ML19319B676
| ML19319B676 | |
| Person / Time | |
|---|---|
| Issue date: | 10/30/2019 |
| From: | Office of Nuclear Material Safety and Safeguards |
| To: | |
| Trussell G | |
| Shared Package | |
| ML19276F011 | List: |
| References | |
| Download: ML19319B676 (25) | |
Text
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
WASHINGTON, D.C. 20005-3701 (202) 234-4433 (202) 234-4433 1
1 UNITED STATES OF AMERICA 2
NUCLEAR REGULATORY COMMISSION 3
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4 OFFICE OF NUCLEAR MATERIAL SAFETY AND SAFEGUARDS 5
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6 PUBLIC MEETING FOR ALTERNATIVES TO USE 7
OF CREDIT RATINGS PROPOSED RULEMAKING 8
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9 WEDNESDAY 10 OCTOBER 30, 2019 11
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25 The meeting met in Room TWFN-6D02, 11555 Rockville Pike, Rockville, Maryland, at 10:04 a.m.,
Daniel Mussatti, Facilitator, presiding.
NRC STAFF PRESENT DANIEL MUSSATTI, Facilitator CAROLINE CARUSONE SHAWN HARWELL KENNETH KLINE GREGORY TRUSSELL RICHARD TURTIL J
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ALSO PRESENT JERRY BONANNO, NEI JEFF DUNLAP, Exelon FRED GERLOFF, Dominion Energy STEVE HAMRICK, Florida Power & Light JOHN MATTHEWS, Morgan & Lewis CRAIG SLY, Dominion Energy J
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25 MR. MUSSATTI:
All
- right, everybody, welcome to the Dodd-Frank Act and the Alternatives to the Use of Credit Ratings Proposed Rule Public Meeting.
For those of you that are on the phone, so you will be able to hear what's going on but we're having trouble with this really fancy new room that we've got here, and it doesn't want to talk Skype to us. So, if you'll bear with us, you know, we'll call out the page numbers as we're going through and you'll be able to keep us with us there.
My name is Daniel Mussatti, and I am your facilitator for the day. And my job is to make sure that this meeting is informative, that it stays on topic, and that we get the information that we need to be able to move on forward.
We started a few minutes later because of the technical difficulties here. But as I said, I am a trained facilitator, which means that I will struggle valiantly to get us back on schedule. Before we get started I'd like to go over some basic housekeeping details with you.
With regards to getting around in the (2 0 2 ) 2 34 -4 4 3 3 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., NW.
WASHINGTON, D.C. 20005-3701 (202) 234-4433 4
1 building if you're a guest, it's a shame we're not on
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2 the first floor. If we were on the first floor, that 3
badge of yours now has been redone recently, if you 4
haven't come into the building in the last six or 5
eight months, it gives you free access to everything 6
on the main floor, except behind the guard stations 7
where the elevators are for you to be able to go 8
without having any sort of an escort.
9 But because we're on the sixth floor here 10 you're behind that barrier, and that means you have to 11 have an escort for any sort of reason that you want to 12 leave this room. If it's to take a telephone call, a 13 nature call, anything like that, you need to have an
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14 15 escort.
Any one of us that's with the NRC is more 16 than happy to help you with that but, please, don't 17 leave the room without having an escort.
18 verboten.
That's 19 If we are asked to evacuate this building 20 for any reason, what we would like to have you do is 21 proceed going out following the monitors and any 22 security folks' instructions as to how to get outside.
23 And the building right next to us, the one that used 24 to have the Staples in it in that parking lot over 25 there, that's now a doggy daycare and veterinarian (202) 2 34 -4 4 3 3 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
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clinic. They've got a large parking lot. I would like to have you gather there so that we can count heads.
Which reminds me, if you have not signed in on the sign-up sheet, please do so now, because if we do have to count heads we want to make sure that your head got out of the building as well if there's an emergency.
