NATIONAL AUDIT OFFICE

REPORT BY THE COMPTROLLER AND AUDITOR GENERAL

The Cost of Decommissioning Nuclear Facilities

ORDERED BY THE HOUSE OF COMMONS TO BE PRINTED 27 MAY 1993

LONDON : HMSO 692 f7.40 NET

THE COST OF DECOMMlSSIONING NUCLEAR FACILITIES

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act.

John Bourn Comptroller and Auditor General

National Audit Office 21 May 1993

The Comptroller and Auditor General is the head of the National Audit Office employing some 800 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

THE COST OF DECOMMISSIONING NUCLEAR FACILlTlES

Contents

Summary and conclusions

Part 1: Background and scope

Part 2: Decommissioning practice

Part 3: Decommissioning cost estimates

Part 4: Financing the nuclear decommissioning liabilities

Appendices

A. Nuclear facilities

B. Departmental monitoring arrangements and the nuclear industry’s objectives

C. Nuclear decommissioning-regulatory aspects Annex: The principal organisations involved in the

regulation of radioactive waste

D. Table showing the increase in nuclear provisions between 1981 and 1992

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7

10

13

18

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25

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32

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THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

Summary and conclusions

1 The decommissioning of nuclear facilities is the lengthy and costly process which takes a reactor, fuel processing plant or other facility from closure to a state where the site is available for unrestricted alternative use. The process involves removing the fuel and other radioactive materials, the decontamination or removal of all the structures and the disposal of the contaminated waste materials. For major facilities like nuclear reactors this is normally carried out in three stages. All nuclear facilities in Great Britain will eventually require decommissioning.

2 The main civil nuclear facilities are operated by four bodies which are wholly owned by the Government. Nuclear Electric plc, British Nuclear Fuels plc and the United Kingdom Atomic Energy Authority are sponsored by the Department of Trade and Industry (the Department] -which took over this responsibility in April 1992 following the Department’s merger with the Department of Energy. Scottish Nuclear Ltd is sponsored by the Scottish Office Industry Department. In addition there are various military facilities operated by, or on behalf of, the Ministry of Defence.

3 The only business of Nuclear Electric and Scottish Nuclear is the generation of electricity, and they operate within the electricity supply market in Great Britain. Most of Nuclear Electric’s output is sold at a premium price under the nuclear arrangements within the non-fossil fuel obligation. All of Scottish Nuclear’s output is sold according to a fixed formula under the Nuclear Energy Agreement. Nuclear Electric and Scottish Nuclear are collectively referred to throughout this report as the commercial generators. British Nuclear Fuels’ main business is the production and reprocessing of nuclear fuel, and, until recently, that of the Atomic Energy Authority has been nuclear research.

4 The Government’s policy is that it is the responsibility of the nuclear facility operators to decommission their facilities. This includes managing and disposing of the resulting radioactive wastes, taking account of the safety and environmental requirements laid down by the industry’s regulators. The operators must also secure the funds to pay for this work.

5 The Department of Trade and Industry are already paying for most of the United Kingdom Atomic Energy Authority’s decommissioning liabilities, including some at the sites of British Nuclear Fuels plc, which arose from previous work for the Government. In addition the Government, as owner of Nuclear Electric, Scottish Nuclear and British Nuclear Fuels, has accepted that it may have to meet some of their decommissioning liabilities if these operators are unable to do so. Against such an eventuality the Government has given assurances to Nuclear Electric and financial guarantees to Scottish Nuclear. In some cases the operators have contractual arrangements with their customers to fund part or all of such costs.

1

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

6 The nuclear generating industry is preparing for a review of its future, due in 1993, by addressing the efficiency of its operations. A primary objective of the Department is to ensure that the companies minimise their decommissioning and other liabilities and the extent to which the Government may be called upon to meet them. As part of this, Nuclear Electric have been set the specific objective of reducing their decommissioning costs. For Scottish Nuclear, this aim is implicit in their agreed objectives. The UK Atomic Energy Authority have the objective of ensuring that decommissioning is carried out in the most cost effective way.

7 This deport sets out the results of a National Audit Office investigation to determine the extent of the potential Government liability for nuclear decommissioning, how this is to be financed and the possible implications for the taxpayer. The National Audit Office were assisted in their work by Sir Robert McAlpine & Sons Limited (engineers), General Technology Systems Limited (energy consultants] and The Science Policy Research Unit of Sussex University (energy, waste management and general economists).

8 The National Audit Office’s main findings and conclusions are:

On decommissioning practice

(a) Two of the commercial generators’ nuclear power stations have already closed and the first stage of their decommissioning has begun. In addition, decommissioning of six of the operational nuclear power stations in England and Wales is planned to commence by the end of the decade. The generators expect the work on the others to start by about the year 2020. Nuclear Electric are currently developing proposals to continue operations at their seven Magnox power stations for up to 10 years (paragraphs 1.4, 1.8 and Appendix A).

(b) The nuclear industry is confident that complete decommissioning can be carried out safely and economically. Starting immediately following a facility’s closure, the full process could take up to 20 years. The Government has accepted the operators’ strategy of delaying the final stage of the process - the complete dismantling of structures and site clearance -for up to 100 years for gas-cooled reactors, and up to 50 years for other facilities. This offers safety benefits in terms of radioactivity levels in some instances, and an important financial

advantage. Nuclear Electric have developed proposals to delay the final stage for gas-cooled reactors for 135 years after the end of a facility’s operating life (paragraphs 2.8 to 2.14).

On the estimated cost of nuclear decommissioning

(c) In 1989 the Department of Energy commissioned reviews of the decommissioning cost estimates prepared by the operators of civil nuclear facilities. These reviews, which included nuclear facilities of all types, broadly endorsed the strategy that was being adopted. Some shortcomings were identified, most of which have been addressed and which have led to significant increases in the estimates. These have been reflected in the accounts of the companies. In the case of British Nuclear Fuels the 1989 reviews supported the assumptions and estimates being used by the Company and no changes were necessary to its accounts. The operators now estimate the undiscounted cost of decommissioning

2

THE COST OF DECOMMISSIONING NUCLEAR FACILITlES

civil nuclear facilities, including the disposal of radioactive waste, at aroundS18,OOO million at March 1992 prices (paragraphs 3.2 to 3.11 and Table 1).

[d) The industry’s decommissioning cost estimates are affected by a wide range of uncertainties. These stem from the long time-scale involved, along with specific factors such as the absence of a disposal facility for the waste arisings and the, as yet, limited extent to which detailed plans have been submitted to the nuclear regulators for approval. Contingencies have been included in the estimates for some of these uncertainties. The estimates do not allow for the possibility of the earlier complete decommissioning of a major commercial reactor. Also they do not allow for the possible effects of regulatory safety requirements different from those assumed for the long dormant period prior to final dismantling, or for possible improvements in decommissioning technology (paragraphs 3.12 to 3.21, 3.23 to 3.25 and 3.28).

(e] Final decommissioning earlier than planned could considerably increase the discounted cost. If commenced 10 years after the end of the operating life, compared with present scenarios envisaging substantial delay before final decommissioning, estimated average undiscounted costs would increase by 50 per cent for Magnox reactors and 45 per cent for Advanced Gas Cooled reactors [paragraph 3.20).

(f) The National Audit Office’s specialist engineering advisers regarded British decommissioning estimates as very conservative. As they considered that the engineering difficulty, being based on only available technology, had been overstated, they concluded that substantial savings might be identified in future (paragraph 3.27).

(g) The commercial nuclear generators and British Nuclear Fuels have reviewed their decommissioning estimates regularly for accounting purposes. These companies wished to reflect the best estimate of future costs since the resulting provisions affect the full cost of nuclear electricity. The result has been a reduction in recent years mainly through the engineering experience gained from the first stage decommissioning of Berkeley power station, along with more detailed examination of engineering estimates for later stages (paragraph 3.28).

On financing nuclear decommissioning liabilities

(h) The Government will pay the decommissioning costs of the Ministry of Defence and most of those of the United Kingdom Atomic Energy Authority, the latter amounting to E3,OOO to f4,OOO million at March 1991 prices. The Government has also undertaken to meet certain decommissioning costs inherited by British Nuclear Fuels plc on their formation in 1971 amounting to El,900 million at March 1991 prices (paragraphs 4.2 to 4.7).

