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As the noble Lord will recognise, the decommissioning of power stations is an ongoing programme. By 2035, we will have decommissioned all the power stations built in the 20th century. This is an ongoing problem. Over the next 10 years, all but one of the existing nuclear power stations will be shut down, but we have not yet shut any down completely; they are shut down, but they are not yet fully decommissioned. Over the next 25 years, and in the years since the process has been begun, we are seeing and will see the decommissioning of the nuclear power stations built in the 20th century. They raise all sorts of issues of cost and safety, but not safety in terms of the locality. I do not think that anxiety is expressed about the decommissioning process. The noble Lord may want to contradict me on that, but I merely say to him that there would be no question of new nuclear build if we were not entirely confident of the fact that we can decommission the 25 stations that we must by 2035 because their useful life is over.

Lord Jenkin of Roding: As I said earlier, we will want to study carefully what the Minister said in his various replies. I think we can be pretty certain that we will want to come back to this at Report, in the hope that the matter will have been to some extent clarified. I repeat that I am meeting officials in BERR later this week; I have given them notice that this is one of the issues that we will want to look at. In the mean time, the right course for me is to withdraw the amendment, and I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 45 agreed to.

Lord Davies of Oldham: I beg to move that the Committee adjourn for 10 minutes.

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Moved accordingly, and, on Question, Motion agreed to.

The Deputy Chairman of Committees (Lord Brougham and Vaux): The Committee will adjourn for 10 minutes until 14 minutes to the hour.

[The Committee was adjourned from 5.36 to 5.46 pm.]

Clause 46 [Procedure for modifying approved programme]:

[Amendment No. 44 not moved.]

Clause 46 agreed to.

Clauses 47 to 50 agreed to.

Clause 51 [Nuclear decommissioning: regulations and guidance]:

[Amendment No. 45 not moved.]

Clause 51 agreed to.

Clause 52 agreed to.

Clause 53 [Protection of security under approved programme]:

Lord Bach moved Amendment No. 46:

(a) a charge over a bank account or any other asset;(b) a deposit of money;(c) a performance bond or guarantee;(d) an insurance policy;(e) a letter of credit.”

The noble Lord said: I shall speak also to government Amendments Nos. 50 and 52. They have been grouped as they all relate to the definition of security for decommissioning nuclear power stations, offshore renewable energy installations and offshore oil and gas installations and the protection of that security in the event of insolvency. Clauses 53, 67 and 71 respectively aim to ensure that moneys set aside for decommissioning by way of security cannot be accessed by creditors in the event of a company becoming insolvent.

The provisions do that by disapplying the relevant insolvency legislation. That ensures that moneys set aside for decommissioning will be restricted or prevented from being used for anything other than their intended purpose of fulfilling decommissioning objectives and obligations, even if the company with those objectives and obligations becomes insolvent.

If we did not have those provisions and a company with decommissioning obligations became insolvent, it might be possible for creditors to access moneys set aside for decommissioning. That could mean that insufficient moneys remained to pay for the full cost of decommissioning and, in the case of new nuclear, the operator’s full share of waste management costs.

The amendments clarify the meaning of the term “security” as used in relation to those provisions. To take each amendment in turn, Amendment No. 46

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relates to the decommissioning and clean-up of new nuclear sites. As Clause 53 is drafted, there is a risk that if an operator was to become insolvent the courts could construe the term “security” by reference to the narrow legal nature of any arrangements in place, rather than their broader economic effect. For example, if a performance bond was provided as security for decommissioning funds, a court might determine that this would not amount to a security, and therefore in the event of insolvency the bond could be accessed for creditors for purposes other than decommissioning. In such a situation there would be a high risk that the taxpayer would have to meet any resultant shortfall in decommissioning funds. That could put funds set aside for decommissioning at risk as they would not then fall within the protection from insolvency provided by in the clause.

Through amendment, the Government want to ensure that operators have access to a full range of instruments which, if acceptable to the Secretary of State, might be put forward as part of the programme. That could include instruments that do not yet exist but might be developed as the market matures.

