CRAG Meeting Minutes, February 8, 2010

Cost Recovery Advisory Group(CRAG)
Minutes of Meeting
February 8, 2010

Pickering, Ontario

Members in Attendance

Introduction and Opening Remarks
Status of Action Items from Last CRAG Meeting
CRAG Member Roundtable Retrospective
Operational Management of Cost Recovery
Financial Update
Dispute Resolution
Special Presentations
Concluding Comments / Next Meeting

Summary of Action Items from CRAG Meeting, February 8, 2010

Members in Attendance

Nuclear Reactors

Ontario Power Generation - Mr. Imtiaz Malek
Bruce Power - Mr. Peter Risteen

Nuclear Research and Test Facilities

Atomic Energy of Canada Limited - Mr. Bernard Gerestein

Uranium Processing Facilities

Cameco Fuel Manufacturing - Mr. Liam Mooney

Uranium Mines

Cameco Corporation - Mr. Liam Mooney

Nuclear Substance Processing Facilities

MDS Nordion - Ms. Jackie Kavanagh

Accelerators

No member in attendance

Canadian Industrial Radiography Safety Association

Aztec Inspection Inc. - Mr. Rick DeBruyn

Nuclear Substances and Prescribed Equipment

Stantec - Mr. Jean St-Pierre (portable gauges)
Team Industrial Services Inc - Mr. Rick Robichaud (Nondestructive Testing Management Association)

Dosimetry

Shield Source Inc. - Ms. Theresa Cairns

Canadian Nuclear Association

No member in attendance; S. Coupland was unable to attend due to unexpected commitments.

CNSC Representative

Mr. Jason Cameron - Chair

CNSC Staff

Mr. Gordon White – Vice President and Chief Financial Officer, Corporate Services Branch
Mr. Stéphane Cyr – Director General, Finance and Administration Directorate
Mr. Barclay Howden – Director General, Directorate of Regulatory Improvement and Major Projects Management
Mr. Pierre Souligny – Director, Financial Resource Management Division
Mr. Michael Albert – Director, Corporate Planning Division
Ms. Tetyana Panichevska – Quality and Performance Management Analyst, Regulatory Operations Coordination Division
Ms. Patricia Fraser – Senior Cost Recovery Officer, Financial Resource Management Division
Mr. Lee Brunarski – Senior Policy Officer, Policy Coordination Division

1. Introduction and Opening Remarks

J. Cameron opened the meeting by thanking Imtiaz Malek and Ontario Power Generation for hosting the meeting. He then asked those around the table introduce themselves. Ms. Lori McLinton and Mr. Barry Fleet of Ontario Power Generation (OPG) also attended the meeting.
J. Cameron reviewed the agenda CRAG members had previously received and asked for members’ concurrence, which members gave.

J. Cameron noted that CRAG related documents on the CNSC’s public web site have been updated since the last meeting, with the exception of the Terms of Reference, which have not been substantively changed.

The documents are available at: http://www.nuclearsafety.gc.ca/eng/licenseesapplicants/costrecovery/crag/index.cfm
J. Cameron added that L. Brunarski would be taking minutes and noting action items, and that an attempt would be made to circulate a draft version of the minutes to members shortly after the meeting.

Action: J. Cameron to distribute a draft version of the meeting minutes to CRAG members for review and comment.

2. Status of Action Items from Last CRAG Meeting

J. Cameron summarized the status of the action items raised at the last CRAG meeting, noting that all actions have been completed.

3. CRAG Member Roundtable Retrospective

J. Cameron invited CRAG members to provide comments or identify issues that have arisen since the last CRAG meeting with respect to CNSC cost recovery.

Four CRAG members expressed concern over variances between the CNSC’s fee estimates and actual costs, noting that this has been an issue of concern for the last two and a half years, and added that they are concerned the variances will get worse.

