Aes Drax Energy 6K Current report

FORM 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the Quarter ended March 31, 2003

Commission File Number: 333-13094

AES DRAX ENERGY LIMITED

18 Parkshot
Richmond
Surrey TW9 2RG
England
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F X

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ________

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ________

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes

No X

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-____.

AES DRAX ENERGY LIMITED

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1	Interim Financial Information	4
Item 2	Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3	Market Risks	10

PART II	OTHER INFORMATION
Item 1	Legal and Regulatory Developments	11
Item 2	Changes in Securities and Use of Proceeds	11
Item 3	Defaults Upon Securities	11
Item 4	Submission of Matters to a Vote of Security Holders	11
Item 5	Other Information	11
Item 6	Exhibits	11

SIGNATURES		12
APPENDIX		13

PRESENTATION OF CURRENCY AND FINANCIAL INFORMATION

Amounts set forth in the financial statements included in the appendix to this report are stated in pounds sterling. In this report, references to “£”, “pounds sterling” or “Pounds” are to the currency of the United Kingdom, which we sometimes refer to as the UK. References to “US dollars”, “US$" or “$" are to the currency of the United States. In this report, “US GAAP” means US generally accepted accounting principles and “UK GAAP” means UK generally accepted accounting principles.

The financial statements for the AES Drax companies are prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP. For a discussion of these differences and a reconciliation between UK and US GAAP, see note 2 to our financial statements included in this report.

FORWARD-LOOKING STATEMENTS

Certain statements included in this report are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements speak only as of the date hereof. Forward-looking statements can be identified by the use of forward-looking terminology such as “believe,” “expects,” “may,” “intends,” “will,” “should” or “anticipates” or the negative forms of other variations of these terms of comparable terminology, or by discussions of strategy. Future results covered by the forward-looking statements may not be achieved. Forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements.

Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, we have identified some of these risks, uncertainties and other important factors in this report, and you should also review “Key Information—Risk Factors” and “Operating and Financial Review and Prospects” in our annual report on Form 20-F for the year ended December 31, 2002 filed with the Securities and Exchange Commission (the “SEC") on May 20, 2003 (the “2002 Annual Report"), which we incorporate by reference herein.

You should also consider, among others, the following important factors:

•

general economic and business conditions in the UK;

•

changes in governmental regulations affecting the Drax Power Station and the UK electric power industry generally, including changes in the New Electricity Trading Arrangements (NETA). NETA was implemented on March 27, 2001;

•

general industry trends;

•

changes to the competitive environment;

•

power prices and resource availability and pricing;

•

changes in business strategy, development plans or vendor relationships in the market for power in the UK;

•

that the principal hedging arrangement relating to power sales from the Drax Power Station has been terminated, and the Drax Power Station is currently operating as a fully-merchant plant;

•

From December 12, 2002 until May 31, 2003, AES Drax Holdings Limited and its subsidiaries operated under a standstill agreement (the“Original Standstill Agreement”) between,inter alios, AES Drax Holdings Limited and certain of its senior creditors, pending discussions on a restructuring of its indebtedness. The standstill period under the Original Standstill Agreement expired on May 31, 2003. In order to maintain stability during a

period in which further discussions regarding Restructuring Principles for a consensual restructuring will take place, AES Drax Holdings Limited has entered into a new standstill agreement (the “Further Standstill Agreement"), the terms of which are substantially the same as the Original Standstill Agreement. The Further Standstill Agreement will expire on June 30, 2003. The outcome of the restructuring discussions cannot be predicted at this time, but the Restructuring Principles do not provide for any recovery by holders of the notes. The arrangements put in place under the Original Standstill Agreement and the Further Standstill Agreement are referred to herein as theStandstill Arrangements.Neither we nor any noteholders were a party to the Original StandstillAgreement nor are we or any noteholders a party to the Further Standstill Agreement, and we are not party to the discussions regarding the Restructuring Principles;

•

On May 16, 2003, we received an acceleration notice from the global depositary on behalf of owners of beneficial interests in the notes, declaring the notes to be immediately due and payable. The rights of holders of the notes to enforce any remedy under the indenture governing the notes ("Indenture"), is subject to the terms of the Drax Energy Intercreditor Deed. On May 28, 2002, the trustee for the notes delivered an enforcement notice to the security trustee under the Drax Energy Intercreditor Deed. Under the terms of the Drax Energy Intercreditor Deed, noteholders cannot exercise any enforcement rights until 90 days following the delivery of such notice;

•

availability, terms and deployment of capital;

•

interest rate volatility;

•

changes in currency exchange rates, inflation rates and conditions in financial markets; and

•

availability of qualified personnel.

These forward-looking statements speak only as of the date of this report. We do not intend to publicly update or revise these forward-looking statements to reflect events or circumstances after the date of this report, and we do not assume any responsibility to do so.

MARKET DATA AND INDUSTRY TERMS

In this report, we rely on, and refer to, information and statistics regarding economic conditions and trends, the market for electric power and our market share in the sectors of that market in which we compete. We obtained this information and statistics from various third-party sources and/or our own internal estimates. We believe that these sources and estimates are reliable, but we have not independently verified them and cannot guarantee their accuracy or completeness.

