Annual Report. Teollisuuden Voima Oy

Transcription

1 Annual Report 2004 Teollisuuden Voima Oy

2 Wellbeing for Finland

3 Annual Report 2004 Teollisuuden Voima Oy

4 Electricity for the society. Maintenance for the blades in the turbine s rotor. Endoscope inspection for the exciter in the generator. OL3 construction site, autumn TVO - Annual Report 2004

5 Contents TVO in Brief Tasks of Teollisuuden Voima Oy Vision, Mission and Values Strategic Objectives Areas of Focus TVO Policies Review by the President and CEO Group Structure Company Shareholders and Stakes 2004 in Brief TVO in Figures Board of Directors Management Group Basic Organization, January 1, 2005 Report of the Board of Directors Operating Environment Main Events Administrative Principles Administrative Bodies Group Structure Financial Performance Financing Risk Management Share Capital and Share Issues Power Production Olkiluoto 3 Research and Development Investments Safety and Environmental Issues Personnel, Organization and Know-how Subsidiaries Prospects for the Present Year Teollisuuden Voima Oy s and TVO Group s Financial Statements 2004 Income Statement Balance Sheet Funds Statement Accounting Principles Notes to the Income Statement Notes to the Balance Sheet Proposals to the Annual General Meeting Auditor s Report Advisory Board, Committees Appointed by the Board of Directors and Auditors Financial Publications Publisher Contact Information TVO - Annual Report

6 Both consumers and industry benefit from competitive energy via TVO s owners. In 2004 TVO produced 18.3% of Finland s electricity demand. 4 TVO - Annual Report 2004

7 TVO in Brief Tasks of Teollisuuden Voima Oy Established in 1969, Teollisuuden Voima Oy (TVO) is a private limited company that produces electricity for its shareholders at cost price and builds new nuclear power production capacity. The electricity is generated at the two Olkiluoto nuclear power plant units at Eurajoki and at the Meri-Pori coal-fired power plant. The total capacity of the power plant units at Olkiluoto is 1,680 MW and the TVO share of Meri- Pori is 257 MW. Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2) nuclear power plant units both have a net capacity of 840 MW. In December 2003 TVO made the decision to invest in the construction of Olkiluoto 3 (OL3), a pressurized-water reactor plant unit of some 1,600 MW at Olkiluoto. The new unit will start generating electricity in Vision A world-class nuclear power company highly valued by the Finnish society. Strategic Objectives TVO has identified and defined six main strategic objectives that direct the activities in the organizational units. Based on annual operating plans the objectives extend from long-term planning to everyday operations. TVO s personnel is motivated and committed to implementing common objectives and goals. Strategic targets Uncompromising safety and commitment to protecting the environment Reliable production machinery and efficient operation Advanced new plant unit Skilled personnel and an open management culture High competitiveness Positive corporate image and good interest group relations Mission Creating added value to shareholders by producing electric power safely, reliably, economically while preserving the environment. Values Responsibility Proactivity Transparency Continuous improvement TVO - Annual Report

8 A shift supervisor at work in the OL2 unit s main control room. Maintenance for the isolation valves in the reactor containment. The technical ring for the OL3 unit under construction. 6 TVO - Annual Report 2004

9 TVO in Brief Areas of Focus TVO s operations are characterized by their longterm nature, methodicalness and carefulness. TVO s primary focus is to keep the existing nuclear power plant units safe, up-to-date, in a good condition, reliable and competitive in terms of their production costs. Another focus of TVO is to carry out in the next few years the demanding and challenging OL3 project creditably, safely and in accordance with the technical requirements and the set schedule and cost estimate. The Company focuses on these two areas that have been taken into account in the Company s basic organization. The rest of TVO s resources support these two focus areas so that best possible result can be achieved. TVO Policies TVO and its personnel operate in line with the policies determined by the Company. Companylevel policies were updated and approved in February, after which the personnel was informed about them and the policies introduced. The policies are grouped under four headings: nuclear safety and quality, social responsibility, production and corporate security. The policy on nuclear safety and quality comprises nuclear safety, radiation protection, safeguards of nuclear material, and quality. The social responsibility policy comprises the environment, procurement, personnel, occupational safety, and communications. The production policy comprises plant operation and maintenance and an increase in production capacity. The corporate security policy comprises the safety of production and operations, the security of people and operating premises, rescue and emergency services, and information security. TVO - Annual Report

