2006/643/EC: Commission Decision of 4 April 2006 on the State Aid which the United Kingdom is planning to implement for the establishment of the Nuclear Decommissioning Authority (notified under document number C(2006) 650)   (Text with EEA relevance)
Date: 2006-04-04
Institutions: European Commission
Subjects: State aid, United Kingdom, control of State aid, decommissioning of power stations, public institution

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Official Journal of the European Union

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COMMISSION DECISION

of 4 April 2006

on the State Aid which the United Kingdom is planning to implement for the establishment of the
Nuclear Decommissioning Authority

(notified under document number C(2006) 650)

(Only the English text is authentic)

(Text with EEA relevance)

(2006/643/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, and in particular the first subparagraph of Article 88(2)
thereof,

Having regard to the Agreement on the European Economic
Area, and in particular Article 62(1)(a) thereof,

Having called on interested parties to submit their comments
pursuant to the provision(s) cited above (1) and having regard to
their comments,

(6)

(7)

(8)

Whereas:

The Commission decision to initiate the procedure (here-
after ‘the Opening of Procedure’) was published in the
Official Journal of the European Union (2). The Commission
called upon interested parties to submit their comments.

The United Kingdom provided the Commission with its
comments on the Opening of Procedure by letter dated
31 January 2005, registered by the Commission on the
same day.

The Commission received comments
from interested
parties. It forwarded them to the United Kingdom, which
was given the opportunity to react. The United Kingdom's
comments were received by letter dated 4 March 2005,
registered by the Commission on 7 March 2005.

1.

PROCEDURE

By letter dated 19 December 2003, registered by the
Commission on 22 December 2003, the United Kingdom
notified the Commission of the State aid implications of the
draft
law setting up the Nuclear Decommissioning
Authority (NDA), hereinafter ‘the Measure’.

By letter D/51248 of 20 February 2004, the Commission
asked questions on the Measure. The United Kingdom
replied by letter dated 29 March 2004, registered by the
Commission on 15 April 2004.

By letter D/54319 of 16 June 2004, the Commission asked
further questions on the Measure. The United Kingdom
replied by letter dated 14 July 2004, registered by the
Commission on 19 July 2004.

The United Kingdom submitted additional information on
the Measure by letter dated 10 September 2004, registered
by the Commission on 14 September 2004, and by letter
dated 14 October 2004, registered by the Commission on
19 October 2004.

(1)

(2)

(3)

(4)

(5)

(9) Meetings between the United Kingdom authorities and the
Commission took place on 20 April, 25 August and
11 October 2005.

(10) The United Kingdom submitted additional information on
the Measure by letter dated 23 January 2006, registered by
the Commission on the same day. An amendment to this
letter was sent by letter of 1 February 2006, registered by
the Commission on the same day. Further additional
information on the Measure was submitted by the United
Kingdom by letter of 7 February 2006, registered by the
Commission on the same day. Further additional informa-
tion was submitted by the United Kingdom by letter of
registered by the Commission on
7 February 2006,
10 February 2006. Further additional
information was
submitted by the United Kingdom by letter dated 29 March
2006, registered by the Commission on 30 March 2006.

2.

DETAILED DESCRIPTION OF THE AID

the Commission
By letter dated 1 December 2004,
informed the United Kingdom that
it had decided to
initiate the procedure laid down in Article 88(2) of the EC
Treaty in respect of the aid.

(11) The United Kingdom was one of

the first countries
worldwide to engage in nuclear technologies, both for civil
and military purposes.

(1) OJ C 315, 21.12.2004, p. 4.

(2) See footnote 1.

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(12) At the time these technologies were first introduced, the
emphasis of the industry was on scientific improvements
and on gains in efficiency. The management of nuclear
liabilities was generally not taken into consideration, or
only in a very limited way.

(13) The rising awareness of the need to ultimately decommis-
sion nuclear sites progressively resulted in funds being set
aside for the management of nuclear liabilities. However,
these funds were generally insufficient to face liabilities the
estimated amount of which was still very uncertain, but
growing. Even at
the
still handled
management of nuclear
independently by each of their owners, and very much on
a case by case basis.

the 20th century,

liabilities was

the end of

(14) The UK Government considered that this kind of manage-
ment had reached its limits and that a new and more
efficient method should be put in place in order for nuclear
liabilities to be more efficiently handled, while preserving
the highest level of safety.

(15)

In 2001, the United Kingdom Government decided to start
a review of ways in which the management of public sector
nuclear liabilities could be concentrated in the hands of a
single public body. A White Paper entitled Managing the
Nuclear Legacy — A strategy for action was published in July
2002. After a consultation process, the ideas of the White
Paper were implemented in legislation in the form of the
2004 Energy Act.

(16) Under

the provisions of

this legislation, a new non-
departmental public body, known as the Nuclear Decom-
missioning Authority (NDA), was created. The NDA will
progressively be made responsible for the management of
most public sector nuclear
in the United
Kingdom (3). For this purpose, the ownership of nuclear
sites and assets will be transferred to the NDA. Along with
the ownership of the assets and sites, the NDA will take
over the responsibility for the nuclear liabilities linked to
them as well as all financial assets that are clearly attached
to these sites.

liabilities

(18) The NDA does not itself decommission the sites for which
it will have responsibility. It will contract this task out to
other entities. The continued operation of nuclear assets
may similarly be contracted by the NDA. Entities contracted
by the NDA to manage a site are known as Site Licensee
Companies (SLCs). Initially, SLCs will be the former owners
of the sites. Later on, they will be selected via competitive
procedures, with a view to triggering the development of a
real nuclear decommissioning and clean-up market.

(19)

In order to fund its activities, the NDA uses the value of the
transferred financial assets and the net revenues that the
transferred physical assets generate. Since it is very likely
that these resources will not be sufficient to pay for the
entire costs of management of the nuclear liabilities, the
State will finance the shortfall.

(20) Assets belonging to the United Kingdom Atomic Energy
Agency (UKAEA) have been transferred to the NDA. This
aspect of the Measure has already been decided upon by the
Commission in the decision referred to in recital (5) above.
The Commission found that this aspect of the Measure did
not include State aid within the meaning of Article 87(1) of
the EC Treaty.

(21) The NDA has also received assets belonging to British
Nuclear Fuels Limited (BNFL). This aspect of the Measure is
the object of the present decision. It must be noted that
transitional arrangements were put in place by the United
Kingdom to ensure that, even though BNFL's assets were
formally transferred to the NDA, no State aid is granted
until the Commission takes a final decision on the case.

(22) BNFL is a publicly owned limited company that operates in
many fields in the nuclear sector. It is present in nearly all
steps of the nuclear fuel cycle: it enriches uranium (through
Urenco), supplies nuclear fuel, generates electricity and
manages spent nuclear fuel.

(23) Most but not all of BNFL's nuclear activities and sites have

been transferred to the NDA. It has received:

(17) The management of nuclear liabilities in an efficient and
safe way is the NDA's objective. The NDA can continue to
operate the physical assets that are transferred to it if the
continued operation of these assets covers more than their
avoidable costs and therefore contributes to reducing the
value of their liabilities. The NDA is a public authority and
does not have a commercial objective. It will not invest in
any new asset nor enter any new activity.

(3) This does not

include British Energy's liabilities, although this
company has been classified by the British Office of National
Statistics as a public sector company after its restructuring.

— all Magnox electricity generation sites and the

Mawntrog station;

— the Sellafield site, including in particular the Thermal
Oxide Reprocessing Plant (THORP) and the Sellafield
Mox Plant (SMP). The Sellafield site also includes one
of the Magnox plants referred to above (the Calder
Hall station) and a small Combined Heat and Power
plant (the Fellside plant);

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— the Springfields site, which is dedicated to nuclear fuel

manufacturing;

— the Drigg low level waste disposal site;

— the Capenhurst site, the decommissioning of which is
nearly completed, and which will eventually focus on
the storage of uranium materials.

(24) Other BNFL activities,

in particular the ones linked to
Urenco and Westinghouse, will not be transferred to the
NDA. They will be reorganised, resulting in a smaller
residual group.

(25) Together with the sites mentioned above, BNFL transfers to
the NDA a number of financial assets linked to these sites,
which were set up in the past to fund at least in part their
decommissioning. These assets are:

— the Nuclear Liabilities Investment Portfolio;

— the Magnox Undertaking;

— other, more minor,

contributions,

including in
the Springfields gilts, which are funds
particular
earmarked to cover decommissioning costs at the
Springfields site.

(26) Technically, these assets are not transferred directly to the
NDA, but rather consolidated in a Government fund, the
Nuclear Decommissioning Funding Account. The Govern-
ment will in turn fund the NDA by grants.

(27)

In their notification, the UK authorities had provided the
Commission with an estimate of the nuclear liabilities and
assets that would be transferred to the NDA, together with a
split of these amounts between the ones that originate from
commercial activities and the ones that originate from non-
commercial activities.

(28) All liabilities linked to UKAEA sites were viewed as non-

commercial in the Opening of Procedure.

(29)

In order to estimate the share of the liabilities linked to
BNFL sites that originate from non-commercial activities,
the United Kingdom had taken the approach that only

financial liabilities still recognised by either the Ministry of
Defence (MOD) or the UKAEA were non-commercial.
Liabilities linked to assets with dual
(commercial/non-
commercial) use which were still not recognised by either
the MOD or
the UKAEA were attributed to BNFL's
commercial activities, since BNFL was the operator and
owner of these assets, even if they had been used by the
MOD or UKAEA in the past.

(30) The estimated liabilities associated with sites then owned by
BNFL, split between commercial and non-commercial
activities, was as follows:

Table 1

Nuclear Liabilities to be transferred to the NDA, estimates as
of March 2003, 2003 prices, discounted at 5.4 % nominal,
amounts in billion GBP (1).

Non-
commer-
cial

Com-
mercial

Total
Liabilities

Magnox stations sites (except Calder
Hall/Chapelcross)

0

3,9

3,9

Sellafield site (except Calder Hall
station)

3,8

10,1

13,9

Calder Hall/Chapelcross (2)

Springfields site

Capenhurst site

0,2

0,1

0

0,6

0,2

0,2

0,9

0,2

0,3

Total

4,1

15,1

19,1

(1) Note: in all Tables, totals may not exactly match the sums of items

because of rounding.

(2) Unlike the other magnox plants, these two power plants feature some
liabilities since they were originally military power

non-commercial
plants.

