection with or arising out of the Intra-Group Funding Arrangements.

“PPA Claim Amount” means the aggregate of the Claim Amount of Total, Enron and TPL or any persons to whom they effect a transfer in accordance with Clause 10.4, being £316,000,000.

“Press Announcement” means the press announcement to be made by the Parent in agreed form (except in the case of Enron) on or about the date hereof.

“RBS” means The Royal Bank of Scotland plc (unless otherwise stated) in its capacity as provider of the RBS Letter of Credit.

“RBS Letter” has the meaning ascribed to that term in the Creditors’ Scheme.

“RBS Letter of Credit” means the letter of credit issued on i December 2000 by RBS in favour of Barclays Bank plc (as the EPL Facility Agency ) relating to the debt service reserve obligations of EPL under the EPL Facility Agreement.

“Registration Statement” shall mean any Exchange Act Registration Statement that covers any of the New Shares pursuant to the provisions of this agreement, any amendments and supplements to such registration statement, including post-effective amendments (in each case including the Prospectus contained therein) all exhibits thereto and all material incorporated by reference therein.

“Released Claim” means any claim or right which the relevant Significant Creditor or EPL Bank, is or may in any circumstances become entitled to bring or enforce against any Released Company (or any of its Representatives) in respect of any Liability of such Released Company (or any of its Representatives) arising directly or indirectly from or connected with:

(a) in the case of TPL:

(i) if the Restructuring Date is before 30 September 2004 and before the TPL Option is exercised, the TPL Amended PPA, the TPL 200 MW PPA and the TPL Guarantee; or

(ii) if the Restructuring Date is after the earlier of 30 September 2004 and the exercise of the TPL Option, the TPL Original PPA and the TPL Guarantee;

(b) in the case of ECTEF, the Enron CFD and the Enron Guarantee;

(c) in the case of Total, the Total CFD and the Total Guarantee;

(d) in the case of the EPL Banks, the EPL Facility Documents (except, for the avoidance of doubt, any claims for principal amounts under the EPL Facility Documents to the extent that they are preserved under the New EPL Arrangements and the EPL Security Documents to the extent they secure those amounts)

in each case in existence as at the Restructuring Date (or to which such Released Company or Representative may become liable after that date by reason of any Liability incurred before that date) but excluding any claim by the relevant Significant Creditor or EPL Bank (a) in respect of its Compromise Entitlement or (b) for breach of the Standstill Agreement or this Agreement provided that such breach has been notified in writing to the Parent by any Significant Creditor or Consenting EPL Bank prior to the earlier of the date falling 28 days after the Effective Date and the day of the hearing for leave to convene the Creditors’ Scheme Meeting. The Parent shall promptly forward to every Party any notification received by it under this sub-paragraph (b) (such notification to be forwarded, in the case of the Consenting EPL Banks, to the EPL Facility Agent and in the case of the consenting Bondholders, to the Ad Hoc Committee’s Legal Advisers.

“Released Company” means the Parent, each Group Company, Newco 1 and Newco 2.

“Representatives” means in respect of the Parent or a Group Company, its directors, agents, officers, employees and professional advisers.

“Restructuring” means the proposed restructuring, contemplated by this Agreement, of certain Liabilities of the Companies pursuant to which each Significant Creditor and EPL Bank will exchange their respective Released Claims and RBS and the Bond

Trustee (or if Bonds in definitive form have been issued to Bondholders, such Bondholders) will exchange their Creditors’ Scheme Claims for their respective Compromise Entitlements and pursuant to which the New EPL Arrangements will be implemented.

“Restructuring Condition” means the condition to the implementation of the Restructuring set out in Schedule 6 hereto.

“Restructuring Date” means the date upon which the Restructuring Condition is satisfied.

“Restructuring Documents” means the documents listed in Part I of Schedule 13 and the documents that become Restructuring Documents in accordance with Clause 2.6.

“Restructuring Long Stop Date” has the meaning given to that expression in clause 8.1.4.

“Restructuring Plan” means the restructuring plan for the Group submitted by HMG to the Commission on 7 March 2003 (as amended and supplemented from time to time thereafter).

“Restructuring Steps” means the actions required to be undertaken by the Parties in order to give effect to the Restructuring as set out in Schedule 3 as modified or amended in any way by the Parent after the date on which this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with Clause 1.5 provided that such modification or amendment shall only be permitted if the modification or amendment has been notified to all the Parties and:

(a) the modification or amendment is of a minor or administrative nature; or

(b) if of more than a minor or administrative nature and not falling within paragraph (c) below, the Consenting Majorities (which in the case of the Consenting Bondholders and RBS shall require a Bondholder/RBS Consenting Majority) have consented in writing to the modification or amendment (such consent not to be unreasonably withheld or delayed); or

(c) if the modification or amendment involves any alteration to the Claim Amount or Compromise Entitlement of any Significant Creditor, EPL Bank, RBS or Bondholder or could reasonably be expected to have a ________ _________ Effect, all Parties have consented in writing to the modification or amendment; or

(d) if the modification or amendment could reasonably be expected to have a material adverse effect on BNFL, BNFL has consented in writing to the modification or amendment.

“SEC” shall mean the United States Securities and Exchange Commission.

“Secretary of State” means the Secretary of State for Trade and Industry.

“Securities Act” shall mean the United States Securities Act of 1933, as amended.

“Security Interest” means a mortgage, standard security, charge (whether fixed or floating), pledge, lien, hypothecation, assignment by way of security, trust arrangement or security interest of any kind securing any obligation of any person (including without limitation title transfer and/or retention arrangements having a similar effect).

“Significant Document” has the meaning given in Clause 2.6.3.

“Single Vote Resolutions” means the resolutions set out in Schedule 19 to be proposed in the agreed form to Bondholders of each series of Bonds.

“Split Vote Resolutions” means the resolutions set out in Schedule 19 to be proposed in the agreed form to Bondholders of each series of Bonds.

“State Aid Approval” means receipt by the UK Government of notification of the adoption by the Commission of a decision or decisions that:

(a) implementing the Restructuring Plan does not involve any State aid granted by or through the resources of HMG within the scope of article 87(1) of the EC Treaty, whether to any member of the Group or to any other person or undertaking;

(b) to the extent that implementing the Restructuring Plan does involve State aid granted by or through the resources of HMG within the scope of article 87(1) of the EC Treaty, whether to any member of the Group or to any other person or undertaking, such aid is nevertheless compatible with the common market; and

(c) to the extent that any member of the Group or any other person or undertaking is found to have been in receipt of unlawful State aid as a result of or as a part of the proposed restructuring, such aid is nevertheless compatible with the common market.

“Standstill Agreement” means the standstill agreement dated 14 February 2003 between the Parent, certain of the Companies, the EPL Steering Committee, RBS, TPL, ECTEF, Total, the EPL Swap Providers and BNFL.

“Subsidiary” means a subsidiary undertaking within the meaning of securities of the Companies Act.

“Swaps MTM Exposure” means the mark-to-market exposure of an EPL Swap Bank under its EPL Swaps as at 4 June 2003.

“Termination Date” means the date on which this agreement is terminated in accordance with Clause 8.1.

“Total” means Total Gas & Power Limited.

“Total CFD” means the contract for differences dated 10 January 1997 and made between Elf Exploration UK PLC and BEG (as amended and novated to Total and to BEPET).

“Total Guarantee” means the guarantee given by the Parent relating to the Total CFD and dated 10 January 1997.

“Total New Shares” means the aggregate of the New Shares in the capital of Newco 1 to be issued to (i) the Significant Creditors and, if the EPL Condition is satisfied before the EPL Scheme Order is made, the EPL Banks pursuant to this Agreement and (ii) if the EPL Condition is not satisfied before the EPL Scheme Order is made, the EPL Banks pursuant to the EPL Scheme and (iii) the Bondholders and RBS pursuant to the Creditors’ Scheme, in each case, consistent with the allocations of New Shares set out in Schedule 5, but excluding the Members’ Scheme Condition Shares.

“Total Swaps MTM Exposure” means the total of the Swaps MTM Exposures of all the EPL Swap Banks.

“TPL” means Teesside Power Limited.

“TPL Amended PPA” means the TPL Original PPA as further amended on 24 March 2003 in accordance with the Standstill Agreement.

“TPL Guarantee” means the guarantee given by the Parent relating to the TPL PPA and dated 26 March 2001.

“TPL Option” means the agreement in the agreed form between TPL and BEPET giving TPL the option to terminate the TPL Amended PPA and the TPL 200 MW PPA.

“TPL Original PPA” means the agreement dated 26 June 1991 as amended and restated by a supplemental agreement dated 28 April 1993 between TPL and South Wales Electricity plc and further amended and subsequently novated by the deed of novation dated 26 March 2001 to BEPET and amended pursuant to an umbrella agreement dated 26 March 2001 between TPL, BEPET and others.

“TPL 200 MW PPA” means a power purchase agreement dated 24 March 2003 executed by TPL and BEPET.

“TPL PPAs” has the meaning given in paragraph 1.2.3 of Schedule ___.

“TPL Side Letter” means the letter in agreed form from TPL to BEPET relating to the meaning of “Standstill Period” in the TPL Amended PPA and the TPL 200 MW PPA.

“Unsettled Documents” has the meaning given in Clause 2.6.

“UKLA” means the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000.

“VAT” means value added tax charged in accordance with the provisions of the Value Added Tax Act 1994, and any other tax on value or turnover which is enacted in addition to or in substitution for it.

“Warrants” means the warrants, as described in the Warrant Instrument Term Sheet, to subscribe for such number of New Shares as would after exercise represent 5 per cent in aggregate of the thereby enlarged issued ordinary share capital of Newco 1 immediately following the completion of the Restructuring after full exercise of the Warrants and after issue of the Members’ Scheme Condition Shares.

“Warrant Instrument Term Sheet” means the term sheet set out in Schedule 16 setting out in the agreed form the terms on which the Warrants will be constituted.

1.2 Any reference in this Agreement to:

1.2.1  any “Consenting EPL Lender”, “Consenting EPL Swap Provider”, “Significant Creditor”, “Consenting Bondholder”, “RBS” or any “Party” shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

1.2.2  a “person” includes any person, firm, company, corporation, government, state or agency of a state or any association, trust or partnership (whether or not having separate legal personality) or two or more of the foregoing;

1.2.3  a provision of law is a reference to that provision as amended or re-enacted;

1.2.4  any reference to a “day” (including within the phrase “Business Day”) shall mean a period of 24 hours running from midnight to midnight and any reference to a time of day is a reference to London time;

1.2.5  a “Clause”, “sub-clause”, “paragraph” or “Schedule” shall, subject to any contrary indication, be construed as a reference to a clause, sub-clause, paragraph or schedule as the case may be, in or to this Agreement; and

1.2.6  the Members’ Scheme “lapsing” shall mean either (a) the Members’ Scheme not being approved by the requisite majority of the Existing Shareholders; or (b) the Members’ Scheme not being sanctioned by the Court of Session; or (c) the Members’ Scheme not being registered by the registrar of companies in Scotland, in each case in circumstances where the Parent, acting reasonably, decides that as a result the Members’ Scheme is not capable of becoming effective in accordance with its terms before the Restructuring Long Stop Date;

1.2.7  a reference to any enactment or treaty shall include a reference to such enactment as re-enacted, amended or extended;

1.2.8  a reference to an agreement is a reference to such agreement as amended, varied, supplemented, restated or novated from time to time.

1.3 Headings in this Agreement are for ease of reference only and do not affect its interpretation.

1.4 A reference to a document in the “agreed form” means a document in the form agreed between the Parties and scheduled to this Agreement or initialled for the purposes of identification by or on behalf of each of the Parties as any such document may be modified or amended from time to time after the date on which this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with Clause 1.5 provided that such modification or amendment shall only be permitted if it has been notified to all the Parties and:

1.4.1  the modification or amendment is of a minor or administrative nature; or

1.4.2  if of more than a minor or administrative nature and not falling within Clause 1.4.3 below, the Consenting Majorities (which in the case of the Consenting Bondholders and RBS shall require a Bondholder/RBS Consenting Majority) have consented in writing to the modification or amendment (such consent not to be unreasonably withheld or delayed); or

1.4.3  if the modification or amendment involves any alteration to the Claim Amounts or Compromise Entitlement of any Significant Creditor, EPL Bank, RBS or Bondholder or could reasonably be expected to have a Material Adverse Effect, all the Parties have consented in writing to the modification or amendment; or

1.4.4  if the modification or amendment could reasonably be expected to have a material adverse effect on BNFL, BNFL has consented in writing to the modification or amendment;

1.5 This Agreement, save for the Immediately Effective Provisions (which will have effect from the date of this Agreement), will become effective only when:

1.5.1  the credit committee of RBS has granted its approval to RBS becoming bound by this Agreement (except that no approval is required for the Immediately Effective Provisions);

1.5.2  sufficient Consenting Bondholders are original signatories to this Agreement and/or have entered into this Agreement in accordance with Clause 1.6 so that the Claim Amounts of such Consenting Bondholders and RBS aggregate 75 per cent. or more of the aggregate of the Claim Amounts of all Bondholders and RBS or such lesser percentage, and subject to such conditions, as the Parent the Approvals Majorities and the Secretary of State may agree;

1.5.3  a simple majority by number of EPL Banks whose participation in the Loan (as defined in the EPL Facility Agreement), then outstanding and Swaps MTM Exposures aggregate 75 per cent or more of the sum of (i) £535,968,727 (being the sum of the Loan (as defined in the EPL Facility

Agreement) and the Total Swaps MTM Exposure) and (ii) a margin of £21 million (or such lesser percentage, and subject to such conditions, as the Parent, the Approvals Majorities and Secretary of State may agree) have obtained the approvals required in order for them to enter into and become bound by the terms of this Agreement and have entered into this Agreement in accordance with Clause 1.6;

1.5.4 the Government Restructuring Agreement has been entered into by each parry thereto; and

1.5.5 the deeds of amendment to each of the BNFL Agreements have been executed and delivered in accordance with Clause 2.4.2.

1.6 Bondholders or EPL Banks who are not original signatories to this Agreement may enter into this Agreement by delivering signature pages executed by them for attachment to this Agreement. All persons who so enter into this Agreement will be entitled to the benefit of this Agreement and subject to the burden of this Agreement as if they had been original signatories to this Agreement.

1.7 No amendment or modification shall be made to this Agreement or any Restructuring Document and no Unsettled Document shall be settled before this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with clause 1.5.

2. IMPLEMENTATION OF THE RESTRUCTURING

2.1 Subject to Clause 2.3 and Clause 3.1 and to the satisfaction of the Restructuring Condition but without prejudice to Clause 6, each of the Companies, each Significant Creditor and, if the EPL Condition is satisfied, each Consenting EPL Bank hereby agrees:

2.1.1 to exchange all of its Released Claims for its Compromise Entitlement (such exchange to be effected by way of implementation of the Restructuring Steps in accordance with Clause 2.2.1 below);

2.1.2 to release each Released Company (and each Representative of a Released Company) fully from any Liability that they may have to such Consenting Bondholder, Significant Creditor or Consenting EPL Bank in respect of any Released Claim and to waive each and every Released Claim that it may have against a Released Company (or a Representative of a Released Company).

2.2 Subject to Clause 3.1 (save in respect of Clause 2.2.3):

2.2.1 each Party hereby agrees that the Restructuring Steps set out in paragraphs 3, 4 and 5 of Schedule 3 shall take effect as set out therein and that they will take all actions required of them in Schedule 3 to implement the Restructuring Steps;

2.2.2 provided no Material Adverse Change has occurred, RBS hereby irrevocably and unconditionally agrees to vote in person or by proxy at the Creditors’ Scheme Meeting in favour of the Creditors’ Scheme Resolution(s) and to support the approval of the Creditors’ Scheme at any court sanction hearing in respect thereof and not to vote in person or by proxy at the Creditors’ Scheme Meeting against the Creditors’ Scheme Resolution(s) or to attend any court sanction hearing in respect thereof other than in support of the Creditors’ Scheme;

2.2.3 provided no Material Adverse Change has occurred, each Consenting Bondholder hereby irrevocably and unconditionally agrees to vote its Identified Bonds in person or by proxy in favour of the Amending Resolutions at any Bondholders’ Meeting convened to pass such resolutions;

2.2.4 provided no Material Adverse Change has occurred, each Consenting Bondholder hereby irrevocably and unconditionally agrees to vote its Identified Bonds in person or by proxy in favour of the Single Vote Resolutions at any Bondholders’ Meeting convened to pass such resolutions;

2.2.5 provided no Material Adverse Change has occurred, in the event that the Single Vote Resolutions are not passed, each Consenting Bondholder hereby irrevocably and unconditionally agrees to vote its Identified Bonds in person or by proxy in favour of the Split Vote Resolutions at any Bondholders’ Meeting convened to pass such resolutions and to instruct the Bond Trustee to vote all the Identified Bonds held by such Consenting Bondholder in favour of the Creditors’ Scheme Resolutions at the Creditors’ Scheme Meeting;

2.2.6 provided no Material Adverse Change has occurred, if the Amending Resolutions have been duly passed and the Parent has (subject to Clause 2.8) decided to issue Bonds in definitive form, each Consenting Bondholder hereby irrevocably and unconditionally agrees to vote its Identified Bonds in person or by proxy at the Creditors’ Scheme Meeting in favour of the Creditors’ Scheme Resolution(s) and to support the approval of the Creditors’ Scheme at any court sanction hearing in respect thereof and not to vote its Identified Bonds in person or by proxy at the Creditors’ Scheme Meeting against the Creditors’ Scheme Resolution(s) or to attend any court sanction hearing in respect thereof other than in support of the Creditors’ Scheme; and

2.2.7 provided no Material Adverse Change has occurred, each Consenting EPL Bank, hereby irrevocably and unconditionally agrees that in the event that the EPL Condition has not been satisfied at the time of the relevant meeting or hearing, it will agree to any amendment or waiver of any restriction under the EPL Facility Agreement required to permit or facilitate the promotion or implementation of the EPL Scheme and vote in person or by proxy at the EPL Scheme Meeting in favour of the EPL Scheme Resolution(s) and support the approval of the EPL Scheme at the court sanction hearing in respect thereof and not vote in person or by proxy at the EPL Scheme Meeting against the

EPL Scheme Resolution(s) or attend the court sanction hearing in respect thereof other than in support of the EPL Scheme.

2.3 Nothing in the release given in Clause 2.1 will release or prejudice any claim that any member of the Group might otherwise have against any Representative or any claim by any Significant Creditor or Consenting EPL Bank against professional advisers to the Group where such claim against professional advisers arises under a duty of care which has been specifically accepted in writing.

2.4 BNFL:

2.4.1 acknowledges and agrees that the implementation of the Restructuring will not result in the breach of the terms or conditions of any of the BNFL Agreements and further agrees, subject to the satisfaction of the Restructuring Condition, to request and consent to the novation of the Parent’s rights and obligations under any agreements with BNFL or any of its subsidiaries from the Parent to Newco 1 if requested by the Parent or Newco 1, save where such request and consent could reasonably be expected to have a material adverse effect on BNFL; and

2.4.2 agrees with the Parent and other Group Companies which are party thereto that it shall, prior to 31 October 2003, enter into deeds of amendment to amend each of the BNFL Agreements in the manner provided for in Schedule 20.

2.5 Subject to and without prejudice to paragraph 4 of Schedule 4, the Parent undertakes to procure that Newco 1 will, in the event that the Business Transfer Agreement becomes unconditional in all respects, provide such persons as are employed by the Parent immediately before the Restructuring Date with an employee share scheme substantially equivalent to the British Energy Sharesave Scheme in existence at such time.

2.6 The documents listed in Part 2 of Schedule 13 and other agreements, side letters and documents which will be required to be adopted or entered into in connection with the implementation of the Restructuring, but which have not at the date of this Agreement been settled, (the “Unsettled Documents”) shall be settled after the date on which the provisions of this Agreement (other than the Immediately Effective Provisions) become effective in accordance with Clause 1.5 as follows:

2.6.1 The Parent shall make reasonable efforts to produce the Unsettled Documents in consultation with the Parties or their advisers and provide copies to each Party or its adviser on its behalf.

2.6.2 Each draft Unsettled Document considered by the Parent acting reasonably to be of a minor or administrative nature shall be deemed to be in the agreed form and a Restructuring Document if supplied to each Party or its adviser or, in respect of the Consenting Bondholders, the Ad Hoc Committee’s Legal Advisers, expressly for the purpose of it being deemed to be in agreed form

pursuant to this Clause 2.6.2 and no Objecting Majority acting reasonably disputes the Parent’s classification of such Unsettled Document by giving written notice to the Parent within 28 days of receipt or the Consenting Majorities (which in the case of the Consenting Bondholders and RBS shall require a Bondholder/RBS Consenting Majority) have consented in writing to such classification (a “Minor Document”).

2.6.3 Each draft Unsettled Document, (other than a document for which a term sheet is in agreed form) the provisions of which, or the implementation of which, could reasonably be expected to have a Material Adverse Effect in the context of the Restructuring Documents already in the agreed form and any draft Unsettled Document for which there is a term sheet in agreed form but which deviates from such term sheet in a manner which could reasonably be expected to have a Material Adverse Effect (a “Significant Document”), shall be deemed to be in agreed form and a Restructuring Document only when it has been agreed and initialled for the purposes of identification by or on behalf of each Party as being in agreed form.

2.6.4 Any draft Unsettled Document other than a Minor Document or a Significant Document shall be deemed to be in agreed form and a Restructuring Document if supplied to each Party or its adviser or, in respect of the Consenting Bondholders, the Ad Hoc Committee’s Legal Advisers, expressly for the purpose of the document being deemed to be in agreed form pursuant to this Clause 2.6.4 and the Consenting Majorities (which in the case of the Consenting Bondholders in relation to the New EPL Arrangements which are Unsettled Documents, shall require a Bondholders/RBS Consenting Majority) have consented in writing to such document being in agreed form (such consent not to be unreasonably withheld or delayed).

2.7 The Parent agrees that in the event the EPL Condition is not satisfied before the Effective Date, it will, unless and until the EPL Condition is satisfied, make all reasonable efforts to prepare and promote the EPL Scheme.

2.8 The Parent undertakes not to issue Bonds in definitive form (unless required to do so under the terms of the permanent global bond) without receiving the prior written consent of the Ad Hoc Committee (such consent not to be unreasonably withheld or delayed).

2.9 The Consenting EPL Banks agree to execute and deliver each document relating to the New EPL Arrangements when reasonably requested to do so by the Parent.

2.10 The Parent will, as soon as reasonably practicable after this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with Clause 1.5, produce a conformed copy of the New Standstill Agreement which each party thereto shall initial for the purposes of identification.

2.11 RBS hereby agrees to extend the RBS Letter of Credit until five Business Days after the Restructuring Long Stop Date.

