Supplementary memorandum from the Department
for Energy and Climate Change
Questions 32-35 (Mr Bacon): Investments of the
Nuclear Liabilities Fund
The Nuclear Liabilities Fund (NLF) is classified
to the public sector. The government stands behind it in that
it would make good its liabilities were its assets to prove insufficient.
In principle the assets of the NLF are among
the many government holdings which are aggregated in the Exchequer
overnight each day to minimise the need for government borrowing.
The C&AG's report[11]
of October 2009 advocated this approach as the most efficient
way for the government to manage its daily cashflow requirements.
In practice a small proportion of the NLF's
assets cannot be consolidated into the Exchequer because they
are held in private sector form, as set out below.
NLF investments, £m, 31 March
2009
| | |
|
| National Loans Fund | |
7,397 | |
| index linked gilts | | 62
| |
| cash | | 441
| |
| public sector subtotal
| | 7,900 |
| equities | | 347
| |
| property | | 39
| |
| private sector subtotal
| | 386 |
| accruals | | 3
| |
| total |
| 8,289 |
| | |
|
| |
| |
In line with the C&AG's recommendation, the government's
investment policy for the NLF is to maximise its holdings in public
sector accounts. It has not been possible for the NLF to achieve
this because conditions for selling the other holdings have been
unfavourable. Disposal, as market conditions allow, is now planned.
As to scoring, all the NLF assets held in public sector form
reduce public sector net debt (PSND). So would any other liquid
assets, such as cash held in private sector bank accounts. NLF
assets held in other private sector forms would raise PSND.
Questions 90-91 (Geraldine Smith): Status of EDF Application
for Life Extension to Heysham 1 Nuclear Power Station
Heysham 1 nuclear power station was commissioned in
1984 and Heysham 2 nuclear power station was commissioned
in 1988. The plants have a planned lifetime until 2014 and
2023 respectively.
EDF Energy have advised that they will continue to pursue
life extension of existing nuclear plants where it is technically
and financially viable to do so. Decisions on life extension are
taken no later than three years before the end of the current
planned life for accounting purposes.
As the decisions on life extension for both Heysham 1 and
Hartlepool have to be made by 2011, the company has begun to investigate
the financial and technical viability of pursuing a life extension
for both of these stations which are of similar design, and will
make a proposal to the company's Board in due course.
In autumn 2009, the nuclear regulator—the Nuclear Installations
Inspectorate (NII)—approved the periodic safety review (PSR),
for Heysham 1. This decision means that the NII are satisfied
the PSR is adequate to justify continued operation of the station
for up to 10 years—subject to continued satisfactory
performance monitored through the station's regular test and inspection
programmes. This is a pre-requisite before life extension—which
is a commercial decision for the company—can be made.
Question 112 (Chairman): Nuclear Power Stations which EDF has
built without a subsidy
We do not have information about the funding arrangements
that EdF have used in the construction of nuclear power stations
in the past. All the nuclear power stations that EDF has built
(ie completed) are in France.
The White Paper on Nuclear Power (2008) states that "it
will be for energy companies to fund, develop and build new nuclear
power stations in the UK, including meeting the full costs of
decommissioning and their full share of waste management costs".
Section 2 of the White Paper includes more detail on the
Government's assessment of the economics of nuclear power. As
announced in the 2009 Pre-Budget Report, the Department of
Energy and Climate Change and HM Treasury are taking forward work
to ensure the electricity market framework can most effectively
deliver a fair deal for the consumer and the low-carbon investment
needed in the long term. This work will report back with initial
findings at Budget 2010.
Question 114 (Mr Davidson): UK Electricity Price Levels and
Increases compared to Europe
In the first half of 2009, UK domestic electricity prices
for medium consumers were the fourth lowest in the EU15, 22% below
the EU15 median. UK prices between the first half of 2008 and
the first half of 2009 increased more slowly than prices
in the EU.
In the first half of 2009, UK prices for industrial electricity
consumers were generally above the EU15 median. UK prices
between the first half of 2008 and the first half of 2009 increased
more quickly than prices in the EU.
Question 114 (Mr Davidson): Whether or not EDF's Prices in
the UK compare well or badly to EDF's Prices elsewhere in Europe
We have no data on prices charged by individual companies
in other EU countries.
Questions 162-166 (Mr Bacon): Funding and Investment arrangements
for Decommissioning British Energy's existing Nuclear Plant and
for New Nuclear Power Stations
British Energy's existing nuclear plant
The Nuclear Liabilities Fund (NLF) provides a segregated
fund with a pool of assets to meet certain decommissioning costs
and uncontracted liabilities at the British Energy (BE) sites.
Following the restructuring of BE in 2005, the NLF is explicitly
underwritten by the Government to the extent that its assets do
not cover British Energy's liabilities. This is not the case for
new nuclear power stations.
Based on BE's current estimates for the costs of meeting
their decommissioning and uncontracted liabilities, the estimated
value of the NLF's assets is significantly greater than the current
estimated costs of discharging its obligations. Since the liabilities
extend over a very long period (ie into the next century), there
are inevitable uncertainties in quantifying them.
Government policy is for the NLF to be invested in public
sector assets (ie gilts and deposits with the National Loans Fund).
New nuclear power stations
Through the Energy Act 2008 (the "Act") the
Government seeks to ensure that the operator meets the full costs
of decommissioning and full share of the waste management and
disposal costs.
The Act requires the operator of a new nuclear power station
to submit to the Secretary of State for approval a Funded Decommissioning
Programme (FDP) before construction of the new nuclear power station
begins.
The Act also creates a monitoring and review framework and
provides the Secretary of State with a range of powers to ensure
the FDP is complied with.
The FDP must contain:
— a Decommissioning and Waste Management Plan (DWMP)
which must contain the estimated costs of the steps the operator
will take to treat, store, manage and dispose of any hazardous
material during the operation of the station and the steps to
decommission the installation, clean up the site and manage and
dispose of the waste (including spent fuel);
— a Funding Arrangement Plan (FAP) which must set out
how the operator intends to meet those costs and the details of
the financial security to be put in place to meet the costs identified.
In developing a FAP the Government will expect the following
principles to be met:
— Independence of Fund: The arrangements relating to
the accumulation, management and disbursement of moneys are to
be independent of the operator and of the Government.
— Sufficiency of Fund: The Fund is to be structured,
governed and operated so that it delivers sufficient moneys to
discharge in full the operator's liabilities as and when they
fall due.
— Restrictions on use of Fund assets: The structure
and governance of the Fund must be such that moneys in the Fund
can only be used for decommissioning, waste management and waste
disposal.
— Insolvency remoteness: The operator must ensure that
the Fund is structured to ensure the Fund is insolvency remote.
— Preventing recourse to public funds: The operator
must ensure that the prospect of the operator's liabilities having
to be met in whole or in part from public funds is remote at all
times.
— Transparency: The process of accumulating, maintaining
and managing funds sufficient to discharge the operator's liabilities
is to be transparent and visible to the Secretary of State, stakeholders
and the wider public.
8 March 2010
11
Government Cash Management, 16 October 2009 Back
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