APPENDIX 11
Memorandum by Sir Anthony Cleaver, Chairman,
Nuclear Decommissioning Authority (NDA)
INTRODUCTION
We became fully operational on 1 April 2005.
On that date, we took responsibility for the decommissioning and
clean up of the UK's civil public sector nuclear sites, previously
owned and operated by BNFL, or operated by UKAEA. We also took
responsibility for the operational assets on BNFL sites and the
existing commercial contracts for Magnox electricity generation,
for nuclear fuel manufacture at Springfields and for spent fuel
reprocessing and nuclear fuel manufacture at Sellafield. We are
required to operate these commercial assets efficiently and effectively
and to maximise revenue to offset decommissioning and clean up
costs. All relevant BNFL assets and liabilities were transferred
to us on 1 April 2005. The Government's intention was that the
UKAEA's assets and liabilities would also be transferred to us
but it was decided in the interests of the smooth establishment
of the NDA to delay the transfer which will now take place in
March/April 2007.
OUR REMIT
In brief, our remit is to ensure that decommissioning
and clean up is carried out safely, securely, cost effectively
and in ways that protect the environment for this and future generations.
Our current estimate of the cost of decommissioning and cleaning
up our sites is £55.8bn. Our functions, duties and powers
are set out in Part 1 of the Energy Act 2004. These are summarised
in Annex A.[26]
We operate openly and transparently, protecting only that information
which is commercially or personally confidential, or security
sensitive. We are required to provide best value to taxpayers,
who are funding the decommissioning and clean up programme. The
Energy Act places specific responsibilities on us to:
— promote competition in the decommissioning
and clean up market so that the best available skills can be brought
to the task;
— maintain the nuclear skills base
and ensure that appropriate skills are available when needed;
— carry out research and promulgate
the results; and
— give encouragement and other support
to activities that benefit the social or economic life of communities
living near our sites.
These responsibilities are wide ranging and
together with our national, strategic role represent a step change
in the way in which the civil nuclear sector has historically
approached decommissioning and clean up activities. Prior to the
establishment of the NDA, UKAEA had made good progress with the
limited funds available to it in dealing with that part of the
nuclear legacy for which it was responsible. The advent of the
client (NDA)/contractor (UKAEA) arrangement, as foreshadowed in
the 2002 Managing the Nuclear Legacy White Paper, has sharpened
the focus on delivering accelerated programmes of decommissioning
and clean up safely, securely, cost effectively and with proper
regard to the environment. We have, therefore, welcomed UKAEA's
decision to enter into a strategic alliance with other contractors
further cementing this change.
We believe that good performance in health,
safety, security and environmental performance is not only paramount
but fundamental to the success of the NDA. Our goals are simple—no
accidents, no harm to people and no damage to the environment.
Our Health, Safety, Security and Environmental Policy seeks, by
a process of continuous improvement, to achieve and maintain excellence
in health, safety, security and environmental performance. The
delivery of excellence in these areas is crucial to our goal of
safe and efficient decommissioning of the UK's legacy sites and
to the success of our commercial activities.
Our Policy applies to everyone involved in supporting
the NDA's mission, including our contractors. We are developing
health, safety and environmental performance metrics for our contractors
and these will be used to drive forward our commitment to deliver
improvements in these vitally important areas.
OUR ORGANISATION
Our HQ is in Cumbria. We have just moved into
a new office on the West Lakes Science Park, near Whitehaven.
We have four regional offices: one in Abingdon (to cover the Southern
sites); one in Risley (to cover the North West and North Wales);
one in Cumbria (to cover Sellafield, Calder Hall, Windscale and
the Low Level Waste facility at Drigg); and one in Forss (to cover
the Scottish sites). We currently have 180 permanent staff in
post and expect to reach 230 by summer 2006. We have a very small
office in London where I am based.
The Department of Trade and Industry (DTI) is
our sponsoring Department. DTI bids for our funds from HM Treasury
as part of the Comprehensive Spending Review (CSR) process. As
part of the 2004 CSR settlement, we received a budget of approximately
£2 billion for each of the three years 2005-06, 2006-07 and
2007-08.
As part of the 2004 Spending Review, DTI and
HM Treasury agreed three PSA targets for the NDA. These were to:
— deliver annual efficiency gains from
2006-07;
— complete competitions for at least
50% of our sites by the end of 2008; and
— reduce our total liabilities by 10%
by 2010.
