Natural Resources Committee on Nov. 27th, 2007

[Murray Elston]

Thank you, Madame.

At the moment we have accumulated about $3.5 million in premiums from the industry. I haven't broken it out into individual members. I'm sure that would be available from each of them. We tend to aggregate them.

Our concern is that if we are required to access one precise piece of the market when we know there are broader markets available, you will probably pay a higher premium because of that exclusivity. We're simply looking at being authorized to let our individual members go out and test the market. They know there are other existing entities with whom they can directly discuss the premiums and hopefully, with that competition, drive premiums to their best level.

We recognize that the increase in liability to $650 million brings us more in line with the world, and obviously we want to do that. But we also want to have the ability, as individual entities, to test the markets that provide us with the broadest range of prices possible to get the best value for our customers, or in some cases our shareholders.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Mr. Guimond, you are asking us to delete clause 25. Perhaps you could explain to us in French what it would mean in concrete terms for the members of your association, including Hydro-Quebec, if it were withdrawn on the one hand, or maintained, on the other. What would be the benefits? How would your flexibility be affected?

[Pierre A. Guimond, Director, Regulatory Affairs, Canadian Nuclear Association]

We're thinking especially of the small operators, that is to say those who only own one reactor. New Brunswick and Quebec are in that situation. The operators, which are Crown corporations operating under the protection of the province, can use the financial security offered by it. Clause 25 is somewhat confusing as a result of a potential limitation on the range of activities or tools that can be used by a Crown corporation such as Hydro-Quebec or New Brunswick Power.

Perhaps the same is true of the two large corporations, including Ontario Power Generation. It's also a Crown corporation. Whatever the case may be, this undermines the flexibility of power companies. We would like to see the broadest possible range of activities in the operations of the provincial government, which manages its power company at the financial level.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

In Quebec, for example, it could provide security equal to $650 million. In that way, direct taxpayers would not have to bear the consequences of a supplementary premium. Could we go so far as to say that?

[Pierre A. Guimond]

The example you gave illustrates the flexibility you were seeking quite well.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Guimond.

Thank you, Ms. DeBellefeuille.

Mr. Bevington is next, for up to seven minutes. Go ahead, please.

[Dennis Bevington, NDP, Western Arctic, NT]

Thank you, Mr. Chair.

Thank you, witnesses, for coming here today on this issue.

I'd like to start by talking about the safety record of the existing CANDU reactors in Canada. It's my understanding that we do have a very strong safety record. We have reactors that have been built with multiple safety features on them. These safety features actually have hampered the ongoing maintenance of the equipment that is in place, and that may be part of the reason that our costs in our systems are higher than others in other parts of the world, because of the nature of the maintenance that has to go into these overlapping systems.

What do you see for the future of the nuclear system, with the new reactors that are coming onstream? Are we going to see a similar safety record, with the same types of redundancies that are in place with the existing system?

[Murray Elston]

Thank you for the question.

There are two observations to make. One is that the evolution of our safety systems has kept pace with the technology changes in our industry. Obviously we can now do more with computerized systems that permit us to do even heavier monitoring than we did in the past, and we have had to retrofit, as we should, some of our existing units with new redundant systems. So the next generation of units will, in a sense, be simpler than the first, as often happens when you go with a first-generation technology. There are improvements of understanding and knowledge of how they work. They have a better understanding of the material science that goes into constructing these units.

I think the one very valuable development in our society has been the addition of the computerized capacity to monitor extremely complex systems. Having gone through that, we will end up having redundancies. Also, if you take a look at the schematics for the proposed ACR, the advanced CANDU reactor, for instance, we will have a quad-type construction that lets individuals work, in a maintenance sense, on one quadrant of the plant in safety and security without shutting down the other pieces. You see that also in other types of generation options. You will see the redundancies maintained, and you will see people doing things more remotely than before.

You have also seen, when we went to Pickering, for instance, the containment around those units spread into what we would describe as conventional elements of the generating plant. That is, they stretch not only over the actual nuclear power plant, but also into pieces of the plant that are seen as part of the generation and turbine units. So making that simpler means that we'll end up also being much more simple and probably more cost-effective in doing the safety work that we require.