(i) When preparing their accounts the commercial operators have assumed a delay in the final stage of decommissioning of from 50 to 100 years and have discounted the estimated costs at two per cent a year in real terms. This has significantly reduced the amounts to be provided in the operators’ accounts; and it assumes a continuing nuclear industry or, in the event of its closure, an industry which would be able to bequeath substantial cash deposits. The Departments require the companies to maximise revenues and minimise costs and invest in capital projects

3

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

within their businesses only where prospective rates of return are in excess of 8 per cent in real terms. At present, with the benefit of the fossil fuel levy or the Nuclear Energy Agreement, the commercial generators are both making a loss on a current cost basis after allowing for their inherited liabilities although they are making profits on a historic accounting basis. The Scottish Office told the National Audit Office that they anticipate the accounts of Scottish Nuclear will disclose a profit for 1992-93 on a current cost basis (paragraphs 4.9, 4.11.4.23 and 4.30).

(j) The Departments have taken the view that the practice and level of discounting for accounting purposes are matters for the operators and their auditors. At the same time they have pointed out that in principle discounting ensures that a proper balance is maintained between the present generation of consumers who benefit from the use of nuclear energy and future generations who will have the benefit of the use of the funds set aside until they are required (paragraphs 4.11 and 4.12).

(k] Under Schedule 12 of the Electricity Act 1989 Nuclear Electric have been given assurances of financial support which cover, inter alia, decommissioning expenditure. Scottish Nuclear have been guaranteed grants of up to E716 million for some of their decommissioning and other liabilities. The overall extent of cover under Schedule 12 is limited by the 1989 Act to f2,500 million subject to further Parliamentary approval. But if further assistance is needed the Government have said they will give it, subject to approval from Parliament and the European Commission. No payments have been made to date; the Departments do not intend to make any payments unless and until the companies have exhausted their own resources (paragraphs 4.18 to 4.20 and 4.28).

(1) The nuclear generators in England and Wales receive a premium price designed to compensate for the higher costs of producing electricity from their existing nuclear stations. At October 1992 money values, by 1998 Nuclear Electric expect to have received f9,lOO million through the premium, and to generate a further net E4,700 million from their current operations. Of this, some f5,700 million will be applied up to 1998 to meet liabilities as they fall due. The remainder will be held partly in cash deposits and partly invested in Sizewell ‘B’ and improvements to existing plant. All of these investments will provide a source of future cash flow to meet the balance of liabilities as they fall due in the longer term [paragraphs 4.21 to 4.25).

(m)The Department and Nuclear Electric consider that, provided present commercial arrangements continue and their increased output is sold, they will be able to meet their decommissioning and other liabilities from their own resources for at least IO years. On current plans most decommissioning costs fall outside this period, but Nuclear Electric told the National Audit Office that they expect to be able to meet all decommissioning liabilities as they fall due [paragraph 4.26).

(n) At 31 March 1992, Nuclear Electric had other nuclear liabilities, amounting to around f17,500 million undiscounted, which would need to be met before most of the decommissioning costs [paragraph 4.27).

(0) Under the Nuclear Energy Agreement, Scottish Nuclear received around s60 million in 1991-92 more than they would have received if their output had been sold in terms of the post-1998 basis in the Agreement.

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THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

This gap might increase slightly until 1994, depending on the level of pool prices, after which it will taper to zero in 1998-99. The sum available to Scottish Nuclear in terms of the Agreement under Schedule 12 of the Electricity Act 1989 will be exhausted in 1993-94. In the absence of future Government intervention, Scottish Nuclear are expected to become technically insolvent some time thereafter. This situation will be addressed in the 1993 Review (paragraphs 4.28 to 4.32).

(p) Most of British Nuclear Fuels’ decommissioning liabilities will be met by their customers. On current estimates almost 80 per cent is to be paid by the rest of the British nuclear operators. Where appropriate, contracts are in place to secure these arrangements (paragraphs 4.33 and 4.34).

(q) In recognition of the long timescale for decommissioning and the uncertain future of the industry, countries such as Sweden, Germany and the United States of America require nuclear operators, some of which are in the public sector, to establish segregated funds for decommissioning. These funds are intended either to meet the full estimated decommissioning costs at the end of the facility’s operating life or, through earning a real rate of return, to grow to meet the needs of the different stages of decommissioning as scheduled. Practices vary, however, and countries such as France and Japan permit internal investment of funds as in Great Britain. The Departments see no benefit to the taxpayers in the establishment of segregated funds for these publicly owned companies (paragraphs 4.35 to 4.38).

General conclusions 9 The Government requires the operators to pay for the decommissioning of their nuclear facilities. In 1992 the civil nuclear industry estimated the cost of this liability at around f18,OOO million at current prices, reflecting a considerable increase during the late 1980s. Of this, some E5,000-f6,OOO million has already been accepted as payable by the Government, mainly in recognition of its role as customer.

10 The decommissioning cost estimates are based on the industry’s strategy to undertake the expensive final stage of decommissioning, usually 100 years for reactors and up to 50 years for other facilities after shutdown. This approach leas been accepted by the sponsor Departments. Each safety case will be considered by the regulators on its merits. The regulators will assess the safety implications of the delay to the final stage when individual cases are put to them by the operators. For Nuclear Electric, Scottish Nuclear, and British Nuclear Fuels this strategy properly allows them to discount the cost of decommissioning; and permits the companies to accumulate the resulting provisions over the life of a facility and the period leading up to final dismantling. The discount factor used requires a real rate of return to be achieved either by the companies or, in the event of their closure, by the investment of accumulated cash deposits, such that they can continue to increase the provisions for inflation and interest.

11 Nuclear Electric and Scottish Nuclear were vested with very substantial liabilities. The companies need to increase the provisions for these annually for interest and inflation. This forms part of the overall cost of nuclear generation, for which Nuclear Electric receive support through the fossil fuel levy. They estimate that they will receive f9,lOO million at October 1992 prices from the levy by 1998. In the case of Scottish Nuclear, the

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THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

company and their customers entered into the Nuclear Energy Agreement which provided a fixed price for their output until 1994. As already noted, Scottish Nuclear received around J%O million in 1991/92 more than they would have received if their output had been sold in terms of the post-1998 basis in the Agreement. This gap might increase slightly until 1994, depending on pool prices, after which it will taper to zero by 1998-99. The commercial generators estimate that this income will be applied to reprocessing spent fuel and the remainder invested in capital projects or held in cash to provide a future cash flow to meet decommissioning and other nuclear liabilities as they fall due.

12 The existence of provisions in the commercial operators’ accounts does not necessarily mean that the generators will have the resources needed for decommissioning at the time they are required. Future income streams will be required to provide appropriate funding. Two points should be noted. First, the generators will be called upon to meet other nuclear liabilities before most of the decommissioning costs arise. This will deplete future income streams. Second, the level of provisioning for decommissioning is based upon current estimates of costs which will arise a long time in the future. There is uncertainty about the extent to which these costs might change in real terms - due to internal or external factors. However, the present electricity supply market provides no mechanism through which any increases can be passed on directly to consumers. Given the Government’s assurances of ultimate support for the nuclear generators these factors increase both the risk that decommissioning liabilities may fall to be met by the taxpayer, and the extent of support which might eventually be required.

13 It therefore remains appropriate that the Departments are continuing to improve the industry’s estimates and to ensure that it is improving efficiency and facing up to the costs of decommissioning. The Departments should, in particular, ensure that the assumptions underlying the estimates and related provisions, including the discount rate employed and the need to include allowances for the possible cost of meeting regulatory safety requirements, for example, are reasonable and realistic in terms of the risk to the taxpayer. This will also ensure that the full cost of nuclear energy is identified.

6

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

1.1

1.2

1.3

1.4

Part 1: Background and scone I

The decommissioning of nuclear facilities is the lengthy and costly process which takes a reactor, fuel processing plant or other facility from closure to a state where the site is available for unrestricted alternative use. For major facilities, like nuclear reactors, this is normally carried out in three stages. These involve removing the fuel and other radioactive materials; removal of all ancillary plant and associated waste materials, other than the reactor and its internal structures; and finally the dismantling and disposal of the reactor and contaminated waste materials to leave the site available in a green field state. All nuclear facilities in Great Britain will eventually require decommissioning.

1.5

1.6

1.7 The major part of the British nuclear industry consists of Nuclear Electric plc, the United Kingdom Atomic Energy Authority, British Nuclear Fuels plc and Scottish Nuclear Ltd. The first three are sponsored by the Department of Trade and Industry (previously the Department of Energy]-the Department. Scottish Nuclear Ltd are sponsored by the Scottish Office Industry Department. Where relevant in this report, the sponsoring departments are referred to collectively as the Departments. In addition there are various military facilities operated by, or on behalf of, the Ministry of Defence.