The Drax Power Station’s business is the generation and sale of electricity. Until November 2002, when the hedging contract between AES Drax Power Limited and TXU Europe Energy Trading Limited ("TXU Europe") (the “Hedging Contract”) was terminated, generated electricity was sold under a two-part pricing method, representing the two main products, capacity and energy. Under the current market structure, all generated electricity is sold as electrical energy, produced by the Drax Power Station’s electricity generating facilities. Energy refers to the sale of actual electricity produced by a power station and capacity refers to the generating capability of a particular plant. Electrical energy is expressed as kilowatt hours ("KWh"), megawatt hours ("MWh"), gigawatts hours ("GWh") or terawatts hours ("TWh") of electricity produced or consumed over a period of time. One KW = 1,000 watts, one MW = 1,000KW, one GW = 1,000MW and one TW = 1,000GW. The sale of electrical capacity is expressed as kilowatts ("KW"), megawatts ("MW"), gigawatts ("GW") or terawatts ("TW") of electricity available for use at any point in time.

PART I

FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL INFORMATION

The appendix to this quarterly report contains the unaudited condensed financial statements of the following companies:

			Page
A	AES DRAX ENERGY LIMITED

		Report and Financial Statements for the quarter ended 31 March 2003	A1 - 6

B	AES DRAX POWER FINANCE HOLDINGS LIMITED

		Report and Financial Statements for the quarter ended 31 March 2003	B1 - 6

ITEM 2. DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

AES Drax Energy Limited is a holding company with no material operations. We were formed on February 28, 2000 in connection with the refinancing of bridge loans made to help finance the costs of the acquisition (the “Acquisition") of the Drax Power Station from National Power plc (now called Innogy plc)in order to issue the 11.25% Senior Secured Notes due 2010 and the 11.5% Senior Secured Notes due 2010, which we refer to as thenotes. Our only asset is the indirect ownership of all of the outstanding capital stock of AES Drax Power Limited, the owner of the Drax Power Station. We are entirely dependent on the receipt of distributions from our direct and indirect subsidiaries to meet our obligations under the notes. AES Drax Energy is a wholly owned indirect subsidiary of The AES Corporation. The AES Corporation files quarterly and annual reports with the SEC under the Securities and Exchange Act of 1934 (the “1934 Act"), which are publicly available. We recently filed our 2002 Annual Report under the 1934 Act with the SEC, which is also publicly available. We sometimes refer to the group of companies which own the Drax Power Station, being AES Drax Acquisition Limited and its subsidiaries, asAES Drax.

Significant Developments During the Three Months Ended March 31, 2003 and Recent Developments

AES Drax operated under Standstill Arrangements with certain of their senior creditors from December 12, 2002 to May 31, 2003. AES Drax Holdings Limited is in discussions with certain of its senior creditors about the terms for a restructuring as described in its report on Form 6-K filed with the SEC on May 30, 2003. Although the full terms of a consensual restructuring remain to be agreed, an agreement in principle has been reached regarding the terms of a further standstill agreement (the “Further Standstill Agreement") and, based on negotiations to date, an agreement on Restructuring Principles has been reached with AES Drax Holdings Limited’s senior creditors committee which will form the basis for further discussions during the new standstill period.The Restructuring Principles do not provide for any recovery by holders of the notes.

Neither we, nor any noteholders were a party to the Original Standstill Agreement nor will we, or any noteholders be a party to the Further Standstill Agreement, and we are not party to the discussions regarding the Restructuring Principles.

As a result of a failure to achieve certain forward-looking debt service cover ratios, as well as the Standstill Arrangements entered into by AES Drax Holdings with the senior creditors, our subsidiaries were not permitted to make any direct or indirect distributions to us on December 31, 2002, to enable us to make required payments to the noteholders at the end of February 2003. Moreover, there were insufficient funds in the notes’ debt service reserve accounts to cover such payments. As of February 2003, the notes’ debt service reserve accounts were funded at $22,142.02 and £40,643.91, resulting in a significant shortfall and, we did not make the full interest payments due on the notes on February 28, 2003. Such payment failure constituted an event of default under the notes subject to a 15-day grace period, although pursuant to intercreditor arrangements governed by the Drax Energy Intercreditor Deed the noteholders cannot exercise any enforcements rights until 90 days following delivery of certain required notices under the intercreditor arrangements. On May 16, 2003, we received an acceleration notice from the global depositary on behalf of owners of beneficial interests in the notes, declaring the notes to be immediately due and payable. On May 28, 2003, the trustee for the notes delivered an enforcement notice to the security trustee under the Drax Energy Intercreditor Deed.

For a discussion of significant events in 2002 and recent developments since the beginning of 2003, we refer you to “Information on the Company—Significant Developments During 2002 and Recent Developments” in our 2002 Annual Report, which we incorporate by reference herein.

General

The following discussion contains forward-looking statements regarding AES Drax and its operations. These statements are based on the current plans and expectations of AES Drax and involve risks and uncertainties that could cause actual future activities and results of operations to be materially different from those set forth in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in “Key Information—Risk Factors” in our 2002 Annual Report.

The economics of any electric power facility are primarily a function of the price of electricity, the quantity of electricity which is produced and sold and the level of operating expenses incurred. Generally, the greater the percentage of time a unit is operating, the greater the revenues associated with that unit.

The market for wholesale electric energy and energy services has now been largely deregulated as a result of implementation of NETA compared with the prior Pool arrangements. In a competitive market where operation is based on bids made by owners of generating assets in the region, AES Drax expects that owners of lower marginal cost facilities will bid lower prices, and therefore these facilities will be in operation more often than higher marginal cost facilities.

