Nuclear Privatisation
Research Paper 96/3
15 January 1996
The proposed privatisation of the bulk of the nuclear electricity generation industry raises a number of questions, many of which have been the subject of a recent House of Commons Trade and Industry Committee inquiry. Much of the debate which followed the publication, in May 1995, of the Government's white paper (The Prospects for Nuclear Power in the UK, Cm 2860) has focused on safety and regulatory issues as well as the allocation of liabilities. This paper discusses these specific aspects and summarises the arguments for and against privatisation.
Grahame Danby Science and Environment Section
House of Commons Library Library Research Papers are compiled for the benefit of Members of Parliament and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public. CONTENTS
Page
I The nuclear review 5
A. Terms of reference 5 B. The case for new nuclear stations 7 1. Costs of nuclear power 7 2. Market forces 9 3. Environmental factors 10 4. Fuel diversity 11 5. Industrial base 11 C. Nuclear liabilities 12 1. Privatised company 13 2. Cost of a nuclear accident 14 D. Privatisation proposals 16 1. Principles 16 2. Details 16 3. BNFL 17 4. Alternative structures 18 5. Timing 18
II Prospects for privatisation 19
A. Parliamentary involvement 19 B. Reactions to the proposed privatisation 21 C. Flotation and likely proceeds 23 D. Funding the liabilities 24 E. Office of Electricity Regulation 26 F. Safety 27
III Glossary 29
IV Further reading 30 Research Paper 96/3
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I The nuclear review
On 9 November 1989, the then Secretary of State for Energy (Mr John Wakeham) announced that the Government would review the prospects for nuclear power in 1994.1 This followed the withdrawal of nuclear power stations from the privatisation of the electricity industry. These included the first generation Magnox stations, the second generation Advanced Gas- cooled Reactors, and the Sizewell B Pressurised Water Reactor which has recently become operational. Significantly, the Government also announced a moratorium on the construction of a family of PWR stations similar to Sizewell B. In March 1990, the nuclear-related assets and liabilities of the CEGB and the SSEB were vested respectively in Nuclear Electric plc and Scottish Nuclear Ltd, both government-owned companies. Five years on, the Government has re-examined the commercial case for new nuclear stations, and considered whether part of the industry is now fit for privatisation.
A. Terms of reference
The Minister for Industry and Energy (Mr Tim Eggar) announced the terms of reference for the nuclear review in a written answer last May:2
Mr. Yeo : To ask the President of the Board of Trade if he will make a statement on the terms of reference for the nuclear review.
Mr. Eggar : I am now in a position to announce the terms of reference, timing and format of the nuclear review. This answer has been agreed with my right hon. Friend the Secretary of State for Scotland, who has responsibility for the nuclear power generating industry in Scotland. The Government believe that the future role of nuclear power in the United Kingdom's electricity supply will depend on it proving itself competitive while maintaining rigorous standards of safety and environmental protection. The coal review established that there is a sound economic basis for continuing to operate existing nuclear stations. The nuclear review will not consider whether Sizewell B should be brought on stream. Sizewell B is on course to start operating this year, subject to the receipt by Nuclear Electric of such consents as are required by law. Decisions on these consents are matters for the appropriate Ministers and authorities and are not matters for the review. The review will, however, take into account the decisions made on Sizewell B, whether the consents are granted or refused. The nuclear review will focus on the future prospects for nuclear power. It will examine the economic and commercial viability of new nuclear stations in the United Kingdom, against the background of the Government's energy policy as set out in the White Paper "The Prospects for Coal", Cm. 2235.
1 HC Deb 9 November 1989 cc 1171-79 2 HC Deb 19 May 1994 cc 543-4W
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The Government have asked the nuclear generating industry to make the commercial case for new nuclear generating capacity and to make that case publicly available. Whether any new nuclear station could be built with private sector finance will be a key test of that case. The Government would welcome comments on the industry's case, which will be published shortly.
The Government also invite submissions from interested parties on whether new nuclear power stations offer particular diversity, security of supply and environmental benefits or disadvantages. The review will examine possible options for introducing private sector finance into the nuclear industry. As part of this, the Government are prepared to consider without commitment representations on whether privatisation would in principle be feasible, and what a practical timescale might be. The review will address the question of how best to manage the substantial nuclear waste and decommissioning liabilities which are currently the responsibility of the public sector, so as to secure value for money for the taxpayer while ensuring necessary safety and environmental standards are met. The review will also assess the existing arrangements to enable the full costs of nuclear power in the United Kingdom to be met, taking account of the Trade and Industry Committee's recommendations on the fossil fuel levy in its report, "British Energy Policy and the Market for Coal," HC 236. Submissions on these issues should be made in writing both to my Department and the Scottish Office, to be received by 30 September. All substantive submissions received by the Government will be made publicly available. Copies will be placed in the Libraries of this House and of the House of Lords. Commercially confidential information in submissions received by the Government, internal papers and advice and reports internal to Government, and advice from external advisers will not be made publicly available in this way. The review will be undertaken by the Department of Trade and Industry and the Scottish Office Industry Department, in consultation with other Government Departments as appropriate. The Government may appoint consultants to advise it on matters relevant to the review as the need arises. My right hon. Friend the Secretary of State for the Environment is announcing today a separate review of radioactive waste management policy, to be conducted in parallel with the nuclear review.
The final conclusions of the Review of Radioactive Waste Management Policy3, referred to in the final paragraph of Mr Eggar's written answer, were published in July 1995 following the issue, for consultation, of preliminary conclusions4 the previous year. Many of the areas covered in this radioactive waste review directly impinge on the commercial prospects of
3 Cm 2919, July 1995 4 Review of Radioactive Waste Management Policy. Preliminary Conclusions Department of the Environment, August 1994
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nuclear power, most particularly "back-end" costs such as decommissioning redundant plant and disposing of the radioactive waste produced by nuclear stations.
A focus of this library research paper is the Conclusions of the Government's Nuclear Review5 which addressed the points outlined in the above terms of reference. Of particular interest are the proposals for privatising a large part of the nuclear industry, though to put these in their proper context it will be necessary to summarise briefly the other areas covered. Notably, these consist of the case for new nuclear generating capacity and the management of radioactive waste including the arrangements for financing the ultimate decommissioning of nuclear facilities.
B. The case for new nuclear stations
Under Section 36 of the Electricity Act 1989 (cap 29) the Secretary of State's consent is required before any sizeable6 power station is constructed. The Government believes that "public sector support for new nuclear power stations can only be justified by compelling strategic needs"7, making the prospects for new construction heavily dependent on the willingness of private investors to finance new build. The attractiveness to potential shareholders of the present day industry is likely to be influenced by the strength of the commercial case for new nuclear stations.
1. Costs of nuclear power
The cost of nuclear power stations, and the competing alternatives such as coal and gas-fired power stations, is usually expressed in pence per kilowatt-hour (p/kWh). This total unit cost takes into account the capital required to construct the power station and decommission it at the end of its operating life. Recurrent costs, such as fuel, operation and maintenance, are also taken into account. Because nuclear power stations are relatively expensive to build, the total unit cost of the electricity generated is particularly sensitive to a combination of interest rates and the amortisation period, or pay-back time.8 A relatively small rise in interest rates could make a new nuclear power station commercially non-viable.