The main focus of this report is on the role of the Department of Trade and Industry as the leading sponsor department for the nuclear industry. The other sponsoring department- the Scottish Office Industry Department-will be referred to only where they depart from the view of the Department of Trade and Industry or where circumstances differ.

1.8

History of the nuclear industry

At Appendix A is a table setting out the main nuclear installations by type, who operates them, when they were built and, where relevant, the current planning assumptions for closure. Closure signals the start of the decommissioning process.

The first large nuclear reactors in Britain were built for the Ministry of Defence at Windscale. These were followed in the mid-1950s by dual-purpose military/electricity generation reactors at Calder Hall and Chapelcross which are now operated by British Nuclear Fuels plc.

The commercial nuclear power stations were built for the Central Electricity Generating Board and the South of Scotland Electricity Board. With the privatisation of the electricity industry these stations were transferred to two separate companies, Nuclear Electric plc and Scottish Nuclear Ltd. These companies have remained in public ownership.

The only business of Nuclear Electric and Scottish Nuclear is the generation of electricity. They operate within the electricity supply market in Great Britain. In Nuclear Electric’s case most of their output is sold at a premium price under the nuclear arrangements within the non-fossil fuel obligation which operates until 1998. All of Scottish Nuclear’s output is sold under the Nuclear Energy Agreement, under which it receives a fixed price for its output until 1994. From then until 1998, the price available to Scottish Nuclear will taper down to market price in England and Wales for baseload supplies of electricity. The Government consider that these trading arrangements, coupled with the financial assurances and guarantees, will provide a basis upon which the companies should be able to develop themselves into sound commercial concerns.

Berkeley and Hunterston “A” nuclear power stations, belonging to Nuclear Electric and Scottish Nuclear respectively, have already closed and are in the first stage of decommissioning. All of the remaining operational commercial nuclear power stations are currently scheduled to close by the end of 2019, with at least six closing by the end of the decade. However Nuclear Electric are currently developing proposals to continue operating their 7 Magnox power stations for up to 40 years (originally 20 years, subsequently extended to 30 years]. Approval

7

THE COST OF DECOMMlSSlONING NUCLEAR FAClLlTlES

1.9

1.10

1.11

1.12

has already been given for Bradwell power station to operate until 1997 [a 35 year life).

The United Kingdom Atomic Energy Authority have, since 1954, carried out the Government’s research and development into nuclear power. This has involved the construction and operation of prototype nuclear reactors, and wide ranging research into areas such as nuclear safety and fuel processing. All their reactors, except the Prototype Fast Reactor (PFR) at Dounreay, and two low-power reactors at Winfrith, have now closed and decommissioning of these and many other facilities is in progress or has been completed. Government funding of the Dounreay PFR is due to end in 1994 and, for the associated fuel reprocessing plant, in 1997. Since their inception the Authority have received finance primarily from the Government.

British Nuclear Fuels plc were formed in 1971 and took over various activities from the United Kingdom Atomic Energy Authority, including the production of nuclear fuel, the enrichment of uranium for use in nuclear power stations, and the industrial scale transportation and reprocessing of spent fuel after its use in reactors. These activities have led to the accumulation of a large number of radioactively contaminated facilities, many of which will require decommissioning in the next few decades. The Company have already undertaken some minor decommissioning, releasing buildings for refurbishment and re- use. The Company are wholly owned by the Government.

British Nuclear Fuels and the Atomic Energy Authority also generate and sell nuclear

electricity in modest quantities. For their main businesses, nuclear fuel reprocessing and nuclear research respectively, they have a greater flexibility to set the market price than the commercial generators.

Government policy

The Government’s policy is that it is the responsibility of the nuclear facility operator to carry out all decommissioning, taking account of the safety and environmental requirements of the various regulators. The operator is required to secure the funds to pay for it.

1.13

1.14

1.15

1.16

The Government is responsible for radioactive waste management policy through the Secretary of State for the Environment together with the Secretaries of State for Scotland and Wales. Policy is to minimise the creation of radioactive waste and to ensure that it is disposed of safely. The producers of the waste are responsible for meeting the full costs involved.

Under Schedule 12 of the Electricity Act 1989, the Government has the power to make grants towards the cost of:

. the decommissioning of nuclear installations;

. the treatment, storage or disposal of radioactive waste; and

l the storage or reprocessing of nuclear fuel.

The grant limit is +X,000 million but this can be increased to EZ,~OO million with the approval of Parliament.

The Departments’ primary objectives in this area have been to ensure that the companies take all appropriate measures to minimise the extent of their liabilities along with minimising the extent to which the Government may be called upon to meet them. The Departments’ monitoring arrangements for the nuclear industry, including agreed objectives, are set out in Appendix B. In addition to the standard monitoring arrangements for Nationalised Industries these include, for Nuclear Electric, the specific objective to reduce the costs of decommissioning. For Scottish Nuclear this aim is implicit in their objectives which are agreed with the Scottish Office Industry Department. The United Kingdom Atomic Energy Authority have the objective of ensuring that decommissioning is carried out in the most cost effective way.

The Departments expect the operators to meet decommissioning costs to the maximum possible extent from their own resources or through contractual arrangements with their customers before providing support from funds voted by Parliament. Government policy does not dictate the timing or method of decommissioning: but it is important to note that these factors may be affected in meeting regulatory requirements [see Appendix C).

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THECOSTOFDECOMMISSIONING NUCLEAR FACILITIES

1.17

1.18

1.19

1.20

The Government is to carry out a review of the prospects for nuclear power in 1993. The Departments are encouraging the industry to prepare for this review by addressing the efficiency of its operations.

The National Audit Office note that all of the decommissioning costs of the Ministry of Defence, most of those of the United Kingdom Atomic Energy Authority and some of those of British Nuclear Fuels plc are met by the Government. These liabilities arose from previous work for the Government.

Scope of the National Audit Office examination

When establishing the main nuclear generating companies in March 1990 the Government gave general assurances that it would provide the finance necessary for the companies to meet their financial obligations if they were unable to do so from their own resources. So far specific guarantees amounting to 0’16 million have been provided by the Government to Scottish Nuclear. The Departments are accountable to Parliament for these assurances and guarantees and for any expenditure arising.

The National Audit Office carried out an examination to determine the full extent of the public sector liability for nuclear decommissioning; how this is to be financed:

1.21

1.22

1.23

and whether the Departments have taken appropriate steps to minimise the call upon the taxpayer to meet the liabilities.

In carrying out the examination, the National Audit Office had discussions with the principal Departments and representatives from Nuclear Electric plc, Scottish Nuclear Ltd, British Nuclear Fuels plc, the United Kingdom Atomic Energy Authority, the Ministry of Defence, United Kingdom Nirex Ltd, Her Majesty’s Nuclear Installations Inspector&, Her Majesty’s Inspectorate of Pollution and the Commission of the European Communities. The National Audit Office also examined nuclear decommissioning arrangements in other countries, in particular Sweden and the United States of America.

The National Audit Office employed Sir Robert McAlpine & Sons Limited (engineers], General Technology Systems Ltd (energy consultants) and the Science Policy Research Unit of Sussex University [energy, waste management and general economists) as consultants.

The study did not address other nuclear liabilities, notably those for fuel reprocessing and the management of operational wastes. Reference is made to Ministry of Defence liabilities where this is appropriate, although the report concentrates on civil decommissioning issues.

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THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

Part 2: Decommissioning practke

2.1 The term “decommissioning”, as used in the nuclear industry, covers the actions taken at the end of a facility’s useful life to withdraw it from service, wholly and progressively, in a manner that provides adequate protection for the health and safety of the decommissioning worker, the general public and the wider environment.

2.2 Currently, decommissioning may be necessary for safety reasons, or to make space available for new work or to prevent expenditure on extensive care and maintenance. It entails the removal of the fuel and coolants as necessary, the removal of any loose radioactive material, the complete dismantling of all contaminated structures and the disposal of the resultant wastes, to the satisfaction of the industry’s various regulators (see Appendix C). It is essentially an engineering task complicated by the specialist design and construction of most of the facilities and the risks associated in working with radioactivity.

2.3 The International Atomic Energy Agency, who issue guidance on nuclear matters, have defined three stages in the decommissioning of a nuclear reactor.

stage 1:

stage 2:

stage 3:

Shutting down, removing the fuel and coolant, and making the structure safe; with continued surveillance and maintenance as required.

Removing all plant other than the reactor, the biological shield, and the internal structures; sealing off the remaining structures and keeping these under periodic surveillance and maintenance.