[Dennis Bevington, NDP, Western Arctic, NT]

In terms of the system that's being proposed in this bill to cover liability, a $650-million limit, above that it appears that the federal government would be responsible for any further liability that would come from a catastrophic failure of any systems. But in the U.S. they have a different system. They have a system of pooling the overall amount of $9.7 billion liability, with individual plants being responsible for $300 million. Perhaps you could describe why we wouldn't go to that system in Canada, matching up with our neighbours in North America.

[Dermot Murphy]

In the U.S., the nuclear power plant operators are required under their legislation to purchase nuclear liability to the level of the $300-million limit. Over and above that, in the case of an incident, there is in effect an unfunded premium retrospective program in place that will equate to approximately $10 billion—$9.67 billion—there. The approach they have adopted is that each of the 104 U.S. reactors would pay approximately $15 million per year, per reactor, for a period of seven years. This would equate to the $10 billion, approximately—I'm rounding it out there. It is an unfunded approach. It satisfies their needs, let us assume. I don't particularly or personally feel that it is the best solution for Canada.

[Dennis Bevington, NDP, Western Arctic, NT]

The better solution is to have the federal government subsidize the larger, catastrophic occurrences that may or may not be in the future in this industry.

[Dermot Murphy]

It's really a matter of government policy, sir. We would suggest that in moving from $75 million to $650 million by way of insurance, or a combination of insurance and financial instruments, we are much further along. We are strengthened by the protection that would be there. As I said, it's a matter of government policy as to what they decide to do in the area in excess of $650 million.

[The Chair, Conservative, Leon Benoit]

Mr. Bevington, your time is up.

We will go now to the government side to Mr. Trost, for up to seven minutes.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

Reading through the various notes and listening to testimony, there were some odds and ends of things that caught my attention. One of the things that first caught my attention was number 7 on the questions and answers of the Nuclear Insurance Association. It says here:

We would advise that $650 million is approaching the upper limit of capacity currently available in the insurance market for nuclear liability insurance. However, we would caution that, if there is a serious shock to the insurance market (e.g. another 9/11), this much capacity might not be available.

With that in there, and the bill does state that every five years the minister will look at the review to see if it's $650 million.... I have a couple of questions that basically flow from that.

First, do you think it might be advisable to take steps to provide incentives to increase the capacity of the market? If the minister decides to advance some day to say $1 billion in a year or two years or five years, one or two cycles, are there things that we, as the government, could do to expand the number of companies that would be interested in providing this sort of coverage? Are there things we should do? And should we do that, or should we just let the insurance industry take up the slack, in your opinion?

[The Chair, Conservative, Leon Benoit]

Mr. Murphy, go ahead.

[Dermot Murphy]

Thank you, Mr. Chairman.

I'd like to make a comment concerning the capacity of $650 million. Capacity is a result of supply and demand. It is also a result of experience, and in the case of the unfortunate World Trade Center events of 9/11, capacity around the world shrunk quite quickly, so that if we had been contemplating $650 million limits shortly thereafter, it would have been a struggle--perhaps not impossible--to amass that. With the passage of time and the non-occurrence of an unfortunate event of that magnitude, the market has freed up capacity. As we speak to the leaders in the U.K. pool environments and the U.K. market, to bring their building capacity eventually to $1 billion at some point in the future, optimistically speaking, should be achievable.

You ask an excellent question concerning what the government or other entity might do as an incentive to encourage insurers to participate on a larger scale, greater number of companies or increased capacity. I would mention that as part of the financial security approach, insurance companies can only commit what is called their net limit. They are forbidden to reinsure the exposure dedicated to the nuclear insurance risk. This prevents insurance companies from ending up inadvertently reinsuring their own exposure. It's a net line. It's coming from very financially solvent insurers. That way it works to bring funds that are not in any way in jeopardy of being utilized elsewhere, so that the members of the public and others are indeed properly compensated.

As regards incentives, I really don't have an opinion on that, sir.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I would simply say from my perspective, if there are suggestions or ideas about how we could get more players involved in providing this.... If we do get another 9/11 sort of shock, how are we then going to do what we need to do for this industry?

On my second question, I believe it's clause 25 that's one of your concerns, if I am getting my two clauses correctly here--or clause 24, the 50% by regulation and so forth. It's clause 24. Pardon me.

Again, I'm not a lawyer, but looking at that clause, it leaves a considerable amount of flexibility. From my perspective, it leaves it very wide open. Again, why do you feel it would be so critical? Is it a large cost difference for the industry, 50 versus zero? My understanding from reading it is you still have to negotiate with the minister. You can still have 100% insurance or theoretically zero percent insurance on it. So could you elaborate in more detail what would be the effective costs passed through to the consumer, passed through to you as producers?

