ML11196A023
| ML11196A023 | |
| Person / Time | |
|---|---|
| Site: | South Texas  |
| Issue date: | 07/11/2011 |
| From: | Harrison G South Texas |
| To: | Document Control Desk, Office of Nuclear Reactor Regulation |
| References | |
| NOC-AE-11002694 | |
| Download: ML11196A023 (83) | |
Text
Nuclear Operating Company South Texas Pro/ect Eiectric Generating Station PO. Box 289 Wadsworth, Texas 77483 July 11, 2011 NOC-AE-1 1002694 File No.: D57, G25 10 CFR 50.75 U. S. Nuclear Regulatory Commission Attention: Document Control Desk One White Flint North 11555 Rockville Pike Rockville, MD 20852-2738 South Texas Project Units 1 and 2 Docket Nos. STN 50-498, STN 50-499 Response to Request for Additional Information:
Financial Assurance for Decommissioningq - 2011 Update (TAC ME5537/ME5538)
Reference:
George Harrison, STP Nuclear Operating Company, to NRC Document Control Desk, "Financial Assurance for Decommissioning - 2011 Update (Revised),"
dated April 13, 2011 (NOC-AE-11002663) (ML11109AO06)
The STP Nuclear Operating Company (STPNOC) submits the attached response to Request for Additional Information dated June 8, 2011, resulting from the NRC staff's review of the status report referenced above. The response is based upon information provided by the individual co-owners of the South Texas Project:
NRG South Texas LP; City Public Service Board of San Antonio; and City of Austin - Austin Energy.
This letter contains no NRC commitments.
If there are any questions, please contact either Mr. Philip L. Walker at (361) 972-8392 or me at (361) 972-8074.
Ger*sHaion General Manager, Finance and Accounting PLW
Enclosure:
Response to NRC Request for Additional Information Attachments: A. Excerpts from Application of NRG South Texas LP for Review of the Cost of Decommissioning Units 1 and 2,of the South Texas Project (June 13, 2008)
B. PUCT Order, Docket No. 35772 (October 10, 2008)
C. PUCT Order, Docket No. 36796 (July 13, 2009)
D. Excerpts from Application of CPS Energy for Review of the Costs of Decommissioning STP Units 1 and 2 (August 18, 2008)
E. PUCT Order, Docket No. 35786 (November 20, 2008)
STI: 32897508
NOC-AE-1 1002694 Page 2 of 2 cc:
(paper copy)
(electronic copy)
Regional Administrator, Region IV U. S. Nuclear Regulatory Commission 612 East Lamar Blvd., Suite 400 Arlington, Texas 76011-8064 Balwant K. Singal Senior Project Manager U.S. Nuclear Regulatory Commission One White Flint North (MS 8B1) 11555 Rockville Pike Rockville, MD 20852 Senior Resident Inspector U. S. Nuclear Regulatory Commission P. 0. Box 289, Mail Code: MN1 16 Wadsworth, TX 77483 C. M. Canady City of Austin Electric Utility Department 721 Barton Springs Road Austin, TX 78704 John Ragan Catherine Callaway Jim von Suskil NRG South Texas LP A. H. Gutterman, Esquire Morgan, Lewis & Bockius LLP Balwant K. Singal U. S. Nuclear Regulatory Commission Richard Pena E. Alarcon Kevin Polio City Public Service C. Mele City of Austin Peter Nemeth Crain Caton & James, P.C.
Richard A. Ratliff Texas Department of State Health Services Alice Rogers Texas Department of State Health Services
ENCLOSURE South Texas Project Units 1 and 2 Financial Assurance for Decommissioning Response To NRC Request for Additional Information Issued June 8, 2011
Enclosure NOC-AE-1 1002694 Page 1 of 2 RAI #1: Citation for real rate of returns:
In its submittal dated April 13, 2011, STP Nuclear Operating Company (STPNOC) reported various rates of escalation in decommissioning costs and rates of earnings on decommissioning funds for NRG South Texas LP, City Public Service of San Antonio, and City of Austin - Austin Energy.
As stated in Title 10 of the Code of Federal Regulations (10 CFR), paragraph 50.75(f)(1),
the information in [the DFS] report must include [...]
the assumptions used regarding rates of escalation in decommissioning costs, rates of earnings on decommissioning funds, and rates of other factors used in funding projections...
Please provide the basis for the assumptions used regarding rates of escalation in decommissioning costs, rate of earnings on decommissioning funds, and rates of other factors assumed in your Decommissioning Funding Status (DFS) report.
Response
For NRG South Texas LP (NRG), the assumptions regarding rates of escalation in decommissioning costs, rate of earnings on decommissioning funds, and rates of other factors assumed in the DFS report are inputs to the rates established by the Public Utility Commission of Texas (PUCT) in PUCT Docket Nos. 35772 and 36796. Excerpts from NRG's June 13, 2008, "Application of NRG South Texas LP for Review of the Cost of Decommissioning Units 1 and 2 of the South Texas Project" are provided as Attachment A. PUCT Orders dated October 10, 2008, and July 13, 2009, are provided as Attachments B and C.
The earnings rates, of 5.02% - 7.01% reported in the 2011 DFS for NRG are the projected earnings rates for different types of investments. These rates are inputs for the assumptions regarding composite earnings rates, net of taxes and administrative fees, of 3.79% - 4.27% that appear at page 21 of 26 of the Direct Testimony of Christopher Sotos in the June 13, 2008, NRG application.
In the future, NRG intends to report these composite earnings rates to the NRC, rather than continuing the prior practice of reporting the range of earnings on investments assumed for the analysis supporting the PUCT-approved rates for decommissioning funding collections.
For City Public Service of the City of San Antonio (CPS Energy), the assumptions regarding rates of escalation in decommissioning costs, rates of earnings on decommissioning funds, and rates of other factors assumed in the DFS report for its 12% interests in STP Units 1 and 2 are inputs to the rates established by the PUCT in PUCT Docket No. 35786. Excerpts from CPS Energy's August 18, 2008, "Application of CPS Energy for Review of the Costs of Decommissioning STP Units 1 and 2," (CPS Energy Application) are provided as Attachment D, and the PUCT Order dated November 20, 2008, is provided as Attachment E.
The cost escalation rate and earnings rate assumptions for the analysis supporting the PUCT-approved rates for decommissioning funding collections appear at page 17 of 24 of the CPS Energy Application in the Direct Testimony of David Jungman.
The assumptions regarding rates of escalation in decommissioning costs, rate of earnings on decommissioning funds, and rates of other factors assumed in the DFS report for its 28%
interests in STP Units 1 and 2 are inputs to the rates established by the City Council of the City
Enclosure NOC-AE-1 1002694 Page 2 of 2 of San Antonio, which has rate-setting authority for CPS Energy. The assumptions are the same as those for the analysis supporting the PUCT-approved rates for decommissioning funding collections.
For the City of Austin (Austin Energy), the assumptions regarding rates of escalation in decommissioning costs, rate of earnings on decommissioning funds, and rates of other factors assumed in the DFS report are inputs to the rates established by the City Council of the City of Austin, which has rate-setting authority for Austin Energy.
RAI #2: Amounts accumulated:
In its submittal dated April 13, 2011, STPNOC did not state if the stated amounts of decommissioning funds accumulated were after-tax amounts.
The provisions of 10 CFR 50.75(f)(1) and (2) require the licensee to report the amount of funds accumulated to the end of the calendar year preceding the report.
Please provide the after-tax amounts of funds accumulated through December 31, 2010.
Response
On December 14, 2010, NRG made withdrawals from the trust funds to pay for the expected remaining taxes due for net realized gains and other income for 2010. Thus, the balances reported by NRG as of December 31, 2010, already reflect a subtraction for the expected tax liability associated with net realized gains and other income for 2010.
CPS Energy and Austin Energy are municipal utility companies, and therefore, no taxes are paid on realized gains or other income in their trust funds. Thus, the amounts reported of the total market value of the accumulated balances for each trust fund as of December 31, 2010 reflect the "after-tax" amounts.
ATTACHMENT A Excerpts from "Application of NRG South Texas LP for Review of the Cost of Decommissioning Units 1 and 2 of the South Texas Project" (June 13, 2008)
Application & Sotos Testimony (without other enclosures)
Attachment A 1 of 26 DOCKET NO. 35772 APPLICATION OF NRG SOUTH TEXAS
§ PUBLIC UTILITY COMMISSION LP FOR REVIEW OF THE COST OF
§ DECOMMISSIONING UNITS 1 AND 2 OF. §.
THE SOUTH TEXAS PROJECT
§ OF TEXAS APPLICATION OF NRG SOUTH TEXAS LP FOR REVIEW OF THE COST OF DECOMMISSIONING UNITS 1 AND 2 OF THE SOUTH TEXAS PROJECT Table of Contents Description Page T able of C ontents........................................................................................................................
I A pplication.................................................................................................................................
2 Direct Testim ony of Christopher Sotos...................................................................................
7 Exhibit CS CY2007 Report on Nuclear Decommissioning Funds.......................
27 Exhibit CS Proposed Annual Funding Analysis...................................................
35 Exhibit CS January 2008 Ennis Knupp Assumptions.........................................
37 Direct Testimony of William A. Cloutier, Jr.
50 Exhibit WAC March 2008 Decommissioning Cost Study Update.......................
85 C)j C).....
¢-.
7
2 of 26 DOCKET NO._
APPLICATION OF NRG SOUTH TEXAS
§ PUBLIC UTILITY COMMISSION LP FOR REVIEW OF THE COST OF
§ DECOMMISSIONING UNITS 1 AND 2 OF § THE SOUTH TEXAS PROJECT
§ OF TEXAS APPLICATION OF NRG SOUTH TEXAS LP FOR REVIEW OF THE COST OF DECOMMISSIONING UNITS 1 AND 2 OF THE SOUTH TEXAS PROJECT COMES NOW NRG South Texas LP ("NRG South Texas")', pursuant to PURA2 § 39.205 and P.U.C. SUBST. R. § 25.303, and files this application for Commission review of the cost of decommissioning Units 1 and 2 of the South Texas Project Electric Generating Station
("STP").
In connection with this application, NRG South Texas requests that the Commission approve the proposed annual funding analysis for the cost of decommissioning STP Units 1 and 2 as it relates to NRG South Texas' 44.0% ownership interest in STP Units 1 and 2, as specifically allocated to (i) the decommissioning master trust created for NRG South Texas' 30.8% ownership interest in STP Units 1 and 2 (the "30.8% Trust"), for which CenterPoint Energy Houston Electric LLC ("CenterPoint") is the collecting utility;, and to (ii) the decommissioning master trust created for its 13.2% ownership interest in STP Units 1 and 2 (the "13.2% Trust"), for which American Electric Power Texas Central NRG ("AEPTCC") is the collecting utility.
The proposed annual funding analysis is based on the March 2008 "Decommissioning Cost Analysis for the South Texas Project Electric Generating Station" (the "Cost Study") prepared for STP Nuclear Operating Company ("STPNOC') by TLG Services, Inc. (CTLG""). For the 30.8% Trust, NRG South Texas is requesting an annual funding amount of
'NRG South Texas LP is a registered power generation company and a wholly-owned subsidiary of NRG Texas LLC.
3 of 26
$2,633,587, a decrease of 9.4% from the current approved annual funding amount for the trust For its, 13.2% interest, NRG is seeking the Commission's approval for an annual funding amount of $2,192,142, which represents a 44.8% decrease in the existing approved annual funding amount for that trust.
Also included in this application is a description of the proposed allocation by NRG South Texas of a portion of the existing and future funds in the nuclear decommissioning trusts to the spent fuel management subaccounts for each trust.
In support of its application, NRG South Texas would show as follows:
- 1. JURISDICTION The Commission has jurisdiction over this application pursuant to PURA §§ 14.001, 14.002 and 39.205.
II. AUTHORIZED REPRESENTATIVES The authorized representative of NRG South Texas for service of all pleadings and other documents in this docket is:
Mark Walker Director of Regulatory Affairs NRG Texas LLC 1001 Congress Avenue, Suite 360 Austin, Texas 78701 Telephone: (512) 585-0450 Facsimile: (512) 473-8712 The authorized lead counsel for NRG South Texas in this proceeding is:
Michael J. Tomsu Vinson & Elkins, L.L.P.
2801 Via Fortuna, Suite 100 Austin, Texas 78746 Telephone: (512) 542-8527 Facsimile: (512) 236-3211 2 Public Utility Regulatory Act, TEX. UTIL. CODE ANN. §§ 11.001-66.017 (Vernon 1998 and Supp. 2007).
4 of 26 All pleadings, motions and other documents in this proceeding should be served on Mr.
Walker at the above-stated address, with a copy to Mr. Tomsu.
IEL AFFECTED PERSONS AND TERRITORIES This application will affect NRG South Texas and its collecting utilities, CenterPoint and AEPTCC. No specific relief is sought against any party.
IV. DECOMMISSIONING COST STUDY UPDATE AND FUNDING ANALYSIS Attached to this application is (i) the direct testimony of Christopher Sotos, Treasurer of NRG Energy, Inc., to which is attached as Exhibit CS-2 the proposed annual funding analysis; and (ii) the direct testimony of William A. Cloutier, Jr., Manager of Decommissioning Services at TLG, to which is attached as Exhibit WAC-1 the March 2008 cost study for STP Units 1 and 2 prepared by TLG.
V. NOTICE As stated above, the three entities directly affected by this application are NRG South Texas, CenterPoint, and AEPTCC. NRG South Texas will provide a copy of this application to both CenterPoint and AEPTCC.
VI. PRAYER WHEREFORE, PREMISES CONSIDERED, NRG South Texas prays that the Commission enter an order (i) approving the proposed annual funding amount for the nuclear decommissioning trusts related to the ownership interest of NRG South Texas in STP Units 1 and 2; and (ii) granting such other and further relief to which NRG South Texas may show itself entitled.
5 of 26 Date: June 13, 2008.
Respectfully submitted, VINSON & ELKINS L.L.P.
4State MBar No.
57 2801 Via Fortuna, Suite 100 Austin, Texas 78746 512-542-8527 512-236-3211 (fax) mtomsu@velaw.com ATTORNEYS FOR NRG SOUTH TEXAS LP
6 of 26 CERTIFICATE OF SERVICE I hereby certify that a true and correct copy of the foregoing document has been hand-delivered, sent via overnight mail, sent via U.S. mail, or sent via facsimile transmission to CenterPoint Energy Houston Electric LLC and American Electric Power Texas Central Company, on this 13th day of June, 2008.
Michael J.
7 of 26 DOCKET NO.
APPLICATION OF NRG SOUTH TEXAS LP FOR REVIEW OF THE COST OF DECOMMISSIONING UNITS I AND 2 OF THE SOUTH TEXAS PROJECT
§§
§
§
§
§ PUBLIC UTILITY COMMISSION OF TEXAS DIRECT TESTIMONY OF CHRISTOPHER SOTOS ON BEHALF OF NRG SOUTH TEXAS LP JUNE 13,2008
8 of 26 Page 2 of 43 DOCKET NO.
