Nuclear decommissioning: regulations and guidance
Question proposed, That the clause stand part of the Bill.
Malcolm Wicks: Clause 50 confers on the Secretary of State a power to make regulations, under the negative procedure, about the preparation, content, implementation and modification of funded decommissioning programmes and for the charging of fees. The clause enables the Secretary of State to prescribe details about how operators will be expected to prepare and implement programmes and to ensure that they have the adequate protections in place. It is analogous with provisions in the Energy Act 2004, which sets out the regime for offshore renewables decommissioning.
The clause allows regulations that make provision for how radioactive and other hazardous waste will be managed during the operation of the power station and will then be disposed of; how the power station will be decommissioned and the site cleaned up; the estimation of the costs that might be incurred during decommissioning and waste management, such as how they should be developed and about the manner in which such estimates should be verified; the financing of such estimates, including the security arrangements required; how payments from funds to pay for decommissioning and waste management are to be made; how information prescribed or of a description prescribed by regulations is to be supplied to the Secretary of State; and how fees charged by the Secretary of State are to be calculated and when they are to be paid. Regulations can also create offences where specific provisions of the regulations are contravened.
The negative procedure is considered suitable for the making of regulations under this power as the content of the regulations will be largely technical. As I have already mentioned, the provision mirrors the approach set out in the Energy Act 2004 for the decommissioning of offshore renewable installations. For example, under that Act, the Secretary of State has the power to prescribe what security should be provided and to set sanctions.
As well as enabling regulations, the clause confers on the Secretary of State a power to publish guidance about the preparation, content, modification and implementation of funded decommissioning programmes. A copy of any guidance published must be laid before Parliament. Guidance enables a principles-based approach to be adopted rather than the more prescriptive approach that is typical of regulations. The guidance is expected to set out certain baselines or minima, which the operator would be expected to meet. However, the Secretary of State recognises that operators may be able to put forward more effective or efficient methods to decommission their stations and to clean up their sites, as well as to accumulate the moneys necessary to do so. Guidance, which is based on principles, enables operators to put forward such proposals, which may be approved, provided they meet the principles.
Prior to the publication of the guidance or the making of regulations, subsection (6) requires that the Secretary of State consult interested bodies. The Government do not consider it necessary to subject the largely technical guidance to a parliamentary procedure, but the guidance will be laid in the Library. It is not the intention for the guidance to prescribe how decommissioning programmes should be formulated and carried out, but rather to allow operators the freedom to develop their own programmes, within a framework. The guidance will guide operators in preparing programmes, which may be approvable by the Secretary of State.
The approach of the clause is analogous to the existing safety and environmental licensing regime for nuclear, whereby the Health and Safety Executive and the Environment Agency issue guidance concerning the exercise of their statutory powers. The HSE issues guidance on its functions under the Nuclear Installations Act 1965 and the Environment Agency on its functions under the Radioactive Substances Act 1993.
Steve Webb: This is an important clause and raises a number of substantive issues. I hope that the Minister can paint a picture of the way that one of these funds will operate. I want to draw an analogy that heas a former Pensions Ministerwill appreciate, and it is between one of the funded decommissioning programmes and an occupational pension scheme. I hope that he will humour me with the analogy as it helps to illuminate my point. With an occupational pensions scheme, there is a set of long-lasting liabilities. The work force might be aged 21 now, but they may need pensions when they are 100. We are talking about similar time scales.
The second point is that the sums of money involved can be very substantial. When I originally heard about
There is a big issue about the adequacy of the fundswhich we will come to in a couple of clausesand about the control of inflow and outflow. We have been very focused on the inflow into the funds but, under clause 50, the regulations also talk about the circumstances under which a site operator can take money out of a fund. That is a critical point. Presumably, the money must be lumped in up front quite heavily, and I would like to probe the Minister further on the profile that he has in mind. I assume that a lot of money has to go in early and then, as the life of the plant progresses, the operator will start coming back to the trust fund. I want to stress that the nuclear White Paper published in January said:
Independent funds, outside of the control of nuclear operators, should be created to accumulate and manage payments from the operator to meet the full costs.
They are independent funds.