3. INITIAL CONDITIONS AND PARENT UNDERTAKING

3.1 The obligations of the Parties and BNFL pursuant to Clause 2 (save for Clause 2.4.2, Clause 2.9 Clause 2.10 and 2.11) are conditional on:

3.1.1 the State Aid Approval being obtained from the Commission regardless of whether the State Aid Approval is subject to appeal or other legal challenge or not, but provided that the State Aid Approval is either:

(a) not subject to any conditions or obligations;

(b) subject to conditions or obligations which in the aggregate would not, if complied with, either:

(i) constitute a Material Adverse Change or a Material Adverse Effect; or

(ii) render it impossible to proceed with the Restructuring on substantially the basis described in this Agreement and the Restructuring Documents.

3.1.2 at the date on which the last of the conditions set out in this Clause 3,1 (save for the conditions set out in this Clause 3.1.2, Clause 3.1.6 and Clause 3.1.12) are satisfied, there not having been a Material Adverse Change which has been notified to the Parent by an Objecting Majority (which in the case of the EPL Banks shall require an EPL Bank Special Majority);

3.1.3 each of the BNFL Back-end Agreements as amended in accordance with this Agreement either being subject to no outstanding conditions precedent or the parties thereto agreeing to treat the BNFL Back-end Agreements as being unconditional, in each case other than any condition which relates to this Agreement and/or the Nuclear Liabilities Agreements and/or the BNFL Front-end Agreements and/or any other BNFL Back-end Agreements and/or the Creditors’ Scheme becoming effective;

3.1.4 each of the BNFL Front-end Agreements as amended in accordance with this Agreement either being subject to no outstanding termination conditions or conditions precedent or the parties thereto agreeing to treat each BNFL Front-end Agreement as being subject to no outstanding termination conditions or conditions precedent, in each case other than any termination condition or condition precedent which relates to this Agreement and/or the Nuclear Liabilities Agreements and/or the BNFL Back-end Agreements and/or any other BNFL Front-end Agreements and/or the Creditors’ Scheme becoming effective;

3.1.5  if the EPL Condition is satisfied, the New EPL Arrangements either being subject to no outstanding conditions precedent or the parties thereto agreeing to treat the New EPL Arrangements as being wholly unconditional, in each case other than any condition which relates to this Agreement or any part of the New EPL Arrangements becoming unconditional and/or the Creditors’ Scheme becoming effective;

3.1.6  there not having been a material breach of the warranties given by the Companies in Clause 4 and Schedule 4 and no circumstances having arisen as a result of which there would be a material breach of those warranties if they were repeated at the date when the last of the Initial Conditions (save for the condition set out in Clause 3.1.2, this Clause 3,16 and Clause 3.1.12) is satisfied and there not having been a material breach of the undertaking and covenants given by the Companies in Clause 4 and Schedule 4 which has not been remedied prior to such date;

3.1.7  confirmation (in a form reasonably satisfactory to the Parent) being obtained from the Inland Revenue that the transactions contemplated by the Nuclear Liabilities Agreements and the Restructuring Steps will not give rise to any adverse tax consequences which would constitute a Material Adverse Change;

3.1.8  every material Unsettled Document being agreed or deemed to be in the agreed form pursuant to Clause 2.6;

3.1.9  any approval required from the Financial Services Authority, as the regulator of BETS, to the Restructuring being obtained;

3.1.10  any consent required from any governmental or regulatory body to the Restructuring, the absence of which would give rise to a Material Adverse Change, being obtained;

3.1.11  the Parent confirming not more than five Business Days prior to the satisfaction of the last of the Initial Conditions (other than the; conditions set out in Clauses 3.1.2, 3.1.6 and 3.1.12) by way of certificate addressed to each of the Significant Creditors, RBS, the EPL Facility Agent (on behalf of the EPL Banks), the Ad Hoc Committee’s Advisers (on behalf of the Consenting Bondholders) and BNFL, signed by a director of the Parent (but without liability, other than for fraud, whether of the Parent, the director concerned or any other person) that prior to the date of this Agreement to the best of the knowledge and belief of the board after enquiry of appropriate officers and employees of members of the Group, it considers that it had disclosed to the Significant Creditors, RBS, the EPL Banks and the Ad Hoc Committee’s Advisers or their respective representatives, information which was true and accurate in all material respects (except as corrected prior to the date of this Agreement) and which taken as a whole was sufficient to enable them to make a reasonably informed decision on whether or not to participate in the Restructuring on the terms of this Agreement.

3.1.12  at the date on which the last of the Initial Conditions (save for the conditions set out in Clauses 3.1.2, 3.1.6 and this Clause 3.1.12) is satisfied, no written notice having been received (which has not been withdrawn) by any member of the Group from HM Nuclear Installations Inspectorate that the Restructuring, or any aspect of it, contravenes any nuclear site licence held by BEG or BEG (UK) in a material respect.

3.2 The Parent shall make all reasonable efforts to achieve satisfaction of:

3.2.1  each condition set out in Clauses 3.1.1, 3.1.3, 3.1.4, 3.1.5, 3.1.7, 3.1.9, 3.1.10 and 3.1.11 by 30 November 2004; and

3.2.2  the Restructuring Condition by the Restructuring Long Stop Date.

3.3 At any time on or before 9.00 a.m. on the Restructuring Long Stop Date the Parent may waive the Initial Condition set out in Clause 3.1.9 by notice to the other Parties and BNFL, provided such waiver would not constitute or give rise to a Material Adverse Change.

3.4 Any Initial Condition other than the Initial Condition in Clause 3.1.9, may be waived in writing by the Parent and the Consenting Majorities. BNFL’s rights under the BNFL Agreements will not be affected by any such waiver.

3.5 The Parent undertakes to give each of the Consenting EPL Banks (via the EPL Facility Agent), Significant Creditors, RBS and the Ad Hoc Committee (via the Ad Hoc Committee’s Legal Advisers) not less than five Business Days notice of the day of the sanction hearings for each of the Creditors’ Scheme and the EPL Scheme and of the day the Parent expects to file the Creditors’ Scheme Order with the registrar of companies in Scotland for registration (the “Notified Filing Date”). If at any time before the Notified Filing Date there is a continuing Material Adverse Change, an Objecting Majority (which in the case of the EPL Banks shall require an EPL Bank Special Majority) may by notice given to the Parent before the Notified Filing Date terminate this Agreement, in which case the provisions of Clause 8 shall apply and the Parent shall not file the Creditors’ Scheme Order.

3.6 The Parent undertakes not to deliver the Creditors’ Order to the registrar of companies in Scotland for registration:

3.6.1  If notice has been given to the Parent by an Objecting Majority (when in the case of the EPL Banks shall require an EPL Bank Special Majority) in accordance with Clause 3.5.

3.6.2  if before the Notified Filing Date an Objecting Majority (which in the case of EPL Banks shall require an EPL Bank Special Majority) has validly notified the Parent that there has been a material breach of the undertakings and covenants given by the Companies in Clause 4 and Schedule 4 or if there would be a material breach of the warranties given by the Companies in Clause 4 and Schedule 4 if they were repeated on the Notified Filing Date;

3.6.3  if confirmation has not been given by the applicable listing and trading authorities that upon allotment and issue of the New Shares and New Bonds Admission will become effective;

3.6.4  if any valuation required by section 103 of the Companies Act, as a result of the Restructuring Steps, has not been obtained by the relevant issuer;

3.6.5  if pursuant to the Government Restructuring Agreement, the Nuclear Liabilities Agreements have not been entered into or will not become effective in accordance with their terms immediately after the delivery of the Creditors’ Order to the registrar of companies in Scotland for registration;

3.6.6  unless the Members’ Scheme has lapsed, the Members’ Order is at the same time delivered to the registrar of companies in Scotland;

3.6.7  unless, if the EPL Condition has not been satisfied, the EPL Scheme Order is delivered at the same time to the registrar of companies in England and Wales for registration;

3.6.8  unless, if the EPL Condition has been satisfied, the New EPL Arrangements are either subject to no outstanding conditions precedent or the parties thereto agree to treat the New EPL Arrangements as being wholly unconditional, in each case other than any condition which relates to this Agreement or any part of the New EPL Arrangements becoming unconditional or the Creditors’ Scheme becoming effective;

3.6.9  unless any Security Interest created under or arising from the Intra-Group Funding Arrangements has been discharged;

3.6.10  unless (a) the Credit Facility Agreement has been cancelled and any Security Interest created by or arising under it has been discharged, or (b) the Credit Facility Agreement will be cancelled and any Security Interest created by or arising under it will be discharged on the delivery of the Creditors’ Order to the registrar of companies in Scotland for registration,, or (c) the Parent and the Consenting Majorities agree otherwise; and

3.6.11  unless, if the Members’ Scheme has lapsed and the Disposal Condition has not been satisfied, the listing of the Existing Shares has been cancelled or will be cancelled before the Restructuring Condition is satisfied

3.6.12  (unless the Parent and the Consenting Majorities (other than the EPL Banks) agree otherwise in writing) if EPL would be in breach of a representation or warranty in the Amended EPL Facility Agreement when entered into in such a way as would create an Event of Default (as defined under the Amended EPL Facility Agreement) and the Event of Default is not waived and is not capable of being cured in accordance with the Amended EPL Facility Agreement.

3.7 The Parent shall in the period beginning on the date on which this Agreement becomes effective in accordance with Clause 1.5 and ending on the Restructuring Date:

3.7.1 promptly inform RBS, the Consenting EPL Banks, Significant Creditors, BNFL and the Ad Hoc Committee’s Advisers of any material amendment or modification to the Restructuring Steps or the agreed form documents and any material change or modification to the Restructuring or any Material Adverse Change of which it is aware;

3.7.2  keep RBS, the Consenting EPL Banks, Significant Creditors, BNFL and the Ad Hoc Committee’s Advisers:

(a) informed on a monthly basis (by providing a written report or presentation with a question and answer session within 10 Business Days of the end of the relevant month) as to the progress in satisfying the Initial Conditions and the Restructuring Conditions and will promptly notify each of them when such conditions are satisfied and as to any other matters which may potentially adversely affect the implementation of the Restructuring;

(b) reasonably informed as to the substance of any consultation with the Parent by the Secretary of State pursuant to Clause 3.4 of the Government Restructuring Agreement;

3.7.3  provide RBS, the Consenting EPL Banks, the Significant Creditors and the Ad Hoc Committee’s Advisers with:

(a) the monthly management accounts and the historical and forecast performance against the budget of the Group together with a schedule detailing figures on debt amounts, collateral requirements and drawdowns (if any) under the Credit Facility Agreement as at the date of such accounts;

(b) the audited financial statements of the Group within 120 days after the end of the financial year;

(c) copies of any contract or obligation (or any group of related contracts or obligations) entered into after the date of this Agreement by any member of the Group outside the ordinary course and not contemplated by this Agreement, requiring expenditure or the undertaking of any liability in excess of £5 million; and

(d) within 10 Business Days of its being adopted, the Group’s annual budget for the year to March 2005.

In connection with, any information provided by the Parent or any member of the Group whether pursuant to this Clause 3.7 or otherwise, each recipient of such confidential information who is a party to this Agreement acknowledges and agrees

subject to Clause 10.2.3 (a) to keep such information confidential (subject and without prejudice to the terms of any existing confidentiality agreement which it has entered into with the Parent) and (b) that by receiving such information they may receive material non-public information about the Parent or the Group and (c) that there exist securities laws and regulations of various countries and states (including the United Kingdom) that may restrict or eliminate its ability to sell or purchase securities of or claims against the Parent (or any member of the Group) while in possession of material non-public information or otherwise.

3.7.4  If by 15 September 2004 the State Aid Approval has been neither obtained nor refused and HMG has provided an update to the Parent pursuant to clause 8.1 of the Government Restructuring Agreement then the parent shall within five Business Days, provide the update on the status of the State Aid Approval process, including, if known the general nature of any likely material conditions, to the Significant Creditors, RBS, BNFL, the Consenting EPL Banks and the Ad Hoc Committee’s Advisers (subject to such obligations of confidentiality as the Secretary of State may reasonably require) and, to the extent able to do so (subject to such obligations of confidentiality to HMG and third parties), the Parent’s views on the update and the process.

4. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS

4.1 Each Party (other than RBS) and BNFL makes on the date of this Agreement or, if later, the date of entering into this Agreement the representations and warranties expressed to be made by it in paragraph 1 of Schedule 4.

4.2 RBS makes the representations and warranties expressed to be made by it in paragraph 1 of Schedule 4 as if reference to this Agreement and any Restructuring Documents were references to the Immediately Effective Provisions and on notifying the Parent of receipt of its credit committee approval required by Clause 1.5, RBS shall be deemed to make the same representations and warranties in relation to the rest of this Agreement and any Restructuring Documents.

4.3 The Parent makes the additional representations and warranties expressed to be made by it in paragraph 2 of Schedule 4.

4.4 Each Consenting Bondholder makes the additional representations and warranties expressed to be made by it in paragraph 3 of Schedule 4.

4.5 Each of the Companies gives the undertakings set out in paragraph 4 of Schedule 4 to RBS, the Consenting EPL Banks and Significant Creditors, Consenting Bondholders and BNFL. Each person who is both a party to this Agreement and a party to the Bondholder Restructuring Agreement or Standstill Agreement agrees that he shall not be entitled to recover damages more than once in respect of any one matter giving rise to a claim for breach of the undertakings in paragraph 4 of Schedule 4 of this Agreement and (if he is a party to the Bondholder Restructuring Agreement) for breach

of an equivalent provision of Clause 7.1 thereof and (if he is a party to the Standstill Agreement) for breach of an equivalent provision of Clause 4 and Schedule 7 thereof.

4.6 Each Consenting EPL Bank makes the additional representations and warranties expressed to be made by it in paragraph 3.2 of Schedule 4.

4.7 ECTEF makes the additional representations and warranties expressed to be made by it in paragraph 3.3 of Schedule 4.

5. REAFFIRMATION OF STANDSTILL ARRANGEMENTS

5.1 The Bondholder Restructuring Agreement shall continue in full force and effect in accordance with its terms save to the extent that it is varied by or pursuant to this Agreement. Without prejudice to the generality of the foregoing, Schedule 8 sets out certain specific amendments to each such agreement made by this Agreement.

5.2 In the case of a conflict between any provision of the Bondholder Restructuring Agreement and this Agreement, this Agreement shall prevail.

5.3 For the avoidance of doubt each Consenting Bondholder who is a party to the Bondholder Restructuring Agreement hereby:

(a) consents to the amendments to the Bondholder Restructuring Agreement made by this Agreement; and

(b) acknowledges that the Bondholder Restructuring Agreement and all rights and obligations thereunder shall, subject to clause 8.2 of this Agreement and Clause 4 of the Bondholder Restructuring Agreement, terminate on the Restructuring Date save in respect of Accrued Interest.

5.4 Those Consenting Bondholders who are members of the Ad Hoc Committee hereby:

5.4.1  agree, as the Ad Hoc Committee (as defined in the Bondholder Restructuring Agreement) to extend the date by which the Restructuring Initiation Event (as defined in the Bondholder Restructuring Agreement) is required to occur under clause 4.1(xi) of the Bondholder Restructuring Agreement until 31 January 2005 and acknowledges that the Secretary of State has agreed in the Government Restructuring Agreement to this extension; and

5.4.2  undertake not to elect to terminate the Bondholder Restructuring Agreement after the date on which this Agreement becomes effective in accordance with Clause 1.5 by reason of the Standstill Agreement ceasing to have effect provided that the New Standstill Agreement (as defined below) binds the parties to it and is in full force and effect.

5.5 The Significant Creditors, RBS and BNFL:

5.5.1  acknowledge that the EPL Facility Agent has executed a side letter of even date with this Agreement, on behalf of the EPL Banks, extending the date by which the Restructuring Initiation Event (as defined in the Standstill

Agreement) is required to occur under paragraph 14 of Schedule 5 to the Standstill Agreement until 31 October 2003 and acknowledges that the Secretary of State has agreed in the Government Restructuring Agreement to this extension;

5.5.2  hereby agree to extend the date by which the Restructuring Initiation Event (as defined in the Standstill Agreement) is required to occur under paragraph 14 of Schedule 5 to the Standstill Agreement until 31 October 2003; and

5.5.3  hereby agree, if this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with Clause 1.5, to extend the date by which the Restructuring Initiation Event (as defined in the Standstill Agreement) is required to occur under paragraph 14 of Schedule 5 to the Standstill Agreement until the earlier of 30 September 2004 and the date on which the New Standstill Agreement is entered into.

5.6 The Parent shall convene a general meeting of each series of the Bonds before the end of 2003 to consider and if thought fit approve the resolutions relating to the termination of the Standstill Agreement and the substitution of the New Standstill Agreement comprised in the Amending Resolutions (the “Standstill Resolutions”) and if and to the extent that such Standstill Resolutions are adopted, shall make reasonable efforts as soon as reasonably practicable to enter into further a supplemental deed to the Bond Trust Deed with the Bond Trustee to implement the amendments approved by such Standstill Resolutions.

5.7 If all the Standstill Resolutions are adopted and the Bond Trust Deed is amended accordingly in relation to all three series of Bonds, the Companies, the Significant Creditors, RBS and the Consenting EPL Banks shall enter into the New Standstill Agreement as soon as reasonably practicable after the supplemental deed implementing such amendments is duly executed and delivered.

5.8 For the avoidance of doubt each Party and BNFL hereby acknowledges that the execution of this Agreement and the performance by it of its obligations hereunder does not require the consent of any other party to the Standstill Agreement and is otherwise in accordance with the terms thereof and the New Standstill Agreement and all rights and obligations thereunder shall, subject to clause 8.2 of this Agreement and the terms of Schedule 5 of the Standstill Agreement, terminate on the Restructuring ______.

6. RELEASE OF DIRECTORS AND OTHERS

6.1 Each Significant Creditor and if the EPL Condition is satisfied each EPL Bank agrees that with effect from the Restructuring Date it will:

6.1.1  release each Representative of any Released Company from any Liability in connection with the Restructuring or arising out of the circumstances that gave rise to the need for the Restructuring that any such Representative may have to such EPL Bank and Significant Creditor; and

6.1.2  waive each and every claim that it may have against any Representative of any Released Company in connection with the Restructuring or arising out of the circumstances that gave rise to the need for the Restructuring,

provided that nothing in this Clause 6 shall release any Representative from:

(a) any such Liability for fraud; or

(b) any such Liability arising by reason of any act or omission in the period beginning on the date of this Agreement and ending on the Restructuring Date which has been notified in writing to the Parent by any Significant Creditor or Consenting EPL Bank prior to the earlier of the date falling 28 days after the Effective Date and the day of the hearing for leave to convene the Creditors’ Scheme Meeting and in connection with which the Representative has no claim against any Group Company. The Parent shall promptly forward to every Party any notification received by it under this sub-paragraph (b) (such notification to be made, in the case of Consenting Bondholders, to the Ad Hoc Committee’s Legal Advisers and in the case of the Consenting EPL Banks, to the EPL Facility Agent). For the avoidance of doubt, Representatives shall be released from any Liability described in this sub-paragraph (b) which is not notified to every Party before the requisite specified date.

6.2 Notwithstanding Clause 10.5, each Representative of any Released Company and each Released Company which is not a party may enforce the terms of Clause 6.1 subject to and in accordance with the provisions of the Contracts (Rights of Third Parties) Act 1999.

6.3 Nothing in the release given in this Clause 6 will release or prejudice any claim any member of the Group might otherwise have against any Representative or any claim by any EPL Bank or Significant Creditor against professional advisers to the Group where such claim arises under a duty of care which has been specifically accepted or acknowledged in writing.

6.4 Each Consenting Bondholder agrees that:

6.4.1  it shall submit, or procure the submission by its Account Holder of, an Account Holder Letter for the purpose of receiving, or directing the receipt of distributions of, New Shares and New Bonds under the Creditors’ Scheme; and

6.4.2  any Account Holder Letter submitted and/or any authority or instruction to an Account Holder to submit an Account Holder Letter shall contain releases in substantially the same form and on the same terms as set out in Clause 2.1 and this Clause 6.

6.5 RBS agrees that:

6.5.1  it shall submit an RBS Letter for the purpose of receiving, or directing the receipt of distributions of, New Shares, New Bonds and Accrued Interest under the Creditors’ Scheme; and

6.5.2  any RBS Letter submitted shall contain releases in substantially the same form and on the same terms as set out in this Clause 6

7. CONSENTING BONDHOLDERS’ OBLIGATIONS

7.1 Each Consenting Bondholder hereby:

7.1.1  irrevocably and unconditionally designates the Ad Hoc Committee as its representative to act for and represent it with respect to all matters arising out of, or related to, this Agreement, the Restructuring Documents, the Unsettled Documents and any ancillary document that specifies the Ad Hoc Committee may so act, as well as matters which may require notice to be given to the Consenting Bondholders or where, unless otherwise provided herein, any determination, waiver or amendment is required by the Consenting Bondholders under this Agreement or any ancillary documents relating to the Restructuring. The designation of the Ad Hoc Committee made pursuant to this Clause shall cease upon the earlier of the Termination Date and the Restructuring Date;

7.1.2  unconditionally and irrevocably appoints the Ad Hoc Committee’s Legal Advisers as such Consenting Bondholder’s agent, proxy and attorney in fact, with full power of substitution, for all purposes set forth in this Agreement and any Restructuring Documents, including the full power and authority on each person’s behalf to (i) execute on such Consenting Bondholder’s behalf any agreement or document relating to the Restructuring, (ii) vote in any proceeding in accordance with such Consenting Bondholder’s obligations herein (other than at meetings where voting instructions are to be given via a clearing system), (iii) give and receive all notices required to be given under this Agreement and any of the Restructuring Documents including any notice to be given by a Consenting Majority and (iv) take any and all additional action as is contemplated to be taken by the Consenting Bondholder by the terms of this Agreement and/or any of the Restructuring Documents;

7.1.3  agrees it shall not procure the Bond Trustee to take any action that is inconsistent with the terms and conditions of this Agreement or the Creditors’ Scheme;

7.1.4  irrevocably agrees that:

(a) during the period ending on the earlier of the Termination Date or the Restructuring Date, it shall not encumber, charge, sell, transfer, grant any option over, or otherwise dispose of or permit the sale, transfer, charging or other disposition or creation or grant of any other encumbrance, Security Interest or option of or over all or any of its

Identified Bonds or interest in any of its Identified Bonds or any claim such Consenting Bondholder may have against the Parent or any of its Subsidiaries based upon its ownership of the Identified Bonds or the Bond Trust Deed or agree to do any such thing (together a “transfer”) unless it first obtains from the purchaser, transferee, chargee or other person (as the case may be) a written undertaking in favour of the other parties (in the form attached as Schedule 11 hereto) agreeing to be bound by the terms of this Agreement as if such person were a Consenting Bondholder;

(b) if it effects a transfer in favour of another Consenting Bondholder it will give written notice of the details of such transfer (including the identity of the transferee) to the Parent as soon as reasonably possible after the transfer;

7.1.5  irrevocably agrees that it shall be bound by the terms of this Agreement in respect of, subject to clause 8.1 of the Bondholder Restructuring Agreement, its Identified Bonds.