APPLICATION OF NRG SOUTH TEXAS
§ PUBLIC UTILITY COMMISSION LP FOR REVIEW OF THE COST OF
§ DECOMMISSIONING UNITS 1 AND 2 OF § THE SOUTH TEXAS PROJECT
§ OF TEXAS
§
§
§ DIRECT TESTIMONY OF CHIUSTOPHER SOTOS TABLE OF CONTENTS I
INTRODUCTION AND QUALIFICATIONS................................
3 I1. SCOPE AND PURPOSE OF TESTIMONY.......................................................................
4 III. PURPOSE OF DECOMMISSIONING FUNDING AND BACKGROUND ON THE NRG DECOM MISSIONING TRUSTS...........................................................................................
5 IV. ADMINISTRATION OF THE DECOMMISSIONING TRUSTS.......................................
7 V. DEVELOPMENT OF ANNUAL DECOMMISSIONING FUNDING ANALYSIS......
12 VI. CREATION OF SEPARATE SPENT FUEL MANAGEMENT SUBACCOUNTS......
17 EXHIBITS Exhibit CS CY2007 Report on Nuclear Decommissioning Funds.................
21 Exhibit CS Proposed Annual Funding Analysis..............................................................
29 Exhibit CS January 2008 Ennis Knupp Assumptions.....................................................
31 Direct Testimony of Christopher Sotos
9 of 26 DOCKET NO.
APPLICATION OF NRG SOUTH TEXAS
§ PUBLIC UTILITY COMMISSION LP FOR REVIEW OF THE COSTS OF
§ DECOMMISSIONING UNITS 1 AND 2 OF § THE SOUTH TEXAS PROJECT
§ OF TEXAS
§
§
§ DIRECT TESTIMONY OF CHRISTOPHER SOTOS 1
I.
INTRODUCTION AND QUALIFICATIONS 2
Q.
PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND OCCUPATION.
3 A.
My name is Christopher Sotos and my business address is 211 Carnegie Center, 4
Princeton, New Jersey 08540. I am employed by NRG Energy, Inc. as its Treasurer.
5 Q.
ON WHOSE BEHALF ARE YOU TESTFYING IN THIS PROCEEDING?
6 A.
I am testifying on behalf of NRG South Texas L.P. ("NRG").
7 Q.
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND 8
PROFESSIONAL EXPERIENCE.
9 A.
I have served as NRG Energy's Vice President and Treasurer since March 2008. In this 10 position, I am responsible for all Treasury functions performed by that group. I joined 11 NRG in 2004 as Senior Finance Analyst, following over 9 years in key financial roles 12 within the energy sector and other industries for such Houston-based companies as Koch 13 Capital Markets, Entergy Wholesale Operations and Service Corporation International. I 14 hold a Bachelor of Science degree in Finance and a Bachelor of Arts degree in is Economics from Indiana University.
16 Direct Testimony of Christopher Sotos
10 of 26 1
H.
SCOPE AND PURPOSE OF TESTIMONY 2
Q.
PLEASE DISCUSS THE PURPOSE OF YOUR TESTIMONY.
3 A.
The purpose of my testimony is to: (i) present the proposed nuclear decommissioning 4
trust annual funding analysis for NRG's 44.0% ownership interest in Units 1 and 2 of the 5
South Texas Project Electric Generating Station ("STP"), as specifically allocated to the 6
trust related to its 30.8% ownership interest in ST1 Units 1 and 2 for which CenterPoint 7
Energy Houston Electric LLC ("CenterPoint") is the collecting utility, and to the trust 8
related to its 13.2% ownership interest in STP Units 1 and 2 for which American Electric 9
Power Texas Central ("AEPTCC") is the collecting utility; and (ii) to describe the 10 allocation of a portion of the existing and future funds in the trusts to the spent fuel 11 management subaccounts for each trust.
12 The requested annual funding is based on the most current information reasonably 13 available for the cost of decommissioning, an allowance for contingencies of 10% of the 14 cost of decommissioning, the balance of funds in the decommissioning trusts established 15 by NRG, anticipated escalation rates and the anticipated after-tax returns in the trusts.
16 For its 30.8% ownership interest, NRG is seeking the Commission's approval for an 17 annual funding amount of $2,633,587, a decrease of 9.4% from the current approved 18 annual funding for that trust. For its 13.2% ownership interest, NRG is seeking the 19 Commission's approval for an annual funding amount of $2,192,142, a decrease of 20 approximately 44% from the current approved annual funding for the 13.2% Trust.
21 Q.
WHAT EXHIBITS ARE YOU SPONSORING?
22 A.
Exhibits CS-1 through CS-3 are attached to my testimony.
23 24 Direct Testimony of Christopher Sotos
11 of 26 I
2 HI.
PURPOSE OF DECOMMISSIONING FUNDING AND BACKGROUND ON THE 3
NRG DECOMMISSIONING TRUSTS 4
Q.
WHAT IS THE PURPOSE OF DECOMMISSIONING FUNDING FOR 5
NUCLEAR GENERATING FACILITIES?
6 A.
Decommissioning funding provides reasonable assurance that adequate funds will be 7
available to pay for the safe dismantlement, decontamination, and disposal of a nuclear 8
generating facility at the completion of its service life. There are three components to 9
decommissioning costs: radiological decommissioning (license termination), spent fuel 10 management, and site restoration.
11 Q.
HAS NRG ESTABLISHED NUCLEAR DECOMMISSIONING TRUSTS FOR ITS 12 OWNERSHIP INTEREST IN STP UNITS 1 AND 2?
13 A.
Yes. NRG has established two decommissioning master trusts for its acquired ownership 14 interest in STP Units I and 2. The decommissioning funds collected by CenterPoint 15 related to NRG's 30.8% interest in STP Units 1 and 2 are administered through the trust 16 created by the Third Amended and Restated Decommissioning Master Trust Agreement 17 for the South Texas Project dated July 10, 2006 (the "30.8% Trust"). The agreement 18 establishing the 30.8% Trust was approved by the Commission in Docket No. 32367.
19 The decommissioning funds collected by AEPTCC related to NRG's 13.2% interest in 20 STP Units 1 and 2 are administered through the trust created by the Decommissioning 21 Master Trust Agreement No. 2 for the South Texas Project dated October 17, 2007 (the 22 "13.2% Trust"'). The agreement establishing the 13.2% Trust was approved by the 23 Commission in Docket No. 34171.
Direct Testimony of Christopher Sotos
12 of 26 1
Q.
-WHAT IS THE EXISTING BALANCE IN THE 30.8% TRUST?
2 A.
As shown in NRG's most recent annual decommissioning trust status report, a copy of 3
which is attached as Exhibit CS-I to my testimony, the total balance in the 30.8% Trust 4
as of December 31, 2007 was $277,812,958.
The Unit 1 account balance was 5
$121,955,016 and the Unit 2 account balance in the 30.8% Trust was $155,857,941.
6 Q.
WHAT IS THE EXISTING BALANCE IN THE 13.2% TRUST?
7 A.
As of December 31, 2007, the total balance in the 13.2% Trust was $104,392,258. The 8
Unit 1 account balance was $47,135,883 and the Unit 2 account balance in that trust was 9
$57,256,375.
10 Q.
WHAT IS THE CURRENT APPROVED ANNUAL FUNDING AMOUNT FOR 11 THE 30.8% TRUST?
12 A.
The currently allowed decommissioning expense for the 30.8% Trust is $2,908,168, 13 which was approved by the Commission in Docket No. 22355. CenterPoint implemented 14 a separately stated decommissioning charge of $0.000054 per kWh on June 1, 2005 15 pursuant to Docket No. 31089.
16 Q.
WHAT IS THE CURRENTLY APPROVED ANNUAL FUNDING AMOUNT FOR 17 THE 13.2% TRUST?
18 A.
The currently allowed decommissioning expense related to the 13.2% Trust is 19
$3,971,912, which the Commission approved in Docket No. 28840.
AEPTCC 20 implemented a separately stated decommissioning charge of $0.000438 per kWh on July 21 29, 2005.
22 Direct Testimony of Christopher Sotos
13 of 26 1
IV.
ADMINISTRATION OF THE DECOMMISSIONING TRUSTS 2
Q.
HAS THE COMMISSION ISSUED SPECIFIC GUIDELINES FOR THE 3
FUNDING AND COLLECTION OF NUCLEAR DECOMMISSIONING 4
RELATED COSTS AND ADMINISTRATION OF NUCLEAR 5
DECOMMISSIONING TRUSTS?
6 A.
Yes.
PUC Substantive Rule 25.303 governs the administration of nuclear 7
decommissioning trust funds and specifies the duties and responsibilities of transferee 8
companies such as NRG, as well as the duties of collecting utilities such as CenterPoint 9
and AEPTCC.
PUC Substantive Rule 25.303 also governs the periodic review of 10 decommissioning costs for nuclear generating units.
11 Q.
DOES NRG COMPLY WITH THE REQUIREMENTS OF PUC SUBSTANTIVE 12 RULE 25.303 REGARDING THE ADMINISTRATION OF THE TRUSTS?
13 A.
Yes. Throughout my testimony, I will discuss NRG's compliance with the Commission's 14 rules.
15 Q.
WHO SERVES AS TRUSTEE OF THE DECOMMISSIONING TRUST FUNDS?
16 A.
Mellon Bank, N.A. ("Mellon Bank") currently serves as trustee for both the 30.8% Trust 17 and the 13.2% Trust. On July 1, 2008, as a result of a planned reorganization, the Bank 18 of New York Mellon will become the successor trustee to Mellon Bank.
This 19 reorganization is the result of the merger of Mellon Bank's parent, Mellon Financial 20 Corporation, with The Bank of New York Company.
21 Q.
HOW DOES NRG MONITOR THE TRUSTEE'S PERFORMANCE WITH 22 REGARD TO NRG'S DECOMMISSIONING TRUSTS?
23 A.
NRG monitors the trustee's performance by (i) reviewing the trust statements, (ii) 24 interacting with the trustee on a variety of transactions and issues, and (iii) obtaining Direct Testimony of Christopher Sotos
14 of 26 1
feedback from its various investment managers. In addition, NRG monitors the trustee's 2
fee schedule to ensure that the fees are reasonable and that aggregate fees of the trustee 3
and the investment managers do not exceed the Commission's prescribed limitation on 4
such fees. Mellon Bank has complied with the terms of both the 30.8% Trust Agreement 5
and the 13.2% Trust Agreement and the portions of the Commission's Substantive Rule 6
25.303 as it relates to trustees.
7 Q.
WHICH ENTITIES SERVE AS INVESTMENT MANAGERS FOR THE 8
DECOMMISSIONING TRUST FUNDS?
9 A.
With regard to the 13.2% Trust, NISA Investment Advisors, LLC ("NISA") serves as 10 investment manager for the trust. With regard to the 30.8% Trust, NISA, Mellon Bank, 11 Vanguard and BlackRock Financial Management, Inc. serve as investment managers for 12 portions of the 30.8% Trust.
13 Q.
HOW DOES NRG MONITOR THE PERFORMANCE OF THE INVESTMENT 14 MANAGERS?,
15 A.
NRG receives quarterly reports from its investment consultant, Ennis, Knupp &
16 Associates ("Ennis Knupp") regarding the investment performance of both the 30.8%
17 Trust and the 13.2% Trust. The quarterly reports compare each investment manager's 18 investment performance to appropriate benchmarks. For instance, the equity investment 19 performance of NISA is compared to the Standard & Poor's 500 Index ("S&P 500")
20 because, in managing the equity portfolio for the nuclear decommissioning trust, NISA 21 has been expected to construct the portfolio to approximately match the S&P 500. NRG 22 uses these reports to evaluate the investment manager's investment performance.
Direct Testimony of Christopher Sotos
15 of 26 1
Q.
WHAT CONSULTING SERVICES DOES ENNIS KNUPP SPECIFICALLY 2
PROVIDE TO NRG WITH REGARD TO THE TWO DECOMMISSIONING 3
TRUSTS?
4 A.
Ennis Knupp provides the following services to NRG:
5 assists in the development and review of the investment policy and investment 6
philosophy for the trusts; 7
assists in the determination of the investment objectives for the trusts, and the 8
methods for monitoring such objectives; 9
recommends the relative amounts or percentages of the trusts that should be 10 invested in equity investments and non-equity investments (subject to the 11 Commission's Rules), as well as the conditions under which any such 12 determination previously made should be changed; 13 evaluates all investment managers who are managing the assets in each trust and 14 all investment companies and all common, collective, group or commingled trust 15 funds in which the trusts are invested on a quarterly basis, which evaluation takes 16 into account, but is not necessarily limited to, risk and return (including after-tax 17 return);
18 recommends (a) the hiring of investment managers to manage trust assets, (b) the 19 termination of investment managers managing trust assets, (c) the investment of 20 trust assets in investment companies or in common, collective, group or 21 commingled trust funds and (d) the liquidation of trust investments in investment 22 companies or in common, collective, group or commingled trust funds; Direct Testimony of Christopher Sotos
16 of 26 I
evaluates and recommends changes in the amounts or percentages of each trust 2
managed by each investment manager or invested in a particular common, 3
collective, group or commingled trust fund; 4
provides systematic risk and return criteria pursuant to which NRG can evaluate 5
prospective investment managers, investment companies and common collective, 6
group or commingled trust funds on an ongoing basis; 7
assists in the review and evaluation of the effect of various liability and funding 8
assumptions on trust contributions, trust investment policies and NRG's financial 9
statements; 10 provides support to NRG in regulatory proceedings relating to the trusts; and 11 provides such reports on the investment of trust assets as requested by NRG.
12 Q.
ARE THE DECOMMISSIONING TRUST BALANCES BEING INVESTED 13 PRUDENTLY AND IN COMPLIANCE WITH THE INVESTMENT 14 GUIDELINES SET FORTH IN COMMISSION RULE 25.303(e)?
15 A.
Yes. NRG, as the funds administrator for both the 30.8% Trust and the 13.2% Trust, has 16 established investment policies that are consistent with the guidelines in Commission 17 Rule 25.303(e), so that the decommissioning funds collected, plus the amounts earned 18 from investment of the funds, will be available at the time of decommissioning. To that 19 end, NRG has prudently invested the trust balances in compliance with all of the 20 requirements of Rule 25.303(e).
Direct Testimony of Christopher Sotos
17 of 26 I
Q.
ARE THE TOTAL TRUSTEE AND INVESTMENT MANAGER FEES PAID BY 2
NRG ON AN ANNUAL BASIS FROM EACHTRUST WITHIN THE SPECIFIED 3
LIMIT OF 0.7% OF THE TRUST PORTFOLIO'S AVERAGE ANNUAL 4
BALANCE?