Let us suppose, however, that I were an operator who had been running for a while and who now had some nuclear waste that I wanted to get rid of. Would I go to the fund and say that although I had put £700 million in so far, I would now like to take something out to start meeting some of my liabilities? Is it the case that I could not take any money out until I had put in everything that I would ever want to put in? Is the process similar to a one-way valve? Is it the case that money keeps going in until it reaches an absolute maximum of all the money that will have to be spent and it can then be drawn upon? Will I not incur new liabilities, potentially increasing the amount that must go in at the same time as incurring costs that I must now spend to undertake some clean-up for the generation that I have already carried out?
As an operator, could I spend my own moneywhich has never gone through the truston clean-up and then tell the trust that it does not need to ask me to put in that gross amount as I have already spent some which I can offset against my liability? These are important questions. I cannot speak for other members of the Committee, but I do not get a sense of how the funds will work. Returning to the pension analogy, the occupational pension fund structure was supposed to do precisely that kind of thingring-fence money for long-term future liabilities. It failed catastrophically for 100,000 workers.
Mr. Jamie Reed (Copeland) (Lab): The key issue is cash flow into the operating plants that want to decommission more rapidly or meet their other liabilities
Steve Webb: I am not sure that I follow the hon. Gentleman when he talks about off-setting the costs to the taxpayer. My understanding is that there are no costs to the taxpayer if someone wants to go into business to run a nuclear power plant with no public subsidyif the Government plan to allow them to do so. I would not see that it is the Committees job to help such companies offset costs that I do not think should arise in the first place; indeed, that should not be the Government policy. I hope that I have not wilfully misunderstood the hon. Gentleman, but I do not follow him on that point.
To return to my analogy, the kind of structure that we are talking about has failed catastrophically. Interestingly, the answer to the failure of occupational pension funds to meet their long-term future liability was the creation of an insurance schemethe Pension Protection Fundto insure against trust funds failing to meet their long-term liabilities. I have an interesting question for the Ministerit could almost be a dissertation question. We cannot create occupational pension funds that do not need insurance. If it was so easy to set up a pension fund that could be guaranteed to meet its long-term liabilities, we would have done so. However, pension funds need an insurance scheme. Why are we confident and how can we be sure that the sort of regime set up under the regulations allowed for in clause 50 will meet its future liabilities? The position is almost exactly analogous. In fact, insurance funds are much more predictablea company pension fund is based on how many workers it has, how long they will live and how much they earn. The costs that we are talking about are much more difficult to estimate.
We have no idea of the margin of risk. The Minister has still not given us a clue about its magnitudeit could 10 per cent., 100 per cent. or 1,000 per cent. Clearly, if the margin is huge, many of my concerns would disappear, but the Minister has not been able to tell us, even to within a number of zeros, what the margin is.
In a roundabout way, I am saying that we do not have a clue. I hope that the Minister does, and that he will share his insights on the operation of the funds. To take that point further, will he say whether the money that will go into the funds is as incredibly front-loaded as I believe it will be from what I heard in the evidence sessions? As the hon. Member for Copeland said, companies will obviously make their revenues over the lifetime of the plant. However, because there is a risk, as with any commercial enterprise, of companies going to the wall, they cannot say that they can rely on their year 40 profits to meet their liabilities, because they might not get to year 40. The money must be in the trust much earlier in the process. That is my understanding of how the system will work. How front-loaded is the money? As the operation of the plant unfolds, how far
To be a brief friend of the nuclear industry, it will want to know before it signs on the dotted line how much of the total future liabilities of the sorts and numbers we have been talking about will be needed in year one, and how much will be required of it. The industry will immediately take a view about the profile of its costs and revenues, but what will the Government ask of the industry?
Who are the trustees? Regulations will provide for that under clause 50, but we do not know who they are. How independent will they be? Clearly, they will need expertise on nuclear liabilities but, presumably, they will be independent of the industry under the Bill. Will the Minister tell us more about who the trustees will be? If a company wants some money out of the fund to do some clean-up work and the trustees say no, what will happen?
The Government are consulting on the clause, but they will give widespread regulation-making powers, and the Committee needs to know in some detail how the Minister envisages the powers operating. What scale of process, what profile of payments and what guarantees are there? The attempt to create a similar regime in pensions failed catastrophically, so much so that an insurance scheme was needed to back it up. How can the Minister be confident that the same model, which features an arms length independent fund with trustees, will work when it has not worked in a similar situation?
