Cost Recovery Advisory Group - Minutes of the Meeting

Attendees from the Cost Recovery Advisory Group (CRAG):

• Heather Kleb – Canadian Nuclear Association (CNA)
• Lori McLinton – Ontario Power Generation (OPG)
• Kevin Kelly – Bruce Power
• Andrew White – Atomic Energy of Canada Limited (AECL)
• Jean Alonso – CAMECO
• Shannon Lacasse – MDS Nordion
• Gerard Strugala – Pharmalogic
• Michael Maher – Canadian Council of Independent Laboratories (CCIL), Golder Associates
• Rick DeBruyn – Aztec Inspections Inc (via telephone)
• Gérard Landry – SGS
• Jean St-Pierre – Stantec
• Rick Robichaud – Team Industrial Services
• Lisa McMurray – Shield Source (via telephone)
• Blair Kennedy – New Brunswick Power (via telephone)

Attendees from the Canadian Nuclear Safety Commission (CNSC):

• Jason Cameron – Director General, Strategic Planning Directorate (CRAG Chair)
• Stéphane Cyr – Director General, Finance and Administration Directorate
• Barclay Howden – Director General, Directorate of Regulatory Improvement and Major Projects Management
• André Régimbald – Director General, Directorate of Nuclear Substance Regulation
• Pierre Souligny – Director, Financial Resources Management Division
• Nancy Sigouin – Chief, Estimates and Supply, Financial Resources Management Division
• Alexandra Savoie – Senior Financial Advisor, Financial Resources Management Division
• Tetyana Panichevska – Senior Project Officer, Regulatory Operations Coordination Division
• Adam MacKenzie – Senior Policy Officer, Policy, Aboriginal and International Relations Division (CRAG Secretary)

10:10am – Meeting commenced.

Introductions and Opening Remarks

J. Cameron opened the meeting at 10:10am, and welcomed the attendees.

Review of Minutes and Action Items

J. Cameron reviewed the action items and steps taken since the last meeting in 2010.

Looking Back Over the Past Year

There were no comments from the attendees on the past year.

Update on Regulatory Activity Plans

B. Howden began his presentation on update to Regulatory Activity Plans (RAPs).

B. Howden noted that the amount of work at the CNSC is increasing, particularly due to life extension and refurbishment projects as well as forthcoming new builds.  However, the CNSC does not envision significant increases in resources next year. Increasing work load is being managed primarily by internal resource re-allocations, streamlining CNSC processes to make them more efficient, and improving regulatory framework for clarity.

B. Howden noted that the CNSC is emerging from a time of significant growth, with associated increases in costs and fees. This, as well as the new approach to fees calculation, provides better fees predictability and reduction of fees variance between estimates and actuals.

K. Kelly asked what the CNSC was doing to improve its processes.

B. Howden explained that the CNSC has tools to streamline and improve processes. In 2005, an Integrated Regulatory Review Service (IRRS) review was requested. Since then, the CNSC conducted a self-assessment, and the IRRS mission and a follow-up assessment took place. In response to recommendations from the IAEA review and other assessments, the CNSC developed the Harmonized Plan (HP) in 2008 for managing CNSC improvement initiatives: The HP is a plan that is tracked and monitored monthly by the CNSC’s Management Committee. The CNSC has a formal management system that is built on IAEA safety standards GS-R-1 and GS-R-3. Under the management system, the CNSC documents and adjusts processes so that they are fit for purpose. B. Howden noted that the CNSC has developed a single tracking system for better tracking of action items and follow-ups.

L. McLinton asked whether CNSC resources would be increasing or staying the same in light of forthcoming retirements.

P. Souligny indicated that CNSC resources would be staying at 850 full-time equivalents (FTEs), but may drop, depending on next year’s budget.

B. Howden provided an overview of the RAPs reminding CRAG members about what facilities RAPs are applied to, what activities RAPs identify, what considerations are taken when preparing RAPs, and how RAPs are created.