5 A.
Yes, they are. As shown in Exhibit CS-1, the total fees paid do not exceed the limits 6
prescribed in the rule.
7 Q.
ARE THE TRUST PORTFOLIOS DIVERSIFIED IN ACCORDANCE WITH 8
SUBST. R. 25.303(e)(3)(B)(fl)?
9 A.
Yes, they are. The concentration and diversification of the portfolio is in accordance with 10 the rule. Our holdings of commingled funds in excess of $20 million are diversified such I1 that no more than 5% of the securities held may be issued by one entity with the 12 exception of the federal government, its agencies and instrumentalities. Our portfolio also 13 contains at least 20 different issues of securities. Municipal securities and real estate 14 investments are also geographically diversified.
15 Q.
IS EACH TRUST PORTFOLIO MANAGED TO ATTAIN THE PRESCRIBED 16 EQUITY CAP OF 60%?
17 A.
Yes. The trust portfolios are constantly managed so that the trusts comply with the 18 current equity cap of 60%, as demonstrated by the information contained in Exhibit CS-1.
19 Q.
ARE ALL FIXED INCOME INVESTMENTS INVESTED IN INVESTMENT 20 GRADE SECURITIES?
21 A.
Yes.
Direct Testimony of Christopher Sotos
18 of 26 1
Q.
DO AT LEAST 70% OF THE AGGREGATE MARKET VALUE OF THE 2
EQUITY PORTFOLIO IN THE TRUSTS HAVE A QUALITY RATING FROM A 3
MAJOR RATING SERVICE.
4 A.
Yes.
5 Q.
ARE ANY TRUST FUNDS INVESTED IN THE SECURITIES ISSUED BY NRG 6
OR EITHER OF THE COLLECTING UTILITIES.
7 A.
No, the trust does not invest in the securities issued by NRG, CenterPoint or AEPTCC.
8 Q.
ARE ANY INVESTMENTS OF TRUST FUNDS IN COMMINGLED FUNDS 9
MADE IN ACCORDANCE WITH THE LIMITATIONS CONTAINED IN 10 25.303(e)(3)(C)(ii)(1)(iii)?
11 A.
Yes, they are.
12 Q.
WHAT STEPS HAS NRG TAKEN TO ACHIEVE OPTIMUM TAX EFFICIENCY 13 WITH RESPECT TO THE TRUST FUNDS?
14 A.
NR.G has consistently taken careful steps to achieve and maintain "qualified" status of the 15 funds in accordance with Internal Revenue Code § 468A. With respect to the 30.8%
16 Trust, as of December 31, 2007, over 99% of the existing 30% trust balance of 17 approximately $278 million is in "qualified" accounts. With regard to the 13.2% Trust, 18 over 98% of the trust balance is in qualified accounts as of that same date.
19 V.
DEVELOPMENT OF ANNUAL DECOMMISSIONING 20 FUNDING ANALYSIS 21 Q.
PLEASE SUMMARIZE HOW NRG DEVELOPED THE ANNUAL 22 DECOMMISSIONING FUNDING ANALYSIS FOR THE TWO TRUSTS.
23 A.
The first step in determining the annual decommissioning revenue requirement is the 24 development of a site-specific constant-dollar decommissioning cost estimate of the Direct Testimony of Christopher Sotos
19 of 26 1
expected cash outlays, by year, during the decommissioning process for STP Units 1 and 2
- 2. The testimony of NRG witness William A. Cloutier, Jr. of TLG Services, Inc.
3
("TLG"), discusses in detail the development of the March 2008 STP site-specific cost 4
study (the "Cost Study") and attaches as Exhibit WAC-1 to his testimony a copy of the 5
Cost Study.
6 In the Cost Study, TLG has provided an estimate of NRCts portion of 7
decommissioning costs which reflects.
8 The 10% contingency ceiling specified in Substantive Rule 25.303(f)(2);
9 NRG's 44.0% ownership interest in STP; and 10 The property taxes and state sales taxes that must be paid by NRG.
11 NRG's share of the decommissioning costs is then escalated to take into account 12 the years that the decommissioning costs will actually be expended (2022 through 2054).
13 Mr. Cloutier discusses in his testimony the appropriate escalation rates that TLG 14 provided to NRG. This results in the determination of a future dollar decommissioning I5 cost estimate for NRG. NRG's total funding requirement is then allocated to the two 16 trusts based on its 30.8% interest and its 13.2% interest 17 Based on the existing trust fund balances; the anticipated after-tax investment 18 return of the decommissioning trusts; the assumed fees and expenses of the trustee, 19 consultants and investment managers; and the TLG estimate for future decommissioning 20 costs, I have calculated the required annual funding amount for each trust.
21 Q.
DOES THE COST STUDY PREPARED BY TLG SATISFY THE 22 REQUIREMENTS OF COMMISSION SUBSTANTIVE RULE 25.303?
23 A.
Yes, it does. Substantive Rule 25.303 requires a decommissioning cost study to be based 24 on the most current information reasonably available on the cost of decommissioning.
Direct Testimony of Christopher Sotos
20 of 26 I
Mr. Cloutier describes in detail how TLG performed the decommissioning cost estimate 2
for STP Units 1 and 2 based on extensive Nuclear Regulatory Commission ("NRC")
3 guidelines and the extensive experience of TLG in performing decommissioning cost 4
estimates and actual decommissioning activities. As discussed in the testimony of Mr.
5 Cloutier, the Cost Study reflects the most current information reasonably available on the 6
cost of decommissioning STP Units I and 2.
7 Q.
DOES THE COST STUDY REFLECT THE ALLOWANCE FOR 8
CONTINGENCIES OF 10% OF THE COST OF DECOMMISSIONING AS 9
PROVIDED FOR IN 25.303(f)(2)?
10 A.
Yes, it does. Although TLG prepared the Cost Study to show TLG's true estimate of the 11 cost of decommissioning STP Units I and 2, which utilizes a contingency of 17.6%, TLG 12 also provided an adjusted cost estimate utilizing the 10% contingency factor to comply 13 with the Commission's rules.
14 Q.
WHAT IS THE RESULTING DECOMMISSIONING COST ESTIMATE IN THE 15 COST STUDY?
16 A.
Based on the 10% contingency, TLG estimates a total cost (in 2007 dollars) to 17 decommission STP Units I and 2 for all STP participants of $ 1,386,686,000.
18 Q.
WHAT IS NRG'S SHARE OF THE TOTAL DECOMMISSIONING COST 19 ESTIMATE?
20 A.
NRG's share in 2007 dollars related to its 44.0% ownership interest in STP Units 1 and 2 21 is $614,006,000.
Direct Testimony of Christopher Sotos
21 of 26 1
Q.
WHAT ESCALATION RATE WAS UTILIZED FOR PURPOSES OF THE 2
ANNUAL FUNDING ANALYSIS?
3 A.
As described in Mr. Cloutier's testimony, TLG provided NRG with anticipated escalation 4
rates for both STP Units 1 and 2.
The escalation rate used in the analysis was 5
approximately 2.7%.
6 Q.
WHAT AFTER-TAX RETURNS DID NRG UTILIZE,IN THE FUNDING 7
ANALYSIS?
8 A.
For the years 2008 through 2021, NRG utilized an estimated after-tax return of 4.27% in 9
its funding analysis. For years 2022-2051, the estimated after-tax return is 3.79%. For 10 the remaining years in which decommissioning expenses are incurred, the funding 11 analysis assumes an estimated 3.79% after-tax return. The estimated after tax return 12 change because of the investment limits that apply to the percentage of the aggregate 13 market value of all non-fixed income investments relative to the total portfolio market 14 value and the weighted average life of the liability per Substantive Rule.
15 25.303(e)(3)(B)(vi).
16 Q.
HOW DID NRG OBTAIN ESTIMATED AFTER-TAX RETURNS FOR THE 17 ASSETS IN THE TRUSTS?
18 A.
The estimated after-tax returns were provided by its investment consultant, Ennis Knupp.
19 A copy of the information provided by Ennis Knupp is attached as Exhibit CS-3 to my 20 testimony.
Direct Testimony of Christopher Soros
22 of 26 I
Q.
WHY IS IT REASONABLE FOR YOU TO RELY ON THE ESTIMATED 2
AFTER-TAX PORTFOLIO RETURNS PROVIDED TO NRG BY ENNIS 3
KNUPP?
4 A.
Ennis Knupp routinely provides estimates of future returns for capital markets in the 5
course of developing long-term investment policies for its institutional elients. These 6
clients include other large utilities, major public funds and endowments. The practice of 7
developing such capital market assumptions is a standard part of the services that Ennis 8
Knupp provides. In general, there is a relationship between the volatility or riskiness of 9
an asset class and its long term assumed rate of return. Therefore, equities will always be 10 expected to outperform bonds. The science of the process involves estimating the size of I 1 this premium. Ennis Knupp has developed rigorous procedures for developing estimates 12 of most recent market trends.
13 Q.
BASED ON THE EXISTING TRUST BALANCES, THE MOST CURRENT 14 INFORMATION ON THE COST OF DECOMMISSIONING AS CONTAINED IN 15 THE COST STUDY, THE 10%
CONTINGENCY ALLOWANCE, THE 16 ANTICIPATED ESCALATION RATES, AND THE ANTICIPATED AFTER-TAX 17 RETURNS ON THE FUNDS IN THE TRUST, WHAT IS THE ANNUAL 18 FUNDING REQUIREMENT FOR EACH TRUST?
19 A.
As shown in the spreadsheet attached as Exhibit CS-2, the required annual funding 20 amount for the 30.8% Trust is $2,633,587, which represents a 9.4% decrease in the 21 existing annual funding amount. The required funding amount for the 13.2% Trust is 22
$2,192,142, which represents a 44.8% decrease in the existing annual funding amount for 23 that trust, Direct Testimony of Christopher Sotos
23 of 26 I
Q.
WHAT FACTORS HAVE CAUSED THE REDUCTION IN THE REQUIRED 2
ANNUAL FUNDING AMOUNT OF EACH TRUST?
3 A.
The annual funding amount modeling results are driven by the assumed investment rate 4
of return and the escalation rates used. A 1% decrease in the assumed investment rate of 5
return coupled with a similar increase in the decommissioning cost escalation rate 6
produces a wide variation in the amount needed to adequately fund the nuclear 7
decommissioning trust. The funding analysis we presented is diligently prepared to be as 8
accurate as possible based on the best information available to NRG.
9 VL CREATION OF SEPARATE SPENT FUEL MANAGEMENT 10 SUBACCOUNTS 11 Q.
YOU PREVIOUSLY INDICATED THAT THE TRUSTS ARE INTENDED TO i2 PROVIDE FUNDS FOR THREE GENERAL DECOMMISSIONING 13 ACTIVITIES: (1) RADIOLOGICAL DECOMMISSIONING; (2) SPENT FUEL 14 MANAGEMENT; AND (3) SITE RESTORATION. DOES NRG CURRENTLY 15 SEPARATE THE FUNDS IN THE TRUSTS WITHIN SUBACCOUNTS 16 RELATING TO THOSE ACTIVITIES?
17 A.
No, it does not currently, but NRG intends to make a change in that regard.
18 Q.
WHAT CHANGE IS NRG MAKING IN THAT REGARD?
19 A.
In NRC Regulatory Guide 1.184, the NRC recognized the need for separate accounting of 20 funds collected for spent fuel management activities:
21 The staff recognizes that during planning for decommissioning it is 22 necessary to consider activities leading to license termination and the 23 storage of spent fuel; therefore, the staff's interpretation of the appropriate 24 use of these planning funds will permit planning for all issues related to 25 the decommissioning of the facility. The staff also recognizes that many 26 licensees have chosen to accumulate funding for spent fuel maintenance 27 and storage (as required by 10 CFR 50.54(bb) as part of the Direct Testimony of Christopher Sotos
24 of 26 1
decommissioning trust fund.
However, the amounts set aside for 2
radiological decommissioning as required by 10 CFR 50.75 should not be 3
used for the maintenance and storage of spent fuel in the spent fuel pool, 4
or for the design or construction of spent fuel dry storage facilities, or for 5
other activities not directly related to the long-term storage, radiological 6
decontamination of or dismantlement of the facility, or decontamination of 7
the site.
8 NRG now proposes to create separate spent fuel management subaccounts within each 9
trust.
10 Q.
HOW DOES NRG INTEND TO ACCOUNT FOR THE AMOUNTS IN EACH 11 SPENT FUEL MANAGEMENT SUBACCOUNT?
12 A.
Based on the TLG Cost Study, spent fuel management costs represent 27.4815% of the 13 total cost of decommissioning for Unit I and 24.3413% for Unit 2. Upon creation of the 14 new spent fuel management subaccounts, NRG intends to allocate 27.4815% of the 15 existing balances in each trust for Unit I into the new spent fuel management 16 subaccounts for Unit 1, and 24.3413% of the existing balances in each trust for Unit 2 17 into the new spent fuel management subaccounts for Unit 2. NRG will also deposit these 18 same percentages of all future trust fund collections for each trust for each unit into the 19 spent fuel management subaccounts.
Based upon future cost studies, the precise 20 percentages of collections allocable to spent fuel management may change, and the 21 amounts from future collections deposited in the subaccounts would be adjusted 22 accordingly.
23 Q.
WHAT BENEFITS ACCRUE AS THE RESULT OF THE CREATION OF THESE 24 SPENT FUEL MANAGEMENT SUBACCOUNTS?
25 A.
As noted in the Cost Study, it appears certain that an independent spent fuel storage 26 installation ("ISFSI") will need to be constructed at STP for storage of spent fuel until 27 such time as it can be transferred to a U.S. Department of Energy facility. Creation of the Direct Testimony of Christopher Sotos
25 of 26 1
separate subaccounts provides specific spent fuel management funds for that purpose, as 2
well as the requisite funds to manage the spent fuel stored in the ISFSI, in compliance 3
with NRC's expectations as reflected in the NRC guidance.
4 Q.
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
5 A.
Yes.
6 Direct Testimony of Christopher Sotos
26 of 26 AFFIDAVIT STATE OF.N.W JERSEY § CO*NTY O:F MERCER
§ BEFORE NIE, the undersigned aukorft, on tlhs day petsonally appeared Chistoher Sotos, to me known, who beiqg duhly sworn according to law, dmoses and says:
"My name is hstopher Sotos. r am over the age of 21 and a resident of the State of New Jersey. The foregoing tesinony and the opnions stated therein are, in my judgment and based upon my professional experience, true and rAn=;t."
Christ*ophe Sotos I
SUBSCRIBED AND SWORN TO BEFORE ME by the said Chdstopher Sotos this
~day ofJune2008.