5 The Prospects for Nuclear Power in the UK Cm 2860, May 1995 6 For the purposes of the Act a "sizeable" power station is one with a capacity in excess of 50 megawatts. The Secretary of State may modify this definition by order. 7 The Prospects for Nuclear Power in the UK Cm 2860 para 4.50 8 Nuclear Power in the UK IEE November 1993
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Commercial decisions on whether to build a new nuclear station are based on an estimate of the lifetime levelised cost. This is the total unit price a generator would have to charge over the operating life of the power station in order to recover capital and recurrent costs. Some of these costs, most particularly decommissioning, will fall due long after the reactor has ceased operation. As the lifetime levelised cost is expressed in "present value" terms, the time normally being taken to be when the power station begins operation, future income streams (and costs) are discounted. When discount rates are high, the price per unit of electricity will have to increase to meet the higher required rate of return on initial capital and other expenditure.9,10
According to the Nuclear Utilities Chairman's Group, the lifetime levelised cost of electricity from a new nuclear power station, based on two PWRs (pressurised water reactors), would amount to 2.9 pence per kilowatt-hour (1993 money values). This option, known as Sizewell C, was until recently favoured over the main alternative for new nuclear build: a single PWR known as Hinkley Point C.11 The latter station would consist of only one PWR and would in effect be a twin of the recently completed Sizewell B. In arriving at a figure of 2.9 p/kWh, the NUCG assumed an 8% real rate of return, that is after taking inflation into account, over a station lifetime of 40 years. Eight per cent represents a standard test discount rate for new public sector investments in power stations.12,13,14
A number of submissions to the nuclear review questioned these and other inputs to the NUCG's calculation. Nuclear Electric have acknowledged, for example, that if one adopted an 11% discount rate, then the unit price would rise to 3.7 p/kWh. The Consortium of Opposing Local Authorities (COLA) have argued that a higher discount rate of 13% would be more appropriate, that Nuclear Electric have underestimated the capital cost of building Sizewell C, and that the availability of the station to generate electricity and income has been overestimated by the industry. Taking these factors into account, COLA consider that the cost of electricity from Sizewell C would lie between 5.6 p/kWh and 6.3 p/kWh.15 Other submissions to the nuclear review put the cost as high as 8 p/kWh. This compares with a market price of 2.7p/kWh assumed by BZW, the merchant bank appointed by the Government to provide advice on private finance and the feasibility of privatisation. Following completion of the nuclear review, BZW has been appointed as the Government's financial adviser and global co-ordinator for the restructuring of the nuclear industry and its partial privatisation.16
9 The Future of Energy Use Earthscan 1995 10 Nuclear Power Economics and Technology: An Overview OECD/NEA 1992 11 "Nuclear Electric rethinks PWR plan" The Engineer 16 November 1995 12 Information on Nuclear Costs Energy Committee HC 312 1991/92 13 Robert Hill, Phil O'Keefe and Colin Snape, The Future of Energy Use, Earthscan 1995 14 Cm 2860, May 1995 paragraph 4.16 15 The Review of the Prospects of Nuclear Power COLA September 1994 16 "Privatisation of parts of the nuclear generating industry: appointment of advisers" DTI Press Release P/95/432 4 July 1995
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For the year ending March 1995 the average price of electricity from the Pool was 2.5p/kWh, a figure which takes into account variations in demand for electricity.17 The Electricity Pool is the trading market for electricity run by the National Grid Company.
2. Market forces
The nuclear review white paper notes that the majority of privately financed new power stations have been based on CCGT (combined-cycle gas turbine) technology. Paragraph 4.24 of the white paper ends with the following statement:
"On the basis of the evidence presented to the review, the Government concludes that it is unlikely in current market conditions and at current gas prices that Sizewell C can provide a rate of return competitive with the main alternative, a CCGT station."
The attractiveness of CCGT stations owes much to the relatively low price which gas presently fetches, and the speed with which a gas-fired power station can be built. More recently a similar conclusion appears to have been reached by British Energy plc, the name adopted for the holding company which will own the modern stations of Nuclear Electric plc and Scottish Nuclear Ltd on privatisation. At a board meeting on 11 December 1995, British Energy decided to abandon plans to build further nuclear power stations. One problem is doubtless the absence of satisfactory long-term contracts for electricity, a crucial underpinning for nuclear plant. There have been indications that the company may seek to diversify, either by building gas-fired stations based on CCGT technology or by acquiring a regional electricity company.18 This possibility was acknowledged in paragraph 4.48 of the nuclear review conclusions:
"Were [Nuclear Electric and Scottish Nuclear] to be privatised they would then be free to exercise their own commercial choice as to which type of generating plant to invest in."
In considering the case for new nuclear stations, the Government did not only consider the narrow commercial factors outlined above. Strategic factors such as environmental benefits, security of fuel supply and the domestic industrial base were also considered to see if they were of sufficient importance to justify Government intervention.
17 "Flogging the family plutonium" Nuclear Engineering International July 1995 p.18 18 "Plug pulled on more nuclear power" Financial Times 12 December 1995
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3. Environmental factors
Unlike coal or gas-fired power stations, the operation of a nuclear reactor does not lead to
emissions of carbon dioxide (CO2), though the fuels used during the construction phase will provide a contribution. Growing concentrations of this gas in the atmosphere are thought to be partly responsible for the increase in global temperature which has taken place over the last century.19 Mindful of the environmental and economic consequences20 of continued global warming, 137 states, including the UK, have ratified the Climate Change Convention aimed at returning carbon dioxide and other greenhouse gas emissions to 1990 levels by the year 2000. Discussions on further controls beyond that date have taken place.21 There are several ways in which reductions in carbon dioxide emissions could be achieved other than by building new nuclear reactors, including switching from coal to gas-fired stations which
emit less CO2 or to some renewable energy sources which emit none. More efficient use of energy would also constitute a flexible approach to achieving reductions in emissions.22 The Government considered the cost of future carbon dioxide abatement by the construction of a new nuclear station (Sizewell C) and has stated:23
"The Government concludes that there is at present no evidence to support the view that new nuclear build is needed in the near future on emissions abatement grounds. It recognises, however, that the country's existing nuclear power stations play a significant role in helping to meet the UK's current commitments regarding the limitation of emissions and if, when they come to the end of
their working lives, they are not replaced by other non CO2 emitting generators there might be a problem some time after 2010."
