Natural Resources Committee on Nov. 18th, 2009

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

To summarize, not only would there be costs and difficulties for future reactors, current reactors are having their costs pushed up because only a limited number of suppliers can bid on contracts, service contracts, support contracts, etc. That would be fair to say?

[Albert Sweetnam]

That's exactly right. That's what the experience is with the current refurbishments that are going on in Canada and the potential refurbishments that OPG intends to carry on at all facilities.

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

Thank you.

Mr. Allen is a bit of an accountant, so he pointed this out to me and asked me to ask this question.

OPG, if you had to shut down your reactors, what would be the stranded costs of the reactors if you couldn't get unlimited liability insurance? How much would that impact power rates in a province like Ontario? I'm assuming it would also impact other provinces like New Brunswick, etc. Do you have any idea how much of your asset value that would be stranded would be worth? How much would you have to up the rates then, importing power and selling it?

[Pierre Tremblay]

The impact of premature closure of the plants would be significant. Obviously, the plant has tens of billions of dollars of assets. The Pickering site employs about 3,000 employees, the Darlington site about 1,600 staff, so it would have a very significant impact on the overall economy, and certainly on the region.

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

So if we had a situation where we couldn't get insurance for these plants, there would be tens of billions of dollars of stranded assets, and the costs of those stranded assets would then be forced into the pricing of Ontario Power.

[Pierre Tremblay]

Yes. It would certainly create a major problem for us in terms of dealing with that.

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

Yes, and I'm assuming that the employees at Pickering and Bruce would have to be looking for work somewhere else as well.

Turning my questions to Mr. Loesby, I was wondering, as we were talking about unlimited liability, how that would affect you and your potential plans for smaller reactors. Under your proposal there would be a graduated scale for the smaller reactors, and regulation, but if it were unlimited, the possibility would be that there would be no graduated scale. What would happen to your plans if there were unlimited liability put into this legislation?

[Rex Loesby]

As I said, we would have to assume the worst case. Again, obviously, the people down the stream from us, the people providing the supplies and parts and everything, would have to be concerned about their exposure. I think having something in place is what we need, something that's certain.

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

Is it possible that unlimited liability could essentially kill your business model?

[Rex Loesby]

Yes, absolutely.

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

So your plans to help remote Canada and Nunavut keep down their fossil fuel use and then fuel bills...that would be eliminated.

[Rex Loesby]

Yes. We're in a competitive environment. Just a reduction in carbon emissions is probably not enough to say that we're going to be able to do this. We have to show these communities that we're going to lower their costs as well as cut their carbon emissions to zero.

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

If you'll forgive me, since I've seen this bill three times now--I've been a member of this committee in one form or another since 2004--I have a few personal questions about the small reactors that may not be directly related to this bill.

What sorts of timelines are you looking at for developing your idea? How much of this is off-the-shelf technology and how much will you specifically design? On cost-competitiveness, I know you don't want to get into those numbers so your competitors can do the calculations, but what sorts of ballpark numbers can you at least talk about?

[Rex Loesby]

I can tell you that, as we said, the power costs for the northern communities can be anywhere from 25¢ to $2. Most of them are in the 50¢ to 80¢ range because the $2 reflects the fly-in type of fuel.

We've done our modelling, and we can make this work, we think, at 20¢ per kilowatt hour. Essentially, the first prototype that we would develop is going to be about $200 million, we figure. Then, if we can develop installations for $100 million on a 25-megawatt system, the model works. It doesn't work for each installation if our insurance costs are $1 million and higher. We can keep those costs in line if our insurance costs are less than that.

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

Is this mostly off-the-shelf technology or are you doing considerable modification?

[Rex Loesby]

The Toshiba 4S reactor is one that is well advanced. Then there are the preliminary submissions to the Nuclear Regulatory Commission in the U.S. Of course, the CANDU is something that's been around for 50 years. The TRIGA reactor has been around for 50 years, but not as a power reactor; it has always been a research reactor.

We're looking at combinations of using the excess capacity from the reactor to make hydrogen, then ship that hydrogen to the smaller villages, and use fuel cells to generate electricity for the small communities.

[The Vice-Chair, Liberal, Alan Tonks]

Okay, Mr. Trost. I'm going to have to interject now. We're out of time on this round.