The Drax Power Station is capable of operating at high availability due to the high quality of its design and construction under the direction of the CEGB. As we have moved back into baseload operation through the first quarter of 2003, both the plant availability and forced outage rates have improved. For the three months ended March 31, 2003, the Drax Power Station’s weighted average (based on capacity) equivalent availability factor was 91.10% and its forced outage rate was 2.2%, compared to 88.70% and 11.26%, respectively, for the three months ended March 31, 2002.

Results of Operations

AES Drax’s results of operations depend on revenues from the sale of electric energy, capacity and other related products, its ability to successfully operate under NETA, its trading strategy and on the level of its operating expenses.

The Hedging Contract historically accounted for a significant portion of the revenues generated by AES Drax, including during the three months ended March 31, 2002. As a result of the termination of the Hedging Contract on November 18, 2002, the Drax Power Station began operating as a fully merchant plant as of November 19, 2002.

Selected Consolidated Profit and Loss Data in accordance with UK GAAP:

	Three months ended March 31, 2003		Three months ended March 31, 2002
	(in £ 000’s)
Revenues	136,387		145,844
Gross Profit	59,166		84,379
Administrative expenses	(43,015	)	(46,811	)
Operating profit	16,151		37,568
Interest receivable and similar income	4,165		6,100
Interest payable and similar charges	(53,727	)	(52,186	)
Loss on ordinary activities before taxation	(33,411	)	(8,518	)
Loss on ordinary activities after taxation	(34,573	)	(14,513	)

Operating Results for the three month periods ended March 31, 2003 and 2002

Revenues for the quarter ended March 31, 2003 totalled £136.4 million (2002: £145.8 million). The 6.4% decrease in revenues for the first quarter of 2003, compared to the same period in 2002, is due principally to the loss of the capacity payment payable by TXU Europe under the Hedging Contract, which was terminated on November 18, 2002, and an overall decline in capture price from an average of £28.11/MWh during the first quarter of 2002 to £19.66/MWh during the first quarter of 2003. Sales in the first quarter of 2003 totalled 6,939.0 GWh (2002: 5,188.2 GWh). The increase in volume was due to the increase in AES Drax’s merchant sales, which have had to compensate for the loss of the Hedging Contract, as the plant now operates on a fully merchant basis.

The following graph shows the trend in Annual Baseload Contracts for the year ended December 31, 2002 (such contracts are where electricity is supplied 24 hours per day, 7 days per week). The chart indicates that for 2002 baseload prices fell from around £18.45/MWh in December 2001 to £16.92/MWh by December 31, 2002. The following graph also shows the trend in baseload prices since January 1, 2003.

During the first quarter of 2003, prices increased sharply through January when AES Drax successfully hedged some of its output. AES Drax believes that this price peak was caused by uncertainty in the market place following the administration of the TXU group and the issues faced by British Energy at that time.

Cost of sales for the quarter ended March 31, 2003, which are primarily fuel costs, were £77.2 million, compared to £61.5 million for the quarter ended March 31, 2002. The increase in fuel burnt for the first quarter of 2003, compared to the same period in 2002, is due to the increase in generation from 5,656.3 GWh during the first quarter of 2002 to 7,229.4 GWh during the first quarter of 2003, as the plant has operated on a fully merchant basis and has increased the volume of sales in the first quarter of 2003. The impact of this increase is also reflected in AES Drax’s load factor, which has increased from 66.4% for the quarter ended March 31, 2002 to 85.1% for the quarter ended March 31, 2003.

The cost of fuel remained in line with expectations due to the transition to supply contracts with all AES Drax’s major coal suppliers.

Gross profit (revenues less cost of goods sold) was £59.2 million (2002: £84.4 million) for the quarter ended March 31, 2003. This gives a gross margin of approximately 43.4% (2002: 57.9%) for the first quarter of 2003. The downturn in the gross margin during the first quarter of 2003 compared to the same period in 2002, is mainly attributable to the termination of the Hedging Contract and the transition to a fully merchant plant, which has affected gross margin as follows:

•

AES Drax’s average selling price (total revenues divided by total volume of electricity sold) decreased by 30.1% for the first quarter of 2003, compared to the same period in 2002. This takes into account the overall reduction in UK market prices to which AES Drax is now exposed.

•

AES Drax’s fuel costs increased by 25.6% in the first quarter of 2003, which reflects the increased generation levels.

Administrative expenses for the quarter ended March 31, 2003 were £43.0 million (2002: £46.8 million). These expenses consist primarily of fixed operations, maintenance and other variable costs. The expenditure was broadly in line with our expectations. The decreased level of expenditure in the first quarter of 2003 was due to the following:

•

For the first quarter of 2003, the “Balancing System Use of System” charges, or BSUoS, which cover the NGC costs of balancing the system under NETA, totalled £0.8m of additional costs over the first quarter of 2002, due to increased generation and system usage in the first quarter of 2003 over the same period in 2002.

•

The decrease in AES Drax’s insurance premiums following renewal in November 2002, when AES Drax’s premiums decreased from approximately £10.9 million per annum to £6.0 million per annum. This decrease in the premiums payable during the first quarter of 2003 was due in part to the fact that the insurance cover that AES Drax has entered into on renewal for the year to November 26, 2003 is for material damage only, with a £5 million each and every event deductible and $1 billion (£600 million) maximum loss cover, and does not include business interruption insurance. This reduced AES Drax’s insurance expense for the quarter ended March 31, 2003 by approximately £0.5 million compared to the same period in 2002.

AES Drax’s insurance premiums had significantly increased in 2002 due to:

•

The impact of September 11^th on the insurance market as a whole.

