MICRO FUSION

REGULATORY HURDLES

Micro Fusion systems need to be developed, marketed, installed, operated and maintained by private industry. At the root of private industry is equity share capital. The equity market is competitive. People will only invest in share equity if there is a reasonable prospect of their shares greatly increasing in value over the long term. In order to be competitive Micro Fusion must cross a series regulatory hurdles.

CAPITAL COST ALLOWANCE:
An issue of great importance to investors in new energy technologies is the Capital Cost Allowance (CCA). In Canada there is a CCA Class 43.2 which allows a 50% per annum writeoff of expenses (25% in the first calendar year, 50% in the second calendar year, 25% in the third calendar year). This CCA could potentially make investment in Micro Fusion of interest to parties with high taxable incomes. As of June 2007 there is ongoing work to try to convince the Minister of Finance of Canada to amend tax regulations to make Micro Fusion Systems and district heating systems heated via Micro Fusion CCA Class 43.2 investments.

RADIATION SAFETY:
The radiation safety issues related to Micro Fusion are similar to those encountered in some university laboratories. Preliminary written commmunications with the Canadian Nuclear Safety Commission (CNSC) indicate that it will consider Micro Fusion as Class II, meaning that the approvals process is greatly simplified as compared to the process that applies for a fission type nuclear reactor.

TITLE TO EQUIPMENT:
An important safety issue is that control of the Micro Fusion equipment must continuously reside with the party that is licensed by the Canadian Nuclear Safety Commission. If Micro Fusion equipment is used for heating a major building there is potential under existing Ontario property law for that equipment to become a fixture to the building outside the control of the licensed party. This issue was raised with the Canadian Nuclear Safety Commission in March 2006, and hopefully this issue will be addressed in a future amendment to the Nuclear Safety Contol Act (NSCA).

PRESSURE VESSEL APPROVAL:
Micro Fusion entails some unusual pressure vessel design considerations that may require approval on a jurisdiction by jurisdiction basis.

FIRE SAFETY APPROVAL:
Micro Fusion entails some unusual fire safety design considerations that may require approval on a jurisdiction by jurisdiction basis.

MATERIAL SAFETY AND SECURITY APPROVAL:
Micro Fusion entails some unusual material handling, storage and security considerations that may require approval by insurers. For example, it is contemplated that each Micro Fusion system will be fitted with remotely monitored alarm system indicating intrusion, fire, flood and shutdown.

GOVERNMENTAL EXPROPRIATION:
In Canada there is presently draconian legislation that allows the federal government to arbitrarly expropriate any nuclear activity.

This legislation is historical in nature, but it stifles private industry. If governments had taken over Microsoft in 1990, would Bill Gates be worth $50 billion today? Most people would agree that the answer is no, and that the present performance of personal computers is in large measure the result of innovation and competition in private industry.

The same is true for Micro Fusion. It cannot be effectively exploited by governments. Undoubtedly some politicians may be tempted. In order to remove this temptation the intellectual property relating to Micro Fusion is being placed outside the reach of the government of Canada and other governments with similar draconian legislation, until such time these draconian legislative provisions permitting arbitrary seizure are repealed.

Federal laws in Canada can be found on the Department of Justice site at:
http://laws.justice.gc.ca/en/index.html

The provisions in Canada of particular concern are set out below:

Implications of the Patent Act and Nuclear Energy Act

Section 22 of the Patent Act provides:
22. Any application for a patent for an invention that, in the opinion of the Commissioner, relates to the production, application or use of nuclear energy shall, before it is dealt with by an examiner appointed pursuant to section 6 or is open to inspection by the public under section 10, be communicated by the Commissioner to the Canadian Nuclear Safety Commission.

The Nuclear Energy Act applies to Micro Fusion technology because section 2 of the Act provides that:
2. In this Act, …
“nuclear energy” has the meaning assigned to that expression by section 2 of the Nuclear Safety and Control Act;

Referring to section 2 of the Nuclear Safety and Control Act:
2. The definitions in this section apply in this Act.
“nuclear energy” means any form of energy released in the course of nuclear fission or nuclear fusion or of any other nuclear transmutation.

Further, section 10(c) of the Nuclear Energy Act is applicable as it provides that:
10. (1) The Minister may …
(c) with the approval of the Governor in Council, acquire or cause to be acquired, by purchase, lease, requisition or expropriation, nuclear substances and any mines, deposits or claims of nuclear substances and patent rights relating to nuclear energy and any works or property for production or preparation for production of, or for research or investigations with respect to, nuclear energy; and …

The compensation given must be reasonable, as provided by section 14(1) of the Nuclear Energy Act:
14. (1) Whenever any property has been requisitioned or expropriated under this Act and the Minister and the owner of the property have not, within such period as the Minister of Justice considers reasonable, agreed on the compensation to be made for the property, the claim for compensation shall be referred by the Minister of Justice to the Federal Court.

Note that the Nuclear Energy Act was previously entitled the Atomic Energy Control Act.

Note that the compensation to be provided is at the whim of the Minister of Justice and then only after consideration by the Federal Court. At the Federal Court compensation will likely be governed by the stock market value immediately prior to seizure. This type of valuation does not take into account the equity investors' expectation regarding the future value of Micro Fusion shares as the technology is applied world wide.

A foreign ownership legal structure has been created that should protect investors from this draconian legislation by limiting the effects of any seizure by the Canadian government to the Canadian market.

This web page last updated June 10, 2007