Charles Hendry: The hon. Gentleman gave an interesting analogy. However, there is a difference between the two funds. A problem for the pension funds was that they had an unpredictable inflow. They did not employ as many people as they had done historically, so the amount of money coming in to the funds was not as great as they had expected. However, they had a commitment to how much they were going to be paying out. That is not the case with these funds; there will be a predictable inflow. There is also a difference in that there will be no significant calls on the fund while the plant is operating. The main calls will be once it has closed. All the decommissioning costs will come once the plant has ceased to operate and it will then be called upon to use the fund in that respect. The storage of nuclear waste above ground or at the site will not be covered by the fund. Only when the waste is moved into a long-term store will the fund be called upon. That is many years off. Assuming that the natural lifetime of one of the plants will be 40 or 50 years, one will be well into that process before there is a significant drain on the decommissioning fund.
It would be helpful if the Minister could clarify his thinking on how nuclear waste should appropriately be handled. The Government document published in February, the Consultation on Funded Decommissioning Programme Guidance for New Nuclear Power Stations, said:
Operators will be obliged to provide safe and secure interim storage facilities that are technically capable of being maintained or replaced to last for at least 100 years from the time when waste or spent fuel is first emplaced in them.
Is it the Ministers view that 100 years is the appropriate length of time to store the waste above ground where one can keep an eye on it directly, or is that figure in the document because he feels that that is time that might be necessary before a final deep repository is available and the legacy waste has been put into it, making it available for new waste? Is 100 years the correct scientific period or is it based on a practical decision? If it is a practical decision, I presume that if the waste could be moved to the long-term storage facility at an earlier stage, he would be in favour of that.
Can the Minister also tell us whether he believes that on-site storage should be in tanks oras in the United Statesstored on the surface? Although that does not make a fundamental difference to our approval of the clause, it would be useful to know what he thinks about the appropriate technology and how long it takes for the waste to cool to a level at which it can be handled and dealt with more appropriately. Some say that it takes three to five years; is that his understanding?
More generally, I spoke this morning about the Swedish working model, an example that shows how the Swedes plan to dispose of nuclear waste for the longer term. Some 10,000 people a year go to see it and there is 80 per cent. local support for the approach. Has the Minister considered whether we should have something of that nature here? We are some way off identifying a suitable location, but would it at some point be appropriate to have such a working model so that people could see what it is like, be reassured about the process and have their safety concerns taken into account?
Malcolm Wicks: I am slightly loth to pursue the comparison with pensions. The hon. Gentleman and I have been in this Committee roomor a similar onediscussing the establishment of the Pension Protection Fund and I can therefore see the analogies. Of course, we acknowledge the responsibility of the then Liberal party for establishing the first national insurance regime in this country. I am not saying that the party is at fault for any difficulties that might have arisen in that fundbut why not?
Essentially, what we are talking about, in simple outlineit will obviously get more complexis a separate fund for each nuclear installation, which will be at arms length from the company and will therefore be protected in terms of insolvency law, as we will discuss later. The fund cannot be touched for any other purpose. Yes, there will be trustees. One imagines that they will have expertise not altogether different from that of the people who will staff the new board that we are establishing, including finance experts and, no doubt, those with some expertise of nuclear itself, fund management and investment. The first payments to the fund will be made straight away, and the aim will be to build up the fund. From time to time, it will be reassessed to see whether payments need to be increased or, perhaps, reduced.
In broad outline, that is what we are trying to achieve, so that at the end of the day we have sufficient moneys for successful decommissioning of the structure; for putting the site back into greenfield condition, wherever that is appropriate and possible; for storage, both short termalthough it could be 100 years or soor longer term; and for the share of the geological repository.
To go through this in a little more detail, cost estimates will be regularly reassessed, and contributions to the
Moreover, if the fund is insufficient for whatever reason, the additional securitiesfor example, insurance, a financial instrument or some other guarantees that the Government requirewill kick in. If the fund is insufficient, the operator must make good the difference, and the provisions in the Bill aim to ensure that they are required to do that.