(31) The following table was also provided by the United
Kingdom authorities in their notification. It compared the
estimated value of the commercial part of the liabilities
linked to sites to be transferred to the NDA by BNFL and
the economic value of the assets to be transferred to the
NDA along with these sites. For physical assets,
the
economic value was considered to be equal to the cash
their continued operation was expected to
flows that
generate.

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Table 2

Difference between commercial liabilities and assets value as
of 31 March 2004, 2004 prices, discounted at 5,4 % nominal,
amounts in billion GBP (1).

Total commercial nuclear liabilities

Magnox stations future cash flows

Sellafield operations cash flow (THORP & SMP)

Springfields future cash flows

Nuclear Liabilities Investment Portfolio

Magnox Undertaking

Other customer contributions not included above

Cash and liquid assets

(1) Values are discounted at 5,4 % nominal.

Total

-14,7

-0,1

2,3

0,2

4,3

7,9

0,2

0,1

0,0

3.

GROUNDS FOR OPENING THE PROCEDURE

(32)

In the Opening of Procedure, the Commission first raised
doubts as to which entity would be in receipt of State aid
within the meaning of Article 87(1) of the EC Treaty. The
Commission took account not only of the situation of the
NDA, which might receive direct payments from the State,
but also that of BNFL, which could be relieved of charges
that it might otherwise have had to bear under the polluter-
pays principle.

(33) The Commission then analysed whether such State aid
could be found compatible with the EC Treaty. It expressed
serious doubts that this aid was compatible under the
guidelines on State aid for environmental protection (4). It
also expressed serious doubts that the aid could be found
compatible with the Community guidelines on State aid for
rescuing or restructuring firms in difficulty (5).

(34) The Commission then assessed whether such State aid
could be found compatible in direct application of
Article 87(3)(c) of the EC Treaty, and in the light of the
objectives of the Euratom Treaty. The Commission took the
view that such an approach could indeed be undertaken in
the United
principle, but also expressed doubts that
Kingdom authorities had submitted sufficient proof that

the positive impact of the aid on fulfilling the objectives of
the Euratom Treaty outweighed its negative impact on
competition in the internal market.

(35) Finally, the Commission raised doubts about the possible
absence of State aid due to the fact that, before actual
competitive procedures can take place, BNFL would act as
SLC on a temporary basis.

4.

COMMENTS FROM INTERESTED PARTIES

(36) Following the publication of the Opening of Procedure, and
within the deadline laid down by that publication, the
Commission received comments from three third parties.
They are summarised below:

Electricité de France (EDF)

(37) EDF supports the general orientation of the Measure. It
considers that it contributes to the achievement of the
objectives of the Euratom Treaty. It considers that it is
necessary to establish proper conditions for
the final
disposal of nuclear waste. As regards the financing of the
decommissioning of nuclear sites, EDF considers that
financial and industrial responsibility must go together
and that proper funds must be set aside and secured during
operation time. EDF supports the Commission's actions to
set up a Community-wide framework for solving such
problems, and welcomes the fact that the Commission
takes account of the Euratom Treaty in the matter.

British Energy plc (BE)

(38) BE welcomes the establishment of the NDA. It does not see
the Measure as likely to have anti-competitive effects in its
regard.

(39) BE points out that it is also a customer of BNFL's current
fuel supply and waste management activities. After the
transfer of these activities to the NDA and the tendering of
their operation by the authority, it may well be that one of
the selected new operators will be a competitor of BE. BE is
concerned by this situation where it could end up being a
customer of one of its competitors.

(4) OJ C 37, 3.2.2001, p. 3.
(5)

In view of the date of notification of the Measure, the applicable
guidelines would be the ones that were published in OJ C 288 of
9.10.1999, p. 2.

(40) BE also draws the Commission's attention to the fact that
the setting up of
the NDA and its analysis by the
Commission should not endanger its own restructuring
plan, as approved by the Commission.

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(41) BE goes on to explain that it does not believe that the
Measure has any impact on trade as regards the supply of
AGR fuel and reprocessing of AGR spent fuel because, even
if BNFL's only EU competitor, AREVA, were to settle in the
United Kingdom, BE would not be in a position to switch to
it because it already has arrangements with BNFL for the
lifetime requirements of its AGR stations.

(42) As regards Magnox power plants and the electricity market,
BE believes that the Measure, even if it reduces BNFL's
power plants' Short Run Marginal Costs (SRMCs), cannot
have an effect on the price at which BE can sell its own
nuclear and fossil output. Based on its own experience, BE
also believes that the Measure will not artificially prolong
the lifetime of BNFL's plants, since, still according to BE's
estimates, these power plants should reasonably be in a
position to cover their SRMCs.

(43) BE gives its view of the interactions between the EC and
Euratom Treaties. This aspect of the company's comments,
though not easy to interpret, seems to suggest that only
measures that are not necessary for or that go beyond what
is necessary for achieving the objectives of the Euratom
Treaty can be analysed under the EC Treaty.

Greenpeace

(44) Greenpeace considers that the Measure includes State aid
within the meaning of Article 87(1) of the EC Treaty. It
states that it is fundamental to ensure the safe decom-
missioning of nuclear sites, and equally fundamental that
the polluter-pays principle should apply to the nuclear
industry.

(45) Greenpeace considers that the aid should not be found
compatible with the common market. It considers that the
positive impact on the achievement of the safe and efficient
management of nuclear liabilities does not outweigh the
impact of the Measure on competition.

(46) Greenpeace's submission is very substantial

in size and
includes many annexes. An important part of
the
comments relate to Greenpeace's scepticism about nuclear
energy in general and the way it has been handled in Britain
in particular. According to Greenpeace, nuclear energy
entails very significant risks for the environment. Also, the
reprocessing of nuclear waste, as opposed to direct disposal,
would be a dangerous and costly option.

that have ultimately proved uneconomic have jeopardised
the company's ability to fund its nuclear liabilities. Part of
the provisions aimed at matching these liabilities are not
liquid, or, as in the case of the Magnox Undertaking, are of a
virtual nature. Furthermore, BNFL has always under-
estimated its liabilities and overestimated its future income,
which has worsened its position further. Greenpeace
submits a report
that analyses and criticises BNFL's
investment policy and accounts.

(48) As regards the Measure more specifically, Greenpeace
contends that it should be looked upon as a way for the
United Kingdom Government
to restructure an ailing
company — BNFL — by ridding it of its worst assets and
the potentially unfunded liabilities attached to them,
in
order to allow it to stay on the market and continue as a
successful company.

(49) Greenpeace also questions

the nature of

the future
relationship between BNFL and the NDA. According to
Greenpeace, with BNFL becoming an SLC for the NDA, it is
difficult to tell which of the two entities is of a commercial
nature. If it were the NDA, deriving profit from commercial
activities would be contrary to its aim. Furthermore,
because of this difficulty in deciding which of the two
entities is actually the commercial one, it would be also very
difficult to decide who is in receipt of State aid.

(50) Greenpeace adds that the NDA will probably be creating
new waste with its operations, and that it is not clear
whether
to pay for waste
management.

set aside monies

it will

(51) Greenpeace also questions the future of Westinghouse, a
company owned by BNFL but not transferred to the NDA.
Greenpeace questions the viability of Westinghouse without
its parent's support. The Commission understands that
Greenpeace suggests that, should Westinghouse continue its
operations as a part of the BNFL, the historic as well as
future ties between BNFL and the NDA might result in a
cross-subsidisation from the NDA to Westinghouse. Green-
peace also fears that such a cross-subsidisation might affect
the interests of Westinghouse's competitors in the nuclear
reactor design business. These cross-subsidisation concerns
would be increased if, as Greenpeace suspects, there are
plans to sell parts of BNFL to the private sector.

(47) According to Greenpeace, BNFL, one of the most important
actors of this sector in the United Kingdom and under
public ownership, has been managed in a particularly
hazardous and opaque way. Its accounts are difficult to
analyse. Poor management of cash and risky investments

(52) Greenpeace goes on to consider the specific case of BNFL's
reprocessing activities. Greenpeace challenges the United
Kingdom authorities' argument that State support to these
activities cannot affect trade because nuclear wastes are
difficult to transport, and it would therefore be uneconomic
for competitors to invest in new reprocessing assets in

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Britain. According to Greenpeace, this disregards the fact
that nuclear wastes do not necessarily have to be
reprocessed, but can also be disposed of via direct storage.
New investment in direct storage facilities would be a viable
economic alternative to be offered by BNFL's competitors.

investment, regular and equitable supply, common market
and competition benefits in the nuclear sector). Moreover,
the Measure would also deliver environmental benefits
consistent with the objective of Article 174 of the EC Treaty.

(53) Greenpeace also notes that, according to figures available to
it, prices offered by BNFL in its fuel reprocessing contracts
appear to be too low to cover costs. BNFL, and hence the
NDA, would therefore generate even greater losses with
these activities, creating the need for operating aid. To
support this comment, Greenpeace quotes a figure of GBP
140 000/tonne for fixed payments by BE to BNFL for
managing its spent fuel. Greenpeace compares this figure to
estimates of between GBP 330 000/tonne and GPB
533 000/tonne for the comprehensive management of
such waste according to independent studies from the
University of Harvard and NIREX.

(54) Greenpeace questions the forecasts for the operation of the
SMP. SMP would be difficult to commission, and MOX
fabrication would be a decreasingly attractive option for
plutonium management.

(55) Regarding the Magnox plants, Greenpeace considers that
their continued operation affects competition in the
electricity market, in particular from renewable energies.
Greenpeace also submits that Magnox spent fuel should be
directly disposed of rather than reprocessed.

5.

COMMENTS FROM THE UNITED KINGDOM ON

THE OPENING OF PROCEDURE

(56) The United Kingdom first recalls its commitment to nuclear
decommissioning and clean-up. The United Kingdom views
the establishment of the NDA as a unique means in Europe
attempt
to deal with historical nuclear liabilities in a
systematic way. The NDA would be expected not only to
make decommissioning safer and more efficient but also to
pave the way for a real nuclear decommissioning market.

(57) The United Kingdom believes that the Measure does not
constitute State aid to BNFL, since BNFL will no longer own
any of the assets whose decommissioning costs may be
funded in part by the State. The United Kingdom adds that
the transition period during which BNFL will be SLC before
SLCs can actually be selected by competitive procedures will
not lead to any State aid to BNFL either, since all payments
to the company in this period will be benchmarked against
international comparators.