G. White reassured CRAG members that the CNSC takes the issue of variances between fee estimates and actual costs very seriously, and is intent on reducing variability between estimates and actuals.

A CRAG member stated that he can understand the need for fee increases as a result of increased regulatory effort, but would like to understand why some of the CNSC specialist work is necessary.

A CRAG member asked that the issue of the fee structure for Certified Exposure Device Operators (CEDO) be addressed because the current structure is burdensome to individuals. B. Howden said he understood that a CNSC industry working group has been formed to focus on the issue. Another CRAG member stated that he is part of the working group, which is meeting in March 2010, and that he will be bringing the issue to the attention of CNSC management, and hopes to see some change.

A CRAG member noted that industrial radiographers are concerned about the effects of the CNSC’s fee structure on suppliers of equipment who are trying to initiate newer and/or safer equipment. The CRAG member suggested that such equipment might not be introduced to Canada because suppliers might have to go through redundant certifications.

A CRAG member offered that cost increases are much more noticeable for smaller industry players, and encouraged the CNSC to recognize that fact, with another CRAG member adding that their fees had recently risen 200%.

J. Cameron concluded by noting that the CNSC is committed to improving its planning and predictability in fee estimates.

4. Operational Management of Cost Recovery

4.1 Regulatory Activity Plans

B. Howden made a presentation on the CNSC’s Regulatory Activity Plans (RAPs), noting that the CNSC’s Cost Recovery Fees Regulations (CRF Regulations) state that the CNSC is supposed to recover its full costs. He also reminded CRAG members that the format of the RAPs was changed in 2009-2010 to better reflect the full breakdown of all cost recoverable activities, including costs related to regulatory support and internal services.

B. Howden continued that the next RAPs and fee estimates will be issued in March 2010. He added that no change to the format of the RAPs is planned for fiscal year 2010-2011, although the CNSC will continue to monitor activity planning and the costing methodology to look for areas of enhancement, ensure transparency and improve fee forecasting.

A CRAG member asked whether costs related to Aboriginal consultations are recovered from licensees. J. Cameron responded that the government has certain responsibilities related to Aboriginal consultation and the costs for these activities are not recovered from licensees. However, the CNSC has begun to code and cost recover for CNSC costs incurred as a result of Aboriginal consultation activities related to specific projects.

In response to a CRAG member question about what the percentage cost of CNSC internal services is, S. Cyr confirmed that it is approximately 30%.

A CRAG member wondered whether the CNSC compares or benchmarks itself against other government agencies in how it issues RAPs and collects fees. G. White answered that the CNSC does not do a formal comparison with other government departments and agencies, but that the CNSC had looked at what other regulators were charging for overhead and that CNSC’s overhead was reasonable in comparison.

G. White prompted CRAG members to consider how reporting in the RAPs can be improved, noting that he personally would like to see more information included to make it clear what the changes are. In response, a CRAG member offered that wherever the breakdown can be improved and more detail provided, that will be an improvement. P. Fraser replied that, if asked, a detailed tracking of the tasks can be provided. J. Cameron suggested that a pilot project be initiated for Ontario Power Generation, Bruce Power, Hydro-Québec, New Brunswick Power Nuclear, Cameco Corporation, AREVA Resources Canada Inc., and Atomic Energy of Canada Limited to include more information in RAPs.

A CRAG member asked about the status of CNSC staff hired to work on new build nuclear power plant projects that have subsequently been cancelled or delayed. B. Howden responded that the CNSC’s growth trend has peaked and that staff have been reassigned to other priorities that had been previously defined. B. Howden added that there are a significant number of positions not being filled purposefully.

A CRAG member asked that mid-year letters include better information on changes, and that refurbishment-related work costs be reported separately in the RAPs. A CRAG member also asked that the CNSC improve its up-front communications on invoice changes.

Action: A pilot project will be initiated to provide greater detail in RAPs for Ontario Power Generation, Bruce Power, Hydro-Québec, New Brunswick Power Nuclear, Cameco Corporation, AREVA Resources Canada Inc., and Atomic Energy of Canada Limited.

