ZS-2012-0417, Zionsolutions' Response to 2012 Decommissioning Funding Status Report Request for Information (Rais/Rfis)
| ML12276A218 | |
| Person / Time | |
|---|---|
| Site: | Zion File:ZionSolutions icon.png |
| Issue date: | 09/27/2012 |
| From: | Daly P ZionSolutions |
| To: | Document Control Desk, NRC/FSME |
| References | |
| ZS-2012-0417 | |
| Download: ML12276A218 (15) | |
Text
ZIONSOLUTIONSLLC An EnargySD/utona Company 10 CFR 50.74 September 27, 2012 ZS-2012-0417 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001 Zion Nuclear Power Station, Units 1 and 2 Facility Operating License Nos. DPR-39 and DPR-48 NRC Docket Nos. 50-295 and 50-304
Reference:
NRC Letter, Hickman (NRC) to Christian (ZionSolutions, LLC), "Zion Nuclear Power Station, Units 1 and 2 - 2012 Decommissioning Funding Status Report -
Request for Additional Information," provided August 13, 2012
Subject:
ZionSolutions' Response to 2012 Decommissioning Funding Status Report Request for Information (RAIs/RFIs)
Dear Mr. Hickman,
This letter responds to your request of August 13, 2012 referenced above.
All information provided by ZionSolutions in response to the above referenced NRC requests covers the time period from September 1, 2010 forward, which represents the period for which ZS has been responsible for the fiduciary duties. ZionSolutions does not possess the information for the period(s) prior to September 1, 2010 that is held by Exelon Generation Company, LLC (EGC).
This letter does not contain any regulatory commitments. Should you have any questions or require further information, please contact Mr. Patrick Thurman at (224) 789-4041.
Respectfully, Patrick Daly Senior VP & General Ma ger ZionSolutions, LLC cc: John Hickman, U.S. NRC Senior Project Manager Service List 101 Shiloh Boulevard, Zion - IL 60099 (224) 789-4016 - Fax: (224) 789-4008
- www.zionsolutionscompany.com
ZionSolutions, LLC ZS-2012-0417 Page 2 of 14 ZionSolutions Draft Response to NRC RAI 2012 Decommissioning Funding Status Report RAI#1: Decommissioning Cost Provide the amount of decommissioning funds estimated to be required based on the formula from 10 CFR 50.75(b) and (c) for Zion Nuclear Power Station (ZNPS) Unit 1 and 2.
On March 26, 2012, ZS provided the following radiological decommissioning costs associated with license termination for ZNPS:
Required Minimum at December 31, 2011 (A) $641,286,000 The required minimum funding assurance amount is based on the decommissioning scenario from the site-specific decommissioning cost estimate provided in Reference
- 3. The cost estimate reflects actual experience to date, as well as, refinements made through the date of this filing.
Part 10 CFR 50.75(f)(1)
The information in this report must include, at a minimum the amount of decommissioning funds estimated to be required under 10 CFR 50.75(b) and (c).
ZionSolutions Response We understand the underlying purpose of 10 CFR 50.75(b) and (c) is to assure that operating facilities provide adequate decommissioning funding during the facility's operating life. Prior to ZionSolutions' acquisition of the Zion Nuclear Power Station (ZNPS), its NDT and the 10 CFR 50 facility licenses, EGC had placed the plant in SAFSTOR and was expending the NDT to support SAFSTOR and plan final decommissioning. Since then, active decommissioning by ZionSolutions has further expended NDT funds for the past two years. Consequently, the financial assurance tests of 10 CFR 50.82 appear to provide a more appropriate basis for reporting on funding assurance for a permanently shutdown facility than 10 CFR 50.75.