Dismantling and clearing all remaining structures leaving a green-field state allowing reuse of the land.

Radioactive waste

2.4 Decommissioning generates large volumes of radioactive waste. The main producers, with

2.5

2.6

2.7

estimated waste volumes, are shown in Figure 1.

Radioactive waste is split into three categories:

. high level waste consisting of highly radioactive and heat generating products arising from the chemical reprocessing of used fuel. The temperature of such waste may rise significantly as a result of its radioactivity, and this has to be taken into account in designing storage or disposal facilities;

. intermediate level waste consisting of wastes with activity levels exceeding the upper boundaries for low-level waste, but which do not require heating to be taken into account in the design of disposal facilities; and

. low level waste which does not require shielding nor a high quality containment during normal handling and transportation.

The main sites currently authorised for the disposal of low level wastes are at Drigg in Cumbria, operated by British Nuclear Fuels and Dounreay in Caithness, operated by the United Kingdom Atomic Energy Authority. Sea dumping of solid radioactive waste was halted in 1982. This option was retained for nuclear submarine reactors and large items arising from decommissioning, but the

Government is currently reviewing whether this option needs to be maintained. Government policy is that intermediate level waste should be disposed of in a deep disposal facility. No such facility yet exists - the industry is currently investigating a possible site at Sellafield in Cumbria.

High level waste is not regarded as a decommissioning by-product the reprocessing of spent fuel is treated as a normal operating activity. This waste is currently being stored in a liquid form at Sellafield and Dounreay and is being vitrified at Sellafield. The Government’s policy is to store this waste for at least 50 years to allow the heat and radioactivity to reduce.

10

Cubic metres

150sooo I

BNFL UKAEA

Source of intermediate level wastes

MOD

THE COST OF DECOMMISSIONING NUCLEAR FACILlTlES

Figure 1: Intermediate and low level radioactive conditioned waste arising from decommissioning

Cubic metres

1,000,000 ,

900,000

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0 N Electric S. Nuclear

Source of low level wastes

UKAEA

Source: 1991 United Kingdom Radioactive Waste Inventory Main Report

Note: By convention the nuclear industry uses the year2030 as a breakpoint.

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THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

2.8

2.9

2.10

The industry’s decommissioning practice

A 1978 symposium sponsored by the Organisation for Economic Co-operation and Development and the International Atomic Energy Agency noted that:

“It was the consensus of technical experts present at the symposium that nuclear reactors and other nuclear facilities can be decommissioned safely, economically and with almost no adverse impacts to man or his environment, including complete dismantling of plant and restoration of the site to permit unrestricted use.” (NAO emphasis)

The symposium noted, however that the complete process could take up to twenty years in any one case.

The first stage of decommissioning is usually completed within five years of closwe. The second and third stages can be carried out at any time after stage 1, depending upon the practice adopted by the operator and any over-riding safety requirements. The current strategy adopted by the British industry is to delay the final stage of decommissioning where there are economic and possible safety benefits to be gained.

Nuclear facilities, other than reactors, will be decommissioned normally within 50 years of closure because the benefits from further radioactive decay do not outweigh the costs of continued surveillance and maintenance. With some facilities the collective radiation dose uptake can increase rather than decrease with radioactive decay. Hence extra costs will

be incurred by delaying decommissioning because of increased doses of radiation to the wwkforce and in the care and maintenance of buildings during the period of delay. In such cases the timing of decommissioning may be dependent upon the availability of a suitable disposal facility for the waste from the decommissioning operations.

2.11

2.12

2.13

2.14

Stage 3 of the decommissioning of gas-cooled reactors will be delayed for up to one hundred years. One of the principal reasons given by the Central Electricity Generating Board in 1987 for this was that it represented the most effective way of minimising the risk of workers being exposed to radiation.

A memorandum to the Energy Select Committee in August 1987 noted the Government’s agreement that “at the present time there is no technical justification for early stage 3 decommissioning”.

The Department do not approve decommissioning proposals in detail, and merely confirm that they have no objection to them in principle. For this they need to be assured at a strategic level that the proposals EU%:

(i] in line with current Government policy on radioactive waste management:

[ii) satisfactory in principle to the regulatory authorities: and

(iii] in conformity with current legislation.

Nuclear Electric have recently proposed a new practice for decommissioning gas cooled reactors which will extend the delay in dismantling from 100 years to 135 years after the end of operating life. The proposal suggests that, after defuelling, the facility should be prepared for a 30 year care and maintenance phase. Following this passive phase, protective structures will be built around all major active plant and buildings. The facility will then be left in this state (“safestored”) for about 100 years with

reduced care and maintenance. Then, about 135 years after the end of generation, the station will be completely dismantled. However, the Pressurised Water Reactor under construction at Sizewell is expected to be decommissioned over a shorter time span.

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THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

3.1

3.2

3.3

3.4

Part 3: Decommissioning cost estimates

The Department consider that each operator is best able to define the minimum cost strategy for decommissioning its facilities, and that this approach is most likely to lead to value for money. Accordingly the Department have not sought to prescribe the methods, process or timing of decommissioning, and have allowed different approaches to be adopted by the bodies concerned.

Reviews of cost estimates by the Department

Table a gives the industry’s base estimates of the total, undiscounted [see Part 41, cost of decommissioning at 31 March 1992.

Table1

Nuclear Electric Scottish Nuclear British Nuclear Fuels United Kingdom Atomic Energy Authority

f million 7.030 1,570 5,916 3.400

f17,916

(At March 1992 prices)

Source: information provided by the bodies concerned.

In April 1989 the Department commissioned Nuclear Services Group Limited to review the approach used by British Nuclear Fuels to determine their liabilities, to evaluate the cost of decommissioning two of their plants and examine the reasonableness of the total decommissioning cost estimates. At the same time the United Kingdom Atomic Energy Authority were commissioned to review the Central Electricity Generating Board’s decommissioning cost estimates for their Magnox and Advanced Gas-Cooled nuclear power stations. The findings of both reviews were presented to the Department in May 1989.

Nuclear Services Group concluded that the base estimates were generally on the high side, but that the contingency to cover uncertainties in the overall estimate was on the low side. The documentation relating to the construction and operation of the early

3.5

3.6

3.7

plants was poor by modern standards. as reflected in a different estimating methodology from that used in the nmre recent plants. The estimating methodology, particularly for these early plants, had the potential for error. The early plants are those coming into operation prior to 1985. The Group was also concerned about British Nuclear Fuels’ assumptions - for example, that in the long term low level decommissioning waste would be disposed of in situ: and that legislation and the company’s attitude to maximum worker exposure dosages would remain constant wer the long periods involved.

The Group recommended that the Department should accept the British Nuclear Fuels estimate of total decommissioning liability, and that they should continue to develop their approach, estimating a number of projects in nmre detail to provide a better level of confidence in the figures. This is being addressed by British Nuclear Fuels.

The review of the Central Electricity Generating Board’s estimates by the United Kingdom Atomic Energy Authority concluded that the approach on which the Board’s estimates was based was well founded and likely to lead to the work being carried Out in a safe and cost effective manner. Nevertheless, according to the Authority, the estimates had a significant degree of uncertainty attached to them and needed to be increased by about 30 per cent. The Authority pointed out however that a number of factors had been excluded from the terms of their review, such as whether costs might increase in real terms over the long period involved, and whether revisions to regulatory requirements would add to the uncertainty in the figures.

The Department have carried out a number of reviews of the Atomic Energy Authority’s approach for recording and managing their decommissioning liabilities. The most recent, in June 1991, concluded that the Authority’s estimated costs of ~3,000 million to ~4,000 million were understated because of optimistic assumptions and significant

13

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

3.8

3.9

3.10

omissions. The Authority have subsequently confirmed that, including a contingency and a larger risk margin, the undiscounted figure could be substantially higher.

The Authority have done considerable work since this latest review to ensure that, as far as possible, the estimates cover such factors as care and maintenance between decommissioning stages. Since much of the work will be done well into the next century the Authority do not consider it cost effective to devote resources to the production of detailed estimates. However the present central estimate of E3,OOO million-E4,OOO million is to be reviewed annually in the light of new studies.

