The impact of the liberalisation of electricity markets on nuclear liabilities

Directive 96/92/EC, concerning common rules of the internal market in electricity, introduced competition in the construction of new electricity generating capacity by a tendering or an authorisation procedure. The Netherlands has implemented this EC Directive by a revision of the Electricity Act which entered into force on 1-8-1998. While the EC Directive originally scheduled to open the market in three steps with the aim to have a fully liberalised system in 2007, the actual developments have accelerated the implementation rate. The liberalisation of the electricity market had two, basically opposite effects: 1. The electricity sector, aware that in a competitive environment less cost-effective activities should be discontinued, decided that Dodewaard NPP, which was mainly intended for nuclear research, be taken out of operation. 2. EPZ, the company which operates Borsele NPP, filed a request to continue operation of the plant after 2003, the year in which the government has agreed to shut down this plant. 3. The argument in favour for continued operation of Borsele NPP is that it has low operating costs, an excellent operating record with a high load factor, it has undergone major upgrading to state of the art safety standards very recently, and it can generate electricity at competitive prices. Following the explorative talks on the involvement of the utilities with future obligations related to electricity generation with nuclear energy, steps have been undertaken to transfer ownership of COVRA to the State. Reasons underlying this intention included the liberalisation of the electricity market which became effective in the Netherlands as of 1-1-2001 and the government decision to phase out of nuclear energy by the envisaged closure of Borssele NPP per 1-1-2004. Although this last decision has been rescinded, the wish to withdraw from COVRA was maintained. After a lengthy negotiation process an agreement was reached between the utilities and the government on the conditions for the transfer of shares to the State. Signature of the agreement took place on 15 April 2002. The main features of the agreement comprised the assurance of financial provisions offering full coverage of the future obligations for the management of the high level radioactive waste by COVRA and partial coverage for the management costs of LILW. The agreement included the construction of the long-term storage facility HABOG, the operation of HABOG during 130 years as well as the final disposal of the waste in an underground repository. Under the agreement the utilities are now discharged of any further responsibility with regard to the management of radioactive waste. One of the basic principles governing radioactive waste management in the Netherlands is the polluter pays principle. Costs are charged by COVRA to its customers. According to its statutes COVRA is set up as a non-profit organisation which works on the basis of full cost recovery. In that respect COVRA is in practice a monopolist, because it is the only recognised radioactive waste management agency. On the other hand COVRA has a legal obligation to accept the waste offered by license holders for removal provided that it meets the acceptance criteria. For LILW there are fixed tariffs for specified categories of radioactive waste. Once the transfer of the waste has been accomplished the customer is exempted from further responsibility for the waste. In the previous period COVRA suffered substantial and structural exploitation losses for the management of LILW which can be partly attributed to a successful implementation of national waste separation and reduction policies. Financial support as a combination of a subsidy and a loan granted by the government, aimed to ensure that COVRA will have a positive financial result for the next 15 years. While it is recognised that COVRA as a waste management agency has a public utility function, negotiations with the electricity sector on the transferral of shares focused on a fair share of all parties concerned in the future losses of COVRA. HLW is presently generated by essentially 5 customers: Borsele and Dodewaard NPPs, JRC and IRI research reactors, and one institute for nuclear energy research (ECN). These 5 customers have joined forces and concluded an agreement for the construction of a long-term interim storage facility for HLW, the HABOG. This agreement includes a break-down of the costs associated with construction (1999 - 2003) as well as with maintenance of the HABOG both during its active phase (2003 - 2015) and passive phase of operation (2015 - ). The total construction cost for the HABOG is estimated at euro 116 million. For the realisation of an underground disposal facility for both LILW and HLW a total amount of about euro 1.23 billion is estimated. For HLW only a cost estimate of approximately euro 0.82 billion is utilised. Financial provisions have been made on the assumption that disposal will not occur before 2130 and annual contributions are being paid into the fund which are based on a discounting rate of 3.5 %. An advisory committee on the stranded costs in the electricity production sector recommended that as a next step after the transformation of COVRA into a State-owned Agency, a merger between GKN, the operator of the decommissioned nuclear power station at Dodewaard and COVRA, should be effectuated. It is envisaged that the joint venture between the two companies can be realised as soon as the financial obligations for the long-term management of the radioactive waste from Dodewaard NPP have been settled. Both parties have the intention to achieve an agreement in the course of 2003. The main issues of contention at the moment are related to the total cost estimates for the liabilities of GKN - which to the view of COVRA and the government are underestimated