Nuclear power stations have other environmental advantages in that they do not emit gases such as sulphur dioxide or the various oxides of nitrogen which cause acid rain. However, there are manifest environmental costs associated with nuclear power: the production of radioactive waste which must be safely disposed of as well as routine, though small, radioactive discharges which accompany the everyday operation of the plants. There are also concerns that an accident could result in serious uncontrolled discharges of radioactive material to the environment. The Government concluded that such environmental costs were not disproportionate in view of the industry's "overriding emphasis on safety".24
19 Global Warming - The State of the Science POST note 61, May 1995 20 Global Warming: Environmental and Economic effects House of Commons Library Research Paper 95/85 7 July 1995 21 Global Warming: policy responses House of Commons Library Research Paper 95/86 14 July 1995 22 The Home Energy Conservation Bill (Bill 8 1994/95) House of Commons Library Research Paper 95/5 16 January 1995 23 Cm 2860, para 5.26 24 Cm 2860, paragraph 5.30
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4. Fuel diversity
Several groups, including Trade Unionists for Safe Nuclear Energy, have argued for a balanced energy policy with a significant nuclear component. Employing a range of fuels to generate electricity is one way of assuring security of energy supplies, and providing insurance against future rises in fossil fuel (gas, coal) prices. It has been argued that new nuclear power stations would contribute to fuel diversity which, being a public good, is unlikely to be given due weight by a free market. Scottish Nuclear have commissioned a study by ERM Energy to provide a rationale for such arguments.25 A number of other authors have also attempted to attach a value to fuel diversity, a task not made any easier by the absence of a widely agreed quantitative definition. The Government employed National Economic Research Associates as consultants charged with examining the case, on fuel diversity grounds, for building new nuclear power stations. NERA concluded that diversity could more effectively be provided by greater use of renewable energy such as wind power, more combined heat and power plants, or by developing cleaner methods of burning coal.
5. Industrial base
Chapter 6 of The Prospects for Nuclear Power in the UK (Cm 2860) examined the importance of nuclear power to the domestic industrial base, and whether a public subsidy for new build could be justified on such grounds. The British Nuclear Industry Forum, representing the bulk of the British nuclear power industry, has pointed to the possibility of gaining exports, particularly to the Asia-Pacific Rim where new nuclear stations are being planned.26 Furthermore, the industry has argued that by building new reactors in the UK, the necessary high technology skills base can be maintained, with benefits also transferring to other industries. The white paper responded that:27
"It appears from the nuclear industry's own figures that constructing either Sizewell C or Hinkley Point C in current circumstances would require an element of public subsidy which is at least as large as the likely cost of re-establishing a nuclear capability at a future date."
To summarise, the Government has taken the view that further subsidy of the nuclear generating industry is not justified on the grounds of the perceived strategic benefits. However, paragraph 4.49 of the white paper does at least end the formal moratorium on new nuclear build introduced in 198928 when nuclear power was withdrawn from the privatisation of the electricity supply industry:
25 Diversity in UK Electricity Generation: A Portfolio Analysis ERM Energy, December 1994 26 "Government review of the nuclear power industry" Nuclear Energy October 1994 27 Cm 2860, May 1995 paragraph 6.9 28 HC Deb 9 November 1989 cc 1171-79
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"The Government believes that economic and safe nuclear power has a significant role to play in the electricity supply industry. It would wish to encourage private sector operators to investigate the construction of new nuclear power stations on a fully commercial basis."
C. Nuclear liabilities
KPMG Peat Marwick were charged with advising the Government's nuclear review team on the management of nuclear liabilities. These liabilities are defined as the costs associated with reprocessing spent nuclear fuel, decommissioning nuclear plant, and the management and disposal of radioactive waste.29 The combined liabilities of Nuclear Electric, Scottish Nuclear, BNFL and the UKAEA presently amount to well in excess of £40 billion.30 Decommissioning alone accounts for some £18 billion (undiscounted) of this figure, according to estimates published by the National Audit Office.31 These costs are greatly reduced by the process of discounting,32 which takes into account present plans to delay the final and most expensive stages of decommissioning by 100 years or more. Financial investments made during the operation of the plant can accordingly accrue interest sufficient, it is hoped, to pay decommissioning costs as they fall due.
The terms of reference governing KPMG's study began with the following broad aim:
Taking account of the arrangements already in place for managing the nuclear liabilities of the UKAEA, current regulatory requirements and practice, and, insofar as appropriate, experience overseas:
to review current organisational arrangements for the management of the other civil nuclear liabilities falling directly or indirectly to the public sector with a view, subject to minimising discounted costs, to maximising value for money for the taxpayer consistent with safety, health and environmental requirements.
KPMG saw privatisation as "a force for efficiency" and also attached great importance to eliminating BNFL's monopoly on the supply of many nuclear fuel services. Such services, which include the reprocessing of spent fuel and the treatment of the waste which is isolated as a result, account for almost three quarters of discounted liabilities, also referred to as back-
29 The arrangements for managing public sector civil nuclear liabilities. Summary Report KPMG 1995 30 Cm 2860, paragraph 8.3 31 The Cost of Decommissioning Nuclear Facilities National Audit Office 4 June 1993 32 Discounting takes into account the fact that future costs, and incomes, are worth less in present value terms. As an example, £100 million invested at a 10 per cent rate of return could fund £110 million of operating or capital costs falling due in a year's time. The net present value of £110 million worth of next year's costs is accordingly £100 million.
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end costs.33 The general approach favoured by KPMG was based on the following:34
(a) privatisation of the generators (and ideally of BNFL) with as many of their back-end liabilities and as much of the associated risk as is appropriate;
(b) vertical integration of Magnox operations and liabilities so as to eliminate BNFL's monopoly and the mismatch of financial and management responsibility for back-end Magnox costs.
The Government's solution, discussed in the next section, involves privatising the more modern AGR and PWR stations together with their liabilities. The older Magnox stations will remain, together with their substantial liabilities, in the public sector.
1. Privatised company
One concern is how to guarantee that a privatised company will meet its obligations, particularly with regard to decommissioning costs. Some of these may not fall due for up to 135 years following the shutdown of a power station, if the generators gain regulatory approval for such a deferred "safestore" strategy. Mr Alan W. Williams has sought reassurance on this point in a parliamentary question:35
Mr. Alan W. Williams: To ask the President of the Board of Trade (1) how much the proposed new privatised nuclear power company will be required to set aside annually to meet the eventual costs of decommissioning the pressurised water reactor and advanced gas cooled reactor power stations;
(2) how much the proposed privatised nuclear power company will be required to set aside for the long term storage of the nuclear waste produced by its reactors.
Mr. Eggar [holding answers 22 May 1995]: The Government will ask all nuclear operators to draw up strategies for decommissioning their redundant plant. The Government have made it clear that the privatised nuclear generators will have to meet their obligations in respect of all their long-term nuclear liabilities, including those for decommissioning, in full and that they should make sufficient financial provision to do so. The Government believe that segregated funds are the best way of ensuring public confidence that the nuclear generators will meet their obligations and will consider carefully the detailed implications of this approach. The privatised generators will need to satisfy their auditors that sufficient cash is placed in these funds for each year. The precise level of the liabilities to be met will be a matter for the companies and their auditors in due course.
