Joint statement in the context of the association hearing on the implementation of the recommendations of the "Commission to review the financing of the nuclear phase-out" (KFK)

Oct. 20th, 2016th

Joint statement by '.ausgestrante' and 'Umweltinstitut München ev' on the billion-dollar deal

See also the article from October 19, 2016
- Billion deal with nuclear power plant operators is getting closer -

1. General remarks

The polluter pays principle is one of the three fundamental principles of environmental law in Germany and Europe. It states that the costs of preventing and eliminating environmental damage caused by economic activities are to be charged to the polluter. The aim of this principle is to prevent individual social actors from gaining economic advantages by passing the costs and risks arising from their activities on to society. The implementation of this principle is also intended to ensure that economic sectors whose economic costs exceed the economic benefits to be achieved cannot prevail over other solutions that are better from a societal perspective.

The European Disposal Directive 2011/70 / Euratom specifies this in Article 4, Paragraph 3e for the area of ​​nuclear power. This mandates that national policies must be based on the principle that the costs of managing spent fuel and radioactive waste are borne by those who generated them. The German Atomic Energy Act (AtG) expressly stipulates in Section 2d (1) number 5 that “the costs of disposing of spent fuel elements and radioactive waste are borne by the waste producers”. Section 9a (1) of the Atomic Energy Act provides that operators of nuclear facilities must ensure that "radioactive residues that arise as well as removed or dismantled radioactive plant components are recycled without damage for the purposes specified in Section 1 No. 2 to 4 or that they are disposed of as radioactive waste in an orderly manner. “The system operators must also prove that they have taken adequate precautions to meet these obligations. The obligations of those who cause radioactive waste to bear the costs are regulated in Sections 21a and 21b.

With regard to these legal regulations, there has been a blatant failure on the part of the state in Germany to enforce the polluter pays principle for many years. Since the year 2000 alone, the two largest of the four German nuclear companies, E.on and RWE, have paid out almost 50 billion euros in dividends to their shareholders. This money is now no longer available for the dismantling and decommissioning of the nuclear power plants and for the storage of nuclear waste. If these burdens are ultimately borne by the general public, this means an enormous redistribution of wealth from the totality of taxpayers to a small group of shareholders in the energy companies. However, this does not correspond to the general principles of burden and distribution justice, which are expressed in the polluter pays principle.

Now to extrapolate the failures of the past into the future is the wrong way to go. Rather, the goal must be to maintain the polluter pays principle, especially with a view to the current precarious situation of at least individual operators. This is entirely possible without endangering the continued existence of the four big energy companies. However, it assumes that the polluters remain responsible for at least as long as they are economically able to do so. Otherwise, the federal government would follow the advice of IGBCE boss Michael Vassiliadis not to "slaughter the cow that you want to milk", but at the same time give up milking this cow very soon.

2. No release from liability for the perpetrators

Uncertainty about actual costs

In general, numerous large public and industrial projects in the past have demonstrated that the cost estimates given prior to implementation were underestimated. Therefore, in the literature, for example for railway and bridge construction by the public sector, average cost increases of 35 to 40 percent are given. (1.)

All previous project experience, both in the area of ​​the dismantling and decommissioning of nuclear power plants and in the area of ​​nuclear waste storage, clearly shows that a realistic assessment of the duration and amount of the final costs is simply impossible due to the high level of uncertainty. In all known cases, situations that were not calculable or calculated from the start occurred, which resulted in the projects being delayed and significantly more financial resources being required for their implementation.

Whether it is unexpected contamination that is detected after the decommissioning or changes in the dismantling concepts, changed requirements for security, e.g. for protection against terrorist attacks, or higher operating costs for the interim storage facilities - there are projects of this size and duration many imponderables. The cost forecast for the Lubmin and Rheinsberg nuclear power plants has been corrected from the original 3,2 to 6,6 billion euros. At the Stade nuclear power plant, Eon has now roughly doubled the original estimate from EUR 500 million to EUR XNUMX billion. In addition, unavoidable retrofitting ("hardening") is already in progress or is foreseeable at all interim storage locations, which are also not taken into account in the cost forecast, which is the basis of the provision calculations.