And that goes for folks that are on NRC staff as well. If you're supposed to be queuing up with your own folks, you're going to queue up with us here because we need to take care of knowing where you're at as much as your other boss does. So, stay with us and we'll figure out how to get a message back to your branch so that they know that you got out of the building safely.
If you haven't signed in, please find the sign-up sheet and sign it.
We have a telephone line available for our remote participants to make comments. And as you listen in you'11 be able to follow along. Like I said, you'll not be able to see the slides, but you should have a copy of them that you downloaded at the same spot where you had the meeting notice that you responded to here. If for some reason you cannot hear (202) 234-4433 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W J
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1 what's going on, please contact the operator. She'll 2
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25 be telling you in a minute as to how to do that.
Our phone is being managed by Katie Kelsey, who is our operator. And right now I'd like to ask Kelsey to please explain to the people on the phones what you have to do to get into the queue to make a comment at this meeting.
THE OPERATOR: Yes. Once it's time for the question and answer session, please press star then one, un-mute your phone, and record your name clearly when prompted. If you would like to withdraw a question, press star two.
Thank you.
MR. MUSSATTI: And what if they have a technical problem, is there a different number or is it still star one for you?
THE OPERATOR: It would still be star one.
MR. MUSSATTI: Okay. That works for me.
Thank you, Kelsey, I appreciate your help.
THE OPERATOR: You're welcome.
MR. MUSSATTI: Okay. For the folks that are on phones, we're not going to be able to hear you until we get to the question and answer period. So, there's no sense even shouting into the mike, we're not going to hear it.
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1 For people in the room, we ask you that if 2
you have anything that buzzes, beeps, rings, anything 3
like that, please turn it off. We want to get through 4
this meeting with as little disruption as possible.
5 And I know that there are some people at 6
the NRC who have a job that requires them to leave 7
their phone on 24/7 for emergency reasons. And I know 8
that there are often people that have family issues 9
that they need to stay on top of and monitor. So, for 10 anybody that has to leave their phone on, please put 11 it on vibrate.
And before you start speaking, grab 12 yourself a NRC helper, proceed outside and take your 13 phone call there.
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25 I want to manage this meeting a little bit less like Robert's Rules of Orders to give it a more casual feel. I think it helps in a meeting room this size and with this kind of a meeting. It facilitates the flow of discussion a lot better. But we do have some basic rules that we need to follow here.
If you ask a question, by all means if they didn't answer, if somebody did not answer that question or misunderstood your question, a follow-up question is fine.
Two follow-up questions and I'm going to raise one eyebrow. Three follow-up questions and it
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turns into a conversation, and I'm going to have to ask you to let somebody else have a chance to speak.
And then if we have a lull in the talk later on I can get back to you and ask you if you'd like to, you know, continue on with that thread that we had to so viciously sever while you were talking to somebody.
I don't understand the technical aspects of what we're doing here all the time, so I ask everybody, please, if you sense that we're getting into the weeds, we're starting to talk technical stuff that doesn't really need to be at this meeting, just sort of help me keep the meeting back on track so that we don't wind up, you know, wasting our time talking about stuff that could be done in committee work and that sort of thing.
I'd like to introduce you to Andrew. He is our transcriber here today. And to help him, when you are speaking, please speak very clearly and slowly, and start with your name and your affiliation when you're ready to make a question.
Some items about microphones in here.
You'll see that there's a black microphone that looks a little bit like an old time portable telephone.
Those are so that the mike can hear, or so that Andrew can hear us while we're talking.
NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N.W.
WASHINGTON, D.C. 20005-3701 (202) 234-4433 (202) 234-4433 that, you've got a hot mike in front of you.
So, 1
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The big green circles on this table is the only way that we're going to be able to get audience participation. So, if you are in the audience and not sitting at the table, please come up to the table so that you can ask your question and it will be heard clearly. The microphones are all green, as you can see right now. If I turn off any one microphone I turn off all the microphones. We don't want to do that, because we want to be able to hear everybody.
The trouble is, is that if we take a break and we're sitting here for a minute or two and you start talking something technical or something that's confidential business information or something like please be careful around these microphones. They're either all on or all off, and it's easy to make a mistake.