Amendment No. 50 amends the offshore renewables provisions in Clause 67. Like Clause 53 for nuclear, Clause 67 provides protection against insolvency. The Energy Act 2004 defines security in relation to decommissioning programmes for renewable energy installations. This amendment amends the definition given in the Energy Act 2004 to include an insurance policy within that definition. This brings the definition of security in offshore renewables into line with the regimes for nuclear and oil and gas, and ensures a consistent regime. Amendment No. 52 relates to oil and gas installations. It replicates the previous nuclear amendment so that insolvency protection under Clause 71 has a consistent definition of security.

I hope that the Committee acknowledges the importance of ensuring that funds set aside for decommissioning are available for the purpose for which they are set aside, even in the event of a company becoming insolvent. We also hope that it is accepted that these amendments should be supported, because they strengthen the protections for the taxpayer by providing greater clarity to the courts of the definition of a security. The amendments also ensure that we have consistency of protection for decommissioning funds across the three regimes. I beg to move.

Baroness Carnegy of Lour: Have the Government consulted the insurance industry about this? I do not know much about insurance, but it would seem an extraordinary risk to take on. Will this matter be insurable?

Lord Bach: Yes, we have consulted the insurance industry on this matter.

Lord De Mauley: These amendments concern the definition of security. They are important and helpful as far as they go. We agree with the Minister that security must remain if a company becomes insolvent.

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Clause 53(4) states that, for the purposes of subsection (3), no regard is to be had to the Insolvency Act and the Northern Ireland equivalent to the extent that it would prevent or restrict the protected assets being applied as necessary to cover the cost of decommissioning. Is this the right way of doing that? Whether or not regard is so paid, if we get to a point at which the site operator becomes insolvent, it is too late—the horse has bolted. I would go further: this must not be dependent on whether the company goes bust. The security set-aside must remain set aside, completely independent of the solvency of the site operator. Perhaps the noble Lord can help me.

Lord Teverson: I was particularly interested in the list in paragraphs (a) to (e) of the amendment. I was wondering, when I turned the page, whether (f) would be lottery tickets and (g) sub-prime mortgage special instruments. It is a strange list which raises a number of questions, one of which is fundamental and comes back, in a way, to what the noble Lord, Lord De Mauley, said. If there is a fixed payment, such as that which we ascertained in the previous amendment, and if the operators know that they have to pay it—it is related, I presume, to something like a production unit—I would have thought that it would be much easier to transfer the money into another body that is nothing to do with the business. Maybe I have misunderstood this. Why does the fund remain within the potential legal circumference of the operator? Under the simplified payment system that the Minister outlined earlier on, there seems to be no reason why it should remain there at all. The problem disappears because the money is held elsewhere. We do not want it go to the Treasury because we all know that it would then disappear and our sons, daughters and grandchildren would all miss it. There must be some way of holding the money, just like money is held in sovereign funds elsewhere.

More seriously, we have a list of assets here, but is it specified what assets these operators are allowed to invest in and where they can be held? Do they have to be held in the United Kingdom? It is fine to talk about UK insolvency law, but what if it is an international business? I presume that a lot of these funds could potentially be held elsewhere. These organisations are subject to all sorts of international and multinational legal requirements regarding creditors in other jurisdictions, which we have absolutely no control over.

If there are these different assets, how do we judge their value? Are we going to get ourselves into some sort of pension fund problem in terms of the value of the assets that the businesses hold in the various ways that they might hold them? If the markets move down or if certain other market changes happen, are we going to have annual valuations of these funds that then have to be made up over time? We are talking about such large amounts of money that this could have big effects in the area that we are talking about. I take the Minister’s point that the Government, and we as an economy, already have the experience of the offshore petroleum industry, but I am sure, as the noble Lord, Lord Oxburgh, would say, that those amounts themselves are high. We must be into a

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different league with nuclear liabilities, however, so this is a whole different area that has to be managed in a different way.