I have been asked whether money could be taken out of the fund only when it is full. The funded decommissioning programme must set out proposals for disbursement from the fund. That is covered in more detail by the draft guidance currently out for consultation; we are consulting on all of this. Of course, decommissioning costs, by definition, are incurred after operation ceases and when the fund is complete. Costs incurred during the operating life of the stationfor example, for low-level waste disposalwill be paid for from operating expenditure. Some through-life costs, such as the construction of interim stores, will be paid for by the fund and regulated by fund managers. During decommissioning, expenditure from the fund will be monitored annually and every five years against the progress on decommissioning and waste management, to ensure that moneys are being spent on the right thing.
Charles Hendry: Will the Minister provide some clarification? He referred to facilities where waste might be stored. If waste were going to be kept for a time in a pond on the site, would the construction and maintenance of that be covered by the fund? Is that what he is saying?
Malcolm Wicks: Yes, I am saying that. I am not talking about just the final deep geological storage. I am not a technical expert and would not pretend to be, even for the sake of this Committee, but I am talking about a possible range of storage facilities, including, as the hon. Gentleman suggested, storage that could last a long time. I am not talking about 100 years, but it is clear that interim storage can be for a very long time, as we know from experience.
Mr. Binley: Can the Minister give me an idea of the timing that he has in mind for ensuring that moneys are in place for decommissioning, recognising that we are talking about perhaps 50 or 60 years? The estimated mean cost for decommissioning is some £640 million, and those who say that it is higher would give a figure of almost £1 billion. When does he expect to have that sort of money in the bank and available for use?
Malcolm Wicks: In the situation that we are talking about, it is important to appreciate the time scales. We are legislating for a long-term future. I recognise all the
Malcolm Wicks: Although none of us can predict, a reasonable estimate is that 40 years later a new nuclear plant might be decommissioned, and the moneys would be needed then. Some say that it could take 10 more years than that, but who knows? It is not for us to worry about that now. In relation to the fund, the aim of the funds trustees and the national board that we are setting up is to ensure that the funds are on course to build up the moneys required by the middle of this century. I hope that is helpful.
Anne Main: I ask for clarification but if the Minister has already answered this question, I apologise. To use the pension fund analogy that we were given, will people be allowed to take holidays from paying into the fund or make deferred payments?
Malcolm Wicks: I recall from recent social history that holidays for pension funds have created some difficulties for us. Therefore, it is not for me to say. The important thing is to ensure that the fund builds up at the right momentum for the right time period. The duty of the trustees, the national board and the Secretary of State is to ensure that that happens. The premiums could vary depending on whether they need to be increased; possibly they could be reduced. The purpose is to have adequate moneys at the end of the day. If anything, we are over-egging the pudding. We may well have more money than is required.
Steve Webb: This is a critical issue, relating to something that the hon. Member for Wealden asked the other day. The Minister keeps saying enough money by the end of the day. The danger is that the end of the day might come not in 40 years time but in fiveif, as the hon. Member for Wealden said the other day, the technology changes dramatically, or if the cost of producing nuclear energy is uncompetitive so that the nuclear industry cannot sell its power at the price for which it has budgeted and becomes insolvent. Surely the goal is for the funds to build up enough money not at the end of the day and by gradual accumulation, but quickly enough so that if something happened suddenly, the money would be there.
I am not clear about the profile. Will the liability that the fund must meet be incremental, or will most of a plants future viabilities be guaranteed once it is running, so a lot of the money must be put in early on? I am not clear what the Minister is saying about that.
Malcolm Wicks: If a nuclear reactor were to stop after five years, although I do not think that anyone is assuming that that will happen, various things that we have discussedthe liability on the parent company and so onwould have to come into the equation and the arithmetic. In terms of the schedule of payments, operators must put forward their proposals for the schedule of contributions to the independent fund. Of course we favour the front-loading of contributions in the early years of stations operating life. However, the Government might accept what might be called straight-line payments, as long as our principles are metin other words, as long as the fund is sufficient before operations cease and as long as adequate alternative securities are in place to top up the fund should the liabilities crystallise earlier than expected in the way that the hon. Gentleman suggested. Such securities will include insurance or bonds or parent company guarantees. Payments to the fund must begin from day one of electricity generation at the station, as I hope I have emphasised. I hope that helps him a little. It looks as if it did not, but he is of that nature sometimes in his most difficult ways.