7.1.6  if the Consenting Bondholder has indicated on the signature page executed by it that its Identified Bonds are in a Ring-Fenced Business, nothing in this Agreement shall affect the activities of any other business of such Consenting Bondholder. For these purposes, a “Ring-Fenced Business” of a Consenting Bondholder shall mean a business of such Consenting Bondholder which is operated independently from any other business of such Consenting Bondholder and in respect of which arrangements are in place between the Ring-Fenced Business and any other business of such Consenting Bondholder which constitute a “Chinese wall” for the purpose of FSA rule COB 2.4R(1); provided further, however, that nothing in the foregoing provision shall in any way limit or impair the representations of each Consenting Bondholder or such Consenting Bondholder’s obligations hereunder with respect to the principal amount of the Identified Bonds set forth on the signature page of this Agreement executed and delivered by it pursuant to Clause 1.6.

7.1.7  In respect of any transfers of Identified Bonds, Consenting Bondholders who are party to the Bondholder Restructuring Agreement, and who have complied with the transfer restrictions set out at Clause 7.1.4 above, are deemed to have complied with the transfer restrictions set out in Clause 8.1 of the Bondholder Restructuring Agreement provided that the written undertaking given in accordance with Clause 7.1.4 shall also set out and comprise the written undertaking required by such Clause 8.1.

8. TERMINATION

8.1 This Agreement will terminate automatically with immediate effect:

8.1.1  if any of the: Initial Conditions set out in Clauses 3.1 are not satisfied or waived in accordance with Clauses 3.3 or 3.4 (as the case may be) by 9.00 a.m. on 30 November 2004 (or such later date as is agreed in writing by the Consenting Majorities (which in the case of EPL Banks shall require an EPL Bank Special Majority) and the Secretary of State);

8.1.2  if the circular relating to the Creditors’ Scheme is not posted by 3 December 2004, or the Creditors’ Scheme Resolution(s) have not been passed by 14 January 2005 or in each case such later date as is agreed in writing by the Parent and the Consenting Majorities (which in the case of the EPL Banks shall require an EPL Bank Special Majority) and the Secretary of State;

8.1.3  in the event that the EPL Condition is not satisfied, the circular relating to the EPL Scheme has not been posted by 3 December 2004, or the EPL Scheme Resolution(s) have not been passed by 14 January 2005 or in each case such later date as is agreed in writing by the Parent and the Consenting Majorities (which in the case of the EPL Banks shall require an EPL Bank Special Majority) and the Secretary of State;

8.1.4  if the Restructuring Date has not occurred by 12 noon on the earlier of 31 January 2005 and the date falling 120 days after the Effective Date (or such later date and subject to such intermediate milestones as are agreed in writing, in the case of the first such later date, by the Parent, BNFL, the Consenting Majorities (which in the case of the EPL Banks shall require an EPL Bank Special Majority), and the Secretary of State and, in the case of any second or subsequent later date, all the Parties, BNFL and the Secretary of State (the “Restructuring Long Stop Date”)

8.1.5  the Restructuring Condition has ceased to be capable of satisfaction; or

8.1.6  if the Parent receives a valid termination notice in accordance with Clause 3.5;

8.1.7  if the Government Restructuring Agreement is validly terminated in accordance with its terms;

8.1.8  if the Parent receives a valid Termination Notice (as defined in the Standstill Agreement) under the Standstill Agreement;

8.1.9  if the Bondholder Restructuring Agreement is validly terminated in accordance with Clause 4 of the Bondholder Restructuring Agreement;

8.1.10  if the State Aid Approval is successfully overturned on appeal prior to the Restructuring Long Stop Date and the Parent receives a written notice from an Objecting Majority (which in the case of the EPL Banks shall require an EPL Bank Special Majority) that it wishes to terminate this Agreement pursuant to this Clause 8.1.10;

8.1.11  this Agreement (other than the Immediately Effective Provisions) has not become effective in accordance with Clause 1.5 by 31 October 2003 (or such later date as the Parent, the Approvals Majorities (which in the case of the EPL Banks means the EPL Bank Special Majority) and the Secretary of State may agree).

8.2 Each Party which is also a signatory to the Standstill Agreement and BNFL, hereby agrees that if this Agreement terminates, the Standstill Period as defined in the Standstill Agreement will end with immediate effect.

8.3 Each Party, which is also a party to the Bondholder Restructuring Agreement, hereby agrees that if this Agreement terminates, the Bondholder Restructuring Agreement will terminate in accordance with Clause 4 thereof with immediate effect

8.4 The rights and obligations of each Party and BNFL under this Agreement, the Bondholder Restructuring Agreement and the Standstill Agreement, will cease immediately on termination of this Agreement pursuant to this Clause 8 but termination does not affect the rights and obligations of a Party or BNFL under this Agreement, the Bondholder Restructuring Agreement and the Standstill Agreement which have accrued or relate to breaches at the time of or prior to termination.

9. COSTS

9.1 The Parent agrees to pay promptly (or procure the prompt payment of) the professional adviser fees reasonably incurred by RBS, BNFL and each of the Consenting EPL Banks and Significant Creditors in respect of the negotiation and implementation of this Agreement and the transactions contemplated by it. The Parent shall not be responsible directly or indirectly for the costs of any direct or indirect assignee or successor of any Consenting EPL Bank, Significant Creditor or RBS.

9.2 The Parent shall procure the payment of:

9.2.1  the reasonable fees and disbursements of the Ad Hoc Committee’s Legal Advisers in connection with the Restructuring (on the terms and conditions of the engagement letter between the Parent, BEG, BEG (UK) and the Ad Hoc Committee’s Legal Advisers dated 4 December 2002); and

9.2.2  the reasonable fees and disbursements of the Ad Hoc Committee’s Financial Advisers in connection with the Restructuring (on the terms and conditions of the engagement letter between the Parent, BEG, BEG (UK) and the Ad Hoc Committee’s Financial Advisers dated 31 January 2003).

10. GENERAL

10.1 Implementation of the Restructuring

The Parent agrees to make reasonable efforts to implement the Restructuring and shall procure that before the Effective Date Newco 1 and Newco 2 will each enter into a written undertaking in favour of the other Parties and BNFL (in the form attached as

Schedule 12 hereto) agreeing to be bound by the terms of this Agreement or, failing which, procure that Newco 1 and Newco 2 perform their obligations under this Agreement.

10.2 Publicity and Disclosure

10.2.1  Without prejudice to Clause 4 and Schedule 4, except for information contained in the Press Announcement or as may be required by applicable law or by obligations or rules of any securities exchange or quotation system or any agency with whose rules it is customary for it to comply, none of the Parties (other than the Parent) or BNFL or other representative on any of their behalf shall issue any press release or public announcement concerning this Agreement without obtaining the prior written approval of the Consenting Majorities.

10.2.2  Except as may be required by applicable law or by obligations or rules of any securities exchange or quotation system or any agency with whose rules it is customary for it to comply, no Party or BNFL shall disclose (i) the identity of the Consenting Bondholders; or (ii) the amount of holdings of Bonds of any Consenting Bondholder, without the prior written consent of the Consenting Bondholders (such consent not to be unreasonably withheld or delayed).

10.2.3  Each Party (except the Consenting Bondholders) and BNFL undertakes to keep any non-public information received by it before or after the date of this Agreement and each Consenting Bondholder undertakes to keep any non-public information received by it after the date of this Agreement, about the Group and the Restructuring confidential subject to disclosures permitted by the terms of any confidentiality agreements in force as at the date of this Agreement which it has entered into with the Parent and to any disclosure required by law or an applicable regulatory authority and then only following notice to the Parent. Such confidentiality undertaking will not restrict disclosure to a potential transferee in accordance with Clause 10.4 provided that the proposed transferee has entered into a confidentiality undertaking addressed to the Parent or after the Restructuring Date Newco 1, on substantially the same terms as that entered into by the proposed transferor in respect of the information which is the subject matter of the proposed disclosure subject to such changes as are necessary to reflect the fact that the proposed transferee is to assess the information disclosed solely for the purposes of deciding whether to purchase a part or all of the proposed transferor’s Claim Amount and/or rights under this Agreement and including an obligation to return or destroy all such information and information derived from it on request by the Parent once such period expires (unless the transferee has become a Party) and a full waiver and release of any responsibility for such information on the part the Group or its advisers other than in relation to fraud in relation to the certificate provided under Clause 3.1.11.

10.3 Variation or Waiver

Save as otherwise provided in this Agreement including in the definition of “Restructuring Steps”, Clause 1.4, Clause 3.3 and Clause 3.4, no amendment or waiver of this Agreement shall be effective unless it is made in writing and signed by each Party and BNFL.

10.4 Assignments and Transfers

10.4.1  No Consenting EPL Swap Provider, Significant Creditor, BNFL or RBS shall encumber, charge, assign, transfer or enter into any novation or sub-participation of its rights or obligations under this Agreement the Standstill Agreement or the New Standstill Agreement or in respect of a Released Claim or any interest in or derivative of any of the foregoing (a “transfer”) to or with any person (a “transferee”) unless:

(a) prior to such transfer the transferee enters into a written undertaking in favour of the parties to this Agreement (in the form attached as Schedule 17) agreeing to be bound by the terms of this Agreement as if the transferee were a party to this Agreement in the place and name of the transferor; and

(b) the transfer is an irrevocable and unconditional transfer; and

(c) after such transfer, there will not be more than five holders of the Claim Amount or other interest as held by the original signatory to this Agreement; and

(d) except in the case of the EPL Swap Providers, the transfer is of at least 10 per cent, of the Claim Amount of the original Party; and

(e) in the case of the EPL Swap Providers, the transfer represents a Swap MTM Exposure of more than £5 million or their entire EPL Swap; or

(f) the Parent (in its absolute discretion) consents in writing to the transfer.

10.4.2  For the purposes of clause 13.2 of the Standstill Agreement and the Existing Agreements (as defined in the Standstill Agreement) the Companies hereby consent to any transfer made in accordance with this Clause 10.4 after this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with Clause 1.5.

10.4.3  The EPL Lenders may continue to transfer rights and obligations in accordance with the EPL Facility Agreement provided each transferee accedes to this Agreement by entering into a written undertaking in favour of the parties to this Agreement (in the form attached at Schedule 17) agreeing to be bound by this Agreement as if the transferee were a party to this Agreement as an EPL Lender.

10.5 Third Party Rights

Except as expressly set out herein (including in particular, but without limitation, in Clause 1.6, Clause 6.2 and Clause 11.7), a person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement, but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

10.6 Exercise of rights and remedies

10.6.1  The failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not impair or constitute a waiver of the right or remedy or an impairment of or a waiver of other rights or remedies. No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy. A party’s rights and remedies contained in this Agreement are cumulative and not exclusive of rights or remedies provided by law.

10.6.2  Each Party and BNFL acknowledges and agrees that damages would not be an adequate remedy for a breach of this Agreement and that each of the other parties is entitled to seek the remedies of injunction, specific performance and other equitable relief for a threatened or actual breach of this Agreement.

10.7 Communications

10.7.1  Any communications to be made in connection with this Agreement shall be made in writing and sent to the addressees at the addresses or facsimile numbers set out:

(a) in Schedule 1 in respect of the Companies;

(b) in Schedule 2 in respect of the Significant Creditors;

(c) below in respect of RBS and BNFL; or

(d) on the relevant signature page in respect of any Consenting Bondholders; or

(e) on the relevant signature page in respect of any Consenting EPL Bank,

or such other address or number as a Party shall notify to the other Parties in accordance with this Clause 10.7.1. Any communication delivered by one person to another under this Agreement will only be effective (i) if by way of fax, the sender has received a report showing successful transmission; or (ii) if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post first class postage prepaid in an envelope addressed to it at that address and, if a particular department or

officer is specified as part of its address details, if addressed to that department or officer.

10.7.2  All notices in relation to this Agreement sent from or to a Company shall be sent through the Parent.

10.7.3  The addresses and fax numbers for RBS and the BNFL referred to in Clause 10.7.1 are:

(a) RBS:

Specialised Lending Services

l0^th Floor

280 Bishopsgate

London EC2M 4RB

Fax:                 020 7672 0324

Attention:        R J Hedger

Director, Corporate Restructuring Unit

(b) BNFL:

1100 Daresbury Park

Warrington

Cheshire

WA4 4GB

Fax:                 01925 654439

Attention:     Alvin Shuttleworth, Company Secretary and Group Legal

Director

10.8 Preservation of Rights

If this Agreement terminates or does not become effective pursuant to Clause 1.5, then nothing in this Agreement, the Heads of Terms, the Standstill Agreement or the Bondholder Restructuring Agreement, or the discussions and negotiations relating to any of the foregoing, will be taken to constitute an admission of or agreement to the right of any EPL Bank, Significant Creditor, Bondholder or RBS against the Group. In particular, in these circumstances, Claim Amounts will not be treated as having been agreed and no member of the Group will be treated as having admitted that any Claim Amount is due in whole or in part.

10.9 Governing Law and Jurisdiction

10.9.1  This Agreement is governed by English law.

10.9.2  The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).

10.9.3  The Parties and BNFL agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

10.9.4  Without prejudice to any other mode of service allowed under any relevant law:

(a) each Company (other than a Company incorporated in England and Wales):

(i) irrevocably appoints BEG as its agent for service of process in relation to any proceedings before the English courts in connection with this Agreement; and

(ii) agrees that failure by BEG to notify the relevant Company of the process will not invalidate the proceedings concerned;

(b) ECTRIC and ECTEF each:

(i) irrevocably appoints Weil, Gotshal & Manges, One South Place, London EC2M 2WG (Attention: Christopher Mallon) as its agent for service of process in relation to any proceedings before the English Courts in connection with this Agreement; and

(ii) agrees that failure by Weil, Gotshal & Manges to notify ECTRIC or ECTEF of the process will not invalidate the proceedings concerned; and

(c) each Consenting Bondholder:

(i) irrevocably appoints Cadwalader, Wickersham & Taft LLP, 265 Strand, London WC2R 1BH (Attention: Andrew Wilkinson) as its agent for service of process in relation to any proceedings before the English Courts in connection with this Agreement; and

(ii) agrees that failure by Cadwalader, Wickersham & Taft LLP to notify the Consenting Bondholder of the process will not invalidate the proceedings concerned.

10.10  Several Obligation

The obligations of RBS, each Consenting EPL Bank, each Significant Creditor, each Consenting Bondholder and BNFL under this Agreement are several. No Consenting EPL Bank, Significant Creditor, Consenting Bondholder, RBS or BNFL shall be liable for any breach by any other such party of that party’s obligations under this Agreement.

10.11 Counterparts

This Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement.

11. ENTIRE AGREEMENT

In this Clause 11, the following definition applies:

“Representation” means representation, statement, assurance, covenant, undertaking, indemnity, guarantee or commitment (whether contractual or otherwise).

11.1 This Agreement and each document referred to in it constitute the entire agreement and supersede any previous agreement between the parties relating to the subject matter of this Agreement.

11.2 Each Consenting EPL Bank, Significant Creditor, Consenting Bondholder, RBS and BNFL acknowledges and agrees that it has not relied on or been induced to enter into this Agreement by a Representation given by any of the Companies other than the warranties and undertakings given in Clause 4 and Schedule 4.

11.3 None of the Companies is liable to any of the Consenting EPL Banks, Significant Creditors, Consenting Bondholders, RBS or BNFL for a Representation that is not set out in Clause 4 and Schedule 4.

11.4 Each of the Companies acknowledges and agrees that it has not relied on or been induced to enter into this Agreement by any Representation given by any of the Consenting EPL Banks, Significant Creditors or the Consenting Bondholders, RBS or BNFL other than the warranties given in Clause 4 and Schedule 4.

11.5 None of the Consenting EPL Banks, Significant Creditors, Consenting Bondholders, RBS or BNFL shall be liable to any of the Companies for a Representation that is not set out in Clause 1.5, Clause 4 and Schedule 4.

11.6 Nothing in this Clause 11 shall have the effect of limiting or restricting any liability arising as a result of any fraud, wilful misconduct or wilful concealment.

11.7 It is acknowledged by each Consenting Bondholder that:

11.7.1  no member of the Ad Hoc Committee (or any such member’s, officers, directors, employees or Ad Hoc Committee’s Advisers (each together, the “Ad Hoc Committee Parties”)), shall be under any liability as a result of taking or omitting to take any action or exercising any discretion in such capacity in the negotiation and/or agreement of any of the Restructuring Documents, or in relation to the Restructuring in general;

11.7.2  it has not relied on any information or advice provided by any of the Ad Hoc Committee Parties in connection with the Restructuring and such Consenting Bondholder has made and will continue to make its own independent

investigation and assessment of the form and substance of the Restructuring Documents;

11.7.3  none of the Ad Hoc Committee Parties shall be responsible for the genuineness, effectiveness, validity, enforceability or sufficiency of any Restructuring Document; and

11.7.4  none of the Ad Hoc Committee Parties will be under any liability as a result of disclosing or failing to disclose any notices or other documents or information to any Consenting Bondholder relating to the Restructuring or otherwise.

12. VAT

12.1 To the extent that HM Customs & Excise determine in writing that VAT is chargeable on the receipt by a Significant Creditor of its Compromise Entitlement in exchange for its Released Claims pursuant to this Agreement and the Members’ Scheme, such VAT shall be payable by the Parent subject as hereinafter provided. In the event that the Members’ Scheme lapses and the Creditors’ Scheme becomes effective, then Newco 1 and Newco 2 (or, if applicable, the relevant representative member of their VAT group) shall pay such VAT as hereinafter provided.

12.2 Promptly upon becoming aware of such written determination such Significant Creditor shall provide to the Parent (or, in the event that the Members’ Scheme lapses and the Creditors’ Scheme becomes effective, Newco 1 and Newco 2 (or, if applicable, the relevant representative member of their VAT group)) a valid VAT invoice in respect of the relevant supply or supplies, stating, inter alia, the amount of VAT chargeable on the said receipt together with a copy of the said written determination.

12.3 The Parent (or, in the event that the Members’ Scheme lapses and the Creditors’ Scheme becomes effective, Newco 1 and Newco 2 (or, if applicable, the representative member of their VAT group)) shall pay to TPL the amount of VAT chargeable two Business Days following receipt in cleared funds of a VAT repayment or two Business Days after obtaining a credit from HM Customs & Excise in respect of any such VAT payable hereunder, as the case may be. A credit is obtained for the purposes of this clause on the date on which the Parent, Newco 1 or Newco 2 (or, if applicable their representative member, as the case may be) submits a VAT return on which such credit is claimed. The Parent (or, in the event that the Members’ Scheme lapses and the Creditors’ Scheme becomes effective, Newco 1 and Newco 2 (or, if applicable, the representative member of their VAT group)) shall use all reasonable endeavours to obtain such VAT repayment or credit as soon as possible after receipt of the VAT invoice referred to above.

13. INVALIDITY

13.1 If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, that shall not affect or impair:

13.1.1  The legality, validity or enforceability in that jurisdiction of any other provision of this Agreement; or

13.1.2  The legality, validity or enforceability under the law of any other jurisdiction of that or any other provision of this Agreement.

14. FURTHER ASSURANCE

Each Party and BNFL shall, from time and on request by, and at the expense of, the Parent, do or procure the doing of all acts and/or execute or procure the execution of all documents which are reasonably necessary for giving full effect to this Agreement and securing the full benefit of the rights, powers and remedies conferred upon them by this Agreement.

THIS AGREEMENT has been entered into on the date stated at the beginning of this Agreement.

SCHEDULE 1

THE COMPANIES

The Parent

3 Redwood Crescent

Peel Park

East Kilbride

G74 5 PR

Fax: 013 5526 2570

Attention: The Group Treasurer

BEG

c/o The Parent

(as above)

BEG (UK)

c/o The Parent

(as above)

BEPET

c/o The Parent

(as above)

EPL

c/o The Parent

(as above)

EPHL

c/o The Parent

(as above)

SCHEDULE 2

THE SIGNIFICANT CREDITORS

TPL

First Floor

Christine House

Sorbonne Close

Teesdale

TS17 6DA

Fax:	01642 525031
Attention:	Dr. Phil Lawless

TOTAL GAS & POWER LIMITED

33 Cavendish Square

London W1G 0PW

Fax:	020 7318 6704 and 020 7318 6726
Attention:	Finance Manager

ECTEF

1400 Smith Street

Houston

Texas 77002

Attention:	President
Fax:	001 713 853 9252
cc:	Weil, Gotshal & Manges, London (Attention; Christopher Mallon)

SCHEDULE 3

RESTRUCTURING STEPS

1. Restructuring Documents and EPL Banks

1.1 Each Party and BNFL, which is also party to any Restructuring Document which has not been executed and delivered at the date of this Agreement, agrees to execute and/or deliver such Restructuring Document and (having been settled in accordance with the terms of this Agreement) any Unsettled Documents to which it is or will be a party (in each case subject to the Restructuring Condition being satisfied) when reasonably requested to do so by the Parent or, in the case of the Parent, Newco 1 and Newco 2, when necessary to implement the Restructuring as soon as reasonably possible.

1.2 The Restructuring Steps in paragraphs 3.1, 3.10 to 3.12, 3.14, 3.15, and 3.18, paragraphs 4.1, 4.6, 4.7, 4.9 and 4.10 (including when applied in paragraph 5.2) and paragraphs 6.1 to 6.3, 6.6, 6.7, 6.9 and 6.10 of this Schedule 3 shall not apply to the EPL Banks, EPL or EPHL in the event that the EPL Condition is not satisfied and will be addressed instead in the EPL Scheme.

1.3 For the purposes of this Schedule 3:

1.3.1 “First Amount” means:

(a) in the event of an EPL Scheme being sanctioned, an amount of EPL’s payment obligations to the EPL Lenders under the EPL Facility Agreement equal to the aggregate of the nominal values of the New Bonds and New Shares comprised in the Compromise Entitlements of the EPL Banks plus £2.5 million; and

(b) otherwise, all EPL’s obligations under the EPL Facility Agreement and the EPL Swaps (which for the avoidance of doubt shall be the amount remaining after the payments required under the RBS Letter of Credit) at the Restructuring Date less payment obligations to the EPL Lenders under the EPL Facility Agreement equal to £152.5 million and the amounts referred to in paragraph 6.7 below (which will remain owed to the EPL Banks by EPL);

1.3.2 “Second Amount” means the First Amount less £2.5 million (which will remain owed to the EPL Banks by EPHL); and

1.3.3 “TPL PPAs” means if the Restructuring Date is after the earlier of 30 September 2004 and the exercise of the TPL Option, the TPL Original PPA and otherwise, the TPL Amended PPA and the TPL 200 MW PPA.