Lord Bach: I shall do my best to answer the two noble Lords who have asked questions, but I am sure they know that the principal aim behind these proposals is that the taxpayer should not suddenly find himself or herself faced with a considerable bill because the company involved, either through its own fault or not, has become insolvent. We were concerned, insolvency law being what it was, that unless it was set out clearly, there would be a danger that money in the fund itself could be seized or might legally belong to the creditors of that company. I hope that the general principle behind this clause is accepted; the noble Lord, Lord De Mauley, said that.

The noble Lord asked why the Bill refers to insolvency. Is that not after the fact? The advice I have received is that funds are set up in advance so the necessary finances would be there. That would protect those finances; in the event of insolvency occurring at that stage, the funds would have been set aside beforehand.

The noble Lord, Lord Teverson, asked what assets can be invested in. The Secretary of State would expect the funding arrangement plan to include something called a statement of investment principles, an SIP, which sets out the fund’s investment policy, designed to ensure that the money that the fund receives from the operator will be appropriately invested to generate the funds necessary to meet the operator’s liabilities when they fall due. As a minimum, before the Secretary of State would agree to a fund being set up, he would expect the SIP to include the fund’s investment objectives, the attitude to risk and how risk is defined, the asset allocation strategy, the decision-making authorities, performance measurement criteria, benchmarks, the policy on realising investments, the policy on exercising rights, the policy on the extent to which social, environmental and ethical considerations are taken into account, the mandates to all advisers and reporting requirements. Those, among others things, would be expected under statement of investment principles. Those are the circumstances under which we bring forward these amendments to deal with the situation, which may or may not arise, of a company going bust and creditors wanting to seize all possible assets.

6 pm

I shall need more advice on the international point raised by the noble Lord. It is an important question and I should welcome the opportunity to write to him and to other Members of the Committee with a response. As I understand it, we are setting up funds of this type for UK energy here, as opposed to elsewhere. The noble Lord made the point about globalisation very well, but whether or not the company has assets in other parts of the world, what is left in the fund is, as Clause 42 sets out, specifically for nuclear and other plants in this country. That money is protected from the danger of insolvency, thus, it is hoped, saving the taxpayer what could be a very large bill.

Baroness Carnegy of Lour: I may be being stupid but I did not hear the Minister answer the question put by the noble Lord, Lord Teverson. He asked what

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is wrong with the money being put into a completely separate piggy bank which has nothing to do with the company or the Government and where it can sit in case it is required.

Lord Bach: As I understand it, that is not how this system works. The fund is set up under this scheme in order to deal with the costs of getting rid of waste material and of achieving decommissioning. Clearly, lawyers thought that there was a danger that the fund might be liable in cases of insolvency. Obviously, we like the scheme that we are setting up and, from the general consensus in the Committee, it seems that noble Lords like it too. We think that changing the way in which the fund is operated would be rather a far step to take when, as we are doing here, we can easily change the position regarding insolvency.

Lord Teverson: I do not understand the case put by the Minister. If you want to de-risk the decommissioning fund, which is a key thing that we all want to do, the easiest way to do so is to take it out of the legal circumference of the operator altogether, and that can be done by paying cash to whichever fund it goes into at the time on a per kilowatt hour basis, an operational time basis or whatever the basis needs to be. That would solve the whole problem and taxpayers would have certainty. It would mean that the public sector had to manage the fund but I am sure that it could delegate that as effectively as an energy operator—it is not the core business of either the public sector or energy operators. I do not understand why that is not seen as a straightforward solution. Certainly, as a taxpayer, I would feel far better about that solution than I would about trying to put national laws around international operators. It seems a simple principle to me.

Lord Bach: The best I can do is to say that funds will be expected to be established in a manner that maximises what is described as their insolvency remoteness, which is what Clause 53 does; it simply provides further assurances in this regard. However, the noble Lord has raised a significant point, so in the letter I will write to him about international obligations, perhaps I may include a fuller answer to the question he and the noble Baroness have pressed.

On Question, amendment agreed to.

Clause 53, as amended, agreed to.