Notary Nlic, State of New
'ee/
N*:aoy Public, Stato a. NOW.M oy Ooftbet Immlssobn
- otre
ATTACHMENT B PUCT Order, Docket No. 35772 (October 10, 2008)
Page 1 of 8 Attachment B DOCKET NO. 35772 1
APPLICATION OF NRG SOUTH
§ PUBLIC UTILITY (*MM1*OIO TEXAS LP FOR REVIEW OF THE
§
"'\\
COST OF DECOMMISSIONING
§ OF TEXAS,
UNITS 1 AND 2 OF THE SOUTH
§
\\
TEXAS PROJECT
§ ORDER This Order addresses the application of NRG South Texas LP' (NRG South Texas) for review of the cost of decommissioning Units 1 and 2 of the South Texas Project Electric Generating Station (STP), pursuant to PURA 2 § 39.205 and P.U.C. SUBST. R. 25.303.
The Public Utility Commission of Texas (Commission) finds that this docket was processed in accordance with applicable statutes and Commission rules. NRG South Texas provided notice of the application to AEP Texas Central Company (AEP Texas Central), CenterPoint Energy Houston Electric, LLC (CenterPoint), and the Office of Public Utility Counsel (OPC). NRG South Texas, CPS Energy, acting by and through the City Public Service of San Antonio (CPS Energy), and Commission Staff are the only parties to this proceeding. No party requested a hearing on this matter. Commission Staff recommended that the application be approved, resulting in reductions to the annual nuclear decommissioning expense funding anmunts borne by ratepayers.
Consistent with Commission Staff's recommendation, the application of NRG South Texas is approved as filed.
I. Background On June 13, 2008, NRG South Texas filed an application for review of the proposed annual funding analysis for the cost of decommissioning STP Units I and 2 related to its 44.0%
ownership interest as specifically allocated to the nuclear decommissioning master trusts created for its (a) 30.8% ownership interest in STP Units I and 2 (30.8% Trust), for which CenterPoint is
'NRG South Texas LP is a registered power generation company and a wholly-owned subsidiary of NRG Texas LLC.
2Public Utility Regulatory Act, TEx. UTIL. CODE ANN. §§ 11.001-66.016 (Vernon 2007 & Supp. 2008).
DOCKXET NO. 35772 ORDER PAGE 2 of the collecting utility; and its (b) 13.2% ownership interest in STP Units 1 and 2 (13.2% Trust),
for which AEP Texas Central is the collecting utility. The proposed annual funding analysis is based on the March 2008 Decommissioning Cost Analysis for the South Texas Project Electric Generating Station (Cost Study) prepared for STP Nuclear Operating Company by TLG Services, Inc. (TLG). The Cost Study is supported by the testimony of William A. Cloutier, Jr.,
Manager of Decommissioning Services for TLG, and Christopher Sotos, Treasurer ofNRG Energy, the parent of NRG South Texas. For the 30.8% Trust, NRG South Texas requested an annual funding amount of $2,633,587, a decrease of 9.4% from the current approved annual funding amount.
For the 13.2% Trust, NRG South Texas requested an annual funding amount of
$2,192,142, which represents a 44.8% decrease in the existing approved annual funding amount.
NRG South Texas also included in the application a description of the proposed creation of spent fuel management subaccounts for Units 1 and 2 within each nuclear decommissioning trust. Funds have already been collected from ratepayers based upon prior site specific estimates of spent fuel management costs, and these funds are part of the existing balances in the trust funds.
Based upon a percentage allocation of the current overall estimate of spent fuel management and other costs, NRG South Texas proposed to allocate 27.4815% of the existing balances in each trust for Unit 1 into the new spent fuel management subaccounts for Unit 1 and 24.3413% of the existing balances in each trust for Unit 2 into the new spent fuel management subaccounts for Unit 2. NRG South Texas also proposed to deposit these same percentages of future trust fund collections for each trust per unit into the respective spent fuel management subaccounts. Adjustments to future fund collections may be made based upon changes in cost estimates or other factors, which would be the subject of a future Commission order.
The Commission adopts the following findings of fact and conclusions of law:
H. Findings of Fact Procedural History and Notice
- 1.
On June 13, 2008, NRG South Texas filed an application for Commission review of the proposed annual funding analysis for the cost of nuclear decommissioning related to its 44.0% ownership interest, as specifically allocated to the individual nuclear
DOCKET NO. 35772 ORDER PAGE3 of 8 decommissioning master trusts created for (a) NRG South Texas' 30.8% ownership interest in STP Units I and 2, for which CenterPoint is the collecting utility; and (b) NRG South Texas' 13.2% ownership interest in STP Units 1 and 2, for which AEP Texas Central is the collecting utility. The application was supported by the written testimony of Christopher Sotos, Treasurer of NRG Energy, Inc., and William A. Cloutier, Jr.,
Manager of Decommissioning Services at TLG.
- 2.
On June 20, 2008, AEP Texas Central, the collecting utility for the 13.2% Trust, filed a motion to intervene, which was granted by Order No. 2 filed on June 30, 2008.
- 3.
On July 8, 2008, NRG South Texas filed a letter stating that public notice of this matter was provided in accordance with the provisions of Order No. 1 in this proceeding. On July 16, 2008, NRG South Texas filed an affidavit affirming its provision of public notice.
- 4.
On July 10, 2008, CPS Energy filed a motion to intervene, which was granted by Order No. 4 filed on July 21, 2008.
- 5.
On July 10, 2008, Commission Staff filed a response to Order No. 1, which found that (a) NRG South Texas provided public notice to the Commission's Financial Review Division, OPC, CenterPoint, and AEP Texas Central and that no additional notice was necessary; and that (b) the application was sufficient. Commission Staff also submitted a proposed procedural schedule for processing this docket.
- 6.
On July 11, 2008, Order No. 3 was filed deeming the application and notice sufficient and establishing a procedural schedule.
- 7.
On August 14, 2008, Commission Staff filed a recommendation for approval of the application as filed.
DOCKET NO. 35772 ORDER PAGE 4 o f18 Applicant's Nuclear Decommissioning Trusts
- 8.
Decommissioning funding provides reasonable assurance that adequate funds will be available to pay for the safe dismantlement, decontamination, and disposal of a nuclear generating facility at the completion of its service life.
- 9.
NRG South Texas established two nuclear decommissioning master trusts for its acquired ownership interest in STP Units 1 and 2. The decommissioning funds collected by CenterPoint related to NRG South Texas' 30.8% interest in STP Units I and 2 are administered through the trust created by the Third Amended and Restated Decommissioning Master Trust Agreement for the South Texas Project dated July 10, 2006.
The decommissioning funds collected by AEP Texas Central related to NRG South Texas' 13.2% interest in STP Units 1 and 2 are administered through the trust created by the Decommissioning Master Trust Agreement No. 2 for the South Texas Project dated October 17, 2007.
- 10.
The total balance in the 30.8% Trust as of December 31, 2007, was $277,812,957. The Unit 1 account balance was $121,955,016 and the Unit 2 account balance in the 30.8%
Trust was $155,857,941.
- 11.
As of December 31, 2007, the total balance in the 13.2% Trust was $104,392,258. The Unit I account balance was $47,135,883 and the Unit 2 account balance in that trust was
$57,256,375.
- 12.
NRG South Texas, as the funds administrator for both the 30.8% Trust and the 13.2%
Trust, established investment policies that are consistent with the guidelines in P.U.C.
SUBST. R. 25.303(e), so that the decommissioning funds collected, plus the amounts earned from investment of the funds, will be available at the time of decommissioning.
- 13.
Over 99% of the existing balances in the 30.8% Trust and over 98% of the existing balances in the 13.2% Trust are in "qualified" accounts in accordance with Internal Revenue Code § 468A.
DOCKET NO. 35772 ORDER PAGE 5 of8 Annual Funding Analysis
- 14.
In March 2008, TLG completed the development of a site-specific constant-dollar decommissioning cost estimate of the expected cash outlays, by year, during the decommissioning process for STP Units 1 and 2. Assuming a contingency percentage of 10% as provided by the Commission's substantive rules, the estimated decommissioning cost for STP Units 1 and 2 is $1.387 billion. As delineated in Appendix D to the Cost Study, the 44% ownership share of STP Units 1 and 2 results in an estimated cost (based on 10% contingency) of approximately $614 million to NRG South Texas.
- 15.
Based on the existing trust fund balances; the anticipatedafter-tax investment return of the decommissioning trusts; the assumed fees and expenses of the trustee, consultants and investment managers; the proposed cost escalation rates determined by TLG; and the TLG estimate for future decommissioning costs, NRG South Texas calculated the required annual funding amount for each trust.
Annual Fundinue Request
- 16.
For the 30.8% Trust, NRG South Texas proposed an annual funding amount of
$2,633,587, which would result in a 9.4% decrease from the existing approved annual funding amount.
- 17.
For the 13.2% Trust, NRG South Texas proposed an annual funding amount of
$2,192,142, which would result in a 44.8% decrease from the existing approved annual funding amount.
Spent Fuel Management Subaccounts
- 18.
There are three primary components to nuclear decommissioning costs: (a) radiological decommissioning (license termination); (b) spent fuel management; and (c) site restoration.
NRG South Texas proposed to create separate spent fuel management subaccounts for Units I and 2 within each trust, to provide specific funds for that purpose, including the installation of an independent spent fuel storage installation at STP for storage of spent fuel until such time as it can be transferred to a U.S. Department of
DOCKET NO. 35772 ORDER PAGE 6 of 81 Energy facility. The intended balances for each spent fuel management subaccount for Unit 1 will be comprised of 27.4815% of the total trust fund balances for Unit 1. The intended balances for each spent fuel management subaccount for Unit 2 will be comprised of 24.3413% of the total trust fund balances for Unit 2.
III. Conclusions of Law
- 1.
NRG South Texas is a power generation company as defined by PURA § 31.002.
- 2.
The Commission has jurisdiction over this application pursuant to §§ 14.001, 14.002, 39.205 of PURA and P.U.C. SUBST. R. 25.303.
- 3.
Notice of this proceeding was provided in compliance with P.U.C. PRoc. R. 22.55 and P.U.C. SUBST. R. 25.303(f(2).
- 4.
Remaining costs associated with nuclear decommissioning obligations continue to be subject to cost of service regulation pursuant to PURA § 39.205.
- 5.
PURA § 39.205 provides authority for the Commission to adopt rules to ensure that decommissioning funds are prudently collected, managed, and spent for the intended purpose of such-funds and that any surplus is returned to retail customers.
- 6.
NRG South Texas filed its periodic study of the decommissioning costs of its interest in the South Texas Project and its updated decommissioning funding analysis in accordance with P.U.C. SuBsT. RI 25.303(f).
- 7.
NRG South Texas has demonstrated that the funds in its nuclear decommissioning trusts are being invested prudently and in compliance with the investment guidelines set forth in P.U.C. SUBST. R. 25.303(e).
DOCKET NO. 35772 ORDER PAGE 7 Of 8
- 8.
NRG South Texas has demonstrated its efforts to achieve optimum tax efficiency, including efforts to achieve "qualified" status in accordance with Internal Revenue Code
- 9.
The annual funding amounts proposed by NRG South Texas for each trust are necessary to ensure there are sufficient funds to decommission STP Units 1 and 2 at the end of their useful life.
- 10.
The requirements for informal disposition under P.U.C. PROC. R. 22.35 have been met in this proceeding.
IV. Ordering Paragraphs In accordance with these findings of fact and conclusions of law, the Commission issues the following Order:
- 1.
Consistent with Commission Staff's recommendation, the application of NRG South Texas is approved.
- 2.
The annual funding amount of $2,633,587 for the 30.8% Trust of NRG South Texas is approved.
- 3.
The annual funding amount of $2,192,142 for the 13.2% Trust of NRG South Texas is approved.
- 4.
NRG South Texas is granted approval to create separate spent fuel management subaccounts for Unit I equal to 27.4815% of the existing Unit I balances within each trust.
- 5.
NRG South Texas is granted approval to create separate spent fuel management subaccounts for Unit 2 equal to 24.3413% of the existing Unit 2 balances within each trust.
DOCKET NO. 35772 ORDER PAGE 8 of 8S
- 6.
All other motions, requests for entry of specific findings of fact and conclusions of law, and any other requests for general or specific reliefý if not expressly granted herein, are denied.
SIGNED AT AUSTIN, TEXAS on the /
day of October 2008.
PUBLIC UTILITY COMMISSION OF TEXAS ICE&NTH W. ANDE
.,- COMMISSIONER q:\\adm\\ordcas\\finaI\\35000\\35772fo.doc
ATTACHMENT C PUCT Order, Docket No. 36796 (July 13, 2009)
Page 1 of 6 Attachment C DOCKET NO. 36796 RECEIVED REQUEST OF NRG SOUTH TEXAS LP
§ PUBLIC UTIL pWý64l 4N 3 5 FOR REVIEW OF PROPOSED AMENDED
§
&U8LIC UIILIIY LUMiblb.,t NUCLEAR DECOMMISSIONING TRUST
§ OFTEXMING CGLEMK AGREEMENTS
§ ORDER This Order addresses the request of NRG South Texas LP' (NRG South Texas) for Public Utility Commission of Texas (Commission) review and approval of amendments to the nuclear decommissioning master trust agreements related to its 44.0% ownership interest in Units 1 and 2 of the South Texas Project Electric Generating Station (STP). The request was filed pursuant to PURA2 § 39.205 and P.U.C. SUBST. R. 25.303 and concerns: (i) the decommissioning master trust agreement created for NRG South Texas's 30.8% ownership interest in STP Units I and 2 (30.8% Trust Agreement), for which CenterPoint Energy Houston Electric LLC is the collecting utility; and (ii) the decommissioning master trust agreement created for its 13.2% ownership interest in STP Units 1 and 2 (13.2% Trust Agreement), for which AEP Texas Central Company is the collecting utility. The 30.8% Trust Agreement and the 13.2% Trust Agreement are collectively referred to as the NRG STP Trust Agreements. This Order further addresses the request of NRG South Texas for Commission approval of the creation of large component disposal subaccounts for each unit within each of the NRG STP Trust Agreements, consistent with the Commission's prior final order in Docket No. 35786.3 The Commission finds that this docket was processed in accordance with applicable statutes and Commission rules. NRG South Texas and Commission Staff are the only parties to this proceeding.
Commission Staff filed a recommendation for approval of the proposed amendments to the NRG STP Trust Agreements and the creation of the requested large component disposal subaccounts, subject to modification of Section 4.01 of each of the NRG
'NRG South Texas LP is a registered power generation company and a wholly-owned subsidiary of NRG Texas LLC 2 Public Utility Regulatory Act, TEx. UTIL. CODE ANN. §§ 11.001-66.016 (Vernon 2007 & Supp. 2008)
(PURA).
