Nuclear Liabilities Reporting

Bill Roberts, Former CFO of the Nuclear Decommissioning Authority
Bill Roberts, Former CFO of the Nuclear Decommissioning Authority

In the director’s commentary in the 2016 NDA Accounts published on 13 July 2016, the undiscounted nuclear liabilities estimate for the first time in decades actually decreased, down to £117.5bn, (2015: £117.8bn) and this has to been seen as a success after years of steady increase. It may now indicate that the liability will continue to drop in future as the NDA executes its £3bn per annum clean-up programme.

However, the published accounts have to be stated in line with legally required Accounting Standards which require discount factors to be applied to long term liabilities, to account for inflation and interest rates. After considering these factors, the nuclear liability stated in the NDA’s 2016 accounts is GBP 160.7 billion, around £6,000 per household, for the first generation of nuclear plant, the research sites and the Sellafield waste processing facilities, which also includes the cost of processing wastes from MoD and BE’s 2nd generation AGR stations, some of which is recoverable from those parties.

The liabilities estimate in the published accounts is the best estimate of the present value of the future liability – i.e., the amount that should be set aside for cleaning up the early nuclear infrastructure. The big increase is caused primarily by negative discount rates due to the current ultra low interest and inflation rates.

Whilst the impact of negative discount rates means there is an amplified uncertainty in the liabilities estimates in later years, the effect on the NDA’s profit and loss account is to break the UK and European record for the largest loss ever posted by a UK organisation, at £92.0 billion.

Previously the record for the greatest losses was held by Vodafone for the £23bn losses in 2006 following revaluation of optimistic acquisitions, RBS with £24.1billion losses in 2009, leading to a banking crises, and BP’s 2015 £4bn Q2 loss following their £35bn environmental fine over Deepwater Horizon environmental spill. Such losses in the public sector may not be picked up by any other than the accounting press.

If such discount rates were applied to privately owned liabilities, such as offshore oil fields or nuclear, coal or chemical plant, then shareholders would have to watch out, as the losses recognised could drive them to insolvency and remove dividends and directors bonuses for several years. A concern for those in the industry is whether the low inflation and interest rates will affect the computation of liabilities for BE, and the balance of investment decision making for Hinkley.mirror

Nuclear liabilities seldom make the headlines, but on 12 August 2005, they were reported in the Daily Mirror like this:

Nuclear Matters makes no comment on the other nuclear story the Mirror reported that same day, advising nuclear workers to enjoy their holidays in a safe and secure manner…