(59) The United Kingdom states that it accepts that the Measure
is an aid to the NDA. In this case again, it contends that the
aid should be found compatible with the common market,
for the same reasons. The United Kingdom provides a list of
benefits brought by the Measure in the light of
the
objectives of the Euratom Treaty. For all of these benefits, a
qualitative assessment is given, together with a quantitative
estimate of the gains where deemed possible.

(60) The United Kingdom gives a detailed list and assessment of
the activities that will remain with BNFL. It also explains
how BNFL will be paid for when operating as SLC in the
temporary period until SLC can be selected by competitive
procedures. BNFL will receive payments for allowable costs
only. This will include a duty for NDA to achieve efficiencies
of 2 % cost reduction per year. Allowable costs will
in
principle exclude any return on capital. They will also be
capped by the budget of the annual site funding limit as set
by the NDA.

(61) Payments may also include so called ‘performance based
incentives’, which will be awarded only if challenging costs-
based performance targets are achieved. The value of these
incentives is based on careful benchmarking of the average
profit margins of international engineering and construc-
tion companies.

(62) The United Kingdom then gives its views on the impact of
the markets
the Measure on competition in each of
concerned by the sites that are transferred by BNFL to the
NDA.

(63) As regards Magnox power plants, the United Kingdom
believes that the Measure will not have any impact on the
electricity market. The rank of the magnox plants in the
SRMCs order would be always under the marginal plant,
even at periods of minimum demand. This would imply
that any reduction in SRMCs resulting from the Measure
could affect neither the time during which competitors can
run their plants nor the price at which they could sell their
output.

(58) The United Kingdom contends, however, that, even if the
Commission were to consider that the Measure includes
State aid to BNFL, this aid should be found compatible with
the
the EC Treaty as supporting several objectives of
Euratom Treaty (promoting R&D, health and safety,

(64) As regards the THORP plant of the Sellafield site, the United
Kingdom explains that it reprocesses AGR and LWR nuclear
spent fuel. New entry into AGR spent fuel reprocessing
would be economically very unattractive, due in particular
to transport costs to and from Britain, which is the only
is used. While storage would
country where such fuel
indeed be a possible alternative to reprocessing of AGR fuel,

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the United Kingdom also contends that the tight time and
regulatory constraints for the construction of any new AGR
storage site even in Britain would make it also economically
unattractive for new entrants, in particular in view of the
limited size of the AGR spent fuel disposal market. The
same types of arguments are also used for the Springfields
plant, which produces only AGR and Magnox fuel.

(71) The United Kingdom is confident that the Commission will
take the terms of its decision on the restructuring plan of
BE (6) fully into account when considering the facts of the
present case.

Greenpeace's comments

(65) Concerning LWR spent fuel, the United Kingdom argues
that most of this type of fuel to be reprocessed by THORP is
already in Britain and that the difficulty of shipping it to the
continent would limit the economic incentive for competi-
tors.

(72) The United Kingdom considers that its comments on the
Opening of Procedure already provide significant details on
issues addressed by Greenpeace. Its replies to Greenpeace's
comments are therefore limited to certain statements of a
general nature.

(66) As regards the SMP plant of the Sellafield site, the United
Kingdom argues that it would be detrimental to competi-
tion if it were to cease operation. Indeed, it would remove
an important actor
in a very concentrated market.
Furthermore,
the closure of SMP would mean that
significant amounts of plutonium would have to be
transported regularly out of the United Kingdom, which
would be very costly to customers and also potentially
dangerous.

(67) As regards the Drigg low level waste repository, the United
Kingdom argues that, since most countries do not allow the
import of foreign radioactive waste for storage or disposal,
the only way to offer competition would be to build
another site in Britain. This would be an unattractive
investment since obtaining all necessary consents would be
difficult. It would also result in excess capacity which would
make investment even less attractive. Tendering by the NDA
of the operation of the Drigg site would be a more efficient
way to promote competition on this market.

6.

REPLIES FROM THE UNITED KINGDOM TO COM-
MENTS FROM INTERESTED PARTIES

(73) The United Kingdom states that the Measure is in fact
wholly consistent with the polluter-pays principle. The
BNFL group would contribute to over 88 % of the liabilities
through assets transferred to the NDA (7). The aid from the
United Kingdom Government would be limited to what is
required in recognition of
the Government's ultimate
responsibility for nuclear safety and security in the country.
BNFL would not benefit directly from the assets and
commercial revenues it will transfer to the NDA. It will only
benefit from potential performance-based incentives for the
time it operates the sites if it outperforms the objectives
fixed by the Government.

(74) The United Kingdom gives a detailed explanation of the
new structure of the BNFL group and its relationship with
the NDA.

(75) The United Kingdom also states that the principal function
of the NDA is site decommissioning. If operating certain
assets on a commercial basis allows the NDA to secure this
objective in a less costly way while keeping the same high
level safety standards it is authorised to do so. The NDA will
make such decisions, not BNFL.

EDF's comments

(76) The United Kingdom notes that

the Commission has
already addressed the issue of the price charged by BNFL to
BE for the management of its spent fuel in its decision on
the British Energy restructuring aid.

(68) The United Kingdom welcomes the support of EDF for the

Measure.

BE's comments

(69) The United Kingdom welcomes BE's supporting comments

for the Measure.

(70) The United Kingdom believes that proper legal measures
will ensure that no problems will arise from the potential
operation of some of the NDA's sites by BE's competitors.

(77) Finally, the United Kingdom challenges Greenpeace's view
that the operation of the NDA would be opaque and could
lead to cross-subsidisation with BNFL. The United Kingdom
claims
the NDA would be a
‘champion of public information’. Its statutes would include
several transparency mechanisms for its accounts, expend-
itures and overall programming.

that, on the contrary,

(6) Commission Decision 2005/407/EC of 22 September 2004 on the
State aid which the United Kingdom is planning to implement for
British Energy plc (OJ L 142, 6.6.2005, p. 26).

(7) The United Kingdom later on submitted updated figures demon-
strating that, according to the United Kingdom, more than 100 % of
the liabilities are covered.

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7.

ASSESSMENT

(78) At least part of the Measure concerns issues covered by the
Euratom Treaty and therefore has to be assessed accord-
ingly (8). However, to the extent that it is not necessary for
or goes beyond the objectives of the Euratom Treaty or
distorts or threatens to distort competition in the internal
market, it has to be assessed under the EC Treaty.

ionising radiations laid down in Article 30, Chapter 3 of the
Euratom Treaty, relating to Health and Supply. (9) The
Commission must ensure that the provisions of this Treaty
are applied and can therefore adopt decisions in the manner
provided for in this Treaty or deliver opinions if it considers
it necessary.

(81) The Commission takes note of the elements provided by
the United Kingdom authorities that the effects of the
notified measure will be, inter alia, to ensure the safety of
nuclear facilities both active and obsolete, to provide for the
correct,
timely and safe decommissioning of obsolete
nuclear facilities, and to store and provide long-term
solutions for spent nuclear fuel and radioactive waste.

7.1.

Euratom treaty

(79) The establishment of the NDA and the manner in which it
will be funded will, by definition, have an impact on the
management and funding of nuclear liabilities, including
the decommissioning of many nuclear installations and the
treatment of large quantities of radioactive waste. Decom-
missioning and waste management constitute an important
part of the life-cycle of the nuclear industry, giving rise to
risks which have to be responsibly addressed, and of the
costs covered by the sector. In fact, the need to address the
risks linked to the dangers arising from ionising radiation
constitutes one of the major priorities of the nuclear sector.
The Commission notes that after over 50 years of operation
of the nuclear industry in the United Kingdom, the issues of
decommissioning and waste management are becoming
increasingly important, as more facilities reach the end of
their lives and important decisions and efforts are required
to ensure the health and safety of workers and of the
population.

(82) When assessing this information, and notably in determin-
ing whether the Measure is necessary or falls within the
objectives of the Euratom Treaty, the Commission notes
that the financial support granted by the Government to
the NDA is designed to facilitate the previously mentioned
objectives of the Treaty. The United Kingdom authorities
have decided to create and fund the NDA to ensure the
correct establishment of a process of decommissioning and
management of the wastes that would adequately protect
the health and safety of the workers and the population.
The Commission therefore acknowledges that the United
Kingdom authorities have addressed their obligations under
the Euratom Treaty to provide for safe and adequately
provisioned decommissioning in a correct and responsible
manner which is compatible with the objectives of the
Euratom Treaty.

(80)

In this regard, the Euratom Treaty deals with this important
health and safety issue and at the same time aims at creating
the ‘conditions necessary for the development of a powerful
nuclear
industry which will provide extensive energy
sources…’. Article 2(b) of the Euratom Treaty provides
that the Community, in order to perform its task, is to
establish uniform safety standards to protect the health of
workers and of the general public and ensure that they are
applied. Article 2(c) of the Euratom Treaty also provides
that
facilitate investment where
the
appropriate in the nuclear sector. On this basis,
Euratom Treaty establishes the European Atomic Energy
Community,
and
attributing responsibilities to achieve these objectives. In
this regard, and as confirmed by the Court of Justice,
nuclear safety is a Community competence which must be
linked to the protection against the dangers arising from

creating the necessary instruments

the Community must

(83) The notified measure further reinforces the fulfilment of the
Euratom Treaty objectives by ensuring that
the public
intervention will not be used for other purposes than the
decommissioning of obsolete nuclear facilities and the safe
management of radioactive waste in the context of the
discharge of nuclear
liabilities. A system of cap and
threshold will ensure that enough funds are available for
the
restricting the
intervention to the minimum necessary for their achieve-
ment.

these goals, while

fulfilment of

(84) The Commission concludes that the measures proposed by
the United Kingdom authorities are appropriate to address
the combination of objectives pursued and are fully in line
with the objectives of the Euratom Treaty.

(8) Article 305(2) of the EC Treaty lays down that ‘the provisions of this
Treaty shall not derogate from those of the Treaty establishing the
European Atomic Energy Community’.

(9) Ruling of the Court of Justice of 10 December 2002 in Case C-29/

99.

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7.2. Aid within the meaning of Article 87(1) of the
EC Treaty — Application of the polluter-pays
principle.

(85) According to Article 87(1) of the EC Treaty, State aid is
defined as aid granted by a Member State or through State
resources in any form whatsoever which distorts or
threatens to distort competition by favouring certain
undertakings or the production of certain goods and
affects trade between Member States.

(86)

In order to analyse whether the Measure includes State aid
to BNFL and/or to the NDA, the Commission first assessed
whether it provided an advantage to these entities.