2. Parent’s obligations on satisfaction of the Initial Conditions

2.1 On satisfaction of the Initial Conditions, the Parent agrees to:

2.1.1 subscribe for 49,999 redeemable non-voting ordinary shares in Newco 1 for cash and procure that a director of the Parent subscribes for or acquires two non-redeemable voting ordinary shares of £1 each for cash in Newco 1 and that Newco 1 in turn subscribes for 50,000 voting ordinary shares for cash in Newco 2;

2.1.2 make reasonable efforts to ensure that the Listing Particulars, Members’ Scheme Documents, EPL Scheme Documents (if the EPL Condition is not satisfied), Creditors’ Scheme Documents and each other document required in connection with the promotion of the Members’ Scheme, the EPL Scheme (if the EPL Condition is not satisfied) and the Creditors’ Scheme (the “Public Documents”) are prepared so as to be ready for posting as soon as is reasonably practicable after the Effective Date;

2.1.3 make reasonable efforts to procure that the New Bonds and New Shares are admitted to the Official List of the UKLA and ensure that the Public Documents are approved to the extent necessary by the UKLA;

2.1.4 in the event either that admission of the New Shares or the New Bonds to the Official List of the UKLA is refused by the UKLA or is considered by the Parent (acting reasonably) not to be achievable with reasonable certainty by the Restructuring Long Stop Date, make reasonable efforts to procure the Admission of the New Shares to the Alternative Investment Market of the London Stock Exchange plc or the Admission of the New Bonds on the Luxembourg Stock Exchange, as the case may be, and to ensure that the Public Documents are approved to the extent necessary by the London Stock Exchange plc or the Luxembourg Stock Exchange as the case may be;

2.1.5 ensure that, if approved by the UKLA, the London Stock Exchange plc or the Luxembourg Stock Exchange, the Public Documents are distributed in accordance with the Listing Rules, the AIM Rules, the rules of the Luxembourg Stock Exchange and/or the Companies Act or Luxembourg law as applicable as soon as reasonably practicable after receipt of approval in respect of the last of such documents to be approved;

2.1.6 enter into the Business Transfer Agreement with Newco 2 (which will be conditional on, inter alia, the Members’ Scheme lapsing and the satisfaction of the Restructuring Condition), and

2.1.7 if required, notify the Existing Shareholders in the circular relating to the EGM, that in the event that the sale by the Parent of all its business and assets to Newco 2 pursuant to the Business Transfer Agreement is not approved in accordance with paragraph 10.37 of the Listing Rules, it will cancel the listing of the A shares of 60 pence each and the ordinary shares of 44  ²⁸/43 pence each in the capital of the Parent with effect from the time when the Restructuring Condition in paragraph (c) of Schedule 6 is satisfied.

3. If the Members’ Scheme becomes effective

Subject to paragraph 1.2 above, immediately upon and subject to the satisfaction of the Restructuring Condition set out in paragraph (a) of Schedule 6, each Party agrees that the following events set out in paragraphs 3.1 to 3.18 will occur in the sequence set out below.

3.1 The EPL Facility Agent will be deemed to have demanded payment of the sum of £37,465,805.31 and RBS shall make such payment pursuant to the RBS Letter of Credit on the Restructuring Date. The EPL Facility Agent (on behalf of each “Finance Party” under the EPL Facility Agreement) agrees that such payment shall extinguish any further or other liability of RBS under or in respect of the RBS Letter of Credit.

3.2 Newco 2 shall acquire the entire issued share capital of the Parent from Newco 1 in consideration for which Newco 2 will allot and issue ordinary shares to Newco 1.

3.3 BEPET’s obligations in respect of the Total CFD shall be and are hereby novated from BEPET to the Parent on the terms described in paragraph 3.15 below in consideration for which BEPET will allot and issue ordinary shares to the Parent.

3.4 Immediately after the fulfilment of the steps in paragraph 3.3, the Parent’s obligations in respect of the Total CFD shall be and are hereby novated from the Parent to Newco 2 on the terms described in paragraph 3.15 below in consideration for which the Parent will allot and issue ordinary shares to Newco 2.

3.5 Concurrently with the fulfilment of the steps in paragraph 3.3, BEPET’s obligations in respect of the TPL PPAs shall be and are hereby novated from BEPET to the Parent on the terms described in paragraph 3.15 below in consideration for which the BEPET will allot and issue ordinary shares to the Parent.

3.6 Immediately after the fulfilment of the steps in paragraph 3.5, the Parent’s obligations in respect of the TPL PPAs shall be and are hereby novated from the Parent to Newco 2 on the terms described in paragraph 3.15 below in consideration for which the Parent will allot and issue ordinary shares to Newco 2.

3.7 Concurrently with the fulfilment of the steps in paragraph 3.3, BEG’s obligations to Enron in respect of the Enron CFD shall be and are hereby novated from BEG to BEG (UK) on the terms described in paragraph 3.15 below in consideration for which BEG will allot and issue ordinary shares to BEG (UK).

3.8 Immediately after the fulfilment of the steps in paragraph 3.7, BEG (UK)’s obligations to Enron in respect of the Enron CFD shall be and are hereby novated from BEG (UK) to the Parent on the terms described in paragraph 3.15 below in consideration for which BEG (UK) will allot and issue ordinary shares to the Parent.

3.9 Immediately after the fulfilment of the steps outlined in paragraph 3.8 the Parent’s obligations in respect of the Enron CFD shall be novated from the Parent to Newco 2 on the terms described in paragraph 3.15 below in consideration for which the Parent will allot and issue ordinary shares to Newco 2.

3.10 Concurrently with the fulfilment of the steps in paragraph 3.3, the First Amount shall be and is hereby novated from EPL to EPHL on the terms described in paragraph 3.15 below in partial discharge of EPHL’s indebtedness to EPL.

3.11 Immediately after the fulfilment of the steps in paragraph 3.10, the Second Amount shall be and is hereby novated from EPHL to the Parent on the terms described in paragraph 3.15 below in consideration for which EPHL will allot and issue ordinary shares to the Parent.

3.12 Immediately after the fulfilment of steps in paragraph 3.11, the obligations under the EPL Facility Agreement novated to the Parent pursuant to paragraph 3.11 shall be and are hereby novated from the Parent to Newco 2 on the terms described in paragraph 3.15 below in consideration for which the Parent will allot and issue ordinary shares to Newco 2.

3.13 Immediately after the fulfilment of the steps in paragraphs 3.4, 3.6 and 3.9, a portion of Newco 2’s obligations under, or arising in respect of, each of the Total CFD, the TPL PPAs and the Enron CFD equivalent to the difference between Newco 2’s aggregate liabilities under those agreements and the nominal value of the New Bonds to be issued to the Significant Creditors as part of their Compromise Entitlements shall be and is hereby novated from Newco 2 to Newco 1 on the terms described in paragraph 3.13 below, in consideration for which Newco 2 will allot and issue Newco 2 Shares to Newco 1.

3.14 Immediately after fulfilment of the steps in paragraph 3;12 and concurrently with fulfilment of steps in paragraph 3.13, all of Newco 2’s obligations under the EPL Facility Agreement novated to Newco 2 pursuant to paragraph 3.12 equivalent to the difference between Newco 2’s liabilities in respect thereof and the nominal value of the New Bonds to be issued to the EPL Banks as part of their Compromise Entitlement shall be and is hereby novated from Newco 2 to Newco 1 on the terms described in paragraph 3.15 below, in consideration for which Newco 2 will allot and issue Newco 2 shares to Newco 1.

3.15 The novations referred to in this paragraph 3 from one person to another shall take effect as follows:

3.15.1  the person to whom obligations are novated (the “Novatee”) shall perform the obligations of the other person (the “Novater”) under or arising ________ of that agreement and be responsible for all liabilities, claims and demands howsoever and whenever arising thereunder and (where such agreement has not been terminated) be bound by its terms in every way as if the Novatee had at all times been a party to that agreement in place of the Novator;

3.15.2  the counterparty to the Novator under the agreement (the “Counterparty”) releases and discharges the Novator from further performance of the agreement and all liabilities, claims and demands howsoever and whenever arising under the agreement, whether in contract, tort or otherwise, and

accepts the liability of the Novatee under the agreement in place of the liability of the Novator;

3.15.3  the Counterparty shall (where such agreement has not been terminated) perform its obligations under or arising in respect of that agreement and be responsible for all liabilities, claims and demands howsoever and whenever arising thereunder and be bound by the terms of the agreement in every way as if the Novatee had at all times been a party to the agreement in place of the Novator.

3.16 Newco 1 and Newco 2 shall distribute the Compromise Entitlements in accordance with paragraph 6 below.

3.17 Each of the Significant Creditors, RBS and the Consenting Bondholders hereby irrevocably agrees that if the Restructuring Condition set out in paragraph (a) of Schedule 6 is satisfied, Newco 1 shall issue, pursuant to the Members’ Scheme, the Members’ Scheme Condition Shares (in consideration for the compromise by RBS and the Bondholders of part of the Scheme Claims and the EPL Banks and Significant Creditors of part of the Released Claims) fully paid and allot and issue them to the Existing Shareholders together with the Warrants in accordance with paragraph 7 below.

3.18 Each of the EPL Banks hereby irrevocably agrees that if the Restructuring Condition set out in paragraph (a) of Schedule 6 is satisfied, Newco 1 shall issue pursuant to the Members’ Scheme, the Members’ Scheme Condition Shares (in consideration for the compromise by RBS and the Bondholders of part of the Scheme Claims and the EPL Banks and Significant Creditors of part of the Released Claims) fully paid and allot and issue them to the Existing Shareholders together with the Warrants in accordance with paragraph 7 below.

4. If the Members’ Scheme lapses (EGM approval of disposal)

Subject to paragraph 1.2 above, immediately upon and subject to the satisfaction of the Restructuring Condition (set out in paragraph (b) of Schedule 6) each Party agrees that the events set out in paragraphs 4.1 to 4.8 will occur in the sequence set out below.

4.1 The EPL Facility Agent will be deemed to have demanded payment of the sum of £37,465,805.31 and RBS shall make such payment pursuant to the RBS Letter of Credit on the Restructuring Date. The EPL Facility Agent (on behalf of each “Finance Party” under the EPL Facility Agreement) agrees that such payment shall extinguish any further or other liability of RBS under or in respect of the RBS Letter of Credit.

4.2 BEPET’s obligations in respect of the Total CFD shall be and are hereby novated from BEPET to Newco 2 on the terms described in paragraph 4.10 below in consideration for which BEPET will allot and issue ordinary shares to Newco 2.

4.3 Concurrently with the fulfilment of the steps in paragraph 4.2, BEPET’s obligations to TPL in respect of the TPL PPAs shall be and are hereby novated from BEPET to

Newco 2 on the terms described in paragraph 4.10 below in consideration which BEPET will allot and issue ordinary shares to Newco 2.

4.4 Concurrently with the fulfilment of the steps in paragraph 4.2, BEG’s obligations to Enron in respect of the Enron CFD shall be and are hereby novated from BEG to BEG(UK) on the terms described in paragraph 4.10 below in consideration which BEG will allot and issue ordinary shares to BEG(UK).

4.5 Immediately after the fulfilment of the steps in paragraph 4.4, BEG(UK)’s obligations to Enron in respect of the Enron CFD shall be and are hereby novated from BEG(UK) to Newco 2 on the terms described in paragraph 4.9 below in consideration for which BEG(UK) will allot and issue shares to Newco 2.

4.6 Concurrently with the fulfilment of the steps in paragraph 4.2, the First Amount shall be and is hereby novated from EPL to EPHL on the terms described in paragraph 4.10 below in partial discharge of EPHL’s indebtedness to EPL.

4.7 Immediately after the fulfilment of the steps in paragraph 4.6, the Second Amount shall be and is hereby novated from EPHL to Newco 2 on the terms described in paragraph 4.9 below in consideration for which EPHL will allot and issue ordinary shares to Newco 2.

4.8 Immediately after the fulfilment of the steps in paragraphs 4.2, 4.3 and 4.5, a portion of Newco 2’s obligations under, or arising in respect of, each of the Total CFD, the TPL PPAs, the Enron CFD equivalent to the difference between Newco 2’s aggregate liabilities under those agreements and the nominal value of the New Bonds to be issued to the Significant Creditors shall be and is hereby novated from Newco 2 to Newco 1 on the terms described in paragraph 4.10 below, in consideration for which Newco 2 will allot and issue Newco 2 Shares to Newco 1.

4.9 Immediately after fulfilment of the steps in paragraph 4.7 and concurrently with fulfilment of steps in paragraph 4.8, a portion of the obligations under the EPL Facility Agreement novated to Newco 2 pursuant to paragraph 4.7 equivalent to the difference between Newco 2’s liabilities in respect thereof and the nominal value of the New Bonds to be issued to the EPL Banks as part of their Compromise Entitlement shall be and is hereby novated from Newco 2 to Newco 1 on the terms described in paragraph 4.10 below, in consideration for which Newco 2 will allot and issue Newco 2 Shares to Newco 1.

4.10 The novations referred to in this paragraph 4 from one person to another shall take effect as follows:

4.10.1 the person to whom obligations are novated (the “Novatee”) shall perform the obligations of the other person (the “Novator”) under or arising in respect of that agreement and be responsible for all liabilities, claims and demands howsoever and whenever arising thereunder and (where such agreement has not been terminated) be bound by its terms in every way as if the Novatee had at all times been a party to that agreement in place of the Novator;

4.10.2  the counterparty to the Novator under the agreement (the “Counterparty”) releases and discharges the Novator from further performance of the agreement and all liabilities, claims and demands howsoever and Whenever arising under the agreement, whether in contract, tort or otherwise, and accepts the liability of the Novatee under the agreement in place of the liability of the Novator;

4.10.3  the Counterparty shall (where such agreement has not been terminated) perform its obligations under or arising in respect of that agreement and be responsible for all liabilities, claims and demands howsoever and whenever arising thereunder and be bound by the terms of the agreement in every way as if the Novatee had at all times been a party to the agreement in place of the Novator.

4.11 Newco 1 and Newco 2 shall distribute the Compromise Entitlements in accordance with paragraph 6 below.

4.12 Newco 1 shall issue the Warrants to the Existing Shareholders as a gift in accordance with paragraph 7 below.

5. If the Members’ Scheme lapses (No EGM approval of disposal)

5.1 Immediately following the EGM at which the sale by the Parent of all its business and assets to Newco 2 pursuant to the Business Transfer Agreement in accordance with paragraph 10.37 of the Listing Rules is not approved, the Parent will notify a Regulatory Information Service (as defined in the Listing Rules) of its intention to cancel the listing of the A shares of 60 pence each and the ordinary shares of 44  ²⁸/43pence each in the capital of the Parent with effect from the time when the Restructuring Condition (in paragraph (c) of Schedule 6) is satisfied.

5.2 On satisfaction of the Restructuring Condition set out in paragraph (c) of Schedule 6, the steps set out in paragraph 4.1 to 4.11 will apply in the sequence set out therein; For the avoidance of doubt, Newco 1 will not issue any Members’ Scheme Condition Shares or Warrants to Existing Shareholders.

6. Distribution of the Compromise Entitlements

On the Restructuring Date or as soon as is reasonably practicable thereafter:

6.1 Newco 2 shall issue to the Significant Creditors and the EPL Banks the New Bonds required to be issued to them as part of their Compromise Entitlements (in the case of the EPL Banks in full discharge and satisfaction of the amount then owed by Newco 2 to the EPL Banks).

6.2 Newco 1 shall issue the New Shares which form part of the Compromise Entitlement of the Significant Creditors and the EPL Banks fully paid and allot them to the Significant Creditors and EPL Banks, in the proportions set out in Part B of Schedule 5 and such shares to be allotted to the EPL Banks shall be allotted to the EPL Facility

Agent on their behalf in full discharge and satisfaction of the amount then owed by Newco 1 to the EPL Banks.

6.3 If the Restructuring Condition (set out in paragraph (a) of Schedule 6) has been satisfied, Newco 1 shall issue, pursuant to the Members’ Scheme, the Members’ Scheme Condition Shares required to be issued pursuant to paragraph 3 above fully paid together with the Warrants and allot and issue them to the Existing Shareholders in accordance with paragraph 7 below.

6.4 If the Restructuring Condition (set out in paragraph (b) of Schedule 6) has been satisfied, Newco 1 shall issue the Warrants to the Existing Shareholders as a gift in accordance with paragraph 7 below.

6.5 Interest accrued under the terms of paragraph 2.4 (Interest) of the Standstill Agreement shall be paid in cash (by BEPET or the Parent) to TPL and Total and by (BEG or the Parent) to Enron in respect of the period from (but excluding) the last date on which interest was paid in accordance therewith up to (and including) the Restructuring Date.

6.6 BEPET and the Parent shall pay all amounts due to EPL under the terms of paragraph 2.3 of the Standstill Agreement (Continuing Obligations) in respect of the period from (but excluding) the last date on which a payment was made to EPL in accordance therewith up to (and including) the Restructuring Date.

6.7 EPL shall make a payment to the EPL Facility Agent in respect of interest due under the EPL Facility Agreement together with the EPL Swaps in relation to the period from (but excluding) the last date on which interest was paid pursuant to the EPL Facility Agreement up to (and including) the Restructuring Date (but not, for the avoidance of doubt, any termination payments under the EPL Swaps).

6.8 BEPET shall pay all amounts due to TPL under the terms of paragraph 2.3 of the Standstill Agreement (Continuing Obligations) in respect of the period from (but excluding) the last date on which the relevant payment was made in accordance therewith up to and including the Restructuring Date.

6.9 Newco 2 shall issue the CTA Global Bond to EPHL in consideration for EPHL agreeing to the creation of a £150 million inter-company loan obligation from EPHL to Newco 2. Upon such issue, EPHL shall transfer the CTA Global Bond to EPL in consideration for EPL agreeing to the creation of a £150 million inter-company loan obligation from EPL to EPHL.

6.10 Without prejudice to the generality of the foregoing, if, in respect of any [Significant Creditor,] or EPL Bank, Newco 1 is advised that the allotment or issue of New Bonds or New Shares would or might infringe the laws of any jurisdiction outside the United Kingdom or would or might require compliance with any governmental or other consent or any registration, filing or other formality, which the Parent or Newco 1 (as the case may be) is unable to comply with or regards as unduly onerous to comply with, Newco 1 may, in its sole discretion, determine that no New Bonds or New Shares shall be allotted or issued to such holder. In such circumstances, Newco 1 will

instead allot and issue the New Bonds or New Shares to which such holder is entitled to a nominee appointed by Newco 1 on terms that the nominee shall sell such New Bonds or New Shares, on behalf of such Significant Creditor or EPL Bank, as soon as possible after the Restructuring Date at the best price which can reasonably be obtained at the time of sale, and account for the net proceeds of such sale, after the deduction of all expenses and commission, including any value added tax payable thereon, by sending a cheque to such person or as he or she may direct by post within 14 days following completion of such sale. In the absence of bad faith or wilful default, neither Newco 1, its directors and officers nor the nominee shall have any liability for any loss or damage arising as a result of the timing or terms of such sale.

7. Allotment and Issue of Members’ Scheme Condition Shares and Warrants to Existing Shareholders

Where Newco 1 is required to allot and issue Members’ Scheme Condition Shares and/or Warrants to the Existing Shareholders, the Existing Shareholders shall receive the Members’ Scheme Condition Shares and/or Warrants on the basis set out in the Members’ Scheme or otherwise determined by the Parent, provided that the overall quantum of Members’ Scheme Condition Shares and/or Warrants issued to the Existing Shareholders shall not be thereby increased.

8. Redemption of Non-Voting Redeemable Shares held by the Parent in Newco 1

As soon as practicable following the implementation of the Restructuring, the Parent shall, in accordance with the terms of Newco 1’s Articles of Association, require Newco 1 to redeem the 49,998 redeemable non-voting ordinary shares held by it in Newco 1 for the sum of £1.

SCHEDULE 4

REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS

1. Each Party

Each Party and BNFL represents and warrants, subject to Clause 1.6, that:

1.1 it and, if applicable, the duly authorised attorney acting on its behalf, has the power to enter into, perform and deliver and has taken all necessary action to authorise its entry into, performance and delivery of this Agreement and the transactions contemplated by this Agreement;

1.2 the execution by it of this Agreement and the exercise of its rights and the performance of its obligations under this Agreement:

1.2.1  does not constitute and will not result in any breach of applicable law, any of its constitutive documents or, save in the case of each Company, any agreement to which it is party; and

1.2.2  in the case of each Company only, will not (except to the extent contemplated by this Agreement and any Restructuring Document to which it is a party) result in the existence of or oblige it to create any Security Interest over any of its assets.

1.3 its obligations under this Agreement are valid and binding obligations, enforceable in accordance with the terms of this Agreement except to the extent that enforcement may be limited by bankruptcy, insolvency, reorganisation, moratorium or other similar laws relating to or limiting creditors rights generally.

2. Parent

Each of the Parent and, in respect of paragraphs 2.1.5 to 2.1.11, Newco 1 and Newco 2, represents and warrants that:

2.1 to the best of its knowledge:

2.1.1  no order has been made, petition presented or resolution passed for the winding up or appointment of a provisional liquidator to any Company;

2.1.2  no administrator has been appointed and no step has been taken with a view to the appointment of an administrator in respect of any Company;

2.1.3  neither a receiver nor an administrative receiver has been appointed over the whole or any part of the assets of any Company;

2.1.4  no proceedings analogous to the foregoing have been commenced in respect of any Company in any jurisdiction;

2.1.5  it is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under

Section 8 of the United States Investment Company Act of 1940 (the “Investment Company Act”), nor is it a closed-end investment company required to be registered, but not registered, thereunder; and the Parent is not and upon completion of the Restructuring will not be an “investment company” as defined in the Investment Company Act;

2.1.6  it is not a Passive Foreign Investment Company within the meaning of Section 1296 of the United States Internal Revenue Code of 1986, as amended;

2.1.7  it reasonably believes that there is no “substantial U.S. market interest” (as defined in Regulation S under the Securities Act) in the New Shares or New Bonds or in any securities of the Parent which are of the same class as the New Shares or New Bonds;

2.1.8  neither it, nor any of its Affiliates, nor any person acting on its or their behalf has offered or will offer to sell any New Shares or New Bonds: (i) in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities Act or (ii) by means of any directed selling efforts within the meaning of Rule 902(c) of Regulation S;

2.1.9  the New Shares issued pursuant to the Creditors’ Scheme and the Members’ Scheme (if applicable), will be issued in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereunder;

2.1.10  the New Bonds issued pursuant to the Creditors Scheme, will be issued in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereunder;

2.1.11  qualification of the New Bond Trust Deed will not be required under the United States Trust Indenture Act of 1939;

2.1.12  the corporate structure of the Group is as set out in Schedule 21 and that there are no subsidiaries of the Parent, nor any persons in which a member of the Group has a material interest, which are not shown in that Appendix;

2.1.13  save as disclosed in writing to each Party and BNFL or their advisers prior to to the date of this Agreement none of the Companies has been notified of any serious threat to terminate any material agreement to which it is a party for breach as a result of entering into this Agreement or implementing the proposed Restructuring; and

2.1.14  any Warrants issued to shareholders of Parent pursuant to the Restructuring will be issued in a transaction exempt from the registration requirements of the Securities Act.