During the period of these reviews, and following the reporting of the findings, estimated decommissioning costs were significantly increased. As a result of the review initiated by their Board in 1987 British Nuclear Fuels modified their decommissioning policy and, as a result, the estimates for decommissioning costs. Previous decommissioning cost estimates had been stated on the basis of considering solely those plants which were operational, or had been operational, at the time of the estimate. It did not, for example, cover a number of large new plants. Furthermore the estimates assumed removal of major items of radioactivity from the relevant facilities and the actions necessary to place the facilities in a safe condition, but not dismantling, demolition and disposal of resulting wastes. In addition no contingency was included to COYCP uncertainties in the estimated costs. The new decommissioning cost estimates covered all plants, existing or planned, included all

stages of decommissioning and included a contingency for uncertainties. As a result of those changes the quoted decommissioning cost rose from +Z460 million to f4,605 million. Contractual arrangements are in place for recovering most of these costs from customers (mainly the rest of the British nuclear industry - see paragraph 4.33).

The Central Electricity Generating Board revised their estimate for the average cost of decommissioning a Magnox power station from f312 million to f467 million following the review by the Atomic Energy Authority: and to !Z45 million in response to recommendations made by KPMG Peat Marwick McLintock following a review of

3.11

3.12

3.13

3.14

their accounting provisions (see Part 4). At 31 March 1989 the average cost had risen further to f599 million and, between 31 March 1988 and 31 March 19fi9, the Board’s estimate of total decommissioning costs increased from f3,900 million to f7,900 million. All figures are at March 1989 prices.

Since 1989, Nuclear Electric have reduced the estimates as a result of their experience in Stage 1 decommissioning of Berkeley power station and more detailed examination of engineering estimates for later stages.

Factors affecting cost estimates

Under the industry’s current decommissioning practice (see paragraphs 2.8 to 2.14), decommissioning costs related to the final dismantling etc of the major gas-cooled reactors are not budgeted to be met until some 100 years after closure of the reactors. The commercial generators see no reason why earlier final dismantling should be necessary and consider they have a robust case in support of this strategy, which they consider both safer and cheaper than other options.

The main assumptions inherent in this strategy are that:

the regulators will accept the safety case when it is presented to them without significant additions:

it will be safer and more economic to keep the facility in a dormant state rather than dismantle it fully: and that the Inspector& will not require the early dismantling of a facility:

other factors, including alternative site usage, will not force early dismantling;

no large-scale research is required to validate the assertion that full decommissioning is technically feasible; and

other regulatory or environmental requirements, such as acceptable worker radioactivity dosage levels, will not significantly alter the economics or force early dismantling.

The commercial generators are fully aware that the Departments would contribute to the cost of decommissioning only if the companies would not otherwise have the

14

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

3.15

3.16

3.17

3.18

resources. In the absence of adverse comment from the Department they deemed their assumptions to be acceptable to the Government. These and other assumptions and uncertainties are considered in more detail below.

[i) Surveillance and monitoring

Some individual facilities on nuclear sites have closed and are subject to surveillance and monitoring regimes as agreed with the Nuclear Installations Inspectorate. But detailed proposals for the levels of surveillance and monitoring of closed sites in the longer term have yet to be put to the Inspectoratc for approval. Costs may be relatively low where other nuclear facilities are still operational on the site but, where a site is closed completely, costs may rise to provide the necessary support facilities for the surveillance and monitoring staff. Nuclear Electric’s revised proposals (for a 135 year delay] suggest that the intensity of the surveillance and monitoring requirements will not be onerous. However, until the Nuclear Installations Inspectorate have been given the opportunity to pronounce on this, the adequacy of the allowances within the estimates remains uncertain.

(ii) Status of sites following decommissioning

Decommissioning estimates are prepared on the basis that the sites will be returned to a green field state. The Secretary of State for Energy agreed that, for the Atomic Energy Authority, this was one which would allow:

“unrestricted use without prior knowledge of the previous use of the site: the extent to which independent evaluation may be required of the work needed to achieve this condition will be assessed at the appropriate time.” (Hansard, 15 January 1992, Column 569)

This definition has yet to be translated into technical specifications. Therefore, although the estimates allow for the cost of returning sites to green field state, until there is a more precise indication of the requirements sane uncertainty as to the accuracy of the estimates necessarily remains.

[iii] Decommissioning experience

In line with the confidence within the industry that the process of decommissioning is technically feasible, and can be safe and economic (paragraph ~.a), the estimates do

not depend upon the development of technology that is not currently available. The Government takes the view that further research into decommissioning practice is the responsibility of the operators and expects that research will continue at an appropriate level into the development of safer and more cost effective ways of doing the required work.

3.19 The decommissioning of various facilities is in progress, and in some cases is complete. This includes some substantial fuel cycle facilities. But no large scale reactor has yet been fully decommissioned, either in this country or elsewhere. The largest decommissioning project being taken through to early completion of stage 3 in Great Britain, the Windscale Advanced Gas-Cooled Reactor, is a demonstration that the technology is available for early decommissioning of a power reactor to “green field” if that were necessary. This project, which is funded by the Government and the European Commission, is demonstrating the use of remote viewing and handling tools and is providing data which will allow greater certainty about estimates applicable to larger facilities. However, the pioneering nature of the development of nuclear power in Great Britain has meant that most of the reactors differ considerably from each other: even for the Magnox type each was completed to a different design.

3.20 The estimates do not allow for any full decommissioning of a major power station within the 100 year delay even for the purposes of research. The commercial generators recognise that any earlier final decommissioning would considerably increase the cost because benefit would not be obtained from radioactive decay. This would increase the amount of remote working needed and increase the waste management and disposal costs. For example, in their review of the Central Electricity Generating Board’s cost estimates the Atomic Energy Authority noted that if decommissioning was carried out 10 years after shutdown, average undiscounted costs would increase by about 50 per cent for Magnox reactors and by 45 per cent for Advanced Gas Cooled reactors.

(iv) Regulation

3.21 Decommissioning estimates are prepared on the latest technical assessments of the processes and methods likely to be used

15

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

3.22

3.23

under the current regulatory regime. As it is not possible to forecast whether there will be significant changes in regulatory requirements, or what they may be, in the century or so before final dismantling and waste disposal takes place, no allowance for this is made in the estimates.

However, the Nuclear Installations Inspectorate will have to consider decommissioning proposals presented to them, on an individual basis. The Inspectorale will require the licensee to commence decommissioning at a time agreed by the Inspectorate and will seek to ensure that licensees take steps, as far as is reasonably practicable, to reduce the radioactive inventory and/or associated risks over a period acceptable to the Inspectorate. Liquid wastes and those that can degrade with ageing will be required by the regulators to be recovered, treated and stored as appropriate to ensure an acceptable level of safety is maintained. As yet, the industry and the Nuclear Installations Inspectorate have fairly limited experience of the regulation of decommissioning. The industry’s expectations about the way regulation will be applied in the long-term therefore remain untested.

Safety levels are considered in terms of “millisieverts” -a measurement of the biological effect of radiation. More stringent standards could, if adopted, put up the costs: for instance by the need for more remote working. As an illustration of the extent to which such changes can take place, there has been a marked reduction in the doses of radiation to which workers may be exposed - Table 2. However, the basic principle of regulating radiation doses to workers and others of reducing doses so far as reasonably practicable, has meant that already very few workers receive doses in excess of 15 millisieverts per year (see Appendix C, paragraph 61.

Table 2

1920s 730 millisievelts during one year

1938 500 ” ” ” ”

1948 250 ” ” ” ”

1954 150 ” ” ” ” ,958 5.

THE COST OF DECOMMlSSIONlNG N”CLEAR FACILrnES

Figure 2: Radioactive decommissionino waste estimates from the last three inventories

Cubic metres

2,500,000

2,250,OOO

2,000,000

1,750.000

1,500,000

1,250,OOO

1 ,ooo,ooo

750.000

500,000

250,000

0 1989

Year that the inventory was prepared

Intermediate level

Source: United Kingdom Radioactive Waste Inventories for 1987, 1989 and 1991

tybsq’;he waste estimates almost doubled between 1987 and 1989 more detailed investigations have refined and lowered the estimates prepared

robust. Moreover, since they were based on present day technology, the resulting figures’ were very conservative. McAlpines concluded that the reference cases prepared by the companies overstated the engineering difficulty of decommissioning and that substantial savings might be identified in future revisions.

3.28 Confidence in the knowledge of the engineering requirements needs to be set against the wide range of uncertainties already discussed in paragraphs 3.11 to 3.26. There may be balancing factors, with benefits from improved technology offset by, for example, possibly stricter safety requirements than currently assumed. The industry have

reviewed the figures at least annually for accounting purposes, and more recent reviews have seen a reduction in the figures as a result of revised engineering requirements (paragraph 3.10).