B. Howden explained that in FY2012–13 there will be changes to the RAPs format and level of detail. RAPs will include the following information:

1.  total estimated effort for technical regulatory activities (including the estimated effort for licensing/certification and compliance activities specific to the facility; the assigned proportional share of effort for regulatory activities common to the type of facility; and the proportional share of other technical regulatory support activities)
2.  total estimated effort for internal support services, which is currently reflected in the RAPs
3.  total estimated fee for the facility/licensee
4.  an annex, which will include a generic list of the major activities normally carried out in each of the above-noted categories of technical regulatory activities and internal support services, plus any other activities that are specific to a facility for the fiscal year. 

A sample of the new RAP format was presented to CRAG members.

B. Howden emphasized that higher-level RAPs estimates do not affect fee estimates, are more accurate and predictable, provide sharper distinction between technical regulatory effort and internal support services, contain clearer terminology, and result in simpler presentation. He noted that licensees should contact appropriate regulatory program Directors or project officers on more detailed information related to upcoming licensing and compliance activities at their facilities.

In conclusion of the RAPs update presentation, B. Howden encouraged licensees to provide their comments on RAPs format and asked licensees to provide their feedback by December 12, 2011.

Action for licensees: OPG will coordinate licensees’ feedback on RAPs format and communicate it to the CNSC by December 12, 2011.

Note:  This licensee action item was completed ahead of schedule (December 2, 2011).

L. McLinton asked for clarification on the percentage of the CNSC’s funding that was recovered from licensees in 2009-10.

P. Souligny confirmed that 69% of the CNSC’s funding was recovered from licensees in 2009-10.  He noted that, presently, the CNSC recovers 70% of its funding from licensees, and obtains the remaining 30% from Parliament.  The CNSC estimates increase in the 2 to 3% range each year, mainly due to collective agreements and increased asset amortization.

There was general discussion about the estimates, assumptions, proration, allocation, breakdown, and reconciliation of fees and special projects across licensee bills (A. White, K. Kelly, and P. Souligny).

K. Kelly asked if there was an advanced time recording system so licensees could see who had worked at their sites, and how much direct effort was completed.

B. Howden noted that the CNSC does not have an automated system that does this automatically. The established system has information on time (and people) expended on a particular facility. However, the information on who had worked at a site would have to be produced manually and is very time consuming to do.

L. McLinton added that licensees want to see less variance between estimates and actuals, and better understand any variance.

B. Howden recognized that variability in the RAP and actual fees can be difficult for licensees to manage, especially the smaller licensees. He indicated that the CNSC is aiming for no more than a 2 to 3% variation range between estimated and actual fees. The current approach to CNSC’s cost recovery regime achieves this low variability

L. McLinton asked for clarification on the ratio of one direct FTE to overall FTEs (P. Souligny confirmed the ratio was one direct FTE to three overall FTEs, with the other two FTEs reflecting regulatory support and internal service effort). However, as outlined in the proposed new RAP format, it should be noted that 2/3 of the fees are related to “Technical Regulatory Activities”.

In terms of major projects at the CNSC, P. Souligny noted that the CNSC’s laboratory is complete.  The Government of Canada is undertaking an Administrative Services Review; part of this review is the centralization of IT services across the federal government.  As a result, procurement has essentially been frozen for the time being. The CNSC has a fund available for upgrading its systems; otherwise, there is nothing else on the CNSC’s agenda in terms of significant investments in infrastructure (IT, etc.).

Financial Management

S. Cyr and P. Souligny began their financial overview presentation.  P. Souligny presented the latest cost recovery fee information, explaining how the costs in 2010–11 generally dropped by 6% from the initial estimates.  For 2011–12, final RAP fees are projected to drop by about 1.3% of initial estimates.

P. Souligny added that the CNSC will collect about $112M in total fees in 2011–12.  P. Souligny presented the CNSC’s three year cost recovery fees projection, and indicated that the increases over the three years could be attributed to collective agreements and increased asset amortization.