3. Consenting Bondholders and EPL Banks

3.1 Each Consenting Bondholder, severally and not jointly, hereby represents and warrants that:

3.1.1  either (a) it is the beneficial owner of, with full power to vote in respect of and to dispose of the Identified Bonds free and clear of any and all Security Interests, that number of Identified Bonds set forth on such Consenting Bondholder’s signature page to this Agreement; or (b) it has been engaged to perform investment management services on behalf of the beneficial owner of the Identified Bonds with full power to bind the beneficial owner of the Identified Bonds to the terms of this Agreement and to vote in respect of and to dispose of free and clear of any and all Security Interests, that number of Identified Bonds set forth on such Consenting Bondholder’s signature page to this Agreement;

3.1.2  either (a) it is not a US Person within the meaning of Regulation S under the Securities Act; or (b) it is an “accredited investor” within the meaning of Rule 501(a) under the Securities Act;

3.1.3  it understands that New Shares and New Bonds delivered to each Consenting Bondholder (a) have not been registered under the Securities Act, (b) are being delivered to such Consenting Bondholder in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereunder, and (c) that any such New Shares and New Bonds may not be sold, transferred, assigned or hypothecated by such Consenting Bondholder unless (i) there is an effective registration statement under the Securities Act and such sale, transfer, assignment or hypothecation is registered pursuant to, exempt from or not subject to any other applicable securities laws covering such securities, (ii) the sale, transfer, assignment or hypothecation is made outside the United States pursuant to Regulation S promulgated pursuant to act, (iii) the sale, transfer, assignment or hypothecation is made in accordance with Rule 144A, if available, under such act, (iv) the sale, transfer, assignment or hypothecation is made in accordance with Rule 144, if available, under such act and the company receives evidence satisfactory to the company that the provisions of this rule have been complied with, (v) the sale, transfer, assignment or hypothecation is made to any of the Companies or subsidiary of any of the Companies or (vi) the sale, transfer, assignment or hypothecation is made in accordance with another exemption from registration under the Securities Act, and in each of the foregoing cases, the sale, transfer, assignment or hypothecation is made in accordance with applicable securities laws of any state of the United States.

3.1.4  the Consenting Bondholders, any of their affiliates, or any person acting on their behalf have not offered and will not offer to sell any New Shares or New Bonds in the United States by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) under the Securities

Act; and is not acquiring the New Shares and New Bonds with a view to the subsequent distribution thereof.

3.2 Each Consenting EPL Bank severally and not jointly, hereby represents and warrants:

3.2.1  that it is the beneficial owner, with full power to vote in respect of and to dispose of free and clear of any and all Security Interests, of its participation., in the Loan (as defined in the EPL Facility Agreement) and its interests in any EPL Swap as set forth on such Consenting EPL Bank’s signature page to this Agreement.

3.3 ECTEF

ECTEF, severally and not jointly hereby represents and warrants that:

3.3.1   it is either:

(a) not a US Person within the meaning of Regulation S under the Securities Act, or

(b) an “accredited investor” within the meaning of Rule 501 (a) under the Securities Act

3.3.2  it understands that New Shares and New Bonds delivered to it (a) have not been registered under the Securities Act, (b) are being delivered to it in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereunder, and (c) that any such New Shares and New Bonds may not be sold, transferred, assigned or hypothecated by it unless (i) there is an effective registration statement under the Securities Act and such sale, transfer, assignment or hypothecation is registered pursuant to, exempt from or not subject to any other applicable securities laws covering such securities, (ii) the sale, transfer, assignment or hypothecation is made outside the United States pursuant to Regulation S promulgated pursuant to act, (iii) the sale, transfer, assignment or hypothecation is made in accordance with Rule 144A, if available, under such act, (iv) the sale, transfer, assignment or hypothecation is made in accordance with Rule 144, if available, under such act and the company receives evidence satisfactory to the company that the provisions of this rule have been complied with, (v) the sale, transfer, assignment or hypothecation is made to any of the Companies or subsidiary of any of the Companies or (vi) the sale, transfer, assignment or hypothecation is made in accordance with another exemption from registration under the Securities Act, and in each of the foregoing cases, the sale, transfer, assignment or hypothecation is made in accordance with applicable securities laws of any state of the United States.

3.3.3  it and any of its Affiliates, or any person acting on their behalf have not offered and will not offer to sell any New Shares or New Bonds in the United States by means of any form of general solicitation or general advertising

within the meaning of Rule 502(c) under the Securities Act; and it is not acquiring the New Shares and New Bonds with a view to the subsequent distribution thereof in the United States.

4. Undertakings

4.1 Prior to the Restructuring Date, each of the Companies shall not, without the prior written consent of the Consenting Majorities:

4.1.1  appoint or remove any director of the Parent or pay or agree to pay any performance related bonus to any director of the Parent or make any award or grant to any director of the Parent under any incentive scheme or bonus plan to the extent any benefit under such scheme or plan depends on personal performance without, in each case, the Chairman of the Parent first consulting the Ad Hoc Committee’s Financial Advisers, RBS, BNFL, the Significant Creditors and the EPL Banks;

4.1.2  enter into any transactions, other than transactions pursuant to the Intra-Group Funding Arrangements or in the normal course of business or in accordance with this Agreement involving consideration or in a manner permitted in the remaining provisions of this paragraph 4, either alone, or in a series of transactions, in excess of £15 million in any twelve month period, including:

(a) giving any guarantees or taking any obligations to pay damages save for BNFL Guarantees; or

(b) granting consents for the lease, sale, pledge, mortgage, encumbrance or transfer of any part of the property of the Group;

4.1.3  sell, transfer, lease or otherwise dispose of any shares in any other entity or of all or any material part of its present or future undertaking, material assets, rights or revenues whether by one or a series of transactions related or not, save for:

(a) disposals on normal commercial terms of assets which are surplus to operational requirements;

(b) arms length disposals in the ordinary course of business;

(c) disposals to another member of the Group for the purposes of facilitating the Restructuring;

(d) disposal of British Energy US Holdings Inc or any of its Subsidiaries or its investments in joint ventures;

(e) disposals of cash on terms contemplated and not otherwise prohibited, by this Agreement, the Bondholder Restructuring Agreement and the Standstill Agreement;

(f) disposals of uranics stocks to BNFL or any of its Subsidiaries; and

(g) any other disposal for consideration not exceeding £5,000,000 subject to an aggregate limit of £15,000,000 in any twelve month period;

4.1.4 acquire any business of, shares or securities issued by any person, or enter into any agreement under which it may become bound to acquire any business or assets of, or shares or securities issued by, any person except for:

(a) acquisitions of assets for use in the day to day operation of its business;

(b) acquisitions from another member of the Group for the purposes of facilitating the Restructuring; and

(c) any other acquisition for consideration not exceeding £5,000,000 subject to an aggregate limit of £15,000,000 in any twelve month period;

4.1.5 permit any Security Interest other than a Permitted Security interest to subsist, arise or be created or extended over all or any part of its present or future undertakings, assets, rights or revenues;

4.1.6 issue equity (or otherwise change its capital structure in any way not contemplated by this Agreement and/or the Restructuring Documents including, for the avoidance of doubt, any steps which may involve the issue of any new debt, shares, warrants or options to acquire any new shares other than shares issued on the exercise or conversion of securities existing as at the date of this Agreement) or increase its authorised shares for any purpose other than to facilitate the Restructuring and no Company shall permit any subsidiary of it to issue equity to any person who is not a wholly owned subsidiary of the Parent;

4.1.7 pay any dividends other than, save in respect of the Parent, in respect of any distribution of proceeds following a disposal permitted under paragraph 4.3 above; and

4.1.8 seek to acquire, either directly or indirectly, the beneficial ownership of or rights to direct the disposition or vote of any of the Bonds.

4.2 Prior to the Restructuring Date, each of the Companies shall (unless the Consenting Majorities and the Parent have agreed otherwise in writing):

4.2.1 (except as contemplated by the TPL Option and TPL Side Letter) not, prior to the Termination Date, enter into any amendment of the TPL Amended PPA or the TPL 200 MW PPA (as defined in the Standstill Agreement) by way of a new GTMA trade or otherwise, which is not acceptable to RBS, the Consenting EPL Banks, Significant Creditors, BNFL and the Ad Hoc Committee, acting reasonably;

4.2.2 operate its business and activities in the usual course and in such a manner as to ensure that no act or event occurs (as defined in the Bondholder Restructuring Agreement) which would reasonably be expected to result in a breach of any warranties if repeated immediately prior to the Restructuring Date;

4.2.3 promptly provide or procure the provision to the Ad Hoc Committee’s Legal Advisers and the Ad Hoc Committee’s Financial Advisers of all information concerning the Parent’s business and affairs provided to any Consenting EPL Bank, Significant Creditor, RBS or BNFL and vice versa and promptly correct any information so provided if the Parent discovers or is otherwise notified that any such information was or has become inaccurate or misleading in any material respect;

4.2.4 disclose forthwith in writing to the Ad Hoc Committee, RBS, BNFL and the Consenting EPL Banks, Significant Creditors, any matter or thing which is inconsistent with the covenants and undertakings given by it in this Schedule 4;

4.2.5 disclose forthwith in writing to the Ad Hoc Committee, RBS, BNFL and the Consenting EPL Banks, Significant Creditors, details of any material contingent liability which may relate to any of BEG, BEG (UK), BEPET, EPL or EPHL, which was not otherwise notified to the Ad Hoc Committee, RBS, BNFL and the Consenting EPL Banks, Significant Creditors prior to the date of this Agreement (whether then in existence or otherwise);

4.2.6 submit for the Ad Hoc Committee’s review any Creditors’ Scheme Documents prior to the release to all holders of the Bonds for the purpose of soliciting Bondholders’ agreement or approval to such documentation;

4.2.7 insofar as they become aware of the identity of Bondholders, inform the Ad Hoc Committee’s Legal Advisers of the identity of Bondholders provided that they shall not be obliged to do so if they have been specifically asked by Bondholders not to identify such Bondholders;

4.2.8 take all reasonable steps to consult with the Ad Hoc Committee and its advisers and RBS and its advisers in relation to the Creditors’ Scheme Documents;

4.2.9 take all reasonable steps to consult with the Consenting EPL Banks and their advisers in relation to the EPL Scheme Documents.

4.3 Save as set out in paragraph 4.1.3(d) in respect of any matters required by (i) the Listing Rules, which would require, or would ordinarily require, absent a derogation from the Listing Rules, the Parent to obtain shareholder approval (the “Consents”) or notify Existing Shareholders (the “Notifications”); or (ii) the Companies Act or the articles of association of the Parent, which would require, or would ordinarily require the Parent to obtain shareholder approval, the Parent agrees to seek the Consents from

the Consenting Majorities (which in the case of Consenting bondholders shall require a Bondholder RBS Consenting Majority) and the Parent shall discharge its responsibilities under this paragraph 4.3 in respect of the Consents by seeking and obtaining written instructions from the Consenting Majorities and in respect of Notifications by notifying in writing each of the Significant Creditors, RBS, and the EPL Banks via the EPL Facility Agent and the Consenting Bondholders via the Ad Hoc Committee’s Legal Advisers, provided that if at the time the Parent is not admitted to the Official List of the UKLA the Parent shall not be required to prepare any circular which would be required by the Listing Rules.

4.4 Unless the Consenting Majorities otherwise consent, prior to the satisfaction of the Restructuring Condition, the Group will comply with paragraph 11 (Rating) and paragraphs 14.17 (SEC Reports; Other Information) and 14.18 (Provision of Financial Statements) of the New Bond Term Sheet insofar as it relates to the period prior to satisfaction of the Restructuring Condition.

4.5 Without the consent of the Consenting Majorities no member of the Group will incur new Financial Indebtedness (as described in the New Bond Term Sheet) other than:

4.5.1 pursuant to the Credit Facility Agreement (or any amendment or extension of the Credit Facility Agreement); or

4.5.2 Permitted Financial Indebtedness (as defined in the New Bond Term Sheet).

4.6 The Parent shall as soon as is reasonably practicable following the Restructuring Date prepare and file with the SEC an Exchange Act Registration Statement and take all reasonable steps to cause the Exchange Act Registration Statement to become effective under the Exchange Act as soon as is reasonably practicable thereafter.

4.7 The Parent shall, upon such time following the Restructuring Date as the Parent meets the eligibility criteria for listing on the New York Stock Exchange (including the minimum public float and minimum shareholder eligibility requirements), take all reasonable steps to cause American Depositary Shares representing New Shares to be listed on the New York Stock Exchange and take reasonable steps to:

(a) appoint an appropriate financial institution to as a depositary, including the execution of a deposit agreement between the Parent and such depositary;

(b) establish a sponsored American Depositary Receipt facility in respect of American Depositary Shares, each representing a specified number of New Shares; and

(c) assist the relevant depositary to file with the SEC a registration statement under the Exchange Act with respect to the American Depositary Shares.

4.8 Prior to the satisfaction of the Restructuring Condition, the Group will not make any declaration or other binding written commitment not to operate the Eggborough Power Station (or any one or more generating unit thereof) for more than 20,000 operational

hours starting from 1^st January, 2008 and ending no later than 31^st December, 2015 as described in Article 4(a) of the Large Combustion Plants Directive (being Directive 2001/80/EC of the European Parliament and the Council of 23^rd October, 2001 on the limitations of emissions of certain pollutants into the air from large combustion plants) (and/or any other form of submission and/or notification as may be required by the relevant authority confirming or implementing the same) without consulting with the EPL Facility Agent for a period of at least 60 days and shall only make any such declaration of commitment to the extent that it accords with standards of a Reasonably Prudent Operator (as defined in the Amended EPL Facility Agreement).

4.9 The Parties shall, after this Agreement (other than the Immediately Effective Provisions) becomes effective in accordance with Clause 1.5, discuss whether and if so how the New Bonds and New Shares might be afforded exemption under section 3(a)(10) of the Securities Act or any other exemption in connection with the Restructuring provided that, for the avoidance of doubt, no Party shall be obliged to amend the Restructuring Steps or any Restructuring Document or agree any Unsettled Document.

4.10 The Parent shall cause (i) any New Shares issued pursuant to the Creditors’ Scheme and the Members’ Scheme (if applicable) to be issued in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereunder, (ii) any New Bonds issued pursuant to the Creditors Scheme to be issued in a transaction exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereunder and (iii) any Warrants issued to shareholders of Parent pursuant to the Restructuring to be issued in a transaction exempt from the registration requirements of the Securities Act.

4.11 The Parent shall take reasonable efforts to maintain its Listing on the New York Stock Exchange until a new or continued Listing of American Depository Shares is achieved pursuant to paragraph 4.7 of this Schedule 4.

SCHEDULE 5

CLAIM AMOUNTS AND COMPROMISE ENTITLEMENTS

Part A

CLAIM AMOUNTS

Creditor	Claim Amount
Bondholders	£	407,891,000
EPL Banks	£	210,000,000
ECTEF	£	72,000,000
TOTAL	£	85,000,000
TPL	£	159,000,000
RBS	£	37,500,000

Part B

COMPROMISE ENTITLEMENTS

Creditor	New Bonds		percentage of Total New Shares
Bondholders	£	154,067,314	52.3	%
EPL Banks1	£	20,000,000	14	%
ECTEF	£	19,981,465	6.8	%
RBS	£	14,160,599	4.8	%
TOTAL	£	23,267,225	7.7	%
TPL	£	43,523,397	14.4	%
Total	£	275,000,000	100	%

¹ The EPL Banks will also have rights under the New EPL Arrangements.

SCHEDULE 6

RESTRUCTURING CONDITION

The implementation of the Restructuring shall be conditional on either:

(a) registration by the registrar of companies of the Members’ Order and the delivery of an office copy of the Creditors’ Order to the registrar of companies in Scotland for registration and, if the EPL Condition has not been satisfied, the delivery of an office copy of the EPL Scheme Order to the registrar of companies in England and Wales for registration;

(b) the Members’ Scheme having lapsed, the delivery of an office copy of the Creditors’ Order to the registrar of companies in Scotland for registration and, if the EPL Condition has not been satisfied, the delivery of an office copy of the EPL Scheme Order to the registrar of companies in England and Wales for registration and satisfaction of the Disposal Condition; or

(c) the Members’ Scheme having lapsed, the delivery of an office copy of the Creditors’ Order to the registrar of companies in Scotland for registration, and, if the EPL Condition has not been satisfied, the delivery of an office copy of the EPL Scheme Order to the registrar of companies in England and Wales for registration in circumstances where the Disposal Condition has not been satisfied.

SCHEDULE 7

THE MEMBERS’ SCHEME

SCHEDULE 8

AMENDMENTS TO THE BONDHOLDER RESTRUCTURING AGREEMENT

1. In lines 5 and 6 of clause 8.1 delete the words in parentheses i.e. “(not including this Restructuring Agreement)”.

2. Insert a new definition as follows:

“BE Finco” means the treasury company, which will be a Subsidiary of the Company, to be established for the purposes, of the Intra-Group Funding Arrangements

“Intra-Group Funding Arrangements” means (a) the intercompany loan agreement between, inter alia, the Company, any subsidiary of the Company and BE Finco and (b) the debenture creating fixed and floating charges in respect of the intercompany loan agreement between, inter alia, BE Finco, any Subsidiary of the Company and the Company.

3. Amend the definition of “Permitted Security Interest” as follows:

3.1.1 Delete paragraph (viii) and replace it with the following, “any Security Interest given by way of cash collateral securing obligations of a member of the Group under electricity trading or procurement contracts with suppliers, in each case entered into in the ordinary course of that company’s business (or any such Security Interest given in respect of letters of credit relating to such obligation)”;

3.1.2 add the following as a new paragraph (x), “any guarantee, indemnity and any Security Interest created under or in connection with or arising out of the Intra-Group Funding Arrangements”.

4. Make the following changes to Clause 7.1:

In the first line of Clause 7.1 (b) add the words “other than transactions pursuant to the Intra-Group Funding Arrangements or” after the words “enter into any transactions”.

Delete Clause 7.1(m)

SCHEDULE 9

NEW BOND TERM SHEET

SCHEDULE 10

[INTENTIONALLY LEFT BLANK]

SCHEDULE 11

FORM OF BONDHOLDER UNDERTAKING

[ON NEW BONDHOLDER’S LETTERHEAD]

Re: British Energy plc’s £109,861,000 5.949% Guaranteed Bonds due 2003, £163,444,000 6.077% Guaranteed Bonds due 2006 and £134,586,000 6.202% Guaranteed Bonds due 2016 respectively (the “Bonds”)

To: British Energy plc

3 Redwood Crescent

Peel Park

East Kilbride

Scotland G74 5PR

Telephone: 01355 59 4020

Facsimile: 01355 59 4022

Attention: Robert Armour, Company Secretary

We hereby confirm and undertake as follows:

1. We have executed a copy of a creditor restructuring agreement dated as of 30 September 2003 among the Parent, the Companies, RBS, BNFL, the Consenting EPL Banks and Significant Creditors and the other Consenting Bondholder signatories thereto (the “Creditor Restructuring Agreement”) in connection with the Restructuring. Capitalized terms used in this notice are defined in the Creditor Restructuring Agreement unless otherwise stated.

2. In entering into the Creditor Restructuring Agreement we agree to be bound by its terms, including, without limitation, Clause 7.1.4 and represent, warrant and undertake to each Party and BNFL in the terms of the warranties and undertakings contained in paragraphs 1 and 3.1 of Schedule 4 thereof. We attach an executed copy of the Creditor Restructuring Agreement signature page for your records.

3. As is stated on the Creditor Restructuring Agreement’s signature page, we confirm that we are either beneficial owners of, or perform investment management _______ on behalf of the beneficial owners of, £l face amount of Bonds. Each of these Identified Bonds are offered by us in support of the Restructuring in accordance with the terms of and subject to the conditions set forth in the Creditor Restructuring Agreement.

Please contact us should you have any queries.

Yours sincerely

[NEW BONDHOLDER]

cc: Clifford Chance Limited Liability Partnership

10 Upper Bank Street

London E14 5JJ

Telephone: +44 (0) 20 7006 1000

Facsimile: +44 (0)20 7006 5555

Attention: Daniel Kossoff, Mark Hyde, Mark Poulton, Philip Hertz

The Consenting Bondholders of British Energy plc

c/o Cadwalader, Wickersham & Taft LLP

265 Strand

London WC2R 1BH

Telephone: +44 (0) 20 7170 8700

Facsimile: +44(0)20 7170 8600

Attention: Andrew Wilkinson

SCHEDULE 12

FORM OF NEWCO 1 AND NEWCO 2 UNDERTAKING

THIS DEED OF ADHERENCE is made the [    ] day of [  ] 200[  ] by [Newco 1] [Newco 2] (the “Covenantor”) and is supplemental to the Creditor Restructuring Agreement dated the 30^th day of September 2003 and made between all the parties hereto (the “Creditor Restructuring Agreement”).

IT IS AGREED as follows:

Words and expressions defined in the Restructuring Agreement shall have the same meaning in this Deed.

The Covenantor confirms that it has been supplied with a copy of the Creditor Restructuring Agreement and hereby covenants with the parties thereto to perform and be bound by all the terms of the Creditor Restructuring Agreement (including, without limitation, the provisions of Schedule 3 thereto) to the intent and effect that the Covenantor shall be deemed with effect from the date of this Deed to be a party to the Creditor Restructuring Agreement in the same capacity and with the rights and obligations attributable to the original signatory to the Creditor Restructuring Agreement.

This Deed of Adherence shall be governed by and construed in accordance with the laws of England and Wales.

IN WITNESS whereof we have executed and delivered this Deed of Adherence as a deed on the date appearing at the head of the document.