- Finally, the basic rule is to be respectful, one speaker at a time, and let's have fun.
To get started, I'd like to introduce Greg Trussell.
He's the Rulemaking Project Manager for 22 NMSS's Center of Expertise, Rulemaking, Environmental, 23 and Financial Services Group.
24 Greg.
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25 MR. TRUSSELL:
Thanks, Daniel.
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I'm going to go over the agenda for today 2
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25 real quick for the folks who are on the line. Again, this is Greg Trussell from the Division of Rulemaking.
We're going to start off with some opening remarks from Caroline. And after that we're going to go into the purpose of the meeting. Rich Turtil is going to give us a overview of the Dodd-Frank Act.
He's also going to go over the NRC's decommissioning funding assurance requirements and the use of credit ratings and how are regulations are impacted by Dodd-Frank.
We'11 pass on our staff's analysis of that impact and what our recommendations are.
And then I'11 go over the overview of where we are through the rulemaking at this time.
And then we'll open it up for discussion.
So, at this time I'm going to turn it over to Caroline for some opening remarks.
MS. CARUSONE: Sure. Hi. Good morning.
Thanks for being here.
My name is Caroline Carusone. I have had an opportunity to meet a few of you just before the meeting started. I'm actually the Deputy Division Director in the Rulemaking, Environmental, and Financial Support Division. So, the Rulemaking Center
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of Expertise and then the Financial Group is now 2
within our area.
3 So, we're here today because, as you know, 4
like all federal agencies, NRC has been tasked to 5
comply with the legislatively mandated requirements 6
that were presented in Dodd-Frank Wall Street Reform 7
and Consumer Protection Act of 2010.
8 Where this legislation really intersects 9
with the work we do here at NRC is in the 10 decommissioning financial assurance area.
11 Again, as you guys know, our mission here 12 at NRC is to regulate the nation's civilian use of 13 byproduct, source, and special nuclear material to J
14 15 16 17 18 19 20 21 22 ensure adequate protection of public health and safety, to promote common defense and security, and to protect the environment. So, as part of doing so, our regulations around decommissioning financial assurance requirements ensure that at the end of life, licensees are able to safely remove the facility or site from service and reduce any residual radioactivity to a level that permits termination of the NRC license.
Criteria found in NRC's material and 23 reactor decommissioning financial assurance 24
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25 requirements, and in particular the financial tests authorizing use by licensees of financial guarantee
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mechanisms that allow for licensee planning and 2
funding for future decommissioning activities are 3
impacted by this rulemaking effort.
4 So, as Greg mentioned, the objective of 5
today's meeting is to share with you where we're at, 6
and share with you staff's rulemaking efforts. And we 7
want to ensure that any changes that NRC makes to the 8
current decommissions regulations or funding models, 9
as are required by the legislative mandate, results in 10 financial assurance that continues to ensure NRC 11 licensees plan for and provide adequate financial 12 resources to address future decommissioning 13
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25 activities, and make sure that it can be completed in a safe and timely manner.
So, we really appreciate you coming out and showing interest in participating today. We look forward to hearing your comments during today's meeting, and then also when we go forward and share our proposed rule.
And I think that's about it. With that, I'll turn it over to Rich.
MR. TURTIL: Thank you, Caroline. I'll speak up because the room, we've got folks behind a big pillar here.
So, my name is Richard Turtil. I'm one of
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the Senior Financial Analysts here at the NRC in NMSS.
2 And there are a handful of others within the branch 3
that are here.
4 So, on Slide 4, so the purpose of the 5
public meeting, as has been discussed, what I'm going 6
to do in the next handful of slides is provide an 7
overview of the Dodd-Frank Wall Street Reform and 8
Consumer Protection Act of 2010.
9 as Dodd-Frank throughout.
I'll refer to that 10 11 12 13
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25 We'll talk about the NRC staff's analysis of its impact on NRC regulations, discuss the NRC's rulemaking effort to date on alternatives to the use of credit ratings. And we'll provide an opportunity for public comment.