Action: CNSC to include better information in mid-year letters on changes, report refurbishment-related work costs separately in the RAPs, and improve its up-front communications on invoice changes.

4.2 Compliance Coefficient Update

B. Howden made a presentation on the Compliance Coefficient and noted that it has not been used to date, resulting in costs for non-compliance being paid through parliamentary appropriations, and that the CNSC is currently reviewing how best to apply the Compliance Coefficient.

B. Howden continued that through its time tracking system, the CNSC is tracking its efforts spent on issues of non-compliance. Initial results suggest that the application of the Compliance Coefficient would have resulted in the CNSC collecting an additional $600,000 from licensees in fiscal year 2008-2009.

The next steps for the CNSC are to ensure the proposed application respects the CRF Regulations, and then to test the developed process and assess the results during fiscal year 2010-2011. If the test results are positive, the application of the Compliance Coefficient will be considered as part of the fiscal year 2011-2012 annual rate review process, subject to approval by CNSC senior management, after which licensees will be informed of the decision.

Action: J. Cameron to keep CRAG members informed of Compliance Coefficient considerations.

4.3 New Build Update

B. Howden updated CRAG members on the status of new build nuclear projects, noting that one new nuclear power plant project, the Darlington project, remains, while three other proposed nuclear power plant projects were cancelled in 2009.

B. Howden continued that the environmental assessment and licensing work in relation to the Darlington project also drives the CNSC’s regulatory support work to ensure that the CNSC’s regulatory framework is ready for issues such as construction requirements.

B. Howden updated CRAG members that for the first time in Canada full refurbishments are underway at two nuclear power plants, with another refurbishment scheduled to start in 2011 and a further refurbishment under consideration for 2016/2017. B. Howden explained that refurbishment-related work becomes a larger consumer of CNSC resources when new build projects slow down or are cancelled.

A CRAG member asked if the CNSC is sure that it is correctly differentiating between charges for on-going routine activities, new build activities and refurbishment activities. B. Howden answered that the CNSC continues to work to sort out the codes for ongoing, new build and refurbishment work. B. Howden continued that one of the areas the CNSC is focusing on is project management discipline to make sure that CNSC staff work is accurately scoped to make sure resources are used efficiently.

A CRAG member wondered whether the costs related to a new build project would disappear instantly if a project were wound down. B. Howden responded that the CNSC cannot just stop work immediately; close-out work is required to make sure the knowledge attained during a project is maintained, therefore, some costs would remain as the CNSC completes its wind down.

A CRAG member questioned what happens to the CNSC staff that are on a project that ends. B. Howden replied that those specialists are reallocated. B. Howden added that the CNSC was aware of mid-year changes to estimates because of cancelled projects and factored those changes into the mid-year reports, and that licensees were contacted about those changes.

J. Cameron added that it has been a challenge for the CNSC regulating an industry that has changed substantially in the recent past, particularly in preparing for new projects and new technologies the CNSC hasn’t regulated for years, if ever. J. Cameron continued that the broader message is that fiscal year 2009-2010 was not a standard year, and that the CNSC did its best, but will work to do better to bring certainty and predictability to licensees’ costs. A CRAG member noted that the industry has seen its biggest changes in 20 years, and the next 5 years promise to be even more difficult.

B. Howden informed CRAG members that the CNSC is conducting four pre-project vendor design reviews of nuclear power plant designs vendors would like to sell in Canada: Atomic Energy of Canada Limited’s ACR-1000 and EC6; Westinghouse’s AP1000; and AREVA’s EPR. B. Howden noted that vendors reimburse the CNSC directly for its efforts via service agreements.

B. Howden added that the CNSC has received applications for three uranium mining projects in Nunavut, Quebec and Saskatchewan, and all are challenging in their own right.