33 The arrangements for managing public sector civil nuclear liabilities. Summary Report KPMG 1995 34 Cm 2860, paragraph 8.16 35 HC Deb 8 June 1995 cc269-70W
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The Consortium of Opposing Local Authorities, which represents the interests of local authorities opposed to the building of a new nuclear power station at Hinkley Point, has drawn attention to the following recommendation of the Science Policy Research Unit, Sussex University:36
"Provisions are placed in external segregated funds and re-invested in relatively low risk assets".
Such an approach should minimise the risk of decommissioning costs being borne by the taxpayer at some date in the distant future.
There is provision for nuclear liabilities, including decommissioning, in Schedule 12 of the Electricity Act 1989 (cap 29). This allows the Secretary of State to make available grants, loans and guarantees.
2. Cost of a nuclear accident
The cost of a nuclear accident is a potential liability which will be uppermost in the minds of many. Information on the current and proposed post-privatisation arrangements for dealing with such an eventuality are largely covered in the white paper.37 The relevant excerpts from the section on third party liability insurance, in chapter 10, read:
Third party liability insurance
10.29. The UK, along with most nuclear states in Western Europe, is a party to the Paris and Brussels Conventions on civil nuclear liability. The provisions of these conventions are given effect in UK legislation by the Nuclear Installations Act 1965 and rest on three fundamental conditions:
• operators are subject to strict liability, ie no proof of fault is required in respect of nuclear damage to persons or property as a result of an accident;
• liability is channelled exclusively to the nuclear operator, thereby providing certainty for potential claimants and reinforcing the operators' responsibility for the safe operation of his plant;
• the operator's liability is limited - in the UK for major facilities, to £140 million for any one incident - and the operator is required to have approved cover up to that limit. The Government ensures that compensation is paid out up to a total of £280 million, from operator and public funds. Some of the public funds may be claimed back from other states party to the Brussels Convention. Beyond £280 million, Parliament may vote further funds as it thinks fit.
36 The Government's Nuclear Review. Special Briefing Number 8, May 1994 37 The Prospects for Nuclear Power in the UK Cm 2860, May 1995
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10.30. The first two conditions remove doubt from the path of potential claimants and leave the operator in no doubt as to the extent of his responsibility. A mechanism exists for updating the limit on the operator's liability from time to time. This allows the amounts of insurance cover commercially available for this kind of risk to be taken into account. The current UK limit is in line with a target recommended by the OECD Nuclear Energy Agency for parties to the Paris Convention.
10.31. The primary protection for the public in the UK is, as noted earlier, the high degree of responsibility shown by the operators, and the high safety standards enforced by the [Nuclear Installations Inspectorate]. The NII would not allow any power station to continue in operation unless they believed it to be safe. The Government believes this to be the best insurance against an accident. This trust is borne out by the excellent safety record of the industry. Because of this record, there is effectively no claims history on which to base objective forecasts of the likely costs of an accident.
10.32. The Government nevertheless recognises the need to have arrangements in place to cover third party liability attributable to a nuclear accident. In particular, the possible transboundary effects of a nuclear accident mean that the risk (however remote) arises from overseas as well as UK facilities. This is particularly true in western Europe, where there are a number of geographically small countries with nuclear industries. The Government believes that an international framework is the most appropriate approach in this area, in order to ensure as much compatibility as possible between the regimes in neighbouring countries.
10.33. Within that framework, however, national statutory limits are reviewed, particularly in the light of the current capacity of the insurance market. The operator limit was raised in 1994 from £20 million to £140 million. The UK is also playing an active role in international discussions on the future of the third party liability regime. Such an approach enables the UK to influence the liability provisions of other European countries, which is of benefit to possible UK victims of an accident abroad.
10.34. One submission to the review, from the Druridge Bay Campaign, argues for a Royal Commission to determine funding levels. But, given the lack of a claims history on which to base estimates of damage, the Government does not accept that such a body would be better placed than the industry or the insurance market to determine the level of insurance.
10.35. The Nuclear Installations Act provides that the operator is liable for the first £140 million of damages following an accident, with the Government paying any claims that are met above that figure. The Government is content with the current arrangements for third party liability insurance, given the high standards of safety to which the UK nuclear industry operates and the very low level of risk involved. Nevertheless, it recognises the importance of the liability regime and, together with its main international partners, keeps it under careful review.
The statement in paragraph 10.33 about the raising of the operator limit to £140 million is a reference to The Nuclear Installations (Increase of Operators' Limits of Liability) Order SI 1994/909. From the above extract from the white paper, particularly paragraph 10.35, it appears that the Government anticipates no significant changes to the present liability regime should privatisation proceed.
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D. Privatisation proposals
1. Principles
Chapter 7 of the nuclear review white paper sets out the following "key principles" guiding the Government's privatisation proposals:
• The nuclear regulatory regime. The Government attaches the highest importance to nuclear safety and environmental protection. Privatisation will have to be compatible with the rigorous standards of nuclear safety, enforced by the Health and Safety Executive's Nuclear Installations Inspectorate, and of environmental protection, enforced by Her Majesty's Inspectorate of Pollution, Her Majesty's Industrial Pollution Inspectorate and the Ministry of Agriculture, Fisheries and Food. It will also have to be compatible with maintaining existing high standards of security at nuclear power stations.
• Value for money for taxpayers. The Government wishes to privatise assets with associated liabilities as far as possible and to transfer as many of the risks associated with those assets and liabilities as possible to the private sector. The Government would seek to ensure that privatised companies meet their responsibilities in relation to those liabilities. Privatisation would also have to be compatible with efficient and cost effective management of any liabilities left in the public sector.
• Acceptability to investors. Potential investors will look carefully at the assets to be privatised and their ability to generate income. The track record of Sizewell B and the management of nuclear risks would be relevant.
• The implications for the electricity market. There is no case for the Government giving privatised nuclear operators an advantage over other generators' and thereby distorting the competitive generation and supply markets.
The only significant adjustment which needs to be made to the above is in relation to the regulatory regime. As a result of the Environment Act 1995 (cap 25) the new Environment Agency will take over, from April 1996, the regulatory functions of HMIP in respect of the Radioactive Substances Act 1993. MAFF and the Welsh Office will become statutory consultees in place of their present regulatory role. The new Scottish Environment Protection Agency will have regulatory responsibilities north of the border.
2. Details
The Government's proposals, detailed in the white paper, are to privatise the more modern nuclear reactors of Scottish Nuclear and Nuclear Electric, i.e. all the AGRs and the Sizewell B PWR, together with their associated liabilities. It is intended that these parts of Nuclear Electric and Scottish Nuclear will be privatised as subsidiaries of a single holding company based in Scotland, to be called British Energy plc (referred to as GBCo in the white paper).
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All of the companies' Magnox reactors, with their substantial liabilities, will remain in the public sector, initially as a stand-alone company called Magnox Electric plc.38 In due course the Magnox stations and their liabilities will be transferred to British Nuclear Fuels which already owns and operates two such stations: Calder Hall and Chapelcross.