Previous ZionSolutions financial estimates were submitted to the NRC in the License Transfer Application (LTA)' and Post-Shutdown Decommissioning Activities Report (PSDAR) 2 that established the initial decommissioning funding status, spent fuel management costs and site-specific estimated decommissioning cost at the inception of the ZionSolutions project. 10 CFR 50.82 requires, in addition to the submittal of the PSDAR, that the licensee submit an annual report 3 to the NRC disclosing the facility's current condition including the remaining balance of the decommissioning funds, costs and available funds associated with fuel management, and a site-specific cost estimate needed to complete decommissioning. Previously submitted site-
'Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 2 ZionSolutions, LLC Letter, Daly to NRC, "Notification of Amended Post-Shutdown Decommissioning Activities Report" (PSDAR) for Zion Nuclear Power Station, Units I and 2 in accordance with 10 CFR 50.82(a)(7)," dated March 18, 2008
' ZionSolutions, LLC Letter, Daly to NRC, "Report on Status of Decommissioning Funding for Shutdown Reactors," dated March 26, 2012
ZionSolutions, LLC ZS-2012-0417 Page 3 of 14 specific cost estimates more accurately reflect an estimate of the actual contracted costs for the project in contrast to the 10 CFR 50.75 formula relative to funding assurance and regulatory compliance for the ZNPS decommissioning project. Additional information in this regard is provided below in the response to RAI #2.
RAI#2: Citation for Site-Specific Study Provide the most recent site specific cost estimate for ZNPS, unless it was previously submitted to NRC. If the cost estimate was previously submitted to NRC, then provide a reference to its submittal. The site specific cost estimate should include a summary schedule of annual expenses, projected earnings, and end-of-year fund balances, expressed in 2011 dollars.
Pursuant to 10 CFR 50.75(b), the cost estimate shall be in an amount that may be more, but not less, than the amount estimated to be required under 10 CFR 50.75(b) and (c).
On March 26, 2012, ZS indicated the following:
The required minimum funding assurance amount is based on the decommissioning scenario from the site-specific decommissioning cost estimate provide in Reference
- 3. The cost estimate reflects actual experience to date, as well as, refinements made through the date of this filing.
The information in this report must include, at a minimum the amount of decommissioning funds estimated to be required under 10 CFR 50.75(b) and (c).
ZionSolutions Response As indicated in RAI # 1 and 2 of this request and ZionSolutions' March 26, 2012 letter to the NRC, the required minimum funding assurance is based on the decommissioning scenario from the site-specific decommissioning cost estimate provided to the NRC in an earlier filing.4 The cost estimate reflects actual experience to date, as well as, refinements made through the March 26, 2012 filing. The table below represents a summary schedule of annual expenses based upon the most recent site specific cost estimate, expressed in 2011 dollars, projected earnings, and end-of-year balances.
4 ZionSolutions, LLC Letter, Daly to NRC, "Notification of Amended Post-Shutdown Decommissioning Activities Report (PSDAR) for Zion Nuclear Power Station, Unit I and 2," dated March 18, 2008.
ZionSolutions, LLC ZS-2012-0417 Page 4 of 14 ZionSolutions, LLC NRC Minimum Funding Assurance Calculation (as of December 31, 2011)
Basis: 2011$ in Millions BOM Fund Earnings BOM Total Balance on EOY EOY Fund Expenses Less Fund Fund Year Balance (2011$) Taxes Expenses Balance Balance 2011 - - - - - 650.957 2012 650.957 180.272 1.162 469.523 9.390 478.914 2013 478.914 127.767 1.751 349.396 6.988 356.383 2014 356.383 83.918 1.253 271.212 5.424 276.636 2015 276.636 68.418 1.274 206.944 4.139 211.083 2016 211.083 92.300 1.516 117.268 2.345 119.613 2017 119.613 54.407 0.916 64.289 1.286 65.575 2018 65.575 27.254 0.548 37.773 0.755 38.529 2019 38.529 18.287 0.364 19.877 0.398 20.275 2020 20.275 8.807 0.136 11.332 0.227 11.558 661.431 8.920 30.952 RFI #1: EnergySolutions,Inc. Credit Rating Downgrade On June 12, 2012, Standard & Poor's Rating Services (S&P) placed its ratings, including its 'BB-'corporate credit rating, on ES and its subsidiaries on CreditWatch with negative implications. According to S&P, the Credit Watch placement reflects the view that ES' financial profile is unlikely to improve to levels consistent with previous S&P expectations.
State the current and future impact of Standard & Poor's placement of EnergySolutions Inc. (ES) on CreditWatch with negative implications and downgrade of the ES Corporate Credit Rating to 'BB-', or "junk bond" status, on ZionSolutions, LLC (ZS).
ZionSolutions Response There is no current or reasonably expected future impact on ZionSolutions and its operations, obligations, debt, cash, contracts or credit facilities as a result of the S&P downgrade of EnergySolutions' corporate credit rating.