10 Pertti Simola took over as President and CEO on September 1, TVO - Annual Report 2004

11 Review by the President and CEO The year under review, 2004, was one of many changes in the energy industry, internationally, nationally and for TVO s operations. The growth in the demand for energy in China in particular continued at record-breaking speed and the prices of fossil fuels rose to high levels. The negative effects of the increase were, however, to some extent offset by the weakening of the dollar. Preparations were made both in Finland and other Member States of the European Union for emissions trading, which started at the beginning of 2005 and which will affect the energy industry, by creating on EU directive basis national codes of conduct and operating models. There has been justifiable concern about emissions trading as a factor that will increase the market price of electricity and, consequently, threaten industry s competitiveness. This threat scenario strengthens the position of nuclear power in Finland as a form of emission-free basic-energy production. The aim to decrease green house gas emissions was an important argument for TVO to make the decision to start the giant and long run OL3 project. This investment must under no circumstances be punished by fiscal methods. The generation of hydropower highly increased in the second half of 2004 in the Nordic countries as a consequence of the plentiful rainfall. More electricity than average was produced with fossil fuels in Finland in the first half of the year. Imports of electricity from Russia also continued at considerably high levels. The structure of electricity production in Finland and the increasing need for electricity will enable our nuclear power plants to run at full capacity all year round, which improved their competitiveness. Support of Nuclear Power Growing World-widely Nuclear power received a great deal of attention at the World Energy Congress in Sydney, Australia, in September. According to the final communiqué of the congress it should not be excluded from the selection of means to produce energy. The view that nuclear power is experiencing a renaissance was strengthened when reports about nuclear power projects at the planning and implementation stage were presented at the congress. There are projects under way, not only in Finland, but also in South Korea, China, India, the United States, Canada and France. The OL3 project, a major investment decided on by TVO at the end of 2003, received wide publicity and recognition from experts in the field. The growing support for nuclear power in both Finland and Sweden is also a positive development. TVO, for its part, is aiming to give an objective picture of the properties of nuclear power that have a direct and indirect bearing on citizens wellbeing. The Year of Many Changes History will look back on the year under review as one of real change for TVO, as the OL3 project, the biggest industrial investment not only by the Company but also in the Nordic countries got off to a good start. The municipality of Eurajoki granted a building permit for the OL3 unit in January The preparatory work that was the responsibility of TVO at the construction site was carried out as planned so that the site could be handed over to the consortium formed by Framatome and TVO - Annual Report

12 Review by the President and CEO Siemens on schedule at the beginning of February The extensive and thorough inspection and approval procedure required for the project s main interim objective, the construction licence, proceeded in cooperation with the plant supplier and the authorities. The Government granted the construction licence for the OL3 unit in February The modernization project scheduled for 2005 and 2006 for the turbine plants in the existing nuclear power plant units has proceeded as planned. TVO s finances are stable and the Company s position as a producer of competitive, cost-price electricity remains good. The Company s loans increased as planned in accordance with the needs of the OL3 project. The financing of the existing nuclear power plant units and the OL3 project were set for competition in the markets and as a consequence they are managed with competitive terms. TVO continuously keeps the existing nuclear power plant units safe, up-to-date, in a good condition, reliable and competitive in terms of their production costs. Another focus is to adhere to all requirements, technical specifications, schedules and the budget in the carrying out of the demanding and challenging OL3 project. At the end of the year under review there was a minor change in the Company s ownership structure when Kemira Oyj, Outokumpu Oyj and Rautaruukki Oyj sold their B series shares to Pohjolan Voima Oy. The companies will still retain their position as users of TVO s electricity even though their entitlement to the supply of electricity from the OL3 plant unit will in the future be channelled via Pohjolan Voima Oy, as is the case with several other industrial companies. Optimistic Outlook for the Future The outlook in terms of production for the present year is reasonably good. There are no significant cost pressures on the existing nuclear power plant units. However, the position of the Meri-Pori coalfired power plant as a competitive producer of electricity is under greater threat, mainly because of the risk of a rise in the price of coal and emission rights. The year under review also meant a change in TVO s executive management, when the Company s second President and CEO, Mr. Mauno Paavola, and Mr. Ami Rastas, the long-serving Executive Vice President, retired at the end of the year. They deserve gratitude and recognition for their truly creditable and valuable work for the Company. When I assumed the President s and CEO s duties at the beginning of September, I was able to confirm that TVO s future is on a solid base. The company has excellent co-partners: highly professional and motivated staff, stable owners, Board of Directors that supports the executive management, reliable financiers, authorities with a high level of expertise and good business partners. To all of them I would like to extend my warmest thanks. This is a good launching pad for the future. February, Pertti Simola 10 TVO - Annual Report 2004

13 Group Structure TVO is part of the Pohjolan Voima Group, whose parent company is Pohjolan Voima Oy. The subgroup of Teollisuuden Voima Oy comprises the parent company Teollisuuden Voima Oy and the subsidiaries Posiva Oy, TVO Nuclear Services Oy (TVONS), Olkiluodon Vesi Oy and Perusvoima Oy. The business concept of Posiva Oy is the management of spent nuclear fuel from the Olkiluoto and Loviisa nuclear power plants. TVO has a 60% shareholding in Posiva Oy. The business concept of TVONS is to market and sell consultancy services based on TVO s nuclear power expertise. The business concept of Olkiluodon Vesi Oy is to ensure the supply of raw water to the Olkiluoto power plant units. Perusvoima Oy had no operations in the year under review. The companies in question are fully owned by TVO. Company Shareholders and Stakes The Company has three share series. The A series entitles to the electricity generated by the existing OL1 and OL2 nuclear power plant units. The B series entitles to the electricity that will be generated by the OL3 nuclear power plant unit now under construction. The C series entitles to the electricity generated by the TVO share in the Meri-Pori coalfired power plant. Pohjolan Voima Oy acquired the B series shares held by Kemira Oyj, Outokumpu Oyj and Rautaruukki Oyj in December. The acquisition was entered in TVO s share and shareholders register on December 21, Company shareholders and shareholdings (%) on December 31, 2004: A series B series C series Total Etelä-Pohjanmaan Voima Oy Fortum Power and Heat Oy Graninge Energia Oy Kemira Oyj Oy Mankala Ab Pohjolan Voima Oy TVO - Annual Report

