British Energy has said it is continuing discussions which could lead to the company operating BNFL's magnox power stations.

The nuclear power generator is heavily in debt and is struggling to sort out its finances. A deal with BNFL could provide it with additional fees.

The magnox reactors are the UK's oldest atomic power plants and were left with BNFL when the rest of the nuclear generation business was privatised with the flotation of British Energy.

A contract to run the plants could last until 2010, when the reactors reach the end of their working life. A deal is unlikely to solve the company's problems but would allow a breathing space.

There has been growing speculation about how British Energy will deal with its financial problems with newspaper reports suggesting the government would pay off some of the debt or even renationalise the business.

Market distortions

In a statement to the London Stock Exchange on Tuesday, British Energy said that it was continuing its discussions with BNFL on a wide range of issues.

These included "fuel service arrangements, new nuclear build, the possible operation of magnox plant and transportation".

The company said that it was continuing to inform the government about the market environment and the effect on the business of "market distortions including climate change levy exemption and business rates".

British Energy has been arguing for a reduction in the business rates it pays on its power stations to bring them into line with its non-nuclear competitors.

The company also wants to be excluded from the climate change levy.

Wholesale changes?

Energy Minister Brian Wilson hinted on Monday that the wholesale electricity market could be changed to help British Energy.

He said that the company had been badly hit by last year's introduction of new wholesale energy trading arrangements (NETA).

This led to increased competition and lower wholesale electricity prices. Unlike other electricity generators, British Energy does not have a retail business to offset these lower prices.

Mr Wilson said the government would look at "the impact of NETA on the viability of generators".

British Energy operates eight power plants in the UK, and runs other nuclear power operations in the US.

On Tuesday morning the company's share price rose 16.5% to 68.75 pence.

On Friday it hit a low of 59p after news that it had shut a second reactor at its Dungeness power station for maintenance.