Funding for the ZNPS Unit 1 and 2 decommissioning project and management of the spent nuclear fuel is provided through the Nuclear Decommissioning Trust (Zion Qualified and Non-Qualified Decommissioning Funds)(NDT) along with additional financial assurances and
ZionSolutions, LLC ZS-2012-0417 Page 5 of 14 protections5 .6 To ensure NDT funds are used solely for their intended purpose of decommissioning ZNPS Unit 1 and 2, ZionSolutions is required to submit a Disbursement Request to the NDT Trustee prior to the disbursement of funds. A requirement for the Disbursement Request is that an Authorized Officer of ZionSolutions must include a certification and sworn statement that:
- (a) the project work, materials and services for which the disbursement is requested have been performed or delivered in connection with the decommissioning and other work required to achieve End State Condition and
- (b) ZionSolutions has comllied with the project budget and schedule as required under the Asset Sale Agreement.
All interested parties are explicitly and legally bound to comply with the requirements associated with disbursements from the NDT as part of their fiduciary responsibilities.
RFI #2: EnerpsSolutions.Inc. Credit Rating Downgrade State the current and future impact of Standard & Poor's placement of EnergySolutions Inc. (ES) on CreditWatch with negative implications and downgrade of the ES Corporate Credit Rating to '1B-', or "junk bond" status, on the following:
o The Irrevocable Letter of Credit (LOC) in the amount of $200 million established by EnergySolutions,LLC for the decommissioning of ZNPS, Units 1 and 2; ZionSolutions Response There is no current or reasonably expected future impact on the ZNPS Unit I and 2 decommissioning project as a result of S&P's placement of EnergySolutions on CreditWatch or the downgrade of EnergySolutions' Corporate Credit Rating.
The Irrevocable Letter of Credit (LOC) 8 is a fully cash collateralized instrument, secured by a restricted fund account, and is independent of EnergySolutions' performance or unilateral control. The primary source of funding for the ZNPS Unit 1 and 2 decommissioning project is the NDT. The LOC and the Asset Sale Agreement explicitly state that all amounts drawn from the LOC are to be deposited directly into the Backup NDT which is segregated from the Zion Qualified and Non-Qualified Decommissioning Funds, and may only be used to the extent the decommissioning costs cannot be reimbursed by the Qualified and Non-Qualified 5 Other financial assurances and protection include the Irrevocable Letter of Credit, Performance Guaranty and the Irrevocable Easement for Disposal Capacity at Clive, Utah.
6 Exelon Generation Corporation (ECG) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (p. 10-11) 7 Enclosure I to the Exelon Generation Corporation (ECG) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit L) 8See Generally Enclosure I to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit F, Credit Support Agreement)
ZionSolutions, LLC ZS-2012-0417 Page 6 of 14 Decommissioning Funds (collectively, the NDT). 9 The LOC is guaranteed by JP Morgan and cannot be revoked except by the parties' prior agreement or with the consent of all interested parties and notice to the Directors of FSME and NRR. In addition, the amount of the 0 LOC will not be reduced without prior notification to the NRC and agreement by the parties. 1 If EnergySolutions exhausts its resources and its ability to complete the D&D activities and a material default occurs (as defined within the Credit Support Agreement), EGC may exercise its right to take possession of ZionSolutions. At that point, through their ownership of ZionSolutions, EGC is entitled to cause the funds associated with the LOC to be deposited in the backup trust."1 The ability of EnergySolutionsto obtain renewals and continue to pay the fees for the
$200 million LOC; and ZionSolutions Response There are no current or reasonably expected future impacts on EnergySolutions' ability to obtain renewal and continue to pay the LOC fees as a result of S&P's placement of EnergySolutions on CreditWatch or the downgrade of EnergySolutions' corporate credit rating.
As indicated above, the LOC is a fully collateralized instrument, secured by funds in a restricted funds account, with the purpose of providing financial assurance that the project will continue to be funded in the event the NDT is exhausted. We understand the concern behind this RFI to be a risk that the LOC assurance may expire before the decommissioning is complete. This concern is addressed by the fact that, if ZionSolutions fails to confirm replacement or renewal of the LOC before it expires, such failure would itself allow EGC to cause the LOC proceeds to be deposited in the backup trust before the LOC expires. Therefore EnergySolutions cannot cause the LOC proceeds to become unavailable by failing to renew or replace the LOC.