Over the past several fiscal years, the cost of regulating activities subject to fixed and formula fees has exceeded the revenues.  To rectify the situation, the CNSC intends on phasing in a fee increase over the next 3 to 4 fiscal years.

P. Souligny continued with an overview of cost recovery program improvements, and emphasized that the estimates were based on the second quarter financial review.  S. Cyr added that the accuracy of the estimate increases when the CNSC gets more information from the licensees, which results in less variance between estimates and actuals.  Cost recovery strategy was discussed, including fee harmonization, progressive elimination of cost recovery shortfall for formula fee based activities, as well as potential amendments to the CNSC Cost Recovery Fees Regulations (2003) and to the Nuclear Safety and Control Act (NSCA).  J. Cameron noted that government approval is required for amendments to legislative items:  a lengthy process involving significant consultations, publications, and government approval, and a process in which licensees would be fully engaged (including CRAG and other industry members).

P. Souligny concluded the Financial Overview presentation and encouraged CRAG members to let the CNSC know if they wished to provide comments or suggestions.

G. Landry asked whether the CNSC had compared licensing costs in Canada with other countries, such as France, or the United States.  P. Souligny explained that in the US, fees are fixed per reactor as compared to Canada, where fees are fixed per plant.  In the US, fees are about $6-7 million per reactor; in Canada, the fees are $3-4 million per reactor.  S. Cyr added that Deloitte benchmarked the CNSC with other countries and found that the CNSC is consistent.

H. Kleb asked about the fee versus fee-exempt breakdown of the CNSC’s funding.  P. Souligny and S. Cyr explained that the CNSC collects $112 million in fees, and that $18 million is associated with fee-exempt work.

J. Cameron highlighted the possibility of a meeting in the spring to discuss the how the CNSC is proposing to address the formula and fixed fee shortfall.

Dispute Resolution

After a short break, J. Cameron resumed the meeting with a brief presentation on dispute resolution.  There have been no changes to the dispute resolution mechanisms since the last meeting.  The website is up-to-date, and J. Cameron will advise members if any changes are made.  He noted that there was one dispute, which was quickly resolved via formal communications with the licensee.  S. Cyr added that the issue was a question of the legality of changes to the cost recovery methodology, and the CNSC was able to demonstrate that it was acting within its regulatory authority.

R. DeBruyn asked if there was an option to create an ombudsman’s office and how the CNSC compares to other government organizations in that regard (e.g., Department of National Defence, Royal Canadian Mounted Police, Radio Canada, etc.), or if the CNSC had made a decision to not move in that direction.

Action for  CNSC: J. Cameron indicated the CNSC would look into other organizations and how they function with respect to ombudsmans’ offices and report back.

Financial Guarantee Consultations

A. Régimbald began the update on the Financial Guarantee consultations.

He provided historical context, noting the requirement for financial guarantees was introduced in 2000, and initially applied only to major facilities.  Now, the requirement has been extended to all licensees.  He explained that, beginning in May 2011, individual e-mails were sent to all 1700 licensees informing them of the financial guarantees implementation and upcoming info sessions.  Letters were then sent via mail in October.  Financial Guarantees were mentioned to licensees in four cities in two separate outreach sessions in March and May 2011.  The first presentation on the implementation of financial guarantees was made to industrial radiography licensees in May 2011 (in Ottawa and Edmonton).  Additional components of the consultation included an article in the Directorate of Nuclear Substance Regulation’s spring 2011 newsletter, a discussion paper posted on the CNSC Web site in March 2011, 23 outreach sessions with licensees across Canada (September–November 2011), and two webinars (both in English and French).  The consultation period closes November 30, 2011.  Next steps included a presentation to the Commission Tribunal (the entity authorized to amend the remaining licenses) at a public meeting in April 2012: an opportunity to make oral or written submissions to the Commission.  Additional information is available on the CNSC website, as well as a description of the various ways in which licensees can provide feedback (electronic form, email, fax, mail).  He emphasized that the financial guarantees are not a tax, nor cost recovery dollars, nor do they fund the CNSC’s work; rather, they assure that funds area available at the end of licensing activities.

