Nuclear Law and ContractingNuclear new build made easy

Vanessa Jakovich, Counsel, London

UKELA, 8 June 2015

Nuclear new build in the UK

Sizewell

Utilities and Sites

Bradford

Hinkley Point

Oldbury

Heysham

HartlepoolMoorsid

e

Wylfa

Decommissioning

Consortium creation and site selection

Project design, licensing and

consenting

Construction Commissioning and operation

Key project phases: Current UK Status

Develop the operating entity

Incorporation and

consortium agreements

Develop human resources

Operational governanceDevelop governance, financing and contract

management procedures

Select site

Early site works (preliminary planning

permissions)

Land optio

n

Site work

s

Siting Exercise lease

Sele

ct

tech

nolo

gy

Fuel contractsTechnology, contracting and procurement

Contract placement

Long lead

items

Further componen

ts

Procurement

Waste contracts

Decommissioning contractsOfftake contracts (and CfDs)

NDF

Construction and operation

Grid connection agreements

Operation and maintenance Decommissioning

Construction

Hinkley Point

Wylfa

Moorside

Site design, EIA and consultation

Decommissioning EIA and

de-licensing

DCO Site

LicensingGDA

Consents

Licensing hold point and DCO condition clearance

Maintain compliance

4

O P E R A T O R

Legal anatomy of a nuclear project

Offtake Arrangements

Lease

I N V E S T O R

I N V E S T O R

I N V E S T O R

L A N D L O R D

OFFTAKER/GRID

CfD COUNTERPARTY

Contract for Difference

Shareholders Agreement

REACTOR SUPPLIER/

EPC CONSORTIUM

SUPPLY CHAIN

DIRECT SUPPLIERS

EPCContract

Direct supply contracts

Supply chain contracts

FUEL SUPPLY CHAIN

Fuel contracts

WASTE TRANSFER

COUNTERPARTIES

Waster transfer contracts

INDEPENDENT NUCLEAR

DECOMMISSIONING FUND

Funded decommissioning

arrangements

NUCLEAR NEIGHBOUR

Cooperation arrangements

CONSTRUCTION AND SUPPLY ARRANGEMENTS

CONSORTIUM ARRANGEMENTS

LANDARRANGEMENTS

5

Land arrangements: background

Land ownership• New build sites identified through Strategic Siting Assessment, embedded

in the Nuclear NPS (EN-6)• EdF developing former British Energy sites: bespoke regime applies to

legacy liabilities• Other sites (Horizon and NuGen) are leased from the NDA

Issues• Government landlord­ NDA sites not designated under Energy Act 2004

• use/development is unrestricted• NDA has no statutory liability for legacy remediation

­ DECC Policy - requirement to progress development of sites• Nuclear neighbours­ All sites neighbour legacy plants which are operational or undergoing

decommissioning­ Reasons for original siting decisions endure: eg, cooling water, seismic

stability, visual impacts, transport. existing grid. workforce and skills, community acceptance

­ Presents new and interesting challenges:• Risk of legacy contamination on new build site• Impacts on each other's safety cases (generating v

generating/decommissioning)• Competition for local resources: transport and access; workforce; grid

capacity• Cumulative radiological dose impacts?

6

Land arrangements: contracting considerations

• Leases: Timing­ Obligation to progress development: milestones and conditionality­ Aligning land access and payment obligations with investment and permitting

milestones, eg:• Identification of core site: access for EIA and technical site assessment; defining the

boundary• Hand-back obligations for laydown land?• Need a long-term leasehold interest before site licence grant (but investor funding

more difficult pre-license grant)• Grant of new licence can immediately channel the legacy liability to the new

operator: need to ensure licence not granted until project definitely proceeding• Environmental liability allocation for legacy contamination

­ Channelling regime for third party liability: implications of licensing a site contaminated by its licensed nuclear neighbour

­ Nature of remediation costs• Clean-up obligations arising through DCO and licensing conditions• Radioactive Contaminated Land Regime

• Site Licensee Cooperation Agreements­ Safety case

• Agree cooperative processes up-front to avoid later irresolvable impasse during licensing

• Sharing of information to facilitate radiological assessments­ Local resource management

7

Consortium arrangements: backgroundCurrent generation of nuclear consortia• Private, and not just utility driven: cross-disciplinary• Reactor vendors driving consortia creation• Competing requirements:­ Flexibility to attract investment –v- stability to secure nuclear site licence­ Attracting early investment to fund siting and consenting -v- deferring funding

commitment until regulatory milestones are met• “Licensable entities” being grown organically, in a competitive market for skills and

resources

AP1000Justified

Phase 4 of GDA

UK ABWRJustified

Phase 2 of GDA

EPRJustified

GDA finalised

Sizewell

Utilities and Sites

Bradford

Hinkley Point

Oldbury

Heysham

HartlepoolMoorsid

e

Wylfa

Reactor Technology

8

Consortium arrangements: contracting considerations

Stage Consortium agreement considerations

Securing a site and characterising its suitability

• Land option (and government strategic siting commitments)• Land purchase costs / Lease premiums and obligations• Site characterisation (including risk from works; grid connection;

workforce; exit planning; legacy liability from site characterisation works?)