- The Irrevocable Easement for Disposal Capacity of 7.5 million cubic feet at the Clive, Utah facility, established by EnergySolutions, LLC for the decommissioning of ZNPS, Units 1 and 2.
ZionSolutions Response There is no current or reasonably expected future impact on the Irrevocable Easement for Disposal Capacity (Easement) at the Clive, Utah facility as a result of S&P's placement of EnergySolutions on CreditWatch or the downgrade of EnergySolutions' corporate credit rating.
9 Enclosure 1 to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit F, Credit Support Agreement (Section 4.2); p. 11) 10 Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (p. 11)
"*Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (p. 11); Enclosure I to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit F, Credit Support Agreement (Section 3.1)).
ZionSolutions, LLC ZS-2012-0417 Page 7 of 14 The Easement, as established in Exhibit G of the Asset Sale Agreement, provides ZionSolutions rights to dispose of and deposit up to 7,500,000 cubic feet of Permitted Material in, on or over a portion of the Clive Disposal Facility. Permitted Materials include "all Class A Low Level Waste situated at the Zion Station Site.. .or created during the course of Decommissioning the Zion Station Site." 2 The Easement has been recorded against and attaches to the Clive Facility itself (covenant runs with the land) thus providing ZionSolutions will access to the facility regardless of the facility's ownership. 13 Section 5 of the Easement provides explicitly that "[t]he Easement continues until all of the Permitted Materials have been disposed of either at the Clive Facility or some other properly permitted Low Level Waste disposal facility."', 4 As set forth in the License Transfer documents, the Easement cannot be terminated without prior written notification to the Director of the FSME and the Director of NRR.
The Irrevocable Easement for Disposal Capacity is set forth in its entirety in Exhibit G of the Zion Nuclear Power Station Unit 1 and 2 Asset Sale Agreement, dated December 11, 2007.15 The NRC staff is concerned that a negative credit rating for ES could adversely affect ES' ability to fulfill its financial obligations related to the decommissioning of ZNPS. Among these concerns is a S&P statement, found in a Reuters press release dated June 12, 2012, that, "Although the former management [of ES] expressed optimism that a plan of action regarding the release of a $200 million cash-collateralized letter of credit related to the company's Zion decommissioning project was likely to be realized in 2012, it now appears that such resolution could be delayed." The additional financial assurance arrangements, and the financial viability of ES, were directly related to the approval of the transfer of licenses for ZNPS, Units 1 and 2.
ZionSolutions Response There was never a plan to release [emphasis added] the current LOC, but a search for a replacement instrument with equivalent assurances at a lower cost was being considered as a prudent action and always being subject to necessary approval of the parties. The current financial assurance instruments were put in place in August of 2010, and these or other equivalent instruments acceptable to all involved parties will continue through the end of the project. In addition, ZionSolutions still intends to seek ways to reduce the cost associated with the financial assurance instruments. Any changes to the current financial assurance arrangements will include their acceptability to the interested parties.
'2Enclosure 1 to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit G, Irrevocable Easement for Disposal Capacity (Section 1.d))
'3The Irrevocable Easement for Disposal Capacity was recorded in the Tooele County Recorder's Office, State of Utah.
14 Enclosure I to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit G, Irrevocable Easement for Disposal Capacity (Section 4))
15Enclosure I to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (ASA Exhibit G, Irrevocable Easement for Disposal Capacity)
ZionSolutions, LLC ZS-2012-0417 Page 8 of 14 RFI #3: EnergySolutions, Inc. Credit Rating Downgrade On January 25, 2008, Exelon Generation Company, LLC (EGC) and ZS submitted an application requesting that the NRC consent to the transfer of Exelon Generation Company, (EGC) LLC's Facility Operating Licenses for ZNPS, Units 1 and 2 (ML080310521). The application stated that EnergySolutions and its parent, ES, each provided a Performance Guaranty to EGC of the payment and performance, when due, of all obligations of ZS.
State the impact of Standard & Poor's placement of EnergySolutions Inc. (ES) on CreditWatch with negative implications and downgrade of the ES Corporate Credit Rating to 'BB-', or "junk bond" status, on the Performance Guaranty provided to EGC for all obligation of ZS.
ZionSolutions Response There is no current or reasonably expected future impact on the Performance Guaranty for ZNPS decommissioning project.