The official "stress test" for evaluating the nuclear provisions on behalf of the Federal Ministry of Economics explicitly criticizes the outdated basis of costing for the HAW long-term storage facility and indicates that the cost estimate may only be relatively low for this reason in an international comparison. (2.) In addition, the underlying cost assumptions often only come from the operators themselves; According to their own statements, the experts did not check their sustainability.

Warth & Klein (2015) also make it clear that “provisions are debts that are uncertain with regard to their amount or due date. (...) The determination of a safe, absolutely correct value of the disposal obligation is fundamentally not possible. "(3.) The experts also provide the following assessment: “High cost increases are conceivable and can also be observed in some major projects. High cost reductions, on the other hand, are rather unrealistic. "(4.)

For this reason, unlimited additional liability with an obligation to make additional payments on the part of the polluter is the only way to enforce the polluter pays principle in practice. The regulation now proposed in the draft law that "the obligations of the operators according to §§ 9a, 21a and 21b of the Atomic Energy Act and § 21 of the Site Selection Act" end with the payment of the basic amount and "the obligation of the contributor to make any additional contributions to the fund in accordance with Section 8 (2) "..." ends with the payment of the risk surcharge (see p. 7 and p. 28) is not acceptable as it would put an end to the polluter pays principle.

In addition, it is incomprehensible that it is not at least specified that the obligation of the contributor to make additional contributions only ends when the entire amount to be paid into the fund including the risk premium and all interest for these amounts due after 01.01.2017 has been paid.

Consideration of the results of the "Commission for the Storage of Highly Radioactive Substances"

On June 2, 2016, about six weeks after the publication of the recommendation report of the "Commission to Review the Financing of the Nuclear Energy Phase-Out (KFK)", the "Commission for the Storage of Highly Radioactive Substances (Repository Commission)" approved the previously set out in the Site Selection Act (StandAG) envisaged schedule for the search for a "repository" qualified as unrealistic.

The StandAG states that a location for the HAW long-term storage facility should be sought and determined by 2031. The Commission also considers a period of 40 to 60 years to be conceivable. This emerges from a chapter part of the final report of the commission on the time required for the "repository" search, which was unanimously decided in the third reading. (5.) Accordingly, a location decision could be made in 2058 at the earliest, when the search begins in 2018. Commissioning of the site and storage of the waste would then only be expected in the next century. The Federal Environment Ministry had previously specified the year 2050 as the date of commissioning. Warth & Klein assumed this requirement for the calculations in their “stress test” and the KFK also made its recommendations on the basis of these same assumptions.

If the site selection process takes significantly longer than estimated, however, there are also higher costs associated with it in many points: not only for the site selection process itself, but also because of the longer interim storage of the waste that is then necessary. This may lead to higher structural and safety requirements for the interim storage facilities (hot cells, etc.) and may make it necessary to repackage the waste if the previous Castor containers exceed their 40-year service life.

The Atomic Finance Commission did not take these newly created cost risks into account in its proposal for the amount of the “risk premium” that energy suppliers have to pay to cover future cost risks. Since these risks and other existing uncertainties about the final costs of nuclear waste storage cannot be clearly quantified, we not only demand an increase in the risk premium reflecting this specific new finding, but an unlimited obligation to make additional payments on the part of the polluter.

Uncertainties about future interest rates

The “stress test” on behalf of the Federal Ministry of Economics to evaluate the nuclear provisions indicates that the interest rate used by the energy utilities, averaging 4,58 percent, is based on the average yields on long-term German government bonds over the last seven (HGB) or 15 to 22 years . The appraisers, however, consider it advisable to use the actual current rates instead of outdated historical market interest rates as a sensible current assessment. They point out that the interest rate should also reflect current market expectations according to the wording of International Accounting Standards (IAS) 37.47. (6.)

For this purpose, Warth & Klein use the yield curve based on the actual market interest rate and approaching a sustainable interest rate, which the European Insurance Supervisory Authority (EIOPA) published on December 31.12.2014, XNUMX in accordance with the methodology of the EIOPA stress test for insurance companies. In the opinion of the experts, it provides the most reliable estimate of long-term interest rates for the discounting of very long-term obligations. In addition, it basically corresponds to the procedure of the Swedish Radiation Safety Authority (SSM) in deriving the Swedish disposal fees.