• Making the site suitable (eg, legacy nuclear neighbour) contamination

Building a “licensable entity”

• Committing stable, consistent expertise (the right mix of investor expertise; exit restrictions; investor secondment obligations)

• Ensuring corporate governance meets regulator’s standards (independence; stability; expertise – intelligent customer status)

Selecting and certifying a reactor design

• Technology competition processes• Justification• Design certification – costs; timing

Securing a reliable supply chain

• Ensuring supply chain is capable of meeting regulator expectations

• Ensuring delivery (eg, early long-lead items) is committed to be made at the right time

• Securing a main contractor, or means to coordinate project delivery

Developing relationships with stakeholders

• Ensuring enough stability, early design and planning for meaningful community engagement

• Strategy for engagement with regulators• Making and supporting licence and permit applications (and

defending legal challenges)

Consortium arrangements: contracting considerations

Planning the project timeline• Interdependencies between licensing and investment milestones require

strategic planning • Consortium agreements need to align with key licensing stages­ Certainty: To harness the increased certainty from the grant of key

approvals, as pre-conditions to major investment decisions/commitments­ Resources: To ensure parties commit to provide the necessary resources to

facilitate the completion of licensing phases – both expertise and finance­ Risk: To ensure that liabilities and duties are not triggered until the

consortium is adequately resourced and committed – and to create an exit plan

Exit­ Participant interest changes over the life of a project­ Consortium agreement exit become important­ Managing “licensable entity” status an important consideration

9

UK Nuclear new build: generic consortium timeline

Justification

NuclearSiteLicence

Planning

OtherConsents

Generic Design Assessment Nuclear site licence application

Funded Decommissioning Plan

Strategic Siting

Assessment

Environmental Impact

Assessment

Consultation with community

Grid Connection

Generation Licence

Nuclear Insurance

Justification of Reactor Design

Materials handlingPreliminary site work

permission

Development Consent Order (DCO) Application

Preparatory Phase Construction Phase

Environmental Permit

Satisfy ongoing licence condition hold-points

Satisfy pre-operation DCO conditions

allows early site access

Initial Investment

Decision

Preliminary funding and

consortia creation

Final Investment

Decision

11

Construction and supply contracts: Regulatory risks

Risks associated with grant of licence approvals• High level licensing risks: pre-licence early works and long lead items• Risk of new/changes to requirements arising out of the licensing process

­ Requirements for design change­ Additional justification (eg, demonstration of the quality of components, materials

and as-built works)­ Requirements for particular working methods (manufacture, construction and/or

commissioning)

Risk of delayContinual ONR oversight, supervision and intervention into supply chain operationsExtensive use of “hold points” where work cannot proceed without ONR approval: significant scope for schedule overruns

Practical consequences of constructing in a nuclear environment• Nuclear safety has priority: quality supervised closely by regulator and non-

negotiable• Requirement for operator to retain control – “intelligent customer” status:

limited ability for Suppliers to work ‘at risk’ • Operator and ONR control limits supplier ability to manage internal

processes • Limited ability for parties to agree substitutes and compromises• Normal management techniques to control time and cost are not available:

risk of significant cost and schedule overruns

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Construction and supply contracts: Nuclear liability

Strict Liability - Operator liable for any damage caused by radiation release- Victims do not need to prove fault or negligence

Exclusive Liability - All liability channelled exclusively to the operator- Statutory bar on victim claims against any other party- Very limited scope for operator recourse to third parties

Cap on liability - Operator liability limited to a specified amount- Government/s meet claims above the cap- Usually no recourse by governments against operators - Some exceptions (e.g. Germany, Switzerland, Japan)

Time limit - Claims barred a certain period after incident - eg, 30/10 years from accident; 2-3 years from discovery

Mandatory insurance - Operators bound to maintain financial security up to cap- Can be private insurance, operator pool (eg, US and Germany), self-insurance; state/bank/corporate guarantee or a combination

Exclusive jurisdiction - Courts of the installation country have exlusive jurisdiction over victim claims

Nuclear liability: statutory framework

NIA 65 implements the Paris/Brussels convention in a unique way:• Duties: Licensee bears section 7 duties to prevent release of radioactive substances at

from a licensed nuclear site • Scope of licensee liability: personal injury or property damage arising from any breach

of Section 7 duties­ English common law jurisprudence on conventional property damage means wider

scope­ Includes come economic loss arising from property damage, and damage to the owned

environment • Cap: £140million per incident (and licensee must carry government-approved insurance)•  Licensee recourse: Ability to for suppliers to accept licensee liability by contract much

more limited than other countries:  Only applies to damage to property within the site boundary

Implementation of the 2004 Amending Protocol• DECC Consultation process finalised in December 2012• The Nuclear Installations (Liability for Damage) Order 2015 not yet laid before

Parliament­ Adopts wider scope and higher caps of the 2004 Protocol­ Does not directly adopt 2004 Protocol – as UK common law already channelled some of

wider scope­ Resolves some uncertainties under UK case law (eg, meaning of “occurrence” after

Magnohard)• Political support for implementation• Unlikely to be implemented until insurance is available (for all EU signatories, given EC

requirement for simultaneous ratification)

Dealing with exceptions to channelling in contractsOnly third party claims are covered• Suppliers can still be exposed to nuclear damage to the nuclear installation

itself, or property within the site licence boundaryInternational claimants• Claims by nationals of a non-Convention country can be brought against

anyone under normal principles of law in that other country• Supply across Convention boundaries exposes suppliers to home country

litigation risk• Who is your counterparty?Operators have rights of recourse• Against an individual acting or omitting to act with intent to cause nuclear

damage• Where such recourse is expressly provided for by contract

­ Beware risk of implication from a general contractual indemnity or warranty

Unchannelled scope

• Claims for economic loss, environmental damage and the costs of preventative measures currently unchannelled

• Construct change of law clauses carefully

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The­UK­LLP­has­offices or­associated­entities­in­Austria,­Bahrain,­Belgium,­China,­England,­France,­Germany,­Hong­Kong,­Italy,­Japan,­the­Netherlands,­Russia,­Singapore,­Spain,­the­United­Arab­Emirates­and­Vietnam.­Freshfields­Bruckhaus­Deringer­US­LLP­has­offices­in­New­York­City­and­Washington­DC.

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