14 2004 in Brief 2004 The application for a construction licence for the OL3 unit was filed to the Government in January. The construction licence was granted in February Excavation work at the construction site for the OL3 unit was started in February. Updated Company-level policies were approved in February. Annual outages were carried out at the OL1 and OL2 plant units in May. Mauno Paavola handed over the duties of President and CEO to Pertti Simola as of September 1, 2004 and retired at the end of the year. The application for a building permit for the OL3 unit was submitted to the Municipality of Eurajoki in October. The permit was granted in January Pertti Simola M.Sc. (Eng.) started as the Company s President and CEO in September. He moved to Teollisuuden Voima Oy from UPM Kymmene Corporation, where he held the position of Vice President, Energy. He was a member of TVO s Board of Directors between 1994 and A wind power station of 1 MW was set up in October and inaugurated in November. TVO was awarded a prize for energy saving at the Energiapäivät (Energy Days) information event in October. The bedrock was tarred at the OL3 construction site in December, as the excavation work was nearing completion TVO - Annual Report 2004

15 TVO in Figures Electricity delivery (GWh) OL1 7,001 7,118 6,989 7,155 7,035 OL2 7,072 7,018 7,099 6,980 7,020 Meri-Pori 1,797 1, ,357 Total 15,870 15,681 14,923 15,091 15,412 Capacity factors (%) OL OL TVO s share of the total electricity usage in Finland (%) Income statement (EUR million) Turnover Other sales Fuel costs Personnel costs Depreciations Contribution to the Finnish State Nuclear Waste Management Fund Other expenses Profit/loss from operations Financial income and expenses Profit/loss before appropriations and taxes Change in depreciation difference Profit/loss for the year Balance sheet, assets (EUR million) Non-current assets Long-term loan receivables Inventories Receivables and cash at bank and in hand Total 1,745 1,346 1,335 1,319 1,323 Balance sheet, liabilities and shareholders equity (EUR million) Shareholders equity Cumulative depreciation difference Liabilities Long-term Shareholder loans 1) 179 Finnish State Nuclear Waste Management Fund Short-term Total 1,745 1,346 1,335 1,319 1,323 Investment in fixed assets (EUR million) Loans (EUR million) Equity ratio (%) Assets in Finnish State Nuclear Waste Management Fund (EUR million) Personnel (average) ) Subordinated loans Calculation formulas: Long-term loans = balance sheet long-term loans and short-term loans + annual repayments loan from the Finnish State Nuclear Waste Management Fund Equity ratio % = 100 x Shareholders equity + cumulative depreciations Balance sheet total loan from the Finnish State Nuclear Waste Management Fund TVO - Annual Report

16 Board of Directors (elected at the Annual General Meeting on April 28, 2004) Chairman Tapio Kuula, b. 1957, M.Sc. (Eng.), M.Sc. (Econ.), President, Fortum Power and Heat Oy Pekka Päätiläinen, b. 1948, M.Sc. (Eng.), President, Generation, Fortum Power and Heat Oy Deputy Chairman Timo Rajala, b. 1947, M.Sc. (Eng.), President and CEO, Pohjolan Voima Oy Seppo Ruohonen, b. 1946, M.Sc. (Eng.), Managing Director, Helsinki Energy Members Timo Koivuniemi, b. 1948, M.Sc. (Eng.), Senior Vice President, Energy, Stora Enso Oyj Esa Tirkkonen, b. 1949, M.Sc. (Eng.), Senior Vice President, CFO, Kemira Oyj Juha Laaksonen, b. 1952, M.Sc. (Econ.), CFO, Fortum Oyj Markku Tynkkynen, b. 1952, M.Sc. (Eng.), Executive Vice President, Resources, UPM-Kymmene Corporation Aarre Metsävirta, b. 1945, M.Sc. (Eng.), Senior Executive Vice President, M-real Corporation Rami Vuola, b. 1968, M.Sc. (Eng.), Managing Director, Etelä-Pohjanmaan Voima Oy Secretary Risto Siilos, Senior Vice President, Legal Affairs, TVO 14 TVO - Annual Report 2004