The NDT represents the primary funding instrument for the ZNPS Unit 1 and 2 decommissioning project, and is expected to cover all costs over the life of the project. The contract between EnergySolutions and EGC is uniquely structured to mitigate concerns regarding the adequacy of the NDT funding and the financial capacities of EnergySolutionsand ZionSolutions by providing multiple levels of financial assurances and protections. In the event the NDT funds prove insufficient, EnergySolutions has guaranteed EGC the full and prompt payment and performance, when due, of all obligations agreed to be performed by ZionSolutions in connection with the ZNPS Unit 1 and 2 decommissioning project. Under this Performance Guaranty, as set forth in the License Transfer Application, EnergySolutions is required to exhaust all company resources to ensure the necessary funds exist for completion of the decommissioning project. In addition, the License Transfer Application specifically states that "EnergySolutions has pledged its equity interest in ZionSolutions as collateral for its obligations under the Performance Guaranty. If any event constituting a specified default under the Asset Sale Agreement (ASA) or other transaction agreement occurs, EGC will have the right to take possession of and exercise voting control over ZionSolutions subject to NRC's prior approval pursuant to 10 CFR 50.80.17 If circumstances occur where the NDT funds are depleted and EnergySolutions' assets cannot fund the remainder, the Backup NDT consisting of the $200M Irrevocable Letter of Credit and Disposal Easement is in place to ensure the work will be completed and waste disposed of safely.
16 Enclosure 7 to the Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008. (Performance Guaranty (Section 2))
17Exelon Generation Corporation (EGC) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008 (See page 11)
ZionSolutions, LLC ZS-2012-0417 Page 9 of 14 It is important to note that the NDT is presently stronger financially then when the license transfer occurred. The NDT is producing higher returns than originally estimated while being funded by more stable investment instruments; the costs and risks for the project are now largely known and accounted for with a closely managed budget and schedule, and the financial assurance instruments are and will remain secure. The increased budget certainty, the strength and stability of the NDT, and confidence provided by the availability of the financial assurance instruments reduce the financial risks associated with the performance guaranty and the project as a whole are minimized.
Further, the EnergySolutions financial conditions are consistent with the conditions prior to the S&P actions with respect to liquidity, availability of long term credit arrangements and debt.
There is no substantial change in EnergySolutions' ability to meet its Performance Guaranty as provided to EGC.
The Performance Guaranty offered by EnergySolutions to EGC is set forth in Enclosure 7 to the Application for License Transfer and Conforming Administrative License Amendments, dated January 25, 2008.18 RFI #4: Decommissioning Trust Fund Amount Provide the total amount of funds accumulated in the decommissioning trust fund for ZNPS, Unit 1 and 2, including all the funds allocated for non-NRC dedicated activities.
On March 26, 2012, ZS reported the following in relation to the Decommissioning Trust Fund (DTF) balance for ZNPS, Unit 1 and 2:
"The trust fund amount is the amount allocated for Radiological Decommissioning only, and does not include the allocation for dismantling nonradiological systems and structures and other non-radiological site restoration based on the decommissioning cost estimate."
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 calendar year preceding the report.
ZionSolutions Response As reported on March 26, 2012, the total amount of funds accumulated in the decommissioning trust fund, as of December 31, 2011, is $650,957,000. To clarify, the trust fund amount is the actual trust fund balance less outstanding disbursements for decommissioning costs incurred through the same date.
18Enclosure 7 to the Exelon Generation Corporation (ECG) Letter RS-08-009, "Application for License Transfer and Conforming Administrative License Amendments," dated January 25, 2008. (Performance Guaranty)
ZionSolutions, LLC ZS-2012-0417 Page 10 of 14 December 31, 2011 (2011 dollars, millions)
Actual Trust Fund Balance as of December 31, 2011 $ 696.543 Less outstanding disbursements 45.586 Trust Fund Amount as of December 31, 2011 $ 650.957 The note, as included in the March 26, 2012 letter, "The trust fund amount is the amount allocated for Radiological Decommissioning only, and does not include the allocation for dismantling non-radiological systems and structures and other non-radiological site restoration based on the decommissioning cost estimate" will be revised in future reports to state, "The trust fund amount is the actual trust fund balance less outstanding disbursements for decommissioning costs incurred through the same date."
RFI #5: Decommissioning Trust Fund Amount Provide the amount needed to complete decommissioning and compare it to the available funds in the decommissioning trust.