•

The withdrawal of certain insurers from the power sector.

•

Insufficient capacity available in the insurance market at the time of renewal in November 2001.

•

AES Drax’s claims history during the first year of such policy.

•

The ongoing increased level of professional and legal fees incurred in the first quarter of 2003 associated with ongoing discussions with AES Drax Holdings Limited’s senior creditors. Such fees added £3.6 million for the quarter ended March 31, 2003 compared to the same period in 2002.

•

The decrease in amortisation expense for the first quarter 2003 following the impairment of fixed assets at year-end 2002. Such charges for the first quarter of 2002 totalled £8.7 million of amortisation of goodwill compared to £Nil for the first quarter of 2003.

•

The effects of foreign exchange rate movements on foreign currency balances, mainly intercompany balances denominated in dollars. The results for the quarter ended March 31, 2003 include a foreign exchange loss of £1.1 million, whereas the quarter ended March 31, 2002 includes a foreign exchange gain of £0.02 million. Foreign exchange losses for the quarter ended March 31, 2003 are principally attributable to the appreciation of the dollar relative to the pound sterling during the first quarter of 2003 compared to the depreciation of the dollar relative to the pound sterling during the first quarter of 2002.

•

Other reductions and savings in administrative expenses generated a further reduction of £0.1 million against 2002.

Operating profit from continuing operations was £16.2 million (2002: £37.6 million) for the quarter ended March 31, 2003.

Interest payable and similar charges were £53.7 million for the first quarter of 2003, compared to £52.2 million for the first quarter in 2002, representing an increase of approximately 3.0%. The interest expense comprises three major components:

(i)

Fixed coupons on the £1,725 million AES Drax Holdings Limited’s Eurobonds due 2015 which provide for semi-annual coupon payments at a rate of 8.86% per annum and are used by InPower Limited to make payments under the Bank Facility. As of March 31, 2003, the aggregate principal amount outstanding under the Bank Facility was £842.6 million.

(ii)

AES Drax Holdings Limited’s Senior Bonds, which have an aggregate principal amount (sterling equivalent) outstanding of approximately £400 million at March 31, 2003, of which half approximately accrues interest at 10.41% and the other half at 9.07%.

(iii)

Our notes, which have an aggregate principal amount outstanding of £264 million at March 31, 2003, of which £135 million accrues interest at 11.25% and £129 million accrues interest at 11.5%.

The additional interest expense charged, in addition to the above, reflects the impact of the various interest rate and foreign currency swaps that AES Drax has in place, plus the costs of the letter of credit used to fund the Required Balance under the Bank Facility. The interest rate swaps, in particular, are currently increasing our interest expense as interest rates (GBP 6 month LIBOR) have continued to decline to 3.9900% as at December 31, 2002 (June 30, 2002: 4.3288%).

The level of interest expense reflects the significant borrowings made to finance the acquisition of the Drax Power Station.

Interest receivable and other income was £4.2 million for the first quarter of 2003, compared to £6.1 million for the first quarter of 2002, representing a decrease of approximately 32% over the same period in 2002. This income represents not only the interest accrued on the various bank balances held by AES Drax, but also reflects the benefits accrued from the Harich Swap.

Due to the decreased gross profit during the quarter ended March 31, 2003, we incurred a loss on ordinary activities before taxation of £33.4 million (2002: Loss of £8.5 million), on which we incurred corporation tax of £1.2 million (2002: £6.0 million). This equates to an effective tax rate of 3.5% (2002: 70.4%), even though UK corporation tax rate is currently 30%. The reason for the decreased tax charge is primarily due to the significant trading loss generated in the quarter ended March 31, 2003, compared to the profit made in the same period in 2002, and the change in the deferred tax provision for the quarter ended March 31, 2003.

Liquidity and Capital Resources

Following the termination of the Hedging Contract and the appointment of administrators for TXU Europe and TXU Europe Group on November 18 and 19, 2002, respectively, AES Drax has traded on a fully merchant basis to generate revenue. AES Drax did not receive payment for sales made to TXU Europe in October and the first half of November 2002 prior to termination and the receipt and timing of such payment, together with amounts relating to AES Drax’s claim for Capacity Damages, will now be subject to the administration process relating to TXU Europe and TXU Europe Group. In addition to adopting a fully merchant strategy since termination, AES Drax immediately following termination entered into an agreement with NGC to supply power for the first five days post-termination, which provided the benefit of advanced payments ahead of the normal Grid Trade Master Agreement settlement date (tenth business day of the following month). AES Drax initially took steps to restrict cash outflows by consuming stocks of coal and hence reducing coal purchases, agreeing rescheduled payments with UK Coal, negotiating the deferment of payments for rates and VAT, agreeing a refund of on-account corporation tax payments and generally instituting rigorous creditor payment approval processes.

AES Drax’s ability to enter into any new medium electricity trading term contracts is dependent on the availability of additional credit support. Under the terms of AES Drax’s Standstill Arrangements, AES Drax has utilized £30 million of funds under the Group Account Agreement to create a new account called the Collateral Financing Account. This account has been used to provide the cash collateral required by one of the Senior Lenders, National Westminster Bank, to issue letters of credit necessary to provide the credit support required by both AES Drax’s trading counterparties and Elexon who administer NETA.

At present, AES Drax has entered into firm sales for approximately 55% of AES Drax’s available capacity for the period from April 15, 2003 to September 30, 2003. AES Drax is hoping to achieve a load factor of approximately 50% through the third quarter of 2003 and an average of approximately 75% for the whole of 2003. AES Drax’s firm sales for Summer 2003 should provide an average capture price of between £15 and £16 per MWh.

