17.  As well as preparing reliable cost estimates, the Authority must ensure that planned decommissioning work is undertaken in an effective and timely manner. The strategy inherited by the Authority for decommissioning individual sites differs from site to site, affecting the timetable within which sites will be cleared. The Magnox sites have adopted a 'deferred' decommissioning strategy. This allows a long period for radioactivity in the reactors to decay before dismantling them. Resources permitting, the sites at Harwell and Winfrith could be cleared more quickly, possibly in 20 years or so.[22]

18.  In other countries, some nuclear sites have already reached the end-stages of decommissioning. By 2004, the United States had finished decommissioning seven of their former reactors, and Germany was in the process of demolishing or clearing the majority of their shut down reactors (Figure 3). At the same point in time, the UK had one commercial reactor, Windscale classified as being demolished and cleared.[23]

Figure 3: Shut down commercial reactors by stage of decommissioning at 2004

19.  The pace of the decommissioning programme in the UK is dependent on level of resources available and the priorities faced by the Nuclear Decommissioning Authority. In 2005/06, the Authority's budget was £2,262 million. By 2007-08, its budget had risen to £2,790 million, of which £2,590 million was expected to be spent on its sites. The figure for 2007-08 was made up of £1,420 million grant-in-aid provided by the Department and £1,370 million of budgeted commercial income.[24]

20.  In 2006/07, only 31% of the Authority's budget was devoted to decommissioning project work. Such work includes defuelling reactors, decommissioning buildings and disposing of waste. The remainder of the budget is used to meet the cost of running the Authority's commercial activities, headquarter functions and site support activities at both its operating and decommissioning sites. The Authority's expenditure on its commercial activities is broadly equivalent to the income these activities generated, so that these activities do not make a net contribution to the decommissioning budget.[25]

21.  In some cases, commercial charges may be insufficient to cover related decommissioning costs. For example, the charges levied on customers using the fuel reprocessing facilities at Sellafield may make a contribution to the cost of decommissioning those facilities. It is not clear, however, how far these charges, based on contracts signed by predecessor bodies to the Authority, reflected the likely actual cost of decommissioning these facilities.[26]

22.  Site support activities currently account for around a third of the Authority's programmed spend across the 19 sites (£826 million in 2006-07). Such activities include procurement services, engineering support, human resources and financial services. To some extent, higher fixed support costs are inevitable in the nuclear industry because of the licensing requirements to protect safety, security and the environment.[27] It is nevertheless possible to introduce efficiencies in support costs. The Authority plans to cut site support costs by 10% in 2008-09 compared to 2007-08 by encouraging, for example, the joint commissioning of services such as procurement and human resources.[28]

23.  The overall progress on decommissioning made to date by the Authority has been hampered by emerging pressures on its budget, partly due to shortfalls in commercial income, and by emerging priorities at Sellafield. In its first two years of operation, the Authority was able to increase the total amount it spent on decommissioning projects by 12%, from £612 million in 2005-06 to £686 million in 2006-07. By the end of 2006, however, the Authority had to cut back expenditure on decommissioning by £50 million in response to a shortfall in commercial income. In early 2007, the Authority also made cuts of £65 million (9%) to the provisional 2007-08 funding levels for the 14 sites no longer operating.[29] The Authority made the cuts to fund urgent priority work to clean-up its high hazard legacy facilities at Sellafield, and to offset a forecast reduction in commercial income for 2007-08. Most of these cuts tended to fall on decommissioning activities as these sites had limited opportunity to cut their support service costs at short notice.[30]

24.  Changes made by the Authority to sites' funding at short notice have created additional costs for taxpayers. For example, for 2007-08, the Authority established a fund totalling £31.6 million to help the sites bearing the largest reductions in planned programmes to meet the costs of contract closure as well as staff training, relocation and redundancy costs.[31] In addition, contractors reported that uncertainties over the site and composition of the programme might make them more wary of investing in the decommissioning market. They also reported that uncertainty could make it difficult for them to retain staff with the skills in demand elsewhere.[32]