Charles Hendry: I found the explanation quite helpful, so I am grateful to the Minister. We have discussed how much decommissioning might cost, and the hon. Member for Copeland suggested the figure of £600 million, which seems to be a widely regarded figure. If a plant closed one year after operation, it would cost as much to decommission as if it ran for 50 years; the facility would have been used and the decommissioning costs would exist. The point that the hon. Member for Northavon is trying to get at is whether the £600 million will need to be in the pot on the day that it starts generating electricity, so that it is available for decommissioning if it closes down early, or whether I think this is the answer from what the Minister just saidas long as there are other guarantees to make up the money to that level, the plant will not have to have that money in the pot to begin with, but there will have to be guarantees that the money will come from other sources.
Malcolm Wicks: We do not envisage all the money having to be in the pot on day one. We have talked about the possibility of earlier paymentsfront-loading. However, I said that when we felt that there was adequate security, through insurance, bonds or clear commitments from the parent company, the issue could be straight-lined. That is the important point. The important thing is that we make sure, as reasonably as possible, that the money exists from the company, from the fund, but not from the taxpayer, to ensure appropriate decommissioning.
Malcolm Wicks: I am torn between answering earlier questions and taking new ones, but of course I shall take a new one.
Mr. Binley: Just one more intervention, because I hope that it may help the Minister. One assumes that the fund will be held centrally. We are talking about
Malcolm Wicks: It is not a Government fund; it will be for the company to establish an independent fund at arms length run by independent trustees. As civil nuclear is rolled out, there will be a number of different funds, all separately accountable. There will be no pooling of funds or sharing of risk in that sense. The only modification to which I might need to return is when one company is on one site with more than one nuclear reactor. Indeed, I shall return to it straight away, because I am so intrigued by the question.
The hon. Gentleman will know that it is for the operator to set out in its decommissioning programme its proposed fund structure. Operators may decide to create a single fund or establish separate funds for their decommissioning, waste management and waste disposal costs. Whether a company has separate funds for each reactor or one company fund is a matter for its judgment, but there will be no pooling across different companies or across all new nuclear reactors in the land. I hope that that clarifies the situation; I am grateful for the hon. Gentleman asking me about it.
I shall emphasise those points, although I am in danger of repeating myself. It will be possible to make payments out of the fund only to meet the costs of waste management and decommissioning. I think that I have made clear the structure of the fund and our plan to ensure that there is sufficient funding. The hon. Member for Northavon asked whether money can be spent outside the fund and claimed back from it. I think that that was the burden of his question, and the answer is no. We must be very clear about what the fund is available for and what permissions are necessary to draw on it.
The hon. Member for Northavon asked me about the timing for ensuring that moneys are in place for decommissioning. It would certainly have to be in reasonable time before the date on which the station is expected to cease electricity generation to ensure that the appropriate moneys have been built up. Certainly, sufficient moneys must be in the fund, having regard to expected investment performance.
Steve Webb: I am puzzled, because the Minister is talking about bonds and insurance as alternatives to money in the fund. I think that that is an accurate understanding. In oral evidence, Dr. Higson, a departmental official, said that because many of the costs will be front-loaded, either the money would have to be in the fund or bonds or insurance would have to be in place. The implication was that that will be an alternative to having cash in the fund. If bonds and insurance are good enough, why bother with a fund at all? Why not just have bonds and insurance? What is the added value of the fund? If it has one, how can we have confidence in it, if it only builds up enough money decades into the process? I am confused.
Malcolm Wicks: Let me see if I can help the hon. Gentleman with his confusion. Centre stage is the concept of the fund, which will be at arms length from the company, so that it cannot draw on it. Generally,
We are consulting on that matter, but it is early days, and want to seek expert advice and to hear from the industry and others. We are saying that a company could front-load a scheme. I do not mean that it would write a cheque for, say, £600 million on day oneit could, if it wanted to, but I doubt that it wouldbut that it might front-load in the early years to build up a reasonable amount of money to guard against eventualities. However, if the company felt that it would rather take a more rational and straight-lined approach, it would be allowed to do so only if other securities were available. We are discussing that with the industry. A company wishing to take a straight-lined approach could say, Here are some bonds, or, Here is an insurance scheme. That could be an alternative if the company could provide clear guarantees from the parent company. I hope that the hon. Gentleman is happy with that.