Shortly after the publication of the nuclear review conclusions last May, a number of appointments were made to the new companies. These have been accompanied by speculation that the likely salary levels of the most senior executives could almost double, and that substantial share options will be available.39 The chairman designate of British Energy (the AGR/PWR company) is Mr John Robb, the former chairman of Wellcome.40 Subsequent designate appointments to the Board of British Energy are: Dr Robert Hawley as Chief Executive, Mr Michael Kirwan as Finance Director and Mr Robert Armour as Company Secretary.41 One of the Deputy Chairmen is to be Mr Robin Jeffrey from Scottish Nuclear. The other was to have been Mr John Collier of Nuclear Electric.42 Sadly, he died on 18 November 1995. The chief executive designate of Magnox Electric is Mr Ray Hall.
3. BNFL
The Government is satisfied that the proposed restructuring of the public sector nuclear industry does not preclude a future privatisation of BNFL. However, given the decommissioning costs of the Magnox stations, it is clear that BNFL will require assurances on how these will be funded.43 BNFL's deputy chairman, and former chief executive, Neville Chamberlain has been reported as stating that his company would not be prepared to take on a net liability.44 One solution would be to transfer the Magnox reactors to BNFL as a subsidiary company with earmarked finances contributed by Government. Last November, during evidence to the Trade and Industry Select Committee, BNFL intimated that negotiations with the DTI on these matters were still at an early stage.45
38 Nuclear Times September 1995 39 "Stand by for the purr of the nuclear fat cats" Independent on Sunday 21 May 1995 p.3 40 DTI Press Release P/95/330 17 May 1995 41 HC Deb 19 July 1995 cc1544-5W 42 Nuclear Times September 1995 43 "Nuclear £1bn boost before sell-off" Daily Telegraph 24 August 1995 p.26 44 "I don't want Magnox lame duck, says BNFL chief exec" Engineer 8 June 1995 p.1 45 "Committee goes nuclear over privatisation" The House Magazine 6 November 1995
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4. Alternative structures
Activity has focused on preparing the AGR/PWR generation businesses for privatisation under the single holding company, or GBCo, structure. Alternative structures had also been considered by BZW including privatisation of the Scottish Nuclear AGRs and the Nuclear Electric AGRs and PWR as separate entities. The Government took the view that the holding company structure would preserve the individual identities of the two companies and be more acceptable to investors by spreading risks over a wider portfolio. The Director General of Electricity Supply had favoured a second alternative: a reallocation of Nuclear Electric's and Scottish Nuclear's power stations to create two new companies each with four stations. Scottish Nuclear currently have 2 AGR stations while Nuclear Electric have 5 AGR stations and the Sizewell B PWR.
5. Timing
Chapter 7 of the nuclear review white paper ended with a discussion on the timing of privatisation. Although no primary legislation will be needed to achieve privatisation, the Government noted that the European Commission would have to be consulted. Other factors influencing the timing of the privatisation would include restructuring, with its implications for management and workforce, and regulatory considerations. The latter cover licences governing the safety of the sites and authorisations for routine radioactive discharges. Finally, the generators would need to negotiate contracts with both their suppliers and customers before privatisation could proceed.
The white paper anticipated privatisation during 1996. A more specific timetable has subsequently emerged with the Minister for Industry and Energy (Mr Tim Eggar) having stated that the Government intends that the sale of the AGRs and the PWR "should take place in the summer of 1996".46 The most likely date for the flotation of British Energy appears to be June, though there have been reports that an earlier date may be sought by the Government to allow the potentially problematical sale of Railtrack to be delayed.47 Any such proposals to bring forward the nuclear sale could leave insufficient leeway for the Nuclear Installations Inspectorate to complete the relicensing of the nuclear sites.48
Further information on the British nuclear industry appears in The Nuclear Review (House of Commons Library Research Paper 94/31, 17 February 1994) and The Nuclear Review - Some Technical Issues (Parliamentary Office of Science and Technology, June 1994).
46 HC Deb 1 November 1995 c.348W 47 "Delayed Railtrack sale fears signal early nuclear float" The Guardian 17 November 1995 48 ibid.
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II Prospects for privatisation
A. Parliamentary involvement
Part II of the Electricity Act 1989 (cap 29) provided for the reorganisation and subsequent privatisation of the electricity industry including the generators. Paragraph 7.30 of The Prospects for Nuclear Power in the UK states that no primary legislation is needed to continue this process by privatising part of the nuclear industry. However, the necessity of consultation with the European Commission is noted. This point has been underlined in the European Parliament:49
Hardstaff (PSE). - Commissioner, is not the proposal to sell off only newer nuclear power stations into the private sector in the UK a hidden subsidy to the proposed privatized nuclear companies, in that the costs of decommissioning older power stations will be passed to the British taxpayer? Is this subsidy not in breach of the European Union trade and competition rules?
Bangemann. - If that is the intention - if any government of a Member State intends to give subsidies to any industry - we will have to take supervisory action. We have to decide whether to give authorization. We cannot judge the policy of a Member State government as to whether is should sell part of its industry but, if a subsidy is involved, the Commission has to give authorization.
In the House of Commons, Mr Heseltine's statement about the conclusions of the nuclear review elicited a wide variety of comments.50 In welcoming the privatisation, Mr Phil Gallie stated that it was "... the only means of bringing about investment and further development." Mr Piers Merchant argued that the privatisation would "... benefit the consumer with lower prices, the taxpayer because of the proceeds of privatisation, the industry by giving it independence and British exports by setting Britain's nuclear industry free to compete and thrive on the world market." A more critical question was posed by Mr Malcolm Chisholm:51
"Was not The Economist magazine right when it said that it was a short-term financial fiddle to help the Tories but not the country? Why should the Government cherry pick the nuclear industry so that a few individuals can make a great deal of money, while the vast majority of the British people are bribed with their own money in the short run and have to face higher taxes to pay for decommissioning costs in the long run?"
Mr Dafydd Wigley sought, and was given, an assurance that adequate public funds would be available to decommission the Magnox reactors. Dr Jack Cunningham and Mr Martin O'Neill sought guarantees that safety standards would be maintained in the private sector, and Mr Heseltine emphasised the Government's commitment to this and the independence of the
49 Verbatim report of proceedings European Parliament, Strasbourg 10 October 1995 50 HC Deb 9 May 1995 cc563-78 51 HC Deb 9 May 1995 c.575
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Nuclear Installations Inspectorate.
Mr Heseltine's statement on 9 May 1995 began by noting that it would be followed "in due course" by a debate. Eight days later, an Opposition Day debate took place on the nuclear power industry.52 Mr George Robertson moved the following motion:
"That this House believes that the privatisation of the nuclear power industry is unwanted and unnecessary and is not based on an assessment of Britain's long-term energy needs or industrial strategy but is a cynical, short-term move designed to raise money for tax cuts before the next General Election; further believes that taxpayers will be left with the bill for the decommissioning of the Magnox stations and for the management of the nuclear waste that accrues, that nuclear privatisation will do nothing to promote the interests of consumers, and that claims of guarantees on distinct identities for Scottish Nuclear and Nuclear Electric are worthless; and calls on Her Majesty's Government to abandon immediately its plans to privatise the nuclear power industry."
