SUE COPEMAN: Looking at raw materials supply, there is a lot of talk because of the scarcity of oil or the cost of excavating remaining sources of oil, saying that we are going to have to build more nuclear power stations. As a risk manager, Kitty, how does that seem to you?
KITTY SINCLAIR: Well, from the point of view of security of supply of the core material, uranium is what we would use within nuclear plants. The price of uranium has increased dramatically over the last year to 18 months and that is a factor of the supply demand within that area. We have security of supply at the moment. We put in place forward agreements to secure that supply and essentially store to some degree what we may require for the future.
The other way to look at it is that the uranium that comes out of our plants can be reprocessed. When it comes out of the reactor, it has only used up a very small percentage of its actual usage and it goes through the reprocessing element. You can almost say there is an infinite supply as you are reprocessing it continually.
Is there a real risk that there will be no uranium left in the future? That is a very difficult question to answer. From our point of view we are very comfortable that we have the necessary access to the supplies that we would require for the current lifetime of our stations. The new builds process is something which is obviously not decided yet. What I have heard is that there is no immediate need to be concerned that the building of future nuclear plants around the world - not just in the UK - would lead to pressures on supply. It is very much going to be a fact of managing the supply chain and the supply flow so that it is available when it is required rather than being there but not physically available to the users within the period that they necessarily need it.
SIMON ALLEN: Uranium is pretty unique in that in general it is mined in areas that are fairly stable politically, for example Canada is a major uranium producer.
KITTY SINCLAIR: Mining of the uranium is one issue and there is the resource still to be mined. But the political stability issue with the reprocessing of uranium is a tad different. In terms of the areas that have the reprocessing capabilities, although these include some areas of the US, they tend to be Russia and ex eastern bloc countries which perhaps are less stable and that could cause some concerns.
GEOFF MILLER: But we may be talking about issues here that essentially require a political decision, and the kind of timescales to invest in the necessary infrastructure consequent upon that political decision are probably what engage our organisations in long term strategic planning. For example, in the case of a new reservoir, it can take 10 to 15 years from conception to delivery of that infrastructure. So we need the certainty of the regulatory and political environment to have comfort in that sort of fairly major investment over that time period.
KIM WATTS: That is the sort of issue that I recognise for my own business. It is - what is the generating portfolio mix for the UK going to be over the next 15 or 20 years? We have seen, for example in the renewables sphere, that when it has become topical to go down a renewables route everybody is competing for the same major pieces of equipment around the country and you find the price goes up. It’s not exactly a herd instinct but you can see people moving in the same direction so there are pressures on price. I can see the same thing happening in the nuclear sphere when UK decides what its portfolio is going to be. I don’t know what your views are on that are or how far the nuclear lobby has progressed but in terms of environmental issues, one of the things that nuclear does give you is a low carbon option.
SUE COPEMAN: Before we move on to environmental issues, can I ask you, Sarah, whether you would like to share some of your problems, or otherwise, on supply continuity?
SARAH HARDINGHAM: When we are developing new projects, the issue for us is the sole source supply for equipment or the very narrow field of equipment suppliers available. We have to look down the line at suppliers’ capabilities to deliver to us to meet our construction schedules. That’s a key element. Across the fleet generally, there are obviously fuel issues. We have a mix in our portfolio of gas and coal so we spread the risk in terms of different areas of activity but it is very often difficult to find alternative sources of supply at short notice in some of the outlying areas that we are in. We analyse all those risks at the outset as best we can but that is as far as we can go.
SUE COPEMAN: Have you all got supply chain continuity crisis management plans in place? And how detailed is the planning?
SARAH HARDINGHAM: We have crisis management plans and disaster recovery plans. I haven’t seen the detailed supply chain plans but we are very active in risk profiling and determining the risks that are out there and so the answer to that is yes.
SUE COPEMAN: How about you, Kim?
KIM WATTS: I would say the same. It is also around the integrity of the supply chain and I would link that to the ethical policy we have. We source coal from around the world and have to make sure that we are ethically sound as regards where we source that from. Then it is the physical movement of the commodity across the seas, across the rail infrastructure, into power stations - single points of failure along that as well and what we do about that. The thing is to get people thinking about business continuity as part of their good management process. One of the things I am looking to engender is almost taking the risk management title out of the equation and equating it with good management and forward thinking rather than boxing it up and saying it is risk management so that there is the potential for someone to say that risk management is done over there – ‘I don’t need to do that, someone is doing that for me’. It should be just part of the key trait of management.
