Cost audit critical of NDA

31 January 2008

The UK’s National Audit Office (NAO) released a report on 30 January examining the Nuclear Decommissioning Authority’s (NDA’s) performance using the private sector to decommission nuclear sites, since the NDA’s inception in April 2005.

The Nuclear Decommissioning Authority: Taking forward decommissioning expresses serious concern that costs are continuing to rise even at this stage.

Westminster MP Edward Leigh, chairman of the Committee of Public Accounts, said: “The NDA has committed significant resources to the enormous task of decommissioning the oldest civil nuclear sites and has come a long way in planning what needs to be done.

“However, the estimated cost of decommissioning and continuing to operate some remaining old sites continues to escalate considerably. It is currently running at £73 billion, £12 billion more than the 2005 estimate. It is particularly worrying that cost estimates for work about to begin are still on the rise.”

Leigh continued: “Decommissioning relies in part on income from increasingly unreliable plants, and unforeseen expenses continually pop up. These factors combine and disrupt plans, slowing down the decommissioning process. The resulting ‘start and stop’ nature of work at some sites adds to the bill for the taxpayer.”

The NDA’s task of providing a better definition of the dismantling, processing and waste packaging required was expected to result in lifetime cost rises in the short term with stability by 2008. But recent versions of the NDA plan have continued to produce large cost increases, including the cost of the work programme for the next five years, which might have been expected to have stabilised by now.

“The continuing instability in these costings reduces their value during the parent body competitions, making it difficult for the NDA to judge the cost and price element of bidders’ proposals,” the report states.

The NDA’s 2007 estimate of the undiscounted future costs of sites over their remaining lifetime – £73 billion – was almost 30% (£17 billion) higher than the estimate made by government in 2003. Between 2005 and 2007, lifetime costs increased by some 18% (£11.7 billion), after adjusting for inflation and the NDA’s expenditure at its sites since it was established.

The NAO says this increase reflects a more complete assessment of the work required, including action necessary to address hazards at some of the legacy facilities at Sellafield. “Our analysis of the plans also indicates, however, that cost estimates on work expected to be undertaken in the near- to medium-term, which might be expected to have stabilised by now, have risen significantly over successive iterations. Between 2005 and 2007, the estimate of likely costs for the first five-year period covered by those plans in a consistent manner – April 2008 to March 2013 – rose by 41%,” it said.

The audit office found that using a common cost reimbursable management and operation contract at all sites has given a stable framework to establish consistent industry-wide planning and contract control procedures. NAO noted that use of these contracts has, however, meant that increases in site licensees’ costs are borne by the taxpayer. Due to the difficulties of using short-term incentive regimes, the contracts are “not well suited” to the delivery of decommissioning activities that generally run to longer timescales.

NAO suggests that there will be opportunities for the NDA to make more use of fixed-cost, or longer-term target cost plus fee arrangements to cover support services and those decommissioning activities (such as demolition or deplanting of non-radioactive buildings) that do not entail substantial risk or uncertainty, and deliver better value for money.

The audit office has recommended that the NDA look into intellectual property provisions to maximise its share of benefits from innovation.

It should also move to multi-year performance ‘milestones’ aligned with project timetables where financial flexibility permits.

The NDA should strengthen its capacity to scrutinise cost estimates, and determine the reasons for continuing cost increases, according to the NAO.

Because baseline costs are not stable, the NDA should think about how it will compare bidders’ costs against each other, and how it can lock the ‘parent bodies’ into regimes that will provide good value for the taxpayer.

The report also says it is important the NDA develops transparent measures of progress against objectives, and presents these in a way that can be understood by people who have no specialist knowledge.

The report gives the impression that the roles and interaction between the different layers of management and regulators are not clear to those concerned. It says: “The NDA should work with parent bodies, site licensees and regulators to develop a shared and documented understanding of their roles and responsibilities – given the complexity of the contracting regime and the need to agree, prioritise and meet regulatory requirements as they arise.”

Environmental and safety performance metrics developed by the NDA are “consistent but partial”, according to the NAO, which says trends in the number of safety events are “a blunt measure” of performance. Due to this, the Health and Safety Executive’s Nuclear Safety Directorate is developing a broader set of measures covering site operations, control of hazards and safety culture. The report considers that the NDA could also supplement existing data on environmental events, so that it can assess overall environmental impact.

Nuclear sites submitted expenditure plans for 2007/08 that were in excess of levels proposed by the NDA in late 2006. Across all sites in total, the plans were £185 million (8%) higher than proposed funding levels for 2007/08 and over £400 million (18%) higher for 2008/09. In part, the excess arose from additional work to meet regulatory requirements at Sellafield but also because Dounreay, Harwell and Winfrith proposed to accelerate their decommissioning programmes.

Income also played a significant role in creating financial pressure. In 2006/07, commercial income of £1,206 million was some £112 million less than budget. This was due to a number of factors, including lower electricity prices, a reduction in the fuel required by customers, and the ongoing shut down of Thorp.

In early 2006, the NDA established its initial budget for 2007/08. Based on advice from the Sellafield site licensee, the NDA assumed that some customers would take-up the waste substitution service in 2007/08 and thought it would receive income of around £400 million. By Autumn 2006, the NDA felt there was a significant risk that waste substitution income might not be received in 2007/08. In addition, the NDA was also aware that during 2007/08 it would have to fund urgent work on Sellafield’s high-hazard legacy ponds and silos.

Author Info:

Corrina Thomson is deputy editor of Nuclear Engineering International

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