At present, approximately half of our budget
derives from revenue from commercial operations, ie electricity
generation, reprocessing spent fuel and fuel manufacture. We have
agreed with DTI a set of strict criteria against which to evaluate
any new commercial contracts. However, over time and as current
contracts are completed and commercial plants close, this revenue
will fall and a proportion of it will need to be made up by further
grant-in-aid. Future funding will be achieved through the CSR
process.
Later this year and as part of the forthcoming
Spending Review, we will be submitting to the DTI our funding
requirements for 2008-09, 2009-10 and 2010-11. We have yet to
determine what our requirements will be for those three years.
CORPORATE GOVERNANCE
ARRANGEMENTS
The NDA Board—operating through me—is
collectively accountable to the Secretary of State for Trade and
Industry for all aspects of the NDA's activities and performance.
We are also responsible to the Scottish Ministers for certain
matters, including activities that affect NDA sites located in
Scotland and in relation to certain devolved policy matters, eg
radioactive waste. The Chief Executive is responsible for the
day-to-day operations and management of the NDA, the performance
of the executive management team and is accountable to the Board.
The Board comprises executive members and non-executive members
with the latter forming a majority.
The Board meets monthly around the Country with
one meeting each year in Scotland, one in Wales, one at Harwell
and the remainder divided between Cumbria and London. The Board
comprises seven non-executive Directors (including me) and five
executive Directors (including Dr Ian Roxburgh, my CEO). The Board
is working extremely well and in its first year has had to deal
with real challenges such as: the incident at Sellafield reported
in April 2005 which shut down the THORP (Thermal Oxide Reprocessing
Plant); agreeing the scope and content of our first Strategy and
undertaking a public consultation on it (the Strategy is now with
the Government for approval); BNFL's proposed sale of British
Nuclear Group (BNG) and the implications for our competition proposals;
and safety incidents at Dounreay.
When considering the make-up of the non-Executive
members of the Board we were particularly interested in securing
people with a background and expertise in Human Resources, Academia,
the Environment, Accountancy, the Commercial Sector and Industrial
Relations. I am pleased to say that we achieved our objective.
The role of the non-executive members is to
challenge the executive management; to ensure that the executive
team is focused and incentivised to produce positive results;
and generally to hold the executive team to account for its performance.
The NDA Board has established an Audit Committee,
chaired by a non-Executive Director, to support it in discharging
its responsibilities for issues of risk, control and governance
and associated assurance. The Audit Committee advises the Board
on:
— strategic processes for risk, control
and governance and the Statement on Internal Control (SIC);
— accounting policies, the Annual Report
& Accounts, matters arising from the external audit, and Management's
Letter of Representation to the External Auditors;
— plans, activities and performance
of Internal and External audit;
— adequacy of management response to
issues identified by audit activity, including the external auditor's
management letter;
— Board policies, including procurement
and any matters relating to assurance on risk management, control
or corporate governance;
— proposals for tendering for either
Internal or External Audit services or for purchase of non-audit
services from contractors who provide such services.
The NDA's Annual Report & Accounts is audited
by the National Audit Office and the Energy Act requires the NDA
to lay the Annual Report & Accounts before Parliament each
year.
The NDA Board has also established a Remuneration
Committee, chaired by a non-Executive Director, to support the
Board in determining the remuneration and terms of service for
the Chief Executive Officer and the Executive Directors. The specific
duties of the Committee are:
— to determine the remuneration and
terms of service for the Executive Directors to ensure that they
are fairly rewarded for their individual contribution to the organisation,
having proper regard to the organisation's circumstances and performance
and to the provisions of any national arrangements for such staff
where appropriate. The Board may also decide to extend the Committee's
remit to include other senior managers' terms;
— to monitor the performance of individual
Executive Directors;
— to advise on and oversee appropriate
contractual arrangements for such staff including the proper calculation
and scrutiny of termination payments taking account of such national
guidance as is appropriate; and
— to advise on the NDA's employment
policies and their revision, from time to time, including personnel
matters of magnitude.
We have also established corporate governance
arrangements between DTI (our sponsoring department) and the Scottish
Executive. Meetings between the NDA's CEO and Executive Directors
with the DTI's Head of Energy Industries and Technology Unit,
supported by senior officials from the Department's finance function
and senior officials from the Scottish Executive, take place at
quarterly intervals. These meetings review all aspects of the
NDA's activities, including the management of the NDA's budget.