3 Notice by the San Antonio City Public Service Board of Receipt of Updated Decommissioning Study and Filing Pursuant to PUCTSubstantive Rule 25.303(t)(4)(A), Docket No. 35786, Order (Nov. 20, 2008).
DOCKET NO. 36796 ORDER PAGE 2 of 6 STP Trust Agreements specifying that the creation of any additional future subaccounts must be approved by the Commission.
NRG South Texas concurred with Commission Staff's recommendation and modification. Consistent with Commission Staff's recommendation and modification, NRG South Texas's request is approved.
I. Background Pursuant to P.U.C. SUBST. R. 25.303(d)(3), prior to executing an amended decommissioning funds collection agreement or amended agreement with the institutional trustee or investment managers, the proposed amended agreement shall be filed at the Commission for review. NRG South Texas proposed amendments to the NRG STP Trust Agreements that resulted from the Commission's final order in Docket No. 35772,4 which approved the creation of the new spent fuel management subaccounts. In addition, through these same amendments to the NRG STP Trust Agreements, NRG South Texas also proposed to create additional large component disposal subaccounts for each unit within each of the NRG STP Trust Agreements.
The Commission adopts the following Findings of Fact and Conclusions of law:
II. Findings of Fact Procedural History and Notice
- 1.
On March 12, 2009, NRG South Texas filed a request for Commission review and approval of the proposed amendments to the two NRG STP Trust Agreements:
(i) reflecting the Commission's final order in Docket No. 35772 authorizing the creation of spent fuel management subaccounts; and (ii) requesting authorization to create additional large component disposal subaccounts for each unit within each of the NRG STP Trusts. NRG South Texas's request was supported by the affidavit of Christopher Sotos, Vice President and Treasurer of NRG South Texas.
- 2.
On April 6, 2009, Commission Staff recommended that the application be found to be sufficient for further processing and that the notice provided by NRG South Texas be 4 Application of NRG South Texas LPfor Review of the Cost of Decommissioning Units I and 2 of the South Texas Project, Docket No. 35772, Order (Oct. 10, 2008).
DOCKET NO. 36796 ORDER PAGE3 of 6 found to be adequate.
Commission Staff also proposed a procedural schedule for processing this docket.
- 3.
On April 6, 2009, the Commission's Administrative Law Judge filed Order No. 2, deeming the application and notice sufficient and establishing a procedural schedule.
- 4.
On April 8, 2009, NRG South Texas filed an affidavit affirming that public notice of this proceeding was provided in accordance with the provisions of P.U.C. SUBST.
R. 25.303(d)(3).
NRG South Texas's Request
- 5.
The affidavit of Christopher Sotos on behalf ofNRG South Texas affirms the prudence of establishing large component disposal subaccounts for each unit within each of the NRG STP Trusts. The requested large component subaccounts are similar to the subaccounts created by CPS Energy and approved by the Commission in Docket No. 35786, and will allow NRG South Texas to accumulate segregated funds that can be used to pay for the pre-shutdown disposal of these components. NRG South Texas's estimated share of the large component disposal costs is $8,217,033 for STP Unit I and $7,977,524 for STP Unit 2.
- 6.
Mr. Sotos's affidavit and Exhibit 5 to the application also affirm NRG South Texas's proposal to fund the large disposal subaccounts in each NRG STP Trust from future collections on a priority basis, until the subaccounts are fully funded.
- 7.
Mr. Sotos's affidavit affirms that the proposed amendments to the NRG STP Trust Agreements are necessary to accomplish the creation of (i) the spent fuel management subaccounts previously approved in Docket 35772; and (ii) the proposed additional large component disposal subaccounts for each unit within each of the NRG STP Trusts.
DOCKET NO. 36796 ORDER PAGE 4,of 6 Commission Staffs Recommendation
- 8.
On May 14, 2009, Commission Staff filed a recommendation that the proposed amendments to the NRG Trust Agreements be approved and that the requested authorization for creation of the new large component disposal subaccounts for each unit within each of the NRG STP Trusts be approved, subject to a modification to Section 4.01 in each of the NRG STP Trust Agreements. Pursuant to Commission Staffs requested modification, Section 4.01 in each of the amended NRG STP Trust Agreements will read as follows:
4.01 Establish Fund Accounts and Subaccounts. In accordance with the provisions of Section 2.06 hereof; the Trustee shall maintain separate accounts and subaccounts (including the spent fuel management and large component disposal subaccounts previously approved by the PUC), as are designated in writing from time to time by the Company for each Fund established by this Agreement to account for Contributions made to each Fund, and all income and other increments to each Fund and disbursements from each Fund. Any additional subaccounts proposed in the future by the Company are subject to the prior approval of the PUC.
- 9.
On May 21, 2009, NRG South Texas filed its concurrence with Commission Staff's recommendation, agreeing to all of the modifications proposed by Commission Staff, including the proposed modification to Section 4.01 in each of the amended NRG STP Trust Agreements.
IH. Conclusions of Law I1.
NRG South Texas is a registered power generation company pursuant to P.U.C. SUBST.
R. 25.5(38).
- 2.
NRG South Texas provided adequate notice of this proceeding consistent with P.U.C.
PROC. R. 22.55.
- 3.
The Commission has jurisdiction over NRG South Texas's request for Commission review and approval of the proposed amended agreements for the nuclear master
DOCKET NO. 36796 ORDER PAGE'5 0 f 6 decommissioning trusts related to the ownership interest of NRG South Texas in STP Units 1 and 2 reflecting the prior authorization of the spent fuel management subaccounts and the creation of the requested large component disposal subaccounts pursuant to PURA § 39.205.
- 4.
The Commission has authority to ensure that decommissioning funds are prudently collected, managed, and spent for the intended purpose of such funds and that any surplus is returned to retail customers pursuant to PURA § 39.205.
- 5.
The requirements for informal disposition pursuant to P.U.C. PROC. R. 22.35 have been met in this proceeding.
IV. Ordering Paragraphs In accordance with these findings of fact and conclusions of law, the Commission issues the following Order:
- 1.
Consistent with Commission Staff's recommendation, NRG South Texas's request for approval of the creation of the proposed large component disposal subaccounts is approved, effective the date this Order is signed.
- 2.
Consistent with Commission Staff's recommendation, NRG South Texas's request for approval of the proposed amended agreements for the nuclear master decommissioning trusts related to its ownership interest of NRG South Texas in STP Units 1 and 2 reflecting the prior Commission authorization of the spent fuel management subaccounts and the creation of the additional large component disposal subaccounts is approved, effective the date this Order is signed.
- 3.
Within 30 days after the date this Order is signed, NRG South Texas shall file executed versions of the approved forms of the amended NRG STP Trust Agreements.
DOCKET NO. 36796 ORDER PAGE6 of 6
- 4.
Any additional subaccounts for the NRG STP Trusts proposed by NRG South Texas are subject to the prior approval of the Commission.
- 5.
If NRG South Texas seeks Commission approval for the creation of additional subaccounts within the NRG STP Trusts in the future, NRG South Texas shall file with the Commission a request for review and approval of the related proposed amendments to the NRG STP Trust Agreements pursuant to PURA § 39.205 and P.U.C. SuBsT.
R. 25.303, and include in its filing sufficient evidence to support the need for the creation of the additional requested subaccounts.
- 6.
All other motions, requests for entry of specific findings of fact and conclusions of law, and any other requests for general or specific relief, if not expressly granted herein, are denied.
SIGNED AT AUSTIN, TEXAS on the ______
day of July 2009.
PUBLIC UTILITY COMMISSION OF TEXAS BA NET.
SMTHERM OMCHAIRMAN ISNA L. NELSON, COMMISSIONER q:\\cadm\\orders~uml\\36000\\36796fo.doex
ATTACHMENT D Excerpts from "Application of CPS Energy.
for Review of the Costs of Decommissioning STP Units 1 and 2" (August 18, 2008)
Application & Jungman Testimony (without other enclosures)
Attachment DPa1o Page 1 of 24 DOCKET NO. 35786 NOTICE CITY PU RECEIP1 DECOMI FILING SUBSTA BY SAN ANTONIO
§ BEFORE THE BLIC SERVICE BOARD OF
§ r OF UPDATED
§ PUBLIC UTILIT7 C-OMMISSION 4ISSIONING STUDY AND
§ 7-C=
PURSUANT TO PUCT
§ OF TfXAS NTIVE RULE 25.303(f)(4)(A) § C-APPLICATION OF CPS ENERGY FOR REVIEW OF THE COSTS OF DECOMMISSIONING STP UNITS 1 AND TABLE OF CONTENTS I
- m J
I Application...........
a 2
I.
Brief Background...................................
2 II.
Request to Decrease Funding Collection.................
3 III.
Spent Fuel Subaccount Request........................
4 IV.
Pre-Decommissioning Cost Subaccount.................
6 V.
Revisions to Master Trust Agreement....................
7 VI.
Notice..........................
7 VII.
Conclusion........................................
7 Attachment A - Direct Testimony of David Jungman.................
9 Exhibit DJ-1..........................................
25 Exhibit DJ-2...........................................
30 Exhibit DJ-3...................
a.........
a 34 Attachment B - Redlined 12% TCC Trust..........................
38 Attachment C - Clean 12% TCC Trust.............................
90
2 of 24 DOCKET NO. 35786 NOTICE BY SAN ANTONIO
§ BEFORE THE CITY PUBLIC SERVICE BOARD OF
§ RECEIPT OF UPDATED
§ PUBLIC UTILITY COMMISSION DECOMMISSIONING STUDY AND
§ FILING PURSUANT TO PUCT
§ OF TEXAS SUBSTANTIVE RULE 25.303(f)(4)(A)
§ APPLICATION OF CPS ENERGY FOR REVIEW OF THE COSTS OF DECOMMISSIONING STP UNITS 1 AND 2 The City of San Antonio, Texas, acting by and through the City Public Service Board of Trustees (CPS Energy') files its application for review by the Public Utility Commission (Commission or PUC) of the costs of decommissioning the 12%
undivided interest in the South Texas Nuclear Project Units 1 and 2 (STP) that CPS Energy purchased in 2005 from AEP Texas Central Company (the 12% TCC-Funded Interest).
I. Brief Background On June 17, 2008, CPS Energy filed with the Commission its notice of receipt of the March 2008 "Decommissioning Cost Analysis for the South Texas Project Electric Generating Station (the Cost Study)" conducted by TLG Services, Inc.
Included in the June 17 filing were a copy of the Cost Study and the direct testimony of William A. Cloutier, Jr., addressing the decommissioning alternative evaluated, summarizing the results of the study, and discussing decommissioning
' CPS EnergyTM is the trade name of the City Public Service of San Antonio, acting by and through the City Public Service Board.
3 of 24 feasibility. The filing did not address CPS Energy's updated funding analysis, as Commission Staff's Response to Order No. 12 noted.
On July 10, 2008 CPS Energy requested the Commission allow CPS Energy until no later than August 18, 2008 to submit its updated funding analysis, 3 which request was granted. 4 CPS Energy makes its updated funding analysis filing on August 18, 2008.
II. Request to Decrease Funding Amount CPS Energy requests the Commission approve the proposed annual funding analysis for the cost of decommissioning STP Units 1 and 2 as it relates to the 12%
TCC-Funded Interest. CPS Energy proposes that, based on the Cost Study findings and calculations supporting the funding recommendation, the decommissioning contributions to the fund for the 12% TCC-Funded Interest be decreased to a level of $1,108,838.
As explained herein, CPS Energy will use this decreased funding level to establish and fund a pre-shutdown decommissioning subaccount.
In support of its recommendation that decommissioning contributions decrease, CPS Energy submits the testimony of David Jungman, CPS Energy assistant treasurer, as Attachment A.
Attached to Mr. Jungman's testimony are Exhibit DJ-1, the annual decommissioning trust status report, Exhibit DJ-2, the calculations supporting the funding recommendation, and Exhibit DJ-3, the latest report from Duff & Phelps, the investment manger of the 12% TCC-Funded Trust.
2 Commission Staff's Response to Order No. 1 (July 8, 2008).
3 Notice of Filing Date for CPS Energy Updated Decommissioning Funding Analysis (July 10, 2008).
4 Order No.4: Granting CPS Energy's Request to Extend Time to File Updated Decommissioning Cost Study (July 18, 2008).
4 of 24 Also in support of its recommendation CPS Energy relies on the previously filed Cost Study and direct testimony of William A. Cloutier, Jr.,5 manager of decommissioning services at TLG Services, Inc., and does not burden this filing or the record with a duplicate.
It incorporates the Cost Study and Mr. Cloutier's testimony herein as if set forth in full. CPS Energy made service of the Cost Study and the Cloutier testimony on AEP Texas Central Company and the Office of Public Utility Council with its June 17, 2008 filing and will not repeat service of those documents.
III. Spent Fuel Subaccount Request CPS Energy further requests the creation of a spent fuel subaccount for the 12% TCC-Funded Interest similar to that of CPS Energy's 28% interest. 6 CPS Energy recommends the spent fuel subaccount, a single account for both Unit 1 and Unit 2, be funded from existing balances in Unit 1 and Unit 2 according to the percentages for spent fuel management costs found in the Cost Study. Based on the Cost Study, spent fuel management costs represent 27.4815% of the total cost of decommissioning for Unit 1 and 24.3413% for Unit 2.
Allocation of our funds consistent with the allocation in the TLG Study allows us to ensure that we are collecting what is projected to decommission Unit 1 and Unit 2, and no more.
CPS Energy, thus, seeks to create and fund the spent fuel management subaccount by allocating 27.4815% of the existing balances into the new fuel subaccount for Unit 1 and 24.3413% of the existing balance into the new spent fuel 5 See Notice by San Antonio City Public Service Board of Receipt of Updated Decommissioning Study and Filing Pursuant to Substantive Rule 25.303(f)(4)(A) (June 17, 2008).
6 CPS Energy is the original owner of an undivided 28% of STP Units I and 2.
5 of 24 management subaccount for Unit 2.
CPS Energy will ensure the maintenance of these same percentages in the spent fuel subaccount until a future cost study establishes a change in the actual percentage of collections allocable to spent fuel management and/or that an adjustment was needed in the amounts from any future collections into the subaccounts.
Although decommissioning collections for the 12% TCC-Funded Interest currently include funding for fuel storage costs, the 12% TCC-Funded Interest currently does not have a segregated fuel storage subaccount. Nuclear Regulatory Commission (NRC) regulations 7 allow for separate accounting of funds collected for spent fuel management activities, and, because the funds can be reasonably segregated now well before distributions are called for, CPS Energy requests the creation of a separate spent fuel management subaccount for the 12% TCC-Funded Interest.