5. Financial Update

5.1 2009-2010 Financial Fee Projections

S. Cyr updated CRAG members on the CNSC’s financial fee projections for 2009-2010, noting that the CNSC is recovering approximately 61% of its total costs through cost recovery fees, with the remainder appropriated to the CNSC by Parliament. S. Cyr continued that the CNSC will recover $100.3 million from cost recovery fees in 2009-2010, which is $3.1 million less than initially estimated, and added that the bulk of the reduction is a result of reduced CNSC effort allocated to new build nuclear power plant project reviews.

A CRAG member noted that costs associated with CNSC work on operating nuclear power plants increased, and wondered what the source of the increase was. B. Howden responded that the bulk of the increase was a result of refurbishment and ageing-related work, and P. Fraser added that much of the increase resulted from CNSC specialists shifting focus from withdrawn new nuclear power plant applications to deferred work.

5.2 Update on Hourly Rate for Calculating Formula Fees and Special Project Fees

S. Cyr provided CRAG members with an update on the CNSC hourly rate for formula and Special Project fees, noting at the outset that the CNSC hourly rate for formula fees had not been updated since the introduction of the CRF Regulations in 2003.
S. Cyr continued that the Office of Auditor General noted in 2009 that the CNSC’s hourly rates were not in compliance with the CRF Regulations, and suggested that the hourly rate for formula and Special Project fees should be the same; the hourly rate should ensure full cost recovery; and the method for calculating Special Project fees should be modified to be consistent with the CRF Regulations.

S. Cyr added that although the actual hourly rate for formula fees has averaged $245 for the last three fiscal years, the real rate charged has been $200, resulting in an annual subsidy to licensees through parliamentary appropriation of $1.2 million. S. Cyr concluded that the Special Project fees hourly rate was increased from $200 to $237.50 in 2008-2009, and the formula fees hourly rate will rise from $200 to $250 in 2010-2011. These new rate increases will result in an estimated overall fee increase of $1.2 million.

5.3 CNSC Costing Methodology Review

S. Cyr updated CRAG members on the CNSC’s Costing Methodology Review, reminding CRAG members that during the last meeting, the CNSC committed to look at options to increase the predictability of fees. S. Cyr noted that CNSC senior management tasked his directorate with championing this issue within the context of the existing CRF Regulations. This resulted in a contract with a consulting firm to look at the CNSC’s cost recovery model, benchmark the CNSC’s model against other models, and make recommendations. CNSC Management Committee considered the recommendations and has directed staff to review CNSC’s costing in light of the study’s findings and to come back with a proposed model and implementation plan.

S. Cyr added that the next presentation on this issue to the CNSC’s Management Committee is in March 2010. J. Cameron committed to inform CRAG members of any changes, if and/or when they are known. S. Cyr concluded that no change to the costing methodology will be implemented before fiscal year 2010-2011.

In response to a CRAG member’s question regarding the CNSC’s goals from this review, S. Cyr replied that the CNSC’s goals are predictability and enhancing the link between the CNSC’s planned activities and the activities conducted.

Action: J. Cameron to inform CRAG members of any changes to the CNSC’s costing methodology.

5.4 Financial Guarantees

S. Cyr informed CRAG members of the CNSC’s proposal to adopt a risk-based framework to define and develop a tailored financial guarantee program for the CNSC’s Class II and Nuclear Substances facilities. Currently there is no consistency in the application of financial guarantees to these facilities. G. White added that the goal is to ensure that there is enough coverage for high risk facilities.

In response to a CRAG member’s question about who will be responsible for the financial guarantee, S. Cyr responded that with respect to nuclear substances and radiation devices, the owner will be responsible and that the financial guarantee will be based on the average number of nuclear substances and radiation devices held at the time of licence renewal. S. Cyr added that options will be available to secure the financial guarantee.