Monthly meetings take place at an appropriately senior level between
the NDA, DTI and Scottish Executive to review strategic, operational
and policy issues. There are also regular senior level meetings
between the CEO and senior officials in HM Treasury.
During our short existence the Board has:
— consulted on, had approved by the
Government and published our Annual Plan for 2005-06;
— had approved by the Government and
published our Annual Report & Accounts for 2004-05;
— consulted on, revised and submitted
to the Government for approval our first Strategy;
— consulted on, revised and submitted
to the Government our Annual Plan for 2006-07; and
— started preparations for the production
of our Annual Report & Accounts for 2005-06.
A copy of our Management Statement & Financial
Memorandum is at Annex B.[27]
CONTRACTUAL ARRANGEMENTS
WITH UKAEA
The NDA has an initial contract with UKAEA to
manage and operate the sites for which UKAEA is the Site License
Company (SLC). These are: Dounreay, Windscale, Harwell and Winfrith.
It is expected that the NDA will also assume responsibility for
the decommissioning and clean-up of the JET (Joint European Torus)
fusion facility at Culham when that facility ceases to operate,
subject to its designation to the NDA by the Government. Should
the Government decide to designate the JET facility to the NDA
as expected, then the NDA would hold a competition for the decommissioning
of the JET facility.
The contractual relationship between the NDA
and UKAEA is essentially the same as that between the NDA and
its other management and operation (M&O) contractors (British
Nuclear Group and Westinghouse). Preparations for the transfer
of UKAEA's assets and liabilities to the NDA (see remit above)
and for the necessary restructuring of the UKAEA, are well underway
and are expected to be completed by spring 2007, ie before any
of the UKAEA sites are competed.
These arrangements mean that there is a clear
distinction between the respective client and contractor roles
of the NDA and UKAEA, both of which are Non Departmental Public
Bodies (NDPBs). In essence, the NDA determines the national strategic
approach to decommissioning and clean up, agrees with its contractors
the work to be performed on each site and funds that work. The
contract between the NDA and UKAEA defines the scope of work to
be performed at each site, the schedule for completing that work
and annual site funding limits. Performance Based Incentives (PBIs)
are agreed between the NDA and its contractors, including the
UKAEA, which provide the basis on which contractors can earn fee
(profit) by meeting or exceeding PBIs. At present, contractors
can earn up to 4.4% of the annual site funding limit in fee.
During autumn 2005, the NDA conducted a Portfolio
Management exercise to review the performance of each of its sites
in terms of progress in achieving agreed work programmes and budget
spend. Money was taken away from some sites because of under performance
and reallocated to better performing sites. The UKAEA's Harwell,
Dounreay and Winfrith sites were all net beneficiaries and are
receiving extra funding for the current financial year which has
allowed them to bring work forward.
INDUSTRY PENSION
ARRANGEMENTS
The NDA is committed to delivering the pensions
protections for the nuclear decommissioning workforce as set out
in the Energy Act 2004, Government policy and Ministerial statements.
In order to help to deliver those protections, the NDA is developing
a new Nuclear Decommissioning Industry Wide Pension Scheme (the
new scheme) to look after the needs of staff if, on a future transfer
to the private sector, they are unable to remain in their current
pension scheme.
The design and coverage of the new scheme is
being informed by a detailed consultation with stakeholders, in
particular with the unions representing the workforce and will
be subject to final approval by the Secretary of State for Trade
and Industry. A key requirement is that the new scheme will meet
the obligations set out in the Energy Act to enable staff transferred
for NDA purposes to continue to accrue benefits that are no less
favourable than those they already enjoy. We are still considering
the process to determine who should run the new scheme.
There are currently three pension schemes in
use by the NDA's contractors, which are, in decreasing order of
size of membership:
— The UKAEA Combined Pension Scheme
(CPS). All of UKAEA's workforce and most of those in the BNFL
group are in this unfunded, public sector scheme (c13,500 employees
in total). The Industry Wide Pension Scheme is particularly relevant
to current CPS members as they cannot remain in the CPS if they
transfer to the private sector, for example, as the result of
competition for site management or a sale of their employer. The
proposed sale of Westinghouse would affect around 1,000 CPS members
at the Springfields site. The new scheme is, therefore, being
developed to be ready in time for the possible completion of that
sale in August 2006.