3.29 The Departments expect to discuss with the companies the effect of any change of substance in the assumptions or methods of calculation underlying the provisions in terms of the Government’s objective to minimise the risk to the taxpayer-see paragraph 1.15. In the case of the Atomic Energy Authority liabilities, the Department have a closer and nmre detailed relationship, since they are directly involved in the funding of the work.

17

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

4.1

4.2

4.3

4.4

Part 4: Financing the nuclear decommissioning liabilities The ability of the industry to meet its nuclear recover other decommissioning and waste decommissioning liabilities depends management costs from the customers primarily on two factors: concerned.

. the extent to which the liabilities have been accepted as payable by the government; and

4.5

e the ability of the industry to meet the remaining liabilities when they fall due.

The National Audit Office considered these factors in turn.

(i) Government acceptance of liability

The Authority estimate that cwer the next ten years charges to the Department of Trade and Industry under the Letter of Understanding, excluding payments to British Nuclear Fuels , (paragraph 4.7). will be around f1,OOO million at 1992-93 prices. The Authority’s payments to British Nuclear Fuels, which will be met by the Department, are expected to total just /

under f300 million at 1992-93 prices over the next ten years, based on information in British Nuclear Fuels’ business plans.

British Nuclear Fuels

The Government has accepted responsibility for certain of the industry’s nuclear decommissioning liabilities. This follows from the fact that the particular organisations are part of the Government, OI because their work was commissioned by the Government.

4.6

Ministry of Defence

As a Government department, the cost of decommissioning Ministry of Defence facilities will be met from voted funds as it is incurred. The Ministry forecast the expenditure they expect to incur over a ten- year period on this and other work in accordance with Government financial planning principles. The Ministry have less precise costs for longer periods.

In 1964 the Ministry of Defence agreed to discharge their legal responsibility for the full cost of decommissioning etc certain facilities used for defence purposes by payments totalling 6210 million to the United Kingdom Atomic Energy Authority. Payment was completed in 1971 when these facilities were acquired by British Nuclear Fuels on their formation as a company separate from the Authority. The Ministry regarded their payment as a full and final discharge of these liabilities.

4.7

United Kingdom Atomic Energy Authority

In May 1986, shortly after the United Kingdom Atomic Energy Authority was established as a trading fund, the Secretary of State for Energy issued a Letter of Understanding. It accepted Government responsibility in principle for the costs the Authority incur in treating and disposing of nuclear wastes and in decommissioning plant used on work carried out by the Authority prior to 1 April 1986. This undertaking also extends to work carried out on the Department’s behalf, as a customer, after 1 April 1986; but the Authority now have to

However, to improve British Nuclear Fuels’ operating position and balance sheet, the Government accepted further responsibility in the early 1980s for the company’s decommissioning liabilities, scme of which had matured. They considered that the costs of meeting these liabilities had increased to the extent that the 1964 agreement was no longer an equitable settlement. British Nuclear Fuels currently recover some 80 per cent of these costs on maturity from the Government via the Ministry of Defence and 20 per cent from the Atomic Energy Authority (see paragraph 4.5). A preliminary estimate of the company’s liabilities is around E2.000 million over the next 50 years, with perhaps half falling in the next ten years. Payments from voted funds began in 1987 and at March 1992 amounted to Z376 million.

18

THE COST OF DECOMMISSIONING NUCLEAR FACILlTlES

[ii) The ability of the industry to meet the remaining liabilities when they fall due

4.8 Most of the liabilities for decommissioning, other than those to be funded by the Government, fall upon the commercial generators and British Nuclear Fuels--see Table 3. This also shows the related accounting provisions and how far these provisions have been built up according to the latest available audited accounts. Thus the way they provide for these liabilities and how they propose to meet them when they fall due need to be considered.

Discounting

4.9 The estimates of nuclear decommissioning costs (see Part 3) are based on the sums required when the work is expected to be carried out. To translate these estimates into annual accounting provisions at current prices, Nuclear Electric, Scottish Nuclear and British Nuclear Fuels discount the sums required to reflect the delayed timing of the payments. These provisions are then built up over the operating lifetime of the facility, and are uprated each year to allow for inflation and notional interest.

4.10 The provisions for decommissioning are invested in the fixed and working capital of Nuclear Electric, Scottish Nuclear and British Nuclear Fuels. Appendix D shows the gradual increase in provisions from 1981, with a rapid increase in 1988-89, mainly because of the

increase in the estimates arising from changed assumptions about decommissioning requirements [paragraphs 3.3 to 3.9).

4.11 The application of discounting assumes that, by the end of each facility’s operating life, sufficient provisions will have been charged against profit from the time it came into service to cover not only the initial decommissioning costs, but also, by appreciation over the dormant period of the balance after meeting these costs, the estimated cost of completing the decommissioning and of disposing of the waste. The Department explained that, in principle, the purpose of discounting is to RIISIIW that a proper balance is maintained between the present generation of consumers who benefit from the use of nuclear energy and future generations who will have the benefit of the use of the funds set aside until they are required.

4.12 The Departments regard the practice and level of discounting for accounting purposes as matters for the companies and their auditors. Nuclear Electric, Scottish Nuclear and British Nuclear Fuels discount future decommissioning liabilities by 2 per cent a year. They and the Department regard this as a prudent rate, recognising the real rates of return available on financial investments such as Government bonds over long periods. This rate implies that the provisions will need to earn at least 2 percentage points above inflation on average over the dormant period.

Table 3: Nuclear industry (except the Minisby of Defence and the United Kingdom Atomic Energy Authority): nuclear decommissioning estimates and provisions at 31 March 1992

Gross Full discounted Provisions so estimated cost cost far made in

(see paras 4.9 accounts to 4.14)

f million f million f million

Nuclear Electric 7,030 2,780 1,699 Scottish Nuclear 1.570 720 410

;;k’lzh Nuclear 5.916’ 2,417 299

14,516 5,917 2,408

Source: Information provided by the bodies concerned

As explained in paragraph 4.33, British Muclear Fuels are directly responsible for providing for only a small proportion of their costs. The balance will be recovered through contractual arrangements with their customers.

Provisions are built up on an annual basis and should equal the gross estimated cost when the liabilities mature (see paragraph 4.11).

19

THE COST OF DECOMMlSSIrJNING NUCLEAR FACILrrlES

4.13

4.14

4.15

4.16

Figure 3: Example of discounting and the related provisions If the sum of ft million is invested today at an interest rate of 2 per cent above inflation. after 1 year it would be worih fl.02 million. Thus for f500 million at current prices to be available in 100 year’s time. at an interest rate of 2 per cent above inflation. an investment now of only f69.02 million is needed.

For the nuclear industry. the period over which the money is required needs to be divided into: -the life of the facility when the main provisions need to be built up; and -the balance. over which the provisions need to be uprated lor inflation and interest.

For a gross decommissioning cost of f500 million in 100 years and an operating life of 30 years. a provision of f125 million needs to be in place at the end of the thirty years--an annual sum 01 f4.17 million. At 2 per cent per annum above inflation f125 million would appreciate over the final 70 years to the required f500 million.

However the table below shows how this calculation needs to be visited each year for the effect of inflation.

Y&X

:

: 5 6 ;

9 ::

100

Gross estimated costs with Discounted Provision 5 percent inflation neededafter30years fmillion fmillion

500 525 125.00 131.26

551 579 137.76 144.76 608 152.02 638 159.52 670 704 167.52 176.02

739 184.77 2,058 776 194.02 514.56

62,620 62,620.OO

Amount set against profit Cumulative accounting provision at in year end of year fmillion fmillion

4.17 4.58 4.17 8.75

5.03 5.53 13.78 19.30 6.04 25.34 6.57 31.90 7.18 7.85 46.94 39.09

8.49 55.43 40.63 9.24 514.56 64.67

2.982.00 62.620.00

The auditors have given unqualified reports on the accounts, thus confirming their view of the appropriateness of this accounting policy. Figure 3 provides an example of the effect of discounting and of how provisions are built up.

The most significant cost in decommissioning a nuclear reactor involves the final dismantling and the associated disposal of the radioactive waste. As this stage may be deferred for over a hundred years, discounting over such a long period significantly reduces the provisions in the companies’ accounts. This is shown at Figure 3.

Review of provisions

In March 1989 the Department commissioned KPMG Peat Marwick McLintock to examine the adequacy of the nuclear provisions in the Central Electricity Generating Board’s accounts as at 31 March 1989. They expressed satisfaction with the base estimates and the related assumptions, but did not comment on the discounting or the ability of the companies to meet these liabilities, which the Department saw as matters for the company’s own auditors.