(87) Providing an advantage has to be understood in this respect
as the State paying for costs that should normally have been
borne by each of
is therefore
necessary to first establish a benchmark for normal costs to
be borne by a company in order to analyse later whether
the State is paying part of these costs.

the two companies.

It

(88) Under Article 174 of the EC Treaty, the Community policy
on the environment shall be based in particular on the
principle that the polluter should pay.

figures, over 88 % of these costs will be paid for by the
operators. The Commission considers that these estimates
show that about 12 % of the pollution costs will not be
covered by the polluters, which demonstrates that
the
Measure does not
the polluter-pays
principle.

fully implement

(93) Whilst, as explained above, it is relatively easy to determine
in this case that the Measure results globally in polluters
being granted an advantage because they do not pay the full
costs arising from their pollution, it is more difficult to
determine the precise extent to which each of the operators
is a polluter, and therefore the precise extent to which each
of them is relieved of bearing its pollution costs.

(94)

Indeed, the majority of the pollution costs at stake in this
case are costs linked to the decommissioning of nuclear
power plants that were operated by several operators
during their total lifetime. Implementing the polluter-pays
principle in this case requires the ability to decide which of
the successive operators is responsible for what part of
these costs.

(89) Under Article 6 of the EC Treaty, environmental protection
requirements must be integrated into the definition and
implementation of the Community policies.

(95) Decommissioning costs are generated in one go in the very
first moments of
the plants. Later
the operation of
increments in these costs are marginal as compared with
those created at the outset.

(90)

(91)

In practical terms, it is Commission practice to consider
that the implementation in State aid policy of the polluter-
pays principle requires that
the costs of pollution be
internalised by polluters (10). This means that such costs
should be considered precisely as costs normally to be
in turn, means that their
borne by the polluter, which,
payment by the State should be considered as an advantage
granted by the State.

(96) A completely direct implementation of the internalisation
of costs principle, which is the translation of the polluter-
pays principle, would therefore require that all the plant's
decommissioning costs be factored in the price of the first
units of energy sold by the plant.

In the present case, the State will undertake to cover any
shortfall in the NDA's ability to cover the costs linked to the
nuclear liabilities of the assets that will be transferred to the
NDA. Since these liabilities relate to the clean-up of sites
contaminated by radioactivity, the Commission considers
that they are pollution costs which, as explained above,
should normally be borne by the polluters, namely, the
operators of the sites. Since the State will pay for part of
these costs,
these payments should be considered as
granting an advantage to the polluters.

(97)

It is obvious that such an interpretation of the polluter-pays
principle would be in complete contradiction with the
economics of electricity generation and would be so
impracticable that it would not even achieve its own goal.
It is therefore generally accepted that, in order to apply the
polluter-pays principle to these costs in a way that would be
practical, a means should be found of spreading the
pollution costs (or, to be more exact, the legal duty to cover
them) over at least the expected lifetime of the plant.

(92)

In this respect, the Commission disagrees with the United
Kingdom's claim that the Measure fulfils the polluter-pays
principle because, according to the United Kingdom's

(10) See in particular

the Community guidelines on State aid for
environmental protection (OJ C 37, 3.2.2001, p. 3) in this respect.
This approach has also been upheld by the Court in its judgment of
20 November 2003 in Case C-126/01.

(98) The way these pollution costs are spread has a particular
relevance for the application of State aid rules where the
State intervenes to pay the decommissioning costs of plants
that have been owned by several owners. Indeed, in such a
case,
the pollution costs between the
successive owners also drives the spread of the potential
advantage granted by the State to each of them.

the spread of

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(99) There is no harmonised Community-wide system for
allocating decommissioning costs to the successive owners
of a nuclear plant. Member States have different systems for
implementing a legal duty to meet nuclear liabilities, these
systems resulting in different possible attributions of costs
between successive plant owners (11).

(100) Despite the lack of a harmonised system, the Commission
considers that it is still possible to identify two broad
categories.

(101) The first type of system consists in treating decommission-
ing liabilities as investment costs. In this case, the liability to
cover these costs is created at the time the plant is turned
on, and the cost becomes unavoidable from then on. In
liabilities are similar to a debt to a
accounting terms,
hypothetical decommissioning operator. Like all debt, this
one may be repaid in instalments, as well as purchased or
sold by various parties. But it is in any event completely
triggered as from the beginning of operations.

(102) The second type of system consists in treating decom-
missioning liabilities as operating costs. In such cases, the
legal liability to cover these costs is created periodically,
normally on a yearly basis, as a counterpart
for the
operation of the plant. Future instalments therefore remain
avoidable. In accounting terms, liabilities are similar to an
annual
tax paid to a hypothetical decommissioning
operator. The legal charge for this equivalent of a tax is
not completely triggered as from the beginning of the
operations, but on a continuous basis during the operation
of the plant.

(103) The two systems above may in practice lead to the same
behaviour in many cases, in particular for economically
efficient power plants (12). In this case, operators covered by
the first system would tend to put money aside to meet
their originally triggered liability in the same regular way as
they would if they had to meet an annual payment.

(104) However, they lead to two very different interpretations in
State aid analysis in cases where an economically inefficient
power plant is transferred from one owner to another
under the promise by the State to pay for a shortfall in
decommissioning costs.

part, and the new owner cannot be held liable for it,
irrespective of the size of this part as compared to the
actual time during which the first owner operated the plant.
This can lead to a situation where the first owner has to face
a burden which is disproportionately high in relation to the
time during which it operated the plant and, conversely, the
new owner is faced with a burden which is disproportion-
ately low. The economic situation of the power plant is the
factor that determines the spread of
In the
extreme case where the power plant is so inefficient that it
covers no more than its operating costs, the first owner
would be liable for all decommissioning costs and the new
one for none. State intervention would then have to be
interpreted as an advantage to the first owner only.

liabilities.

(106) Under the second system, the new operator would in any
event have to pay for amounts that would be charged to it
liability mechanism in the future.
under the periodical
These liabilities, on the other hand, are avoidable for the
first operator, since the legal duty to pay them is only
triggered upon actual operation of the plant. Therefore, the
first operator cannot be charged for future liabilities by the
new operator under a market transaction unless it receives
proper compensation. Under this system, operators there-
fore always remain liable for their share of the decom-
missioning costs, whatever the economic situation of the
power plant.

(107) The United Kingdom's method for

treating nuclear
liabilities is neither of
the two reference systems to
implement the polluter-pays principle described in recitals
(101) and (102) above,
since, as has already been
mentioned, it does not implement fully the polluter-pays
principle. It is nevertheless necessary to refer to one proper
benchmark in order to assess the Measure, otherwise it
would not be possible to assess the extent to which the
polluter-pays principle has not been implemented.

(105) Under the first system,

liability for funding the whole
decommissioning cannot be avoided by the first owner. If
he cannot sell a part of
this liability under market
conditions to the new owner he remains liable for this

(11) It must be noted however that,

in many Member States with a
nuclear industry, the question of successive owners of plants is
theoretical since all plants have always been owned by a single
operator.

(12) In this framework, an economically efficient power plant is deemed
its costs,

to be one that generates enough revenue to cover all
including all decommissioning costs.

(108) At the present stage of its legal analysis, the Commission is
not in a position to decide whether Community law allows
it to impose one of the two methods above in the context
of analysing the implications of the polluter-pays principle
under the State aid rules. The Commission finds that, in
any event, it is not necessary to decide on this question for
the present case, since, as will be demonstrated below, the
two methods come to the same conclusion as regards BNFL
and the NDA, that is, that the Measure does not include
State aid to BNFL and includes a State aid to the NDA that
can be found compatible with the common market.

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7.3.

Aid within the meaning of Article 87(1) of the
EC Treaty — Absence of aid to BNFL.

(109) The Commission has analysed whether

the Measure
includes an advantage to BNFL under each of the two
reference systems described in recitals (101) and (102)
above. As is explained above, both analyses aim at making
sure that, consistently with the polluter pays principle,
BNFL has covered the part of the nuclear liabilities that is
attributable to it by its own means only –and in particular
not by State support.

(110) In conducting these two analyses, the Commission took
account of the history of the ownership of the assets under
consideration, as well as the history of State intervention in
their favour, which is summarised below.

(111) The Magnox power plants were originally owned and
operated by two publicly owned companies that also
owned other, non-Magnox, power plants in the United
Kingdom. The British nuclear sector was then restructured
in several steps.

(112) In a first step, Magnox plants were separated from non-
Magnox plants. The former were grouped together in a
single publicly-owned company known as Magnox Electric.
A debt corresponding to the book value of the transferred
plants was created. This debt was owed to Magnox Electric
by the companies now owning only the non-Magnox plants
(hereunder referred to as ‘the Non-Magnox Operators’). The
debt later on was earmarked for covering the Magnox
plants' complete nuclear liabilities.

(113) In a second step, the UK Government purchased the debt
from Magnox Electric and replaced it with an undertaking
to pay for the shortfall of nuclear liabilities, capped with the
same value as the debt, and indexed with the same rates. It
should be noted that this step did not change Magnox
Electric's position as it was entitled to receive this money as
a result of the first step. On the other hand, by this step the
State alleviated the debt burden to the Non-Magnox
Operators.

(114) In a third step, BNFL purchased Magnox Electric from the
Government for a symbolic price of one pound. At that
time, the Government undertaking mentioned above was
replaced by a new one,
the newly estimated
negative net book value of the power plants: GBP 3,7
in contrast to what the
billion. It must be noted that,
the Opening of
Commission believed at
Procedure, this undertaking bears no relationship with the
letter of comfort which was approved by the Commission
under State aid Case N 34/90 (13).

the time of

fixed at

(13) Commission Decision in State aid case N 34/90. Letter SG(90)D/

2049.

(115) The Measure represents the fourth and last step of the
restructuring. BNFL transfers the power plants to the NDA,
together with all financial assets attached to them, including
the aforementioned undertaking (hereinafter the Magnox
Undertaking).

(116) The Calder Hall and Chapelcross Magnox plants represent
an exception to the process described above. They have
been the responsibility of BNFL since 1971, when BNFL was
set up and these stations were transferred to it. BNFL
assumed ownership and responsibility for the Springfields
site at the same time.

(117) The other assets concerned by the transfer to the NDA, and
in particular THORP and SMP, were owned by BNFL from
the beginning of their operations until their transfer to the
NDA.

7.3.1. Analysis under the first reference system (decommissioning

costs as investment costs).