R. DeBruyn indicated that he had methodological concerns with how the consultations were carried out.  R. Robichaud expressed agreement.

M. Maher indicated that the financial guarantee requirement would cost Golder Associates approximately $400,000.00, an amount that was too great given the actual risk involved with the actual gauges and quality control mechanisms in the construction industry.  He suggested the desired outcome of the financial guarantees could otherwise be handled via insurance policies or minor license additions.

G. Landry indicated he had attended several of the consultation meetings and noted that the financial guarantee total would cost the nuclear industry about $60 million.  He added that there will be a further cost of thousands of dollars to licensees just to make their concerns known at this point.

S. Cyr explained that while the “what” decision had been made (there will be financial guarantees), the “how” of the financial guarantees had not been determined yet, and that the CNSC is open to suggestions.

A. Régimbald said that overall, the intention is to minimize the burden on the federal government in the event that a cleanup needs to be undertaken (for example, in the event that a licensee goes bankrupt and its gauges need to be taken care of).

G. Landry stated that insurance seems to be the best option.

R. Robichaud noted that the financial guarantees create competitive disadvantages between larger and smaller companies by tying up significant portions of cash that cannot be used for operating.

A. Régimbald responded that financial guarantees will apply to all licences.

R. DeBruyn asked if there will be any exemptions to financial guarantees.  A. Régimbald answered that there are exemptions for transportation licenses, for example.

K. Kelly agreed that there was a question around the definitions of licenses and the application of financial guarantees.

S. Cyr and A. Régimbald said the CNSC would provide clarification.

H. Kleb noted that the Canadian Nuclear Association had brought the “Discussion Paper Regarding the Implementation of Financial Guarantees for Licensees” to the attention of its members and that it was their understanding that all major nuclear facilities, uranium mines and mills were already subject to financial guarantees.  It was also their assumption that there would be no change to the requirement that they were already subject to, or to what would be considered an acceptable guarantee.

Further to a brief discussion thereof at the meeting, A. Régimbald confirmed following the meeting that major nuclear facilities would be required to demonstrate that their financial guarantees are sufficient to cover the safe termination of their licensed activities involving any nuclear substances and prescribed equipment they might have, including their safe disposal.  In the case of existing licenses, the new requirement for financial guarantees will be in the form of a licence condition which will require the licensee to provide a financial guarantee in a form acceptable to the Commission to cover the safe termination of the activities authorized under the licence including the disposition of all nuclear substances and prescribed equipment under the licence.

J. Cameron said that the CRAG members should review the discussion paper and provide feedback by the end of the month.  He reminded the table that while the Commission has the ultimate decision, the Commission must give the licensees the opportunity to be heard.

New Business

R. Robichaud asked about the Certification of Exposure Device Operators (CEDO) program and any changes to the certification process.  A. Régimbald said that yes, it would be considered, particularly with respect to costs, lifetime and incremental changes, etc.  They will be reviewed next year at this time.

J. Cameron highlighted that for any cost recovery amendment process, CRAG members will be kept informed, and there may be a need for an additional meeting on fixed and formula fees in the late winter or early spring 2012

He indicated that licensees could expect to receive covering letters with ,RAPs and fee estimates in April and encouraged CRAG members to consider speaking to the Commission about their concerns.

Action for CNSC: J. Cameron announced the CNSC’s intention to update the CRAG Terms of Reference and membership information by sending the current documents out to members in December.  Any updates from members would then be reflected on the CNSC’s CRAG website.

Action for CNSC: The minutes of the CRAG meeting will be sent out in early December 2011.

Note:  The CNSC distributed the draft minutes and links to CRAG Terms of Reference and membership information on January 23, 2012.  Comments received on the minutes have been incorporated into the present document.

J. Cameron thanked the attendees, and the meeting adjourned at 12:43pm.