Creation of a separate spent fuel management subaccount is appropriate. In January 1998, the Department of Energy (DOE) breached its contract with all owners of commercial nuclear power plants when it failed to start taking spent nuclear fuel to a permanent or other spent fuel repository. While the cost of spent 2
fuel is carved out from the NRC's definition of decommissioning, and it was carved out because the DOE was supposed to be obliged to take the spent fuel in exchange for the 1 mil per kilowatt-hour fee it gets from nuclear plant operations, it is a cost that must be recovered until the fuel is taken by the DOE. The DOE's standard contract provides, moreover, that it will take fuel in the order in which contracts were issued and fuel was used. As STP Units 1 and 2 were some of the last of the 7 10 CFR §§ 50.54, 50.75.
6 of 24 first generation of U.S. plants to come on line, even when a permanent spent fuel repository starts operating, it is unlikely that fuel from STP will be taken for some time. As a result, the burden for safe on-site storage of spent nuclear fuel remains, just like the other decommissioning costs, until the DOE fulfills its contractual obligations.
IV. Pre-Decommissioning Cost Subaccount CPS Energy also requests the creation of a
$20.555 million pre-decommissioning cost subaccount for the 12% TCC-Funded Interest from the funds it will continue to collect from the AEPTCC end users. The annual contribution requirement would be $1,108,838. This amount includes all pre-shutdown costs such as the construction of an independent fuel storage facility and large nuclear component replacement costs.
Current NRC guidelines prohibit the use of decommissioning funds for expenditures not directly related to the decommissioning of the plant. The NRC does allow, however, for separate accounting of funds collected for decommissioning expenditures prior to the permanent cessation of plant operations. By creating and funding the pre-shutdown decommissioning cost subaccount now, in complete compliance with NRC guidelines, funds can be accumulated now in advance of when they will be needed.
Having this subaccount funded now will allow prudent expenditures of funds for decommissioning activities when those are most cost-effective, rather than waiting until cessation of plant operations.
Specifically in the case of disposal of certain large radioactive components, as indicated in Mr. Jungman's testimony, it would be more cost-effective to dispose of those components within
7 of 24 the next few years than to pay to store them on site and await decommissioning.
Based on future cost studies and unanticipated pre-shutdown decommissioning activities such as the need to replace other large nuclear plant components, the amount of collections that are allocated to the pre-decommissioning cost subaccount could change and the percentage collected from AEPTCC customers would be adjusted accordingly.
V. Revisions to Master Trust Agreement CPS Energy provides the Commission a copy of the "City Public Service Restated Decommissioning Master Trust Agreement Related to the South Texas Project Interest Acquired from AEP Texas Central Company: Master Trust (TCC Funded) Revised October 1, 2006" (the 12% TCC Trust) as Attachment B, redlined to establish the requested revisions that address the spent fuel subaccount and the pre-decommissioning cost subaccount. Attachment C is a clean copy of the revised 12% TCC Trust.
VI. Notice CPS Energy will provide a copy of this filing to the Office of Public Utility Council and AEP Texas Central Company, which has intervened in'the docket.
VII. Conclusion For the reasons herein and in the supporting testimony of David Jungman and William A. Cloutier, Jr., CPS Energy asks that the Commission approve (1) CPS Energy's request to (1) decrease the collection amount of decommissioning contributions to the 12% TCC-Funded Interest until further request; (2) create and fund the spent fuel management subaccount in the 120/6 TCC-Funded Trust by
8 of 24 allocating 27.4815% of the existing balances into the new fuel subaccount for STP Unit 1 and 24.3413% of the existing balance into the new spent fuel management subaccount for STP Unit 2; and (3) create and fund the pre-decommissioning cost subaccount for the 12% TCC-Funded Trust for STP Unit 1 and Unit 2.
Respectfully submitted, CPS ENERGY P.O. Box 1771 San Antonio, Texas 78296-1771 Telephone: (210) 353-5689 Facsimile: (210) 353-6832 Patricia Ana Garcia Escobedo Mail Stop: 101008 State Bar No. 12544900 paescobedo~cpsenergy.com CERTIFICATE OF SERVICE I1 certify that a copy of the above has been sent via first class United States mail, postage prepaid, to AEP Texas Central Company and the Office of Public Utility Counsel on August 18, 2008.
9 of 24 1
DIRECT TESTIMONY OF DAVID JUNGMAN 2
I. INTRODUCTION AND QUALIFICATIONS 3
Q.
PLEASE STATE YOUR NAME, BUSINESS ADDRESS AND OCCUPATION.
4 A.
My name is David Jungman and my business address is 145 Navarro, 5
San Antonio, Texas 78205. I am employed by CPS Energy as its Assistant Treasurer.
6 Q.
ON WHOSE BEHALF ARE YOU TESTIFYING IN THIS PROCEEDING?
7 A.
I am testifying on behalf of CPS Energy of San Antonio, Texas.
8 Q.
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND 9
PROFESSIONAL EXPERIENCE.
10 A.
I have served as Assistant Treasurer of CPS Energy since July 2004.
In this 11 position, I oversee the finance, cash management and budgeting functions at CPS Energy. I 12 joined CPS Energy in 2002 as Controller/Assistant Treasurer. Prior to joining CPS Energy I 13 held numerous financial positions at PG&E Gas Transmission - Texas and Valero Energy 14 Corporation.
I hold a Bachelor of Business Administration degree in Accounting 15 from Texas A&M University. I hold a Certified Public Accountant designation and 16 am a member of the American Institute of Certified Public Accountants.
17 18 H.
SCOPE AND PURPOSE OF TESTIMONY 19 Q.
PLEASE DISCUSS THE PURPOSE OF YOUR TESTIMONY.
20 A.
The purpose of my testimony is to: (i) present the proposed nuclear decommissioning 21 trust annual funding analysis for CPS Energy's 40.0% ownership interest in Units 1 and 2 of 22 the South Texas Project Electric Generating Station ("STP"), as specifically allocated to the 23 trust related to its 12.0% ownership interest in STP Units 1 and 2 for which American Electric
10 of 24 1
Power Texas Central Company ("AEPTCC") is the collecting utility; (ii) to describe the 2
allocation of a portion of the existing and future funds in the trust to a spent fuel 3
management subaccount; and (iii) to describe the allocation of future funds in the trust to a pre-4 shutdown decommissioning cost subaccount. The requested annual funding is based on the most 5,
current information reasonably available for the cost of decommissioning, an allowance for 6
contingencies of 10% of the cost of decommissioning, the balance of funds in the 7
decommissioning trusts established by CPS Energy, anticipated escalation rates and the 8
anticipated investment returns in the trust. For its 12.0% ownership interest, CPS Energy is 9
seeking the Commission's approval to discontinue annual funding amount of $3,610,825 to 10 a level of $1,108,838 million that will be required for the pre-shutdown decommissioning 11 cost subaccount that CPS Energy requests in this proceeding.
12 13 Q.
WHAT EXHIBITS ARE YOU SPONSORING?
14 A.
Exhibits DJ-1 through DJ-3 are attached to my testimony.
15 16 III.
PURPOSE OF DECOMMISSIONING FUNDING AND BACKGROUND 17 ON THE CPS ENERGY DECOMMISSIONING TRUSTS 18 Q.
WHAT IS THE PURPOSE OF DECOMMISSIONING FUNDING FOR 19 NUCLEAR GENERATING FACILITIES?
20 A.
Decommissioning funding provides reasonable assurance that adequate funds will be 21 available to pay for the safe dismantlement, decontamination, and disposal of a nuclear 22 generating facility at the completion of its service life.
There are three components to 23 decommissioning costs: radiological decommissioning (license termination), spent fuel 24 management, and site restoration.
25 Q.
HAS CPS ENERGY ESTABLISHED NUCLEAR DECOMMISSIONING TRUSTS
11 of 24 I
FOR ITS OWNERSHIP INTEREST IN STP UNITS 1 AND 2?
2 A.
Yes. CPS Energy has established a decommissioning master trust for its acquired 3
ownership interest in STP Units 1 and 2.
The decommissioning funds collected by 4
AEPTCC related'to CPS Energy's 12.0% interest in STP Units 1 and 2 are administered 5
through the trust created by the Restated Decommissioning Master Trust Agreement related to 6
the South Texas Project Interest Acquired from AEP Texas Central Company: Master Trust 7
(TCC Funded) dated October 1, 2006 (the "12.0% Trust").
8 Q.
WHAT IS THE EXISTING BALANCE IN THE 12.0% TRUST?
9 A.
As shown in CPS Energy's most recent annual decommissioning trust status report, a 10 copy of which is attached as Exhibit DJ-I to my testimony, the total balance in the 12.0%
Ii Trust as of December 31, 2007 was $91,354,110. The Unit 1 account balance was 12
$39,937,872 and the Unit 2 account balance in the 12.0% Trust was $51,416,238.
13 Q.
WHAT IS THE CURRENT APPROVED ANNUAL FUNDING AMOUNT FOR 14 THE 12.0% TRUST?
15 A.
The currently allowed decommissioning expense for the 12.0% Trust is $3,610,825, 16 which was approved by the Commission in Docket No. 28840.
17 18 IV.
ADMINISTRATION OF THE DECOMMISSIONING TRUSTS 19 Q.
HAS THE COMMISSION ISSUED SPECIFIC GUIDELINES FOR THE 20 FUNDING AND COLLECTION OF NUCLEAR DECOMMISSIONING RELATED 21 COSTS AND ADMINISTRATION OF NUCLEAR DECOMMISSIONING TRUSTS?
22 A.
Yes.
PUC Substantive Rule 25.303 governs the administration of nuclear 23 decommissioning trust funds and specifies the duties and responsibilities of transferee 24 companies such as CPS Energy, as well as the duties of collecting utilities such as AEPTCC.
12 of 24 1
PUC Substantive Rule 25.303 also governs the periodic review of decommissioning costs 2
for nuclear generating units.
3 Q.
DOES CPS ENERGY COMPLY WITH THE REQUIREMENTS OF PUC 4
SUBSTANTIVE RULE 25.303 REGARDING THE ADMINISTRATION OF THE 5
TRUSTS?
6 A.
Yes. Throughout my testimony, I will discuss CPS Energy's compliance with the 7
Commission's rules.
8 Q.
WHO SERVES AS TRUSTEE OF THE DECOMMISSIONING TRUST FUNDS?
9 A.
Frost National Bank ("Frost") currently serves as trustee for the 12.0% Trust.
10 Q.
HOW DOES CPS ENERGY MONITOR THE TRUSTEE'S PERFORMANCE 11 WITH REGARD TO CPS ENERGY'S DECOMMISSIONING TRUSTS?
12 A.
CPS Energy monitors the trustee's performance by (i) reviewing the trust 13 statements, (ii) interacting with the trustee on a variety of transactions and issues, and (iii) 14 obtaining feedback from its various investment managers. In addition, CPS Energy monitors 15 the trustee's fee schedule to ensure that the fees are reasonable and that aggregate fees of the 16 trustee and the investment managers-do not exceed the Commission's prescribed limitation 17 on such fees. Frost has complied with the terms of the 12.0% Trust Agreement and the 18 portions of the Commission's Substantive Rule 25.303 as it relates to trustees.
19 Q.
WHICH ENTITIES SERVE AS INVESTMENT MANAGERS FOR THE 20 DECOMMISSIONING TRUST FUNDS?
21 A.
With regard to the 12.0% Trust, Duff & Phelps Investment Management Company 22 serves as investment manager for the trust.
23 Q.
HOW DOES CPS ENERGY MONITOR THE PERFORMANCE OF THE
13 of 24 1
INVESTMENT MANAGERS?
2 A.
CPS Energy receives quarterly reports from its investment manager, Duff &
3 Phelps Investment Management Company, regarding the investment performance of the 4
12.0% Trust.
The quarterly reports compare the investment manager's investment 5
performance to appropriate benchmarks. For instance, the equity investment performance is 6
compared to the Standard & Poor's 500 Index ("S&P 500") because, in managing the 7
equity portfolio for the nuclear decommissioning trust, Duff & Phelps has constructed the 8
portfolio to approximately match the Standard & Poor's 100 Index ("S&P 100"), and there is 9
a strong correlation in returns between the S&P 500 and the S&P 100. CPS Energy uses these 10 reports to evaluate the investment manager's investment performance.
11 Q.
ARE THE DECOMMISSIONING TRUST BALANCES BEING INVESTED 12 PRUDENTLY AND IN COMPLIANCE WITH THE INVESTMENT GUIDELINES SET 13 FORTH IN COMMISSION RULE 25.303(e)?
14 A.
Yes. CPS Energy, as the fund administrator for the 12.0% Trust, has established 15 investment policies that are consistent with the guidelines in Commission Rule 25.303(e), so 16 that the decommissioning funds collected, plus the amounts earned from investment of the 17 funds, will be available at the time of decommissioning. To that end, CPS Energy has 18 prudently invested the trust balances in compliance with all of the requirements of Rule 19 25.303(e).
20 Q.
ARE THE TOTAL TRUSTEE AND INVESTMENT MANAGER FEES PAID BY 21 CPS ENERGY ON AN ANNUAL BASIS FROM EACH TRUST WITHIN THE 22 SPECIFIED LIMIT OF 0.7% OF THE TRUST PORTFOLIO'S AVERAGE ANNUAL 23 BALANCE?
14 of 24 1
A.
Yes, they are. As shown in Exhibit DJ-1, the total fees paid do not exceed the limits 2
prescribed in the rule.
3 Q.
ARE THE TRUST PORTFOLIOS DIVERSIFIED IN ACCORDANCE WITH 4
SUBST. R. 25.303(e)(3)(B)(ii)?
5 A.
Yes, they are. The concentration and diversification of the portfolio is in accordance with 6
the rule. Our holdings of commingled funds in excess of $20 million are diversified such that 7
no more than 5% of the securities held may be issued by one entity with the exception 8
of the federal government, its agencies and instrumentalities. Our portfolio also contains at 9
least 20 different issues of securities. Municipal securities are geographically diversified.
10 Q.
IS EACH TRUST PORTFOLIO MANAGED TO ATTAIN THE PRESCRIBED 11 EQUITY CAP OF 60%?
12 A.
Yes. The trust portfolios are constantly managed so that the trusts comply with the 13 current equity cap of 60%, as demonstrated by the information contained in Exhibit DJ-1.
14 Q.
ARE ALL FIXED INCOME INVESTMENTS INVESTED IN INVESTMENT 15 GRADE SECURITIES?
16 A.
Yes.
17 Q.
DO AT LEAST 70% OF THE AGGREGATE MARKET VALUE OF THE 18 EQUITY PORTFOLIO IN THE TRUSTS HAVE A QUALITY RATING FROM A 19 MAJOR RATING SERVICE?
20 21 A.
Yes.
22 Q.
ARE ANY TRUST FUNDS INVESTED IN THE SECURITIES ISSUED BY CPS 23 ENERGY OR THE COLLECTING UTILITY?
24 A.
No, the trust does not invest in the securities issued by CPS Energy or AEPTCC.
15 of 24 1
Q.