(118) Under this analysis, as explained in recital

(105),

if an
installation changes ownership the buyer cannot be held
responsible for nuclear liabilities in excess of those he
would be ready to acquire from the seller. This means that,
in this reference system, where an asset has a negative book
value that consists in nuclear decommissioning liabilities,
the burden stays with the seller, and, should the buyer agree
to take responsibility for the liabilities,
it is entitled to
receive payment for these liabilities as a negative price.

(119) In this reference system, when it acquired the plants from
Magnox Electric BNFL was therefore entitled to receive the
value of the Magnox Undertaking as a negative price for
their negative book value. The Magnox Undertaking cannot
therefore be interpreted as an advantage given to BNFL, and
could be rightly included in the company's balance sheet as
an asset it owned. Thus it can be counted as a contribution
by BNFL towards meeting the nuclear liabilities for which it
had assumed complete responsibility.

(120) The same reasoning must be used for the transfer of the
assets from BNFL to the NDA: since the NDA takes over all
liabilities under this reference system, BNFL should at the
same time provide the NDA with positive assets of a total
value equal to that of the liabilities transferred. If it did not
do so, the difference would constitute aid to BNFL.

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(121) The following table, which was provided by the United
Kingdom, gives an update of the values of the liabilities and
assets transferred by BNFL to the NDA as provided before
the Opening of Procedure. It is worth underlining that, as
was explained above,
the Magnox
Undertaking can be considered as a contribution by BNFL
since BNFL was entitled to get this value itself as a payment
at the time it purchased the plants.

the full value of

Table 3

2005 estimates of assets and liabilities to be transferred from
BNFL to the NDA showing BNFL contribution towards its
Nuclear Liabilities. March 2005 prices, discounted at 5,4 %
nominal, amounts in GBP billion.

Total Economic Nuclear Liabilities

-15,1

Sellafield operations cash flow (THORP & SMP)

Springfields future cash flows

Magnox future cash flows

Magnox Undertaking

Nuclear Liabilities Investment Portfolio

Other customer contributions not included above

Cash and liquid assets

2,6

0,2

0,2

8,3

4,0

0,3

0,7

Total

1,1

(122) The table above is based on BNFL's accounts. These
accounts have been audited. Apart from the increase in
value of the Magnox Undertaking due to its indexation, the
main change as compared to the figures contained in the
Opening of Procedure consists in the fact that BNFL will be
transferring more financial assets to the NDA.

(123) The Commission is aware that estimates for future revenue
from the Sellafield site can be controversial. Greenpeace
attached to its
submission a report questioning the
pertinence of investment in these assets, and in particular
for SMP.

not be the best environmental solution for nuclear waste
final management. However, the Commission considers
that the power to make this decision lies solely with the
countries concerned and is immaterial to the Community
State aid policy.

(125) The situation for SMP is different, since SMP still has to
contract most of its operations. The Commission compared
the value submitted by the United Kingdom authorities
with the one that
resulted from the procedure of
assessment of BNFL's economic case for the Sellafield
MOX plant (14). The Commission found that the figure used
by the UK authorities is within the average range of
reasonable scenarios resulting from the analysis undertaken
by independent consultants for this assessment (15).

(126) The Commission notes Greenpeace's comment that the
aforementioned assessment of BNFL's economic case for
the Sellafield MOX plant took place after most of the
investment costs in SMP had been sunk. This timing meant
that investment costs were not taken into account when
deciding on the economic rationale for or against operating
in this
the plant. The Commission understands that,
context, the positive result of the assessment could give
the wrong impression that
in SMP was a
profitable decision overall, whereas in fact, the result meant
only that, since the investment had already been made, it
was more logical to operate it in the hope of losing less
money overall. However, the Commission notes that this
distinction only affects the validity of the choice of the
timing of the assessment, not the validity of future cash
flow estimates in the assessment.

investment

(127) The estimated future cash flow for Magnox plants takes
account of the latest electricity prices in Great Britain.
Electricity prices in Britain were particularly high at the end
of 2005. It is unclear whether they will stay at that level for
a sustained period. However, some of the reasons usually

(124) The Commission notes however that THORP's future cash
flow is based mostly on contracts which have already been
signed and which will be executed in the remaining lifetime
of the plant. Estimates of THORP future cash flow are
therefore unlikely to be significantly flawed. It may indeed
be possible, as Greenpeace argues, that reprocessing will

(14) See

http://www.defra.gov.uk/environment/consult/mox/

for

all

reports submitted in this public consultation.
(15) Due to the differences between the discount

rates used by
consultants and the Commission reference rate, the Commission
could only compare reasonable orders of magnitudes and not exact
figures.

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in particular the
put forward for high electricity prices,
increase in gas prices and the effect of emission trading, are
likely to remain, and could even grow in the case of the
effect of emission trading. Furthermore, the figures used for
estimating this cash flow, although they take account of the
rising trend, are still very cautious as compared to prices
witnessed today (16). The Commission therefore believes
that this estimate is acceptable for the few years during
which Magnox plants will continue to operate.

(128) The NDA computes and publishes its own estimates of total
nuclear liabilities. These estimates are higher than the ones
used in BNFL's accounts. They do not distinguish between
economic and non-economic liabilities, since this distinc-
tion, which is significant for State aid control, is irrelevant
for the NDA's activities. However, according to the United
Kingdom, splitting the NDA's latest estimates (17) for total
liabilities into economic and non-economic liabilities in the
same proportion as that used for the above computation
results
liabilities
in estimated total economic nuclear
reaching GBP 18,2 billion in March 2005 prices (compared
to GBP 15,1 billion from BNFL's accounts). The total BNFL
contribution resulting from the same computation as in
Table 3 above would become negative by GBP 1,9 billion
(instead of a positive GBP 1,1 billion (18).

(129) The Commission acknowledges that nuclear liabilities are
difficult to estimate, since they relate to activities that will
take place a long time in the future, and of which we still
have little experience. This is particularly true of decom-
missioning activities that concern very specific sites like the
ones transferred to the NDA. In view of these uncertainties,
the Commission is of the opinion that a GBP 3,1 billion
margin of uncertainty out of a total of about GBP 15 to 18
billion is acceptable.

(130) It is understandable that BNFL's estimate of the liabilities is
smaller than the NDA's. Indeed,
it is clearly in BNFL's
interest to have smaller liabilities in its balance sheet. On
the other hand, it is in the NDA's interest to be conservative
to get sufficient funding for its activities, especially in a
period of budgetary restrictions. The fact that the NDA is
under an obligation to achieve a 2 % p.a. gain in efficiencies
adds to the incentive to present rather conservative first
estimates.

(131) The UK Government indicates that similar but already more
advanced experience in the USA shows that decommission-
ing costs estimates tend to follow a curve whereby, after an
initial growth,
they eventually decrease as a result of
increased experience and technology improvements.

(16) These estimates of electricity prices are in the range of GBP 28MWh
to GBP31MWh). As a reference, April 2006 baseload prices are GBP
54,48 MWh and annual 2007 baseload prices (calculated as the
average of summer and winter prices) are GBP 53,75/MWh (Source:
United Kingdom authorities quoting Platts European Power Daily,
8 February 2006).

(17) This estimate is referred to as Lifecycle Baseline 2.
(18) Sums may not match perfectly because of rounding.

(132) Over the last ten years the United States Government has
introduced performance-based contracts for nuclear clean-
up. This is the approach to clean-up that the NDA is now
committed to implementing. Experience in the US has been
that over a period of five years or so it is possible to reverse
the tendency for liability estimates to increase and in
contrast to reduce liability estimates through accelerating
work and cost reductions. For example the US Treasury
Financial Report for 2003 notes that the Department of
Energy reduced its environmental
liability by USD 26,3
billion or 12,5 % in fiscal year 2003; this is the second year
in a row that Energy's environmental liability has decreased.
The decrease in 2003 was primarily due to restructuring
the clean-up programme to focus on its core mission and
accelerating clean-up (19). A more recent report by the
United States Government Accountability Office (GAO)
reviewed the Department of Energy's cost reduction target
for nuclear clean-up. The GAO report identified that as at
March 2005 the Department of Energy was on track or
ahead of schedule for many of the 16 clean-up activities it
measures and behind schedule for three challenging and
costly activities. The GAO report stated that the Depart-
ment of Energy is still expecting significant cost reductions
of the initial target of 50 billion USD (20).

(133) In view of the above, the Commission considers that it can
the two estimates, BNFL's

reasonably consider that, of
estimate will probably prove to be closer to reality.

(134) Therefore, the Commission concludes that the Measure
does not include any aid to BNFL within this reference
system.

7.3.2. Analysis under the second reference system (pollution costs

as operating costs).

(135) To calculate BNFL's contribution under

this reference
system, the first step consists in allocating nuclear liabilities
properly to the successive owners of the assets, in a way
that
that a hypothetical
decommissioning operator would have charged to each
of them. The profile of such a fee would be likely to be
tightly linked to the assets' revenues.

is consistent with the fees

(136) For the Magnox plants, the Commission considers that the
most appropriate way to do this is to allocate liabilities on a
time proportion basis, since the output of these power
plants remains very stable over time.

(19) See 2003 Financial Report of the United States Government, p. 11

http://fms.treas.gov/fr/03frusg.html.

(20) GAO Report

to the Chairman and Ranking Minority Member,
Subcommittee on Energy and water Development, Committee on
Appropriations, House of Representatives Nuclear Waste July 2005.

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fuel and other

(137) In the case of Springfields, the allocation distinguished
between liabilities linked to the reprocessing of Magnox
liabilities linked to the reprocessing of AGR
spent fuel,
spent
liabilities. Magnox liabilities are
allocated using the same pattern as the one used for
Magnox plants above, since nuclear waste generation is
directly linked to the plant's electricity output. AGR
liabilities are allocated to BNFL in accordance with its
arrangement with BE whereby BE retained responsibility for
these liabilities until 1995. The same method is used for
Magnox-related liabilities of the Sellafield site (21).

(138) Other (non-Magnox and non-AGR) liabilities in Spring-
fields are allocated on a time proportion basis. The same
the Drigg and
time proportion method is used for
Capenhurst sites.

(139) The situation is different for the THORP and SMP plants of
the Sellafield site. These assets were built by BNFL. THORP
was operated first by BNFL, but will continue to be
operated by the NDA. SMP will be operated exclusively or
almost exclusively by the NDA. Allocating liabilities on a
time proportion basis would therefore lead to the
attribution of an important share of these liabilities to
the NDA.