Clause 54 [Offence to fail to comply with approved programme]:

Lord De Mauley moved Amendment No. 48:

The noble Lord said: Clause 54 concerns the rules that govern decommissioning and waste handling programmes. There could scarcely be a more serious issue, and the most robust measures need to be in place to ensure that the whole process of decommissioning is handled in the safest possible manner. This is why we feel that there should be stringent penalties for anyone who breaks the laws concerning decommissioning and nuclear waste. The penalties should reflect the seriousness of such an offence.

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Amendment No. 48 would increase the maximum prison sentence from two to five years. Breaking the laws on nuclear decommissioning would not only put the safety of the community at severe risk but would represent a breach of trust in terms of the assurances concerning the proper handling of disposal. We feel that two years is simply not stringent enough. Considering the degree of risk, we feel that five years is more appropriate, while admitting that it is a subjective judgment.

Amendment No. 49 in the group concerns those who might have provided false information to the Secretary of State. Anyone who intentionally gives misleading information should be subject to the full might of the law. However, we propose to omit the word “misleading” to avoid the chance of someone being prosecuted for unwittingly providing misleading information. The term is subjective. Misleading information can be provided knowingly, negligently or innocently. The latter, we feel, should be free from prosecution. The wording of the clause, if amended in this way, would still be absolutely clear that anyone who knowingly or recklessly supplies false information to the Secretary of State in response to a requirement under this chapter would be committing an offence. It would leave no room for manoeuvre. It would be sad indeed if someone was locked up for providing information that was deemed misleading by a court when they had absolutely no intention of misleading the Secretary of State. I beg to move.

Lord Teverson: I agree with the noble Lord, Lord De Mauley, about the increase from two to five years. However, it would usually be a corporate body that would fall foul of these rules rather than an individual, so I am not sure how it would relate to such a body. I presume that normally this would relate to paragraph (a), which imposes a fine, and I want to ask the Minister as a point of information what the maximum fine would be. We are talking about major implications both monetarily and in terms of the large size of the industry. What sort of maximum level of fine might there be in relation to the major sums we are talking about?

Lord Bach: I thank both noble Lords. Clause 54 makes it a criminal offence for an operator or a person with obligations under an approved programme not to comply with the programme unless they prove that they exercised due diligence to avoid committing the offence. Failing to comply could in extreme circumstances result in the taxpayer being called on to meet the costs of decommissioning and therefore in our view warrants the use of criminal sanctions. No one seems to have disputed that.

Is it right that the two-year maximum period should be increased to five years? The message we want to send is that where there is a breach, the operator will have to demonstrate that they did everything they could to avoid committing that breach. We think that this is what the clause as drafted achieves, and we believe that two years maximum is an appropriate penalty with a sufficient deterrent effect. We do not think that increasing the maximum sentence to five

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years—basically, just for the sake of it—would materially change the deterrent effect of these provisions. Instead, it is the existence in the first place of the potential for imprisonment itself that is likely to influence the behaviour of individuals with obligations under a decommissioning programme. The penalty is consistent with the penalty regimes for offshore renewables and oil and gas installations decommissioning. If we are to alter that to make it inconsistent with those other regimes, we ought to have good reason for doing so.

The criminal offences in this chapter have been created only for the most serious infringements that could undermine the effectiveness of the structure as a whole. In order to do that, my department sought the advice of the Ministry of Justice in relation to the creation of the new criminal sanction. Its experts were content that the proposed two-year imprisonment term was appropriate.

It is important to remember that the Bill encompasses civil sanctions as well as criminal offences. The Secretary of State may seek a court order to compel a person to provide him with information about the programme under Clause 50 of the Bill. It is true that there are higher penalties in other areas of legislation, such as Section 2(2) of the Nuclear Installations Act, which creates a maximum penalty of five years’ imprisonment for enriching uranium or extracting uranium or plutonium from spent fuel without the relevant licence, and the Health and Safety at Work Act 1974, which set the criminal sanctions for breaches of certain nuclear matters where the offence could put public health at risk. We do not think that they are on all fours with this.

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