By a vote of 272 to 251 the House instead resolved,
"That this House welcomes the outcome of the Government's Nuclear Review; applauds the improvements in performance by the nuclear generators since the privatisation of the rest of the electricity supply industry, including the reduction of decommissioning costs achieved so far; welcomes the proposals for more cost-effective management of Magnox liabilities; welcomes the Government's decision to privatise the industry's seven AGR stations and one PWR station during the course of 1996; endorses the decision to create a holding company, with its headquarters located in Scotland, with the parts of Nuclear Electric and Scottish Nuclear that are to be privatised as its wholly owned subsidiaries; notes that safety will continue to be of paramount importance when the industry is in the private sector; and applauds the benefits to consumers in terms of lower electricity prices which the early end to the nuclear element of the fossil fuel levy in England and Wales and to the premium price in the Nuclear Energy Agreement in Scotland will bring."
The Trade and Industry Select Committee has recently been conducting an inquiry into the Government's plans to privatise the nuclear industry, focusing mainly on the following issues:53
•safety
• government guarantees to private operators
• the scale of nuclear liabilities
52 HC Deb 17 May 1995 cc394-444 53 British Nuclear Energy Society newsletter October 1995
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• how the liabilities will be covered
• effects on competition in generation
• effects of abolishing the Fossil Fuel Levy and Non-fossil Fuel Obligation
• effects of ending Scotland's Nuclear Energy Agreement
• arrangements for keeping the Magnoxes in the public sector
The Committee is expected to report early in February.
B. Reactions to the proposed privatisation
On 6 September 1995 a conference entitled Free-Market Nuclear Energy 1996? was held at Le Meridien, Piccadilly, London. The conference was organised by the Wentworth Conference Company Ltd in association with the Major Energy Users' Council. This provided an opportunity for economists, energy analysts and environmentalists to give a considered response to the nuclear review conclusions. A contribution from Mr Brian Wilson emphasised the Labour Party's hostility to privatisation.
According to Gordon MacKerron of the Science Policy Research Unit at Sussex University, and specialist adviser on nuclear privatisation to the Trade and Industry Committee, the key arguments in favour of privatisation were the raising of proceeds for, and the removal of the AGR/PWR liabilities from, the taxpayer. However, the funds raised would have to compensate for the loss of future income from the privatised reactors. He concluded:54
"Government seems optimistic both about the size and uncertainty of Magnox liabilities, and about the cash sums likely to be available to the public sector as 'credit' against their eventual discharge. And the contribution that the sale of the most profitable parts of the nuclear industry is likely to make to the notional funding of these public sector liabilities will probably both be small both in relation to the public money expended on nuclear power in the past, and in relation to the net present value of the assets to be sold."
Mr MacKerron doubted if there was scope for further significant cost and efficiency improvements following privatisation, given the nuclear companies' records over the last five years. For example, Nuclear Electric has cut its labour force by over 40% since 1990. On a more positive note, Mr MacKerron argued that commercial freedom was "... realistically difficult to achieve in the public sector."
54 Gordon MacKerron "The Economics of Privatisation" Paper presented to Conference on The Future of Free- Market Nuclear Energy Le Meridien, London 6 September 1995
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At last summer's Trades Union Congress, Mr Tony Cooper of ESTUC predicted that the Government's privatisation plans would fail.55 He believed that it was likely that the electricity regulator would split up British Energy after any sell-off, that the company's privileged position on the National Grid would be the subject of a legal challenge, and that an incoming Labour Government could refuse the new company permission to diversify into gas-fired power stations.
ESTUC's arguments against privatisation were developed in a Submission to the Department of Trade and Industry Select Committee Inquiry into Nuclear Privatisation (October 1995). Among their conclusions were the following:
"It is our view that motivation of this privatisation is entirely to do with the short term release of funds for pre-election tax cuts and has absolutely nothing to do with the long term interests of the nuclear industry, the consumer or even the tax payer...
... The proposals effectively mean that the major liabilities remain in the public sector while the major assets are transferred to the private sector. Those assets will inevitably be sold at a knock- down price because of the exposure to various different kinds of regulatory and political risk, while the liabilities left in the public sector will have to be paid for the third time."
ESTUC also believe that nuclear privatisation could accelerate the dash for gas-fired power stations, posing a further threat to the coal industry. While endorsing the commitment to safety shown by Government and the industry, ESTUC were concerned that commercial pressures could cause conflicts in this respect.
Greenpeace's views on nuclear privatisation were articulated by Clive Bates at the Free- Market Nuclear Energy 1996? conference. One of the main advantages of the privatisation would be to expose the nuclear industry to "more rigorous private sector appraisal". Mr Bates was concerned, however, that "the proceeds of the sale may be squandered on tax cuts instead of banked for future generations to clean up the nuclear mess". He added:56
"Greenpeace is not opposed in principle to the privatisation. For Greenpeace, ownership of nuclear assets is less important than the power and determination of regulators and the regulatory framework that applies. The corporatist, secretive and self-interested behaviour of the CEGB should remind us that there is nothing inherently superior in public sector ownership."
The former chairman of the CEGB, Lord Marshall of Goring, outlined his views on the proposed restructuring and privatisation in a short article which appeared in Nuclear Engineering International. Lord Marshall had argued in the past that responsibility for
55 "Privatisation of nuclear industry forecast to fail" Financial Times 14 September 1995 56 Clive Bates (Greenpeace), The Nuclear Review for the Wentworth Conference Company 1995
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dealing with Magnox waste would have to remain with the public sector. He went on in his article to add:57
"The government of that day found this advice totally unacceptable. It was politically impossible to privatise the good parts of the industry and leave the liabilities behind with the government. It is very amusing that the present government has taken exactly the opposite point of view and, five years ago, I would have accepted happily the proposals they are now making.
What is the difference between now and five years ago? There is only one difference; the government needs the money. Nevertheless, let us be pleased that this desire for money just before the next election coincides with the good of the industry as a whole."
The same issue of Nuclear Engineering International contained a positive assessment of the prospects for privatisation. John Reynolds, a Utilities Analyst with James Capel & Co., was optimistic that institutional investors would find nuclear power attractive.58 He anticipated that by the time of the privatisation, the full accounting cost of production from the seven AGR stations and Sizewell B would be competitive at around 2.2p/kWh. The accounting cost is obtained by dividing the annual operating cost of the plant by the amount of electricity (in kilowatt-hours) supplied to the grid in that year.59
C. Flotation and likely proceeds
According to one report, the publication of the British Energy prospectus is anticipated in May 1996.60 So far as the privatisation proceeds are concerned, an article from the Financial Times has stated that the sale of the nuclear power industry "... could raise between £2bn and £3bn".61 Other reports have cited similar figures. A DTI press notice cites a figure of £2.6 billion (1995 prices) as representing the amount which has to be raised from the privatisation in order to cover a shortfall of funds needed to discharge the public sector Magnox liabilities.62 For comparison, the capital cost of building Sizewell B came to £2.8bn (1993 prices). According to figures cited in a Greenpeace report,63 construction costs of the first AGR stations varied from £1,112 million for Hinkley Point B to £3,455 million for Dungeness B (March 1988 prices).