(140) However, unlike power plants or fuel supply plants, these
assets are not meant to have a steady business plan. They
are generally commercially managed in such a way as to
generate most of their revenue at the very beginning of
their operations. The first contracts that are signed in this
respect are known as ‘baseload’ contracts. Operators aim at
recovering if possible all decommissioning costs from the
revenue generated by these contracts. This is typically the
case for THORP and SMP. In such cases, the Commission
believes that, even in this reference system, it is reasonable
to allocate all liabilities to the first owner, because a diligent
regulator would be likely to fix contributions to repay the
full decommissioning costs in such a way as to charge most
if not all of them on baseload contracts signed by this
owner.

(141) The Commission notes that comments from Greenpeace
point to the fact that it is quite likely that the business
prospects for THORP and SMP are not as good as they
originally seemed. The Commission however believes that
this should not be a reason to deviate in the allocation
method, since even if the global activity of the plants is
decreased, the overall profile of their revenue generation
the revenues generated in the
(that
beginning) should remain the same.

is, with most of

(142) Accordingly,

the Commission has allocated all nuclear

liabilities of the THORP and SMP plants to BNFL.

(143) The second step in the computation consists in calculating
the value of BNFL's contribution to these liabilities.

(144) This contribution must first take account of liabilities that
have already been discharged by BNFL. Indeed, a certain

(21) Except THORP and SMP, which are treated separately.

including in particular some Magnox
number of sites,
plants, have already ceased operation, and decommission-
ing has started. BNFL has spent GBP 5,1 billion for meeting
these liabilities. While doing so, BNFL did not check
whether the liabilities it was discharging were ‘attributable’
to it under the present reference system. However, the
whole of
this contribution can be included in the
computation since either discharged liabilities were attri-
butable to BNFL and therefore can be directly included in
the computation, or they were not attributable to it and in
this case BNFL provided contribution for more liabilities
than it should have, and would have deserved compensa-
tion for it.

(145) Second, the contribution must also take account of the
financial assets that BNFL will provide to the NDA. From
the value of these assets that will be transferred to the NDA
must be subtracted the value that was received by BNFL at
the time it purchased the Magnox plants, since only the
increase in value of the assets constitutes a contribution
from BNFL.

(146) Finally, future cash flow for SMP and THORP, which will be
received by the NDA instead of BNFL, should also be
counted as BNFL's contribution, in order to be consistent
with the aforementioned decision to attribute all
the
liabilities of these plants to BNFL.

(147) The chart below summarises the results of the computation

under this reference system:

Table 4

Estimate of contribution from BNFL to its allocated share of
liabilities. 2005 prices, discounted at 5,4 % nominal, amounts
in billion GBP.

Non-Thorp and Non-SMP liabilities
allocated to BNFL

Thorp and SMP liabilities allocated to
BNFL

Total Liabilities to be funded by BNFL

Funds to be provided to NDA

Magnox Undertaking

NLIP

THORP and SMP Future Cash
flows

Other assets

Total value of funds

Funds provided to BNFL under Mag-
nox transaction

Magnox Undertaking

Other funds

Subtract total funds provided to BNFL

a

b

c

d

e

f

g

h

i

j

k

-8,0

-1,4

a+b

-9,4

8,3

4,0

2,6

0,7

d+e+f+g

15,6

-5,3

-4,0

I+j

-9,4

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Value of net funds

l

h-k

6,2

(157) Article 87(2) and 87(3) of
exemptions to the general
Article 87(1).

the EC Treaty provide for
in
incompatibility set out

Liabilities discharged by BNFL

Funds Provided towards liabilities

Result of BNFL administration

m

n

o

5,1

l+m

11,4

n-c

2,0

(158) The exemptions in Article 87(2) of the EC Treaty do not
apply in this case because the Measure does not have a
social character and is not granted to individual consumers,
it does not make good the damage caused by natural
disasters or exceptional occurrences and is not granted to
the economy of certain areas of the Federal Republic of
Germany affected by its division.

(148) The table above was submitted by the United Kingdom
authorities. It is based on figures from BNFL's accounts, as
in Table 3.

(149) The considerations developed in recitals (128) to (133)

apply in this case too.

(150) Therefore, the Commission concludes that the Measure
does not include any aid to BNFL within this reference
system.

7.4.

Aid within the meaning of Article 87 (1) of the

EC Treaty — Presence of aid to the NDA

(151) The two computations described above could also be
applied to determine whether and to what extent the
Measure gives an advantage to the NDA.

(152) However, the Commission considers that, in this case, the
computation is not necessary. Indeed, the Measure provides
an unlimited guarantee that the State will cover all the
NDA's expenses if these expenses cannot be covered by the
authority's revenues from commercial activities or by
financial assets transferred to it. Nor is this guarantee is
neither limited in scope nor in time. It does not exclude
costs linked to competitive activities, in particular where
these activities may generate added incremental liabilities,
and is not limited in amount.

(153) The Commission considers that this unlimited guarantee is
in itself an advantage that is granted by the State to the
NDA.

(154) Since this guarantee is financed by the resources of the
State and is specifically aimed at the NDA, and since the
NDA will continue to have some commercial activities in
markets where there is trade between Member States, the
Commission concludes that the Measure involves State aid
to the NDA within the meaning of Article 87(1) of the EC
Treaty.

(155) The Commission notes that the United Kingdom did not
challenge the fact that the measure constitutes State aid to
the NDA.

7.5.

Compatibility assessment of the aid to the

NDA under the EC Treaty

(156) Article 87(1) of the EC Treaty provides for the general
principle of prohibition of State aid within the Community.

(159) Further exemptions are set out in Article 87(3) of the EC
Treaty. Exemptions in Articles 87(3)(a), 87(3)(b) and 87(3)
(d) do not apply in this case because the aid does not
promote the economic development of areas where the
standard of
living is abnormally low or where there is
it does not promote the
serious underemployment,
execution of an important project of common European
interest or remedy a serious disturbance in the economy of
a Member State, and it does not promote culture and
heritage conservation.

(160) Only the exemption in Article 87(3)(c) of the EC Treaty
may therefore apply. Article 87(3)(c) provides for the
the
authorisation of State aid granted to promote
development of certain economic sectors, where such aid
does not adversely affect trading conditions to an extent
contrary to the common interest.

(161) The Commission practice is to interpret

the text of
Article 87(3)(c) as meaning that a measure can be found
compatible with the Treaty where its positive contribution
to the fulfilment of certain Community objectives out-
weighs its negative impact on competition on the internal
market.

(162) Section 7.1 explains in some detail the compatibility of the
Measure with the objectives of the Euratom Treaty. The
Commission welcomes the establishment of the NDA and
views it as an excellent measure for handling in an efficient
way the burden of nuclear liabilities arising from the distant
past when environment policies had not yet reached
present-day standards. The Commission considers that the
NDA will contribute in a decisive way to the best possible
implementation of the back end of the nuclear cycle. In this
the
it will clearly contribute to the fulfilment of
way,
Community's nuclear policy as set out in the Euratom
Treaty. The positive contribution of the Measure is therefore
very important, and well established in the Commission's
view.

(163) Had the NDA been under an obligation to cease as soon as
possible the commercial operation of the assets for which it
will be responsible, there would probably have been no
significant negative impact of the Measure on competition.
However, the United Kingdom did not make this choice,
and allowed the NDA to continue the commercial
operation of assets under certain conditions. The Commis-
sion can only note that, by doing so, the United Kingdom
has made it possible for the NDA's operations to have an

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impact on the internal market. This makes it necessary to
analyse the magnitude of this impact in order to assess the
Measure.

is striking in this respect.

(164) The Commission considers that the continuation of the
commercial operation of the assets by the NDA, with the
underlying aid from the State, has a very similar impact on
competition to that which would result
from the
continuation of operations of a company in receipt of
restructuring aid. The parallelism with the BE restructuring
case (22)
these
similarities,
the most
the Commission considers that
appropriate way to assess the impact of the Measure on
competition and to establish the limits within which it may
be found compatible with the common market consists in
using the underlying reasoning of the Community guide-
lines on State aid for rescuing or restructuring firms in
difficulty (23), and in particular the need to find propor-
tionate compensatory measures to mitigate the effects of
the aid where necessary.

In view of

(165) Before entering into a detailed analysis of the competition
situation for each of the assets, the Commission has two
general remarks concerning the impact of the Measure on
competition.

(166) The first remark is that the statutes of the NDA themselves
mitigate the impact of the Measure on competition even for
assets that will continue in operation. A company with a
commercial goal would be likely to use operating aid to
reduce its costs and sell at low price. In contrast, the NDA
will operate assets only if the operation can add value for its
main duty, the decommissioning of the plants. The NDA
will therefore have no incentive to use aid to provide
services below the market price, and certainly no interest in
using the aid to decrease its costs. Furthermore, whilst the
NDA will continue to operate the existing assets, it will not
invest in any new ones. It will therefore not be in its
interests to have a commercial policy aimed at gaining
influence and market share.

(167) The NDA will neither invest in new assets nor engage in
new activities. The cash flow it will generate by continuing
the operation of certain assets will be used solely for the
purpose of providing more funding for the discharge of
nuclear liabilities. The operating framework for the NDA
strictly ringfences all NDA's revenues, preventing them to
be used for other purposes.

(168) All nuclear plants operators should cover in principle their
proper share of nuclear liabilities under the polluter pays
principle. For this purpose, the UK undertook to require the
NDA and Site Licensee Companies for the power plants to
undertake to use all reasonable efforts in their prices to
recover the share of the liabilities that are attributable to the
NDA. In the circumstances where this goal would not be
reached, the UK will report to the Commission and inform
it on the reasons why it could not be reached.

(22) See footnote 9.
(23) See footnote 8.

importantly,

(169) The second remark is that the competitive system that the
United Kingdom will put in place to designate SLCs will in
itself have a very beneficial effect on competition in the
internal market. It will create the basis for a real market in
the operation of some nuclear sites in the United Kingdom
their decommissioning. The
and, more
Commission considers that the development of this market
is an excellent opportunity for the Community economy as
a whole. It will allow the spread of know-how to the whole
Community industry. The Measure will
therefore have
in
significant positive externalities, which will be useful
particular in view of the numerous nuclear assets that will
have to be decommissioned in the Union in the coming
decades.

(170) The Commission has also analysed the competition
situation of each of the types of assets that the NDA will
continue to operate commercially.

7.5.1. Magnox power plants

(171) The Magnox power plants are operating on the very

competitive Great Britain electricity market.