SIMON ALLEN: Well that is a great point because it has been said that the risk managers’ ultimate goal is to put themselves out of a job.
KIM WATTS: Precisely.
GEOFF MILLER: We have operated risk management forums at a corporate and, in the case of my former division, a divisional level for probably five or six years now. We are moving away from those forums in the belief that risk management should be clearly on the line management agenda and that to have those discussions out of that line is less effective and appropriate. The countervailing argument is that the discussion used to take a couple of hours to air while management agendas are more time constrained so it is not always possible to get the same level of exposure and debate on risk topics. But nevertheless our decision has been to move the topic back into line management and not run it as a parallel debate.
KIM WATTS: And that almost happens by osmosis in our organisation at the moment. You will find the best practice involves someone running their management meeting based on their risk – ‘this is my risk to the business and therefore these are my key issues’. But it’s still rare, so it’s something to aim for, again it is the cultural issue.
SARAH HARDINGHAM: It is embedded in the culture of risk management but there can be so many people in a company with the title of risk management that it can be very difficult for outsiders to determine which aspect of risk management they’re involved in. We have a matrix organisation so, whenever and wherever the need arises, we can pull together teams of people who can investigate and analyse or do whatever the issue of the day might be. It works extremely well for us.
SUE COPEMAN: Have you had to work at getting risk management into the culture of the organisation or has it happened almost by osmosis? Has anybody here actually sat down and said ‘yes, we are going to put in ERM and we are going to embed it through the organisation and these are the steps we are going to take’?
GEOFF MILLER: I think you maybe start with that aspiration and realise what a challenge it is. But your initial introduction assumes that you’re working from a blank sheet of paper. In reality there are levels of capability and expertise in the business and many of them are islands of excellence. Really you are looking to build from those to roll out that capability within the business. We use what we call peer group enablers so I have a traffic light matrix of 16 roles, eight business stream columns with red, amber and green assessments of capability in building an infrastructure for risk management. If people are having an amber or red rating day there are generally people who have got an amber or green rating to capitalise on, so they can peer over the fence at what one of the neighbours is doing. So there is a lot of expertise out there already.
SIMON ALLEN: Everyone manages risk in their own ways and perhaps risk management is in fact a bit of a misnomer. Everyone from the board down to managers down to someone whose job it is to maintain a piece of equipment - they have all got risk running through their heads and they are all aware of it. It may not be on a specifically conscious level, they may not give a talk about it to someone else within the organisation, but at least you know it is there. It is a matter of building on that, taking what is there and growing that up as part of the culture rather than perhaps forcing a cultural change.
KITTY SINCLAIR: I agree, we are supporting the culture. So, for example, when you have a group of maintenance engineers sitting discussing a problem and they find a solution to fix it, you ask yourself whether they may have that problem somewhere else in the organisation - do the guys up the road have the same issue? And it is putting an enabler in place that allows them to highlight that problem and for other people to access it and realise that they need to be aware that that it could be an issue for them, and then developing those enablers further and changing them into something that actually allows you to capture what the common issues are, or the serious issues that could really influence where you want to be.
SUE COPEMAN: Shall we move on to the environmental concerns which we have touched on slightly already? Would any of you like to give me a quick run down on your own environmental concerns and the amazing things that you are doing about them?
SIMON ALLEN: What about the national allocation plan and European emissions trading scheme, is that a big issue? We’re just finishing this compliance period and coming to the second one.
KIM WATTS: From our perspective yes but it’s at two levels. There’s the level we know about, and we can manage that. But it is what is coming next that concerns us and the risk associated with that appears high up on our risk register.
SIMON ALLEN: I think that comes back to the point that you need a long term view, ideally a 25 year regulatory plan. And that brings back the question of certainties. Some of our clients find that one of their biggest concerns is that they don’t know what is going on, there are so many people saying different things.