The Department also saw some benefit in making comparisons between the treatment adopted by the companies, and commissioned Ernst and Young to examine the 1988-89

4.17

4.18

nuclear provisions of British Nuclear Fuels plc, the Central Electricity Generating Board and the South of Scotland Electricity Board. They reported in 1990. Their main finding, other than commenting on the base c&mates, was that the technical and financial assumptions of the organisations needed to be brought closer together.

Since these two reviews there have been further exchanges of information within the industry; and the Nuclear Utilities Chairmans’ Group have been addressing working practices and assumptions.

Nuclear Electric

When Nuclear Electric were set up on 31 March 1990 it was apparent that, although they would be generating a positive cash flow, their liabilities, including those of nuclear decommissioning, exceeded their assets. To enable the company’s accounts to be drawn up on a going concern basis the Department provided the company with unquantified financial assurances under Schedule 12 of the Electricity Act 1989. Currently limited to El,000 million for the nuclear industry as a whole, but with g2,500 million available subject to Parliamentary approval, these assurances would allow Nuclear Electric to meet any nuclear decommissioning liabilities which matured and which the company were unable to meet from their own resources.

20

THE COST OF DECOMMISSIONING NUCLEAR FACILITlES

4.19

4.20

4.21

4.22

4.23

In addition, the Department agreed to seek approval from Parliament and the European Commission to ensure that adequate funds were available to meet any qualifying financial obligations beyond those available under this legislation.

The Department expect the company to exhaust their own available funds to meet their liabilities before calling in these financial guarantees. Since the company currently have a positive cash flow and as few decommissioning liabilities have matured since the defuelling of Berkeley Power Station was completed in 1992, no grants have yet been made. The Department do not expect to have to make any payments, if at all, until well into the future.

Nuclear Electric’s positive cash flow is currently assisted by two factors:

[i) a non-fossil fuel obligation which requires the regional electricity companies in England and Wales to procure a specified amount of generating capacity from non- fossil fuel sources-in practice, most of Nuclear Electric’s expected capacity which currently generates around 20 per cent of the total electricity in England and Wales: and

[ii) also under the non-fossil fuel obligation arrangement, for around 75 per cent of the nuclear electricity they currently produce, the receipt of a premium (the “fossil fuel levy”) above the electricity trading market price to meet the higher costs of producing energy from existing nuclear plant.

In 1991-92 the levy amounted to just over 50 per cent of Nuclear Electric’s income-El,250 million out of a total income of E2,400 million. The terms of the contract between the regional electricity companies and Nuclear Electric ensure that the premium will decline in real terms over the years to around ~700 million by 1998 when the levy, as it applies to nuclear capacity, is scheduled to end.

With the benefit of z&1,265 million from the fossil fuel levy, in 1991-92 Nuclear Electric made a current cost operating profit of ??352 million. This represented a return of 5.4 per cent on net operating assets before allowing for financing charges associated with the uprating of provisions in respect of inherited liabilities. Taking these financing charges into

4.24

4.25

4.26

account resulted in an overall loss of &i8 million.

In 1991-92 Nuclear Electric generated net cash of about El,300 million. This was employed in making payments of GO0 million against provisions, mainly for reprocessing spent fuel and waste storage, and in the purchase of fixed assets including the construction of the Sizewell ‘B’ Pressurised Water Reactor. In the Department’s view, these assets should provide a return to the company to help meet decommissioning and other long term liabilities as they fall due.

In recent evidence to the Trade and Industry Select Committee (HC 237 of 1992), Nuclear Electric forecast that, over the eight year period 1990-91 to 1997-98, they would receive a total of srxne E9,loo million from the fossil fuel levy, and will generate a further net f4,700 million from their current operations. Of this total, about f5,700 million will be applied to meeting their liabilities as they fall due in the short term. The figures are quoted at October 1992 values. The remainder will be held partly in the form of cash balances on deposit and partly invested in Sizewell ‘B’ and improvements to existing plant.

Nuclear Electric’s financial projections are that they will therefore be able to meet their liabilities, from their own resources for at least 10 years. The National Audit Office understand from the Department and Nuclear Electric that this view is based on the assumptions that:

l Nuclear Electric’s output will increase and that all of it will be sold;

l fixed prices for fuel will keep costs down;

. Nuclear Electric’s staff costs will be reduced;

. and interest will be earned from increasing cash surpluses.

Under Nuclear Electric’s present expectations, very few of the decommissioning liabilities will mature in the next ten years. Nuclear Electric consider, however, that provided present commercial arrangements continue and their increased output is sold, they will be able to meet all their decommissioning liabilities, as they fall due, from their own ESOUIVSS.

21

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

4.27

4.28

4.29

At 31 March 1992 Nuclear Electric’s decommissioning pruvisions, including their share of British Nuclear Fuels’ liabilities. amounted to El.970 million, an estimated undiscounted liability of around E7,300 million. However, as Appendix D shows, there are other nuclear provisions of E7,912 million at this date, having an estimated undiscounted liability of +X7,500 million. These will need to be met in the shorter term, from the proceeds of the fossil fuel levy and other income. Under current arrangements the commercial generators are unable to pass on increases in these costs to their customers directly (see paragraph 1.7). To the extent that the company is unable to meet its liabilities in the longer term, the Department regard this as a result of the under-funding of their liabilities at vesting.

Scottish Nuclear

To allow Scottish Nuclear to begin trading from 1 April 1990 as a solvent company, the Scottish Office Industry Department wrote off El,368 million of debt which had been allocated to the Company. In addition, to allow the company to continue to meet the test of solvency normally applied by the courts under the Insolvency Act, the Government entered into a legally-binding Agreement with Scottish Nuclear under Schedule 12 of the Electricity Act 1989. This Agreement relieved the Company of some of their long-term liabilities in relation to Chaplecross power station operated by British Nuclear Fuels, and in relation to their own generation of electricity at Hunterston “A” power station. This Agreement provided for the payment of grant up to f716 million. Although defuelling of Hunterston “A” is in progress, to date no payments of grant have been made.

Scottish Nuclear’s cash flow reflects the Nuclear Energy Agreement whereby:

. Scottish Power and Hydro-Electric must buy a!1 of Scottish Nuclear’s output until 2005;

l Scottish Nuclear must not supply electricity to any other customers: and

. the price is currently set above the market Price by a formula fixed until 1991; after this the price will taper towards the market price for baseload power in the England and Wales market. From 1998

4.30

4.31

4.32

4.33

until 2005 Scottish Nuclear will be paid according to the market price in England and Wales. In 1991-92, Scottish Nuclear received around %O million more than they would have received if their output had been sold in terms of the post-1998 basis in the Agreement. This gap might increase slightly until 1994, depending on the level of pool prices, after which it will taper to zero by 1998-99.

In 1991-92, with the benefit of the Nuclear Energy Agreement. Scottish Nuclear made a current cost operating profit of f9.7 million- a return of 0.3 per cent on current operating assets. Schedule 12 grant under the Electricity Act 1989 amounting to El10 million, being the amount necessary to maintain the Magnox provisions at current price levels, has been taken into account in striking the profit (paragraph 4.28). This was turned into an overall loss of i45.3 million after the adjustment of provisions on pre-vesting AGR liabilities.The Scottish Office told the National Audit Office that they expect the accounts of Scottish Nuclear will dislcose a profit for 1992-93 on a current cost basis.

The net cash inflow of Scottish Nuclear in 1991-92 was employed in discharging provisions in respect of reprocessing spent fuel and waste management and meeting the first stage decommissioning costs of Hunterston ‘A’.

In the view of the Scottish Office Industry Department, Scottish Nuclear will generate a positive cash flow in 1993-94 and 1994-95, but expect to become technically insolvent sometime thereafter in the absence of further Government intervention. This situation will be addressed in the Government’s review of nuclear power now due in 1993.

British Nuclear Fuels In the case of British Nuclear Fuels, most of their long term liabilities are covered by contracts with either the rest of the industry or their overseas customers. Indeed, the greater part of their decommissioning liabilities are provided for in the accounts of Nuclear Electric and Scottish Nuclear.

22

THE COST OF DECOMMISSIONING NUCLEAR FACILITIES

At 31 March 1992 the 65,916 million estimated cost of British Nuclear Fuels decommissioning (see Table 3) was allocated as follows:

f million

Nuclear Electric/Scottish Nuclear Ministry of Defence/United Kingdom Atomic Energy Authority Overseas cu3omers British Nuclear Fuels

2,812

1,824 638 642

5.916

4.34

4.35

4.36

Note: The Nuclear Ekctrk, and Scottish Nuclear propoltions of these liabilities are included in those companies’ provisions when quoted elsewhere in this repoti.