A news report obtained by the staff states: "In addition, the company has indicated that the returns on the 10-year project are not likely to exceed the company's capital costs." Does the statement mean that ZionSolutions expects that its costs will exceed the available funds from the decommissioning trust? In the event that the decommissioning trust fund is not able to cover the cost to complete decommissioning, how does ZS plan to meet its obligations to maintain the site in a safe condition?
The provision of Title 10 of the Code of Federal Regulations (10 CFR) 50.82(a)(8)(i)(C) state: The withdrawals would not inhibit the ability of the licensee to complete funding of any shortfalls in the decommissioning trust needed to ensure the availability of funds to ultimately release the site and terminate the license.
ZionSolutions Response As reported on March 26, 2012, as of December 31, 2011, the amount needed to complete decommissioning was $641,286,000, while the available funds in the decommissioning trust were $650,957,000 and are sufficient to satisfy the assurance requirement as stated in the referenced report. The estimated costs on which the budget is based include radiological decommissioning, fuel management and non-radiological decommissioning. The financial resources available to provide assurance of sufficient funding in the unforeseen event of decommissioning costs exceeding the available decommissioning trust funds are discussed elsewhere herein.
ZionSolutions, LLC ZS-2012-0417 Page 11 of 14 The statement in the news report refers to "returns" on investment related to the company's internal calculations of capital cost. This report does not mean ZionSolutions expects its costs will exceed the available funds from the decommissioning trust. In the event the decommissioning trust fund is not able to cover the cost to complete decommissioning, EnergySolutions would provide the funds necessary to the project to meet its obligation.
RFI #6: Decommissioning Trust Fund Explain the accounting treatment of the ZNPS Nuclear Decommissioning Trust Funds with respect to ZS, ECG, and any other parties with an interest in the fund. Name the beneficiary, guarantor, and trustee of the ZNPS Nuclear Decommissioning Trust Funds.
State the title and ownership interest of ZS, EGC, and any other parties with an interest in the ZNPS Nuclear Decommissioning Trust Funds, and provide citations to support the statement.
On February 17, 2011, in accordance with 10 CFR 50.75(b)(4), ZS submitted the required Decommissioning Trust Fund Agreements for ZNPS, Unit I and 2. In each trust agreement (the Non-Tax Qualified Nuclear Decommissioning Master Trust Agreement, the Tax-Qualified Nuclear Decommissioning Master Trust Agreement, and the Backup Nuclear Decommissioning Trust Agreement), it states the following:
WHEREAS, pursuant to the Asset Sale Agreement dated as of December 11, 2007, by and among Exelon Generation Company, LLC ("ExGen"), ZionSolutions, and ZionSolutions' parent entities, EnergySolutions, LLC, and EnergySolutions, Inc. (as amended, the "Asset Sale Agreement") Ex Gen has agreed, subject to terms and conditions of the Asset Sale Agreement, to sell, assign, convey, transfer and deliver all of its right, title and interest in Zion Assets (as defined in the Asset Sale Agreement) to ZionSolutions, and ZionSolutions has agreed, subject to the terms and conditions of the Asset Sale Agreement, to assume and discharge the assumed Liabilities (as defined in the Asset Sale Agreement);
The language presented here and throughout the provisions of the trust agreements suggest that ZS has exclusive control of the fund, if not ownership. However, in February 2012, ECG filed a 10-K for the year 2011 with the U.S. Securities and Exchange Commission, which appears to contain contradictory language.
The 10-K states, among other things, the following:
ZionSolutions is subject to certain restrictions on its ability to request reimbursements from the Zion Station NDT [nuclear decommissioning trust] funds as defined within the ASA. Therefore, the transfer of the Zion Station assets did not qualify for asset sale accounting treatment and, as a result, the related NDT funds were reclassified to pledged assets for Zion Station decommissioning within Generation's and Exelon's Consolidated Balance Sheets and will continue to be measured in the same manner as prior to the completion of the transaction.
Additionally, the transferred ARO for decommissioning was replaced with a payable to ZionSolutions in Generation's and Exelon's Consolidated Balance
ZionSolutions, LLC ZS-2012-0417 Page 12 of 14 Sheets. Changes in the value of the Zion Station NDT assets, net of applicable taxes, will be recorded as a change in the payable to ZionSolutions. At no point will the payable to ZionSolutions exceed the project budget of the costs remaining to decommission Zion Station. Any Zion Station NDT funds remaining after the completion of all decommissioning activities will be returned to ComEd customers.