As part of the Standstill Arrangements, the Group Account Agreement was amended to create two new bank accounts:

•

Collateral Financing Account –this account contained the £30 million of funds intended to provide collateral for credit support and to meet any working capital requirements. Approximately £26.9 million as at May 31, 2003 has been transferred into the Cash Cover Account, to provide collateral for the letters of credit issued to AES Drax’s trading counterparties for credit support.

In addition, there is a further requirement within the revised Group Account Agreement whereby, any excess cash above a minimum balance of £25 million for any continuous period of 30 days is swept from the Proceeds Account into the Collateral Financing Account. At May 31, 2003 approximately £31.4 million has been transferred into the Collateral Financing Account. Therefore, the balance on the Collateral Financing Account as at May 31, 2003 was approximately £34.8 million.

•	Cash Cover Account –this account holds the funds which provide cash collateral for the issuance of letters of credit by the National Westminster Bank.

Under the Group Account Agreement, there are other key accounts that contain the cash utilised for the operation of the business, or held for the purposes of debt service. As at May 31, 2003 the balances on the following accounts were:

•

Senior Debt Service Reserve Account

£45.5 million

•

Insurance Reserve Account

£0.02 million

The £15 million of funds previously held in this account were transferred to the Collateral Financing Account, under the revised Group Account Agreement.

•

Proceeds Account

£23 million

AES Drax expects to incur approximately £6.8 million in capital expenditures in the year 2003. Future capital commitments shall be met from the working capital of AES Drax. In addition to capital requirements associated with the ownership and operation of the Drax Power Station, AES Drax will have significant fixed charge obligations in the future, principally relating to the fixed operating expenses incurred in connection with operating the station.

Directors, Senior Management and Employees

For information regarding our directors, senior management and employees, we refer you to “Directors, Senior Management and Employees” in our 2002 Annual Report, which we incorporate by reference herein.

ITEM 3. MARKET RISKS

AES Drax is exposed to market risks associated with interest rates, foreign exchange rates and commodity prices. AES Drax utilizes financial instrument contracts to hedge against such fluctuations. AES Drax utilizes financial and commodity derivatives solely for the purpose of hedging exposures to market risk. AES Drax does not enter into derivative instruments for speculative purposes.

AES Drax believes that there have been no material changes in exposure to market risks during the first quarter of 2003 compared with the exposure set forth in “Quantitative and Qualitative Disclosure about Market Risk” in our 2002 Annual Report.

PART II

OTHER INFORMATION

ITEM 1. LEGAL AND REGULATORY DEVELOPMENTS

AES Drax Energy Limited is not party to any legal proceedings other than in the ordinary course of business, the ultimate resolution of which is not expected to have a material adverse effect on the financial position or profitability of AES Drax Energy Limited or the other AES Drax companies.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SECURITIES

There are currently defaults and events of default on the notes, including the default in payment in full of interest due on the notes on February 28, 2003, which has become an event of default under the Indenture. On May 16, 2003, we received an acceleration notice from the global depositary on behalf of owners of beneficial interests in the notes, declaring the notes to be immediately due and payable. The rights of holders of the notes to enforce any remedy under the Indenture, is subject to the terms of the Energy Intercreditor Deed. On May 28, 2003, the trustee for the notes delivered an enforcement notice to the security trustee under the Energy Intercreditor Deed. Under the terms of the Drax Energy Intercreditor Deed noteholders cannot exercise any enforcement rights until 90 days following the delivery of such notice.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

None.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorised.

AES DRAX ENERGY LIMITED

Date: June 6, 2003

By:

/s/ Garry Levesley

Garry Levesley
Director

Date: June 6, 2003

By:

/s/ John Turner

John Turner
Director

APPENDIX

AES DRAX ENERGY LIMITED

Financial Statements

31 March 2003

AES DRAX ENERGY LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT
Three months ended 31 March 2003

	Three month period ended 31 March 2003 £’000		Three month period ended 31 March 2002 £’000

TURNOVER - continuing operations	136,387		145,844

Cost of sales	(77,221	)	(61,465	)

GROSS PROFIT	59,166		84,379

Administrative expenses	(43,015	)	(46,811	)

OPERATING PROFIT - continuing operations	16,151		37,568

Interest receivable and other income	4,165		6,100

Interest payable and similar charges	(53,727	)	(52,186	)

LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION	(33,411	)	(8,518	)

Tax on loss on ordinary activities	(1,162	)	(5,995	)

RETAINED LOSS FOR THE FINANCIAL PERIOD TRANSFERRED FROM RESERVES	(34,573	)	(14,513	)

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

There are no recognised gains and losses for the current or preceding financial period other than as stated in the profit and loss account. Therefore, no statement of total recognised gains and losses has been presented.