In response to a CRAG member’s question about the timeframe for this proposal, S. Cyr replied that a presentation will be made to the CNSC’s Management Committee in April 2010. If the proposal is accepted, financial guarantees for these facilities will apply to any subsequent licence renewals, clarifying that a transition period will be included so that licensees facing licence renewal in the near term would not be unduly burdened.

Action: J. Cameron to keep CRAG members informed of financial guarantee considerations.

6. Dispute Resolution

J. Cameron reminded CRAG members that formal dispute resolution processes are in place for regulatory activity assignments and fee administration, although there were no formal requests for resolution in 2009. J. Cameron noted that there were informal discussions and interactions throughout 2009 to consider or address issues raised by licensees.

In response to a CRAG member’s question regarding whether the CNSC is considering instituting an ombudsperson to resolve disputes, J. Cameron responded that the CNSC is not considering such an initiative.

7. Special Presentations

7.1 Integrated Regulatory Review Service Mission

B. Howden presented on the International Atomic Energy Agency’s (IAEA) third party review of the CNSC in 2009 – the Integrated Regulatory Review Service (IRRS) Mission to Canada. The study was comprised of 21 experienced regulatory experts recruited by the IAEA from many countries, and was conducted from June 1 to June 12, 2009.

B. Howden noted that the IRRS Mission found that “Canada has a mature and well-established nuclear regulatory framework”, and “does an effective job in protecting the health, safety and security of Canadians and the environment.”

B. Howden continued that the IRRS Mission identified nineteen CNSC good practices including: a comprehensive and robust authorization/licensing system; targeted use of inspections to focus limited regulatory resources on poor performance; and a comprehensive, open and transparent process for third party engagement and public involvement.

The IRRS Mission also made fourteen recommendations and eighteen suggestions including: review financial arrangements to ensure that regulatory costs are recovered, invest in short and long-term research to support regulatory decisions, implement Harmonized Plan initiatives related to licensing, and ensure that regulatory work for licence amendments is commensurate with risk.

B. Howden added that the CNSC accepted the thirty-two recommendations and suggestions and provided detailed responses in November 2009, including leads and timelines. B. Howden concluded that progress against the IRRS Mission recommendations and suggestions will be reported on regularly and that a follow-up mission is targeted for 2011.

7.2 CNSC Harmonized Plan of Improvement Initiatives

B. Howden gave CRAG members an overview of the CNSC Harmonized Plan of Improvement Initiatives (Harmonized Plan), which is a corporate, client driven improvement plan that integrates and aligns all cross-functional improvement initiatives into a single prioritized plan. B. Howden continued that the Harmonized Plan addresses outstanding issues and findings from third party external audits and assessments, and builds on previous improvement efforts.

B. Howden added that the Harmonized Plan is essentially the CNSC’s mechanism to try and manage itself better, through a formal management system and consistency in the way work is done.

B. Howden then noted that the challenges the CNSC faces with respect to the Harmonized Plan relate to priority setting, communications, project management discipline, and resourcing for sustainable implementation. B. Howden added that the next steps are to follow through on the implementation of completed deliverables, incorporate those into a Harmonized Plan refresh, and revisit/confirm Harmonized Plan improvement priorities.

8. Concluding Comments / Next Meeting

J. Cameron thanked CRAG members for attending, and committed to generate a list of action items. J. Cameron recounted that the significant issues discussed included the change to the hourly rate for formula and Special Project fees, the Compliance Coefficient, and financial guarantees for Class II and Nuclear Substance facilities.

J. Cameron added that best practices will be promoted to make sure messages get out sooner, for example, on the CNSC Costing Methodology Review. J. Cameron suggested that the CNSC might propose interim meetings regarding formula and fixed fees and RAP based issues. J. Cameron noted that he sees continuous merit for CRAG meetings, but will look for other venues as well, as necessary and appropriate.

Action: J. Cameron to generate and share a list of action items.

Summary of Action Items from CRAG Meeting, March 3, 2009