[Murray Elston]

I guess we really don't understand the intent of the clause. If we're able to make an agreement otherwise for more than 50%, why would the minister prevent us from bringing forward to the minister a full package that covers our obligations up to the $650 million?

I know the department sees the 50% limit as permissive, but what it ultimately does is present a ceiling above which we cannot go. When you end up having any ceiling, people can trap you into a situation where they know they've got you for the rest.

What we're saying is, why not permit us to go even beyond that, because this really leaves the market wide open? I think for our purpose as well, the development of NIAC and other organizations in the early going was necessary, without any long experience in the business. We think the insurance market now is much more mature, much more capable of being accessed by individual players, commercial players.

As a result, we'd like to test that, but making sure that we can test it for the whole amount or for a lesser amount. Once you put in 50%, we simply don't understand why that is a threshold that has to be there as a prohibition for us.

It would be a great broadening of our opportunity, is really how I'd put it.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Trost. Your time is up.

We'll now go to the second round, for four minutes for each of the three parties, starting with the official opposition.

Mr. St. Armand.

[Lloyd St. Amand, Liberal, Brant, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for being here this morning.

I want to remain open-minded about this alternate financial security arrangement. On something of a flippant note, Einstein said, as probably you've heard, “The human mind is like a parachute--it functions better when it is open.” So I want to remain open-minded.

It's to the credit of the industry that it has had an error-free, incident-free record for some 45 years, as I understand it. It's to the credit of the leadership and the operators that you recognize that safety, first, foremost, and always, is the number-one concern, and of course it should be. However, I'm just not comfortable with this alternate financial security arrangement.

From my point of view, if anything untoward were to occur, the very best, the optimum guarantee for communities and individuals that they would be properly compensated, is a paid-up insurance policy. That is, to me, the best guarantee.

Can you let me know, then, what “alternate financial security” actually means on an on-the-ground basis and how secure you feel an alternate financial arrangement would be relative to insurance?

[Murray Elston]

Basically, the alternate arrangement would be a commitment to make payments. It really is a contractual obligation in the very same way as an insurance company makes a contractual obligation under a policy. In this situation, the alternate could be the position of a guarantee from a province, as was discussed with Madame DeBellefeuille. So that's ultimately, I guess, one of the most secure ways of understanding the alternate arrangements that might be possible.

I think having that available then puts a tremendous stimulation in the marketing of the premium costs for the insurance business. And all we were wanting to do is be provided with the options of working all of our options and being in compliance with this act, to cover the required amount, Mr. St. Amand.

[Lloyd St. Amand, Liberal, Brant, ON]

Mr. Tonks had a question, Mr. Chair.

[The Chair, Conservative, Leon Benoit]

Mr. Tonks, go ahead; you have about a minute and 15 seconds.

[Alan Tonks, Liberal, York South—Weston, ON]

I was just going to ask the same question as Mr. St. Amand.

The complaint has come through from the industry with respect to the high charges of premiums on insurance, as compared to Britain and perhaps the United States, although it's a different system in the United States, so why don't we have a hybrid? Why can't we have a portion of the liability covered by a real reserve pool contributed by the industry? It would require some provincial legislation to allow that to occur. To keep the insurers honest--and that's to you, Mr. Murphy, and I don't pretend to understand the industry--why not have a portion covered by insurance? Would that not be in the public interest? Then you would address the concern raised by my colleague with respect to having the government as the ultimate insurer at the end of the risk.

Thank you.

Thank you, Mr. Chairman.

[Dermot Murphy]

Mr. Tonks, Mr. Chairman, I won't propose to answer the core of your question, because I don't believe I'm fully qualified to comment about the combination of both. I would, however, go back to a comment you made as being attributable to the industry and expressing comment that their premiums in this country were high or higher. That is not factual; in fact, on average the Canadian insurance premiums are lower, and in some cases lower by a noted margin, than insurance premiums elsewhere in the world.

A question came up earlier in the proceedings as to the costs. Mr. Elston correctly stated that all his members pay in the order of $3.5 million annually. Without betraying commercial confidential information, I can tell you that the cost to insure a single nuclear reactor for liability exposure under the existing act is approximately $200,000. It is not an inordinate amount, in our opinion.