The precise amount raised by any flotation is of course difficult to predict. It will depend on many factors, not least in this case on investor confidence that the cost of nuclear liabilities
57 "A cause for amusement" Nuclear Engineering International July 1995, p.18 58 "Flogging the family plutonium" Nuclear Engineering International July 1995 p.18 59 Information on Nuclear Costs Energy Committee Third Report HC 312 1991/92 60 "Nuclear bill clouding Energy float" Daily Telegraph 26 October 1995 61 "Softly, softly towards a sale" Financial Times 7 April 1995 62 DTI press notice P/95/310, 9 May 1995 63 No case for a special case. Nuclear Power and Government Energy Policy Greenpeace Report July 1994. The figures cited were a "Proof of Evidence to Hinkley Point C Public Inquiry for Stop Hinkley Expansion Group" prepared by J W Jeffrey.
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will be better defined and controlled than in the past. Investors may also be influenced by the proximity of the next General Election with the possibility that regulatory changes or a reallocation of liabilities could accompany any change of Government.64 A report65 submitted to the Trade and Industry Committee by COLA and Friends of the Earth estimated the net present value of British Energy to be £809 million. This difference between total income and liabilities, suitably discounted, provides a rough guide to the likely proceeds; a guide, it has to be said, which is highly sensitive to a number of assumptions, most particularly the discount rates adopted for liabilities and assets. Referring to this report, one unidentified City analyst was reported as saying: "It is an interesting academic exercise, but little more."66
Paragraph 8.21 of the nuclear review white paper states:
"The Government is satisfied that sufficient funds have, or will in future, be generated by the Magnox stations and realised by the privatisation of the AGR and PWR stations to meet the cost of the liabilities which remain the responsibility of the public sector."
As noted in previous sections, various commentators have pointed out that the privatisation proceeds are likely to have a more immediate use in financing cuts in income tax.67
D. Funding the liabilities
The question of funding nuclear liabilities, already introduced in section I.C above, is closely tied in with the Non-Fossil Fuel Obligation. This takes the form of Orders, issued under the Electricity Act 1989, which require the regional electricity companies to secure the availability of a specified amount of electricity generating capacity from non-fossil fuel sources such as nuclear or renewable energy. Support for nuclear power derives from the Electricity (Non- Fossil Fuel Sources) (England and Wales) Order SI 1990/263, as amended by SI 1990/494. Under these arrangements, the RECs pay a premium price (compared to electricity generated by fossil fuels like coal) for electricity generated by nuclear energy. This payment takes the form of a fossil fuel levy collected by the Director General of Electricity Supply (DGES). The dominant nuclear component of this levy is often referred to as the nuclear levy. The RECs raise funds to cover these levy payments as part of the price charged to customers in their electricity bills. The money collected by the DGES is handed over, after deducting costs, to the Non-Fossil Purchasing Agency Ltd which manages the RECs' NFFO contracts.68
64 "Nuclear privatisation. Will it bomb?" The Economist 23 September 1995 65 G MacKerron and M J Sadnicki, UK Nuclear Privatisation and Public Sector Liabilities STEEP Special Report No 4, November 1995 66 "Nuclear power sell-off attacked" The Scotsman 11 January 1996 67 see, for example, Submission to the Department of Trade and Industry Select Committee Inquiry into Nuclear Privatisation ESTUC October 1995 68 The Levy, the NFFO and Subsidies to Energy, Nuclear Electric Briefing Note, 16 December 1992
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Under the Fossil Fuel Levy Regulations SI 1990/266, the DGES is required to calculate the rate at which the levy should be paid in order to meet all the Non-Fossil Fuel Obligations. Since April 1993 the levy has taken the form of a uniform 10% on all electricity sales. The main purpose of the nuclear levy was to ensure that Nuclear Electric would be able to meet the liabilities it inherited from the CEGB. The proceeds have been invested both in its power stations and in the form of gilts.69
The Government announced its decision to bring the nuclear levy to an early end in its white paper:70
"Bearing in mind the reduction in the projected costs of past nuclear liabilities already achieved since 1990 and the potential savings from restructuring identified by KPMG, the anticipated net remaining cash flows from the Magnox stations, and the expected proceeds from the privatisation of the AGRs and the PWR, the Government has decided that, on balance, an early end to levy payments to Nuclear Electric would be justified. The fossil fuel levy in respect of Nuclear Electric will therefore cease at the time when the AGR and PWR nuclear stations are moved into the private sector...
... It follows that there are no convincing arguments in favour of extending the nuclear NFFO or that part of the levy which finances nuclear generation, as opposed to renewables, beyond 1998."
Last month, an OFFER press notice went into further detail:71
"The Government has stated that the Levy in respect of Nuclear Electric will cease, subject to the recovery of outstanding arrears, when the Advance [sic] Gas-Cooled Reactor and Pressurised Water Reactor nuclear stations are transferred to the private sector. When that happens I [Professor Littlechild, the DGES] expect to announce a reduction to the rate. The reduced rate will be set at a level to fund the continuing obligations in respect of renewables and also to recover outstanding arrears arising from the existing contract between Nuclear Electric and [Non-Fossil Purchasing Agency]."
This has been seen as an - at least partial - continuation of the nuclear levy in contradiction to the announcements of the white paper.72
Scottish Nuclear does not receive fossil fuel levy payments, but has favourable long term contracts with Scottish Power and Scottish Hydro Electric. According to the white paper:73
"The Government has decided that the remaining element of the premium price under the [Nuclear Energy Agreement] will not continue until 1998; it will be ended in parallel with the ending of the element of the fossil fuel levy payable to Nuclear Electric in England and Wales, in 1996."
69 Submission to the Department of Trade and Industry Select Committee Inquiry into Nuclear Privatisation ESTUC October 1995 70 Cm 2068, May 1995 paragraphs 9.20-1 71 "Fossil Fuel Levy for 1996/97 Announced" Offer press notice R62/95 19 December 1995 72 "Pledge to scrap nuclear power subsidy overturned" The Times 20 December 1995 p.21 73 Cm 2860, May 1995 paragraph 9.28
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E. Office of Electricity Regulation
Another issue concerns the role the Director General of Electricity Supply will play in the planned privatisation of the nuclear electricity industry. Many of the issues were discussed late last summer by OFFER's Deputy Director General for Scotland, Graeme Sims, during a conference organised by The Wentworth Conference Company in association with The Major Energy Users' Council.74
The Office of Electricity Regulation has already had some influence on the privatisation process through its October 1994 submission to the nuclear review. According to Mr Sims, the conclusions of the Government's nuclear review75 "... largely address the issues of concern" identified in OFFER's submission. The major point of difference between OFFER's submission and the Government's proposals is that the former recommended a reallocation of the AGR and PWR nuclear stations between Scottish Nuclear and Nuclear Electric. As stated earlier, the Government wishes to privatise all the AGRs and the Sizewell B PWR as subsidiaries of a single holding company, British Energy. In most other respects, however, the Government's conclusions appear to be broadly in accord with OFFER's submission. Both agreed that privatisation would be beneficial, that further subsidy provided by the Fossil Fuel Levy is undesirable, that the Magnox stations should be separated from the AGRs and PWR, and that there is no strategic case for Government to intervene in the procurement of new nuclear plant.