17 An illustration of the nuclear power units at Olkiluoto in TVO - Annual Report

18 Management Group Management Group, January 1, 2005 Pertti Simola (in the front, on the left; to his right) Risto Siilos, Anneli Nikula, Reijo Sundell, Jarmo Tanhua, Klaus Luotonen, Rauno Mokka, Esa Mannola, Martin Landtman, Kari Halminen, Liisa Leppänen Missing from the picture: Mika Yli-Kauhaluoma, Rainer Karlsson President and CEO Mauno Paavola, b. 1942, M.Sc. (Eng.), from September 1, 2004: Pertti Simola, b. 1950, M.Sc. (Eng.) Members Rauno Mokka, b. 1946, M.Sc. (Eng.), Executive Vice President Ami Rastas, b. 1943, Lic.Sc. (Tech.), Executive Vice President until May 1, 2004 Martin Landtman, b. 1953, M.Sc. (Eng.), Senior Vice President, Project Klaus Luotonen, b. 1950, M.Sc. (Law), Senior Vice President, Finance Esa Mannola, b. 1948, M.Sc.(Eng.), Senior Vice President, Nuclear Engineering, from January 1, 2005 Anneli Nikula, b. 1952, M.Sc., Senior Vice President, Corporate Social Responsibility and Communication, from May 1, 2004 Eero Patrakka, b. 1946, Lic.Sc. (Tech.), Senior Vice President, Nuclear Engineering, May 1 December 31, 2004 Risto Siilos, b. 1962, M.Sc. (Law), Senior Vice President, Legal Affairs Reijo Sundell, b. 1947, M.Sc., Senior Vice President, Operation Jarmo Tanhua, b. 1965, M.Sc. (Eng.), Senior Vice President, Power Plant Engineering, from May 1, 2004 Employee representatives: Representative: Kari Halminen, b. 1950, Facility Maintenance Deputy representative: Mika Yli-Kauhaluoma, b. 1972, Reliability Engineer Deputy representatives: Rainer Karlsson, b. 1953, Foreman Liisa Leppänen, b. 1955, Invoice Examiner Secretary: Risto Siilos, from September 22, 2004, Anneli Nikula, May 3 September 21, 2004 Tellervo Taipale, b. 1957, Lic.Sc. (Tech.), Manager, January 1 May 2, TVO - Annual Report 2004

19 Basic Organization, January 1, 2005 TVO - Annual Report

20 The development of fuel assemblies is being monitored constantly. A new steam reheater, which will be installed in 2005, is part of the plant modernization. Excavation work at the OL3 construction site proceeded as planned. 18 TVO - Annual Report 2004

21 Report of the Board of Directors Operating Environment The drier-than-usual period that had been a characteristic of the Nordic electricity market since the summer of 2002 came to an end in the autumn of By the end of the year, the hydropower reserves in the region had reached their normal long-term level. The production of hydropower increased at the end of the year and led to a reduction in the generation of condensing power by almost one fifth. Nuclear power remained competitive and its production volume was at a similar level to the previous year. The total consumption of electricity went up in Finland compared with the previous year, almost entirely as a result of an increase in demand by industry (3.8 per cent). Because of the mild weather, consumption by households and agriculture rose by just 0.2 per cent. During 2004, 86.8 (2003: 85.2) terawatt hours of electricity were used (TWh = billion kilowatt hours), an increase of 1.8 per cent i.e. 1.6 TWh over the previous year. The growth, adjusted for the temperature and calendar, was 1.7 per cent. Of the electricity used in Finland during 2004, 21,8 (21,7) TWh was produced by Finnish nuclear power plants, i.e (24.9) per cent of the electricity used. According to a survey made by Yhdyskuntatutkimus Oy on the attitude to energy, the acceptability of nuclear power in Finland is at the same level as in the previous year: 41 per cent of the population would increase the use of nuclear power in the generation of electricity, 26 per cent consider the present amount suitable, 27 per cent would reduce nuclear power and only 5 per cent did not express any opinion. Main Events The nuclear power plant units at Olkiluoto generated a total of (14.15) TWh of electricity and their total output since the start of operations is approximately 295 TWh. TVO s share of the production at the Meri-Pori coal-fired power plant was 1.8 TWh. The amount of the Company s annual supply of electricity, including the production at Meri-Pori, totalling 15.9 (15.7) TWh, was the largest in the history of the Company. The application for a construction licence for the OL3 nuclear power plant unit was filed to the Government on January 8, The construction license was granted in February Excavation work at the construction site of the OL3 nuclear power plant unit was started in February. An extension to the main office building at Olkiluoto was started in March, and construction work on a new main gate building began in August. Annual outages at the OL1 and OL2 plant units were carried out as planned between May 9 and June 3, Mr. Pertti Simola started as President and CEO on September 1, The application for a building permit for the OL3 nuclear power plant unit was filed to the building committee of the Municipality of Eurajoki in October. The permit was granted in January A one-megawatt wind power station started trial run at Olkiluoto in November. During 2004, the plant produced MWh (thousand kilowatt hours) of energy. DNV Certification Oy Ab granted TVO s operating system the ISO 9001 quality certificate in January 2005, and it will be in force until the end of October The quality management system of OL3 received a similar certificate in September, and it will be in force until the end of June The functions of the construction stage of the OL3 plant unit were brought within TVO s certified environmental management system in accordance with ISO in October. Motiva awarded TVO an energy saving prize and it was received at Energy Days in Tampere, Finland in October. TVO - Annual Report