(172) The Commission notes the United Kingdom's microeco-
nomic arguments that the Measure, even if it decreased the
plants' SRMCs, would not impact the time during which
competitors run their plants and the price at which they sell
their electricity.

(173) The Commission has reservations in this respect. Indeed,
these arguments may be valid in a single, mostly short
term, perfect market, with perfect information, preferably
pool based. However, the present electricity market in Great
Britain is not such a market. It is mostly based on bilateral
contracts, with several futures markets. Furthermore, the
market is fundamentally divided between wholesale and
direct supply to business,
the second segment being
apparently more commercially valuable. Without affecting
the actual amount of electricity sold by one of the NDA's
competitors, the Measure may force it to switch partly to a
less attractive part of the market, which would impact its
results.

(174) The Commission therefore considers that

the Measure
distorts or threatens to distort competition on this market
which must be mitigated.

(175) The ideal way to mitigate the negative impact of the aid on
the market would be to cease the operations of the power
plants.

(176) The Commission appreciates however that closing down
these power plants immediately might have a negative
impact on the efficiency and safety of the decommissioning
operations. Indeed, because the Sellafield site would not be
in a position to start waste reprocessing for several power

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L 268/53

plants at such short notice, temporary storage solutions
would have to be provided. This would complicate
decommissioning works, adding costs and potentially
safety concerns. It might also cause problems for security
of electricity supply in the already tense Great Britain
market. The Commission considers that requiring the
immediate closure of
therefore not a
proportionate measure for mitigating competition con-
cerns.

the plants

is

(177) The Commission notes that, whilst the plants will not be
closed immediately, the United Kingdom already has a
programme to close all of them in the relatively short term,
the last station being scheduled to close in 2010. This
implies that any impact of the Measure on competitors
would decrease and end soon. In particular, the period
between the time of this decision and the last closure is of
the same order of magnitude as the time necessary for a
new entrant on the market to develop a new electricity
plant project until commissioning. The NDA also will not
start new electricity generation activities nor build any
other new asset.

(178) In order to mitigate the impact of the Measure on the
market in the meantime, the Commission examined the
possibility of requiring measures from the NDA which
would be equivalent in effect to the ones it required from
BE in the framework of
its
restructuring (24). There were three such compensatory
measures.

the State aid case for

(179) The first compensatory measure consisted in requiring the
separation of BE's nuclear generation, non-nuclear gener-
ation and trading business. In the present case, the NDA
does not have any significant non-nuclear generation
business. The Commission therefore considers that such a
compensatory measure would not be meaningful for the
present case.

(180) The second compensatory measure consisted in imposing
on BE a six-year ban on increasing capacity. In the present
case, in practice, the NDA will not only not increase its
electricity generation capacity, but will also gradually phase
it out over four years. The effects of this measure are
therefore already achieved by the normal functioning of the
NDA.

to
exceptional derogations are necessary in order not
jeopardise the very aim of the Measure. Experience of
monitoring the Commission decision in the BE case shows
that the derogations did not lead to abuse.

(184) In the present case, as in the case of BE, the existence of
exceptional market circumstances will be defined by the use
of concrete and operational tests.

(185) The tests will however be slightly less cumbersome than in
the case of BE. The Commission considers that this is
justified and proportionate because NDA's share of the
market is much smaller than BE's and the impact of the
Measure on the electricity market is therefore less.

(186) The United Kingdom authorities have offered to implement
the measure with the rules defined in recitals (187) to (190).

(187) Under normal market circumstances, where the NDA
wishes to enter into new contracts for sales to end-users,
the Secretary of State will appoint an independent expert to
report on an annual basis that such contracts have been at
prices where the energy component has been set at or
above the prevailing wholesale market price.

(188) Under exceptional market circumstances, the NDA may sell
new contracts where the energy component is set below the
prevailing wholesale market price but only after
the
auditors of the NDA, or of companies operating on its
behalf, have reached the opinion that one of the two tests
set out below for exceptional market circumstances have
been met.

— Test A: the NDA, or a company operating on its
behalf, offers to sell […] (*) for a period of […] a
minimum of […] for a winter season trade and […]
for a summer season trade at the prevailing wholesale
market price in the wholesale market and at the end
of that period such offers have not been accepted.

— Test B: reported trades of season ahead baseload
electricity on the United Kingdom wholesale electri-
city market have totalled less than […]
(gross),
averaged over the preceding […].

(181) The third compensatory measure consisted in prohibiting
BE from selling electricity on the direct sale to business
segment below wholesale market prices.

(182) The Commission considers that a similar measure is
necessary in the case of the NDA. The United Kingdom
has undertaken to implement it.

(189) If either test is fulfilled, a period of exceptional market
circumstances would commence. The NDA would then be
able to sell new contracts for up to […] to end-users for
contracts at prices below the prevailing wholesale market
price on the assumption that such pricing behaviour is a
commercial necessity during such a period of exceptional
market circumstances.

(183) In practice, the same type of derogations as the ones
accepted for BE in cases of exceptional market circum-
stances will apply. The Commission considers that such

(190) A period of exceptional market circumstances may not
exceed […]. In order for a subsequent period of exceptional
market circumstances to commence either Test A or Test B
must again be satisfied.

(24) See footnote 9.

(*) Business secret.

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(191) The Commission considers that

this mechanism is a
suitable way to implement the compensatory measure. It
is based on sufficiently transparent and practicable criteria
to enable decisions to be made in a sound and efficient way.
It will make it possible to mitigate significantly the
distortion of competition in the market during the period
pending the closure of Magnox plants.

(192) In view of the above, the Commission considers that the
distortion of competition resulting from the measure, as
mitigated by the fact that the plants will close soon and by
the compensatory measure that will be put in place,
is
outweighed by the positive contribution of the Measure on
the achievement of the Euratom Treaty objectives.

7.5.2. THORP

(193) The Commission considers that the impact of the Measure
as regards the continuation of THORP activities by the NDA
is very limited.

(194) First and foremost, an important part of the reprocessing in
THORP is of AGR fuel. In this respect, it does not have any
competitors at present. Since BE is now the only source of
spent AGR nuclear
the Commission
considers that it is clear no market investor would consider
any investment in a new AGR nuclear fuel reprocessing
plant.

in Europe,

fuel

(195) Greenpeace argues

storage might be an
alternative to reprocessing AGR fuel and could be a more
attractive solution for an investor.

that direct

(196) The Commission considers however that, even though
investment in direct storage may be less costly, it would still
remain a very unattractive option. Indeed, as the United
Kingdom rightly remarks, BE, as the only source of spent
AGR fuel, already has
the
managing of its spent AGR fuel. The Commission points
out that, contrary to what Greenpeace seems to claim,
BNFL was under no obligation to actually reprocess this
waste. It is only under a duty to manage it. According to the
information available to the Commission, BNFL did not
intend to reprocess it all.

life-time agreements

for

(197) These agreements are the result of a renegotiation of the
initial arrangements during the restructuring of
the
company. Prices are therefore particularly interesting for
BE, since, within such a framework, BNFL, like any private
investor in a market economy, was ready to offer prices
going as low as its marginal costs, surrendering part or all
of its fixed costs (it should be noted however that the fixed
GBP 140 000/tonne mentioned by Greenpeace
and
reported in recital (53) is incorrect, since prices in these
arrangements depend on electricity prices, as is described in
Table 7 of the aforementioned Commission decision on the
restructuring of BE).

(198) The Commission considers it impossible that a competitor,
which would have to either build a new storage facility with
significant fixed costs, or factor in high transport costs for
hazardous material, could make any competitive offer to BE
in such conditions.

(199) Competition concerns are therefore limited to THORP's

LWR spent fuel reprocessing activities.

(200) For these activities, the Commission considers that direct
storage is not a real competitor to reprocessing. Indeed,
under the economic conditions prevailing now and for the
foreseeable future on the uranium market, reprocessing of
waste fuel is a significantly more costly option than direct
storage (25). The choice of reprocessing over direct storage
is therefore very often a policy choice by Governments of
countries where the nuclear plants are operated. Such a
policy choice, which is often implemented by law or
regulation, leaves very little if any room for competitive
arbitrage by operators between the two options.

(201) For the reprocessing of non-AGR fuel THORP has therefore
only one competitor in the Union: the French company
Areva.

(202) In this context, the Commission considers that requiring
advance closure of THORP to mitigate competition
concerns raised by the Measure would potentially create
more competition issues than it would solve. Indeed, it
would establish Areva as a monopoly that would certainly
be of very long duration in view of the technological and
financial difficulty of entering this market.

(203) The Commission believes that in view of the above, a better
way to mitigate the impact of the Measure on competition
is to ensure that, during the NDA operations, government
resources will not be used to enable THORP to compete on
a biased basis with Areva.

(204) It was demonstrated in section 7.3 that BNFL had put aside
enough monies to pay for THORP's fixed decommissioning
costs. The Commission therefore considers that, in order to
ensure that the NDA will not be in a position to offer
anticompetitive pricing, it is sufficient to require that the
NDA will, for any new contract for THORP, price in all
costs, including all incremental nuclear liabilities.

(205) The United Kingdom has undertaken to implement this
complete pricing mechanism.
It will apply to all new
contracts entered into by the NDA after the date of the
present decision. This restriction will not be applied to
contracts entered into before the date of the Commission
decision or to contracts where formal offers approved by
the Nuclear Decommissioning Authority and the United
Kingdom's Department for Trade and Industry have been
issued to customers and are under negotiation before that
date or to contracts entered into after that date pursuant to
a Letter of Intent entered into before that date.

(25) See OECD/NEA, ‘The Economics of the Nuclear Cycle’, 1994, which
is one of the most complete studies on this aspect to that date.

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(206) In view of the above, the Commission considers that the
distortion of competition resulting from the measure, as
mitigated by the compensatory measure that will be put in
place, is outweighed by the positive contribution of the
Measure to the achievement of
the Euratom Treaty
objectives.

7.5.3. SMP

its use. SMP only has

(207) SMP's competition situation is also very specific. SMP
fabricates MOX fuel. MOX can be used only in a limited
number of nuclear power plants that have been designed or
two commercial
adapted for
competitors at present: Areva and Belgonucléaire. These
two competitors have significant ties. In particular, the
Commission understands that, whilst Belgonucléaire has
the technological capacity for producing MOX,
is
dependent on Areva to assemble a final product for use
in nuclear power plants. Moreover, Belgonucléaire sells its
products via Commox, a jointly owned subsidiary of Areva
(60 %) and Belgonucléaire (40 %).

it

(208) Should SMP disappear, competition in the market would be
restricted, at best
to two companies with important
common interests, and possibly even to a single company.
It is not impossible that Japanese and Russian operators,
which today own non-commercial MOX fabrication
installations, may begin commercial operation in the next
years. However, this is not certain, and the overlap between
the operational life of SMP and these possible new non-EU
commercial operators may be restricted to a few years.