So, thank you all for being here.
Next slide.
So, we're on Slide 5. So, I want to just give background.
As background, one would ask why is the NRC dealing with the Dodd-Frank Act issue? And as background, of course there was the financial crisis of 2007 and 2008 which began in the area of subprime mortgages, et cetera, and pools of the debt credit agencies, the three debt -- they're called credit rating throughout. I will refer to them often as bond
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rating agencies.
2 So, basically the pools of debt that the 3
credit rating agencies evaluated, those agencies, 4
there are three primaries, primary agencies, and the 5
NRC cites two of them in its regulations.
So that's 6
Moody's Investors Service and Standard & Poor's.
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25 There' s a third one called Fitch, but NRC doesn't really, its regulations don't adopt any of the Fitch ratings.
So, throughout '07 had '08 and going into
' 0 9 we had the financial crisis. And later the Congress and the -- the Congress and the President established the FCIC, the Financial Crisis Inquiry Commission. And, in short, they basically said flawed computer the
- FCI, that committee, found that agencies' credit ratings were influenced by, and this is a quote, "flawed computer models, the pressure from financial firms that paid for the ratings," again these are bond ratings or credit ratings on issued debt from large corporations, "the relentless drive for market share, the lack of resources to do the job despite record profits, and the absence of meaningful public oversight."
So, all of that Dodd-Frank Act legislation came in in 2010 following the crisis. And agencies, J
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agencies are basically looking at that and seeing what
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3 So, I've got on the slide this is the 4
objective of the act: promote the financial stability 5
of the U.S. by improving accountability and 6
transparency in the financial system, to end "too big 7
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25 to fail," and to protect American taxpayers by ending bailouts.
So, that, the section that we're looking at of the Dodd-Frank Act is Section 939. This is a large piece of legislation. It is some 848 pages in length. So, Section 939 explicitly says removal of statutory references to credit ratings, review of reliance on ratings in Section 939(a).
And that language states each federal agency shall review any regulation that requires use of credit-worthiness -- and we'll take a look at those at NRC -- and references regarding credit ratings.
Number two, modify those regulations, remove reference to or requirement of reliance on credit ratings, and substitute a standard of credit-worthiness that "each respective agency shall determine as appropriate for such regulation."
And then, finally, the NRC and all other federal agencies to transmit a report to Congress
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containing a description of what we did.
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Slide 6.
4 So, that being said, let's move on to So, as Caroline said, why are we doing --
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25 why are we making these rulemaking changes? And the first and foremost initially is this is a
legislatively mandated requirement based on that Dodd-Frank Act. There are other agencies that have undertaken changes in two thousand -- reporting of 2014. I think it was the Securities and Exchange Commission report cited at least four or five other agencies that have adopted and made changes to their regulations.
And as Caroline said, so that's the legislatively mandated part.
And I will just review and go over that.
You know, our mission, of course, is to regulate the nation's civilian use of byproduct, source, and special nuclear material to ensure adequate protection of the public health and safety through its activities, through its regulatory activities. And that includes its activities associated with decommissioning.
So, the nexus between the Dodd-Frank Act, for those who are wondering, and the NRC, that nexus
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is through decommissioning funding.
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of NRC The Dodd-Frank and use of credit ratings is through NRC regulations addressing 4
decommissioning funding assurance in particular.
5 NRC requires licensees to plan for and 6
fund the radiological decommissioning of licensed 7
facilities.
8 Throughout NRC regulations, 9
decommissioning financial assurance is required.
10 You'11 see here on this page these, on 11 Slide 6, you'll see explicitly where there is 12 13
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So, in section -- so the way NRC is structured under 10 CFR under Parts 30, 40, 50, 70, and 72, that's 15 byproduct,
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And on each one of those parts there is a reference to decommissioning funding and the use of what kind of mechanisms licensees can use to assure to decommissioning funding.
And I have put in bold on this slide explicitly those areas within each one of those sections, each one of those parts that will identify,
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make reference to that which we're speaking of today, 2
the type of surety mechanism.