I'm noting that the time is now 4:30. We had indicated that we would come to 4:30 and then introduce the next panel. On behalf of the committee, if it's in agreement, I think I'll thank our witnesses for this particular part of the panel discussion, and we'll take a minute or two just to get ready for the next video conference.

Once again, thank you to our witnesses for being here before the committee.

[The Vice-Chair, Liberal, Alan Tonks]

I ask members to take their seats, please, and witnesses to take your seats. Thank you.

Members of the committee, we're now going to reconvene and continue with the second part of our agenda. We're pleased to welcome Mr. Christopher Heysel, from McMaster University, who is the director of the nuclear operations and facilities at McMaster Nuclear Reactor. Welcome, Mr. Heysel.

Also, from the Nuclear Insurance Association of Canada, we welcome Mr. Dermot Murphy, who is the manager, Madam Colleen DeMerchant, who is the assistant manager, and Mr. John Walker, who is legal counsel, Walker Sorensen LLP.

On our video conference we have Mr. Simon Carroll, program officer for the Swedish Biodiversity Centre. Mr. Carroll, you're a long way away, but we welcome you and we're very pleased to have you as part of our panel discussion. I guess it's good evening, is it?

[Simon Carroll, Programme Officer, Swedish Biodiversity Centre, As an Individual]

Yes, that's right. Thank you.

[The Vice-Chair, Liberal, Alan Tonks]

What we'll do is start at the top of the list as I introduced people on behalf of the committee.

Mr. Heysel, from McMaster University, would you like to make a statement now? We take about ten minutes for our witness input and then we go to a seven-minute round of questions and answers with our members.

Mr. Heysel.

[Christopher Heysel, Director, Nuclear Operations and Facilities, McMaster Nuclear Reactor, McMaster University]

Thank you.

Good afternoon, ladies and gentlemen, committee members, and fellow witnesses.

My name is Chris Heysel and I am the director of nuclear operations and facilities at McMaster University in Hamilton, Ontario.

First, l would like to say how grateful and appreciative I am to be here to have this opportunity to address the committee today. I was invited to speak to the committee to give a university perspective of the proposed changes to Bill C-20 and how these changes will impact Canadian university research reactors.

In Canada today there are six remaining university research reactors: the five-megawatt pool reactor at McMaster University and the smaller, 20-kilowatt Slowpoke facilities at the University of Alberta, the Royal Military College, the University of Saskatchewan, École Polytechnique, and Dalhousie.

Every country whose energy mix includes nuclear generation uses university research reactors to help educate and train those highly qualified individuals needed to design, operate and license its nuclear fleet. Indeed, the first step in any nation's journey toward nuclear energy begins with a research reactor. These facilities provide the initial and ongoing education and training for the scientists and engineers that are needed to launch and sustain a nuclear industry.

The McMaster nuclear reactor--indeed all university reactors exist to support the education and research missions of their parent institutions. While it is common to refer to these research reactors as university facilities, they are truly part of our national infrastructure and should be viewed as Canadian assets.

The McMaster nuclear reactor serves our education mission at the university by giving undergraduate and graduate students studying physics, nuclear engineering, material sciences, medical physics, and health physics a hands-on educational experience. As part of their curriculum, these students attend laboratory courses using the reactor and associated facilities to enhance their theoretical studies through actual experiments and interactions. These students represent the future intellectual capital for Canada's wide and diverse nuclear industries, capital that today is in short supply and in extremely high demand.

McMaster University also tours approximately 1,500 high school students through our facility each year. The open pool design at McMaster is the only facility in the country where one can actually see an operating reactor. Prior to coming to McMaster, the closest most of these students will have come to nuclear technology is driving along Highway 401 and seeing the large concrete structures of our nuclear power plants standing behind the intimidating security fences that surround these sites. This is a somewhat daunting sight for these young Canadians, but by touring the McMaster nuclear reactor and seeing the signature blue glow of the core, the mystery shrouding nuclear technology is quickly lifted and students are left with a better sense of how the technology works, and hopefully with an interest to further their education at the university level in a science or engineering discipline.