A-1

AES DRAX ENERGY LIMITED

CONSOLIDATED BALANCE SHEET
31 March 2003

	31 March 2003 £’000		31 December 2002 £’000
FIXED ASSETS
Tangible assets	1,076,730		1,083,118

CURRENT ASSETS
Stocks	28,485		31,327
Debtors	846,283		880,335
Cash at bank and in hand	151,015		85,081

	1,025,783		996,743

CREDITORS: amounts falling due within one year	(193,192	)	(138,997	)

NET CURRENT ASSETS	832,591		857,746

TOTAL ASSETS LESS CURRENT LIABILITIES	1,909,321		1,940,864

CREDITORS: amounts falling due after more than one year	(2,389,510	)	(2,387,642	)

PROVISIONS FOR LIABILITIES AND CHARGES	(18,040	)	(16,878	)

NET LIABILITIES	(498,229	)	(463,656	)

CAPITAL AND RESERVES
Called up share capital	172,000		172,000
Profit and loss account	(670,229	)	(635,656	)

TOTAL EQUITY SHAREHOLDERS’ DEFICIT	(498,229	)	(463,656	)

A-2

AES DRAX ENERGY LIMITED

CONSOLIDATED CASH FLOW STATEMENT
Three months ended 31 March 2003

	Three month period ended 31 March 2003 £’000		Three month period ended 31 March 2002 £’000

Net cash inflow from operating activities	63,755		114,235

Returns on investments and servicing of finance
Interest received	4,101		6,420
Interest paid	(112	)	(20,462	)

Net cash inflow / (outflow) from returns on investments and servicing of finance	3,989		(14,042	)


Taxation	102		–

Capital expenditure
Payments to acquire tangible fixed assets	(1,912	)	(1,760	)

Cash inflow before use of liquid resources and financing	65,934		98,433

Management of liquid resources
(Increase) / decrease in restricted cash deposits	(428	)	8,469

Increase in cash in the period	65,506		106,902

A-3

AES DRAX ENERGY LIMITED

NOTES TO THE ACCOUNTS
Three months ended 31 March 2003

1.	BASIS OF PRESENTATION

The consolidated financial statements include the accounts of AES Drax Energy Limited, its subsidiaries and controlled affiliates (the “Company”). Intercompany transactions and balances have been eliminated. Investments, in which the Company has the ability to exercise significant influence but not control, are accounted for using the equity method.

In the Company’s opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the three months ended March 31, 2003 and 2002, respectively, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended March 31, 2003 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying financial statements are unaudited and should be read in conjunction with the financial statements, which are incorporated herein by reference to the Company’s Annual Report on Form 20-F for the year ended December 31, 2002.

Following the termination of the Hedging Contract with TXU and the appointment of joint administrators for TXU Energy and TXU Europe on November 18 and 19, 2002, respectively, the company entered discussions with its senior lenders in order to address the potential defaults under the senior financing documents arising from the TXU situation.

In addition, certain of the forward looking debt service cover ratios at June 30, 2002, were below the threshold required to permit distributions. As a result, AES Drax Power was not permitted to make distributions to AES Drax Energy to permit interest due on the high yield notes to be paid on August 30, 2002. The AES Corporation, however, made a contribution to AES Drax Energy which together with amounts then held in the high yield note debt service reserve account was sufficient to make the payments then due. At the time the AES Corporation stated that there were no assurances that it would agree to make any similar payments in the future. Any improvement in the forward looking ratios were dependent on a favourable change in the forward curve for electricity prices during the period from June 30 to December 31, 2002. Such improvements did not occur and the ratios were below 1.19:1 at December 31, 2002.

Moreover, there were insufficient funds remaining in the high yield note debt service reserve account to cover such payments. AES Drax Energy was unable to pay the interest due on the notes on time at the end of February 2003. Such failure constitutes an event of default under the notes, although any enforcement rights are subject to a 90-day grace period as well as the terms and conditions of certain intercreditor arrangements.

On December 12, 2002, AES Drax signed an agreement regarding certain standstill arrangements with the steering committee representing the bank lenders and an ad hoc committee formed by holders of the senior bonds. The purpose of the standstill is to provide AES Drax and the senior creditors with a period of stability during which discussions regarding consensual restructuring of AES Drax can take place. The standstill period expired on May 31, 2003. The bank lenders and the senior bondholders have agreed to waive certain events of default under the Eurobonds or the senior bonds, as applicable, not to accelerate payment of the obligations and would not seek to enforce security during the standstill period.

AES Drax has been operating under standstill arrangements with certain of its senior creditors since December 12, 2002. Although the standstill period under the original standstill agreement terminated on May 31, 2003, AES Drax has reached an agreement in principle with the steering committee representing the syndicate of banks which financed our Eurobonds and the ad hoc committee formed by holders of the bonds regarding the terms of a further standstill agreement which, if agreed, would expire on June 30, 2003, unless terminated earlier or extended in accordance with its terms. No assurance can be given that a further standstill agreement will be achieved.

Under the Standstill Agreement, AES Drax’s bank lenders and senior bondholders have agreed to certain amendments and waivers to their respective financing documents which permits AES Drax to have access to at least £30,000,000 of funds currently unavailable under the financing documentation. These funds, subject to certain consent rights of the steering committee of the bank lenders and the ad hoc committee of senior bondholders, are available to provide credit support to electricity counterparties and suppliers and for working capital needs.

Failure to effect a satisfactory restructuring of AES Drax could lead to an event of default under the senior financing documents and the withdrawal of support by the Company’s lenders.

A-4

AES DRAX ENERGY LIMITED

NOTES TO THE ACCOUNTS
Three months ended 31 March 2003

1.	BASIS OF PRESENTATION (continued)

The Directors believe that the standstill agreement will facilitate an agreed restructuring of AES Drax. On this basis, the Directors consider it appropriate to prepare the financial statements on the going concern basis. The financial statements do not include any adjustments that would result from a withdrawal of support by the Company’s lenders.

2.	SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP

This note is provided in addition to the previous financial information for US users of the accounts.