EXECUTED AS A DEED
By [Newco 1][Newco 2] acting by	)
	)
	)
	director
	director/secretary

SCHEDULE 13

RESTRUCTURING DOCUMENTS AND UNSETTLED DOCUMENTS

Part 1

Restructuring Documents

1. The Government Restructuring Agreement (agreed form)

2. The Creditors Scheme (agreed form)

3. The Members^’ Scheme (agreed form)

4. The Business Transfer Agreement (agreed form)

5. Warrant Instrument Term Sheet (agreed form)

6. New Bond Term Sheet (agreed form)

7. Loan Acknowledgement Agreement (in respect of Intra-Group Receivables as defined in the Business Transfer Agreement) (agreed form)

8. Deed of Waiver (in respect of Intra-Group Receivables as defined in the Business Transfer Agreement (agreed form)

9. Deed of Novation (in respect of the Deed of Waiver as defined in the Business Transfer Agreement) (agreed form)

10. Form of Amending Resolutions (agreed form)

11. Form of Single Vote Resolutions (agreed form)

12. Form of Split Vote Resolutions (agreed form)

13. Form of the required amendments to the trust deed dated 25 March 1999, between the Parent, BEG, BEG (UK) and the Bond Trustee as amended to implement the Amending Resolutions or the Single Vote Resolutions or the Split Vote Resolutions (agreed form)

14. TPL Side Letter (agreed form)

15. TPL Option (agreed form)

16. Intra-Group Funding Arrangements (agreed form)

17. New Standstill Agreement (agreed form)

Nuclear Liabilities Agreements

18. The Nuclear Liabilities Funding Agreement (agreed form)

19. The Contribution Agreement (agreed form)

20. The Historic Liabilities Funding Agreement (agreed form)

21. The Option Agreement (agreed form)

22. Nirex Option Agreement (agreed form)

23. Guarantee and Indemnity (agreed form)

24. The Nuclear Trust Amendment (agreed form)

25. The NDF Articles (agreed form)

26. The NDA Termination Deed (agreed form)

New EPL Arrangements

27. New CTA (agreed form)

28. Amended EPL Facility Agreement (agreed form)

29. Share Option (agreed form)

30. Asset Option (agreed form)

BNFL Agreements (each in the agreed form)

31. the Agreement for New Spent Fuel Management Services between BNFL, BEG, BETS (as agent for BEG) and the Parent dated 16 May 2003;

32. the Agreement for New Spent Fuel Management Services between BNFL, BEG(UK), BETS (as agent for BEG(UK)) and the Parent dated 16 May 2003;

33. the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Nuclear Electric plc dated 31 March 1995, as amended and novated (which is referred to in Schedule 20 as the “BEG 1995 Storage and Reprocessing Agreement”);

34. the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Spent Fuel Management Services between BNFL and Nuclear Electric Limited dated 3 June 1997, as amended;

35. the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for the Storage and Reprocessing of Irradiated Oxide Fuel and Related Services between BNFL and Scottish Nuclear Limited dated 30 March 1995, as amended, and to the agreement for the Long Term Storage of Irradiated Oxide Fuel and Related Services dated 30 March 1995 between BNFL and Scottish Nuclear Limited, as amended;

36. the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Oxide Flask Maintenance between BNFL and Nuclear Electric plc dated 31 March 1996, as amended and novated (agreed form);

37. the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the new agreement for Oxide Flask Maintenance between BNFL and Nuclear Electric Limited dated 3 June 1997, as amended; (agreed form)

38. the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Rail Transport Services of Irradiated Nuclear Fuel in the United Kingdom between BNFL and Nuclear Electric Limited dated 3 June 1997, as amended; (agreed form) ’ :

39. the Deed of Amendment dated 16 May 2003 between BNFL and BEG, relating to the agreement for Oxide Miscellaneous Services between BNFL and Nuclear Electric plc dated 31 March 1996, as amended and novated; (agreed form)

40. the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for Oxide Flask Maintenance between BNFL and Scottish Nuclear Limited, dated 29 March 1996, as amended; (agreed form)

41. the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the new agreement for Oxide Flask Maintenance Services between BNFL and Scottish Nuclear Limited, dated 3 June 1997, as amended; (agreed form)

42. the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for Rail Transport Services of Irradiated Nuclear Fuel in the United Kingdom between BNFL and Scottish Nuclear Limited, dated 3 June 1997, as amended; (agreed form)

43. the Deed of Amendment dated 16 May 2003 between BNFL and BEG(UK), relating to the agreement for Oxide Miscellaneous Services between BNFL and Scottish Nuclear Limited, dated 29 March 1996, as amended; (agreed form)

44. the Deed of Amendment and Guarantee dated 31 March 2003 between BNFL, the Parent and BEG as amended on 22 July 2003, relating to the agreement for Supply of AGR Fuel dated 3 June 1997, as amended; (agreed form)

45. the Deed of Amendment and Guarantee dated 31 March 2003 between BNFL, the Parent and BEG(UK) as amended on 22 July 2003, relating to the agreement for Supply of AGR Fuel dated 30 March 1995, as amended; (agreed form)

46. the Agreement for the Supply of AGR Fuel dated 31 March 2003 as amended on 22 July 2003 between BNFL, the Parent and BEG; and (agreed form)

47. the Agreement for the Supply of AGR Fuel dated 31 March 2003 as amended on 22 July 2003 between BNFL, the Parent and BEG(UK). (agreed form)

Part 2

Unsettled Documents

1. The Warrant Instrument

2. The Trust Deed required to constitute the New Bonds

3. Account Holder Letter (as defined in the Creditors Scheme) - to be drafted post 30.09.03

4. Deed of Release (as defined in the Creditors’ Scheme) - to be drafted post 30.09.03

5. Distribution Agreement as defined in the Creditors’ Scheme to be drafted post 30.09.03

6. RBS Letter (equivalent of Account Holders Letter for RBS) - to be drafted post 30.09.03

7. CTA Global Bond

8. Paying Agency Agreement

9. Newco 1 Articles of Association

10. Amended Intercreditor Agreement

11. Amended Accounts Agreement

12. Amended Intercompany Loan

13. New Debenture

14. New Security Documents

15. First Intercompany Loan

16. Second Intercompany Loan

17. First Intercompany Security

18. Gale Common Escrow Agreement

19. Share Subscription Agreement

20. Lenders Share Subscription Agreement

21. EPL Scheme

22. Amended Fee Letters

23. Deed of Termination

SCHEDULE 14

CREDITORS’ SCHEME

SCHEDULE 15

BUSINESS TRANSFER AGREEMENT

SCHEDULE 16

WARRANT INSTRUMENT TERM SHEET

SCHEDULE 17

FORM OF DEED OF ADHERENCE

THIS DEED OF ADHERENCE is made the [     ]day of [    ]200[  ] by [Name of Transferee] (the “Covenantor”) and is supplemental to the Creditor Restructuring Agreement dated the 30^th day of September 2003 and made between all the parties named in the appendix attached hereto (the “Creditor Restructuring Agreement”) and the Standstill Agreement (as defined therein).

IT IS AGREED as follows:

Words and expressions defined in the Creditor Restructuring Agreement shall have the same meaning in this Deed.

The Covenantor confirms that it has been supplied with a copy of the Creditor Restructuring Agreement [and the [Standstill Agreement]/[New Standstill Agreement]]² and hereby covenants with the parties thereto to perform and be bound by all the terms of the Creditor Restructuring Agreement (including, without limitation, the provisions of Schedule 3 thereto [and the [Standstill Agreement]/[New Standstill Agreement]]³ to the intent and effect that the Covenantor shall be deemed with effect from the date of this Deed to be a party to the Creditor Restructuring Agreement [and the [Standstill Agreement]/[New Standstill Agreement]]⁴ in the same capacity and with the rights and obligations attributable to the original signatory to the Creditor Restructuring Agreement [and the [Standstill Agreement]/[New Standstill Agreement]]⁵ from which the interest being transferred derived.

This Deed of Adherence shall be governed by and construed in accordance with the laws of England and Wales.

IN WITNESS whereof we have executed and delivered this Deed of Adherence as a deed on the date appearing at the head of the document.

EXECUTED AS A DEED
By [Name of Transferee]	)
acting by	)
	)
director

² As applicable

³ As applicable

⁴ As applicable

⁵ As applicable

                                              director/secretary

SCHEDULE 18

INTRA-GROUP FUNDING ARRANGEMENTS

SCHEDULE 19

FORM OF AMENDING RESOLUTIONS, SINGLE VOTE RESOLUTIONS AND SPLIT VOTE

RESOLUTIONS

SCHEDULE 20

AMENDMENTS TO BNFL DOCUMENTS

1. The parties to the BEG 1995 Storage and Reprocessing Agreement shall by 31 October 2003 enter into a deed of amendment as provided for in clause 2.4 of this Agreement which shall amend the Deed of Amendment dated 16 May 2003 to the Agreement for the Storage and Reprocessing of Irradiated Fuel and Related Services dated 31 March 1995 (as amended and novated) (the “First Deed”) with effect from 30 September 2003 which shall:

1.1 replace Clause 4 of the First Deed in its entirety and replace it with the following:

4. “Conditions

4.1 The amendments to the 1995 Agreement provided for in Clause 3 shall be conditional upon the following conditions having been satisfied:

(a) the Creditors’ Restructuring Agreement and the documents listed in Schedule 1 (other than this Deed) having been executed and being subject to no outstanding conditions to their coming into full force and effect, other than any condition in any such document to the effect that the unconditionality of such document is dependent upon the unconditionality of the Creditors’ Restructuring Agreement, this Deed or any other document listed in Schedule 1. (For the purposes of this clause 4, “Creditors’ Restructuring Agreement” means the agreement of that name entered into on 30 September 2003 between BE, BNFL and others, as amended from time to time thereafter;

(b) the Commission of the European Communities (the Commission) adopting a decision or decisions under Article 88(2) of the EC Treaty that:

(i) the Restructuring does not involve any State aid granted by or through the resources of HMG within the scope of Article 87(1) of the EC Treaty, whether to any member of the BEG Group or to any other person or undertaking; and/or

(ii) to the extent that the Restructuring does involve State aid granted by or through the resources of HMG within the scope of Article 87(1) of the EC Treaty, whether to any member of the BEG Group or to any other person or undertaking, such aid is nevertheless compatible with the common market;

(c) to the extent that any modification or amendment of this Deed or any agreement or arrangement contemplated by it is required in order for the Commission to be able to adopt a decision referred to in Clause 4.1(b)(i) or a decision referred to in Clause 4.1(b)(ii) is adopted by the

Commission subject to conditions or obligations that require the modification or amendment of this Deed or any agreement or arrangement contemplated by it, any such modifications or amendments being reasonably acceptable, in terms and in form, to each of BNFL and BE;

(d) if a decision referred to in Clause 4. l(b)(ii) is adopted by the Commission subject to conditions or obligations, such conditions and obligations being in terms and in form reasonably acceptable to each of BE and BNFL and to the extent that such conditions or obligations must be complied with or implemented prior to the Effective Date any such conditions or obligations having been implemented or otherwise complied with by HMG;

(e) the entry by BEG and HMG (and others) into the Government Restructuring Agreement (as defined in the Creditors’ Restructuring Agreement) pursuant to which they are, subject to the satisfaction or waiver of the conditions set out therein, committed to entering into, among other things, the Nuclear Liabilities Agreements (as defined in the Creditors’ Restructuring Agreement) and the Government Restructuring Agreement becoming wholly unconditional (save for any condition which is dependent on the unconditionality of the Creditors’ Restructuring Agreement, this Deed or any other document in Schedule 1) without such Nuclear Liabilities Agreements being subsequently varied or otherwise amended prior to the Effective Date in a manner materially prejudicial to BNFL’s interests, provided always that it is accepted and agreed by the Parties that the non-inclusion or variation prior to the Effective Date of the matters contained in those provisions of the Historic Liabilities Funding Agreement which address the matters contained in the Addendum to die Historic Liabilities Term Sheet will be deemed to materially prejudice BNFL’s interests;

(f) BEG not having received by the later of:

(i) 31 October 2003; and

(ii) 14 calendar days after receipt by BNFL or any draft amendment or variation to die Historic Liabilities Funding Agreement which BEG and HMG have committed to enter into pursuant to the provisions of the Government Restructuring Agreement (whether or not the Historic Liabilities Funding Agreement is subject to any conditions to its taking effect);

a notice from BNFL accompanied by a written opinion of a senior Queen’s Counsel, that accurately reflects the facts at the date of the instructions, that it is not likely that the payments to be made

by HMG (on behalf of BEG) to BNFL under the Historic Liabilities Funding Agreement would:

(iii) be capable of being lawfully paid to BNFL following the appointment of a receiver, administrator, administrative receiver, compulsory manager or other similar officer in respect of BEG to the exclusion of other creditors of BEG; and

(iv) following the termination of the 1995 and/or 1997 Agreements, in respect of amounts accrued prior to and up to the date of termination (including, for the avoidance of doubt, amounts that have been invoiced that remain unpaid or that have accrued but have not been invoiced (including amounts that are disputed but which are subsequently determined to be amounts payable by HMG (on behalf of BEG) to BNFL pursuant to the Historic Liabilities Funding Agreement)) be capable of being lawfully paid to the exclusion of the other creditors of BEG;

or having received such notice, such notice has been withdrawn by BNFL.

For the purposes of this Clause 4, “Restructuring” has the meaning given to that expression in the Creditors’ Restructuring Agreement.

4.2 Each of the Parties undertakes to use reasonable endeavours to ensure the Conditions are satisfied as soon as reasonably practicable and in any event by 31 January 2005 or such other date as is referred to in any such Conditions or the revised Restructuring Long Stop Date (as defined in the Creditors’ Restructuring Agreement) in the event that the Restructuring Long Stop Date is extended in accordance with Clause 8.1.4 of that agreement.

4.3 BNFL shall be entitled in its absolute discretion, by written notice (or written notices, from time to time) to BEG, to waive the Conditions in Clauses 4.1(a) to 4.1 (f) above either in whole or in part (provided that at the same time BNFL waives the equivalent Condition (if any) in each of the agreements listed in Schedule 1) provided that no waiver by BNFL of the Conditions in clauses 4.l(c) and/or (d) shall in any event be treated as a waiver of BE’s rights under such clauses on behalf of BE.

4.4 If any of the Conditions has not been satisfied (or waived) On or before 31 January 2005 (or such other date as is referred to in the relevant Condition) or such later date as is agreed by the Parties in order to ensure compliance with any conditions or obligations attached to a decision referred to in Clause 4.1(b)(ii) or the revised Restructuring Long Stop Date (as defined in the Creditors’ Restructuring Agreement) in the event that the Restructuring Long Stop Date is extended in accordance with Clause 8.1.4 of that agreement or if, at any time prior to that date, it becomes apparent that one or more of the

Conditions which remain unsatisfied will not be satisfied on or before 31 January 2005 (or such other date as is referred to in the relevant Condition or the revised Restructuring Long Stop Date in the event that the Restructuring Long Stop Date is extended in accordance with Clause 8.1.4 of the Creditors’ Restructuring Agreement), this Deed shall terminate.”;

1.2 amend the provisions of Clause 12.16 of the agreement set forth in Schedule 3 to the BEG 1995 Storage and Reprocessing Agreement as follows:

“12.16  Subject always to Clause 12.17, all references to invoices in this Clause 12 are to VAT invoices within the meaning of Part III of the Value Added Tax Regulations 1995 (“VAT invoices”) as it may be amended, modified, extended, re-enacted or replaced from time to time.

12.17 In the event that BNFL has submitted a VAT invoice to NEL in accordance with the foregoing provisions of this Clause 12, and BNFL has received part payment of an amount from HMG (the “HMG Amount”) but BNFL has not received the payment of the balance due under such VAT invoice (the difference between such full amount of the VAT invoice and the HMG Amount being the “BE Amount”) by the date which is seven days after the date on which NEL is required to meet such payment obligation under the relevant provision of this Clause 12, then, provided always that: (i) such failure is not due to a genuine and bona fide dispute in relation to the subject matter of the VAT invoice; and (ii) such failure has already occurred previously in relation to a different BE Amount; then, subject to contrary agreement between the parties, from that time onwards BNFL shall be entitled to issue invoices which are not VAT invoices. In the event that BNFL issues an invoice which is not a VAT invoice pursuant to the provisions of this Clause 12.17:

(a) such invoice shall be for the full relevant amount (including an amount in respect of applicable VAT); and

(b) NEL shall be obliged to pay or procure payment of that full amount in accordance with the relevant provisions of this Clause 12; and

(c) BNFL shall issue an appropriate VAT invoice as soon as reasonably practicable after receipt of payment ( or after each receipt of payment, if there is more than one payment).”; and

1.3 insert a new provision in the Deed of Amendment dated 16 May of the BEG 1995 Storage and Reprocessing Agreement, as follows:”

“11 Value Added Tax

Notwithstanding the payment and invoicing arrangements described in Clause 12 of the agreement set forth in Schedule 3 (as amended from time to time), the Parties agree that they shall use their reasonable endeavours to cooperate with one another in good faith in order to address BNFL’s concerns with regard to

the BEG credit risk in the context of the VAT element of amounts to be payable to BNFL under such agreement, including, but not limited to, reaching agreement as to the basis for jointly approaching HM Customs & Excise with a view to agreeing that the Parties may treat amounts payable under such agreement as not being subject to VAT. The Parties agree that they shall use their reasonable endeavours to ensure that BEG’s VAT cashflow will not be adversely affected. If a mutually acceptable solution is found, the Parties agree that it shall override the provisions of Clause 12 of such agreement and that they shall use their reasonable endeavours to agree appropriate alternative payment and invoicing arrangements at that time and make such further amendments to the provisions of Clause 12 of such agreement as they deem necessary.”

2. The parties to each of the BNFL Agreements other than the BEG 1995 Storage and Reprocessing Agreement shall by 31 October 2003 enter into deeds of amendment as provided for in clause 2.4 of this Agreement to amend each of the other BNFL Agreements (or to amend the deeds of amendment to such agreements to the extent that those documents contain the relevant conditions or other provisions) with effect from [30 September 2003] to effect the equivalent changes to such documents as are described in paragraph 1.1 above (whether such conditions are described in such documents as “Conditions” or “Termination Conditions”).

3. The parties to each of the BNFL Back-End Agreements other than those agreements listed as (i) and (m), in the definition of such term shall by 31 October 2003, in the deeds of amendment referred to in paragraph 2 above, also amend the relevant provisions of the said agreements to effect the equivalent changes to those described in paragraphs 1.2 and 1.3 above.

[GRAPHIC]

SIGNATURE PAGES

BRITISH ENERGY plc

By:

ADRIAN MONTAGUE

BRITISH ENERGY GENERATION LIMITED

By:

KEITH LOUGH

BRITISH ENERGY GENERATION (UK) LIMITED

By:

KEITH LOUGH

BRITISH ENERGY POWER AND ENERGY TRADING LIMITED

By:

ROBERT ARMOUR

EGGBOROUGH POWER LIMITED

By:

KEITH LOUGH

EGGBOROUGH POWER HOLDINGS LIMITED

By:

KEITH LOUGH

TEESSIDE POWER LIMITED

By:

KEITH MILLER

TOTAL GAS & POWER LIMITED

By:

LUC JAUBERT

ENRON CAPITAL & TRADE EUROPE FINANCE L.L.C, BY

ENRON CAPITAL & TRADE RESOURCES INTERNATIONAL CORP., ITS SOLE MEMBER

By:

BARRY PEARCE

BRITISH NUCLEAR FUELS PLC

By:

JOHN EDWARDS

ROYAL BANK OF SCOTLAND PLC

By:

MARK ANDREW CALVERT

The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Creditor Restructuring Agreement Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the Creditor Restructuring Agreement dated as of the date first written above, or counterparts thereof.

Signature of Consenting Bondholder, if an

individual

The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Creditor Restructuring Agreement Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the Creditor Restructuring Agreement dated as of the date first written above, or counterparts thereof.

Signature of Consenting Bondholder, if an

individual

The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Creditor Restructuring Agreement Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the Creditor Restructuring Agreement dated as of the date first written above, or counterparts thereof.

Signature of Consenting Bondholder, if an individual

The undersigned hereby authorises the EPL Facility Agent to attach this Creditor Restructuring Agreement Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the Creditor Restructuring Agreement dated as of the date first written above, or counterparts thereof.

Print name of Consenting EPL Bank	Signature of Consenting EPL Bank
Record Address of Consenting EPL Bank	By:
	If an entity, signature of authorised person signing on such Consenting EPL Bank’s behalf
City, County and Postal Code
	Name:
		Print name of authorised person
Country
	Title:
		Title of authorised person

CONFORMED COPY

To:	Teesside Power Limited, Total Gas & Power Limited and Enron Capital & Trade Europe Finance LLC (the “Significant Creditors”) (1); Morgan Stanley & Co International Limited, Duquesne Capital Management LLC and Cargill Financial Markets plc (the “Ad-Hoc Committee”)(2); British Nuclear Fuels plc (“BNFL”) (3); and The Royal Bank of Scotland plc (“RBS”) (4)
Copied to:	The facility agent for and on behalf of the EPL Banks
From:	British Energy plc, British Energy Generation Limited, British Energy Generation (UK) Limited, British Energy Power & Energy Trading Limited, Eggborough Power Limited and Eggborough Power Holdings Limited (the “Companies”)
Date:	24 October 2003

Dear Sirs

We refer to the Creditor Restructuring Agreement entered into between us and the parties referred to at (1) to (4) above and dated as of 30 September 2003 (the “Agreement”). Words and phrases defined in the Agreement shall have the same meaning where used in this letter.

Subject to the consent of the Secretary of State for Trade and Industry, we propose that:

(a) with immediate effect, Clause 1.1 of the Agreement shall be amended by the substitution of a reference to “Clause 5.7” for the reference to “Clause 5.6” in the definition of “New Standstill Agreement”, the deletion of the phrase “(save for paragraph 2.3 thereof) in the definition of “Immediately Effective Provisions” and the removal of “Gartmore Investment Management plc” from the definition of “Ad Hoc Committee”;

(b) with immediate effect, Clause 5.5.3 of the Agreement be amended by inserting the phrase “, and each Consenting EPL Bank hereby agrees,” after the phrase “hereby agree”; and

(c) with immediate effect, a new Clause 5.5A shall be inserted after Clause 5.5 of the Agreement as follows:

“5.5A Each Consenting EPL Bank agrees not to take (unless it would be permitted under the terms of this Agreement, the Standstill Agreement or the New Standstill Agreement) any action to require the EPL Facility Agent to declare an Event of Default under (and as defined in) the EPL Facility Agreement, or enforce any payment under the EPL Facility Agreement or the making of advances under

the EPL SLA (as defined in the Standstill Agreement) (including enforcement of security).”