22 Report of the Board of Directors The bedrock was tarred at the OL3 nuclear power plant unit s construction excavation in December, and the excavation work was completed in early February The site and infrastructure development required for the OL3 project continued throughout the year. During the year the Company hired 59 (50) new persons, while 15 (9) left the Company, most of them to retire. Administrative Principles TVO s Board of Directors has a minimum of seven and a maximum of ten members. The term of office of a member of the Board of Directors commences at the termination of the Shareholders Meeting that made the election and ends at the termination of the Shareholders Meeting making a new election. The Board of Directors elects a Chairman and Deputy Chairman from among its number. The Board of Directors convenes when summoned by the Chairman or, if the Chairman is prevented from doing so, by the Deputy Chairman. The Board of Directors has recorded and approved principles for Corporate Governance concerning the administration and management systems of the Company, for application from the beginning of It is based on the recommendation concerning listed companies that was made by HEX Integrated Markets Ltd, the Central Chamber of Commerce and the Confederation of Finnish Industry and Employers and that entered into force in the summer of TVO, as a private production company, observes the recommendation where applicable. Administrative Bodies Altogether three Shareholders Meetings were held: the Annual General Meeting on April 28, 2004 and extraordinary meetings on August 30, 2004 and December 20, At the Annual General Meeting on April 28, 2004 ten members were elected to the Board of Directors. At the Organization Meeting of the Board of Directors held on the same day Mr.Tapio Kuula was elected Chairman and Mr. Timo Rajala Deputy Chairman. The Board of Directors held ten meetings. Pertti Simola, M.Sc. (Eng.) started as President and CEO as planned on September 1, The previous President and CEO, Mr. Mauno Paavola, retired at the end of the year. The Annual General Meeting elected as Company Auditors Mr. Eero Suomela, Authorized Public Accountant, and PricewaterhouseCoopers Oy, Authorized Public Accountants, the principal auditor with the latter being Mr. Pekka Nikula, Authorized Public Accountant. Group Structure No changes took place in the Group structure during the year. Financial Performance The Company s turnover during the period under review amounted to EUR (223.4) million and the amount of electricity delivered to 15,870 (15,681) GWh (million kilowatt hours), the biggest figure in the Company s history. The growth of the amount of electricity delivered was the result of the increased production at the Meri-Pori coalfired plant. The rise in the consumption of coal increased materials costs. Write-downs of EUR 9.7 (0.9) million based on the scrapping of production equipment were recorded, which increased the amount of appropriations. The Ministry of Trade and Industry confirmed the Company s end-of-year liability for nuclear waste management at EUR (763.8) million, and the Company s target reserve in the Finnish State Nuclear Waste Management Fund at the same amount. 20 TVO - Annual Report 2004

23 Financing The Company s financing position developed as planned and financing remained stable. Long- and short-term, interest-bearing loans, excluding loans to shareholders from the Finnish State Nuclear Waste Management Fund, totalled EUR (253.4) million at the end of the year. New long-term loans totalling EUR (50.0) million were drawn during the year and repayments of EUR 63.4 (83.2) million were made. Of the increase during 2004 EUR million were subordinated loans, The increase in loans stemmed from the OL3 project. The project s financing costs have been capitalized. Net financial expenses affecting the financial performance fell because the amount of loans applying to the electricitygenerating units was reduced. At the end of the year, the Company had undrawn long-term credit commitments totalling EUR 2,440 million. Besides long-term loans, the Company also has domestic commercial paper programmes with a limit of EUR 600 million. Interest and foreign currency derivatives were used to reduce the Company s interest and foreign currency risk. Use of derivatives has been presented in the accounting principles and the derivatives are listed in the notes to the financial statements. The Company s equity ratio at the end of the year was 47.1 (61.8) per cent. The Company had the following credit ratings at the end of the year: Long-term Short-term Standard & Poor s BBB A 2 Japan Credit Rating Agency AA Risk Management Risk management at TVO is part of the operating system in line with the Company s safety culture. Threats to operations and various risk factors and the procedures for preventing, managing and reducing them are monitored constantly. In the risk identification process the probability of the threats is assessed and a separate programme of measures is drawn up for the risks on a case-by-case basis. Extensive risk identification was carried out in 1999 and The identification and the results of it are updated constantly. A special weighting is given to the risk factors associated with safety and production. The risk identification revealed no threats that would prevent the Company from achieving its targets. Share Capital and Share Issues The Company s share capital on December 31, 2004 was EUR (121.4) million. The Company had 729,738,361 shares, 680,000,000 of which belong to the A series. These entitle to the electricity generated by the existing OL1 and OL2 nuclear power plant units. The C series consists of 34,283,730 shares, which entitle to the electricity generated by TVO s share in the Meri-Pori coal-fired power plant. In addition, the Company may have a maximum of 680,000,000 B series shares, which entitle to the electricity to be generated by the OL3 unit. An extraordinary Shareholders Meeting decided on December 20, 2004 to increase the share capital by EUR 13,136, to EUR 137,191, by issuing 77,273,158 new B series shares at a subscription price totalling EUR 81.5 million. After this the B series shares number 92,727,789 and shares total 807,011,519. The shares were subscribed immediately by entering a recording to that effect in the minutes of the Shareholders Meeting, and it was decided that January 31, 2005 would be the final payment day. TVO - Annual Report