If one applies a long-term approximation to an interest rate of three percent (and thus an average interest rate of a good two percent), the present value of the nuclear provisions as of December 31.12.2014, 77 would have to be 38 billion euros instead of 40 billion euros. Warth & Klein identify a funding gap of almost 5,6 billion euros. Even in a scenario that assumes a far more positive interest rate development in the future towards 2014 percent interest in the long term, 60 billion euros in provisions would have to have been set up by the end of 22. There would still be a funding gap of 2014 billion euros compared to the provisions actually made in 4,2. Assuming an average interest rate development towards an interest rate of 67 percent, it would have been necessary to set up 2014 billion euros in provisions at the end of 29, which would mean a funding gap of XNUMX billion euros. (7.)

It is irresponsible that the study commissioned by the Federal Government itself, which was also the basis for the recommendations of the KFK, has not yet been included in the draft law.

Insufficient risk premium

The preceding statements make it clear that the "risk premium" proposed by the KFK as consideration for the complete release of liability of the operator from the obligations for the storage of nuclear waste does not nearly realistically reflect the risks existing in this area. The commission contradicts itself in its statements on the determination of the risk surcharge. Thus it says in chapter 4.8 of the final report of the KFK first: "In the area of ​​the final storage the cost and interest risks are particularly difficult to estimate because of the long-term nature." Two paragraphs further announced again the commission: "The mark-up closes the gap between provisions and costs." (8.) After all that the experts belonging to the KFK have put together on a scientific basis on the development of interest and costs, the latter statement is highly dubious.

The “risk premium” was by no means determined on the basis of calculations of the expected cost and interest rate risks. Rather, it is the result of negotiations with the nuclear power plant operators about what they are willing to pay in return for the economic advantage in the valuation of their companies and in access to the financial markets that the KFK solution gives them. Accordingly, there is typically no indication of how the amount of the “risk premium” should have been calculated in the KFK report. It is completely incomprehensible why the KFK, which made the report by Warth & Klein (2015) the basis of its work, ignored their explanations about the need for additional provisions resulting from the most recent and expected future interest rate developments.

The provision deficits alone resulting from realistic interest rate assumptions are (as of 2014) between 22 and 39 billion euros. The “risk premium” of six billion euros mentioned by KFK is therefore by far not high enough to cover the future deficits in the expected interest rate developments on the one hand and the difference between estimated and actual costs on the other. In order to take account of the polluter pays principle and to limit the financial risk for taxpayers, the federal government would in any case have to demand a significantly higher surcharge on the provisions to be transferred to the fund, which adequately reflects the already known and probable future cost risks .

Regardless of the size of the surcharge, we clearly advocate maintaining the unlimited liability of those who cause nuclear waste. At the very least, however, it must be ensured that the “risk premium” to be paid before a full release from liability is actually determined on the basis of a well-founded assessment of the actual financial risks and adequately reflects them. Anything else contradicts the state's duty to handle taxpayers' money carefully.

3. Higher payments into the fund and unlimited additional payments without the risk of over-indebtedness for the operator

In order to take account of the polluter pays principle, the nuclear power plant operators must be obliged to make far higher payments to the planned disposal fund in view of the cost and interest risk associated with the storage of nuclear waste. This applies both to a planned release from liability as well as to the unlimited liability and additional payment obligation of the four large energy companies for the nuclear waste costs they cause. The corporations should be obliged to make additional contributions if the money to be paid into the fund in addition to the current provisions is not foreseeable enough.

The current difficult economic situation of the operators as a whole or even of individual companies must not be the measure for the contributions to the fund demanded by the polluters and also not an argument against unlimited additional liability and the obligation to make additional payments. It is conceivable, however, that the legislature will accommodate the corporations in terms of payment modalities. For example, under the condition that the operators stop the further production of high-level radioactive waste, i.e. shut down their nuclear power plants, they could offer them installment payment models for their nuclear obligations. The amount of the installments could be linked to the earnings situation and the dividend payments of the corporations - similar to an earn-out contract.