The language suggests that Exelon retains some amount of title and ownership interest in the decommissioning trust fund.
Per 10 CFR 50.75(a)
This section establishes requirements for indicating to NRC how a licensee will provide reasonable assurance that funds will be available for the decommissioning process. For power reactor licensees, reasonable assurance consists of a series of steps as provided in paragraphs (b), (c), (e), and (f) of this section.
ZionSolutions Response ZionSolutions currently possesses the same level of access, ownership and control in the decommissioning trust fund that EGC possessed, as set forth in each trust agreement (noted in RFI #6). The accounting treatments of the ZNPS Nuclear Decommissioning Trust Funds (NDTF), related liabilities, cost and revenue, are prescribed under the Generally Accepted Accounting Principles (GAAP). On the date of the closing of the Asset Sale Agreement, the trust fund investments previously held by Exelon for the purpose of decommissioning the Zion Station were transferred from Exelon's Tax- Qualified Decommissioning Trust to the ZionSolutions Tax-Qualified Trust.
The language contained in EGC's 2011 10-K report, as noted in RFI #6, is required under the accounting rules governing the sale or transfer of an asset. Accounting Standards Codification (ASC) 860-10 provides requirements for reporting, the transfer of legal title or ownership of an asset and whether the asset has been sold or transferred. ASC 860-10 requires, in part, as follows:
Accounting for transfers in which the transferor has no continuing involvement with the transferred financial assets or with the transferee is treated as a sale and is predicated on the notion of surrender of control. However, transfers of financial assets often occur in which the transferor has some continuing involvement either with the assets transferred or with the transferee, and the accounting for these transfers can be complex.
ASC 860-10 requires companies to consider any continuing involvement and free or unrestricted use of the assets in determining if a sale has occurred. While ZionSolutions has the same access, ownership and control in the decommissioning trust fund that EGC possessed, restrictions are included on the payments from the decommissioning trust fund to ensure the decommissioning trust fund assets are used only for decommissioning activities. In addition, EGC maintains a continuing involvement in the project through financial assurance instruments and their monitoring of decommissioning activities ($200 million letter of credit, establishment of project timelines, regular reporting of trust fund sufficiency and progress of the project, etc). Because of these restrictions on the use of the decommissioning trust fund assets and the continuing
ZionSolutions, LLC ZS-2012-0417 Page 13 of 14 involvement of EGC, the transfer of ownership of the NDT is not considered a sale under ASC 860-10. This determination does not affect ZionSolutions' legal ownership, obligations or responsibilities in the NDT, as provided in the ASA or trust agreements. However, this determination does affect how EGC and ZionSolutions are required to account for and describe this transaction in their financial statements.
Additionally, there is a second set of accounting rules (ASC 810-10) that requires a determination be made as to the primary beneficiary of a Variable Interest Entity (VIE), as distinguished from the stated beneficiary of the trust fund. The primary beneficiary of the VIE is defined being the entity that benefits from the earnings or gains or absorbing the losses of the VIE, and is required to consolidate the financial results of the VIE and disclose them on the balance sheet. ZionSolutions is treated as the primary beneficiary for accounting purposes under ASC 810-10. As such, ZionSolutions is required to disclose the consolidated financial results of the decommissioning trust fund.
As shown above, the accounting rules produce accounting disclosures and descriptions that seem to indicate that both ZionSolutions and EGC have ownership of and access to the NDTF.
However, as to the legal title and ownership interest in the NDT, "Ex Gen has agreed, subject to terms and conditions of the Asset Sale Agreement, to sell, assign, convey, transfer and deliver all of its right, title and interest in Zion Assets (as defined in the Asset Sale Agreement) to ZionSolutions, and ZionSolutions has agreed, subject to the terms and conditions of the Asset Sale Agreement, to assume and discharge the assumed Liabilities."
Please direct any specific questions regarding EGC's accounting treatment of the ZNPS NDTF directly to EGC.
There is no stated beneficiary of the trust funds; however, the trust funds are established for the exclusive purpose of providing funds for the decommissioning of Zion Station.
The Bank of New York Mellon is the trustee of the funds.
RFI #7: Decommissioning Trust Fund Amount Has ECG denied disbursement of decommissioning trust funds to ZS?