25.  There are wide variations in performance across the decommissioning sites. The Authority's current contracts reimburse the site licensees for the costs incurred, but allow sites to earn performance and efficiency fees. They are in effect cost-plus contracts. In 2006-07, the efficiency fee paid, for example, as a percentage of budgeted cost of work varied between zero and 4.6% (Figure 4). The Authority attributes the variation in performance to differences in culture and organisation between the sites. In its view, some sites are more innovative and worked more effectively than others, with the best using multi-disciplinary project teams.[33]

26.  It has also proved difficult for the Authority to confirm that ongoing efficiencies are carried forward into future years' lifetime plans. At Sellafield, for example, only seven of the 80 operating units had been able to build efficiency savings made in 2006-07 into their 2007 lifetime plans. The Authority aims to move towards setting longer-term targets in its contracts to provide a greater incentive to improve performance.[34]

27.  The Authority's contracts with site licensees give it influence over their health, safety, security and environmental performance, although the sites carry the ultimate legal responsibility for determining how to comply with regulatory requirements.[35]

28.   In 2005-06, the Authority responded to safety lapses at Sellafield and Dounreay by deducting £2 million from the performance fee payable to site licensees. It subsequently decided to give licensees the opportunity to re-earn the fee. Performance has subsequently improved. For example, the number of accidents involving lost time[36] at Dounreay fell from eight in 2005-06, to three in 2006-07 and looks likely to fall to two in 2007-08. Similarly, the international measure of health and safety—the Total Recordable Incident Rate—has reduced at Dounreay from three at the beginning of 2006 to a level of 0.3, which the Authority judges to be world class.[37]

Figure 4: Efficiency fee paid as a percentage of budgeted cost of work performed in 2006-07 by decommissioning site

29.  The Authority aims to improve the management and performance of its sites by putting the rights to be the parent bodies of site licensees out to competition. It also aims to bring in "world class" management teams to effect the changes needed. For example, in April 2008, the Authority announced a new parent body, a consortium led by URS Corporation—Washington Group, to run the low level waste facility near in Drigg. The Authority also expects to announce the new parent body for the Sellafield site by the end of 2008.[38]

30.  In the Authority's view, the decommissioning industry in the UK is currently where the construction industry was 10 years ago, with poor control of overhead costs and poor project management. In addition, there is no dedicated decommissioning supply chain in the UK and thus the Authority and its sites are competing for contractors with other industries such as oil and gas and civil engineering. The Authority believes that a significant change in performance can only happen through further development of the supply chain.[39]

23   Qq 28, 33; C&AG's Report, para 1.10 and Appendix 5 Back

24   C&AG's Report, paras 1.12, 1.13  Back

25   Q 43; C&AG's Report, paras 1.14, 3.2 Back

26   Qq 37-41, 43 Back

27   Qq 15, 91; C&AG's Report, paras 2.8, 4.20 Back

28   Qq 15, 91; C&AG's Report, para 4.20 Back

29   The 14 sites comprised nine Magnox sites, four research sites and a former fuel facility at Capenhurst, Cheshire. Back

30   Qq 60-64; C&AG's Report, paras 3.11-3.14 Back

31   C&AG's Report, para 3.15 Back

32   C&AG's Report, paras 3.16-3.17 Back

33   Qq 34-36; C&AG's Report, paras 1.5, 4.15, 4.16  Back

34   Q 21; C&AG's Report, paras 4.18, 4.23 Back

35   C&AG's Report, para 1.11 Back

36   These are accidents leading to a loss of working time.  Back

37   Q 94; C&AG's Report, paras 3.6, 3.9, 3.10 Back

38   Qq 4-5, 98; C&AG's Report, para 1.15 Back

39   Qq 47, 91 Back