(d) with immediate effect Clause 8.1.8 of the Agreement be replaced with the following:

“until the New Standstill Agreement becomes effective, if the Parent receives a valid Termination Notice under (and as defined in) the Standstill Agreement from RBS, a Significant Creditor, BNFL, a Consenting EPL Bank or the EPL Facility Agent or after the New Standstill Agreement becomes effective, if the Parent receives a valid Termination Notice under (and as defined in) the New Standstill Agreement from any party thereto;”;

(e) subject to the Agreement (other than the Immediately Effective Provisions) becoming effective in accordance with Clause 1.5, the New Standstill Agreement be amended by the addition of the following additional paragraphs to Schedule 5:

“11. any Company fails to comply with its undertakings given under Clause 4.5 and Schedule 4 of the Creditor Restructuring Agreement where such failure so to comply is prejudicial to the position of a Creditor and such failure is not remedied within 7 days of the date on which such Creditor serves a notice on the relevant Company (and copied to the Secretary of State at Abbey Orchard Street, London SW1P 2HT, fax: 020 7215 0138) requiring remedy and specifying in reasonable detail why such failure is prejudicial to its position and what action is necessary to achieve remedy or such failure is not otherwise waived by the relevant Creditor.

12. any representation made by any Company under Clauses 4.1 and 4.3 and paragraphs 1 and 2 of Schedule 4 of the Creditor Restructuring Agreement was materially incorrect when made.”; and

(f) Schedule 8 of the Agreement be amended by the addition in paragraph 4 before the phrase “Delete Clause 7.1(m)” of the following paragraph:

“In the first line of clause 7.1(i) add the words “,the TPL Option and the TPL Side Letter” after the words “(except as contemplated in the Standstill Agreement”

and by the addition of an additional paragraph 5:

“In clause 4.1(a) delete the word “or” at the end of paragraph (xi) and add the following new paragraphs:

“xiii. any Company fails to comply with its undertakings given under Clause 4.5 and Schedule 4 of the Creditor Restructuring Agreement where such failure so to comply is prejudicial to the position of a Creditor and such failure is not remedied within 7 days of the date on which such Creditor serves a notice on the relevant Company (and copied to the Secretary of State at Abbey Orchard Street, London SW1P 2HT, fax: 020 7215 0138) requiring remedy and specifying in reasonable detail why such failure is prejudicial to its

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position and what action is necessary to achieve remedy or such failure is not otherwise waived by the relevant Creditor; or

xiv. any representation made by any Company under Clauses 4.1 and 4.3 and paragraphs 1 and 2 of Schedule 4 of the Creditor Restructuring Agreement was materially incorrect when made.”.

Please would you confirm your agreement to the foregoing by signing and returning the enclosed copy of this letter.

Yours faithfully

K. G. LOUGH

for and on behalf of

the Companies

Agreed and accepted by:

TEESSIDE POWER LIMITED

By:    K. M. MILLER

TOTAL GAS & POWER LIMITED

By:    D. FARAGHER, COMPANY SECRETARY

ENRON CAPITAL & TRADE EUROPE FINANCE L.L.C, BY

ENRON CAPITAL & TRADE RESOURCES INTERNATIONAL CORP., ITS SOLE MEMBER

By:    BARRY PEARCE

BRITISH NUCLEAR FUELS PLC

By:    ALVIN J. SHUTTLEWORTH

ROYAL BANK OF SCOTLAND PLC

By:    M. A. CALVERT, SENIOR CORPORATE MANAGER

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The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the letter amending the Agreement dated 24 October 2003, or counterparts thereof.

Signature of Consenting Bondholder, if an individual

The Consenting Bondholder shall also complete the following:

Check box of series of Bonds owned:	Insert Principal Amount of Bonds of each series owned:
£109,861,000 5.949% Guaranteed Bonds due 2003
£163,444,000 6.077% Guaranteed Bonds due 2006
£134,586,000 6.202% Guaranteed Bonds due 2016

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The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the letter amending the Agreement dated 24 October 2003, or counterparts thereof.

	Signature of Consenting Bondholder, if an individual
	By:
Record Address of Consenting Bondholder	If an entity, signature of authorised person signing on such Consenting Bondholder’s behalf
City, County and Postal Code	Name: Print name of authorised person
Country	Title: Title of authorised person

The Consenting Bondholder shall also complete the following:

Check box of series of Bonds owned:	Insert Principal Amount of Bonds of each series owned:
£109,861,000 5.949% Guaranteed Bonds due 2003
£163,444,000 6.077% Guaranteed Bonds due 2006
£134,586,000 6.202% Guaranteed Bonds due 2016

-5-

The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the letter amending the Agreement dated 24 October 2003, or counterparts thereof.

Signature of Consenting Bondholder, if an individual

The Consenting Bondholder shall also complete the following:

Check box of series of Bonds owned:	Insert Principal Amount of Bonds of each series owned:
£109,861,000 5.949% Guaranteed Bonds due 2003
£163,444,000 6.077% Guaranteed Bonds due 2006
£134,586,000 6.202% Guaranteed Bonds due 2016

-6-

CONFORMED COPY

To:	Teesside Power Limited, Total Gas & Power Limited and Enron Capital & Trade Europe Finance LLC (the “Significant Creditors”) (1); Morgan Stanley & Co International Limited, Duquesne Capital Management LLC and Cargill Financial Markets plc (the “Ad-Hoc Committee”) (2); British Nuclear Fuels plc (“BNFL”) (3); and The Royal Bank of Scotland plc (“RBS”) (4)
Copied to:	The facility agent for and on behalf of the EPL Banks
From:	British Energy plc, British Energy Generation Limited, British Energy Generation (UK) Limited, British Energy Power & Energy Trading Limited, Eggborough Power Limited and Eggborough Power Holdings Limited (the “Companies”)
Date:	24 October 2003

Dear Sirs

We refer to the Creditor Restructuring Agreement entered into between us and the parties referred to at (1) to (4) above and dated as of 30 September 2003 (the “Agreement”). Words and phrases defined in the Agreement shall have the same meaning where used in this letter.

Subject to the consent of the Secretary of State for Trade and Industry, we propose that:

(a) with immediate effect, Clause 1.1 of the Agreement shall be amended by the substitution of a reference to “Clause 5.7” for the reference to “Clause 5.6” in the definition of “New Standstill Agreement”, the deletion of the phrase “(save for paragraph 2.3 thereof) in the definition of “Immediately Effective Provisions” and the removal of “Gartmore Investment Management plc” from the definition of “Ad Hoc Committee”;

(b) with immediate effect, Clause 5.5.3 of the Agreement be amended by inserting the phrase “, and each Consenting EPL Bank hereby agrees,” after the phrase “hereby agree”; and

(c) with immediate effect, a new Clause 5.5A shall be inserted after Clause 5.5 of the Agreement as follows:

“5.5A Each Consenting EPL Bank agrees not to take (unless it would be permitted under the terms of this Agreement, the Standstill Agreement or the New Standstill Agreement) any action to require the EPL Facility Agent to declare an Event of Default under (and as defined in) the EPL Facility Agreement, or enforce any payment under the EPL Facility Agreement or the making of advances under the EPL SLA (as defined in the Standstill Agreement) (including enforcement of security).”

(d) with immediate effect Clause 8.1.8 of the Agreement be replaced with the following:

“until the New Standstill Agreement becomes effective, if the Parent receives a valid Termination Notice under (and as defined in) the Standstill Agreement from RBS, a Significant Creditor, BNFL, a Consenting EPL Bank or the EPL Facility Agent or after the New Standstill Agreement becomes effective, if the Parent receives a valid Termination Notice under (and as defined in) the New Standstill Agreement from any party thereto;”;

(e) subject to the Agreement (other than the Immediately Effective Provisions) becoming effective in accordance with Clause 1.5, the New Standstill Agreement be amended by the addition of the following additional paragraphs to Schedule 5:

“11. any Company fails to comply with its undertakings given under Clause 4.5 and Schedule 4 of the Creditor Restructuring Agreement where such failure so to comply is prejudicial to the position of a Creditor and such failure is not remedied within 7 days of the date on which such Creditor serves a notice on the relevant Company (and copied to the Secretary of State at Abbey Orchard Street, London SW1P 2HT, fax: 020 7215 0138) requiring remedy and specifying in reasonable detail why such failure is prejudicial to its position and what action is necessary to achieve remedy or such failure is not otherwise waived by the relevant Creditor.

12. any representation made by any Company under Clauses 4.1 and 4.3 and paragraphs 1 and 2 of Schedule 4 of the Creditor Restructuring Agreement was materially incorrect when made.”; and

(f) Schedule 8 of the Agreement be amended by the addition in paragraph 4 before the phrase “Delete Clause 7.1(m)” of the following paragraph:

“In the first line of clause 7.1(i) add the words “,the TPL Option and the TPL Side Letter” after the words “(except as contemplated in the Standstill Agreement”

and by the addition of an additional paragraph 5:

“In clause 4.1(a) delete the word “or” at the end of paragraph (xi) and add the following new paragraphs:

“xiii. any Company fails to comply with its undertakings given under Clause 4.5 and Schedule 4 of the Creditor Restructuring Agreement where such failure so to comply is prejudicial to the position of a Creditor and such failure is not remedied within 7 days of the date on which such Creditor serves a notice on the relevant Company (and copied to the Secretary of State at Abbey Orchard Street, London SW1P 2HT, fax: 020 7215 0138) requiring remedy and specifying in reasonable detail why such failure is prejudicial to its position and what action is necessary to achieve remedy or such failure is not otherwise waived by the relevant Creditor; or

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xiv. any representation made by any Company under Clauses 4.1 and 4.3 and paragraphs 1 and 2 of Schedule 4 of the Creditor Restructuring Agreement was materially incorrect when made.”.

Please would you confirm your agreement to the foregoing by signing and returning the enclosed copy of this letter.

Yours faithfully

K. G. LOUGH

for and on behalf of

the Companies

Agreed and accepted by:

TEESSIDE POWER LIMITED

By:     K. M. MILLER

TOTAL GAS & POWER LIMITED

By:     D. FARAGHER, COMPANY SECRETARY

ENRON CAPITAL & TRADE EUROPE FINANCE L.L.C, BY

ENRON CAPITAL & TRADE RESOURCES INTERNATIONAL CORP., ITS SOLE MEMBER

By:     BARRY PEARCE

BRITISH NUCLEAR FUELS PLC

By:     ALVIN J. SHUTTLEWORTH

ROYAL BANK OF SCOTLAND PLC

By:     M. A. CALVERT, SENIOR CORPORATE MANAGER

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The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the letter amending the Agreement dated 24 October 2003, or counterparts thereof.

CARGILL FINANCIAL MARKETS PLC Print name of Consenting Bondholder	Signature of Consenting Bondholder, if an individual
KNOWLE HILL PARK FAIRMILE LANE
Record Address of Consenting Bondholder	By: CADWALADER, WICKERSHAM AND TAFT
COBHAM SURREY KT11 2PD	If an entity, signature of authorised person signing on such Consenting Bondholder’s behalf
City, County and Postal Code ENGLAND	Name: Print name of authorised person
Country	Title: Title of authorised person

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The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the letter amending the Agreement dated 24 October 2003, or counterparts thereof.

DUQUESNE CAPITAL MANAGEMENT LLC AS INVESTMENT MANAGER Print name of Consenting Bondholder	Signature of Consenting Bondholder, if an individual
40 WEST 57th STREET 25th FLOOR NEW YORK NEW YORK 10019	By: CADWALADER, WICKERSHAM AND TAFT
Record Address of Consenting Bondholder	If an entity, signature of authorised person signing on such Consenting Bondholder’s behalf
City, County and Postal Code	Title: Print name of authorised person
Country	Title: Title of authorised person

The Consenting Bondholder shall also complete the following:

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The undersigned hereby authorises the Ad Hoc Committee’s Legal Advisers to attach this Signature Page (or a photocopy hereof, which shall be valid for all purposes) to the letter amending the Agreement dated 24 October 2003, or counterparts thereof.

MORGAN STANLEY & CO. INTERNATIONAL LIMITED Print name of Consenting Bondholder	Signature of Consenting Bondholder, if an individual
25 CABOT SQUARE CANARY WHARF	By: CADWALADER, WICKERSHAM AND TAFT
Record Address of Consenting Bondholder	If an entity, signature of authorised person signing on such Consenting Bondholder’s behalf
LONDON E14 4QA City, County and Postal Code	Title: Print name of authorised person
UK Country	Title: Title of authorised person

The Consenting Bondholder shall also complete the following:

Check box of series of Bonds owned: Insert Principal Amount of Bonds of each series owned:

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EX-4.17

Exhibit 4.17

BRITISH ENERGY PLC

AS PARENT

AND

OTHERS

NEW STANDSTILL AGREEMENT

CONTENTS

Clause		Page
1.	Definitions And Interpretation	1
2.	Operation Of Existing Agreements	2
3.	Undertakings By The Creditors	3
4.	Information And Confidentiality	3
5.	Termination Of Agreement	4
6.	Claim Amounts And State Aid	4
7.	Enron	4
8.	TPL	5
9.	RBS LC Extension	5
10.	EPL Lenders	5
11.	General	5
SCHEDULE 1 Definitions And Interpretation		8
SCHEDULE 2 The Companies		11
SCHEDULE 3 The Creditors		12
SCHEDULE 4 Existing Agreements And Obligations		15
Part A Existing Agreements		15
Part B Standstill Obligations		16
Part C Continuing Obligations		17
SCHEDULE 5 Termination Events		18
SCHEDULE 6 Undertakings By The Creditors		20
Part A Restricted Actions		20
Part B Overriding Permitted Actions		22

THIS STANDSTILL AGREEMENT is made on 13 February 2004

BETWEEN:

(1) THE COMPANIES named in Schedule 2 (The Companies); and

(2) THE PERSONS named in Schedule 3 (The Creditors).

RECITALS

(A) The Restructuring Initiation Event not having occurred under the Old Standstill Agreement by 30 September 2003, the Parties to this Agreement agreed under the Creditor Restructuring Agreement to waive the termination event pursuant to paragraph 14 of schedule 5 to the Old Standstill Agreement and to continue with the standstill arrangements established under the Old Standstill Agreement until the earlier of 30 September 2004 and the date when the Parties entered into this Agreement.

(B) In entering into this Agreement, the Parties wish to terminate the Old Standstill Agreement and to continue the standstill arrangements as varied and supplemented on the terms set out in this Agreement.

IT IS AGREED AS FOLLOWS:

1. DEFINITIONS AND INTERPRETATION

1.1 Definitions and Interpretation

Capitalised words and expressions used but not defined in Schedule 1 (Definitions and Interpretation) of this Agreement shall have the meanings given to them in the Creditor Restructuring Agreement or the Old Standstill Agreement unless the context otherwise requires and the provisions of Clause 2 of Schedule 1 (Definitions and Interpretation) will apply to this Agreement.

1.2 Third Party Rights

A person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement.

1A Termination of Old Standstill Agreement

1A.1 The Creditors hereby notify the Parent that the Old Standstill Agreement shall terminate on the date hereof but on the basis that the standstill arrangements established under the Old Standstill Agreement shall continue instead, so far as the Parties are concerned, under this Agreement, as varied and supplemented by the provisions of this Agreement.

1A.2 The Creditors hereby agree that:

(i) they will not claim any accrued interest which would otherwise be due and payable upon the termination of the Old Standstill Agreement (the “Accrued Unpaid Interest”);

(ii) the Accrued Unpaid Interest shall cease to be due under the Old Standstill Agreement; and

(iii) the Accrued Unpaid Interest shall become due and payable under this Agreement on the first interest payment date following the date of this Agreement, without, for the avoidance of any doubt, any penalty being incurred for late payment of such Accrued Unpaid Interest, always provided it is paid when due and payable under this Agreement.

2. OPERATION OF EXISTING AGREEMENTS

2.1 Creditors’ Obligations

During the Standstill Period, the Creditors and the Companies shall continue to comply with their obligations under the Existing Agreements save as provided in Clause 2.2 (Standstill Obligations) and Clause 3 (Undertakings by the Creditors).

2.2 Standstill Obligations

2.2.1 Subject to sub-clauses 2.2.2 and 2.2.3 below and to Clause 2.4 (Interest), all Standstill Obligations of each Company shall be deferred until the expiry of the Standstill Period (or, if later, the date upon which those obligations would otherwise become due and payable).

2.2.2 Upon the date of satisfaction of all the conditions precedent to the relevant BNFL Agreements, the Balancing Instalments and BNFL Interest Amounts which have accrued prior to such date and which fall due and payable during the Standstill Period shall not be payable at any time thereafter and each of the Companies shall be discharged from its obligations to pay such amounts to BNFL.

2.2.3 Standstill Obligations owed to EPL Lenders and constituting principal repayments and any default interest due to them as a consequence of any non-payment of principal on its due date shall not be deferred unless all EPL Lenders so agree but each of the EPL Lenders which are a Party to this Agreement acknowledges that no such amounts will be paid during the Standstill Period and confirms that they shall not take any action during the Standstill Period to require or enforce payment of any such amounts.

2.3 Continuing Obligations

Subject to the terms of the TPL Option and the TPL Side Letter, during the Standstill Period, each Company that owes any Continuing Obligations shall discharge those obligations in accordance with the Existing Agreements, the Amended TPL PPA, the TPL 200 MW PPA and any agreements with BNFL other than the Existing BNFL Agreements.

2.4 Interest

2.4.1 Interest shall accrue from 01 November 2002 on the Standstill Obligations owed to TPL, Deutsche Bank, AG London, Enron and RBS on the basis set out

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in the column headed “Calculation of Interest” in Part B of Schedule 4 (Standstill Obligations) and shall be payable as set out in sub-clause 2.4.3 (below).

2.4.2 Notwithstanding sub-clause 2.4.1, during the Standstill Period, neither BEG nor BEG (UK) shall pay BNFL Interest Amounts.

2.4.3 Interest shall be paid (by BEPET or the Parent) to TPL and Deutsche Bank, AG London, (by BEG or the Parent) to Enron and (by BEG, BEG (UK) or the Parent) to RBS, first on 25 March 2003 (in respect of the period from and including 01 November 2002 to and including 25 March 2003) and thereafter interest shall accrue over six month interest periods and shall be payable on the last Business Day of each such period and then finally on the Termination Date provided that the Creditors hereby agree to give credit to the Companies for any interest payments made by the Companies to the Creditors under the Old Standstill Agreement for periods up to the last interest payment date under the Old Standstill Agreement, so that the Creditors shall not, for the avoidance of doubt, recover interest twice for such period.

2.5 Continuity and Conflict

The Existing Agreements shall continue upon their terms save to the extent they are varied or payments thereunder are deferred by or pursuant to this Agreement and the term “Existing Agreements” shall be construed accordingly. In the case of a conflict between any provision of an Existing Agreement and this Agreement, this Agreement shall prevail. In the case of a conflict between this Agreement and the Creditor Restructuring Agreement, the Creditor Restructuring Agreement shall prevail.

3. UNDERTAKINGS BY THE CREDITORS

3.1 Restricted Actions

During the Standstill Period, no Creditor shall carry out any Restricted Action.

3.2 Overriding Permitted Actions

Nothing in this Agreement shall prevent a Creditor from carrying out any Overriding Permitted Action.

4. INFORMATION AND CONFIDENTIALITY

Information

Each Party authorises the disclosure and exchange of information about the Group, and the commercial dealings between members of the Group and Creditors, to and between the Parties and their professional advisers, to the Secretary of State and her professional advisers and, to the Sterling Bonds Trustee (for disclosure to Bondholders who have signed a confidentiality agreement in a form acceptable to the Parent and the Creditors) and its professional advisers Provided that:

4.1.1 such authority shall terminate upon receipt by the relevant Party of a notice from the Parent under Clause 5.1; and

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4.1.2 (for the avoidance of doubt) nothing in this Agreement shall require any Party to disclose privileged and/or confidential communications with its legal or other professional advisers or communications between the EPL Lenders.

5. TERMINATION OF AGREEMENT

Termination Notice

5.1 The Parent shall promptly notify each Party if it receives a Termination Notice.

5.2 This Agreement shall terminate (save as provided in Clause 5.3 below) on expiry of the Standstill Period.

5.3 Clauses 1, 2.4 (as regards accrued interest), 4.1, 11.2, 11.3 and 11.5 to 11.7) shall survive the termination of this Agreement.

6. STATE AID

Each Party agrees:

6.1 not to object to, or seek to hinder, the process of obtaining, approval of the Restructuring Proposals from the Commission under the State aid provisions of the EC Treaty;

6.2 if reasonably requested by the Parent and provided it is lawful for it to do so, to send a letter addressed to the Commission notifying the Commission that it supports the Restructuring Proposals; and

6.3 that TPL may make statements or briefings relating to the electricity industry generally which could not reasonably be expected to be prejudicial to the achievement of the Restructuring.

7. ENRON

7.1 Suspension of Dispute Mechanism

During the Standstill Period, all proceedings under the dispute resolution mechanisms in the Enron CFD (including any arbitration proceedings) shall be suspended, such suspension not to prejudice or otherwise affect any claim or defence under the Enron CFD and each of BEG, the Parent and Enron shall (at the request of any of them) take such further steps as may be necessary to give effect to this suspension and effect.

7.2 Enron Disclosure

Enron’s execution of this Agreement shall not limit or prejudice Enron’s entitlement to disclose confidential information on the terms set out in the confidentiality agreement dated 09 January 2003 which entitlement will continue following the execution of this Agreement subject always to the terms of the last sentence of paragraph 1.2 of that Agreement.

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8. TPL

8.1 TPL Option and TPL Side Letter

8.1.1  Notwithstanding any other provision of this Agreement or the Creditor Restructuring Agreement, the parties acknowledge and agree that TPL and BEPET may enter into and give effect to the TPL Option and the TPL Side Letter.

8.1.2  Immediately after this Agreement becomes effective, TPL and BEPET shall enter into the TPL Option.

9. RBS LC EXTENSION

9.1 Extension

Subject to the Creditor Restructuring Agreement and provided the Standstill Period has not expired or terminated, the Parent and each of the EPL Lenders hereby requests RBS and RBS agrees to extend the RBS Letter of Credit until five Business Days after the Restructuring Long Stop Date.

10. EPL LENDERS

The Consenting EPL Banks agree not to take or encourage (unless it would be permitted under the terms of this Agreement and the Creditor Restructuring Agreement) any action to require the EPL Facility Agent to declare an Event of Default under (and as defined in) the EPL Facility Agreement, or enforce payment under the EPL Facility Agreement or the making of advances under the EPL SLA (including enforcement of security).

11. GENERAL

11.1 Variation

No amendment or waiver of this Agreement shall be effective unless it is made in writing and signed by each Party.

11.2 Reservation of Rights

Each Party reserves all rights and remedies it may have against any other Party under any Existing Agreement. After the Termination Date each Creditor may enforce its rights and remedies to their full extent despite any temporary waiver of those rights and remedies during the Standstill Period.