Research is also one of the critical missions of Canada's nuclear university reactors. These truly unique and powerful research tools provide academia and students with the opportunity to further their investigations in a variety of areas of interest. These fields include nuclear engineering, material sciences, radio-chemistry, radio-biology, geosciences, environmental sciences, archeometry, medical and health physics and medical isotope research and development.

In addition to supporting the research and education missions for our respective institutions, university research reactors provide a wide variety of irradiation services supporting important Canadian industries such as mining, environmental monitoring, automotive, oil and gas, aeronautics, and radio-pharmaceuticals.

With over 20 years of experience in operation of research reactors, I am provided with a thorough understanding of the costs associated with operating these facilities. In order for university reactors to cover their operating costs, they provide services and products to various industries and users. While we do a good job at keeping our costs in check, we do have to compete with like facilities when selling our services.

Despite their increasing importance and relevance, with the exception of RMC, university research reactors receive no government funding to cover operating, maintenance, decommissioning, insurance, or the fuel costs necessary to keep these national facilities in service. This is why even small changes to Bill C-20 are directly very important to university research reactors.

In the absence of federal funding, in order to survive, university research reactors need to generate income by providing a wide range of services and products to markets that are also served by our two main competitors, namely, the AECL facilities at Chalk River and the U.S. research reactors south of the border.

AECL, as a crown corporation, receives a major portion of its operating funds from the federal government. Hence, fuel disposal costs, salaries, decommissioning costs, and liability insurance are all ultimately federally funded. South of the border, U.S. research reactors are loaned their fuel from the Department of Energy. Hence, fuel and fuel disposal costs are borne by the federal government. In addition, unlike Canadian facilities, decommissioning funds are not a requirement for operating facilities as long as university trust funds have adequate equity to cover these future liabilities. This is an opportunity not open to Canadian universities.

More relevant, nuclear liability is capped at $250,000 for these non-profit educational facilities, with the balance to a maximum of $500 million covered federally. This $250,000 figure was the original amount set by the Price-Anderson Act and has remained unchanged in subsequent revisions to the act in recognition of the fundamental national importance of university research reactors.

In reality, it is extremely difficult to compete with U.S. research reactors when their prices for services do not carry the costs associated with reactor fuel, fuel disposal, decommissioning, and the Canadian levels of liability coverage. Competing with AECL is even more unfair.

Despite the growing demands on Canadian universities' research reactors to provide highly qualified personnel to the nuclear power and medical isotope industries, the ability of these facilities to continue to generate the funds necessary to sustain operation continues to be eroded. The changes contemplated to Bill C-20 constitute one more example of how Canada is unwittingly allowing this erosion to continue. The proposed changes would require Canadian universities to carry liability insurance at a level 15 times that of our U.S. counterparts. We are currently carrying a liability six times that required south of the border. Such an increase places Canadian university research reactors on an unlevel playing field with AECL and our U.S. counterparts.

Despite the difficulties we face at our Canadian university research reactor facilities, I'm proud of the contributions we continue to make to our nation from a training and research perspective. These are important outcomes that must be maintained now and well into the future.

In conclusion, I would ask that the members consider the fact that we are already being asked to carry a liability limit in excess of that required of our counterparts to the south and urge the members to amend the bill to place our facilities on an equal footing with those in the U.S. In parting, I implore the committee members to reflect on the fact that research reactors at universities here in Canada are non-profit, non-government-funded entities whose sole purpose is to support the scientific and educational mandates of our nation.

Thank you.

[The Vice-Chair, Liberal, Alan Tonks]

Thank you, Mr. Heysel.

We'll now go to Mr. Dermot Murphy, a manager at the Nuclear Insurance Association of Canada.

[Dermot Murphy, Manager, Nuclear Insurance Association of Canada]

Thank you, Mr. Chairman.

My name is Dermot Murphy. I manage the Nuclear Insurance Association of Canada, also known as NIAC.

As Chairman Tonks pointed out, I'm joined today by Colleen DeMerchant, the assistant manager, and John Walker, of Walker Sorensen, our legal counsel.

As advised when last we met with the committee, NIAC was established in 1958 in response to the need to provide adequate insurance coverage arising from the peaceful development of nuclear power in Canada. NIAC provides statutory coverage to nuclear power operators and others, as required by Canada's Nuclear Liability Act, of up to $75 million Canadian.