24 Report of the Board of Directors MW OL1, Capacity/MW January 1 December 31, 2004 January February March April May June July August September October November December MW OL2, Capacity/MW January 1 December 31, 2004 January February March April May June July August September October November December Electricity Production Olkiluoto Nuclear Power Plant The Company produces electricity at cost price at the Olkiluoto nuclear power plant units OL1 and OL2 in the municipality of Eurajoki. Both have a net capacity of 840 MW. Annual production at the Okiluoto power plant totalled 14,090 (14,154) GWh, which is about 16 (17) per cent of the electricity used in Finland. The plant units functioned well during the year under review apart from three minor interruptions to production. OL1 produced 7,009 (7,127) GWh of electricity and the capacity factor was 95.1 (97.0) per cent. There were two events that restricted production at the unit. In March, an unexpected closure of an isolation valve in the steam line caused a reactor shutdown. The energy lost in repairing the valve amounted to 36 GWh. In July, disruption in the generator triggered a turbine shutdown. The energy lost in repairing it amounted to 12 GWh. OL2 produced 7,080 (7,027) GWh of electricity and the capacity factor was 96.1 (95.5) per cent. There was one event that restricted production at the unit. In August, the plant was put on hot standby because of increased vibrations in the exciter in the generator. The energy lost of repairing amounted to 58 GWh. Annual outages The annual outages at the plant units lasted a total of 24 days 22 hours (24 days 18 hours). Inspections showed that the plant units are in a good condition. The service outage at OL1 lasted from May 9 to May 25, 2004, and included changing 134 fuel assemblies, inspection and maintenance work and minor plant alterations. The refuelling outage at OL2 lasted from May 25 to June 3, 2004, and included changing 128 fuel assemblies, and inspection and maintenance work. The outages accounted, in all, for some 135 (117) person work years, 49 of which were done by TVO s own employees and 86 by outsiders. At its height, there were 949 (800) persons contracted from outside. Nuclear fuel Nuclear fuel procurement during the period under review amounted to EUR 36.3 (34.7) million and burn-up costs totalled EUR 40.7 (41.6) million. The amount of nuclear fuel and uranium at the end of 2004 were valued at EUR (139.8) million, of which the value of fuel in the reactors was EUR 68.3 (68.4) million. Meri-Pori The Company has contributed to the construction costs of the Meri-Pori coal-fired power plant, which is owned by Fortum Power and Heat Oy, with a 45 per cent share and uses its share in the plant for the production of electricity. The operation of the plant is the responsibility of Fortum Power and Heat Oy. TVO acquires the coal needed for the use of its share. The amount of electricity produced by TVO s share in the Meri-Pori power plant in 2004 was 1,797 (1,545) GWh, and 622 (520) thousand tonnes of coal were used to generate it. There were no major problems or operational disruptions during the year. TVO s coal stocks at the Meri-Power power plant amounted to 254 (270) thousand tonnes on December 31, Olkiluoto 3 The project to build the new power plant unit proceeded as planned in the year under review. At the end of 2003, TVO decided to invest in OL3 and signed a contract for the construction of a pressurized-water reactor plant unit of some 1,600 MW with a consortium comprising Framatome ANP and Siemens. The plant will be delivered on turn-key 22 TVO - Annual Report 2004

25 MW 300 TVO share of Meri-Pori, Capacity/MW January 1 December 31, January February March April May June July August September October November December basis, including civil construction. The consortium is responsible for the functionality of the plant, its licensability and the schedule. State-of-the-art nuclear power plants built in France and Germany are references for the chosen EPR (European Pressurized water Reactor). TVO started preparatory work at the OL3 site as soon as the investment decision had been taken. During the year under review, the work proceeded fine. The site was levelled off and the building pits and tunnels were excavated. In addition, the infrastructure at Olkiluoto was extended and supplemented to cater for the needs of the new unit. The entire site that was excavated was some 500,000 m 3 and the length of the tunnels about 700 metres. TVO handed over the site to the consortium in the beginning of February 2005, as agreed. TVO s project organization was developed and supplemented during the year under review to correspond to the increasing operations. The project department makes extensive use of the expertise in the Company s other organizational units. In total, some 180 TVO staff have participated in implementing the new unit. At the end of the year, full-time staff in the project department numbered 41 and there were about 110 people in the project organization, including consultants. During the year under review, preparations started for implementing a training programme for the operational organization of OL3 and the process of recruiting shift supervisors began. The project s operating methods and procedural instructions were completed and integrated into the operations during the year under review. In September, the ISO 9001 quality certificate was granted to the project s quality management system, which is part of TVO s operating system. The operations of the plant supplier and its subcontractors have been verified, not only by normal monitoring of delivery and production, but also with numerous audits of the quality system. The OL3 plant construction stage was brought within the compass of the TVO certified management system for environmental affairs. An environmental plan was drawn up for the construction stage. Right from the beginning, systematic monitoring of the level of occupational safety was adopted for the OL3 construction, and serious accidents have been avoided at the site. A corresponding commitment to the zero-accident target is required of the consortium. During 2004, TVO s demands and boundary conditions for the site operations were further defined. TVO filed the application for a construction licence for the new plant unit to the Government at the beginning of January The Ministry of Trade and Industry, acting as the liaison authority, received numerous statements, both requested and voluntary, about the application. The Radiation and Nuclear Safety Authority of Finland (STUK), whose statement was completed in January 2005, was the last to give a statement. During the year under review, TVO gave STUK a number of answers to requests for further details concerning the application material. The Government granted the construction licence on February 17, During the year, the preparation of official permits required by other legislation was continued. In October 2004, TVO filed the application for a building permit for the power plant buildings to the Municipality of Eurajoki, and the permit was granted in mid January In November, an application for a permit relating to the operational stage of OL3 and concerning the industrial handling and storage of dangerous chemicals was filed to the Safety Technology Authority (TUKES). The processing of the application for an environmental permit continued in the year under review. The planning of the plant by the consortium proceeded in all the sub-areas. The first construction work contracts, which will start in the spring of 2005, have been agreed, as has the contract for the production of the concrete needed at the site. TVO - Annual Report