ARE ANY INVESTMENTS OF TRUST FUNDS IN COMMINGLED 2
FUNDS MADE IN ACCORDANCE WITH THE LIMITATIONS CONTAINED 3
IN 25.303(e)(3)(C)(iii)?
4 A.
No.
5 Q.
WHAT STEPS HAS CPS ENERGY TAKEN TO ACHIEVE OPTIMUM TAX 6
EFFICIENCY WITH RESPECT TO THE TRUST FUNDS?
7 A.
CPS Energy is a tax-exempt entity, thus making tax efficiency not an applicable 8
objective to our 12.0% Trust.
9 10 V.
DEVELOPMENT OF ANNUAL DECOMMISSIONING 11 FUNDING ANALYSIS 12 Q.
PLEASE SUMMARIZE HOW CPS ENERGY DEVELOPED THE 13 ANNUAL DECOMMISSIONING FUNDING ANALYSIS FOR THE TWO TRUSTS.
14 A.
The first step in determining the annual decommissioning revenue requirement is the 15 development of a site-specific, constant-dollar decommissioning cost estimate of the 16 expected cash outlays, by year, during the decommissioning process for STP Units 1 and 2.
17 The testimony of CPS Energy witness William A. Cloutier, Jr. of TLG Services, Inc.
18
("TLG"), discusses in detail the development of the March 2008 STP site-specific cost study 19 (the "Cost Study") and attaches as Exhibit WAC-1 to his testimony a copy of the Cost Study.
20 In the Cost Study, TLG has provided an estimate of CPS Energy's portion 21 of decommissioning costs which reflects:
22 0
The 10% contingency ceiling specified in Substantive Rule 25.303(f)(2);
23 CPS Energy's 40% ownership interest in STP; and 24 The property taxes and state sales taxes that must be paid by CPS Energy.
16 of 24 I
CPS Energy's share of the decommissioning costs is then escalated to take into 2
account the years that the decommissioning costs will actually be expended (2022 through 3
2054). Mr. Cloutier discusses in, his testimony the appropriate escalation rates' that 4
TLG provided to CPS Energy. This results in the determination of a future dollar 5
decommissioning cost estimate for CPS Energy. CPS Energy's total funding requirement is 6
then allocated to the two trusts based on its 12.0% interest and its 28% interest.
7 Based on the existing trust fund balances; the anticipated investment return of the 8
decommissioning trusts; the assumed fees and expenses of the trustee and investment 9
managers; and the TLG estimate for future decommissioning costs, I have calculated the 10 required annual funding amount for each trust.
11 Q.
DOES THE COST STUDY PREPARED BY TLG SATISFY THE 12 REQUIREMENTS OF COMMISSION SUBSTANTIVE RULE 25.303?
13 A.
Yes, it does. Substantive Rule 25.303 requires a decommissioning cost study to be based 14 on the most current information reasonably available on the cost of decommissioning.
Mr.
15 Cloutier describes in detail how TLG performed the decommissioning cost estimate for STP 16 Units 1 and 2 based on extensive Nuclear Regulatory Commission ("NRC") guidelines and 17 the extensive experience of TLG in performing decommissioning cost estimates and actual 18 decommissioning activities. As discussed in the testimony of Mr. Cloutier, the Cost Study 19 reflects the most current information reasonably available on the cost of decommissioning STP 20 Units 1 and 2.
21 Q.
DOES THE COST STUDY REFLECT THE ALLOWANCE 22 FOR CONTINGENCIES OF 10% OF THE COST OF DECOMMISSIONING AS 23 PROVIDED FOR IN 25.303(f)(2)?
17 of 24 1
A.
Yes, it does. Although TLG prepared the Cost Study to show TLG's true estimate of 2
the cost of decommissioning STP Units 1 and 2, which utilizes a contingency of 17.6%, TLG 3
also provided an adjusted cost estimate utilizing the 10% contingency factor to comply with 4
the Commission's rules.
5 Q.
WHAT IS THE RESULTING DECOMMISSIONING COST ESTIMATE IN THE 6
COST STUDY?
7 A.
Based on the 10% contingency, TLG estimates a total cost (in 2007 dollars) to 8
decommission STP Units 1 and 2 for all STP participants of $ 1,386,686,000.
9 Q.
WHAT IS CPS ENERGY'S SHARE OF THE TOTAL DECOMMISSIONING 10 COST ESTIMATE?
S1I A.
CPS Energy's share in 2007 dollars related to its 40.0% ownership interest in STP Units 12 1 and 2 is $551,915,000.
13 Q.
WHAT ESCALATION RATE WAS UTILIZED FOR PURPOSES OF THE 14 ANNUAL FUNDING ANALYSIS?
15 A.
As described in Mr. Cloutier's testimony, TLG provided CPS Energy with anticipated 16 escalation rates for both STP Units 1 and 2. The escalation rate used in the analysis 17 was approximately 2.72%.
18 Q.
WHAT INVESTMENT RETURNS DID CPS ENERGY UTILIZE IN THE 19 FUNDING ANALYSIS?
20 A.
For the years 2008 through 2021, CPS Energy utilized an estimated investment return of 21 7.3% in its funding analysis. For years 2022-2051, the estimated return is 6.4%. For the 22 remaining years in which decommissioning expenses are incurred, the funding analysis 23 assumes an estimated 5.5% return.
The estimated investment returns change because of
18 of 24 1
the investment limits that apply to the percentage of the aggregate market value of all non-2 fixed income investments relative to the total portfolio market value and the weighted 3
average life of the liability per Substantive Rule 25.303(e)(3)(B)(vi).
4 Q.
HOW DID CPS ENERGY OBTAIN ESTIMATED INVESTMENT 5
RETURNS FOR THE ASSETS IN THE TRUSTS?
6 A.
The estimated investment returns were provided by its investment manager, Duff &
7 Phelps. A copy of the information provided by Duff & Phelps is attached as Exhibit DJ-3 to my 8
testimony.
9 Q.
WHY IS IT REASONABLE FOR YOU TO RELY ON THE ESTIMATED 10 PORTFOLIO RETURNS PROVIDED TO CPS ENERGY BY DUFF & PHELPS?
11 A.
Duff & Phelps routinely provides estimates of future returns for capital markets in 12 the course of developing long-term investment policies for its institutional clients. These 13 clients include other nuclear decommissioning trusts, large utilities, major public funds and 14 endowments. The practice of developing such capital market assumptions is a standard part of 15 the services that Duff & Phelps provides. In general, there is a relationship between the 16 volatility or riskiness of an asset class and its long term assumed rate of return. Therefore, 17 equities will always be expected to outperform bonds. The science of the process involves 18 estimating the size of this premium. Duff & Phelps has developed rigorous procedures for 19 developing estimates of most recent market trends.
20 Q.
BASED ON THE EXISTING TRUST BALANCES, THE MOST CURRENT 21 INFORMATION ON THE COST OF DECOMMISSIONING AS CONTAINED IN THE 22 COST STUDY, THE 10% CONTINGENCY ALLOWANCE, THE ANTICIPATED 23 ESCALATION RATES, AND THE ANTICIPATED RETURNS ON THE FUNDS IN
19 of 24 I
THE TRUST, WHAT IS THE ANNUAL FUNDING REQUIREMENT FOR EACH 2
TRUST?
3 A.
As shown in the spreadsheet attached as Exhibit DJ-2, based on the new cost study 4
information, at this time there is not a need for additional funding.
5 Q.
WHAT FACTORS HAVE CAUSED THE REDUCTION IN THE REQUIRED 6
ANNUAL FUNDING AMOUNT FOR THE 12.0% TRUST?
7 A.
The annual funding amount modeling results are driven by the assumed investment 8
rate of return and the escalation rates used. Variances in the assumed investment rates and 9
escalation rates could cause a wide variation in the amount needed to adequately fund 10 the nuclear decommissioning trust. The most prominent factor that caused a reduction in the 11 required annual funding was the reduction of the escalation rate from 4.72% to 2.72%. The 12 funding analysis we presented is diligently prepared to be as accurate as possible based on the 13 best information available to CPS Energy.
14 15 VI.
CREATION OF SEPARATE SPENT FUEL 16 MANAGEMENT SUBACCOUNTS 17 Q.
YOU PREVIOUSLY INDICATED THAT THE TRUSTS ARE INTENDED TO 18 PROVIDE FUNDS FOR THREE GENERAL DECOMMISSIONING 19 ACTIVITIES:
(1) RADIOLOGICAL DECOMMISSIONING; (2) SPENT FUEL 20 MANAGEMENT; AND (3)
SITE RESTORATION.
DOES CPS ENERGY 21 CURRENTLY SEPARATE THE FUNDS IN THE TRUSTS WITHIN 22 SUBACCOUNTS RELATING TO THOSE ACTIVITIES?
23 24 A.
No, it does not currently, but CPS Energy seeks to make that change in this proceeding.
25 Q.
WHAT CHANGE IS CPS ENERGY MAKING IN THAT REGARD?
20 of 24 I
A.
In NRC Regulatory Guide 1.184, the NRC recognized the need for separate accounting 2
of funds collected for spent fuel management activities:
3 The staff recognizes that during planning for decommissioning it is necessary to 4
consider activities leading to license termination and the storage of spent 5
fuel; therefore, the staffs interpretation of the appropriate use of these planning 6
funds will permit planning for all issues related to the decommissioning of the 7
facility.
The staff also recognizes that many licensees have chosen to 8
accumulate funding for spent fuel maintenance and storage (as required 9
by 10 CFR 50.54(bb) as part of the decommissioning trust fund.
10 However, the amounts set aside for radiological decommissioning as 11 required by 10 CFR 50.75 should not be used for the maintenance and storage 12 of spent fuel in the spent fuel pool, or for the design or construction of spent 13 fuel dry storage facilities, or for other activities not directly related to the long-14 term storage, radiological decontamination of or dismantlement of the facility, or 15 decontamination of the site.
16 17 CPS Energy now proposes to create a separate spent fuel management subaccount within the 18 trust.
19 Q.
HOW DOES CPS ENERGY INTEND TO ACCOUNT FOR THE AMOUNTS 20; IN EACH SPENT FUEL MANAGEMENT SUBACCOUNT?
21 A.
Based on the TLG Cost Study, spent fuel management costs represent 27.4815% of 22 the total cost of decommissioning for Unit 1 and 24.3413% for Unit 2. Upon creation of the 23 new spent fuel management subaccount, CPS Energy intends to allocate 27.4815% of the 24 existing balances in the trust for Unit 1 and 24.3413% of the existing balances in the 25 trust for Unit 2 into the new spent fuel management subaccount. CPS Energy will also deposit 26 these same percentages of any future trust fund collections for the trust for each unit into the 27 spent fuel management subaccount.
Based upon future cost studies, the precise 28 percentages of collections allocable to spent fuel management may change, and the 29 amounts from future collections deposited in the subaccounts would be adjusted 30 accordingly.
21 of 24 1
Q.
WHAT BENEFITS ACCRUE AS THE RESULT OF THE CREATION OF THESE 2
SPENT FUEL MANAGEMENT SUBACCOUNTS?
3 A.
As noted above, creation of the spent fuel management subaccounts will be in 4
compliance with NRC's expectations as reflected in the NRC guidance. Creation of the 5
separate subaccounts provides specific funding for decommissioning costs associated with 6
spent fuel maintenance and storage and other related activities, but from this subaccount, only 7
spent fuel management costs incurred as part of plant decommissioning.
8 9
VI.
CREATION OF SEPARATE PRE-DECOMMISSIONING 10 COST SUBACCOUNTS 11 Q.
NRC GUIDELINES PROHIBIT THE USE OF DECOMMISSIONING FUNDS 12 FOR ACTIVITIES NOT DIRECTLY RELATED TO THE ACTUAL 13 DECOMMISSIONING OF THE PLANT. DOES CPS ENERGY CURRENTLY 14 SEPARATE THE FUNDS IN THE TRUSTS WITHIN SUBACCOUNTS 15 RELATING TO PRE-SHUTDOWN DECOMMISSIONING ACTIVITIES?
16 A.
No, it does not currently, but CPS Energy seeks to make a change in that regard.
17 Q.
WHAT CHANGE IS CPS ENERGY MAKING IN THAT REGARD?
18 A.
CPS Energy now proposes to create a separate pre-shutdown decommissioning 19 subaccount within the trust.
20 Q.
HOW DOES CPS ENERGY INTEND TO FUND THE AMOUNTS IN THE 21 PRE-SHUTDOWN DECOMMISSIONING COSTS SUBACCOUNT?
22 A.
Based on a combination of the TLG Cost Study and an estimate from South Texas 23 Project Nuclear Operating Company ("STPNOC"), pre-shutdown decommissioning costs are 24 estimated to be $20.555 million.
CPS Energy proposes to fund the pre-shutdown
22 of 24 1
decommissioning costs subaccount from the funds it will continue to collect from the 2
AEPTCC end users. The annual funding amount anticipated to be required from AEPTCC 3
customers is $1,108,838 million. This amount includes all pre-shutdown costs such as the 4
construction of an independent fuel storage facility and early disposal of large radioactive 5
components prior to the cessation of plant operations. Please refer to the spreadsheet attached 6
as Exhibit DJ-2 for more detail on the pre-decommissioning cost estimates and funding 7
requirements. Based on future cost studies and unanticipated pre-shutdown decommissioning 8
activities such as the need to replace prematurely and dispose of other large nuclear plant 9
components, such as the reactor vessel heads and steam generators, the amount of collections 10 that are allocated to the pre-decommissioning cost subaccount could change and the 11 percentage collected from AEPTCC customers would be adjusted accordingly. In addition, 12 because it is clear that the U.S. Department of Energy ("DOE") will not be in a position to 13 timely take custody of the spent nuclear fuel, the owners of the South Texas Project must 14 plan for safe on-site interim storage and prepare to pay the costs of such storage prior to the 15 start of actual plant decommissioning.
16 17 Q.
WHAT BENEFITS ACCRUE AS THE RESULT OF THE CREATION OF THESE 18 SPENT FUEL MANAGEMENT SUBACCOUNTS?
19 A.
Current NRC guidelines prohibit the use of decommissioning funds for expenditures not 20 directly related to the decommissioning of the plant. The NRC does, however, allow for separate 21 accounting of funds collected for expenditures reacted to decommissioning activities prior to the 22 permanent cessation of plant operations.
By creating and funding the pre-shutdown 23 decommissioning cost subaccount now, funds can be accumulated now in advance of when they
23 of 24 will be needed.