The financial statements are prepared in accordance with UK GAAP, which differ in certain significant respects from US GAAP. These differences relate principally to the following items and the approximate effect on net income and shareholders’ equity is shown in the following table.

Deferred taxation

Under UK GAAP, deferred taxation is provided at the anticipated tax rates on timing differences arising from the inclusion of items of income and expenditure in taxation computations in periods different from those in which they are included in the financial statements, to the extent that it is probable that an asset or a liability will crystallise in the foreseeable future, in accordance with FRS 19. Under US GAAP, deferred taxation is provided on all temporary differences under the liability method, subject to a valuation allowance where applicable in respect of deferred taxation assets, in accordance with SFAS 109,Accounting for Income Taxes.

Additional net deferred tax liabilities recorded at the acquisition date under US GAAP resulted in an increase in the amount allocated to tangible fixed assets resulting in additional depreciation expense.

Pensions

The directors do not believe the adoption of FAS 87 costs would differ materially from the pension costs under UK GAAP. Under US GAAP, FAS 87 requires the recording of an additional minimum pension obligation under certain circumstances. No such obligation is required under UK GAAP.

Interest

Under UK GAAP, interest is charged on the £1,725 million Guaranteed Secured Bonds. Under US GAAP, £425 million forward purchase of equity is offset against the £1,725 million Guaranteed Secured bond. Therefore, interest under US GAAP is charged on the net £1,300 million.

The £1,300 million represents a senior secured bank facility. Repayment of the bank facility is secured by a security interest in the £1,725 million Guaranteed Secured Bonds. Enforcement of the bank facility will give the bank lenders the right to enforce the security package granted under the Guaranteed Secured Bonds. Interest on the bank facility accrues at LIBOR + 1.8%. Principal repayments are due semi-annually over a fifteen year period commencing 30 June 2000. Principal repayments of £25.0 million, £370.0 million, £2.7 million, £9.1 million, £22.6 million and £28.1 million were made on 30 June 2000, 2 August 2000, 31 December 2000, 30 June 2001, 31 December 2001 and 30 June 2002, respectively.

Goodwill

Under UK GAAP, goodwill arising on the acquisition of subsidiaries represents the excess of the fair value of the consideration given over the fair value of the identifiable net assets acquired. Goodwill is capitalised and amortised over twenty years. Under US GAAP, the acquisition has been treated as an acquisition of assets and accordingly the entire purchase price, including certain liabilities assumed, has been allocated to tangible fixed assets and depreciated over the estimated useful lives of the assets, being thirty five years. Under UK GAAP, the Company has recorded an impairment loss measured by reference to the value in use of the assets. Under US GAAP, an impairment loss on the tangible fixed assets is recorded only if the assets are not recoverable from their undiscounted cash flows. No impairment has been recognised under US GAAP.

Derivative Instruments and Hedging Activities

In order to comply with US GAAP, adjustments are required to be made in relation to SFAS 133,Accounting for Derivative Instruments and Hedging Activities. This results in the creation of derivative assets and liabilities, together with corresponding gains and losses on all derivative instruments and hedges.

A-5

AES DRAX ENERGY LIMITED

NOTES TO THE ACCOUNTS
Three months ended 31 March 2003

2.	SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP (continued)

	Three month period ended 31 March 2003 £’000		Three month period ended 31 March 2002 £’000		Year ended 31 December 2002 £’000

Net loss under UK GAAP	(34,573	)	(14,513	)	(771,452	)
US GAAP adjustments:
Goodwill	–		8,469		33,876
Additional depreciation	(4,837	)	(4,837	)	(19,350	)
Deferred tax	5,093		13,637		22,952
Additional depreciation due to deferred tax	(5,082	)	(5,082	)	(20,326	)
Interest	13,794		11,641		48,370
Derivative gain / (loss)	6,728		10,329		(354	)
Impairment of fixed assets	–		–		579,000

Net (loss) / income under US GAAP	(18,877	)	19,644		(127,284	)


Shareholders’ (deficit) / equity under UK GAAP	(498,229	)	104,283		(463,656	)
US GAAP adjustments:
Cumulative effect of previous adjustments	715,531		72,332		72,332
Goodwill	–		8,469		33,876
Additional depreciation	(4,837	)	(4,837	)	(19,350	)
Deferred tax	5,093		13,637		22,952
Additional depreciation due to deferred tax	(5,082	)	(5,082	)	(20,326	)
Interest	13,794		11,641		48,371
Derivatives	(14,868	)	(38,324	)	(1,324	)
Impairment of fixed assets	–		–		579,000

Shareholders’ equity under US GAAP	211,402		162,119		251,875

A-6

AES DRAX POWER FINANCE HOLDINGS LIMITED

Financial Statements

31 March 2003

AES DRAX POWER FINANCE HOLDINGS LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT
Three months ended 31 March 2003

	Three month period ended 31 March 2003 £’000		Three month period ended 31 March 2002 £’000

TURNOVER - continuing operations	136,387		145,844

Cost of sales	(77,221	)	(61,465	)

GROSS PROFIT	59,166		84,379

Administrative expenses	(43,015	)	(46,811	)

OPERATING PROFIT - continuing operations	16,151		37,568

Interest receivable and other income	4,165		6,100

Interest payable and similar charges	(53,727	)	(52,186	)

LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION	(33,411	)	(8,518	)

Tax on loss on ordinary activities	(1,162	)	(5,995	)

RETAINED LOSS FOR THE FINANCIAL PERIOD TRANSFERRED FROM RESERVES	(34,573	)	(14,513	)