GEOFF MILLER: Your point about uncertainty is valid. It is difficult for our sectors and individual organisations to derive that certainty and then persuade the regulator on a particular course of action. We tend to operate in the range of consortia with a variety of R&D perspectives to try not so much to remove the uncertainty but to reduce the range of predictions associated with uncertainty. I think to a degree there is proved clarity on what the range of certainty is now, but given that our regulatory reviews tend to occur on a five year cycle, the opportunity to influence those and the extent to which a regulator takes account of our views may be limited. For example, with the last price reviews for water and electricity, there were varying approaches to the acceptance of climate change forecast there. We need to work as an industry to influence the regulators and the regulators really need to participate in those discussions rather than take a hands-off view until the price review proposals come forward, at least that is my opinion. But I think in our organisation we are tending to work on a slightly smaller scale. We are doing those things which we believe are responsible and to a large extent have an economic driver, so we will be looking at combined heat and power for instance in our waste water treatment plants where the methane there can be used to generate electricity and save costs. So it is from the strategic to the tactical really that we are addressing this. As I said earlier, we have appointed an environmental director to look particularly at climate change issues. It is a very much more on our agenda than it was a couple of years ago.
KITTY SINCLAIR: We are not carbon emitting from our nuclear fleet certainly. We do have one coal fired power station, which is a 2,000 megawatt unit. We took steps some years ago to address the emissions coming from that unit and we have retro fitted two of the units with FDG (flue gas desulpheration equipment) to enable us to deal with the requirements that will be placed upon us in the future. Two of the units don’t have FDG and we potentially could be looking at running at maybe 20% of the capability which is a major influence for a generator like us that requires flexible generation capacity. We are talking about environmental issues but we have got concerns in running those units at 20% of the power that brings other issues in from an operational perspective, rather than running them as they were designed to run which is at the full capacity.
Nuclear power doesn’t get good press from an environmental standpoint even though it is not a carbon emitter. It always seems to have a black cloud over it whenever issues are discussed around the environment, particularly nuclear expansions. But we very much engage with the communities and get involved in conservation efforts round the sites, most of which have conservation areas around them, bird reserves, etc.
SUE COPEMAN: Have any of you looked to transfer your environmental liability risks through insurance?
KITTY SINCLAIR: One of the key concerns for us in the future is going to be the introduction of the contaminated land regulations and how that impacts on us and can our insurance as it stands deal with that? There have been discussions between government, the nuclear insurance industry, etc, to try and work out how we deal with that in the future and who will be responsible because the contaminated land may not be discovered for many years and at that point we may have already transposed the site to the government entity that is responsible for decommissioning. That comes back to the point that discussions tend to start and become very lengthy and convoluted, and sometimes the operators are the last to know what will actually be occurring. Then it is up to us to try and retro fit solution around what has been placed on us by the relevant regulator or government body.
SUE COPEMAN: But how easy is it to influence regulation? A great deal seems initially to stem from Brussels rather than national government.
SARAH HARDINGHAM: We willingly embrace the opportunity to have dialogue with regulators.
KIM WATTS: I understand that the Environment Agency can restrict operations at coal fired power plant because of fallout from a chimney affecting the local environment. They have the authority to tell you to sort your act out and clean up but you lose in terms of not just business interruption but also your reputation in the local area, you are probably in the press so it’s affected your brand. That is a real risk and it is one we recognise - the power of the Environment Agency – and that’s a UK body, the risk has not come from Brussels. I think it does reflect an increasing awareness in the general public’s perception of power stations.
SARAH HARDINGHAM: We have an advantage in that our fleet is relatively new. Our first power station, Rocksavage, started construction in 1996 and went into commercial operation in 1998, and the environmental mandate has always been very high on our list of priorities. So we have been able to construct plants not just to meet all the existing standards but to try to go one better, and obviously with the project financing that we have, the bar is raised very high in relation to what is allowed and what is not allowed. In the UK we don’t have the problems of ageing plants and having to retrofit. And we have community programmes, community outreach.
Talking about habitat, at the Rocksavage site the great crested newt had to be protected so we built special ponds and recreate its habitat, made sure construction equipment didn’t go into certain areas on site, etc, and now the newt population is increasing. When we were building another plant in the UK, we had to plan the construction schedule to remove trees after completion of the nesting season . Those are the types of steps you have to take in order to really promote the environmental mandate. We have a strong record.