26 Report of the Board of Directors Manufacturing of the reactor pressure vessel is under way in Japan, and the steam generators and pressurizer are being made in France. At the end of 2004, the manufacturing of the material for the generator s rotor and the condenser of the turbogenerator began. Research and Development Research and development expenditure totalled EUR 17.5 (12.1) million, most of it for nuclear waste management. The financing of research and development increased considerably over 2003 because of the increase in TVO s contribution to the research on the final disposal of spent nuclear fuel, the broadest sub-area of nuclear waste management, which is the responsibility of Posiva Oy. The financing of public research into reactor safety and nuclear waste management was transferred from the Ministry of Trade and Industry to the power companies. TVO s contribution to the financing of the SAFIR and KYT programmes in 2004 was EUR 2.7 million. Investments During the year, the Company s capital expenditure amounted to EUR (30) million, EUR million of which was allocated to the OL3 project. During 2004, a modification was carried out on OL1 condensate cleaning and projects to expand the infrastructure at Olkiluoto were started. Of the other investments, the biggest expenditure was targeted on the modernization of the turbine plants in 2005 and 2006 at the OL1 and OL2 plant units. The work will include replacing the steam reheaters and high-pressure turbine, turbine automation, medium voltage switchgear and steamdryer. About EUR 50 million were invested in the area and infrastructure work, which was part of the OL3 project and TVO s responsibility, and the work proceeded as planned. The most important parts of the infrastructure work were an extension to main office building, a new main gate building, an extension to the fire-water pumping station, a new clean water reservoir, components storage and an office building for the project. The area work included the building of new parking places and contractor areas. Safety and Environmental Issues The Olkiluoto power plant units functioned safely throughout the year. No incidents with a major impact on nuclear safety occurred. The incidents that occurred during the year were rated 0 on the international seven-point INES scale. There were no events higher on the scale. A special report on two incidents were drawn up for the Radiation and Nuclear Safety Authority (STUK). The operations have been in accordance with the Company s environmental policy, environmental permits and the environmental management system, the last-mentioned of which meets the requirements set by the international ISO standard and the EMAS 761/2001 regulation. The construction stage of the OL3 plant unit was brought within TVO s certified environmental management system in accordance with the demands of ISO An environmental plan was drawn up for the construction stage of Olkiluoto 3. Six of the seven environmental goals for 2004 requiring improvement were achieved. There were no significant environmental non-conformities during the year. The environmental impact of the Olkiluoto nuclear power plant was small. As in previous years, radioactive emissions have been extremely low, and radioactive water discharges have been reduced even further from previous years. The processing of applications for environmental permits concerning the existing plant units OL1 and OL2 and the operating stage of plant unit OL3, which is under construction, continued during the year under review. 24 TVO - Annual Report 2004

27 A Corporate Social Responsibility Report for 2004 gives a more detailed account of environmental matters. The report, which is published separately, meets the demands of the EMAS regulation. Personnel, Organization and Know-how Personnel The number of permanent staff at the end of the year was 568 (524). The average number of those in permanent employment was 559 (513) and the equivalent figure for the Group was 606 (557). More than 200 people were also employed in traineeships and summer jobs during the year. The know-how was strengthened by recruiting 59 (42) persons. About 50 people took part in job rotation during the year, while 15 (9) left the Company, mainly to retire. Collective agreements for different employee groups were in effect throughout the year, and all employee groups are involved in the comprehensive incomes policy agreement that was conducted at the end of the year. A personnel survey covering all employees was conducted at the end of the year. The results will be analysed, the level of general job satisfaction and occupational well-being will be assessed and areas for the development of operations will be chosen. A personnel fund was established during the year under review. Organization Mr. Pertti Simola, M.Sc. (Eng.), started as the Company s President and CEO as planned on September 1, The previous President and CEO, Mr. Mauno Paavola, retired at the end of the year but will continue as a member of the Construction Committee for the OL3 project. The Engineering Department was divided into Power Plant Engineering and Nuclear Engineering on May 1, Executive Vice President, Mr. Ami Rastas retired at the end of 2004 but will continue as the Chairman of the Planning Committee for the OL3 project. He was succeeded as Senior Vice President of Power Plant Engineering at the beginning of May by Mr. Jarmo Tanhua, M.Sc. (Eng.), and as Senior Vice President of Nuclear Engineering by Mr. Eero Patrakka, Lic.Sc. (Tech.) The functions relating to corporate social responsibility, communications and interest monitoring were combined on May 1, 2004 into the Corporate Social Responsibility and Communictions function and Mrs. Anneli Nikula, M.Sc., was appointed as Senior Vice President, CSR and Communication. The Company s General Counsel, Mr. Risto Siilos, M.Sc. (Law), was appointed Senior Vice President, Legal Affairs as of December 1, Mr. Eero Patrakka was appointed the Managing Director of Posiva Oy at the beginning of His place as Senior Vice President of Nuclear Engineering was taken by Mr. Esa Mannola, M.Sc. (Eng.) on January 1, Mr. Veijo Ryhänen, M.Sc. (Eng.) was appointed Corporate Adviser as of January 1, At the same time he took responsibility for the coordination of EU matters at TVO. Know-how The focal points of training were the safety culture, the new nuclear power plant unit and the new information system for materials administration. Preparations for training staff for the OL3 unit were continued and the actual training will commence in Several training sessions were arranged for the self-assessment of the safety culture. Initial training that took into account the special features of the area and occupational safety card training, which lays stress on occupational safety, were arranged for employees at Olkiluoto. During 2004, a broad-based national course in nuclear power was started. It was a co-opera- TVO - Annual Report