3 So, you can see these, these items in bold 4
to the right on the first bullet refer to the items 5
down below. That very last number on the far right, 6
(f)(2) in 30.35, (e)(2) in 40.36, et cetera, makes 7
reference to these surety mechanisms down below.
8 And these are decommissioning funding 9
instruments, if you will, that allow -- or methods, 10 NRC refers to them as methods for assuring 11 decommissioning financial assurance. And, of course, 12 there's prepayment, i.e. cash. And many of our power 13 reactor facilities have cash on hand the vast 14 majority if not really the vast, vast majority are 15 prepayment mechanisms which include prepayments as 16 well as external sinking funds, which you'll see in 17 Item 2, in the second bullet under surety instruments.
18 And the regs, that which we're looking at 19 today, gets into this last green bullet, other surety 20 methods. So there are other ways of assuring that are 21 not cash-specific or cash planning, such as an 22 external sinking fund.
And those surety bonds so 23 licensees can establish a surety bond, a letter of 24 credit insurance, or these mechanisms, again in bold 25 for today's discussion, self-guarantee and parent
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company guarantee mechanisms.
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25 So, in summary, why are we making these proposed changes? And, of course, legislatively we've discussed that.
And basically it's for decommissioning financial assurance concerns.
So, that being said, we can move on to the next slide.
So, I want to navigate us, if you will, from Dodd-Frank through those requirements that I just made reference to on the previous slide. So, in each one of those sections, so section Parts 30, Part 40, 50, 70, and 72, those criteria for decommissioning funding for use of self-guarantee and parent company guarantee, are found in 10 CFR Part 30.
So, 30, 40, 50, 70, and 72 point to these established mechanisms or methods found in Part 30 appendix, four appendices. Appendix A is for parent company guarantee.
Appendix C is for a self-guarantee for licensees that issue bonds.
Appendix D
is a
self-guarantee for licensees that do not issue bonds.
And don't turn the slide just yet. I want to talk to this.
But on the next slide we'll discuss in a
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moment Appendix E, which makes reference to and allows 2
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So, you can see by and large this whole appendices A, C, D, and E make reference to parent company guarantee in the first. And C, D, and E are all about self-guarantees.
This kind of gives you -- so, in these two slides -- Actually, I will ask you to turn to the next slide. Thank you.
So Appendix E, self-guarantee. So, if we go back to Slide 7, excuse me. So, you can see all just, I'm going to just walk through these two slides and broach some of the technical requirements.
And then we'll get, we'll see why NRC is looking at these in particular.
So, Appendix A, licensees use a parent company guarantee.
There currently exist two approaches to fulfilling the requirements, financial requirements, the financial criteria for a use of a parent company guarantee. And that is let's start with all of these you'11 see the bond rating is addressed in the
- first, and then the second 24
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that here.
But we'll reverse (202) 234-4433 NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1323 RHODE ISLAND AVE., N W.
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S o, Roman numeral II.A.(2) is a facility 2
that has a bond rating.
So, they would use a bond 3
rating.
4 And I'11 talk a little bit about bond 5
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25 ratings in a moment. Generally, bond ratings, credit ratings, one and the same, are ratings, again the ones at NRC relies on are Standard & Poor's and Moody's, and they are cited in our regulations earlier, these criteria. They are, they range from AAA to AA to A to BBB, all the way down.
And for those of you who aren't familiar with those ratings, generally investable securities, securities that are of higher value are at the AAA, AA, A level with Moody's.
Let me make sure. Let's see. I may need clarification.
So, there's a AAA in both cases, Moody's and Standard & Poor's. One of them has the capital letter AAA, and the other has capital letter A, lower case, Aaa. But those are the equivalent of these two bond rating agencies.
And when we get below, start getting below BBB you get into the area of non-investor grade. And you'll hear reference to these as junk bonds, much lower, below the BBB and lower we start getting into
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that.