(209) Within this context,

the Commission considers

that
requiring early closure of SMP to mitigate competition
concerns raised by the Measure would potentially create
more competition concerns than it would solve.

(210) The Commission believes that in view of the above, a better
way to mitigate the impact of the Measure on competition
is to ensure that, during the NDA operations, Government
resources will not be used to enable SMP to compete on a
biased basis with Areva and/or Belgonucléaire.

(211) It was demonstrated in section that BNFL had put aside
enough monies to pay for SMP's fixed decommissioning
costs. The Commission therefore considers that, in order to
ensure that NDA will not be in a position to offer
anticompetitive pricing, it is sufficient to require that the
NDA will, for any new contract for SMP, price in all costs,
including all incremental nuclear liabilities.

(212) The United Kingdom has undertaken to implement this
complete pricing mechanism.
It will apply to all new
contracts entered into by the NDA after the date of the
present decision. This restriction will not be applied to
contracts entered into before the date of the European
Commission's decision or to contracts where formal offers
approved by the Nuclear Decommissioning Authority and

the United Kingdom's Department for Trade and Industry
have been issued to customers and are under negotiation
before that date or to contracts entered into after that date
pursuant to a Letter of Intent entered into before that date.

(213) In view of the above, the Commission considers that the
distortion of competition resulting from the measure, as
mitigated by the compensatory measure that will be put in
place, is outweighed by the positive contribution of the
the Euratom Treaty
Measure to the achievement of
objectives.

7.5.4. Springfields

(214) By the end of 2006, Springfields' activities will be limited to

the production of Magnox and AGR nuclear fuel.

(215) Such nuclear fuels are used only in the United Kingdom.
Magnox fuel is used only in the Magnox plants, the last of
which will close by 2010. AGR fuel is used only by BE,
which renegotiated its long term agreements with BNFL for
AGR fuel delivery within the framework of its restructuring.

(216) The same arguments apply as are developed in recitals (196)
to (198). No competitor would find it economically
attractive to invest in an asset to compete with Springfields'
activity. The Commission therefore considers that
the
impact of
the Measure on competition as regards the
Springfields site is negligible, and calls for no compensatory
measure.

(217) In view of the above, the Commission considers that the
distortion of competition resulting from the measure is
outweighed by the positive contribution of the Measure to
the achievement of the Euratom Treaty objectives.

7.5.5. Drigg

(218) The Drigg installation is a repository for low level nuclear

waste. It is the only one in Britain.

(219) The United Kingdom authorities informed the Commission
that
this repository would have sufficient capacity to
accommodate all such waste produced in the United
Kingdom until 2050. The NDA will be the source of about
90 % of this waste.

(220) Long distance transport of nuclear waste is not recom-

mended, and some countries even ban its import.

(221) The Commission considers that, in these conditions, the
scope for a new entrant
to compete with the Drigg
installation is very limited, and would make the construc-
tion of a competing low level waste repository unlikely to
have any economic value.

(222) The Commission therefore considers that the impact of the
Measure on competition as regards the Drigg site is
negligible, and calls for no compensatory measures.

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(223) In view of the above, the Commission considers that the
distortion of competition resulting from the measure is
outweighed by the positive contribution of the Measure to
the achievement of the Euratom Treaty objectives.

7.6.

BNFL as temporary SLC

(224) In the Opening of Procedure, the Commission expressed
concern that BNFL might receive aid from the NDA in the
time during which it will be the temporary SLC of the
NDA's site before a competitive process can be put in place
to designate SLCs.

nuclear liabilities does not include State aid within the meaning
of Article 87(1) of the EC Treaty to British Nuclear Fuels Limited.

establishment of

2. The
the Nuclear Decommissioning
Authority as described in paragraph 1 includes aid within the
meaning of Article 87(1) of
the EC Treaty to the Nuclear
Decommissioning Authority which is compatible with the
common market and the objectives of
the Euratom Treaty,
subject to compliance with the conditions set out in Articles 2 to
9 of this Decision.

Article 2

(225) The Commission notes that

the United Kingdom has
delivered a complete and detailed explanation of the way
SLCs –including BNFL- will be
remunerated. Only
necessary costs will be paid for, with annual caps. Profit
will be excluded from normal payment, and may only be
received if efficiency objectives set by the Government are
met. Even in this case, these profits will be compared to
international benchmarks in the sector.

the United Kingdom shall

As soon as expenditure corresponding to the nuclear liabilities
referred to in Article 1 exceeds GBP 15 100 000 000 at March
2005 prices,
submit enhanced
additional reports to the Commission demonstrating that the
expenditure is restricted to meeting the liabilities referred to in
that Article, and that proper steps have been taken to limit
expenditure to the minimum necessary to meet those liabilities.
Such reports shall be submitted yearly.

(226) The Commission considers that

this process makes it
possible to conclude that SLC funding involves no State aid.

(227) In this respect, the Commission also stresses that it can find
no a priori reason to believe that SLC contracts, even with
BNFL, will entail cross subsidy. On the contrary, it believes
in place offers much better
that
prospects for transparency than the situation where BNFL
operated all its activities within a single group.

the framework put

8.

CONCLUSION

(228) The Commission concludes that the Measure does not
include aid within the meaning of Article 87(1) of the EC
Treaty to BNFL, and that it does include aid within this
meaning to the NDA. Insofar as there is no State aid, this
decision is without prejudice to the application of the
Insofar as this aid is in line with the
Euratom Treaty.
the Euratom Treaty and does not affect
objectives of
competition to an extent which is contrary to the common
interest, the Measure in question is compatible with the
common market. This decision does not prejudge the
Commission's view on potential State aid to other subjects
than BNFL and the NDA,

HAS ADOPTED THIS DECISION:

Article 1

For the purpose of calculating amounts at March 2005 prices the
United Kingdom shall use the reference and discount rate
published by the Commission for the United Kingdom, updating
this rate every five years.

Article 3

1. The United Kingdom shall require the Nuclear Decom-
missioning Authority and Site Licensee Companies for power
plants to undertake not to offer to supply non-domestic end-
users who purchase electricity directly from the Nuclear
Decommissioning Authority and Site Licensee Companies for
power plants on terms where the price of the energy element of
the contract with the users is below the prevailing wholesale
market price. However,
in exceptional market circumstances,
where the objective tests set out in Article 4(1) are satisfied, the
Nuclear Decommissioning Authority and Site Licensee Compan-
ies for power plants may, while such exceptional circumstances
continue to prevail, price the energy element of the contract at
below the prevailing wholesale market price in good faith where
necessary to enable the Nuclear Decommissioning Authority and
Site Licensee Companies for power plants to respond to
competition, under the conditions set out in Article 4.

2. The United Kingdom shall report to the Commission each
year on the compliance of
the Nuclear Decommissioning
Authority and Site Licensee Companies for power plants with
this condition.

Article 4

establishment of

the Nuclear Decommissioning
1. The
Authority by the United Kingdom, notified to the Commission
on 22 December 2003, which consists in the transfer to the
Nuclear Decommissioning Authority of British Nuclear Fuels
Limited's Magnox nuclear power plants, physical assets of the
Capenhurst, Driggs, Sellafield and Springfields sites, financial
assets linked to these sites, and responsibility for covering their

1.

Exceptional market circumstances shall be deemed to exist if:

(a)

the Nuclear Decommissioning Authority offers to sell […]
for a period of […] a minimum of […] for a winter season
trade and […] for a summer season trade at the prevailing

27.9.2006

EN

Official Journal of the European Union

L 268/57

wholesale market price in the wholesale market and at the
end of that period such offers have not been accepted (Test
A); or

(b)

reported trades of season ahead baseload electricity on the
United Kingdom wholesale electricity market have totalled
less than […] (gross), averaged over the preceding […]
weeks (Test B).

is fulfilled,

If either test

2.
the Nuclear Decommissioning
Authority and Site Licensee Companies for power plants may sell
new contracts for up to […] to end-users for contracts at prices
below the prevailing wholesale market price on the condition
that such pricing behaviour is a commercial necessity during
such a period of exceptional market circumstances.

3. A period of exceptional market circumstances shall not
exceed […]. In order for a subsequent period of exceptional
market circumstances to commence, either Test A or Test B must
again be satisfied.

Article 5

1. The United Kingdom shall require the Nuclear Decom-
missioning Authority to undertake that the Nuclear Decom-
missioning Authority and Site Licensee Companies for the
Thermal Oxide Reprocessing Plant (THORP) and the Sellafield
Mox Plant (SMP) will not supply spent fuel reprocessing and
storage services or manufacture of MOX fuel supply contracts at
prices less than the relevant projected incremental costs of
supply. Such incremental costs shall include related incremental
operating costs and any related incremental costs of decom-
missioning and waste management, and shall comprise such
costs as projected shortly before the commencement of the
contract.

2.
Paragraph 1shall not be applied to contracts entered into
before the date of this decision or to contracts where formal

offers approved by the Nuclear Decommissioning Authority and
the United Kingdom's Department for Trade and Industry have
been issued to customers and are under negotiation before this
date, or to contracts entered into after that date pursuant to a
Letter of Intent entered into before that date.

Article 6

The United Kingdom shall submit a yearly report on the
implementation of Articles 3 to 5. The report shall in particular
state whether exceptional market circumstances existed in the
year concerned and specify the conditions of
the resulting
contracts. The report shall also state whether contracts were
signed in application of the provisions of Article 5(1) in the year
concerned, and indicate the conditions of these contracts. The
report shall also comment, where applicable, on the evolution of
the estimated future cash flow of the assets that were transferred
by British Nuclear Fuels Limited to the Nuclear Decommission-
ing Authority. It will also comment on whether the Nuclear
Decommissioning Authority achieved its goal to recover the
share of the nuclear liabilities of the power plants that are
attributable to the Nuclear Decommissioning Authority, and the
reasons why it could not if it did not.

Article 7

This Decision is addressed to the United Kingdom of Great
Britain and Northern Ireland.

Done at Brussels, 4 April 2006.

For the Commission

Neelie KROES

Member of the Commission