NIAC is a pool of property casualty insurers who operate in Canada. Each insurer who is a member of NIAC insures a percentage of the policy limit. It is important to note that insurers provide highly secure protection. Each member of NIAC is regulated by the Canadian office of the Office of the Superintendent of Financial Institutions, known as OSFI, which requires insurance to be very well capitalized indeed. NIAC insurers have a combined $10 billion in capital, approximately, which relates to a hundred times the current limit of the operators' nuclear liability policy.

A pool is a mechanism whereby a number of insurers agree to appoint a common agent to underwrite, jointly, a particular risk or class of business. It is commonly used when the risks needing insurance are few in number, require a spread of risk, or present some particularly hazardous exposure that would otherwise be impossible to insure.

Insurance is a true risk-transfer mechanism that has proven to be cost-effective, but more importantly, does not impact upon nuclear power operators' balance sheets at the time of loss.

We've observed that one of the main questions raised in the speeches during the second reading of Bill C-20 is whether $650 million Canadian is an appropriate limit on operator liability. The issue of the appropriateness of the limit of liability and the issue of how much the amount of insurance each operator should be required to purchase can be seen as independent issues. However, it would not seem appropriate to require operators to purchase more liability insurance than is available in the nuclear insurance market.

In our appearance before the committee last time, we advised the committee that the insurance market could provide $650 million Canadian in capacity. I am now pleased to report that it appears likely, barring any unforeseen events, that the nuclear insurance market will be able to provide $1 billion Canadian in capacity.

A question we are frequently asked is exactly how much nuclear liability insurance costs. Currently, for a $75 million limit, the approximate cost is $200,000 Canadian per nuclear reactor. This, by the way, is the equivalent of the cost of insuring approximately 130 automobiles in Ontario that have full coverage and limits of $1 million.

Previously we advised this committee that the cost of providing the $650 million limit, which is about nine times the existing level, would be approximately four to six times the cost of providing the $75 million limit. We estimate that the cost of providing the $1 billion limit, which is 13 times the current limit, may be approximately in the five to eight times range as compared to the cost of providing the existing $75 million limit.

We very much appreciate this opportunity to discuss nuclear insurance with this committee, and we welcome any questions in due course.

Thank you, Mr. Chair.

[The Vice-Chair, Liberal, Alan Tonks]

Good. Thank you, Mr. Murphy.

Do your two colleagues wish to add anything at this time? Okay, thank you.

That will bring us now to our video conference input from Mr. Carroll, who is a program officer with the Swedish Biodiversity Centre.

Welcome, Mr. Carroll, again.

[Simon Carroll]

Thank you, and thank you very much for inviting me to appear before your committee today.

I've been working with nuclear liability and compensation issues for about 20 years, mainly in the context of the international conventions and the development of national legislation in Europe. It's from this international perspective that I've looked at the provisions of Bill C-20.

In my presentation today I will argue that the proposed liability limit is too low and not in line with relevant international standards. However, having just listened to Mr. Murphy's intervention, I can see that the proposal from the insurance industry would bring it more in line with what exists internationally.

However, the bill as it stands today already appears insufficient and out of date. In my opinion, the bill as it stands today would not establish a modern comprehensive nuclear liability and compensation framework for Canada. There can be no doubt that the current Nuclear Liability Act needs updating. The bill aims to do this mainly by providing a new definition of damage and a significant increase in nuclear operator liability.

I agree that the bill would provide an improved definition of damage and an appropriate scope of damage to be compensated. These provisions are in line with those found in current international instruments and in contemporary national legislation in other countries with major nuclear power programs. These are clear improvements, and I will not discuss them further in this presentation.

The increase in the liability limit to $650 million Canadian is perhaps the most noticeable feature of the bill. At first glance, the proposed increase appears considerable. As was mentioned earlier, it's a nine-fold increase, although taking into account the inflation since 1976, I understand that this figure should now be around $350 million Canadian. However, the amount looks insufficient compared to what would be needed following a nuclear accident. There is no single internationally accepted methodology for assessing the economic damage that might result following a nuclear accident. Therefore, estimates of such damage vary widely, but whatever approaches are taken to calculate the possible damage, it is clear to me that $650 million Canadian would not be sufficient to compensate for damage from a moderately large nuclear accident. On that basis alone, I would argue that the proposed liability limit is inadequate.