Per 10 CFR 50.75(a)
This section establishes requirements for indicating to NRC how a licensee will provide reasonable assurance that funds will be available for the decommissioning process. For power reactor licensees, reasonable assurance consists of a series of steps as provided in paragraphs (b), (c), (e), and (f) of this section.
ZionSolutions Response No, EGC has not denied disbursement of decommissioning trust funds to ZionSolutions.
ZionSolutions, LLC ZS-2012-0417 Page 14 of 14 RFI #8: Spent Fuel Management How does ZionSolutions plan to meet its obligation to manage spent fuel safely until the fuel is transferred to the Secretary of Energy for its ultimate disposal in a repository?
ZionSolutions Response ZionSolutions has funds sufficient to meet its obligations to manage spent fuel safely as requisite to the current cost estimates for the project. The current cost estimate includes both the cost to transfer the spent fuel from the current fuel pool to the to-be-constructed Interim Spent Fuel Storage Installation (ISFSI) and the cost to safely manage it through completion of the ZionSolutions project and its turn-back to EGC. All the related Security, Radiation Protection, Maintenance, etc. costs are also included in the cost estimate. The Funding Assurance Report filed with NRC in March 201219 for the December 31, 2011 reporting date shows that there are sufficient funds in the trust to cover all the remaining decommissioning cost including managing spent fuel safely.
Upon completion of the decommissioning project in approximately 2020, ZionSolutions will transfer the ISFSI to EGC in accordance with the ASA. EGC will assume responsibility to manage the spent fuel safely from that date until title to and possession of the irradiated fuel is transferred to the Secretary of Energy for its ultimate disposition. On September 1, 2010, in accordance with the Asset Sale Agreement, EGC retained $25 million of the Decommissioning Trust Fund for this purpose.
Inquiries regarding the management of spent nuclear fuel beyond completion of the decommissioning project from approximately 2020 onward should be directed to EGC.
RFI#9: Profit Margin What profit margin (as a percentage and in dollars) was built into the decommissioning cost estimate from ZNPS submitted by ZS in the license transfer application, as supplemented, dated January 25, 2008.
ZionSolutions Response There is no ZionSolutions' profit margin or fee currently included in ZionSolutions' decommissioning cost estimate or costs charged to the project. No ZionSolutions markups for profit have been added to either gross costs or individual costs incurred to date. Any future fee or profit would only be available from projected surplus project funds at the time of project completion.
ZionSolutions reserves the right to attached fees in excess of actual costs (consistent with the ASA and other project agreements) should funds become available.
19 ZionSolutions, LLC Letter, Daly to NRC, "Report on Status of Decommissioning Funding for Shutdown Reactors," dated March 26, 2012.
Zion Nuclear Power Station, Unit 1 and 2 License Transfer Service List cc:
Patrick T. Daly Thomas Magette Senior VP and General Manager Senior VP Nuclear Regulatory Strategy ZionSolutions, LLC EnergySolutions 101 Shiloh Boulevard 6350 Stevens Forest Road, Ste. 2000 Zion, IL 60099 Columbia, MD 21046 Patrick Thurman, Esq. Russ Workman VP Regulatory Affairs, Licensing & General Counsel Document Control EnergySolutions ZionSolutions, LLC 423 West 300 South, Ste. 200 101 Shiloh Boulevard Salt Lake City, UT 84101 Zion, IL 60099 Illinois Department of Nuclear Safety Gary Bouchard Office of Nuclear Facility Safety VP Engineering, Ops & Nuclear Security 1035 Outer Park Drive and Decommissioning Plant Manager Springfield, IL 62704 ZionSolutions, LLC 101 Shiloh Boulevard Kent McKenzie Zion, IL 60099 Emergency Management Coordinator Lake County Emergency Management Agency Alan Parker 1303 N. Milwaukee Avenue President Projects Group Libertyville, IL 60048-1308 EnergySolutions 1009 Commerce Park Drive, Ste. 100 Regional Administrator Oak Ridge, TN 37830 U.S. NRC, Region III 2443 Warrenville Road John Christian Lisle, IL 60532-4352 President of Logistics, Processing and Disposal (LP& D) Group John E. Matthews EnergySolutions Morgan, Lewis & Bockius LLP 1750 Tysons Boulevard, Suite 1500 1111 Pennsylvania Avenue, NW Mclean, VA 22102 Washington, DC 20004