Against this background one needs to consider the regulatory issues which any privatisation would give rise to. Under the Electricity Act 1989 the DGES, with the Secretary of State's consent, grants licences for the generation, transmission or supply of electricity. He also has powers to enforce licence conditions and to refer electricity generators to the Monopolies and Mergers Commission. The DGES' power to set electricity prices will clearly have implications for the future profitability, and hence privatisation, of nuclear generators and will be a factor which potential shareholders in British Energy will doubtless take into account. However, the most direct impact which the DGES will have relates to the question of licensing. As noted by Mr Sims, the relevant issues include: "the appropriate terms of any new licences that may require to be issued; issues that arise where a licensee is a subsidiary rather than a parent company; and issues that may arise where there is common ownership of more than one licensee." He went on to add that: "The proposed separation of the Magnox stations from the AGR and PWR stations is likely to mean that at least one new licence will be needed." Last year OFFER was consulting on the precise terms of the new licences.
74 Free-Market Nuclear Energy 1996? 6 September 1995 75 The Prospects for Nuclear Power in the UK, Cm 2860, May 1995
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Another issue relates to the market share of the nuclear generators. A newly privatised British Energy would have about 23% of the electricity market in Great Britain. Future diversification to include non-nuclear generating capacity, for example Combined Cycle Gas Turbine (CCGT) stations, could add substantially to this and attract the attention of the DGES. By analogy, National Power and PowerGen reached an agreement with the DGES to dispose of a substantial amount of coal-fired and oil-fired capacity by the end of 1995.
F. Safety
Safety questions have been emphasised by both the Government and opponents of the privatisation. So far as the licensing of the nuclear operations is concerned there are both environmental considerations in the form of authorisations to discharge radioactive material, as well as more direct safety considerations in respect of the operation of a nuclear site. The discharge authorisations are currently the prime responsibility of HM Industrial Pollution Inspectorate (in Scotland) and HM Inspectorate of Pollution (in England and Wales). The new environmental agencies will assume these responsibilities from April of this year as a consequence of the Environment Act 1995. An October 1995 article in Nuclear Times76 stated that, because Nuclear Electric Ltd77 would become a separate legal entity on separation from Nuclear Electric plc, new discharge authorisations would be needed. No technical changes to existing authorisations were being sought, however.
The Health and Safety Executive's Nuclear Installations Inspectorate administers a licensing scheme that covers the safe operation of nuclear sites. Mr Heseltine has stated78 that there will be no changes to the existing site licensing procedure, unless the NII were to request it. In other words, the licensing system which the NII operates to ensure the safe operation of nuclear sites should be unaffected by the privatisation proposals. Paragraph 10.13 of the white paper79 adds the following:
"However, any proposed change in an existing licensee's circumstances, such as a change of organisational structure or management, would mean that revised safety cases, Management Prospectus documentation, and other documentation for the sites would have to be prepared and approved and new site licences will be required. In such circumstances the stations will not be allowed to be operated by the new company unless and until new licences have been issued by the HSE. Also, new authorisations for discharge of radioactive waste will be required."
76 "Safety always first" Nuclear Times October 1995 p.11 77 the new AGR/PWR company in England and Wales 78 HC Deb 9 May 1995 cc563-78 79 Cm 2860, May 1995
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The changes in management structure which necessitate relicensing are most evident at the Hinkley Point, Dungeness, Hunterston and Sizewell sites. The first three have both AGR and Magnox reactors which are being put under the control of separate companies. At Sizewell there is an operational Magnox station as well as a new pressurised water reactor. An article which appeared last September in Nuclear Engineering International80 was interpreted by some, including Brian Wilson MP, that the relicensing was being rushed in a way which could compromise safety.81 This interpretation has since been refuted by the NII.82 According to the October issue of Nuclear Times, new safety licences were expected to be issued to Nuclear Electric Ltd and Magnox Electric early in 1996.
80 "Privatising UK generators. A regulator's perspective" September 1995 81 "Watchdog 'stampeded on nuclear sell-off'" Daily Telegraph 30 August 1995 82 "Nuclear checks programme will not be rushed" Financial Times 1 September 1995
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III Glossary
AGR Advanced Gas-cooled Reactor. The second generation of British- designed nuclear reactors. Cooled by carbon-dioxide gas with graphite facilitating the nuclear chain reaction in the uranium dioxide fuel.
BZW Barclays de Zoete Wedd Limited. The merchant bank charged with providing financial advice to the Government relating to the restructuring of the nuclear industry and the privatisation of its newer power stations.
CCGT Combined Cycle Gas Turbine. Frequently used in conjunction with a gas boiler to maximise the production of electricity from the generator to which the constituent turbines are attached.
CEGB Central Electricity Generation Board. Prior to the 1990 privatisation of the electricity industry, the CEGB was responsible for the generation and transmission of electricity in England and Wales.
COLA Consortium of Opposing Local Authorities. COLA was formed to represent the interests of those local authorities opposed to building Hinkley Point C. COLA have produced several Special Briefings on various aspects of the nuclear review.
ESTUC Electricity Supply Trade Union Council. An umbrella organisation representing the views of five trade unions with workers in the nuclear industry: AEEU, EMA, GMB, TGWU and UNISON.
Magnox The first generation of British power reactors was of the Magnox type, named after the magnesium alloy casing of the fuel rods containing natural uranium metal. Carbon dioxide gas is used as a coolant, and graphite serves as a "moderator" or facilitator of the energy-producing chain reaction.
OFFER Office of Electricity Regulation.
PWR Pressurised Water Reactor. Sizewell B is the UK's only power station with this type of nuclear reactor, based on an American design. Water serves both to cool the reactor and to facilitate the chain reaction in the uranium dioxide fuel.
SSEB South of Scotland Electricity Board. Prior to privatisation of the electricity industry, its responsibilities covered the generation and distribution of electricity, including the operation of Scotland's nuclear power stations.
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IV Further reading
The Prospects for Nuclear Power in the UK. Conclusions of the Government's Nuclear Review Cm 2860 May 1995
Elroy Dimson, Robin Jeffrey, Martin O'Neill MP, Colin Robinson and Mike Staunton, The Nuclear Review Surrey Energy Economics Centre, April 1995
Submission to the Department of Trade and Industry Select Committee Inquiry into Nuclear Privatisation ESTUC October 1995
Nuclear Electric and SNL Circular from James Capel & Co. 25 April 1995
Report and Accounts 1994-1995 Nuclear Electric
Annual Report and Accounts 1994/95 Scottish Nuclear
"UK Review considers 400 opinions" Nuclear Engineering International November 1994 p.11
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