28 Report of the Board of Directors tive venture by power companies, nuclear power authorities, research institutes and universities. The Company played an active role in the project. Corresponding modifications to the turbine automation that will be carried out at the plant units in 2005 and 2006 were made on TVO s simulator. Training in modified turbine automation was given to plant operators. In the past year, the plant operators took part in further training as required by the authorities. The training of new operators proceeded and at the end of 2004 six persons were hired for training as new operators. Their training will proceed alongside that of the shift supervisors recruited for OL3. Subsidiaries Posiva Oy Posiva Oy, which is owned jointly by TVO and Fortum Power and Heat Oy, is responsible for research into and the implementation of the final disposal of spent nuclear fuel. The project concerning the final disposal of spent nuclear fuel advanced to the start of the quarrying work for the underground research premises i.e. ONKALO at Olkiluoto. This work will continue until 2008 and will involve the construction of a tunnel to a depth of 417 metres and the drilling of a ventilation shaft to a level of -287 metres. Eero Patrakka, Lic.Sc. (Tech.), started as the Managing Director of Posiva Oy on January 1, The previous Managing Director, Veijo Ryhänen, M.Sc. (Eng.) transferred on the same date to become TVO s Corporate Adviser. TVO Nuclear Services Oy TVO Nuclear Services Oy (TVONS) markets and sells expertise and maintenance services that are based on the skills of TVO personnel. An assignment under the European Union s TACIS programme for the Kola nuclear power plant came to a conclusion at the end of the year. Olkiluodon Vesi Oy Olkiluodon Vesi Oy is responsible for managing the raw water need for TVO s and Posiva s operations at Olkiluoto. Prospects for the Present Year Production operations in 2005 are expected to continue as in the previous year. The preconditions for production at Olkiluoto nuclear power plant are still good. The modernization project for the highpressure turbines at the OL2 plant unit will proceed to the installation stage. As a result, the planned annual outages are expected to be less than ten days longer than the outages in the year under review. The production preconditions at the Meri-Pori coal-fired power plant are expected to continue to be moderate. No outages have been planned for The availability of nuclear fuel has been assured by long-term agreements. A possible rise in the costs of fuel for nuclear power is being reduced by the weak exchange rate of the dollar against the euro. Production costs for coal-fired power will be increased by the rise in the price of coal and the cost of emission rights. TVO will continue implementing the construction project of the new nuclear power plant unit. All major infrastructure investments required by the OL3 project will be brought to a conclusion by the end of The recruiting of personnel will focus on the selection of operators needed for OL3, while building and installation monitoring resources for the project will be strengthened. Posiva Oy, a TVO subsidiary, will continue the work on the underground research premises (ONKALO) at Olkiluoto, as planned. TVO Nuclear Services Oy, a TVO subsidiary, will continue to market and sell expertise services. 26 TVO - Annual Report 2004

29 Company Assets M Non-current assets Long-term loans receivab from shareholders Inventories Receivables and cash in hand and at bank Company Liabilities M Shareholders equity Depreciation reserve Long-term loans Loan from the Finnish State Nuclear Waste Management Fund Short-term loans Konsernirakenne ullamet landio deliquat. Lore core ming estrud te con henibh ese vullut utetuero etum autpat, consed te et, quis nibh ea faccum essisim acip exerosto dolortie M Turnover Assets in the Finnish State Nuclear Waste Management Fund M Konsernirakenne Investments Loans ullamet landio deliquat. Lore core ming estrud te con henibh ese vullut utetuero etum autpat, consed te et, quis nibh ea faccum essisim acip exerosto dolortie M M Konsernirakenne Equity Ratio Permanent Staff ullamet landio deliquat. Lore core ming estrud te con henibh ese vullut utetuero etum autpat, consed te et, quis nibh ea faccum essisim acip exerosto dolortie % No TVO - Annual Report