The long term prospects of this company rest upon the continuation of their business in the fabrication and reprocessing of nuclear fuel. However, their ability to meet their decommissioning liabilities, beyond those already accepted as a government liability, other than from the taxpayer, depends on the ability of their customers to meet their obligations.

Deposits with the National Loans Fund

Nuclear Electric and Scottish Nuclear are required to deposit surplus funds in the public sector, but these sums are not allocated to meeting any specific purpose, such as decommissioning. At 30 September 1992 Nuclear Electric had f733 million so invested. At present the company’s surplus funds in the National Loans Fund would meet almost half of the decommissioning provisions in Nuclear Electric’s accounts, were it not for significant other nuclear liabilities in the shorter term [see paragraph 4.27). At the same date Scottish Nuclear had no funds deposited with the National Loans Fund.

Segregated Funds

Some countries with substantial nuclear industries, such as France and Japan, adopt the British practice of allowing their nuclear industry to invest provisions in their businesses. However in others such as Sweden, Germany and the United States of America, where the nuclear industry is mainly-but not wholly-in the private sector and subject to varying tax regimes, segregated

funds are required to provide for decommissioning. This recognizes the long- term nature of the liabilities and the uncertain future of the industry. The low risk of the funds in which the money is invested allows discounting of decommissioning costs at rates of up to 4 to 5 per cent to be considered. This compares with pretax rates on index-linked gilts of around 3.5 per cent in the United Kingdom. Such funds are independently regulated to ensure that contributions plus interest are no more than sufficient to meet estimated requirements, thereby protecting both the current customer and future generations against having to meet more than a due share of the liability.

4.37 The British companies are free to set up a separate alienated fund for decommissioning provisions. However there is a requirement that a nationalised industry should deposit its surplus cash in the public sector to reduce the financing requirements of the public sector as a whole. The Treasury consider that it would be for the Departments to take the lead in setting up alienated funds, as in other matters relating to the nuclear industries in Great Britain.

4.38 The Departments do not see that there would be any benefit to taxpayers from the establishment of segregated funds for these companies which are effectively owned by the Government. They point out that the funds appropriate to decommissioning, insofar as they are represented by cash, are currently retained within the public sector either in the form of investments in the generating business or deposits with the National Loans Fund. They would expect segregated funds similarly to be invested in the public sector, most probably in the form of gilts. The establishment of such funds would therefore lead to an increased flow of funds into gilts which would be matched by an increase in the generators’ net borrowing from the National Loans Fund. There would be no net impact on the public finances other than a possible increase in administrative costs resulting from the increased movement of funds between public sector bodies.

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THE COST OF DECOMMlSSIONING NUCLEAR FACILITIES

Appendix A Nuclear facilities

Nuclear facilities Year Of stati up dates

Scheduled closure/closure

Nuclear Electric Magnax stations

AGR stations

PWR station

Scottish Nuclear

Magnox station

AGR stations

British Nuclear Fuels ptc

Magnox reactors

Facilities

United Kingdom Atomic Energy Authority

AGR research reactor Experimental Pile

Large research reactors

Research facilities and small reactors

Berkeley (2) 1962 Bradwell (2) 1962 oungeness “A” (2) 1065 Hinkley Paint “A” (2) 1965 Oldbury (2) 1968 Sizewell “r (2) 1966 Trawsfynydd (2) 1965 Wylfa (2) 1971-2

rmgeness -B” (2) 1985-8 Hartlepool (2) 1984-5 Heysham “A’ (2) 1984-85 Heysham ‘,B’ (2) 1988-89 Hinkley Point “B” (2) 1976-7

Sizewell OB” (under construction) 1994

Hunterstr,n “V (2)

Hunterston “w (2) Torness (2)

Calder Hall (4) 19X-9 1996 Chapelcrass (4) 1959-60 1998

Capenhurst Sellafield Springfields

Windscale 1963 1981 Windscale (2) 1950 1957

Dounreay Prototype Fast Reactor 1977 1994 Daunreay Fast Reactor 1962 1977 Harwell DID0 1956 1990 Harwell PLUTO 1957 1990 Winfrith SGHWR 1967-8 1990 Winfrith Dragon 1964 1976 Harwell BEPO 1947 1968

Culham DOUlW?t3y Harwell Windscale Wintrith

1964

19768 1986-87

1989 1997 1995 1995 1998 1996 1995 2001

2010 2010 2010 2018 2007

2035

1990

2005 2019

Note: (i] the figures in brackets denote the number of reactors at the station.

(iiJ Magnox and AGR reactors are gas-cooled; the PWR at Sizewell will be the first commercial water-cooled reactor in Great Britain

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THE COST OF DECOMMISSIONING NUCLEAR FAClLITlES

Appendix B Departmental Monitoring Arrangements and the Nuclear Industry’s Objectives British Nuclear Fuels 1 In accordance with the Treasury guidance on the monitoring arrangements to be

adopted for companies which are wholly or mainly owned by the Government, the Department have sought to establish a monitoring environment which provides for a continuing exchange of information between themselves and British Nuclear Fuels covering all major aspects of the company’s policies. Under the Department’s present arrangements they approve the annual Corporate Plan; agree with the company a medium-term financial target: monitor the company’s performance through the shareholders’ quarterly reports; and maintain a wide range of contacts between the company and departmental officials, from the Minister downwards.

2 In their 1989 report on the monitoring and control of British Nuclear Fuels plc the Public Accounts Committee noted the Department’s assurances that the arrangements for monitoring the Company’s activities were sufficient for their purpose. This report did not touch specifically on the monitoring and control of decommissioning.

Nuclear Electric 3 The Department regard Nuclear Electric as a nationalised industry and take a close interest in its financial affairs. In practice the monitoring is similar to that of British Nuclear Fuels plc but in addition the Department set limits for the external financing of the level of capital expenditure. Major capital projects are subject to Departmental approval-currently an 8 per cent rate of return is required.

4 The Secretary of State has set Nuclear Electric a number of objectives. One is to achieve a reduction in the costs of reprocessing, decommissioning and waste disposal and to provide greater certainty about those costs. The Department’s own objective is to aid Nuclear Electric to achieve their objectives, in particular, to lower their costs.

Scottish Nuclear 5 The Scottish Office Industry Department have a similar approach for their monitoring of Scottish Nuclear to that adopted by the Department for Nuclear Electric. They have, however, no specific objectives relating to decommissioning. The aim of reducing the costs of decommissioning is implicit in the objectives of Scottish Nuclear, which are agreed with the Scottish Office Industry Department. Their objectives relate to monitoring Scottish Nuclear’s activities against the company’s corporate plan and agreed performance aims, and the company’s progress against financial targets.

United Kingdom Atomic Energy Authority

6 The Department is both the sponsoring Department and the principal customer of the United Kingdom Atomic Energy Authority. In recent years the Department have taken steps to separate the two functions. As sponsor they set the Authority financial targets, including an external financing limit, and approve major capital expenditure. As the customer they agree programmes of work which they are prepared to fund and monitor achievements. They also agree the development of medium and long-term strategies for managing decommissioning and waste management liabilities and their funding implications. The Authority have established a Corporate Directorate to manage their decommissioning and waste management work and act in the role of a “customer agent” for the work funded by the Department.

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THE COST OF DECOMMISSlONING NUCLEAR FACILITIES

Appendix C Nuclear Decommissioning - regulatory aspects

1 Decommissioning generates large amounts of radioactive waste, and is subject to the same regulatory controls as apply to other activities with radiological risk-in particular the creation, storage and disposal of radioactive waste. No regulations have been established dealing specifically with nuclear decommissioning. The timing of nuclear decommissioning is the responsibility of the operator and still requires legal supervision. The general principles adopted are that:

l the operations on any nuclear site are licensed, and safety is monitored, by independent inspectors; there are specific conditions attached to nuclear site licences relating to decommissioning;

. the nuclear site operators are responsible for the safety of their workers and the public and for protecting them from radiation hazards:

. radioactive discharges, including disposal of waste, are subject to prior, independent, authorisation.

Radioactive waste disposal objectives

2 The Government’s objectives for radioactive waste management (Cmnd 9852) are that:

. all practices giving rise to radioactive wastes must be justified-ie the need for the practice must be established in terms of its overall benefit;

. radiation exposure of individuals and the collective dose to the population arising from radioact