— The Magnox Group of the Electricity
Supply Pension Scheme (ESPS). Most of the Magnox workforce (c3,500
employees) belong to this funded pension-trust scheme. The ESPS
can accommodate private sector members and it is not expected,
therefore, that any current Magnox employees will need to leave
the ESPS as a result of site competition or in the event of any
a sale of the business. The Magnox ESPS Group is currently in
deficit, in common with most other funded trust-based final salary
pension schemes. The NDA, Magnox and the Scheme's trustees have
agreed a mechanism to repair the deficit involving a series of
capital payments by the employer over seven years (the first of
which was made in 2005).
— The BNFL Group Pension Scheme (GPS).
This is used by some parts of the BNFL group (c1,400 employees)
and is a funded pension-trust. It can accommodate private sector
employees and, like the Magnox Group of the ESPS, currently has
a deficit that is being repaired in a similar way.
RADIOACTIVE WASTE
MANAGEMENT
The decommissioning and clean up work that is
our core remit will generate large quantities of radioactive and
non-radioactive waste. Radioactive waste is divided into three
main categories—high level waste (HLW), intermediate level
waste (ILW) and low level waste (LLW).
HLW is a liquid waste bi-product of spent fuel
reprocessing and is the most dangerous waste on any of our sites.
Treating this material and putting into glass blocks and stainless
steel containers for interim storage is our overriding radioactive
waste priority. There is currently no long term management arrangement
for dealing with the (around) 2,000 cubic metres of HLW in the
UK.
ILW arises in solid and liquid forms and is
present at most of our sites. It arises from both operational
and decommissioning activities. In volume terms, there are around
350,000 cubic metres of ILW, some of which has been packaged for
eventual disposal but the majority is still to be retrieved from
the facilities in which it is currently held and packaged. As
with HLW, there is currently no long term management arrangement
for ILW. Packaged ILW is currently kept in interim stores.
LLW represents by volume the largest proportion
of radioactive waste. It is estimated that around 2 million cubic
metres of LLW will have been generated by the end of the NDA's
decommissioning and clean up programme. This does not include
the estimated 20 million cubic metres of contaminated land on
the Sellafield site. Most LLW is disposed of in the LLW facility
at Drigg. However, it is already clear that the facility at Drigg
does not have the capacity needed for all the LLW that will be
produced and other facilities will be required.
Options for the long term management arrangements
for HLW and ILW are being considered by CoRWM (Committee on Radioactive
Waste Management), the expert group set up by the Government and
the Devolved Administrations (DAs). CoRWM is due to present its
recommendations to the Government and the DAs in July. A number
of storage and disposal options are still being evaluated. The
NDA is working closely with CoRWM.
A particularly important strength that the NDA
brings to the whole question of managing radioactive and non-radioactive
waste is our ability to look strategically across 20 sites and
to identify synergies and opportunities for rationalisation that
no one site operator has historically been capable of doing. This
has the potential to lead to earlier site clearance and savings
in interim storage requirements.
It is crucially important to the delivery of
the Strategy—currently awaiting approval by the Government—that
early and firm decisions are reached on the long term management
arrangements to be pursued and on the mechanisms for their delivery.
We need to have the long term management arrangements for HLW
and ILW available by 2030—and ideally much earlier.
STATE AIDS
In December 2004, the European Commission commenced
a State Aid investigation into the commercial operations formerly
owned by BNFL and transferred to the NDA on 1 April 2005. The
purpose of the investigation is to determine whether the new arrangements
distort the European market. The investigation continues.
Interim funding arrangements, which ensure that
no new Government aid will fund these commercial operations during
the course of the investigation, were put in place to allow the
NDA to deliver decommissioning programmes. The European Commission
did not raise any objections to these interim arrangements.
GOVERNMENT'S
ENERGY POLICY
REVIEW
The NDA has a very clear remit that does not
extend to issues relating to wider energy policy.
However, due to the high current level of interest
in issues surrounding new nuclear build, when we consulted on
our Draft Strategy a number of respondents (around 70) made their
views known on this issue even though it was not raised in our
Draft Strategy. We have passed on these comments to the Energy
Policy Review Team in the DTI.
Though we have no current remit relating to
new nuclear build, we stand ready to support any new Government
policy in this area as appropriate.
STAKEHOLDER ENGAGEMENT
We have established Site Stakeholder Groups,
independently chaired, for all of our sites to be the main conduit
on site specific issues between local stakeholders and the NDA.
We have also established a National Stakeholder Group to consider
and advise us on national, strategic issues. All these fora have
made a good start and we propose to develop these arrangements
further over the coming years.
26 Annex A not printed. Back
27
Annex B not printed. Back
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