The hon. Member for Wealden asked for clarification on the length of time it takes for waste to cool before it can be disposed of and on the Governments strategy for interim storage. Our base case, set out in the guidance, assumes that spent fuel will be stored in cooling ponds for a period following removal from the reactor, which follows best practice and advice from experts. The length of that period will depend on a number of factors and will need to satisfy the requirements of the regulators. Spent fuel will then be transferred to interim stores, the design of which must be agreed with regulators and meet UK regulatory requirements.
Finally, the hon. Member for St. Albans asked about payment holidays. Having read a note that I have received, I think that I have dealt with that. The crucial things are that the moneys build up to the necessary level and that the fund will be regularly reviewed to ensure that it is on course.
Steve Webb: I shall not sleep tonight, unless I get this straight in my head. My assertion is that company pensions went wrong and did not have enough to meet the liabilities, despite all the safeguards that we are talking about, because there were quinquennial reviews. A lot of this money will presumably be invested in the stock market, although not necessarily in a risky way. However, this is a long-term investment so presumably it will be risky. Stock markets can fall 5 per cent. in a day, so how can the Minister be confident about what will happen the moment the balloon goes up or the insolvency event happens, or whatever? There is a way of keeping an eye on things annually. However, the Minister used the word quinquennial. We know that when such things happen over time things can change dramatically, funds can be underfunded and the taxpayer might have to fill the gap. Since that is and was a concern in respect of pensions, why could it not happen in this case?
Malcolm Wicks: I could say, but I would not convince the hon. Gentleman, because in this case a former Pensions Minister, namely myself, is in charge of the strategy. When the hon. Gentleman was the
Of course, there are sometimes significant fluctuations in the value of equities. In the United States, for example, there has been a credit crunch. I should have thought that one of the implications hereit is similar for prudent financial managementis that the trustees and the board that we are establishing would want to consider this matter in due course and ensure two things. First, they would want to see that there is the usual reasonable spread of investments, as in any fund. Secondly, to make a useful comparison, when a person is reaching the age at which they wish to retire they will ensure, wherever possible, that their moneys move into safer havensI do not mean tax havenssuch as bonds and post office or building society accounts. They would have to choose a building society carefully[Interruption.] Actually, it is not a building society, so I should not have said that. It should have stayed a building society, arguably. Nevertheless, as people move into safer investments on retiring, I assume that 10 years before decommissioning it would be sensible for even safer investments to be made. In that way, trustees would do their best to ensure that all is well with the level of the fund.
Charles Hendry: One thing is for certain: if Robert Maxwell had been running a nuclear power station, he would not have run off with the nuclear waste, so that would have been an improvement.
I was concerned by the Minister saying that there would be either a single fund for each nuclear power plant or a joint fund to cover a range of plants. I am not clear about that: I think that it is being consulted on, rather than being set in stone. However, that worries me considerably, because if there is a fund for a group of nuclear power stations and one is sold there will have to be a difficult reconciliation of the funds relationships and which plant is being dealt with to ensure that a fund moves with the sale of the plant. In addition, if there were a downturn in the stock market when the first plant was due to be decommissioned, more might have to be drawn out of the fund than was anticipated, which means that money that had been intended to be used for other power stations decommissioning may be taken out earlier. I urge the Minister to consider having just one fund per installation to provide the security that we all feel is necessary in this area.
Will the Minister clarify whether the appointment of the funds trustees will be wholly in the gift of the companies to whom they relate or would there have to be Government approval in respect of the trustees being suitable to carry out their tasks?
Malcolm Wicks: On the approval of the trustees, I am sure that we could not just leave it to the company, but I may be able to give the hon. Gentleman more reassurance about that. That is an important question.
In respect of whether there should be a separate fund per reactor or whether there could be one for the whole company, certainly, there must be transparency and separate reporting of funds for each station. I am advised that there is no prospect of cross-subsidy
Question put and agreed to.
Clause 50 ordered to stand part of the Bill.
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