If individual companies are threatened with over-indebtedness due to the unlimited obligation to make additional contributions, the federal government could - if dividend payments stop - approve a qualified subordination for certain liabilities. In this way, the polluter pays principle could be preserved and at the same time an existence-threatening burden on the energy companies could be avoided. It would be guaranteed that in the event that their economic situation improves again, the companies can continue to be held responsible for the nuclear follow-up costs.

4. Do not return the “risk premium” as a tax gift to the electricity supplier

The federal government is currently planning to let the fuel element tax for nuclear power plants expire at the end of 2016. If this tax is actually abolished, it means a tax gift of five billion euros to the energy companies. If this amount is deducted from the “risk premium”, there is almost nothing left of the only financial compensation currently provided by the electricity suppliers for their release from liability.

It should go without saying that the existing cost risks are covered by an appropriate net payment from the polluters. However, if this payment is returned to them directly as a tax saving, the purpose, namely to ensure that the obligated parties cover the costs and future cost risks and relieve the taxpayers, is not fulfilled.

We are therefore calling for an extension of the fuel element tax, which was introduced with the aim of giving the nuclear groups an appropriate financial share in the costs and risks caused by nuclear energy.

5. Seal regulations on extended liability

On June 1, 2016, the federal government announced "to expand the scope of the government draft of a law on subsequent liability for dismantling and disposal costs in the nuclear energy sector (BT-Drucksache 18/6615) to the effect of creating a regulation with the content that also split off Companies and parts of companies are liable for subsequent liability obligations to the public-law fund to be set up. "This change is to be welcomed, as it closes a loophole previously contained in the Extended Liability Act and provides better protection for liability in the specific case of E.on and the company spin-off Uniper. Its specification can now be found in Section 3 (3) and (4) of the Post Liability Act (p. 25 f.).

It is gratifying that not only the division of the company according to the Transformation Act, but also the transfer in "other ways, without the transferring controlling company receiving an appropriate consideration" is explicitly included. This clarification seems important to us. This applies in particular to RWE, which explicitly advertised its new subsidiary Innogy to investors in August 2016 that the form of the split prevents liability for the parent company's nuclear obligations, since it is not formally a "split-off" ) act. (9.)

However, it is now urgently necessary to specify in the extended liability law that the principle “spin-offs are liable for their parent companies” also applies to the area of ​​dismantling and decommissioning and not only to the area of ​​nuclear waste storage, which is covered by the public-law fund. According to the KFK recommendation, the electricity suppliers should remain fully responsible for the dismantling and decommissioning of the nuclear power plants and be liable for all future cost increases. If, however, it is not clearly regulated that company spin-offs are also considered to be “controlling companies” and thus remain financially liable, these costs could ultimately also be passed on to taxpayers in the event of a parent company going bankrupt. Similar to the case of the costs for nuclear waste storage described above, this case must be prevented.

Notes 1 - 9

1. Cf. e.g. B. Flyvberg (2009): Delusion and Deception in Large Infrastructure Projects: Two Models for Explaining and Preventing Executive Disaster. In: California Management Review 51,2, pp. 170-193

2. See Warth & Klein: Expert opinion on the valuation of provisions in the nuclear energy sector, October 9, 2015, p. 8 and p. 76

3. Ibid., P. 4

4. Ibid., P. 55

5. See the current report from the Federal Government of June 2.6.2016, XNUMX: http://www.bundestag.de/presse/hib/201606/-/425748

6. See Warth & Klein (2015), p. 62

7. See Warth & Klein (2015), Table 21, p. 69

8th Commission to Review the Financing of the Phase-Out of Nuclear Energy: Responsibility and Safety - A New Disposal Consensus, April 27, 2016, p. 30

9. See Innogy company presentation, available online at the following link: http://www.rwe.com/web/cms/mediablob/de/3125204/data/3125176/7/rwe/investor-relations/praesentationen/rwe-ergebnisprognose-innogy/innogy-company-presentation-1-august-2016.pdf, Slide 12 (last accessed on August 22, 2016)

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Further to: Newspaper article 2016

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