Friday, 9 February 2018

Nuclear's unquantifiably huge future liabilities waiting for the taxpayer to cough up


 On 7 February, the British Government (Treasury) released 754 page document – excitingly entitled Central Government Supply Estimates 2017-18” - detailing changes to planned public expenditure since last Autumn’s Budget 2017.

At pages 162-64 you can find the Business, Energy and Industrial Strategy (BEIS) extra expenditure requests and clarification of perceived liabilities. These include several covering the privately-owned commercial nuclear industry sector. Below are the sections on nuclear, and the most common  read-out message is how often the  liabilities for which the taxpayer is expected to  take long term financial responsibility are described as  “unquantifiable.” That is accurate, but what is omitted is the numbers are – based on accumulated experience to date, likely to be astronomically huge.

This worryingly unacceptable situation,- whereby one  industry (nuclear) of the electricity generating sector is being  promised a massive  future bailout from its liabilities- really should be examined in detail by our elected Parliamentarians and  peers in several  relevant committees and in the Estimates Debate on the floor of the Commons.

At House of Commons Business Questions on 8 February the following exchange took place between Pete Wishart SNP shadow House business spokesperson and Andrea Leadsom, the Leader of the House of Commons (ie government business manager who organises Parliamentary allocation of time for debates etc)

Wishart: “When we return, we will have our new estimates debates. For the first time in recent political history, we will actually debate estimates on estimates day. What a novelty that will be!”

Leadsom: “I share his delight at estimates being debated and being announced in the future business…”


It is essential MPs do their job properly and forensically financially scrutinise the implications of these 2018 Estimates of future expenditure.

Key  extracts from Estimates

Part III: Note K - Contingent Liabilities Nature of liability £'000 –

Hinkley Point C Funded Decommissioning Programme (FDP) and Waste Transfer Contracts (WTCs):- The contract with NNB Generation Company Limited (NNB) to build Hinkley Point C (HPC) nuclear power plant includes a Contract for Difference between NNB and the Low Carbon Contracts Company, an FDP and associated FDP documents including WTCs between NNB and the core Department. The FDP and related documents including WTCs require NNB to make prudent provision for their waste and decommissioning liabilities. To meet their liabilities, the operator must set up a fund with an independent governance framework and will pay into it so that it is on track to fund the liabilities that arise from decommissioning and waste management. The fund will report annually to the Secretary of State and a full review will be conducted every 5 years to ensure that the fund is on track to meet all its liabilities. If it is off track, the operator will be required to take corrective action. These liabilities are strictly the operator’s responsibility and the probability of taxpayers picking up these liabilities is remote.

(REALLY??!!-DL)

Alongside the FDP, the Government has entered into 2 WTCs. These set out terms on which the Government will take title to and liability for the spent fuel and intermediate level waste (ILW) from the site after decommissioning in order to dispose of the waste safely. The WTCs have generally been prepared in line with the Government’s published waste transfer pricing methodology. Although the WTCs provide a default price based on today’s best estimate, they allow the waste transfer price to be set after a specified later date. The final price agreed is subject to a cap, but the likelihood of the future costs exceeding the agreed cap is considered remote. Unquantifiable

Nuclear: the Core Department has a range of civil nuclear liabilities arising through its association with the United Kingdom Atomic Energy Authority and British Nuclear Fuels Limited as well as ensuring that the Government complies with its obligations under the various international nuclear agreements and treaties. The amount and timing of this overarching liability is not quantifiable. Unquantifiable

Nuclear Liabilities Fund (NLF) - A constructive obligation was created in 2002 when the Government undertook to underwrite the Nuclear Liabilities Fund in respect of uncontracted and decommissioning liabilities of British Energy (now EDF Energy Nuclear Generation Limited (EDFE)) to the extent that the assets of the Fund fall short. The undiscounted estimated liabilities of £19.9 billion (2015-16 £19.7 billion) have a present value of £32.8 billion (2015-16 £33 billion) using the prescribed discount rate from HM Treasury of negative 0.8% (2015-16 negative 0.8%). The value of the Fund is £9.4 billion (2015-16 £9.2 billion) and is likely to increase in the future from investment returns. It is hard to quantify the extent to which the net position of the Fund might represent a contingent liability or asset given the high level of uncertainty relating to estimation of cash outflows and investment returns over a future period exceeding 100 years. In view of changes to actual and expected interest rates and expected rates of inflation experienced during the course of the year, the Trustees are currently reviewing the Fund’s asset allocation to help ensure sufficient funding to meet expected liabilities. On this basis, the Department believes it would not be appropriate to consider this as either a contingent liability or asset. Unquantifiable

The NDA has non-quantifiable contingent liabilities arising from indemnities given as part of the contracts for the management of the nuclear site license companies. These indemnities are in respect of the uninsurable residual risk that courts in a country which is not party to the Paris and Brussels Conventions on third–party liability in the field of nuclear energy may accept jurisdiction to determine liability in the event of a nuclear incident. Indemnities are in place in respect of Magnox, LLWR and Dounreay as set out in the relevant Parent Body Agreements. In addition, indemnities are provided to the previous PBO’s of Magnox and Sellafield covering the periods of their ownership. These are not treated as contingent liabilities within the meaning of IAS 37 since the possibility of a transfer of economic benefit in settlement is considered too remote. Unquantifiable

The Secretary of State Investor Agreement (SOSIA) provides protections in certain scenarios where the Hinkley Point C Nuclear plant is shut shown for reasons that are political, or due to certain changes in insurance arrangements or certain changes in law. Payments under the SOSIA would be expected in the first instance to be made using funds from the Supplier Obligation but in certain circumstances they could also come direct from the Secretary of State relying on spending powers granted under the relevant Appropriation Act or, if payments were to be made over a period longer than 2 years, seeking a new spending power at the time. The payments could be up to around £22bn excluding non-decommissioning operational costs that may be incurred after any shutdown. However, the liability to make payments under the SOSIA is almost entirely within the control of HM Government.

Reprocessing and staff commitments: STFC is responsible for Institut Laue-Langevin (ILL) staff-related commitments and costs associated with reprocessing fuel elements. £16,000 –

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