STP has replaced or will shortly replace large radioactive components, 2
specifically the reactor vessel heads and steam generators, which were originally projected to last 3
the life of the units and are included in TLG's decommissioning cost study. There are a limited 4
number of locations where STP may safely dispose of components like this. The STP Owners 5
are faced with the choice of early disposal of these components or with having to store them on-6 site until plant decommissioning. The costs associated with early disposal are cheaper than the 7
costs associated with storing these items until plant decommissioning. In addition, by creating 8
and funding the subaccount now, we would be in compliance with NRC guidelines. Finally, 9
establishing a subaccount for funding pre-shutdown decommissioning costs will create a means 10 for funding safe on-site interim storage of spent nuclear fuel until such time as the DOE is ready 11 to take the fuel from the site.
12 13 Q.
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
14 A.
Yes.
24 of 24 AFFIDAVIT STATE OF TEXAS
§§ COUNTY OF BEXAR
§ BEFORE ME, the undersigned authority, on this day personally appeared David Jungman, to me known, who being duly sworn according to law, deposes and says:
"My name is David Jungman. I am over the age of 21 and a resident of the State of Texas. The foregoing testimony and the opinions stated therein are, in my judgment and based upon my professional experience, true and correct" David Jungni SUBSCRIBED AND SWORN TO BEFORE ME by the said David Jungman this day Sof August, 2008.
No
,Public, State
ATTACHMENT E PUCT Order, Docket No. 35786 (November 20, 2008)
Attachment E Page 1 of 9 DOCKET NO. 35786 NOTICE BY THE, SAN ANTONIO
§ PUBLIC UTILITI%*OMIb SS!N (-
CITY PUBLIC SERVICE BOARD
§ OF RECEIPT OF UPDATED
§ OF TEXA0 DECOMMISSIONING STUDY AND
§ FILING PURSUANT TO PUCT
§ SUBSTANTIVE RULE 25.303(f)(4)(A)
§ ORDER This Order addresses the application of the San Antonio City Public Service Board (CPS Energy') for review of the cost of decommissioning Units I and 2 of the South Texas Project Electric Generating Station (STP), pursuant to PURA2 § 39.205 and P.U.C. SuBST. R. 25.303.
This docket was processed in accordance with applicable statutes and Public Utility Commission of Texas (Commission) rules. CPS Energy provided notice of the application to AEP Texas Central Company (AEP TCC) and the Office of Public Utility Counsel (OPC). AEP TCC, NRG South Texas, LP (NRG South Texas), CPS Energy, and Commission Staff are the only parties to this proceeding. No party requested a hearing on this matter. Commission Staff recommended that the application be approved, resulting in reductions to the annual nuclear decommissioning expense funding amounts borne by ratepayers.
Consistent with Commission Staff's recommendation, the application of CPS Energy is approved.
I. Background On June 17, 2008, CPS Energy filed notice of its receipt of the March 2008 updated decommissioning study for the 12% ownership interest in STP that CPS Energy purchased from AEP TCC in 2005. Commission Staff found the filing insufficient because it did not include an updated funding analysis as required by P.U.C. SUBST. R. 25.303(f)(4)(A).
On July 10, 2008, CPS Energy filed a Notice of Filing Date for CPS Energy Updated Decommissioning Funding Analysis, advising it would file its funding analysis no later than August 18, 2008.
On I CPS EnergyTm is the trade name of City Public Service of San Antonio, acting by and through the City Public Service Board.
2 Public Utility Regulatory Act, TEx. UTIL CODE ANN. §§ 11.001 - 66.016 (Vernon 2007 & Supp. 2008) (PURA).
DOCKET NO. 35786 ORDER PAGE 2 0o19' July 18, 2008, CPS Energy's request to extend the time to file the funding analysis was granted.
On August 18, 2008, CPS Energy filed the funding analysis.
On September 2, 2008, CPS Energy filed corrected exhibits in support of decreasing costs of decommissioning STP Units 1 and 2.
The proposed 12.0%/6 TCC-Funded Interest Trust annual funding analysis is based on the March 2008 Decommissioning Cost Analysis for the South Texas Project Electric Generating Station (Cost Study) prepared for STP Nuclear Operating Company by TLG Services, Inc.
(TLG). The Cost Study is supported by the testimony of William A. Cloutier, Jr., Manager of Decommissioning Services for TLG, and David Jungman, CPS Energy Assistant Treasurer. For the 12.0% TCC-Funded Interest Trust, CPS Energy requested to (1) decrease, to a level of
$1,108,838, the collection amount of decommissioning contributions to the 12% TCC-Funded Interest Trust until further request; (2) create and fund the spent fuel management subaccount in the 12% TCC-Funded Interest Trust by allocating 22.87% of the Unit 1 existing balance and 19.54% of the Unit 2 existing balance into the new spent fuel management subaccount; and (3) create and fund the pre-shutdown decommissioning cost subaccount for the. 12%
TCC-Funded Interest Trust for STP Units 1 and 2 from the $1,108,838 CPS Energy would continue to collect.
The Commission adopts the following findings of fact and conclusions of law:
H. Findings of Fact Procedural History and Notice
- 1.
On June 17, 2008, CPS Energy filed a notice of receipt of the March 2008 updated decommissioning study for the 12% ownership interest in STP that CPS Energy purchased from AEP TCC in 2005. The written testimony of William A. Cloutier, Jr.,
Manager of Decommissioning Services at TLG, supported the Cost Study..
- 2.
On June 30, 2008, AEP TCC was granted party status in this proceeding.
DOCKETNO. 35786 ORDER PAGE 3 of 9
- 3.
On July 8, 2008, Commission Staff found CPS Energy's application insufficient because CPS Energy failed to file an updated funding analysis and failed to provide notice to AEP TCC and OPC.
- 4.
On July 10, 2008, CPS Energy filed a Notice of Filing Date for CPS Energy Updated Decommissioning Funding Analysis.
CPS Energy advised that the funding analysis would be filed no later than August 18, 2008.
- 5.
On July 18, 2008, CPS Energy requested and was granted additional time to file the updated funding analysis.
- 6.
On August 18, 2008, CPS Energy filed the updated funding analysis supported by the written testimony of David Jungman, CPS Energy Assistant Treasurer. The filing incorporated by reference the Cost Study and the written testimony of William A.
Cloutier, Jr., Manager of Decommissioning Services at TLG.
- 7.
On September 2, 2008, CPS Energy filed corrected exhibits in support of decreasing the costs of decommissioning STP Units 1 and 2.
- 8.
On September 23, 2008, Commission Staff found CPS Energy's application sufficient for processing, recommended a deadline for CPS Energy to provide proof of notice to AEP TCC and OPC, and determined no additional notice was necessary.
- 9.
On September 23, 2008, the application and notice were deemed sufficient and a procedural schedule was established.
- 10.
On October 2, 2008, CPS Energy filed an affidavit stating that notice had been provided to AEP TCC and OPC.
- 11.
On October 17, 2008, NRG South Texas LP was granted party status in this proceeding.
DOCKET NO. 35786 ORDER PAGE 4 of 9
- 12.
On October 23, 2008, Commission Staff filed a recommendation for approval of CPS Energy's application.
Applicant's Nuclear Decommissioning Trusts
- 13.
Decommissioning funding provides reasonable assurance that adequate funds will be available to pay for the safe dismantlement, decontamination, and disposal of a nuclear generating facility at the completion of its service life.
- 14.
CPS Energy established a nuclear decommissioning master trust for the 12% ownership interest in STP Units 1 and 2. AEP TCC3 collects the decommissioning funds, and CPS Energy administers the 12% TCC-Funded Interest Trust, dated January 1, 2006.
- 15.
As of December 31, 2007, the total balance in the 12% TCC-Funded Interest Trust was
$91,354,110. The Unit 1 account balance was $39,937,872, and the Unit 2 account balance was $51,416,238.
- 16.
CPS Energy, as the funds administrator for the 12% TCC-Funded Interest Trust, established investment policies that are consistent with the guidelines in P.U.C. SUBST.
R. 25.303(e) so that the decommissioning funds collected, plus the amounts earned from investment of the funds, will be available at the time of decommissioning.
- 17.
One hundred percent (100%) of the existing balances in the 12% TCC-Funded Interest Trust are in "qualified" accounts in accordance with Internal Revenue Code § 468A.
Annual Funding Analysis
- 18.
In March 2008, TLG completed the development of a site-specific constant-dollar decommissioning cost estimate of the expected cash outlays, by year, during the decommissioning process for STP Units 1 and 2. Assuming a contingency-percentage of 10% as provided by the Commission's substantive rules, the estimated decommissioning cost for STP Units 1 and 2 is approximately $1.387 billion. As delineated in Appendix D to the Cost Study, CPS Energy's 12% ownership share of STP Units I and 2 results in an 3 AEP TCC is also the collecting utility for NRG South Texas' 13.2% ownership interest in Units I and 2.
DOCKET NO. 35786 ORDER PAGE5 Of 9 estimated cost (based on 10% contingency) of approximately $166,402,320 to CPS Energy.
- 19.
CPS Energy calculated the required annual funding amount for each trust by considering:
(a) the existing trust fund balances; (b) the anticipated after-tax investment return of the decommissioning trusts; (c) the assumed fees and expenses of the trustee, consultants and investment managers; (d) the proposed cost escalation rates determined by TLG; and (e) the TLG estimate for future decommissioning costs.
Annual Funding Request
- 20.
For the 12% TCC-Funded Interest Trust, CPS Energy proposed an annual funding amount of $1,108,838, which would result in an approximate 69% decrease from the existing approved annual funding amount.
Spent Fuel Management Subaccounts
- 21.
There are three primary components to nuclear decommissioning costs: (a) radiological decommissioning (license termination); (b) spent fuel management; and (c) site restoration.
CPS Energy proposed to create a separate spent fuel management subaccount for both Units I and 2 to provide specific funds for that purpose.
- 22.
The spent fuel management subaccount balance will comprise 22.87% of the total trust fund balance for Unit I and 19.54% of the total trust fund balance for Unit 2.
Pre-Shutdown Decommissioning Cost Subaccounts
- 23.
Prior to the cessation of plant operations, the U.S. Department of Energy cannot, at the present time or in the near future, take timely custody of large radioactive components, such as reactor vessel heads and steam generators that require near-term resolution.
- 24.
CPS Energy and the other STP owners must plan for pre-shutdown costs such as the replacement and safe on-site interim storage of the large radioactive components. CPS Energy must also prepare to pay such costs prior to the start of actual plant decommissioning.
DOCKET NO. 35786 ORDER PAGE 6 o f 9
- 25.
Based on a combination of the TLG Cost Study and estimates from the STP Nuclear Operating Company, STP pre-shutdown decommissioning costs are estimated to be
$20.555 million for the 12% TCC-Funded Interest Trust.
- 26.
CPS Energy will establish and fund subaccounts for pre-shutdown decommissioning costs from the annual $1,108,838 million funding amount that it will continue to collect from the AEP TCC end users.
- 27.
Pursuant to P.U.C. PROC. IR 22.5(b), good cause exists to waive the 20-day requirement of P.U.C. PRoc. R. 22.35(b)(2) so that AEP TCC can file a single decommissioning rider to cover both the CPS Energy and NRG South Texas updated estimates on the costs of
/4 decommissioning Units 1 and 2.4 HI.
Conclusions of Law
- 1.
CPS Energy is a municipally owned utility as defined by PURA § 11.003(1 1).
- 2.
The Commission has jurisdiction over this application pursuant to §§ 14.002 and 39.205 of PURA and P.U.C. SuBsT. R. 25.303.
- 3.
Notice of this proceeding was provided in compliance with P.U.C. PROC. R. 22.55 and P.U.C. SUBST. R. 25.303(f)(2).
- 4.
The remaining costs associated with nuclear decommissioning obligations continue to be subject to cost of service regulation pursuant to PURA § 39.205.
- 5.
PURA § 39.205 provides authority for the Commission to adopt rules to ensure that decommissioning funds are prudently collected, managed, and spent for the intended purpose of such funds and that any surplus is returned to retail customers.
4 Application of NRG South Texas. LPfor Review of the Cost of Decommissioning Units I and 2 of the South Texas Pioject, Docket No. 35772, Order (Oct. 10, 2008).
DOCKET NO. 35786 ORDER PAGE 7 of 9
- 6.
CPS Energy filed the periodic study of the decommissioning costs of its 12% interest in the South Texas Project and the updated decommissioning funding analysis in accordance with P.U.C. SUBST. R. 25.303(o.
- 7.
CPS Energy has demonstrated that the funds in the 12% TCC-Funded Interest Trust are being invested prudently and in compliance with the investment guidelines set forth in P.U.C. SUBST. R. 25.303(e).
- 8.
CPS Energy has demonstrated efforts to achieve optimum tax efficiency, including efforts to achieve "qualified" status in accordance with Internal Revenue Code § 468A.
- 9.
Prior to the start of the actual decommissioning of STP Units I and 2, the annual funding amount of $1,108,838, proposed by CPS Energy for the 12% TCC-Funded Interest Trust, is necessary to ensure there are sufficient funds to plan and pay for pre-shutdown costs such as the replacement and safe on-site interim storage of the large radioactive components.
- 10.
The requirements for informal disposition pursuant to P.U.C. PROC. R. 22.35 have been met in this proceeding except for subsection (b)(2), which requires the proposed order to be served on all parties no less than 20 days before the Commission is scheduled to consider the application in an open meeting. Pursuant to P.U.C. PROc. R. 22.5(b), good cause exists to waive the 20-day requirement of P.U.C. PROC. R. 22.35(b)(2) so that AEP TCC can file a single decommissioning rider to cover both the CPS Energy and NRG South Texas updated estimates on the costs of decommissioning Units 1 and 2.s 5 Docket No. 35772, Order (Oct. 10, 2008).
DOCKET NO. 35786 ORDER PAGE 8 oE 9 IV. Ordering Paragraphs In accordance with these findings of fact and conclusions of law, the Commission issues the following Order:
- 1.
Consistent with Commission Staffs recommendation, the application of CPS Energy is approved.
- 2.
The annual funding amount of $1,108,838 for the 12% TCC-Funded Interest Trust is approved.
- 3.
CPS Energy is granted approval to use the annual funding amount of $,108,838 to create and fund, within the 12% TCC-Funded Interest Trust, a separate pre-shutdown decommissioning subaccount equal to 100% of the funds collected from AEP TCC customers.
- 4.
CPS Energy is granted approval to create within the 12% TCC-Funded Interest Trust, a separate spent fuel management subaccount equal to 22.87% of the existing Unit 1 balances and 19.54% of the existing Unit 2 balances.
DOCKET NO. 35786 ORDER PAGE 9 of 9
- 5.
All other motions, requests for entry of specific findings of fact and conclusions of law, and any other requests for general or specific relief if not expressly granted herein, are denied.
SIGNED AT AUSTIN, TEXAS on the-oL day of November 2008.
PUBLIC UTILITY COMMISSION OF TEXAS DONNA NELSONAN, CHAIRMAN DONNA L. NELSON, COMMISSIONER q:\\cam\\orders\\fuial\\35000\\35786fo.docx