11.3 Existing Guarantees and Security

Each Company agrees that any guarantees and indemnities and any Security Interest granted by any Company in respect of any Existing Agreement shall remain in full force and effect and shall not be reduced, prejudiced or released as a result of this Agreement. During the Standstill Period, the terms of Part A of Schedule 6 (Restricted Actions) shall nevertheless apply to any such guarantee, indemnity and Security Interest.

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11.4 Counterparts

This Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Agreement.

11.5 Communications

11.5.1  Any communications to be made in connection with this Agreement shall be made in writing and sent to the addressees at the addresses or facsimile numbers set out:

(a) in Schedule 2 in respect of the Companies;

(b) in Schedule 3 in respect of the Creditors;

or such other address or number as a Party shall notify to the other Parties in accordance with this Clause 11.5. Any communication delivered by one person to another under this Agreement will only be effective (i) if by way of fax, the sender has received a report showing successful transmission; or (ii) if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post first class postage prepaid in an envelope addressed to it at that address and, if a particular department or officer is specified as part of its address details, if addressed to that department or officer.

11.5.2  All notices in relation to this Agreement sent from or to a Company shall be sent through the Parent.

11.6 Governing Law and Jurisdiction

11.6.1  This Agreement is governed by English law.

11.6.2  The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute regarding the existence, validity or termination of this Agreement) (a “Dispute”).

11.6.3  The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.

11.6.4  Without prejudice to any other mode of service allowed under any relevant law:

(a) each Company (other than a Company incorporated in England and Wales):

(i) irrevocably appoints BEG as its agent for service of process in relation to any proceedings before the English courts in connection with this Agreement; and

(ii) agrees that failure by BEG to notify the relevant Company of the process will not invalidate the proceedings concerned; and

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(b) ECTRIC:

(i) irrevocably appoints Weil, Gotshal & Manges, One South Place, London EC2M 2WG (Attention: Christopher Mallon) as its agent for service of process in relation to any proceedings before the English Courts in connection with this Agreement; and

(ii) agrees that failure by Weil, Gotshal & Manges to notify ECTRIC of the process will not invalidate the proceedings concerned;

11.7 Several Obligations

The obligations of each Creditor under this Agreement are several. No Creditor shall be liable for any breach by any other such party of that party’s obligations under this Agreement.

THIS AGREEMENT has been entered into on the date stated at the beginning of this Agreement.

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SCHEDULE 1

DEFINITIONS AND INTERPRETATION

1. Definitions

“Balancing Instalment” means with respect to any payments under the Existing BNFL Agreements (a) until 1 April 2003, the amount of any such payments, and (b) with effect from 1 April 2003, so much of those payments as exceeds the amount that would be due and payable as the relative reprocessing and storage instalment payments under the Existing BNFL Agreements had they come into force on, and with effect from, 1 April 2003, and “Balancing Instalments” shall be construed accordingly.

“BNFL Interest Amount” means interest for late payment under any of the Existing BNFL Agreements or part thereof, as provided for in the relevant Existing BNFL Agreements, accrued at the time in question on the amounts due but unpaid and “BNFL Interest Amounts” shall be construed accordingly.

“Companies” means the companies listed in Schedule 2 (The Companies).

“Continuing Obligations” means the obligations of the Companies referred to in Part C of Schedule 4 (Continuing Obligations).

“Creditor Restructuring Agreement” means the agreement dated 30 September 2003 between, inter alia, the Companies and the Creditors under which the Creditors agreed to compromise their claim against the Group.

“Creditors” means the persons listed in Schedule 3 (The Creditors).

“Enron” means ECTRIC and/or Barclays Bank PLC (as applicable).

“EPL CTA” means the capacity and tolling agreement dated 13 July 2000 (as amended and restated) between BEPET and EPL.

“EPL CTA Guarantee” means the guarantee dated as of 8 September 2000 made by the Parent in favour of EPL in relation to the EPL CTA.

“EPL SLA” means the subordinated loan agreement dated 13 July 2000 (as amended and restated) between EPL as borrower and Parent as lender.

“EPL Sponsor Undertaking” means the sponsor undertaking dated 13 July 2000 between, amongst others, the Parent and EPL relating, inter alia, to the obligations of the Parent under the EPL SLA.

“Existing Agreements” means the letters or other agreements listed in Part A of Schedule 4 (Existing Agreements).

“Existing BNFL Agreements” means the following agreements as amended prior to the date hereof between BNFL and BEG or BEG (UK) (as the case may be): (i) agreements dated 31 March 1995 for the storage and reprocessing of irradiated oxide fuel and related services; (ii) agreement dated 3 June 1997 for spent fuel management services; (iii) agreement dated 30 March 1995 for the long term storage of irradiated oxide fuel and

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related services; and (iv) agreements dated 29 March 1996, 31 March 1996 and 3 June 1997 for oxide flask maintenance.

“Group” means the Parent and its Subsidiaries for the time being.

“Old Standstill Agreement” means the standstill agreement entered into by the Companies, TPL, ECTEF, Total, BNFL, Barclays Bank PLC (as agent for the EPL Lenders), the EPL Swap Providers, EPL and RBS on 14 February 2003.

“Overriding Permitted Action” means any action listed in Part B of Schedule 6 (Overriding Permitted Actions).

“Party” means a person who is a party to this Agreement.

“RBS” means The Royal Bank of Scotland plc.

“RBS Composite Guarantee” means the unlimited intercompany composite guarantee made by the Parent, BEG and BEG(UK) in favour of RBS dated 12 April 1996.

“RBS Counter-Indemnity” means the counter-indemnity given by the Parent in favour of RBS relating to the RBS Letter of Credit and dated 01 December 2000.

“RBS LC Facility Agreement” means the facility agreement pursuant to which the RBS Letter of Credit is issued.

“RBS Letter of Credit” means the letter of credit issued by RBS in favour of the EPL Facility Agent relating to debt service reserve obligations of EPL.

“Restricted Action” means any action listed in Part A of Schedule 6 (Restricted Actions).

“Standstill Date” means 14 February 2003 (or such later date as may be agreed by the Secretary of State).

“Standstill Obligations” means the payment obligations of the Companies owed to the Creditors and referred to in Part B of Schedule 4 (Standstill Obligations).

“Standstill Period” means the period commencing on the Standstill Date and ending at close of business on the Termination Date.

“Sterling Bonds” means the £407,891,000 of bonds issued by the Parent.

“Sterling Bondholder Restructuring Agreement” means the restructuring agreement dated 14 February 2003 made between the Parent, BEG, BEG (UK) and certain Bondholders and in the form attached to the Heads of Terms.

“Sterling Bonds Trustee” means The Law Debenture Trust Corporation plc.

“Sterling Bonds Trust Deed” means the trust deed dated 25 March 1999, as amended prior to the date hereof, between the Parent, BEG, BEG (UK) and the Trustee.

“Subsidiary” means a subsidiary undertaking within the meaning of section 258 of the Companies Act 1985.

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“Termination Date” means the earlier of: (a) Restructuring Long Stop Date; (b) the date the parent receives a Termination Notice; and (c) the Restructuring Date.

“Termination Event” means any event set out in Schedule 5 (Termination Events).

“Termination Notice” means written notice of termination of the standstill arrangements from a Creditor (including for these purposes the EPL Facility Agent) to the Parent following the occurrence of a Termination Event.

2. Interpretation

(a) Any reference in this Agreement to:

(i) any “Creditor” or any “Party” shall be construed so as to include its successors in title, permitted assigns and permitted transferees;

(ii) “assets” includes present and future properties, revenues and rights of every description;

(iii) a “person” includes any person, firm, company, corporation, government, state or agency of a state or any association, trust or partnership (whether or not having separate legal personality) or two or more of the foregoing;

(iv) a provision of law is a reference to that provision as amended or re-enacted;

(v) a time of day is a reference to London time;

(vi) a “Clause” or “sub-clause” or “Schedule” shall, subject to any contrary indication, be construed as a reference to a clause, sub-clause or schedule as the case may be, in this Agreement; and

(vii) the “equivalent” of a given currency at any given time means the equivalent in any other currency at such time based upon the relevant spot rates of exchange published from time to time in the Financial Times.

(b) Section, Clause and Schedule headings are for ease of reference only.

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SCHEDULE 2

THE COMPANIES

The Parent

Address for notices:

3 Redwood Crescent

Peel Park

East Kilbride

G74 5 PR

Fax: 013 5526 2570

Attention: The Group Treasurer

BEG

c/o The Parent

(as above)

BEG (UK)

c/o The Parent

(as above)

BEPET

c/o The Parent

(as above)

EPL

c/o The Parent

(as above)

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SCHEDULE 3

THE CREDITORS

TPL

First Floor

Christine House

Sorbonne Close

Teesdale

TS17 6DA

Fax:           01642 525031

Attention: Dr. Phil Lawless

Deutsche Bank AG, London

Winchester House

1 Great Winchester Street

London EC2N 2 DB

Attention: Lindsay Powell/Martin Tonnby

Fax:           44 20 7547 27207

ECTRIC

1400 Smith Street

Houston

Texas 77002

Attention: President

Fax:           001 713 853 9252

cc:             Weil, Gotshal & Manges, London (Attention: Christopher Mallon)

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Barclays Bank PLC

200 Park Avenue

New York

NY 10166, USA

Attention:     Richard Williams (Barclays Capital)

Tel: + 1 212 412 7570

BNFL

100 Daresbury Park

Warrington

Cheshire

WA4 4GB

Fax:               01925 654439

Attention:     Alvin Shuttleworth, Company Secretary and Group Legal Director

Barclays Bank PLC as agent for itself

and the other Finance Parties under,

and as defined in, the EPL Facility Agreement

5 The North Colonnade

Canary Wharf

London E14 4BB

Fax:               020 7516 7423

Attention:     Allan Pover/Richard Bull

The EPL Swap Providers

c/o Barclays Bank PLC

as above

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EPL

Contact details: c/o the Parent

RBS

Contact details:

Specialised Lending Services

10^th Floor

280 Bishopsgate

London EC2M 4RB

Fax:               020 7672 0324

Attention:      R J Hedger Director, Corporate Restructuring Unit

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SCHEDULE 4

EXISTING AGREEMENTS AND OBLIGATIONS

Part A

Existing Agreements

	Creditor	Company	Existing Agreement
1.	TPL	BEPET, Parent	TPL Original PPA and TPL Guarantee
2.	Deutsche Bank AG, London	BEPET, Parent	Total CFD and Total Guarantee
3.	ECTRIC and Barclays Bank PLC	BEG, Parent	Enron CFD and Enron Guarantee
4.	BNFL	BEG/BEG(UK)	Existing BNFL Agreements
5.	EPL Lenders	EPL, Parent	EPL Facility Agreement and the EPL Sponsor Undertaking
6.	EPL Swap Providers	EPL	EPL Swaps
7.	EPL	BEPET, Parent	EPL CTA, EPL CTA Guarantee and the EPL SLA
8.	RBS	Parent, BEG and BEG(UK)	RBS Letter of Credit RBS Counter-indemnity RBS Composite Guarantee RBS LC Facility Agreement

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Part B

Standstill Obligations

	Creditor	Company	Standstill Obligations	Calculation of Interest
1.	TPL	BEPET, Parent	Any obligations arising from time to time under, for BEPET the TPL Original PPA as if it had not been amended pursuant to clause 10.1.1 and/or for Parent the TPL Guarantee, except insofar as they constitute Continuing Obligations to TPL.	6% per annum on £159,000,000 calculated on no. of days elapsed and a 365 day year
2.	Deutsche Bank AG, London	BEPET, Parent	All amounts owing from time to time under, for BEPET the Total CFD and/or, for Parent the Total Guarantee	6% per annum on £85,000,000 calculated on no. of days elapsed and a 365 day year
3.	ECTEF	BEG, Parent	All amounts owing from time to time under, for BEG the Enron CFD and/or, for Parent the Enron Guarantee	6% per annum on £72,000,000 calculated on no. of days elapsed and a 365 day year
4.	BNFL	BEG/ BEG (UK)	All amounts owing from time to time in respect of Balancing Instalments and BNFL Interest Amounts	None
5.	EPL Lenders	EPL	All amounts of principal owing from time to time under the EPL Facility Agreement	LIBOR plus 1.25% plus Mandatory Costs, as per Clause 9 of the EPL Facility Agreement
6.	EPL Swap Providers	EPL	All rights to terminate the EPL Swaps unless otherwise agreed by the Parent and, if so, only for the purpose of crystallising the amounts due on such termination which amounts shall be Standstill Obligations	As per the existing terms of each EPL Swap
7.	EPL	BEPET, Parent	All amounts owing from time to time under, for BEPET the EPL CTA, and/or, for Parent the EPL SLA other than the EPL Continuing Obligations	None
8.	RBS	Parent, BEG, BEG(UK)	All amounts owing from time to time or in respect of which a liability to pay is capable of arising under the RBS Counter-indemnity and/or the RBS Composite Guarantee and/or the RBS LC Facility Agreement	6% per annum on £34,000,000 calculated on no. of days elapsed and a 365 day year

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Part C

Continuing Obligations

	Creditor	Company	Continuing Obligations
1.	TPL	BEPET	All obligations under the TPL Amended PPA and under the TPL 200MW PPA.
2.	BNFL	BEG/BEG (UK)	All obligations under the Existing BNFL Agreements including all payment obligations other than the BNFL Standstill Obligations and all obligations under agreements with BNFL other than the Existing BNFL Agreements
3.	EPL	BEPET, Parent	Amounts due under the EPL CTA to fund interest accruing under the EPL Facility Agreement through the EPL Swaps and EPL’s operating costs and amounts due under the EPL SLA to fund EPL’s Designated Capital Expenditure (as defined in the EPL Facility Agreement) including the Parent’s obligations in relation thereto under the EPL Sponsor Undertaking.
4.	RBS	Parent, BEG, BEG (UK)	Commissions at 0.4% per annum in accordance with Clause 6.4 of the RBS LC Facility Agreement.

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SCHEDULE 5

TERMINATION EVENTS

Each of the following is a Termination Event for the purpose of this Agreement, unless waived in writing by all Creditors (or, in the case of EPL Lenders, the EPL Facility Agent acting on the instructions of the Majority Banks under (and as defined in) the EPL Facility Agreement):

1. any Company fails to (a) discharge any material Continuing Obligation when due or (b) pay any interest on any Standstill Obligation when due pursuant to Clause 2.4 (Interest), and, in either case, such failure continues for a period of 20 Business Days and has not been waived by the relevant Creditor;

2. any petition is presented or other step is taken for the purpose of winding up any Company (not being a petition which is frivolous, vexatious or an abuse of the process of the court and not being a petition withdrawn or struck out within 20 Business Days) or an order is made or resolution passed for the winding up of any Company;

3. any petition is presented or other step is taken for the purpose of the appointment of an administrator or interim manager of any Company (not being a petition or step which is frivolous, vexatious or an abuse of the process of the court and not being a petition withdrawn or struck out within 20 Business Days) or an administration order is made in relation to any Company or any Company otherwise enters administration;

4. any administrative or other receiver is appointed in respect of any Company or any part of their respective assets and/or undertakings or any other steps are taken to enforce any Security Interest over all or any material part of the assets of any Company;

5. there occurs in relation to any Company, in any country or territory in which it carries on business or to the jurisdiction of whose courts any part of its assets is subject, any event which in that country or territory corresponds with, or has an effect equivalent or similar to, any of those mentioned in paragraphs 2 to 4 above (inclusive);

6. the Secretary of State makes a valid written demand for repayment in full pursuant to:

6.1 the Credit Facility Agreement; or

6.2 any counter-indemnity provided by the Parent (and any of its Subsidiaries) to the Secretary of State in respect of any guarantee or other form of credit support granted by the Secretary of State for the purposes of securing any facility granted by commercial banks to the Parent (or any of its Subsidiaries) in order to replace the Credit Facility Agreement,

and such demand is not satisfied in accordance with the terms of the Credit Facility Agreement or such counter-indemnity.

7. interest is not paid within 20 Business Days of the due date on the Sterling Bonds.

8. the Sterling Bondholder Restructuring Agreement terminates or for any reason ceases to be in full force and effect and/or to bind its counterparties thereto.

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9. The Creditor Restructuring Agreement terminates in accordance with its terms.

10. Documentation is despatched by any Company (without the consent of all Creditors) for the purpose of implementing a scheme, compromise or arrangement in relation to the Standstill Obligations which provides for distributions to Creditors different to those set out in the Creditor Restructuring Agreement.

11. Any Company fails to comply with its undertakings given under Clause 4.5 and Schedule 4 of the Creditor Restructuring Agreement where such failure so to comply is prejudicial to the position of a Creditor and such failure is not remedied within 7 days of the date on which such Creditor serves a notice on the relevant Company (and copied to the Secretary of State at Abbey Orchard Street, London SW1P 2HT, fax: 020 7215 0138) requiring remedy and specifying in reasonable detail why such failure is prejudicial to its position and what action is necessary to achieve remedy or such failure is not otherwise waived by the relevant Creditor.

12. Any representation made by any Company under Clauses 4.1 and 4.3 and paragraphs 1 and 2 of Schedule 4 of the Creditor Restructuring Agreement was materially incorrect when made.

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SCHEDULE 6

UNDERTAKINGS BY THE CREDITORS

Part A

Restricted Actions

1. Demand or acceleration

Make any demand for, accept payment or discharge of or declare prematurely due and payable any indebtedness or other liability of any member of the Group.

2. Proceedings

Take any proceedings or steps to enforce the payment or discharge of or to recover any indebtedness or other liability of any member of the Group.

3. Reductions or variation

Declare a default or cancel any Existing Agreement or any related guarantee or related indemnity in favour of a third party or make any alterations to the terms of any Existing Agreement.

4. Increase in pricing

Save as contemplated by the terms of the TPL Amended PPA and the Existing BNFL Agreements, increase the pricing terms of any Existing Agreement above the rate referred to in Clause 2.4 (Interest).

5. Default rate interest

Save as contemplated by the terms of the Existing BNFL Agreements, receive payment of interest at a default rate under any Existing Agreement or require the same to be paid more frequently than regular non-default interest.

6. Exercise of rights of recourse

Subject to Clause 3.2 (Overriding Permitted Actions), take any steps to enforce, exercise rights or make demand under any Existing Agreement (which for the avoidance of doubt does not include the TPL Amended PPA and the TPL 200 MW PPA) or under any guarantee, Security Interest or other right of recourse (including, without limitation, any step-in rights) held by it (whether from a member of the Group or a third party) in respect of any Existing Agreement.

7. Insolvency steps

Take any steps to wind up or appoint a receiver, administrative receiver, liquidator, administrator, interim manager or any other analogous officer in any jurisdiction over, or commence any other insolvency related proceedings (or any analogous proceedings in any other jurisdiction) against any member of the Group or against any assets of any member of the Group.

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8. New Security Interest

Seek or take any new Security Interest, guarantee or indemnity, save for any BNFL Guarantees.

9. Refusal to perform obligations

Refuse to perform its obligations under any Existing Agreement (or in the case of TPL, the TPL Amended PPA (subject to its rights under the TPL Option)).

10. Set-off

Exercise any right of appropriation, set-off or combination or consolidation of accounts to reduce outstandings under any Existing Agreement.

11. Publicity

Make any public statement or give any press briefing relating to (a) this Agreement, (b) any negotiations to implement the Restructuring Proposals or (c) any Company, in each case except to the extent already in the public domain or otherwise as required by law or by any regulatory authority having authority over it and except, for TPL, for statements or briefings relating to the electricity industry generally which could not reasonably be expected to be prejudicial to the achievement of the Restructuring.

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Part B

Overriding Permitted Actions

1. Interest, commission and fees

Subject to the terms of this Agreement, receive payments of amounts in respect of Continuing Obligations or of interest in accordance with Clause 2.4 (Interest) hereunder.

2. Continuing Obligations

Make demand or serve notice of default in respect of any Continuing Obligation when that obligation matures and is not satisfied, for the purpose of crystallising or preserving that liability.

3. Service of Termination Notice

Serve a Termination Notice following the occurrence of a Termination Event.

4. EPL Lenders

In the case of the EPL Facility Agent or Security Trustee, take or procure the taking of such action (if any) as is necessary to ensure that EPL preserves and/or protects prudently and/or does not allow to be extinguished any of its rights against other members of the Group or third parties, Provided that reasonable prior notice has been given to the Parent where it is possible to do so without prejudicing such preservation or protection and Provided further that in no circumstances shall the EPL CTA be terminated as a result of any such action.

5. RBS LC

In the case of the EPL Facility Agent or Security Trustee, to make a demand under the RBS Letter of Credit if, on the terms of the RBS Letter of Credit, it may be called on the grounds that it has not been renewed or replaced.

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SIGNATURES

THE COMPANIES

BRITISH ENERGY plc

By:

BRITISH ENERGY GENERATION LIMITED

By:

BRITISH ENERGY GENERATION (UK) LIMITED

By:

BRITISH ENERGY POWER AND ENERGY TRADING LIMITED

By:

EGGBOROUGH POWER LIMITED

By:

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THE CREDITORS

TEESSIDE POWER LIMITED

By:

- 24 -

DEUTSCHE BANK AG, LONDON

By:

- 25 -

BRITISH NUCLEAR FUELS PLC

By:

- 26 -

BARCLAYS BANK PLC

By:

- 27 -

THE TORONTO-DOMINION BANK

By:

- 28 -

WESTDEUTSCHE LANDESBANK GIROZENTRALE

By:

- 29 -

THE ROYAL BANK OF SCOTLAND PLC

By:

- 30 -

BARCLAYS BANK PLC

as Agent for the EPL Lenders

By:

- 31 -

THE ROYAL BANK OF SCOTLAND PLC

By:

- 32 -

EX-12.1

Exhibit 12.1

CERTIFICATION

I, Mike Alexander, Chief Executive Officer of British Energy plc, certify that:

1. I have reviewed this annual report on Form 20-F of British Energy plc (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: September 30, 2004

	/s/ Mike Alexander
Name:	Mike Alexander
Title:	Chief Executive Officer

EX-12.2

Exhibit 12.2

CERTIFICATION

I, Martin Gatto, Chief Financial Officer of British Energy plc, certify that:

1. I have reviewed this annual report on Form 20-F of British Energy plc (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure control and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: September 30, 2004

	/s/ Martin Gatto
Name:	Martin Gatto
Title:	Chief Financial Officer

EX-13.1

Exhibit 13.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Annual Report on Form 20-F of British Energy plc, (the “Company”) for the annual period ended March 31, 2004 (the “Periodic Report”), I, Mike Alexander, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Mike Alexander

Mike Alexander

Chief Executive Officer

Date: September 30, 2004

EX-13.2

Exhibit 13.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the accompanying Annual Report on Form 20-F of British Energy plc, (the “Company”) for the annual period ended March 31, 2004 (the “Periodic Report”), I, Martin Gatto, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge the Periodic Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Martin Gatto

Martin Gatto

Chief Financial Officer

Date: September 30, 2004