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES

B-1

AES DRAX POWER FINANCE HOLDINGS LIMITED

CONSOLIDATED BALANCE SHEET
31 March 2003

	31 March 2003 £’000		31 December 2002 £’000
FIXED ASSETS
Tangible assets	1,076,730		1,083,118

CURRENT ASSETS
Stocks	28,485		31,327
Debtors	845,880		879,932
Cash at bank and in hand	151,021		85,087

	1,025,386		996,346

CREDITORS: amounts falling due within one year	(193,186	)	(138,991	)

NET CURRENT ASSETS	832,200		857,355

TOTAL ASSETS LESS CURRENT LIABILITIES	1,908,930		1,940,473

CREDITORS: amounts falling due after more than one year	(2,560,510	)	(2,558,642	)

PROVISIONS FOR LIABILITIES AND CHARGES	(18,040	)	(16,878	)

NET LIABILITIES	(669,620	)	(635,047	)

CAPITAL AND RESERVES
Called up share capital	1,000		1,000
Profit and loss account	(670,620	)	(636,047	)

TOTAL EQUITY SHAREHOLDERS’ DEFICIT	(669,620	)	(635,047	)

B-2

AES DRAX POWER FINANCE HOLDINGS LIMITED

CONSOLIDATED CASH FLOW STATEMENT
Three months ended 31 March 2003

	Three month period ended 31 March 2003 £’000		Three month period ended 31 March 2002 £’000

Net cash inflow from operating activities	63,755		114,235

Returns on investments and servicing of finance
Interest received	4,101		6,420
Interest paid	(112	)	(20,462	)

Net cash inflow / (outflow) from returns on investments and servicing of finance	3,989		(14,042	)


Taxation	102		–

Capital expenditure
Payments to acquire tangible fixed assets	(1,912	)	(1,760	)

Cash inflow before use of liquid resources and financing	65,934		98,433

Management of liquid resources
(Increase) / decrease in restricted cash deposits	(428	)	8,469

Increase in cash in the period	65,506		106,902

B-3

AES DRAX POWER FINANCE HOLDINGS LIMITED

NOTES TO THE ACCOUNTS
Three months ended 31 March 2003

1.	BASIS OF PRESENTATION

The consolidated financial statements include the accounts of AES Drax Power Finance Holdings Limited, its subsidiaries and controlled affiliates (the “Company”). Intercompany transactions and balances have been eliminated. Investments, in which the Company has the ability to exercise significant influence but not control, are accounted for using the equity method.

In the Company’s opinion, all adjustments necessary for a fair presentation of the unaudited results of operations for the three months ended March 31, 2003 and 2002, respectively, are included. All such adjustments are accruals of a normal and recurring nature. The results of operations for the period ended March 31, 2003 are not necessarily indicative of the results of operations to be expected for the full year. The accompanying financial statements are unaudited and should be read in conjunction with the financial statements, which are incorporated herein by reference to AES Drax Energy Limited’s Annual Report on Form 20-F for the year ended December 31, 2002.

Failure to effect a satisfactory restructuring of AES Drax could lead to an event of default under the senior financing documents and the withdrawal of support by the Company’s lenders.

B-4

AES DRAX POWER FINANCE HOLDINGS LIMITED

NOTES TO THE ACCOUNTS
Three months ended 31 March 2003

1.	BASIS OF PRESENTATION (continued)

2.	SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP

This note is provided in addition to the previous financial information for US users of the accounts.

Deferred taxation

Pensions

Interest

Goodwill

Derivative Instruments and Hedging Activities

In order to comply with US GAAP, adjustments are required to be made in relation to SFAS 133,Accounting for DerivativeInstruments and Hedging Activities. This results in the creation of derivative assets and liabilities, together with corresponding gains and losses on all derivative instruments and hedges.

B-5

AES DRAX POWER FINANCE HOLDINGS LIMITED

NOTES TO THE ACCOUNTS
Three months ended 31 March 2003

2.	SUMMARY OF DIFFERENCES BETWEEN UK AND US GAAP (continued)

	Three month period ended 31 March 2003 £’000		Three month period ended 31 March 2002 £’000		Year ended 31 December 2002 £’000

Net loss under UK GAAP	(34,573	)	(14,513	)	(771,452	)
US GAAP adjustments:
Goodwill	–		8,469		33,876
Additional depreciation	(4,837	)	(4,837	)	(19,350	)
Deferred tax	5,093		13,637		22,952
Additional depreciation due to deferred tax	(5,082	)	(5,082	)	(20,326	)
Interest	13,794		11,641		48,371
Derivative gain / (loss)	6,728		10,329		(354	)
Impairment of fixed assets	–		–		579,000

Net (loss) / income under US GAAP	(18,877	)	19,644		(127,283	)


Shareholders’ deficit under UK GAAP	(669,620	)	(67,108	)	(635,047	)
US GAAP adjustments:
Cumulative effect of previous adjustments	715,531		72,332		72,332
Goodwill	–		8,469		33,876
Additional depreciation	(4,837	)	(4,837	)	(19,350	)
Deferred tax	5,093		13,637		22,952
Additional depreciation due to deferred tax	(5,082	)	(5,082	)	(20,326	)
Interest	13,794		11,641		48,371
Derivatives	(14,868	)	(38,324	)	(1,324	)
Impairment of fixed assets	–		–		579,000

Shareholders’ equity / (deficit) under US GAAP	40,011		(9,272	)	80,484

B-6

Aes Drax Energy Inactive 6-KCurrent report (foreign)