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25 we're on slide -- the parent company guarantee must pass, excuse me, pass a bond ratings and tests that are referenced here. So, bond rating and three financial tests. And those tests generally refer to they're about net worth, they're about assets. And then the parent company also without a bond rating has more test metrics, has four test metrics. And we can discuss that in a little bit more detail.
Appendix C
is a
self-guarantee for companies, corporations with bonds. And what NRC envisions is Appendix C would wholly go away and we would not rely on that because we have an Appendix D that has a self-guarantee for companies that do not have bonds. And we would likely rely on those three financial metrics.
And then if we can go to the next slide.
So, again, so this is for colleges and universities. I don't see that anyone in the room is representing those organizations.
But for colleges and universities we -- there are two criteria for self-guarantees.
One is use of a bond rating. And, again, that's the kind of reliance that the NRC was relying on. The bond rating only was the criteria.
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And those that did not have bonds would 2
3 4
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9 10 11 12 13
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14 rely on a minimum endowment calculation.
And Appendix E for hospitals, similarly for hospitals that had bonds it would be bond rating only we would rely on. The other financial metric is four financial metrics.
So, you can see a bond rating reflected and was giving credit for a great deal of determining the criteria of a licensee. And without that ability to rely on that bond rating there are other tests in place, all for each one of these appendices, A, C, D, and E.
So, that being said, if we could move on to Slide 9.
15 So, our analysis.
And I've been 16 interjecting that throughout this presentation.
In 17 each instance a parent company guarantee in Appendix 18 A, and then self-guarantee for corporations in C and 19 D, as well as for hospitals and universities in E. In 20 each instance if the licensee chooses to use a part 21 from the Appendix A, C, it should be Dor E as well, 22 guarantee mechanism requiring a bond rating, staff 23 believes alternative qualification criteria currently 24 exists within the NRC regulations that need the 25 following two requirements of NRC:
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1 They meet the objective 24 of NRC's
.J 2
4 5
decommissioning assurance requirements; and they adequately qualify the licensee to ensure the licensee meets financial qualifications necessary for use of such a mechanism.
6 So, we can move on to the next slide.
7 8
9 10 1 1 12 13
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14 15 16 17 18 19 20 21 22 23 24 This is our recommendation. This was our recommendation going forward. And then, of course, Greg will talk to where we are in terms of moving forward with any rulemaking.
So, our recommendation was as follows:
Appendix A, parent company guarantee, use of the parent company guarantee. Our expectation was we could wholly strike Appendix A, II.A.(2) in whole, and rely instead on the current Appendix A, II.A.(1) criteria, which requires additional financial tests and criteria. That would be our replacement for our ability to delete references and rely on some credit ratings and still have what we believe is a similar adequate funding mechanism and financial test for the parent company Appendix C, self-guarantee. Appendix C right now is wholly about those companies that issue bonds.
So, we would strike Appendix C in its
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25 entirety.
(202) 234-4433 So, strike Appendix C in its entirety.
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Rely instead on current Appendix D criteria.
2 For hospital for colleges and 3
universities, similarly.
Within each of those 4
appendices, E, for each one of those types of 5
licensees there are criteria for their bond rating, 6
and then there are criteria for non-bond rating.
7 So, you can see we would propose to strike 8
Appendix E, II.A. (1) in its entirety and rely instead 9
on current Appendix E,
10 similarly for hospitals.
II.A. (2) criteria; and 11 12 13 14 15 16 17 18 19 20 21 22 23 24
.J 25 So, that is, that is staff's consideration.
I'd ask us to go back to Slide 7 real briefly.
So, again, I want to highlight that in each one of these on pages 7 and page 8 you will see that there is reliance on a bond rating, and in some, in most cases other financial metrics in use of that bond rating. And what staff considers the equivalent test would be a non-bond rating and additional financial metrics.
And in each case, Appendix A, you'll see that. Appendix C you'll see that. Appendix -- excuse me. So, Appendix C you will see that. Appendix D there is no bond rating and, hence, we, our view is to NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS (202) 234-4433 1323 RHODE ISLAND AVE., N.W.