This, I should note, is with respect to nuclear power reactors, and I take on board the comments about research reactors made earlier.

There are two other explanations that have been offered for the proposed liability limit, that they're in line with current practice internationally and that there is a need to settle them within the capacity of the insurance market. I do not consider this to be fully the case.

In claiming that the new liability limit is comparable to those found internationally, the basis for comparison is not clearly made. I would suggest that the only meaningful comparison should be with international instruments and national legislation that is applicable in countries with a similar standard of economic situation to Canada and with a similarly developed nuclear power program. On this basis, the relevant international instrument is the OECD's Paris Convention. The Paris Convention is open to any OECD member state and it has attracted membership from much of western Europe. In 2004 it was amended by a protocol intended to modernize this instrument. This protocol requires a minimum operator liability of about $1,100 million Canadian. This is the minimum standard that nuclear operators in western Europe are now expected to meet, and this minimum far exceeds the upper limit proposed in the bill. Indeed, a state that would apply the proposed Canadian liability limit would not be able to ratify the protocol to the Paris Convention. The proposed limit is simply too low.

It is also worth noting that the 2004 protocol to the Paris Convention removes any requirement for an upper limit on operator liability. A number of Paris Convention states already have in place, or are considering, unlimited liability for their reactor operators. This is already the case in Switzerland and Germany, and has been for some time. It is also the case in Finland, where a large reactor is presently under construction.

Earlier this month a Swedish government inquiry stated that there are “overriding reasons for introducing unlimited liability for the nuclear power industry in Sweden”, and it proposed amending legislation accordingly. Outside of the Paris Convention framework, Japan also imposes unlimited liability on nuclear reactor operators.

It is true that there is a finite capacity of the insurance market, in Canada and elsewhere. However, there is no inherent reason to bind operator liability to this limited insurance. There are other ways to provide additional credible, verifiable financial securities for compensation in the event of an accident. By failing to consider such possibilities, the bill unnecessarily limits operator liability to what can be provided by the insurance market.

One approach developed elsewhere to provide additional compensation funds is the pooling of operators' resources, not insurance pools. The principal advantage of an operator pooling system is that large sums of private money--not public funds--can readily be made available to compensate victims. Perhaps the most familiar example of this is the United States, where by combining third-party insurance with an operator pooling mechanism, the total compensation made available per incident is over $10 billion U.S.

Operator pooling was introduced in Germany in 2002. This was because the financial security required from nuclear reactor operators was raised to nearly $4,000 million Canadian per incident. That amount far exceeds the capacity of the German insurance market. The solution developed to meet this goal was to combine individual operator insurance with an additional mutual agreement between German reactor owners. Each partner agrees to contribute to the total financial security required, based on that share of ownership with the German reactor fleet. The partners must also demonstrate to regulators each year that the promised funds would be available if needed, and the ultimate liability of the operator remains unlimited. In the event that the damage caused exceeds the financing available, other assets of the operator are available to add to the compensation amounts, including recourse against the assets of reactor owners if necessary.

Earlier this month, a Swedish government inquiry proposed a similar approach to that being used in Germany; that is, a combination of individual third-party operator insurance combined with an additional mutual agreement. It proposed that the nuclear operators be required to ensure a fund of $1,900 million Canadian per accident. The reactor operators’ liability would also be unlimited. The Swedish inquiry favoured such an approach as it was economically efficient and also provided reassurance that the nuclear industry would be responsible for the major costs of a nuclear accident. I would note that the Swedish proposal is in the context of a planned new investment in Swedish nuclear power.

In conclusion, I would like to reiterate three points. Yes, I believe the bill would improve on current Canadian nuclear liability legislation in some respects. However, the proposed new operator liability limit of $650 million is not comparable to minimum liability obligations found in the most relevant international instrument and does not compare well with compensation funds in other western countries with major nuclear power programs. Taken together, key provisions of the bill appear insufficient and out-of-date already, when compared with those found in contemporary nuclear liability legislation elsewhere. Thus, in its present form, in my view, the bill would not establish a modern comprehensive nuclear liability and compensation framework for Canada.

Thank you very much once again for this opportunity to appear before your committee.